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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 June 30, 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 July 29, 2022, there were 23,272,607 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


Table of Contents
TABLE OF CONTENTS
   


Page


3

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

LGI HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 June 30,December 31,
 20222021
ASSETS
Cash and cash equivalents$41,971 $50,514 
Accounts receivable52,106 57,909 
Real estate inventory2,633,706 2,085,904 
Pre-acquisition costs and deposits38,277 40,702 
Property and equipment, net20,311 16,944 
Other assets69,481 81,676 
Deferred tax assets, net5,487 6,198 
Goodwill12,018 12,018 
Total assets$2,873,357 $2,351,865 
LIABILITIES AND EQUITY
Accounts payable$40,162 $14,172 
Accrued expenses and other liabilities163,811 136,609 
Notes payable1,155,463 805,236 
Total liabilities1,359,436 956,017 
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,212,108 shares issued and 23,272,636 shares outstanding as of June 30, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021
271 269 
Additional paid-in capital302,688 291,577 
Retained earnings1,565,984 1,363,922 
Treasury stock, at cost, 3,939,472 shares and 3,046,556 shares, respectively
(355,022)(259,920)
Total equity1,513,921 1,395,848 
Total liabilities and equity$2,873,357 $2,351,865 








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

 
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Home sales revenues$723,069 $791,512 $1,269,119 $1,497,465 
Cost of sales491,710 577,433 879,353 1,093,437 
Selling expenses43,269 44,796 77,667 87,579 
General and administrative29,084 23,276 57,373 47,999 
   Operating income159,006 146,007 254,726 268,450 
Loss on extinguishment of debt 662  662 
Other income, net(4,006)(3,776)(7,836)(4,609)
Net income before income taxes163,012 149,121 262,562 272,397 
Income tax provision 39,636 30,987 60,500 54,605 
Net income$123,376 $118,134 $202,062 $217,792 
Earnings per share:
Basic$5.24 $4.75 $8.53 $8.75 
Diluted$5.20 $4.71 $8.43 $8.66 
Weighted average shares outstanding:
Basic23,552,883 24,844,644 23,694,241 24,897,462 
Diluted23,745,853 25,061,812 23,968,263 25,138,691 
























See accompanying notes to the consolidated financial statements.
5

Table of Contents


LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)

 
Common 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 
Net income— — — 123,376 — 123,376 
Stock repurchase— — — — (37,443)(37,443)
Compensation expense for equity awards— — 3,545 — — 3,545 
Stock issued under employee incentive plans24,213 — 1,692 — — 1,692 
BALANCE— June 30, 202227,212,108 $271 $302,688 $1,565,984 $(355,022)$1,513,921 












See accompanying notes to the consolidated financial statements.
6

Table of Contents

LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands, except share data)
Common 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 
Net income— — — 118,134 — 118,134 
Stock repurchase— — — — (55,776)(55,776)
Compensation expense for equity awards— — 3,395 — — 3,395 
Stock issued under employee incentive plans18,050 — 2,015 — — 2,015 
BALANCE— June 30, 202126,926,693 $269 $281,808 $1,152,069 $(147,740)$1,286,406 


























See accompanying notes to the consolidated financial statements.
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Table of Contents

LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Six Months Ended June 30,
 20222021
Cash flows from operating activities:
Net income$202,062 $217,792 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in income of unconsolidated entities(1,840) 
Distributions of earnings from unconsolidated entities1,214  
Depreciation and amortization730 537 
Loss on extinguishment of debt 662 
(Gain) loss on disposal of assets(1,564)350 
Compensation expense for equity awards7,115 6,817 
Deferred income taxes711 889 
Changes in assets and liabilities:
Accounts receivable5,803 46,417 
Real estate inventory(547,579)(158,704)
Pre-acquisition costs and deposits2,425 (1,604)
Other assets19,384 (13,415)
Accounts payable25,990 43,902 
Accrued expenses and other liabilities22,249 (3,791)
Net cash provided by (used in) operating activities(263,300)139,852 
Cash flows from investing activities:
Purchases of property and equipment(993)(1,139)
Investment in unconsolidated entities(1,462)(4,005)
Return of capital from unconsolidated entities 2,660 
Payment for business acquisition (27,279)
Net cash used in investing activities(2,455)(29,763)
Cash flows from financing activities:
Proceeds from notes payable371,177 617,653 
Payments on notes payable(20,000)(564,000)
Loan issuance costs(2,567)(10,500)
Proceeds from sale of stock, net of offering expenses3,704 4,123 
Stock repurchase(95,102)(81,603)
Net cash provided by (used in) financing activities257,212 (34,327)
Net increase (decrease) in cash and cash equivalents(8,543)75,762 
Cash and cash equivalents, beginning of period50,514 35,942 
Cash and cash equivalents, end of period$41,971 $111,704 


See accompanying notes to the consolidated financial statements.
8

Table of Contents
LGI HOMES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     ORGANIZATION AND BASIS OF PRESENTATION
Organization and Description of the Business
LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania and Maryland.
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 June 30, 2022, and for the three and six months ended June 30, 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
Effective April 28, 2022, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (“Topic 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform. Effective April 28, 2022, we adopted FASB ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. The adoption of both ASU 2020-04 and ASU 2021-01 replaced LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”) and did not have a material effect on our consolidated financial statements or related disclosures.
2.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
June 30,December 31,
20222021
Land, land under development and finished lots$1,776,558 $1,499,761 
Information centers30,770 28,665 
Homes in progress684,357 449,742 
Completed homes142,021 107,736 
Total real estate inventory$2,633,706 $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.
9

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.

3.     ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
June 30,December 31,
20222021
Real estate inventory development and construction payable$63,296 $48,656 
Accrued compensation, bonuses and benefits16,652 24,914 
Taxes payable19,619 11,604 
Contract deposits9,030 12,182 
Accrued interest8,063 7,431 
Inventory related obligations14,051 8,803 
Warranty reserve9,350 7,850 
Lease liability5,212 5,333 
Other18,538 9,836 
Total accrued expenses and other liabilities$163,811 $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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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 June 30,Six Months Ended June 30,
 2022202120222021
Warranty reserves, beginning of period$8,350 $5,950 $7,850 $5,350 
Warranty provision2,642 3,396 5,107 5,985 
Warranty expenditures(1,642)(2,796)(3,607)(4,785)
Warranty reserves, end of period$9,350 $6,550 $9,350 $6,550 
4.     NOTES PAYABLE
Revolving Credit Agreement
On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment” and, as so amended, “the Credit Agreement”), which amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”). The Second Amendment, among other things, (a) increased the commitments under the 2021 Credit Agreement by an additional $250.0 million, bringing the total commitments under the Credit Agreement to $1.1 billion, and (b) replaced LIBOR as the benchmark interest rate with SOFR.
Borrowings under the Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by the Company) plus a 10, 15 or 25 basis point adjustment, respectively, which rate is subject to a 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and (2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the Applicable Margin.
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 June 30, 2022, the borrowing base under the Credit Agreement was $1.4 billion, of which borrowings, including the 2029 Senior Notes, of $1.2 billion were outstanding, $26.9 million of letters of credit were outstanding and $203.7 million was available to borrow under the Credit Agreement.
Interest is paid monthly on borrowings under the Credit Agreement at SOFR plus 1.75%. The Credit Agreement applicable margin for SOFR loans ranges from 1.45% to 2.10% based on our leverage ratio. At June 30, 2022, SOFR was 1.50%, subject to the 0.50% SOFR floor as included in the Credit Agreement.
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 June 30, 2022, we were in compliance with all of the covenants contained in the Credit Agreement.


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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. The terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.
Notes payable consist of the following (in thousands):
June 30, 2022December 31, 2021
Notes payable under the Credit Agreement ($1.1 billion revolving credit facility at June 30, 2022) maturing on April 28, 2025; interest paid monthly at SOFR plus 1.75%.
$868,616 $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(13,153)(12,203)
Total notes payable$1,155,463 $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 June 30,Six Months Ended June 30,
2022202120222021
Interest incurred$9,438 $8,040 $16,465 $15,772 
Less: Amounts capitalized(9,438)(8,040)(16,465)(15,772)
Interest expense$ $ $ $ 
Cash paid for interest$4,538 $1,859 $14,206 $14,492 
Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.9 million and $0.7 million for each of the three months ended June 30, 2022 and 2021, respectively, and $1.6 million and $1.4 million for each of the six months ended June 30, 2022 and 2021, respectively.
5.     INCOME TAXES
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to 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 June 30, 2022, our effective tax rate of 24.3% is higher than the Federal statutory rate primarily as a result of an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit.
For the six months ended June 30, 2022, our effective rate of 23.1% is higher than the Federal statutory rate primarily as a result of 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, offset by the deductions in excess of compensation cost for share-based payments.

Income taxes paid were $52.0 million and $63.5 million for the three months ended June 30, 2022 and 2021, respectively. Income taxes paid were $52.4 million and $63.7 million for the six months ended June 30, 2022 and 2021, respectively.
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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 June 30, 2022, we repurchased 417,861 shares of our common stock for $37.4 million to be held as treasury stock. During the six months ended June 30, 2022, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock. During the three months ended June 30, 2021, we repurchased 335,000 shares of our common stock for $55.8 million to be held as treasury stock. During the six months ended June 30, 2021, we repurchased 551,221 shares of our common stock for $81.6 million to be held as treasury stock. A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced. As of June 30, 2022, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.
7.     EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$123,376 $118,134 $202,062 $217,792 
Denominator:
       Basic weighted average shares outstanding23,552,883 24,844,644 23,694,241 24,897,462 
       Effect of dilutive securities:
         Stock-based compensation units192,970 217,168 274,022 241,229 
       Diluted weighted average shares outstanding23,745,853 25,061,812 23,968,263 25,138,691 
Basic earnings per share$5.24 $4.75 $8.53 $8.75 
Diluted earnings per share$5.20 $4.71 $8.43 $8.66 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share6,042 835 15,501 8,043 

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8.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Six Months Ended June 30,
20222021
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balance 117,874 $80.85 142,738 $62.54 
   Granted37,159 $118.34 24,435 $141.64 
   Vested(40,100)$57.03 (33,819)$63.86 
   Forfeited(1,151)$87.20 (3,515)$64.91 
Ending balance113,782 $101.42 129,839 $77.01 
We recognized $1.1 million and $0.9 million of stock-based compensation expense related to outstanding RSUs for the three months ended June 30, 2022 and 2021, respectively. We recognized $1.9 million and $1.7 million of stock-based compensation expense related to outstanding RSUs for the six months ended June 30, 2022 and 2021, respectively. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At June 30, 2022, we had unrecognized compensation cost of $6.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.1 years.
Performance-Based Restricted Stock Units
The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the six months ended June 30, 2022:
Period GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2021Target PSUs GrantedTarget PSUs ForfeitedTarget PSUs VestedTarget PSUs Outstanding at June 30, 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 June 30, 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 $2.2 million of total stock-based compensation expense related to outstanding PSUs for each of the three months ended June 30, 2022 and 2021. We recognized $4.5 million and $4.4 million of total stock-based compensation expense related to outstanding PSUs for the six months ended June 30, 2022 and 2021, respectively. The 2019 - 2021 performance period PSUs vested and issued on March 15, 2022 at 200%
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of the target number. At June 30, 2022, we had unrecognized compensation cost of $15.4 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.1 years.
9.    FAIR VALUE DISCLOSURES
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the 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 June 30, 2022, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.
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 June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022December 31, 2021
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
2029 Senior Notes (1)
Level 2$300,000 $237,859 $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 six months ended June 30, 2022.
During the three months ended June 30, 2021, we completed a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $2.5 million and 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.
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.
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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):
June 30, 2022December 31, 2021
Land deposits and option payments$33,925 $37,499 
Commitments under the land purchase contracts if the purchases are consummated$743,870 $921,345 
Lots under land purchase contracts28,091 36,978 
As of June 30, 2022 and December 31, 2021, approximately $16.6 million and $19.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.
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 $5.0 million and $5.1 million at June 30, 2022 and December 31, 2021, respectively. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $5.2 million and $5.3 million at June 30, 2022 and December 31, 2021, respectively.
Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $0.5 million and $0.4 million for the three months ended June 30, 2022 and 2021, respectively. Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $1.0 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the six months ended June 30, 2022 and 2021 was $0.9 million and $0.8 million, respectively. As of June 30, 2022, the weighted-average discount rate was 5.2% and our weighted-average remaining life was 2.8 years. We do not have any significant lease contracts that have not yet commenced at June 30, 2022.
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The table below shows the future minimum payments under non-cancelable operating leases at June 30, 2022 (in thousands):
Year Ending December 31,Operating leases
2022759 
20231,382 
20241,114 
2025888 
2026776 
Thereafter1,053 
Total5,972 
Lease amount representing interest(760)
Present value of lease liabilities$5,212 
Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $284.6 million (including $26.9 million of letters of credit issued under the Credit Agreement) and $206.8 million at June 30, 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 June 30, 2022 and December 31, 2021, we have a total of $7.1 million and $5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and the mortgage joint venture. Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively. Income associated with our investment in unconsolidated entities during the three and six months ended June 30, 2022, was $1.6 million and $1.8 million, respectively. We did not have any income recognized for our investment in unconsolidated entities during each of the three and six months ended June 30, 2021.

