What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-07 compared with 2023-04-07 · 259 added, 196 removed, 378 unchanged (55% of the section changed)

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The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):

Three Months Ended February 28,

2023 2022 Variance

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 Variance 2023 2022 Variance

Homebuilding $ 1,757,846 $ 1,714,826 3 % $ 3,136,383 $ 3,108,980 1 %

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$ 1.94 $ 2.32 (16) % $ 3.38 $ 3.79 (11) %

We generated solid financial results in the 2023 first quarter despite significantly more challenging conditions compared to the year-earlier quarter, as the combination of relatively high mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns that weighed on consumer budgets and confidence throughout the 2022 second half continued to negatively impact housing market demand.

During the quarter, we remained focused on balancing pace, price and construction starts at each community to optimize our return on each inventory asset within its market context.

Positioning for the Spring selling season, we also implemented targeted sales strategies, including selective price adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), which, together with a stabilizing mortgage interest rate environment, helped drive order activity and decrease cancellations.

While our net orders and net order value decreased 49% and 53%, respectively, compared to the year-earlier period, we generated sequential improvement in our net orders in both January and February, and net orders remained strong in March.

Although we are encouraged by this progress, we expect consumer caution from interest rate and economic uncertainties as well as affordability pressures to continue to negatively impact homebuyer demand for the remainder of the year.

We also anticipate the price adjustments and other homebuyer concessions we have implemented, along with other factors discussed below under “Outlook,” will contribute to a year-over-year decrease in the average selling price of homes delivered in each of the remaining quarters of 2023.

Homebuilding revenues for the three months ended February 28, 2023 and 2022 were generated entirely from housing revenues.

Housing revenues for the 2023 first quarter were essentially the same as the year-earlier quarter, as a 3% decrease in the number of homes delivered to 2,788 was mostly offset by a 2% increase in their average selling price to $494,500.

Approximately 50% of our homes delivered in the 2023 first quarter were to first-time homebuyers.

Homebuilding operating income for the three months ended February 28, 2023 decreased 8% year over year to $156.5 million and, as a percentage of revenues, was down 80 basis points to 11.4%.

Our homebuilding operating income margin for the 2023 first quarter reflected a decrease in our housing gross profit margin to 21.5%, compared to 22.4% for the year-ago quarter, partly offset by a slight improvement in selling, general and administrative expenses as a percentage of housing revenues.

Although net income decreased 7%, diluted earnings per share was nearly even with the year-earlier period due to the favorable impact of our common stock repurchases over the past several quarters, which are discussed in Note 18 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.

In the 2023 first quarter, we, like many other homebuilders, continued to experience production challenges due to supply chain disruptions, as well as ongoing construction services availability constraints and delays with respect to state and municipal construction permitting, inspection and utility processes, which have been impacted by key equipment shortages.

These issues, which have persisted to varying degrees since the 2020 second quarter, have resulted in cycle times that remain extended

relative to our historical average, and delays in deliveries and community openings.

We have adapted to the extent possible to these changing conditions, re-sequencing construction when necessary, and, in some cases, ordering items in advance of starting homes to mitigate delays.

In addition, we are committed to reducing construction cycle times and continue to work with our suppliers and trade partners to improve their performance and pricing, which may help offset some of the impact of the above-described price adjustments and other homebuyer concessions we have implemented.

While these challenging circumstances are diminishing as to certain construction stages, we expect them to continue to negatively affect our land development and home construction activities through the remainder of 2023, and it is possible they will worsen in that and in later periods.

Reflecting the slowdown in housing market demand that began in the 2022 second half and continued throughout the 2023 first quarter, our ending backlog value at February 28, 2023 decreased 42% year over year to approximately $3.31 billion.

Yet, we believe we are well-positioned to achieve solid results for the 2023 second quarter and full year, as described below under “Outlook.”

We generated solid financial results in the 2023 second quarter amid improving housing market conditions compared to the 2022 second half and 2023 first quarter, periods in which the combination of relatively high mortgage interest rates, elevated inflation and various other macroeconomic and geopolitical concerns significantly depressed demand.

Though the business environment continues to be less favorable than during the 2022 first half, we achieved monthly sequential increases in our net orders in the current quarter, sustaining the trend we experienced in the first quarter, due to typical seasonal factors, buyers adjusting to the higher mortgage interest rates, and low resale home inventory.

Our total net orders for the 2023 second quarter were slightly above the year-earlier quarter, and up 84% sequentially, as a 20% year-over-year increase in our average community count offset a slower monthly net order pace per community of 5.2.

While this monthly pace is down from the year-ago period’s exceptional 6.2 level, it is generally in line with our second-quarter average, prior to the pandemic-driven volatility.

During the second quarter, we remained focused on balancing pace, price and construction starts at each community to optimize our return on each inventory asset.

With market conditions having improved compared to the 2022 second half and 2023 first quarter, reflecting a stabilizing mortgage interest rate environment, we were able to raise or maintain selling prices in most of our communities compared to those earlier periods.

On a more selective basis and to a lesser extent than in the first quarter, we implemented targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), to drive order activity and minimize cancellations.

These actions, together with product and geographic mix shifts, as discussed below under “Homebuilding” and “Homebuilding Reporting Segments,” contributed to our 2023 second quarter net orders increasing 1% year over year and net order value decreasing 11%, reflecting a lower average selling price for these net orders.

These year-over-year comparisons improved significantly from the 2023 first quarter when our net orders and net order value were down 49% and 53%, respectively.

However, we anticipate the pricing adjustments and other homebuyer concessions we have implemented, along with other factors discussed below under “Outlook,” will contribute to a year-over-year decrease in the average selling price of homes delivered in each of the remaining 2023 quarters.

Homebuilding revenues for the three months ended May 31, 2023 and 2022 were generated entirely from housing revenues.

Housing revenues for the 2023 second quarter rose 3% from the year-earlier quarter due to a 6% increase in the number of homes delivered to 3,666, partly offset by a 3% decrease in their average selling price to $479,500.

Approximately 48% of our homes delivered in the 2023 second quarter were to first-time homebuyers.

Homebuilding operating income for the three months ended May 31, 2023 decreased 24% year over year to $202.1 million and, as a percentage of revenues, was down 390 basis points to 11.5%.

Our homebuilding operating income margin for the 2023 second quarter reflected a decrease in our housing gross profit margin to 21.1%, compared to 25.3% for the year-ago quarter.

Net income and diluted earnings per share for the three months ended May 31, 2023 decreased 22% and 16%, respectively.

Our diluted earnings per share for the 2023

second quarter reflected the favorable impact of our common stock repurchases over the past several quarters, which are discussed in Note 18 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report.

In the 2023 second quarter, we achieved a meaningful sequential improvement in our construction cycle times.

This was driven by a normalizing supply chain and better construction services availability as well as our ongoing initiative to simplify our product offerings, alleviating to an extent the significant production challenges that have persisted to varying degrees since the 2020 second quarter, and resulted in cycle times that remain extended relative to our historical average, and delivery and community opening delays.

We remain committed to further reducing build times and continue to work with our suppliers and trade partners to improve their performance and cost, which may help offset some of the impact of the above-described pricing adjustments and other homebuyer concessions we have implemented.

While we are pleased with the production gains in the second quarter, ongoing supply chain-related challenges for certain items may continue to negatively affect our land development and home construction activities through the 2023 second half, and it is possible they will worsen in that and in later periods.

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through evolving market conditions.

In the 2023 first half, we generated $608.7 million of cash from operating activities, reflecting our reduced investments in land and land development as we continue to calibrate those investments to evolving market conditions.

As a result, we ended the 2023 second quarter with total liquidity of $1.64 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

We had no cash borrowings outstanding under the Credit Facility at May 31, 2023.

Our ending backlog value at May 31, 2023 decreased 44% year over year to approximately $3.46 billion, largely due to our lower backlog at the beginning of the quarter, which reflected the slowdown in housing market demand that began in the 2022 second half and continued into the 2023 first quarter.

Yet, we believe we are well-positioned to achieve solid results for the 2023 third quarter and full year, as described below under “Outlook.”

Financial Results .

The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Housing $ 1,757,846 $ 1,714,826 $ 3,136,383 $ 3,108,980

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Interest income 1,729 39 2,196 75

Equity in income (loss) of unconsolidated joint ventures (757) 23

Equity in loss of unconsolidated joint ventures (313) (310) (1,070) (287)

Homebuilding pretax income $ 203,518 $ 264,189 $ 359,717 $ 433,810

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Homes delivered 3,666 3,469 6,454 6,337

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Operating income as a percentage of revenues 11.5 % 15.4 % 11.4 % 14.0 %

Homebuilding revenues for the three months ended February 28, 2023 and 2022 were comprised solely of housing revenues.

In the 2023 first quarter, housing revenues were nearly even with the year-earlier quarter, as a 3% decrease in the number of homes delivered was mostly offset by a 2% increase in their overall average selling price.

The year-over-year decrease in the number of homes delivered primarily reflected a 14% decline in our West Coast homebuilding reporting segment, partly offset by increases of 4% and 9% in our Southwest and Southeast homebuilding reporting segments, respectively.

The decline in our West Coast homebuilding reporting segment mainly resulted from a 47% year-over-year

decrease in this segment’s backlog of homes at the beginning of the quarter.

The higher overall average selling price primarily reflected product and geographic mix factors, partly offset by increased homebuyer concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies described above under “Overview.”

Homebuilding revenues for the three months and six months ended May 31, 2023 and 2022 were comprised solely of housing revenues.

In the 2023 second quarter, housing revenues grew 3% from the year-earlier quarter, reflecting a 6% increase in the number of homes delivered, partly offset by a 3% decrease in their overall average selling price.

The year-over-year growth in the number of homes delivered reflected increases of 23%, 17% and 14% in our Southeast, Central and Southwest homebuilding reporting segments, respectively, partly offset by a 22% decrease in our West Coast homebuilding reporting segment.

The decline in our West Coast homebuilding reporting segment mainly resulted from a 48% year-over-year decrease in this segment’s backlog of homes at the beginning of the quarter.

The lower overall average selling price primarily reflected product and geographic mix factors, and increased concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies.

For the six months ended May 31, 2023, housing revenues were about the same as the corresponding 2022 period, as the number of homes delivered increased 2% and their overall average selling price was essentially even with the year-earlier period.

Operating Income .

Our homebuilding operating income for the three months ended February 28, 2023 decreased 8% from the year-earlier period, reflecting lower housing gross profits, partly offset by lower selling, general and administrative expenses.

Operating income for the 2023 first quarter included inventory-related charges of $5.3 million, compared to $.2 million in the year-earlier quarter.

As a percentage of revenues, our operating income for the three months ended February 28, 2023 was 11.4%, compared to 12.2% for the corresponding 2022 period.

Excluding inventory-related charges, our operating income as a percentage of revenues decreased 50 basis points to 11.7% for the 2023 first quarter from 12.2% for the year-earlier quarter.

• Housing Gross Profits – Housing gross profits of $295.7 million for the three months ended February 28, 2023 declined 5% from $312.0 million for the year-earlier period, largely due to a decrease in our housing gross profit margin.

Our housing gross profit margin for the 2023 first quarter decreased 90 basis points year over year to 21.5%, mainly as a result of:

higher relative construction costs, partly due to shifts in product and geographic mix;

increased homebuyer concessions in light of affordability pressures;

and greater inventory-related charges.

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations, which is included in construction and land costs, was 1.9% and 2.1% for the three months ended February 28, 2023 and 2022, respectively.

Excluding the inventory-related charges associated with housing operations of $5.3 million in the current quarter and $.2 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2023 first quarter decreased 60 basis points year over year.

Our homebuilding operating income for the three months ended May 31, 2023 decreased 24% from the year-earlier period, primarily reflecting lower housing gross profits.

Operating income for the 2023 second quarter included inventory-related charges of $4.3 million, compared to $.7 million in the year-earlier quarter.

As a percentage of revenues, our operating income for the three months ended May 31, 2023 was 11.5%, compared to 15.4% for the corresponding 2022 period, reflecting a lower housing gross profit margin.

Excluding inventory-related charges, our operating income as a percentage of revenues decreased 380 basis points to 11.7% for the 2023 second quarter from 15.5% for the year-earlier quarter.

For the six months ended May 31, 2023, our operating income decreased 17% from the prior-year period due to lower housing gross profits, partly offset by lower selling, general and administrative expenses.

Operating income for the six months ended May 31, 2023 included inventory-related charges of $9.6 million, compared to $.9 million of such charges in the corresponding 2022 period.

As a percentage of revenues, our operating income for the six months ended May 31, 2023 decreased 260 basis points year over year to 11.4%, reflecting a lower housing gross profit margin.

Excluding inventory-related charges, our operating income as a percentage of revenues declined 230 basis points to 11.7% for the six months ended May 31, 2023 from 14.0% for the corresponding year-earlier period.

• Housing Gross Profits – Housing gross profits of $371.3 million for the three months ended May 31, 2023 declined 14% from $433.1 million for the year-earlier period, due to a decrease in our housing gross profit margin, partly offset by an increase in housing revenues.

Our housing gross profit margin for the 2023 second quarter decreased 420 basis points year over year to 21.1%, mainly due to price decreases and other homebuyer concessions, together with higher construction costs, product and geographic mix shifts, and increased inventory-related charges.

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations, which is included in construction and land costs, was 1.8% and 2.0% for the three months ended May 31, 2023 and 2022, respectively.

Excluding the inventory-related charges associated with housing operations of $4.3 million in the current quarter and $.7 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2023 second quarter decreased 390 basis points year over year.

For the six months ended May 31, 2023, our housing gross profits of $667.0 million decreased 10% from $745.1 million for the year-earlier period.

Our housing gross profit margin for the six months ended May 31, 2023 declined 270 basis points to 21.3%, primarily due to the reasons described above with respect to the three months ended May 31, 2023.

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 1.9% for the six months ended May 31, 2023, compared to 2.1% for the corresponding 2022 period.

Excluding the inventory-related charges associated with housing operations of $9.6 million in the current period and $.9 million in the

year-earlier period, our adjusted housing gross profit margin of 21.6% for the six months ended May 31, 2023 decreased 240 basis points year over year.

The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”

• Selling, General and Administrative Expenses – The following table presents the components of our selling, general and administrative expenses (dollars in thousands):

Three Months Ended February 28,

2023 % of Housing Revenues 2022 % of Housing Revenues

Three Months Ended May 31, Six Months Ended May 31,

2023 % of Housing Revenues 2022 % of Housing Revenues 2023 % of Housing Revenues 2022 % of Housing Revenues

Marketing expenses $ 37,788 2.1 % $ 35,655 2.1 % $ 70,926 2.2 % $ 64,503 2.1 %

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(a) Commission expenses include sales commissions on homes delivered paid to internal sales counselors and external real estate brokers.

Selling, general and administrative expenses for the three months ended February 28, 2023 decreased 2% from the year-earlier quarter.

As a percentage of housing revenues, our selling, general and administrative expenses for the 2023 first quarter improved 10 basis points, reflecting lower general and administrative expenses and commission expenses, partly offset by higher marketing expenses to support our higher average community count.

Selling, general and administrative expenses for the three months ended May 31, 2023 were essentially even with the year-earlier quarter.

As a percentage of housing revenues, our selling, general and administrative expenses for the 2023 second quarter improved 20 basis points, reflecting increased operating leverage due to our higher housing revenues as compared to the year-earlier quarter.

For the six months ended May 31, 2023, selling, general and administrative expenses decreased slightly year over year.

As a percentage of housing revenues, selling, general and administrative expenses for the six months ended May 31, 2023 improved 20 basis points, reflecting the slight decrease in general and administrative expenses, and housing revenues that were about the same as the year-earlier period.

Interest Income/Expense .

Interest income, which is generated from short-term investments, totaled $.5 million for the three months ended February 28, 2023 and was nominal for the year-earlier period.

Interest income, which is generated from short-term investments, totaled $1.7 million and $2.2 million for the three-month and six-month periods ended May 31, 2023, respectively, and was nominal for the corresponding year-earlier periods.

Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates.

We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs.

All interest incurred during the three-month periods ended February 28, 2023 and 2022 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period.

All interest incurred during the three-month and six-month periods ended May 31, 2023 and 2022 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period.

Accordingly, we had no interest expense for these periods.

Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report.

Equity in Income (Loss) of Unconsolidated Joint Ventures .

Our equity in loss of unconsolidated joint ventures was $.8 million for the three months ended February 28, 2023, compared to nominal equity in income of unconsolidated joint ventures for the year-earlier period.

Equity in Loss of Unconsolidated Joint Ventures .

Our equity in loss of unconsolidated joint ventures was nominal for the three months ended May 31, 2023 and 2022.

For the six months ended May 31, 2023, our equity in loss of unconsolidated joint ventures was $1.1 million, compared to a nominal amount for the year-earlier period.

Further information regarding our investments in homebuilding unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

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The following table presents information about our net orders, cancellation rate, ending backlog and community count (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Net orders 3,936 3,914 6,078 8,124

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(b) Cancellation rates represent the total number of contracts for new homes cancelled during a period divided by the total (gross) orders for new homes generated during the same period.

Reflecting the softening housing market demand that began in the 2022 second half from the factors described above under “Overview,” net orders for the 2023 first quarter decreased 49% from the year-earlier quarter, with the pace of monthly net orders per community slowing to 2.8, compared to 6.6.

The decrease in net orders and the slower monthly pace reflected lower gross orders combined with higher cancellations.

The value of our net orders declined 53% year over year due to the overall decrease in our net orders, as well as the lower average selling price for those homes.

The year-over-year net order and net order value comparisons for the 2023 first quarter improved from the declines of 80% and 79%, respectively, in the 2022 fourth quarter, as mortgage interest rates stabilized and we implemented selective price adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs) ahead of the Spring selling season to help generate orders and decrease cancellations.

In the 2023 first quarter, both net orders and net order values were down on a year-over-year basis in each of our four homebuilding reporting segments.

Reflecting price adjustments and other homebuyer concessions as well as a shift in product and geographic mix, the average selling price of our net orders for the 2023 first quarter was $467,700, down 9% from the year-earlier period.

Our cancellation rate as a percentage of gross orders for the three months ended February 28, 2023 increased compared to the year-earlier period and was higher than our typical historical levels, reflecting the soft housing market demand.

The cancellation rate for the three months ended February 28, 2022 was exceptionally low due to the strong demand levels we experienced in that period.

On a sequential basis, the cancellation rate improved from 68% in the 2022 fourth quarter.

The number of homes in our backlog at February 28, 2023 decreased 41% from February 28, 2022, reflecting our substantially lower backlog at the beginning of the quarter and a year-over-year decrease in our net orders for the three months ended February 28, 2023.

The potential future housing revenues in our backlog at February 28, 2023 declined 42% from February 28, 2022 as a result of both the lower number of homes in backlog and a 2% decrease in their average selling price.

The year-over-year decrease in our overall backlog value at February 28, 2023 reflected decreases in all of our homebuilding reporting segments, ranging from 30% in the Southeast to 53% in the West Coast.

A portion of the orders in backlog will not result in homes delivered due to cancellations.

Net orders for the 2023 second quarter rose 1% from the year-earlier quarter, reflecting an increase in gross orders, partly offset by higher cancellations.

Although the pace of monthly net orders per community slowed to 5.2 in the 2023 second quarter, compared to 6.2 in the corresponding quarter of 2022, overall net orders increased slightly due to a 20% increase in our average community count.

The value of our net orders declined 11% year over year, due to the lower average selling price for those homes.

Reflecting pricing adjustments and other homebuyer concessions, as well as a product and geographic mix shift, the average selling price of our net orders for the 2023 second quarter was $482,600, down 11% from the year-earlier period.

The year-over-year net order and net order value comparisons for the 2023 second quarter improved from the declines of 49% and 53%, respectively, in the 2023 first quarter.

In the 2023 second quarter, the year-over-year growth in our overall net orders reflected increases of 19% and 10% in our West Coast and Southwest homebuilding reporting segments, respectively, partly offset by a 20% decrease in our Central segment.

Net orders in our Southeast segment were essentially even with the year-earlier quarter.

Our cancellation rate as a percentage of gross orders for the three months ended May 31, 2023 increased compared to the year-earlier period, reflecting elevated mortgage interest rates and ongoing economic uncertainty.

On a sequential basis, the cancellation rate for the 2023 second quarter improved from 36% in the 2023 first quarter, reflecting a moderation back toward historical levels.

The number of homes in our backlog at May 31, 2023 decreased 41% from May 31, 2022, mainly due to our substantially lower backlog at the beginning of the quarter and a year-over-year increase in homes delivered in the 2023 second quarter.

The potential future housing revenues in our backlog at May 31, 2023 declined 44% from May 31, 2022 as a result of both the lower number of homes in backlog and a 4% decrease in their average selling price.

The year-over-year decrease in our overall backlog value at May 31, 2023 reflected decreases in all of our homebuilding reporting segments, ranging from 36% in our Southwest segment to 55% in our Central segment.

A portion of the homes in backlog will not result in homes delivered due to cancellations.

Community Count .

We use the term “community count” to refer to the number of communities open for sale with at least five homes left to sell at the end of a reporting period.

We continued to expand our community count in the 2023 first quarter, with ending community count up 23% and the average community count up 18%, each as compared to the year-earlier period, primarily reflecting new community openings and fewer communities selling out during the three months ended February 28, 2023.

While maintaining a healthy supply of land owned or controlled under land option contracts and other similar contracts to fuel future community openings, we continued to moderate our land investments in the 2023 first quarter in response to soft housing market conditions, as discussed below under “Liquidity and Capital Resources.”

Our average community count for the three months ended May 31, 2023 expanded 20% from the year-earlier period, reflecting increases in each of our homebuilding reporting segments.

Our ending community count for the 2023 second quarter rose 16% from the corresponding quarter of 2022.

The year-over-year increases in our average and ending community counts primarily reflected new community openings and fewer communities selling out during the three months ended May 31, 2023.

While maintaining a healthy supply of land owned or controlled under land option contracts and other similar contracts to fuel future community openings, we continued to moderate our land investments in the 2023 first half with evolving housing market conditions, as discussed below under “Liquidity and Capital Resources.”

HOMEBUILDING REPORTING SEGMENTS

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The following tables present information about our homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31,

Homes Delivered Net Orders Cancellation Rates

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Total $ 1,899,649 $ 2,124,754 (11) % 253 211 20 %

Six Months Ended May 31,

Homes Delivered Net Orders Cancellation Rates

Segment 2023 2022 2023 2022 2023 2022

West Coast 1,588 1,943 2,156 2,182 16 % 13 %

Southwest 1,314 1,201 1,259 1,467 20 9

Central 2,237 2,070 1,453 2,744 43 18

Southeast 1,315 1,123 1,210 1,731 29 12

Total 6,454 6,337 6,078 8,124 28 % 14 %

Net Order Value Average Community Count

Segment 2023 2022 Variance 2023 2022 Variance

West Coast $ 1,405,688 $ 1,690,348 (17) % 79 58 36 %

Southwest 522,732 668,809 (22) 44 36 22

Central 504,681 1,200,093 (58) 81 75 8

Southeast 468,416 719,238 (35) 46 44 5

Total $ 2,901,517 $ 4,278,488 (32) % 250 213 17 %

Backlog – Homes Backlog – Value

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These intrinsic variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods.

As described above under “Overview,” housing market conditions in the 2023 first quarter are significantly more challenging than in the year-ago quarter.

Financial Results .

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In addition to the results of our homebuilding reporting segments presented below, our consolidated homebuilding operating income includes the results of Corporate and other, a non-operating segment.

Corporate and other had operating losses of $30.2 million and $34.7 million in the three months ended February 28, 2023 and 2022, respectively.

The financial results of our homebuilding reporting segments for the three months ended February 28, 2023 were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies described above under “Overview,” as well as shifts in the product and geographic mix of homes delivered.

Segment financial results for three months ended February 28, 2023 were also affected by construction services availability constraints and building material cost pressures, as well as ongoing supply chain disruptions and other production-related challenges, also as described above under “Overview.”

Corporate and other had operating losses of $38.3 million and $43.3 million in the three months ended May 31, 2023 and 2022, respectively.

For the six months ended May 31, 2023, Corporate and other had operating losses of $68.5 million, compared to $78.0 million for the corresponding year-earlier period.

Housing market conditions in the three-month and six-month periods ended May 31, 2023 were significantly more challenging than in the corresponding year-earlier periods.

The financial results of our homebuilding reporting segments for each of the 2023 periods were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered.

Segment financial results for three months and six months ended May 31, 2023 were also affected by construction services availability constraints and building material cost pressures, as well as ongoing supply chain disruptions and other production-related challenges.

The following table presents financial information related to our West Coast segment (dollars in thousands, except average selling price):

Three Months Ended February 28,

2023 2022 Variance

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 Variance 2023 2022 Variance

Revenues $ 564,350 $ 761,217 (26) % $ 1,104,369 $ 1,420,091 (22) %

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Average selling price $ 703,700 $ 739,800 (5) % $ 695,400 $ 730,900 (5) %

Operating income as a percentage of revenues 11.2 % 16.7 % (550) bps

This segment’s revenues for the three months ended February 28, 2023 declined from the year-earlier quarter due to a decrease in the number of homes delivered and their lower average selling price.

Operating income for the three months ended February 28, 2023 was down year over year, reflecting lower housing gross profits, partly offset by reduced selling, general and administrative expenses.

Operating income as a percentage of revenues decreased from the year-earlier quarter, primarily due to a 470 basis-point decline in the housing gross profit margin to 18.3% and an 80 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.1%.

The year-over-year decrease in the housing gross profit margin primarily reflected higher relative construction costs, shifts in the product and geographic mix of homes delivered, and reduced operating leverage from lower housing revenues.

In addition, the housing gross profit margin for the three months ended February 28, 2023 included $.9 million of inventory-related charges, while there were no such charges in the year-earlier quarter.

The increase in selling, general and administrative expenses as a percentage of housing revenues mainly reflected reduced operating leverage from lower housing revenues.

Operating income as a percentage of revenues 9.9 % 18.1 % (820) bps 10.5 % 17.4 % (690) bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2023 declined from the corresponding year-earlier periods due to decreases in both the number of homes delivered and their average selling price.

Operating income for each of the three-month and six-month periods ended May 31, 2023 was down year over year, reflecting lower housing gross profits, partly offset by reduced selling, general and administrative expenses.

Operating income as a percentage of revenues for the 2023 second quarter decreased from the year-earlier quarter, primarily due to a 680 basis-point decline in the housing gross profit margin to 17.6% and a 140 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.7%.

For the six months ended May 31, 2023, operating income as a percentage of revenues declined from the corresponding 2022 period, reflecting a 580 basis-point decrease in the housing gross profit margin to 17.9% and a 110 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.4%.

The year-over-year decreases in the housing gross profit margins for the three-month and six-month periods ended May 31, 2023 primarily reflected price decreases and other homebuyer concessions, higher relative construction costs, a product and geographic mix shift of homes delivered, and reduced operating leverage from lower housing revenues, partially offset by lower relative amortization of previously capitalized interest.

In addition, the housing gross profit margins for the three-month and six-month periods ended May 31, 2023 included $3.1 million and $3.9 million of inventory-related charges, respectively, compared to nominal inventory-related charges in each of the corresponding year-earlier periods.

The year-over-year increases in selling, general and administrative expenses as a percentage of housing revenues for the three-month and six-month periods ended May 31, 2023 reflected reduced operating leverage from lower housing revenues, partly offset by a decrease in these expenses.

The following table presents financial information related to our Southwest segment (dollars in thousands, except average selling price):

Three Months Ended February 28,

2023 2022 Variance

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 Variance 2023 2022 Variance

Revenues $ 335,828 $ 290,924 15 % $ 575,415 $ 500,691 15 %

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Average selling price $ 431,700 $ 424,700 2 % $ 437,900 $ 416,900 5 %

Operating income as a percentage of revenues 18.4 % 17.2 % 120 bps

The year-over-year growth in this segment’s revenues for the three months ended February 28, 2023 reflected increases in both the number of homes delivered and their average selling price.

Operating income increased from the year-earlier period due to higher housing gross profits, partially offset by higher selling, general and administrative expenses.

As a percentage of revenues, this segment’s operating income improved from the year-earlier quarter, reflecting a 70 basis-point expansion in the housing gross profit margin to 26.1% and a 50 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.7%.

The housing gross profit margin expansion primarily reflected lower relative amortization of previously capitalized interest and improved operating leverage from higher housing revenues.

improvement in selling, general and administrative expenses as a percentage of housing revenues mainly reflected lower external sales commissions and increased operating leverage from higher housing revenues.

Operating income as a percentage of revenues 17.0 % 22.2 % (520) bps 17.6 % 20.1 % (250) bps

The year-over-year growth in this segment’s revenues for the three-month and six-month periods ended May 31, 2023 reflected increases in both the number of homes delivered and their average selling price.

Operating income for the three months ended May 31, 2023 decreased from the corresponding year-earlier period due to lower housing gross profits and higher selling, general and administrative expenses.

As a percentage of revenues, this segment’s operating income for the 2023 second quarter declined from the year-earlier quarter, reflecting a 590 basis-point decrease in the housing gross profit margin to 23.8% that was partly offset by a 70 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 6.8%.

For the six months ended May 31, 2023, operating income was nearly even with the corresponding year-earlier period, while operating income as a percentage of revenues declined from the corresponding 2022 period, reflecting a 320 basis-point decrease in the housing gross profit margin to 24.7%, partially offset by a 70 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.1%.

The year-over-year decline in the housing gross profit margin for the three months ended May 31, 2023 primarily reflected price decreases and other homebuyer concessions, a product and geographic mix shift of homes delivered, and higher relative amortization of previously capitalized interest, partly offset by improved operating leverage from higher housing revenues.

The year-over-year decrease in the housing gross profit margin for the six months ended May 31, 2023 was mainly due to the same reasons described for the three months ended May 31, 2023, except for the relative amortization of previously capitalized interest, which was the same year over year.

The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the three-month and six-month periods ended May 31, 2023 primarily reflected increased operating leverage from higher housing revenues as well as relatively lower general and administrative expenses.

The following table presents financial information related to our Central segment (dollars in thousands, except average selling price):

Three Months Ended February 28,

2023 2022 Variance

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 Variance 2023 2022 Variance

Revenues $ 545,214 $ 433,046 26 % $ 935,165 $ 788,368 19 %

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Average selling price $ 418,800 $ 387,700 8 % $ 418,000 $ 380,900 10 %

Operating income as a percentage of revenues 15.1 % 10.7 % 440 bps

This segment’s revenues for the three months ended February 28, 2023 increased from the corresponding year-earlier period, primarily reflecting a higher average selling price of homes delivered.

Operating income increased from the corresponding year-earlier period due to higher housing gross profits, partly offset by higher selling, general and administrative expenses.

This segment’s operating income as a percentage of revenues improved from the year-earlier period primarily due to a 400 basis-point increase in the housing gross profit margin to 23.8% and a 40 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.7%.

The year-over-year increase in the housing gross profit margin primarily reflected lower relative construction and land costs due to a shift in the product and geographic mix of homes delivered and lower relative amortization of previously capitalized interest, partly offset by increased homebuyer concessions.

Operating income as a percentage of revenues 14.5 % 15.3 % (80) bps 14.7 % 13.2 % 150 bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2023 rose from the corresponding year-earlier periods, reflecting increases in both the number of homes delivered and their average selling price.

Operating income for the 2023 second quarter and first half increased from the corresponding year-earlier periods due to higher housing gross profits, partly offset by higher selling, general and administrative expenses.

This segment’s operating income as a percentage of revenues for the three months ended May 31, 2023 decreased from the year-earlier period primarily due to a 160 basis-point decline in the housing gross profit margin to 22.1%, partly offset by an 80 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.6%.

For the six months ended May 31, 2023, operating income as a percentage of revenues increased from the corresponding 2022 period, reflecting a 90 basis-point increase in the housing gross profit margin to 22.8% and a 60 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.1%.

The year-over-year decrease in the housing gross profit margin for the three months ended May 31, 2023 primarily reflected higher construction costs, a product and geographic mix shift of homes delivered and increased homebuyer concessions, partly offset by improved operating leverage from higher housing revenues.

For the six months ended May 31, 2023, the year-over-year increase in the housing gross profit margin mainly reflected a product and geographic mix shift of homes delivered and improved operating leverage on higher housing revenues, partly offset by increased inventory-related charges and homebuyer concessions.

Inventory-related charges for the 2023 first half were $2.1 million, compared to $.6 million for the year-earlier period.

The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the three-month and six-month periods ended May 31, 2023 was primarily due to increased operating leverage from higher housing revenues.

The following table presents financial information related to our Southeast segment (dollars in thousands, except average selling price):

Three Months Ended February 28,

2023 2022 Variance

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 Variance 2023 2022 Variance

Revenues $ 312,454 $ 229,639 36 % $ 521,434 $ 399,830 30 %

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Average selling price $ 398,500 $ 359,900 11 % $ 396,500 $ 356,000 11 %

Operating income as a percentage of revenues 11.3 % 11.9 % (60) bps

This segment’s revenues for the three months ended February 28, 2023 grew year over year as a result of an increase in the number of homes delivered and the higher average selling price of those homes.

Operating income increased from the corresponding year-earlier period, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income declined from the year-earlier period mainly due to a 130 basis-point decrease in the housing gross profit margin to 21.0% that primarily reflected an increase in inventory-related charges to $3.5 million, compared to no such charges in the year-earlier period, and an increase in homebuyer concessions, partly offset by a shift in product and geographic mix of homes delivered and improved operating leverage from higher housing revenues.

Selling, general and administrative expenses as a percentage of housing revenues improved 70 basis points from the year-earlier period to 9.7%, mainly reflecting increased operating leverage from higher housing revenues.

Operating income as a percentage of revenues 15.6 % 17.0 % (140) bps 13.9 % 14.8 % (90) bps

This segment’s revenues for the three-month and six-month periods ended May 31, 2023 grew year over year from the corresponding 2022 periods as a result of increases in both the number of homes delivered and their average selling prices.

Operating income for the 2023 second quarter and first half each increased year over year, reflecting higher housing gross

profits, partly offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income for the 2023 second quarter declined from the year-earlier quarter mainly due to a 270 basis-point decrease in the housing gross profit margin to 23.7%, partly offset by a 130 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.1%.

For the six months ended May 31, 2023, operating income as a percentage of revenues decreased from the corresponding 2022 period, reflecting a 210 basis-point decline in the housing gross profit margin to 22.6%, partly offset by a 120 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.7%.

The year-over-year decline in the housing gross profit margin for the three-month and six-month periods ended May 31, 2023 primarily reflected higher construction costs, a product and geographic mix shift of homes delivered and increased homebuyer concessions, partly offset by improved operating leverage from higher housing revenues.

The year-over-year decrease in the housing gross profit margin for the six months ended May 31, 2023 was also due to inventory-related charges of $3.5 million in the current period, compared to no such charges in the year-earlier period.

FINANCIAL SERVICES REPORTING SEGMENT

The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Revenues $ 7,470 $ 5,236 $ 13,247 $ 9,871

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(a) Loan originations and sales occurred within KBHS.

Financial services revenues for the three months ended February 28, 2023 grew from the corresponding 2022 period due to increases in both title services revenues and insurance commissions.

Financial services revenues for the three-month and six-month periods ended May 31, 2023 grew from the corresponding 2022 periods due to increases in both title services revenues and insurance commissions.

Pretax income.

Financial services pretax income for the three months ended February 28, 2023 decreased 29% from the year-earlier period, as a decrease in the equity in income of our unconsolidated joint venture was partly offset by improved results from our insurance and title services businesses.

In the 2023 first quarter, the equity in income of our unconsolidated joint venture, KBHS, decreased to $1.6 million, compared to $5.1 million in the year-earlier quarter, as a result of a decline in KBHS’ income.

The year-over-year decline in KBHS’ income was primarily due to losses of $1.5 million in the fair value of IRLCs in the current quarter, compared to gains of $7.6 million in the year-earlier quarter, mainly reflecting a lower volume of new IRLCs in the 2023 first quarter.

Partly offsetting this impact were the higher principal amount of loan originations, which reflected the 2% increase in the average selling price of homes delivered, and an increase in the percentage of homebuyers using KBHS.

Financial services pretax income for the three months ended May 31, 2023 declined 39% from the year-earlier period, as a decrease in the equity in income of unconsolidated joint ventures was partly offset by improved results from our insurance and title services businesses.

In the 2023 second quarter, the equity in income of unconsolidated joint ventures decreased to $5.4 million, compared to $14.8 million in the year-earlier quarter, primarily as a result of a decline in KBHS’ income.

The year-over-year decline in KBHS’ income mainly reflected losses of $2.7 million in the fair value of IRLCs in the current quarter, compared to gains of $25.8 million in the year-earlier quarter, due to a lower volume of new IRLCs in the 2023 second quarter.

Partly offsetting this were the higher principal amount of loans originated in the current quarter, which primarily reflected increases in both the number of homes delivered and the percentage of homebuyers using KBHS.

The significant gain in the 2022 second quarter resulted from a substantial increase in the fair value of IRLCs within the joint venture as a greater number of customers elected to lock their mortgage interest rates and for relatively extended periods, due to the sharp rise in such rates during that period.

This substantial increase within KBHS resulted in a shift of some of our then-expected equity in income of KBHS from the 2022 second half to the 2022 first half.

For the six months ended May 31, 2023, our financial services pretax income declined 36% from the corresponding 2022 period, reflecting a decrease in the equity in income of unconsolidated joint ventures, partially offset by improved results from our insurance and title services businesses.

In the 2023 first half, the equity in income of unconsolidated joint ventures decreased to $7.0 million, compared to $20.0 million in the year-earlier period, mainly as a result of a decline in KBHS’ income.

The year-over-year decline in KBHS’ income was primarily due to losses of $4.2 million in the fair value of IRLCs in the current period, compared to gains of $33.4 million in the year-earlier period due to the factors described above for the three months ended May 31, 2023.

Further information regarding our investments in unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

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Our income tax expense and effective tax rates were as follows (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Income tax expense $ 50,500 $ 72,200 $ 87,200 $ 116,000

Effective tax rate 23.5 % 25.5 % 23.1 % 25.2 %

Our effective tax rate for the three months ended February 28, 2023 decreased from the year-earlier period, mainly due to a $5.5 million increase in the federal tax credits we recognized primarily from building energy-efficient homes and a $.5 million increase in excess tax benefits related to stock-based compensation, partly offset by a $1.4 million increase in nondeductible executive compensation expense.

Our effective tax rate for the three months ended May 31, 2023 decreased from the year-earlier period, mainly due to a $6.2 million increase in the federal tax credits we recognized primarily from building energy-efficient homes and a $1.1 million increase in excess tax benefits related to stock-based compensation, partly offset by a $1.3 million increase in nondeductible executive compensation expense.

For the six months ended May 31, 2023, our effective tax rate decreased from the year-earlier period, mainly due to a $11.7 million increase in the federal tax credits we recognized primarily from building energy-efficient homes and a $1.6 million increase in excess tax benefits related to stock-based compensation, partly offset by a $2.7 million increase in nondeductible executive compensation expense.

The year-over-year increase in federal tax credits for the three months and six months ended May 31, 2023 reflected the enactment of the Inflation Reduction Act of 2022 on August 16, 2022, which extended the federal tax credit for building energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modified and increased it starting in 2023.

Previously, the federal tax credit expired for homes delivered after December 31, 2021.

Further information regarding our income taxes is provided in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

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The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands):

Three Months Ended February 28,

Three Months Ended May 31, Six Months Ended May 31,

2023 2022 2023 2022

Housing revenues $ 1,757,846 $ 1,714,826 $ 3,136,383 $ 3,108,980

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Inventory-related charges (a)

4,287 732 9,576 907

Adjusted housing gross profits $ 375,575 $ 433,806 $ 676,580 $ 746,023

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• repurchases of our common stock.

We ended the 2023 first quarter with total liquidity of $1.24 billion, including cash and cash equivalents and $983.4 million of available capacity under the Credit Facility.

Based on our financial position as of February 28, 2023, and our business forecast for the remainder of 2023 as discussed below under “Outlook,” we have no material concerns related to our liquidity.

While the softening in homebuyer demand that began in the 2022 second half indicates potential liquidity risks, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months.

We ended the 2023 second quarter with total liquidity of $1.64 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

Based on our financial position as of May 31, 2023, and our business forecast for the remainder of 2023 as discussed below under “Outlook,” we have no material concerns related to our liquidity.

We believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months.

Though the financial industry and capital markets turmoil that began with regulatory authorities closing two U.S.

banks in early March 2023 could also create a potential liquidity risk if it spreads, as discussed below under Part II, Item 1A – Risk Factors, as of the date of this report, we believe it will not impair our ability to access any cash and cash equivalents we have invested in interest-bearing bank deposit accounts, or the full borrowing, credit extension and payment guarantee capacities available under our Credit Facility and the LOC Facility.

interest-bearing bank deposit accounts, or the full borrowing, credit extension and payment guarantee capacities available under our Credit Facility and the LOC Facility.

Cash Requirements .

There have been no significant changes in our cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.

Other than the decrease in our notes payable presented in the table below, which reflects the repayment of all cash borrowings outstanding under the Credit Facility during the six months ended May 31, 2023, there have been no significant changes in our cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.

Investments in Land and Land Development.

Our investments in land and land development for the three months ended February 28, 2023 decreased 48% to $367.0 million, compared to $704.7 million for the year-earlier period, primarily due to a strategic reduction in land acquisitions.

In the three months ended February 28, 2023, our land acquisitions decreased 86% to $50.0 million from $365.8 million, reflecting a pivot in our land investment strategy beginning in the 2022 third quarter in response to softening housing market conditions, to emphasize developing land positions we already own or control under land option contracts and other similar contracts.

Our investments in land and land development for the six months ended May 31, 2023 decreased 46% to $763.2 million, compared to $1.40 billion for the year-earlier period, as we continued to calibrate our investments with evolving market conditions.

In the six months ended May 31, 2023, our land acquisitions decreased 79% to $130.6 million from $624.0 million, reflecting a pivot in our land investment strategy beginning in the 2022 third quarter in response to then-softening housing market conditions, to emphasize developing land positions we already own or control under land option contracts and other similar contracts.

We have also evaluated our transaction pipeline and renegotiated pricing and terms for many deals while abandoning others that no longer met our investment return standards.

In addition, we have modified our land development strategy, electing where appropriate to build in smaller phases, and in some cases, defer the start of the next phase of lots in a community to align with expected demand.

Reflecting these shifts in our land strategy, approximately 14% of our total investments for the three months ended February 28, 2023 related to land acquisitions, compared to approximately 52% in the prior-year period.

While we made strategic investments in land and land development in each of our homebuilding reporting segments during the three months ended February 28, 2023 and 2022, approximately 53% and 57%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.

Reflecting these shifts in our land strategy, approximately 17% of our total investments for the six months ended May 31, 2023 related to land acquisitions, compared to approximately 44% in the prior-year period.

While we made strategic investments in land and land development in each of our homebuilding reporting segments during the six months ended May 31, 2023 and 2022, approximately 55% and 52%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.

For the remainder of 2023, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment standards, though we anticipate at a lower level than in the past two years.

Our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.

While we expect our land acquisition activity to increase during the 2023 second half as compared to the 2023 first half, our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return standards.

The following table presents the number of lots we owned or controlled under land option contracts and other similar contracts and the carrying value of inventory by homebuilding reporting segment (dollars in thousands):

February 28, 2023 November 30, 2022 Variance

May 31, 2023 November 30, 2022 Variance

Segment Lots Carrying Value Lots Carrying Value Lots Carrying Value

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Total 57,932 $ 5,128,841 68,795 $ 5,543,176 (10,863) $ (414,335)

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at February 28, 2023 decreased from November 30, 2022, reflecting homes delivered in the 2023 first quarter as well as the above-mentioned pivot in our land investment strategy, which included our abandonment of 3,799 previously controlled lots in the current quarter.

The number of lots in inventory as of February 28, 2023 included 4,027 lots under contract where the associated deposits were refundable at our discretion, compared to 5,543 of such lots at November 30, 2022.

controlled under land option contracts and other similar contracts as a percentage of total lots was 26% at February 28, 2023, compared to 30% at November 30, 2022.

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at May 31, 2023 decreased from November 30, 2022, reflecting homes delivered in the 2023 first half as well as the above-mentioned pivot in our land investment strategy, which included our abandonment of 6,179 previously controlled lots in the six months ended May 31, 2023.

The number of lots in inventory as of May 31, 2023 included 3,448 lots under contract where the associated deposits were refundable at our discretion, compared to 5,543 of such lots at November 30, 2022.

Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 25% at May 31, 2023, compared to 30% at November 30, 2022.

Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards.

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In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date.

We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the sellers.

If we were to acquire all the land we had under land option contracts and other similar contracts at February 28, 2023, we estimate the remaining purchase price to be paid would be as follows:

We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the

If we were to acquire all the land we had under land option contracts and other similar contracts at May 31, 2023, we estimate the remaining purchase price to be paid would be as follows:

2023 – $361.2 million;

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Total liquidity $ 1,640,387 $ 1,261,867

The majority of our cash equivalents at February 28, 2023 and November 30, 2022 were invested in interest-bearing bank deposit accounts.

The majority of our cash equivalents at May 31, 2023 and November 30, 2022 were invested in interest-bearing bank deposit accounts.

Capital Resources.

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$ 1,686,663 $ 1,838,511 $ (151,848)

Our financial leverage, as measured by the ratio of debt to capital, was 32.6% at February 28, 2023, compared to 33.4% at November 30, 2022.

Our financial leverage, as measured by the ratio of debt to capital, was 30.9% at May 31, 2023, compared to 33.4% at November 30, 2022.

The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus stockholders’ equity).

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Under the LOC Facility, which expires on February 13, 2025, we may issue up to $75.0 million of letters of credit.

As of February 28, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $23.1 million and $36.4 million, respectively.

As of May 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $14.5 million and $36.4 million, respectively.

Performance Bonds .

As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.30 billion and $1.27 billion of performance bonds outstanding at February 28, 2023 and November 30, 2022, respectively.

As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.34 billion and $1.27 billion of performance bonds outstanding at May 31, 2023 and November 30, 2022, respectively.

Unsecured Revolving Credit Facility .

We have a $1.09 billion Credit Facility that will mature on February 18, 2027.

The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be

increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments.

The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments.

The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility.

As of February 28, 2023, we had $100.0 million of cash borrowings and $6.6 million of letters of credit outstanding under the Credit Facility.

As of May 31, 2023, we had no cash borrowings and $6.6 million of letters of credit outstanding under the Credit Facility.

The Credit Facility is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

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The covenants and other requirements under the Credit Facility and the Term Loan represent the most restrictive covenants that we are subject to with respect to our notes payable.

The following table summarizes the financial covenants and other requirements under the Credit Facility and the Term Loan, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of February 28, 2023:

Financial Covenants and Other Requirements Covenant Requirement Actual

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The indenture governing our senior notes does not contain any financial covenants.

Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or

engage in sale-leaseback transactions involving property above a certain specified value.

Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale-leaseback transactions involving property above a certain specified value.

In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets.

As of February 28, 2023, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans.

As of May 31, 2023, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans.

Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

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Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties.

At February 28, 2023, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $4.5 million, secured primarily by the underlying property, which had an aggregate carrying value of $28.4 million.

At May 31, 2023, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $1.8 million, secured primarily by the underlying property, which had an aggregate carrying value of $23.6 million.

Senior Unsecured Term Loan .

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The Term Loan is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

Credit Ratings.

Our credit ratings are periodically reviewed by rating agencies.

In April 2023, S&P Global reaffirmed our BB credit rating and changed its rating outlook to stable from positive.

Consolidated Cash Flows .

The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands):

Three Months Ended February 28,

Six Months Ended May 31,

Net cash provided by (used in):

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Financing activities (350,534) 306,500

Net decrease in cash and cash equivalents $ (69,371) $ (49,399)

Net increase (decrease) in cash and cash equivalents $ 227,259 $ (45,555)

Operating Activities .

Generally, our net operating cash flows fluctuate mainly based on changes in our inventories and our profitability.

Our net cash provided by operating activities for the three months ended February 28, 2023 primarily reflected net income of $125.5 million and a net decrease in inventories of $101.3 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $131.7 million and a net increase in receivables of $25.3 million.

In the three months ended February 28, 2022, our net cash used in operating activities mainly reflected a net increase in inventories of $405.9 million and a net increase in receivables of $8.6 million, partly offset by net income of $134.3 million and a net increase in accounts payable, accrued expenses and other liabilities of $2.1 million.

Our net cash provided by operating activities for the six months ended May 31, 2023 primarily reflected a net decrease in inventories of $413.8 million and net income of $289.9 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $132.2 million and a net increase in receivables of $18.5 million.

In the six months ended May 31, 2022, our net cash used in operating activities mainly reflected a net increase in inventories of $764.2 million and a net increase in receivables of $11.1 million, partly offset by net income of $344.9 million and a net increase in accounts payable, accrued expenses and other liabilities of $84.3 million.

Investing Activities .

In the three months ended February 28, 2023, our uses of cash included $13.2 million for contributions to unconsolidated joint ventures and $8.8 million for net purchases of property and equipment.

In the six months ended May 31, 2023, our uses of cash included $18.3 million for net purchases of property and equipment and $17.7 million for contributions to unconsolidated joint ventures.

These uses of cash were partially offset by a $5.1 million return of investments in unconsolidated joint ventures.

In the three months ended February 28, 2022, the net cash used for investing activities reflected $10.6 million for net purchases of property and equipment and $8.6 million for contributions to unconsolidated joint ventures.

In the six months ended May 31, 2022, the net cash used for investing activities reflected $22.1 million for net purchases of property and equipment and $16.4 million for contributions to unconsolidated joint ventures.

These uses of cash were partially offset by a $1.3 million return of investments in unconsolidated joint ventures.

Financing Activities .

In the three months ended February 28, 2023, our uses of cash included stock repurchases of $75.0 million, net repayments under the Credit Facility of $50.0 million, dividend payments on our common stock of $12.5 million, tax payments associated with stock-based compensation awards of $9.7 million and payments on mortgages and land contracts due to land sellers and other loans of $.2 million.

In the six months ended May 31, 2023, our uses of cash included stock repurchases of $167.1 million, net repayments under the Credit Facility of $150.0 million, dividend payments on our common stock of $25.7 million, tax payments associated with stock-based compensation awards of $9.7 million and payments on mortgages and land contracts due to land sellers and other loans of $3.0 million.

The cash used was partly offset by $5.0 million of issuances of common stock under employee stock plans.

In the three months ended February 28, 2022, cash was provided by net borrowings under the Credit Facility of $250.0 million.

Partially offsetting the cash provided were $14.1 million of dividend payments on our

common stock, $12.2 million of tax payments associated with stock-based compensation awards, $3.8 million of costs incurred for an amendment of the Credit Facility and $.4 million of payments on mortgages and land contracts due to land sellers and other loans.

In the three-month periods ended February 28, 2023 and 2022, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.15 per share.

In the six months ended May 31, 2022, cash was provided by net borrowings under the Credit Facility of $400.0 million.

Partially offsetting the cash provided were $50.0 million of stock repurchases, $27.1 million of dividend payments on our common stock, $12.2 million of tax payments associated with stock-based compensation awards, $3.8 million of costs incurred for an amendment of the Credit Facility and $.4 million of payments on mortgages and land contracts due to land sellers and other loans.

In the three-month periods ended May 31, 2023 and 2022, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.15 per share.

Quarterly dividends declared and paid during the six-month periods ended May 31, 2023 and 2022 totaled $.30 per share.

The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our board of directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.

As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business.

ordinary course of our business.

For the remainder of 2023, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions.

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In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities or loans to mature or expire.

Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or moderated investor and/or lender interest or capacity stemming from the unfavorable industry trends described above under “Overview” or other factors, and/or 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.

Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or other factors, and/or 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.

The potential liquidity risks from the financial industry and capital markets turmoil that began in early March 2023 with the closing of two U.S.

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Supplemental Guarantor Financial Information

As of February 28, 2023, we had $1.34 billion in aggregate principal amount of outstanding senior notes, $100.0 million of borrowings outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the Term Loan.

As of May 31, 2023, we had $1.34 billion in aggregate principal amount of outstanding senior notes, no borrowings outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the Term Loan.

Our obligations to pay principal and interest on the senior notes and borrowings, if any, under the Credit Facility and the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries.

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Stockholders’ equity 3,514,711 3,427,407

Three Months Ended

February 28, 2023

Six Months Ended

Summarized Statement of Operations Data (in thousands)

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The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters.

There have been no significant changes to our critical accounting policies and estimates during the three months ended February 28, 2023 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.

There have been no significant changes to our critical accounting policies and estimates during the six months ended May 31, 2023 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2022.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that are expected to have a material impact on our consolidated financial statements.

We believe several long-term housing market fundamental factors remain positive, including favorable demographics, a decade-plus underproduction of new homes in relation to population growth and low resale home inventory.

However, sharply higher mortgage interest rates beginning in early 2022, several years of rising housing prices, elevated inflation and various other macroeconomic and geopolitical concerns combined to significantly weaken housing market demand in the 2022 second half, and the soft market conditions continued in the 2023 first quarter.

We expect consumer caution from interest rate and economic uncertainties as well as affordability pressures to continue to negatively impact homebuyer demand for the remainder of 2023, with lower net orders and higher cancellation rates anticipated for the 2023 second quarter, each as compared to the corresponding prior-year period.

Given these conditions, and depending on the market dynamics and the size and construction stage of the backlog within each community, we plan to continue to implement or maintain selective price adjustments and other homebuyer concessions to help generate new orders as we did in the 2023 first quarter.

We anticipate the pricing adjustments and other homebuyer concessions we have selectively implemented since the 2022 third quarter and may continue to implement, as well as a community mix shift within our West Coast homebuilding reporting segment with a lower proportion of deliveries expected from higher-priced communities, will contribute to a year-over-year decrease in the overall average selling price of homes

delivered in each of the remaining quarters of 2023.

At the same time, with the deceleration in housing starts compared to a year ago, we are continuing to pursue reductions in our direct construction costs and cycle times to help offset any such pricing adjustments and other homebuyer concessions.

We are committed to reducing our cycle times to achieve deliveries within a more traditional timeframe of between six and seven months from home sale to delivery.

We believe several long-term housing market fundamental factors remain positive, including favorable demographics, a decade-plus underproduction of new homes relative to population growth and low resale home inventory.

In the current period, while mortgage interest rates and inflation remained elevated, demand strengthened compared to the 2022 second half and 2023 first quarter, with buyers adjusting to the higher mortgage interest rates and a stabilizing rate environment.

Our 3,936 net orders for the 2023 second quarter were about even with the year-earlier quarter and we achieved a 5.2 monthly net orders per community pace, generally in line with our second-quarter average, prior to the pandemic-driven volatility.

We anticipate a sequential decline in net orders in the 2023 third and fourth quarters, partly due to seasonality.

This could be influenced up or down by inventory levels or movement in mortgage interest rates, among other supply and demand factors, including expected continued consumer caution from interest rate and economic uncertainties as well as affordability pressures.

With market conditions having improved compared to the 2022 second half and 2023 first quarter, we were able to raise or maintain selling prices in most of our communities in the 2023 second quarter as compared to those earlier periods.

However, we anticipate the pricing adjustments and other homebuyer concessions we have selectively implemented since the 2022 second half and plan to use to a lesser extent in the 2023 second half, subject to market dynamics and the size and construction stage of the backlog within each community, as well as lower proportion of deliveries expected from higher-priced communities within our West Coast homebuilding reporting segment, will contribute to a year-over-year decrease in the average selling price of homes delivered in each of the remaining 2023 quarters.

At the same time, we are continuing to pursue reductions in our direct construction costs and cycle times to help offset any such pricing adjustments and other homebuyer concessions.

We are committed to reducing our build times to achieve deliveries within our normal historical period of between six and seven months from home order.

We believe we are in a strong position to operate effectively through changing market conditions, with a solid balance sheet and liquidity, and anticipated healthy operating cash flow for the 2023 fiscal year.

We plan to continue to moderate and be highly selective in our land investments until market conditions improve, as well as maintain a balanced approach to capital allocation to maximize long-term stockholder value.

In this regard, on March 21, 2023, our board of directors approved a $500.0 million share repurchase authorization, providing us flexibility to continue to repurchase our common stock on an opportunistic basis.

We plan to continue to manage our product offerings, pricing, net order pace and inventory levels to optimize each asset based on local housing market conditions, leveraging our differentiating, highly customer-centric Built to Order business model and operational capabilities to help effectively meet evolving consumer preferences and budgets.

With our backlog value of $3.31 billion at February 28, 2023, we believe we can achieve our projected results for 2023, subject to the factors and risks described in this report.

Based on the foregoing, our present outlook for the 2023 second quarter and full year is as follows:

2023 Second Quarter

• We expect to generate housing revenues in the range of $1.35 billion to $1.50 billion, a decrease from $1.71 billion in the corresponding 2022 period, and anticipate our average selling price to be approximately $480,000, compared to $494,300 in the year-earlier period, a 3% decrease year over year.

We intend to maintain a balanced approach to capital allocation to maximize long-term stockholder value.

In this regard, we ended the 2023 second quarter with approximately $407.9 million remaining under our current board of directors share repurchase authorization, which provides us flexibility to continue to repurchase our common stock.

We plan to continue to balance pace, price and construction starts at each community to optimize our return on each inventory asset within its market context, leveraging our differentiated, highly customer-centric Built to Order business model and operational capabilities to help effectively meet evolving consumer preferences and budgets.

With our backlog value of $3.46 billion at May 31, 2023, we believe we can achieve our projected results for 2023, subject to the factors and risks described in this report.

Based on the foregoing, our present outlook for the 2023 third quarter and full year is as follows:

2023 Third Quarter

• We expect to generate housing revenues in the range of $1.35 billion to $1.50 billion, a decrease from $1.84 billion in the corresponding 2022 period, and anticipate our average selling price to be approximately $470,000, compared to $508,700 in the year-earlier period.

• We expect our homebuilding operating income margin will be in the range of 9.5% to 10.1%, assuming no inventory-related charges, down from 18.1% for the year-earlier quarter.

• We expect our housing gross profit margin will be in the range of 20.4% to 21.0%, assuming no inventory-related charges, compared to 27.0% for the corresponding 2022 quarter.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.3% to 10.8%, compared to 9.8% in the 2022 second quarter.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.6% to 11.2%, compared to 8.9% in the 2022 third quarter.

• We expect our effective tax rate will be approximately 23%.

The effective tax rate for the year-earlier quarter was approximately 22%.

• We expect our average community count will be up in the range of 15% to 20%, compared to the prior-year quarter.

• We expect our net orders will range between 3,000 and 3,700, representing a year-over-year decline of 14% at the mid-point.

• We expect our average community count will be up approximately 10%, compared to the prior-year quarter, with a sequential decline in our quarter-end community count.

• We expect our net orders will range between 3,000 and 3,500, representing a 59% year-over-year increase at the mid-point.

2023 Full Year

• We expect our housing revenues to be in the range of $5.20 billion to $5.90 billion, a decrease of 19% at the mid-point of the range, from $6.88 billion in 2022, and anticipate our average selling price will be in the range of $480,000 to $490,000, a decrease from $500,800 for 2022.

• We expect our homebuilding operating income margin to be in the range of 10.0% to 11.0%, assuming no inventory-related charges, compared to 15.6% for 2022.

• We expect our housing gross profit margin to be in the range of 20.5% to 21.5%, assuming no inventory-related charges, compared to 24.8% for 2022.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.0% to 11.0%, compared to 9.2% in the prior year.

• We expect the effective tax rate will be approximately 24%, flat with 2022.

• We expect our average community count will be up year over year in the low double-digit percentage range.

• We expect a return on equity in the low double-digit percentage range.

and on a fairly stable and constructive political and regulatory environment (particularly in regard to housing and mortgage loan financing policies).

• We expect our housing revenues to be in the range of $5.80 billion to $6.20 billion, a 13% decrease at the mid-point from $6.88 billion in 2022, and anticipate our average selling price will be approximately $485,000, a decrease from $500,800 for 2022.

• We expect our homebuilding operating income margin to be about 11.0%, assuming no inventory-related charges, compared to 15.6% for 2022.

• We expect our housing gross profit margin to be approximately 21.2%, assuming no inventory-related charges, compared to 24.8% for 2022.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.3%, compared to 9.2% in the prior year.

• We expect the effective tax rate will be approximately 23%, compared to approximately 24% for 2022.

• We expect our average community count will be up roughly 10%, and our ending community count flat, year over year.

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regard to housing and mortgage loan financing policies).

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and into 2023 to moderate persistent U.S.

inflation, and the further actions it may take, are expected to be an ongoing headwind for the housing market for the remainder of 2023, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and financial market turbulence that, among other things, has tempered consumer demand for homes and disrupted credit and lending markets.

In addition, we believe the supply chain disruptions, other production challenges and construction cost pressures described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations will generally persist for the remainder of 2023.

The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in the 2023 first quarter, should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net orders, backlog, revenues and returns.

inflation, and the further actions it may take, are expected to be an ongoing headwind for the housing market, as they have elevated mortgage interest rates and created macroeconomic uncertainty and financial market turbulence that, among other things, has tempered consumer demand for homes and disrupted credit and lending markets.

In addition, while we experienced improvement with respect to ongoing supply chain disruptions, other production challenges and construction cost pressures described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe they will generally persist for the 2023 second half.

The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in the 2023 second quarter and first half, should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net orders, backlog, revenues and returns.

Forward-Looking Statements

Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”).

Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements.

looking statements.

In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act.

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• consumer and producer price inflation;

• changes in interest rates, including those set by the Federal Reserve , which the Federal Reserve has increased sharply in the past few quarters and signaled an intention to aggressively further to moderate inflation, available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans;

• changes in interest rates, including those set by the Federal Reserve , which the Federal Reserve has increased sharply in the past few quarters and may further increase to moderate inflation, and those available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans;

• our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule;

• our compliance with the terms of the Credit Facility and the Term Loan;

• the ability and willingness of the applicable lenders, including any substitute or additional lenders, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility;

• the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility;

• volatility in the market price of our common stock;

• home selling prices, including our homes’ selling prices, increasing at a faster rate than consumer incomes;

• home selling prices, including our homes’ selling prices, being unaffordable relative to consumer incomes;

• weak or declining consumer confidence, either generally or specifically with respect to purchasing homes;

• competition from other sellers of new and resale homes;

• weather events, significant natural disasters and other climate and environmental factors;

• any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations or raise the amount the federal government is authorized to borrow to meet its existing legal obligations, and financial markets’ and businesses’ reactions to any such failure;

• weather events, significant natural disasters and other climate and environmental factors, such as a lack of adequate water supply to permit new home communities in certain areas;

• any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to any such failure;

• government actions, policies, programs and regulations directed at or affecting the housing market (including the tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities;

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• the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto;

• the availability and cost of land in desirable areas and our ability to timely develop acquired land parcels and open new home communities;

• the availability and cost of land in desirable areas and our ability to timely and efficiently develop acquired land parcels and open new home communities;

• impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets;

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• income tax expense volatility associated with stock-based compensation;

• the ability of our homebuyers to obtain homeowners insurance policies, which may depend on the ability and willingness of insurers to offer coverage in certain locations at an affordable price or at all;

• the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers;

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• the performance of KBHS;

• the ability and willingness of the applicable lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans;

• the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans;

• information technology failures and data security breaches;

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Please see our Annual Report on Form 10-K for the year ended November 30, 2022 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since November 30, 2022.

For additional information regarding our market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the year ended November 30, 2022.

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