What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 188 added, 96 removed, 341 unchanged (45% of the section changed)

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Nashville, TN

The first quarter of 2024 was impacted by several contributing factors including lower home closings primarily due to pressure on affordability, as a result of continued inflation, elevated mortgage rates and new community openings.

During the three months ended March 31, 2024, we had 1,083 home closings, compared to 1,366 home closings during the three months ended March 31, 2023.

At March 31, 2024, we had 120 active communities, including 16 Terrata Homes communities.

At March 31, 2023, we had 99 active communities, including 10 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.

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

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

However, the housing market is currently in a state of transition and we expect interest rate driven affordability constraints to continue to impact demand for the foreseeable future.

The housing market remains healthy, with overall demand supported by strong fundamentals, including household formation and migration trends, the ongoing impact of years of underproduction, and a lock-in effect limiting the supply of existing homes available for sale.

On top of these dynamics are a resilient employment market and our customers’ positive outlook on the stability of their jobs.

On the other side of the demand equation is constrained affordability, which remains the main challenge for our customers.

During the six months ended June 30, 2024, we had 2,738 home closings, compared to 3,220 home closings during the six months ended June 30, 2023.

At June 30, 2024, we had 128 active communities, including 17 Terrata Homes communities.

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

While the housing market is currently in a state of transition driven by interest rate-related affordability constraints, demand remains healthy where those affordability challenges can be bridged through a combination of product offerings and rate buydown assistance.

The long-term outlook for new homes remains strong, driven by solid fundamentals, including a historically low inventory of new and existing homes for sale, an aging housing stock, rising rents, strong household formations and continued strength in the employment market.

For additional discussion regarding our business and operations, see Item 7.

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Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Key financial results as of and for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, were as follows:

Key financial results as of and for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, were as follows:

• Home sales revenues decreased 6.6% to $602.5 million from $645.3 million.

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• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 27.0% from 23.8%.

• Net income before income taxes increased 7.7% to $76.9 million from $71.4 million.

• Net income increased 10.2% to $58.6 million from $53.1 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 14.7% from 12.6%.

For reconciliations of the non-GAAP financial measures of adjusted gross margin and 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, 2024, as compared to the six months ended June 30, 2023, were as follows:

• Home sales revenues decreased 12.3% to $993.3 million from $1.1 billion.

• Homes closed decreased 15.0% to 2,738 homes from 3,220 homes.

• Average sales price per home closed increased 3.1% to $362,801 from $351,748.

• Gross margin as a percentage of home sales revenues increased to 24.4% from 21.3%.

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 26.3% from 23.1%.

• Net income before income taxes decreased 3.6% to $100.0 million from $103.8 million.

• Net income decreased 5.6% to $75.6 million from $80.1 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 7.8% from 8.1%.

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 11.9% from 10.7%.

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

We owned and controlled 70,145 lots at March 31, 2024 as compared to 71,081 lots at December 31, 2023.

We owned and controlled 69,904 lots at June 30, 2024 as compared to 70,145 lots at March 31, 2024 and 71,081 lots at December 31, 2023.

Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

The following table sets forth our results of operations for the three and six months ended June 30, 2024 and 2023:

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

2024 2023 2024 2023

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

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EBITDA margin % (2)(4)

14.7 % 12.6 % 11.9 % 10.7 %

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

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In addition, other companies may not calculate adjusted gross margin information in the same manner that we do.

adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.

Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.

Please see “ —Non-GAAP Measures ” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.

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

Although we use EBITDA as a financial measure to assess the performance of our business, the use of this measure is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business.

Although we use EBITDA as a financial measure to assess the performance of our business, the use of this measure is limited because it does not include certain material costs, such as interest and

taxes, necessary to operate our business.

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

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate for the three months ended March 31, 2024 and 2023, and our community count as of March 31, 2024 and 2023, by reportable segment were as follows (revenues in thousands):

Three Months Ended March 31, 2024 As of March 31, 2024

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

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, 2024 and 2023, and our community count by reportable segment as of June 30, 2024 and 2023, were as follows (revenues in thousands):

Three Months Ended June 30, 2024 As of June 30, 2024

Revenues Home Closings ASP Average Community Count Average

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Total $ 602,497 1,655 $ 364,047 128.3 4.3 128

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

Revenues Home Closings ASP Average Community Count Average Monthly

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

Revenues Home Closings ASP Average Community Count Average

Absorption Rate Community Count at End of Period

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

Home sales revenues for the three months ended March 31, 2024 were $390.9 million, a decrease of $96.5 million, or 19.8%, from $487.4 million for the three months ended March 31, 2023.

The decrease in home sales revenues was primarily due to a 20.7% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

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 three

months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Home sales revenues for the three months ended June 30, 2024 were $602.5 million, a decrease of $42.8 million, or 6.6%, from $645.3 million for the three months ended June 30, 2023.

The decrease in home sales revenues was primarily due to a 10.7% decrease in homes closed, partially offset by an increase in the average sales price per home closed during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

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 three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The decrease in home closings is due to continued pressure on affordability due to inflation and mortgage rates which continue to be elevated.

The overall increase in average community count relates to timing associated with the close out of some higher performing communities, new openings that are still in the early stages, or transition between certain active communities during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The average sales price per home closed during the three months ended March 31, 2024 was $360,897, an increase of $4,120, or 1.2%, from the average sales price per home closed of $356,777 for the three months ended March 31, 2023.

The increase in the average sales price per home closed was primarily due to geographic mix and our ability to increase prices in those markets.

Included within our home sales revenues for the three months ended March 31, 2024 was $28.6 million in wholesale revenues resulting from 102 home closings, representing 9.4% of the 1,083 total homes closed during the three months ended March 31, 2024.

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

The increase in home closings as a percentage of revenues through our wholesale channel was primarily related to fewer retail home closings during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

• Home sales revenues in our Central reportable segment decreased by $46.6 million, or 31.0%, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a 29.6% decrease in the number of homes closed and a slight decrease in the average sales price per home closed.

The overall increase in average community count relates to timing associated with the close out of some higher performing communities, new openings that are still in the early stages, or transition between certain active communities during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The average sales price per home closed during the three months ended June 30, 2024 was $364,047, an increase of $16,005, or 4.6%, from the average sales price per home closed of $348,042 for the three months ended June 30, 2023.

The increase in the average sales price per home closed was primarily due to geographic mix and a favorable pricing environment.

Included within our home sales revenues for the three months ended June 30, 2024 was $35.7 million in wholesale revenues resulting from 117 home closings, representing 7.1% of the 1,655 total homes closed during the three months ended June 30, 2024.

Included within our home sales revenues for the three months ended June 30, 2023 was $41.9 million in

wholesale revenues resulting from 139 home closings, representing 7.5% of the 1,854 total homes closed during the three months ended June 30, 2023.

• Home sales revenues in our Central reportable segment decreased by $57.2 million, or 24.8%, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to a 24.6% decrease in the number of homes closed and a slight 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 $12.1 million, or 11.6%, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a 12.3% increase in the number of homes closed, partially offset by a 0.7% 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.

• Home sales revenues in our Northwest reportable segment decreased by $38.7 million, or 51.8%, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a 61.0% decrease in the number of homes closed, offset by a 23.6% increase in the average sales price per home closed.

• Home sales revenues in our Southeast reportable segment decreased by $8.2 million, or 5.7%, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, due to an 8.5% decrease in the number of homes closed, partially offset by a 3.0% increase in the average sales price per home closed.

The decrease in home closings was the result of a lower absorption rate while community count remained flat.

• Home sales revenues in our Northwest reportable segment decreased by $2.3 million, or 3.2%, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to a 7.7% decrease in the number of homes closed, partially offset by a 4.8% increase 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 West reportable segment decreased by $5.8 million, or 7.4%, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to a 14.4% decrease in the number of homes closed, partially offset by an 8.2% increase in the average sales price per home closed.

• Home sales revenues in our West reportable segment increased by $45.4 million, or 54.9%, during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, primarily due to a 43.9% increase in the number of homes closed and a 7.6% 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 Florida reportable segment decreased by $20.5 million, or 17.4%, during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, primarily due to a 20.4% decrease in the number of homes closed, partially offset by a 3.7% increase in the average sales price per home closed.

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

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

Cost of sales decreased for the three months ended June 30, 2024 to $451.6 million, a decrease of $51.7 million, or 10.3%, from $503.3 million for the three months ended June 30, 2023, primarily due to a 10.7% decrease in homes closed.

Gross margin for the three months ended June 30, 2024 was $150.9 million, an increase of $8.9 million, or 6.3%, from $141.9 million for the three months ended June 30, 2023.

Gross margin as a percentage of home sales revenues was 25.0% for the three months ended June 30, 2024 and 22.0% for the three months ended June 30, 2023.

This increase in gross margin as a percentage of home sales revenues was primarily due to a combination of lower input costs and higher sales prices during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Selling Expenses.

Selling expenses for the three months ended June 30, 2024 were $52.9 million, an increase of $3.6 million, or 7.4%, from $49.2 million for the three months ended June 30, 2023.

The increase in selling expenses was primarily due to an increase in advertising expense and personnel costs, partially offset by a decrease in sales commissions for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Sales commissions decreased to $27.2 million for the three months ended June 30, 2024 from $28.9 million for the three months ended June 30, 2023, due to a 6.6% decrease in home sales revenues and a decrease in outside commissions during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Selling expenses as a percentage of home sales revenues were 8.8% and 7.6% for the three months ended June 30, 2024 and 2023, 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, 2024 as compared to the three months ended June 30, 2023.

General and Administrative.

General and administrative expenses for the three months ended June 30, 2024 were $30.5 million, an increase of $2.9 million, or 10.4%, from $27.6 million for the three months ended June 30, 2023.

The increase in general and administrative expenses was primarily a result of community count growth during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

General and administrative expenses as a percentage of home sales revenues were 5.1% and 4.3% for the three months ended June 30, 2024 and 2023, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to lower home sales revenues during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Other Income.

Other income, net of other expenses was $9.4 million for the three months ended June 30, 2024, an increase of $3.0 million from $6.3 million for the three months ended June 30, 2023.

The increase in other income, net of other expenses, primarily reflects gains realized from the sale of residential lots and commercial acreage not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended June 30, 2024 was $67.5 million, an increase of $2.4 million, or 3.7%, from $65.1 million for the three months ended June 30, 2023.

before income taxes for the three months ended June 30, 2024 was $76.9 million, an increase of $5.5 million, or 7.7%, from $71.4 million for the three months ended June 30, 2023.

Our reportable segments contributed to net income before income taxes during the three months ended June 30, 2024 as follows:

Central - $21.7 million, or 28.2%;

Southeast - $24.2 million, or 31.5%;

Northwest - $7.7 million, or 10.1%;

West - $17.0 million, or 22.1%;

and Florida - $7.7 million, or 10.1%.

The increases in operating income and net income before income taxes were primarily attributed to higher gross margins and higher average sales price per home closed, offset by higher advertising and other costs associated with the increase in average community count during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Income Taxes .

Income tax provision for each of the three months ended June 30, 2024 and 2023 was $18.3 million.

The decrease in our effective tax rate to 23.8% for the three months ended June 30, 2024 from 25.6% for the three months ended June 30, 2023 was primarily a result of a decrease in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.

Net income for the three months ended June 30, 2024 was $58.6 million, an increase of $5.4 million, or 10.2%, from $53.1 million for the three months ended June 30, 2023.

The increase in net income was primarily attributed to a higher gross margin and a higher average sales price per home closed during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

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, 2024 and 2023 were as follows (revenues in thousands):

Six Months Ended June 30, 2024

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Central $ 277,170 854 $ 324,555 42.8 3.3

Southeast 251,863 765 329,233 25.7 5.0

Northwest 104,192 194 537,072 13.2 2.4

West 201,234 487 413,211 19.5 4.2

Florida 158,889 438 362,760 21.3 3.4

Total $ 993,348 2,738 $ 362,801 122.5 3.7

Six Months Ended June 30, 2023

Revenues Home Closings ASP Average Community Count Average Monthly

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

Home sales revenues for the six months ended June 30, 2024 were $993.3 million, a decrease of $139.3 million, or 12.3%, from $1.1 billion for the six months ended June 30, 2023.

The decrease in home sales revenues was primarily due to a 15.0% decrease in homes closed, offset by an increase in the average sales price per home closed during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The overall decrease in home closings was a result of a lower absorption rate, partially offset by a higher average community count, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The decrease in home closings is due to continued pressure on affordability

due to inflation and mortgage rates which continue to be elevated.

The overall increase in average community count relates to timing associated with the close out of some higher performing communities, new openings that are still in the early stages, or transition between certain active communities during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

The average sales price per home closed during the six months ended June 30, 2024 was $362,801, an increase of $11,053, or 3.1%, from the average sales price per home closed of $351,748 for the six months ended June 30, 2023.

The increase in the average sales price per home closed was primarily due to geographic mix and a favorable pricing environment.

Included within our home sales revenues for the six months ended June 30, 2024 was $64.3 million in wholesale revenues resulting from 219 home closings, representing 8.0% of the 2,738 total homes closed during the six months ended June 30, 2024.

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

The increase in home closings as a percentage of revenues through our wholesale channel was primarily related to fewer retail home closings during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

• Home sales revenues in our Central reportable segment decreased by $103.8 million, or 27.2%, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a 26.6% decrease in the number of homes closed as well as a slight decrease in the average sales price per home closed.

The decrease in home closings was primarily 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 $3.8 million, or 1.5%, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a 1.4% increase in the average sales price per home closed and a slight increase in the number of homes closed.

The increase in home closings was the result of an increase in the average community count.

• Home sales revenues in our Northwest reportable segment decreased by $41.0 million, or 28.3%, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a 35.8% decrease in the number of homes closed, offset by a 11.7% increase 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 Florida reportable segment decreased by $17.4 million, or 22.0%, during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to a 26.6% decrease in the number of homes closed, partially offset by a 6.3% increase in the average sales price per home closed.

• Home sales revenues in our West reportable segment increased by $39.6 million, or 24.5%, during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, primarily due to a 15.1% increase in the number of homes closed and an 8.1% 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 Florida reportable segment decreased by $37.9 million, or 19.3%, during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, primarily due to a 22.9% decrease in the number of homes closed, partially offset by a 4.7% increase 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.

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

Cost of sales for the three months ended March 31, 2024 was $299.5 million, a decrease of $89.1 million, or 22.9%, from $388.5 million for the three months ended March 31, 2023.

Cost of sales for the six months ended June 30, 2024 was $751.1 million, a decrease of $140.8 million, or 15.8%, from $891.9 million for the six months ended June 30, 2023.

This decrease was primarily due to a 15.0% decrease in homes closed.

Gross margin for the three months ended March 31, 2024 was $91.4 million, a decrease of $7.4 million, or 7.5%, from $98.8 million for the three months ended March 31, 2023.

Gross margin as a percentage of home sales revenues was 23.4% for the three months ended March 31, 2024 and 20.3% for the three months ended March 31, 2023.

The increase in gross margin as a percentage of home sales revenues during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 was primarily due to a combination of lower input costs and higher sales prices during the three months ended March 31, 2024.

Gross margin for the six months ended June 30, 2024 was $242.3 million, an increase of $1.5 million, or 0.6%, from $240.8 million for the six months ended June 30, 2023.

Gross margin as a percentage of home sales revenues was 24.4% for the six months ended June 30, 2024 and 21.3% for the six months ended June 30, 2023.

The increase in gross margin as a percentage of home sales revenues during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 was primarily due to a combination of lower input costs and higher sales prices during the six months ended June 30, 2024.

Selling Expenses.

Selling expenses for the three months ended March 31, 2024 were $41.1 million, a decrease of $1.7 million, or 3.9%, from $42.8 million for the three months ended March 31, 2023.

The decrease in selling expenses was primarily due to a decrease in sales commissions for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Sales commissions decreased to $17.4 million during the three months ended March 31, 2024 from $20.3 million for the three months ended March 31, 2023, primarily due to fewer homes closed.

Selling expenses as a percentage of home sales revenues were 10.5% and 8.8% for the three months ended March 31, 2024 and 2023, respectively.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by increased advertising expense and other expenses incurred in addition to lower homes sales revenues during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Selling expenses for the six months ended June 30, 2024 were $94.0 million, an increase of $2.0 million, or 2.1%, from $92.0 million for the six months ended June 30, 2023.

The increase in selling expenses was primarily due to an increase in advertising expense and personnel costs, partially offset by a decrease in sales commissions for the six months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Sales commissions decreased to $44.6 million during the six months ended June 30, 2024 from $49.2 million for the six months ended June 30, 2023, primarily due to fewer homes closed.

Selling expenses as a percentage of home sales revenues were 9.5% and 8.1% for the six months ended June 30, 2024 and 2023, respectively.

The increase in selling expenses as a percentage of home sales revenues was driven primarily by increased advertising expense and other expenses incurred in addition to lower home sales revenues during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

General and Administrative.

General and administrative expenses for the three months ended March 31, 2024 were $31.5 million, an increase of $1.6 million, or 5.3%, from $30.0 million for the three months ended March 31, 2023.

General and administrative expenses as a percentage of home sales revenues were 8.1% and 6.1% for the three months ended March 31, 2024 and 2023, 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, 2024 as compared to the three months ended March 31, 2023.

General and administrative expenses for the six months ended June 30, 2024 were $62.0 million, an increase of $4.4 million, or 7.7%, from $57.6 million for the six months ended June 30, 2023.

The increase in general and administrative expenses was primarily a result of community count growth and lower home sales revenues during

the six months ended June 30, 2024.

General and administrative expenses as a percentage of home sales revenues were 6.2% and 5.1% for the six months ended June 30, 2024 and 2023, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues was primarily a result of community count growth and lower home sales revenues during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Other Income.

Other income, net of other expenses was $4.4 million for the three months ended March 31, 2024, a decrease of $1.9 million from $6.3 million for the three months ended March 31, 2023.

The decrease in other income, net of other expenses, primarily reflects gains realized from the sale of land and lots not directly associated with our core homebuilding operations for the three months ended March 31, 2023.

Other income, net of other expenses was $13.7 million for the six months ended June 30, 2024, an increase of $1.1 million from $12.6 million for the six months ended June 30, 2023.

The increase in other income, net of other expenses, primarily reflects interest income and gains realized from the sale of residential lots and commercial acreage not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended March 31, 2024 was $18.7 million, a decrease of $7.3 million, or 28.1%, from $26.1 million for the three months ended March 31, 2023.

Net income before income taxes for the three months ended March 31, 2024 was $23.1 million, a decrease of $9.3 million, or 28.6%, from $32.3 million for the three months ended March 31, 2023.

The following reportable segments contributed to net income before income taxes during the three months ended March 31, 2024 as follows:

Operating income for the six months ended June 30, 2024 was $86.3 million, a decrease of $4.9 million, or 5.4%, from $91.1 million for the six months ended June 30, 2023.

Net income before income taxes for the six months ended June 30, 2024 was $100.0 million, a decrease of $3.8 million, or 3.6%, from $103.8 million for the six months ended June 30, 2023.

Our reportable segments contributed to net income before income taxes during the six months ended June 30, 2024 as follows:

Central - $25.2 million, or 25.2%;

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and Florida - $9.9 million, or 9.9%.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption rate, higher advertising and other selling expenses incurred partially offset by a higher gross margin and a higher average community count during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption rate, higher advertising and other selling expenses incurred partially offset by a higher gross margin and a higher average community count during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

Income Taxes .

Income tax provision for the three months ended March 31, 2024 was $6.0 million, an increase of $0.7 million, or 12.2%, from income tax provision of $5.4 million for the three months ended March 31, 2023.

The increase in our effective tax rate to 26.2% for the three months ended March 31, 2024 from 16.7% for the three months ended March 31, 2023 was primarily due to an increase in the rate for the compensation cost in excess of deductions for share-based payments, state income taxes, net of the federal benefit, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, partially offset by the retroactive extension of the federal energy efficient homes tax credits for the three months ended March 31, 2023.

Net income for the three months ended March 31, 2024 was $17.1 million, a decrease of $9.9 million, or 36.8%, from $27.0 million for the three months ended March 31, 2023.

The decrease in net income was primarily attributed to overall lower homes closed, lower home sales revenues and lower operating leverage during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Income tax provision for the six months ended June 30, 2024 was $24.4 million, an increase of $0.7 million, or 2.9%, from income tax provision of $23.7 million for the six months ended June 30, 2023.

The increase in our effective tax rate to 24.4% for the six months ended June 30, 2024 from 22.8% for the six months ended June 30, 2023 was primarily a result of an increase in the compensation cost in excess of deductions for share-based payments, partially offset by the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.

Net income for the six months ended June 30, 2024 was $75.6 million, a decrease of $4.5 million, or 5.6%, from $80.1 million for the six months ended June 30, 2023.

The decrease in net income was primarily attributed to overall lower homes closed and lower home sales revenues, partially offset by a higher gross margin during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

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,

2024 2023 2024 2023

Home sales revenues $ 602,497 $ 645,270 $ 993,348 $ 1,132,627

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Purchase accounting adjustments (1)

1,174 2,708 1,977 4,744

Adjusted gross margin $ 162,690 $ 153,783 $ 261,495 $ 261,392

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The following table reconciles EBITDA to net income, 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,

2024 2023 2024 2023

Net income $ 58,573 $ 53,134 $ 75,626 $ 80,096

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EBITDA margin % (1)

14.7 % 12.6 % 11.9 % 10.7 %

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

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

Our net orders decreased for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to lower demand resulting from higher mortgage rates.

The number of homes in our backlog at March 31, 2024 decreased 14.1% compared to March 31, 2023.

The decrease in ending backlog is primarily a result of lower demand resulting from higher mortgage rates during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Our net orders decreased for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to lower demand resulting from higher mortgage rates.

The number of homes in our backlog at June 30, 2024 decreased 15.0% compared to June 30, 2023.

The decrease in ending backlog is primarily a result of lower demand resulting from higher mortgage rates during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

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, 2024, we had 178 units related to bulk sales agreements associated with our wholesale business.

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

(4) As of June 30, 2024, we had 181 units related to bulk sales agreements associated with our wholesale business.

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

Land Acquisition Policies and Development

We had 120 and 117 active communities as of March 31, 2024 and December 31, 2023, respectively.

We had 128 and 117 active communities as of June 30, 2024 and December 31, 2023, 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 70,145 owned or controlled lots as of March 31, 2024 from 71,081 owned or controlled lots as of December 31, 2023, primarily related to our discipline in the evaluation of and selective approval of new land deals.

Our lot inventory decreased to 69,904 owned or controlled lots as of June 30, 2024 from 71,081 owned or controlled lots as of December 31, 2023, 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.

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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, 2024 and (ii) our owned or controlled lots by reportable segment as of March 31, 2024.

Three Months Ended March 31, 2024 As of March 31, 2024

The table below shows (i) home closings by reportable segment for the six months ended June 30, 2024 and (ii) our owned or controlled lots by reportable segment as of June 30, 2024.

Six Months Ended June 30, 2024 As of June 30, 2024

Reportable Segment Home Closings Owned (1)

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Total 2,738 54,362 15,542 69,904

(1) Of the 54,763 owned lots as of March 31, 2024, 39,601 were raw/under development lots and 15,162 were finished lots.

(1) Of the 54,362 owned lots as of June 30, 2024, 39,284 were raw/under development lots and 15,078 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, 2024, we had a total of 2,154 completed homes, including information centers, and 2,000 homes in progress.

As of June 30, 2024, we had a total of 2,032 completed homes, including information centers, and 2,639 homes in progress.

Raw Materials and Labor

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We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction.

In addition, the majority of our raw materials are supplied to us by our subcontractors and are

included in the price of our contract with such subcontractors.

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

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

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Liquidity and Capital Resources

As of March 31, 2024, we had $49.0 million of cash and cash equivalents.

As of June 30, 2024, we had $51.1 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.

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.

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

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

To the extent these sources of capital are

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

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

Revolving Credit Facility

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The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement.

As of March 31, 2024, the borrowing base under the Credit Agreement was $1.9 billion, and borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes and the 2028 Senior Notes totaled approximately $1.4 billion, $22.5 million of letters of credit were outstanding and $442.5 million was available to borrow under the Credit Agreement.

As of June 30, 2024, the borrowing base under the Credit Agreement was $1.9 billion, and borrowings under the Credit Agreement and the outstanding principal amount of the 2029 Senior Notes and the 2028 Senior Notes totaled approximately $1.5 billion, $29.5 million of letters of credit were outstanding and $354.8 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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persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act.

Interest on the 2028 Senior Notes accrues at a rate of 8.750% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2024.

Interest on the 2028 Senior Notes accrues at a rate of 8.750% per annum, payable semi-annually in arrears on June 15 and December 15 of each year.

The 2028 Senior Notes mature on December 15, 2028.

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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 $351.7 million as of March 31, 2024.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements totaled $371.2 million as of June 30, 2024.

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, 2024 will be drawn upon.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of June 30, 2024 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, 2024, we repurchased 89,227 shares of our common stock for $10.0 million to be held as treasury stock.

During the three months ended March 31, 2023, we did not repurchase any shares of our common stock.

During the three and six months ended June 30, 2024, we repurchased 83,763 shares of our common stock for $8.0 million and 172,990 shares of our common stock for $18.0 million, respectively, to be held as treasury stock.

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

A total of 3,112,462 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of March 31, 2024, we may purchase up to $201.5 million of shares of our common stock under our stock repurchase program.

As of June 30, 2024, we may purchase up to $193.5 million of shares of our common stock under our stock repurchase program.

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

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Operating Activities

Net cash used in operating activities was $99.5 million during the three months ended March 31, 2024.

Net cash used in operating activities was $183.0 million during the six months ended June 30, 2024.

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, 2024 was primarily driven by cash outflow from the $139.6 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 the $16.6 million decrease in the net change in accrued expenses and other liabilities, partially offset by net income of $17.1 million as well as the $14.2 million increase in accounts receivable and the $14.5 million increase in the net change in accounts payable.

Net cash provided by operating activities was $77.6 million during the three months ended March 31, 2023.

Net cash used in operating activities during the six months ended June 30, 2024 was primarily driven by cash outflow from the $287.2 million decrease 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 the $9.1 million decrease in the net change in accrued expenses and other liabilities, partially offset by net income of $75.6 million and the $35.1 million increase in the net change in accounts payable.

Net cash provided by operating activities was $92.8 million during 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 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.

Investing Activities

Net cash provided by investing activities was $2.0 million during the three months ended March 31, 2024, primarily due to proceeds from the sale of assets offset by the purchase of property and equipment.

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

Net cash used in investing activities was $2.9 million during the six months ended June 30, 2024, primarily due to the purchase of property and equipment and additional investment in unconsolidated entities.

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

Financing Activities

Net cash provided by financing activities was $97.5 million during the three months ended March 31, 2024, primarily driven by $172.4 million of borrowings under our Credit Agreement, offset by $39.0 million of repayments on our Credit Agreement and payments of $27.3 million related to a financing arrangement with a third-party land banker.

In addition, during the three months ended March 31, 2024, we repurchased $10.0 million of shares of our common stock under our stock repurchase program to be held as treasury stock.

Net cash used in financing activities was $61.8 million during the three months ended March 31, 2023, primarily driven by $105.0 million of repayments on our credit agreement then in effect 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 our credit agreement then in effect and proceeds of $26.9 million related to a financing arrangement with a third-party land banker.

Net cash provided by financing activities was $188.0 million during the six months ended June 30, 2024, primarily driven by $349.1 million of borrowings under our Credit Agreement, offset by $99.0 million of repayments on our Credit Agreement and payments of $46.7 million related to a financing arrangement with a third-party land banker.

In addition, during the six months ended June 30, 2024, we repurchased $18.0 million of shares of our common stock under our stock repurchase program to be held as treasury stock.

Net cash used in financing activities was $74.7 million during the six months ended June 30, 2023, primarily driven by net payments of $60.2 million on our credit agreement then in effect and net payments of $11.8 million related to a financing arrangement with a third-party land banker.

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

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Material Cash Requirements

As of March 31, 2024, 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, 2023.

As of June 30, 2024, 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, 2023.

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, 2024 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, 2023.

We believe that there have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2024 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, 2023.

Cautionary Statement about Forward-Looking Statements

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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