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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2022
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                       to                      .
Commission file number 001-36126      

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)
Delaware46-3088013
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1450 Lake Robbins Drive,Suite 430, The Woodlands,Texas77380
(Address of principal executive offices)(Zip code)
(281)
362-8998
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareLGIHNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

As of April 29, 2022, there were 23,666,284 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


Table of Contents
TABLE OF CONTENTS
   


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3

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LGI HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 March 31,December 31,
 20222021
ASSETS
Cash and cash equivalents$53,325 $50,514 
Accounts receivable48,489 57,909 
Real estate inventory2,335,570 2,085,904 
Pre-acquisition costs and deposits39,171 40,702 
Property and equipment, net19,420 16,944 
Other assets83,307 81,676 
Deferred tax assets, net2,933 6,198 
Goodwill12,018 12,018 
Total assets$2,594,233 $2,351,865 
LIABILITIES AND EQUITY
Accounts payable$21,965 $14,172 
Accrued expenses and other liabilities145,921 136,609 
Notes payable1,003,596 805,236 
Total liabilities1,171,482 956,017 
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,187,895 shares issued and 23,666,284 shares outstanding as of March 31, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021
271 269 
Additional paid-in capital297,451 291,577 
Retained earnings1,442,608 1,363,922 
Treasury stock, at cost, 3,521,611 shares and 3,046,556 shares, respectively
(317,579)(259,920)
Total equity1,422,751 1,395,848 
Total liabilities and equity$2,594,233 $2,351,865 








See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)

 
 Three Months Ended March 31,
 20222021
Home sales revenues$546,050 $705,953 
Cost of sales387,643 516,004 
Selling expenses34,398 42,783 
General and administrative28,289 24,723 
   Operating income95,720 122,443 
Other income, net(3,830)(833)
Net income before income taxes99,550 123,276 
Income tax provision 20,864 23,618 
Net income$78,686 $99,658 
Earnings per share:
Basic$3.30 $3.99 
Diluted$3.25 $3.95 
Weighted average shares outstanding:
Basic23,837,170 24,950,867 
Diluted24,194,321 25,220,872 
























See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)

 
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
SharesAmount
BALANCE—December 31, 202126,963,915 $269 $291,577 $1,363,922 $(259,920)$1,395,848 
Net income— — — 78,686 — 78,686 
Restricted stock units granted for accrued annual bonuses— — 294 — — 294 
Stock repurchase— — — — (57,659)(57,659)
Compensation expense for equity awards— — 3,570 — — 3,570 
Stock issued under employee incentive plans223,980 2 2,010 — — 2,012 
BALANCE— March 31, 202227,187,895 $271 $297,451 $1,442,608 $(317,579)$1,422,751 


Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
SharesAmount
BALANCE—December 31, 202026,741,554 $267 $270,598 $934,277 $(66,137)$1,139,005 
Net income— — — 99,658 — 99,658 
Restricted stock units granted for accrued annual bonuses— — 272 — — 272 
Stock repurchase— — — — (25,827)(25,827)
Compensation expense for equity awards— — 3,422 — — 3,422 
Stock issued under employee incentive plans167,089 2 2,106 — — 2,108 
BALANCE— March 31, 202126,908,643 $269 $276,398 $1,033,935 $(91,964)$1,218,638 















See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Three Months Ended March 31,
 20222021
Cash flows from operating activities:
Net income$78,686 $99,658 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of unconsolidated entities(178) 
Distributions of earnings from unconsolidated entities129  
Depreciation and amortization348 288 
Gain on disposal of assets(1,564) 
Compensation expense for equity awards3,570 3,422 
Deferred income taxes3,264 3,636 
Changes in assets and liabilities:
Accounts receivable9,420 56,710 
Real estate inventory(251,612)(41,692)
Pre-acquisition costs and deposits1,531 (2,276)
Other assets362 (4,192)
Accounts payable7,793 27,876 
Accrued expenses and other liabilities10,464 17,256 
Net cash provided by (used in) operating activities(137,787)160,686 
Cash flows from investing activities:
Purchases of property and equipment(993)(1,279)
Investment in unconsolidated entities(380)(977)
Return of capital from unconsolidated entities 2,660 
Net cash provided by (used in) investing activities(1,373)404 
Cash flows from financing activities:
Proceeds from notes payable197,617 104,844 
Payments on notes payable (230,000)
Proceeds from sale of stock, net of offering expenses2,013 2,108 
Stock repurchase(57,659)(25,827)
Net cash provided by (used in) financing activities141,971 (148,875)
Net increase in cash and cash equivalents2,811 12,215 
Cash and cash equivalents, beginning of period50,514 35,942 
Cash and cash equivalents, end of period$53,325 $48,157 



