What changed in this filing

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Item 1A. Risk Factors

2026-01-23 compared with 2025-01-24 · 357 added, 330 removed, 293 unchanged (70% of the section changed)

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Adverse conditions in our served markets or nationally could

be caused or worsened by factors outside of our control, including slow or negative economic growth, sustained

elevated mortgage interest rates and inflation, and various other macroeconomic as well as geopolitical concerns, such

as military conflicts in Ukraine and the Middle East, and the U.S.

federal government’s financial and regulatory

stability with the recent presidential election and change of administration.

Among other impacts, a severe or

sustained economic contraction may trigger a rise in home sales contract cancellations, which we and the

homebuilding industry experienced in our 2022 second half and 2023 first quarter, resulting in significantly lower net

orders as compared to corresponding year-earlier periods.

In addition, these conditions, along with heightened

competition from other homebuilders and sellers and landlords of existing homes, as discussed below, may lead us to

reduce our home selling prices or offer other concessions to attract or retain buyers, which we did selectively in 2024

and 2023 (particularly, mortgage-related concessions such as interest rate buydowns), and expect to continue doing in

2025 to varying degrees, negatively affecting our revenues and margins and, to the extent the concessions we offer are

not sufficient to attract and retain buyers, our net orders.

An extended downturn in the U.S.

housing market could

result in an oversupply of new home and resale inventory and greater foreclosure activity, which would further impair

our ability to sell homes at the same volume, prices and margins as in prior periods.

be caused or worsened by factors outside of our control, including slow or negative economic growth, or growth

concentrated in a few business sectors outside of housing;

sustained elevated mortgage interest rates and inflation;

consumer debt levels;

and other macroeconomic and geopolitical concerns, such as the military conflict in Ukraine,

lingering economic and financial market impacts from the prolonged shutdown of the federal government’s operations

in October and November 2025, which may be compounded if Congress cannot agree on, or the President does not

approve, a budget to fully fund the government beyond January 30, 2026, as well as the delay or cancellation of

federal funding to certain states, particularly California.

Among other impacts, a severe or sustained economic

contraction may negatively impact housing demand, exacerbate ongoing housing affordability challenges, decrease

traffic at our communities and/or trigger a rise in home sales contract cancellations, resulting in fewer net orders as

compared to corresponding year-earlier periods.

In addition, these conditions, along with heightened competition from

other homebuilders and sellers and landlords of existing homes, as discussed below, may lead us to reduce our home

selling prices or offer other concessions (such as mortgage interest rate buydowns) to attract or retain buyers.

mid-February 2025, we have focused on delivering the most compelling value to our buyers through pricing

transparency and a simplified sales approach to help stimulate demand.

We both reduced selling prices relative to

applicable market conditions and lowered or eliminated other homebuyer concessions.

While we believe this approach

drove higher traffic to our communities and stabilized demand after its implementation relative to the start of our 2025

fiscal year, an extended downturn in the U.S.

housing market could result in an oversupply of new home and resale

inventory and greater foreclosure activity, which would further impair our ability to sell homes at the same volume,

prices and margins as in prior periods.

Additionally, we can offer no assurance that our current pricing strategy, and

any changes we may implement thereto, including whether we offer or increase any concessions to homebuyers, will

improve or sustain demand relative to 2025 levels or our expectations for 2026 and beyond.

• Reduced employment levels and job and wage growth .

While employment has mostly grown since mid-2020, it may

rise more slowly or decline in 2025.

While unemployment rates remained steady in 2024 and

through the 2025 first half, the 2025 second half was marked by slower job and wage growth, as well as a gradual rise

in the unemployment rate, which may be indicative of a cooling labor market.

An increase in unemployment levels, as

well as buyers hesitating on making purchase decisions due to, among other things, tepid consumer confidence, may

lead to an increase in loan delinquencies and foreclosures, more resale homes on the market and diminished demand

for new homes, including our homes.

If it does, our core first-time and first move-up homebuyer segments could be

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• Lower population growth, household formations or other unfavorable demographic changes .

These may be driven by,

among other things, birth rate changes, economic factors or U.S.

We continue to view the

long-term outlook for the housing market favorably, based largely on demographic trends and the continued

undersupply of homes.

However, if there is less population growth or demographic trends are not as positive as we

expect, potentially driven by, among other things, birth rate changes, economic factors or U.S.

immigration policies,

demand for new homes, including our homes, could be below the long-term forecasts in our business plans and/or

result in our not achieving the same or better growth and financial performance in 2026 and beyond as we did in prior

• Lack of available affordable housing .

Elevated mortgage loan interest rates in 2024 and 2025, and the extended

undersupply of homes, among other factors, have strained housing affordability and raised demand for lower-priced

In response, we introduced smaller floor plans and offer attached homes, townhomes, and condominiums,

especially in our in-fill communities, to provide more affordable options.

However, continued affordability

challenges, particularly among entry-level homebuyers who are our primary customers, may require us to lower selling

prices or offer other concessions to generate net orders, potentially reducing our revenues and profit margins.

• Diminished consumer confidence, whether generally or as to purchasing a home .

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to search for a new home, or cancel their home sales contracts with us, due to economic or personal financial

The combination of elevated mortgage interest rates since early 2022, several years of rising housing

prices, volatility across financial markets, persistent inflation and various other macroeconomic and geopolitical

concerns have weighed on consumer budgets and confidence throughout 2024 and may continue to do so in 2025,

including due to the change in U.S.

presidential administrations in January and potential attendant regulatory

In addition, homeowners who purchased their home with a relatively low mortgage interest rate, as was

generally the case from mid-2020 to mid-2022, may be reluctant to move given the current higher interest rate levels.

With housing affordability at historically low levels, these conditions are expected to remain, and may worsen, in

Beyond negatively impacting demand, these conditions may require us to continue providing, or to increase,

concessions like those described above to stimulate net orders, adversely affecting our revenues and margins.

The combination of elevated mortgage interest rates, several years of rising housing prices, volatility

across financial markets, persistent inflation, including for essential consumer expenses ( e.g ., food, gasoline,

electricity, trash, water), and various other macroeconomic and geopolitical concerns have weighed on consumer

budgets and confidence throughout 2024 and 2025 and may continue to do so in 2026.

In addition, homeowners who

purchased their home with a relatively low mortgage interest rate may be reluctant to move given the current higher

interest rate levels.

With strained housing affordability, these conditions are expected to remain, and may worsen, in

2026, negatively impacting demand and potentially requiring us to lower selling prices or offer other concessions to

stimulate net orders, adversely affecting our revenues and margins.

• Tightened availability or affordability of mortgage loans and homeowner insurance coverage .

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known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (also known as Freddie Mac).

interest rates increase, credit standards are tightened, appraisals for our homes are lowered or mortgage loan programs

are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing to be able to

purchase a home from us.

mortgage interest rates began to moderate in the 2025 second half, if mortgage interest rates increase and/or become

more volatile, credit standards are tightened, appraisals for our homes are lowered or mortgage loan programs are

curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing to be able to purchase

a home from us.

Further, we cannot provide any assurance that any interest rate reduction(s) or other monetary policy

changes will positively affect demand for homes or our results of operations.

Since 2022, insurance companies have discontinued, or significantly reduced, underwriting new homeowner insurance

policies in areas that have experienced, or are thought to be at risk of experiencing, significant wildfires, hurricanes,

flooding or other natural disasters, such as in California and Florida.

If potential homebuyers are unable to obtain

affordable homeowner insurance coverage, which became more widespread during 2024 and is expected to be

exacerbated by the unprecedented wildfires in the Los Angeles County area in January 2025, they may not be able to

or decide not to pursue purchasing a home or may cancel a home sales contract with us.

flooding or other natural disasters, such as in California, Florida and certain Texas markets.

If potential homebuyers

are unable to obtain affordable homeowner insurance coverage, a challenge which became more widespread in

California and Florida during 2024 and was exacerbated by wildfires and various significant weather events in 2025,

they may not be able to or decide not to pursue purchasing a home or may cancel a home sales contract with us.

• Poor lender performance .

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other housing industry participants, including single-family and other rental-housing operators.

Relative to the

2021-2023 period, since mid-2024, the supply of resale properties available for sale has generally risen in our served

markets, and there has been a higher supply of rental units in some of our served markets.

This competitive

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or retain buyers.

While the historically low level of resale home inventory reduced the competition from sellers of

resale homes in 2023 and 2024, resale inventory levels rose in our served markets in the 2024 second half and we can

provide no assurance that this favorable factor will continue to the same degree, or at all, in 2025.

volatility in buyer demand since 2022 increased competitive pressures for our business and is expected to continue into

the next fiscal year.

Additionally, unpredictable buyer demand since 2022 has amplified competitive pressures and is

likely to remain a factor in 2026.

• Seasonality .

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Inflation has also tempered consumer demand for homes, disrupted credit and

lending markets and may increase our financing costs, as borrowings, if any, under our unsecured revolving credit

facility with various banks (“ Credit Facility ”) and our senior unsecured term loan with the lenders party thereto (“ Term

Loan ”) typically accrue interest at a variable rate based on short-term Secured Overnight Financing Rate (“ SOFR ”).

While we attempt to pass on increases in our costs through increased selling prices, including for design choices and

options, market forces and buyer affordability constraints can limit our ability to do so.

If we are unable to raise

selling prices enough to compensate for higher costs, or our borrowing costs increase significantly, our revenues,

housing gross profit margin and net income could be adversely affected.

lending markets and may increase our financing costs, as borrowings, if any, under our new, larger unsecured

revolving credit facility with various banks (“ Credit Facility ”) and our recently amended senior unsecured term loan

with the lenders party thereto (“ Term Loan ”) typically accrue interest at a variable rate based on short-term Secured

Overnight Financing Rate (“ SOFR ”).

While we attempt to pass on increases in our costs through increased selling

prices, including for design choices and options, market forces and buyer affordability constraints can limit our ability

If we are unable to raise selling prices enough to compensate for higher costs, or our borrowing costs

increase significantly, our revenues, housing gross profit margin and net income could be adversely affected.

Supply Risks .

The following could negatively affect our ability to increase our owned and controlled lot inventory,

community count, operational scale and market share, and to grow our business, if at all:

community count, operational scale and market share, optimize returns on each of our assets, and grow our business, if at all:

• Lack of available land;

Securing sufficient developable land that meets our investment return standards is critical for

us to meet our strategic goals and profitably expand our business’ scale.

Land availability depends on several factors,

including geographical/topographical/governmental constraints, sellers’ business relationships and reputation within

the residential real estate community, and competition from other parties, some of which can bid more for land.

Reflecting the housing market slowdown in the 2022 second half and 2023 first quarter, we and other homebuilders

reduced land acquisition spending during the period.

With market conditions having improved since the 2023 first

quarter, we and other homebuilders have measurably increased land investments, pressuring availability and pricing.

Whether we increase, decrease or maintain our current pace of land spend, we expect to continue to face competition

for desirable land in our served markets in 2025 and beyond, limiting our ability to profitably develop communities

and sell homes on such land.

• Supply chain and construction services shortages .

Our business relies on a network of suppliers and trade partners to

source materials and services to build homes.

However, our industry and the U.S.

economy have experienced since

mid-2020 labor shortages, supply chain constraints and rising and volatile raw material prices and availability, as well

as delays with respect to state and municipal construction permitting, inspections and utility processes.

constraints, cost pressures and delays have increased our costs, reduced our revenues in certain reporting periods,

particularly in 2022 and 2023, and in some instances, led to home sales contract cancellations or lower customer

satisfaction.

These trends could continue into 2025.

In an effort to manage our build times and deliver homes to our

homebuyers, we, among other things, expanded our supplier base and added new construction service providers;

delayed community openings and home starts .

Securing sufficient developable land in our

served markets, and, in some cases, in targeted submarkets that have relatively more favorable long-term economic

and population growth prospects, that meets our investment return standards is critical for us to meet our strategic

goals and profitably expand our business’ scale.

Land availability depends on several factors, including geographical/

topographical/governmental constraints, sellers’ business relationships and reputation within the residential real estate

community, and competition from other parties, some of which can bid more for land.

Reflecting housing market

conditions, we and other homebuilders appreciably increased land investments in 2024 compared to 2023, which

pressured both the availability and pricing of land.

In 2025, however, we measurably reduced our land acquisition

spending from 2024 levels to align with prevailing market conditions.

While we began to see a more constructive land

market as to terms and pricing at the beginning of the 2025 fourth quarter, we expect to continue to face competition

for desirable land in our served markets in 2026 and beyond irrespective of whether we increase, decrease or maintain

our current pace of land spend, which may limit our ability to profitably develop communities and sell homes on such

Even if we are successful in acquiring attractive land parcels, we cannot assure that we will be able to generate

the returns from developing and selling homes on such parcels expected at the time of acquisition, or positive returns.

Timely development of the land we acquire is critical to achieving our net order, homes delivered and revenue

objectives for a given period.

Our land development activities have been delayed by supply chain issues, as described

below, slow governmental approval and/or utility activation processes, and other factors, including those outside of our

control and similar delays will likely occur in future periods.

Beyond negatively affecting our community count, our

failure to meet our anticipated community grand opening dates has caused, and may in the future cause us, to generate

fewer net orders, including lost orders, and incur higher costs, including carrying costs, adversely impacting our

margins and inventory turns.

Similarly, our failure to timely start and complete new homes in an open new home

community has caused, and may in the future cause us, to incur higher costs and experience home sales contract

cancellations, as well as impair our ability to realize the benefits of faster build times, as discussed below.

• Supply chain challenges .

Our business relies on a network of suppliers and trade partners to source materials and

services to build homes.

In 2025, our supply chain faced cost pressures and constrained availability of several home

construction items due to varying tariffs, duties, sanctions and/or trade restrictions the federal government and other

countries (sometimes in retaliation) imposed on materials, parts and goods imported into the U.S., including steel,

aluminum and lumber, and we experienced continued significant delays with respect to state and municipal

construction permitting, inspections and utility processes.

In addition, shortages or rising prices of building materials

have, and may in the future, ensue from manufacturing defects that result in building material recalls or the need to

undertake prolonged on-site repairs or other remediation measures.

Such cost pressures, supply constraints, processing delays and, to a lesser degree, manufacturing defects have

increased our input costs and reduced our revenues in certain reporting periods, and in some instances, led to home

sales contract cancellations or lower customer satisfaction.

While we were able to keep our overall costs steady for

2025 through value engineering and other cost-saving measures, as well as negotiations with our suppliers, we expect

these economic and trade-related trends will continue to create headwinds into 2026 that, along with general

inflationary pressures, we may not be able to mitigate, negatively impacting our margins.

Additionally, while we have

taken steps to engage with state and local officials and utilities, both public and private, to reduce processing delays,

we can provide no assurance that the delays we experienced in 2025 will improve to any degree, if at all, in 2026 or

In an effort to accelerate our build times and the delivery of homes to our homebuyers, which improves customer

satisfaction, inventory turns and revenue generation, and the competitiveness of our value proposition to customers

relative to other new homebuilders, since 2020 we, among other things, have expanded our supplier base and added

new construction service providers;

worked with our national suppliers to get products and materials;

ordered items in advance of starting homes;

ordered items in

advance of starting homes;

implemented construction process workarounds;

simplified our design choices and options;

paced lot releases to align

with our production capacity;

simplified our design options;

releases to align with our production capacity;

and balanced pace, price and construction starts to enhance margins.

Although we have

achieved meaningful sequential improvement in our build times since the 2023 second quarter, we believe these

challenging conditions may persist to a certain degree into and potentially throughout 2025, as discussed below under

“Outlook.” We may also face increased home warranty and construction defect claims associated with replacing or

servicing substitute products or materials used in some instances to address supply shortages in certain served markets

or communities.

Beginning in the 2023 second quarter, we achieved meaningful sequential improvements in our build times and by the

end of the 2025 fourth quarter, even with disrupted trade flows and state/municipal/utility processing delays, our

company-wide build times returned to approximately their historical average.

However, we believe the challenging

environment described above, particularly trade restrictions on imported materials, may persist to a certain degree into

and potentially throughout 2026, which may slow or prevent additional progress in reducing our build times, and could

cause them to increase.

We may also face increased home warranty and construction defect claims associated with

replacing or servicing substitute products or materials used in some instances to address supply shortages due to trade

restrictions or other factors in certain served markets or communities.

• Insufficient financial resources .

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and/or make us more vulnerable in a downturn than our less-leveraged competitors.

Loan will mature on August 25, 2026 or earlier under certain circumstances.

The Credit Facility will mature on

February 18, 2027 .

Our next senior note maturity is our $300.0 million in aggregate principal amount of 6.875%

senior notes due June 15, 2027 (“ 6.875% Senior Notes due 2027 ”).

senior note maturity is our $300.0 million in aggregate principal amount of 6.875% senior notes due June 15, 2027

(“ 6.875% Senior Notes due 2027 ”).

• Decreased land inventory value .

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safety priorities ( e.g ., earthquakes, wildfires, flooding, hurricanes or other natural disasters).

Though the extent is

uncertain as of the date of this report, given the scope of the unprecedented wildfires in the Los Angeles County area

in January 2025, we expect the recovery efforts to create some of these types of disruptions in the Southern California

region during the year and beyond.

• Trade disputes and defective materials .

The federal government has imposed, and may in the future impose, new or

increased import tariffs or sanctions, and other countries have implemented retaliatory measures, raising the cost and

reducing the supply of several home construction items.

For example, the U.S., European Union and other countries

have imposed wide-ranging sanctions on Russian business sectors, financial organizations, individuals and raw

materials due to the military conflict in Ukraine that, in combination with restrictions caused by the hostilities,

contributed to higher costs and shortages of building materials.

Military conflicts and other attacks in the Middle East

region, including in or near shipping channels, may have a similar impact on the cost and availability of raw or

finished building materials and components.

Further, the new U.S.

presidential administration has promoted plans to

raise tariffs and pursue other trade policies intended to restrict imports.

In addition, shortages or rising prices of

building materials may ensue from manufacturing defects, resulting in recalls of materials.

If such disputes continue

or recalls occur, our costs and supply chain disruptions, as described above, could increase further.

• Poor contractor availability and performance .

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Strategy Risks .

Our strategies, and any related initiatives or actions, and any changes thereto, may not be successful in

achieving our goals or generate any growth, earnings or returns, particularly in the highly volatile business environment of the

past few years and as may occur in 2025, due to significant inflation, interest rate and financial market volatility, or political or

social distress.

We may not achieve positive operational or financial results, or results equal to or better than we did in any

prior period or in comparison to other homebuilders.

We may also incur higher costs, or experience sourcing or supply chain

disruptions that result in extended times to build our homes, as compared to other homebuilders due to our commitment to

sustainability.

However, we expect there could be an unfavorable reputational impact if we do not maintain our sustainability

programs, including if we decide not to construct homes that are designed to be ENERGY STAR certified or are otherwise as

energy efficient as those we currently build;

fail to achieve ENERGY STAR certification or any other voluntarily elected or

mandatory energy-efficiency standard for our homes, which has occurred in a few instances in recent years;

or if we fail to meet

our sustainability objectives.

Among other strategic risks, our business is presently concentrated in California, Florida, Nevada

Poor conditions in any of those markets could have a measurable negative impact on our results, and the impact

could be larger for us than for other less-concentrated homebuilders.

Our strategies, and any related initiatives or actions, and any changes thereto, including as to the land we

acquire and develop and the markets we decide to serve, may not be successful in achieving our goals or generate any growth,

earnings or returns, particularly in the highly volatile business environment of the past few years and as may occur in 2026, due

to inflation, interest rate and financial market volatility, or political or social distress.

In 2025, around 55% of our homes

delivered were Built to Order , largely reflecting strategies to navigate supply chain disruptions that substantially lengthened our

average build time and hindered our even-flow home production process, and market dynamics in areas with then-low resale

home inventory.

Our intent for 2026 is to bring our mix of homes delivered closer to our historical average.

However, we may

not achieve positive operational or financial results from implementing this or other business strategies, or results equal to or

better than we did in any prior period or in comparison to other homebuilders.

We may also incur higher costs, or experience

sourcing or supply chain disruptions that result in extended times to build our homes, as compared to other homebuilders due to

our commitment to sustainability.

At the same time, we expect there could be an unfavorable reputational impact if we do not

maintain our sustainability programs;

or if we fail to meet our sustainability objectives.

Among other strategic risks, our

business is presently concentrated in California, Florida, Nevada and Texas.

Poor conditions in any of those markets could

have a measurable negative impact on our results, and the impact could be larger for us than for other less-concentrated

homebuilders.

Adverse conditions in California would have particular significance to our business.

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design requirements) that are intended to address severe drought and climate conditions that have arisen in recent years.

addition, as large-scale wildfires and flooding, as well as hurricanes, heavy rains and other climate change-driven natural

disasters in our served markets become more frequent and intense, as discussed below under “ Climate Risk ,” we may

addition, to the extent large-scale wildfires and flooding, as well as hurricanes, heavy rains and other climate change-driven

natural disasters in our served markets become more frequent and intense, as discussed below under “ Climate Risk ,” we may

experience greater disruption to our land development and homebuilding activities, delaying orders and homes delivered,

among other impacts.

Though the extent is uncertain and none of our communities or operations have been directly affected as

of the date of this report, given the scope of the unprecedented wildfires in the Los Angeles County area in January 2025, we

may experience some disruption in our homebuilding activities, and potentially with our orders and homes delivered, in the

Southern California region during the year and beyond .

Also, California’s highly regulated and litigious business environment has made the state an increasingly difficult place for

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(through customer leases) or cover such costs through selling price increases due to competition and consumer affordability

We also face an uncertain solar power system provider environment largely due to changes in California net

metering regulations that created significant instability in the solar power industry, with several providers going out of business

or entering bankruptcy.

This has disrupted the supply and installation of solar power systems, causing delays in system

completions and permissions to operate and, in turn, home deliveries.

In 2022, the California Air Resources Board adopted a plan to eliminate installing natural gas appliances in new homes

built in 2026 and beyond.

In addition, the state’s energy commission issued new energy efficiency standards requiring all new

residences to be electric-ready for heating, cooling, cooking, clothes drying and water heating systems.

California and certain

of its local governments have implemented restrictions on or disincentives for new suburban and exurban residential

communities, generally in favor of higher-density, urban developments that can be attractive to some buyers, but in many cases

are on smaller parcels with higher building costs and more complicated entitlement requirements and may be subject to

affordable housing mandates, prevailing wage requirements, greater local opposition and/or additional site remediation work.

These efforts have and could further significantly increase our land acquisition and development costs and, along with

competition from other homebuilders and investors for available developable land, limit our California operations’ growth,

while making new homes less affordable to potential buyers in the state, including as a result of its public utilities commission’s

decision to significantly reduce net metering payments to homeowners for the rooftop solar power they export to the grid from

systems installed.

We also faced an uncertain solar power system provider environment in 2025 and 2024 largely due to the federal

government’s repealing and/or accelerating the expiration of related tax credits, as described below, and changes in California

net metering regulations that created significant instability in the solar power industry, with several providers going out of

business or entering bankruptcy.

This has disrupted the supply and installation of solar power systems, causing delays in

system completions and permissions to operate and, in turn, home deliveries.

The federal government’s repeal and/or

accelerated expiration of tax credits for solar power systems has also caused lease financing providers to exit the market,

pressuring the availability of leases for customers in California.

Effective in 2026, California’s new energy efficiency standards will require all new residences to be electric-ready for

heating, cooling, cooking, clothes drying and water heating systems.

In addition, California and certain of its local

governments have implemented restrictions on or disincentives for new suburban and exurban residential communities,

generally in favor of higher-density, urban developments that can be attractive to some buyers, but in many cases are on smaller

parcels with higher building costs and more complicated entitlement requirements and may be subject to affordable housing

mandates, prevailing wage requirements, greater local opposition and/or additional site remediation work.

These efforts have

and could further significantly increase our land acquisition and development costs and, along with competition from other

homebuilders and investors for available developable land, limit our California operations’ growth, while making new homes

less affordable to potential buyers in the state, including as a result of its public utilities commission’s decision to significantly

reduce net metering payments to homeowners for the rooftop solar power they export to the grid from systems installed.

Climate Risk .

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technical/scientific mitigation or adaptation measures, if any, that should be implemented, global climate change and responses

to it present potential risks to our operations, ranging from more frequent extreme weather events to extensive governmental

policy developments and shifts in consumer preferences, which could individually or collectively significantly disrupt our

business as well as negatively affect our suppliers, independent contractors and customers.

Experiencing or addressing the

various risks from climate change may significantly reduce our revenues and profitability, or cause us to generate losses.

instance, incorporating greater resource efficiency into our home designs, whether to comply with upgraded building codes or

recommended practices given a region’s particular exposure to climate conditions, or undertaken to satisfy demand from

increasingly environmentally conscious customers or to meet our own sustainability goals, often raises our costs to construct

In evaluating whether to implement voluntary improvements, we also consider that choosing not to enhance our homes’

resource efficiency can make them less attractive to municipalities, and increase the vulnerability of residents in our

communities to rising energy and water expenses and use restrictions.

We weigh the impact of the costs associated with

offering more resource-efficient products against our priorities of generating higher returns and delivering homes that are

affordable to our core first-time and first move-up buyers.

We also consider whether our buyers may face higher costs for, or

may be unable to obtain, fire, flood or other hazard insurance coverage in certain areas due to local environmental conditions or

historical events.

In balancing these objectives, we may determine we need to absorb most or all the additional operating costs

that come with making our homes more efficient and/or from operating in areas with more extensive regulatory requirements,

such as California, or certain climates.

While our years of experience in sustainable homebuilding, as discussed above under

“ Sustainability Principles and Practices ,” and ability to leverage economies of scale may give us an advantage over other

homebuilders in managing these absorbed costs, they may be substantial for us.

Beyond the commercial pressures implicated by climate change concerns, our operations in any of our served markets may

face potential adverse physical effects.

For example, California, our largest market, has historically experienced, and is

projected to continue to experience, climate-related events at an increasing frequency including drought, water scarcity, heat

waves, wildfires (such as the unprecedented wildfires in the Los Angeles County area in January 2025), and resultant air quality

impacts and power shutoffs associated with wildfire prevention.

In addition, based on an Arizona state order in June 2023, new

housing subdivisions will not be permitted in some parts of Phoenix unless developers, like us, secure water supplies other than

local groundwater.

While we have health and safety protocols in place for our construction sites and take steps to safeguard our

administrative functions, including our IT resources, as described below under “ Information Technology and Information

Security Risks ,” we can provide no assurance that we or our suppliers or trade partners can successfully operate in areas

experiencing frequent or persistent adverse climate-related conditions, and we or they may be more impacted and take longer,

and with higher costs, to resume operations in an affected location than other homebuilders or businesses, depending on the

nature of the conditions or other circumstances.

As discussed above under “ Strategy Risks ,” and below under “ Legal and Compliance Risks ,” international, federal, state

and local authorities and legislative bodies have issued, implemented or proposed regulations, penalties, standards or guidance

intended to restrict, moderate or promote activities consistent with resource conservation, GHG emission reduction,

environmental protection or other climate-related objectives.

Compliance with those directed at or otherwise affecting our

business or our suppliers’ (or their suppliers’) operations, products or services, could increase our costs, such as with

California’s requirement that all new homes have solar power systems and agency requirements for all-electric readiness and

plans to potentially eliminate natural gas appliances in new homes built in the state by 2026;

delay or complicate home

construction, for example, due to a need to reformulate or redesign building materials or components, or source updated or

upgraded items or equipment, or specially trained or certified independent contractors, in limited or restricted supply, which has

been a challenge for us in certain cases in the past few years, such as with paint, garage doors, insulation, electrical materials,

cabinets, HVAC equipment and water heaters that have been out of stock and delayed home construction or required us to

install or use temporary or permanent substitutes due to the supply chain disruptions we have experienced;

consumer interest in homes mandated to include or omit certain features, amenities or appliances, particularly if home prices

increase as a result.

to it present potential risks to our operations, ranging from extreme weather events to extensive governmental policy

developments and shifts in consumer preferences, which could individually or collectively significantly disrupt our business as

well as negatively affect our suppliers, independent contractors and customers.

Experiencing or addressing these various risks

may significantly reduce our revenues and profitability, or cause us to generate losses.

For instance, incorporating greater

resource efficiency into our home designs to comply with upgraded building codes often raises our costs to construct homes.

evaluating whether to implement voluntary improvements, we consider that choosing not to enhance our homes’ resource

efficiency can make them less attractive to municipalities, and increase the vulnerability of residents in our communities to

rising energy and water expenses and use restrictions.

We balance these costs against our goals of profitability and affordability

for first-time and first move-up buyers, while considering potential homeowner insurance challenges in certain areas due to

local environmental conditions, historical events and/or the regulatory environment for insurance providers.

We may determine

we need to absorb most or all the additional operating costs that come with making our homes more efficient and/or from

operating in areas with more extensive regulatory requirements, such as California, or certain climates.

While our years of

experience in sustainable homebuilding, as discussed above under “ Sustainability Principles and Practices ,” may give us an

advantage over other homebuilders in managing these absorbed costs, they may be substantial for us.

Our operations in any of our served markets may face potential adverse physical effects, especially in California, our

largest market, that has historically experienced, and is projected to continue to experience, climate-related events at an

increasing frequency including drought, water scarcity, heat waves, wildfires, and resultant air quality impacts and power

shutoffs associated with wildfire prevention.

In addition, as we develop land and open more communities in less populated

areas, new housing subdivisions may be subject to potential development moratoriums and not be permitted unless developers

secure alternative water supplies, among other conditions.

While we have health and safety protocols in place for our

construction sites and take steps to safeguard our administrative functions, including our IT resources, as described below under

“ Information Technology and Information Security Risks ,” we can provide no assurance that we or our suppliers or trade

partners can successfully operate in areas experiencing frequent or persistent adverse climate-related conditions, and we or they

may be more impacted and take longer, and with higher costs, to resume operations in an affected location than other

homebuilders or businesses, depending on the nature of the conditions or other circumstances.

As discussed above under “ Strategy Risks ,” and below under “ Legal and Compliance Risks ,” various government and

legislative bodies have aimed to restrict, moderate or promote activities consistent with resource conservation, GHG emission

reduction, environmental protection or other climate-related objectives.

These initiatives could increase our costs, such as with

California’s requirement that all new homes have solar power systems, agency requirements for all-electric readiness and higher

efficiency standards, including the use of zero-emission alternatives, beginning in 2026;

delay or complicate home construction,

for example, due to a need to reformulate or redesign building materials or components, or source updated or upgraded items or

equipment, or specially trained or certified independent contractors, in limited or restricted supply, which has been a challenge

for us in certain cases in the past few years;

or diminish consumer interest in homes mandated to include or omit certain

features, amenities or appliances, particularly if home prices increase as a result.

Adapting to or transitioning from the use of certain items or methods in home construction, or adjusting the products we

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California where natural gas use is banned in new homes, we have faced some disruptions in reorienting our purchase order,

independent contractor engagement, design studio and home construction processes to accommodate the restriction and, longer

term, have implemented certain architectural design changes for all-electric homes.

To the extent other jurisdictions or the state

adopt such bans and as we implement the state’s all-electric readiness requirements, as discussed above, we will face similar

independent contractor engagement, design studio and home construction processes and have implemented certain architectural

design changes for all-electric homes.

To the extent other jurisdictions or the state adopt such bans and as we implement the

state’s all-electric readiness requirements, as discussed above, we will face similar issues.

Though practically available technology and resources allow us only to make certain estimates, and not definitive

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financial risks, and measures adopted to reduce and adapt to such risks.

While the state enacted SB-219 in September 2024 that

amends certain aspects of SB-253 and SB-261, California law currently requires initial disclosures in 2026.

California also

enacted a third climate-disclosure law that requires entities that operate in the state and make net zero emissions claims, carbon-

neutral claims or significant GHG reduction claims to disclose, starting in 2024 , information about those claims and the

purchase or use of voluntary carbon offsets used to achieve those claims.

California has delayed formal rulemaking for SB-253

to at least late February 2026.

We expect to file an initial Scope 1 and Scope 2 GHG emissions report later in the year under

SB-253, pending finalization of the regulations.

As of the date of this report, SB-261 is subject to a court injunction on its

implementation.

Whether we file a climate-related financial risk report under SB-261 in 2026 depends on the outcome of the

legal process affecting that statute and any regulations California adopts.

We may also experience substantial negative impacts to our business if an unexpectedly severe weather event or natural

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impose substantial restrictions on our activities or adaptation requirements.

Such severe weather events, including impacts

from the unprecedented wildfires in the Los Angeles County area in January 2025, could delay home construction, increase

construction costs, reduce the availability of building materials, and damage roads and/or cause transportation delays that stress

our supply chain and negatively impact the demand for new homes in affected areas, as well as slow down or otherwise impair

the ability of utilities and local government agencies to provide approvals and service to new communities.

Further, if our

insurance does not fully cover our costs and other losses from such events, our earnings, liquidity, or capital resources could be

adversely impacted.

Warranty Risks .

Such severe weather events could delay home

construction, increase construction costs, reduce the availability of building materials, and damage roads and/or cause

transportation delays that stress our supply chain and negatively impact the demand for new homes in affected areas, as well as

slow down or otherwise impair the ability of utilities and local government agencies to provide approvals and service to new

Further, if our insurance does not fully cover our costs and other losses from such events, our earnings, liquidity,

or capital resources could be adversely impacted.

Warranty and Insurance Risks .

Our homebuilding business is subject to warranty and construction defect claims.

Though we have

insurance coverage to partially reduce our exposure, it is limited and costly, in part due to a shrinking provider market, and we

have high self-insured retentions that are expected to increase.

we have insurance coverage to partially reduce our exposure, it is limited and costly, in part due to a shrinking provider market,

and we have high self-insured retentions that are expected to increase.

We self-insure some of our risk through a wholly-owned

insurance subsidiary.

Because we do not maintain insurance coverage to cover all claims or liabilities that may arise in our

business, and have high self-insured retentions with the insurance coverages we do maintain, we may need to use a significant

amount of our then-existing liquidity, or obtain external financing, to satisfy any such claims and liabilities.

Due to our dependence on the performance of independent suppliers and contractors to provide products and materials and

carry out our homebuilding activities, and the associated risks described above under “ Inflation ,” “ Supply chain and

construction services shortages ” and “ Poor contractor availability and performance ,” as well as inherent uncertainties, including

obtaining recoveries from responsible parties and/or their or our insurers, our recorded warranty and other liabilities may be

inadequate to address future claims, which, among other things, could require us to record charges to increase such liabilities.

We may also record charges to reflect our then-current claims experience, including the actual costs incurred.

Home warranty

and other construction defect issues may also generate negative publicity, including on social media and the internet, that

detracts from our reputation and efforts to sell homes.

carry out our homebuilding activities, and the associated risks described above under “ Inflation ,” “ Supply chain challenges ”

and “ Poor contractor availability and performance ,” as well as inherent uncertainties, including obtaining recoveries from

responsible parties and/or their or our insurers, our recorded warranty and other liabilities may be inadequate to address future

claims, which, among other things, could require us to record charges to increase such liabilities.

We may also record charges

to reflect our then-current claims experience, including the actual costs incurred.

Home warranty and other construction defect

issues may also generate negative publicity, including on social media and the internet, that detracts from our reputation and

efforts to sell homes.

Tax-Related Risks .

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changes in available tax

adjustments to estimated taxes in finalizing our tax returns and/or due to new regulatory guidance, as occurred in our

2023 fourth quarter;

changes in non-deductible expenses, particularly those associated with compensation;

tax benefits related

to stock-based compensation;

the realization of our deferred tax assets;

and the resolution of tax audits with federal or state tax

authorities based on, among other things, tax positions we have taken.

In prior years, we have recognized federal tax credits from our building energy-efficient new homes.

In some periods,

these tax credits were not available because Congress had not renewed the program.

The 2022 Inflation Reduction Act (“ IRA ”)

extended this federal tax credit under Internal Revenue Code Section 45L (“ Section 45L ”) to 2032.

At the same time, the

legislation newly tied qualifying for the Section 45L tax credit on and after January 1, 2023 to new homes achieving ENERGY

STAR certification.

Internal Revenue Service (“IRS”) guidance set a qualifying ENERGY STAR version that makes it more

costly to satisfy the Section 45L requirements.

Subject to future guidance, regulation or legislation, we have opted to build

homes in many of our markets beginning in 2025 to an alternate version of ENERGY STAR under which our homes delivered

will continue to be highly energy efficient and qualify for ENERGY STAR certification but not qualify for Section 45L tax

credits, as we believe the additional costs necessary for some of our homes to satisfy the higher Section 45L standards outweigh

the possible benefits from meeting them for both our business and our buyers.

Therefore, we expect to realize fewer such tax

credits compared to prior periods.

Further, should the Section 45L tax credit be reduced or repealed, or if the qualification

standards are revised, or we adjust how we build our homes, such that even fewer of our homes qualify for the Section 45L or

other energy efficiency-related tax credits, our income tax rate and expense would likely increase, which would reduce our net

income and cash flow and may have a material adverse impact on our consolidated financial statements.

adjustments to estimated taxes in finalizing our tax returns and/or due to new regulatory guidance;

changes in non-

deductible expenses, particularly those associated with compensation;

tax benefits related to stock-based compensation;

realization of our deferred tax assets;

and the resolution of tax audits with federal or state tax authorities based on, among other

things, tax positions we have taken.

In 2025 and prior years, we have recognized federal tax credits under Internal Revenue Code Section 45L (“ Section 45L ”)

from our building energy-efficient new homes, when such credits were available to us.

In July 2025, H.R.1, the One Big

Beautiful Bill Act (“ OBBBA ”) repealed the Section 45L credit for homes delivered after June 30, 2026.

As a result, beginning

in our 2026 third quarter, our income tax expense and effective tax rate will no longer reflect a benefit from such tax credits as

to homes delivered after that date.

Our realization of our deferred tax assets depends on our generating sufficient future taxable income, which may not occur.

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reductions, our performance, profitability and ability to achieve our strategic goals could be significantly impaired.

in many of our served markets, we need to have personnel with certain professional licenses, including building contractor and

real estate brokerage licenses.

Our home selling and construction activities may be severely disrupted or delayed if we do not

have sufficient licensed individuals in our workforce.

have developed extensive leadership development programs and succession plans, as discussed above, we cannot assure that

our programs and plans, and their future iterations, will ensure that employees in key leadership positions who depart will be

replaced by equally or more effective successors.

In addition, in many of our served markets, we need to have personnel with

certain professional licenses, including building contractor and real estate brokerage licenses.

Our home selling and

construction activities may be severely disrupted or delayed if we do not have sufficient licensed individuals in our workforce.

Information Technology and Information Security Risks .

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employee laptops.

To help counter the growing volume and sophistication of cyberattacks, including the potential of

fraudulently inducing our employees, customers, trade partners and other third parties to disclose information or unknowingly

provide access to systems or data, as well as state and other actors using artificial intelligence technology, we have implemented

administrative, physical and multi-layered technical controls and processes to help address and mitigate cybersecurity risks and

protect our IT resources, including employee education and awareness training, as well as third-party assessments.

technical defense layers are designed to provide multiple, overlapping measures to protect against exploitation of a vulnerability

that may arise or if a security control fails.

For these defenses, we rely on a combination of artificial intelligence, machine

learning computer network monitoring, malware and antivirus resources, firewall systems, vendor cloud service defenses,

internet address and content filtering monitoring software that secures against known malicious websites and potential data

exfiltration, and a variety of cyber intelligence threat monitoring sources that provide ongoing updates, all provided from third

parties that we believe, but cannot guarantee, are capable of performing the protective service for which we have engaged them.

We conduct periodic incident response tabletop exercises, with third-party support and reviews, and have established

communication channels with KBHS security personnel and key partners regarding their breach and incident response

In addition, we perform an annual cybersecurity risk assessment to identify potential areas of focus.

depend on our service providers, GR Alliance and other mortgage lenders with whom we share some personal identifying and

confidential information to secure our information and the homebuyer information they collect from us.

Our IT security costs,

including cybersecurity insurance, are significant and will likely rise in tandem with the sophistication and frequency of system

However, our, GR Alliance ’s and our service providers’ measures may be inadequate and possibly have operational or

security vulnerabilities that could go undetected for some period of time.

If our IT resources are compromised by an intentional

attack, natural or man-made disaster, electricity blackout, IT failure or systems misconfiguration, service provider error,

mismanaged user access protocols, personnel action, or otherwise, we may be severely limited in conducting our business and

achieving our strategic goals for an extended period, experience internal control failures or lose access to operational assets or

A substantial disruption, or security breach suffered by GR Alliance / KBHS or a service provider, particularly our cloud

service provider which hosts many of our IT resources, could damage our reputation and result in the loss of customers or

revenues, in sensitive personal information being publicly disclosed or misused and/or legal proceedings against us.

incur significant expenses to resolve such issues.

While, to date, we have not had a significant cybersecurity breach or attack

that had a material impact on our business or consolidated financial statements, there can be no assurance our efforts to

maintain the security and integrity of these systems will be effective or that attempted security breaches, cyber-attack, data theft

or disruptions would not occur in the future, be successful or damaging.

To help counter the growing volume and sophistication of cyberattacks and other attempts to gain

unauthorized access to sensitive business or individuals’ personal information, including the potential of fraudulent schemes

inducing our employees, customers, trade partners, or other third parties to disclose information or unknowingly provide access

to systems or data, whether in our sales offices or elsewhere, and considering the use of artificial intelligence and other

technology to compromise our user access protocols, we have implemented administrative, physical and multi-layered technical

controls and processes.

These measures are designed to help address and mitigate cybersecurity risks and protect our IT

resources and sensitive information, and include employee education and awareness training, as well as assessments conducted

by external third parties.

Our technical defense layers are designed to provide multiple, overlapping measures to establish

appropriate system security configurations and protect against exploitation of a vulnerability that may arise or if a security

control fails.

For these defenses, we rely on third parties that we believe, but cannot guarantee, are capable of performing the

protective service for which we have engaged them.

We conduct periodic incident response tabletop exercises, with third-party

support and reviews, and we perform an annual cybersecurity risk assessment to identify potential areas of focus.

security costs, including cybersecurity insurance, are significant and will likely rise in tandem with the sophistication and

frequency of system attacks.

We also depend on our service providers, GR Alliance and other mortgage lenders, with whom we share some personal

identifying and confidential information, to secure our data and the homebuyer information they collect from us.

However, our,

GR Alliance ’s and our service providers’ measures may be inadequate and possibly have operational or security vulnerabilities

that could go undetected for some period of time.

If our IT resources are compromised, we may be severely limited in

conducting our business and achieving our strategic goals for an extended period, experience internal control failures or lose

access to operational assets or funds.

A substantial disruption, or security breach suffered by us, GR Alliance / KBHS or a

service provider, particularly our cloud service provider which hosts many of our IT resources, could damage our reputation

and result in the loss of customers or revenues, in sensitive personal information being publicly disclosed or misused and/or

regulatory or legal proceedings against us.

We may incur significant expenses to resolve such issues.

While, to date, we have

not had a significant cybersecurity breach or attack that had a material impact on our business or consolidated financial

statements, there can be no assurance our efforts to maintain the security and integrity of these systems will be effective or that

attempted security breaches, cyber-attack, data theft or disruptions would not occur in the future, be successful or damaging.

Beyond our service providers, we depend on independent third parties to handle certain processes required to complete land

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stormwater discharges from community sites;

and wetlands and listed species habitat

We could incur penalties and/or be restricted from developing or building at certain community locations during or

as a result of such agencies’ investigations or findings.

wetlands and listed species habitat

and governmental health and safety rules and requirements, such as those enforced by the federal Occupational

Safety and Health Administration and similar state agencies.

We could incur penalties and/or be restricted from developing or

building at certain community locations during or as a result of such agencies’ investigations or findings.

Additionally, we are involved in legal, arbitral or regulatory proceedings or investigations incidental to our business, the

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resolving an otherwise relevant action in another jurisdiction(s).

The European Union and state governments, notably California and Nevada, have enacted or enhanced data privacy

regulations, and other governments are considering establishing similar or stronger protections.

These regulations impose

certain obligations for securing, and potentially removing, specified personal information in our systems, and for apprising

individuals of the information we have collected about them.

We have incurred costs in an effort to address these data privacy

risks and requirements, and our costs may increase significantly as risks become increasingly complex or if new or changing

requirements are enacted, and based on how individuals exercise their rights.

Despite our efforts, any noncompliance could

result in our incurring substantial penalties and reputational damage.

The European Union and state governments, notably California, Colorado, Delaware and Nevada, have enacted or

enhanced data privacy regulations, and other governments are considering establishing similar or stronger protections.

regulations impose certain obligations for securing, and potentially removing, specified personal information in our systems,

and for apprising individuals of the information we have collected about them.

We have incurred costs in an effort to address

these data privacy risks and requirements, and our costs may increase significantly as risks become increasingly complex or if

new or changing requirements are enacted, and based on how individuals exercise their rights.

Despite our efforts, any

noncompliance could result in our incurring substantial penalties and reputational damage.

KBHS ’ operations are heavily regulated.

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recognizing losses on our KBHS equity interest.

Our financial results may be materially affected by the adoption of new or amended financial accounting standards, and

regulatory or outside auditor guidance or interpretations.

In addition, to the extent we expand our disclosures on our

sustainability initiatives in line with certain private reporting frameworks and investor requests, or the proposed SEC rules

mentioned above, if adopted, our failure to report accurately or achieve progress on our metrics on a timely basis, or at all,

could adversely affect our r eputation, business, financial performance and growth.

Our financial results may be materially affected by our use of critical accounting estimates and the adoption of new or

amended financial accounting standards, as well as regulatory or outside auditor guidance or interpretations.

In addition, to the

extent we expand our disclosures on our sustainability initiatives in line with certain private reporting frameworks and investor

requests, our failure to report accurately or achieve progress on our metrics on a timely basis, or at all, could adversely affect

our r eputation, business, financial performance and growth.

Other Risks .

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

What changed 10-K

Item 1A. Risk Factors