UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2021March 31, 2022
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     .
Commission file number 001-36126      

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)
Delaware46-3088013
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1450 Lake Robbins Drive,Suite 430,The Woodlands,Texas77380
(Address of principal executive offices)(Zip code)
(281)362-8998
(Registrant’s 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 filer☒Accelerated filer☐
Non-accelerated filer☐Smaller 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 OctoberApril 29, 2021,2022, there were 24,273,19123,666,284 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LGI HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 September 30,December 31,
 20212020
ASSETS
Cash and cash equivalents$46,717 $35,942 
Accounts receivable49,171 115,939 
Real estate inventory1,908,135 1,569,489 
Pre-acquisition costs and deposits50,267 37,213 
Property and equipment, net13,364 3,618 
Other assets66,272 44,882 
Deferred tax assets, net7,613 6,986 
Goodwill12,018 12,018 
Total assets$2,153,557 $1,826,087 
LIABILITIES AND EQUITY
Accounts payable$35,455 $13,676 
Accrued expenses and other liabilities116,234 135,008 
Notes payable666,094 538,398 
Total liabilities817,783 687,082 
COMMITMENTS AND CONTINGENCIES00
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 26,941,222 shares issued and 24,273,191 shares outstanding as of September 30, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020269 267 
Additional paid-in capital286,709 270,598 
Retained earnings1,252,619 934,277 
Treasury stock, at cost, 2,668,031 shares and 1,757,993 shares, respectively(203,823)(66,137)
Total equity1,335,774 1,139,005 
Total liabilities and equity$2,153,557 $1,826,087 

 March 31,December 31,
 20222021
ASSETS
Cash and cash equivalents$53,325 $50,514 
Accounts receivable48,489 57,909 
Real estate inventory2,335,570 2,085,904 
Pre-acquisition costs and deposits39,171 40,702 
Property and equipment, net19,420 16,944 
Other assets83,307 81,676 
Deferred tax assets, net2,933 6,198 
Goodwill12,018 12,018 
Total assets$2,594,233 $2,351,865 
LIABILITIES AND EQUITY
Accounts payable$21,965 $14,172 
Accrued expenses and other liabilities145,921 136,609 
Notes payable1,003,596 805,236 
Total liabilities1,171,482 956,017 
COMMITMENTS AND CONTINGENCIES00
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,187,895 shares issued and 23,666,284 shares outstanding as of March 31, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021271 269 
Additional paid-in capital297,451 291,577 
Retained earnings1,442,608 1,363,922 
Treasury stock, at cost, 3,521,611 shares and 3,046,556 shares, respectively(317,579)(259,920)
Total equity1,422,751 1,395,848 
Total liabilities and equity$2,594,233 $2,351,865 








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

 
Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended March 31,
2021202020212020 20222021
Home sales revenuesHome sales revenues$751,608 $534,202 $2,249,073 $1,470,531 Home sales revenues$546,050 $705,953 
Cost of salesCost of sales549,319 398,971 1,642,756 1,110,763 Cost of sales387,643 516,004 
Selling expensesSelling expenses39,871 35,470 127,450 98,193 Selling expenses34,398 42,783 
General and administrativeGeneral and administrative24,480 22,320 72,479 62,422 General and administrative28,289 24,723 
Operating income Operating income137,938 77,441 406,388 199,153  Operating income95,720 122,443 
Loss on extinguishment of debt13,314 — 13,976 — 
Other income, netOther income, net(2,370)(374)(6,979)(2,148)Other income, net(3,830)(833)
Net income before income taxesNet income before income taxes126,994 77,815 399,391 201,301 Net income before income taxes99,550 123,276 
Income tax provisionIncome tax provision26,444 (11,189)81,049 13,834 Income tax provision20,864 23,618 
Net incomeNet income$100,550 $89,004 $318,342 $187,467 Net income$78,686 $99,658 
Earnings per share:Earnings per share:Earnings per share:
BasicBasic$4.10 $3.55 $12.85 $7.45 Basic$3.30 $3.99 
DilutedDiluted$4.05 $3.52 $12.72 $7.40 Diluted$3.25 $3.95 
Weighted average shares outstanding:Weighted average shares outstanding:Weighted average shares outstanding:
BasicBasic24,508,134 25,089,424 24,766,260 25,162,162 Basic23,837,170 24,950,867 
DilutedDiluted24,824,320 25,257,053 25,030,161 25,328,555 Diluted24,194,321 25,220,872 
























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

 
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal EquityCommon StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
SharesAmountSharesAmount
BALANCE—December 31, 202026,741,554 $267 $270,598 $934,277 $(66,137)$1,139,005 
BALANCE—December 31, 2021BALANCE—December 31, 202126,963,915 $269 $291,577 $1,363,922 $(259,920)$1,395,848 
Net incomeNet income— — — 99,658 — 99,658 Net income— — — 78,686 — 78,686 
Restricted stock units granted for accrued annual bonusesRestricted stock units granted for accrued annual bonuses— — 272 — — 272 Restricted stock units granted for accrued annual bonuses— — 294 — — 294 
Stock repurchaseStock repurchase— — — — (25,827)(25,827)Stock repurchase— — — — (57,659)(57,659)
Compensation expense for equity awardsCompensation expense for equity awards— — 3,422 — — 3,422 Compensation expense for equity awards— — 3,570 — — 3,570 
Stock issued under employee incentive plansStock issued under employee incentive plans167,089 2 2,106 — — 2,108 Stock issued under employee incentive plans223,980 2 2,010 — — 2,012 
BALANCE— March 31, 202126,908,643 $269 $276,398 $1,033,935 $(91,964)$1,218,638 
Net income— — — 118,134 — 118,134 
Stock repurchase— — — — (55,776)(55,776)
Compensation expense for equity awards— — 3,395 — — 3,395 
Stock issued under employee incentive plans18,050 — 2,015 — — 2,015 
BALANCE— June 30, 202126,926,693 $269 $281,808 $1,152,069 $(147,740)$1,286,406 
Net income— — — 100,550 — 100,550 
Stock repurchase— — — — (56,083)(56,083)
Compensation expense for equity awards— — 3,352 — — 3,352 
Stock issued under employee incentive plans14,529 — 1,549 — — 1,549 
BALANCE— September 30, 202126,941,222 $269 $286,709 $1,252,619 $(203,823)$1,335,774 
BALANCE— March 31, 2022BALANCE— March 31, 202227,187,895 $271 $297,451 $1,442,608 $(317,579)$1,422,751 


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










See accompanying notes to the consolidated financial statements.






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

Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockTotal Equity
SharesAmount
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 2 831 — — 833 
BALANCE— March 31, 202026,680,474 $266 $255,509 $653,221 $(49,391)$859,605 
Net income— — — 55,624 — 55,624 
Compensation expense for equity awards— — 2,613 — — 2,613 
Stock issued under employee incentive plans14,705 1 939 — — 940 
BALANCE— June 30, 202026,695,179 $267 $259,061 $708,845 $(49,391)$918,782 
Net income— — — 89,004 — 89,004 
Compensation expense for equity awards— — 3,926 — — 3,926 
Stock issued under employee incentive plans11,275 — 958 — — 958 
BALANCE— September 30, 202026,706,454 $267 $263,945 $797,849 $(49,391)$1,012,670 











See accompanying notes to the consolidated financial statements.
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LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended September 30,
 20212020
Cash flows from operating activities:
Net income$318,342 $187,467 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization832 509 
Loss on extinguishment of debt13,976 — 
Gain on disposal of assets(880)— 
Compensation expense for equity awards10,169 8,392 
Deferred income taxes(627)(832)
Changes in assets and liabilities:
Accounts receivable66,768 (5,627)
Real estate inventory(286,619)(48,781)
Pre-acquisition costs and deposits(6,328)2,299 
Other assets(10,702)(33,917)
Accounts payable20,556 18,727 
Accrued expenses and other liabilities(24,400)(15,256)
Net cash provided by operating activities101,087 112,981 
Cash flows from investing activities:
Purchases of property and equipment(1,641)(1,161)
Investment in unconsolidated entities(1,324)(1,125)
Payment for business acquisitions(66,864)— 
Net cash used in investing activities(69,829)(2,286)
Cash flows from financing activities:
Proceeds from notes payable1,076,419 203,056 
Payments on notes payable(944,000)(275,000)
Redemption Premium(10,314)— 
Loan issuance costs(10,572)(2,155)
Proceeds from sale of stock, net of offering expenses5,670 2,729 
Stock repurchase(137,686)(31,335)
Net cash used in financing activities(20,483)(102,705)
Net increase in cash and cash equivalents10,775 7,990 
Cash and cash equivalents, beginning of period35,942 38,345 
Cash and cash equivalents, end of period$46,717 $46,335 


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



See accompanying notes to the consolidated financial statements.
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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, 2020.2021. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.
The accompanying unaudited financial statements as of September 30, 2021,March 31, 2022, and for the three and nine months ended September 30,March 31, 2022 and 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 RecognitionRecent Accounting Pronouncements
Revenues from home sales are recognized when controlIn March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (“Topic 848”): Facilitation of the promised goodsEffects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or services is transferredby another reference rate expected to our customers, in an amount that reflectsbe discontinued because of reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the consideration weFASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We expect to be entitled to in exchange for those goods or services. Revenues from home sales are recorded atadopt ASU 2020-04 and ASU 2021-01 when the time each home sale is closed, title and possession are transferred toSecond Amendment (as defined herein) replaces LIBOR as the customer and we have no significant continuing involvementbenchmark interest rate with the home. Home sales discounts and incentives grantedSecured Overnight Financing Rate (“SOFR”). We do not expect the adoption of this guidance to customers, which are related to the customers’ closing costs that we payhave a material impact 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 September 30,Nine Months Ended September 30,
2021202020212020
Retail home sales revenues$650,041 $515,221 $1,990,439 $1,369,130 
Wholesale home sales revenues101,567 18,981 258,634 101,401 
Total home sales revenues$751,608 $534,202 $2,249,073 $1,470,531 

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The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Central$287,878 $186,909 $924,591 $520,608 
Southeast146,166 130,131 442,431 347,155 
Northwest148,515 91,138 372,903 249,455 
West90,592 62,935 252,553 182,012 
Florida78,457 63,089 256,595 171,301 
Total home sales revenues$751,608 $534,202 $2,249,073 $1,470,531 
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.related disclosures.
3.2.     REAL ESTATE INVENTORY
Our real estate inventory consists of the following (in thousands):
September 30,December 31,March 31,December 31,
2021202020222021
Land, land under development and finished lotsLand, land under development and finished lots$1,211,693 $981,838 Land, land under development and finished lots$1,625,290 $1,499,761 
Information centersInformation centers27,427 30,201 Information centers30,449 28,665 
Homes in progressHomes in progress581,348 337,364 Homes in progress577,880 449,742 
Completed homesCompleted homes87,667 220,086 Completed homes101,951 107,736 
Total real estate inventoryTotal real estate inventory$1,908,135 $1,569,489 Total real estate inventory$2,335,570 $2,085,904 
Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.
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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
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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 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. Inventory costs for completed homes are expensed to cost of sales as homes are closed.
The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase, and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.
Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5 4, are capitalized to qualifying real estate projects under development and homes under construction.
OnDuring May 6,and July of 2021, we acquired certain real estate assets owned by KenRoe Inc. and its affiliated entities, including R Home LLC and Paxmar Land Development (collectively, “KenRoe”),2 private home builders and assumed certain related liabilities. As a resultliabilities within the states of the KenRoe acquisition, we expanded our Minnesota presence in the Minneapolis market. We acquired approximately 100 homes under construction and more than 3,000 owned and controlled lots. The total purchase priceTexas for the KenRoe assets, primarily consisting of inventory, was approximately $27.3 million in cash, subject to certain potential post-closing adjustments. The acquisition is$67.0 million. These acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). OurAs of March 31, 2022, our purchase accounting for KenRoe as of September 30, 2021these acquisitions is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.
On July 14, 2021, we acquired the real estate assets of Buffington Homebuilding Group, Ltd. (“Buffington”) and assumed certain related liabilities. The total purchase price for the Buffington assets, primarily consisting of inventory, was approximately $39.1 million in cash, subject to certain potential post-closing adjustments. This acquisition further expands our land position in the Austin, Texas market. The acquired assets include over 100 homes under construction, and more than 500 owned and controlled lots. The acquisition is accounted for in accordance with ASC 805. Our purchase accounting for Buffington as of September 30, 2021 is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.final.

4.3.     ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued and other liabilities consist of the following (in thousands):
September 30,December 31,March 31,December 31,
2021202020222021
Taxes payable$7,818 $26,181 
Real estate inventory development and construction payableReal estate inventory development and construction payable42,048 29,938 Real estate inventory development and construction payable$54,122 $48,656 
Accrued compensation, bonuses and benefitsAccrued compensation, bonuses and benefits19,105 28,579 Accrued compensation, bonuses and benefits10,166 24,914 
Taxes payableTaxes payable28,918 11,604 
Contract depositsContract deposits14,721 12,182 
Accrued interestAccrued interest4,263 10,853 Accrued interest4,047 7,431 
Inventory related obligationsInventory related obligations6,331 4,515 Inventory related obligations7,945 8,803 
Warranty reserveWarranty reserve8,350 7,850 
Lease liabilityLease liability4,844 5,287 Lease liability5,382 5,333 
Warranty reserve7,150 5,350 
Contract deposits16,122 17,151 
OtherOther8,553 7,154 Other12,270 9,836 
Total accrued expenses and other liabilitiesTotal accrued expenses and other liabilities$116,234 $135,008 Total accrued expenses and other liabilities$145,921 $136,609 
Inventory Related Obligations
We own lots in certain communities in Arizona, Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. SuchThe obligations assumed by the homebuyer represent a non-cash cost of the lots.

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Estimated Warranty Reserve
We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.
Changes to our warranty accrual are as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2021202020212020
Warranty reserves, beginning of period$6,550 $3,950 $5,350 $3,500 
Warranty provision2,424 1,284 8,409 4,108 
Warranty expenditures(1,824)(1,084)(6,609)(3,458)
Warranty reserves, end of period$7,150 $4,150 $7,150 $4,150 

Three Months Ended March 31,
 20222021
Warranty reserves, beginning of period$7,850 $5,350 
Warranty provision2,465 2,589 
Warranty expenditures(1,965)(1,989)
Warranty reserves, end of period$8,350 $5,950 
5.4.     NOTES PAYABLE
Revolving Credit Agreement
On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit“2021 Credit Agreement”), which amendsamended and restatesrestated that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 20192019. The 2021 Credit Agreement had revolving commitments of $850.0 million.
On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment”), which amends the 2021 Credit Agreement (as so amended and as otherwise amended prior to the “2020 Creditdate of the Second Amendment, the “Credit Agreement”). The Credit AgreementSecond Amendment, among other things, (a) increases the commitments under the 2021 Credit Agreement by an additional $250.0 million, bringing the total commitments under the Credit Agreement to $850.0 million,$1.1 billion, and (b) allowsreplaces LIBOR as the Company to increasebenchmark interest rate with SOFR.
Borrowings under the commitmentsCredit Agreement will bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by up to $100.0 million,the Company) plus a 10, 15 or 25 basis point adjustment, respectively, which rate will be subject to termsa 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and conditions, (c) extends(2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the maturity toApplicable Margin.
The Credit Agreement matures on April 28, 2025 for all lenders, (d) increases2025. Before each anniversary of the sublimit forCredit Agreement, we may request a one-year extension of its maturity date. The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.
The borrowings and letters of credit 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 1.45% to 2.10%, 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,outstanding under the Credit Agreement, is on substantiallytogether with the same terms as the 2020 Credit Agreement.
Asoutstanding principal balance of September 30, 2021,our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement. As of March 31, 2022, the borrowing base under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, (as defined herein), of $679.0 million$1.0 billion were outstanding, $8.3$25.0 million of letters of credit were outstanding and $459.6$108.3 million was available to borrow under the 2021 Credit Agreement.
Interest isPrior to the Second Amendment, interest was paid monthly on borrowings under the 2021 Credit Agreement at LIBOR plus 1.45%1.60%. ThePrior to the Second Amendment, the 2021 Credit Agreement applicable margin for LIBOR loans rangesranged from 1.45% to 2.10% based on our leverage ratio. At September 30, 2021,March 31, 2022, LIBOR was 0.08%0.40%; however, the 2021 Credit Agreement has a 0.50% LIBOR floor.
The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio. The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At September 30, 2021,March 31, 2022, we were in compliance with all of the covenants contained in the 2021 Credit Agreement.


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Senior Notes OfferingsOffering
On June 28, 2021, we issued $300.0 million aggregate principal amount of our 4.000%the 2029 Senior Notes due 2029 (the “2029 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act. Interest on the 2029 Senior Notes accrues at a rate of 4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2022.year. The 2029 Senior Notes mature on July 15, 2029. Terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.
On July 6, 2018, we issued $300.0 million aggregate principal amount of our 6.875% Senior Notes due 2026 (the “2026 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $300.0 million and a redemption premium of $10.3 million. Additionally, we expensed $3.0 million of deferred financing costs and discounts that
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were being previously amortized in association with the 2026 Senior Notes. We financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.
Notes payable consist of the following (in thousands):
September 30, 2021December 31, 2020
Notes payable under the Credit Agreement ($850.0 million revolving credit facility at September 30, 2021) maturing on April 28, 2025; interest paid monthly at LIBOR plus 1.45%.$379,041 $246,621 
4.000% Senior Notes due July 15, 2029; interest paid semi-annually at 4.000%.300,000 — 
6.875% Senior Notes due July 15, 2026; interest paid semi-annually at 6.875%.— 300,000 
Net discount and debt issuance costs(12,947)(8,223)
Total notes payable$666,094 $538,398 

March 31, 2022December 31, 2021
Notes payable under the 2021 Credit Agreement ($850.0 million revolving credit facility at March 31, 2022) maturing on April 28, 2025; interest paid monthly at LIBOR plus 1.60%.$715,057 $517,439 
4.000% Senior Notes due July 15, 2029; interest paid semi-annually at 4.000%.300,000 300,000 
Net debt issuance costs(11,461)(12,203)
Total notes payable$1,003,596 $805,236 
Capitalized Interest
Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202120202021202020222021
Interest incurredInterest incurred$6,091 $8,885 $21,863 $28,303 Interest incurred$7,027 $7,732 
Less: Amounts capitalizedLess: Amounts capitalized(6,091)(8,885)(21,863)(28,303)Less: Amounts capitalized(7,027)(7,732)
Interest expenseInterest expense$— $— $— $— Interest expense$— $— 
Cash paid for interestCash paid for interest$11,772 $13,122 $26,264 $31,822 Cash paid for interest$9,668 $12,633 
Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $0.8$0.7 million for each of the three months ended September 30, 2021March 31, 2022 and 2020, and $2.2 million for each of the nine months ended September 30, 2021 and 2020.2021.
6.5.     INCOME TAXES
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The statute of limitations with regards to our federal income tax filings is three years. The statute of limitations for our state tax jurisdictions is three to four years depending on the jurisdiction. In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes. We do not expect the outcome of any audit to have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.
For the three and nine months ended September 30, 2021,March 31, 2022, our effective tax ratesrate of 20.8% and 20.3%, respectively, are lower than21.0% is equal to the Federal statutory rate primarily as a result of the federal energy efficient homes tax credit anddeductions in excess of compensation cost for share-based payments, partially offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit payments.
Income taxes paid were $36.0$0.4 million and $46.6$0.2 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively. Income taxes paid were $99.7 million and $65.5 million for the nine months ended September 30, 2021 and 2020, respectively.

7.6.     EQUITY
Stock Repurchase Program
In November 2018, we announced thatFebruary 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized a stock repurchase program, pursuant to which we may purchase up to $50.0$550.0 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 September 30, 2021,March 31, 2022, we repurchased 358,817475,055 shares of our common stock for $56.1$57.7 million to be held as treasury stock. During the nine months
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stock. During the three months ended September 30,March 31, 2021, we repurchased 910,038216,221 shares of our common stock for $137.7$25.8 million to be held as treasury stock. A total of 1,668,0312,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of September 30, 2021,March 31, 2022, we may purchase up to $162.7$249.0 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.
8.7.     EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$100,550 $89,004 $318,342 $187,467 
Denominator:
       Basic weighted average shares outstanding24,508,134 25,089,424 24,766,260 25,162,162 
       Effect of dilutive securities:
         Stock-based compensation units316,186 167,629 263,901 166,393 
       Diluted weighted average shares outstanding24,824,320 25,257,053 25,030,161 25,328,555 
Basic earnings per share$4.10 $3.55 $12.85 $7.45 
Diluted earnings per share$4.05 $3.52 $12.72 $7.40 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share553 131 3,629 1,561 

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Three Months Ended March 31,
20222021
Numerator (in thousands):
Net income (Numerator for basic and dilutive earnings per share)$78,686 $99,658 
Denominator:
       Basic weighted average shares outstanding23,837,170 24,950,867 
       Effect of dilutive securities:
         Stock-based compensation units357,151 270,005 
       Diluted weighted average shares outstanding24,194,321 25,220,872 
Basic earnings per share$3.30 $3.99 
Diluted earnings per share$3.25 $3.95 
Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share27,001 21,510 
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9.8.    STOCK-BASED COMPENSATION
Non-performance Based Restricted Stock Units
The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):
Nine Months Ended September 30,Three Months Ended March 31,
2021202020222021
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair Value
Beginning balanceBeginning balance142,738 $62.54 162,686 $50.84 Beginning balance117,874 $80.85 142,738 $62.54 
Granted Granted25,124 $141.96 48,926 $61.25  Granted36,675 $118.80 23,366 $141.00 
Vested Vested(35,503)$63.23 (55,259)$32.51  Vested(38,791)$56.49 (30,407)$64.44 
Forfeited Forfeited(6,205)$73.62 (3,000)$56.74  Forfeited(1,151)$87.20 (1,627)$61.58 
Ending balanceEnding balance126,154 $77.61 153,353 $60.65 Ending balance114,607 $101.18 134,070 $75.79 
We recognized $0.8 million and $0.9 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended September 30, 2021March 31, 2022 and 2020, respectively. We recognized $2.5 million and $2.6 million of stock-based compensation expense related to outstanding RSUs for each of the nine months ended September 30, 2021 and 2020, respectively.2021. Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. At September 30, 2021,March 31, 2022, we had unrecognized compensation cost of $4.5$7.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.02.2 years.

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Performance-Based Restricted Stock Units
The Compensation Committee of the Board has granted awards of performance-based RSUs (“PSUs”) under the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan to certain members of senior management based on three-year performance cycles. The PSUs provide for shares of our common stock to be issued based on the attainment of certain performance metrics over the applicable three-year periods. The number of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metrics. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require that the recipients continue to be employed by us through the determination date. The PSUs can only be settled in shares of our common stock.
The following table summarizes the activity of our PSUs for the ninethree months ended September 30, 2021:March 31, 2022:
Period GrantedPeriod GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2020Target PSUs GrantedTarget PSUs VestedTarget PSUs ForfeitedTarget PSUs Outstanding at September 30, 2021Weighted Average Grant Date Fair ValuePeriod GrantedPerformance PeriodTarget PSUs Outstanding at December 31, 2021Target PSUs GrantedTarget PSUs ForfeitedTarget PSUs VestedTarget PSUs Outstanding at March 31, 2022Weighted Average Grant Date Fair Value
20182018 - 202060,040 — (60,040)— — $64.60 
201920192019 - 202181,242 — — — 81,242 $56.49 20192019 - 202181,242 — (767)(80,475)— $56.49 
202020202020 - 202288,538 — — — 88,538 $59.81 20202020 - 202288,538 — (1,494)— 87,044 $59.81 
20212021 2021 - 2023— 46,027 — — 46,027 $141.00 2021 2021 - 202346,027 — — — 46,027 $141.00 
202220222022 - 2024— 66,909 — — 66,909 $118.80 
TotalTotal229,820 46,027 (60,040)— 215,807 Total215,807 66,909 (2,261)(80,475)199,980 
At September 30, 2021,March 31, 2022, management estimates that the recipients will receive approximately 185%100%, 200% and 200% of the 2022, 2021 2020 and 20192020 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics. We recognized $2.3 million and $1.3$2.2 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively. We recognized $6.7 million and $3.7 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2021 and 2020, respectively. The 20182019 - 20202021 performance period PSUs vested
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and issued on March 15, 20212022 at 200% of the target number. At September 30, 2021,March 31, 2022, we had unrecognized compensation cost of $13.8$17.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.02.3 years.
10.9.    FAIR VALUE DISCLOSURES
ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.
ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 - Fair value is based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Fair value is determined using significant observable inputs, generally either quoted prices in active markets for
similar assets or liabilities, or quoted prices in markets that are not active.
Level 3 - Fair value is determined using one or more significant inputs that are unobservable in active markets at the
measurement date, such as a pricing model, discounted cash flow or similar technique.
We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets. The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. As of September 30,March 31, 2022, the 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.
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In order to determine the fair value of the 2029 Senior Notes and the 2026 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).
The following table below shows the level and measurement of liabilities at September 30, 2021March 31, 2022 and December 31, 20202021 (in thousands):
September 30, 2021December 31, 2020
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
2029 Senior Notes (1)
Level 2$300,000 $300,920 $— $— 
2026 Senior Notes (2)
Level 2$— $— $300,000 $340,388 
March 31, 2022December 31, 2021
Fair Value HierarchyCarrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
2029 Senior Notes (1)
Level 2$300,000 $269,352 $300,000 $299,302 
(1)On June 28, 2021, we completed an offering of $300.0 million aggregate principal amount of the 2029 Senior Notes. See Note 5 for more details regarding this offering.
(2)On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes. See Note 5 4 for more details regarding the redemption.offering of the 2029 Senior Notes.
11.10.    RELATED PARTY TRANSACTIONS
Land Purchases from Affiliates
We did not enter into or complete any land purchase contracts with affiliates during the three months ended September 30, 2021. During the nine months ended September 30,March 31, 2022.
As of March 31, 2021, we completed 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 were 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. 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. In April 2021, we purchased the remaining land in a takedown of 52 lots under the Pasco County contract for a base purchase price of approximately $1.9 million.
During the nine months ended September 30, 2021, we completedhad 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.
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Additionally, we had a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $4.0 million. As of December 31, 2021, we completed both the land purchase contracts in Burnet County and Pasco County.
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12.11.     COMMITMENTS AND CONTINGENCIES
Contingencies
In the ordinary course of doing business, we are subject to claims or proceedings from time to time relating to the purchase, development and sale of real estate and homes and other aspects of our homebuilding operations. Management believes that these claims include usual obligations incurred by real estate developers and residential home builders in the normal course of business. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
We have provided unsecured environmental indemnities to certain lenders and other counterparties. In each case, we have performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate us to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, we may have recourse against other previous owners. In the ordinary course of doing business, we are subject to regulatory proceedings from time to time related to environmental and other matters. In the opinion of management, these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.
Land Deposits
We have land purchase contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property, and obligations with respect to the land purchase contracts are generally limited to the forfeiture of the related nonrefundable cash deposits. The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):
September 30, 2021December 31, 2020March 31, 2022December 31, 2021
Land deposits and option paymentsLand deposits and option payments$46,324 $34,097 Land deposits and option payments$34,905 $37,499 
Commitments under the land purchase contracts if the purchases are consummatedCommitments under the land purchase contracts if the purchases are consummated$1,047,124 $663,006 Commitments under the land purchase contracts if the purchases are consummated$837,001 $921,345 
Lots under land purchase contractsLots under land purchase contracts43,338 26,236 Lots under land purchase contracts34,191 36,978 
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, approximately $25.1$19.4 million and $24.0$19.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

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Lease Obligations
We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We have non-cancelable operating leases primarily associated with our corporate and regional office facilities.  Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. ROU assets, as included in other assets on the consolidated balance sheets, were $4.6$5.1 million and $4.9 million at September 30, 2021as of each of March 31, 2022 and December 31, 2020, respectively.2021. Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $4.8$5.4 million and $5.3 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively.
Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $0.5 million and $0.4 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively. Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $1.3 million and $1.2 million for the nine months ended September 30, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities for operating leases during the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 was $1.2$0.4 million and $0.7$0.2 million, respectively. As of September 30, 2021,March 31, 2022, the weighted-average discount rate was 5.20%5.2% and our weighted-average remaining life was 4.33.1 years. We do not have any significant lease contracts that have not yet commenced at September 30, 2021.
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March 31, 2022.
The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2021March 31, 2022 (in thousands):
Year Ending December 31,Year Ending December 31,Operating leasesYear Ending December 31,Operating leases
2021$346 
202220221,218 20221,133 
202320231,061 20231,335 
20242024818 20241,067 
20252025698 2025884 
20262026776 
ThereafterThereafter1,664 Thereafter1,054 
TotalTotal5,805 Total6,249 
Lease amount representing interestLease amount representing interest(961)Lease amount representing interest(867)
Present value of lease liabilitiesPresent value of lease liabilities$4,844 Present value of lease liabilities$5,382 
Bonding and Letters of Credit    
We have outstanding letters of credit and performance and surety bonds totaling $199.7$268.8 million (including $8.3$25.0 million of letters of credit issued under the 2021 Credit Agreement) and $143.8$206.8 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, related to our obligations for site improvements at various projects. Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.
Investment in Unconsolidated Entities
In 2019, we becameentered as a limited partner ininto a real estate investment fund with a maximum $30.0 million commitment. The term of the commitment is eight years and includes renewals of up to two additional years. Additionally, during the nine months ended September 30,in 2021, we entered into a joint venture with a mortgage lender. As of September 30, 2021March 31, 2022 and December 31, 2020,2021, we have a total of $5.3$6.0 million and $3.9$5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and this mortgage joint venture. Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage services, respectively.
12.     REVENUES
Home Sales Revenues
We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.

