What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-02 · 193 added, 117 removed, 341 unchanged (48% of the section changed)

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Nashville, TN

We continued to adapt our business to respond to current market conditions and the uncertainty caused by the Federal Reserve’s ongoing actions to slow inflation.

We remained focused on targeted advertising spending to connect with more potential homebuyers and continued offering mortgage buy-down programs and other sales incentives to offset some of the affordability pressures resulting from higher mortgage rates.

During the three months ended March 31, 2023, we saw a measurable increase in the demand for our homes when compared to the three months ended December 31, 2022.

We believe this was due to several factors including our success at driving leads to our information centers through targeted marketing, our ability to move completed inventory through a combination of incentives and lower prices, our ongoing pivot to offering smaller, more affordable homes and the incremental decline of interest rates during the first quarter.

As a result of increased community count, the increased demand from qualified buyers, and our decision to meet that demand by selling homes earlier in the construction process, we experienced a higher number of net orders during the first quarter.

We delivered strong financial results during the three months ended June 30, 2023, as we continued to benefit from the recovery of demand for new homes when compared to the second half of 2022.

We attribute our success during the second quarter to several factors, including our ability to drive leads to our information centers through targeted marketing, our ability to offset affordability pressures through a combination of mortgage buy-down programs and other sales incentives, our ongoing pivot in our product offering to smaller, lower-priced homes, and the relative stability in interest rates when compared to the second half of 2022.

In response to these positive trends, we selectively increased construction starts in certain markets to align with the increased sales pace.

Although we are encouraged by these recent trends, we are closely monitoring demand trends at each active community and remain focused on balancing levels of vertical and completed inventory with current sales activity.

During the three months ended March 31, 2023, we had 1,366 home closings, compared to 1,599 home closings during the three months ended March 31, 2022.

The decline in home closings for the three months ended March 31, 2023 was primarily due to the slowdown in demand experienced during the second half of 2022.

We continued to experience supply chain disruptions that extended development cycles and delayed the opening of new communities.

We believe these supply shortages will continue to impact our operations for the remainder of the year.

At March 31, 2023, we had 99 active communities, including ten Terrata Homes communities.

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

During the three months ended June 30, 2023, we had 1,854 home closings, compared to 2,027 home closings during the three months ended June 30, 2022.

The decline in home closings for the three months ended June 30, 2023 was primarily due to the strength of the demand environment that continued to exist during the three months ended June 30, 2022 prior to the Federal Reserve’s rate hiking initiative, as well as fewer homes in backlog at the beginning of the second quarter of 2023 compared to the second quarter of 2022.

During the six months ended June 30, 2023, we had 3,220 home closings, compared to 3,626 home closings during the six months ended June 30, 2022.

At June 30, 2023, we had 102 active communities, including 11 Terrata Homes communities.

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

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.

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

Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in Item 1A.

Risk Factors in Part II of this Quarterly Report on Form 10-Q for the three months ended March 31, 2023.

Recent Developments

On April 28, 2023, we entered into the Third Amendment (as defined herein), which amends the 2022 Credit Agreement (as defined herein).

The Credit Agreement (as defined herein) provides for a $1.13 billion revolving credit facility, which can be increased at the request of the Company by up to $170.0 million, subject to the terms and conditions of 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.

Key financial results as of and for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, were as follows:

Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Item 1A.

Risk Factors in Part II of this Quarterly Report on Form 10-Q.

Key financial results as of and for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, were as follows:

• Home sales revenues decreased 10.8% to $645.3 million from $723.1 million.

• Homes closed decreased 8.5% to 1,854 homes from 2,027 homes.

• Average sales price per home closed decreased 2.4% to $348,042 from $356,719.

• Gross margin as a percentage of home sales revenues decreased to 22.0% from 32.0%.

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 23.8% from 33.1%.

• Net income before income taxes decreased 56.2% to $71.4 million from $163.0 million.

• Net income decreased 56.9% to $53.1 million from $123.4 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 12.6% from 23.4%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 12.0% from 23.1%.

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, 2023, as compared to the six months ended June 30, 2022, were as follows:

• Home sales revenues decreased 10.8% to $1.1 billion from $1.3 billion.

• Homes closed decreased 11.2% to 3,220 homes from 3,626 homes.

• Average sales price per home closed increased 0.5% to $351,748 from $350,005.

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We owned and controlled 69,724 lots at March 31, 2023 and 71,904 lots at December 31, 2022.

We owned and controlled 69,226 lots at June 30, 2023 as compared to 69,724 lots at March 31, 2023 and 71,904 lots at December 31, 2022.

Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table sets forth our results of operations for the three and six months ended June 30, 2023 and 2022:

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

2023 2022 2023 2022

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

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EBITDA margin % (2)(4)

12.6 % 23.4 % 10.7 % 21.6 %

Adjusted EBITDA (4)

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Adjusted EBITDA margin % (2)(4)

12.0 % 23.1 % 10.0 % 21.3 %

(1) Gross margin is home sales revenues less cost of sales.

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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, 2023 Compared to Three Months Ended March 31, 2022

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 three months ended March 31, 2023 and 2022, and our community count as of March 31, 2023 and 2022, were as follows (revenues in thousands):

Three Months Ended March 31, 2023 As of March 31, 2023

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

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 three months ended June 30, 2023 and 2022, and our community count as of June 30, 2023 and 2022, were as follows (revenues in thousands):

Three Months Ended June 30, 2023 As of June 30, 2023

Revenues Home Closings ASP Average Community Count Average

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Total $ 645,270 1,854 $ 348,042 102.0 6.1 102

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

Revenues Home Closings ASP Average Community Count Average Monthly

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

Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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

Home sales revenues for the three months ended March 31, 2023 were $487.4 million, a decrease of $58.7 million, or 10.7%, from $546.1 million for the three months ended March 31, 2022.

The decrease in home sales revenues is primarily due to a 14.6% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The overall decrease in home closings is a result of an overall lower absorption pace, partially offset by a higher average community count, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Home sales revenues for the three months ended June 30, 2023 were $645.3 million, a decrease of $77.8 million, or 10.8%, from $723.1 million for the three months ended June 30, 2022.

The decrease in home sales revenues was primarily due to an 8.5% decrease in homes closed and a decrease in the average sales price per home closed during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

The overall decrease in home closings was a result of lower absorption pace, offset by higher average community count during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Our community count at June 30, 2023 increased to 102 from 92 at June 30, 2022.

The average sales price per home closed during the three months ended June 30, 2023 was $348,042, a decrease of $8,677, or 2.4%, from the average sales price per home closed of $356,719 for the three months ended June 30, 2022.

The decrease in the average sales price per home closed was primarily due to geographic mix and our focus on starting smaller square foot homes to meet the current demand environment and interest rate driven affordability constraints.

Included within our home sales revenues for the three months ended June 30, 2023 was $41.9 million in wholesale revenues as a result of 139 home closings, representing 7.5% of the 1,854 total homes closed during the three months ended June 30, 2023.

Included within our home sales revenues for the three months ended June 30, 2022 was $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.

• Home sales revenues in our Central reportable segment decreased by $86.1 million, or 27.2%, during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to a 24.1% decrease in the number of homes closed at a lower absorption rate, partially offset by an increase in the average community count and a decrease in the average sales price per home closed.

• Home sales revenues in our Southeast reportable segment increased by $26.1 million, or 22.2%, during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to a 24.1% increase

in the number of homes closed and an increase in the average community count at a similar absorption rate, partially offset by a decrease in the average sales price per home closed.

• Home sales revenues in our Northwest reportable segment decreased by $0.4 million, or 0.5%, during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to an increase in the average community count, lower absorption rates and a decrease in the average sales price per home closed.

• Home sales revenues in our West reportable segment decreased by $41.2 million, or 33.3%, during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, primarily due to a 28.9% decrease in the number of homes closed driven by a decrease in the average sales price per home closed, a decrease in the average community count and a lower absorption rate.

• Home sales revenues in our Florida reportable segment increased by $23.8 million, or 25.3%, during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, primarily due to a 14.1% increase in the number of homes closed as well as a higher absorption rate and an increase in the average sales price per home closed, partially offset by a decrease in the average community count.

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

Cost of sales increased for the three months ended June 30, 2023 to $503.3 million, an increase of $11.6 million, or 2.4%, from $491.7 million for the three months ended June 30, 2022, primarily due to higher average construction costs per home closed, offset by an 8.5% decrease in homes closed.

Gross margin for the three months ended June 30, 2023 was $141.9 million, a decrease of $89.4 million, or 38.7%, from $231.4 million for the three months ended June 30, 2022.

Gross margin as a percentage of home sales revenues was 22.0% for the three months ended June 30, 2023 and 32.0% for the three months ended June 30, 2022.

This decrease in gross margin was due to a combination of higher construction costs as a percentage of home sales revenues, higher capitalized interest charged to cost of sales and the impact of sales incentives offered during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Selling Expenses.

Selling expenses for the three months ended June 30, 2023 were $49.2 million, an increase of $6.0 million, or 13.8%, from $43.3 million for the three months ended June 30, 2022.

The increase in selling expenses is primarily due to increased advertising expense and personnel costs, slightly offset by a decrease in sales commissions for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Sales commissions decreased to $28.9 million for the three months ended June 30, 2023 from $29.6 million for the three months ended June 30, 2022, primarily due to a 10.8% decrease in home sales revenues during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, offset by higher outside commissions.

Selling expenses as a percentage of home sales revenues were 7.6% and 6.0% for the three months ended June 30, 2023 and 2022, respectively.

The increase in selling expenses as a percentage of home sales revenues was primarily due to higher advertising and other expenses incurred during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

General and Administrative.

General and administrative expenses for the three months ended June 30, 2023 were $27.6 million, a decrease of $1.5 million, or 5.0%, from $29.1 million for the three months ended June 30, 2022.

The decrease in the amount of general and administrative expenses was primarily due to lower costs related to the termination of land purchase agreements and professional fees during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

General and administrative expenses as a percentage of home sales revenues were 4.3% and 4.0% for the three months ended June 30, 2023 and 2022, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to the 10.8% decrease in homes sales revenues during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Other Income.

Other income, net of other expenses was $6.3 million for the three months ended June 30, 2023, an increase of $2.3 million from $4.0 million for the three months ended June 30, 2022.

The increase in other income, net of other expenses, primarily reflects an increase in income associated with our investment in unconsolidated entities.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended June 30, 2023 was $65.1 million, a decrease of $93.9 million, or 59.1%, from $159.0 million for the three months ended June 30, 2022.

Net income before income taxes for the three months ended June 30, 2023 was $71.4 million, a decrease of $91.6 million, or 56.2%, from $163.0 million for the three months ended June 30, 2022.

All reportable segments contributed to net income before income taxes during the three months ended June 30, 2023 as follows:

Central - $28.3 million, or 39.6%;

Southeast - $20.5 million, or 28.6%;

Northwest - $6.1 million, or 8.6%;

West - $3.4 million, or 4.8%;

and Florida - $14.0 million, or 19.6%.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption pace at a lower gross margin, partially offset by a higher average community count during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Income Taxes .

Income tax provision for the three months ended June 30, 2023 was $18.3 million, a decrease of $21.4 million, or 53.9%, from income tax provision of $39.6 million for the three months ended June 30, 2022.

The increase in our

effective tax rate to 25.6% for the three months ended June 30, 2023 from 24.3% for the three months ended June 30, 2022 resulted from an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit, offset by the extension of federal energy efficient homes tax credits.

Net income for the three months ended June 30, 2023 was $53.1 million, a decrease of $70.2 million, or 56.9%, from $123.4 million for the three months ended June 30, 2022.

The decrease in net income was primarily attributed to lower gross margin and higher selling and general and administrative expenses as a percentage of revenues during the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

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, 2023 and 2022 were as follows (revenues in thousands):

Six Months Ended June 30, 2023

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Central $ 380,965 1,163 $ 327,571 35.7 5.4

Southeast 248,025 764 324,640 24.3 5.2

Northwest 145,219 302 480,858 9.7 5.2

West 161,625 423 382,092 12.8 5.5

Florida 196,793 568 346,467 17.3 5.5

Total $ 1,132,627 3,220 $ 351,748 99.8 5.4

Six Months Ended June 30, 2022

Revenues Home Closings ASP Average Community Count Average Monthly

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

Home sales revenues for the six months ended June 30, 2023 were $1.1 billion, a decrease of $136.5 million, or 10.8%, from $1.3 billion for the six months ended June 30, 2022.

The decrease in home sales revenues was primarily due to an 11.2% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The overall decrease in home closings was a result of an overall lower absorption pace, partially offset by a higher average community count, during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The average sales price per home closed during the six months ended June 30, 2023 was $351,748, an increase of $1,743, or 0.5%, from the average sales price per home closed of $350,005 for the six months ended June 30, 2022.

The increase in the average sales price per home closed was primarily due to geographic mix and the impact of lower home closings from our wholesale channel.

The overall decrease in absorption pace relates to the normalization of demand resulting from increased mortgage rates and longer cycle times stemming from varying degrees of supply chain constraints in the markets we serve.

The average sales price per home closed during the three months ended March 31, 2023 was $356,777, an increase of $15,282, or 4.5%, from the average sales price per home closed of $341,495 for the three months ended March 31, 2022.

The increase in the average sales price per home closed is primarily due to geographic mix, the impact of lower home closings from our wholesale channel and favorable pricing environments that allowed us to pass through cost increases associated with the construction of our homes in some of our markets.

Included within our home sales revenues for the three months ended March 31, 2023 was $31.2 million in wholesale revenues as a result of 103 home closings, representing 7.5% of the 1,366 total homes closed during the three months ended March 31, 2023.

Included within our home sales revenues for the three months ended March 31, 2022 was $51.8 million in wholesale revenues as a result of 213 home closings, representing 13.3% of the 1,599 total homes closed during the three months ended March 31, 2022.

The decrease in home closings as a percentage of revenues through our wholesale channel was primarily related to lower demand from our wholesale channel partners along with our decision to allocate less inventory available for sale through the wholesale channel during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

• Home sales revenues in our Central reportable segment decreased by $111.9 million, or 42.7%, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to a 46.3%

decrease in the number of homes closed at a lower absorption rate, partially offset by an increase in average community count and an increase in the average sales price per home closed.

• Home sales revenues in our Southeast reportable segment increased by $31.9 million, or 44.0%, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to a 32.8% increase in the number of homes closed driven by an increase in the average sales price per home closed and an increase in the average community count and higher absorption rate.

• Home sales revenues in our Northwest reportable segment decreased by $28.1 million, or 27.3%, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to a 20.9% decrease in the number of homes closed, as well as a decrease in the average sales price per home closed, a decrease in the average community count and a lower absorption rate.

• Home sales revenues in our West reportable segment increased by $23.3 million, or 41.9%, during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, primarily due to a 47.2% increase in the number of homes closed, as well as an increase in the average community count and a higher absorption rate, partially offset by a decrease in the average sales price per home closed.

• Home sales revenues in our Florida reportable segment increased by $26.1 million, or 49.3%, during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, primarily due to a 31.6% increase in the number of homes closed, as well as a higher absorption rate and an increase in the average sales price per home closed, partially offset by a decrease in the average community count.

Included within our home sales revenues for the six months ended June 30, 2023 was $73.0 million in wholesale revenues as a result of 242 home closings, representing 7.5% of the 3,220 total homes closed during the six months ended June 30, 2023.

Included within our home sales revenues for the six months ended June 30, 2022 was $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.

The decrease in home closings as a percentage of revenues through our wholesale channel was primarily related to lower demand from our wholesale channel customers along with our decision to allocate less inventory available for sale through the wholesale channel during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

• Home sales revenues in our Central reportable segment decreased by $198.0 million, or 34.2%, during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to a 34.6% decrease in the number of homes closed at a lower absorption rate, partially offset by an increase in average community count and a slight increase in the average sales price per home closed.

• Home sales revenues in our Southeast reportable segment increased by $58.0 million, or 30.5%, during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to a 27.5% increase in the number of homes closed at a higher absorption rate, an increase in average community count and an increase in the average sales price per home closed.

• Home sales revenues in our Northwest reportable segment decreased by $28.4 million, or 16.4%, during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to a 9.6% decrease in the number of homes closed, a lower absorption rate and a decrease in the average sales price per home closed, partially offset by a slight increase in the average community count.

• Home sales revenues in our West reportable segment decreased by $17.9 million, or 10.0%, during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, primarily due to a 4.5% decrease in the number of homes closed, a lower absorption rate and a decrease in the average sales price per home closed, partially offset by a slight increase in the average community count.

• Home sales revenues in our Florida reportable segment increased by $49.9 million, or 33.9%, during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, primarily due to a 20.6% increase in the number of homes closed, a higher absorption rate and an increase in the average sales price per home closed, partially offset by a decrease in the average community count.

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

Cost of sales increased for the three months ended March 31, 2023 to $388.5 million, an increase of $0.9 million, or 0.2%, from $387.6 million for the three months ended March 31, 2022.

This overall increase is primarily due to higher construction costs and capitalized interest, partially offset by a 14.6% decrease in homes closed.

Gross margin for the three months ended March 31, 2023 was $98.8 million, a decrease of $59.6 million, or 37.6%, from $158.4 million for the three months ended March 31, 2022.

Gross margin as a percentage of home sales revenues was 20.3% for the three months ended March 31, 2023 and 29.0% for the three months ended March 31, 2022.

The decrease in gross margin as a percentage of home sales revenues during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 was primarily due to a combination of higher construction costs, capitalized interest and the impact of sales incentives offered during the three months ended March 31, 2023.

Cost of sales increased for the six months ended June 30, 2023 to $891.9 million, an increase of $12.5 million, or 1.4%, from $879.4 million for the six months ended June 30, 2022.

This overall increase was primarily due to higher construction costs and capitalized interest, partially offset by an 11.2% decrease in homes closed.

Gross margin for the six months ended June 30, 2023 was $240.8 million, a decrease of $149.0 million, or 38.2%, from $389.8 million for the six months ended June 30, 2022.

Gross margin as a percentage of home sales revenues was 21.3% for the six months ended June 30, 2023 and 30.7% for the six months ended June 30, 2022.

The decrease in gross margin as a percentage of home sales revenues during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022 was primarily due to a combination of higher construction costs, capitalized interest and the impact of sales incentives offered during the six months ended June 30, 2023.

Selling Expenses.

Selling expenses for the three months ended March 31, 2023 were $42.8 million, an increase of $8.4 million, or 24.4%, from $34.4 million for the three months ended March 31, 2022.

Sales commissions decreased to $20.3 million for the three months ended March 31, 2023 from $21.0 million for the three months ended March 31, 2022.

Selling expenses as a percentage of home sales revenues were 8.8% and 6.3% for the three months ended March 31, 2023 and 2022, respectively.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by higher advertising spending and personnel costs, and in-house commissions due to lower home closings from our wholesale channel during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Selling expenses for the six months ended June 30, 2023 were $92.0 million, an increase of $14.4 million, or 18.5%, from $77.7 million for the six months ended June 30, 2022.

The increase in selling expenses is primarily due to increased advertising expense and personnel costs, slightly offset by a decrease in sales commissions for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Sales commissions decreased to $49.2 million primarily due to a 10.8% decrease in home sales revenues during the six months ended June 30, 2023 from $50.6 million for the six months ended June 30, 2022, offset by higher outside commissions.

Selling expenses as a percentage of home sales revenues were 8.1% and 6.1% for the six months ended June 30, 2023 and 2022, respectively.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by higher advertising spending and other expenses incurred during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

General and Administrative.

General and administrative expenses for the three months ended March 31, 2023 were $30.0 million, an increase of $1.7 million, or 5.9%, from $28.3 million for the three months ended March 31, 2022.

The increase in the amount of general and administrative expenses is primarily due to increased personnel and associated costs, as well as professional fees and terminated land purchase agreements incurred during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

General and administrative expenses as a percentage of home sales revenues were 6.1% and 5.2% for the three months ended March 31, 2023 and 2022, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues is primarily due to lower home sales revenues during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

General and administrative expenses for the six months ended June 30, 2023 were $57.6 million, an increase of $0.2 million, or 0.4%, from $57.4 million for the six months ended June 30, 2022.

General and administrative expenses as a percentage of home sales revenues were 5.1% and 4.5% for the six months ended June 30, 2023 and 2022, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to the 10.8% decrease in homes sales revenues during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Other Income.

Other income, net of other expenses was $6.3 million for the three months ended March 31, 2023, an increase of $2.5 million from $3.8 million for the three months ended March 31, 2022.

The increase in other income 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.

Other income, net of other expenses was $12.6 million for the six months ended June 30, 2023, an increase of $4.8 million from $7.8 million for the six months ended June 30, 2022.

The increase in other income, net of other expenses, primarily reflects an increase in income associated with our investment in unconsolidated entities.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended March 31, 2023 was $26.1 million, a decrease of $69.7 million, or 72.8%, from $95.7 million for the three months ended March 31, 2022.

Net income before income taxes for the three months ended March 31, 2023 was $32.3 million, a decrease of $67.2 million, or 67.5%, from $99.6 million for the three months ended March 31, 2022.

The following reportable segments contributed to net income before income taxes during the three months ended March 31, 2023 as follows:

Operating income for the six months ended June 30, 2023 was $91.1 million, a decrease of $163.6 million, or 64.2%, from $254.7 million for the six months ended June 30, 2022.

Net income before income taxes for the six months ended June 30, 2023 was $103.8 million, a decrease of $158.8 million, or 60.5%, from $262.6 million for the six months ended June 30, 2022.

The following reportable segments contributed to net income before income taxes during the six months ended June 30, 2023 as follows:

Central - $37.3 million, or 36.0%;

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and Florida - $21.5 million, or 20.7%.

The decreases in operating income and net income before income taxes are primarily attributed to lower gross margin, increased advertising spending and additional costs resulting from the increase of personnel associated with the

increase in community count, partially offset by higher average sales price per home closed during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption pace at a lower gross margin, partially offset by a higher average community count during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Income Taxes .

Income tax provision for the three months ended March 31, 2023 was $5.4 million, a decrease of $15.5 million, or 74.2%, from income tax provision of $20.9 million for the three months ended March 31, 2022.

The decrease in our effective tax rate to 16.7% from 21.0% was primarily due to deductions in excess of compensation cost for share-based payments and the extension of federal energy efficient homes tax credits, offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit.

Net income for the three months ended March 31, 2023 was $27.0 million, a decrease of $51.7 million, or 65.7%, from $78.7 million for the three months ended March 31, 2022.

The decrease in net income is primarily attributed to overall lower homes closed at lower gross margins and higher selling expenses during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Income tax provision for the six months ended June 30, 2023 was $23.7 million, a decrease of $36.8 million, or 60.9%, from income tax provision of $60.5 million for the six months ended June 30, 2022.

The decrease in our

effective tax rate to 22.8% for the six months ended June 30, 2023 from 23.1% for the six months ended June 30, 2022 was primarily due to a decrease in the rate for deductions in excess of compensation cost for share-based payments and the extension of federal energy efficient homes tax credits, offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit.

Net income for the six months ended June 30, 2023 was $80.1 million, a decrease of $122.0 million, or 60.4%, from $202.1 million for the six months ended June 30, 2022.

The decrease in net income was primarily attributed to a lower gross margin and higher selling and general and administrative expenses as a percentage of revenues during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Non-GAAP Measures

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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,

2023 2022 2023 2022

Home sales revenues $ 645,270 $ 723,069 $ 1,132,627 $ 1,269,119

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Purchase accounting adjustments (1)

2,708 2,026 4,744 4,308

Adjusted gross margin $ 153,783 $ 239,120 $ 261,392 $ 404,322

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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.

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.

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.

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.

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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,

2023 2022 2023 2022

Net income $ 53,134 $ 123,376 $ 80,096 $ 202,062

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Purchase accounting adjustments (1)

2,708 2,026 4,744 4,308

Other income, net (6,323) (4,006) (12,620) (7,836)

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EBITDA margin % (2)

12.6 % 23.4 % 10.7 % 21.6 %

Adjusted EBITDA margin % (2)

12.0 % 23.1 % 10.0 % 21.3 %

(1) Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.

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The amount of the required deposit is minimal (typically $1,000 to $10,000).

We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract.

We permit our

retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract.

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

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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 increased for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to an increase in community count.

The number of homes in our backlog at March 31, 2023 decreased 36.0% compared to March 31, 2022.

The decrease in ending backlog relates to demand for home sales earlier in the first half of 2022 as compared to the first quarter of 2023 as a result of the increase in mortgage rates for our homebuyers.

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

Our net orders increased for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in community count.

The number of homes in our backlog at June 30, 2023 increased 29.4% compared to June 30, 2022.

The increase in ending backlog relates to higher demand for home sales primarily related to the second quarter of 2023 as compared to the second quarter of 2022.

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)

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Ending backlog is valued at the contract amount.

(4) As of March 31, 2023, we had 130 units related to bulk sales agreements associated with our wholesale business.

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

(4) As of June 30, 2023, we had 131 units related to bulk sales agreements associated with our wholesale business.

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

Land Acquisition Policies and Development

We had 99 active communities as of both March 31, 2023 and December 31, 2022.

We had 102 and 99 active communities as of June 30, 2023 and December 31, 2022, respectively.

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

To mitigate our exposure to real estate inventory risks, we utilize, on a limited and strategic basis, land banking financing arrangements.

Our lot inventory decreased to 69,724 owned or controlled lots as of March 31, 2023 from 71,904 owned or controlled lots as of December 31, 2022, primarily related to our discipline in the evaluation of and selective approval of new land deals.

We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.

Our lot inventory decreased to 69,226 owned or controlled lots as of June 30, 2023 from 71,904 owned or controlled lots as of December 31, 2022, primarily related to our discipline in the evaluation of and selective approval of new land deals.

available cash or other financing sources.

In consideration for this repurchase option, we paid a non-refundable commitment fee.

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We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.

The table below shows (i) home closings by reportable segment for the three months ended March 31, 2023 and (ii) our owned or controlled lots by reportable segment as of March 31, 2023.

Three Months Ended March 31, 2023 As of March 31, 2023

The table below shows (i) home closings by reportable segment for the six months ended June 30, 2023 and (ii) our owned or controlled lots by reportable segment as of June 30, 2023.

Six Months Ended June 30, 2023 As of June 30, 2023

Reportable Segment Home Closings Owned (1)

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Total 3,220 56,763 12,463 69,226

(1) Of the 57,636 owned lots as of March 31, 2023, 46,633 were raw/under development lots and 11,003 were finished lots.

(1) Of the 56,763 owned lots as of June 30, 2023, 43,762 were raw/under development lots and 13,001 were finished lots.

Homes in Inventory

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

As of March 31, 2023, we had a total of 1,628 completed homes, including information centers, and 2,026 homes in progress.

As of June 30, 2023, we had a total of 1,124 completed homes, including information centers, and 3,027 homes in progress.

Raw Materials and Labor

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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, 2023, we have experienced delays and cost increases, to varying degrees, in our building materials and other construction costs.

For the six months ended June 30, 2023, we have experienced delays and cost increases, to varying degrees, in our building materials and other construction costs.

In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry.

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Liquidity and Capital Resources

As of March 31, 2023, we had $43.0 million of cash and cash equivalents.

As of June 30, 2023, we had $43.3 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.

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As of the date of this Quarterly Report on Form 10-Q, 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.

provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

However, 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, 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.

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Revolving Credit Facility

On April 28, 2023, we entered into a Third Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Third Amendment”), which amends the 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 (as amended by an amendment dated as of April 29, 2022 and as further amended by the Third Amendment, the “Credit Agreement”).

The Credit Agreement provides for a $1.13 billion revolving credit facility, which can be increased at the request of the Company by up to $170.0 million, subject to the terms and conditions of the Credit Agreement.

Lenders with $775.0 million, or 68.6%, of the $1.13 billion of commitments under the Credit Agreement, agreed to extend the maturity of their commitments to April 28, 2027, with the remaining lenders retaining their existing maturity of April 28, 2025.

The Credit Agreement also permits our subsidiaries that solely own and operate single family rental homes to incur secured indebtedness not to exceed 6% of our tangible net worth, and allows such subsidiaries to not guarantee the obligations under the Credit Agreement.

The Credit Agreement otherwise has substantially similar terms and provisions to the 2022 Credit Agreement.

The Credit Agreement matures on April 28, 2027 with respect to $775.0 million, or 68.6%, of the $1.13 billion of commitments thereunder and on April 28, 2025 with respect to 31.4% of the commitments thereunder .

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

The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million, other than subsidiaries whose sole purpose is to own and operate single-family rental homes.

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, 2023, the borrowing base under the 2022 Credit Agreement was, and under the Credit Agreement would have been, $1.4 billion, of which borrowings, including the 2029 Senior Notes, of which $1.1 billion were outstanding,$26.4 million of letters of credit were outstanding and $315.8 million was available to borrow under the 2022 Credit Agreement and would have been available to borrow under the Credit Agreement.

For a further description of the 2022 Credit Agreement and 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.

As of June 30, 2023, 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, $18.8 million of letters of credit were outstanding and $341.4 million was available to borrow under the Credit Agreement.

Senior Notes Offering

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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 $361.1 million as of March 31, 2023.

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, 2023 will be drawn upon.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $348.7 million as of June 30, 2023.

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 June 30, 2023 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, 2023, we did not repurchase any shares of our common stock.

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, 2023, we did not repurchase any shares of our common 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, 2023, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program.

As of June 30, 2023, 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 provided by operating activities was $77.6 million for the three months ended March 31, 2023.

Net cash provided by operating activities was $92.8 million for the six months ended June 30, 2023.

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, 2023 was primarily driven by cash inflow from the $15.9 million increase in the net change in real estate inventory, which was primarily related to the number of home closings outpacing the homes under construction and land acquisitions and development level of activity, net income of $27.0 million, as well as the $22.3 million increase in other assets and $14.7 million increase in the net change in accounts payable.

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

Net cash provided by operating activities during the six months ended June 30, 2023 was primarily driven by cash inflow from net income of $80.1 million, and the $34.1 million and $22.9 million increase in the net change in accounts payable and other assets, respectively.

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 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.

Investing Activities

Net cash used in investing activities was $4.9 million for the three months ended March 31, 2023, primarily due to the additional investment in unconsolidated entities.

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

Net cash used in investing activities was $6.8 million for the six months ended June 30, 2023, primarily due to additional investment in unconsolidated entities.

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

Financing Activities

Net cash used in financing activities was $61.8 million for the three months ended March 31, 2023, primarily driven by $105.0 million of repayments on the 2022 Credit Agreement and the $17.9 million of payments related to a financing arrangement with a third-party land banker, offset by proceeds of $32.9 million under the 2022 Credit Agreement and proceeds of $26.9 million related to a financing arrangement with a third-party land banker.

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 $74.7 million for the six months ended June 30, 2023, primarily driven by net payments of $60.2 million on the Credit Agreement and net payments of $11.8 million related to a financing arrangement with a third-party land banker.

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 prior 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.

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, 2023, we continued to experience pressure on costs due to high levels of inflation, which we expect will continue throughout 2023.

During the six months ended June 30, 2023, we continued to experience pressure on costs due to high levels of inflation, which we expect will continue throughout 2023.

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.

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

Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Material Cash Requirements

As of March 31, 2023, 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, 2022.

As of June 30, 2023, 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, 2022.

Critical Accounting Policies and Estimates

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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, 2023 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, 2022.

We believe that there have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2023 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, 2022.

Cautionary Statement about Forward-Looking Statements

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• the risk factor set forth in Item 1A.

Risk Factors in this Quarterly Report on Form 10-Q;

Risk Factors in Part II of this Quarterly Report on Form 10-Q;

• the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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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-Q

Item 2. Management’s Discussion and Analysis