What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-04-05 compared with 2023-10-06 · 227 added, 299 removed, 369 unchanged (59% 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 August 31, Nine Months Ended August 31,

2023 2022 Variance 2023 2022 Variance

Three Months Ended

February 29, 2024 February 28, 2023 Variance

Homebuilding $ 1,461,698 $ 1,378,537 6 %

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$ 1.76 $ 1.45 21 %

We generated solid financial results in the 2023 third quarter, though below our exceptional results in the year-earlier quarter, when we achieved record-high third-quarter net income and diluted earnings per share.

Housing market conditions improved in the current period 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.

We continued to experience steady demand throughout the 2023 third quarter as we did in the second quarter, even as mortgage interest rates rose, indicative of constrained resale home inventory, favorable demographic trends and demand for homes at our price points.

Our net orders for the 2023 third quarter grew 52% from the year-earlier quarter, driven by a 9% year-over-year expansion in our average community count and a higher monthly net order pace per community of 4.3.

This pace increased from 3.1 a year ago and was above our historical third-quarter average, prior to pandemic-driven volatility.

During the third 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.

With recent market conditions having improved, we were able to raise or maintain selling prices in the 2023 second and third quarters in most of our communities.

At the same time, ongoing elevated mortgage interest rates and inflation continued to negatively affect housing affordability and temper demand, which we expect will continue in the 2023 fourth quarter.

On a more selective basis and to a lesser extent than in the first and second quarters, in the current quarter we employed targeted sales strategies, including pricing adjustments and other homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), to help 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 third-quarter net orders increasing 52% year over year and net order value increasing 54%, reflecting a higher average selling price for these net orders.

Our year-over-year performance improved significantly from the 2022 third quarter, when the negative factors described above impacted our net orders and net order value, which decreased 50% and 51%, respectively, compared to the corresponding 2021 period.

However, we anticipate the pricing adjustments and other homebuyer concessions we have utilized in 2023 will contribute to a year-over-year decrease in the average selling price of homes delivered in the 2023 fourth quarter.

Homebuilding revenues for the three months ended August 31, 2023 were generated from housing revenues and $6.0 million of land sale revenues.

In the three months ended August 31, 2022, homebuilding revenues were generated entirely from housing revenues.

Housing revenues of $1.57 billion for the 2023 third quarter were down 14% from the year-earlier quarter due to a 7% decrease in the number of homes delivered to 3,375 and an 8% decline in their average selling price to $466,300.

Approximately 49% of our homes delivered in the 2023 third quarter were to first-time homebuyers.

Homebuilding operating income for the three months ended August 31, 2023 was $179.2 million, compared to $325.1 million for the year-earlier quarter, and as a percentage of revenues, was 11.3%, compared to 17.7%.

Our homebuilding operating income margin for the 2023 third quarter reflected a decrease in our housing gross profit margin to 21.5%, compared to 26.7% for the year-ago

Net income and diluted earnings per share for the three months ended August 31, 2023 were down 41% and 37%, respectively, from the record third-quarter results we achieved in the year-earlier period.

Our diluted earnings per share for the 2023 third quarter reflected the favorable impact of our common stock repurchases over the past several quarters.

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

This was driven by a stabilizing 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 delays in opening communities and delivering homes.

We remain committed to further reducing our build times.

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

For the nine months ended August 31, 2023, we generated $772.5 million of cash from operating activities, reflecting our reduced investments in land and land development in the 2023 first half due to the prevailing housing environment in the 2022 second half and 2023 first quarter.

In the 2023 third quarter, we increased our investments in land and land development to $554.5 million, up 40% from the 2023 second quarter and essentially equal to the year-earlier period.

We also repurchased approximately 1.5 million shares of our common stock during the quarter, bringing our total repurchases in 2023 to approximately 5.7 million shares at a total cost of $249.6 million.

In July 2023, our board of directors increased the quarterly cash dividend on our common stock by approximately 33% to $.20 per share, from $.15.

We ended the 2023 third quarter with total liquidity of $1.70 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

With net repayments of $150.0 million under the Credit Facility in the first nine months of 2023, we had no cash borrowings outstanding under the Credit Facility at August 31, 2023.

Our ending backlog value at August 31, 2023 decreased 35% year over year to approximately $3.40 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 fourth quarter and full year, as described below under “Outlook.”

We generated solid results in our 2024 first quarter, including year-over-year expansion in deliveries, revenues, net income and diluted earnings per share, and a significant increase in our net orders.

This performance principally reflected healthy housing market conditions, including a decline in mortgage interest rates since the 2023 fourth quarter, favorable demographic trends, the long-term underproduction of new homes relative to population growth, constrained resale home inventory and demand for homes at our price points.

We also continued to employ targeted sales strategies during the quarter, including homebuyer concessions (particularly, mortgage-related concessions such as interest rate buydown or lock programs), to address homebuyer affordability challenges and help drive order activity and minimize cancellations.

In this environment, our net orders for the 2024 first quarter rose 55% from the year-earlier quarter, driven by a higher monthly net order pace per community of 4.6, which increased from 2.8 a year ago, partly offset by a 4% year-over-year decrease in our average community count.

Net order value for the 2024 first quarter improved 58% year over year to $1.58 billion, reflecting the growth in net orders and a higher average selling price of those orders.

Homebuilding revenues for the three months ended February 29, 2024 were generated from housing revenues and $3.6 million of land sales.

Housing revenues of $1.46 billion grew 6% from the year-earlier quarter due to a 9% increase in the number of homes delivered to 3,037, partly offset by a 3% decline in their average selling price to $480,100.

Approximately 50% of our homes delivered in the 2024 first quarter were to first-time homebuyers.

Homebuilding operating income for the three months ended February 29, 2024 totaled $157.7 million, up slightly from $156.5 million for the year-earlier quarter, and as a percentage of revenues, was 10.8%, compared to 11.4%.

Our homebuilding operating income margin for the 2024 first quarter mainly reflected an increase in selling, general and administrative expenses as a percentage of housing revenues due to higher costs associated with a planned increase in our community count during the year as we position our operations for growth.

Our housing gross profit margin of 21.5% for the 2024 first quarter was even with the year-earlier quarter.

Net income and diluted earnings per share for the three months ended February 29, 2024 increased 10% and 21%, respectively, year over year.

Our diluted earnings per share for the 2024 first quarter reflected the favorable impact of our common stock repurchases over the past several quarters.

During the 2024 first 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.

The significant supply chain disruptions we experienced in recent years have largely subsided, and together with our ongoing initiative to simplify our product offerings, we have maintained the improvement in our construction cycle times that we achieved last year.

Reflecting our improved build times, our homes delivered as a percentage of beginning backlog increased to 55% for the 2024 first quarter, from 36% for the year-earlier quarter.

Though we are encouraged by our progress, there are some ongoing supply chain-related challenges that could

continue to negatively affect our land development and home construction activities, and it is possible they may worsen during this year and/or 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 2024 and pursue our priorities of investing in land and land development to support future growth and returning capital to our stockholders.

In the 2024 first quarter, we increased our investments in land and land development to $587.1 million, up 60% from the year-earlier period.

We also repurchased approximately 826,663 shares of our common stock during the quarter at a total cost of $50.0 million.

With our strong operating cash flow, we ended the 2024 first quarter with total liquidity of $1.75 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 February 29, 2024.

Although our ending backlog value at February 29, 2024 decreased 16% year over year to approximately $2.79 billion, we believe we are well-positioned to achieve solid results for the 2024 second quarter and full year, as described below under “Outlook.” On a sequential basis, our ending backlog value increased 5% from the 2023 fourth quarter.