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The following table presents our home sales revenues disaggregated by revenue stream (in thousands):
Three Months Ended March 31,
20222021
Retail home sales revenues$494,206 $643,572 
Wholesale home sales revenues51,844 62,381 
Total home sales revenues$546,050 $705,953 
Our home sales revenues are disaggregated by geography, based on our determined reportable segments. See Note 13 for tabular presentation of this information.
13.     SEGMENT INFORMATION
We operate one principal homebuilding business that is organized and reports by division. We have 7 operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into 5 qualifying reportable segments at September 30, 2021:March 31, 2022: our Central, Southeast, Northwest, West, and Florida divisions. These segments reflect the way the Company evaluates its business performance and manages its operations. The Central division is our largest division and comprised approximately 41.1% and 35.4% of total home sales revenues for the nine months ended September 30, 2021 and 2020, respectively.
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance. The CODMs primarily evaluate performance based on the number of homes closed, gross margin and average sales price per home closed.
In determining the most appropriate reportable segments, we consider operating segments’ economic and other characteristics, including home floor plans, average selling prices, gross margin percentage, geographical proximity, production construction processes, suppliers, subcontractors, regulatory environments, customer type and underlying demand and supply. Each operating segment follows the same accounting policies and is managed by our management team. We have no inter-segment sales, as all sales are to external customers. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.
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Financial information relating to our reportable segments was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202120202021202020222021
Revenues:Revenues:Revenues:
CentralCentral$287,878 $186,909 $924,591 $520,608 Central$262,298 $288,750 
SoutheastSoutheast146,166 130,131 442,431 347,155 Southeast72,463 136,551 
NorthwestNorthwest148,515 91,138 372,903 249,455 Northwest102,874 118,191 
WestWest90,592 62,935 252,553 182,012 West55,583 81,148 
FloridaFlorida78,457 63,089 256,595 171,301 Florida52,832 81,313 
Total home sales revenuesTotal home sales revenues$751,608 $534,202 $2,249,073 $1,470,531 Total home sales revenues$546,050 $705,953 
Net income (loss) before income taxes:Net income (loss) before income taxes:Net income (loss) before income taxes:
CentralCentral$55,793 $32,845 $180,467 $86,694 Central$57,740 $55,634 
SoutheastSoutheast27,142 17,280 77,644 42,063 Southeast10,129 19,831 
NorthwestNorthwest34,124 15,940 83,773 40,945 Northwest27,584 25,994 
WestWest13,279 6,883 38,598 19,101 West(231)12,611 
FloridaFlorida11,937 6,608 37,518 17,001 Florida5,360 10,816 
Corporate (1)
Corporate (1)
(15,281)(1,741)(18,609)(4,503)
Corporate (1)
(1,032)(1,610)
Total net income before income taxesTotal net income before income taxes$126,994 $77,815 $399,391 $201,301 Total net income before income taxes$99,550 $123,276 
(1)The Corporate balance consists primarily of general and administration unallocated costs for various shared service functions, as well as our warranty reserve and loss on extinguishment of debt.reserve. Actual warranty expenses are reflected within the reportable segments.
September 30, 2021December 31, 2020
Assets:
Central$808,278 $708,087 
Southeast410,024 401,725 
Northwest317,866 252,098 
West335,046 228,186 
Florida193,009 157,169 
Corporate (1)
89,334 78,822 
Total assets$2,153,557 $1,826,087 
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March 31, 2022December 31, 2021
Assets:
Central$894,491 $857,174 
Southeast501,937 438,423 
Northwest402,697 349,752 
West460,402 384,548 
Florida236,118 221,763 
Corporate (1)
98,588 100,205 
Total assets$2,594,233 $2,351,865 
(1)The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses, investments in unconsolidated entities and income tax receivables related to the federal energy efficient homes tax credit.receivables.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar terms refer to LGI Homes, Inc. and its subsidiaries.
Business Overview
We are engaged in the design, construction and sale of new homes in the following markets:
WestNorthwestCentralMidwestFloridaSoutheastMid-Atlantic
Phoenix, AZSeattle, WAHouston, TXMinneapolis, MNTampa, FLAtlanta, GAWashington, D.C.
Tucson, AZPortland, ORDallas Ft. Worth, TXOrlando, FLCharlotte, NCNorfolk, VA
Albuquerque, NMDenver, COSan Antonio, TXFort Myers, FLRaleigh, NCRichmond, VA
Las Vegas, NVAustin, TXJacksonville, FLWilmington, NCBaltimore, MD
Northern CAOklahoma City, OKFort Pierce, FLWinston-Salem, NC
Southern CADaytona Beach, FLColumbia, SC
Sarasota, FLGreenville, SC
Birmingham, AL
Nashville, TN
Our management team has been in the residential land development business since the mid-1990s. Since commencing home building operations in 2003, we have constructed and closed over 50,000 homes. During the ninethree months ended September 30, 2021,March 31, 2022, we had 7,9161,599 home closings, compared to 5,9312,561 home closings during the ninethree months ended September 30, 2020.March 31, 2021.
We sell homes under the LGI Homes andAt March 31, 2022, we had 88 active communities, including seven Terrata Homes brands. Our 103communities. At March 31, 2021, we had 110 active communities, at September 30, 2021 included threeincluding two Terrata Homes communities.
During the three months ended September 30, 2021,March 31, 2022, we recorded $101.6$51.8 million in wholesale revenues as a result of 433213 home closings, representing 17.3%13.3% of the total homes closed during the three months ended September 30, 2021.March 31, 2022. During the three months ended September 30, 2020,March 31, 2021, we recorded $19.0$62.4 million in wholesale revenues as a result of 92283 home closings, representing 4.4%11.1% of the total homes closed during the three months ended September 30, 2020. During the nine months ended September 30, 2021, we recorded $258.6 million in wholesale revenues as a result of 1,146 home closings, representing 14.5% of the total homes closed during the nine months ended September 30,March 31, 2021. During the nine months ended September 30, 2020, we recorded $101.4 million in wholesale revenues as a result of 490 home closings, representing 8.3% of the total homes closed during the nine months ended September 30, 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 and COVID-19 Variants
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak and spread of COVID-19 and COVID-19 variants thereof (hereinafter collectively referred to as “COVID-19”) hasand resulting containment efforts by governmental, regulatory and health agencies caused significant disruptions in the global economy, including tightened supply chains, raw material price volatility in U.S. and international debtsignificant cost inflation. During the three months ended March 31, 2022, we continued to experience significant supply chain disruptions that extended construction and equity markets, which can negatively impact consumer confidence.
In response to COVID-19,development cycles and delayed home closings and the opening of new communities. While we continue to take stepscarefully manage our supply chain to prioritizelimit impacts to our business and customers, we believe these COVID-19 related global shortages will continue to impact our operations as long as 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 reducedynamics surrounding the spread of COVID-19.
pandemic persist. We cannot predict the full impactalso believe that the significant disruption and volatility currently being experienceddesire for our single-family homes remains strong.
During the three months ended March 31, 2022, we closed 1,599 homes compared to 2,561 homes closed in the marketssame period last year. The first quarter of 2021 was one of the strongest in our history during which we set new Company records with respect to a number of financial metrics. Thedecline in home closings was attributable to longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of closings. We expect continued cost inflation, building material shortages and longer municipality lead times will have on our business, cash flows, liquidity, financial conditionpersist until demand for new homes normalizes and resultsglobal supply chain constraints ease.
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For additional discussion regarding our operations and COVID-19, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended
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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 and resulting increased business and social activities, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, vaccine hesitancy, 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.2021. For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Additionally, during2021.
Recent Developments
On April 29, 2022, amounts available to the three months ended September 30, 2021, significant supply chain disruptions extended construction cycles across our markets. While we have carefully managed our supply chainCompany under the Credit Agreement (as defined herein) were increased by $250.0 million to limit impacts to our business$1.1 billion, in accordance with the terms and customers, we believe these global shortages are directly related to COVID-19 and will continue to impact our operations as long asconditions of the pandemic persists. Although 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.Second Amendment (as defined herein).
Key Results
Key financial results as of and for the three months ended September 30, 2021,March 31, 2022, as compared to the three months ended September 30, 2020,March 31, 2021, were as follows:
•Home sales revenues increased 40.7%decreased 22.7% to $751.6$546.1 million from $534.2$706.0 million.
•Homes closed increased 19.5%decreased 37.6% to 2,4991,599 homes from 2,0912,561 homes.
•Average sales price per home closed increased 17.7%23.9% to $300,764$341,495 from $255,477.$275,655.
•Gross margin as a percentage of home sales revenues increased to 26.9%29.0% from 25.3%26.9%.
•Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 28.2%30.3% from 27.3%28.5%.
•Net income before income taxes increased 63.2%decreased 19.2% to $127.0$99.6 million from $77.8$123.3 million.
•Net income increased 13.0%decreased 21.0% to $100.6$78.7 million from $89.0 million.
•EBITDA (non-GAAP) as a percentage of home sales revenues increased to 18.1% from 16.3%.
•Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.7% from 16.5%.
For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “—Non-GAAP Measures.”
Key financial results as of and for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, were as follows:
•Home sales revenues increased 52.9% to $2.2 billion from $1.5 billion.
•Homes closed increased 33.5% to 7,916 homes from 5,931 homes.
•Average sales price per home closed increased 14.6% to $284,117 from $247,940.
•Gross margin as a percentage of home sales revenues increased to 27.0% from 24.5%.
•Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 28.4% from 26.5%.
•Net income before income taxes increased 98.4% to $399.4 million from $201.3 million.
•Net income increased 69.8% to $318.3 million from $187.5$99.7 million.
•EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.1% from 15.5%19.0%.
•Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increaseddecreased to 19.6%18.8% from 15.6%19.0%.
For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “—Non-GAAP Measures.”
We owned and controlled 87,51293,270 lots at September 30, 2021 as compared to 75,910 lots at June 30, 2021March 31, 2022 and 61,50491,845 lots at December 31, 2020.2021.
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Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:
Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended March 31,
2021202020212020 20222021
(dollars in thousands, except per share data and average home sales price)(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:Statement of Income Data:Statement of Income Data:
Home sales revenuesHome sales revenues$751,608 $534,202 $2,249,073 $1,470,531 Home sales revenues$546,050 $705,953 
Expenses:Expenses:Expenses:
Cost of salesCost of sales549,319 398,971 1,642,756 1,110,763 Cost of sales387,643 516,004 
Selling expensesSelling expenses39,871 35,470 127,450 98,193 Selling expenses34,398 42,783 
General and administrativeGeneral and administrative24,480 22,320 72,479 62,422 General and administrative28,289 24,723 
Operating income Operating income137,938 77,441 406,388 199,153  Operating income95,720 122,443 
Loss on extinguishment of debt13,314 — 13,976 — 
Other income, netOther income, net(2,370)(374)(6,979)(2,148)Other income, net(3,830)(833)
Net income before income taxes Net income before income taxes126,994 77,815 399,391 201,301  Net income before income taxes99,550 123,276 
Income tax provisionIncome tax provision26,444 (11,189)81,049 13,834 Income tax provision20,864 23,618 
Net income Net income$100,550 $89,004 $318,342 $187,467  Net income$78,686 $99,658 
Basic earnings per shareBasic earnings per share$4.10 $3.55 $12.85 $7.45 Basic earnings per share$3.30 $3.99 
Diluted earnings per shareDiluted earnings per share$4.05 $3.52 $12.72 $7.40 Diluted earnings per share$3.25 $3.95 
Other Financial and Operating Data:Other Financial and Operating Data:Other Financial and Operating Data:
Average community countAverage community count102.7 109.3 104.7 111.3 Average community count89.0 106.3 
Community count at end of periodCommunity count at end of period103 110 103 110 Community count at end of period88 110 
Home closingsHome closings2,499 2,091 7,916 5,931 Home closings1,599 2,561 
Average sales price per home closedAverage sales price per home closed$300,764 $255,477 $284,117 $247,940 Average sales price per home closed$341,495 $275,655 
Gross margin (1)
Gross margin (1)
$202,289 $135,231 $606,317 $359,768 
Gross margin (1)
$158,407 $189,949 
Gross margin % (2)
Gross margin % (2)
26.9 %25.3 %27.0 %24.5 %
Gross margin % (2)
29.0 %26.9 %
Adjusted gross margin (3)
Adjusted gross margin (3)
$211,844 $145,791 $639,245 $389,817 
Adjusted gross margin (3)
$165,202 $201,433 
Adjusted gross margin % (2)(3)
Adjusted gross margin % (2)(3)
28.2 %27.3 %28.4 %26.5 %
Adjusted gross margin % (2)(3)
30.3 %28.5 %
EBITDA (4)
EBITDA (4)
$135,892 $87,171 $429,941 $228,588 
EBITDA (4)
$104,411 $134,236 
EBITDA margin % (2)(4)
EBITDA margin % (2)(4)
18.1 %16.3 %19.1 %15.5 %
EBITDA margin % (2)(4)
19.1 %19.0 %
Adjusted EBITDA (4)
Adjusted EBITDA (4)
$147,788 $88,193 $440,148 $229,711 
Adjusted EBITDA (4)
$102,863 $134,215 
Adjusted EBITDA margin % (2)(4)
Adjusted EBITDA margin % (2)(4)
19.7 %16.5 %19.6 %15.6 %
Adjusted EBITDA margin % (2)(4)
18.8 %19.0 %
(1)Gross margin is home sales revenues less cost of sales.
(2)Calculated as a percentage of home sales revenues.
(3)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “—Non-GAAP Measures” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.
(4)EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and
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amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of
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our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Please see “—Non-GAAP Measures” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.
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Three Months Ended September 30,2021March 31, 2022 Compared to Three Months Ended September 30, 2020March 31, 2021
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended September 30,March 31, 2022 and 2021 and 2020 were as follows (revenues in thousands):
Three Months Ended September 30, 2021As of September 30, 2021
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate		Community Count at End of Period
Central$287,878 1,072 $268,543 34.7 10.3 33 
Southeast146,166 551 265,274 24.0 7.7 26 
Northwest148,515 325 456,969 12.3 8.8 12 
West90,592 248 365,290 12.7 6.5 13 
Florida78,457 303 258,934 19.0 5.3 19 
Total$751,608 2,499 $300,764 102.7 8.1 103 
Three Months Ended September 30, 2020As of September 30, 2020
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate		Community Count at End of Period
Central$186,909 812 $230,183 33.3 8.1 35 
Southeast130,131 550 236,602 33.7 5.4 31 
Northwest91,138 229 397,983 11.7 6.5 13 
West62,935 220 286,068 12.7 5.8 12 
Florida63,089 280 225,318 18.0 5.2 19 
Total$534,202 2,091 $255,477 109.3 6.4 110 
Three Months Ended March 31, 2022As of March 31, 2022
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate		Community Count at End of Period
Central$262,298 844 $310,780 30.0 9.4 29 
Southeast72,463 238 304,466 20.0 4.0 21 
Northwest102,874 201 511,811 10.3 6.5 9 
West55,583 142 391,430 10.0 4.7 10 
Florida52,832 174 303,632 18.7 3.1 19 
Total$546,050 1,599 $341,495 89.0 6.0 88 
Three Months Ended March 31, 2021As of March 31, 2021
RevenuesHome ClosingsASPAverage Community CountAverage Monthly
Absorption Rate		Community Count at End of Period
Central$288,750 1,127 $256,211 37.3 10.1 38 
Southeast136,551 548 249,181 27.7 6.6 29 
Northwest118,191 296 399,294 10.6 9.3 11 
West81,148 249 325,896 10.7 7.8 11 
Florida81,313 341 238,455 20.0 5.7 21 
Total$705,953 2,561 $275,655 106.3 8.0 110 
Home sales revenues for the three months ended September 30, 2021March 31, 2022 were $751.6$546.1 million, an increasea decrease of $217.4$159.9 million, or 40.7%22.7%, from $534.2$706.0 million for the three months ended September 30, 2020.March 31, 2021. The increasedecrease in home sales revenues is primarily due to a 19.5% increase37.6% decrease in homes closed andpartially offset by an increase in the average sales price per home closed during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021. The average sales price per home closed during the three months ended September 30, 2021March 31, 2022 was $300,764,$341,495, an increase of $45,287,$65,840, or 17.7%23.9%, from the average sales price per home closed of $255,477$275,655 for the three months ended September 30, 2020. ThisMarch 31, 2021. The increase in the average sales price per home closed is primarily due to increased closings atour ability to pass through cost increases associated with construction in favorable pricing environments. Additionally, we experienced higher price points in certain markets and a favorable pricing environment, partially offset by additional wholesale home closings.all reportable segments. The overall increasedecrease in home closings was largely due tois a strong demand environment leading to higherresult of lower average monthlycommunity count and overall lower absorption rates within certain markets in all reportable segmentspace during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020. OurMarch 31, 2021. The overall decrease in average community count at September 30, 2021 decreasedrelates to 103 from 110 at September 30, 2020. The decrease in community count is due totiming associated with the opening, close out of or transition between certain active communities forduring the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021. The overall decrease in absorption relates to increased cycle times that are pandemic related production disruptions. These disruptions have caused varying degrees for supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.
Home sales revenues in our Central reportable segment increaseddecreased by $101.0$26.5 million, or 54.0%9.2%, during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020,March 31, 2021, primarily due to an 32.0% increasea 25.1% decrease in the number of homes closed increaseddriven by a decrease in the average community count at a higherslightly lower absorption rate andin this reportable segment, partially offset by an increase in the average sales price per home closed. Home sales revenues in our Southeast reportable segment increaseddecreased by $16.0$64.1 million, or 12.3%46.9%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to higher average sales price per home closed, as well as continued expansion into certain Mid-Atlantic geographic markets, partially offset by the close out of active communities. Home sales revenues in our Northwest reportable segment increased by $57.4 million, or 63.0%, primarily due to increased demand and an increasea 56.6% decrease in the number of homes closed increaseddriven by a decrease in the average community count at a higherslightly lower absorption rate andin this reportable segment, partially offset by an increase in the average sales price per home closed for the three months ended September 30, 2021.closed. Home sales revenues in our WestNorthwest reportable segment increaseddecreased by $27.7$15.3 million, or 43.9%13.0%, during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30,March 31,
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2020,2021, primarily due to a 27.7% 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 September 30, 2021. Home sales revenues in our Florida reportable segment increased by $15.4 million, or 24.4%, largely due to an increase32.1% decrease in the number of homes closed resulting fromdriven by a slight decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by a sharp increase in the average sales price per home closed. Home sales revenues in our West reportable segment decreased by $25.6 million, or 31.5%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 43.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed, increased average community count and a higher absorption rate forclosed. Home sales revenues in our Florida reportable segment decreased by $28.5 million, or 35.0%, during the three months ended September 30, 2021March 31, 2022, as compared to the three months ended September 30, 2020.March 31, 2021, primarily due to a 49.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by the increase of 27.3% in the average sales price per home closed. Differing absorption rates in our reportable segments was generally related to available homes to sell.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increaseddecreased for the three months ended September 30, 2021March 31, 2022 to $549.3$387.6 million, an increasea decrease of $150.3$128.4 million, or 37.7%24.9%, from $399.0$516.0 million for the three months ended September 30, 2020,March 31, 2021. This overall decrease is primarily due to thea 37.6% decrease in homes closed. The increase in homes closedgross margin as a percentage of home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to raising prices higher than increases in input costs, in addition to lower capitalized interest and increased constructionlower overhead and lot costs. Gross margin for the three months ended September 30, 2021March 31, 2022 was $202.3$158.4 million, an increasea decrease of $67.1$31.5 million, or 49.6%16.6%, from $135.2$189.9 million for the three months ended September 30, 2020.March 31, 2021. Gross margin as a percentage of home sales revenues was 29.0% for the three months ended March 31, 2022 and 26.9% for the three months ended September 30, 2021 and 25.3% for the three months ended September 30, 2020.March 31, 2021. This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021.
Selling Expenses. Selling expenses for the three months ended September 30, 2021March 31, 2022 were $39.9$34.4 million, an increasea decrease of $4.4$8.4 million, or 12.4%19.6%, from $35.5$42.8 million for the three months ended September 30, 2020.March 31, 2021. Sales commissions increaseddecreased to $28.0$20.1 million for the three months ended September 30, 2021March 31, 2022 from $20.7$26.3 million for the three months ended September 30, 2020, primarilyMarch 31, 2021, partially due to a 40.7% increase22.7% decrease in home sales revenues during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021. Selling expenses as a percentage of home sales revenues were 5.3%6.3% and 6.6%6.1% for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively. The decreaseincrease in selling expenses as a percentage of home sales revenues reflects operating leverage realized fromwas driven primarily by the increasedecrease in home sales revenues during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021.
General and Administrative. General and administrative expenses for the three months ended September 30, 2021March 31, 2022 were $24.5$28.3 million, an increase of $2.2$3.6 million, or 9.7%14.4%, from $22.3$24.7 million for the three months ended September 30, 2020.March 31, 2021. The increase in the amount of general and administrative expenses is primarily due to timing of personnelhigher overhead and related costsincreased headcount in certain departments during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021. General and administrative expenses as a percentage of home sales revenues were 3.3%5.2% and 4.2%3.5% for the three months ended September 30,March 31, 2022 and 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 September 30, 2021 as compared to the three months ended September 30, 2020.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for the three months ended September 30, 2021 was $13.3 million, due to the redemption premium associated with our 6.875% Senior Notes due 2026 (the “2026 Senior Notes”), as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes. There was no loss on extinguishment of debt for the three months ended September 30, 2020.
Other Income. Other income, net of other expenses was $2.4$3.8 million for the three months ended September 30, 2021,March 31, 2022, an increase of $2.0$3.0 million from $0.4$0.8 million for the three months ended September 30, 2020.March 31, 2021. The increase in other income primarily reflects the gain realized from the sale of lotsland not directly associated with our core homebuilding operations.operations and to a lesser extent other miscellaneous income.
Operating Income and Net Income before Income Taxes. Operating income for the three months ended September 30, 2021March 31, 2022 was $137.9$95.7 million, an increasea decrease of $60.5$26.7 million, or 78.1%21.8%, from $77.4$122.4 million for the three months ended September 30, 2020.March 31, 2021. Net income before income taxes for the three months ended September 30, 2021March 31, 2022 was $127.0$99.6 million, an increasea decrease of $49.2$23.7 million, or 63.2%19.2%, from $77.8$123.3 million for the three months ended September 30, 2020. AllMarch 31, 2021. The following reportable segments contributed to net income before income taxes during the three months ended September 30, 2021March 31, 2022 as follows: Central - $55.8$57.7 million or 43.9%58.0%; Southeast - $27.1$10.1 million or 21.4%10.2%; Northwest - $34.1$27.6 million or 26.9%; West - $13.3 million or 10.5%27.7%; and Florida - $11.9$5.4 million or 9.4%5.4%. Our West reportable segment had a $(0.2) million, or (0.2)%, net loss primarily attributable to an ongoing local tax audit impacting our Arizona markets. The increasesdecreases in operating income and net income before income taxes are primarily attributed to higher gross margins, operating leverage realized from the increasedecrease in home sales revenues, andpartially offset by higher average sales price per home closed during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.March 31, 2021.
Income Taxes. Income tax provision for the three months ended September 30, 2021March 31, 2022 was $26.4$20.9 million, an increasea decrease of $37.6$2.8 million, or 336.3%11.7%, from income tax benefitprovision of $11.2$23.6 million for the three months ended September 30, 2020.March 31, 2021. The increasedecrease in the amount of income tax provision is primarily due to the retroactive federal energy efficient homes tax credits recognized during the three months ended September 30, 2020 and the 63.2% increase19.2% decrease in net income before taxes, partially offset by the tax benefits relating to the federal energy efficient homes tax credits we recognized duringthat expired in 2021. The increase in our effective tax rate to 21.0% from 19.2% results from an increase in the rate due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue
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Code, as amended, offset by a decrease in the rate for deductions in excess of compensation cost for share-based payments for the three months ended September 30, 2021.March 31, 2022.
Net Income. Net income for the three months ended September 30, 2021March 31, 2022 was $100.6$78.7 million, an increasea decrease of $11.5$21.0 million, or 13.0%21.0%, from $89.0$99.7 million for the three months ended September 30, 2020.March 31, 2021. The increasedecrease in net income is primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues andoverall lower homes closed, offset by higher average sales price per
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home closed recognizedat higher gross margins on a per home basis, during the three months ended September 30, 2021March 31, 2022 as compared to the three months ended September 30, 2020.
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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the nine months ended September 30, 2021 and 2020 were as follows (revenues in thousands):
Nine Months Ended September 30, 2021
RevenuesHome ClosingsASPAverage Community CountAverage
Monthly
Absorption Rate
Central$924,591 3,547 $260,668 36.7 10.7 
Southeast442,431 1,731 255,593 25.8 7.5 
Northwest372,903 876 425,688 11.1 8.8 
West252,553 729 346,438 11.3 7.1 
Florida256,595 1,033 248,398 19.8 5.8 
Total$2,249,073 7,916 $284,117 104.7 8.4 
Nine Months Ended September 30, 2020
RevenuesHome ClosingsASPAverage Community CountAverage Monthly
Absorption Rate
Central$520,608 2,300 $226,351 33.8 7.6 
Southeast347,155 1,512 229,600 34.0 4.9 
Northwest249,455 655 380,847 11.8 6.2 
West182,012 692 263,023 14.2 5.4 
Florida171,301 772 221,892 17.6 4.9 
Total$1,470,531 5,931 $247,940 111.3 5.9 