See accompanying notes to the consolidated financial statements.
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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 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 and Pennsylvania.
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, 2021. 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 March 31, 2022, and for the three months ended March 31, 2022 and 2021, 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.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued 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. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We expect to adopt ASU 2020-04 and ASU 2021-01 when the Second Amendment (as defined herein) replaces LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”). We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements or related disclosures.
2.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
March 31,December 31,
20222021
Land, land under development and finished lots$1,625,290 $1,499,761 
Information centers30,449 28,665 
Homes in progress577,880 449,742 
Completed homes101,951 107,736 
Total real estate inventory$2,335,570 $2,085,904 
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.
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Table of Contents
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 May and July of 2021, we acquired certain real estate assets owned by two private home builders and assumed certain related liabilities within the states of Minnesota and Texas for $67.0 million. These acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). As of March 31, 2022, our purchase accounting for these acquisitions is final.

3.     ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
March 31,December 31,
20222021
Real estate inventory development and construction payable$54,122 $48,656 
Accrued compensation, bonuses and benefits10,166 24,914 
Taxes payable28,918 11,604 
Contract deposits14,721 12,182 
Accrued interest4,047 7,431 
Inventory related obligations7,945 8,803 
Warranty reserve8,350 7,850 
Lease liability5,382 5,333 
Other12,270 9,836 
Total accrued expenses and other liabilities$145,921 $136,609 
Inventory Related Obligations
We own lots in certain communities in Arizona, 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 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.

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Table of Contents
Estimated Warranty Reserve
We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.
Changes to our warranty accrual are as follows (in thousands):
Three Months Ended March 31,
 20222021
Warranty reserves, beginning of period$7,850 $5,350 
Warranty provision2,465 2,589 
Warranty expenditures(1,965)(1,989)
Warranty reserves, end of period$8,350 $5,950 
4.     NOTES PAYABLE
Revolving Credit Agreement
On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”), which amended and restated that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019. The 2021 Credit Agreement had revolving commitments of $850.0 million.
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”), which amends the 2021 Credit Agreement (as so amended and as otherwise amended prior to the date of the Second Amendment, the “Credit Agreement”). The Second Amendment, among other things, (a) increases 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) replaces LIBOR as the benchmark interest rate with SOFR.
Borrowings under the Credit Agreement will 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 will be 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 Credit Agreement matures on April 28, 2025. Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date. The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.
The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the 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 Credit Agreement. As of March 31, 2022, the borrowing base under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $1.0 billion were outstanding, $25.0 million of letters of credit were outstanding and $108.3 million was available to borrow under the 2021 Credit Agreement.
Prior to the Second Amendment, interest was paid monthly on borrowings under the 2021 Credit Agreement at LIBOR plus 1.60%. Prior to the Second Amendment, the 2021 Credit Agreement applicable margin for LIBOR loans ranged from 1.45% to 2.10% based on our leverage ratio. At March 31, 2022, LIBOR was 0.40%; however, the 2021 Credit Agreement has a 0.50% LIBOR floor.
The 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 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2022, we were in compliance with all of the covenants contained in the 2021 Credit Agreement.


10

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Senior Notes Offering
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 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 under the Securities Act. 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. 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):
March 31, 2022December 31, 2021
Notes payable under the 2021 Credit Agreement ($850.0 million revolving credit facility at March 31, 2022) maturing on April 28, 2025; interest paid monthly at LIBOR plus 1.60%.
$715,057 $517,439 
4.000% Senior Notes due July 15, 2029; interest paid semi-annually at 4.000%.
300,000 300,000 
Net debt issuance costs(11,461)(12,203)
Total notes payable$1,003,596 $805,236 
Capitalized Interest
Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):
Three Months Ended March 31,
20222021
Interest incurred$7,027 $7,732 
Less: Amounts capitalized(7,027)(7,732)
Interest expense$ $ 
Cash paid for interest$9,668 $12,633 
Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.7 million for each of the three months ended March 31, 2022 and 2021.
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 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 March 31, 2022, our effective tax rate of 21.0% is equal to the Federal statutory rate primarily as a result of 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 payments.
Income taxes paid were $0.4 million and $0.2 million for the three months ended March 31, 2022 and 2021, 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 March 31, 2022, we repurchased 475,055 shares of our common stock for $57.7 million to be held as treasury
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stock. During the three months ended March 31, 2021, we repurchased 216,221 shares of our common stock for $25.8 million to be held as treasury stock. A total of 2,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, 2022, we may purchase up to $249.0 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 months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$78,686 $99,658 
Denominator:
       Basic weighted average shares outstanding23,837,170 24,950,867 
       Effect of dilutive securities:
         Stock-based compensation units357,151 270,005 
       Diluted weighted average shares outstanding24,194,321 25,220,872 
Basic earnings per share$3.30 $3.99 
Diluted earnings per share$3.25 $3.95 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share27,001 21,510 
8.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Three Months Ended March 31,
20222021
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balance 117,874 $80.85 142,738 $62.54 
   Granted36,675 $118.80 23,366 $141.00 
   Vested(38,791)$56.49 (30,407)$64.44 
   Forfeited(1,151)$87.20 (1,627)$61.58 
Ending balance114,607 $101.18 134,070 $75.79 
We recognized $0.8 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended March 31, 2022 and 2021. 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 March 31, 2022, we had unrecognized compensation cost of $7.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years.

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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 three months ended March 31, 2022:
Period GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2021Target PSUs GrantedTarget PSUs ForfeitedTarget PSUs VestedTarget PSUs Outstanding at March 31, 2022Weighted Average Grant Date Fair Value
20192019 - 202181,242 — (767)(80,475) $56.49 
20202020 - 202288,538 — (1,494)— 87,044 $59.81 
2021 2021 - 202346,027 — — — 46,027 $141.00 
20222022 - 2024— 66,909 — — 66,909 $118.80 
Total215,807 66,909 (2,261)(80,475)199,980 
At March 31, 2022, management estimates that the recipients will receive approximately 100%, 200% 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 $2.3 million and $2.2 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2022 and 2021, respectively. The 2019 - 2021 performance period PSUs vested and issued on March 15, 2022 at 200% of the target number. At March 31, 2022, we had unrecognized compensation cost of $17.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.3 years.
9.    FAIR VALUE DISCLOSURES
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. 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 March 31, 2022, the 2021 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.
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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 March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022December 31, 2021
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
2029 Senior Notes (1)
Level 2$300,000 $269,352 $300,000 $299,302 
(1)See Note 4 for more details regarding the offering of the 2029 Senior Notes.
10.    RELATED PARTY TRANSACTIONS
Land Purchases from Affiliates
We did not enter into or complete any land purchase contracts with affiliates during the three months ended March 31, 2022.
As of March 31, 2021, we had 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. Additionally, we had 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. As of December 31, 2021, we completed both the land purchase contracts in Burnet County and Pasco County.
11.     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 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. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
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):
March 31, 2022December 31, 2021
Land deposits and option payments$34,905 $37,499 
Commitments under the land purchase contracts if the purchases are consummated$837,001 $921,345 
Lots under land purchase contracts34,191 36,978 
As of March 31, 2022 and December 31, 2021, approximately $19.4 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.

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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 $5.1 million as of each of March 31, 2022 and December 31, 2021. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $5.4 million and $5.3 million at March 31, 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 and $0.4 million for the three months ended March 31, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2022 and 2021 was $0.4 million and $0.2 million, respectively. As of March 31, 2022, the weighted-average discount rate was 5.2% and our weighted-average remaining life was 3.1 years. We do not have any significant lease contracts that have not yet commenced at March 31, 2022.
The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2022 (in thousands):
Year Ending December 31,Operating leases
20221,133 
20231,335 
20241,067 
2025884 
2026776 
Thereafter1,054 
Total6,249 
Lease amount representing interest(867)
Present value of lease liabilities$5,382 
Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $268.8 million (including $25.0 million of letters of credit issued under the 2021 Credit Agreement) and $206.8 million at March 31, 2022 and December 31, 2021, 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
In 2019, we entered as a limited partner into a real estate investment fund with a maximum $30.0 million commitment. The term of the commitment is eight years and includes renewals of up to two additional years. Additionally, in 2021, we entered into a joint venture with a mortgage lender. As of March 31, 2022 and December 31, 2021, we have a total of $6.0 million and $5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and this mortgage joint venture. Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively.
12.     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 luxury series spec homes sold under our Terrata Homes brand.

