What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 221 added, 111 removed, 334 unchanged (50% of the section changed)

17 unchanged sentences

Since commencing home building operations in 2003, we have constructed and closed over 50,000 homes.

During the three months ended March 31, 2022, we had 1,599 home closings, compared to 2,561 home closings during the three months ended March 31, 2021.

At March 31, 2022, we had 88 active communities, including seven Terrata Homes communities.

At March 31, 2021, we had 110 active communities, including two Terrata Homes communities.

During the three months ended March 31, 2022, we recorded $51.8 million in wholesale revenues as a result of 213 home closings, representing 13.3% of the total homes closed during the three months ended March 31, 2022.

During the three months ended March 31, 2021, we recorded $62.4 million in wholesale revenues as a result of 283 home closings, representing 11.1% of the total homes closed during the three months ended March 31, 2021.

We believe our wholesale home closings provide opportunities for us to leverage our systems and processes to meet the needs of companies looking to acquire multiple homes for rental purposes, primarily through bulk sales agreements.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends.

These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control.

The outbreak and spread of COVID-19 and variants thereof (hereinafter collectively referred to as “COVID-19”) and resulting containment efforts by governmental, regulatory and health agencies caused significant disruptions in the global economy, including tightened supply chains, raw material price volatility and significant cost inflation.

During the three months ended March 31, 2022, we continued to experience significant supply chain disruptions that extended construction and development cycles and delayed home closings and the opening of new communities.

While we continue to carefully manage our supply chain to limit impacts to our business and customers, we believe these COVID-19 related global shortages will continue to impact our operations as long as the dynamics surrounding the pandemic persist.

We also believe that the desire for our single-family homes remains strong.

During the three months ended March 31, 2022, we closed 1,599 homes compared to 2,561 homes closed in the same period last year.

The first quarter of 2021 was one of the strongest in our history during which we set new Company records with respect to a number of financial metrics.

The decline in home closings was attributable to longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of closings.

Housing market conditions were generally favorable during the six months ended June 30, 2022, supported by a strong demand environment, limited inventory of new and existing homes for sale, strong household formations, low unemployment and historically attractive mortgage interest rates.

However, during the second quarter of 2022, we experienced a rapid increase in mortgage interest rates resulting from the Federal Reserve’s actions to stem continued price inflation.

As a result, demand for our homes decreased during the second quarter of 2022 as many potential homebuyers paused or reconsidered their purchase decisions.

As these events occurred at the end of the second quarter of 2022, their potential impact is not fully reflected in our reported results as the majority of the contracts on the homes we closed included rate locks and were written prior to the rapid acceleration in mortgage interest rates.

New orders weakened during the second quarter of 2022 in many of our markets and we experienced a higher than normal cancellation rate during the second quarter of 2022.

We expect that mortgage interest rates will remain elevated until inflation subsides.

Our strategy to combat these headwinds and drive continued sales is to increase our targeted advertising spend to connect with more potential homebuyers.

We started executing on this strategy towards the end of the second quarter of 2022 and have seen favorable results in both the number of leads generated and new orders written.

This gives us confidence that, despite the challenges of the market, there remains a strong pool of qualified buyers for our homes.

We continue to sell homes later in the construction cycle to maximize profitability and provide a better customer experience.

Additionally, during the second quarter of 2022, we slowed our pace of new home starts to match current levels of absorptions in all of our communities.

During the three months ended June 30, 2022, we had 2,027 home closings, compared to 2,856 home closings during the three months ended June 30, 2021.

During the six months ended June 30, 2022, we had 3,626 home closings, compared to 5,417 home closings during the six months ended June 30, 2021.

The decline in home closings for both the three months and six months ended June 30, 2022 was attributable to the prior year’s strong comparable numbers and compounded by longer lead times relating to labor, materials and municipality activities that increased our construction and development cycle times and negatively impacted the timing of home closings.

We expect continued cost inflation, building material shortages and longer municipality lead times will persist until demand for new homes normalizes and global supply chain constraints ease.

At June 30, 2022, we had 92 active communities, including seven Terrata Homes communities.

At June 30, 2021, we had 106 active communities, including two Terrata Homes communities.

In June 2022, we experienced our first home closings in the state of Maryland and are now operating in 35 markets across 20 states.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, mortgage interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends.

These factors, and in particular

consumer confidence, can be significantly adversely affected by a variety of factors beyond our control.

During the three months ended June 30, 2022, we continued to experience significant supply chain disruptions, stemming from COVID-19 and variants thereof (collectively, “COVID-19”), that extended construction and development cycles and delayed home closings and the opening of new communities.

While we continue to carefully manage our supply chain to limit impacts to our business and customers, we believe these global shortages will continue to impact our operations as long as the dynamics surrounding the COVID-19 pandemic persist.

We also believe that the desire for our single-family homes remains strong.

For additional discussion regarding our operations and COVID-19, see Item 7.

2 unchanged sentences

Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Recent Developments

On April 29, 2022, amounts available to the Company under the Credit Agreement (as defined herein) were increased by $250.0 million to $1.1 billion, in accordance with the terms and conditions of the Second Amendment (as defined herein).

Key financial results as of and for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, were as follows:

Key financial results as of and for the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, were as follows:

• Home sales revenues decreased 8.6% to $723.1 million from $791.5 million.

3 unchanged sentences

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 33.1% from 28.5%.

• Net income before income taxes increased 9.3% to $163.0 million from $149.1 million.

• Net income increased 4.4% to $123.4 million from $118.1 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 23.4% from 20.2%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 23.1% from 20.0%.

For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “ —Non-GAAP Measures .”

Key financial results as of and for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, were as follows:

• Home sales revenues decreased 15.2% to $1.3 billion from $1.5 billion.

• Homes closed decreased 33.1% to 3,626 homes from 5,417 homes.

• Average sales price per home closed increased 26.6% to $350,005 from $276,438.

• Gross margin as a percentage of home sales revenues increased to 30.7% from 27.0%.

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 31.9% from 28.5%.

• Net income before income taxes decreased 3.6% to $262.6 million from $272.4 million.

1 unchanged sentence

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 21.6% from 19.6%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 18.8% from 19.0%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 21.3% from 19.5%.

We owned and controlled 93,270 lots at March 31, 2022 and 91,845 lots at December 31, 2021.

We owned and controlled 89,984 lots at June 30, 2022 as compared to 93,270 lots at March 31, 2022 and 91,845 lots at December 31, 2021.

Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table sets forth our results of operations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(dollars in thousands, except per share data and average home sales price)

5 unchanged sentences

Operating income 159,006 146,007 254,726 268,450

Loss on extinguishment of debt — 662 — 662

Other income, net (4,006) (3,776) (7,836) (4,609)

36 unchanged sentences

We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting.

Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of

our business.

Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our

results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.

EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring.

6 unchanged sentences

Please see “ —Non-GAAP Measures ” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended March 31, 2022 and 2021 were as follows (revenues in thousands):

Three Months Ended March 31, 2022 As of March 31, 2022

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended June 30, 2022 and 2021 were as follows (revenues in thousands):

Three Months Ended June 30, 2022 As of June 30, 2022

Revenues Home Closings ASP Average Community Count Average

6 unchanged sentences

Total $ 723,069 2,027 $ 356,719 91.3 7.4 92

Three Months Ended March 31, 2021 As of March 31, 2021

Revenues Home Closings ASP Average Community Count Average Monthly

Three Months Ended June 30, 2021 As of June 30, 2021

Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

5 unchanged sentences

Total $ 791,512 2,856 $ 277,140 105.0 9.1 106

Home sales revenues for the three months ended March 31, 2022 were $546.1 million, a decrease of $159.9 million, or 22.7%, from $706.0 million for the three months ended March 31, 2021.

The decrease in home sales revenues is primarily due to a 37.6% decrease in homes closed partially offset by an increase in the average sales price per home closed during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The average sales price per home closed during the three months ended March 31, 2022 was $341,495, an increase of $65,840, or 23.9%, from the average sales price per home closed of $275,655 for the three months ended March 31, 2021.

The increase in the average sales price per home closed is primarily due to our ability to pass through cost increases associated with construction in favorable pricing environments.

Additionally, we experienced higher price points in all reportable segments.

The overall decrease in home closings is a result of lower average community count and overall lower absorption pace during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The overall decrease in absorption relates to increased cycle times that are pandemic related production disruptions.

These disruptions have caused varying degrees for supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.

Home sales revenues in our Central reportable segment decreased by $26.5 million, or 9.2%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 25.1% decrease in the number of homes closed driven by a decrease in the average community count at a slightly lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Southeast reportable segment decreased by $64.1 million, or 46.9%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 56.6% decrease in the number of homes closed driven by a decrease in the average community count at a slightly lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Northwest reportable segment decreased by $15.3 million, or 13.0%, during the three months ended March 31, 2022 as compared to the three months ended March 31,

2021, primarily due to a 32.1% decrease in the number of homes closed driven by a slight decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by a sharp increase in the average sales price per home closed.

Home sales revenues in our West reportable segment decreased by $25.6 million, or 31.5%, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, primarily due to a 43.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Florida reportable segment decreased by $28.5 million, or 35.0%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, primarily due to a 49.0% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by the increase of 27.3% in the average sales price per home closed.

Differing absorption rates in our reportable segments was generally related to available homes to sell.

Home sales revenues for the three months ended June 30, 2022 were $723.1 million, a decrease of $68.4 million, or 8.6%, from $791.5 million for the three months ended June 30, 2021.

The decrease in home sales revenues is primarily due to a 29.0% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

The average sales price per home closed during the three months ended June 30, 2022 was $356,719, an increase of $79,579, or 28.7%, from the average sales price per home closed of $277,140 for the three months ended June 30, 2021.

The increase in the average sales price per home closed in all reportable segments is primarily due to favorable pricing environments that allowed us to pass through cost increases associated with the construction of our homes.

The overall decrease in home closings is a result of lower average community count and overall lower absorption pace during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Our community count at June 30, 2022 decreased to 92 from 106 at June 30, 2021.

The decrease in community count is due to the close out of or transition between certain active communities for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

The overall decrease in absorption primarily relates to the normalization of demand, increased mortgage interest rates and increased cycle times stemming from pandemic related production disruptions.

These disruptions have caused varying degrees of supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.

Within our home sales revenues for the three months ended June 30, 2022, we included $36.9 million in wholesale revenues as a result of 146 home closings, representing 7.2% of the 2,027 total homes closed during the three months ended June 30, 2022.

Within our home sales revenues for the three months ended June 30, 2021, we included $94.7 million in wholesale revenues as a result of 430 home closings, representing 15.1% of the 2,856 total homes closed during the three months ended June 30, 2021.

The decrease in home closings through our wholesale channel was primarily related to writing fewer wholesale contracts due to supply chain volatility that limited our ability to estimate input costs and the timing of home closings as well as a prioritization of retail sales.

Home sales revenues in our Central reportable segment decreased by $31.3 million, or 9.0%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a 30.6% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Southeast reportable segment decreased by $42.1 million, or 26.4%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a 42.9% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Northwest reportable segment decreased by $35.4 million, or 33.3%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a 47.8% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our West reportable segment increased by $43.1 million, or 53.4%, during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, primarily due to a 29.7% increase in the number of homes closed, an increase in the average sales price per home closed and an increase in the average community count at a higher absorption rate in this reportable segment.

Home sales revenues in our Florida reportable segment decreased by $2.7 million, or 2.8%, during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, primarily due to a 23.7% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Cost of Sales and Gross Margin (home sales revenues less cost of sales).

Cost of sales decreased for the three months ended March 31, 2022 to $387.6 million, a decrease of $128.4 million, or 24.9%, from $516.0 million for the three months ended March 31, 2021.

This overall decrease is primarily due to a 37.6% decrease in homes closed.

The increase in gross margin as a percentage of home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to raising prices higher than increases in input costs, in addition to lower capitalized interest and lower overhead and lot costs.

Gross margin for the three months ended March 31, 2022 was $158.4 million, a decrease of $31.5 million, or 16.6%, from $189.9 million for the three months ended March 31, 2021.

Gross margin as a percentage of home sales revenues was 29.0% for the three months ended March 31, 2022 and 26.9% for the three months ended March 31, 2021.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Cost of sales decreased for the three months ended June 30, 2022 to $491.7 million, a decrease of $85.7 million, or 14.8%, from $577.4 million for the three months ended June 30, 2021, primarily due to a 29.0% decrease in homes closed, offset by increased construction costs.

Gross margin for the three months ended June 30, 2022 was $231.4 million, an increase of $17.3 million, or 8.1%, from $214.1 million for the three months ended June 30, 2021.

Gross margin as a percentage of home sales revenues was 32.0% for the three months ended June 30, 2022 and 27.0% for the three months ended June 30, 2021.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Selling Expenses.

Selling expenses for the three months ended March 31, 2022 were $34.4 million, a decrease of $8.4 million, or 19.6%, from $42.8 million for the three months ended March 31, 2021.

Sales commissions decreased to $20.1 million for the three months ended March 31, 2022 from $26.3 million for the three months ended March 31, 2021, partially due to a 22.7% decrease in home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Selling expenses as a percentage of home sales revenues were 6.3% and 6.1% for the three months ended March 31, 2022 and 2021, respectively.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by the decrease in home sales revenues during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Selling expenses for the three months ended June 30, 2022 were $43.3 million, a decrease of $1.5 million, or 3.4%, from $44.8 million for the three months ended June 30, 2021.

Sales commissions decreased to $29.6 million for the three months ended June 30, 2022 from $30.4 million for the three months ended June 30, 2021, primarily due to an 8.6% decrease in home sales revenues during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Selling expenses as a percentage of home sales revenues were 6.0% and 5.7% for the three months ended June 30, 2022 and 2021, respectively.

The slight increase in selling expenses as a percentage of home sales revenues was driven primarily by third-party sales commissions during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

General and Administrative.

General and administrative expenses for the three months ended March 31, 2022 were $28.3 million, an increase of $3.6 million, or 14.4%, from $24.7 million for the three months ended March 31, 2021.

The increase in the amount of general and administrative expenses is primarily due higher overhead and increased headcount in certain departments during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

General and administrative expenses as a percentage of home sales revenues were 5.2% and 3.5% for the three months ended March 31, 2022 and 2021, respectively.

General and administrative expenses for the three months ended June 30, 2022 were $29.1 million, an increase of $5.8 million, or 25.0%, from $23.3 million for the three months ended June 30, 2021.

The increase in the amount of general and administrative expenses is primarily due to the timing of increased personnel and associated costs, as well as professional fees incurred during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

General and administrative expenses as a percentage of home sales revenues were 4.0% and 2.9% for the three months ended June 30, 2022 and 2021, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues is primarily due to timing of increased personnel and associated costs incurred during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Loss on Extinguishment of Debt.

There was no loss on extinguishment of debt for the three months ended June 30, 2022.

Loss on extinguishment of debt for the three months ended June 30, 2021 was $0.7 million, due to the debt issuance costs previously capitalized that were associated with the 2021 Credit Agreement for the three months ended June 30, 2021.

Other Income.

Other income, net of other expenses was $3.8 million for the three months ended March 31, 2022, an increase of $3.0 million from $0.8 million for the three months ended March 31, 2021.

The increase in other income primarily reflects the gain realized from sale of land not directly associated with our core homebuilding operations and to a lesser extent other miscellaneous income.

Other income, net of other expenses was $4.0 million for the three months ended June 30, 2022, an increase of $0.2 million from $3.8 million for the three months ended June 30, 2021.

Other income, net of other expenses, primarily reflects income associated with our investment in unconsolidated entities and gains realized from the sale of land and lots not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended March 31, 2022 was $95.7 million, a decrease of $26.7 million, or 21.8%, from $122.4 million for the three months ended March 31, 2021.

Net income before income taxes for the three months ended March 31, 2022 was $99.6 million, a decrease of $23.7 million, or 19.2%, from $123.3 million for the three months ended March 31, 2021.

The following reportable segments contributed to net income before income taxes during the three months ended March 31, 2022 as follows:

Operating income for the three months ended June 30, 2022 was $159.0 million, an increase of $13.0 million, or 8.9%, from $146.0 million for the three months ended June 30, 2021.

Net income before income taxes for the three months ended June 30, 2022 was $163.0 million, an increase of $13.9 million, or 9.3%, from $149.1 million for the three months ended June 30, 2021.

All reportable segments contributed to net income before income taxes during the three months ended June 30, 2022 as follows:

Central - $84.9 million or 52.1%;

1 unchanged sentence

Northwest - $15.7 million or 9.6%;

West - $19.2 million or 11.8%;

and Florida - $15.8 million or 9.7%.

Our West reportable segment had a $(0.2) million, or (0.2)%, net loss primarily attributable to an ongoing local tax audit impacting our Arizona markets.

The decreases in operating income and net income before income taxes are primarily attributed to the decrease in home sales revenues, partially offset by higher average sales price per home closed during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

The increases in operating income and net income before income taxes are primarily attributed to higher gross margins and higher

average sales price per home closed during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Income Taxes .

Income tax provision for the three months ended March 31, 2022 was $20.9 million, a decrease of $2.8 million, or 11.7%, from income tax provision of $23.6 million for the three months ended March 31, 2021.

The decrease in the amount of income tax provision is primarily due to the 19.2% decrease in net income before taxes, offset by the tax benefits relating to the federal energy efficient homes tax credits that expired in 2021.

The increase in our effective tax rate to 21.0% from 19.2% results from an increase in the rate due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue

Code, as amended, offset by a decrease in the rate for deductions in excess of compensation cost for share-based payments for the three months ended March 31, 2022.

Net income for the three months ended March 31, 2022 was $78.7 million, a decrease of $21.0 million, or 21.0%, from $99.7 million for the three months ended March 31, 2021.

The decrease in net income is primarily attributed to overall lower homes closed, offset by higher average sales price per home closed at higher gross margins on a per home basis, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Income tax provision for the three months ended June 30, 2022 was $39.6 million, an increase of $8.6 million, or 27.9%, from income tax provision of $31.0 million for the three months ended June 30, 2021.

The increase in our effective tax rate to 24.3% from 20.8% for the three months ended June 30, 2021 results from an increase in the rate due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.

Net income for the three months ended June 30, 2022 was $123.4 million, an increase of $5.2 million, or 4.4%, from $118.1 million for the three months ended June 30, 2021.

The increase in net income is primarily attributed to higher gross margins and higher average sales price per home closed recognized during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the six months ended June 30, 2022 and 2021 were as follows (revenues in thousands):

Six Months Ended June 30, 2022

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Central $ 578,952 1,779 $ 325,437 30.5 9.7

Southeast 190,032 599 317,249 19.8 5.0

Northwest 173,666 334 519,958 9.3 6.0

West 179,539 443 405,280 11.3 6.5

Florida 146,930 471 311,953 19.3 4.1

Total $ 1,269,119 3,626 $ 350,005 90.2 6.7

Six Months Ended June 30, 2021

Revenues Home Closings ASP Average Community Count Average Monthly

Absorption Rate

Central $ 636,713 2,475 $ 257,258 37.6 11.0

Southeast 296,265 1,180 251,072 26.7 7.4

Northwest 224,388 551 407,238 10.5 8.7

West 161,961 481 336,717 10.7 7.5

Florida 178,138 730 244,025 20.2 6.0

Total $ 1,497,465 5,417 $ 276,438 105.7 8.5

Home sales revenues for the six months ended June 30, 2022 were $1.3 billion, a decrease of $0.2 billion, or 15.2%, from $1.5 billion for the six months ended June 30, 2021.

The decrease in home sales revenues is primarily due to a 33.1% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The average sales price per home closed during the six months ended June 30, 2022 was $350,005, an increase of $73,567, or 26.6%, from the average sales price per home closed of $276,438 for the six months ended June 30, 2021.

The overall decrease in home closings is a result of lower average community count and overall lower absorption pace during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The overall decrease in absorption relates to the normalization of demand, increased mortgage interest rates and increased cycle times stemming from pandemic-related production disruptions.

These disruptions have caused varying degrees of supply chain constraints in the markets we serve and have shifted the timing of when we put homes under contract with our customers.

Within our home sales revenues for the six months ended June 30, 2022, we recorded $88.8 million in wholesale revenues as a result of 359 home closings, representing 9.9% of the 3,626 total homes closed during the six months ended June 30, 2022.

Within our home sales revenues for the six months ended June 30, 2021, we recorded $157.1 million in wholesale revenues as a result of 713 home closings, representing 13.2% of the 5,417 total homes closed during the six months ended June 30, 2021.

Home sales revenues in our Central reportable segment decreased by $57.8 million, or 9.1%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a 28.1% decrease in the number of homes closed driven by a decrease in average community count at a lower absorption rate in this reportable segment, partially offset by

an increase in the average sales price per home closed.

Home sales revenues in our Southeast reportable segment decreased by $106.2 million, or 35.9%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a 49.2% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Home sales revenues in our Northwest reportable segment decreased by $50.7 million, or 22.6%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a 39.4% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by a sharp increase in the average sales price per home closed.

Home sales revenues in our West reportable segment increased by $17.6 million, or 10.9%, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, primarily due to a 20.4% increase in the average sales price per home closed, partially offset by a decrease in the number of homes closed and an increase in the average community count at a lower absorption rate in this reportable segment.

Home sales revenues in our Florida reportable segment decreased by $31.2 million, or 17.5%, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, primarily due to a 35.5% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate in this reportable segment, partially offset by an increase in the average sales price per home closed.

Cost of Sales and Gross Margin (home sales revenues less cost of sales).

Cost of sales decreased for the six months ended June 30, 2022 to $0.9 billion, a decrease of $0.2 billion, or 19.6%, from $1.1 billion for the six months ended June 30, 2021.

This overall decrease is primarily due to a 33.1% decrease in homes closed, offset by increased construction costs.

Gross margin for the six months ended June 30, 2022 was $389.8 million, a decrease of $14.3 million, or 3.5%, from $404.0 million for the six months ended June 30, 2021.

Gross margin as a percentage of home sales revenues was 30.7% for the six months ended June 30, 2022 and 27.0% for the six months ended June 30, 2021.

The increase in gross margin as a percentage of home sales revenues during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was primarily due to raising prices higher than increases in input costs.

Selling Expenses.

Selling expenses for the six months ended June 30, 2022 were $77.7 million, a decrease of $9.9 million, or 11.3%, from $87.6 million for the six months ended June 30, 2021.

Sales commissions decreased to $50.6 million for the six months ended June 30, 2022 from $56.7 million for the six months ended June 30, 2021, partially due to a 15.2% decrease in home sales revenues during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Selling expenses as a percentage of home sales revenues were 6.1% and 5.8% for the six months ended June 30, 2022 and 2021, respectively.

The slight increase in selling expenses as a percentage of home sales revenues was driven primarily by third-party sales commissions during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

General and Administrative.

General and administrative expenses for the six months ended June 30, 2022 were $57.4 million, an increase of $9.4 million, or 19.5%, from $48.0 million for the six months ended June 30, 2021.

The increase in the amount of general and administrative expenses is primarily due to the timing of increased personnel and associated costs, as well as professional fees incurred during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

General and administrative expenses as a percentage of home sales revenues were 4.5% and 3.2% for the six months ended June 30, 2022 and 2021, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues is primarily due to timing of increased personnel and associated costs incurred during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Loss on Extinguishment of Debt.

There was no loss on extinguishment of debt for the six months ended June 30, 2022.

Loss on extinguishment of debt for the six months ended June 30, 2021 was $0.7 million, due to the debt issuance costs previously capitalized that were associated with the 2021 Credit Agreement for the six months ended June 30, 2021.

Other Income.

Other income, net of other expenses was $7.8 million for the six months ended June 30, 2022, an increase of $3.2 million from $4.6 million for the six months ended June 30, 2021.

The increase in other income primarily reflects income associated with our investment in unconsolidated entities and the gain realized from the sale of land not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the six months ended June 30, 2022 was $254.7 million, a decrease of $13.7 million, or 5.1%, from $268.5 million for the six months ended June 30, 2021.

Net income before income taxes for the six months ended June 30, 2022 was $262.6 million, a decrease of $9.8 million, or 3.6%, from $272.4 million for the six months ended June 30, 2021.

The following reportable segments contributed to net income before income taxes during the six months ended June 30, 2022 as follows:

Central - $142.6 million or 54.3%;

Southeast - $38.8 million or 14.8%;

Northwest - $43.3 million or 16.5%;

West - $18.9 million or 7.2%;

and Florida - $21.1 million or 8.1%.

The decreases in operating income and net income before income taxes are primarily attributed to the decrease in home sales revenues, partially offset by higher average sales price per home closed at higher gross margins on a per home basis, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Income Taxes .

Income tax provision for the six months ended June 30, 2022 was $60.5 million, an increase of $5.9 million, or 10.8%, from income tax provision of $54.6 million for the six months ended June 30, 2021.

The increase in the amount of income tax provision is primarily due to the tax benefits relating to the federal energy efficient homes tax credits that expired in 2021.

The increase in our effective tax rate to 23.1% from 20.0% results from an increase in the rate due to the expiration of the tax benefits relating to the federal energy efficient homes tax credits and an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, offset by a decrease in the rate for deductions in excess of compensation cost for share-based payments for the six months ended June 30, 2022.

Net income for the six months ended June 30, 2022 was $202.1 million, a decrease of $15.7 million, or 7.2%, from $217.8 million for the six months ended June 30, 2021.

The decrease in net income is primarily attributed to overall lower homes closed, offset by higher average sales price per home closed at higher gross margins on a per home basis, during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Non-GAAP Measures

8 unchanged sentences

The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Home sales revenues $ 723,069 $ 791,512 $ 1,269,119 $ 1,497,465

3 unchanged sentences

Purchase accounting adjustments (1)

2,026 1,446 4,308 2,258

Adjusted gross margin $ 239,120 $ 225,967 $ 404,322 $ 427,401

10 unchanged sentences

EBITDA and adjusted EBITDA

provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring.

Accordingly, our management believes that these measures are useful for comparing general operating performance from period to period.

Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies.

Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs,

such as interest and taxes, necessary to operate our business.

Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business.

EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance.

15 unchanged sentences

The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net income $ 123,376 $ 118,134 $ 202,062 $ 217,792

4 unchanged sentences

Purchase accounting adjustments (1)

2,026 1,446 4,308 2,258

Loss on extinguishment of debt — 662 — 662

Other income, net (4,006) (3,776) (7,836) (4,609)

10 unchanged sentences

Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed.

determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract.

If we determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract.

If a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed, then the homebuyer has met the preliminary criteria to obtain mortgage financing.

8 unchanged sentences

Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.

Our net orders decreased in the first quarter of 2022 primarily due to the availability of finished lots brought on by sustained demand and the rapid pace of fluctuating rising costs for certain supplies and labor experienced in 2021.

During the first half of 2021, due to limited supply, we elected to not enter into sales contracts until construction on the home had begun and our costs for the home were readily determined.

In the first quarter of 2022, to mitigate continuing cost volatility, we have further modified our traditional timing of when to enter into our sales contracts until later in the construction cycle to align with the dynamic pricing environment.

In the first quarter of 2022, to mitigate continuing cost volatility, we further modified our traditional timing of when to enter into our sales contracts until later in the construction cycle to align with the dynamic pricing environment.

Our net orders decreased in the first half of 2022 primarily due to the availability of finished lots, construction headwinds, and rising mortgage interest rates for our homebuyers.

Additionally, our net orders decreased as a result of the timing of when we enter our sales contracts with our homebuyers.

During the first half of 2022, the availability of finished lots were constrained.

This constraint was brought on by the sustained demand and the rapid pace of rising costs for certain supplies and labor experienced in 2021.

Throughout 2022, these cost constraints have started the process of normalization with the corresponding demand for home ownership.

The number of homes in our backlog at June 30, 2022 decreased 73.6% compared to June 30, 2021.

This decrease reflects the prior year’s strong comparable numbers, changes made to timing of sales contracts and available inventory in certain markets as compared to the first half of 2021.

The increase in cancellation rates generally corresponds with the increase in mortgage interest rates for our homebuyers in the second quarter of 2022.

We believe that, over time, our inventory levels and sales pace will return to our pre-pandemic levels as demand normalizes.

As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):

Backlog Data Three Months Ended March 31,

Backlog Data Six Months Ended June 30,

Net orders (1)

8 unchanged sentences

Ending backlog is valued at the contract amount.

(4) As of March 31, 2022, we had 374 units related to bulk sales agreements associated with our wholesale business.

(5) As of March 31, 2021, we had 1,344 units related to bulk sales agreements associated with our wholesale business.

(4) As of June 30, 2022 , we had 412 units related to bulk sales agreements associated with our wholesale business.

(5) As of June 30, 2021 , we had 940 units related to bulk sales agreements associated with our wholesale business.

Land Acquisition Policies and Development

We had 88 and 101 active communities as of March 31, 2022 and December 31, 2021, respectively.

We had 92 and 101 active communities as of June 30, 2022 and December 31, 2021, respectively.

The overall decrease in community count is seen as transitory, primarily due to the close out of active communities and to a lesser extent available finished lots in certain active markets.

Generally, it takes us two to three years to turn raw or undeveloped land into an active community.

Our lot inventory increased to 93,270 owned or controlled lots as of March 31, 2022 from 91,845 owned or controlled lots as of December 31, 2021.

The table below shows (i) home closings by reportable segment for the three months ended March 31, 2022 and (ii) our owned or controlled lots by reportable segment as of March 31, 2022.

Three Months Ended March 31, 2022 As of March 31, 2022

Our lot inventory decreased to 89,984 owned or controlled lots as of June 30, 2022 from 91,845 owned or controlled lots as of December 31, 2021, primarily related to controlled lots that were delayed or terminated during the second quarter of 2022 to manage our overall inventory.

The table below shows (i) home closings by reportable segment for the six months ended June 30, 2022 and (ii) our owned or controlled lots by reportable segment as of June 30, 2022.

Six Months Ended June 30, 2022 As of June 30, 2022

Reportable Segment Home Closings Owned (1)

6 unchanged sentences

Total 3,626 61,893 28,091 89,984

(1) Of the 59,079 owned lots as of March 31, 2022, 47,222 were raw/under development lots and 11,857 were finished lots.

(1) Of the 61,893 owned lots as of June 30, 2022, 49,595 were raw/under development lots and 12,298 were finished lots.

Homes in Inventory

2 unchanged sentences

As homes are closed, we start more homes to maintain our inventory.

As of March 31, 2022, we had a total of 676 completed homes, including information centers, and 3,762 homes in progress.

As of June 30, 2022, we had a total of 722 completed homes, including information centers, and 4,095 homes in progress.

Raw Materials and Labor

3 unchanged sentences

Typically, the raw materials and most of the components used in our business are readily available in the United States.

In addition, the majority of our raw materials is supplied to us by our subcontractors, and is included in the price of our contract with such subcontractors.

In addition, the majority of our raw materials are supplied to us by our subcontractors, and are included in the price of our contract with such subcontractors.

Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers.

Substantially all of our construction work is done by third-party subcontractors, most of whom are non-unionized.

We continue to monitor the supply markets to achieve the best prices available.

We continue to monitor the supply markets to achieve the best prices possible.

Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber.

For the three months ended March 31, 2022, we have experienced delays in varying degrees in our materials and components.

For the six months ended June 30, 2022, we have experienced delays and cost increases, to varying degrees, in our building materials and other construction costs.

We could see additional cost pressures associated with lumber and other materials in future quarters.

7 unchanged sentences

Liquidity and Capital Resources

As of March 31, 2022, we had $53.3 million of cash and cash equivalents.

As of June 30, 2022, we had $42.0 million of cash and cash equivalents.

Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.

15 unchanged sentences

Revolving Credit Facility

On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment”), which amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement” and, as so amended and as otherwise amended prior to the date of the Second Amendment, the “Credit Agreement”).

On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment” and, as so amended, “the Credit Agreement”), which amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”).

The Credit Agreement contains revolving commitments of $1.1 billion, subject to a borrowing base primarily consisting of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement.

3 unchanged sentences

The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement.

As of March 31, 2022, the borrowing base under the 2021 Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $1.0 billion were outstanding, $25.0 million of letters of credit were outstanding and $108.3 million was available to borrow under the 2021 Credit Agreement.

As of June 30, 2022, the borrowing base under the Credit Agreement was $1.4 billion, of which borrowings, including the 2029 Senior Notes, of $1.2 billion were outstanding, $26.9 million of letters of credit were outstanding and $203.7 million was available to borrow under the Credit Agreement.

For a further description of the Credit Agreement, please refer to Note 4, “Notes Payable” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

4 unchanged sentences

The 2029 Senior Notes mature on July 15, 2029.

Terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

The terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

Letters of Credit, Surety Bonds and Financial Guarantees

3 unchanged sentences

Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $268.8 million as of March 31, 2022.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $284.6 million as of June 30, 2022.

Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of March 31, 2022 will be drawn upon.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of June 30, 2022 will be drawn upon.

Stock Repurchase Program

In February 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

During the three months ended March 31, 2022, we repurchased 475,055 shares of our common stock for $57.7 million to be held as treasury stock.

During the six months ended June 30, 2022, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock.

A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of March 31, 2022, we may purchase up to $249.0 million of shares of our common stock under our stock repurchase program.

As of June 30, 2022, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program.

The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

1 unchanged sentence

Operating Activities

Net cash used in operating activities was $137.8 million for the three months ended March 31, 2022.

Net cash used in operating activities was $263.3 million for the six months ended June 30, 2022.

The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.

Net cash used in operating activities during the three months ended March 31, 2022 was primarily driven by cash outflow from the $251.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $78.7 million, as well as the $9.4 million and $10.5 million increase in the net change in accounts receivable and accrued expenses and other liabilities, respectively.

Net cash provided by operating activities was $160.7 million for the three months ended March 31, 2021.

Net cash used in operating activities during the six months ended June 30, 2022 was primarily driven by cash outflow from the $547.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $202.1 million, as well as the $19.4 million, $26.0 million, and $22.2 million increase in the net change in other assets, accounts payable, and accrued expenses and other liabilities, respectively.

Net cash provided by operating activities was $139.9 million for the six months ended June 30, 2021.

The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.

Net cash provided by operating activities during the three months ended March 31, 2021 was primarily driven by net income of $99.7 million, and included cash outflow from the $41.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $56.7 million and $27.9 million increase in the net change in accounts receivable and accounts payable.

Net cash provided by operating activities during the six months ended June 30, 2021 was primarily driven by net income of $217.8 million, and included cash outflow from the $158.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and increases of $46.4 million and $43.9 million in the net change in accounts receivable and accounts payable, respectively.

Investing Activities

Net cash used in investing activities was $1.4 million for the three months ended March 31, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.

Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the return of capital with our investment in an unconsolidated entity, offset by the purchase of property and equipment, as well as an additional investment in an unconsolidated entity.

Net cash used in investing activities was $2.5 million for the six months ended June 30, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.

Net cash used in investing activities was $29.8 million for the six months ended June 30, 2021, primarily due to the payment for a business acquisition, additional investment in unconsolidated entities, and purchase of property and equipment.

Financing Activities

Net cash provided by financing activities was $142.0 million for the three months ended March 31, 2022, primarily driven by $197.6 million of borrowings under the 2021 Credit Agreement, offset by the $57.7 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.

Net cash used in financing activities was $148.9 million for the three months ended March 31, 2021, primarily driven by $230.0 million of payments on the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”) and by the $25.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $104.8 million under the 2020 Credit Agreement.

Net cash provided by financing activities was $257.2 million for the six months ended June 30, 2022, primarily driven by $371.2 million of borrowings under the 2021 Credit Agreement and the Credit Agreement, offset by the $95.1 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.

Net cash used in financing activities was $34.3 million for the six months ended June 30, 2021, primarily driven by $564.0 million of payments on our credit agreement then in effect and the 2021 Credit Agreement and by the $81.6 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by $617.7 million related to the proceeds received from the offering of the 2029 Senior Notes, and borrowings under our credit agreement then in effect and the 2021 Credit Agreement.

Our business can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.

In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.

During the three months ended March 31, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the foreseeable future.

During the six months ended June 30, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the foreseeable future.

Generally, we have been able to increase the sales prices of our homes to absorb such increased costs.

2 unchanged sentences

Material Cash Requirements

As of March 31, 2022, there have been no material changes to our known contractual and other obligations appearing in the “Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

As of June 30, 2022, there have been no material changes to our known contractual and other obligations appearing in the “Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Critical Accounting Policies and Estimates

3 unchanged sentences

Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.

We believe that there have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2022 as compared to those disclosed in Management ’ s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

We believe that there have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2022 as compared to those disclosed in Management ’ s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Cautionary Statement about Forward-Looking Statements

7 unchanged sentences

The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

• adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates, supply chain disruptions (including due to the conflict in Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials) and inflation and decreases in housing prices;

rates, supply chain disruptions (including due to the conflict in Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials) and inflation and decreases in housing prices;

• the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions), and the markets in which we operate, U.S.

40 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis