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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-07-30 · 155 added, 147 removed, 382 unchanged (44% of the section changed)

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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.

During the nine months ended September 30, 2024, we had 4,495 home closings, compared to 4,971 home closings during the nine months ended September 30, 2023.

We sell homes under the LGI Homes and Terrata Homes brands.

Our 138 active communities at September 30, 2024 included 18 Terrata Homes communities.

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

Recent Developments

On October 9, 2024, we entered into the Fifth Amendment, which amended the 2023 Credit Agreement.

The Fifth Amendment, among other things, (a) amended the negative covenant in the Credit Agreement relating to housing inventory and (b) extended the maturity of the commitments of certain lenders under the Credit Agreement to April 28, 2028.

For additional information on the Credit Agreement (including defined terms used in this paragraph), see Note 4 , “Notes Payable” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q .

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 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.

• Homes closed decreased 10.7% to 1,655 homes from 1,854 homes.

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

• Home sales revenues increased 5.6% to $651.9 million from $617.5 million.

• Homes closed increased 0.3% to 1,757 homes from 1,751 homes.

• Average sales price per home closed increased 5.2% to $371,004 from $352,678.

• Gross margin as a percentage of home sales revenues increased to 25.0% from 22.0%.

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

• Gross margin as a percentage of home sales revenues decreased to 25.1% from 25.7%.

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues was 27.2% in both comparable periods.

• Net income before income taxes increased 2.7% to $91.9 million from $89.4 million.

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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.

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

• Home sales revenues decreased 6.0% to $1.6 billion from $1.8 billion.

• Homes closed decreased 9.6% to 4,495 homes from 4,971 homes.

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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 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.

We owned and controlled 68,564 lots at September 30, 2024 as compared to 69,904 lots at June 30, 2024 and 71,081 lots at December 31, 2023.

Results of Operations

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,

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

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

2024 2023 2024 2023

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

EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring.

unusual or non-recurring.

Accordingly, our management believes that this measure is useful for comparing general operating performance from period to period.

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 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

Three Months Ended September 30, 2024 Compared to Three Months Ended September 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 September 30, 2024 and 2023, and our community count by reportable segment as of September 30, 2024 and 2023, were as follows (revenues in thousands):

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

Revenues Home Closings ASP Average Community Count Average

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Total $ 651,854 1,757 $ 371,004 133.3 4.4 138

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

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

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 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 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.

Home sales revenues for the three months ended September 30, 2024 were $651.9 million, an increase of $34.3 million, or 5.6%, from $617.5 million for the three months ended September 30, 2023.

The increase in home sales revenues was primarily due to an increase in the average sales price per home closed and a slight increase in homes closed during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

The average sales price per home closed during the three months ended September 30, 2024 was $371,004, an increase of $18,326, or 5.2%, from the average sales price per home closed of $352,678 for the three months ended September 30, 2023.

The increase in the average sales price per home closed was primarily due to geographic mix, largely in our Northwest and West segments, and a favorable pricing environment.

The overall increase in home closings was a result of a higher average community count during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

The overall increase in average community count relates to timing associated with new community openings, offset by the close out of some communities and transition between certain active communities during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

The overall decrease in absorption rate generally relates to the impact of ongoing affordability constraints, new community openings, and the overall increase in community count.

Included within our home sales revenues for the three months ended September 30, 2024 was $49.5 million in wholesale revenues resulting from 160 home closings, representing 9.1% of the 1,757 total homes closed during the three months ended September 30, 2024.

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.

• Home sales revenues in our Central reportable segment decreased by $19.2 million, or 10.4%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to a 9.3% decrease in the number of homes closed and a 1.3% 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 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.

• Home sales revenues in our Southeast reportable segment increased by $5.6 million, or 3.8%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to a 3.1% increase in the number of homes closed and a 0.6% 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.

• Home sales revenues in our Northwest reportable segment increased by $15.4 million, or 22.8%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to a 14.5% increase in the number of homes closed and a 7.2% 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 $55.7 million, or 58.7%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to a 45.0% increase in the number of homes closed and a 9.4% 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 $23.2 million, or 19.1%, during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, primarily due to a 24.3% decrease in the number of homes closed, partially offset by a 6.9% 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.

Cost of sales increased for the three months ended September 30, 2024 to $488.4 million, an increase of $29.6 million, or 6.5%, from $458.7 million for the three months ended September 30, 2023, primarily due to an increase in lot costs and higher capitalized interest.

Gross margin for the three months ended September 30, 2024 was $163.5 million, an increase of $4.7 million, or 3.0%, from $158.8 million for the three months ended September 30, 2023.

Gross margin as a percentage of home sales revenues was 25.1% for the three months ended September 30, 2024 and 25.7% for the three months ended September 30, 2023.

This decrease in gross margin as a percentage of home sales revenues was primarily due to the impact of increased sales incentives offered and a combination of an increase in lot costs and higher capitalized interest during the three months ended September 30, 2024 as compared to the three months ended September 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.

Selling expenses for the three months ended September 30, 2024 were $55.2 million, an increase of $5.4 million, or 10.9%, from $49.8 million for the three months ended September 30, 2023.

The increase in selling expenses was primarily due to an increase in advertising expense and an increase in personnel costs as a result of an increase in communities for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Sales commissions decreased to $27.6 million for the three months ended September 30, 2024 from $27.9 million for the three months ended September 30, 2023, primarily due to a decrease in outside commissions, partially offset by an increase in our in-house commissions due to an overall increase in revenues during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Selling expenses as a percentage of home sales revenues were 8.5% and 8.1% for the three months ended September 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 personnel expenses incurred during the three months ended September 30, 2024 as compared to the three months ended September 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.

General and administrative expenses for the three months ended September 30, 2024 were $28.0 million, an increase of $1.2 million, or 4.6%, from $26.7 million for the three months ended September 30, 2023.

The increase in general and administrative expenses was primarily a result of increased indirect overhead expenses and professional fees, partially offset by a decrease in payroll related costs during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

General and administrative expenses as a percentage of home sales revenues were 4.3% during each of the three months ended September 30, 2024 and 2023.

Other Income, Net.

Other income, net of other expenses was $11.5 million for the three months ended September 30, 2024, an increase of $4.4 million from $7.2 million for the three months ended September 30, 2023.

The increase in other income, net of other expenses, primarily reflects gains realized from the sale of residential lots and the increase in income associated with our investment in unconsolidated entities during the three months ended September 30, 2024.

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:

Operating income for the three months ended September 30, 2024 was $80.3 million, a decrease of $2.0 million, or 2.4%, from $82.3 million for the three months ended September 30, 2023.

The decrease in operating income was primarily attributed to lower gross margin and higher advertising and other costs associated with the increase in average community count.

Net income before income taxes for the three months ended September 30, 2024 was $91.9 million, an increase of $2.4 million, or 2.7%, from $89.4 million for the three months ended September 30, 2023.

The increase in net income before income taxes was primarily attributed to gains realized from the sale of residential lots during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

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

Central - $21.8 million, or 23.8%;

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and Florida - $9.7 million, or 10.6%.

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

Income tax provision for the three months ended September 30, 2024 was $22.3 million, a decrease of $0.1 million, or 0.6%, from income tax provision of $22.4 million for the three months ended September 30, 2023.

The decrease in our effective tax rate to 24.3% for the three months ended September 30, 2024 from 25.1% for the three months ended September 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 September 30, 2024 was $69.6 million, an increase of $2.5 million, or 3.8%, from $67.0 million for the three months ended September 30, 2023.

The increase in net income was primarily attributed to a higher average sales price per home closed and gains realized from the sale of residential lots during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 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 nine months ended September 30, 2024 and 2023 were as follows (revenues in thousands):

Nine Months Ended September 30, 2024

Revenues Home Closings ASP Average Community Count Average

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Total $ 1,645,202 4,495 $ 366,007 126.1 4.0

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Revenues Home Closings ASP Average Community Count Average Monthly

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

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.

Home sales revenues for the nine months ended September 30, 2024 were $1.6 billion, a decrease of $105.0 million, or 6.0%, from $1.8 billion for the nine months ended September 30, 2023.

The decrease in home sales revenues was primarily due to a 9.6% decrease in homes closed, offset by an increase in the average sales price per home closed during the nine months ended September 30, 2024 as compared to the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

The overall increase in average community count relates to timing associated with new community openings, offset by the close out of some communities and transition between certain active communities during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

The average sales price per home closed during the nine months ended September 30, 2024 was $366,007, an increase of $13,932, or 4.0%, from the average sales price per home closed of $352,075 for the nine months ended September 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 overall decrease in absorption rate generally relates to the impact of ongoing affordability constraints, new community openings, and the overall increase in community count.

Included within our home sales revenues for the nine months ended September 30, 2024 was $113.7 million in wholesale revenues resulting from 379 home closings, representing 8.4% of the 4,495 total homes closed during the nine months ended September 30, 2024.

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.

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

• Home sales revenues in our Central reportable segment decreased by $123.0 million, or 21.8%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a 20.9% 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.

• Home sales revenues in our Southeast reportable segment increased by $9.5 million, or 2.4%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a 1.2% increase in the number of homes closed and a 1.1% 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 Northwest reportable segment decreased by $25.6 million, or 12.0%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a 20.6% decrease in the number of homes closed, offset by a 10.7% 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 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.

• Home sales revenues in our West reportable segment increased by $95.3 million, or 37.1%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a 26.2% increase in the number of homes closed and an 8.7% 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.