Home sales revenues for the nine months ended September 30, 2021 were $2.2 billion, an increase of $778.5 million, or 52.9%, from $1.5 billion for the nine months ended September 30, 2020. The increase in home sales revenues is primarily due to a 33.5% increase in homes closed and an increase in the average sales price per home closed during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The average sales price per home closed during the nine months ended September 30, 2021 was $284,117, an increase of $36,177, or 14.6%, from the average sales price per home closed of $247,940 for the nine months ended September 30, 2020. This increase in the average sales price per home closed was primarily due to higher price points in certain markets, partially offset by additional wholesale home closings. The overall increase in home closings was primarily driven by strong demand in all reportable segments during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Home sales revenues in our Central reportable segment increased by $404.0 million, or 77.6%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a 54.2% increase in the number of homes closed at a higher average sales price per home closed and increased average community count at a higher absorption rate in this reportable segment. Home sales revenues in our Southeast reportable segment increased by $95.3 million, or 27.4%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased closings in certain markets in North Carolina and South Carolina, partially offset by lower community count during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Home sales revenues in our Northwest reportable segment increased by $123.4 million, or 49.5%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a 33.7% increase in the number of homes closed in this reportable segment, as a result of increased demand during the nine months ended September 30,March 31, 2021. Home sales revenues in our West reportable segment increased by $70.5 million, or 38.8%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in this reportable segment, partially offset by lower average community count. Home sales revenues in our Florida reportable segment increased by $85.3 million, or 49.8%, largely due to
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an increase of 11.9% in the average sales price per home closed as a result of strong demand and complemented by increased average community count at an improved absorption rate during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales increased for the nine months ended September 30, 2021 to $1.6 billion, an increase of $532.0 million, or 47.9%, from $1.1 billion for the nine months ended September 30, 2020. This overall increase is primarily due to a 33.5% increase in homes closed, higher construction costs and product mix. As a percentage of home sales revenues, cost of sales decreased as a result of the increase in home sales revenues, lower capitalized interest and lower overhead, partially offset by higher lot costs during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Gross margin for the nine months ended September 30, 2021 was $606.3 million, an increase of $246.5 million, or 68.5%, from $359.8 million for the nine months ended September 30, 2020. Gross margin as a percentage of home sales revenues was 27.0% for the nine months ended September 30, 2021 and 24.5% for the nine months ended September 30, 2020. This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Selling Expenses. Selling expenses for the nine months ended September 30, 2021 were $127.5 million, an increase of $29.3 million, or 29.8%, from $98.2 million for the nine months ended September 30, 2020. Sales commissions increased to $84.7 million for the nine months ended September 30, 2021 from $55.2 million for the nine months ended September 30, 2020, partially due to a 52.9% increase in home sales revenues during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Selling expenses as a percentage of home sales revenues were 5.7% and 6.7% for the nine months ended September 30, 2021 and 2020, respectively. The decrease in selling expenses as a percentage of home sales revenues was driven primarily by operating leverage obtained from the increase in home sales revenues and to a lesser extent lower advertising expenses during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
General and Administrative. General and administrative expenses for the nine months ended September 30, 2021 were $72.5 million, an increase of $10.1 million, or 16.1%, from $62.4 million for the nine months ended September 30, 2020. The increase in the amount of general and administrative expenses is primarily due to timing of compensation during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. General and administrative expenses as a percentage of home sales revenues were 3.2% and 4.2% for the nine months ended September 30, 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 nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for the nine months ended September 30, 2021 was $14.0 million, primarily due to the redemption premium associated with our 2026 Senior Notes, as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes and debt issuance costs previously capitalized that were associated with our 2020 Credit Agreement. There was no loss on extinguishment of debt for the nine months ended September 30, 2020.
Other Income. Other income, net of other expenses was $7.0 million for the nine months ended September 30, 2021, an increase of $4.8 million from $2.1 million for the nine months ended September 30, 2020. The increase in other income primarily reflects the gain realized from the sale of lots and land not directly associated with our core homebuilding operations.
Operating Income and Net Income before Income Taxes. Operating income for the nine months ended September 30, 2021 was $406.4 million, an increase of $207.2 million, or 104.1%, from $199.2 million for the nine months ended September 30, 2020. Net income before income taxes for the nine months ended September 30, 2021 was $399.4 million, an increase of $198.1 million, or 98.4%, from $201.3 million for the nine months ended September 30, 2020. All reportable segments contributed to net income before income taxes during the nine months ended September 30, 2021 as follows: Central - $180.5 million or 45.2%; Southeast - $77.6 million or 19.4%; Northwest - $83.8 million or 21.0%; West - $38.6 million or 9.7%; and Florida - $37.5 million or 9.4%. The increases in operating income and net income before income taxes are primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
Income Taxes. Income tax provision for the nine months ended September 30, 2021 was $81.0 million, an increase of $67.2 million, or 485.9%, from income tax provision of $13.8 million for the nine months ended September 30, 2020. The increase in the amount of income tax provision is primarily due to the retroactive tax benefits relating to the federal energy efficient homes tax credits we recognized during the nine months ended September 30, 2020 and the 98.4% increase in net income before taxes, which resulted in an increase in our effective tax rate for the nine months ended September 30, 2021 to 20.3% from 6.9% for the nine months ended September 30, 2020.
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Net Income. Net income for the nine months ended September 30, 2021 was $318.3 million, an increase of $130.9 million, or 69.8%, from $187.5 million for the nine months ended September 30, 2020. The increase in net income is primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized during the nine months ended September 30, 2020.
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 net income and adjusted earnings per share.EBITDA.
Adjusted Gross Margin
Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.
The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202120202021202020222021
Home sales revenuesHome sales revenues$751,608 $534,202 $2,249,073 $1,470,531 Home sales revenues$546,050 $705,953 
Cost of salesCost of sales549,319 398,971 1,642,756 1,110,763 Cost of sales387,643 516,004 
Gross marginGross margin202,289 135,231 606,317 359,768 Gross margin158,407 189,949 
Capitalized interest charged to cost of salesCapitalized interest charged to cost of sales8,603 9,164 29,718 26,778 Capitalized interest charged to cost of sales4,513 10,672 
Purchase accounting adjustments (1)
Purchase accounting adjustments (1)
952 1,396 3,210 3,271 
Purchase accounting adjustments (1)
2,282 812 
Adjusted gross marginAdjusted gross margin$211,844 $145,791 $639,245 $389,817 Adjusted gross margin$165,202 $201,433 
Gross margin % (2)
Gross margin % (2)
26.9 %25.3 %27.0 %24.5 %
Gross margin % (2)
29.0 %26.9 %
Adjusted gross margin % (2)
Adjusted gross margin % (2)
28.2 %27.3 %28.4 %26.5 %
Adjusted gross margin % (2)
30.3 %28.5 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting included in cost of sales. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs,
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such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition
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to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are:
(i) they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for purchase of land;
(ii) they do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
(iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and EBITDA and adjusted EBITDA do not reflect any cash requirements for such replacements or improvements;
(iv) they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
(v) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
(vi) other companies in our industry may calculate them differently than we do, limiting their usefulness as a comparative measure.
Because of these limitations, our EBITDA and adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using our EBITDA and adjusted EBITDA along with other comparative tools, together with GAAP measures, to assist in the evaluation of operating performance. These GAAP measures include operating income, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges, which are not reflected in our EBITDA or adjusted EBITDA. EBITDA and adjusted EBITDA are not intended as alternatives to net income as indicators of our operating performance, as alternatives to any other measure of performance in conformity with GAAP or as alternatives to cash flows as a measure of liquidity. You should therefore not place undue reliance on our EBITDA or adjusted EBITDA calculated using these measures.
The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202120202021202020222021
Net incomeNet income$100,550 $89,004 $318,342 $187,467 Net income$78,686 $99,658 
Income tax provision (benefit)Income tax provision (benefit)26,444 (11,189)81,049 13,834 Income tax provision (benefit)20,864 23,618 
Depreciation and amortizationDepreciation and amortization295 192 832 509 Depreciation and amortization348 288 
Capitalized interest charged to cost of salesCapitalized interest charged to cost of sales8,603 9,164 29,718 26,778 Capitalized interest charged to cost of sales4,513 10,672 
EBITDAEBITDA135,892 87,171 429,941 228,588 EBITDA104,411 134,236 
Purchase accounting adjustments(1)
Purchase accounting adjustments(1)
952 1,396 3,210 3,271 
Purchase accounting adjustments(1)
2,282 812 
Loss on extinguishment of debt13,314 — 13,976 — 
Other income, netOther income, net(2,370)(374)(6,979)(2,148)Other income, net(3,830)(833)
Adjusted EBITDAAdjusted EBITDA$147,788 $88,193 $440,148 $229,711 Adjusted EBITDA$102,863 $134,215 
EBITDA margin %(2)
EBITDA margin %(2)
18.1 %16.3 %19.1 %15.5 %
EBITDA margin %(2)
19.1 %19.0 %
Adjusted EBITDA margin %(2)
Adjusted EBITDA margin %(2)
19.7 %16.5 %19.6 %15.6 %
Adjusted EBITDA margin %(2)
18.8 %19.0 %
(1)Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2)Calculated as a percentage of home sales revenues.
Adjusted Net Income and Adjusted Earnings per Share
Adjusted net income and adjusted earnings per share are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define adjusted net income as net income less the retroactive federal energy efficient homes tax credits. We define adjusted earnings per share as adjusted net income divided by weighted average shares outstanding. Our management believes that the presentation of adjusted net income and adjusted earnings per share provides useful information to investors because such measures isolate the impact that material retroactive tax
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adjustments have on net income and earnings per share. However, because adjusted net income and adjusted earnings per share information excludes the retroactive federal energy efficient homes tax credits, which have real economic effects and could impact our results, the utility of adjusted net income and adjusted earnings per share as measures of our operating performance may be limited. In addition, other companies may not calculate adjusted net income and adjusted earnings per share in the same manner that we do. Accordingly, adjusted net income and adjusted earnings per share information should be considered only as a supplement to net income and earnings per share information as measures of our performance.
The following table reconciles adjusted net income and adjusted earnings per share to net income and earnings per share, respectively, which are the GAAP measures that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Numerator (in thousands):
 Net income (Numerator for basic and diluted earnings per share)$100,550 $89,004 $318,342 $187,467 
 Retroactive federal energy efficient homes tax credits— 27,141 — 26,595 
Adjusted net income (Numerator for adjusted basic and diluted earnings per share)$100,550 $61,863 $318,342 $160,872 
Denominator:
Basic weighted average shares outstanding24,508,134 25,089,424 24,766,260 25,162,162 
       Effect of dilutive securities:
Stock-based compensation units316,186 167,629 263,901 166,393 
Diluted weighted average shares outstanding24,824,320 25,257,053 25,030,161 25,328,555 
Basic earnings per share$4.10 $3.55 $12.85 $7.45 
Diluted earnings per share$4.05 $3.52 $12.72 $7.40 
Adjusted basic earnings per share$4.10 $2.47 $12.85 $6.39 
Adjusted diluted earnings per share$4.05 $2.45 $12.72 $6.35 


Backlog
We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $5,000). We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract. Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed. If we
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determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract. If a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed, then the homebuyer has met the preliminary criteria to obtain mortgage financing. Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.
Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings. Homes in backlog are generally closed within one to two months, although home
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closings have been, and may continue to be, delayed during the COVID-19 pandemic. In addition, we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.
Our net orders decreased in the first quarter of 2022 primarily due to the availability of finished lots brought on by sustained demand and the rapid pace of fluctuating rising costs for certain supplies and labor experienced in 2021. During the first half of 2021, due to limited supply, we elected to not enter into sales contracts until construction on the home had begun and our costs for the home were readily determined. In the first quarter of 2022, to mitigate continuing cost volatility, we have further modified our traditional timing of when to enter into our sales contracts until later in the construction cycle to align with the dynamic pricing environment.
As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):
Backlog DataBacklog DataNine Months Ended September 30,Backlog DataThree Months Ended March 31,
2021 (4)
2020 (5)
2022 (4)
2021 (5)
Net orders (1)
Net orders (1)
8,044 8,278 
Net orders (1)
1,973 5,229 
Cancellation rate (2)
Cancellation rate (2)
18.8 %20.6 %
Cancellation rate (2)
15.6 %10.5 %
Ending backlog – homes (3)
Ending backlog – homes (3)
3,090 3,580 
Ending backlog – homes (3)
2,429 5,632 
Ending backlog – value (3)
Ending backlog – value (3)
$959,786 $932,664 
Ending backlog – value (3)
$849,117 $1,595,879 
(1)Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
(2)Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.
(3)Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Ending backlog is valued at the contract amount.
(4)As of September 30, 2021,March 31, 2022, we had 563374 units related to bulk sales agreements associated with our wholesale business.
(5)As of September 30, 2020,March 31, 2021, we had 8211,344 units related to bulk sales agreements associated with our wholesale business.
Land Acquisition Policies and Development
We had 10388 and 116101 active communities as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The overall decrease in community count is seen as transitory, primarily due to the close out of active communities and to a lesser extent available finished lots in certain active markets. Generally, it takes us two to three years to turn raw or undeveloped land into an active community.
Our lot inventory increased to 87,51293,270 owned or controlled lots as of September 30, 2021March 31, 2022 from 61,50491,845 owned or controlled lots as of December 31, 2020 due to an overall increased lot count within all reportable segments.2021.
The table below shows (i) home closings by reportable segment for the ninethree months ended September 30, 2021March 31, 2022 and (ii) our owned or controlled lots by reportable segment as of September 30, 2021.
Nine Months Ended September 30, 2021As of September 30, 2021
Reportable SegmentHome Closings
Owned (1)
ControlledTotal
Central3,547 19,034 17,506 36,540 
Southeast1,731 12,291 9,037 21,328 
Northwest876 4,055 5,626 9,681 
West729 5,634 5,958 11,592 
Florida1,033 3,160 5,211 8,371 
Total7,916 44,174 43,338 87,512 
(1)Of the 44,174 owned lots as of September 30, 2021, 32,250 were raw/under development lots and 11,924 were finished lots.

March 31, 2022.
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Three Months Ended March 31, 2022As of March 31, 2022
Reportable SegmentHome Closings
Owned (1)
ControlledTotal
Central844 23,769 13,999 37,768 
Southeast238 15,822 5,620 21,442 
Northwest201 6,790 2,559 9,349 
West142 8,358 7,040 15,398 
Florida174 4,340 4,973 9,313 
Total1,599 59,079 34,191 93,270 
(1)Of the 59,079 owned lots as of March 31, 2022, 47,222 were raw/under development lots and 11,857 were finished lots.
Homes in Inventory
When entering a new community, we build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on home closings. As homes are closed, we start more homes to maintain our inventory. As of September 30, 2021,March 31, 2022, we had a total of 568676 completed homes, including information centers, and 4,0143,762 homes in progress.
Raw Materials and Labor
When constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States. In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Substantially all of our construction work is done by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. For the three months ended March 31, 2022, we have experienced delays in varying degrees in our materials and components. We could see additional cost pressures associated with lumber and other materials in future quarters. Generally, we have been able to increase the sales prices of our homes to absorb these increased costs.
Seasonality
In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenues and capital requirements are generally similar across our second, third and fourth quarters.
As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.
Liquidity and Capital Resources
Overview
As of September 30, 2021,March 31, 2022, we had $46.7$53.3 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.
Our principal uses of capital are operating expenses, land and lot purchases, lot development, home construction, interest costs on our indebtedness and the payment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of an acquisition and repurchase share of our common stock. Early stages of development or expansion require significant cash outlays for land acquisitions, land development, plats, vertical development, construction of information centers, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of home sales revenues. In the later stages of an active community, cash inflows may exceed home sales revenues reported for financial statement purposes, as the costs associated with home and land construction were previously incurred.
Our principal uses
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Short-term Liquidity 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.Capital Resources
We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement (as defined below) or the issuanceto adequately fund our short-term working capital obligations and sale ofto purchase land and other assets, develop lots and homes and repurchase shares of our common stock. As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy. We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.
As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed. However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
Long-term Liquidity and Capital Resources
We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchase shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029. We believe that we will be able to fund our long-term liquidity needs with cash generated from operations and cash expected to be available to borrow under the Credit Agreement or through accessing debt or equity capital, as needed, although no assurance can be provided that such additional debt or equity capital will be available when needed or on terms that we find attractive. To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.
Revolving Credit Facility
On April 28, 2021,29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”“Second Amendment”), which amends and
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restatesamended that certain FourthFifth Amended and Restated Credit Agreement, dated as of May 6, 2019 (asApril 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement” and, as so amended and as otherwise amended prior to the “2020 Creditdate of the Second Amendment, the “Credit Agreement”). The Credit Agreement (a) increases thecontains revolving commitments of $1.1 billion, subject to $850.0 million, (b) allowsa borrowing base primarily consisting of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company to increaseand its subsidiaries that guarantee 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 1.45% to 2.10%, 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,obligations under the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.
The Credit Agreement matures on April 28, 2025. Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date. The 2021 Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.
The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement. As of September 30, 2021,March 31, 2022, the borrowing base under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $679.0 million$1.0 billion were outstanding, $8.3$25.0 million of letters of credit were outstanding and $459.6$108.3 million was available to borrow under the 2021 Credit Agreement.
Interest is paid monthly on borrowings at LIBOR plus 1.45%. The Credit Agreement applicable margin for LIBOR loans ranges from 1.45% to 2.10% based on our leverage ratio. At September 30, 2021, LIBOR was 0.08%; however,For a further description of the Credit Agreement, has a 0.50% LIBOR floor.
The Credit Agreement requires usplease refer to maintain (i) a tangible net worthNote 4, “Notes Payable” to our consolidated financial statements included in Part I, Item 1 of not less than $850.0 million plus 75% of the net proceeds of all equity issuances after December 31, 2020 plus 50.0% of the amount of our positive net income in each fiscal quarter ending after March 31, 2021, (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 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At September 30, 2021, we were in compliance with all of the covenants contained in the Credit Agreement.this Quarterly Report on Form 10-Q.
Senior Notes OfferingsOffering
On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act. Interest on the 2029 Senior Notes accrues at a rate of 4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2022, and theyear. The 2029 Senior Notes mature on July 15, 2029. Terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.
On July 6, 2018, we issued $300.0 million aggregate principal amount of the 2026 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $300.0 million and a redemption premium of $10.3 million. Additionally, we expensed $3.0 million of deferred financing costs and discounts that were being previously amortized in association with the 2026 Senior Notes. We financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.
Letters of Credit, Surety Bonds and Financial Guarantees
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We are often required to provide letters of credit and surety bonds to secure our performance under construction contracts, development agreements and other arrangements. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit.
Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $199.7$268.8 million as of September 30, 2021.March 31, 2022. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not
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believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of September 30, 2021March 31, 2022 will be drawn upon.
Stock Repurchase Program
In November 2018, we announced thatFebruary 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized a stock repurchase program, pursuant to which we may purchase up to $50.0$550.0 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 September 30, 2021,March 31, 2022, we repurchased 358,817475,055 shares of our common stock for $56.1 million to be held as treasury stock. During the nine months ended September 30, 2021, we repurchased 910,038 shares of our common stock for $137.7$57.7 million to be held as treasury stock. A total of 1,668,0312,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced. As of September 30, 2021,March 31, 2022, we may purchase up to $162.7$249.0 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.
Cash Flows
Operating Activities
Net cash used in operating activities was $137.8 million for the three months ended March 31, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash used in operating activities during the three months ended March 31, 2022 was primarily driven by cash outflow from the $251.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $78.7 million, as well as the $9.4 million and $10.5 million increase in the net change in accounts receivable and accrued expenses and other liabilities, respectively.
Net cash provided by operating activities was $101.1$160.7 million for the ninethree months ended September 30,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 ninethree months ended September 30,March 31, 2021 was primarily driven by net income of $318.3$99.7 million,and included cash outflow from the $286.6$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 increases of $66.8a $56.7 million and $20.6$27.9 million increase in the net change in accounts receivable and accounts payable, respectively.
Net cash provided by operating activities was $113.0 million for the nine months ended September 30, 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 nine months ended September 30, 2020 was primarily driven by net income of $187.5 million,and included cash outflow from the $48.8 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 in addition to changes in non-inventory balances of $25.7 million.payable.
Investing Activities
Net cash used in investing activities was $69.8$1.4 million for the ninethree months ended September 30,March 31, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.
Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the payment for business acquisitions, additionalreturn of capital with our investment in an unconsolidated entities andentity, offset by the purchase of property and equipment.
Net cash used in investing activities was $2.3 million for the nine months ended September 30, 2020, primarily due to theequipment, as well as an additional investment in an unconsolidated entity and purchase of property and equipment.entity.
Financing Activities
Net cash used inprovided by financing activities was $20.5$142.0 million for the ninethree months ended September 30, 2021,March 31, 2022, primarily driven by $944.0$197.6 million of payments onborrowings under the 2026 Senior Notes, the 20202021 Credit Agreement, and the Credit Agreement andoffset by the $137.7$57.7 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by $1.1 billion related to the proceeds received for the 2029 Senior Notes, and borrowings under the 2020 Credit Agreement and the Credit Agreement.stock.
Net cash used in financing activities was $102.7$148.9 million for the ninethree months ended September 30, 2020,March 31, 2021, primarily driven by $275.0$230.0 million of payments on the 2020Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”) and by the $31.3$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 $203.1$104.8 million under the 2020 Credit Agreement.
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
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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 September 30, 2021, we had $46.3 million of cash deposits pertaining to land purchase contracts for 43,338 lots with an aggregate purchase price of $1.0 billion. Approximately $25.1 million of the cash deposits as of September 30, 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. During the ninethree months ended September 30, 2021,March 31, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the fourth quarter of 2021 and into 2022.foreseeable future. Generally, we have been able to increase the sales prices of our homes to absorb such increased costs. See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Contractual ObligationsMaterial Cash Requirements
As of September 30, 2021,March 31, 2022, there have been no material changes to our known contractual and other obligations appearing in the “Contractual Obligations”“Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.

Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.
We believe that there have been no significant changes to our critical accounting policies and estimates during the ninethree months ended September 30, 2021March 31, 2022 as compared to those disclosed in 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, 2020.2021.
Cautionary Statement about Forward-Looking Statements
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.
We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may, and often do, vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.

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The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:
•adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates, supply chain disruptions (including due to the conflict in Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials) and inflation and decreases in housing prices;
•the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions), and the markets in which we operate, U.S. and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;
•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;
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•our future operating results and financial condition;
•our business operations;
•changes in our business and investment strategy;
•the success of our operations in recently opened new markets and our ability to expand into additional new markets;
•our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites;
•our ability to develop our projects successfully or within expected timeframes;
•our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;
•our ability to successfully integrate any acquisitions with our existing operations;
•availability of land to acquire and our ability to acquire such land on favorable terms or at all;
•availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;
•decisions of the Credit Agreement lender group;
•decline in the market value of our land portfolio;
•shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies;
•delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;
•uninsured losses in excess of insurance limits;
•the cost and availability of insurance and surety bonds;
•changes in, (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;
•information system failures, cyber incidents or breaches in security;
•negative publicity or poor relations with the residents of our projects;
•existing and future litigation, arbitration or other claims;
•availability of qualified personnel and third-party contractors and subcontractors;
•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
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•the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
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.
Quantitative and Qualitative Disclosures About Interest Rate Risk
We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the 2029 Senior Notes and certain inventory related obligations) and variable-rate debt (our $850.0 million$1.1 billion Credit Agreement) as part of financing our operations. We do not have the obligation to prepay the 2029 Senior Notes or our fixed-rate inventory related obligations prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt.
We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. In November 2020, we entered into a three-year interest rate cap of LIBOR of 0.70% to hedge a portion of our 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 September 30, 2021,March 31, 2022, we had $379.0$715.1 million of variable rate indebtedness outstanding under the 2021 Credit Agreement. All of the outstanding borrowings under the 2021 Credit Agreement were at variable rates based on LIBOR, and all of the outstanding borrowings under the Credit Agreement are at variable rates based on LIBOR.SOFR. The interest rate for our variable rate indebtedness as of September 30, 2021March 31, 2022 was LIBOR plus 1.45%1.60%. At September 30, 2021,March 31, 2022, LIBOR was 0.08%0.40%, subject to the 0.50% LIBOR floor as included in the 2021 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 $3.8$7.2 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 September 30, 2021.March 31, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Changes in Internal Controls
No change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred during the three months ended September 30, 2021March 31, 2022 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, 2020.2021.
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 September 30, 2021.March 31, 2022.
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)
July 1-31, 2021— $— — $218,809 
August 1-31, 2021194,948 $156.89 194,948 $188,223 
September 1-30, 2021163,869 $155.59 163,869 $162,726 
358,817 $156.30 358,817 
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, 2022— $— — $106,630 
February 1-28, 2022108,314 $121.87 108,314 $293,430 
March 1-31, 2022366,741 $121.23 366,741 $248,971 
475,055 $121.37 475,055 
(1)In November 2018,February 2022, the Board approved a $200.0 million increase to our Board of Directors (the “Board”)previously authorized a stock repurchase program, pursuant to which we may purchase up to $50.0$550.0 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.
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ITEM 6.         EXHIBITS
Exhibit No.
  Description  
3.1**
Certificate of Incorporation of LGI Homes, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 33-190853) of LGI Homes, Inc. filed with the SEC on August 28, 2013).
3.2**
Bylaws of LGI Homes, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-190853) of LGI Homes, Inc. filed with the SEC on August 28, 2013).
10.1*
10.2*
Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement, dated as of April 29, 2022, by and among LGI Homes, Inc., each of the financial institutions initially a signatory thereto, and Wells Fargo Bank, National Association, as administrative agent.
31.1*
CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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).
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*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:November 2, 2021May 3, 2022/s/    Eric Lipar
Eric Lipar
Chief Executive Officer and Chairman of the Board
November 2, 2021May 3, 2022/s/    Charles Merdian
Charles Merdian
Chief Financial Officer and Treasurer


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