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The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended March 31,
20222021
Retail home sales revenues$494,206 $643,572 
Wholesale home sales revenues51,844 62,381 
Total home sales revenues$546,050 $705,953 
Our home sales revenues are disaggregated by geography, based on our determined reportable segments. See Note 13 for tabular presentation of this information.
13.     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 March 31, 2022: our Central, Southeast, Northwest, West, and Florida divisions. These segments reflect the way the Company evaluates its business performance and manages its operations.
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.
Financial information relating to our reportable segments was as follows (in thousands):
Three Months Ended March 31,
20222021
Revenues:
Central$262,298 $288,750 
Southeast72,463 136,551 
Northwest102,874 118,191 
West55,583 81,148 
Florida52,832 81,313 
Total home sales revenues$546,050 $705,953 
Net income (loss) before income taxes:
Central$57,740 $55,634 
Southeast10,129 19,831 
Northwest27,584 25,994 
West(231)12,611 
Florida5,360 10,816 
Corporate (1)
(1,032)(1,610)
Total net income before income taxes$99,550 $123,276 
(1)The Corporate balance consists primarily of general and administration unallocated costs for various shared service functions, as well as our warranty reserve. Actual warranty expenses are reflected within the reportable segments.
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March 31, 2022December 31, 2021
Assets:
Central$894,491 $857,174 
Southeast501,937 438,423 
Northwest402,697 349,752 
West460,402 384,548 
Florida236,118 221,763 
Corporate (1)
98,588 100,205 
Total assets$2,594,233 $2,351,865 
(1)The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses, investments in unconsolidated entities and tax receivables.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar terms refer to LGI Homes, Inc. and its subsidiaries.
Business Overview
We are engaged in the design, construction and sale of new homes in the following markets:
WestNorthwestCentralMidwestFloridaSoutheastMid-Atlantic
Phoenix, AZSeattle, WAHouston, TXMinneapolis, MNTampa, FLAtlanta, GAWashington, D.C.
Tucson, AZPortland, ORDallas Ft. Worth, TXOrlando, FLCharlotte, NCNorfolk, VA
Albuquerque, NMDenver, COSan Antonio, TXFort Myers, FLRaleigh, NCRichmond, VA
Las Vegas, NVAustin, TXJacksonville, FLWilmington, NCBaltimore, MD
Northern CAOklahoma City, OKFort Pierce, FLWinston-Salem, NC
Southern CADaytona Beach, FLColumbia, SC
Sarasota, FLGreenville, SC
Birmingham, AL
Nashville, TN
Our management team has been in the residential land development business since the mid-1990s. Since commencing home building operations in 2003, we have constructed and closed over 50,000 homes. During the three months ended March 31, 2022, we had 1,599 home closings, compared to 2,561 home closings during the three months ended March 31, 2021.
At March 31, 2022, we had 88 active communities, including seven Terrata Homes communities. At March 31, 2021, we had 110 active communities, including two Terrata Homes communities.
During the three months ended March 31, 2022, we recorded $51.8 million in wholesale revenues as a result of 213 home closings, representing 13.3% of the total homes closed during the three months ended March 31, 2022. During the three months ended March 31, 2021, we recorded $62.4 million in wholesale revenues as a result of 283 home closings, representing 11.1% of the total homes closed during the three months ended March 31, 2021. We believe our wholesale home closings provide opportunities for us to leverage our systems and processes to meet the needs of companies looking to acquire multiple homes for rental purposes, primarily through bulk sales agreements.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak and spread of COVID-19 and variants thereof (hereinafter collectively referred to as “COVID-19”) and resulting containment efforts by governmental, regulatory and health agencies caused significant disruptions in the global economy, including tightened supply chains, raw material price volatility and significant cost inflation. During the three months ended March 31, 2022, we continued to experience significant supply chain disruptions that extended construction and development cycles and delayed home closings and the opening of new communities. While we continue to carefully manage our supply chain to limit impacts to our business and customers, we believe these COVID-19 related global shortages will continue to impact our operations as long as the dynamics surrounding the pandemic persist. We also believe that the desire for our single-family homes remains strong.
During the three months ended March 31, 2022, we closed 1,599 homes compared to 2,561 homes closed in the same period last year. The first quarter of 2021 was one of the strongest in our history during which we set new Company records with respect to a number of financial metrics. The decline in home closings was attributable to longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of closings. We expect continued cost inflation, building material shortages and longer municipality lead times will persist until demand for new homes normalizes and global supply chain constraints ease.
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For additional discussion regarding our operations and COVID-19, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Recent Developments
On April 29, 2022, amounts available to the Company under the Credit Agreement (as defined herein) were increased by $250.0 million to $1.1 billion, in accordance with the terms and conditions of the Second Amendment (as defined herein).
Key Results
Key financial results as of and for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, were as follows:
Home sales revenues decreased 22.7% to $546.1 million from $706.0 million.
Homes closed decreased 37.6% to 1,599 homes from 2,561 homes.
Average sales price per home closed increased 23.9% to $341,495 from $275,655.
Gross margin as a percentage of home sales revenues increased to 29.0% from 26.9%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 30.3% from 28.5%.
Net income before income taxes decreased 19.2% to $99.6 million from $123.3 million.
Net income decreased 21.0% to $78.7 million from $99.7 million.
EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.1% from 19.0%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 18.8% from 19.0%.
For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “—Non-GAAP Measures.”
We owned and controlled 93,270 lots at March 31, 2022 and 91,845 lots at December 31, 2021.
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Results of Operations
The following table sets forth our results of operations for the three months ended March 31, 2022 and 2021:
 Three Months Ended March 31,
 20222021
(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:
Home sales revenues$546,050 $705,953 
Expenses:
Cost of sales387,643 516,004 
Selling expenses34,398 42,783 
General and administrative28,289 24,723 
     Operating income95,720 122,443 
Other income, net(3,830)(833)
     Net income before income taxes99,550 123,276 
Income tax provision20,864 23,618 
     Net income$78,686 $99,658 
Basic earnings per share$3.30 $3.99 
Diluted earnings per share$3.25 $3.95 
Other Financial and Operating Data:
Average community count89.0 106.3 
Community count at end of period88 110 
Home closings1,599 2,561 
Average sales price per home closed$341,495 $275,655 
Gross margin (1)
$158,407 $189,949 
Gross margin % (2)
29.0 %26.9 %
Adjusted gross margin (3)
$165,202 $201,433 
Adjusted gross margin % (2)(3)
30.3 %28.5 %
EBITDA (4)
$104,411 $134,236 
EBITDA margin % (2)(4)
19.1 %19.0 %
Adjusted EBITDA (4)
$102,863 $134,215 
Adjusted EBITDA margin % (2)(4)
18.8 %19.0 %
(1)Gross margin is home sales revenues less cost of sales.
(2)Calculated as a percentage of home sales revenues.
(3)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “—Non-GAAP Measures” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.
(4)EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of
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our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Please see “—Non-GAAP Measures” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.
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Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended March 31, 2022 and 2021 were as follows (revenues in thousands):
Three Months Ended March 31, 2022As of March 31, 2022
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Community Count at End of Period
Central$262,298 844 $310,780 30.0 9.4 29 
Southeast72,463 238 304,466 20.0 4.0 21 
Northwest102,874 201 511,811 10.3 6.5 
West55,583 142 391,430 10.0 4.7 10 
Florida52,832 174 303,632 18.7 3.1 19 
Total$546,050 1,599 $341,495 89.0 6.0 88 
Three Months Ended March 31, 2021As of March 31, 2021
RevenuesHome ClosingsASPAverage Community CountAverage Monthly
Absorption Rate
Community Count at End of Period
Central$288,750 1,127 $256,211 37.3 10.1 38 
Southeast136,551 548 249,181 27.7 6.6 29 
Northwest118,191 296 399,294 10.6 9.3 11 
West81,148 249 325,896 10.7 7.8 11 
Florida81,313 341 238,455 20.0 5.7 21 
Total$705,953 2,561 $275,655 106.3 8.0 110 
Home sales revenues for the three months ended March 31, 2022 were $546.1 million, a decrease of $159.9 million, or 22.7%, from $706.0 million for the three months ended March 31, 2021. The decrease in home sales revenues is primarily due to a 37.6% decrease in homes closed partially offset by an increase in the average sales price per home closed during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The average sales price per home closed during the three months ended March 31, 2022 was $341,495, an increase of $65,840, or 23.9%, from the average sales price per home closed of $275,655 for the three months ended March 31, 2021. The increase in the average sales price per home closed is primarily due to our ability to pass through cost increases associated with construction in favorable pricing environments. Additionally, we experienced higher price points in all reportable segments. The overall decrease in home closings is a result of lower average community count and overall lower absorption pace during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. The overall decrease in absorption relates to increased cycle times that are pandemic related production disruptions. These disruptions have caused varying degrees for supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.
Home sales revenues in our Central reportable segment decreased by $26.5 million, or 9.2%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 25.1% decrease in the number of homes closed driven by a decrease in the average community count at a slightly lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Southeast reportable segment decreased by $64.1 million, or 46.9%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 56.6% decrease in the number of homes closed driven by a decrease in the average community count at a slightly lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Northwest reportable segment decreased by $15.3 million, or 13.0%, during the three months ended March 31, 2022 as compared to the three months ended March 31,
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2021, primarily due to a 32.1% decrease in the number of homes closed driven by a slight decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by a sharp increase in the average sales price per home closed. Home sales revenues in our West reportable segment decreased by $25.6 million, or 31.5%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 43.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Florida reportable segment decreased by $28.5 million, or 35.0%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to a 49.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by the increase of 27.3% in the average sales price per home closed. Differing absorption rates in our reportable segments was generally related to available homes to sell.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales decreased for the three months ended March 31, 2022 to $387.6 million, a decrease of $128.4 million, or 24.9%, from $516.0 million for the three months ended March 31, 2021. This overall decrease is primarily due to a 37.6% decrease in homes closed. The increase in gross margin as a percentage of home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to raising prices higher than increases in input costs, in addition to lower capitalized interest and lower overhead and lot costs. Gross margin for the three months ended March 31, 2022 was $158.4 million, a decrease of $31.5 million, or 16.6%, from $189.9 million for the three months ended March 31, 2021. Gross margin as a percentage of home sales revenues was 29.0% for the three months ended March 31, 2022 and 26.9% for the three months ended March 31, 2021. This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Selling Expenses. Selling expenses for the three months ended March 31, 2022 were $34.4 million, a decrease of $8.4 million, or 19.6%, from $42.8 million for the three months ended March 31, 2021. Sales commissions decreased to $20.1 million for the three months ended March 31, 2022 from $26.3 million for the three months ended March 31, 2021, partially due to a 22.7% decrease in home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. Selling expenses as a percentage of home sales revenues were 6.3% and 6.1% for the three months ended March 31, 2022 and 2021, respectively. The increase in selling expenses as a percentage of home sales revenues was driven primarily by the decrease in home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
