What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-22 compared with 2022-01-28 · 66 added, 40 removed, 167 unchanged (39% of the section changed)

5 unchanged sentences

Our Operations

We are a residential lot development company with operations in 55 markets in 23 states as of December 31, 2021.

We are a residential lot development company with operations in 53 markets in 23 states as of March 31, 2022.

In October 2017, we became a majority-owned subsidiary of D.R.

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Results of Operations

The following tables and related discussion set forth key operating and financial data as of and for the three months ended December 31, 2021 and 2020.

The following tables and related discussion set forth key operating and financial data as of and for the three and six months ended March 31, 2022 and 2021.

Operating Results

Components of income before income taxes were as follows:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In millions)

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Residential lots sold consist of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Development projects 4,806 3,174 9,187 6,276

Lot banking projects 195 414 330 879

5,001 3,588 9,517 7,155

Deferred development projects 787 — 787 —

5,788 3,588 10,304 7,155

Average sales price per lot (a)

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_______________

(a) Excludes any impact from change in contract liabilities.

(a) Excludes lots sold from deferred development projects and any impact from change in contract liabilities.

Revenues consist of:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

(In millions)

3 unchanged sentences

Lot banking projects

Decrease in contract liabilities 2.1 0.2

18.3 29.3 27.3 64.9

(Increase) decrease in contract liabilities (0.5) (0.2) 1.6 —

409.0 280.2 813.1 587.1

Deferred development projects 12.5 — 12.5 —

421.5 280.2 825.6 587.1

Tract sales and other 0.1 6.9 3.6 7.1

1 unchanged sentence

Residential lots sold and residential lot sales revenues have increased as we have grown our business primarily through our strategic relationship with D.R.

In the three months ended December 31, 2021, we sold 4,014 residential lots to D.R.

In the three months ended March 31, 2022, we sold 4,771 residential lots to D.R.

Horton for $390.2 million compared to 3,358 residential lots sold to D.R.

Horton for $265.6 million in the prior year period.

In the three months ended December 31, 2021, we sold 502 residential lots to customers other than D.R.

Horton for $74.0 million compared to 178 residential lots sold to customers other than D.R.

In the six months ended March 31, 2022, we sold 8,785 residential lots to D.R.

Horton for $718.2 million compared to 6,747 residential lots sold to D.R.

Horton for $559.6 million in the prior year period.

Tract sales and other revenue in the three months ended December 31, 2021 primarily consisted of 38 tract acres sold to third parties for $3.5 million.

Cost of sales in the three months ended December 31, 2021 increased as compared to the prior year period primarily due to the increase in the number of lots sold.

Cost of sales related to tract sales and other revenues in the three months ended December 31, 2021 was $2.7 million.

In the three months ended March 31, 2022, we sold 1,017 residential lots to customers other than D.R.

Horton for $74.1 million, inclusive of the $54.7 million total transaction price of the deferred development lot sales, compared to 230 residential lots sold to customers other than D.R.

Horton for $14.8 million in the prior year period.

In the six months ended March 31, 2022, we sold 1,519 residential lots to customers other than D.R.

Horton for $148.1 million, inclusive of the $54.7 million total transaction price of the deferred development lot sales, compared to 408 residential lots sold to customers other than D.R.

Horton for $27.6 million in the prior year period.

In the three and six months ended March 31, 2022, deferred development lot sales represent 787 undeveloped and partially developed lots that were sold to a customer other than D.R.

Horton for a total transaction price of $54.7 million.

We will complete the development of these lots as part of the transaction.

We received $26.0 million in cash at closing with the remainder due as we complete development of the lots.

In the three and six months ended March 31, 2022, we recognized revenue of $12.5 million related to this transaction.

The remaining revenue will be recognized over time as we complete our development obligations.

Tract sales and other revenue in the six months ended March 31, 2022 primarily consisted of 38 tract acres sold to third parties for $3.5 million.

Tract sales and other revenue in the three and six months ended March 31, 2021 primarily consisted of 11 tract acres sold to third parties for $1.4 million and 14 tract acres sold to D.R.

Horton for $3.0 million.

Cost of sales in the three and six months ended March 31, 2022 increased as compared to the prior year periods primarily due to the increase in the number of lots sold.

In the three months ended March 31, 2022, we recorded a non-cash impairment charge of $3.8 million which is included within cost of sales.

Selling, General and Administrative (SG&A) Expense and Other Income Statement Items

SG&A expense in the three months ended December 31, 2021 was $21.5 million compared to $15.5 million in the prior year period.

SG&A expense as a percentage of revenues was 5.3% and 5.0% in the three months ended December 31, 2021 and 2020, respectively.

SG&A expense in the three and six months ended March 31, 2022 was $24.3 million and $45.8 million compared to $16.3 million and $31.8 million in the prior year periods.

SG&A expense as a percentage of revenues was 5.8% and 5.5% in the three and six months ended March 31, 2022 compared to 5.7% and 5.4% in the prior year periods.

Our SG&A expense primarily consists of employee compensation and related costs.

Our business operations employed 271 and 179 employees at December 31, 2021 and 2020, respectively.

Equity in earnings of unconsolidated ventures in both periods reflects our share of earnings in ventures that we account for using the equity method.

Gain on sale of assets in the three months ended December 31, 2021 consists of a gain of $0.5 million associated with the sale of an investment.

Our business operations employed 309 and 205 employees at March 31, 2022 and 2021, respectively.

Equity in earnings of unconsolidated ventures in all periods reflects our share of earnings in ventures that we account for using the equity method.

Gain on sale of assets in the six months ended March 31, 2022 consists of a gain of $0.5 million associated with the sale of an investment.

Interest and other income primarily represents interest earned on our cash deposits.

Our income tax expense for the three months ended December 31, 2021 and 2020 was $13.0 million and $7.1 million, respectively, and our effective tax rate was 24.3% in both periods.

Our effective tax rate for both periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At December 31, 2021, we had deferred tax liabilities, net of deferred tax assets, of $23.0 million.

Our income tax expense for the three and six months ended March 31, 2022 was $15.4 million and $28.4 million compared to $9.2 million and $16.3 million in the prior year periods.

Our effective tax rate was 24.4% and 24.3% for the three and six months ended March 31, 2022 compared to 24.5% and 24.4% in the prior year periods.

Our effective tax rate for all periods includes an expense for state income taxes and nondeductible expenses and a benefit related to noncontrolling interests.

At March 31, 2022, we had deferred tax liabilities, net of deferred tax assets, of $21.9 million.

The deferred tax assets were partially offset by a valuation allowance of $1.1 million, resulting in a net deferred tax liability of $23.0 million.

5 unchanged sentences

Land and Lot Position

Our land and lot position at December 31, 2021 and September 30, 2021 is summarized as follows:

Our land and lot position at March 31, 2022 and September 30, 2021 is summarized as follows:

2022 September 30,

2 unchanged sentences

Total lots owned and controlled 96,500 97,000

At December 31, 2021, our lot position consisted of 103,300 residential lots, of which approximately 65,700 were owned and 37,600 were controlled through purchase contracts.

At March 31, 2022, our lot position consisted of 96,500 residential lots, of which approximately 64,200 were owned and 32,300 were controlled through purchase contracts.

Of our total owned residential lots, approximately 19,100 were under contract to sell to D.R.

1 unchanged sentence

Horton has the right of first offer on approximately 17,600 of our owned residential lots based on executed purchase and sale agreements.

At December 31, 2021, our lots owned included approximately 4,900 lots that were fully developed, of which approximately 200 are related to lot banking.

At December 31, 2021, we had approximately 1,000 lots under contract to sell to customers other than D.R.

At March 31, 2022, our lots owned included approximately 5,100 lots that were fully developed and we had approximately 1,000 lots under contract to sell to customers other than D.R.

Liquidity and Capital Resources

At December 31, 2021, we had $162.5 million of cash and cash equivalents and $343.7 million of available borrowing capacity on our revolving credit facility.

At March 31, 2022, we had $233.7 million of cash and cash equivalents and $349.5 million of available borrowing capacity on our revolving credit facility.

We have no senior note maturities until fiscal 2026.

We believe we are well-positioned to effectively operate through changing economic conditions because of our low net leverage and strong liquidity position, our low overhead model and our strategic relationship with D.R.

At December 31, 2021, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 40.0% compared to 41.0% at September 30, 2021 and 42.3% at December 31, 2020.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 33.9% compared to 35.2% at September 30, 2021 and 31.8% at December 31, 2020.

At March 31, 2022, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 38.9% compared to 41.0% at both September 30, 2021 and March 31, 2021.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 29.9% compared to 35.2% at September 30, 2021 and 34.1% at March 31, 2021.

Over the long term, we intend to maintain our ratio of net debt to total capital at approximately 40% or less.

10 unchanged sentences

Letters of credit issued under the facility reduce the available borrowing capacity.

There were no borrowings or repayments under the facility in the three months ended December 31, 2021.

At December 31, 2021, there were no borrowings outstanding and $66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $343.7 million.

There were no borrowings or repayments under the facility in the six months ended March 31, 2022.

At March 31, 2022, there were no borrowings outstanding and $60.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $349.5 million.

The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants.

2 unchanged sentences

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

At December 31, 2021, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

At March 31, 2022, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

We have outstanding senior notes as described below that were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.

17 unchanged sentences

and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments.

At December 31, 2021, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

At March 31, 2022, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

Effective April 30, 2020, our Board of Directors authorized the repurchase of up to $30 million of our debt securities.

The authorization has no expiration date.

All of the $30 million authorization was remaining at December 31, 2021.

All of the $30 million authorization was remaining at March 31, 2022.

Other Note Payable

3 unchanged sentences

We have an effective shelf registration statement, filed with the Securities and Exchange Commission in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under our at-the-market equity offering program that became effective in November 2021.

In the three months ended December 31, 2021, we issued 84,547 shares of common stock under our at-the-market equity offering program for proceeds of $1.7 million, net of commissions and other issuance costs totaling $0.1 million.

At December 31, 2021, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million was reserved for sales under the at-the-market equity offering program.

In the six months ended March 31, 2022, we issued 84,547 shares of common stock under our at-the-market equity offering program for proceeds of $1.7 million, net of commissions and other issuance costs totaling $0.1 million.

We issued no shares of common stock under our at-the-market equity offering program in the three months ended March 31, 2022.

At March 31, 2022, $748.2 million remained available for issuance under the shelf registration statement, of which $298.2 million was reserved for sales under the at-the-market equity offering program.

Operating Cash Flow Activities

In the three months ended December 31, 2021, net cash provided by operating activities was $5.8 million compared to $158.7 million of cash used in operating activities in the three months ended December 31, 2020.

In the six months ended March 31, 2022, net cash provided by operating activities was $76.6 million compared to $249.5 million of cash used in operating activities in the six months ended March 31, 2021.

The cash provided by operating activities in the current period was primarily the result of the net income generated in the period and increases in liabilities and other accrued expenses, partially offset by the increase in our real estate.

1 unchanged sentence

Investing Cash Flow Activities

In the three months ended December 31, 2021, net cash provided by investing activities was $3.2 million compared to $2.0 million in the three months ended December 31, 2020.

The cash provided by investing activities in the current period consists primarily of cash received from the sale of an investment.

In the six months ended March 31, 2022, net cash provided by investing activities was $2.2 million compared to $2.0 million in the six months ended March 31, 2021.

The cash provided by investing activities in the current period consists primarily of cash received from the sale of an investment, partially offset by cash expenditures for property and equipment.

Additionally, cash provided by investing activities in both periods includes distributions received from our unconsolidated ventures.

Financing Cash Flow Activities

In the three months ended December 31, 2021, net cash used in financing activities was $0.1 million compared to $0.2 million in the three months ended December 31, 2020.

In the six months ended March 31, 2022, net cash provided by financing activities was $1.3 million compared to $20.4 million in the six months ended March 31, 2021.

Cash provided by financing activities in the six months ended March 31, 2021 was primarily the result of the issuance of common stock under our at-the-market equity offering program for net proceeds of $23.3 million, partially offset by our purchase of the noncontrolling interest in one of our ventures.

Contractual Obligations and Off-Balance Sheet Arrangements

In support of our residential lot development business, we issue letters of credit under our revolving credit facility and we have a surety bond program that provides financial assurance to beneficiaries related to the execution and performance of certain development obligations.

At December 31, 2021, we had outstanding letters of credit of $66.3 million under the revolving credit facility and surety bonds of $528.2 million, issued by third parties to secure performance under various contracts.

At March 31, 2022, we had outstanding letters of credit of $60.5 million under the revolving credit facility and surety bonds of $570.8 million, issued by third parties to secure performance under various contracts.

We expect that our performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms.

41 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis