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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 September 30, 2023
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 October 27, 2023, there were 23,563,868 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)
 
 September 30,December 31,
 20232022
ASSETS
Cash and cash equivalents$46,981 $31,998 
Accounts receivable35,651 25,143 
Real estate inventory3,056,966 2,898,296 
Pre-acquisition costs and deposits34,661 25,031 
Property and equipment, net41,872 32,997 
Other assets97,238 93,159 
Deferred tax assets, net9,624 6,186 
Goodwill12,018 12,018 
Total assets$3,335,011 $3,124,828 
LIABILITIES AND EQUITY
Accounts payable$67,289 $25,287 
Accrued expenses and other liabilities274,681 340,128 
Notes payable1,190,366 1,117,001 
Total liabilities1,532,336 1,482,416 
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,503,340 shares issued and 23,563,868 shares outstanding as of September 30, 2023 and 27,245,278 shares issued and 23,305,806 shares outstanding as of December 31, 2022
275 272 
Additional paid-in capital319,795 306,673 
Retained earnings1,837,627 1,690,489 
Treasury stock, at cost, 3,939,472 shares as of September 30, 2023 and December 31, 2022
(355,022)(355,022)
Total equity1,802,675 1,642,412 
Total liabilities and equity$3,335,011 $3,124,828 








See accompanying notes to the consolidated financial statements.
4

Table of Contents
LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)

 
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Home sales revenues$617,539 $547,074 $1,750,166 $1,816,193 
Cost of sales458,734 391,275 1,350,608 1,270,628 
Selling expenses49,781 33,938 141,811 111,605 
General and administrative26,748 27,284 84,334 84,657 
   Operating income82,276 94,577 173,413 349,303 
Other income, net(7,173)(14,124)(19,793)(21,960)
Net income before income taxes89,449 108,701 193,206 371,263 
Income tax provision 22,407 18,311 46,068 78,811 
Net income$67,042 $90,390 $147,138 $292,452 
Earnings per share:
Basic$2.85 $3.88 $6.24 $12.42 
Diluted$2.84 $3.85 $6.21 $12.29 
Weighted average shares outstanding:
Basic23,546,061 23,272,811 23,562,374 23,552,211 
Diluted23,640,686 23,488,325 23,696,095 23,805,086 
























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, 202227,245,278 $272 $306,673 $1,690,489 $(355,022)$1,642,412 
Net income— — — 26,962 — 26,962 
Restricted stock units granted for accrued annual bonuses— — 206 — — 206 
Compensation expense for equity awards— — 3,103 — — 3,103 
Stock issued under employee incentive plans226,928 3 1,543 — — 1,546 
BALANCE— March 31, 202327,472,206 $275 $311,525 $1,717,451 $(355,022)$1,674,229 
Net income— — — 53,134 — 53,134 
Compensation expense for equity awards— — 2,360 — — 2,360 
Stock issued under employee incentive plans13,307 — 1,289 — — 1,289 
BALANCE— June 30, 202327,485,513 $275 $315,174 $1,770,585 $(355,022)$1,731,012 
Net income— — — 67,042 — 67,042 
Compensation expense for equity awards— — 3,123 — — 3,123 
Stock issued under employee incentive plans17,827  1,498 — — 1,498 
BALANCE— September 30, 202327,503,340 $275 $319,795 $1,837,627 $(355,022)$1,802,675 


















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, 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 
Net income— — — 90,390 — 90,390 
Compensation expense for equity awards— — 1,516 — — 1,516 
Stock issued under employee incentive plans17,650 1 1,153 — — 1,154 
BALANCE— September 30, 202227,229,758 $272 $305,357 $1,656,374 $(355,022)$1,606,981 
















See accompanying notes to the consolidated financial statements.
7

Table of Contents
LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended September 30,
 20232022
Cash flows from operating activities:
Net income$147,138 $292,452 
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of unconsolidated entities(8,493)(3,990)
Distributions of earnings from unconsolidated entities9,989 3,202 
Depreciation and amortization1,780 1,134 
Gain on sale of interest rate cap (7,055)
Gain on disposal of assets(1,634)(2,206)
Compensation expense for equity awards8,586 8,631 
Deferred income taxes(3,438)(1,439)
Changes in assets and liabilities:
Accounts receivable(10,508)20,459 
Real estate inventory(194,360)(791,682)
Pre-acquisition costs and deposits(9,630)8,592 
Other assets30,873 27,456 
Accounts payable42,002 41,070 
Accrued expenses and other liabilities(34,980)43,824 
Net cash used in operating activities(22,675)(359,552)
Cash flows from investing activities:
Purchases of property and equipment(848)(1,057)
Investment in unconsolidated entities(11,619)(1,284)
Return of capital from unconsolidated entities4,871 235 
Net cash used in investing activities(7,596)(2,106)
Cash flows from financing activities:
Proceeds from notes payable335,864 534,876 
Payments on notes payable(260,000)(110,000)
Proceeds from financing arrangements50,402 35,858 
Payments on financing arrangements(79,784)(4,119)
Loan issuance costs(5,561)(2,567)
Proceeds from sale of stock, net of offering expenses4,333 4,858 
Stock repurchase (95,102)
Net cash provided by financing activities45,254 363,804 
Net increase in cash and cash equivalents14,983 2,146 
Cash and cash equivalents, beginning of period31,998 50,514 
Cash and cash equivalents, end of period$46,981 $52,660 


See accompanying notes to the consolidated financial statements.
8

Table of Contents
LGI HOMES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     ORGANIZATION AND BASIS OF PRESENTATION
Organization and Description of the Business
LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is headquartered in The Woodlands, Texas. We engage in the development of communities and the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland and Utah.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022, 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.

2.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
September 30,December 31,
20232022
Land, land under development and finished lots$1,965,477 $1,911,307 
Information centers44,276 35,074 
Homes in progress580,802 287,069 
Completed homes347,506 523,054 
Total owned inventory2,938,061 2,756,504 
Real estate not owned118,905 141,792 
Total real estate inventory$3,056,966 $2,898,296 
We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources. In consideration for this repurchase option, we paid a non-refundable commitment fee. Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held as real estate not owned within our inventory and a corresponding obligation was established within our accrued liabilities as discussed in Note 3 to recognize this relationship. While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased. We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.
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During the nine months ended September 30, 2023, we transferred $9.8 million of home assets from real estate inventory to rental properties within property and equipment, net. We are lessors of the homes representing these home assets. Our leasing contracts are typically for terms of one year.
3.    ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
September 30,December 31,
20232022
Land banking financing arrangements$118,905 $141,792 
Real estate inventory development and construction payable66,052 73,678 
Taxes payable16,321 47,037 
Inventory related obligations12,743 13,039 
Accrued compensation, bonuses and benefits15,935 12,900 
Warranty reserve13,000 10,750 
Accrued interest7,918 10,906 
Contract deposits5,284 5,545 
Lease liability5,311 5,182 
Other13,212 19,299 
Total accrued expenses and other liabilities$274,681 $340,128 
Land Banking Financing Arrangements
We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns. Principal payments on these financing arrangements will generally coincide with the repurchase of lot takedowns from the land banker. We expect to complete the repurchase of all lots via takedowns associated with these transactions over the course of approximately one to three years.
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.
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 September 30,Nine Months Ended September 30,
 2023202220232022
Warranty reserves, beginning of period$12,150 $9,350 $10,750 $7,850 
Warranty provision2,220 2,985 6,450 8,092 
Warranty expenditures(1,370)(2,285)(4,200)(5,892)
Warranty reserves, end of period$13,000 $10,050 $13,000 $10,050 
4.     NOTES PAYABLE
Revolving Credit Agreement
On April 28, 2023, we entered into a Third Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Third Amendment”), which amends the Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (as amended by an amendment dated as of April 29, 2022, the “2022 Credit Agreement” and as further amended by the Third Amendment, the “Credit Agreement”). The Credit
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Agreement provides for a $1.13 billion revolving credit facility, which can be increased at the request of the Company by up to $170.0 million, subject to the terms and conditions of the Credit Agreement. The Credit Agreement matures on April 28, 2027 with respect to $775.0 million, or 68.6%, of the $1.13 billion of commitments thereunder and on April 28, 2025 with respect to 31.4% of the commitments thereunder. The Credit Agreement also permits our subsidiaries that solely own and operate single family rental homes to incur secured indebtedness not to exceed 6% of our tangible net worth, and allows such subsidiaries to not guarantee the obligations under the Credit Agreement. The Credit Agreement otherwise has substantially similar terms and provisions to the 2022 Credit Agreement.
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, other than subsidiaries whose sole purpose is to own and operate single-family rental homes.
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 September 30, 2023, the borrowing base under the Credit Agreement is $1.8 billion of which the maximum available to borrow is $1.4 billion. As of September 30, 2023, borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes totaled $1.2 billion, $28.1 million of letters of credit were outstanding and $196.2 million was available to borrow under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) the Adjusted Term SOFR (defined as a term SOFR that is based on a fixed 1, 3 or 6 month interest period, as selected by the Company, plus a 10, 15 or 25 basis point adjustment, respectively), which rate is subject to a 50 basis point floor, plus an applicable margin ranging from 145 basis points to 210 basis points (the “Applicable Margin”) based on the Company’s leverage ratio as determined in accordance with a pricing grid, or (2) the Base Rate (defined as a term SOFR that is based on a daily variable 1 month interest period plus a 10 basis point adjustment), subject to a 50 basis point floor, plus the Applicable Margin. At September 30, 2023, the Applicable Margin was 1.70%, and SOFR was 5.32%, 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 September 30, 2023, we were in compliance with all of the covenants contained in the Credit Agreement.
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):
September 30, 2023December 31, 2022
Notes payable under the Credit Agreement ($1.13 billion revolving credit facility at September 30, 2023) maturing in part on April 28, 2025 and in part on April 28, 2027; interest paid monthly at SOFR plus 1.70%
$904,215 $828,350 
4.000% Senior Notes due July 15, 2029; interest paid semi-annually at 4.000%
300,000 300,000 
Net debt issuance costs(13,849)(11,349)
Total notes payable$1,190,366 $1,117,001 
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Capitalized Interest
Interest activity, including other financing costs, for notes payable and financing arrangements for the periods presented is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest incurred$21,578 $14,583 $62,865 $31,048 
Less: Amounts capitalized(21,578)(14,583)(62,865)(31,048)
Interest expense$ $ $ $ 
Cash paid for interest$23,358 $14,874 $63,114 $29,080 
Included in interest incurred was amortization of deferred financing costs and applicable discounts for notes payable and financing arrangements of $2.4 million and $0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $10.6 million and $2.5 million for the nine months ended September 30, 2023 and 2022, 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 September 30, 2023, our effective tax rate of 25.1% 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 federal energy efficient homes tax credits.
For the nine months ended September 30, 2023, our effective tax rate of 23.8% 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 a decrease in the rate for the deductions in excess of compensation cost for share-based payments and the federal energy efficient homes tax credits.
Income taxes paid were $20.2 million and $3.8 million for the three months ended September 30, 2023 and 2022, respectively. Income taxes paid were $80.0 million and $56.2 million for the nine months ended September 30, 2023 and 2022, 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 and nine months ended September 30, 2023, we did not repurchase any shares of our common stock. During the three months ended September 30, 2022, we did not repurchase any shares of our common stock. During the nine months ended September 30, 2022, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock. A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced. As of September 30, 2023, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.

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7.     EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$67,042 $90,390 $147,138 $292,452 
Denominator:
       Basic weighted average shares outstanding23,546,061 23,272,811 23,562,374 23,552,211 
       Effect of dilutive securities:
         Stock-based compensation units94,625 215,514 133,721 252,875 
       Diluted weighted average shares outstanding23,640,686 23,488,325 23,696,095 23,805,086 
Basic earnings per share$2.85 $3.88 $6.24 $12.42 
Diluted earnings per share$2.84 $3.85 $6.21 $12.29 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share1,749 2,396 4,735 10,797 
8.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Nine Months Ended September 30,
20232022
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balance 146,239 $100.93 113,782 $101.42 
   Granted40,435 $105.78 1,664 $84.39 
   Vested(44,303)$64.82 (1,006)$79.84 
   Forfeited(6,802)$114.23 (1,353)$92.64 
Ending balance135,569 $113.52 113,087 $101.47 
We recognized $1.2 million and $0.9 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2023 and 2022, respectively. We recognized $3.6 million and $2.8 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2023 and 2022, respectively. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At September 30, 2023, we had unrecognized compensation cost of $8.1 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 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
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determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the nine months ended September 30, 2023:
Period GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2022Target PSUs GrantedTarget PSUs ForfeitedTarget PSUs VestedTarget PSUs Outstanding at September 30, 2023Weighted Average Grant Date Fair Value
20202020 - 202284,435 — — (84,435)— $59.81 
2021 2021 - 202344,011 — (852)— 43,159 $141.00 
20222022 - 202464,382 — (1,078)— 63,304 $118.80 
20232023 - 2025— 72,443 — — 72,443 $104.36 
Total192,828 72,443 (1,930)(84,435)178,906 
At September 30, 2023, management estimates that the recipients will receive approximately 125.0%, 50.0% and 80.7% of the 2023, 2022 and 2021 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $1.7 million and $0.4 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2023 and 2022, respectively. We recognized $4.0 million and $4.9 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2023 and 2022, respectively. The 2020 - 2022 performance period PSUs vested and issued on February 27, 2023, at 200% of the target number. At September 30, 2023, we had unrecognized compensation cost of $10.0 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 most significant volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.
ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities, or quoted prices in markets that are not active.
Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the
measurement date, such as a pricing model, discounted cash flow or similar technique.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. As of September 30, 2023, 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).

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The following table below shows the level and measurement of liabilities at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
2029 Senior Notes (1)
Level 2$300,000 $249,367 $300,000 $246,969 
(1)See Note 4 for more details regarding the offering of the 2029 Senior Notes.
10.     COMMITMENTS AND CONTINGENCIES
Contingencies
In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our operations. Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
Land Deposits
We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):
September 30, 2023December 31, 2022
Land deposits and option payments (1)
$32,427 $22,406 
Commitments under the land purchase contracts if the purchases are consummated (1)
$620,591 $411,776 
Lots under land purchase contracts (1)
15,808 13,184 
(1)Includes land banking financing arrangements, see Notes 2 and 3 for more details regarding real estate not owned.
As of September 30, 2023 and December 31, 2022, approximately $13.0 million and $12.8 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 $4.9 million at September 30, 2023 and December 31, 2022, respectively. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $5.3 million and $5.2 million at September 30, 2023 and December 31, 2022, respectively.
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Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $0.7 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively. Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $1.9 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the nine months ended September 30, 2023 and 2022 was $1.4 million and $1.3 million, respectively. As of September 30, 2023, the weighted-average discount rate was 5.8% and our weighted-average remaining life was 2.4 years. We do not have any significant lease contracts that have not yet commenced at September 30, 2023.
The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2023 (in thousands):
Year Ending December 31,Operating leases
2023439 
20241,535 
20251,307 
20261,145 
20271,022 
Thereafter596 
Total6,044 
Lease amount representing interest(733)
Present value of lease liabilities$5,311 
Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $382.9 million (including $28.1 million of letters of credit issued under the Credit Agreement) and $368.1 million (including $33.4 million of letters of credit issued under the 2022 Credit Agreement) at September 30, 2023 and December 31, 2022, respectively, related to our obligations for site improvements at various projects. Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.
Investment in Unconsolidated Entities
As of September 30, 2023, we had one equity-method land joint venture and two additional joint ventures engaged in mortgage and insurance activities that primarily provide services to our homebuyers. As of September 30, 2023 and December 31, 2022, we have a total of $16.5 million and $11.2 million, respectively, within other assets on the balance sheet relating to our investment in joint ventures associated with our operations. Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively. Income associated with our investment in unconsolidated entities during the three and nine months ended September 30, 2023 was $3.2 million and $8.5 million, respectively. Income associated with our investment in unconsolidated entities during the three and nine months ended September 30, 2022 was $2.2 million and $4.0 million, respectively.
11.     REVENUES
Home Sales Revenues
We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our move-up and luxury series spec homes sold under our Terrata Homes brand.

