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LGIH LGI Homes

Filed: 4 May 21, 4:15pm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     .
Commission file number 001-36126      

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)

Delaware46-3088013
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1450 Lake Robbins Drive,Suite 430,The Woodlands,Texas77380
(Address of principal executive offices)(Zip code)
(281)362-8998
(Registrants Telephone Number, Including Area Code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareLGIHNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company

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

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

As of April 30, 2021, there were 24,934,429 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


TABLE OF CONTENTS
   




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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LGI HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 March 31,December 31,
 20212020
ASSETS
Cash and cash equivalents$48,157 $35,942 
Accounts receivable59,229 115,939 
Real estate inventory1,609,693 1,569,489 
Pre-acquisition costs and deposits39,488 37,213 
Property and equipment, net6,160 3,618 
Other assets47,391 44,882 
Deferred tax assets, net3,350 6,986 
Goodwill12,018 12,018 
Total assets$1,825,486 $1,826,087 
LIABILITIES AND EQUITY
Accounts payable$41,552 $13,676 
Accrued expenses and other liabilities151,348 135,008 
Notes payable413,948 538,398 
Total liabilities606,848 687,082 
COMMITMENTS AND CONTINGENCIES00
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 26,908,643 shares issued and 24,934,429 shares outstanding as of March 31, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020269 267 
Additional paid-in capital276,398 270,598 
Retained earnings1,033,935 934,277 
Treasury stock, at cost, 1,974,214 shares and 1,757,993 shares, respectively(91,964)(66,137)
Total equity1,218,638 1,139,005 
Total liabilities and equity$1,825,486 $1,826,087 









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

 
 Three Months Ended March 31,
 20212020
Home sales revenues$705,953 $454,727 
Cost of sales516,004 348,163 
Selling expenses42,783 32,763 
General and administrative24,723 19,923 
   Operating income122,443 53,878 
Other income, net(833)(1,011)
Net income before income taxes123,276 54,889 
Income tax provision23,618 12,050 
Net income$99,658 $42,839 
Earnings per share:
Basic$3.99 $1.69 
Diluted$3.95 $1.67 
Weighted average shares outstanding:
Basic24,950,867 25,323,119 
Diluted25,220,872 25,592,835 























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

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


BALANCE—December 31, 201926,398,409 $264 $252,603 $610,382 $(18,056)$845,193 
Net income— — — 42,839 — 42,839 
Restricted stock units granted for accrued annual bonuses— — 222 — — 222 
Stock repurchase— — — — (31,335)(31,335)
Compensation expense for equity awards— — 1,853 — — 1,853 
Stock issued under employee incentive plans282,065 831 — — 833 
BALANCE— March 31, 202026,680,474 $266 $255,509 $653,221 $(49,391)$859,605 


















See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Three Months Ended March 31,
 20212020
Cash flows from operating activities:
Net income$99,658 $42,839 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization288 161 
Compensation expense for equity awards3,422 1,853 
Deferred income taxes3,636 2,320 
Changes in assets and liabilities:
Accounts receivable56,710 11,385 
Real estate inventory(41,692)17,902 
Pre-acquisition costs and deposits(2,276)(204)
Other assets(4,192)(2,953)
Accounts payable27,876 6,571 
Accrued expenses and other liabilities17,256 (21,071)
Net cash provided by operating activities160,686 58,803 
Cash flows from investing activities:
Purchases of property and equipment(1,279)(417)
Return of capital from (investment in) unconsolidated entity1,683 (1,125)
Net cash provided by (used in) investing activities404 (1,542)
Cash flows from financing activities:
Proceeds from notes payable104,844 128,128 
Payments on notes payable(230,000)(75,000)
Proceeds from sale of stock, net of offering expenses2,108 833 
Stock repurchase(25,827)(31,335)
Net cash provided by (used in) financing activities(148,875)22,626 
Net increase in cash and cash equivalents12,215 79,887 
Cash and cash equivalents, beginning of period35,942 38,345 
Cash and cash equivalents, end of period$48,157 $118,232 







See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     ORGANIZATION AND BASIS OF PRESENTATION
Organization and Description of the Business
LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia and Pennsylvania.
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, 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.     REVENUES
Revenue Recognition
Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home. Home sales discounts and incentives granted to customers, which are related to the customers’ closing costs that we pay on the customers’ behalf, are recorded as a reduction of revenue in our consolidated financial statements of operations.
The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended March 31,
20212020
Retail home sales revenues$643,572 $410,402 
Wholesale home sales revenues62,381 44,325 
Total home sales revenues$705,953 $454,727 
The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):
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Three Months Ended March 31,
20212020
Central$288,750 $165,775 
Southeast136,551 88,447 
Northwest118,191 101,948 
West81,148 58,485 
Florida81,313 40,072 
Total home sales revenues$705,953 $454,727 

Home Sales Revenues
We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.
Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions. Our LGI Homes brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.
Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.
Performance Obligations
Our contracts with customers include a single performance obligation to transfer a completed home to the customer. We generally determine selling price per home on the expected cost plus margin. Our contracts contain no significant financing terms as customers who finance do so through a third party. Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing. Home sales proceeds are generally received from the title company within a few business days after closing.
Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Sales and broker commissions are expensed upon fulfillment of a home closing. Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred. Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.
3.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
March 31,December 31,
20212020
Land, land under development and finished lots$1,031,117 $981,838 
Information centers28,528 30,201 
Homes in progress425,585 337,364 
Completed homes124,463 220,086 
Total real estate inventory$1,609,693 $1,569,489 
Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.
Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred to homes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value. Inventory costs for completed homes are expensed to cost of
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sales as homes are closed. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.
The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.
Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5, are capitalized to qualifying real estate projects under development and homes under construction.

4.     ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
March 31,December 31,
20212020
Taxes payable$45,604 $26,181 
Real estate inventory development and construction payable31,138 29,938 
Accrued compensation, bonuses and benefits18,680 28,579 
Accrued interest5,262 10,853 
Inventory related obligations3,872 4,515 
Lease liability5,249 5,287 
Warranty reserve5,950 5,350 
Contract deposits27,195 17,151 
Other8,398 7,154 
Total accrued expenses and other liabilities$151,348 $135,008 
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. Such obligations 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 March 31,
 20212020
Warranty reserves, beginning of period$5,350 $3,500 
Warranty provision2,589 1,420 
Warranty expenditures(1,989)(1,170)
Warranty reserves, end of period$5,950 $3,750 

5.     NOTES PAYABLE
Revolving Credit Agreement
On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated
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Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment. Lenders with $566.0 million, or 87%, of the $650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022. The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70%. The 2020 Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $650.0 million revolving credit facility, which can be increased at the request of the Company by up to $100.0 million, subject to the terms and conditions of the 2020 Credit Agreement.
The 2020 Credit Agreement matures on May 31, 2023 with respect to 87% of the commitments thereunder and on May 31, 2022 with respect to 13% of the commitments thereunder. Before each anniversary of the 2020 Credit Agreement, we may request a one-year extension of its maturity date. The 2020 Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $0.5 million. The borrowings and letters of credit outstanding under the 2020 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the 2020 Credit Agreement. As of March 31, 2021, the borrowing base under the 2020 Credit Agreement was $949.3 million, of which borrowings, including the Senior Notes, of $421.5 million were outstanding, $10.3 million of letters of credit were outstanding and $517.5 million was available to borrow under the 2020 Credit Agreement.
Interest is paid monthly on borrowings under the 2020 Credit Agreement at LIBOR plus 2.35%. The 2020 Credit Agreement applicable margin for LIBOR loans ranges from 2.35% to 2.75% based on our leverage ratio. At March 31, 2021, LIBOR was 0.11%; however, the 2020 Credit Agreement has a 0.70% LIBOR floor.
The 2020 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 2020 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.
On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”), which amends and restates the 2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.
Senior Notes Offering
On July 6, 2018, we issued $300.0 million aggregate principal amount of the 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 Senior Notes accrues at a rate of 6.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026. Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the 2020 Credit Agreement and Wilmington Trust, National Association, as trustee.
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Notes payable consist of the following (in thousands):
March 31, 2021December 31, 2020
Notes payable under the 2020 Credit Agreement ($650.0 million revolving credit facility at March 31, 2021) maturing in part on May 31, 2022 and in part on May 31, 2023; interest paid monthly at LIBOR plus 2.35%; net of debt issuance costs of approximately $4.4 million and $4.9 million at March 31, 2021 and December 31, 2020, respectively$117,107 $241,717 
6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%; net of debt issuance costs of approximately $1.8 million and $1.9 million at March 31, 2021 and December 31, 2020, respectively; and approximately $1.4 million in unamortized discount at March 31, 2021 and December 31, 2020.296,841 296,681 
Total notes payable$413,948 $538,398 

Capitalized Interest
Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):
Three Months Ended March 31,
20212020
Interest incurred$7,732 $10,156 
Less: Amounts capitalized(7,732)(10,156)
Interest expense$$
Cash paid for interest$12,633 $15,024 
Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.7 million for the three months ended March 31, 2021 and 2020.
6.     INCOME TAXES
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.
For the three months ended March 31, 2021, our effective tax rate of 19.2% is lower than the Federal statutory rate primarily as a result of the extension of the federal energy efficient homes tax credit that was enacted into law in December 2019 and excess compensation cost for share-based payments, partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.
Income taxes paid were $0.2 million and $18.4 million for the three months ended March 31, 2021 and 2020, respectively.
7.     EQUITY
Stock Repurchase Program
In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. In October 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million. During the three months ended March 31, 2021 and 2020, we repurchased 216,221 and 567,028 shares of our common stock for $25.8 million and $31.3 million, respectively, to be held as treasury stock. A total of 757,993 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, 2021, we may purchase up to $274.6 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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8.     EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$99,658 $42,839 
Denominator:
       Basic weighted average shares outstanding24,950,867 25,323,119 
       Effect of dilutive securities:
         Stock-based compensation units270,005 269,716 
       Diluted weighted average shares outstanding25,220,872 25,592,835 
Basic earnings per share$3.99 $1.69 
Diluted earnings per share$3.95 $1.67 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share21,510 26,893 