General and Administrative. General and administrative expenses for the three months ended March 31, 2022 were $28.3 million, an increase of $3.6 million, or 14.4%, from $24.7 million for the three months ended March 31, 2021. The increase in the amount of general and administrative expenses is primarily due higher overhead and increased headcount in certain departments during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. General and administrative expenses as a percentage of home sales revenues were 5.2% and 3.5% for the three months ended March 31, 2022 and 2021, respectively.
Other Income. Other income, net of other expenses was $3.8 million for the three months ended March 31, 2022, an increase of $3.0 million from $0.8 million for the three months ended March 31, 2021. The increase in other income primarily reflects the gain realized from sale of land not directly associated with our core homebuilding operations and to a lesser extent other miscellaneous income.
Operating Income and Net Income before Income Taxes. Operating income for the three months ended March 31, 2022 was $95.7 million, a decrease of $26.7 million, or 21.8%, from $122.4 million for the three months ended March 31, 2021. Net income before income taxes for the three months ended March 31, 2022 was $99.6 million, a decrease of $23.7 million, or 19.2%, from $123.3 million for the three months ended March 31, 2021. The following reportable segments contributed to net income before income taxes during the three months ended March 31, 2022 as follows: Central - $57.7 million or 58.0%; Southeast - $10.1 million or 10.2%; Northwest - $27.6 million or 27.7%; and Florida - $5.4 million or 5.4%. Our West reportable segment had a $(0.2) million, or (0.2)%, net loss primarily attributable to an ongoing local tax audit impacting our Arizona markets. The decreases in operating income and net income before income taxes are primarily attributed to the decrease in home sales revenues, partially offset by higher average sales price per home closed during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Income Taxes. Income tax provision for the three months ended March 31, 2022 was $20.9 million, a decrease of $2.8 million, or 11.7%, from income tax provision of $23.6 million for the three months ended March 31, 2021. The decrease in the amount of income tax provision is primarily due to the 19.2% decrease in net income before taxes, offset by the tax benefits relating to the federal energy efficient homes tax credits that expired in 2021. The increase in our effective tax rate to 21.0% from 19.2% results from an increase in the rate due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue
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Code, as amended, offset by a decrease in the rate for deductions in excess of compensation cost for share-based payments for the three months ended March 31, 2022.
Net Income. Net income for the three months ended March 31, 2022 was $78.7 million, a decrease of $21.0 million, or 21.0%, from $99.7 million for the three months ended March 31, 2021. The decrease in net income is primarily attributed to overall lower homes closed, offset by higher average sales price per home closed at higher gross margins on a per home basis, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report on Form 10-Q relating to adjusted gross margin, EBITDA and adjusted EBITDA.
Adjusted Gross Margin
Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.
The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended March 31,
20222021
Home sales revenues$546,050 $705,953 
Cost of sales387,643 516,004 
Gross margin158,407 189,949 
Capitalized interest charged to cost of sales4,513 10,672 
Purchase accounting adjustments (1)
2,282 812 
Adjusted gross margin$165,202 $201,433 
Gross margin % (2)
29.0 %26.9 %
Adjusted gross margin % (2)
30.3 %28.5 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting included in cost of sales. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs,
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such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:
(i) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for purchase of land;
(ii) they do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
(iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements or improvements;
(iv) they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
(v) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
(vi) other companies in our industry may calculate them differently than we do, limiting their usefulness as a comparative measure.
Because of these limitations, our EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using our EBITDA and adjusted EBITDA along with other comparative tools, together with GAAP measures, to assist in the evaluation of operating performance. These GAAP measures include operating income, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges, which are not reflected in our EBITDA or adjusted EBITDA. EBITDA and adjusted EBITDA are not intended as alternatives to net income as indicators of our operating performance, as alternatives to any other measure of performance in conformity with GAAP or as alternatives to cash flows as a measure of liquidity. You should therefore not place undue reliance on our EBITDA or adjusted EBITDA calculated using these measures.
The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended March 31,
20222021
Net income$78,686 $99,658 
Income tax provision (benefit)20,864 23,618 
Depreciation and amortization348 288 
Capitalized interest charged to cost of sales4,513 10,672 
EBITDA104,411 134,236 
Purchase accounting adjustments(1)
2,282 812 
Other income, net(3,830)(833)
Adjusted EBITDA$102,863 $134,215 
EBITDA margin %(2)
19.1 %19.0 %
Adjusted EBITDA margin %(2)
18.8 %19.0 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.

Backlog
We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $5,000). We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract. Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed. If we
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determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract. If a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed, then the homebuyer has met the preliminary criteria to obtain mortgage financing. Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.
Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings. Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed during the COVID-19 pandemic. In addition, we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.
Our net orders decreased in the first quarter of 2022 primarily due to the availability of finished lots brought on by sustained demand and the rapid pace of fluctuating rising costs for certain supplies and labor experienced in 2021. During the first half of 2021, due to limited supply, we elected to not enter into sales contracts until construction on the home had begun and our costs for the home were readily determined. In the first quarter of 2022, to mitigate continuing cost volatility, we have further modified our traditional timing of when to enter into our sales contracts until later in the construction cycle to align with the dynamic pricing environment.
As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):
Backlog DataThree Months Ended March 31,
2022 (4)
2021 (5)
Net orders (1)
1,973 5,229 
Cancellation rate (2)
15.6 %10.5 %
Ending backlog – homes (3)
2,429 5,632 
Ending backlog – value (3)
$849,117 $1,595,879 
(1)Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
(2)Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.
(3)Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Ending backlog is valued at the contract amount.
(4)As of March 31, 2022, we had 374 units related to bulk sales agreements associated with our wholesale business.
(5)As of March 31, 2021, we had 1,344 units related to bulk sales agreements associated with our wholesale business.
Land Acquisition Policies and Development
We had 88 and 101 active communities as of March 31, 2022 and December 31, 2021, respectively. The overall decrease in community count is seen as transitory, primarily due to the close out of active communities and to a lesser extent available finished lots in certain active markets. Generally, it takes us two to three years to turn raw or undeveloped land into an active community.
Our lot inventory increased to 93,270 owned or controlled lots as of March 31, 2022 from 91,845 owned or controlled lots as of December 31, 2021.
The table below shows (i) home closings by reportable segment for the three months ended March 31, 2022 and (ii) our owned or controlled lots by reportable segment as of March 31, 2022.
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Three Months Ended March 31, 2022As of March 31, 2022
Reportable SegmentHome Closings
Owned (1)
ControlledTotal
Central844 23,769 13,999 37,768 
Southeast238 15,822 5,620 21,442 
Northwest201 6,790 2,559 9,349 
West142 8,358 7,040 15,398 
Florida174 4,340 4,973 9,313 
Total1,599 59,079 34,191 93,270 
(1)Of the 59,079 owned lots as of March 31, 2022, 47,222 were raw/under development lots and 11,857 were finished lots.
Homes in Inventory
When entering a new community, we build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on home closings. As homes are closed, we start more homes to maintain our inventory. As of March 31, 2022, we had a total of 676 completed homes, including information centers, and 3,762 homes in progress.
Raw Materials and Labor
When constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States. In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Substantially all of our construction work is done by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. For the three months ended March 31, 2022, we have experienced delays in varying degrees in our materials and components. We could see additional cost pressures associated with lumber and other materials in future quarters. Generally, we have been able to increase the sales prices of our homes to absorb these increased costs.
Seasonality
In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenues and capital requirements are generally similar across our second, third and fourth quarters.
As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.
Liquidity and Capital Resources
Overview
As of March 31, 2022, we had $53.3 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.
Our principal uses of capital are operating expenses, land and lot purchases, lot development, home construction, interest costs on our indebtedness and the payment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of an acquisition and repurchase share of our common stock. Early stages of development or expansion require significant cash outlays for land acquisitions, land development, plats, vertical development, construction of information centers, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of home sales revenues. In the later stages of an active community, cash inflows may exceed home sales revenues reported for financial statement purposes, as the costs associated with home and land construction were previously incurred.
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Short-term Liquidity and Capital Resources
We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement (as defined below) to adequately fund our short-term working capital obligations and to purchase land and other assets, develop lots and homes and repurchase shares of our common stock. As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy. We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.
As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed. However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
Long-term Liquidity and Capital Resources
We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchase shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029. We believe that we will be able to fund our long-term liquidity needs with cash generated from operations and cash expected to be available to borrow under the Credit Agreement or through accessing debt or equity capital, as needed, although no assurance can be provided that such additional debt or equity capital will be available when needed or on terms that we find attractive. To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.
Revolving Credit Facility
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”), 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” and, as so amended and as otherwise amended prior to the date of the Second Amendment, the “Credit Agreement”). The Credit Agreement contains revolving commitments of $1.1 billion, subject to a borrowing base primarily consisting 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 Credit Agreement.
The Credit Agreement matures on April 28, 2025. Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date. The 2021 Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.
The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement. As of March 31, 2022, the borrowing base under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $1.0 billion were outstanding, $25.0 million of letters of credit were outstanding and $108.3 million was available to borrow under the 2021 Credit Agreement.
For a further description of the Credit Agreement, please refer to Note 4, “Notes Payable” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Senior Notes Offering
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 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 under the Securities Act. 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. 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.
Letters of Credit, Surety Bonds and Financial Guarantees
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We are often required to provide letters of credit and surety bonds to secure our performance under construction contracts, development agreements and other arrangements. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit.
Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $268.8 million as of March 31, 2022. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of March 31, 2022 will be drawn upon.
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 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 2,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, 2022, we may purchase up to $249.0 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.
Cash Flows
Operating Activities
Net cash used in operating activities was $137.8 million for the three months ended March 31, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash used in operating activities during the three months ended March 31, 2022 was primarily driven by cash outflow from the $251.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $78.7 million, as well as the $9.4 million and $10.5 million increase in the net change in accounts receivable and accrued expenses and other liabilities, respectively.
Net cash provided by operating activities was $160.7 million for the three months ended March 31, 2021. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash provided by operating activities during the three months ended March 31, 2021 was primarily driven by net income of $99.7 million, and included cash outflow from the $41.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $56.7 million and $27.9 million increase in the net change in accounts receivable and accounts payable.
Investing Activities
Net cash used in investing activities was $1.4 million for the three months ended March 31, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.
Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the return of capital with our investment in an unconsolidated entity, offset by the purchase of property and equipment, as well as an additional investment in an unconsolidated entity.
Financing Activities
Net cash provided by financing activities was $142.0 million for the three months ended March 31, 2022, primarily driven by $197.6 million of borrowings under the 2021 Credit Agreement, offset by the $57.7 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
Net cash used in financing activities was $148.9 million for the three months ended March 31, 2021, primarily driven by $230.0 million of payments on the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”) and by the $25.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $104.8 million under the 2020 Credit Agreement.