The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Retail home sales revenues$574,246 $419,213 $1,633,826 $1,599,570 
Wholesale home sales revenues43,293 127,861 116,340 216,623 
Total home sales revenues$617,539 $547,074 $1,750,166 $1,816,193 
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Our home sales revenues are disaggregated by geography, based on our determined reportable segments. See Note 12 for tabular presentation of this information.
12.     SEGMENT INFORMATION
We operate one principal homebuilding business that is organized and reports by division. We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five qualifying reportable segments at September 30, 2023: 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 is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenues:
Central$183,615 $228,448 $564,580 $807,400 
Southeast149,593 138,478 397,618 328,510 
Northwest67,666 46,774 212,885 220,440 
West94,950 65,064 256,575 244,603 
Florida121,715 68,310 318,508 215,240 
Total home sales revenues$617,539 $547,074 $1,750,166 $1,816,193 
Net income (loss) before income taxes:
Central$32,172 $46,413 $69,521 $189,004 
Southeast26,786 31,593 54,166 70,358 
Northwest9,432 6,379 23,194 49,693 
West9,368 8,342 15,162 27,282 
Florida15,579 9,770 37,077 30,914 
Corporate (1)
(3,888)6,204 (5,914)4,012 
Total net income before income taxes$89,449 $108,701 $193,206 $371,263 
(1)The Corporate balance consists of general and administration unallocated costs for various shared service functions and non-strategic other income, as well as our warranty reserve. Actual warranty expenses are reflected within the reportable segments. Additionally, for the three and nine months ended September 30, 2022, the balance includes the $7.1 million gain on the sale of the three-year interest rate cap of LIBOR prior to its expiration.
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September 30, 2023December 31, 2022
Assets:
Central$1,016,130 $986,779 
Southeast658,020 633,542 
Northwest505,304 485,086 
West650,489 599,714 
Florida420,056 334,824 
Corporate (1)
85,012 84,883 
Total assets$3,335,011 $3,124,828 
(1)The Corporate balance consists primarily of cash and investments in unconsolidated entities as of September 30, 2023. Additionally, the Corporate balance consists of cash, investments in unconsolidated entities and tax receivables as of December 31, 2022.
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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
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 65,000 homes.
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
Salt Lake City, UT
Sarasota, FLGreenville, SC
Birmingham, AL
Nashville, TN
We delivered strong financial results during the three months ended September 30, 2023. We attribute our success during the third quarter to several factors, including our ability to drive leads to our information centers through targeted marketing, our ability to partially offset affordability pressures through a combination of mortgage buy-down programs and other sales incentives, and our decision to build smaller, lower-priced homes. Although we are encouraged by our recent results, interest rates continue to move higher, creating the potential for a slowing demand for new homes. As a result, we continue to closely monitor demand trends at each active community and remain focused on balancing levels of vertical and completed inventory with current sales activity.
During the three months ended September 30, 2023, we had 1,751 home closings, compared to 1,547 home closings during the three months ended September 30, 2022. The increase in home closings for the three months ended September 30, 2023 was primarily due to an increase in the community count and the relative strength of the demand environment experienced during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. During the nine months ended September 30, 2023, we had 4,971 home closings, compared to 5,173 home closings during the nine months ended September 30, 2022.
At September 30, 2023, we had 106 active communities, including 11 Terrata Homes communities. At September 30, 2022, we had 93 active communities, including 11 Terrata Homes communities.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, mortgage rates, inflation, financial market stability, consumer confidence, housing demand, availability of financing for homebuyers, 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.
We believe the long-term outlook for new homes remains strong, driven by solid fundamentals, including a historically low inventory of new and existing homes for sale, an aging housing stock, rising rents, strong household formations and low unemployment. However, the housing market is currently in a state of transition and we expect affordability constraints to continue to impact demand for the foreseeable future.
For additional discussion regarding our business and operations, 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, 2022. For additional discussion regarding risks associated with our business and operations, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Item 1A. Risk Factors in Part II of this Quarterly Report on Form 10-Q.
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Key Results
Key financial results as of and for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, were as follows:
Home sales revenues increased 12.9% to $617.5 million from $547.1 million.
Homes closed increased 13.2% to 1,751 homes from 1,547 homes.
Average sales price per home closed decreased 0.3% to $352,678 from $353,635.
Gross margin as a percentage of home sales revenues decreased to 25.7% from 28.5%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 27.2% from 29.5%.
Net income before income taxes decreased 17.7% to $89.4 million from $108.7 million.
Net income decreased 25.8% to $67.0 million from $90.4 million.
EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 16.0% from 20.8%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 15.0% from 18.4%.
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 nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, were as follows:
Home sales revenues decreased 3.6% to $1.75 billion from $1.82 billion.
Homes closed decreased 3.9% to 4,971 homes from 5,173 homes.
Average sales price per home closed increased 0.3% to $352,075 from $351,091.
Gross margin as a percentage of home sales revenues decreased to 22.8% from 30.0%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 24.5% from 31.2%.
Net income before income taxes decreased 48.0% to $193.2 million from $371.3 million.
Net income decreased 49.7% to $147.1 million from $292.5 million.
EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 12.5% from 21.3%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 11.7% from 20.4%.
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 72,109 lots at September 30, 2023 as compared to 69,226 lots at June 30, 2023 and 71,904 lots at December 31, 2022.
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Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2023 and 2022:
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:
Home sales revenues$617,539 $547,074 $1,750,166 $1,816,193 
Expenses:
Cost of sales458,734 391,275 1,350,608 1,270,628 
Selling expenses49,781 33,938 141,811 111,605 
General and administrative26,748 27,284 84,334 84,657 
     Operating income82,276 94,577 173,413 349,303 
Other income, net(7,173)(14,124)(19,793)(21,960)
     Net income before income taxes89,449 108,701 193,206 371,263 
Income tax provision22,407 18,311 46,068 78,811 
     Net income$67,042 $90,390 $147,138 $292,452 
Basic earnings per share$2.85 $3.88 $6.24 $12.42 
Diluted earnings per share$2.84 $3.85 $6.21 $12.29 
Other Financial and Operating Data:
Average community count103.7 93.0 101.1 91.1 
Community count at end of period106 93 106 93 
Home closings1,751 1,547 4,971 5,173 
Average sales price per home closed$352,678 $353,635 $352,075 $351,091 
Gross margin (1)
$158,805 $155,799 $399,558 $545,565 
Gross margin % (2)
25.7 %28.5 %22.8 %30.0 %
Adjusted gross margin (3)
$168,152 $161,578 $429,544 $565,900 
Adjusted gross margin % (2)(3)
27.2 %29.5 %24.5 %31.2 %
EBITDA (4)
$98,822 $113,722 $219,461 $387,262 
EBITDA margin % (2)(4)
16.0 %20.8 %12.5 %21.3 %
Adjusted EBITDA (4)
$92,416 $100,760 $205,179 $370,772 
Adjusted EBITDA margin % (2)(4)
15.0 %18.4 %11.7 %20.4 %
(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
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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, 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 September 30, 2023 Compared to Three Months Ended September 30, 2022
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the three months ended September 30, 2023 and 2022, and our community count as of September 30, 2023 and 2022, were as follows (revenues in thousands):
Three Months Ended September 30, 2023As of September 30, 2023
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Community Count at End of Period
Central$183,615 561 $327,299 34.7 5.4 34 
Southeast149,593 452 330,958 23.7 6.4 24 
Northwest67,666 131 516,534 11.0 4.0 11 
West94,950 249 381,325 14.3 5.8 15 
Florida121,715 358 339,986 20.0 6.0 22 
Total$617,539 1,751 $352,678 103.7 5.6 106 
Three Months Ended September 30, 2022As of September 30, 2022
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Community Count at End of Period
Central$228,448 681 $335,460 33.0 6.9 34 
Southeast138,478 419 330,496 23.3 6.0 24 
Northwest46,774 95 492,358 7.0 4.5 
West65,064 155 419,768 11.0 4.7 11 
Florida68,310 197 346,751 18.7 3.5 17 
Total$547,074 1,547 $353,635 93.0 5.5 93 
Home sales revenues for the three months ended September 30, 2023 were $617.5 million, an increase of $70.5 million, or 12.9%, from $547.1 million for the three months ended September 30, 2022. The increase in home sales revenues was primarily due to a 13.2% increase in homes closed, partially offset by a slight decrease in the average sales price per home closed during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. The overall increase in home closings was a result of a higher average community count during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Our community count at September 30, 2023 increased to 106 from 93 at September 30, 2022. The average sales price per home closed during the three months ended September 30, 2023 was $352,678, a decrease of $957, or 0.3%, from the average sales price per home closed of $353,635 for the three months ended September 30, 2022. The decrease in the average sales price per home closed was primarily due to geographic mix and our focus on starting smaller square foot homes to meet the current demand environment and address interest rate driven affordability constraints.
Included within our home sales revenues for the three months ended September 30, 2023 was $43.3 million in wholesale revenues resulting from 139 home closings, representing 7.9% of the 1,751 total homes closed during the three months ended September 30, 2023. Included within our home sales revenues for the three months ended September 30, 2022 was $127.9 million in wholesale revenues resulting from 443 home closings, representing 28.6% of the 1,547 total homes closed during the three months ended September 30, 2022.
Home sales revenues in our Central reportable segment decreased by $44.8 million, or 19.6%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, due to a 17.6% decrease in the number of homes closed and a 2.4% decrease in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
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Home sales revenues in our Southeast reportable segment increased by $11.1 million, or 8.0%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 7.9% increase in the number of homes closed and a slight increase in the average sales price per home closed. The increase in home closings was the result of a higher absorption rate and an increase in the average community count.
Home sales revenues in our Northwest reportable segment increased by $20.9 million, or 44.7%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 37.9% increase in the number of homes closed and a 4.9% increase in the average sales price per home closed. The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.
Home sales revenues in our West reportable segment increased by $29.9 million, or 45.9%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 60.6% increase in the number of homes closed, partially offset by a 9.2% decrease in the average sales price per home closed. The increase in home closings was the result of an increase in the average community count and a higher absorption rate.
Home sales revenues in our Florida reportable segment increased by $53.4 million, or 78.2%, during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to a 81.7% increase in the number of homes closed, partially offset by a 2.0% decrease in the average sales price per home closed. The increase in home closings was the result of a higher absorption rate and a higher average community count.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the three months ended September 30, 2023 to $458.7 million, an increase of $67.5 million, or 17.2%, from $391.3 million for the three months ended September 30, 2022, primarily due to a 13.2% increase in homes closed. Gross margin for the three months ended September 30, 2023 was $158.8 million, an increase of $3.0 million, or 1.9%, from $155.8 million for the three months ended September 30, 2022. Gross margin as a percentage of home sales revenues was 25.7% for the three months ended September 30, 2023 and 28.5% for the three months ended September 30, 2022. This decrease in gross margin was due to a combination of higher construction costs as a percentage of home sales revenues, higher capitalized interest charged to cost of sales and the impact of sales incentives offered during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
Selling Expenses. Selling expenses for the three months ended September 30, 2023 were $49.8 million, an increase of $15.8 million, or 46.7%, from $33.9 million for the three months ended September 30, 2022. The increase in selling expenses was primarily due to increased sales commissions, advertising expense and personnel costs for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Sales commissions increased to $27.9 million for the three months ended September 30, 2023 from $17.9 million for the three months ended September 30, 2022, due to a 12.9% increase in home sales revenues and an increase in outside commissions during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Selling expenses as a percentage of home sales revenues were 8.1% and 6.2% for the three months ended September 30, 2023 and 2022, respectively. The increase in selling expenses as a percentage of home sales revenues was primarily due to higher advertising, fewer wholesale home closings and other expenses incurred during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
General and Administrative. General and administrative expenses for the three months ended September 30, 2023 were $26.7 million, a decrease of $0.5 million, or 2.0%, from $27.3 million for the three months ended September 30, 2022. The decrease in the amount of general and administrative expenses was primarily due to lower costs related to the termination of land purchase agreements during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, partially offset by increased personnel costs and professional fees during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. General and administrative expenses as a percentage of home sales revenues were 4.3% and 5.0% for the three months ended September 30, 2023 and 2022, respectively. The decrease in general and administrative expenses as a percentage of home sales revenues was primarily due to the 12.9% increase in homes sales revenues during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
Other Income. Other income, net of other expenses was $7.2 million for the three months ended September 30, 2023, a decrease of $7.0 million from $14.1 million for the three months ended September 30, 2022. The decrease in other income, net of other expenses, primarily reflects the gain resulting from the sale of a three-year interest rate cap of LIBOR prior to its expiration during the three months ended September 30, 2022.
Operating Income and Net Income before Income Taxes. Operating income for the three months ended September 30, 2023 was $82.3 million, a decrease of $12.3 million, or 13.0%, from $94.6 million for the three months ended September 30, 2022. Net income before income taxes for the three months ended September 30, 2023 was $89.4 million, a decrease of $19.3
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million, or 17.7%, from $108.7 million for the three months ended September 30, 2022. All reportable segments contributed to net income before income taxes during the three months ended September 30, 2023 as follows: Central - $32.2 million, or 36.0%; Southeast - $26.8 million, or 29.9%; Northwest - $9.4 million, or 10.5%; West - $9.4 million, or 10.5%; and Florida - $15.6 million, or 17.4%. The overall decreases in operating income and net income before income taxes were primarily due to overall lower gross margin and higher advertising and other selling expenses incurred during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
Income Taxes. Income tax provision for the three months ended September 30, 2023 was $22.4 million, an increase of $4.1 million, or 22.4%, from income tax provision of $18.3 million for the three months ended September 30, 2022. The increase in our effective tax rate to 25.1% for the three months ended September 30, 2023 from 16.8% for the three months ended September 30, 2022 was primarily due to an increase in the rate for the state income taxes, net of the federal benefit, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and the impact of the retroactive extension in the third quarter of the federal energy efficient homes tax credits for the nine months ended September 30, 2022.
Net Income. Net income for the three months ended September 30, 2023 was $67.0 million, a decrease of $23.3 million, or 25.8%, from $90.4 million for the three months ended September 30, 2022. The decrease in net income was primarily attributed to lower gross margin and higher selling expenses as a percentage of revenues during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
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Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the nine months ended September 30, 2023 and 2022 were as follows (revenues in thousands):
Nine Months Ended September 30, 2023
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Central$564,580 1,724 $327,483 35.3 5.4 
Southeast397,618 1,216 326,988 24.1 5.6 
Northwest212,885 433 491,651 10.1 4.8 
West256,575 672 381,808 13.3 5.6 
Florida318,508 926 343,961 18.3 5.6 
Total$1,750,166 4,971 $352,075 101.1 5.5 
Nine Months Ended September 30, 2022
RevenuesHome ClosingsASPAverage Community CountAverage Monthly
Absorption Rate
Central$807,400 2,460 $328,211 31.3 8.7 
Southeast328,510 1,018 322,701 21.0 5.4 
Northwest220,440 429 513,846 8.6 5.5 
West244,603 598 409,035 11.2 5.9 
Florida215,240 668 322,216 19.0 3.9 
Total$1,816,193 5,173 $351,091 91.1 6.3 
Home sales revenues for the nine months ended September 30, 2023 were $1.75 billion, a decrease of $0.1 billion, or 3.6%, from $1.82 billion for the nine months ended September 30, 2022. The decrease in home sales revenues was primarily due to a 3.9% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The overall decrease in home closings was a result of an overall lower absorption rate, partially offset by a higher average community count, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The average sales price per home closed during the nine months ended September 30, 2023 was $352,075, an increase of $984, or 0.3%, from the average sales price per home closed of $351,091 for the nine months ended September 30, 2022. The increase in the average sales price per home closed was primarily due to our ability to increase prices in certain markets and the impact of fewer home closings in our wholesale channel. The overall decrease in absorption rate relates to the normalization of demand primarily resulting from higher mortgage rates.
Included within our home sales revenues for the nine months ended September 30, 2023 was $116.3 million in wholesale revenues resulting from 381 home closings, representing 7.7% of the 4,971 total homes closed during the nine months ended September 30, 2023. Included within our home sales revenues for the nine months ended September 30, 2022 was $216.6 million in wholesale revenues resulting from 802 home closings, representing 15.5% of the 5,173 total homes closed during the nine months ended September 30, 2022. The decrease in home closings as a percentage of revenues through our wholesale channel was primarily related to lower demand from our wholesale channel customers during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Home sales revenues in our Central reportable segment decreased by $242.8 million, or 30.1%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 29.9% decrease in the number of homes closed and a slight decrease in the average sales price per home closed. The decrease
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in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
Home sales revenues in our Southeast reportable segment increased by $69.1 million, or 21.0%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 19.4% increase in the number of homes closed and a 1.3% increase in the average sales price per home closed. The increase in home closings was the result of an increase in the average community count and a higher absorption rate.
Home sales revenues in our Northwest reportable segment decreased by $7.6 million, or 3.4%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 4.3% decrease in the average sales price per home closed, partially offset by a 0.9% increase in the number of homes closed. The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.
Home sales revenues in our West reportable segment increased by $12.0 million, or 4.9%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 12.4% increase in the number of homes closed, partially offset by a 6.7% decrease in the average sales price per home closed. The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.
Home sales revenues in our Florida reportable segment increased by $103.3 million, or 48.0%, during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to a 38.6% increase in the number of homes closed and a 6.7% increase in the average sales price per home closed. The increase in home closings was the result of a higher absorption rate, partially offset by a decrease in the average community count.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the nine months ended September 30, 2023 to $1.4 billion, an increase of $0.1 billion, or 6.3%, from $1.3 billion for the nine months ended September 30, 2022. This overall increase was primarily due to higher construction costs and capitalized interest, partially offset by a 3.9% decrease in homes closed. Gross margin for the nine months ended September 30, 2023 was $399.6 million, a decrease of $146.0 million, or 26.8%, from $545.6 million for the nine months ended September 30, 2022. Gross margin as a percentage of home sales revenues was 22.8% for the nine months ended September 30, 2023 and 30.0% for the nine months ended September 30, 2022. The decrease in gross margin as a percentage of home sales revenues during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 was primarily due to a combination of higher construction costs, capitalized interest and the impact of sales incentives offered during the nine months ended September 30, 2023.
Selling Expenses. Selling expenses for the nine months ended September 30, 2023 were $141.8 million, an increase of $30.2 million, or 27.1%, from $111.6 million for the nine months ended September 30, 2022. The increase in selling expenses was primarily due to increased advertising expense, sales commissions and personnel costs for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Sales commissions increased to $77.1 million primarily due to an increase in outside commissions during the nine months ended September 30, 2023 from $68.5 million for the nine months ended September 30, 2022. Selling expenses as a percentage of home sales revenues were 8.1% and 6.1% for the nine months ended September 30, 2023 and 2022, respectively. The increase in selling expenses as a percentage of home sales revenues was driven primarily by increased advertising expense, sales commissions and other expenses incurred during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
General and Administrative. General and administrative expenses for the nine months ended September 30, 2023 were $84.3 million, a decrease of $0.3 million, or 0.4%, from $84.7 million for the nine months ended September 30, 2022. General and administrative expenses as a percentage of home sales revenues were 4.8% and 4.7% for the nine months ended September 30, 2023 and 2022, respectively.
Other Income. Other income, net of other expenses was $19.8 million for the nine months ended September 30, 2023, a decrease of $2.2 million from $22.0 million for the nine months ended September 30, 2022. The decrease in other income, net of other expenses, primarily reflects the proceeds resulting from the sale of a three-year interest rate cap of LIBOR prior to its expiration, offset by the increase in income associated with our investment in unconsolidated entities for the nine months ended September 30, 2023 and 2022, respectively.
Operating Income and Net Income before Income Taxes. Operating income for the nine months ended September 30, 2023 was $173.4 million, a decrease of $175.9 million, or 50.4%, from $349.3 million for the nine months ended September 30, 2022. Net income before income taxes for the nine months ended September 30, 2023 was $193.2 million, a decrease of $178.1 million, or 48.0%, from $371.3 million for the nine months ended September 30, 2022. The following reportable segments contributed to net income before income taxes during the nine months ended September 30, 2023 as follows: Central - $69.5
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million, or 36.0%; Southeast - $54.2 million, or 28.0%; Northwest - $23.2 million, or 12.0%; West - $15.2 million, or 7.8%; and Florida - $37.1 million, or 19.2%. The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption pace at a lower gross margin, higher advertising and other selling expenses incurred, partially offset by a higher average community count during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Income Taxes. Income tax provision for the nine months ended September 30, 2023 was $46.1 million, a decrease of $32.7 million, or 41.5%, from income tax provision of $78.8 million for the nine months ended September 30, 2022. The increase in our effective tax rate to 23.8% for the nine months ended September 30, 2023 from 21.2% for the nine months ended September 30, 2022 was primarily due to an increase in the rate for the state income taxes, net of the federal benefit, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and the retroactive extension of the federal energy efficient homes tax credits for the nine months ended September 30, 2022, offset by a decrease in the rate for the deductions in excess of compensation cost for share-based payments.
Net Income. Net income for the nine months ended September 30, 2023 was $147.1 million, a decrease of $145.3 million, or 49.7%, from $292.5 million for the nine months ended September 30, 2022. The decrease in net income was primarily attributed to a lower gross margin and higher selling expenses as a percentage of revenues during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
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 September 30,Nine Months Ended September 30,
2023202220232022
Home sales revenues$617,539 $547,074 $1,750,166 $1,816,193 
Cost of sales458,734 391,275 1,350,608 1,270,628 
Gross margin158,805 155,799 399,558 545,565 
Capitalized interest charged to cost of sales8,580 4,617 24,475 14,865 
Purchase accounting adjustments (1)
767 1,162 5,511 5,470 
Adjusted gross margin$168,152 $161,578 $429,544 $565,900 
Gross margin % (2)
25.7 %28.5 %22.8 %30.0 %
Adjusted gross margin % (2)
27.2 %29.5 %24.5 %31.2 %
(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
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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, 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 September 30,Nine Months Ended September 30,
2023202220232022
Net income$67,042 $90,390 $147,138 $292,452 
Income tax provision (benefit)22,407 18,311 46,068 78,811 
Depreciation and amortization793 404 1,780 1,134 
Capitalized interest charged to cost of sales8,580 4,617 24,475 14,865 
EBITDA98,822 113,722 219,461 387,262 
Purchase accounting adjustments(1)
767 1,162 5,511 5,470 
Other income, net(7,173)(14,124)(19,793)(21,960)
Adjusted EBITDA$92,416 $100,760 $205,179 $370,772 
EBITDA margin %(2)
16.0 %20.8 %12.5 %21.3 %
Adjusted EBITDA margin %(2)
15.0 %18.4 %11.7 %20.4 %
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(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 $10,000). 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 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 with varying terms. 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. 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 increased for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in average community count.
The number of homes in our backlog at September 30, 2023 increased 9.7% compared to September 30, 2022. The increase in ending backlog relates to the normalization in demand for new homes experienced in the third quarter of 2023 as compared to the third quarter of 2022.
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 DataNine Months Ended September 30,
2023 (4)
2022 (5)
Net orders (1)
5,646 4,373 
Cancellation rate (2)
22.8 %21.0 %
Ending backlog – homes (3)
1,377 1,255 
Ending backlog – value (3)
$509,932 $428,293 
(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 with varying terms. Ending backlog is valued at the contract amount.
(4)As of September 30, 2023, we had 273 units related to bulk sales agreements associated with our wholesale business.
(5)As of September 30, 2022, we had 591 units related to bulk sales agreements associated with our wholesale business.

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Land Acquisition Policies and Development
We had 106 and 99 active communities as of September 30, 2023 and December 31, 2022, respectively. Generally, it takes us two to three years to turn raw or undeveloped land into an active community. To mitigate our exposure to real estate inventory risks, we utilize, on a limited and strategic basis, land banking financing arrangements.
Our lot inventory increased to 72,109 owned or controlled lots as of September 30, 2023 from 71,904 owned or controlled lots as of December 31, 2022, primarily related to our discipline in the evaluation of and selective approval of new land deals.
We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources. In consideration for this repurchase option, we paid a non-refundable commitment fee. Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held as real estate not owned within our inventory and a corresponding obligation was established within our accrued liabilities, as discussed in Note 3, “Accrued Expenses and Other Liabilities” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, to recognize this relationship. While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased. We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.
The table below shows (i) home closings by reportable segment for the nine months ended September 30, 2023 and (ii) our owned or controlled lots by reportable segment as of September 30, 2023.
Nine Months Ended September 30, 2023As of September 30, 2023
Reportable SegmentHome Closings
Owned (1)
ControlledTotal
Central1,724 21,048 3,624 24,672 
Southeast1,216 14,756 4,907 19,663 
Northwest433 5,981 2,138 8,119 
West672 9,176 2,195 11,371 
Florida926 5,340 2,944 8,284 
Total4,971 56,301 15,808 72,109 
(1)Of the 56,301 owned lots as of September 30, 2023, 42,618 were raw/under development lots and 13,683 were finished lots.
Homes in Inventory
When entering a new community, we intend to 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 September 30, 2023, we had a total of 1,471 completed homes, including information centers, and 3,009 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. We purchase some components and materials centrally to achieve volume discounts, reducing costs and helping to ensure timely deliveries. We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction. In addition, the majority of our raw materials are supplied to us by our subcontractors, and are 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. Our construction work is performed by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices possible. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber.



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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 September 30, 2023, we had $47.0 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 shares 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.
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 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 rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects. Furthermore, we utilize, on a limited and strategic basis, land banking financing arrangements to access short-term liquidity.
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, 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, repurchases of shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing between 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. Additionally, we plan to further utilize, on a limited and strategic basis, land banking financing arrangements to maximize long-term liquidity for lot development projects where we have sufficient finished lot availability in certain markets. 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 28, 2023, we entered into a Third Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Third Amendment”), which amends the Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (as amended by an amendment dated as of April 29,
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2022 and as further amended by the Third Amendment, the “Credit Agreement”). The Credit Agreement provides for a $1.13 billion revolving credit facility, which can be increased at the request of the Company by up to $170.0 million, subject to the terms and conditions of the Credit Agreement.
The Credit Agreement matures on April 28, 2027 with respect to $775.0 million, or 68.6%, of the $1.13 billion of commitments thereunder and on April 28, 2025 with respect to 31.4% of the commitments thereunder. 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, other than subsidiaries whose sole purpose is to own and operate single-family rental homes.
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 September 30, 2023, the borrowing base under the Credit Agreement is $1.8 billion of which the maximum available to borrow is $1.4 billion. As of September 30, 2023, borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes totaled $1.2 billion, $28.1 million of letters of credit were outstanding and $196.2 million was available to borrow under the 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. 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.
Letters of Credit, Surety Bonds and Financial Guarantees
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 $382.9 million as of September 30, 2023. 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 September 30, 2023 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 nine months ended September 30, 2023, we did not repurchase any shares of our common stock. During the nine months ended September 30, 2022, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock. A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced. As of September 30, 2023, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.


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Cash Flows
Operating Activities
Net cash used in operating activities was $22.7 million for the nine months ended September 30, 2023. 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 nine months ended September 30, 2023 was primarily driven by cash outflow from the $194.4 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 $147.1 million.
Net cash used in operating activities was $359.6 million for the nine months ended September 30, 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 nine months ended September 30, 2022 was primarily driven by cash outflow from the $791.7 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 partially offset by net income of $292.5 million, as well as the $41.1 million and the $43.8 million increase in the net change in accounts payable and accrued expenses and other liabilities, respectively.
Investing Activities
Net cash used in investing activities was $7.6 million for the nine months ended September 30, 2023, primarily due to additional investment in unconsolidated entities.
Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.
Financing Activities
Net cash provided by financing activities was $45.3 million for the nine months ended September 30, 2023, primarily driven by net borrowings of $75.9 million on the Credit Agreement, partially offset by net payments of $29.4 million related to a financing arrangement with a third-party land banker.
Net cash provided by financing activities was $363.8 million for the nine months ended September 30, 2022, primarily driven by $534.9 million of borrowings under our credit agreement then in effect and the 2022 Credit Agreement and $35.9 million of proceeds related to a financing arrangement with a third-party land banker. These were partially offset by $110.0 million of repayments on our credit agreement then in effect and the 2022 Credit Agreement and by $95.1 million in payments for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
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 nine months ended September 30, 2023, we continued to experience pressure on costs due to high levels of inflation, which we expect will continue throughout 2023. 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, 2022.
Material Cash Requirements
As of September 30, 2023, 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, 2022.
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
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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 nine months ended September 30, 2023 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, 2022.
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 rates, supply chain disruptions (including due to the conflict between Russia and 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 the conflict in the Middle East), inflation, the possibility of recession and decreases in housing prices;
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;
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;
increases in taxes or government fees;
decline in the market value of our land portfolio;
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;
the cost and availability of insurance and surety bonds;
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;
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our leverage and future debt service obligations;
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;
information system failures, cyber incidents or breaches in security;
our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond 2032;
our ability to retain our key personnel;
the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions);
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;
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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
the risk factor set forth in Item 1A. Risk Factors in Part II of this Quarterly Report on Form 10-Q; and
the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.
ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgage rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, gross margin and net income.
Quantitative and Qualitative Disclosures About Interest Rate Risk
We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the 2029 Senior Notes and certain inventory related obligations) and variable-rate debt (our $1.13 billion Credit Agreement) as part of financing our operations. We do not have the obligation to prepay the 2029 Senior Notes or our fixed-rate inventory related obligations prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt.
We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. We currently do not hold derivatives for trading or speculative purposes, but we may do so in the future. Many of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the heading “Cautionary Statement about Forward-Looking Statements” above.
As of September 30, 2023, we had $904.2 million of variable rate indebtedness outstanding under the Credit Agreement. All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR. The interest rate for our variable rate indebtedness as of September 30, 2023 was SOFR plus 1.70%. At September 30, 2023, SOFR was 5.32%, subject to the 0.50% SOFR floor as included in the Credit Agreement. A hypothetical 100 basis point increase in the average interest rate above the SOFR floor on our variable rate indebtedness would increase our annual interest cost by approximately $9.0 million.
Based on the current interest rate management policies we have in place with respect to our outstanding indebtedness, we do not believe that the future interest rate risks related to our existing indebtedness will have a material adverse impact on our financial position, results of operations or liquidity.

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ITEM 4.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Changes in Internal Controls
No change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred during the three months ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023.

ITEM 5.     OTHER INFORMATION
On August 22, 2023, Michael Snider, Chief Operating Officer of the Company, adopted a “Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K, that is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. Subject to meeting the stock price conditions set forth therein and pursuant to the terms thereof, Mr. Snider’s Rule 10b5-1 trading arrangement provides for the sale, between November 20, 2023 and November 20, 2024, of a maximum number of shares of the Company’s common stock that would generate proceeds of up to $4.0 million. Mr. Snider’s Rule 10b5-1 trading arrangement will be in effect until the earlier of (i) November 20, 2024 and (ii) the completion of all sales contemplated thereunder.
Except as set forth above, during the three months ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.


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ITEM 6.         EXHIBITS
Exhibit No.
  Description  
3.1**
3.2**
3.3**
31.1*
31.2*
32.1*
32.2*
101.INS†Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH†
Inline XBRL Taxonomy Extension Schema Document.
101.CAL†
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF†
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB†
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE†
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104†Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*Filed herewith.
**Previously filed.
XBRL information is deemed not filed or a part of a registration statement or Annual Report for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under such sections.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LGI Homes, Inc.
Date:October 31, 2023/s/    Eric Lipar
Eric Lipar
Chief Executive Officer and Chairman of the Board
October 31, 2023/s/    Charles Merdian
Charles Merdian
Chief Financial Officer and Treasurer


39
Document

EXHIBIT 31.1
CEO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES - OXLEY ACT OF 2002
I, Eric Lipar, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of LGI Homes, Inc. (the “Registrant”);
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: October 31, 2023
By:  /s/ Eric Lipar
   Eric Lipar
   Chief Executive Officer and Chairman of the Board
   LGI Homes, Inc.

Document

EXHIBIT 31.2
CFO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES - OXLEY ACT OF 2002
I, Charles Merdian, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of LGI Homes, Inc. (the “Registrant”);
2. Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and
d.Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: October 31, 2023
By: /s/ Charles Merdian
   Charles Merdian
   Chief Financial Officer and Treasurer
   LGI Homes, Inc.

Document

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LGI Homes, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eric Lipar, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
October 31, 2023
 /s/ Eric Lipar
   Eric Lipar
   Chief Executive Officer and Chairman of the Board
   LGI Homes, Inc.


Document

EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LGI Homes, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles Merdian, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
October 31, 2023
 /s/ Charles Merdian
   Charles Merdian
   Chief Financial Officer and Treasurer
   LGI Homes, Inc.