What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-02 · 157 added, 147 removed, 387 unchanged (44% of the section changed)

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Southern CA Daytona Beach, FL Columbia, SC

Salt Lake City, UT

Sarasota, FL Greenville, SC

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Nashville, TN

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 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.

We delivered strong financial results during the three months ended September 30, 2023.

We attribute our success during the third quarter to several factors, including our ability to drive leads to our information centers through targeted marketing, our ability to partially offset affordability pressures through a combination of mortgage buy-down programs and other sales incentives, and our decision to build smaller, lower-priced homes.

Although we are encouraged by our recent results, interest rates continue to move higher, creating the potential for a slowing demand for new homes.

As a result, we continue to closely monitor 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 September 30, 2023, we had 1,751 home closings, compared to 1,547 home closings during the three months ended September 30, 2022.

The increase in home closings for the three months ended September 30, 2023 was primarily due to an increase in the community count and the relative strength of the demand environment experienced during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

During the nine months ended September 30, 2023, we had 4,971 home closings, compared to 5,173 home closings during the nine months ended September 30, 2022.

At September 30, 2023, we had 106 active communities, including 11 Terrata Homes communities.

At September 30, 2022, we had 93 active communities, including 11 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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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.

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

• Home sales revenues increased 12.9% to $617.5 million from $547.1 million.

• Homes closed increased 13.2% to 1,751 homes from 1,547 homes.

• Average sales price per home closed decreased 0.3% to $352,678 from $353,635.

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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:

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

• Home sales revenues decreased 3.6% to $1.75 billion from $1.82 billion.

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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.

We owned and controlled 72,109 lots at September 30, 2023 as compared to 69,226 lots at June 30, 2023 and 71,904 lots at December 31, 2022.

Results of Operations

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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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 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

Three Months Ended September 30, 2023 Compared to Three Months Ended September 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 September 30, 2023 and 2022, and our community count as of September 30, 2023 and 2022, were as follows (revenues in thousands):

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

Revenues Home Closings ASP Average Community Count Average

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Total $ 617,539 1,751 $ 352,678 103.7 5.6 106

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

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

Revenues Home Closings ASP Average Community Count Average

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Total $ 547,074 1,547 $ 353,635 93.0 5.5 93

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.

Home sales revenues for the three months ended September 30, 2023 were $617.5 million, an increase of $70.5 million, or 12.9%, from $547.1 million for the three months ended September 30, 2022.

The increase in home sales revenues was primarily due to a 13.2% increase in homes closed, partially offset by a slight decrease in the average sales price per home closed during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

The overall increase in home closings was a result of a higher average community count during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Our community count at September 30, 2023 increased to 106 from 93 at September 30, 2022.

The average sales price per home closed during the three months ended September 30, 2023 was $352,678, a decrease of $957, or 0.3%, from the average sales price per home closed of $353,635 for the three months ended September 30, 2022.

Included within our home sales revenues for the three months ended September 30, 2023 was $43.3 million in wholesale revenues resulting from 139 home closings, representing 7.9% of the 1,751 total homes closed during the three months ended September 30, 2023.

Included within our home sales revenues for the three months ended September 30, 2022 was $127.9 million in wholesale revenues resulting from 443 home closings, representing 28.6% of the 1,547 total homes closed during the three months ended September 30, 2022.

• Home sales revenues in our Central reportable segment decreased by $44.8 million, or 19.6%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, due to a 17.6% decrease in the number of homes closed and a 2.4% decrease in the average sales price per home closed.

The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

• Home sales revenues in our Southeast reportable segment increased by $11.1 million, or 8.0%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 7.9% increase in the number of homes closed and a slight increase in the average sales price per home closed.

The increase in home closings was the result of a higher absorption rate and an increase in the average community count.

• Home sales revenues in our Northwest reportable segment increased by $20.9 million, or 44.7%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 37.9% increase in the number of homes closed and a 4.9% increase in the average sales price per home closed.

The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.

• Home sales revenues in our West reportable segment increased by $29.9 million, or 45.9%, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, primarily due to a 60.6% increase in the number of homes closed, partially offset by a 9.2% decrease in the average sales price per home closed.

The increase in home closings was the result of an increase in the average community count and a higher absorption rate.

• Home sales revenues in our Florida reportable segment increased by $53.4 million, or 78.2%, during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, primarily due to a 81.7% increase in the number of homes closed, partially offset by a 2.0% decrease in the average sales price per home closed.

The increase in home closings was the result of a higher absorption rate and a higher 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.

Cost of sales increased for the three months ended September 30, 2023 to $458.7 million, an increase of $67.5 million, or 17.2%, from $391.3 million for the three months ended September 30, 2022, primarily due to a 13.2% increase in homes closed.

Gross margin for the three months ended September 30, 2023 was $158.8 million, an increase of $3.0 million, or 1.9%, from $155.8 million for the three months ended September 30, 2022.

Gross margin as a percentage of home sales revenues was 25.7% for the three months ended September 30, 2023 and 28.5% for the three months ended September 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 September 30, 2023 as compared to the three months ended September 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.

Selling expenses for the three months ended September 30, 2023 were $49.8 million, an increase of $15.8 million, or 46.7%, from $33.9 million for the three months ended September 30, 2022.

The increase in selling expenses was primarily due to increased sales commissions, advertising expense and personnel costs for the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Sales commissions increased to $27.9 million for the three months ended September 30, 2023 from $17.9 million for the three months ended September 30, 2022, due to a 12.9% increase in home sales revenues and an increase in outside commissions during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

Selling expenses as a percentage of home sales revenues were 8.1% and 6.2% for the three months ended September 30, 2023 and 2022, respectively.

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

General and administrative expenses for the three months ended September 30, 2023 were $26.7 million, a decrease of $0.5 million, or 2.0%, from $27.3 million for the three months ended September 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 during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022, partially offset by increased personnel costs and professional fees during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.

General and administrative expenses as a percentage of home sales revenues were 4.3% and 5.0% for the three months ended September 30, 2023 and 2022, respectively.

The decrease in general and administrative expenses as a percentage of home sales revenues was primarily due to the 12.9% increase in homes sales revenues during the three months ended September 30, 2023 as compared to the three months ended September 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.

Other income, net of other expenses was $7.2 million for the three months ended September 30, 2023, a decrease of $7.0 million from $14.1 million for the three months ended September 30, 2022.

The decrease in other income, net of other expenses, primarily reflects the gain resulting from the sale of a three-year interest rate cap of LIBOR prior to its expiration during the three months ended September 30, 2022.

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:

Operating income for the three months ended September 30, 2023 was $82.3 million, a decrease of $12.3 million, or 13.0%, from $94.6 million for the three months ended September 30, 2022.

Net income before income taxes for the three months ended September 30, 2023 was $89.4 million, a decrease of $19.3

million, or 17.7%, from $108.7 million for the three months ended September 30, 2022.

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

Central - $32.2 million, or 36.0%;

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and Florida - $15.6 million, or 17.4%.

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.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower gross margin and higher advertising and other selling expenses incurred during the three months ended September 30, 2023 as compared to the three months ended September 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

Income tax provision for the three months ended September 30, 2023 was $22.4 million, an increase of $4.1 million, or 22.4%, from income tax provision of $18.3 million for the three months ended September 30, 2022.

The increase in our effective tax rate to 25.1% for the three months ended September 30, 2023 from 16.8% for the three months ended September 30, 2022 was primarily due to an increase in the rate for the state income taxes, net of the federal benefit, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and the impact of the retroactive extension in the third quarter of the federal energy efficient homes tax credits for the nine months ended September 30, 2022.

Net income for the three months ended September 30, 2023 was $67.0 million, a decrease of $23.3 million, or 25.8%, from $90.4 million for the three months ended September 30, 2022.

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 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 nine months ended September 30, 2023 and 2022 were as follows (revenues in thousands):

Nine Months Ended September 30, 2023

Revenues Home Closings ASP Average Community Count Average

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Total $ 1,750,166 4,971 $ 352,075 101.1 5.5

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Revenues Home Closings ASP Average Community Count Average Monthly

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Total $ 1,816,193 5,173 $ 351,091 91.1 6.3

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.

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.

Home sales revenues for the nine months ended September 30, 2023 were $1.75 billion, a decrease of $0.1 billion, or 3.6%, from $1.82 billion for the nine months ended September 30, 2022.

The decrease in home sales revenues was primarily due to a 3.9% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

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

The average sales price per home closed during the nine months ended September 30, 2023 was $352,075, an increase of $984, or 0.3%, from the average sales price per home closed of $351,091 for the nine months ended September 30, 2022.

The increase in the average sales price per home closed was primarily due to our ability to increase prices in certain markets and the impact of fewer home closings in our wholesale channel.

The overall decrease in absorption rate relates to the normalization of demand primarily resulting from higher mortgage rates.

Included within our home sales revenues for the nine months ended September 30, 2023 was $116.3 million in wholesale revenues resulting from 381 home closings, representing 7.7% of the 4,971 total homes closed during the nine months ended September 30, 2023.

Included within our home sales revenues for the nine months ended September 30, 2022 was $216.6 million in wholesale revenues resulting from 802 home closings, representing 15.5% of the 5,173 total homes closed during the nine months ended September 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 during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

• Home sales revenues in our Central reportable segment decreased by $242.8 million, or 30.1%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 29.9% decrease in the number of homes closed and a slight decrease in the average sales price per home closed.

in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

• Home sales revenues in our Southeast reportable segment increased by $69.1 million, or 21.0%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 19.4% increase in the number of homes closed and a 1.3% increase in the average sales price per home closed.

The increase in home closings was the result of an increase in the average community count and a higher absorption rate.

• Home sales revenues in our Northwest reportable segment decreased by $7.6 million, or 3.4%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 4.3% decrease in the average sales price per home closed, partially offset by a 0.9% increase in the number of homes closed.

The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.

• Home sales revenues in our West reportable segment increased by $12.0 million, or 4.9%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, primarily due to a 12.4% increase in the number of homes closed, partially offset by a 6.7% decrease in the average sales price per home closed.

The increase in home closings was the result of an increase in the average community count, partially offset by a lower absorption rate.

• Home sales revenues in our Florida reportable segment increased by $103.3 million, or 48.0%, during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to a 38.6% increase in the number of homes closed and a 6.7% increase in the average sales price per home closed.

The increase in home closings was the result of a higher absorption rate, 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 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.

Cost of sales increased for the nine months ended September 30, 2023 to $1.4 billion, an increase of $0.1 billion, or 6.3%, from $1.3 billion for the nine months ended September 30, 2022.

This overall increase was primarily due to higher construction costs and capitalized interest, partially offset by a 3.9% decrease in homes closed.

Gross margin for the nine months ended September 30, 2023 was $399.6 million, a decrease of $146.0 million, or 26.8%, from $545.6 million for the nine months ended September 30, 2022.

Gross margin as a percentage of home sales revenues was 22.8% for the nine months ended September 30, 2023 and 30.0% for the nine months ended September 30, 2022.

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

Selling Expenses.

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.

Selling expenses for the nine months ended September 30, 2023 were $141.8 million, an increase of $30.2 million, or 27.1%, from $111.6 million for the nine months ended September 30, 2022.

The increase in selling expenses was primarily due to increased advertising expense, sales commissions and personnel costs for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Sales commissions increased to $77.1 million primarily due to an increase in outside commissions during the nine months ended September 30, 2023 from $68.5 million for the nine months ended September 30, 2022.

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

The increase in selling expenses as a percentage of home sales revenues was driven primarily by increased advertising expense, sales commissions and other expenses incurred during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

General and Administrative.

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.

General and administrative expenses for the nine months ended September 30, 2023 were $84.3 million, a decrease of $0.3 million, or 0.4%, from $84.7 million for the nine months ended September 30, 2022.

General and administrative expenses as a percentage of home sales revenues were 4.8% and 4.7% for the nine months ended September 30, 2023 and 2022, respectively.

Other Income.

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.

Other income, net of other expenses was $19.8 million for the nine months ended September 30, 2023, a decrease of $2.2 million from $22.0 million for the nine months ended September 30, 2022.

The decrease in other income, net of other expenses, primarily reflects the proceeds resulting from the sale of a three-year interest rate cap of LIBOR prior to its expiration, offset by the increase in income associated with our investment in unconsolidated entities for the nine months ended September 30, 2023 and 2022, respectively.

Operating Income and Net Income before Income Taxes.

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%;

Operating income for the nine months ended September 30, 2023 was $173.4 million, a decrease of $175.9 million, or 50.4%, from $349.3 million for the nine months ended September 30, 2022.

Net income before income taxes for the nine months ended September 30, 2023 was $193.2 million, a decrease of $178.1 million, or 48.0%, from $371.3 million for the nine months ended September 30, 2022.

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

Central - $69.5

million, or 36.0%;

Southeast - $54.2 million, or 28.0%;

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and Florida - $37.1 million, or 19.2%.

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.

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, higher advertising and other selling expenses incurred, partially offset by a higher average community count during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Income Taxes .

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.

Income tax provision for the nine months ended September 30, 2023 was $46.1 million, a decrease of $32.7 million, or 41.5%, from income tax provision of $78.8 million for the nine months ended September 30, 2022.

The increase in our effective tax rate to 23.8% for the nine months ended September 30, 2023 from 21.2% for the nine months ended September 30, 2022 was primarily due to an increase in the rate for the state income taxes, net of the federal benefit, the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and the retroactive extension of the federal energy efficient homes tax credits for the nine months ended September 30, 2022, offset by a decrease in the rate for the deductions in excess of compensation cost for share-based payments.

Net income for the nine months ended September 30, 2023 was $147.1 million, a decrease of $145.3 million, or 49.7%, from $292.5 million for the nine months ended September 30, 2022.

The decrease in net income was primarily attributed to a lower gross margin and higher selling expenses as a percentage of revenues during the nine months ended September 30, 2023 as compared to the nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales.

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.

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.

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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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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Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.

Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months .

Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete.

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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 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.

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

The number of homes in our backlog at September 30, 2023 increased 9.7% compared to September 30, 2022.

The increase in ending backlog relates to the normalization in demand for new homes experienced in the third quarter of 2023 as compared to the third 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 Six Months Ended June 30,

Backlog Data Nine Months Ended September 30,

Net orders (1)

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(2) Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.

(3) Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months.

Ending backlog is valued at the contract amount.

(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.

(4) As of September 30, 2023, we had 273 units related to bulk sales agreements associated with our wholesale business.

(5) As of September 30, 2022, we had 591 units related to bulk sales agreements associated with our wholesale business.

Land Acquisition Policies and Development

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

We had 106 and 99 active communities as of September 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 69,226 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.

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 increased to 72,109 owned or controlled lots as of September 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.

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 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

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

Nine Months Ended September 30, 2023 As of September 30, 2023

Reportable Segment Home Closings Owned (1)

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Total 4,971 56,301 15,808 72,109

(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.

(1) Of the 56,301 owned lots as of September 30, 2023, 42,618 were raw/under development lots and 13,683 were finished lots.

Homes in Inventory

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

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

As of September 30, 2023, we had a total of 1,471 completed homes, including information centers, and 3,009 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 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 June 30, 2023, we had $43.3 million of cash and cash equivalents.

As of September 30, 2023, we had $47.0 million of cash and cash equivalents.

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

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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”).

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.

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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

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.

As of September 30, 2023, the borrowing base under the Credit Agreement is $1.8 billion of which the maximum available to borrow is $1.4 billion.

As of September 30, 2023, borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes totaled $1.2 billion, $28.1 million of letters of credit were outstanding and $196.2 million was available to borrow under the Credit Agreement.

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

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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 $348.7 million as of June 30, 2023.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $382.9 million as of September 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.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of September 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 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.

During the nine months ended September 30, 2023, we did not repurchase any shares of our common stock.

During the nine months ended September 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 June 30, 2023, we may purchase up to $211.5 million of shares of our common stock under our stock repurchase program.

As of September 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 $92.8 million for the six months ended June 30, 2023.

Net cash used in operating activities was $22.7 million for the nine months ended September 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 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.

Net cash used in operating activities during the nine months ended September 30, 2023 was primarily driven by cash outflow from the $194.4 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 $147.1 million.

Net cash used in operating activities was $359.6 million for the nine months ended September 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 six months ended June 30, 2022 was primarily driven by cash outflow from the $547.6 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $202.1 million, as well as the $19.4 million, $26.0 million, and $22.2 million increase in the net change in other assets, accounts payable, and accrued expenses and other liabilities, respectively.

Net cash used in operating activities during the nine months ended September 30, 2022 was primarily driven by cash outflow from the $791.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $292.5 million, as well as the $41.1 million and the $43.8 million increase in the net change in accounts payable and accrued expenses and other liabilities, respectively.

Investing Activities

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.

Net cash used in investing activities was $7.6 million for the nine months ended September 30, 2023, primarily due to additional investment in unconsolidated entities.

Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2022, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.

Financing Activities

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.

Net cash provided by financing activities was $45.3 million for the nine months ended September 30, 2023, primarily driven by net borrowings of $75.9 million on the Credit Agreement, partially offset by net payments of $29.4 million related to a financing arrangement with a third-party land banker.

Net cash provided by financing activities was $363.8 million for the nine months ended September 30, 2022, primarily driven by $534.9 million of borrowings under our credit agreement then in effect and the 2022 Credit Agreement and $35.9 million of proceeds related to a financing arrangement with a third-party land banker.

These were partially offset by $110.0 million of repayments on our credit agreement then in effect and the 2022 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.

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 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.

During the nine months ended September 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.

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Material Cash Requirements

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.

As of September 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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Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary.

On an ongoing basis, management evaluates such estimates and

judgments and makes adjustments as deemed necessary.

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 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.

We believe that there have been no significant changes to our critical accounting policies and estimates during the nine months ended September 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 following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

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

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

• a slowdown in the homebuilding industry or changes in population growth rates in our markets;

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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