REVENUE RECOGNITION

The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method which required the cumulative effect of the initial application of the new standard, if any, to be reflected as an adjustment to the opening balance of retained earnings as of January 1, 2018. There was no cumulative effect of the initial application of ASC 606 on the Company's consolidated financial statements.

Contracts with Customers

The Company derives revenues from two primary sources: the closing and delivery of homes through our builder operations segment and the sale of lots to homebuilders through our land development segment. All of our revenue is from contracts with customers.

Disaggregation of Revenue

The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the three months ended June 30, 2018 and 2017 (in thousands):



	Three Months Ended June 30, 2018				Three Months Ended June 30, 2017
	Builder Operations		Land Development		Builder Operations		Land Development
Primary Geographic Market
Texas	$	66,893	$	10,692	$	46,710	$	3,991
Georgia	66,116		440		53,635		615
Florida	10,869		—		—		—
Total revenues	$	143,878	$	11,132	$	100,345	$	4,606

Type of Customer
Homebuyers	$	143,878	$	—	$	100,345	$	—
Homebuilders	—		11,132		—		4,606
Total revenues	$	143,878	$	11,132	$	100,345	$	4,606

Product Type
Residential units	$	143,878	$	—	$	100,345	$	—
Land and lots	—		11,132		—		4,606
Total revenues	$	143,878	$	11,132	$	100,345	$	4,606

Timing of Revenue Recognition
Transferred at a point in time	$	143,878	$	11,132	$	100,345	$	4,606
Total revenues	$	143,878	$	11,132	$	100,345	$	4,606

The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the six months ended June 30, 2018 and 2017 (in thousands):



	Six Months Ended June 30, 2018				Six Months Ended June 30, 2017
	Builder Operations		Land Development		Builder Operations		Land Development
Primary Geographic Market
Texas	$	138,441	$	14,691	$	97,380	$	9,744
Georgia	114,934		4,340		96,362		802
Florida	10,869		—		—		—
Total revenues	$	264,244	$	19,031	$	193,742	$	10,546

Type of Customer
Homebuyers	$	264,244	$	—	$	193,742	$	—
Homebuilders	—		19,031		—		10,546
Total revenues	$	264,244	$	19,031	$	193,742	$	10,546

Product Type
Residential units	$	264,244	$	—	$	193,742	$	—
Land and lots	—		19,031		—		10,546
Total revenues	$	264,244	$	19,031	$	193,742	$	10,546

Timing of Revenue Recognition
Transferred at a point in time	$	264,244	$	19,031	$	193,742	$	10,546
Total revenues	$	264,244	$	19,031	$	193,742	$	10,546

Contract Balances

The Company requires homebuyers to submit a deposit for home purchases and requires third-party builders to submit a deposit in connection with land sale or lot option contracts. The deposits serve as a guarantee for performance under homebuilding and land sale or development contracts. Cash received as customer deposits is reflected as customer and builder deposits on the condensed consolidated balance sheets.

Opening and closing contract balances included in customer and builder deposits on the condensed consolidated balance sheets are as follows (in thousands):



	June 30, 2018		December 31, 2017		June 30, 2017		December 31, 2016
Customer and builder deposits	$	33,988	$	21,447	$	19,292	$	14,088

The difference between the opening and closing balances of customer and builder deposits results from the timing difference between the customer’s payment of a deposit and the Company’s performance, impacted slightly by terminations of contracts.

The amount of deposits on residential units and land and lots held as of the beginning of the period and recognized as revenue during the three and six months ended June 30, 2018 and 2017 are as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Type of Customer
Homebuyers	$	5,423	$	1,841	$	7,016	$	3,110
Homebuilders	5		80		236		380
Total deposits recognized as revenue	$	5,428	$	1,921	$	7,252	$	3,490

As a result of the GHO Homes acquisition, customer deposits from homebuyers in the amount of $9.1 million were acquired, of which $2.0 million was recognized during the period April 26, 2018 through June 30, 2018.

Performance Obligations

The Company’s contracts with homebuyers contain a single performance obligation. The performance obligation is satisfied when homes are completed and legal title has been transferred to the buyer. The Company does not have any variable consideration associated with home sales transactions.

Lot option contracts contain multiple performance obligations. The performance obligations are satisfied as lots are closed and legal title has been transferred to the builder. For lot option contracts, individual performance obligations are accounted for separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Certain lot option contracts require escalations in lot price over the option period. Any escalator is not collectible until the lot closing occurs. While we recognize lot escalators as variable consideration within the transaction price, we do not recognize escalator revenue until a builder closes on a lot subject to an escalator as the escalator relates to general inflation and holding costs.

Occasionally, the Company sells developed and undeveloped land parcels. If the land parcel is developed prior to the sale of the land, the revenue is recognized at closing since we deliver a single performance obligation in the form of a developed parcel. We also recognize revenue at closing on undeveloped land parcel sales as there are no other obligations beyond delivering the undeveloped land.

Homebuyers are not obligated to pay for a home until the closing and delivery of the home. The selling price of a home is based on the contract price adjusted for any change orders, which are considered modifications of the contract price.

Homebuilders are not obligated to pay for developed lots prior to control of the lots and any associated improvements being transferred to them. The term of our lot option contracts is generally based upon the number of lots being purchased and the agreed upon lot takedown schedule, which can be in excess of one year. Lots cannot be taken down until development is substantially complete. There is no significant financing component related to our third-party lot sales.

The Company does not sell warranties outside of the customary workmanship warranties provided on homes or developed lots at the time of sale. The warranties offered to homebuyers and to buyers of developed lots are short term, with the exception of ten-year warranties on structural concerns for homes. As these are assurance-type warranties, there is no separate performance obligation related to warranties provided.

There was no revenue recognized during the three and six months ended June 30, 2018 and 2017 from performance obligations satisfied in prior periods.

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations on our land sale and lot option contracts is $102.2 million. The Company will recognize the remaining revenue when the lots are taken down, or upon closing for the sale of a land parcel, which is expected to occur as follows (in thousands):



	Total
Remainder of 2018	$	24,422
2019	48,445
2020	24,766
2021	4,550
Total	$	102,183

The timing of lot takedowns is contingent upon a number of factors, including customer needs, the number of lots being purchased, receipt of acceptance of the plat by the municipality, weather-related delays, and agreed-upon lot takedown schedules.

Our contracts with homebuyers have a duration of less than one year. As such, the Company uses the practical expedient as allowed under ASC 606 and has not disclosed the transaction price allocated to remaining performance obligations as of the end of the reporting period.

Significant Judgments and Estimates

There are no significant judgments involved in the recognition of completed home sales. The performance obligation of delivering a completed home is satisfied upon the sale closing when title transfers to the homebuyer.

There are no significant judgments involved in the recognition of land sales or developed lot sales. The performance obligation of delivering land or developed lots is satisfied upon the closing of the sale when title transfers to the homebuilder.

Contract Costs

In connection with the adoption of ASC 606, the Company adopted ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers (“ASC 340-40”), with respect to capitalization and amortization of incremental costs of obtaining a contract. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects to recover those costs.

The Company pays sales commissions to employees and/or outside realtors related to individual home sales which are expensed as incurred at the time of closing. Commissions on the sale of land parcels are also expensed as incurred upon closing.

The Company also pays quarterly builder incentives to employees which are based on the time it takes to build individual homes. The builder incentives do not represent incremental costs that would require capitalization as we would incur these costs whether or not we sold the home. As such, we will continue to recognize builder incentives as salary expense at the time they are paid.

Costs incurred for model homes, advertising, and sales salaries do not qualify for capitalization under ASC 340-40 as they are not incremental costs of obtaining a contract. As such, we expense these costs to selling, general and administrative expense and salary expense as incurred. Costs incurred related to model home furnishings are capitalized and included in property and equipment, net on the condensed consolidated balance sheets.