9.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Three Months Ended March 31,
20212020
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balance142,738 $62.54 162,686 $50.84 
   Granted23,366 $141.00 46,701 $59.81 
   Vested(30,407)$64.44 (51,531)$31.95 
   Forfeited(1,627)$61.58 (982)$51.03 
Ending balance134,070 $75.79 156,874 $59.71 
We recognized $0.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended March 31, 2021 and 2020. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At March 31, 2021, we had unrecognized compensation cost of $6.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 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
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market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the three months ended March 31, 2021:
Period GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2020Target PSUs GrantedTarget PSUs VestedTarget PSUs ForfeitedTarget PSUs Outstanding at March 31, 2020Weighted Average Grant Date Fair Value
20182018 - 202060,040 — (60,040)— $64.60 
20192019 - 202181,242 — — — 81,242 $56.49 
20202020 - 202288,538 — — — 88,538 $59.81 
2021 2021 - 2023— 46,027 — — 46,027 $141.00 
Total229,820 46,027 (60,040)215,807 
At March 31, 2021, management estimates that the recipients will receive approximately 100%, 200% and 200% of the 2021, 2020 and 2019 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $2.2 million and $0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2021 and 2020, respectively. The 2018 - 2020 performance period PSUs vested and issued on March 15, 2021 at 200% of the target number. At March 31, 2021, we had unrecognized compensation cost of $16.6 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.
10.    FAIR VALUE DISCLOSURES
ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.
ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities, or quoted prices in markets that are not active.
Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the
measurement date, such as a pricing model, discounted cash flow or similar technique.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. As of March 31, 2021, 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 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 March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021December 31, 2020
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Senior NotesLevel 2$296,841 $338,080 $296,681 $340,388 

11.    RELATED PARTY TRANSACTIONS
Land Purchases from Affiliates
As of March 31, 2021, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $4.0 million. The lots will be purchased in takedowns, subject to a maximum price escalation of 6% per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer. We have a $0.2 million non-refundable deposit at March 31, 2021 related to this land purchase contract. In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $2.1 million. We did not complete any takedowns under this land purchase contract during the three months ended March 31, 2021 and 2020.
As of March 31, 2021, we have a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $2.5 million.
12.     COMMITMENTS AND CONTINGENCIES
Contingencies
In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations. Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

Land Deposits
We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):
March 31, 2021December 31, 2020
Land deposits and option payments$35,484 $34,097 
Commitments under the land purchase contracts if the purchases are consummated$728,140 $663,006 
Lots under land purchase contracts28,784 26,236 
As of March 31, 2021 and December 31, 2020, approximately $25.1 million and $24.0 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

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Lease Obligations
We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities.  Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets, as included in other assets on the consolidated balance sheets, were $4.9 million as of March 31, 2021 and December 31, 2020. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $5.2 million and $5.3 million at March 31, 2021 and December 31, 2020, respectively.
Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $0.4 million for the three months ended March 31, 2021 and 2020. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2021 and 2020 was $0.2 million and $0.4 million, respectively. As of March 31, 2021, the weighted-average discount rate was 5.24% and our weighted-average remaining life was 4.8 years. We do not have any significant lease contracts that have not yet commenced at March 31, 2021.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2021 (in thousands):
Year Ending December 31,Operating leases
2021$997 
20221,138 
20231,007 
2024776 
2025517 
Thereafter1,762 
Total6,197 
Lease amount representing interest(948)
Present value of lease liabilities$5,249 
Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $167.6 million (including $10.3 million of letters of credit issued under the Credit Agreement) and $143.8 million at March 31, 2021 and December 31, 2020, 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 Entity
In 2019, we became a limited partner in a real estate investment fund with a maximum $30.0 million commitment. The term of the commitment is eight years and includes renewals of up to two additional years. As of March 31, 2021 and December 31, 2020, we have a total of $2.2 million and $3.9 million, respectively, within other assets on the balance sheet. Contributions into the unconsolidated entity are for the use of investing in certain real estate transactions.
13.     SEGMENT INFORMATION
We operate one principal homebuilding business that is organized and reports by division. We have 7 operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into 5 reportable segments at March 31, 2021: our Central, Southeast, Northwest, West, and Florida divisions. These segments reflect the way the Company evaluates its business performance and manages its operations. The Central division is our largest division and comprised approximately 40.9% and 36.5% of total home sales revenues for the three months ended March 31, 2021 and 2020, respectively.
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In accordance with ASC Topic 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.
The 7 operating segments qualify as our 5 reportable segments. 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 0 inter-segment sales, as all sales are to external customers. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.
Financial information relating to our reportable segments was as follows (in thousands):
Three Months Ended March 31,
20212020
Revenues:
Central$288,750 $165,775 
Southeast136,551 88,447 
Northwest118,191 101,948 
West81,148 58,485 
Florida81,313 40,072 
Total home sales revenues$705,953 $454,727 
Net income (loss) before income taxes:
Central$55,634 $24,234 
Southeast19,831 7,908 
Northwest25,994 16,527 
West12,611 5,272 
Florida10,816 2,525 
Corporate (1)
(1,610)(1,577)
Total net income before income taxes$123,276 $54,889 
(1)The Corporate balance consists primarily of general and administration unallocated costs for various shared service functions, as well as our warranty reserve. Actual warranty expenses are reflected within the reportable segments.
March 31, 2021December 31, 2020
Assets:
Central$679,525 $708,087 
Southeast381,246 401,725 
Northwest251,325 252,098 
West264,832 228,186 
Florida157,561 157,169 
Corporate (1)
90,997 78,822 
Total assets$1,825,486 $1,826,087 
(1)The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses and income tax receivables related to the federal energy efficient homes tax credit.
14.    SUBSEQUENT EVENT
On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent, which amends and restates the 2020 Credit Agreement, as more fully discussed in Note 5.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar terms refer to LGI Homes, Inc. and its subsidiaries.
Business Overview
We are engaged in the design, construction and sale of new homes in the following markets:
WestNorthwestCentralMidwestFloridaSoutheastMid-Atlantic
Phoenix, AZSeattle, WAHouston, TXMinneapolis, MNTampa, FLAtlanta, GAWashington, D.C.
Tucson, AZPortland, ORDallas Ft. Worth, TXOrlando, FLCharlotte, NCRichmond, VA
Albuquerque, NMDenver, COSan Antonio, TXFort Myers, FLRaleigh, NCBaltimore, MD
Las Vegas, NVAustin, TXJacksonville, FLWilmington, NC
Northern CAOklahoma City, OKFort Pierce, FLWinston-Salem, NC
Southern CADaytona Beach, FLColumbia, SC
Sarasota, FLGreenville, SC
Birmingham, AL
Nashville, TN
Our management team has been in the residential land development business since the mid-1990s. Since commencing home building operations in 2003, we have constructed and closed over 45,000 homes. During the three months ended March 31, 2021, we had 2,561 home closings, compared to 1,835 home closings during the three months ended March 31, 2020.
We sell homes under the LGI Homes and Terrata Homes brands. Our 110 active communities at March 31, 2021 included two Terrata Homes communities.
During the three months ended March 31, 2021, we recorded $62.4 million in wholesale revenues as a result of 283 home closings, representing 11.1% of the total homes closed during the three months ended March 31, 2021. During the three months ended March 31, 2020, we recorded $44.3 million in wholesale revenues as a result of 199 home closings, representing 10.8% of the total homes closed during the three months ended March 31, 2020. We believe our wholesale home closings provide opportunities for us to leverage our systems and processes to meet the needs of companies looking to acquire multiple homes for rental purposes, primarily through bulk sales agreements.
COVID-19
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The spread of COVID-19 has caused significant volatility in U.S. and international debt and equity markets, which can negatively impact consumer confidence.
In response to COVID-19, we continue to take steps to prioritize the health and safety of our employees, customers, subcontractors and suppliers, including expanded safety policies and practices based on Center for Disease Control guidelines to reduce the spread of COVID-19.
As a homebuilder and developer, we provide an important service to our customers. During the COVID-19 outbreak, our main focus beyond the health and safety mentioned above is to continue our efforts to sell homes and complete our homes under construction.
We cannot predict the full impact that the significant disruption and volatility currently being experienced in the markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties. For additional discussion regarding our operations and COVID-19, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II our Annual Report on Form 10-K for the fiscal year ended
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December 31, 2020. The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the emergence of more infectious strains of the virus, the impact of government actions designed to prevent the spread of COVID-19 or the decrease in such actions, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors in Part I our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. While we expect COVID-19 to continue to influence our future results, we believe that the desire for single-family homes outside of densely populated urban areas combined with historically low mortgage rates and low availability of existing homes is driving an increase in demand for new homes.
Recent Developments
During the three months ended March 31, 2021, we purchased 216,221 shares of our common stock for $25.8 million under our previously announced stock repurchase program.
In March 2021, we entered into a joint venture with loanDepot.com, LLC to offer mortgage services within markets we operate.
On April 28, 2021, we entered into the Credit Agreement (as defined herein), which amends and restates the 2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.
Key financial results as of and for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, were as follows:
Home sales revenues increased 55.2% to $706.0 million from $454.7 million.
Homes closed increased 39.6% to 2,561 homes from 1,835 homes.
Average sales price per home closed increased 11.2% to $275,655 from $247,808.
Gross margin as a percentage of home sales revenues increased to 26.9% from 23.4%.
Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 28.5% from 25.5%.
Net income before income taxes increased 124.6% to $123.3 million from $54.9 million.
Net income increased 132.6% to $99.7 million from $42.8 million.
EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.0% from 14.1%.
Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.0% from 14.0%.
Total owned and controlled lots increased 9.4% to 67,286 lots at March 31, 2021 from 61,504 lots at December 31, 2020.
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.”
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Results of Operations
The following table sets forth our results of operations for the three months ended March 31, 2021 and 2020: 
 Three Months Ended March 31,
 20212020
(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:
Home sales revenues$705,953 $454,727 
Expenses:
Cost of sales516,004 348,163 
Selling expenses42,783 32,763 
General and administrative24,723 19,923 
     Operating income122,443 53,878 
Other income, net(833)(1,011)
     Net income before income taxes123,276 54,889 
Income tax provision23,618 12,050 
     Net income$99,658 $42,839 
Basic earnings per share$3.99 $1.69 
Diluted earnings per share$3.95 $1.67 
Other Financial and Operating Data:
Average community count106.3 108.7 
Community count at end of period110 113 
Home closings2,561 1,835 
Average sales price per home closed$275,655 $247,808 
Gross margin (1)
$189,949 $106,564 
Gross margin % (2)
26.9 %23.4 %
Adjusted gross margin (3)
$201,433 $116,117 
Adjusted gross margin % (2)(3)
28.5 %25.5 %
EBITDA (4)
$134,236 $63,980 
EBITDA margin % (2)(4)
19.0 %14.1 %
Adjusted EBITDA (4)
$134,215 $63,592 
Adjusted EBITDA margin % (2)(4)
19.0 %14.0 %
(1)Gross margin is home sales revenues less cost of sales.
(2)Calculated as a percentage of home sales revenues.
(3)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “—Non-GAAP Measures” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.
(4)EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our
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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 March 31, 2021 Compared to Three Months Ended March 31, 2020
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended March 31, 2021 and 2020 were as follows (revenues in thousands):
Three Months Ended March 31, 2021As of March 31, 2021
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Community Count at End of Period
Central$288,750 1,127 $256,211 37.3 10.1 38 
Southeast136,551 548 249,181 27.7 6.6 29 
Northwest118,191 296 399,294 10.6 9.3 11 
West81,148 249 325,896 10.7 7.8 11 
Florida81,313 341 238,455 20.0 5.7 21 
Total$705,953 2,561 $275,655 106.3 8.0 110 

