LGI Homes, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS LGI HOMES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) September 30, December 31, 2024 2023 ASSETS Cash and cash equivalents $ 60,903 $ 48,978 Accounts receivable 49,022 41,319 Real estate inventory 3,439,668 3,107,648 Pre-acquisition costs and deposits 33,676 30,354 Property and equipment, net 62,001 45,522 Other assets 159,399 113,849 Deferred tax assets, net 9,146 8,163 Goodwill 12,018 12,018 Total assets $ 3,825,833 $ 3,407,851 LIABILITIES AND EQUITY Accounts payable $ 53,314 $ 31,616 Accrued expenses and other liabilities 229,097 271,872 Notes payable 1,546,459 1,248,332 Total liabilities 1,828,870 1,551,820 COMMITMENTS AND CONTINGENCIES EQUITY Common stock, par value $ 0.01 , 250,000,000 shares authorized, 27,625,950 shares issued and 23,513,488 shares outstanding as of September 30, 2024 and 27,521,120 shares issued and 23,581,648 shares outstanding as of December 31, 2023 276 275 Additional paid-in capital 334,792 321,062 Retained earnings 2,034,917 1,889,716 Treasury stock, at cost, 4,112,462 shares as of September 30, 2024 and 3,939,472 shares as of December 31, 2023 ( 373,022 ) ( 355,022 ) Total equity 1,996,963 1,856,031 Total liabilities and equity $ 3,825,833 $ 3,407,851 See accompanying notes to the consolidated financial statements. 4 Table of Contents LGI HOMES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Home sales revenues $ 651,854 $ 617,539 $ 1,645,202 $ 1,750,166 Cost of sales 488,362 458,734 1,239,425 1,350,608 Selling expenses 55,196 49,781 149,196 141,811 General and administrative 27,991 26,748 90,022 84,334 Operating income 80,305 82,276 166,559 173,413 Other income, net ( 11,547 ) ( 7,173 ) ( 25,270 ) ( 19,793 ) Net income before income taxes 91,852 89,449 191,829 193,206 Income tax provision 22,277 22,407 46,628 46,068 Net income $ 69,575 $ 67,042 $ 145,201 $ 147,138 Earnings per share: Basic $ 2.96 $ 2.85 $ 6.17 $ 6.24 Diluted $ 2.95 $ 2.84 $ 6.15 $ 6.21 Weighted average shares outstanding: Basic 23,500,349 23,546,061 23,540,620 23,562,374 Diluted 23,579,592 23,640,686 23,611,906 23,696,095 See accompanying notes to the consolidated financial statements. 5 Table of Contents LGI HOMES, INC. CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity Shares Amount BALANCE—December 31, 2023 27,521,120 $ 275 $ 321,062 $ 1,889,716 $ ( 355,022 ) $ 1,856,031 Net income — — — 17,053 — 17,053 Restricted stock units granted for accrued annual bonuses — — 786 — — 786 Stock repurchase — — — — ( 10,002 ) ( 10,002 ) Compensation expense for equity awards — — 3,829 — — 3,829 Stock issued under employee incentive plans 75,020 1 1,505 — — 1,506 BALANCE— March 31, 2024 27,596,140 $ 276 $ 327,182 $ 1,906,769 $ ( 365,024 ) $ 1,869,203 Net income — — — 58,573 — 58,573 Stock repurchase — — — — ( 7,998 ) ( 7,998 ) Compensation expense for equity awards — — 2,841 — — 2,841 Stock issued under employee incentive plans 16,602 — 1,223 — — 1,223 BALANCE— June 30, 2024 27,612,742 $ 276 $ 331,246 $ 1,965,342 $ ( 373,022 ) $ 1,923,842 Net income — — — 69,575 — 69,575 Compensation expense for equity awards — — 2,256 — — 2,256 Stock issued under employee incentive plans 13,208 — 1,290 — — 1,290 BALANCE— September 30, 2024 27,625,950 $ 276 $ 334,792 $ 2,034,917 $ ( 373,022 ) $ 1,996,963 See accompanying notes to the consolidated financial statements. 6 Table of Contents LGI HOMES, INC. CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (In thousands, except share data) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity Shares Amount BALANCE—December 31, 2022 27,245,278 $ 272 $ 306,673 $ 1,690,489 $ ( 355,022 ) $ 1,642,412 Net income — — — 26,962 — 26,962 Restricted stock units granted for accrued annual bonuses — — 206 — — 206 Compensation expense for equity awards — — 3,103 — — 3,103 Stock issued under employee incentive plans 226,928 3 1,543 — — 1,546 BALANCE— March 31, 2023 27,472,206 $ 275 $ 311,525 $ 1,717,451 $ ( 355,022 ) $ 1,674,229 Net income — — — 53,134 — 53,134 Compensation expense for equity awards — — 2,360 — — 2,360 Stock issued under employee incentive plans 13,307 — 1,289 — — 1,289 BALANCE— June 30, 2023 27,485,513 $ 275 $ 315,174 $ 1,770,585 $ ( 355,022 ) $ 1,731,012 Net income — — — 67,042 — 67,042 Compensation expense for equity awards — — 3,123 — — 3,123 Stock issued under employee incentive plans 17,827 — 1,498 — — 1,498 BALANCE— September 30, 2023 27,503,340 $ 275 $ 319,795 $ 1,837,627 $ ( 355,022 ) $ 1,802,675 See accompanying notes to the consolidated financial statements. 7 Table of Contents LGI HOMES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 145,201 $ 147,138 Adjustments to reconcile net income to net cash used in operating activities: Equity in income of unconsolidated entities ( 9,612 ) ( 8,493 ) Distributions of earnings from unconsolidated entities 10,737 9,989 Depreciation and amortization 2,280 1,780 Gain on disposal of assets — ( 1,634 ) Compensation expense for equity awards 8,926 8,586 Deferred income taxes ( 983 ) ( 3,438 ) Changes in assets and liabilities: Accounts receivable ( 7,703 ) ( 10,508 ) Real estate inventory ( 390,896 ) ( 194,360 ) Pre-acquisition costs and deposits ( 3,322 ) ( 9,630 ) Other assets ( 670 ) 30,873 Accounts payable 21,698 42,002 Accrued expenses and other liabilities 23,597 ( 34,980 ) Net cash used in operating activities ( 200,747 ) ( 22,675 ) Cash flows from investing activities: Purchases of property and equipment ( 1,345 ) ( 848 ) Investment in unconsolidated entities ( 5,296 ) ( 11,619 ) Return of capital from unconsolidated entities — 4,871 Net cash used in investing activities ( 6,641 ) ( 7,596 ) Cash flows from financing activities: Proceeds from notes payable 507,666 335,864 Payments on notes payable ( 214,000 ) ( 260,000 ) Proceeds from financing arrangements — 50,402 Payments on financing arrangements ( 60,274 ) ( 79,784 ) Loan issuance costs ( 97 ) ( 5,561 ) Proceeds from sale of stock, net of offering expenses 4,018 4,333 Stock repurchase ( 18,000 ) — Net cash provided by financing activities 219,313 45,254 Net increase in cash and cash equivalents 11,925 14,983 Cash and cash equivalents, beginning of period 48,978 31,998 Cash and cash equivalents, end of period $ 60,903 $ 46,981 See accompanying notes to the consolidated financial statements. 8 Table of Contents LGI HOMES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization and Description of the Business 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, Maryland and Utah. Basis of Presentation The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. 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, 2024, and for the three and nine months ended September 30, 2024 and 2023, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements. Recently Issued Accounting Pronouncements In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, (2) the amount of income taxes paid (net of refunds received) (disaggregated by federal, state, and foreign taxes) as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid net of refunds, (3) the income or loss from continuing operations before income tax expense or benefit (disaggregated between domestic and foreign) and (4) income tax expense or benefit from continuing operations (disaggregated by federal, state and foreign). The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, while retrospective application is permitted. We are currently evaluating the impact that this standard will have on our financial statements. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through additional and more detailed information about a reportable segment’s expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the impact that this standard will have on our financial statements. 9 Table of Contents 2. REAL ESTATE INVENTORY Our real estate inventory consists of the following (in thousands): September 30, December 31, 2024 2023 Land, land under development and finished lots $ 2,244,256 $ 2,099,133 Information centers 55,446 47,936 Homes in progress 469,280 313,124 Completed homes 624,951 542,996 Total owned inventory 3,393,933 3,003,189 Real estate not owned 45,735 104,459 Total real estate inventory $ 3,439,668 $ 3,107,648 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 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. We build and lease a number of single-family homes in select, existing communities. During the nine months ended September 30, 2024, we transferred $ 17.4 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. 3. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued and other liabilities consist of the following (in thousands): September 30, December 31, 2024 2023 Real estate inventory development and construction payable $ 66,060 $ 71,193 Land banking financing arrangements 45,735 104,459 Taxes payable 28,904 14,694 Accrued compensation, bonuses and benefits 16,927 22,550 Warranty reserve 15,650 13,600 Accrued interest 18,238 13,522 Inventory related obligations 11,540 11,924 Lease liability 6,149 4,947 Contract deposits 4,994 2,909 Other 14,900 12,074 Total accrued expenses and other liabilities $ 229,097 $ 271,872 Land Banking Financing Arrangements 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 one to two years . Inventory Related Obligations We own lots in certain communities in Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically 10 Table of Contents payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. The obligations assumed by the homebuyer represent a non-cash cost of the lots. Estimated Warranty Reserve We generally provide homebuyers with a one-year warranty on the house and a limited warranty for major defects in structural elements, such as framing components and foundation systems, typically ranging from six to ten years depending on the applicable state. Changes to our warranty accrual are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Warranty reserves, beginning of period $ 14,700 $ 12,150 $ 13,600 $ 10,750 Warranty provision 2,020 2,220 5,977 6,450 Warranty expenditures ( 1,070 ) ( 1,370 ) ( 3,927 ) ( 4,200 ) Warranty reserves, end of period $ 15,650 $ 13,000 $ 15,650 $ 13,000 4. NOTES PAYABLE Revolving Credit Agreement On December 5, 2023, we entered into an amendment to the 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 (as amended by amendments thereto dated as of February 22, 2022, April 29, 2022, April 28, 2023 and December 5, 2023, the “2023 Credit Agreement”). The 2023 Credit Agreement provides for a $ 1.205 billion revolving credit facility, which can be increased at the request of the Company by up to $ 95.0 million, subject to the terms and conditions of the 2023 Credit Agreement. The 2023 Credit Agreement matures on April 28, 2028 with respect to $ 960.0 million, or 79.7 %, of the $ 1.205 billion of commitments thereunder and on April 28, 2025 with respect to 20.3 % of the commitments thereunder. Before each anniversary of the 2023 Credit Agreement, we may request a one-year extension of its maturity date. The 2023 Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $ 0.5 million, other than subsidiaries whose sole purpose is to own and operate single-family rental homes. The borrowings and letters of credit outstanding under the 2023 Credit Agreement, together with the outstanding principal balance of our 4.000 % Senior Notes due 2029 (the “2029 Senior Notes”) and our 8.750 % Senior Notes due 2028 (the “2028 Senior Notes”), may not exceed the borrowing base under the 2023 Credit Agreement. 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 2023 Credit Agreement. As of September 30, 2024, the borrowing base under the 2023 Credit Agreement was $ 2.0 billion, of which the maximum available to borrow is $ 1.9 billion. As of September 30, 2024, borrowings under the 2023 Credit Agreement and the outstanding principal amount of the 2029 Senior Notes and the 2028 Senior Notes totaled approximately $ 1.6 billion, $ 26.1 million of letters of credit were outstanding and $ 314.5 million was available to borrow under the 2023 Credit Agreement. Borrowings under the 2023 Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) the Adjusted Term SOFR (defined as a term SOFR that is based on a fixed 1, 3 or 6 month interest period, 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, or (2) the Base Rate (defined as a term SOFR that is based on a daily variable 1 month interest period plus a 10 basis point adjustment), subject to a 50 basis point floor, plus the Applicable Margin. At September 30, 2024, the Applicable Margin was 1.85 %, and SOFR was 4.85 %, subject to the 0.50 % SOFR floor as included in the 2023 Credit Agreement. The 2023 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 2023 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, 2024, we were in compliance with all of the covenants contained in the 2023 Credit Agreement. On October 9, 2024, we entered into a Fifth Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Fifth Amendment”), which amended the 2023 Credit Agreement (as so amended by the Fifth Amendment, the “Credit Agreement”). The Fifth 11 Table of Contents Amendment, among other things, (a) amended the negative covenant in Section 10.1(g) of the Credit Agreement relating to housing inventory and (b) extended the maturity of the commitments of certain lenders under the Credit Agreement to April 28, 2028. The Credit Agreement matures on April 28, 2028 with respect to $ 1.085 billion, or 90.0 %, of the $ 1.205 billion of commitments thereunder and on April 28, 2025 with respect to 10.0 % of the commitments thereunder. The Credit Agreement otherwise has substantially similar terms and provisions to the 2023 Credit Agreement. Senior Notes Offering On November 21, 2023, we issued $ 400.0 million aggregate principal amount of the 2028 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act. Interest on the 2028 Senior Notes accrues at a rate of 8.750 % per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The 2028 Senior Notes mature on December 15, 2028. The terms of the 2028 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fourth Supplemental Indenture thereto, dated as of November 21, 2023, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee. On June 28, 2021, we issued $ 300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. Interest on the 2029 Senior Notes accrues at a rate of 4.000 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year. The 2029 Senior Notes mature on July 15, 2029. The terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee. Notes payable consist of the following (in thousands): September 30, 2024 December 31, 2023 Notes payable under the 2023 Credit Agreement ($ 1.205 billion revolving credit facility at September 30, 2024) maturing in part on April 28, 2025 and in part on April 28, 2028; interest paid monthly at SOFR plus 1.85 % $ 863,299 $ 569,633 4.000 % Senior Notes due July 15, 2029; interest paid semi-annually at 4.000 % 300,000 300,000 8.750 % Senior Notes due December 15, 2028; interest paid semi-annually at 8.750 % 400,000 400,000 Net debt issuance costs ( 16,840 ) ( 21,301 ) Total notes payable $ 1,546,459 $ 1,248,332 Capitalized Interest Interest activity, including other financing costs, for notes payable and financing arrangements for the periods presented is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Interest incurred $ 30,544 $ 21,578 $ 89,130 $ 62,865 Less: Amounts capitalized ( 30,544 ) ( 21,578 ) ( 89,130 ) ( 62,865 ) Interest expense $ — $ — $ — $ — Cash paid for interest $ 23,110 $ 23,358 $ 79,925 $ 63,114 Included in interest incurred was amortization of deferred financing costs and applicable discounts for notes payable and financing arrangements of $ 3.1 million and $ 2.4 million for the three months ended September 30, 2024 and 2023, respectively, and $ 11.5 million and $ 10.6 million for the nine months ended September 30, 2024 and 2023, respectively. 5. INCOME TAXES We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to 12 Table of Contents four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty. For the three months ended September 30, 2024, our effective tax rate of 24.3 % is higher than the Federal statutory rate primarily as a result of an increase in the rate for state income taxes, net of the federal benefit, the compensation cost in excess of deductions for share-based payments, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended. For the nine months ended September 30, 2024, our effective tax rate of 24.3 % is higher than the Federal statutory rate primarily as a result of an increase in the rate for state income taxes, net of the federal benefit, and the compensation cost in excess of deductions for share-based payments, offset by a decrease in the rate for the federal energy efficient homes tax credits. Income taxes paid were $ 5.2 million and $ 20.2 million for the three months ended September 30, 2024 and 2023, respectively. Income taxes paid were $ 33.5 million and $ 80.0 million for the nine months ended September 30, 2024 and 2023, respectively. 6. EQUITY 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, 2024, we did no t repurchase any shares of our common stock. During the nine months ended September 30, 2024, we repurchased 172,990 shares of our common stock for $ 18.0 million to be held as treasury stock. During the three and nine months ended September 30, 2023, we did no t repurchase any shares of our common stock. A total of 3,112,462 shares of our common stock has been repurchased since our stock repurchase program commenced. As of September 30, 2024, we may purchase up to $ 193.5 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. Our stock repurchase program may be modified, discontinued or suspended at any time. 7. 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, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Numerator (in thousands): Net income (Numerator for basic and dilutive earnings per share) $ 69,575 $ 67,042 $ 145,201 $ 147,138 Denominator: Basic weighted average shares outstanding 23,500,349 23,546,061 23,540,620 23,562,374 Effect of dilutive securities: Stock-based compensation units 79,243 94,625 71,286 133,721 Diluted weighted average shares outstanding 23,579,592 23,640,686 23,611,906 23,696,095 Basic earnings per share $ 2.96 $ 2.85 $ 6.17 $ 6.24 Diluted earnings per share $ 2.95 $ 2.84 $ 6.15 $ 6.21 Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share 3,069 1,749 10,025 4,735 13 Table of Contents 8. STOCK-BASED COMPENSATION Non-performance Based Restricted Stock Units The following table summarizes the activity of our time-vested restricted stock units (“RSUs”): Nine Months Ended September 30, 2024 2023 Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Beginning balance 133,359 $ 114.98 146,239 $ 100.93 Granted 58,731 $ 108.42 40,435 $ 105.78 Vested ( 20,294 ) $ 141.62 ( 44,303 ) $ 64.82 Forfeited ( 9,041 ) $ 108.79 ( 6,802 ) $ 114.23 Ending balance 162,755 $ 109.64 135,569 $ 113.52 We recognized $ 1.3 million and $ 1.2 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2024 and 2023, respectively. We recognized $ 4.1 million and $ 3.6 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2024 and 2023, 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, 2024, we had unrecognized compensation cost of $ 8.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.9 years. Performance-Based Restricted Stock Units The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0 % to 200 % of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100 % of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. 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 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, 2024: Period Granted Performance Period Target PSUs Outstanding at December 31, 2023 Target PSUs Granted Target PSUs Forfeited Target PSUs Vested Target PSUs Outstanding at September 30, 2024 Weighted Average Grant Date Fair Value 2021 2021 - 2023 43,159 — ( 43,159 ) — $ 141.00 2022 2022 - 2024 63,304 — ( 1,516 ) — 61,788 $ 118.80 2023 2023 - 2025 72,443 — ( 1,630 ) — 70,813 $ 104.36 2024 2024 - 2026 70,947 ( 1,768 ) 69,179 $ 111.94 Total 178,906 70,947 ( 4,914 ) ( 43,159 ) 201,780 At September 30, 2024, management estimates that the recipients will receive approximately 100.0 %, 86.5 % and 0.0 % of the 2024, 2023 and 2022 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 $ 0.8 million and $ 1.7 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2024 and 2023, 14 Table of Contents respectively. We recognized $ 4.0 million of total stock-based compensation expense related to outstanding PSUs for each of the nine months ended September 30, 2024 and 2023. The 2021 - 2023 performance period PSUs vested and issued on March 8, 2024, at 93.6 % of the target number. At September 30, 2024, we had unrecognized compensation cost of $ 7.5 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.2 years. PSUs granted in 2022, 2023 and 2024 are excluded from the calculation of diluted EPS as they are subject to unsatisfied performance conditions. 9. 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 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. ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows: Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities. Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities, or quoted prices in markets that are not active. Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow or similar technique. We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. 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, 2024, the 2023 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 each of the 2029 Senior Notes and the 2028 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, 2024 and December 31, 2023 (in thousands): September 30, 2024 December 31, 2023 Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 2029 Senior Notes (1) Level 2 $ 300,000 $ 298,259 $ 300,000 $ 296,381 2028 Senior Notes (1) Level 2 $ 400,000 $ 450,546 $ 400,000 $ 486,306 (1) See Note 4 for more details regarding the offerings of the 2029 Senior Notes and the 2028 Senior Notes. 10. COMMITMENTS AND CONTINGENCIES Contingencies 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 operations. 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. 15 Table of Contents We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows. Land Deposits We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. 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, 2024 December 31, 2023 Land deposits and option payments (1) $ 29,290 $ 26,955 Commitments under the land purchase contracts if the purchases are consummated (1) $ 587,325 $ 513,941 Lots under land purchase contracts (1) 14,535 15,750 (1) Includes land banking financing arrangements, see Note 2 and Note 3 for more details regarding real estate not owned. As of September 30, 2024 and December 31, 2023, approximately $ 11.9 million and $ 11.4 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. Lease Obligations We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. 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 $ 5.7 million and $ 4.6 million as of September 30, 2024 and December 31, 2023, respectively. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 6.1 million and $ 4.9 million as of September 30, 2024 and December 31, 2023, respectively. Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.6 million and $ 0.7 million for the three months ended September 30, 2024 and 2023, respectively. Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 1.8 million and $ 1.9 million for the nine months ended September 30, 2024 and 2023, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases was $ 1.4 million for each of the nine months ended September 30, 2024 and 2023. As of September 30, 2024, the weighted-average discount rate was 5.9 % and our weighted-average remaining life was 2.2 years. We do not have any significant lease contracts that have not yet commenced at September 30, 2024. 16 Table of Contents The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2024 (in thousands): Year Ending December 31, Operating leases 2024 $ 462 2025 1,829 2026 1,602 2027 1,389 2028 970 Thereafter 709 Total 6,961 Lease amount representing interest ( 812 ) Present value of lease liabilities $ 6,149 Bonding and Letters of Credit We have outstanding letters of credit and performance and surety bonds totaling $ 376.3 million (including $ 26.1 million of letters of credit issued under the 2023 Credit Agreement) and $ 357.0 million (including $ 28.1 million of letters of credit issued under the 2023 Credit Agreement) at September 30, 2024 and December 31, 2023, 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. Investment in Unconsolidated Entities As of September 30, 2024, we had two equity-method real estate joint ventures and two additional joint ventures engaged in mortgage and insurance activities that primarily provide services to our homebuyers. As of September 30, 2024 and December 31, 2023, we have a total of $ 25.5 million and $ 21.5 million, respectively, within other assets on the balance sheet relating to our investment in joint ventures associated with our operations. 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, 2024 was $ 4.6 million and $ 9.6 million, respectively. Income associated with our investment in unconsolidated entities during the three and nine months ended September 30, 2023 was $ 3.2 million and $ 8.5 million, respectively. 11. REVENUES Home Sales Revenues We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our move-up and luxury series spec homes sold under our Terrata Homes brand. The following table presents our home sales revenues disaggregated by revenue stream (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Retail home sales revenues $ 602,398 $ 574,246 $ 1,531,459 $ 1,633,826 Wholesale home sales revenues 49,456 43,293 113,743 116,340 Total home sales revenues $ 651,854 $ 617,539 $ 1,645,202 $ 1,750,166 Our home sales revenues are disaggregated by geography, based on our determined reportable segments. See Note 12 for tabular presentation of this information. 12. SEGMENT INFORMATION 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, 2024: our Central, Southeast, Northwest, West, and Florida divisions. These segments reflect the way we evaluate our business performance and manage our operations. 17 Table of Contents In accordance with ASC 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance. The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price per home closed. In determining the most appropriate reportable segments, we consider operating segments’ economic and other characteristics, including home floor plans, average selling prices, gross margin percentage, geographical proximity, production construction processes, suppliers, subcontractors, regulatory environments, customer type and underlying demand and supply. Each operating segment follows the same accounting policies and is managed by our management team. We have no inter-segment sales, as all sales are to external customers. 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. 18 Table of Contents Financial information relating to our reportable segments is as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues: Central $ 164,439 $ 183,615 $ 441,609 $ 564,580 Southeast 155,205 149,593 407,068 397,618 Northwest 83,061 67,666 187,253 212,885 West 150,646 94,950 351,880 256,575 Florida 98,503 121,715 257,392 318,508 Total home sales revenues $ 651,854 $ 617,539 $ 1,645,202 $ 1,750,166 Net income (loss) before income taxes: Central $ 21,828 $ 32,172 $ 46,985 $ 69,521 Southeast 27,565 26,786 67,552 54,166 Northwest 12,338 9,432 19,606 23,194 West 20,966 9,368 40,882 15,162 Florida 9,738 15,579 19,588 37,077 Corporate (1) ( 583 ) ( 3,888 ) ( 2,784 ) ( 5,914 ) Total net income before income taxes $ 91,852 $ 89,449 $ 191,829 $ 193,206 (1) The Corporate balance consists of general and administration unallocated costs for various shared service functions offset by non-strategic other income, as well as our warranty reserve. Actual warranty expenses are reflected within the reportable segments. September 30, 2024 December 31, 2023 Assets: Central $ 1,110,352 $ 1,026,303 Southeast 735,104 664,877 Northwest 577,968 528,319 West 769,167 671,558 Florida 508,058 420,286 Corporate (1) 125,184 96,508 Total assets $ 3,825,833 $ 3,407,851 (1) The Corporate balance consists primarily of forward commitments and investments in unconsolidated entities. 19 Table of Contents