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 August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Three Months Ended

February 29, 2024 February 28, 2023

Housing $ 1,458,126 $ 1,378,537

Land 6,035 — 6,035 —

Total 1,461,698 1,378,537

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Equity in loss of unconsolidated joint ventures (445) (757)

Loss on early extinguishment of debt — (3,598) — (3,598)

Homebuilding pretax income $ 163,088 $ 156,199

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Homes delivered 3,037 2,788

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Operating income as a percentage of revenues 10.8 % 11.4 %

Homebuilding revenues for the three months and nine months ended August 31, 2023 were comprised of housing revenues and $6.0 million of land sale revenues.

Homebuilding revenues for the three months and nine months ended August 31, 2022 were comprised solely of housing revenues.

In the 2023 third quarter, housing revenues were down 14% from the year-earlier quarter, reflecting decreases of 7% in the number of homes delivered and 8% in their overall average selling price.

The year-over-year decline in the number of homes delivered reflected decreases of 37% and 3% in our West Coast and Southwest homebuilding reporting segments, respectively, partly offset by increases of 17% and 3% in our Central and Southeast homebuilding reporting segments, respectively.

The decline in our West Coast homebuilding reporting segment mainly resulted from a 31% year-over-year decrease in this segment’s backlog of homes at the beginning of the quarter combined with a decrease in its backlog conversion rate, which largely reflected that the beginning backlog for the current period was more heavily weighted to the early building stages.

The lower overall average selling price primarily reflected product and geographic mix factors, mainly a shift away from our higher-priced West Coast homebuilding reporting segment, and increased concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies.

For the nine months ended August 31, 2023, housing revenues were down 5% from the corresponding 2022 period, with the number of homes delivered nearly even with the year-earlier period and their overall average selling price declining 4%.

Homebuilding revenues for the three months ended February 29, 2024 were comprised of housing revenues and land sale revenues.

In the three months ended February 28, 2023, revenues were generated solely from housing operations.

Housing revenues for the 2024 first quarter grew 6% from the year-earlier quarter, driven by a 9% 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 5%, 34% and 17% in our West Coast, Southwest and Southeast homebuilding reporting segments, respectively, partly offset by a 7% decrease in our Central segment.

The lower overall average selling price primarily reflected product and geographic mix factors, partly offset by a year-over-year decrease in homebuyer concessions we selectively extended to buyers within backlog prior to delivery in conjunction with our targeted sales strategies.

Land sale revenues for the quarter ended February 29, 2024 totaled $3.6 million.

There were no land sales in the year-earlier quarter.

Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market conditions.

Operating Income .

Our homebuilding operating income for the three months ended August 31, 2023 was down 45% year over year, mainly reflecting lower housing gross profits.

Operating income for the 2023 third quarter included inventory-related charges of $.6 million, compared to $5.9 million in the year-earlier quarter.

As a percentage of revenues, our operating income for the three months ended August 31, 2023 was 11.3%, compared to 17.7% for the corresponding 2022 period, reflecting a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of housing revenues.

Excluding inventory-related charges, our operating income as a percentage of revenues decreased to 11.4% for the 2023 third quarter from 18.1% for the year-earlier quarter.

For the nine months ended August 31, 2023, our operating income decreased 29% from the prior-year period primarily due to lower housing gross profits.

Operating income for the nine months ended August 31, 2023 included inventory-related charges of $10.2 million, compared to $9.4 million of such charges in the corresponding 2022 period.

As a percentage of revenues, our operating income for the nine months ended August 31, 2023 decreased 390 basis points year over year to 11.4%, mainly reflecting a lower housing gross profit margin.

Excluding inventory-related charges, our operating income as a percentage of revenues declined 390 basis points to 11.6% for the nine months ended August 31, 2023 from 15.5% for the corresponding year-earlier period.

• Housing Gross Profits – Housing gross profits of $338.2 million for the three months ended August 31, 2023 declined 31% from $490.9 million for the year-earlier period, due to decreases in both our housing gross profit margin and housing revenues.

Our housing gross profit margin for the 2023 third quarter was 21.5%, down 520 basis points year over year, primarily due to price decreases and other homebuyer concessions, higher construction costs, and product and geographic mix shifts, partly offset by a decrease in 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 August 31, 2023 and 2022, respectively.

Excluding the inventory-related charges associated with housing operations of $.6 million in the current quarter and $5.9 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2023 third quarter decreased 550 basis points year over year.

For the nine months ended August 31, 2023, our housing gross profits of $1.01 billion decreased 19% from $1.24 billion for the year-earlier period.

Our housing gross profit margin for the nine months ended August 31, 2023 declined 370 basis

points to 21.3%, primarily due to the reasons described above with respect to the three months ended August 31, 2023.

As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 1.9% for the nine months ended August 31, 2023, compared to 2.0% for the corresponding 2022 period.

Excluding the inventory-related charges associated with housing operations of $10.2 million in the current period and $6.8 million in the year-earlier period, our adjusted housing gross profit margin of 21.6% for the nine months ended August 31, 2023 decreased 350 basis points year over year.

Our homebuilding operating income for the three months ended February 29, 2024 was up slightly year over year, reflecting higher housing gross profits and land sale profits, partly offset by higher selling, general and administrative expenses.

Operating income for the 2024 first quarter included inventory-related charges of $1.3 million, compared to $5.3 million in the year-earlier quarter.

As a percentage of revenues, our operating income for the three months ended February 29, 2024 was 10.8%, compared to 11.4% for the corresponding 2023 period, mainly due to higher selling, general and administrative expenses as a percentage of housing revenues.

Excluding inventory-related charges, our operating income as a percentage of revenues decreased to 10.9% for the 2024 first quarter from 11.7% for the year-earlier quarter.

• Housing Gross Profits – Housing gross profits of $313.7 million for the three months ended February 29, 2024 increased 6% from $295.7 million for the year-earlier period, reflecting an increase in housing revenues with our housing gross profit margin of 21.5% for the 2024 first quarter remaining even with the 2023 first quarter.

The housing gross profit margin mainly reflected higher relative construction and land costs and a shift in product and geographic mix, offset by decreases in inventory-related charges and homebuyer concessions.

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 1.9% for the three months ended February 29, 2024 and February 28, 2023, respectively.

Excluding the inventory-related charges associated with housing operations of $1.3 million in the current quarter and $5.3 million in the year-earlier quarter, our adjusted housing gross profit margin for the 2024 first quarter decreased 20 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.”

• Land Sale Profits (Losses) – Land sale profits totaled $1.1 million for the three months and nine months ended August 31, 2023.

Land sale losses of $2.6 million for the three months and nine months ended August 31, 2022 were comprised solely of an inventory impairment charge related to a parcel of land held for sale.

• Land Sale Profits – Land sale profits totaled $1.5 million for the three months ended February 29, 2024.

There were no land sales in the year-earlier period.

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

Three Months Ended August 31, Nine Months Ended August 31,

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

Three Months Ended

February 29, 2024 % of Housing Revenues February 28, 2023 % of Housing Revenues

Marketing expenses $ 36,360 2.5 % $ 33,138 2.4 %

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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 August 31, 2023 decreased 2% from the year-earlier quarter.

As a percentage of housing revenues, our selling, general and administrative expenses for the 2023 third quarter increased 130 basis points, mainly reflecting reduced operating leverage due to our lower housing revenues as compared to the year-earlier quarter and higher sales commissions.

For the nine months ended August 31, 2023, selling, general and administrative expenses were down slightly from the corresponding 2022 period.

As a percentage of housing revenues, selling, general and administrative expenses for the nine months ended August 31, 2023 increased 30 basis points, primarily due to the reasons described above with respect to the three months ended August 31, 2023.

Selling, general and administrative expenses for the three months ended February 29, 2024 increased 13% from the year-earlier quarter.

As a percentage of housing revenues, our selling, general and administrative expenses for the 2024 first quarter increased 70 basis points, mainly reflecting higher costs including marketing, advertising and other expenses associated with a planned increase in our community count during the year as we position our operations for growth, and an increase in sales commissions.

We also invested in personnel and other resources in alignment with the expected larger scale of our business.

Interest Income/Expense .

Interest income, which is generated from short-term investments, totaled $5.5 million and $7.7 million for the three-month and nine-month periods ended August 31, 2023, respectively, and was nominal for both corresponding year-earlier periods.

Interest income, which is generated from short-term investments, increased to $5.9 million for the three months ended February 29, 2024, compared to $.5 million for the year-earlier quarter, reflecting our higher average balance of cash equivalents and a higher interest rate in the 2024 period.

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 and nine-month periods ended August 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.

All interest incurred during the three-month periods ended February 29, 2024 and February 28,

2023 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.

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Equity in Loss of Unconsolidated Joint Ventures .

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

For the nine months ended August 31, 2023, our equity in loss of unconsolidated joint ventures was $1.2 million, compared to $.4 million for the year-earlier period.

Our equity in loss of unconsolidated joint ventures was $.4 million and $.8 million for the three months ended February 29, 2024 and February 28, 2023, respectively.

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.

Loss on Early Extinguishment of Debt .

For the three months and nine months ended August 31, 2022, we recognized a $3.6 million loss on the early extinguishment of debt associated with our retirement of $350.0 million in aggregate principal amount of senior notes before their maturity date, pursuant to the optional redemption terms specified for such notes.

Net Orders, Cancellation Rates, Backlog and Community Count .

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Three Months Ended

February 29, 2024 February 28, 2023

Net orders 3,323 2,142

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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.

Net orders for the 2023 third quarter rose 52% from the year-earlier quarter, reflecting improved demand and a lower cancellation rate as compared to the year-earlier quarter, when the combination of rapidly rising mortgage interest rates, ongoing inflation and other macroeconomic concerns caused many prospective buyers to pause on their homebuying decision.

The pace of monthly net orders per community increased to 4.3 in the 2023 third quarter, compared to 3.1 in the corresponding 2022 quarter, and was above our historical third-quarter average, prior to pandemic-related volatility.

Net orders for the 2024 first quarter rose 55% from the year-earlier quarter, reflecting improved demand and a lower cancellation rate.

The pace of monthly net orders per community increased to 4.6 in the 2024 first quarter, compared to 2.8 in the corresponding 2023 quarter.

We had positive momentum throughout the 2024 first quarter, with monthly net orders increasing sequentially as the quarter progressed.

The value of our net orders grew 58% year over year as a result of the growth in net orders and a 2% increase in the average selling price for those homes to $476,100.

In the 2023 third quarter, the year-over-year growth in our overall net orders reflected increases in all four homebuilding reporting segments, ranging from 30% in our Southeast segment to 74% in our West Coast segment.

Our cancellation rate as a percentage of gross orders for the three months ended August 31, 2023 improved from the year-earlier period, reflecting softer housing market demand in the year-ago period.

On a sequential basis, the cancellation rate for the 2023 third quarter improved slightly from 22% in the 2023 second quarter.

The number of homes in our backlog and our backlog value at August 31, 2023 each decreased 35% from August 31, 2022, mainly due to our substantially lower backlog levels at the beginning of the quarter.

The year-over-year decrease in our overall backlog value at August 31, 2023 reflected decreases in all of our homebuilding reporting segments, ranging from 11% in our West Coast segment to 62% in our Central segment.

In the 2024 first quarter, the year-over-year growth in our overall net order value reflected increases in all four homebuilding reporting segments, ranging from 18% in our West Coast segment to 161% in our Central segment.

Our cancellation rate as a percentage of gross orders for the three months ended February 29, 2024 improved from the year-earlier period, reflecting stronger housing market demand in the current period.

On a sequential basis, the cancellation rate for the 2024 first quarter improved from 28% in the 2023 fourth quarter.

The number of homes in our backlog and our backlog value at February 29, 2024 decreased 17% and 16%, respectively, from February 28, 2023.

The year-over-year decline in our overall backlog value at February 29, 2024 reflected decreases in three of our homebuilding reporting segments, ranging from 10% in our Southeast segment to 53% in our Central segment, partly offset by a 20% increase in our West Coast segment.

On a sequential basis, the number of homes in our ending backlog and our backlog value each increased 5% from the previous quarter.

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

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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.

Our average community count for the three months ended August 31, 2023 expanded 9% from the year-earlier period, reflecting increases in each of our homebuilding reporting segments.

Our ending community count for the 2023 third quarter rose 1% from the corresponding 2022 quarter, as the number of new community openings exceeded the number of communities selling out over the past twelve months.

On a sequential basis, our average and ending community counts for the 2023 third quarter were down 5% and 8%, respectively, as the number of communities selling out exceeded the number of community openings during the three months ended August 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 calibrate our land investments for the nine months ended August 31, 2023 with evolving housing market conditions, as discussed below under “Liquidity and Capital Resources.”

Our average community count for the three months ended February 29, 2024 decreased 4% from the year-earlier period.

Our ending community count for the 2024 first quarter was down 7% year over year, as the number of communities selling out exceeded the number of new community openings over the past twelve months.

On a sequential basis, our average community count for the 2024 first quarter expanded 2%.

In order to drive future community count growth, we increased our investments in land and land development on a year-over-year basis in the 2024

first quarter, and expect to increase our investments on a year-over-year basis in the remaining 2024 quarters, 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 August 31,

Homes Delivered Net Orders Cancellation Rates

Segment 2023 2022 2023 2022 2023 2022

West Coast 732 1,156 906 520 15 % 37 %

Southwest 717 737 656 430 13 22

Central 1,258 1,072 865 573 33 45

Southeast 668 650 670 517 19 28

Total 3,375 3,615 3,097 2,040 21 % 35 %

Net Order Value Average Community Count

Segment 2023 2022 Variance 2023 2022 Variance

West Coast $ 638,643 $ 317,329 101 % 71 66 8 %

Southwest 296,811 191,868 55 44 40 10

Central 296,255 272,288 9 79 76 4

Southeast 280,671 197,484 42 46 39 18

Total $ 1,512,380 $ 978,969 54 % 240 221 9 %

Nine Months Ended August 31,

Three Months Ended

Homes Delivered Net Orders Cancellation Rates

Segment 2023 2022 2023 2022 2023 2022

Segment February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023 February 29, 2024 February 28, 2023

West Coast 828 786 950 857 13 % 20 %

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Net Order Value Average Community Count

Segment 2023 2022 Variance 2023 2022 Variance

Segment February 29, 2024 February 28, 2023 Variance February 29, 2024 February 28, 2023 Variance

West Coast $ 633,400 $ 535,539 18 % 73 80 (9) %

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Backlog – Homes Backlog – Value

Segment 2023 2022 Variance 2023 2022 Variance

Segment February 29, 2024 February 28, 2023 Variance February 29, 2024 February 28, 2023 Variance

West Coast 1,667 1,358 23 % $ 1,100,889 $ 918,535 20 %

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The composition of our homes delivered, net orders and backlog shifts with the product and geographic mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, changing as new communities open and existing communities wind down or sell out in the ordinary course.

In addition, with our Built to Order model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and the design studio options and upgrades buyers select in the community.

In addition, with our Built to Order® business model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and the design studio options and upgrades buyers select in the community.

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.

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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 $36.0 million and $42.9 million in the three months ended August 31, 2023 and 2022, respectively.

For the nine months ended August 31, 2023, Corporate and other had operating losses of $104.5 million, compared to $120.9 million for the corresponding year-earlier period.

The financial results of our homebuilding reporting segments for the three-month and nine-month periods ended August 31, 2023 were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered.

Segment financial results for the three months and nine months ended August 31, 2023 were also affected by construction services availability constraints and building material cost pressures, as well as supply chain disruptions and other production-related challenges, though these impacts lessened in the 2023 third quarter compared to the 2023 first half and 2022 second half periods.

Corporate and other had operating losses of $35.1 million and $30.2 million in the three months ended February 29, 2024 and February 28, 2023, respectively.

The financial results of our homebuilding reporting segments for the three-month periods ended February 29, 2024 and February 28, 2023 were negatively impacted to varying degrees by homebuyer concessions we selectively extended to buyers in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered.

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 Variance 2023 2022 Variance

Three Months Ended

February 29, 2024 February 28, 2023 Variance

Revenues $ 558,302 $ 540,019 3 %

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Average selling price $ 673,800 $ 687,000 (2) %

Operating income as a percentage of revenues 10.9 % 20.6 % (970) bps 10.6 % 18.6 % (800) bps

This segment’s revenues for the three-month and nine-month periods ended August 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 nine-month periods ended August 31, 2023 was also down year over year, reflecting lower housing gross profits, partly offset by reduced selling, general and administrative expenses and the absence of a $2.6 million land sale loss included in the prior-year periods.

Operating income as a percentage of revenues for the 2023 third quarter decreased from the year-earlier quarter, primarily due to a 770 basis-point decline in the housing gross profit margin to 18.5% and a 240 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.7%.

For the nine months ended August 31, 2023, operating income as a percentage of revenues declined from the corresponding 2022 period, mainly reflecting a 650 basis-point decrease in the housing gross profit margin to 18.1% and a 160 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.5%.

The year-over-year decreases in the housing gross profit margins for the three-month and nine-month periods ended August 31, 2023 primarily reflected price decreases and other homebuyer concessions, higher relative construction costs, product and geographic mix shifts of homes delivered and reduced operating leverage from lower housing revenues.

In the three months ended August 31, 2023, inventory-related charges associated with housing operations were nominal, compared to $1.9 million in the year-earlier period.

For the nine months ended August 31, 2023, such inventory-related charges increased to $4.3 million, compared to $2.1 million in the year-earlier period.

The year-over-year increases in selling, general and administrative expenses as a percentage of housing revenues for the three-month and nine-month periods ended August 31, 2023 reflected reduced operating leverage from lower housing revenues and higher sales commissions.

Operating income as a percentage of revenues 11.8 % 11.2 % 60 bps

In the 2024 first quarter, this segment’s revenues were comprised of housing revenues and land sale revenues.

In the 2023 first quarter, revenues were generated solely from housing operations.

Housing revenues for the three months ended February 29, 2024 grew 3% from the year-earlier period to $557.9 million due to an increase in the number of homes delivered, partially offset by a decrease in their average selling price.

Operating income for the three months ended February 29, 2024 was up year over year, reflecting higher housing gross profits, partly offset by increased selling, general and administrative expenses.

Operating income as a percentage of revenues for the 2024 first quarter increased from the year-earlier quarter, primarily due to a 150 basis-point increase in the housing gross profit margin to 19.8%, partly offset by a 90 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 8.0%.

The year-over-year expansion in the housing gross profit margin for the three months ended February 29, 2024 mainly reflected lower relative construction and land costs.

In the three months ended February 29, 2024, inventory-related charges associated with housing operations were $1.3 million, compared to $.9 million in the year-earlier period.

The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months ended February 29, 2024 reflected higher costs including marketing and other expenses associated with a planned increase in our community count in this segment during the year, and an increase in sales commissions.

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 Variance 2023 2022 Variance

Three Months Ended

February 29, 2024 February 28, 2023 Variance

Revenues $ 323,125 $ 239,587 35 %

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Average selling price $ 450,700 $ 447,000 1 %

Operating income as a percentage of revenues 15.1 % 24.1 % (900) bps 16.7 % 21.7 % (500) bps

This segment’s revenues for the three-month and nine-month periods ended August 31, 2023 were comprised of housing revenues and land sale revenues.

Revenues for the three-month and nine-month periods ended August 31, 2022 were solely from housing operations.

The year-over-year decline in this segment’s housing revenues to $300.2 million for the three months ended August 31, 2023 reflected decreases in both the number of homes delivered and their average selling price.

Housing revenues for the nine months ended August 31, 2023 grew to $875.7 million, reflecting increases in both the number of homes delivered and their average selling price.

Operating income for the three-month and nine-month periods ended August 31, 2023 was down from the corresponding year-earlier periods primarily due to lower housing gross profits, partly offset by a land sale gain of $1.1 million in each period.

As a percentage of revenues, this segment’s operating income for the 2023 third quarter declined from the year-earlier quarter, reflecting an 880 basis-point decrease in the housing gross profit margin to 22.4% and a 30 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 7.4%.

For the nine months ended August 31, 2023, operating income as a percentage of revenues was down from the corresponding 2022 period, reflecting a 530 basis-point decrease in the housing gross profit margin to 23.9%, partially offset by a 30 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.2%.

The year-over-year decline in the housing gross profit margin for the three months ended August 31, 2023 primarily reflected price decreases and other homebuyer concessions, a product and geographic mix shift of homes delivered, and reduced operating leverage from lower housing revenues.

For the nine months ended August 31, 2023, the year-over-year decrease in the housing gross profit margin was mainly due to price decreases and other homebuyer concessions, and a product and geographic mix shift of homes delivered, partly offset by increased operating leverage from higher housing revenues.

The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months ended August 31, 2023 primarily reflected reduced operating leverage from lower housing revenues.

The improvement in selling, general and administrative expenses as a percentage of housing revenues for the nine-month period ended August 31, 2023, compared to the year-earlier period, was mainly due to increased operating leverage from higher housing revenues.

Operating income as a percentage of revenues 17.3 % 18.4 % (110) bps

The year-over-year growth in this segment’s revenues for the three months ended February 29, 2024 reflected increases in both the number of homes delivered and their average selling price.

Operating income for the three months ended February 29, 2024 rose from the corresponding year-earlier period due to higher housing gross profits, partly offset by increased selling, general

and administrative expenses.

As a percentage of revenues, this segment’s operating income for the 2024 first quarter declined from the year-earlier quarter, reflecting a 180 basis-point decrease in the housing gross profit margin to 24.3%, partly offset by a 70 basis-point decrease in selling, general and administrative expenses as a percentage of housing revenues to 7.0%.

The year-over-year decline in the housing gross profit margin for the three months ended February 29, 2024 was mainly due to higher construction and land costs and a product and geographic mix shift of homes delivered, partly offset by a decrease in homebuyer concessions and increased operating leverage from higher housing revenues.

The year-over-year decrease in selling, general and administrative expenses as a percentage of housing revenues for the three months ended February 29, 2024 primarily reflected increased operating leverage from higher housing revenues, partly offset by higher costs including marketing and other expenses associated with a planned increase in our community count in this segment during the year, and an increase in sales commissions.

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 Variance 2023 2022 Variance

Three Months Ended

February 29, 2024 February 28, 2023 Variance

Revenues $ 320,484 $ 389,951 (18) %

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Average selling price $ 364,700 $ 417,100 (13) %

Operating income as a percentage of revenues 14.9 % 17.9 % (300) bps 14.8 % 14.9 % (10) bps

This segment’s revenues for the three months ended August 31, 2023 rose from the corresponding year-earlier period, reflecting an increase in the number of homes delivered, partly offset by a decrease in their average selling price.

For the nine months ended August 31, 2023, this segment’s revenues grew from the corresponding 2022 period due to increases in both the number of homes delivered and their average selling price.

Operating income for the 2023 third quarter decreased from the year-earlier quarter due to higher selling, general and administrative expenses, partly offset by higher housing gross profits.

This segment’s operating income as a percentage of revenues for the three months ended August 31, 2023 was down from the year-earlier period primarily due to a 230 basis-point decline in the housing gross profit margin to 23.2% and a 60 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 8.3%.

For the nine months ended August 31, 2023, operating income rose from the year-earlier period, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income for the nine months ended August 31, 2023 was down slightly from the corresponding 2022 period, reflecting a 30 basis-point decrease in the housing gross profit margin to 22.9% and a 10 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.2%.

The year-over-year decrease in the housing gross profit margin for the three-month and nine-month periods ended August 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 increase in selling, general and administrative expenses as a percentage of housing revenues for the three months and nine months ended August 31, 2023 was primarily due to increased sales commissions, partly offset by increased operating leverage from higher housing revenues.

Operating income as a percentage of revenues 12.0 % 15.1 % (310) bps

In the 2024 first quarter, this segment’s revenues were comprised of housing revenues and land sale revenues.

In the 2023 first quarter, revenues were generated solely from housing operations.

Housing revenues for the three months ended February 29, 2024 were $317.3 million, down 19% from the year-earlier period, reflecting decreases in both the number of homes delivered and their average selling price.

Operating income for the 2024 first quarter declined from the year-earlier quarter due to lower housing gross profits, partly offset by lower selling, general and administrative expenses and current-quarter land sale profits of $1.1 million.

This segment’s operating income as a percentage of revenues for the three months ended February 29, 2024 was down from the year-earlier period primarily due to a 190 basis-point decline in the housing gross profit margin to 21.9% and a 140 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 10.1%.

The year-over-year decrease in the housing gross profit margin for the three months ended February 29, 2024 primarily reflected higher relative construction and land costs, a product and geographic mix shift of homes delivered, an increase in homebuyer concessions and reduced operating leverage from lower housing revenues.

The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months ended February 29, 2024 was primarily due to higher costs including marketing, advertising and other expenses associated with a planned increase in our community count in this segment during the year, an increase in sales commissions and reduced operating leverage from lower housing revenues.

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

Three Months Ended August 31, Nine Months Ended August 31,

2023 2022 Variance 2023 2022 Variance

Three Months Ended

February 29, 2024 February 28, 2023 Variance

Revenues $ 259,787 $ 208,980 24 %

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Average selling price $ 417,700 $ 393,600 6 %

Operating income as a percentage of revenues 14.8 % 16.5 % (170) bps 14.2 % 15.5 % (130) bps

This segment’s revenues for the three-month and nine-month periods ended August 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 third quarter decreased from the year-earlier quarter, reflecting higher selling, general and

administrative expenses.

As a percentage of revenues, operating income for the 2023 third quarter declined from the year-earlier quarter mainly due to a 160 basis-point decrease in the housing gross profit margin to 23.9% and a 10 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 9.1%.

For the nine months ended August 31, 2023, operating income increased from the year-earlier period, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.

Operating income as a percentage of revenues for the nine months ended August 31, 2023 decreased from the corresponding 2022 period, reflecting a 190 basis-point decline in the housing gross profit margin to 23.1%, partly offset by a 60 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 8.9%.

The year-over-year decline in the housing gross profit margin for the three-month and nine-month periods ended August 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 housing gross profit margin for the three months ended August 31, 2023 included no inventory-related charges, compared to $2.3 million of such charges in the year-earlier period.

The housing gross profit margin for the nine months ended August 31, 2023 and 2022 included inventory-related charges of $3.5 million and $2.3 million, respectively.

The year-over-year improvement in selling, general and administrative expenses as a percentage of housing revenues for the nine months ended August 31, 2023 primarily reflected increased operating leverage from higher housing revenues.

Operating income as a percentage of revenues 12.4 % 11.3 % 110 bps

This segment’s revenues for the three months ended February 29, 2024 grew year over year as a result of increases in both the number of homes delivered and their average selling price.

Operating income for the 2024 first quarter increased from the year-earlier quarter, reflecting higher housing gross profits, partly offset by higher selling, general and administrative expenses.

As a percentage of revenues, operating income for the 2024 first quarter increased from the year-earlier quarter mainly due to a 60 basis-point increase in the housing gross profit margin to 21.6% and a 50 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 9.2%.

The year-over-year expansion in the housing gross profit margin for the three months ended February 29, 2024 primarily reflected the absence of inventory-related charges in the current quarter, compared to $3.5 million of such charges in the year-earlier period, a decrease in homebuyer concessions and improved operating leverage from higher housing revenues, partly offset by higher construction and land costs.

The year-over-year decrease in selling, general and administrative expenses as a percentage of housing revenues for the three months ended February 29, 2024 was primarily due to improved operating leverage from higher housing revenues, partly offset by higher costs including marketing, advertising and other expenses associated with a planned increase in our community count in this segment during the year, and an increase in sales commissions.

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 August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Three Months Ended

February 29, 2024 February 28, 2023

Revenues $ 6,068 $ 5,777

Expenses (1,546) (1,358)

Equity in income of unconsolidated joint ventures 4,149 128 11,157 20,083

Equity in income of unconsolidated joint venture

Pretax income

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(a) Loan originations and sales occurred within KBHS.

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

Financial services revenues for the three months ended February 29, 2024 rose from the year-earlier period due to increases in both title services revenues and insurance commissions.

Pretax income.

Financial services pretax income for the three months ended August 31, 2023 grew 114% from the year-earlier period, reflecting an increase in the equity in income of unconsolidated joint ventures and improved results from our insurance and title services businesses.

In the 2023 third quarter, the equity in income of unconsolidated joint ventures increased to $4.1 million, from $.1 million in the year-earlier quarter, due to an increase in KBHS’ income.

KBHS income was nominal in the 2022 third quarter, reflecting a significant decrease in the volume of new IRLCs following a surge in the 2022 second quarter driven by the sharp rise in mortgage interest rates during that period.

This IRLC volume surge effectively resulted in a shift of our equity in income of KBHS from the 2022 second half to the 2022 first half.

Also contributing to the year-over-year increase in KBHS’ income was the higher principal amount of loans originated in the current quarter, which primarily reflected an increase in the percentage of homebuyers using KBHS.

KBHS’ income in the 2023 third quarter included losses of $5.2 million in the fair value of IRLCs in the current quarter, compared to $6.3 million of such losses in the year-earlier quarter.

For the nine months ended August 31, 2023, our financial services pretax income declined 14% 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 nine months ended August 31, 2023, the equity in income of unconsolidated joint ventures decreased to $11.2 million, from $20.1 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 $9.4 million in the fair value of IRLCs in the current period, compared to gains of $27.1 million in the year-earlier period.

The significant gain in the nine months ended August 31, 2022 resulted from a substantial increase in the fair value of IRLCs within the joint venture in the 2022 second quarter due to the above-described volume surge.

Financial services pretax income for the three months ended February 29, 2024 grew 93% from the year-earlier period, mainly due to an increase in the equity in income of our unconsolidated joint venture, KBHS.

In the 2024 first quarter, the equity in income of our unconsolidated joint venture increased to $7.1 million, from $1.6 million in the year-earlier quarter, due to an increase in KBHS’ income.

The year-over-year increase in KBHS’ income was due to gains of $2.9 million in the fair value of IRLCs in the current quarter, compared to $1.5 million of losses in the fair value of IRLCs in the year-earlier quarter.

Also contributing to the year-over-year increase in KBHS’ income was the higher principal amount of loans originated, as more homes were delivered in the current period and 85% of the buyers financing their home purchases used KBHS, up from 79% in the year-earlier quarter.

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 August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Three Months Ended

February 29, 2024 February 28, 2023

Income tax expense $ 36,000 $ 36,700

Effective tax rate 20.6 % 22.6 %

Our effective tax rate for the three months ended August 31, 2023 increased from the year-earlier period, mainly due to an $8.4 million decrease in the federal tax credits we recognized primarily from building energy-efficient homes, partly offset by a $1.9 million increase in excess tax benefits related to stock-based compensation and a $.3 million decrease in nondeductible executive compensation expense.

For the nine months ended August 31, 2023, our effective tax rate decreased slightly from the year-earlier period, mainly due to a $3.5 million increase in excess tax benefits related to stock-based compensation and a $3.3 million increase in the federal tax credits we recognized primarily from building energy-efficient homes, partly offset by a $2.4 million increase in nondeductible executive compensation expense.

The federal tax credits for the three months and nine months ended August 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.

Our effective tax rate for the three months ended February 29, 2024 decreased from the year-earlier period, mainly due to a $3.4 million increase in excess tax benefits related to stock-based compensation and a $.6 million decrease in nondeductible executive compensation expense, partly offset by a $1.6 million decrease in the Section 45L tax credits we recognized primarily from building energy-efficient homes.

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 August 31, Nine Months Ended August 31,

2023 2022 2023 2022

Three Months Ended

February 29, 2024 February 28, 2023

Housing revenues $ 1,458,126 $ 1,378,537

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Inventory-related charges (a)

631 5,923 10,207 6,830

Adjusted housing gross profits $ 314,997 $ 301,005

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• repurchases of our common stock.

We ended the 2023 third quarter with total liquidity of $1.70 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

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

We ended the 2024 first quarter with total liquidity of $1.75 billion, including cash and cash equivalents and $1.08 billion of available capacity under the Credit Facility.

Based on our financial position as of February 29, 2024, and our business forecast 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.

Cash Requirements .

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 nine months ended August 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.

In the three months ended February 29, 2024, 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, 2023.

Investments in Land and Land Development.

Our investments in land and land development for the nine months ended August 31, 2023 decreased 33% to $1.32 billion, compared to $1.96 billion for the year-earlier period, reflecting lower investments in the 2023 first half, as our 2023 third-quarter investments of $554.5 million were essentially equal to the year-earlier period.

In the nine months ended August 31, 2023, land acquisition expenditures, which are included in our investments in land and land development, decreased 57% to $329.5 million from $759.2 million.

Our reduced investments in land and land development in the 2023 first half reflected 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.

As part of this pivot, we 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 calibrating our investments to evolving market conditions and our outlook, we increased our investments in land and land development sequentially in both the 2023 second and third quarters.

In the 2023 third quarter, our investments in land and land development were up 40% from the 2023 second quarter, as land acquisition expenditures more than doubled.

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 25% of our total investments for the nine months ended August 31, 2023 related to land acquisitions, compared to approximately 39% in the prior-year period.

While we made strategic investments in land and land development in each of our homebuilding reporting segments during the nine months ended August 31, 2023 and 2022, approximately 55% and 51%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.

In the 2023 fourth quarter, 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.

While we expect our land acquisition activity to increase during the 2023 fourth quarter as compared to the prior 2023 quarters, 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.

Our investments in land and land development for the three months ended February 29, 2024 increased 60% to $587.1 million, compared to $367.0 million for the year-earlier period.

Land acquisition expenditures, which are included in our investments in land and land development, increased to $214.4 million in the three months ended February 29, 2024, from $50.0 million in the corresponding period of 2023.

Approximately 37% of our total investments for the three months ended February 29, 2024 related to land acquisitions, compared to approximately 14% 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 29, 2024 and February 28, 2023, approximately 50% and 53%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment.

For the remainder of 2024, 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.

While we expect our land acquisition activity to increase on a year-over-year basis in the remaining 2024 quarters, 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):

August 31, 2023 November 30, 2022 Variance

February 29, 2024 November 30, 2023 Variance

Segment Lots Carrying Value Lots Carrying Value Lots Carrying Value

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Total 55,509 $ 5,243,581 55,976 $ 5,133,646 (467) $ 109,935

The number and carrying value of lots we owned or controlled under land option contracts and other similar contracts at August 31, 2023 decreased from November 30, 2022, reflecting homes delivered in the nine months ended August 31, 2023 as well as the above-mentioned pivot in our land investment strategy, which included our abandonment of 8,097 previously controlled lots in the nine months ended August 31, 2023.

The number of lots in inventory as of August 31, 2023 included 4,506 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 August 31, 2023, compared to 30% at November 30, 2022.

The carrying value of lots we owned or controlled under land option contracts and other similar contracts at February 29, 2024 increased 2% from November 30, 2023, reflecting land investments during the three months ended February 29, 2024, partly offset by homes delivered and our abandonment of 1,439 previously controlled lots.

The number of lots we owned or controlled as of February 29, 2024 was essentially even with November 30, 2023.

The number of lots in inventory as of February 29, 2024 included 6,885 lots under contract where the associated deposits were refundable at our discretion, compared to 6,260 of such lots at November 30, 2023.

Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 28% at February 29, 2024, compared to 27% at November 30, 2023.

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

If we were to acquire all the land we had under land option contracts and other similar contracts at August 31, 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, if applicable, 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 29, 2024, we estimate the remaining purchase price to be paid would be as follows:

2024 – $596.8 million;

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2028 – $63.9 million;

and thereafter – $3.3 million.

and thereafter – $0.

The table below summarizes our cash and cash equivalents, and total liquidity (in thousands):

2 unchanged sentences

Credit Facility commitment 1,090,000 1,090,000

Borrowings outstanding under the Credit Facility — (150,000)

Letters of credit outstanding under the Credit Facility (6,650) (6,650)

1 unchanged sentence

Total liquidity $ 1,751,434 $ 1,810,426

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

Our cash equivalents at February 29, 2024 and November 30, 2023 were mainly invested in interest-bearing bank deposit accounts and money market funds.

Capital Resources.

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2023 Variance

Credit Facility $ — $ 150,000 $ (150,000)

Term Loan $ 358,323 $ 358,156 $ 167

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$ 1,692,729 $ 1,689,898 $ 2,831

Our financial leverage, as measured by the ratio of debt to capital, was 30.6% at August 31, 2023, compared to 33.4% at November 30, 2022.

Our financial leverage, as measured by the ratio of debt to capital, was 30.4% at February 29, 2024, compared to 30.7% at November 30, 2023.

On a year-over-year basis, our debt to capital ratio improved 220 basis points from 32.6%.

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

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We maintain the LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business.

Under the LOC Facility, we may issue up to $75.0 million of letters of credit.

On August 10, 2023, we entered into an amendment to the LOC Facility that extended the expiration date from February 13, 2025 to February 18, 2027.

As of August 31, 2023 and November 30, 2022, we had letters of credit outstanding under the LOC Facility of $13.0 million and $36.4 million, respectively.

Under the LOC Facility, which expires on February 18, 2027, we may issue up to $75.0 million of letters of credit.

As of February 29, 2024 and November 30, 2023, we had letters of credit outstanding under the LOC Facility of $25.5 million and $12.5 million, respectively.

Performance Bonds .

As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.32 billion and $1.27 billion of performance bonds outstanding at August 31, 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 $1.30 billion and $1.32 billion of performance bonds outstanding at February 29, 2024 and November 30, 2023, respectively.

Unsecured Revolving Credit Facility .

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

As of February 29, 2024, we had no cash borrowings and $6.7 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.

Under the terms of the Credit Facility and the Term Loan, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth, Leverage Ratio, and either an Interest Coverage Ratio or minimum liquidity level, each as defined therein.

Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term

Loan and can differ in certain respects from comparable GAAP or other commonly used terms.

Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from comparable GAAP or other commonly used terms.

The financial covenant requirements under the Credit Facility and the Term Loan are set forth below:

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• Leverage Ratio – We must also maintain a Leverage Ratio of less than or equal to .60 at the end of each fiscal quarter.

The Leverage Ratio is calculated as the ratio of our consolidated total indebtedness to the sum of consolidated total indebtedness and consolidated tangible net worth, all as defined under the Credit Facility.

• Interest Coverage Ratio or liquidity – We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of each fiscal quarter;

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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 August 31, 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 August 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.

As of February 29, 2024, 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, the LOC Facility 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.

Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments.

the Term Loan exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility or the Term Loan exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration).

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 August 31, 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 $33.2 million.

At February 29, 2024, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $6.0 million, secured primarily by the underlying property, which had an aggregate carrying value of $19.6 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.

Unconsolidated Joint Ventures.

As discussed in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located.

As of February 29, 2024, one of our unconsolidated joint ventures had borrowings outstanding under a revolving line of credit with a third-party lender and secured by the underlying property and related project assets.

None of our other unconsolidated joint ventures had outstanding debt at February 29, 2024.

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.

In March 2024, S&P Global Ratings upgraded our corporate credit rating to BB+ from BB and maintained its rating outlook at stable.

Consolidated Cash Flows .

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

Nine Months Ended August 31,

Three Months Ended

February 29, 2024 February 28, 2023

Net cash provided by (used in):

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Financing activities (74,973) (146,327)

Net increase (decrease) in cash and cash equivalents $ 282,199 $ (94,879)

Net decrease in cash and cash equivalents

$ (59,047) $ (69,371)

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 nine months ended August 31, 2023 primarily reflected net income of $439.9 million and a net decrease in inventories of $355.3 million, partly offset by a net decrease in accounts payable, accrued expenses and other liabilities of $100.5 million and a net increase in receivables of $1.6 million.

In the nine months ended August 31, 2022, our net cash used in operating activities mainly reflected a net increase in inventories of $954.2 million and a net increase in receivables of $40.5 million, partly offset by net income of $600.3 million and a net increase in accounts payable, accrued expenses and other liabilities of $94.7 million.

Our net cash provided by operating activities for the three months ended February 29, 2024 mainly reflected net income of $138.7 million and a net decrease in receivables of $10.1 million, partly offset by a net increase in inventories of $107.5 million and a net decrease in accounts payable, accrued expenses and other liabilities of $38.5 million.

In the three months ended February 28, 2023, our net cash provided by operating activities 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.

Investing Activities .

In the nine months ended August 31, 2023, our uses of cash included $26.4 million for net purchases of property and equipment and $23.5 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 nine months ended August 31, 2022, the net cash used for investing activities reflected $33.8 million for net purchases of property and equipment and $21.6 million for contributions to unconsolidated joint ventures.

In the three months ended February 29, 2024, our uses of cash included $9.5 million for net purchases of property and equipment and $3.1 million for contributions to unconsolidated joint ventures.

In the three months ended February 28, 2023, the net cash used for investing activities reflected $13.2 million for contributions to unconsolidated joint

ventures and $8.8 million for net purchases of property and equipment.

The cash used was partially offset by a $5.1 million return of investments in unconsolidated joint ventures.

Financing Activities .

In the nine months ended August 31, 2023, our uses of cash included stock repurchases of $249.6 million, net repayments under the Credit Facility of $150.0 million, dividend payments on our common stock of $41.6 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 $3.2 million.

In the three months ended February 29, 2024, our uses of cash included stock repurchases of $50.0 million, tax payments associated with stock-based compensation awards of $16.5 million, dividend payments on our common stock of $16.4 million, and payments on mortgages and land contracts due to land sellers and other loans of $.9 million.

The cash used was partly offset by $8.8 million of issuances of common stock under employee stock plans.

In the nine months ended August 31, 2022, cash was provided by our issuance of $350.0 million in aggregate principal amount of 7.25% Senior Notes due 2030, and $350.0 million of net borrowings under the Credit Facility.

The cash provided was partially offset by our repayment of $350.0 million in aggregate principal amount of our senior notes, $100.0 million of stock repurchases, $39.9 million of dividend payments on our common stock, $12.2 million of tax payments associated with stock-based compensation awards, $10.7 million of issuance costs and $.4 million of payments on mortgages and land contracts due to land sellers and other loans.

In the 2023 third quarter, our board of directors approved a $.05 per share increase in the quarterly cash dividend on our common stock to $.20 per share and declared, and we paid, a quarterly cash dividend at the new higher rate.

In the 2022 third quarter, 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 nine-month periods ended August 31, 2023 and 2022 totaled $.50 per share and $.45 per share, respectively.

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.

Shelf Registration.

On July 10, 2023, we filed the 2023 Shelf Registration with the SEC.

The 2023 Shelf Registration registers the offering of securities that we may issue from time to time in amounts to be determined.

Our ability to issue securities is subject to market conditions and, with respect to debt securities, other factors impacting our borrowing capacity.

The 2023 Shelf Registration replaced our previously effective universal shelf registration statement filed with the SEC on July 9, 2020.

We have not made any offerings of securities under the 2023 Shelf Registration.

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.

The cash used was partially offset by $1.1 million of issuances of common stock under employee stock plans.

In the 2024 first quarter, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.20 per share.

In the 2023 first quarter, our board of directors declared, and we paid, a quarterly cash dividend on our common stock of $.15 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.

For the 2023 fourth quarter, 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.

As 2024 progresses, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility primarily to position our operations for growth within the context of prevailing market conditions.

During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs.

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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 other factors, including those described below under “Outlook,” 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 intended uses of our cash resources or cash borrowings, and ability to engage in any of the transactions described in the foregoing two sentences, may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or other factors, including those described below under “Outlook,” 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.

Supplemental Guarantor Financial Information

As of August 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.

As of February 29, 2024, 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 3,583,290 3,532,855

Nine Months Ended

August 31, 2023

Three Months Ended

February 29, 2024

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 nine months ended August 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.

There have been no significant changes to our critical accounting policies and estimates during the three months ended February 29, 2024 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, 2023.

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 demographic trends, a decade-plus underproduction of new homes relative to population growth and constrained resale home inventory.

In the current period, even as mortgage interest rates rose, demand remained steady, supported by these positive factors.

Our 3,097 net orders for the 2023 third quarter were up 52% from the year-earlier quarter and we achieved a 4.3 monthly net orders per community pace, which is above our historical third-quarter average, prior to pandemic-driven volatility.

However, there is considerable uncertainty regarding the near-term direction of mortgage interest rates, which in recent weeks reached 20-year highs, inflation, consumer confidence and the overall economy, and the degree to which these factors, individually or collectively, may impact demand for our homes in the 2023 fourth quarter and beyond.

We currently anticipate a sequential decline in net orders in the 2023 fourth quarter, partly due to seasonality.

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

While we were able to raise or maintain selling prices in the 2023 second and third quarters in most of our communities, we anticipate the pricing adjustments and other homebuyer concessions we have selectively employed since the 2022 second half and expect to use to a lesser extent in the 2023 fourth quarter will contribute to a year-over-year decrease in the average selling price of homes delivered in the 2023 fourth quarter.

Our use of such concessions will depend on, among other things, market dynamics, including mortgage interest rates and overall housing affordability, and community-specific considerations,

including the size and construction stage of the backlog, net order pace and lots remaining available for sale.

On a sequential basis, we project our average selling price will increase in the 2023 fourth quarter due to an expected mix shift toward higher-priced deliveries from our West Coast homebuilding reporting segment.

We are committed to further reducing our build times in the 2023 fourth quarter and moving closer to achieving deliveries within our historical build time of between four and five months.

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.

While we expect our land acquisition activity to increase during the 2023 fourth quarter as compared to the previous 2023 quarters, 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.

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

In this regard, we ended the 2023 third quarter with approximately $325.4 million remaining under our current board of directors share repurchase authorization.

This provides us flexibility to continue to repurchase our common stock in the 2023 fourth quarter, with the volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our common stock, and the housing market and general economic environments.

Since our 2023 fiscal year ended, housing demand has improved largely in conjunction with a decline in mortgage interest rates since the 2023 fourth quarter and has been supported by positive factors, such as favorable demographic trends, the long-term underproduction of new homes relative to population growth, constrained resale home inventory and demand for homes at our price points.

Our 3,323 net orders for the 2024 first quarter were up 55% from the year-earlier quarter and we improved our pace to 4.6 monthly net orders per community, compared to 2.8 a year ago.

This positive momentum in our net orders has continued into the 2024 second quarter to date and we believe we are well-positioned to capitalize on it given our commitment to offering homebuyers the ability to personalize their home, our well-designed products and attractive price points, as well as our expanding community count.

At the same time, there is uncertainty regarding the near-term direction of mortgage interest rates, inflation, consumer confidence and the overall economy, and the degree to which these factors, individually or collectively, may impact housing affordability and demand for our homes in the remainder of 2024 and beyond.

We plan to continue to focus on generating cash flows from our homebuilding operations and on balancing pace, price and

construction starts at each community to optimize our return on each inventory asset within its market context.

We anticipate the pricing adjustments and other homebuyer concessions we have selectively extended to buyers since the 2022 second half will negatively impact the average selling price of homes delivered in the remainder of 2024.

Our use of such concessions in the remaining quarters of 2024 will depend on, among other things, market dynamics, including mortgage interest rates and overall housing affordability, as well as community-specific considerations, including the size and construction stage of the backlog, net order pace and lots remaining available for sale.

With our strong balance sheet and liquidity position, we believe we can operate effectively through evolving market conditions in 2024 and continue to prioritize investing in land acquisition and development to support future growth, as well as returning capital to our stockholders.

While we expect our land acquisition activity to increase during the remainder of 2024 as compared to the corresponding period of 2023, our investments in land and land development will depend significantly on market conditions and available opportunities that meet our investment return standards.

We ended the 2024 first quarter with $113.6 million remaining under our current board of directors share repurchase authorization.

This provides us the opportunity to continue to repurchase our common stock in 2024, with the volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our common stock, and the housing market and general economic conditions.

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, and shifts in demand arising from, among other things, additional increases in mortgage interest rates and/or softening economic conditions.

With our backlog value of $3.40 billion at August 31, 2023, we believe we can achieve our projected results for 2023, subject to the factors and risks described in this report.

Our present outlook for the 2023 fourth quarter, the 2023 full year and the 2024 full year as to certain metrics is as follows:

2023 Fourth Quarter

• We expect to generate housing revenues in the range of $1.55 billion to $1.65 billion, a decrease from $1.93 billion in the corresponding 2022 period, and anticipate our average selling price to be approximately $486,000, compared to $510,400 in the year-earlier period.

• We expect our homebuilding operating income margin will be approximately 10.5%, assuming no inventory-related charges, down from 15.8% for the year-earlier quarter.

• We expect our housing gross profit margin will be approximately 20.5%, assuming no inventory-related charges, compared to 23.9% for the corresponding 2022 quarter.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be about 10.0%, compared to 8.0% in the 2022 fourth quarter.

With our backlog value of $2.79 billion at February 29, 2024, we believe we can achieve our projected results for 2024, subject to the factors and risks described in this report.

Our present outlook for the 2024 second quarter and the 2024 full year as to certain metrics is as follows:

2024 Second Quarter

• We expect to generate housing revenues in the range of $1.60 billion to $1.70 billion, compared to $1.76 billion for the corresponding 2023 period, and anticipate our average selling price to be approximately $483,000, compared to $479,500 in the year-earlier period.

• We expect our homebuilding operating income margin will be in the range of 10.1% to 10.5%, assuming no inventory-related charges, compared to 11.7% for the year-earlier quarter.

• We expect our housing gross profit margin will be in the range of 20.5% to 21.0%, assuming no inventory-related charges, compared to 21.4% for the corresponding 2023 quarter.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be approximately 10.5%, compared to 9.6% in the 2023 second quarter.

• We expect our effective tax rate will be approximately 24%, essentially the same as the year-earlier quarter.

• We expect our ending community count will be approximately flat sequentially.

• We expect our net orders will range between 2,070 and 2,760.

2023 Full Year

• We expect our housing revenues to be approximately $6.31 billion, an 8% decrease from $6.88 billion in 2022, and anticipate our average selling price will be approximately $481,000, a decrease from $500,800 for 2022.

• We expect our homebuilding operating income margin to be about 11.3%, assuming no inventory-related charges, compared to 15.6% for 2022.

• We expect our housing gross profit margin to be approximately 21.3%, 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 10.0%, 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 about 9% year over year, with ending community count of approximately 230.

• We expect our ending community count will be around 250, a sequential increase of about 5%, and our average community count will be 244.

2024 Full Year

• We expect our housing revenues to be in the range of $6.50 billion to $7.00 billion.

• We expect our year-end community count will be up about 15%, as compared to 2023.

• We expect our housing revenues to be in the range of $6.50 billion to $6.90 billion, an increase from $6.37 billion for 2023.

• We expect our average selling price to be in the range of $480,000 to $490,000, compared to $481,300 for 2023.

• We expect our homebuilding operating income margin as a percentage of revenues to be in the range of 10.9% to 11.3%, assuming no inventory-related charges, compared to 11.4% for 2023.

• We expect our housing gross profit margin to be in the range of 21.0% to 21.4%, assuming no inventory-related charges, compared to 21.4% for 2023.

• We expect our selling, general and administrative expenses as a percentage of housing revenues to be approximately 10.2%, compared to 9.9% for 2023.

• We expect our effective tax rate to be approximately 23.0%, compared to 23.5% for 2023.

• We expect our ending community count to be about 260, up 7%, compared to 242 for 2023.

In addition to factors discussed elsewhere in this report, 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).

For instance, the Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and 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, 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 persist to a certain degree in the 2023 fourth quarter.

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 third quarter and first nine months, 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 created significant and ongoing headwinds for the housing market, tempering consumer demand for homes and disrupting credit and lending markets.

While the Federal Reserve is expected to lower interest rates in 2024, we cannot provide any assurance it will or that any interest rate reduction(s) will positively affect demand or our business, results of operations or consolidated financial statements.

In addition, while we experienced improvement with respect to supply chain-related disruptions as described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we believe they could persist to a certain degree during 2024.

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 2024 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.

Forward-Looking Statements

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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 over the past year 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;

• changes in interest rates, including those set by the Federal Reserve , which the Federal Reserve has increased sharply over the past two years 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;

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• 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;

• changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto;

• changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and interpretations issued with respect thereto, such as the IRS’ recent guidance regarding heightened qualification requirements for federal tax credits for building energy-efficient homes;

• changes in U.S.

trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with and retaliatory measures taken by other countries;

• disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S.

and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, create and/or exacerbate building materials and appliance shortages and/or reduce our revenues and earnings;

• disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict and other attacks in the Middle East region and military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S.

and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, exacerbate building materials and appliance shortages and/or reduce our revenues and earnings;

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

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• our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred;

• costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;

• costs and/or charges arising from regulatory compliance requirements, including the costs to implement recent federal and state climate-related disclosure rules, or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;

• our ability to use/realize the net deferred tax assets we have generated;

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• an epidemic, pandemic or significant seasonal or other disease outbreak, and the control response measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it, which may precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;

• widespread protests and/or civil unrest, whether due to political events, social movements or other reasons;

• other events outside of our control.

Please see our Annual Report on Form 10-K for the year ended November 30, 2023 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, 2023.

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, 2023.

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