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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-15 · 152 added, 204 removed, 419 unchanged (46% of the section changed)

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Key financial results as of and for the year ended December 31, 2022, as compared to the year ended December 31, 2021, were as follows:

• Home sales revenues increased 28.8% to $3.1 billion from $2.4 billion.

• Homes closed increased 11.8% to 10,442 homes from 9,339 homes.

• Home sales revenues decreased 24.4% to $2.3 billion from $3.1 billion.

• Homes closed decreased 36.6% to 6,621 homes from 10,442 homes.

• Average sales price per home closed increased 19.2% to $348,052 from $292,104.

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• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 29.2% from 28.2%.

• Net income before income taxes increased 47.6% to $542.8 million from $367.8 million.

• Net income increased 32.6% to $429.6 million from $323.9 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.1% from 17.3%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.4% from 17.3%.

• Net income before income taxes decreased 23.0% to $418.1 million from $542.8 million.

• Net income decreased 24.0% to $326.6 million from $429.6 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues remained at 19.1%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 18.2% from 19.4%.

• Active communities at the end of 2022 decreased to 99 from 101.

• Total owned and controlled lots increased 49.3% to 91,845 lots at December 31, 2021 from 61,504 lots at December 31, 2020.

• Total owned and controlled lots decreased 21.7% to 71,904 lots at December 31, 2022 from 91,845 lots at December 31, 2021.

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 .”

COVID-19 Impact and Strategy

The outbreak of COVID-19 and its development into a global pandemic in March 2020 resulted in federal, state and local governments imposing varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, shelter-in-place orders and “stay-at-home” orders in certain of our markets.

In March 2020, we were required to temporarily stop our construction of homes in certain markets in which we do business.

Beginning in April 2020, we resumed construction of homes in those markets.

Although we continued to build and sell homes in all of our markets, at that time the pace of sales declined and we experienced an increase in the rate of contract cancellations.

Since May 2020, the pace of sales has rebounded and we have experienced a sustained increase in demand in our markets.

While many of the restrictions and measures initially implemented during 2020 have since been softened or lifted in varying degrees in the United States, and the manufacture and distribution of COVID-19 vaccines during 2021 helped to initiate a recovery from the pandemic, recent increases in COVID-19 cases, the uncertainty regarding new variants of COVID-19 and the success of any vaccines in respect thereof may in the future cause a significant reduction in economic activity or prompt the re-imposition of certain restrictions and measures.

Such measures have previously caused, and may in the future cause, us, our subcontractors, suppliers and other business counterparties to experience operational delays.

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.

Current Homebuilding and Inflationary Environment

For the first half of 2022, we saw robust demand for our homes and continued to benefit from pricing power that allowed us to pass through rising input costs related to supply chain constraints.

In the second half of 2022, the Federal Reserve’s aggressive actions to stem inflation caused mortgage interest rates to more than double between the end of 2021 and September 2022.

The resulting increased costs of borrowing negatively impacted customer sentiment and accelerated existing affordability constraints for potential homebuyers.

As a result, many homebuyers paused their home purchasing decisions.

Additionally, challenges from ongoing supply chain disruptions and higher construction and development costs persisted during 2022.

We anticipate this dynamic could continue in 2023, resulting in lower net orders and higher cancellation rates when compared to prior periods.

Longer lead times relating to materials, municipality and labor activities increased our construction and development cycle times and slowed the timing of home closings.

Our average home completion time was approximately 90 to 165 days in 2022 as compared to 90 to 130 days in 2021.

To address the demand headwinds and drive sales, we increased advertising spending to connect with more potential homebuyers, we began offering mortgage buy-down programs and other sales incentives to offset some of the affordability pressures and we increased our allocation of inventory available for sale to our wholesale channel.

In addition, we evaluated our land position and significantly reduced our owned and controlled lots.

The decline in home closings for the year ended December 31, 2022 was primarily due to our strong prior year comparable numbers, combined with lower average community count and slower absorptions resulting from the impact of higher mortgage rates experienced during the second half of the year.

We expect that many of these challenges will persist in 2023 and could potentially worsen.

However, we believe the long-term outlook for new homes remains strong, driven by solid fundamentals, including a historically low inventory of new and existing homes for sale, an aging housing stock, rising rents, strong household formations and low unemployment.

We believe we are well positioned to meet the demands of this uncertain period based on our 100% spec-focused business model, targeted at the entry level buyers.

Continuing Impact of COVID-19

We continue to see pressure on global supply chains due to disruptions created by the effects of COVID-19 and variants thereof (collectively, “COVID-19”), that extended construction and development cycles and delayed home closings and the opening of new communities.

We continue to focus on meeting our customers' needs as we supply homes critical to maintaining essential infrastructure within the markets we serve.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, mortgage rates, inflation, financial market stability, consumer confidence, housing demand, availability of financing for homebuyers, 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 of COVID-19 caused the shutdown of large portions of our national economy during the first half of 2020.

The spread of COVID-19 has also caused significant volatility in U.S.

and international debt and equity markets, which can negatively impact consumer confidence.

In response to COVID-19, we continue to take steps to prioritize the health and safety of our employees, customers, subcontractors and suppliers, including expanded safety policies and practices based on Center for Disease Control guidelines to reduce the spread of COVID-19.

As a homebuilder and developer, we provide an important service to our customers.

During the COVID-19 outbreak, our main focus beyond the health and safety mentioned above is to continue our efforts to sell homes and complete our homes under construction.

In addition to the measures discussed above, beginning in March 2020, we implemented certain cash management policies, including eliminating business air travel, cancelling in-person group meetings, delaying or canceling land acquisitions, deferring new starts to manage our overall inventory, significantly reducing marketing expenditures and delaying major expenditures.

In May 2020, we began to acquire land and release starts for home construction in addition to increasing marketing expenditures and later began reinstating some necessary travel.

From time to time during the COVID-19 outbreak, we have had to close individual sales offices for a limited period of time, as a result of potential or actual exposure to COVID-19 by one or more of our employees.

In September 2020, our employees working in our corporate headquarters returned to working under modified protocols to ensure health and safety at the office.

We cannot estimate with any degree of certainty the full impact of COVID-19 on our financial condition and future results of operations.

We also cannot predict the full impact that the significant disruption and volatility currently being experienced in the markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the emergence of more infectious variants of

COVID-19, the impact of government actions designed to prevent the spread of COVID-19 or the decrease in such actions and resulting increased business and social activities, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, vaccine hesitancy, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A.

For additional discussion regarding risks associated with our business and operations, see Item 1A.

Risk Factors in Part I of this Annual Report on Form 10-K.

Additionally, during the year ended December 31, 2021 and the beginning of 2022, significant supply chain disruptions extended construction cycles across our markets.

While we have carefully managed our supply chain to limit impacts to our business and customers, we believe these global shortages are directly related to COVID-19 and will continue to impact our operations as long as the pandemic persists.

Although, we expect COVID-19 to continue to influence our future results, we believe that the desire for single-family homes outside of densely populated urban areas combined with historically low mortgage rates and low availability of existing homes is driving an increase in demand for new homes.

Current Homebuilding and Inventory Environment

Despite the 10,442 home closings we delivered in 2021, representing an 11.8% increase over our 2020 home closings, numerous challenges, including impacts from the COVID-19 pandemic, supply chain issues, volatile cost increases for certain supplies, tight labor markets and a shortage of available finished lots, impacted operations and extended our cycle times.

Our average home completion time was approximately 90 to 135 days during 2021 as compared to 80 to 105 days in 2020.

In light of these factors, among others, during the second half of 2021, we elected to delay entering into sales contracts until vertical construction had begun and our costs for the home were readily determined.

In recent years, it has become more difficult to acquire finished lots.

As a result, more of the land we have acquired is raw land that will require significant development before home construction can begin.

This shift in our land portfolio has extended the time period between when the land is purchased and when construction of homes can begin.

During 2021, we experienced a decrease in our overall active community count driven by the accelerated pace of absorptions, the time lag between the closing of certain communities and opening of their replacements and the limited availability of finished lots in certain markets in 2021 as compared to 2020.

We expect that many of these challenges will persist in 2022.

Recent Developments

On February 11, 2022, the Board approved an increase in our stock repurchase program by an additional $200.0 million, increasing the available authorization under the program to purchase up to $306.6 million of shares of our common stock as of the date of this Annual Report on Form 10-K.

Results of Operations

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Year Ended December 31, 2022 At December 31, 2022

Revenues Home Closings ASP Average Community Count Average

Reportable Segment Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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Year Ended December 31, 2021 At December 31, 2021

Revenues Home Closings ASP Average Community Count Average

Reportable Segment Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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Home Sales Revenues .

Home sales revenues for the year ended December 31, 2021 were $3.1 billion, an increase of $682.2 million, or 28.8%, from $2.4 billion for the year ended December 31, 2020.

The increase in home sales revenues is primarily due to an 11.8% increase in homes closed and an increase in the average sales price per home closed during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Home sales revenues for the year ended December 31, 2022 were $2.3 billion, a decrease of $0.7 billion, or 24.4%, from $3.1 billion for the year ended December 31, 2021.

The decrease in home sales revenues is primarily due to a 36.6% decrease in homes closed in fewer communities, partially offset by an increase in the average sales price per home closed during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

We closed 6,621 homes during 2022, as compared to 10,442 homes closed during 2021.

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

Our average community count at December 31, 2022 decreased to 91.9 from 104.4 at December 31, 2021.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities and longer development cycle times during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

The average sales price per home closed during the year ended December 31, 2022 was $348,052, an increase of $55,948, or 19.2%, from the average sales price per home closed of $292,104 for the year ended December 31, 2021.

This increase in the average sales price per home closed was primarily due to higher price points in certain markets, partially offset by additional wholesale home closings.

The overall increase in home closings was primarily driven by strong demand in all reportable segments during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

We increased our home sales revenues in our reportable segments other than our Central reportable segment by $279.8 million during the year ended December 31, 2021 as compared to the year ended December 31, 2020, representing a 1.6% increase in the number of homes closed in these reportable segments and increased average sales price per home closed on a consolidated basis during 2021 as compared to 2020.

Home sales revenues in our Central reportable segment increased by $402.4 million, or 47.3%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to an increase in the number of homes closed at a higher average sales price per home closed and increased average community count at a higher absorption rate in this reportable segment.

Home sales revenues in our Southeast reportable segment increased by $35.5 million, or 6.4%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased closings in certain markets in North Carolina and

South Carolina, partially offset by lower community count at December 31, 2021 as compared to December 31, 2020.

Home sales revenues in our Northwest reportable segment increased by $121.0 million, or 31.1%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to a 16.6% increase in the number of homes closed in this reportable segment, as a result of increased demand.

Home sales revenues in our West reportable segment increased by $65.1 million, or 22.7%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in this reportable segment, partially offset by lower average community count.

Home sales revenues in our Florida reportable segment increased by $58.2 million, or 20.6%, largely due to an increase of 13.7% in the average sales price per home closed as a result of strong demand and complemented by increased average community count during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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 absorption relates to the slowdown of demand primarily resulting from increased mortgage rates and longer cycle times stemming from pandemic-related production disruptions.

These disruptions have caused varying degrees of supply chain constraints in the markets we serve.

Included within our home sales revenues for the year ended December 31, 2022 was $340.6 million in wholesale revenues related to 1,233 home closings through our wholesale channel, representing 18.6% of the 6,621 total homes closed during the year ended December 31, 2022.

Included within our home sales revenues during the year ended December 31, 2021 was $349.3 million in wholesale revenues related to 1,515 home closings through our wholesale channel, representing 14.5% of the 10,442 total homes closed during the year ended December 31, 2021.

The increase in home closings as a percentage of revenues through our wholesale channel was related to the slowdown in retail sales experienced during the second half of 2022 and our

decision to allocate more inventory available for sale to our wholesale partners during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

• Home sales revenues in our Central reportable segment decreased by $240.9 million, or 19.2%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 33.7% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed.

• Home sales revenues in our Southeast reportable segment decreased by $139.4 million, or 23.4%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 38.4% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed.

• Home sales revenues in our Northwest reportable segment decreased by $257.1 million, or 50.4%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 56.9% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed.

• Home sales revenues in our West reportable segment decreased by $50.3 million, or 14.3%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 24.5% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed.

• Home sales revenues in our Florida reportable segment decreased by $58.0 million, or 17.0%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to a 34.9% decrease in the number of homes closed driven by a decrease in the average community count at a lower absorption rate, partially offset by an increase in the average sales price per home closed for the majority of 2022.

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

Cost of sales increased for the year ended December 31, 2021 to $2.2 billion, an increase of $467.3 million, or 26.5%, from $1.8 billion for the year ended December 31, 2020.

This increase is primarily due to an 11.8% increase in homes closed, higher construction costs and product mix during 2021 as compared to 2020.

Gross margin for the year ended December 31, 2021 was $818.0 million, an increase of $214.9 million, or 35.6%, from $603.1 million for the year ended December 31, 2020.

Cost of sales decreased for the year ended December 31, 2022 to $1.7 billion, a decrease of $0.6 billion, or 25.7%, from $2.2 billion for the year ended December 31, 2021.

This decrease is primarily due to a 36.6% decrease in homes closed, offset by increased construction costs during 2022 as compared to 2021.

Gross margin for the year ended December 31, 2022 was $646.6 million, a decrease of $171.4 million, or 21.0%, from $818.0 million for the year ended December 31, 2021.

Gross margin as a percentage of home sales revenues was 28.1% for the year ended December 31, 2022 and 26.8% for the year ended December 31, 2021.

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Selling Expenses.

Selling expenses for the year ended December 31, 2021 were $170.0 million, an increase of $21.6 million, or 14.6%, from $148.4 million for the year ended December 31, 2020.

Sales commissions increased to $115.4 million for the year ended December 31, 2021 from $89.2 million for the year ended December 31, 2020 partially due to a 28.8% increase in home sales revenues during 2021 as compared to 2020.

Selling expenses for the year ended December 31, 2022 were $144.9 million, a decrease of $25.1 million, or 14.8%, from $170.0 million for the year ended December 31, 2021.

Sales commissions decreased to $82.7 million for the year ended December 31, 2022 from $115.4 million for the year ended December 31, 2021 due to a 24.4% decrease in home sales revenues during 2022 as compared to 2021.

Selling expenses as a percentage of home sales revenues were 6.3% and 5.6% for the years ended December 31, 2022 and 2021, respectively.

The decrease in selling expenses as a percentage of home sales revenues was driven primarily by operating leverage obtained from the increase in home sales revenues and to a lesser extent lower advertising expenses during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by higher advertising spend, partially offset by lower sales commission expensed during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

General and Administrative.

General and administrative expenses for the year ended December 31, 2022 were $111.6 million, an increase of $11.2 million, or 11.2%, from $100.3 million for the year ended December 31, 2021.

The increase in the amount of general and administrative expenses is primarily due to increased overhead.

The increase in the amount of general and administrative expenses is primarily due to increased overhead expenses.

General and administrative expenses as a percentage of home sales revenues were 4.8% and 3.3% for the years ended December 31, 2022 and 2021, respectively.

The decrease in general and administrative expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The increase in general and administrative expenses as a percentage of home sales revenues reflects our increased personnel and associated overhead costs, as well as professional fees and terminated land purchase agreements, partially offset by a decrease in management bonus and stock compensation incurred during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Loss on extinguishment of debt.

Loss on extinguishment of debt was $14.0 million for the year ended December 31, 2021 primarily due to the redemption premium associated with the optional redemption of our 6.875% Senior Notes due 2026 (the “2026 Senior Notes”), as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes and debt issuance costs previously capitalized that were associated with our 2020 Credit Agreement (as defined herein).

There was no loss on extinguishment of debt for the year ended December 31, 2022.

Loss on extinguishment of debt was $14.0 million for the year ended December 31, 2021 due to the redemption premium associated with our 2026 Senior Notes, as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes and debt issuance costs previously capitalized that were associated with our credit agreement then in effect.

We redeemed all of our 2026 Senior Notes in July 2021.

Other Income.

Other income, net of other expenses was $28.0 million for the year ended December 31, 2022, an increase of $19.0 million from $9.1 million for the year ended December 31, 2021.

The increase in other income primarily reflects the gain realized from the sale of lots not directly associated with our core homebuilding operations.

Operating Inco me and Net Income before Income Taxes.

Operating income for the year ended December 31, 2021 was $547.7 million, an increase of $183.0 million, or 50.2%, from $364.7 million for the year ended December 31, 2020.

Net income before income taxes for the year ended December 31, 2021 was $542.8 million, an increase of $174.9 million, or 47.6%, from $367.8 million for the year ended December 31, 2020.

The increase in other income primarily reflects the sale in July 2022 of the three-year interest rate cap of LIBOR prior to its expiration that resulted in $7.1 million in other

income, income associated with our investments 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 year ended December 31, 2022 was $390.1 million, a decrease of $157.6 million, or 28.8%, from $547.7 million for the year ended December 31, 2021.

Net income before income taxes for the year ended December 31, 2022 was $418.1 million, a decrease of $124.7 million, or 23.0%, from $542.8 million for the year ended December 31, 2021.

Our reportable segments contributed the following amounts and percentages of net income before income taxes during 2022:

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and Florida - $37.8 million or 9.0%.

The increases in operating income and net income before income taxes are primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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

Income Taxes .

Income tax provision for the year ended December 31, 2021 was $113.1 million, an increase of $69.2 million, or 157.4%, from income tax provision of $44.0 million for the year ended December 31, 2020.

The increase in the amount of income tax provision is primarily due to the retroactive tax benefits relating to the federal energy efficient homes tax credits we recognized during 2020 and the 47.6% increase in net income before taxes, which resulted in an increase in our effective tax rate for the year ended December 31, 2021 to 20.8% from 11.9% for the year ended December 31, 2020.

Net income for the year ended December 31, 2021 was $429.6 million, an increase of $105.8 million, or 32.6%, from $323.9 million for the year ended December 31, 2020.

The increase in net income is primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized for the year ended December 31, 2020.

Income tax provision for the year ended December 31, 2022 was $91.5 million, a decrease of $21.6 million, or 19.1%, from income tax provision of $113.1 million for the year ended December 31, 2021.

The increase in our effective tax rate to 21.9% from 20.8% results from an increase in the compensation limitation under Section 162(m) of the Code, and the retroactive extension of the 45L tax credit, offset by deductions in excess of compensation cost for share-based payments for the year ended December 31, 2021.

Net income for the year ended December 31, 2022 was $326.6 million, a decrease of $103.1 million, or 24.0%, from $429.6 million for the year ended December 31, 2021.

The decrease in net income is primarily attributed to overall lower number of homes closed across all reportable segments, partially offset by higher average sales price per home closed at higher gross margins on a per home basis, during the year ended December 31, 2022.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Year Ended December 31, 2021 At December 31, 2021

Revenues Home Closings ASP Average Community Count Average

Reportable Segment Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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At December 31, 2020

Revenues Home Closings ASP Average Community Count Average

Reportable Segment Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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Total $ 2,367,929 9,339 $ 253,553 111.9 7.0 116

Our results of operations for the year ended December 31, 2020 reflect a significant rebound following the slowdown related to the COVID-19 pandemic that occurred during March and April 2020.

Since May 2020, we have seen a continued and material increase in the demand for our homes driven by a renewed interest in the benefits of homeownership, low interest rates and an undersupply of new and existing homes available for sale.

Despite high levels of demand, our closings in July and August 2020 were limited by our decision to pause our construction and land acquisition activities in March and April as we evaluated the potential impacts of the COVID-19 pandemic on our business.

Beginning in May 2020, we resumed construction activities and accelerated the pace of our new home starts.

Home Sales Revenues .

Home sales revenues for the year ended December 31, 2021 were $3.1 billion, an increase of $682.2 million, or 28.8%, from $2.4 billion for the year ended December 31, 2020.

The increase in home sales revenues is primarily due to a 21.4% increase in homes closed, a 16.8% increase in average community count and an increase in the average sales price per home closed during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

We closed 10,442 homes during 2021, as compared to 9,339 homes closed during 2020.

The average sales price per home closed during the year ended December 31, 2021 was $292,104, an increase of $38,551, or 15.2%, from the average sales price per home closed of $253,553 for the year ended December 31, 2020.

This increase in the average sales price per home closed was primarily due to a favorable pricing environment, increased closings at higher price points in certain markets and changes in product mix.

The overall increase in home closings was largely due to deepening our presence within certain markets in the Southeast and Florida reportable segments during the year ended December 31, 2020 as compared to the year ended December 31, 2019 and strong demand resulting in an increase in the number of homes closed on average on a per community basis.

We continued to diversify our operations outside of our Central reportable segment during 2020.

We increased our home sales revenues in our reportable segments other than our Central reportable segment by $404.4 million during the year ended

December 31, 2020 as compared to the year ended December 31, 2019, representing a 29.6% increase in the number of homes closed in these reportable segments and increased average community count on a consolidated basis during 2020 as compared to 2019.

Home sales revenues in our Central reportable segment increased by $125.4 million, or 17.3%, during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to an increase in the average sales price per home closed and increased community count at a higher absorption rate.

Home sales revenues in our Southeast reportable segment increased by $211.4 million, or 60.8%, during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to an increase in community count associated with deepening our presence within existing markets and to a lesser extent our geographic expansion into certain markets in North Carolina and South Carolina at December 31, 2020 as compared to December 31, 2019.

Home sales revenues in our Northwest reportable segment increased by $85.2 million, or 28.0%, during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to a 20.9% increase in the number of homes closed in this reportable segment, as a result of increased demand slightly offset by a lower average community count at a higher absorption rate.

Home sales revenues in our West reportable segment increased by $14.9 million, or 5.5%, during the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to an increase of 6.8% in the average sales price per home closed in this reportable segment offset by lower home closings, largely due to close out of or transition between, and to a lesser extent available inventory in, certain active communities.

Home sales revenues in our Florida reportable segment increased by $92.8 million, or 48.9%, primarily due to an increased community count with an increase of 7.6% in the average sales price per home closed during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

This increase in the average sales price per home closed was primarily due to higher price points in certain markets, partially offset by additional wholesale home closings.

The overall increase in home closings was primarily driven by strong demand in all reportable segments during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

• Home sales revenues in our Central reportable segment increased by $402.4 million, or 47.3%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to an increase in the number of homes closed at a higher average sales price per home closed and increased average community count at a higher absorption rate in this reportable segment.

• Home sales revenues in our Southeast reportable segment increased by $35.5 million, or 6.4%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased closings in certain markets in North Carolina and South Carolina, partially offset by lower community count at December 31, 2021 as compared to December 31, 2020.

• Home sales revenues in our Northwest reportable segment increased by $121.0 million, or 31.1%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to a 16.6% increase in the number of homes closed in this reportable segment, as a result of increased demand.

• Home sales revenues in our West reportable segment increased by $65.1 million, or 22.7%, during the year ended December 31, 2021 as compared to the year ended December 31, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in this reportable segment, partially offset by lower average community count.

• Home sales revenues in our Florida reportable segment increased by $58.2 million, or 20.6%, largely due to an increase of 13.7% in the average sales price per home closed as a result of strong demand and complemented by increased average community count during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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

Cost of sales increased for the year ended December 31, 2021 to $2.2 billion, an increase of $467.3 million, or 26.5%, from $1.8 billion for the year ended December 31, 2020.

This increase is primarily due to a 21.4% increase in homes closed, as well as higher vertical and lot costs recognized as a percentage of revenues during 2020 as compared to 2019.

This increase is primarily due to an 11.8% increase in homes closed, higher construction costs and product mix during 2021 as compared to 2020.

Gross margin for the year ended December 31, 2021 was $818.0 million, an increase of $214.9 million, or 35.6%, from $603.1 million for the year ended December 31, 2020.

Gross margin as a percentage of home sales revenues was 26.8% for the year ended December 31, 2021 and 25.5% for the year ended December 31, 2020.

This increase in gross margin as a percentage of home sales revenues during the year ended December 31, 2020 as compared to the year ended December 31, 2019 is primarily due to an increase in homes closed with a higher average sales price per home closed, which was primarily driven by a favorable pricing environment, operating leverage obtained and product mix, partially offset by an increase in wholesale home closings as a percentage of total home closings.

This increase in gross margin as a percentage of home sales revenues during the year ended December 31, 2021 as compared to the year ended December 31, 2020 was primarily due to raising prices higher than increases in input costs.

Selling Expenses.

Selling expenses for the year ended December 31, 2021 were $170.0 million, an increase of $21.6 million, or 14.6%, from $148.4 million for the year ended December 31, 2020.

Sales commissions increased to $89.2 million for the year ended December 31, 2020 from $68.1 million for the year ended December 31, 2019 largely due to a 28.8% increase in home sales revenues during 2020 as compared to 2019.

Selling expenses as a percentage of home sales revenues were 5.6% and 6.3% for the years ended December 31, 2021 and 2020, respectively.

The decrease in selling expenses as a percentage of home sales revenues was driven primarily by cost saving measures implemented and the increased demand for our homes in response to the COVID-19 pandemic, as well as operating leverage realized from the increase in home sales revenues during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

General and Administrative.

General and administrative expenses for the year ended December 31, 2021 were $100.3 million, an increase of $10.3 million, or 11.5%, from $90.0 million for the year ended December 31, 2020.

The increase in the amount of general and administrative expenses is primarily due to increased personnel and other costs associated with an increase of active communities during 2020 as compared to 2019.

The increase in the amount of general and administrative expenses is primarily due to increased overhead.

General and administrative expenses as a percentage of home sales revenues were 3.3% and 3.8% for the years ended December 31, 2021 and 2020, respectively.

The decrease in general and administrative expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues and cost saving measures implemented as a result of COVID-19 during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Operating Income and Net Income before Income Taxes.

Loss on extinguishment of debt.

There was no loss on extinguishment of debt for the year ended December 31, 2020.

Other Income.

Other income, net of other expenses was $9.1 million for the year ended December 31, 2021, an increase of $5.9 million from $3.1 million for the year ended December 31, 2020.

The increase in other income primarily reflects the gain realized from the sale of lots not directly associated with our core homebuilding operations.

Operating Inco me and Net Income before Income Taxes.

Operating income for the year ended December 31, 2021 was $547.7 million, an increase of $183.0 million, or 50.2%, from $364.7 million for the year ended December 31, 2020.

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and Florida - $49.9 million or 9.2%.

The increases in operating income and net income before income taxes are primarily attributed to higher gross margins during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The increases in operating income and net income before income taxes are primarily attributed to operating leverage realized from

the increase in home sales revenues and higher average sales price per home closed during the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Income Taxes .

Income tax provision for the year ended December 31, 2020 was $44.0 million, a decrease of $9.3 million, or 17.4%, from income tax provision of $53.2 million for the year ended December 31, 2019.

The decrease in the amount of income tax provision is primarily due to the change in our effective tax rate to 11.9% from 23.0% effective tax provision as a

result of the tax benefits relating to the federal energy efficient homes tax credits we recognized during the year ended December 31, 2020, partially offset by the 58.7% increase in net income before taxes.

Federal energy efficient homes tax credits recognized during the year ended December 31, 2020 totaled $41.2 million, of which $29.7 million related to homes closed in prior open tax years.

We believe this tax credit will continue, at a lesser extent, to impact our results of operations during 2021.

Income tax provision for the year ended December 31, 2021 was $113.1 million, an increase of $69.2 million, or 157.4%, from income tax provision of $44.0 million for the year ended December 31, 2020.

Net income for the year ended December 31, 2021 was $429.6 million, an increase of $105.8 million, or 32.6%, from $323.9 million for the year ended December 31, 2020.

The increase in net income is primarily attributed to overall stronger gross margins driven by the 28.8% increase in home sales revenues, 6.1% higher average sales price per home closed and the $41.2 million of tax benefits relating to the federal energy efficient homes tax credits recognized during 2020 as compared to 2019.

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Annual Report on Form 10-K relating to adjusted gross margin, EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share.

Adjusted Gross Margin

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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 included in cost of sales.

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.

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.

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

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(2) Calculated as a percentage of home sales revenues.

Adjusted Net Income and Adjusted Earnings per Share

Adjusted net income and adjusted earnings per share are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance.

We define adjusted net income as net income less the retroactive federal energy efficient homes tax credits.

We define adjusted earnings per share as adjusted net income divided by weighted average shares outstanding.

Our management believes that the presentation of adjusted net income and adjusted earnings per share provides useful information to investors because such measures isolate the impact that material retroactive tax adjustments have on net income and earnings per share.

However, because adjusted net income and adjusted earnings per share information excludes the retroactive federal energy efficient homes tax credits, which have real economic effects and could impact our results, the utility of adjusted net income and adjusted earnings per share as measures of our operating performance may be limited.

In addition, other companies may not calculate adjusted net income and adjusted earnings per share in the same manner that we do.

Accordingly, adjusted net income and adjusted earnings per share information should be considered only as a supplement to net income and earnings per share information as measures of our performance.

The following table reconciles adjusted net income and adjusted earnings per share to net income and earnings per share, respectively, which are the GAAP measures that our management believes to be most directly comparable (dollars in thousands):

Year Ended December 31,

2021 2020 2019

Numerator (in thousands):

Net income (Numerator for basic and diluted earnings per share) $ 429,645 $ 323,895 $ 178,608

Retroactive federal energy efficient homes tax credits — 29,703 —

Adjusted net income (Numerator for adjusted basic and diluted earnings per share) $ 429,645 $ 294,192 $ 178,608

Basic weighted average shares outstanding 24,607,231 25,135,077 23,191,595

Effect of dilutive securities:

Convertible Notes - treasury stock method — — 1,966,639

Stock-based compensation units 301,760 245,483 272,607

Diluted weighted average shares outstanding 24,908,991 25,380,560 25,430,841

Basic earnings per share $ 17.46 $ 12.89 $ 7.70

Diluted earnings per share $ 17.25 $ 12.76 $ 7.02

Adjusted basic earnings per share $ 17.46 $ 11.70 $ 7.70

Adjusted diluted earnings per share $ 17.25 $ 11.59 $ 7.02

We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract.

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Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings.

Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed during the COVID-19 pandemic.

Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed.

In addition, we may experience cancellations of purchase contracts at any time prior to closing.

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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 2021 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 second 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.

Similarly, wholesale orders decreased 57.8% to 481 units from 1,139 units for the year ended December 31, 2021, as compared to the year ended December 31, 2020.

Our net orders decreased in 2022 primarily due to the sharp rise in mortgage rates as homebuyer demand softened, combined with historically low levels of finished lots resulting from years of sustained demand and the rapid pace of fluctuating rising costs for certain supplies and labor, previously experienced in 2021.

Our wholesale orders decreased 67.4% to 157 units at December 31, 2022 from 481 units at December 31, 2021.

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

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(5) As of December 31, 2021, we had 481 units related to bulk sales agreements associated with our wholesale business.

(6) As of December 31, 2019, we had 481 units related to bulk sales agreements associated with our wholesale business, of which 117 units and values are not included in the table above.

(6) As of December 31, 2020, we had 1,139 units related to bulk sales agreements associated with our wholesale business.

Land Acquisition Policies and Development

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Short-term Liquidity and Capital Resources

We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement to adequately fund our short-term working capital obligations and to purchase land and other assets, develop lots and homes and repurchase shares of our common stock.

We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement (as defined below) to adequately fund our short-term working capital obligations and to purchase land and other assets, develop lots and homes and repurchase shares of our common stock.

As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy.

We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.

While the COVID-19 pandemic and related mitigation efforts have created significant uncertainty as to general economic and housing market conditions, as of the date of this Annual Report on Form 10-K, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed.

We rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.

Furthermore, we utilize, on a limited and strategic basis, land banking financing arrangements to access short-term liquidity.

As of the date of this Annual Report on Form 10-K, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed.

However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

Long-term Liquidity and Capital Resources

We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029.

We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchases of shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing in 2025 and 2029.

We believe that we will be able to fund our long-term liquidity needs with cash generated from operations and cash expected to be available to borrow under the Credit Agreement or through accessing debt or equity capital, as needed, although no assurance can be provided that such additional debt or equity capital will be available when needed or on terms that we find attractive.

To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.

Additionally, we plan to further utilize, on a limited and strategic basis, land banking financing arrangements to maximize long-term liquidity for lot development projects where we have sufficient finished lot availability in certain markets.

To the extent these sources of capital are insufficient to meet our

needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.

Material Cash Requirements

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205,025 63,869 93,138 24,012 24,006

Land banking financing arrangements (d)

141,792 66,198 75,594 — —

Operating Leases 5,915 1,517 2,272 1,657 469

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See Note 6 “ Notes Payable ” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding our long-term debt.

(c) All of the outstanding borrowings under the Credit Agreement are at variable rates based on LIBOR, or subject to an interest rate floor.

The interest rate for our variable rate indebtedness as of December 31, 2021 was LIBOR plus 1.45%.

(c) All of the outstanding borrowings under the Credit Agreement are at variable rates based on SOFR, or subject to an interest rate floor.

The interest rate for our variable rate indebtedness as of December 31, 2022 was SOFR plus 1.85%.

Fees under the Credit Agreement are approximately $0.1 million per year.

Interest on the 2029 Senior Notes accrues at a rate of 4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year.

Interest related to the land banking financing arrangements is not included in the table.

(d) The land banking financing arrangements may incur interest at time of purchase and are subject to certain performance obligations, financial and other penalties if the lots are not purchased and are excluded from the table.

In the ordinary course of business, we enter into land purchase contracts in order to procure land and lots for the construction of our homes.

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Revolving Credit Facility

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”), which amends and restates that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”).

The Credit Agreement (a) increases the commitments to $850.0 million, (b) allows the Company to increase the commitments by up to $100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $50.0 million, (e) adds unrestricted cash in excess of $10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 1.45% to 2.10%, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50%, (h) increases the minimum tangible net worth requirement to $850.0 million plus 75% of the net proceeds of equity issuances after December 31, 2020 and 50% of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a

“hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company;

otherwise, the Credit Agreement is on substantially the same terms as the 2020 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.

The Credit Agreement matures on April 28, 2025.

Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date.

The Credit Agreement is guaranteed by each of our subsidiaries that have gross assets of at least $0.5 million.

The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million.

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 December 31, 2021, the borrowing base under the Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $817.4 million were outstanding, $9.1 million of letters of credit were outstanding and $321.3 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings at LIBOR plus 1.45%.

The Credit Agreement applicable margin for LIBOR loans ranges from 1.45% to 2.10% based on our leverage ratio.

At December 31, 2021, LIBOR was 0.10%;

however, the Credit Agreement has a 0.50% LIBOR floor.

The Credit Agreement requires us to maintain (i) a tangible net worth of not less than $850.0 million plus 75% of the net proceeds of all equity issuances after December 31, 2020 plus 50.0% of the amount of our positive net income in each fiscal quarter ending after March 31, 2021, (ii) a leverage ratio of not greater than 60.0%, (iii) liquidity of at least $50.0 million and (iv) a ratio of EBITDA to interest expense for the most recent four quarters of at least 1.75 to 1.00.

The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments.

At December 31, 2021, we were in compliance with all of the covenants contained in the Credit Agreement.

In July 2017, the FCA, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021.

On November 30, 2020, the FCA and ICE Benchmark Administration, which administers LIBOR quotations, announced a consultation on the extension of the quotation of certain LIBOR tenors to June 30, 2023 for legacy contracts only.

The Credit Agreement, which, at the present time, has a term that extends to April 28, 2025, provides for a mechanism to amend the Credit Agreement to reflect the establishment of an alternate rate of interest upon the occurrence of certain events related to the phase-out of any applicable interest rate.

However, we have not yet pursued any technical amendment or other contractual alternative to address this matter.

We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate on the Credit Agreement.

Senior Notes Offerings

On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act.

As of December 31, 2022, the borrowing base under the Credit Agreement was $1.4 billion, of which borrowings, including the 2029 Senior Notes, of $1.1 billion were outstanding, $33.4 million of letters of credit were outstanding and $236.6 million was available to borrow under the Credit Agreement.

For a further description of the Credit Agreement, please refer to Note 6 , “Notes Payable” to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Senior Notes Offering

On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S under the Securities Act.

Interest on the 2029 Senior Notes accrues at a rate of 4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year.

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.

On July 6, 2018, we issued $300.0 million aggregate principal amount of the 2026 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S.

On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $300.0 million and a redemption premium of $10.3 million.

Additionally, we expensed $3.0 million of deferred financing costs and discounts that were being previously amortized in association with the 2026 Senior Notes.

We financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.

Convertible Notes

On November 15, 2019, our 4.25% Convertible Notes due 2019 (the “Convertible Notes”) matured, which resulted in the principal payment of $70.0 million and the issuance of 2,381,751 shares of our common stock for the premium associated with the Convertible Notes.

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

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Stock Repurchase Program

In November 2018, we announced that the Board authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

In October 2020, the Board approved an increase in our stock repurchase program by an additional $300.0 million.

For the year ended December 31, 2021, we repurchased 1,288,563 shares of our common stock for $193.8 million to be held as treasury stock.

For the year ended December 31, 2020, we repurchased 718,993 shares of our common stock for $48.1 million to be held as treasury stock.

In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

In October 2020 and February 2022, the Board approved an increase in our stock repurchase program by an additional $300.0 million and $200.0 million, respectively.

For the years ended December 31, 2022, 2021 and 2020, we repurchased 892,916 shares of our common stock for $95.1 million to be held as treasury stock, 1,288,563 shares of our common stock for $193.8 million to be held as treasury stock and 718,993 shares of our common stock for $48.1 million to be held as treasury stock, respectively.

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

As of December 31, 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.

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Operating Activities

Net cash used in operating activities was $370.5 million during the year ended December 31, 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 year ended December 31, 2022 was primarily driven by cash outflow from the $823.9 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, partially offset by net income of $326.6 million, as well as the $32.8 million decrease and $58.1 million increase in the net change in accounts receivable, and accrued expenses and other liabilities, respectively.

Net cash provided by operating activities was $21.7 million during the year ended December 31, 2021.

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Net cash provided by operating activities during the year ended December 31, 2020 was primarily driven by net income of $323.9 million, offset by cash outflows from the $70.2 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 $59.5 million increase in the net change in accounts receivable.

Net cash used in operating activities was $41.9 million during the year ended December 31, 2019.

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 year ended December 31, 2019 was primarily driven by net income of $178.6 million, and included cash outlays for the $266.7 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, offset by changes in non-inventory balances of $46.1 million.

Investing Activities

Net cash used in investing activities was $6.0 million during the year ended December 31, 2022, primarily due to additional investments in unconsolidated entities.

Net cash used in investing activities was $70.4 million during the year ended December 31, 2021, primarily due to the business acquisitions of certain real estate assets owned by KenRoe Inc.

and its affiliated entities, including R Home LLC and Paxmar Land Development, and the real estate assets of Buffington Homebuilding Group, Ltd.

Net cash used in investing activities was $5.6 million and $1.8 million during the years ended December 31, 2020 and 2019, respectively, which reflects the purchase of property and equipment and investment in unconsolidated entity.

Net cash used in investing activities was $5.6 million during the year ended December 31, 2020, which reflects the purchase of property and equipment and investment in unconsolidated entity.

Financing Activities

Net cash provided by financing activities during the year ended December 31, 2021 was $63.3 million, primarily driven by borrowings of $1.2 billion under the Credit Agreement, offset by $969.0 million of payments associated with the 2026 Senior Notes and under the 2020 Credit Agreement and the Credit Agreement and by the $193.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.

Net cash used by financing activities during the year ended December 31, 2020 was $198.9 million, primarily driven by $530.0 million of payments under the 2020 Credit Agreement and by the $48.1 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $377.1 million under the 2020 Credit Agreement.

Net cash provided by financing activities during the year ended December 31, 2019 was $35.4 million, primarily driven by net borrowings of $105.5 million under the 2020 Credit Agreement, offset by the principal payment of $70.0 million on the Convertible Notes upon their maturity.

Net cash provided by financing activities was $357.9 million during the year ended December 31, 2022, primarily driven by $618.9 million of borrowings under the 2021 Credit Agreement and the Credit Agreement and $149.5 million of proceeds related to financing arrangements with a third-party land banker.

These were partially offset by $308.0 million of repayments on the Credit Agreement and by $95.1 million in payments for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.

Net cash provided by financing activities during the year ended December 31, 2021 was $63.3 million, primarily driven by borrowings of $1.2 billion under the 2021 Credit Agreement and the 2029 Senior Notes, offset by $969.0 million of payments associated with the 2026 Senior Notes and our credit agreement then in effect and by the $193.8 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 during the year ended December 31, 2020 was $198.9 million, primarily driven by $530.0 million of payments under our credit agreement then in effect and by the $48.1 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $377.1 million under our credit agreement then in effect.

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.

In June 2022 we began to experience a moderation of buyer demand resulting from the Federal Reserve’s ongoing actions to stem inflation, which ultimately resulted in higher mortgage rates for our homebuyers.

During the year ended December 31, 2022, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue throughout 2023.

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

Generally, we have been able to increase the sales

prices of our homes to absorb such increased costs.

See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A.

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We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales prices and/or margins are trending downward and are anticipated to continue to trend downward.

Due largely to the relatively short development and construction periods for our communities and our growth, we have experienced limited circumstances during 2021, 2020 or 2019 that are indicators of impairment.

Due largely to the relatively short development and construction

periods for our communities and our growth, we have experienced limited circumstances during 2022, 2021 or 2020 that are indicators of impairment.

Our future sales and margins may be impacted by our inability to realize continued growth, increased cost associated with holding and developing land, local economic factors, pressure on home sales prices, increased carrying costs, and insufficient access to labor and materials at reasonable costs.

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changes to the expected cash flows may lead to changes in the outcome of our impairment analysis.

The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase and concluding with the construction and sale of homes.

A constructed home is used as the community information center during the life of the community and then sold.

We purchase both finished lots and land to be developed.

Generally, the life cycle of a community ranges from two to five years.

For projects we develop, the period between the acquisition of a raw piece of land and completion of the development of that land generally ranges from two to three years.

During the life of a project, a constructed home is used as the community information center and then sold.

Actual individual community lives will vary based on the size of the community, the sales absorption rate, and whether the property was purchased as raw land or finished lots.

We are currently experiencing a shift towards more lots being acquired as raw land as compared to finished lots.

As a result of this shift within our inventory and the time to develop raw land to finished lots, a longer life cycle of a community is expected, to range from seven to nine years.

Sustained changes in the life cycle of a community, which is an indicator used for impairment, may negatively impact our results of operations.

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To the extent that any deposits are nonrefundable and the associated land acquisition process is terminated or no longer determined probable, the deposit and any related pre-acquisition costs (e.g.

due diligence costs) are charged to general and

administrative expense.

due diligence costs) are charged to general and administrative expense.

Assessments are made on each agreement based on criteria including, but not limited to, market absorption, historical and current average sales price per home, timing of purchase and size of land parcel.

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We account for certain homebuilding asset purchases as business combinations using the acquisition method of accounting and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with excess recorded as goodwill.

The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair value of the acquired assets.

The acquisition method of accounting

requires us to make significant estimates and assumptions regarding the fair value of the acquired assets.

We determine the estimated fair values of the real estate inventory with the assistance of appraisals performed by independent third-party specialists and estimates by management.

Assumptions utilized in our estimates of the fair value of the assets acquired may include market comparisons, gross margin comparisons, future development costs and the timing of the completion of development activities, absorption rates, and mix of products sold in each community.

Stock-based Compensation

We account for both non-performance and performance based compensation.

Our compensation costs for non-performance-based restricted stock awards are measured using the closing price of our common stock on the date of grant and are expensed on a straight-line basis over the requisite service period of the award.

Compensation costs for performance-based restricted stock awards also contain a market condition.

These costs are measured using the derived grant date fair value, based on a third party valuation analysis and an assessment of probability of attainment of the performance target based on assumptions that factor in historical data and volatility.

Once the performance target outcome is determined to be probable, the cumulative expense is adjusted, as needed, based on estimates to recognize compensation expense on a straight-line basis over the award’s requisite service period.

We utilize the liability method of accounting for income taxes.

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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 7. Management’s Discussion and Analysis