Meritage Homes CORP 10-Q

Item 1A. Risk Factors In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item IA "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, financial condition and/or operating results. There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 except as described below. Our business could be materially disrupted by an epidemic or pandemic (such as the present COVID-19 pandemic), or fear of such an event, and the measures that federal, state and local governments and/or health authorities implement to address it. Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends. These factors can be significantly adversely affected by a variety of factors beyond our control. The COVID-19 pandemic and the measures undertaken by governmental authorities to address it, initially disrupted or prevented us from operating our business in the ordinary course. Future disruptions and governmental actions combined with any associated economic and/or social instability or distress, can be expected to have an adverse impact on our results of operations, financial condition and cash flows. On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and since that date most states and municipalities have declared public health emergencies. As a result, there have been extraordinary and wide-ranging actions taken by federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 across the United States, including quarantines and “shelter-in-place” ("SIP") orders which substantially restricted daily activities. Although many have since been at least partially lifted, many state and local governments may pause their efforts to re-open and may re-implement various closure and restrictive measures. During the initial SIP orders, in nearly all of the markets in which we build homes, construction operations were deemed “essential” by the local governments and we had been able to maintain our operations. While we are currently experiencing exceptionally high traffic and orders pace, we are uncertain of the potential full magnitude or duration of the business and economic impacts from COVID-19, which could include: • declining orders and declining closing volume and associated revenues; • declining sales prices thereby reducing home closing margin, which if severe and sustained could result in potential real estate impairments; • tightening of mortgage lending thereby reducing the number of potential homebuyers; 39 • disruptions in our supply chain which would delay construction and completion of our homes; • intensifying public health efforts to such an extent that we will not be able to conduct any business operations in certain of our served markets or at all for an indefinite period; • a change in the classification of our business as “essential” in one or more of our markets that would preclude us from continuing our development and construction activities; • inefficiencies and increased costs in our development, construction and administrative processes due to social distancing and personal protective equipment requirements; • limitations on employee resources and availability, including due to sickness, school closures, government restrictions or the desire of employees to avoid contact with large groups of people; • should any key employees become ill with COVID-19 and unable to work, the attention of management could be diverted, and • significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock.