What changed in this filing

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Item 1. Financial Statements

2023-05-02 compared with 2022-11-01 · 85 added, 144 removed, 327 unchanged (41% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 30, December 31,

March 31, December 31,

Cash and cash equivalents $ 42,966 $ 31,998

13 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 27,229,758 shares issued and 23,290,286 shares outstanding as of September 30, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 27,472,206 shares issued and 23,532,734 shares outstanding as of March 31, 2023 and 27,245,278 shares issued and 23,305,806 shares outstanding as of December 31, 2022

Additional paid-in capital 311,525 306,673

Retained earnings 1,717,451 1,690,489

Treasury stock, at cost, 3,939,472 shares and 3,046,556 shares, respectively

Treasury stock, at cost, 3,939,472 shares as of March 31, 2023 and December 31, 2022

( 355,022 ) ( 355,022 )

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(In thousands, except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Home sales revenues $ 487,357 $ 546,050

3 unchanged sentences

Operating income 26,051 95,720

Loss on extinguishment of debt — 13,314 — 13,976

Other income, net ( 6,297 ) ( 3,830 )

17 unchanged sentences

Restricted stock units granted for accrued annual bonuses — — 206 — — 206

Stock repurchase — — — — ( 57,659 ) ( 57,659 )

Compensation expense for equity awards — — 3,103 — — 3,103

1 unchanged sentence

BALANCE— March 31, 2023 27,472,206 $ 275 $ 311,525 $ 1,717,451 $ ( 355,022 ) $ 1,674,229

Net income — — — 123,376 — 123,376

Stock repurchase — — — — ( 37,443 ) ( 37,443 )

Compensation expense for equity awards — — 3,545 — — 3,545

Stock issued under employee incentive plans 24,213 — 1,692 — — 1,692

BALANCE— June 30, 2022 27,212,108 $ 271 $ 302,688 $ 1,565,984 $ ( 355,022 ) $ 1,513,921

Net income — — — 90,390 — 90,390

Compensation expense for equity awards — — 1,516 — — 1,516

Stock issued under employee incentive plans 17,650 1 1,153 — — 1,154

BALANCE— September 30, 2022 27,229,758 $ 272 $ 305,357 $ 1,656,374 $ ( 355,022 ) $ 1,606,981

See accompanying notes to the consolidated financial statements.

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity

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Net income — — — 78,686 — 78,686

Restricted stock units granted for accrued annual bonuses — — 272 — — 272

Stock repurchase — — — — ( 57,659 ) ( 57,659 )

Restricted stock units granted for accrued annual bonuses — — 294 — — 294

Compensation expense for equity awards — — 3,570 — — 3,570

1 unchanged sentence

BALANCE— March 31, 2022 27,187,895 $ 271 $ 297,451 $ 1,442,608 $ ( 317,579 ) $ 1,422,751

Net income — — — 118,134 — 118,134

Stock repurchase — — — — ( 55,776 ) ( 55,776 )

Compensation expense for equity awards — — 3,395 — — 3,395

Stock issued under employee incentive plans 18,050 — 2,015 — — 2,015

BALANCE— June 30, 2021 26,926,693 $ 269 $ 281,808 $ 1,152,069 $ ( 147,740 ) $ 1,286,406

Net income — — — 100,550 — 100,550

Stock repurchase — — — — ( 56,083 ) ( 56,083 )

Compensation expense for equity awards — — 3,352 — — 3,352

Stock issued under employee incentive plans 14,529 — 1,549 — — 1,549

BALANCE— September 30, 2021 26,941,222 $ 269 $ 286,709 $ 1,252,619 $ ( 203,823 ) $ 1,335,774

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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Depreciation and amortization 482 348

Loss on extinguishment of debt — 13,976

Gain on sale of interest rate cap ( 7,055 ) —

Gain on disposal of assets — ( 1,564 )

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Return of capital from unconsolidated entities 1,140 —

Payment for business acquisition — ( 66,864 )

Net cash used in investing activities ( 4,855 ) ( 1,373 )

4 unchanged sentences

Payments on financing arrangements ( 17,886 ) —

Redemption premium — ( 10,314 )

Loan issuance costs ( 212 ) —

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Organization and Description of the Business

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania and Maryland.

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is headquartered in The Woodlands, Texas.

We engage in the development of communities and the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania and Maryland.

Basis of Presentation

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Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021, include the accounts of the Company and its subsidiaries.

The accompanying unaudited financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, include the accounts of the Company and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

Recent Accounting Pronouncements

Effective April 28, 2022, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform.

Effective April 28, 2022, we adopted FASB ASU No.

2021-01, “Reference Rate Reform (Topic 848):

Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance.

The adoption of both ASU 2020-04 and ASU 2021-01 replaced LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”) and did not have a material effect on our consolidated financial statements or related disclosures.

REAL ESTATE INVENTORY

Our real estate inventory consists of the following (in thousands):

September 30, December 31,

March 31, December 31,

Land, land under development and finished lots $ 1,922,275 $ 1,911,307

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Total real estate inventory $ 2,880,520 $ 2,898,296

Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.

Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory.

Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate.

The costs of lots are transferred to homes in progress when home construction begins.

Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.

Inventory costs for completed homes are expensed to cost of sales as homes are closed.

The life cycle of a community generally ranges from two to five years , commencing with the acquisition of land, continuing through the land development phase, and concluding with the construction and sale of homes.

A constructed home is used as the community information center during the life of the community and then sold.

Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.

Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 4 , are capitalized to qualifying real estate projects under development and homes under construction.

During the three months ended September 30, 2022, we have entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.

We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.

In consideration for this repurchase option, we paid a non-refundable commitment fee.

Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held within our inventory and a corresponding obligation was established within our accrued liabilities as more fully discussed in Note 3 to recognize this relationship.

While we are not legally obligated to purchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.

We do not have any ownership interest or title to the assets of the land banker and do not guarantee their liabilities.

Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held as real estate not owned within our inventory and a corresponding obligation was established within our accrued liabilities as discussed in Note 3 to recognize this relationship.

While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.

We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.

During the three months ended March 31, 2023, we transferred $ 2.7 million of home assets from real estate inventory to

rental properties within property and equipment, net.

We are lessors of the homes representing these home assets.

Our leasing contracts are typically for terms of one year or less.

ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued and other liabilities consist of the following (in thousands):

September 30, December 31,

Real estate inventory development and construction payable $ 68,881 $ 48,656

March 31, December 31,

Land banking financing arrangements $ 153,936 $ 141,792

Accrued compensation, bonuses and benefits 11,792 24,914

Real estate inventory development and construction payable 68,239 73,678

Taxes payable 51,071 47,037

Contract deposits 12,012 12,182

Inventory related obligations 12,618 13,039

Accrued compensation, bonuses and benefits 8,873 12,900

Warranty reserve 11,350 10,750

Accrued interest 7,689 10,906

Contract deposits 6,261 5,545

Lease liability 5,669 5,182

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Land Banking Financing Arrangements

We have entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.

We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.

Principal payments on these financing arrangements will generally coincide with the repurchase of lot takedowns from the land banker.

We expect to complete the repurchase of all lots via takedowns associated with these transactions over the course of approximately two years.

We expect to complete the repurchase of all lots via takedowns associated with these transactions over the course of approximately one to three years .

Inventory Related Obligations

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Changes to our warranty accrual are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Warranty reserves, beginning of period $ 10,750 $ 7,850

4 unchanged sentences

Revolving Credit Agreement

On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment” and, as so amended, “the Credit Agreement”), which amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”).

The Second Amendment, among other things, (a) increased the commitments under the 2021 Credit Agreement by an additional $ 250.0 million, bringing the total commitments under the Credit Agreement to $ 1.1 billion, and (b) replaced LIBOR as the benchmark interest rate with SOFR.

Borrowings under the Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by the Company) plus a 10 , 15 or 25 basis point adjustment, respectively, which rate is subject to a 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and (2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the Applicable Margin.

On April 29, 2022, we entered into an amendment to that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement” and, as so amended by such amendment, the “2022 Credit Agreement”).

The amendment, among other things, (a) increased the commitments under the 2021 Credit Agreement by an additional $ 250.0 million, bringing the total commitments under the 2022 Credit Agreement to $ 1.1 billion, and (b) replaced the London Interbank Offered Rate (“LIBOR”) as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”).

Borrowings under the 2022 Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by the Company) plus a 10 , 15 or 25 basis point

adjustment, respectively, which rate is subject to a 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and (2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the Applicable Margin.

The 2022 Credit Agreement matures on April 28, 2025.

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The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the 2022 Credit Agreement.

As of September 30, 2022, the borrowing base under the Credit Agreement was $ 1.4 billion, of which borrowings, including the 2029 Senior Notes, of $ 1.2 billion were outstanding, $ 29.8 million of letters of credit were outstanding and $ 127.3 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings under the Credit Agreement at SOFR plus 1.85 %.

As of March 31, 2023, the borrowing base under the 2022 Credit Agreement was $ 1.4 billion, of which borrowings, including the 2029 Senior Notes, of $ 1.1 billion were outstanding, $ 26.4 million of letters of credit were outstanding and $ 315.8 million was available to borrow under the 2022 Credit Agreement.

Interest is paid monthly on borrowings under the 2022 Credit Agreement at SOFR plus an applicable margin.

The 2022 Credit Agreement applicable margin for SOFR loans ranges from 1.45 % to 2.10 % based on our leverage ratio.

At September 30, 2022, SOFR was 3.03 %, subject to the 0.50 % SOFR floor as included in the Credit Agreement.

The applicable margin was 1.85 % during the three months ended March 31, 2023.

At March 31, 2023, SOFR was 4.81 %, subject to the 0.50 % SOFR floor as included in the 2022 Credit Agreement.

The 2022 Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio.

The 2022 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments.

At September 30, 2022, we were in compliance with all of the covenants contained in the Credit Agreement.

At March 31, 2023, we were in compliance with all of the covenants contained in the 2022 Credit Agreement.

On April 28, 2023, we entered into a Third Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Third Amendment”), which amends the 2022 Credit Agreement (as so amended by the Third Amendment, the “Credit Agreement”).

The Credit Agreement provides for a $ 1.13 billion revolving credit facility, which can be increased at the request of the Company by up to $ 170.0 million, subject to the terms and conditions of the Credit Agreement.

Lenders with $ 775.0 million, or 68.6 %, of the $ 1.13 billion of commitments under the Credit Agreement, agreed to extend the maturity of their commitments to April 28, 2027, with the remaining lenders retaining their existing maturity of April 28, 2025.

The Credit Agreement also permits our subsidiaries that solely own and operate single family rental homes to incur secured indebtedness not to exceed 6 % of our tangible net worth, and allows such subsidiaries to not guarantee the obligations under the Credit Agreement.

The Credit Agreement otherwise has substantially similar terms and provisions to the 2022 Credit Agreement.

Senior Notes Offering

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Notes payable consist of the following (in thousands):

September 30, 2022 December 31, 2021

Notes payable under the Credit Agreement ($ 1.1 billion revolving credit facility at September 30, 2022) maturing on April 28, 2025;

March 31, 2023 December 31, 2022

Notes payable under the 2022 Credit Agreement ($ 1.1 billion revolving credit facility at March 31, 2023) maturing on April 28, 2025;

interest paid monthly at SOFR plus 1.85 %

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Capitalized Interest

Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Interest activity, including other financing costs, for notes payable and financing arrangements for the periods presented is as follows (in thousands):

Three Months Ended March 31,

Interest incurred $ 19,169 $ 7,027

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Cash paid for interest $ 25,500 $ 9,668

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.9 million and $ 0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.5 million and $ 2.2 million for the nine months ended September 30, 2022 and 2021, respectively.

Included in interest incurred was amortization of deferred financing costs and applicable discounts for notes payable and financing arrangements of $ 3.1 million and $ 0.7 million for the three months ended March 31, 2023 and 2022, respectively .

and state income tax returns in jurisdictions with varying statutes of limitations.

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however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three months ended September 30, 2022, our effective tax rate of 16.8 % is lower than the Federal statutory rate primarily as a result of the retroactive extension of the 45L tax credit and the deductions in excess of compensation cost for share-based payments, offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit.

For the nine months ended September 30, 2022, our effective rate of 21.2 % is slightly higher than the Federal statutory rate primarily as a result of an increase in the rate for the state income taxes, net of the federal benefit, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, offset by the retroactive extension of the 45L tax credit and the deductions in excess of compensation cost for share-based payments.

Income taxes paid were $ 3.8 million and $ 36.0 million for the three months ended September 30, 2022 and 2021, respectively.

Income taxes paid were $ 56.2 million and $ 99.7 million for the nine months ended September 30, 2022 and 2021, respectively.

For the three months ended March 31, 2023, our effective tax rate of 16.7 % is lower than the Federal statutory rate primarily as a result of the deductions in excess of compensation cost for share-based payments and the extension of federal energy efficient homes tax credits, offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit.

Income taxes paid were $ 0.1 million and $ 0.4 million for the three months ended March 31, 2023 and 2022, respectively.

Stock Repurchase Program

In February 2022, our Board of Directors (the “Board”) approved a $ 200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $ 550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

During the three months ended September 30, 2022, we did no t repurchase any shares of our common stock.

During the nine months ended September 30, 2022, we repurchased 892,916 shares of our common stock for $ 95.1 million to be held as treasury stock.

During the three months ended September 30, 2021, we repurchased 358,817 shares of our common stock for $ 56.1 million to be held as treasury stock.

During the nine months ended September 30, 2021, we repurchased 910,038 shares of our common stock for $ 137.7 million to be held as treasury stock.

During the three months ended March 31, 2023, we did no t repurchase any shares of our common stock.

During the three months ended March 31, 2022, we repurchased 475,055 shares of our common stock for $ 57.7 million to be held as treasury stock.

A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of September 30, 2022, we may purchase up to $ 211.5 million of shares of our common stock under our stock repurchase program.

As of March 31, 2023, we may purchase up to $ 211.5 million of shares of our common stock under our stock repurchase program.

The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

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EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Numerator (in thousands):

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The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):

Nine Months Ended September 30,

Three Months Ended March 31,

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

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Ending balance 138,228 $ 113.02 114,607 $ 101.18

We recognized $ 0.9 million and $ 0.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2022 and 2021, respectively.

We recognized $ 2.8 million and $ 2.5 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2022 and 2021, respectively.

We recognized $ 1.1 million and $ 0.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended March 31, 2023 and 2022, respectively.

Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock.

At September 30, 2022, we had unrecognized compensation cost of $ 5.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.9 years.

At March 31, 2023, we had unrecognized compensation cost of $ 10.7 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.3 years.

Performance-Based Restricted Stock Units

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The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period.

The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date.

The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the

recipients continue to be employed by us through the determination date.

The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2022:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2021 Target PSUs Granted Target PSUs Forfeited Target PSUs Vested Target PSUs Outstanding at September 30, 2022 Weighted Average Grant Date Fair Value

The following table summarizes the activity of our PSUs for the three months ended March 31, 2023:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2022 Target PSUs Granted Target PSUs Forfeited Target PSUs Vested Target PSUs Outstanding at March 31, 2023 Weighted Average Grant Date Fair Value

2020 2020 - 2022 84,435 — — ( 84,435 ) — $ 59.81

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Total 192,828 72,443 ( 1,930 ) ( 84,435 ) 178,906

At September 30, 2022, management estimates that the recipients will receive approximately 50 %, 153 % and 200 % of the 2022, 2021 and 2020 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 0.4 million and $ 2.3 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2022 and 2021, respectively.

We recognized $ 4.9 million and $ 6.7 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2022 and 2021, respectively.

The 2019 - 2021 performance period PSUs vested and issued on March 15, 2022 at 200 % of the target number.

At September 30, 2022, we had unrecognized compensation cost

of $ 9.0 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 1.7 years.

At March 31, 2023, management estimates that the recipients will receive approximately 134.4 %, 50.0 % and 85.5 % of the 2023, 2022 and 2021 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 1.6 million and $ 2.3 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2023 and 2022, respectively.

The 2020 - 2022 performance period PSUs vested and issued on February 27, 2023 at 200 % of the target number.

At March 31, 2023, we had unrecognized compensation cost of $ 13.5 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.5 years.

FAIR VALUE DISCLOSURES

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements (“ASC 820”) , defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any.

The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous.

The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the most significant volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous.

Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.

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The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.

As of September 30, 2022, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

As of March 31, 2023, the 2022 Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the 2029 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

The following table below shows the level and measurement of liabilities at March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

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(1) See Note 4 for more details regarding the offering of the 2029 Senior Notes.

RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

We did not enter into or complete any land purchase contracts with affiliates during the nine months ended September 30, 2022.

During the nine months ended September 30, 2021, we completed a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.5 million.

Also during the nine months ended September 30, 2021, we completed a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

COMMITMENTS AND CONTINGENCIES

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In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations.

Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the

normal course of business.

Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business.

In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

10 unchanged sentences

The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Land deposits and option payments (1)

5 unchanged sentences

(1) Includes land banking financing arrangements, see Notes 2 and 3 for more details regarding real estate not owned.

As of September 30, 2022 and December 31, 2021, approximately $ 16.6 million and $ 19.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

As of both March 31, 2023 and December 31, 2022, approximately $ 12.8 million of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

7 unchanged sentences

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.0 million and $ 5.1 million at September 30, 2022 and December 31, 2021, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.4 million and $ 5.3 million at September 30, 2022 and December 31, 2021, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.5 million for each of the three months ended September 30, 2022 and 2021.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 1.6 million and $ 1.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the nine months ended September 30, 2022 and 2021 was $ 1.3 million and $ 1.2 million, respectively.

As of September 30, 2022, the weighted-average discount rate was 5.3 % and our weighted-average remaining life was 3.0 years.

We do not have any significant lease contracts that have not yet commenced at September 30, 2022.

The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2022 (in thousands):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.4 million and $ 4.9 million at March 31, 2023 and December 31, 2022, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.7 million and $ 5.2 million at March 31, 2023 and December 31, 2022, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.6 million and $ 0.5 million for the three months ended March 31, 2023 and 2022, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2023 and 2022 was $ 0.5 million and $ 0.4 million, respectively.

As of March 31, 2023, the weighted-average discount rate was 5.7 % and our weighted-average remaining life was 2.6 years.

We do not have any significant lease contracts that have not yet commenced at March 31, 2023.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2023 (in thousands):

Year Ending December 31, Operating leases

3 unchanged sentences

Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 338.7 million (including $ 29.8 million of letters of credit issued under the Credit Agreement) and $ 206.8 million at September 30, 2022 and December 31, 2021, respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 361.1 million (including $ 26.4 million of letters of credit issued under the 2022 Credit Agreement) and $ 368.1 million at March 31, 2023 and December 31, 2022, respectively, related to our obligations for site improvements at various projects.

Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

3 unchanged sentences

Additionally, in 2021, we entered into a joint venture with a mortgage lender.

As of September 30, 2022 and December 31, 2021, we have a total of $ 6.9 million and $ 5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and the mortgage joint venture.

As of March 31, 2023 and December 31, 2022, we have a total of $ 16.0 million and $ 11.2 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and the mortgage joint venture.

Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively.

Income associated with our investment in unconsolidated entities during the three and nine months ended September 30, 2022, was $ 2.2 million and $ 4.0 million, respectively.

We did not have any income recognized for our investment in unconsolidated entities during each of the three and nine months ended September 30, 2021.

Income associated with our investment in unconsolidated entities during the three months ended March 31, 2023, and 2022 was $ 2.2 million and $ 0.2 million respectively.

Home Sales Revenues

1 unchanged sentence

The following table presents our home sales revenues disaggregated by revenue stream (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Retail home sales revenues $ 456,177 $ 494,206

5 unchanged sentences

We operate one principal homebuilding business that is organized and reports by division.

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five

qualifying reportable segments at September 30, 2022:

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five qualifying reportable segments at March 31, 2023:

our Central, Southeast, Northwest, West, and Florida divisions.

6 unchanged sentences

Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

Financial information relating to our reportable segments was as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Financial information relating to our reportable segments is as follows (in thousands):

Three Months Ended March 31,

Central $ 150,380 $ 262,298

15 unchanged sentences

Actual warranty expenses are reflected within the reportable segments.

Additionally, for the three and nine months ended September 30, 2022, the balance includes the $7.1 million gain on the sale of the three-year interest rate cap of LIBOR prior to its expiration.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Central $ 978,876 $ 986,779

6 unchanged sentences

Total assets $ 3,100,923 $ 3,124,828

(1) The Corporate balance consists primarily of cash, investments in unconsolidated entities and tax receivables.

(1) The Corporate balance consists primarily of cash and investments in unconsolidated entities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements