10q10k10q10k.net

What changed in LGI Homes, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of LGI Homes, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+293 added−333 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-21)

Top changes in LGI Homes, Inc.'s 2023 10-K

293 paragraphs added · 333 removed · 255 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

54 edited+2 added−13 removed62 unchanged
Biggest changeThe following is a summary of our homes in inventory by reportable segment as of December 31, 2022 (dollar values in thousands): Reportable Segment Homes in Inventory (1) Inventory Value (1) Central 1,193 $ 292,680 Southeast 702 155,129 Northwest 321 122,881 West 410 120,590 Florida 560 118,843 Total 3,186 $ 810,123 (1) Includes homes in progress and completed homes; excludes information centers.
Biggest changeThe following is a summary of our homes in inventory by reportable segment as of December 31, 2023 (dollar values in thousands): Reportable Segment Homes in Inventory (1) Inventory Value (1) Central 953 $ 277,433 Southeast 710 142,921 Northwest 325 122,591 West 528 140,197 Florida 752 172,978 Total 3,268 $ 856,120 (1) Includes homes in progress and completed homes; excludes information centers. 7 Table of Contents Backlog See discussion included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Backlog .” Raw Materials and Labor When constructing homes, we use various materials and components.
During 2022, our average home completion time was approximately 90 to 165 days, our average home size ranged between 1,000 to 4,100 square feet and our overall sales prices ranged from approximately $190,000 to more than $1,200,000. For the year ended December 31, 2022, we closed 6,621 homes at an average sales price per home closed of $348,052.
During 2022, our average home completion time was approximately 90 to 165 days, our home size ranged between 1,000 to approximately 4,100 square feet and our overall sales prices ranged from approximately $190,000 to more than $1,200,000. For the year ended December 31, 2022, we closed 6,621 homes at an average sales price per home closed of $348,052.
LGI Insurance Solutions provides homeowners and other insurance products to our customers through an unconsolidated joint venture. Our wholesale business provides opportunities for us to leverage our even-flow construction methodology to build and sell homes to large institutions interested in acquiring homes to be used as rental properties, primarily through bulk sales agreements.
LGI Insurance Solutions provides homeowners and other insurance products to our customers through an unconsolidated joint venture. Our wholesale business provides opportunities for us to leverage our even-flow construction methodology to build and sell homes primarily to large institutions interested in acquiring homes to be used as rental properties, primarily through bulk sales agreements.
ITEM 1. BUSINESS General We are engaged in the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania and Maryland. Our management team has been in the residential land development business since the mid-1990s.
ITEM 1. BUSINESS General We are engaged in the design, construction and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland and Utah. Our management team has been in the residential land development business since the mid-1990s.
Lipar has been in the residential land development business since the mid-1990s and is one of our founders. He has overseen land acquisitions, development and the sale of over 50,000 homes since our inception. Mr.
Lipar has been in the residential land development business since the mid-1990s and is one of our founders. He has overseen land acquisitions, development and the sale of over 65,000 homes since our inception. Mr.
We also compete with sales of existing homes and with the rental housing market. Our homes compete on the basis of quality, price, design, mortgage financing terms and location. There has been some consolidation among national homebuilders in the United States, and we expect that this trend may continue.
We also compete with sales of existing homes and with the apartment and housing rental markets. Our homes compete on the basis of quality, price, design, mortgage financing terms and location. There has been some consolidation among national homebuilders in the United States, and we expect that this trend may continue.
A mitigation plan may be implemented during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition, such as methane or radon. Some homebuyers may not want to purchase a home that is, or may have been, subject to a mitigation plan.
A mitigation plan may be implemented during the construction of a home if a cleanup does not remove all contaminants of 8 Table of Contents concern or to address a naturally occurring condition, such as methane or radon. Some homebuyers may not want to purchase a home that is, or may have been, subject to a mitigation plan.
Our SEC filings are also available to the public on the SEC’s website at www.sec.gov . In addition to our SEC filings, our corporate governance documents, including our Corporate Governance Guidelines and Code of Business 10 Table of Contents Conduct and Ethics, are available on the “Investor Relations” page of our website under “Corporate Governance” at https://investor.lgihomes.com/corporate-governance .
Our SEC filings are also available to the public on the SEC’s website at www.sec.gov . In addition to our SEC filings, our corporate governance documents, including our Corporate Governance Guidelines and Code of Business Conduct and Ethics, are available on the “Investor Relations” page of our website under “Corporate Governance” at https://investor.lgihomes.com/corporate-governance .
As part of this commitment, we have implemented a systems-based program of regularly scheduled safety reviews, meetings and continuing education that are held in our communities and include our employees and the employees of our subcontractors and tradespeople. We are committed to improving and giving back to the communities we serve.
As part of this commitment, we have implemented a systems-based program of regularly scheduled safety reviews, meetings and continuing education that are held in our communities and include our employees and the employees of our subcontractors and tradespeople. 9 Table of Contents We are committed to improving and giving back to the communities we serve.
Garber is a member of the State Bar of Texas and is also admitted to practice before the U.S. Patent & Trademark Office. Mr. Garber is also a member of the Board of Directors and of the Executive Committee of Archway Insurance, Ltd, a captive insurance company. Board of Directors of LGI Homes, Inc. Mr.
Garber is a member of the State Bar of Texas and is also admitted to practice before the U.S. Patent & Trademark Office. Mr. Garber is also a member of the Board of Directors and of the Executive Committee of Archway Insurance, Ltd, a captive insurance company. 10 Table of Contents Board of Directors of LGI Homes, Inc. Mr.
We also work closely with our construction managers and subcontractors and train them using a comprehensive construction manual that outlines the most efficient way to build an LGI home. Our homebuilding operations utilize a paperless purchase order system to conduct business with our subcontractors and suppliers.
We also work closely with our construction managers and subcontractors and train them using a comprehensive construction manual that outlines the most efficient way to build an LGI home. 5 Table of Contents Our homebuilding operations utilize a paperless purchase order system to conduct business with our subcontractors and suppliers.
Worth, TX Orlando, FL Charlotte, NC Norfolk, VA Albuquerque, NM Denver, CO San Antonio, TX Fort Myers, FL Raleigh, NC Richmond, VA Las Vegas, NV Austin, TX Jacksonville, FL Wilmington, NC Baltimore, MD Northern CA Oklahoma City, OK Fort Pierce, FL Winston-Salem, NC Southern CA Daytona Beach, FL Columbia, SC Sarasota, FL Greenville, SC Birmingham, AL Nashville, TN 5 Table of Contents These operating segments reflect the way we evaluate our business performance and manage our operations.
Worth, TX Orlando, FL Charlotte, NC Norfolk, VA Albuquerque, NM Denver, CO San Antonio, TX Fort Myers, FL Raleigh, NC Richmond, VA Las Vegas, NV Austin, TX Jacksonville, FL Wilmington, NC Baltimore, MD Northern CA Oklahoma City, OK Fort Pierce, FL Winston-Salem, NC Southern CA Daytona Beach, FL Columbia, SC Salt Lake City, UT Sarasota, FL Greenville, SC Birmingham, AL Nashville, TN These operating segments reflect the way we evaluate our business performance and manage our operations.
Of our employees located outside our corporate headquarters, 531 were on-site sales and support personnel, and 337 were involved with acquisition and development, purchasing, and construction. We have built a diverse and inclusive team of professionals with a wide range of industry experience across our markets. We are dedicated to supporting our employees when times are challenging.
Of our employees located outside our corporate headquarters, 631 were on-site sales and support personnel, and 369 were involved with acquisition and development, purchasing, and construction. We have built a diverse team of professionals with a wide range of industry experience across our markets. We are dedicated to supporting our employees when times are challenging.
We expect that home closings in our Terrata Homes branded communities will be approximately 5.0% of our annual home closings during 2023. Our mortgage financing and homeowners insurance joint ventures provide a streamlined, customer-focused experience for our homebuyers. LGI Mortgage Solutions provides mortgage services to our customers through an unconsolidated joint venture.
We expect that home closings in our Terrata Homes branded communities will be less than 5% of our annual home closings during 2024. Our mortgage financing and homeowners insurance joint ventures provide a streamlined, customer-focused experience for our homebuyers. LGI Mortgage Solutions provides mortgage services to our customers through an unconsolidated joint venture.
Human Capital Resources LGI Homes is committed to being a people-focused organization and actively promotes a workplace of dignity and respect for all. We strive to uphold all applicable laws and regulations in the markets where we conduct business and pursue business relationships with external partners who share our commitment to lawful, ethical business conduct.
Human Capital Resources LGI Homes is committed to being a people-focused organization and actively promotes a respectful and dignified workplace. We strive to uphold all applicable laws and regulations in the markets where we conduct business and pursue business relationships with external partners who share our commitment to lawful, ethical business conduct.
Information about our Executive Officers The following table sets forth information regarding our executive officers as of February 21, 2023: Name Age Position Eric Lipar 52 Chief Executive Officer and Chairman of the Board Michael Snider 51 President and Chief Operating Officer Charles Merdian 53 Chief Financial Officer and Treasurer Scott Garber 51 General Counsel and Corporate Secretary Eric Lipar.
Information about our Executive Officers The following table sets forth information regarding our executive officers as of February 20, 2024: Name Age Position Eric Lipar 53 Chief Executive Officer and Chairman of the Board Michael Snider 52 President and Chief Operating Officer Charles Merdian 54 Chief Financial Officer and Treasurer Scott Garber 52 General Counsel and Corporate Secretary Eric Lipar.
Since commencing home building operations in 2003, we have constructed and closed over 50,000 homes. During the year ended December 31, 2022, we had 6,621 home closings, compared to 10,442 home closings in 2021. LGI Homes, Inc. is a Delaware corporation incorporated on July 9, 2013.
Since commencing home building operations in 2003, we have constructed and closed over 65,000 homes. During the year ended December 31, 2023, we had 6,729 home closings, compared to 6,621 home closings in 2022. LGI Homes, Inc. is a Delaware corporation incorporated on July 9, 2013.
Our sales professionals determine credit and income qualifications, provide floor plans and pricing information, and conduct tours of our homes based on the customer’s needs and budget.
Our sales professionals review credit and income qualifications if applicable, provide floor plans and pricing information, and conduct tours of our homes based on the customer’s needs and budget.
Since 2016, we have contributed over $2.7 million in corporate, non-profit sponsorships, donated over 20,000 employee service hours and collaborated with over 100 non-profit organizations in an effort to make a meaningful impact in our local communities.
Since 2016, we have contributed over $3.0 million in corporate, non-profit sponsorships, donated over 30,000 employee service hours and collaborated with over 100 non-profit organizations in an effort to make a meaningful impact in our local communities.
Our information centers are typically open 11 hours per day, 359 days per year, and generally staffed by two to five sales professionals who are supported by a dedicated loan officer.
Our information centers are typically open eight to ten hours per day, 359 days per year, and generally staffed by two to four sales professionals who are supported by a dedicated loan officer.
Robert Vahradian - Senior Managing Director of GTIS Partners, LP, a global real estate investment firm. 11 Table of Contents
Robert Vahradian - Partner of GTIS Partners, LP, a global real estate investment firm. 11 Table of Contents
As of December 31, 2022, our workforce at our corporate headquarters was comprised of 61% women and 27% identified as racially or ethnically diverse. As of December 31, 2022, our on-site sales, sales support and construction workforce located outside of our corporate headquarters was comprised of 27% women and 34% identified as racially or ethnically diverse.
As of December 31, 2023, our workforce at our corporate headquarters was comprised of 60% women and 34% identified as racially or ethnically diverse. As of December 31, 2023, our on-site sales, sales support and construction workforce located outside of our corporate headquarters was comprised of 28% women and 37% identified as racially or ethnically diverse.
In our land acquisition process, projects of interest are evaluated at the division level using an extensive due diligence checklist which includes assessing the permitting and regulatory requirements, environmental considerations, local market conditions, and anticipated floor plans, pricing, and financial returns.
Projects of interest are typically evaluated at the division level using an extensive due diligence checklist that includes assessing the permitting and regulatory requirements, environmental considerations and local market conditions and evaluating anticipated floor plans, pricing and financial returns.
We source land from a wide range of landowners, brokers, lenders, builders and other land development companies. We generally acquire raw land and finished lots in affordable locations that are further away from urban centers than many other suburban communities but have access to major thoroughfares, retail districts and centers of business.
We generally acquire raw land and finished lots in affordable locations that are further away from urban centers than many other suburban communities but have access to major thoroughfares, retail districts and centers of business.
The long-term plan is compared on an ongoing basis to our experience in the marketplace and is then adjusted to the extent necessary. We have also purchased larger tracts of land across our markets which will provide us with more opportunities to build homes with multiple price points in our communities.
Supply and demand are analyzed to ensure land investment is targeted appropriately. On an ongoing basis, the long-term plan is compared to our recent experience in the marketplace and adjusted accordingly. We have also purchased larger tracts of land across our markets which will provide us with more opportunities to build homes with multiple price points in our communities.
During 2022, we closed 217 Terrata Homes at an average sales price per home closed of $549,551, compared to 183 Terrata Homes at an average sales price per home closed of $482,410, in 2021. As of December 31, 2022, we offered Terrata Homes in ten of our active communities.
During 2023, we closed 249 Terrata Homes at an average sales price per home closed of $573,000, compared to 217 Terrata Homes at an average sales price per home closed of $549,551, in 2022. As of December 31, 2023, we offered Terrata Homes in 15 of our active communities.
During 2021, our average home completion time was approximately 90 to 130 days, our average home size ranged between 1,000 to 4,100 square feet and our overall sales prices ranging from approximately $150,000 to more than $1,100,000. For the year ended December 31, 2021, we closed 10,442 homes at an average sales price per home closed of $292,104.
During 2023, our average home completion time was approximately 108 to 150 days, our home size ranged between 950 to approximately 4,100 square feet and our overall sales prices ranged from approximately $189,000 to more than $1,000,000. For the year ended December 31, 2023, we closed 6,729 homes at an average sales price per home closed of $350,510.
As of December 31, 2022, we had a total of 1,985 completed homes, including information centers, and 1,323 homes in progress.
As of December 31, 2023, we had a total of 2,017 completed homes, including information centers, and 1,410 homes in progress.
In consideration for this repurchase option, we paid a non-refundable commitment fee. Based on our right to control the ultimate economic outcome of these finished lots, these assets will be held as real estate not owned within our inventory and a corresponding obligation was established within our accrued liabilities to recognize this relationship.
Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held as real estate not owned within our inventory and have a corresponding obligation within our accrued liabilities to recognize this relationship.
Beginning in 2021, we began building and leasing a number of single-family homes in select, existing communities. These rental projects are income producing and we maintain the option to sell these homes in a bulk purchase agreement.
Our wholesale business builds and sells homes primarily to large institutions interested in acquiring single-family rental properties through bulk sales agreements. Beginning in 2021, we began building and leasing a number of single-family homes in select, existing communities. These rental projects are income producing and we maintain the option to sell these homes in a bulk purchase agreement.
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. In future quarters, we could see various cost pressures associated with widespread global inflation similar to the severity experienced during 2022.
Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. In future quarters, we could see various cost pressures associated with inflation similar to the cost pressures experienced in the last few years.
Unless otherwise indicated or the context requires, “LGI,” the “Company,” “we,” “our” and “us” refer collectively to LGI Homes, Inc. and its subsidiaries. Business Opportunities Since our initial public offering in November 2013, we have grown substantially by expanding our operations from nine markets in four states to 35 markets in 20 states.
Unless otherwise indicated or the context requires, “LGI,” the “Company,” “we,” “our” and “us” refer collectively to LGI Homes, Inc. and its subsidiaries. Business Opportunities Since December 2013, we have grown substantially, expanding our operations from eight markets in four states to 36 markets in 21 states. We currently offer homes for sale in 117 communities throughout the United States.
We believe that in the brokerage community we have a reputation for knowing our business, having the capital to close deals, and making accurate and timely decisions that benefit both the buyer and seller. For these reasons, we believe that brokers routinely notify us when desirable tracts of land are available for purchase.
We believe that we have established a reputation within the brokerage community for our systems-based approach to acquiring land, for having the capital to close deals and for making accurate and timely decisions that benefit both the buyer and seller. For these reasons, we believe that brokers routinely notify us when desirable land opportunities that meet our criteria arise.
We also acquire and develop land for use in our wholesale business. 7 Table of Contents The table below shows (i) home closings by reportable segment for the year ended December 31, 2022 and (ii) our owned or controlled lots by reportable segment as of December 31, 2022.
The table below shows (i) home closings by reportable segment for the year ended December 31, 2023 and (ii) our owned or controlled lots by reportable segment as of December 31, 2023.
Projects of interest are typically evaluated at the division level using an extensive due diligence checklist that includes assessing the permitting and regulatory requirements, environmental considerations, local market conditions and anticipated floor plans, pricing and financial returns. We also determine the number of potential residents in the market and rental households that are within driving distance of the proposed project.
In our land acquisition process, projects of interest are typically evaluated at the division level using an extensive due diligence checklist that includes assessing the permitting and regulatory requirements, environmental considerations and local market conditions and evaluating anticipated floor plans, pricing and financial returns. We also acquire and develop land for use in our wholesale business.
Typically, all new vice presidents, sales professionals and purchasing managers come to our corporate headquarters for a week of training in their first 100 days.
We focus on identifying and attracting the best talent and providing our employees with world-class training and continuous development. Typically, all new vice presidents, sales professionals and purchasing managers come to our corporate headquarters for a week of training in their first 100 days.
We believe our commitments to diversity and inclusion, training, safety and sustainability form the foundation of our people-focused culture. 9 Table of Contents As of December 31, 2022, we employed 952 people, of whom 84 were located at our corporate headquarters.
We believe our commitments to hiring, training, safety and employee retention form the foundation of our people-focused culture. As of December 31, 2023, we employed 1,089 people, of whom 89 were located at our corporate headquarters.
During 2022 and 2021, we had 1,233 and 1,515 wholesale home closings, respectively, which represented 18.6% and 14.5% of our total home closings in 2022 and 2021, respectively.
During 2023 and 2022, we had 679 and 1,233 wholesale home closings, respectively, which represented 10.1% and 18.6% of our total home closings in 2023 and 2022, respectively. We expect our wholesale business to represent approximately 5% of our annual home closings during 2024.
While a proportion of our business comes from realtors, our marketing efforts are principally designed to connect directly with potential customers currently renting their residences and encourage them to schedule an in-person appointment at one of our information centers.
These methods have proven highly successful in reaching our target market, placing potential homebuyers in front of our trained sales professionals and communicating our core messages of value and dream fulfillment. 4 Table of Contents While a proportion of our business comes from realtors, our marketing efforts are principally designed to connect directly with potential customers currently renting their residences and encourage them to schedule an in-person appointment at one of our information centers.
In addition, the majority of our raw materials are supplied to us by our subcontractors and are included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Our construction work is substantially completed by third-party subcontractors, most of whom are non-unionized.
Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Our construction work is substantially completed by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available.
This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States.
We 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.
During the year ended December 31, 2022, we entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.
During the years ended December 31, 2023 and 2022, we entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns. In consideration for this repurchase option, we paid a non-refundable commitment fee.
Our Acquisitions Committee meets periodically and consists of our Chief Executive Officer, Chief Financial Officer, and Executive Vice President of Acquisitions. Annually, our divisions prepare a strategic plan for their respective geographic areas. Supply and demand are analyzed to ensure land investment is targeted appropriately.
Our allocation of capital for land investment is performed at the corporate level with a disciplined approach to portfolio management. Our Acquisitions Committee consists of our Chief Executive Officer, Chief Financial Officer, and Executive Vice President of Acquisitions. Annually, our divisions prepare a strategic plan for their respective geographic areas.
We purchase some components and materials centrally to leverage our purchasing power to achieve volume discounts, a practice that often reduces costs and ensures timely deliveries. We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction.
Typically, the raw materials and most of the components used in our business are readily available in the United States. We purchase some components and materials centrally to leverage our purchasing power to achieve volume discounts, a practice that often reduces costs and ensures timely deliveries.
Shailee Parikh - Global Head of Strategy and Solution Development for Health Solutions at Aon plc, a leading global professional services firm. Mr. Bryan Sansbury - Chief Executive Officer, Chairman, and a founding partner of AEGIS Hedging Solutions, LLC, formerly known as AEGIS Energy Risk, LLC. Mr. Sansbury serves as our Lead Independent Director. Ms.
Shailee Parikh - Managing Partner of ARK Real Estate, LLC, a real estate investment and management company. Mr. Bryan Sansbury - Chief Executive Officer, Chairman of the Board of Directors, and a founding partner of AEGIS Hedging Solutions, LLC, formerly known as AEGIS Energy Risk, LLC. Mr. Sansbury serves as our Lead Independent Director. Ms.
While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.
While we are not legally obligated to repurchase the balance of the lots, we are subject to certain performance obligations, financial and other penalties if the lots are not purchased. 6 Table of Contents We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.
Sales and Marketing Our well-defined sales and marketing approach focuses on converting renters of apartments and single-family homes into homeowners. We use extensive digital and print advertising to attract potential homebuyers. We employ various marketing methods, such as interactive online media, social media, direct mail, directional signage, and billboards.
Finally, our strategic joint ventures, LGI Mortgage Solutions and LGI Insurance Solutions, provide mortgage financing and homeowners insurance services to our customers. Sales and Marketing Our well-defined sales and marketing approach focuses on converting renters of apartments and single-family homes into homeowners. We use extensive digital and print advertising to attract potential homebuyers.
We will continue to focus primarily on entry-level homebuyers. Additionally, we engage in other business activities that leverage or complement our core homebuilding operations. Our wholesale business builds and sells homes to large institutions interested in acquiring single-family rental properties through bulk sales agreements.
We also determine the number of potential residents in the market and rental households that are within driving distance of the proposed project. We will continue to focus primarily on entry-level homebuyers. Additionally, we engage in other business activities that leverage or complement our core homebuilding operations.
We are continuing to focus on our supply chain to limit the impact to both our business and customers. We believe these challenges will continue to impact our operations in 2023. Seasonality The homebuilding industry generally exhibits seasonality. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis.
Generally, we have successfully increased the sales prices of our homes to absorb these increased costs or have successfully made cost-effective changes as we endeavor to keep our homes affordable. Seasonality The homebuilding industry generally exhibits seasonality. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis.
We expect our wholesale business to represent approximately 5% to 10% of our annual home closings during 2023. 6 Table of Contents Land Acquisition Policies and Development We continue to be an active and opportunistic acquirer of land for residential development in our markets.
Land Acquisition Policies and Development We continue to be an active and opportunistic acquirer of land for residential development in our markets. We source land from a wide range of landowners, brokers, lenders, builders and other land development companies.
Our lot inventory decreased to 71,904 owned or controlled lots as of December 31, 2022 from 91,845 owned or controlled lots as of December 31, 2021 primarily related to controlled lots that were terminated during the second and third quarters of 2022 to manage our overall inventory.
Our lot inventory decreased to 71,081 owned or controlled lots as of December 31, 2023 from 71,904 owned or controlled lots as of December 31, 2022 primarily related to our discipline in the evaluation of and selective approval of new land deals. We had 117 and 99 active communities as of December 31, 2023 and December 31, 2022, respectively.
We currently offer homes for sale in 99 communities throughout the United States. We focus on demographic and economic trends forecasted for these markets and expect to continue to grow. Our sales and marketing-focused operating model has enabled us to enter new markets efficiently and profitably.
We focus on demographic and economic trends forecasted for these markets and expect to continue to grow.
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.
Generally, it takes us two to three years to turn raw or undeveloped land into an active community. We utilize land banking financing arrangements on a limited and strategic basis.
Year Ended December 31, 2022 As of December 31, 2022 Reportable Segment Home Closings Owned (1) Controlled Total Central 3,094 21,786 4,788 26,574 Southeast 1,404 15,160 2,389 17,549 Northwest 502 6,741 2,006 8,747 West 751 9,861 1,263 11,124 Florida 870 5,172 2,738 7,910 Total 6,621 58,720 13,184 71,904 (1) Of the 58,720 owned lots as of December 31, 2022, 47,857 were raw/under development lots and 10,863 were finished lots.
Year Ended December 31, 2023 As of December 31, 2023 Reportable Segment Home Closings Owned (1) Controlled Total Central 2,241 20,606 3,093 23,699 Southeast 1,716 14,563 5,429 19,992 Northwest 511 5,934 1,652 7,586 West 992 9,049 2,747 11,796 Florida 1,269 5,179 2,829 8,008 Total 6,729 55,331 15,750 71,081 (1) Of the 55,331 owned lots as of December 31, 2023, 41,155 were raw/under development lots and 14,176 were finished lots.
Removed
We intend to continue to expand into new markets where we identify opportunities to develop communities and sell homes that meet our profit and return objectives.
Added
We employ various marketing methods, such as digital marketing strategies, interactive online media, social media, direct mail, directional signage, and billboards.
Removed
Finally, our strategic joint ventures, LGI Mortgage Solutions and LGI Insurance Solutions, provide mortgage financing and homeowners insurance services to our customers. 4 Table of Contents During the second half of 2022, we experienced a slowdown in demand caused by the Federal Reserve’s ongoing actions to stem inflation and the resulting increases in mortgage rates compared to the beginning of 2022.
Added
We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction. In addition, the majority of our raw materials are supplied to us by our subcontractors and are included in the price of our contract with such subcontractors.
Removed
As a result, many buyers paused their home purchasing decisions. In response to this slowdown in buyer demand, we increased advertising spending to connect with more potential homebuyers.
Removed
Beginning in September 2022, we began offering mortgage buy-down programs and other sales incentives to offset some of the affordability pressures resulting from higher mortgage rates and increased our allocation of inventory available for sale to our wholesale channel.
Removed
Additionally, we evaluated our land position and significantly reduced our owned and controlled lots and right sized the number of finished homes in inventory. Given the market conditions experienced during the second half of 2022 and our continued focus on future community count growth, we have chosen to allocate available capital to near-term land development.
Removed
While we expect that many of these challenges will persist in 2023 and could potentially worsen, we believe the long-term outlook for new homes remains strong, driven by solid fundamentals, including a historically low inventory of new and existing homes for sale, an aging housing stock, rising rents, strong household formations and low unemployment.
Removed
These methods have proven highly successful in reaching our target market, placing potential homebuyers in front of our trained sales professionals and communicating our core messages of value and dream fulfillment.
Removed
Additionally, during 2022, we experienced intermittent delays that lowered the lot counts and have been compounded by nationwide inflationary headwinds. We had 99 and 101 active communities as of December 31, 2022 and December 31, 2021, respectively.
Removed
To mitigate our exposure to real estate inventory risks, we utilize, on a limited and strategic basis, land banking financing arrangements.
Removed
We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities. Our allocation of capital for land investment is performed at the corporate level with a disciplined approach to portfolio management.
Removed
Backlog See discussion included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Backlog .” 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.
Removed
Generally, we have successfully increased the sales prices of our homes to absorb these increased costs or have successfully made cost-effective changes as we endeavor to keep our homes affordable. 8 Table of Contents Additionally, during the year ended December 31, 2022, significant supply chain disruptions have extended our land development and homebuilding construction cycles across the markets we serve.
Removed
Our employees are expected to treat their coworkers, our business partners’ employees and our customers with dignity and respect. We focus on identifying and attracting the best talent and providing those individuals with world-class training and continuous development.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

88 edited+23 added−11 removed236 unchanged
Biggest changeThese risks are discussed more fully below and include, but are not limited to, risks related to: • Operational Risks Related to Our Business: ◦ labor and raw material shortages and price fluctuations that could delay or increase the cost of home construction; ◦ our ability to acquire finished lots and land parcels suitable for residential homebuilding at reasonable prices; ◦ the impact of the COVID-19 pandemic; • Industry and Economic Risks: ◦ rising mortgage interest rates, and the tightening of mortgage lending standards and mortgage financing requirements; ◦ the housing market may continue its recent decline or decline further; ◦ the homebuilding industry is highly competitive; ◦ new and existing laws and regulations or other governmental actions, including environmental, health and safety laws and regulations; ◦ increasing attention to environmental, social and governance matters; ◦ the seasonal nature of our business; • Strategic Risks Related to Our Business: ◦ our growth or expansion strategies may not be successful; • Risks Related to Our Organization and Structure: ◦ we depend on key management personnel and other experienced employees; ◦ our use of leverage in executing our business strategy; ◦ we are a holding company, and we are accordingly dependent upon distributions from our subsidiaries to service our debt and pay dividends, if any, taxes and other expenses; • General Risks: ◦ we may be subject to litigation, arbitration or other claims; ◦ information system failures, cyber incidents or breaches in security; ◦ complex and evolving U.S. laws and regulations regarding privacy and data protection; and ◦ access to financing sources may not be available on favorable terms, or at all.
Biggest changeThese risks are discussed more fully below and include, but are not limited to, risks related to: • Operational Risks Related to Our Business: ◦ our ability to acquire finished lots and land parcels suitable for residential homebuilding at reasonable prices; ◦ labor and raw material shortages and price fluctuations that could delay or increase the cost of home construction; ◦ the impact of an epidemic or pandemic; • Industry and Economic Risks: ◦ higher mortgage interest rates, and the tightening of mortgage lending standards and mortgage financing requirements; ◦ a significant downturn in our housing markets or in the homebuilding industry; ◦ the homebuilding industry is highly competitive; ◦ new and existing laws and regulations or other governmental actions, including environmental, health and safety laws and regulations; ◦ increasing attention to environmental, social and governance matters; ◦ the seasonal nature of our business; • Strategic Risks Related to Our Business: ◦ our growth or expansion strategies may not be successful; • Risks Related to Our Organization and Structure: ◦ we depend on key management personnel and other experienced employees; ◦ our use of leverage in executing our business strategy; ◦ we are a holding company, and we are accordingly dependent upon distributions from our subsidiaries to service our debt and pay dividends, if any, taxes and other expenses; • General Risks: ◦ we may be subject to litigation, arbitration or other claims; ◦ information system failures, cyber incidents or breaches in security; ◦ complex and evolving U.S. laws and regulations regarding privacy and data protection; ◦ access to financing sources may not be available on favorable terms, or at all; and ◦ the impact of financial industry and capital markets turmoil.
From time to time, the EPA and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable environmental laws, including those applicable to control storm water discharges during construction, or impose additional requirements for future compliance as a result of past failures.
From time to time, the EPA and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable environmental laws, including those applicable to the control of storm water discharges during construction, or impose additional requirements for future compliance as a result of past failures.
Any cyber incident or attack or breach or other disruption or failure in these information systems, or other systems or infrastructure upon which they rely, could adversely affect our ability to conduct our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Any cyber incident, attack, breach or other disruption or failure in these information systems, or other systems or infrastructure upon which they rely, could adversely affect our ability to conduct our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania and Maryland.
Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland and Utah.
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 volatility of mortgage rates, increases in unemployment, supply chain disruptions, inflation, the possibility of recession and decreases in housing prices, political uncertainty, civil unrest (including due to the conflict between Russia and Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials); • a slowdown in the homebuilding industry or changes in population growth rates in our markets; • volatility and uncertainty in the credit markets and broader financial markets; • disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets; • the cyclical and seasonal nature of our business; • our future operating results and financial condition; • our business operations; • changes in our business and investment strategy; • the success of our operations in recently opened new markets and our ability to expand into additional new markets; • our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites; • our ability to develop our projects successfully or within expected timeframes; • our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions; • increases in taxes or government fees; • decline in the market value of our land portfolio; • our ability to successfully integrate any acquisitions with our existing operations; • availability of land to acquire and our ability to acquire such land on favorable terms or at all; • availability, terms and deployment of capital and ability to meet our ongoing liquidity needs; • decisions of the Credit Agreement lender group; • the cost and availability of insurance and surety bonds; • shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies; • delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control; • uninsured losses in excess of insurance limits; • our leverage and future debt service obligations; • changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations; • the timing of receipt of regulatory approvals and the opening of projects; • the degree and nature of our competition; • information system failures, cyber incidents or breaches in security; 30 Table of Contents • our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond 2032; • our ability to retain our key personnel; • the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions); • negative publicity or poor relations with the residents of our projects; • existing and future litigation, arbitration or other claims; • availability of qualified personnel and third-party contractors and subcontractors; • the impact on our business of any future government shutdown; • other risks and uncertainties inherent in our business; and • other factors we discuss under the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” You should not place undue reliance on forward-looking statements.
The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements: • adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage rates, supply chain disruptions (including due to the conflict between Russia and Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials and the conflict in the Middle East), inflation, the possibility of recession and decreases in housing prices; • a slowdown in the homebuilding industry or changes in population growth rates in our markets; • volatility and uncertainty in the credit markets and broader financial markets; • disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets; • the cyclical and seasonal nature of our business; • our future operating results and financial condition; • our business operations; • changes in our business and investment strategy; • the success of our operations in recently opened new markets and our ability to expand into additional new markets; • our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites; • our ability to develop our projects successfully or within expected timeframes; • our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions; • increases in taxes or government fees; • decline in the market value of our land portfolio; 30 Table of Contents • our ability to successfully integrate any acquisitions with our existing operations; • availability of land to acquire and our ability to acquire such land on favorable terms or at all; • availability, terms and deployment of capital and ability to meet our ongoing liquidity needs; • decisions of the Credit Agreement lender group; • the cost and availability of insurance and surety bonds; • shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to changes in trade policies; • delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control; • uninsured losses in excess of insurance limits; • our leverage and future debt service obligations; • changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations; • the timing of receipt of regulatory approvals and the opening of projects; • the degree and nature of our competition; • information system failures, cyber incidents or breaches in security; • our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond 2032; • our ability to retain our key personnel; • the impact of an epidemic or pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions); • negative publicity or poor relations with the residents of our projects; • existing and future litigation, arbitration or other claims; • availability of qualified personnel and third-party contractors and subcontractors; • the impact on our business of any future government shutdown; • other risks and uncertainties inherent in our business; and • other factors we discuss under the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations .” You should not place undue reliance on forward-looking statements.
On June 1, 2022, the Biden Administration launched the National Initiative to Advance Building Codes, an initiative to modernize building codes, improve climate resilience, and reduce energy costs and the recent Inflation Reduction Act of 2022, through various grants and tax incentives, encourages municipalities to adopt stricter energy codes, both of which could increase the cost to construct homes and cause delays.
On June 1, 2022, the Biden Administration launched the National Initiative to Advance Building Codes, an initiative to modernize building codes, improve climate resilience, and reduce energy costs and the Inflation Reduction Act of 2022, through various grants and tax incentives, encourages municipalities to adopt stricter energy codes, both of which could increase the cost to construct homes and cause delays.
Our business is subject to complex and evolving U.S. laws and regulations regarding privacy and data security. As part of our normal business activities, we collect and store certain information, including information specific to homebuyers, customers, employees, vendors and suppliers. We may share some of this information with third parties who assist us with certain aspects of our business.
Our business is subject to complex and evolving U.S. laws and regulations regarding privacy and data security. As part of our normal business activities, we collect, process and store certain information, including information specific to homebuyers, customers, employees, vendors and suppliers. We may share some of this information with third parties who assist us with certain aspects of our business.
Furthermore, any failure or security breach of information systems or data could result in a violation of applicable privacy, data security, or other laws, significant legal and financial exposure, damage to our reputation, or a loss of confidence in our security measures, which could harm our business and could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Furthermore, any failure or security breach of information systems or data could result in a violation of applicable privacy, data security, or other laws; significant legal and financial exposure; damage to our reputation; or a loss of confidence in our security measures which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or as a result of broader economic disruptions, such as the ongoing COVID-19 pandemic.
These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or as a result of broader economic disruptions, such as the COVID-19 pandemic.
Personal privacy and data security have become significant issues and the subject of rapidly evolving regulation in the United States. Furthermore, federal, state and local government bodies or agencies have in the past adopted, and may in the future adopt, more laws and regulations affecting data privacy.
Privacy and data security have become significant issues and the subject of rapidly evolving regulation in the United States. Furthermore, federal, state and local government bodies or agencies have in the past adopted, and may in the future adopt, more laws and regulations affecting data privacy.
If mortgage interest rates continue to increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly negatively impacted.
If mortgage interest rates increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly negatively impacted.
If economic conditions decline further, if mortgage financing becomes less available, or if our homes become less attractive due to market price declines or due to other conditions at or in the vicinity of our communities, we could experience an additional increase in homebuyers canceling their purchase contracts with us, which could have an adverse effect on our business and results of operations.
If economic conditions decline further, if mortgage financing becomes less available or more costly, or if our homes become less attractive due to market price declines or due to other conditions at or in the vicinity of our communities, we could experience an additional increase in homebuyers canceling their purchase contracts with us, which could have an adverse effect on our business and results of operations.
Rising mortgage interest rates, tightening of mortgage lending standards and mortgage financing requirements, untimely or incomplete mortgage loan originations for our homebuyers and rising mortgage interest rates could adversely affect the availability of mortgage loans for potential purchasers of our homes and thereby materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
Higher mortgage interest rates, tightening of mortgage lending standards and mortgage financing requirements, and untimely or incomplete mortgage loan originations for our homebuyers could adversely affect the availability of mortgage loans for potential purchasers of our homes and thereby materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
Internal Revenue Code, as amended (the “Code”), include changes to the U.S. corporate income tax rate and provisions limiting or eliminating various deductions, credits or tax preferences. Interpretations of the Code and regulations promulgated by the Internal Revenue Service are likewise subject to change.
Other potential changes to the U.S. Internal Revenue Code, as amended (the “Code”), include changes to the U.S. corporate income tax rate and provisions limiting or eliminating various deductions, credits or tax preferences. Interpretations of the Code and regulations promulgated by the Internal Revenue Service are likewise subject to change.
We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended. Natural disasters, severe weather and adverse geological conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which could materially and adversely affect us.
We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended. 19 Table of Contents Natural disasters, severe weather and adverse geological conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which could materially and adversely affect us.
Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power, acts of terrorism, political uncertainty or conflicts, such as the conflict between Russia and Ukraine, or civil unrest may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, result in uninsured losses, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition and results of operations.
Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power, acts of terrorism, political uncertainty or conflicts, such as the conflict between Russia and Ukraine and the conflict in the Middle East, or civil unrest may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages of 28 Table of Contents building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, result in uninsured losses, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our business, prospects, liquidity, financial condition and results of operations.
The particular environmental requirements that apply to any given site vary according to multiple factors, including the site’s location, whether the site contains wetlands or other features that may create burdensome permitting requirements, its environmental conditions, the 20 Table of Contents present and former uses of the site, the presence or absence of endangered plants or animals or sensitive habitats, and environmental conditions at adjoining or nearby properties.
The particular environmental requirements that apply to any given site vary according to multiple factors, including the site’s location, whether the site contains wetlands or other features that may create burdensome permitting requirements, its environmental conditions, the present and former uses of the site, the presence or absence of endangered plants or animals or sensitive habitats, and environmental conditions at adjoining or nearby properties.
Interest rate changes may adversely affect us. Increases in interest rates can make it more difficult and/or expensive for us to obtain the funds we need to operate our business. Increases in interest rates generally could increase the interest rates we must pay on borrowings under the Credit Agreement and on any subsequent issuances of debt securities.
Interest rate changes may adversely affect us. Increases in interest rates can make it more difficult and/or expensive for us to obtain the funds we need to operate our business. Increases in interest rates generally could increase the interest rates we must pay on borrowings under the Credit Agreement (as defined herein) and on any subsequent issuances of debt securities.
As a homebuilding and land development business with a wide variety of historic ownership, development, homebuilding and construction activities, we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known or suspected to be hazardous or to contain hazardous materials or due to use of building materials or fixtures that are associated with mold.
As a homebuilding and land development business with a wide variety of historic ownership, development, homebuilding and construction activities, we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known or suspected to be hazardous or to contain hazardous materials or due 21 Table of Contents to use of building materials or fixtures that are associated with mold.
Failure to attract and retain such personnel or to ensure that their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.
Failure to attract and retain such personnel or to ensure that their experience 24 Table of Contents and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.
Our information systems, and those of our vendors and service providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches, including malware and phishing, cyberattacks, such as denial-of-service or ransomware attacks, natural disasters, usage errors by employees and other related risks.
Our information systems, and those of our business partners, vendors and service providers, are subject to damage or interruption from power outages; computer and telecommunication failures; computer viruses; security breaches, including due to malware and phishing; cyberattacks, such as denial-of-service or ransomware attacks; natural disasters; usage errors by employees and other related risks.
We have also experienced labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, particularly over the past year due to historic inflation rates in the United States. It is uncertain whether these conditions will continue as is, improve or worsen.
We have also experienced labor shortages, price fluctuations and increased labor costs, including as a result of inflation or wage increases, particularly over the past two years due to historic inflation rates in the United States. It is uncertain whether these conditions will continue as is, improve or worsen.
On January 20, 2021, President Biden signed an instrument that will lead to the United States’ reentry into the Paris Agreement, which requires countries to review and “represent a progression” in their intended nationally determined contributions, which set greenhouse gas emission reduction goals, every five years.
On January 20, 2021, President Biden signed an instrument that led to the United States’ reentry into the Paris Agreement, which requires countries to review and “represent a progression” in their intended nationally determined contributions, which set greenhouse gas emission reduction goals, every five years.
Any failure, or perceived failure, by us to adequately address privacy and data security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations and policies could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business.
Any actual or perceived failure by us to adequately address privacy and data security concerns or comply with applicable privacy and data security laws, regulations and policies could result in proceedings or actions against us by governmental entities or others; subject us to significant fines, penalties, judgments and negative publicity; require us to change our business practices; increase the costs and complexity of compliance; and adversely affect our business.
Department of Agriculture (“USDA”). FHA and USDA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business. If either the FHA or USDA raised their down payment requirements or lowered maximum loan amounts, our business could be materially affected.
Department of 16 Table of Contents Agriculture (“USDA”). FHA and USDA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business. If either the FHA or USDA raised their down payment requirements or lowered maximum loan amounts, our business could be materially affected.
We anticipate that a variety of new legislation may be enacted or considered for enactment at the federal, state and local levels relating to climate change and energy, including in response to the United States’ reentry into the Paris Agreement.
We anticipate that a variety of new legislation may be enacted or considered for enactment at the federal, state and local levels relating to climate change and energy, including in response to the United States’ reentry into the Paris Agreement and the COP 28 stocktake.
While we are not legally obligated to purchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.
While we are not legally obligated to purchase the balance of the lots, we are subject to certain performance obligations, financial and other penalties if the lots are not purchased.
The regulatory environment for mortgage lending is complex and ever changing and has led to an increase in the number of audits, examinations and investigations in the industry. The 2008 housing downturn resulted in numerous changes in the regulatory framework of the financial services industry.
The regulatory environment for mortgage lending is complex and ever changing and has led to an increase in the number of audits, examinations and investigations in the industry. The 2008 housing 15 Table of Contents downturn resulted in numerous changes in the regulatory framework of the financial services industry.
As of December 31, 2022 and 2021, we have contributed a total of $11.2 million and $5.6 million, respectively, relating to our investment in the real estate investment fund and the mortgage joint venture. Contributions into these unconsolidated entities are used by the entities to invest in certain real estate transactions and residential mortgage services, respectively.
As of December 31, 2023 and 2022, we have contributed a total of $21.5 million and $11.2 million, respectively, relating to our investment in the real estate investment fund and the mortgage joint venture. Contributions into these unconsolidated entities are used by the entities to invest in certain real estate transactions and residential mortgage services, respectively.
In 28 Table of Contents addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business. Negative publicity could adversely affect our reputation as well as our business, financial results and stock price. Our reputation and brand are critical to our success.
In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business. Negative publicity could adversely affect our reputation as well as our business, financial results and stock price. Our reputation and brand are critical to our success.
Our access to additional third-party sources of financing will depend, in part, on: • general market conditions; • the duration and effects of the COVID-19 pandemic; • the market’s perception of our growth potential; • with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed; • our current debt levels; • our current and expected future earnings; • our cash flow; and • the market price per share of our common stock.
Our access to additional third-party sources of financing will depend, in part, on: • general market conditions; • the market’s perception of our growth potential; • with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed; • our current debt levels; • our current and expected future earnings; • our cash flow; and • the market price per share of our common stock.
Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business.
Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks, including exposure to hazardous substances. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business.
Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.
Any failure in health and safety performance on our building sites may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.
Furthermore, any downgrade of our credit ratings or other negative rating actions by credit agencies may make it more difficult and costly for us to access capital.
Furthermore, any downgrade of our credit ratings or other 23 Table of Contents negative rating actions by credit agencies may make it more difficult and costly for us to access capital.
Since the global recession in 2008, credit and capital markets have, from time to time, experienced unusual volatility. If we are required to seek additional financing to fund our operations, continued volatility in 23 Table of Contents these markets may restrict our flexibility to access such financing.
Since the global recession in 2008, credit and capital markets have, from time to time, experienced unusual volatility. If we are required to seek additional financing to fund our operations, continued volatility in these markets may restrict our flexibility to access such financing.
Any such actions taken with respect to us may increase our costs and result in project delays. Further, we expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future.
Any such actions taken with respect to us may 20 Table of Contents increase our costs and result in project delays. Further, we expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future.
The time and investment required for development may adversely impact our business. We have substantial real estate inventories that regularly remain on our balance sheet for significant periods of time prior to their sale, during which time we are exposed to the risk of adverse market developments.
The time and investment required for development may adversely impact our business. We have substantial real estate inventories that regularly remain on our balance sheet for significant periods of time prior to their sale, during which time we are exposed to the risk of adverse market developments. Real estate investments are relatively difficult to sell quickly.
Despite our quality control and jobsite safety efforts, we may discover from time to time that our subcontractors have engaged in improper construction or safety practices or have installed defective materials in our homes. When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our new home warranty and as required by law.
Despite our quality control and jobsite safety efforts, we may discover from time to time that our subcontractors have engaged in improper construction or safety practices or have installed defective materials in our homes. When we discover these issues, we typically utilize our subcontractors to repair the homes in accordance with our new home warranty.
In particular, local knowledge and relationships are critical to our ability to source attractive land acquisition opportunities. Experienced employees working in the homebuilding, development 24 Table of Contents and construction industries are highly sought after.
In particular, local knowledge and relationships are critical to our ability to source attractive land acquisition opportunities. Experienced employees working in the homebuilding, development and construction industries are highly sought after.
U.S. tax law is always subject to change (possibly with retroactive effect). For example, in August 2022, the United States enacted the Inflation Reduction Act of 2022, which contains significant changes to U.S. tax law including, but not limited to, a corporate minimum tax and 1% excise tax on stock repurchases. Other potential changes to the U.S.
Changes in tax law could adversely affect our business. U.S. tax law is always subject to change (possibly with retroactive effect). For example, in August 2022, the United States enacted the Inflation Reduction Act of 2022, which contains significant changes to U.S. tax law including, but not limited to, a corporate minimum tax and 1% excise tax on stock repurchases.
Labor and raw material shortages, price increases for labor and raw materials and supply chain constraints could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. 13 Table of Contents Our business and results of operations are dependent on the availability, skill and performance of subcontractors.
Labor and raw material shortages, price increases for labor and raw materials and supply chain constraints could 13 Table of Contents cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
If there is limited economic growth, declines in employment and consumer income, changes in consumer behavior, including as a result of the COVID-19 pandemic, the conflict between Russia and Ukraine, and/or tightening of mortgage lending standards, practices and regulation in the geographic areas in which we operate, or if interest rates for mortgage loans or home prices continue to rise, there could likely be a corresponding adverse effect on our business, prospects, liquidity, financial condition and results of operations, including, but not limited to, the number of homes we sell, our average sales price per home closed , cancellations of home purchase contracts and the amount of revenues or profits we generate, and such effect may be material.
If there is limited economic growth, declines in employment and consumer income, changes in consumer behavior, including as a result of an epidemic or pandemic, the conflict between Russia and Ukraine, the conflict in the Middle East, or the 2024 U.S. presidential and other elections, and/or tightening of mortgage lending standards, practices and regulation in the geographic areas in which we operate, or if interest rates for mortgage loans or home prices continue to rise or stay at similar levels, there could likely be a corresponding adverse effect on our business, prospects, liquidity, financial condition and results of operations, including, but not limited to, the number of homes we sell, our average sales price per home closed , cancellations of home purchase contracts and the amount of revenues or profits we generate, and such effect may be material.
We may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or zoning changes. Such moratoriums generally relate to insufficient water supplies, sewage facilities, delays in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions.
We may also be subject to periodic delays or incur additional costs or may be precluded entirely from developing in certain communities due to building moratoriums or zoning changes. Such moratoriums generally relate to availability of utilities, such as insufficient water supplies, sewage facilities and delays in utility hook-ups, or inadequate road capacity within specific market areas or subdivisions.
Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest. Higher interest rates could increase debt service requirements on our current floating rate indebtedness and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
Higher interest rates could increase debt service requirements on our current floating rate indebtedness and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
There is no guarantee that a future outbreak of this or any other widespread epidemics or pandemics will not occur, or that the U.S. economy will fully recover therefrom, either of which could materially and adversely affect our business. Industry and Economic Risks Inflation could adversely affect our business and financial results. Currently, the United States is experiencing inflationary conditions.
There is no guarantee that a future outbreak of any widespread epidemics or pandemics will not occur, or that the U.S. economy will fully recover therefrom, either of which could materially and adversely affect our business. Industry and Economic Risks Inflation could adversely affect our business and financial results.
While we do not have any customer or direct supplier relationships in either Russia or Ukraine, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations ( e.g. , potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.
While we do not have any customer or direct supplier relationships in any of the foreign countries or regions involved in the current military conflicts, such conflicts and any related sanctions, export controls or actions that may be initiated by nations ( e.g. , potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.
We engage subcontractors to perform the construction of our homes and, in many cases, to select and obtain the raw materials used in constructing our homes. Accordingly, the timing and quality of our construction depend on the availability and skill of our subcontractors.
Our business and results of operations are dependent on the availability, skill and performance of subcontractors. We engage subcontractors to perform the construction of our homes and, in many cases, to select and obtain the raw materials used in constructing our homes. Accordingly, the timing and quality of our construction depend on the availability and skill of our subcontractors.
Homebuyers may also choose to cancel their purchase contract and forfeit their deposit. As of December 31, 2022, we had 702 homes with an ending backlog value of $252.0 million. With the weakening of the housing market, we have experienced an increase in cancellation rates.
Homebuyers may also choose to cancel their purchase contract and forfeit their deposit. As of December 31, 2023, we had 590 homes with an ending backlog value of $224.9 million. With the weakening of the housing market, we have experienced an increase in cancellation rates.
In an inflationary environment, such as the current economic environment, depending on the homebuilding industry and other economic conditions, we may be unable to raise the sales prices of our homes enough to offset the increasing costs of our operations, which would decrease our profit margins.
We have experienced a significant increase in land, labor, materials and construction costs. In an inflationary environment, such as the current economic environment, depending on the homebuilding industry and other economic conditions, we may be unable to raise the sales prices of our homes enough to offset the increasing costs of our operations, which would decrease our profit margins.
To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.
To the extent that an epidemic, pandemic or similar public health threat adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.
As of December 31, 2022, we had total outstanding borrowings of $828.4 million under the Credit Agreement, and we could borrow an additional $236.6 million under the Credit Agreement. As of December 31, 2022, borrowings under the Credit Agreement bore interest at a rate of SOFR plus 1.85% per annum.
As of December 31, 2023, we had total outstanding borrowings of $569.6 million under the Credit Agreement, and we could borrow an additional $354.8 million under the Credit Agreement. As of December 31, 2023, borrowings under the Credit Agreement bore interest at a rate of SOFR plus 1.85% per annum.
In particular, the Credit Agreement requires us to maintain (i) a tangible net worth of not less than $850.0 million plus 75% of the net proceeds of all equity issuances after December 31, 2020 plus 25 Table of Contents 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.
In particular, the Credit Agreement requires us to maintain (i) a tangible net worth of not less than $1,218.2 million plus 50% of the net proceeds of equity issuances after December 31, 2022 plus 50.0% of our positive consolidated earnings after taxes for each fiscal quarter ended after December 31, 2022, (ii) a leverage 25 Table of Contents 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.
More recently, in response to COVID-19, federal agencies, state governments and private lenders are proactively providing relief to borrowers in the housing market by, subject to requirements, suspending home foreclosures and granting payment forbearance, among other 15 Table of Contents things. These relief measures are temporary, but these changes and others could become incorporated into the current regulatory framework.
In response to COVID-19, federal agencies, state governments and private lenders provided relief to borrowers in the housing market by, subject to requirements, suspending home foreclosures and granting payment forbearance, among other things. These relief measures were temporary, but these changes and others could become incorporated into the current regulatory framework.
The significant burden of inflation and the rise of mortgage interest rates for our customers during 2022 are viewed by us as the primary driver behind the sudden decrease in demand for new homes beginning in March 2022. However, we cannot predict whether mortgage interest rates will continue to rise, remain high or fall.
The significant burden of inflation and higher mortgage interest rates for our customers since January 2022 are viewed by us as the primary driver behind the subsequent decrease in demand for new homes. However, we cannot predict whether mortgage interest rates will rise, remain high or fall.
In addition, during the year ended December 31, 2022, we entered into several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.
In addition, we have several land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.
As of December 31, 2022, we had a $1.1 billion revolving credit facility under the Credit Agreement (as defined herein) to finance our construction and development activities. As of December 31, 2022, we had outstanding borrowings of $828.4 million under the Credit Agreement and we could borrow an additional $236.6 million under the Credit Agreement.
As of December 31, 2023, we had a $1.205 billion revolving credit facility under the Credit Agreement to finance our construction and development activities. As of December 31, 2023, we had outstanding borrowings of $569.6 million under the Credit Agreement and we could borrow an additional $354.8 million under the Credit Agreement.
A prolonged economic downturn in the future in one or more of these areas, or a particular industry that is fundamental to one or more of these areas, particularly within Texas, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. 18 Table of Contents Our communities on the West coast are especially susceptible to restrictive government regulations and environmental laws.
A prolonged economic downturn in the future in one or more of these areas, or a particular industry that is fundamental to one or more of these areas, particularly within Texas, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Almost all of our customers finance their home purchases through lenders that provide mortgage financing. Mortgage interest rates have increased significantly during 2022, which has made the homes we sell less affordable. The current and continued macroeconomic conditions impacting the homebuilding industry are rapid inflation and rising interest rates.
Almost all of our customers finance their home purchases through lenders that provide mortgage financing. Mortgage interest rates have increased significantly since January 2022, which has negatively impacted the overall housing market. The current and continued macroeconomic conditions impacting the homebuilding industry are rapid inflation and rising interest rates.
Laws and regulations governing data privacy and the unauthorized disclosure of confidential information, including California, Colorado, Utah and Virginia, legislation and implementing regulation, may significantly impact our business activities and require substantial compliance costs, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Such laws and regulations governing data privacy and the unauthorized disclosure of personal information, such as the California Consumer Privacy Act (CCPA), may significantly impact our business activities and require substantial compliance costs, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Civil unrest or acts of terrorism can also have a negative effect on our business. If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.
Civil unrest or acts of terrorism can also have a negative effect on our business. If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years. In 2022, the Federal Reserve’s aggressive actions to stem inflation caused mortgage interest rates to increase significantly.
In addition to directly damaging our land or projects, many of these natural events could damage roads and highways providing access to our assets or affect the desirability of our land or projects, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing the costs of homebuilding completion.
In addition to directly damaging our land or projects, many of these natural events could damage roads and highways providing access to our assets, affect the desirability of our land or projects or result in potential buyers facing higher costs for, or being unable to obtain, fire, flood or other hazard insurance coverage in certain areas, thereby adversely affecting our ability to market homes or sell land in those areas and possibly increasing the costs of homebuilding completion.
Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas, such as wetlands.
Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas, such as wetlands. Concerns could arise due to post-acquisition changes in laws or agency policies, or the interpretation thereof.
Other factors that might impact the homebuilding industry include uncertainty in domestic and international financial, credit and consumer lending markets amid slow economic growth or recessionary conditions in various regions or industries around the world, including as a result of the COVID-19 pandemic, the conflict between Russia and Ukraine, tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, higher home prices, more conservative appraisals, changing consumer preferences, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes to mortgage regulations, slower rates of population growth or population decline in our markets, or Federal Reserve policy changes.
We cannot predict whether and to what extent the housing markets in the geographic areas in which we operate will grow, particularly if interest rates for mortgage loans, land costs, and construction costs continue to rise or stay at similar levels. 17 Table of Contents Other factors that might impact the homebuilding industry include uncertainty in domestic and international financial, credit and consumer lending markets amid slow economic growth or recessionary conditions in various regions or industries around the world, including as a result of an epidemic or pandemic, the conflict between Russia and Ukraine, the conflict in the Middle East, or the 2024 U.S. presidential and other elections, tight lending standards and practices for mortgage loans that limit consumers’ ability to qualify for mortgage financing to purchase a home, including increased minimum credit score requirements, credit risk/mortgage loan insurance premiums and/or other fees and required down payment amounts, higher home prices, more conservative appraisals, changing consumer preferences, higher loan-to-value ratios and extensive buyer income and asset documentation requirements, changes to mortgage regulations, slower rates of population growth or population decline in our markets, or Federal Reserve policy changes.
Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital. Changes in tax law could adversely affect our business.
Unfavorable ESG ratings may lead to increased negative investor sentiment toward us and our industry and to the diversion of investment to other industries, which could have a negative impact on our stock price and our access to and costs of capital. Climate change is a focus of both the SEC and investors.
The financial documentation, down payment amounts and income-to-debt ratio requirements are subject to change and could become more restrictive. 16 Table of Contents The federal government has a significant role in supporting mortgage lending through its conservatorship of Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the U.S.
The federal government has a significant role in supporting mortgage lending through its conservatorship of Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the U.S.
Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements. Our business could be materially and adversely disrupted by an epidemic, pandemic (such as COVID-19) or similar public health threat.
Additionally, if we are unable to originate mortgages for any reason going forward, such as a cyberattack on our joint venture partners, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.
As of December 31, 2022, we had 1,985 completed homes in inventory and 1,323 homes in progress in inventory.
As of December 31, 2023, we had 2,017 completed homes in inventory and 1,410 homes in progress in inventory.
Our homebuilding activities depend upon the availability of mortgage financing to homebuyers, which is expected to be impacted by ongoing regulatory changes and fluctuations in the risk appetites of lenders.
Our homebuilding activities depend upon the availability of mortgage financing to homebuyers, which is expected to be impacted by ongoing regulatory changes and fluctuations in the risk appetites of lenders. The financial documentation, down payment amounts and income-to-debt ratio requirements are subject to change and could become more restrictive.
For instance, the COVID-19 pandemic resulted in federal, state and local governments imposing varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, shelter-in-place orders and “stay-at-home” orders in certain of our markets.
For instance, the COVID-19 pandemic, at its peak, resulted in federal, state and local governments imposing varying degrees of restrictions on business and social activities to contain COVID-19.
Each of our home sales may require an appraisal of the home value before closing. These appraisals are professional judgments of the market value of the property and are based on a variety of market factors.
These appraisals are professional judgments of the market value of the property and are based on a variety of market factors.
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.
Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.
We do not have the ability to control what these parties pay their employees or the rules they impose on their employees. However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.
However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.
Concerns could arise due to post-acquisition changes in laws or agency policies, or the interpretation thereof. 21 Table of Contents Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations.
Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. These matters could adversely affect our business, prospects, liquidity, financial condition and results of operations.
Moreover, certain insurance companies doing business in states in which we operate could restrict, curtail or suspend the issuance of homeowners’ insurance policies on single-family homes. This could both reduce the availability of hurricane and other types of natural disaster insurance, in general, and increase the cost of such insurance to prospective purchasers of homes.
Moreover, certain insurance companies doing business in states in which we operate could restrict, curtail or suspend the issuance of homeowners’ insurance policies on single-family homes.
Long-term restrictions on, or unavailability of, homeowners’ insurance could have an adverse effect on the homebuilding industry in our markets and on our business. Additionally, the availability of permits for new homes in new and existing developments could be adversely affected by the significantly limited capacity of the schools, roads, and other infrastructure.
Additionally, the availability of permits for new homes in new and existing developments could be adversely affected by the significantly limited capacity of the schools, roads, and other infrastructure. If adverse conditions in these markets develop in the future, it could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
We could be required to liquidate one or more of our assets at times which may not permit us to receive an attractive return on our assets in order to meet our debt service obligations. 19 Table of Contents Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.
Adverse economic conditions could also cause the terms on which we borrow to be unfavorable. We could be required to liquidate one or more of our assets at times which may not permit us to receive an attractive return on our assets in order to meet our debt service obligations.
As of December 31, 2022, borrowings under the Credit Agreement bore interest at a rate of the Secured Overnight Financing Rate (“SOFR”) plus 1.85% per annum. In addition, as of December 31, 2022, we had outstanding $300.0 million aggregate principal amount of the 2029 Senior Notes (as defined herein).
As of December 31, 2023, borrowings under the Credit Agreement bore interest at a rate of the Secured Overnight Financing Rate (“SOFR”) plus 1.85% per annum.
We may not have access to such equity or debt capital on favorable terms at the desired times, or at all. 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.
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.
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.
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.
Fluctuations in real estate values may require us to write-down the book value of our real estate assets. The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values.
Furthermore, if buyer demand for new homes in these markets decreases, home prices could decline, which would have a material adverse effect on our business. Fluctuations in real estate values may require us to write-down the book value of our real estate assets. The homebuilding and land development industries are subject to significant variability and fluctuations in real estate values.

… 42 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed0 unchanged
Biggest changeITEM 2. PROPERTIES We lease approximately 25,000 square feet in The Woodlands, Texas for our corporate headquarters; this lease expires in 2028. In addition, to adequately meet the needs of our operations, we lease offices in Arizona, Nevada, California, Washington, Colorado, Florida, Georgia, Minnesota, North Carolina, Tennessee, Texas, Utah, West Virginia and Oregon.
Biggest changeITEM 2. PROPERTIES We lease approximately 25,000 square feet in The Woodlands, Texas for our corporate headquarters; this lease expires in 2028. In addition, to adequately meet the needs of our operations, we lease offices in Arizona, California, Colorado, Florida, Georgia, Maryland, Minnesota, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah and Washington.
See “ Business—Land Acquisition Policies and Development ” for a summary of the other property which we owned or controlled as of December 31, 2022.
See “ Business—Land Acquisition Policies and Development ” for a summary of the other property which we owned or controlled as of December 31, 2023. 32 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeManagement believes that these claims include usual obligations incurred by real estate developers and residential homebuilders 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. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 Table of Contents PART II
Biggest changeManagement believes that these claims include usual obligations incurred by real estate developers and residential homebuilders 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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−2 removed1 unchanged
Biggest changePursuant to our stock repurchase program, we may purchase shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.
Biggest changeStock Repurchase Program In February 2022, the Board approved a $200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.
Any future determination to pay cash dividends on our common stock will be at the discretion of the Board and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any of our financing arrangements and such other factors as the Board may deem relevant. 32 Table of Contents Stock Performance Graph This chart compares the cumulative total return on our common stock with that of the Standard & Poor’s 500 Companies Stock Index (the “S&P 500 Index”) and the Standard & Poor’s Homebuilders Select Industry Index (the “S&P Homebuilders Index”).
Any future determination to pay cash dividends on our common stock will be at the discretion of the Board and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any of our financing arrangements and such other factors as the Board may deem relevant. 34 Table of Contents Stock Performance Graph This chart compares the cumulative total return on our common stock with that of the Standard & Poor’s 500 Companies Stock Index (the “S&P 500 Index”) and the Standard & Poor’s Homebuilders Select Industry Index (the “S&P Homebuilders Index”).
Our stock repurchase program may be modified, discontinued or suspended at any time. During the three months ended December 31, 2022, we did not repurchase any shares of our common stock. A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced.
Our stock repurchase program may be modified, discontinued or suspended at any time. During the three months ended December 31, 2023, we did not repurchase any shares of our common stock. A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced.
The chart assumes $100.00 was invested at the close of market on December 31, 2017 and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance. Comparison of Cumulative Total Return among LGI Homes, Inc.
The chart assumes $100.00 was invested at the close of market on December 31, 2018 and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance. Comparison of Cumulative Total Return among LGI Homes, Inc.
As of December 31, 2022, we may purchase up to $211.5 million of shares of common stock under our stock repurchase program. Dividends We have not previously declared or paid any cash dividends on our common stock.
As of December 31, 2023, we may purchase up to $211.5 million of shares of common stock under our stock repurchase program. Dividends We have not previously declared or paid any cash dividends on our common stock.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the NASDAQ Stock Market (NASDAQ) under the symbol “LGIH.” As of February 17, 2023, the closing price of our common stock on the NASDAQ was $114.29, and we had 21 stockholders of record, including Cede & Co. as nominee of The Depository Trust Company.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the NASDAQ Stock Market (NASDAQ) under the symbol “LGIH.” As of February 16, 2024, the closing price of our common stock on the NASDAQ was $126.94, and we had 21 stockholders of record, including Cede & Co. as nominee of The Depository Trust Company.
Removed
Stock Repurchase Program In November 2018, we announced that the Board authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock. In October 2020 and February 2022, the Board approved an increase in our stock repurchase program by an additional $300.0 million and $200.0 million, respectively.
Added
Common Stock, the S&P 500 Index, and the S&P Homebuilders Index for the years ended December 31, 2023, 2022, 2021, 2020 and 2019. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 LGIH $100.00 $156.24 $234.08 $341.62 $204.78 $294.47 S&P 500 Index $100.00 $128.88 $149.83 $190.13 $153.16 $190.82 S&P Homebuilders Index $100.00 $140.12 $176.78 $263.06 $185.08 $291.68
Removed
Common Stock, the S&P 500 Index, and the S&P Homebuilders Index for the years ended December 31, 2022, 2021, 2020, 2019 and 2018. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 LGIH $100.00 $60.27 $94.16 $141.08 $205.89 $123.42 S&P 500 Index $100.00 $93.76 $120.84 $140.49 $178.27 $143.61 S&P Homebuilders Index $100.00 $73.44 $102.91 $129.82 $193.19 $135.92 ITEM 6. [RESERVED] 33 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

98 edited+12 added−51 removed86 unchanged
Biggest changeThe increase in home closings as a percentage of revenues through our wholesale channel was related to the slowdown in retail sales experienced during the second half of 2022 and our 38 Table of Contents decision to allocate more inventory available for sale to our wholesale partners during the year ended December 31, 2022 as compared to the year ended December 31, 2021. • Home sales revenues in our Central reportable segment decreased by $240.9 million, or 19.2%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 33.7% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed. • Home sales revenues in our Southeast reportable segment decreased by $139.4 million, or 23.4%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 38.4% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed. • Home sales revenues in our Northwest reportable segment decreased by $257.1 million, or 50.4%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 56.9% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed. • Home sales revenues in our West reportable segment decreased by $50.3 million, or 14.3%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 24.5% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed. • Home sales revenues in our Florida reportable segment decreased by $58.0 million, or 17.0%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 34.9% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed for the majority of 2022.
Biggest changeThe decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count. 39 Table of Contents • Home sales revenues in our Southeast reportable segment increased by $101.5 million, or 22.3%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a 22.2% increase in the number of homes closed and a slight increase in the average sales price per home closed.
Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin.
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.
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.
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.
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.
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.
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.
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.
Net cash provided by financing activities during the year ended December 31, 2021 was $63.3 million, primarily driven by borrowings of $1.2 billion under the 2021 Credit Agreement and the 2029 Senior Notes, offset by $969.0 million of payments associated with the 2026 Senior Notes and our credit agreement then in effect and by the $193.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
Net cash provided by financing activities during the year ended December 31, 2021 was $63.3 million, primarily driven by borrowings of $1.2 billion under our credit agreement then in effect and the 2029 Senior Notes, offset by $969.0 million of payments associated with the 2026 Senior Notes and our credit agreement then in effect and by the $193.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
The primary assumption to record amounts accrued for our warranty liability is based upon a trailing 120 month period of historical warranty cost experience on a per house basis established based on (i) trends in historical warranty payment levels, (ii) the historical range of amounts paid per house, (iii) any warranty expenditures not considered to be normal and recurring, and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built, the geographic areas in which they are built, and potential impacts of our expansion.
The primary assumption to record amounts accrued for our warranty liability is based upon a trailing 120 month period of historical warranty cost experience on a per house basis established based on (i) trends in historical warranty payment levels, (ii) the historical range of amounts paid per house, (iii) any warranty expenditures not considered to be normal and recurring, 49 Table of Contents and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built, the geographic areas in which they are built, and potential impacts of our expansion.
(2) Calculated as a percentage of home sales revenues. 44 Table of Contents Backlog We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $10,000).
(2) Calculated as a percentage of home sales revenues. 42 Table of Contents Backlog We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $10,000).
Long-term Liquidity and Capital Resources We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchases of shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029.
Long-term Liquidity and Capital Resources We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchases of shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing between 2025 and 2029.
Material Cash Requirements The following is a summary of our material cash requirements from known contractual and other obligations as of December 31, 2022 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
Material Cash Requirements The following is a summary of our material cash requirements from known contractual and other obligations as of December 31, 2023 and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our 36 Table of Contents results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.
Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our 37 Table of Contents results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.
A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced. As of December 31, 2022, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program.
A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced. As of December 31, 2023, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program.
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.
EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, 41 Table of Contents 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.
Assessments are made on each agreement based on criteria including, but not limited to, market absorption, historical and current average sales price per home, timing of purchase and size of land parcel. We terminated $6.7 million, $2.4 million and $2.1 million of nonrefundable pre-acquisition costs or controlled lots deposits for the years ended December 31, 2022, 2021 and 2020, respectively.
Assessments are made on each agreement based on criteria including, but not limited to, market absorption, historical and current average sales price per home, timing of purchase and size of land parcel. We terminated $3.6 million, $6.7 million and $2.4 million of nonrefundable pre-acquisition costs or controlled lots deposits for the years ended December 31, 2023, 2022 and 2021, respectively.
The 2029 Senior Notes mature on July 15, 2029. See Note 6 “ Notes Payable ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt.
The 2029 Senior Notes mature on July 15, 2029, and the 2028 Senior Notes mature on December 15, 2028. See Note 6 “ Notes Payable ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt.
Changes to estimated total remaining development costs subsequent to initial home closings in a community are allocated to the remaining unsold homes in the community on a prospective basis. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method and are capitalized as they are incurred.
Changes to estimated total remaining development costs subsequent to initial home closings in a community are allocated to the remaining unsold homes 48 Table of Contents in the community on a prospective basis. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method and are capitalized as they are incurred.
The acquisition method of accounting 51 Table of Contents requires us to make significant estimates and assumptions regarding the fair value of the acquired assets. We determine the estimated fair values of the real estate inventory with the assistance of appraisals performed by independent third-party specialists and estimates by management.
The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair value of the acquired assets. We determine the estimated fair values of the real estate inventory with the assistance of appraisals performed by independent third-party specialists and estimates by management.
These were partially offset by $308.0 million of repayments on the Credit Agreement and by $95.1 million in payments for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
These were partially offset by $308.0 million of repayments on our credit agreement then in effect and by $95.1 million in payments for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.
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.
However, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
To the extent these sources of capital are insufficient to meet our 46 Table of Contents 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.
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.
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. 37 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Homes Sales.
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. 38 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Homes Sales.
We recognize potential interest and penalties related to uncertain tax positions in income tax expense, as applicable. 52 Table of Contents
We recognize potential interest and penalties related to uncertain tax positions in income tax expense, as applicable. 50 Table of Contents
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 43 Table of Contents management in analyzing and benchmarking the performance and value of our business.
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.
We regularly review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate impairment analysis. Warranty Reserves We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements.
We regularly review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate impairment analysis. Warranty Reserves We have provided homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements.
Liquidity and Capital Resources Overview As of December 31, 2022, we had $32.0 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.
Liquidity and Capital Resources Overview As of December 31, 2023, we had $49.0 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.
(6) As of December 31, 2020, we had 1,139 units related to bulk sales agreements associated with our wholesale business. 45 Table of Contents Land Acquisition Policies and Development See discussion included in “ Business—Land Acquisition Policies and Development .” Homes in Inventory See discussion included in “ Business—Homes in Inventory .” Raw Materials and Labor See discussion included in “ Business—Raw Materials and Labor .” 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.
(6) As of December 31, 2021, we had 481 units related to bulk sales agreements associated with our wholesale business. 43 Table of Contents Land Acquisition Policies and Development See discussion included in “ Business—Land Acquisition Policies and Development .” Homes in Inventory See discussion included in “ Business—Homes in Inventory .” Raw Materials and Labor See discussion included in “ Business—Raw Materials and Labor .” 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.
Additionally, we plan to further utilize, on a limited and strategic basis, land banking financing arrangements to maximize long-term liquidity for lot development projects where we have sufficient finished lot availability in certain markets.
Additionally, we plan to further utilize, 44 Table of Contents on a limited and strategic basis, land banking financing arrangements to maximize long-term liquidity for lot development projects where we have sufficient finished lot availability in certain markets.
The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement.
The 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”) and our 8.750% Senior Notes due 2028 (the “2028 Senior Notes”), may not exceed the borrowing base under the Credit Agreement.
We increased our warranty reserve by $2.9 million, $2.5 million and $1.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.
We increased our warranty reserve by $2.9 million, $2.9 million and $2.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $368.1 million as of December 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.
Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $357.0 million as of December 31, 2023. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed.
Due largely to the relatively short development and construction 50 Table of Contents periods for our communities and our growth, we have experienced limited circumstances during 2022, 2021 or 2020 that are indicators of impairment.
Due largely to the relatively short development and construction periods for our communities and our growth, we have experienced limited circumstances during 2023, 2022 or 2021 that are indicators of impairment.
Senior Notes Offering On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act.
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 and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S.
We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of December 31, 2022 will be drawn upon.
We do not believe that it 46 Table of Contents is probable that any outstanding letters of credit, surety bonds or financial guarantees as of December 31, 2023 will be drawn upon.
Our stock repurchase program may be modified, discontinued or suspended at any time. 48 Table of Contents Cash Flows Operating Activities Net cash used in operating activities was $370.5 million during the year ended December 31, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.
Our stock repurchase program may be modified, discontinued or suspended at any time. Cash Flows Operating Activities Net cash used in operating activities was $57.0 million during the year ended December 31, 2023. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.
General and administrative expenses as a percentage of home sales revenues were 4.8% and 3.3% for the years ended December 31, 2022 and 2021, respectively.
General and administrative expenses as a percentage of home sales revenues were 5.0% and 4.8% for the years ended December 31, 2023 and 2022, respectively.
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 Data Year Ended December 31, 2022 (4) 2021 (5) 2020 (6) Net orders (1) 5,268 9,533 11,070 Cancellation rate (2) 24.4 % 19.3 % 21.6 % Ending backlog - homes (3) 702 2,055 2,964 Ending backlog - value (3) $ 252,002 $ 659,234 $ 775,468 (1) Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
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 Data Year Ended December 31, 2023 (4) 2022 (5) 2021 (6) Net orders (1) 6,617 5,268 9,533 Cancellation rate (2) 25.4 % 24.4 % 19.3 % Ending backlog - homes (3) 590 702 2,055 Ending backlog - value (3) $ 224,851 $ 252,002 $ 659,234 (1) Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
Selling expenses as a percentage of home sales revenues were 6.3% and 5.6% for the years ended December 31, 2022 and 2021, respectively.
Selling expenses as a percentage of home sales revenues were 8.1% and 6.3% for the years ended December 31, 2023 and 2022, respectively.
Investing Activities Net cash used in investing activities was $6.0 million during the year ended December 31, 2022, primarily due to additional investments in unconsolidated entities.
Investing Activities Net cash used in investing activities was $13.6 million during the year ended December 31, 2023, primarily due to additional investments in unconsolidated entities, net of return of capital from unconsolidated entities. Net cash used in investing activities was $6.0 million during the year ended December 31, 2022, primarily due to additional investments in unconsolidated entities.
Approximately $12.8 million of the cash deposits as of December 31, 2022 are secured by third-party guarantees or indemnity mortgages on the related property.
Approximately $11.4 million of the cash deposits as of December 31, 2023 are secured by third-party guarantees or indemnity mortgages on the related property.
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.
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. See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A.
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): Year Ended December 31, 2022 2021 2020 Net income $ 326,567 $ 429,645 $ 323,895 Income tax provision 91,549 113,130 43,954 Depreciation and amortization 1,576 1,154 710 Capitalized interest charged to cost of sales 20,276 37,546 40,381 EBITDA 439,968 581,475 408,940 Purchase accounting adjustments (1) 6,869 4,964 4,872 Loss on extinguishment of debt — 13,976 — Other income, net (28,009) (9,053) (3,139) Adjusted EBITDA $ 418,828 $ 591,362 $ 410,673 EBITDA margin % (2) 19.1 % 19.1 % 17.3 % Adjusted EBITDA margin % (2) 18.2 % 19.4 % 17.3 % (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.
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): Year Ended December 31, 2023 2022 2021 Net income $ 199,227 $ 326,567 $ 429,645 Income tax provision 62,527 91,549 113,130 Depreciation and amortization 2,408 1,576 1,154 Capitalized interest charged to cost of sales 33,368 20,276 37,546 EBITDA 297,530 439,968 581,475 Purchase accounting adjustments (1) 6,492 6,869 4,964 Loss on extinguishment of debt — — 13,976 Other income, net (28,499) (28,009) (9,053) Adjusted EBITDA $ 275,523 $ 418,828 $ 591,362 EBITDA margin % (2) 12.6 % 19.1 % 19.1 % Adjusted EBITDA margin % (2) 11.7 % 18.2 % 19.4 % (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.
Interest calculated using the effective rate as of December 31, 2022. See Note 6 “ Notes Payable ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt. (b) Represents $300.0 million aggregate principal amount of our 4.000% 2029 Senior Notes.
See Note 6 , “ Notes Payable ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt. (b) Represents $300.0 million aggregate principal amount of our 4.000% 2029 Senior Notes and $400.0 million aggregate principal amount of our 8.750% 2028 Senior Notes.
Net cash provided by operating activities was $202.2 million during the year ended December 31, 2020. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.
Net cash used in operating activities was $370.5 million during the year ended December 31, 2022. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.
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.
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. 45 Table of Contents Land purchase contracts may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain markets.
Critical Accounting Policies and Estimates In preparing our Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.
Risk Factors in Part I of this Annual Report on Form 10-K. Critical Accounting Policies and Estimates In preparing our Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.
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): Year Ended December 31, 2022 2021 2020 Home sales revenues $ 2,304,455 $ 3,050,149 $ 2,367,929 Cost of sales 1,657,855 2,232,115 1,764,832 Gross margin 646,600 818,034 603,097 Capitalized interest charged to cost of sales 20,276 37,546 40,381 Purchase accounting adjustments (1) 6,869 4,964 4,872 Adjusted gross margin $ 673,745 $ 860,544 $ 648,350 Gross margin % (2) 28.1 % 26.8 % 25.5 % Adjusted gross margin % (2) 29.2 % 28.2 % 27.4 % (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.
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): Year Ended December 31, 2023 2022 2021 Home sales revenues $ 2,358,580 $ 2,304,455 $ 3,050,149 Cost of sales 1,816,393 1,657,855 2,232,115 Gross margin 542,187 646,600 818,034 Capitalized interest charged to cost of sales 33,368 20,276 37,546 Purchase accounting adjustments (1) 6,492 6,869 4,964 Adjusted gross margin $ 582,047 $ 673,745 $ 860,544 Gross margin % (2) 23.0 % 28.1 % 26.8 % Adjusted gross margin % (2) 24.7 % 29.2 % 28.2 % (1) Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
Stock Repurchase Program In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.
Stock Repurchase Program In February 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.
For the years ended December 31, 2022, 2021 and 2020, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock, 1,288,563 shares of our common stock for $193.8 million to be held as treasury stock and 718,993 shares of our common stock for $48.1 million to be held as treasury stock, respectively.
During the year ended December 31, 2023, we did not repurchase any shares of our common stock. During the years ended December 31, 2022 and 2021, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock and 1,288,563 shares of our common stock for $193.8 million to be held as treasury stock, respectively.
In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract. As of December 31, 2022, we had $22.4 million of cash deposits pertaining to land purchase contracts for 13,184 lots with an aggregate purchase price of $411.8 million.
In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract. As of December 31, 2023, we had $27.0 million of cash deposits pertaining to land purchase contracts for 15,750 lots with an aggregate purchase price of $513.9 million.
Key Results Key financial results as of and for the year ended December 31, 2022, as compared to the year ended December 31, 2021, were as follows: • Home sales revenues decreased 24.4% to $2.3 billion from $3.1 billion. • Homes closed decreased 36.6% to 6,621 homes from 10,442 homes. • Average sales price per home closed increased 19.2% to $348,052 from $292,104. • Gross margin as a percentage of home sales revenues increased to 28.1% from 26.8%. • Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 29.2% from 28.2%. • Net income before income taxes decreased 23.0% to $418.1 million from $542.8 million. • Net income decreased 24.0% to $326.6 million from $429.6 million. • EBITDA (non-GAAP) as a percentage of home sales revenues remained at 19.1%. • Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 18.2% from 19.4%. • Active communities at the end of 2022 decreased to 99 from 101. • Total owned and controlled lots decreased 21.7% to 71,904 lots at December 31, 2022 from 91,845 lots at December 31, 2021.
Key Results Key financial results as of and for the year ended December 31, 2023, as compared to the year ended December 31, 2022, were as follows: • Home sales revenues increased 2.3% to $2.4 billion from $2.3 billion. • Homes closed increased 1.6% to 6,729 homes from 6,621 homes. • Average sales price per home closed increased 0.7% to $350,510 from $348,052. • Gross margin as a percentage of home sales revenues decreased to 23.0% from 28.1%. • Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 24.7% from 29.2%. • Net income before income taxes decreased 37.4% to $261.8 million from $418.1 million. • Net income decreased 39.0% to $199.2 million from $326.6 million. • EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 12.6% from 19.1%. • Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 11.7% from 18.2%. • Active communities at the end of 2023 increased to 117 from 99. • Total owned and controlled lots decreased 1.1% to 71,081 lots at December 31, 2023 from 71,904 lots at December 31, 2022.
Home sales revenues for the year ended December 31, 2021 were $3.1 billion, an increase of $682.2 million, or 28.8%, from $2.4 billion for the year ended December 31, 2020.
Home sales revenues for the year ended December 31, 2023 were $2.4 billion, an increase of $54.1 million, or 2.3%, from $2.3 billion for the year ended December 31, 2022.
(c) All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR, or subject to an interest rate floor. The interest rate for our variable rate indebtedness as of December 31, 2022 was SOFR plus 1.85%. Fees under the Credit Agreement are approximately $0.1 million per year.
(d) All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR, or subject to an interest rate floor. The interest rate for our variable rate indebtedness as of December 31, 2023 was SOFR plus 1.85%. Interest calculated using the effective rate as of December 31, 2023.
Our historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material.
Our historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material. This section covers fiscal years 2023 and 2022 and discusses the results of operations for fiscal year 2023 compared to fiscal year 2022.
Year Ended December 31, 2022 2021 2020 (dollars in thousands, except per share data and average home sales price) Statement of Income Data: Home sales revenues $ 2,304,455 $ 3,050,149 $ 2,367,929 Expenses: Cost of sales 1,657,855 2,232,115 1,764,832 Selling expenses 144,928 170,005 148,366 General and administrative 111,565 100,331 90,021 Operating income 390,107 547,698 364,710 Loss on extinguishment of debt — 13,976 — Other income, net (28,009) (9,053) (3,139) Net income before income taxes 418,116 542,775 367,849 Income tax provision 91,549 113,130 43,954 Net income $ 326,567 $ 429,645 $ 323,895 Basic earnings per share $ 13.90 $ 17.46 $ 12.89 Diluted earnings per share $ 13.76 $ 17.25 $ 12.76 Other Financial and Operating Data: Average community count 91.9 104.4 111.9 Community count at end of period 99 101 116 Home closings 6,621 10,442 9,339 Average sales price per home closed $ 348,052 $ 292,104 $ 253,553 Gross margin (1) $ 646,600 $ 818,034 $ 603,097 Gross margin % (2) 28.1 % 26.8 % 25.5 % Adjusted gross margin (3) $ 673,745 $ 860,544 $ 648,350 Adjusted gross margin % (2)(3) 29.2 % 28.2 % 27.4 % EBITDA (4) $ 439,968 $ 581,475 $ 408,940 EBITDA margin % (2)(4) 19.1 % 19.1 % 17.3 % Adjusted EBITDA (4) $ 418,828 $ 591,362 $ 410,673 Adjusted EBITDA margin % (2)(4) 18.2 % 19.4 % 17.3 % (1) Gross margin is home sales revenues less cost of sales.
Year Ended December 31, 2023 2022 2021 (dollars in thousands, except per share data and average home sales price) Statement of Income Data: Home sales revenues $ 2,358,580 $ 2,304,455 $ 3,050,149 Expenses: Cost of sales 1,816,393 1,657,855 2,232,115 Selling expenses 191,582 144,928 170,005 General and administrative 117,350 111,565 100,331 Operating income 233,255 390,107 547,698 Loss on extinguishment of debt — — 13,976 Other income, net (28,499) (28,009) (9,053) Net income before income taxes 261,754 418,116 542,775 Income tax provision 62,527 91,549 113,130 Net income $ 199,227 $ 326,567 $ 429,645 Basic earnings per share $ 8.48 $ 13.90 $ 17.46 Diluted earnings per share $ 8.42 $ 13.76 $ 17.25 Other Financial and Operating Data: Average community count 103.9 91.9 104.4 Community count at end of period 117 99 101 Home closings 6,729 6,621 10,442 Average sales price per home closed $ 350,510 $ 348,052 $ 292,104 Gross margin (1) $ 542,187 $ 646,600 $ 818,034 Gross margin % (2) 23.0 % 28.1 % 26.8 % Adjusted gross margin (3) $ 582,047 $ 673,745 $ 860,544 Adjusted gross margin % (2)(3) 24.7 % 29.2 % 28.2 % EBITDA (4) $ 297,530 $ 439,968 $ 581,475 EBITDA margin % (2)(4) 12.6 % 19.1 % 19.1 % Adjusted EBITDA (4) $ 275,523 $ 418,828 $ 591,362 Adjusted EBITDA margin % (2)(4) 11.7 % 18.2 % 19.4 % (1) Gross margin is home sales revenues less cost of sales.
(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.
(3) Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts with varying terms. Ending backlog is valued at the contract amount.
Financing Activities Net cash provided by financing activities was $357.9 million during the year ended December 31, 2022, primarily driven by $618.9 million of borrowings under the 2021 Credit Agreement and the Credit Agreement and $149.5 million of proceeds related to financing arrangements with a third-party land banker.
These were partially offset by $746.0 million of repayments on our credit agreement then in effect, net of payments of $95.0 million related to a financing arrangement with a third-party land banker. 47 Table of Contents Net cash provided by financing activities was $357.9 million during the year ended December 31, 2022, primarily driven by $618.9 million of borrowings under our credit agreement then in effect and $149.5 million of proceeds related to financing arrangements with a third-party land banker.
The average sales price per home closed during the year ended December 31, 2022 was $348,052, an increase of $55,948, or 19.2%, from the average sales price per home closed of $292,104 for the year ended December 31, 2021.
The average sales price per home closed during the year ended December 31, 2023 was $350,510, an increase of $2,458, or 0.7%, from the average sales price per home closed of $348,052 for the year ended December 31, 2022.
Net income before income taxes for the year ended December 31, 2022 was $418.1 million, a decrease of $124.7 million, or 23.0%, from $542.8 million for the year ended December 31, 2021.
Net income before income taxes for the year ended December 31, 2023 was $261.8 million, a decrease of $156.4 million, or 37.4%, from $418.1 million for the year ended December 31, 2022.
The increase in general and administrative expenses as a percentage of home sales revenues reflects our increased personnel and associated overhead costs, as well as professional fees and terminated land purchase agreements, partially offset by a decrease in management bonus and stock compensation incurred during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in general and administrative expenses as a percentage of home sales revenues reflects our increased personnel and associated overhead costs, partially offset by a decrease in payroll related costs during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Other Income.
The Credit Agreement contains revolving commitments of $1.1 billion, subject to a borrowing base primarily consisting of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement. The Credit Agreement matures on April 28, 2025.
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.
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 .
Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts with varying terms.
Ending backlog is valued at the contract amount. (4) As of December 31, 2022, we had 157 units related to bulk sales agreements associated with our wholesale business. (5) As of December 31, 2021, we had 481 units related to bulk sales agreements associated with our wholesale business.
(4) As of December 31, 2023, we had 60 units related to bulk sales agreements associated with our wholesale business. (5) As of December 31, 2022, we had 157 units related to bulk sales agreements associated with our wholesale business.
Income tax provision for the year ended December 31, 2022 was $91.5 million, a decrease of $21.6 million, or 19.1%, from income tax provision of $113.1 million for the year ended December 31, 2021.
Income tax provision for the year ended December 31, 2023 was $62.5 million, a decrease of $29.0 million, or 31.7%, from income tax provision of $91.5 million for the year ended December 31, 2022.
Net income for the year ended December 31, 2022 was $326.6 million, a decrease of $103.1 million, or 24.0%, from $429.6 million for the year ended December 31, 2021.
Net Income . Net income for the year ended December 31, 2023 was $199.2 million, a decrease of $127.3 million, or 39.0%, from $326.6 million for the year ended December 31, 2022.
The increase in selling expenses as a percentage of home sales revenues was driven primarily by higher advertising spend, partially offset by lower sales commission expensed during the year ended December 31, 2022 as compared to the year ended December 31, 2021. General and Administrative.
The increase in selling expenses as a percentage of home sales revenues was primarily due to higher advertising expenses, fewer wholesale home closings and higher other expenses incurred during the year ended December 31, 2023 as compared to the year ended December 31, 2022. General and Administrative.
Net cash provided by operating activities during the year ended December 31, 2020 was primarily driven by net income of $323.9 million, offset by cash outflows from the $70.2 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $59.5 million increase in the net change in accounts receivable.
Net cash used in operating activities during the year ended December 31, 2023 was primarily driven by cash outflow from the $255.5 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, partially offset by net income of $199.2 million, as well as the $16.2 million increase and $18.3 million decrease in the net change in accounts receivable, and accrued expenses and other liabilities, respectively.
Revolving Credit Facility On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment” and, as so amended, the “Credit Agreement”), which 47 Table of Contents amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”).
Revolving Credit Facility On December 5, 2023, we entered into a Fourth Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Fourth Amendment”), which amended the Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (as amended to date, including the Fourth Amendment, the “Credit Agreement”).
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. Interest related to the land banking financing arrangements is not included in the table.
Interest on the 2028 Senior Notes accrues at a rate of 8.750% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2024. The land banking financing arrangements incur interest at the time of purchase. Interest of $1.6 million related to the land banking financing arrangements is included in the table.
The increase in our effective tax rate to 21.9% from 20.8% results from an increase in the compensation limitation under Section 162(m) of the Code, and the retroactive extension of the 45L tax credit, offset by deductions in excess of compensation cost for share-based payments for the year ended December 31, 2021. Net Income .
The increase in our effective tax rate to 23.9% from 21.9% was primarily due to an increase in the rate for state income taxes, net of the federal benefit, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and the retroactive extension of the federal energy efficient homes tax credits for the year ended December 31, 2022, offset by a decrease in the rate for the deductions in excess of compensation cost for share-based payments.
Included within our home sales revenues for the year ended December 31, 2022 was $340.6 million in wholesale revenues related to 1,233 home closings through our wholesale channel, representing 18.6% of the 6,621 total homes closed during the year ended December 31, 2022.
Included within our home sales revenues for the year ended December 31, 2023 was $202.3 million in wholesale revenues resulting from 679 home closings, representing 10.1% of the 6,729 total homes closed during the year ended December 31, 2023.
This increase in gross margin as a percentage of home sales revenues during the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to raising prices higher than increases in input costs. Selling Expenses.
The decrease in gross margin as a percentage of home sales revenues was primarily due to a combination of higher construction costs and capitalized interest and the impact of sales incentives offered during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Selling Expenses.
Sales commissions increased to $115.4 million for the year ended December 31, 2021 from $89.2 million for the year ended December 31, 2020 partially due to a 28.8% increase in home sales revenues during 2021 as compared to 2020.
Sales commissions increased to $102.8 million for the year ended December 31, 2023 from $82.7 million for the year ended December 31, 2022 due to a 2.3% increase in home sales revenues and an increase in outside commissions during 2023 as compared to 2022.
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 years ended December 31, 2022 and 2021 were as follows (revenues in thousands): Year Ended December 31, 2022 At December 31, 2022 Reportable Segment Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period Central $ 1,011,844 3,094 $ 327,034 31.9 8.1 35 Southeast 455,340 1,404 324,316 21.5 5.4 25 Northwest 253,416 502 504,813 8.5 4.9 9 West 300,968 751 400,756 11.5 5.4 13 Florida 282,887 870 325,157 18.5 3.9 17 Total $ 2,304,455 6,621 $ 348,052 91.9 6.0 99 Year Ended December 31, 2021 At December 31, 2021 Reportable Segment Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period Central $ 1,252,782 4,665 $ 268,549 36.5 10.7 35 Southeast 594,742 2,279 260,966 25.6 7.4 25 Northwest 510,497 1,166 437,819 11.1 8.8 11 West 351,219 995 352,984 11.4 7.3 11 Florida 340,909 1,337 254,981 19.8 5.6 19 Total $ 3,050,149 10,442 $ 292,104 104.4 8.3 101 Home Sales Revenues .
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 years ended December 31, 2023 and 2022, and our community count as of December 31, 2023 and 2022, were as follows (revenues in thousands): Year Ended December 31, 2023 As of December 31, 2023 Reportable Segment Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period Central $ 730,688 2,241 $ 326,054 35.7 5.2 40 Southeast 556,808 1,716 324,480 24.8 5.8 28 Northwest 251,171 511 491,528 10.2 4.2 11 West 381,102 992 384,175 14.0 5.9 16 Florida 438,811 1,269 345,793 19.2 5.5 22 Total $ 2,358,580 6,729 $ 350,510 103.9 5.4 117 Year Ended December 31, 2022 As of December 31, 2022 Reportable Segment Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period Central $ 1,011,844 3,094 $ 327,034 31.9 8.1 35 Southeast 455,340 1,404 324,316 21.5 5.4 25 Northwest 253,416 502 504,813 8.5 4.9 9 West 300,968 751 400,756 11.5 5.4 13 Florida 282,887 870 325,157 18.5 3.9 17 Total $ 2,304,455 6,621 $ 348,052 91.9 6.0 99 Home Sales Revenues .
The decrease in home sales revenues is primarily due to a 36.6% decrease in homes closed in fewer communities, partially offset by an increase in the average sales price per home closed during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in home sales revenues was primarily due to a 1.6% increase in homes closed and a slight increase in the average sales price per home closed during the year ended December 31, 2023 as compared to the year ended December 31, 2022. We closed 6,729 homes during 2023, as compared to 6,621 homes closed during 2022.
As of December 31, 2022, the borrowing base under the Credit Agreement was $1.4 billion, of which borrowings, including the 2029 Senior Notes, of $1.1 billion were outstanding, $33.4 million of letters of credit were outstanding and $236.6 million was available to borrow under the Credit Agreement.
As of December 31, 2023, borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes and the 2028 Senior Notes totaled $1.3 billion, $28.1 million of letters of credit were outstanding and $354.8 million was available to borrow under the Credit Agreement.
We redeemed all of our 2026 Senior Notes in July 2021. Other Income. Other income, net of other expenses was $28.0 million for the year ended December 31, 2022, an increase of $19.0 million from $9.1 million for the year ended December 31, 2021.
Other income, net of other expenses was $28.5 million for the year ended December 31, 2023, an increase of $0.5 million from $28.0 million for the year ended December 31, 2022.
General and administrative expenses for the year ended December 31, 2022 were $111.6 million, an increase of $11.2 million, or 11.2%, from $100.3 million for the year ended December 31, 2021. The increase in the amount of general and administrative expenses is primarily due to increased overhead expenses.
General and administrative expenses for the year ended December 31, 2023 were $117.4 million, an increase of $5.8 million, or 5.2%, from $111.6 million for the year ended December 31, 2022.
Gross margin as a percentage of home sales revenues was 28.1% for the year ended December 31, 2022 and 26.8% for the year ended December 31, 2021.
Gross margin for the year ended December 31, 2023 was $542.2 million, a decrease of $104.4 million, or 16.1%, from $646.6 million for the year ended December 31, 2022. Gross margin as a percentage of home sales revenues was 23.0% for the year ended December 31, 2023 and 28.1% for the year ended December 31, 2022.

… 81 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−1 removed2 unchanged
Biggest changeQuantitative and Qualitative Disclosures About Interest Rate Risk We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the 2029 Senior Notes and certain inventory related obligations) and variable-rate debt (our $1.1 billion Credit Agreement) as part of financing our operations.
Biggest changeQuantitative and Qualitative Disclosures About Interest Rate Risk We utilize both fixed-rate debt ($300.0 million aggregate principal amount of the 2029 Senior Notes, $400.0 million aggregate principal amount of the 2028 Senior Notes and certain inventory related obligations) and variable-rate debt (our $1.205 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 do not have the obligation to prepay the 2029 Senior Notes, the 2028 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.
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. 53 Table of Contents
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. 51 Table of Contents
A hypothetical 100 basis point increase in the average interest rate above the SOFR floor on our variable rate indebtedness would increase our annual interest cost by approximately $8.3 million.
A hypothetical 100 basis point increase in the average interest rate above the SOFR floor on our variable rate indebtedness would increase our annual interest cost by approximately $5.7 million.
We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. As of December 31, 2022, we had $828.4 million of variable rate indebtedness outstanding under the Credit Agreement. All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR.
We are exposed to market risks related to fluctuations in interest rates on our outstanding variable rate indebtedness. As of December 31, 2023, we had $569.6 million of variable rate indebtedness outstanding under the Credit Agreement. All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR.
The interest rate for our variable rate indebtedness as of December 31, 2022 was SOFR plus 1.85%. At December 31, 2022, SOFR was 4.32%, subject to the 0.50% SOFR floor as included in the Credit Agreement.
The interest rate for our variable rate indebtedness as of December 31, 2023 was SOFR plus 1.85%. At December 31, 2023, SOFR was 5.36%, subject to the 0.50% SOFR floor as included in the Credit Agreement.
Removed
In November 2020, we entered into a three-year interest rate cap of LIBOR of 0.70% to hedge a portion of the 2021 Credit Agreement risk exposure and future variable cash flows associated with LIBOR interest rates. In July 2022, we sold this three-year interest rate cap prior to its expiration.

Other LGIH 10-K year-over-year comparisons