Three Months Ended March 31, 2020As of March 31, 2020
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Community Count at End of Period
Central$165,775 741 $223,718 34.0 7.3 35 
Southeast88,447 403 219,471 31.0 4.3 34 
Northwest101,948 273 373,436 12.3 7.4 12 
West58,485 236 247,818 14.7 5.4 15 
Florida40,072 182 220,176 16.7 3.6 17 
Total$454,727 1,835 $247,808 108.7 5.6 113 
Our results of operations for the three months ended March 31, 2021 reflect a significant rebound following the slowdown related to the COVID-19 pandemic that occurred during March and April 2020. Increase in the demand for our homes driven by benefits of homeownership, low interest rates and an undersupply of new and existing homes available for sale have resulted in an 110.8% increase to our backlog net orders at March 31, 2021 as compared to March 31, 2020.
Home sales revenues for the three months ended March 31, 2021 were $706.0 million, an increase of $251.2 million, or 55.2%, from $454.7 million for the three months ended March 31, 2020. The increase in home sales revenues is primarily due to a 39.6% increase in homes closed and an increase in the average sales price per home closed during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The average sales price per home closed during the three months ended March 31, 2021 was $275,655, an increase of $27,847, or 11.2%, from the average sales price per home closed of $247,808 for the three months ended March 31, 2020. This increase in the average sales price per home closed is primarily due to a favorable pricing environment, increased closings at higher price points in certain markets and changes in product mix. The overall increase in home closings was largely due to a strong demand environment leading to higher average monthly absorption rates within certain markets in the Central and Florida reportable segments during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Our community count at March 31, 2021 decreased to 110 from 113 at March 31, 2020.
Home sales revenues in our Central reportable segment increased by $123.0 million, or 74.2%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a 52.1% increase in the number of homes closed, increased community count at a higher absorption rate and an increase in the average sales price per home closed. Home sales revenues in our Florida reportable segment increased by $41.2 million, or 102.9%, largely due to an increase in the number of homes closed resulting from an increase in community count and at a higher absorption rate for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Home sales revenues in our Southeast reportable segment increased by $48.1 million, or 54.4%, primarily due to increased home closings at higher average sales price, as well as continued expansion into certain Mid-Atlantic geographic markets. Home sales revenues in our
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Northwest reportable segment increased by $16.2 million, or 15.9%, primarily due to increased demand and an increase in the number of homes closed, partially offset by the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended March 31, 2021. Home sales revenues in our West reportable segment increased by $22.7 million, or 38.8%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a 31.5% increase in average sales price per home closed, and the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended March 31, 2021.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the three months ended March 31, 2021 to $516.0 million, an increase of $167.8 million, or 48.2%, from $348.2 million for the three months ended March 31, 2020, primarily due to the increase in homes closed. Gross margin for the three months ended March 31, 2021 was $189.9 million, an increase of $83.4 million, or 78.2%, from $106.6 million for the three months ended March 31, 2020. Gross margin as a percentage of home sales revenues was 26.9% for the three months ended March 31, 2021 and 23.4% for the three months ended March 31, 2020. This increase in gross margin as a percentage of home sales revenues is primarily due to an increase in homes closed with a higher average sales price per home closed, lower capitalized interest and lower overhead expense, offset by higher lot costs for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.
Selling Expenses. Selling expenses for the three months ended March 31, 2021 were $42.8 million, an increase of $10.0 million, or 30.6%, from $32.8 million for the three months ended March 31, 2020. Sales commissions increased to $26.3 million for the three months ended March 31, 2021 from $16.5 million for the three months ended March 31, 2020, primarily due to a 55.2% increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Selling expenses as a percentage of home sales revenues were 6.1% and 7.2% for the three months ended March 31, 2021 and 2020, respectively. The decrease in selling expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.
General and Administrative. General and administrative expenses for the three months ended March 31, 2021 were $24.7 million, an increase of $4.8 million, or 24.1%, from $19.9 million for the three months ended March 31, 2020. The increase in the amount of general and administrative expenses is primarily due to increased personnel and related costs during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. General and administrative expenses as a percentage of home sales revenues were 3.5% and 4.4% for the three months ended March 31, 2021 and 2020, respectively. The decrease in general and administrative expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.
Operating Income and Net Income before Income Taxes. Operating income for the three months ended March 31, 2021 was $122.4 million, an increase of $68.6 million, or 127.3%, from $53.9 million for the three months ended March 31, 2020. Net income before income taxes for the three months ended March 31, 2021 was $123.3 million, an increase of $68.4 million, or 124.6%, from $54.9 million for the three months ended March 31, 2020. All reportable segments contributed to net income before income taxes during the three months ended March 31, 2021 as follows: Central - $55.6 million or 45.1%; Southeast - $19.8 million or 16.1%; Northwest - $26.0 million or 21.1%; West - $12.6 or 10.2%; and Florida - $10.8 or 8.8%. The increases in operating income and net income before income taxes are primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.
Income Taxes. Income tax provision for the three months ended March 31, 2021 was $23.6 million, an increase of $11.6 million, or 96.0%, from income tax provision of $12.1 million for the three months ended March 31, 2020. The increase in the amount of income tax provision is primarily due to the 124.6% increase in net income before taxes, partially offset by the decrease in our effective tax rate to a 19.2% effective tax rate from a 22.0% effective tax rate as a result of the tax benefits relating to the federal energy efficient homes tax credits, as well as excess compensation cost for share-based payments, we recognized for the three months ended March 31, 2021.
Net Income. Net income for the three months ended March 31, 2021 was $99.7 million, an increase of $56.8 million, or 132.6%, from $42.8 million for the three months ended March 31, 2020. The increase in net income is primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues, higher average sales price per home closed and the federal energy efficient homes tax credits recognized during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

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Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report on Form 10-Q relating to adjusted gross margin, EBITDA and adjusted EBITDA.
Adjusted Gross Margin
Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.
The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended March 31,
20212020
Home sales revenues$705,953 $454,727 
Cost of sales516,004 348,163 
Gross margin189,949 106,564 
Capitalized interest charged to cost of sales10,672 8,930 
Purchase accounting adjustments (1)
812 623 
Adjusted gross margin$201,433 $116,117 
Gross margin % (2)
26.9 %23.4 %
Adjusted gross margin % (2)
28.5 %25.5 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting included in cost of sales. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, 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:
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(i) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for purchase of land;
(ii) they do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
(iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements or improvements;
(iv) they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
(v) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
(vi) other companies in our industry may calculate them differently than we do, limiting their usefulness as a comparative measure.
Because of these limitations, our EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using our EBITDA and adjusted EBITDA along with other comparative tools, together with GAAP measures, to assist in the evaluation of operating performance. These GAAP measures include operating income, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges, which are not reflected in our EBITDA or adjusted EBITDA. EBITDA and adjusted EBITDA are not intended as alternatives to net income as indicators of our operating performance, as alternatives to any other measure of performance in conformity with GAAP or as alternatives to cash flows as a measure of liquidity. You should therefore not place undue reliance on our EBITDA or adjusted EBITDA calculated using these measures.
The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended March 31,
20212020
Net income$99,658 $42,839 
Income tax provision (benefit)23,618 12,050 
Depreciation and amortization288 161 
Capitalized interest charged to cost of sales10,672 8,930 
EBITDA134,236 63,980 
Purchase accounting adjustments(1)
812 623 
Other income, net(833)(1,011)
Adjusted EBITDA$134,215 $63,592 
EBITDA margin %(2)
19.0 %14.1 %
Adjusted EBITDA margin %(2)
19.0 %14.0 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.

Backlog
We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $5,000). We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract. Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed. If we 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.
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Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings. Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed during the COVID-19 pandemic. In addition, we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.
As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):
Backlog DataThree Months Ended March 31,
2021 (4)
2020 (5)
Net orders (1)
5,229 2,481 
Cancellation rate (2)
10.5 %18.3 %
Ending backlog – homes (3)
5,632 1,879 
Ending backlog – value (3)
$1,595,879 $446,271 
(1)Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
(2)Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.
(3)Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Ending backlog is valued at the contract amount.
(4)As of March 31, 2021, we have 1,344 units related to bulk sales agreements associated with our wholesale business.
(5)As of March 31, 2020, we have 338 units related to bulk sales agreements associated with our wholesale business.
Land Acquisition Policies and Development
We had 110 and 116 active communities as of March 31, 2021 and December 31, 2020, respectively. Our lot inventory increased to 67,286 owned or controlled lots as of March 31, 2021 from 61,504 owned or controlled lots as of December 31, 2020 primarily due to overall increased lot counts within the Southeast, Northwest, West and Florida reportable segments.
The table below shows (i) home closings by reportable segment for the three months ended March 31, 2021 and (ii) our owned or controlled lots by reportable segment as of March 31, 2021.
Three Months Ended March 31, 2021As of March 31, 2021
Reportable SegmentHome Closings
Owned (1)
ControlledTotal
Central1,127 17,639 9,229 26,868 
Southeast548 10,783 8,273 19,056 
Northwest296 3,217 4,052 7,269 
West249 4,199 4,198 8,397 
Florida341 2,664 3,032 5,696 
Total2,561 38,502 28,784 67,286 
(1)Of the 38,502 owned lots as of March 31, 2021, 26,213 were raw/under development lots and 12,289 were finished lots.

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Homes in Inventory
When entering a new community, we build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on home closings. As homes are closed, we start more homes to maintain our inventory. As of March 31, 2021, we had a total of 797 completed homes, including information centers, and 3,554 homes in progress.
Raw Materials and Labor
When constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States. In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Substantially all of our construction work is done by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. We could see additional cost pressures associated with lumber in future quarters.
Seasonality
In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenues and capital requirements are generally similar across our second, third and fourth quarters.
As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.
Liquidity and Capital Resources
Overview
As of March 31, 2021, we had $48.2 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. 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.
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.
We generally rely on our ability to finance our operations by generating operating cash flows, borrowing under the Credit Agreement (as defined below) or the issuance and sale of shares of our common stock. As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy. We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.
We have an effective shelf registration statement on Form S-3 (Registration No. 333-227012) that was filed on August 24, 2018 with the Securities and Exchange Commission, registering the offering and sale of an indeterminate amount of debt securities, guarantees of debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts and units that include any of these securities. Under the shelf registration statement, we have the ability to access the debt and equity capital markets as needed as part of our ongoing financing strategy.
As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed. However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
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Revolving Credit Facility
On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent. In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment. Lenders with $566.0 million, or 87%, of the $650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022. The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75, increased the sublimit for letters of credit to $40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70%. The 2020 Credit Agreement otherwise has substantially similar terms and provisions to the 2019 Credit Agreement and continues to provide for a $650.0 million revolving credit facility, which can be increased at the request of the Company by up to $100.0 million, subject to the terms and conditions of the 2020 Credit Agreement.
The 2020 Credit Agreement matures on May 31, 2023 with respect to 87% of the commitments thereunder and on May 31, 2022 with respect to 13% of the commitments thereunder. Before each anniversary of the 2020 Credit Agreement, we may request a one-year extension of its maturity date. The 2020 Credit Agreement is guaranteed by each of our subsidiaries that have gross assets equal to or greater than $0.5 million. The borrowings and letters of credit outstanding under the 2020 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the 2020 Credit Agreement. As of March 31, 2021, the borrowing base under the 2020 Credit Agreement was $949.3 million, of which borrowings, including the Senior Notes, of $421.5 million were outstanding, $10.3 million of letters of credit were outstanding and $517.5 million was available to borrow under the 2020 Credit Agreement.
Interest is paid monthly on borrowings under the 2020 Credit Agreement at LIBOR plus 2.35%. The 2020 Credit Agreement applicable margin for LIBOR loans ranges from 2.35% to 2.75% based on our leverage ratio. At March 31, 2021, LIBOR was 0.11%; however, the 2020 Credit Agreement has a 0.70% LIBOR floor.
The 2020 Credit Agreement requires us to maintain (i) a tangible net worth of not less than $625.0 million plus 75% of the net proceeds of all equity issuances plus 50.0% of the amount of our positive net income in any fiscal quarter after December 31, 2019, (ii) a leverage ratio of not greater than 60.0%, (iii) liquidity of at least $50.0 million and (iv) a ratio of EBITDA to interest expense for the most recent four quarters of at least 1.75 to 1.00. The 2020 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.
In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021. At the present time, the Credit Agreement has a term that extends beyond 2021, and borrowings under the Credit Agreement bear interest at LIBOR plus an applicable margin. The Credit Agreement provides for a mechanism to amend the Credit Agreement to reflect the establishment of an alternate rate of interest upon the occurrence of certain events related to the phase-out of any applicable interest rate. However, we have not yet pursued any technical amendment or other contractual alternative to address this matter. We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate on the Credit Agreement.
On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”), which amends and restates the 2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.
Senior Notes Offering
On July 6, 2018, we issued $300.0 million aggregate principal amount of the 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
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Regulation S under the Securities Act. Interest on the Senior Notes accrues at a rate of 6.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026. Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the 2020 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 $167.6 million as of March 31, 2021. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of March 31, 2021 will be drawn upon.
Stock Repurchase Program
In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. In October 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million. During the three months ended March 31, 2021 and 2020, we repurchased 216,221 and 567,028 shares of our common stock for $25.8 million and $31.3 million, respectively, to be held as treasury stock. A total of 757,993 shares of our common stock has been repurchased since our stock repurchase program commenced. As of March 31, 2021, we may purchase up to $274.6 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.
Cash Flows
Operating Activities
Net cash provided by operating activities was $160.7 million for the three months ended March 31, 2021. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash provided by operating activities during the three months ended March 31, 2021 was primarily driven by net income of $99.7 million, and included cash outflow from the $41.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $56.7 million increase in the net change in accounts receivable.
Net cash provided by operating activities was $58.8 million for the three months ended March 31, 2020. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash provided by operating activities during the three months ended March 31, 2020 was primarily driven by net income of $42.8 million, and included cash inflow from the $17.9 million decrease 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 offset by changes in non-inventory balances of $1.9 million.
Investing Activities
Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the return of capital with our investment in an unconsolidated entity offset by the purchase of property and equipment.
Net cash used in investing activities was $1.5 million for the three months ended March 31, 2020, primarily due to the additional investment in an unconsolidated entity and purchase of property and equipment.

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Financing Activities
Net cash used in financing activities was $148.9 million for the three months ended March 31, 2021, primarily driven by $230.0 million of payments on the 2020 Credit Agreement and by the $25.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $104.8 million under the 2020 Credit Agreement.
Net cash provided by financing activities was $22.6 million for the three months ended March 31, 2020, primarily driven by borrowings of $128.1 million under the 2019 Credit Agreement, offset by $75.0 million of payments on the 2019 Credit Agreement and by the $31.3 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into land purchase contracts in order to procure land and lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These contracts typically require cash deposits and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, which may include obtaining applicable property and development entitlements or the completion of development activities and the delivery of finished lots. We also utilize contracts with land sellers as a method of acquiring lots and land in staged takedowns, which helps us manage the financial and market risk associated with land holdings and minimize the use of funds from our corporate financing sources. Such contracts generally require a non-refundable deposit for the right to acquire land or lots over a specified period of time at pre-determined prices. We generally have the right at our discretion to terminate our obligations under purchase contracts during the initial feasibility period and receive a refund of our deposit, or we may terminate the contracts after the end of the feasibility period by forfeiting our cash deposit with no further financial obligations to the land seller. In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract. As of March 31, 2021, we had $35.5 million of cash deposits pertaining to land purchase contracts for 28,784 lots with an aggregate purchase price of $728.1 million. Approximately $25.1 million of the cash deposits as of March 31, 2021 are secured by third-party guarantees or indemnity mortgages on the related property.
Our utilization of land purchase contracts is dependent on, among other things, the availability of land sellers willing to enter into contracts at acceptable terms, which may include option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing conditions and local market dynamics. Land purchase contracts may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain markets.
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.
Contractual Obligations
As of March 31, 2021, there have been no material changes to our contractual obligations appearing in the “Contractual Obligations” 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, 2020.

Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.
We believe that there have been no significant changes to our critical accounting policies during the three months ended March 31, 2021 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, 2020.
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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:
the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers, and the markets in which we operate, U.S. and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;
adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates and inflation 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;
our ability to successfully integrate any acquisitions with our existing operations;
availability of land to acquire and our ability to acquire such land on favorable terms or at all;
availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;
decisions of the Credit Agreement lender group;
decline in the market value of our land portfolio;
shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies;
delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;
uninsured losses in excess of insurance limits;
the cost and availability of insurance and surety bonds;
changes in (including as a result of the change in the U.S. presidential administration), liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations;
the timing of receipt of regulatory approvals and the opening of projects;
the degree and nature of our competition;
increases in taxes or government fees;
our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond December 31, 2021;
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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;
information system failures, cyber incidents or breaches in security;
our ability to retain our key personnel;
our leverage and future debt service obligations;
the impact on our business of any future government shutdown;
other risks and uncertainties inherent in our business;
other factors we discuss under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and
the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
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.

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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 interest 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. We do not enter into, or intend to enter into, derivative financial instruments for trading or speculative purposes.
Quantitative and Qualitative Disclosures About Interest Rate Risk
We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the Senior Notes and certain inventory related obligations) and variable-rate debt (our $850.0 million Credit Agreement) as part of financing our operations. We do not have the obligation to prepay the 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. In November 2020, we entered into a three-year interest rate cap of LIBOR of 0.70% to hedge a portion of our 2020 Credit Agreement risk exposure and future variable cash flows associated with LIBOR interest rates. We have not entered into and 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 March 31, 2021, we had $121.5 million of variable rate indebtedness outstanding under the 2020 Credit Agreement. All of the outstanding borrowings under the 2020 Credit Agreement are at variable rates based on LIBOR. The interest rate for our variable rate indebtedness as of March 31, 2021 was LIBOR plus 2.35%. At March 31, 2021, LIBOR was 0.11%, subject to the 0.70% LIBOR floor as included in the 2020 Credit Agreement. A hypothetical 100 basis point increase in the average interest rate above the LIBOR floor on our variable rate indebtedness would increase our annual interest cost by approximately $1.2 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 March 31, 2021. 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 March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the repurchase of shares of our common stock during the three months ended March 31, 2021.
PeriodTotal Number of Shares PurchasedAverage Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
(in thousands)
January 1-31, 2021— $— — $300,412 
February 1-28, 2021— $— — $300,412 
March 1-31, 2021216,221 $119.45 216,221 $274,585 
216,221 $119.45 216,221 
(1)In November 2018, our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. On October 30, 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million of shares of our common stock. 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.
ITEM 5. OTHER INFORMATION
Amendment and Restatement of 2020 Credit Agreement
On April 28, 2021, we entered into the Credit Agreement, which amends and restates the 2020 Credit Agreement. The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10% to 1.45%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company; otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.

ITEM 6.         EXHIBITS
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Exhibit No.
  Description  
3.1**
3.2**
10.1*
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:May 4, 2021/s/    Eric Lipar
Eric Lipar
Chief Executive Officer and Chairman of the Board
May 4, 2021/s/    Charles Merdian
Charles Merdian
Chief Financial Officer and Treasurer


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