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Inflation
Our business can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. During the three months ended March 31, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the foreseeable future. Generally, we have been able to increase the sales prices of our homes to absorb such increased costs. See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Material Cash Requirements
As of March 31, 2022, there have been no material changes to our known contractual and other obligations appearing in the “Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Critical Accounting Policies and 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 the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.
We believe that there have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2022 as compared to those disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Cautionary Statement about Forward-Looking Statements
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.
We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may, and often do, vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.
The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:
adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates, supply chain disruptions (including due to the conflict in Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials) and inflation and decreases in housing prices;
the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions), and the markets in which we operate, U.S. and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;
a slowdown in the homebuilding industry or changes in population growth rates in our markets;
volatility and uncertainty in the credit markets and broader financial markets;
disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets;
the cyclical and seasonal nature of our business;
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our future operating results and financial condition;
our business operations;
changes in our business and investment strategy;
the success of our operations in recently opened new markets and our ability to expand into additional new markets;
our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites;
our ability to develop our projects successfully or within expected timeframes;
our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;
our ability to successfully integrate any acquisitions with our existing operations;
availability of land to acquire and our ability to acquire such land on favorable terms or at all;
availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;
decisions of the Credit Agreement lender group;
decline in the market value of our land portfolio;
shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies;
delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;
uninsured losses in excess of insurance limits;
the cost and availability of insurance and surety bonds;
changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations;
the timing of receipt of regulatory approvals and the opening of projects;
the degree and nature of our competition;
increases in taxes or government fees;
our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond December 31, 2021;
information system failures, cyber incidents or breaches in security;
negative publicity or poor relations with the residents of our projects;
existing and future litigation, arbitration or other claims;
availability of qualified personnel and third-party contractors and subcontractors;
our ability to retain our key personnel;
our leverage and future debt service obligations;
the impact on our business of any future government shutdown;
other risks and uncertainties inherent in our business;
other factors we discuss under the section entitled “