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.

The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Retail home sales revenues$686,151 $696,826 $1,180,357 $1,340,398 
Wholesale home sales revenues36,918 94,686 88,762 157,067 
Total home sales revenues$723,069 $791,512 $1,269,119 $1,497,465 
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
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qualifying reportable segments at June 30, 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 June 30,Six Months Ended June 30,
2022202120222021
Revenues:
Central$316,654 $347,963 $578,952 $636,713 
Southeast117,569 159,714 190,032 296,265 
Northwest70,792 106,197 173,666 224,388 
West123,956 80,813 179,539 161,961 
Florida94,098 96,825 146,930 178,138 
Total home sales revenues$723,069 $791,512 $1,269,119 $1,497,465 
Net income (loss) before income taxes:
Central$84,850 $69,040 $142,590 $124,674 
Southeast28,636 30,671 38,765 50,502 
Northwest15,730 23,655 43,314 49,649 
West19,172 12,708 18,941 25,319 
Florida15,784 14,765 21,144 25,581 
Corporate (1)
(1,160)(1,718)(2,192)(3,328)
Total net income before income taxes$163,012 $149,121 $262,562 $272,397 
(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.
June 30, 2022December 31, 2021
Assets:
Central$976,656 $857,174 
Southeast577,231 438,423 
Northwest435,094 349,752 
West512,513 384,548 
Florida282,007 221,763 
Corporate (1)
89,856 100,205 
Total assets$2,873,357 $2,351,865 
(1)The Corporate balance consists primarily of cash, 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.
Housing market conditions were generally favorable during the six months ended June 30, 2022, supported by a strong demand environment, limited inventory of new and existing homes for sale, strong household formations, low unemployment and historically attractive mortgage interest rates. However, during the second quarter of 2022, we experienced a rapid increase in mortgage interest rates resulting from the Federal Reserve’s actions to stem continued price inflation. As a result, demand for our homes decreased during the second quarter of 2022 as many potential homebuyers paused or reconsidered their purchase decisions. As these events occurred at the end of the second quarter of 2022, their potential impact is not fully reflected in our reported results as the majority of the contracts on the homes we closed included rate locks and were written prior to the rapid acceleration in mortgage interest rates. New orders weakened during the second quarter of 2022 in many of our markets and we experienced a higher than normal cancellation rate during the second quarter of 2022.
We expect that mortgage interest rates will remain elevated until inflation subsides. Our strategy to combat these headwinds and drive continued sales is to increase our targeted advertising spend to connect with more potential homebuyers. We started executing on this strategy towards the end of the second quarter of 2022 and have seen favorable results in both the number of leads generated and new orders written. This gives us confidence that, despite the challenges of the market, there remains a strong pool of qualified buyers for our homes. We continue to sell homes later in the construction cycle to maximize profitability and provide a better customer experience. Additionally, during the second quarter of 2022, we slowed our pace of new home starts to match current levels of absorptions in all of our communities.
During the three months ended June 30, 2022, we had 2,027 home closings, compared to 2,856 home closings during the three months ended June 30, 2021. During the six months ended June 30, 2022, we had 3,626 home closings, compared to 5,417 home closings during the six months ended June 30, 2021. The decline in home closings for both the three months and six months ended June 30, 2022 was attributable to the prior year’s strong comparable numbers and compounded by longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of home 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.
At June 30, 2022, we had 92 active communities, including seven Terrata Homes communities. At June 30, 2021, we had 106 active communities, including two Terrata Homes communities. In June 2022, we experienced our first home closings in the state of Maryland and are now operating in 35 markets across 20 states.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, mortgage 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
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consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. During the three months ended June 30, 2022, we continued to experience significant supply chain disruptions, stemming from COVID-19 and variants thereof (collectively, “COVID-19”), 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 global shortages will continue to impact our operations as long as the dynamics surrounding the COVID-19 pandemic persist. We also believe that the desire for our single-family homes remains strong.
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.
Key Results
Key financial results as of and for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, were as follows:
Home sales revenues decreased 8.6% to $723.1 million from $791.5 million.
Homes closed decreased 29.0% to 2,027 homes from 2,856 homes.
Average sales price per home closed increased 28.7% to $356,719 from $277,140.
Gross margin as a percentage of home sales revenues increased to 32.0% from 27.0%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 33.1% from 28.5%.
Net income before income taxes increased 9.3% to $163.0 million from $149.1 million.
Net income increased 4.4% to $123.4 million from $118.1 million.
EBITDA (non-GAAP) as a percentage of home sales revenues increased to 23.4% from 20.2%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 23.1% from 20.0%.
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.”

Key financial results as of and for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, were as follows:
Home sales revenues decreased 15.2% to $1.3 billion from $1.5 billion.
Homes closed decreased 33.1% to 3,626 homes from 5,417 homes.
Average sales price per home closed increased 26.6% to $350,005 from $276,438.
Gross margin as a percentage of home sales revenues increased to 30.7% from 27.0%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 31.9% from 28.5%.
Net income before income taxes decreased 3.6% to $262.6 million from $272.4 million.
Net income decreased 7.2% to $202.1 million from $217.8 million.
EBITDA (non-GAAP) as a percentage of home sales revenues increased to 21.6% from 19.6%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 21.3% from 19.5%.
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 89,984 lots at June 30, 2022 as compared to 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 and six months ended June 30, 2022 and 2021:
 Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:
Home sales revenues$723,069 $791,512 $1,269,119 $1,497,465 
Expenses:
Cost of sales491,710 577,433 879,353 1,093,437 
Selling expenses43,269 44,796 77,667 87,579 
General and administrative29,084 23,276 57,373 47,999 
     Operating income159,006 146,007 254,726 268,450 
Loss on extinguishment of debt— 662 — 662 
Other income, net(4,006)(3,776)(7,836)(4,609)
     Net income before income taxes163,012 149,121 262,562 272,397 
Income tax provision39,636 30,987 60,500 54,605 
     Net income$123,376 $118,134 $202,062 $217,792 
Basic earnings per share$5.24 $4.75 $8.53 $8.75 
Diluted earnings per share$5.20 $4.71 $8.43 $8.66 
Other Financial and Operating Data:
Average community count91.3 105.0 90.2 105.7 
Community count at end of period92 106 92 106 
Home closings2,027 2,856 3,626 5,417 
Average sales price per home closed$356,719 $277,140 $350,005 $276,438 
Gross margin (1)
$231,359 $214,079 $389,766 $404,028 
Gross margin % (2)
32.0 %27.0 %30.7 %27.0 %
Adjusted gross margin (3)
$239,120 $225,967 $404,322 $