What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-22 compared with 2024-04-23 · 62 added, 48 removed, 207 unchanged (35% of the section changed)

12 unchanged sentences

Horton owned 75% of the Company's outstanding common stock.

As of March 31, 2024, D.R.

As of June 30, 2024, D.R.

Horton owned approximately 62% of the Company's outstanding common stock.

9 unchanged sentences

We occasionally make short-term strategic investments in finished lots (lot banking) and undeveloped land (land banking) with the intent to sell these assets within a short time period to utilize available capital prior to its deployment into longer-term lot development projects.

For the six months ended March 31, 2024, we sold 6,439 lots with an average sales price of $97,400.

At March 31, 2024, our lot position consisted of 96,100 residential lots, of which approximately 57,400 were owned and 38,700 were controlled through purchase contracts.

For the nine months ended June 30, 2024, we sold 9,694 lots with an average sales price of $96,300.

At June 30, 2024, our lot position consisted of 102,100 residential lots, of which approximately 57,900 were owned and 44,200 were controlled through purchase contracts.

Of our 57,900 owned lots, approximately 20,400 lots are under contract to be sold for an aggregate remaining sales price of approximately $1.8 billion.

5 unchanged sentences

Entry-level and first-time move-up homebuyers are the largest segments of the new home market.

Demand for residential lots, particularly at affordable price points, remained strong in the six months ended March 31, 2024, and our revenues increased 23% from the prior year period.

Demand for residential lots, particularly at affordable price points, remained strong in the nine months ended June 30, 2024, and our revenues increased 8% from the prior year period.

The supply of new and existing homes at affordable price points remains limited, and low resale supply continues to support the demand for new construction.

Demographics supporting housing demand remain favorable despite higher mortgage rates and inflationary pressures, and homebuilders have continued to adjust to current market conditions by using incentives and price adjustments.

While the disruptions in the supply chain for

certain construction materials and tightness in the labor market have largely subsided, municipality delays are still extending development cycle times, and development costs remain elevated.

While the disruptions in the supply chain for certain construction materials and tightness in the labor market have largely subsided, municipality delays are still extending development cycle times, and development costs remain elevated.

We attempt to offset cost increases in one component with savings in another, and we increase our land and lot sales prices when market conditions permit.

3 unchanged sentences

Results of Operations

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, 2024 and 2023.

The following tables and related discussion set forth key operating and financial data as of and for the three and nine months ended June 30, 2024 and 2023.

Operating Results

Components of income before income taxes were as follows:

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

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

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Residential lots sold consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

7 unchanged sentences

Revenues consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

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Lot banking projects 10.3 — 11.0 —

Decrease in contract liabilities 2.1 0.7 2.8 3.4

(Increase) decrease in contract liabilities (0.2) 0.6 2.6 4.0

305.8 334.8 935.9 794.3

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Total revenues $ 318.4 $ 368.9 $ 958.0 $ 887.1

Residential lots sold and residential lot sales revenues in the three and six months ended March 31, 2024 have increased compared to the prior year periods primarily as a result of improved demand for finished lots as homebuilders have increased their pace of new home starts to better match the stronger demand for new homes, particularly at affordable price points.

Residential lots sold and residential lot sales revenues in the three months ended June 30, 2024 decreased compared to the prior year period.

Despite continued strong demand for finished lots, our reduced finished lot inventory and extended development cycle times limited our sales opportunities during the three months ended June 30, 2024.

Residential lots sold and residential lot sales revenues in the nine months ended June 30, 2024 increased compared to the prior year period primarily due to improved demand for finished lots as homebuilders increased their pace of new home starts to better match the stronger demand for new homes, particularly at affordable price points.

Residential lot sales to D.R.

1 unchanged sentence

Horton consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

7 unchanged sentences

Horton, before changes in contract liabilities, consisted of:

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

Three Months Ended June 30, Nine Months Ended June 30,

2024 2023 2024 2023

6 unchanged sentences

Lots sold to customers other than D.R.

Horton in the six months ended March 31, 2024 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R.

Horton in the nine months ended June 30, 2024 included 124 lots that were sold for $15.1 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Lots sold to customers other than D.R.

Horton in the six months ended March 31, 2023 included 147 lots that were sold for $16.0 million to a lot banker who expects to sell those lots to D.R.

Horton in the three and nine months ended June 30, 2023 included 105 and 252 lots that were sold for $12.2 million and $28.2 million to a lot banker who expects to sell those lots to D.R.

Horton at a future date.

Tract sales and other revenue in the three and six months ended March 31, 2023 primarily consisted of 34 tract acres sold to third parties for $8.0 million and 379 tract acres sold to D.R.

Horton for $32.5 million.

Tract sales and other revenue in the three months ended June 30, 2024 primarily consisted of 49 tract acres sold to customers other than D.R.

Horton for $8.5 million and 32 tract acres sold to D.R.

Horton for $2.1 million compared to 45 tract acres sold to D.R.

Horton for $22.8 million in the prior year period.

In the nine months ended June 30, 2024, tract sales and other revenue primarily consisted of 49 tract acres sold to customers other than D.R.

Horton for $9.1 million and 32 tract acres sold to D.R.

Horton for $2.1 million compared to 34 tract acres sold to a customer other than D.R.

Horton for $8.0 million and 424 tract acres sold to D.R.

Horton for $55.3 million in the prior year period.

Tract sales and other revenue sold to customers other than D.R.

Horton for the three and nine months ended June 30, 2024 included 12 tract acres for $5.1 million sold to a third party who expects to sell the tract to D.R.

Horton at a later date.

Cost of Sales, Real Estate Impairment and Land Option Charges and Interest Incurred

Cost of sales in the three and six months ended March 31, 2024 increased compared to the prior year periods primarily due to the increase in the number of lots sold.

Cost of sales related to tract sales and other revenues was $25.5 million in both the three and six months ended March 31, 2023.

Cost of sales in the three months ended June 30, 2024 decreased compared to the prior year period primarily due to the decrease in the number of lots sold.

Cost of sales in the nine months ended June 30, 2024 increased 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 revenue in the three and nine months ended June 30, 2024 was $7.5 million and $7.9 million compared to $17.5 million and $43.0 million in the prior year periods.

Each quarter, we review the performance and outlook for all of our real estate for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary.

As a result of this process, no impairment charges were recorded in the three and six months ended March 31, 2024.

In the three and six months ended March 31, 2023, we recorded non-cash impairment charges of $19.4 million.

In the three and six months ended March 31, 2024, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $0.2 million and $0.4 million, respectively, compared to $0.9 million and $3.3 million in the prior year periods.

As a result of this process, no impairment charges were recorded in the three and nine months ended June 30, 2024.

In the nine months ended June 30, 2023, we recorded non-cash impairment charges of $19.4 million.

In the three and nine months ended June 30, 2024, land purchase contract deposit and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $0.7 million and $1.0 million, respectively, compared to $0.9 million and $4.2 million in the prior year periods.

We capitalize interest costs throughout the development period (active real estate).

Capitalized interest is charged to cost of sales as the related real estate is sold to the buyer.

Interest incurred was $8.2 million and $16.3 million in the three and six months ended March 31, 2024 compared to $8.2 million and $16.4 million in the prior year periods.

Interest charged to cost of sales was 2.6% of total cost of sales (excluding impairments and land option charges) in both the three and six months ended March 31, 2024 compared to 2.3% and 2.6% in the prior year periods.

Interest incurred was $8.2 million and $24.5 million in the three and nine months ended June 30, 2024 compared to $8.2 million and $24.6 million in the prior year periods.

Interest charged to cost of sales in the three and nine months ended June 30, 2024 was 2.4% and 2.5% of total cost of sales (excluding impairments and land option charges) compared to 2.3% and 2.5% in the prior year periods.

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

SG&A expense in the three and six months ended March 31, 2024 was $29.2 million and $57.2 million compared to $22.0 million and $44.9 million in the prior year periods.

SG&A expense as a percentage of revenues was 8.7% and 8.9% in the three and six months ended March 31, 2024 compared to 7.3% and 8.7% in the prior year periods.

SG&A expense in the three and nine months ended June 30, 2024 was $29.3 million and $86.5 million compared to $26.4 million and $71.3 million in the prior year periods.

SG&A expense as a percentage of revenues was 9.2% and 9.0% in the three and nine months ended June 30, 2024 compared to 7.2% and 8.0% in the prior year periods.

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

Our business operations employed 340 and 271 employees at March 31, 2024 and 2023, respectively.

Our business operations employed 376 and 282 employees at June 30, 2024 and 2023, respectively.

We attempt to control our SG&A costs while ensuring that our infrastructure supports our operations;

however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Income tax expense for the three and six months ended March 31, 2024 was $13.9 million and $26.9 million compared to $9.0 million and $16.1 million in the prior year periods.

Our effective tax rate was 23.6% and 24.4% for the three and six months ended March 31, 2024 compared to 25.1% and 25.2% in the prior year periods.

The gain on sale of assets of $5.0 million in the three and nine months ended June 30, 2024 was due to excess hotel occupancy and sales and use tax revenues collected from the Cibolo Canyons Special Improvement District.

Income tax expense for the three and nine months ended June 30, 2024 was $12.9 million and $39.8 million compared to $15.6 million and $31.7 million in the prior year periods.

Our effective tax rate was 25.0% and 24.6% for the three and nine months ended June 30, 2024 compared to 25.0% and 25.1% in the prior year periods.

The effective tax rate for all periods included an expense for state income taxes and nondeductible expenses.

The effective tax rate for the three and six months ended March 31, 2024 also included a benefit for stock-based compensation.

At March 31, 2024, we had deferred tax liabilities, net of deferred tax assets , of $50.0 million.

The effective tax rate for the three and nine months ended June 30, 2024 also included a benefit for stock-based compensation.

At June 30, 2024, we had deferred tax liabilities, net of deferred tax assets , of $52.0 million.

The deferred tax assets were partially offset by a valuation allowance of $0.8 million, resulting in a net deferred tax liability of $52.8 million.

5 unchanged sentences

Land and Lot Position

Our land and lot position at March 31, 2024 and September 30, 2023 is summarized as follows:

March 31, 2024 September 30, 2023

Our land and lot position at June 30, 2024 and September 30, 2023 is summarized as follows:

June 30, 2024 September 30, 2023

Lots owned 57,900 52,400

11 unchanged sentences

Liquidity and Capital Resources

At March 31, 2024, we had $416.2 million of cash and cash equivalents and $382.0 million of available borrowing capacity on our revolving credit facility.

At June 30, 2024, we had $359.2 million of cash and cash equivalents and $385.2 million of available borrowing capacity on our revolving credit facility.

We have no senior note maturities until fiscal 2026.

At March 31, 2024, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 32.4% compared to 33.7% at September 30, 2023 and 36.2% at March 31, 2023.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 16.4% compared to 5.5% at September 30, 2023 and 25.2% at March 31, 2023.

At June 30, 2024, our ratio of debt to total capital (debt divided by stockholders’ equity plus debt) was 31.8% compared to 33.7% at September 30, 2023 and 35.3% at June 30, 2023.

Our ratio of net debt to total capital (debt net of unrestricted cash divided by stockholders’ equity plus debt net of unrestricted cash) was 18.7% compared to 5.5% at September 30, 2023 and 19.1% at June 30, 2023.

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

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The maturity date of the facility is October 28, 2026.

At March 31, 2024, there were no borrowings outstanding and $28.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $382.0 million.

At June 30, 2024, there were no borrowings outstanding and $24.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $385.2 million.

The revolving credit facility is guaranteed by our wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

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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 March 31, 2024, we were in compliance with all of the covenants, limitations and restrictions of our revolving credit facility.

At June 30, 2024, 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 March 31, 2024, we were in compliance with all of the limitations and restrictions associated with our senior note obligations.

At June 30, 2024, 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 March 31, 2024.

All of the $30 million authorization was remaining at June 30, 2024.

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 November 2021.

In the three months ended March 31, 2024, we issued 546,174 shares of common stock under our at-the-market equity offering program for proceeds of $19.7 million, net of commissions and other issuance costs totaling $0.4 million.

At March 31, 2024, $728.1 million remained available for issuance under the shelf registration statement, of which $278.1 million was reserved for sales under our at-the-market equity offering program.

In the nine months ended June 30, 2024, we issued 546,174 shares of common stock under our at-the-market equity offering program for proceeds of $19.7 million, net of commissions and other issuance costs totaling $0.4 million.

At June 30, 2024, $728.1 million remained available for issuance under the shelf registration statement, of which $278.1 million was reserved for sales under our at-the-market equity offering program.

Operating Cash Flow Activities

In the six months ended March 31, 2024, net cash used in operating activities was $215.9 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

In the six months ended March 31, 2023, net cash provided by operating activities was $21.3 million, which was primarily the result of our net income generated in the period adjusted for impairments and land option charges, partially offset by the decreases in accounts payable and other accrued liabilities and accrued development costs.

In the nine months ended June 30, 2024, net cash used in operating activities was $277.6 million, which was primarily the result of the increase in real estate, partially offset by net income generated in the period and the increase in earnest money on sales contracts.

In the nine months ended June 30, 2023, net cash provided by operating activities was $136.2 million, which was primarily the result of our net income generated in the period adjusted for impairments and land option charges as well as the decrease in real estate, partially offset by the decreases in accounts payable and other accrued liabilities and accrued development costs.

Investing Cash Flow Activities

In the six months ended March 31, 2024, net cash used in investing activities was $0.8 million compared to $1.3 million of cash provided by investing activities in the prior year period.

In the nine months ended June 30, 2024, net cash provided by investing activities was $3.7 million compared to $0.8 million in the prior year period.

Cash provided by investing activities in the nine months ended June 30, 2024 included $5.0 million of excess hotel occupancy and sales and use tax revenues collected from the Cibolo Canyons Special Improvement District.

Financing Cash Flow Activities

In the six months ended March 31, 2024, net cash provided by financing activities was $16.9 million compared to $0.7 million net cash used in financing activities in the prior year period.

Cash provided by financing activities in the six months ended March 31, 2024 was primarily the result of the issuance of common stock under our at-the-market equity offering program for net proceeds of $19.7 million.

In the nine months ended June 30, 2024, net cash provided by financing activities was $17.1 million compared to $0.8 million of net cash used in financing activities in the prior year period.

Cash provided by financing activities in the nine months ended June 30, 2024 was primarily the result of the issuance of common stock under our at-the-market equity offering program for net proceeds of $19.7 million.

Critical Accounting Policies and Estimates

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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