• Home sales revenues in our Florida reportable segment decreased by $61.1 million, or 19.2%, during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, primarily due to a 23.4% decrease in the number of homes closed, partially offset by a 5.5% 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 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 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.

Cost of sales for the nine months ended September 30, 2024 was $1.2 billion, a decrease of $111.2 million, or 8.2%, from $1.4 billion for the nine months ended September 30, 2023.

This decrease was primarily due to an increase in lot costs and higher capitalized interest.

Gross margin for the nine months ended September 30, 2024 was $405.8 million, an increase of $6.2 million, or 1.6%, from $399.6 million for the nine months ended September 30, 2023.

Gross margin as a percentage of home sales revenues was 24.7% for the nine months ended September 30, 2024 and 22.8% for the nine months ended September 30, 2023.

The increase in gross margin as a percentage of home sales revenues during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to a higher average sales price per home closed, partially offset by a combination of higher lot costs and higher capitalized interest as a percentage of revenue as well as the impact of sales incentives offered during the nine months ended September 30, 2024.

Selling Expenses.

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.

Selling expenses for the nine months ended September 30, 2024 were $149.2 million, an increase of $7.4 million, or 5.2%, from $141.8 million for the nine months ended September 30, 2023.

The increase in selling expenses was primarily due to an increase in advertising expense and an increase in personnel costs as a result of an increase in communities for the nine months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Sales commissions decreased to $72.2 million during the nine months ended September 30, 2024 from $77.1 million for the nine months ended September 30, 2023, primarily due to a decrease in outside commissions and our in-house commissions.

Selling expenses as a percentage of home sales revenues were 9.1% and 8.1% for the nine months ended September 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 personnel expenses during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

General and Administrative.

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 $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.

General and administrative expenses for the nine months ended September 30, 2024 were $90.0 million, an increase of $5.7 million, or 6.7%, from $84.3 million for the nine months ended September 30, 2023.

General and administrative expenses as a percentage of home sales revenues were 5.5% and 4.8% for the nine months ended September 30, 2024 and 2023, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to leverage from community count growth during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Other Income, Net.

Other income, net of other expenses was $25.3 million for the nine months ended September 30, 2024, an increase of $5.5 million from $19.8 million for the nine months ended September 30, 2023.

The increase in other income, net

of other expenses, primarily reflects gains realized from the sale of residential lots and the increase in income associated with our investment in unconsolidated entities.

Operating Income and Net Income before Income Taxes.

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:

Operating income for the nine months ended September 30, 2024 was $166.6 million, a decrease of $6.9 million, or 4.0%, from $173.4 million for the nine months ended September 30, 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 and higher advertising and other costs associated with the increase in average community count during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

Net income before income taxes for the nine months ended September 30, 2024 was $191.8 million, a decrease of $1.4 million, or 0.7%, from $193.2 million for the nine months ended September 30, 2023.

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

Central - $47.0 million, or 24.5%;

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and Florida - $19.6 million, or 10.2%.

The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption 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 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.

Income tax provision for the nine months ended September 30, 2024 was $46.6 million, an increase of $0.6 million, or 1.2%, from income tax provision of $46.1 million for the nine months ended September 30, 2023.

The increase in our effective tax rate to 24.3% for the nine months ended September 30, 2024 from 23.8% for the nine months ended September 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 nine months ended September 30, 2024 was $145.2 million, a decrease of $1.9 million, or 1.3%, from $147.1 million for the nine months ended September 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 nine months ended September 30, 2024 as compared to the nine months ended September 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

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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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

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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 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.

Our net orders decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The number of homes in our backlog at September 30, 2024 decreased 21.0% compared to September 30, 2023.

The decreases generally relate to the impact of ongoing affordability constraints and our decision to limit the use of incentives to the level required to achieve predetermined closing targets during the nine months ended September 30, 2024 as compared to the nine months ended September 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 Six Months Ended June 30,

Backlog Data Nine Months Ended September 30,

Net orders (1)

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Ending backlog is valued at the contract amount.

(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.

(4) As of September 30, 2024, we had 212 units related to bulk sales agreements associated with our wholesale business.

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

Land Acquisition Policies and Development

We had 128 and 117 active communities as of June 30, 2024 and December 31, 2023, respectively.

We had 138 and 117 active communities as of September 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 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.

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

Our lot inventory decreased to 68,564 owned or controlled lots as of September 30, 2024 from 71,081 owned or controlled lots as of December 31, 2023, primarily related to our discipline in the evaluation 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 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

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

Nine Months Ended September 30, 2024 As of September 30, 2024

Reportable Segment Home Closings Owned (1)

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Total 4,495 54,029 14,535 68,564

(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.

(1) Of the 54,029 owned lots as of September 30, 2024, 38,734 were raw/under development lots and 15,295 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, 2024, we had a total of 2,032 completed homes, including information centers, and 2,639 homes in progress.

As of September 30, 2024, we had a total of 2,491 completed homes, including information centers, and 1,977 homes in progress.

Raw Materials and Labor

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Liquidity and Capital Resources

As of June 30, 2024, we had $51.1 million of cash and cash equivalents.

As of September 30, 2024, we had $60.9 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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Short-term Liquidity and Capital Resources

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

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

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

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Revolving Credit Facility

On December 5, 2023, we entered into a Fourth Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Fourth Amendment”), which amended 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 to date, including the Fourth Amendment, the “Credit Agreement”).

On October 9, 2024, we entered into a Fifth Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Fifth Amendment”), which amended the 2023 Credit Agreement (as so amended by the Fifth Amendment, the “Credit Agreement”).

The Credit Agreement provides for a $1.205 billion revolving credit facility, which can be increased at the request of the Company by up to $95.0 million, subject to the terms and conditions of the Credit Agreement.

The Credit Agreement matures on April 28, 2028 with respect to $960.0 million, or 79.7%, of the $1.205 billion of commitments thereunder and on April 28, 2025 with respect to 20.3% of the commitments thereunder.

The Credit Agreement matures on April 28, 2028 with respect to $1.085 billion, or 90.0%, of the $1.205 billion of commitments thereunder and on April 28, 2025 with respect to 10.0% of the commitments thereunder.

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

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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 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.

As of September 30, 2024, the borrowing base under the 2023 Credit Agreement was $2.0 billion, of which the maximum available to borrow is $1.9 billion.

As of September 30, 2024, borrowings under the 2023 Credit Agreement and the outstanding principal amount of the 2029 Senior Notes and the 2028 Senior Notes totaled approximately $1.6 billion, $26.1 million of letters of credit were outstanding and $314.5 million was available to borrow under the 2023 Credit Agreement.

Borrowings under the Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) the Adjusted Term SOFR (defined as a term SOFR that is based on a fixed 1, 3 or 6 month interest period, as selected by the Company, plus a 10, 15 or 25 basis point adjustment, respectively), which rate is subject to a 50 basis point floor, plus an applicable margin ranging from 145 basis points to 210 basis points (the “Applicable Margin”) based on the Company’s leverage ratio as determined in accordance with a pricing grid, or (2) the Base Rate (defined as a term SOFR that is based on a daily variable 1 month interest period plus a 10 basis point adjustment), subject to a 50 basis point floor, plus the Applicable Margin.

At September 30, 2024, the Applicable Margin was 1.85%, and SOFR was 4.85%, subject to the 0.50% SOFR floor as included in the 2023 Credit Agreement.

The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio.

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

At September 30, 2024, we were in compliance with all of the covenants contained in the 2023 Credit Agreement.

Senior Notes Offering

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The 2028 Senior Notes mature on December 15, 2028.

The terms of the 2028 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fourth Supplemental Indenture thereto, dated as of November 21, 2023, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.

The terms of the 2028 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and

Fourth Supplemental Indenture thereto, dated as of November 21, 2023, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.

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

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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 $371.2 million as of June 30, 2024.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements totaled $376.3 million as of September 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 June 30, 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 September 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 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.

During the three months ended September 30, 2024, we did not repurchase any shares of our common stock.

During the nine months ended September 30, 2024, we repurchased 172,990 shares of our common stock for $18.0 million to be held as treasury stock.

During the three and nine months ended September 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 June 30, 2024, we may purchase up to $193.5 million of shares of our common stock under our stock repurchase program.

As of September 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 $183.0 million during the six months ended June 30, 2024.

Net cash used in operating activities was $200.7 million during the nine months ended September 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 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.

Net cash used in operating activities during the nine months ended September 30, 2024 was primarily driven by cash outflow from the $390.9 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 partially offset by net income of 145.2 million.

Net cash used in operating activities was $22.7 million during 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 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.

Investing Activities

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.

Net cash used in investing activities was $6.6 million during the nine months ended September 30, 2024, primarily due to additional investment in unconsolidated entities.

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

Financing Activities

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.

Net cash provided by financing activities was $219.3 million during the nine months ended September 30, 2024, primarily driven by $507.7 million of borrowings under our 2023 Credit Agreement, offset by $214.0 million of repayments on our 2023 Credit Agreement and payments of $60.3 million related to a financing arrangement with a third-party land banker.

In addition, during the nine months ended September 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 provided by financing activities was $45.3 million during the nine months ended September 30, 2023, primarily driven by net borrowings of $75.9 million on our credit agreement then in effect, partially offset by net payments of $29.4 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 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.

As of September 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 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.

We believe that there have been no significant changes to our critical accounting policies and estimates during the nine months ended September 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