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Item 1. Financial Statements

2021-04-30 compared with 2020-10-27 · 178 added, 215 removed, 485 unchanged (45% of the section changed)

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(in thousands, except share amounts)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and cash equivalents $ 716,433 $ 745,621

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Property and equipment, net 37,308 38,933

Deferred tax asset 28,425 25,917

Deferred tax assets, net 33,329 36,040

Prepaids, other assets and goodwill 105,009 103,308

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Authorized 10,000,000 shares;

none issued and outstanding at September 30, 2020 and December 31, 2019

none issued and outstanding at March 31, 2021 and December 31, 2020

Common stock, par value $ 0.01 .

Authorized 125,000,000 shares;

37,612,127 and 38,199,111 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

37,846,856 and 37,512,127 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 452,741 455,762

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(in thousands, except per share amounts)

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

2020 2019 2020 2019

Three Months Ended March 31,

Homebuilding:

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Home closing gross profit 266,655 178,360

Land closing gross profit/(loss) 510 ( 26 ) ( 555 ) ( 1,402 )

Land closing gross profit 547 383

Total closing gross profit 267,202 178,743

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Earnings from financial services unconsolidated entities and other, net

1,402 2,990 3,132 9,559

Financial services profit 3,760 2,838

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(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net earnings $ 131,843 $ 71,152

Adjustments to reconcile net earnings to net cash provided by operating activities:

Adjustments to reconcile net earnings to net cash (used in)/provided by operating activities:

Depreciation and amortization 6,535 7,011

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Changes in assets and liabilities:

Decrease/(increase) in real estate 9,080 ( 110,295 )

(Increase)/decrease in deposits on real estate under option or contract ( 12,910 ) 5,773

Decrease/(increase) in other receivables, prepaids and other assets 4,933 ( 3,108 )

Increase in accounts payable and accrued liabilities 60,039 84,632

Increase in real estate ( 193,395 ) ( 45,207 )

Increase in deposits on real estate under option or contract ( 4,821 ) ( 3,266 )

(Increase)/decrease in other receivables, prepaids and other assets ( 7,118 ) 7,557

Increase/(decrease) in accounts payable and accrued liabilities 38,743 ( 1,956 )

Increase in home sale deposits 5,899 1,856

Net cash provided by operating activities 373,082 167,360

Net cash (used in)/provided by operating activities ( 13,946 ) 43,913

Cash flows from investing activities:

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Cash flows from financing activities:

Proceeds from Credit Facility, net — 500,000

Repayment of loans payable and other borrowings ( 1,947 ) ( 1,009 )

Repurchase of shares ( 8,385 ) ( 60,813 )

Net cash used in financing activities ( 69,322 ) ( 12,043 )

Net increase in cash and cash equivalents 290,513 143,346

Net cash (used in)/provided by financing activities ( 10,332 ) 438,178

Net (decrease)/increase in cash and cash equivalents ( 29,188 ) 477,855

Cash and cash equivalents, beginning of period 745,621 319,466

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Meritage Homes is a leading designer and builder of single-family homes.

We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed to appeal to the first-time and first move-up markets.

We primarily build in historically high-growth regions of the United States and offer a variety of homes that are designed for entry-level and first move-up buyers.

We have homebuilding operations in three regions:

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Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee.

We also operate a wholly-owned title company, Carefree Title Agency, Inc.

("Carefree Title").

Carefree Title's core business includes title insurance and closing/settlement services we offer to our homebuyers.

Beginning in the fourth quarter of 2019, we commenced operations of wholly-owned Meritage Homes Insurance Agency, Inc.

(“Meritage Insurance”).

Meritage Insurance works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers.

We also operate a financial services reporting segment.

In this segment, we offer title and escrow, mortgage, and insurance services.

Carefree Title Agency, Inc.

("Carefree Title"), our wholly-owned title company, provides title insurance and closing/settlement services to our homebuyers.

Managing our own title operations allows us greater control over the entire escrow and closing cycles in addition to generating additional revenue.

Meritage Homes Insurance Agency, Inc.

(“Meritage Insurance”), our wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers.

Our financial services operations also provide mortgage loans to our homebuyers indirectly through an unconsolidated joint venture.

We commenced our homebuilding operations in 1985 through our predecessor company known as Monterey Homes.

Meritage Homes Corporation was incorporated in the state of Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation.

Since that time, we have engaged in homebuilding and related activities and ceased to operate as a real estate investment trust.

Meritage Homes Corporation operates as a holding company and has no independent assets or operations.

Its homebuilding construction, development and sales activities are conducted through its subsidiaries.

Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets.

At September 30, 2020, we were actively selling homes in 204 communities, with base prices ranging from approximately $ 188,000 to $ 1,300,000 .

At March 31, 2021, we were actively selling homes in 203 communities, with base prices ranging from approximately $ 203,000 to $ 931,000 .

Basis of Presentation .

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Liquid investments with an initial maturity of three months or less are classified as cash equivalents.

Amounts in transit from title companies or closing agents for home closings of approximately $ 58.9 million and $ 54.5 million are included in cash and cash equivalents at September 30, 2020 and December 31, 2019, respectively.

Real estate is stated at cost unless the asset is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360-10”) .

Amounts in transit from title companies or closing agents for home closings of approximately $ 78.0 million and $ 61.3 million are included in cash and cash equivalents at March 31, 2021 and December 31, 2020, respectively.

Real estate is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“ASC 360-10”) .

Inventory includes the costs of land acquisition, land development, home construction, capitalized interest, real estate taxes, and capitalized direct overhead costs incurred during development, less impairments, if any.

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When a home closes, we may have incurred costs for goods and services that have not yet been paid.

An accrued liability to capture such obligations is recorded in connection with the home closing and charged directly to Cost of home closings.

An accrued liability to capture such obligations is recorded in connection with the home closing and charged directly to cost of sales.

We rely on certain estimates to determine our construction and land development costs.

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In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred.

It is possible that actual results could differ from budgeted amounts for various reasons, including construction and weather delays, labor or material shortages, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues or delays encountered during construction and development and other factors beyond our control.

address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.

Actual results can differ from budgeted amounts for various reasons, including construction and weather delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues or delays encountered during construction and development and other factors beyond our control.

To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.

Typically, a community's life cycle ranges from three to five years , commencing with the acquisition of the land, continuing through the land development phase, if applicable, and concluding with the sale, construction and closing of the homes.

Actual community lives will vary based on the size of the community, the sales absorption rate and whether the land purchased was raw, partially-developed or in finished status.

Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be shorter.

All of our land inventory and related real estate assets are reviewed for recoverability, as our inventory is considered “long-lived” in accordance with GAAP.

Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter.

All of our land inventory and related real estate assets are periodically reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP.

Impairment charges are recorded to write down an asset to its estimated fair value if the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount.

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Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions.

Such an analysis is conducted if there is an indication of a decline in value of our land and real estate assets.

If an impairment of a community is required, the impairment charges are allocated to each lot on a straight-line basis.

Deposits paid for land options and purchase contracts are recorded and classified as Deposits on real estate under option or contract until the related land is purchased.

Deposits are reclassified as a component of Real estate at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements.

To the extent they are non-refundable, deposits are charged to expense if the land acquisition contract is terminated or no longer considered probable.

Since our acquisition contracts typically do not require specific performance, we do not consider such contracts to be contractual obligations to purchase the land and our total exposure under such contracts is limited to the loss of the non-refundable deposits and any ancillary capitalized costs.

Our Deposits on real estate under option or contract were $ 63.0 million and $ 50.9 million as of September 30, 2020 and December 31, 2019, respectively.

Our analysis is conducted if indication of a decline in value of our land and real estate assets exists.

If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the asset's carrying amount exceeds its fair value.

The impairment of a community is allocated to each lot on a straight-line basis.

Deposits paid related to land option and purchase contracts are recorded and classified as Deposits on real estate under option or contract until the related land is purchased.

Deposits are reclassified as a component of real estate inventory at the time the deposit is used to offset the acquisition price of the lots based on the terms of the underlying agreements.

To the extent they are non-refundable, deposits are charged to expense if the land acquisition is terminated or no longer considered probable.

Since our acquisition contracts typically do not require specific performance, we do not consider such contracts to be contractual obligations to purchase the land and our total exposure under such contracts is limited to the loss of any nonrefundable deposits and any ancillary capitalized costs.

Our Deposits on real estate under option or contract were $ 64.4 million and $ 59.5 million as of March 31, 2021 and December 31, 2020, respectively.

In accordance with ASC 350, Intangibles, Goodwill and Other ("ASC 350"), we analyze goodwill on an annual basis (or whenever indication of impairment exists) through a qualitative assessment to determine whether it is necessary to perform a goodwill impairment test.

ASC 350 states that an entity may assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test.

Such qualitative factors include:

(1) macroeconomic conditions, such as a deterioration in general economic conditions, (2) industry and market considerations such as deterioration in the environment in which the entity operates, (3) cost factors such as increases in raw materials and labor costs, and (4) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings.

If the qualitative analysis determines that additional impairment testing is required, impairment testing in accordance with ASC 350 would be initiated.

(1) macroeconomic conditions, such as a deterioration in general economic conditions, (2) industry and market considerations such as deterioration in the environment in which the entity operates, (3) cost factors such as increases in raw materials, labor costs, etc., and (4) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings.

If the qualitative analysis determines that additional impairment testing is required, a two-step impairment testing in accordance with ASC 350 would be initiated.

We continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable.

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In order to meet the definition of a lease under ASC 842, the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration.

Leases that meet the criteria of ASC 842 are recorded on our unaudited consolidated balance sheet as right-of-use ("ROU") assets and lease liabilities.

ROU assets are classified within Prepaids, other assets and goodwill on our unaudited consolidated balance sheet, while lease liabilities are classified within Accrued liabilities on our unaudited consolidated balance sheet.

Leases that meet the criteria of ASC 842 are recorded on our unaudited consolidated balance sheets as right-of-use ("ROU") assets and lease liabilities.

ROU assets are classified within Prepaids, other assets and goodwill on our unaudited consolidated balance sheets, while lease liabilities are classified within Accrued liabilities on our unaudited consolidated balance sheets.

The table below outlines our ROU assets and lease liabilities (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

ROU assets $ 20,139 $ 21,624

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Surety Bonds and Letters of Credit.

We may provide surety bonds or letters of credit in support of our obligations relating to the development of our projects and other corporate purposes.

Surety bonds are generally posted in lieu of letters of credit or cash deposits.

The amount of these obligations outstanding at any time varies depending on the stage and level of completion of our development activities.

Bonds are generally not released until all applicable development activities under the bond are complete.

We provide surety bonds or letters of credit in support of our obligations relating to the development of our projects and other corporate purposes, in lieu of cash deposits.

The amount of these obligations outstanding at any time varies depending on the stage and level of our development activities.

Bonds are generally not wholly released until all development activities under the bond are complete.

In the event a bond or letter of credit is drawn upon, we would be obligated to reimburse the issuer for any amounts advanced under the bond or letter of credit.

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The table below outlines our surety bond and letter of credit obligations (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Outstanding Estimated work

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Accrued Liabilities .

Accrued liabilities at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020 December 31, 2019

Accrued liabilities at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021 December 31, 2020

Accruals related to real estate development and construction activities $ 103,169 $ 92,701

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We may use industry data with respect to similar product types and geographic areas in markets where our experience is incomplete to draw a meaningful conclusion.

We regularly review our warranty reserves and adjust them, as necessary, to reflect changes in trends as information becomes available.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three or nine months ended September 30, 2020 or 2019.

Included in the warranty reserve balances at September 30, 2020 and December 31, 2019 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in Florida and water drainage issues in a single community in Florida.

See Note 15 in the accompanying unaudited financial statements for additional information regarding these case-specific reserves.

We regularly review our warranty reserves and

adjust them, as necessary, to reflect changes in trends as information becomes available.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three months ended March 31, 2021 or 2020.

Included in the warranty reserve balances at March 31, 2021 and December 31, 2020 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in Florida and water drainage issues in a single community in Florida.

See Note 15 for additional information regarding these case-specific reserves.

A summary of changes in our warranty reserves follows (in thousands):

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

2020 2019 2020 2019

Three Months Ended March 31,

Balance, beginning of period $ 23,743 $ 22,015

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Balance, end of period $ 23,767 $ 22,090

Warranty reserves are included in Accrued liabilities on the accompanying unaudited consolidated balance sheets, and additions and adjustments to the reserves, if any, are included in Cost of home closings within the accompanying unaudited consolidated income statements.

We believe that our total reserves, coupled with our contractual relationships and rights with our trade partners and the general liability insurance we maintain, are sufficient to cover our general warranty obligations.

Warranty reserves are included in Accrued liabilities on the accompanying unaudited consolidated balance sheets, and additions and adjustments to the reserves are included in Cost of home closings within the accompanying unaudited consolidated income statements.

These reserves are intended to cover costs associated with our contractual and statutory warranty obligations, which include, among other items, claims involving defective workmanship and materials, as discussed previously.

We believe that our total reserves, coupled with our contractual relationships and rights with our trades and the insurance we and our trades maintain, are sufficient to cover our general warranty obligations.

However, as unanticipated changes in legal, weather, environmental or other conditions could have an impact on our actual warranty costs, future costs could differ significantly from our estimates.

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Revenue from financial services includes estimated future insurance policy renewal commissions as our performance obligations are satisfied upon issuance of the initial policy with a third party broker.

The related contract assets for these estimated future renewal commissions are no t material at September 30, 2020 and December 31, 2019.

The related contract assets for these estimated future renewal commissions are no t material at March 31, 2021 and December 31, 2020.

Our three sources of revenue are disaggregated by type in the accompanying unaudited consolidated income statements.

Recent Accounting Pronouncements.

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract ("ASU 2018-15"), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Entities need to consider both the nature of the costs and the phase of development in which the implementation costs are incurred to determine whether the costs should be capitalized or expensed.

ASU 2018-15 was effective for us beginning January 1, 2020 on a prospective basis to all implementation costs incurred after the date of adoption.

The adoption of ASU 2018-15 did not have a material impact on our financial statement disclosures.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements.

Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

ASU 2018-13 was effective for us beginning January 1, 2020.

As we currently only have Level 2 financial instruments, the adoption of ASU 2018-13 did not have a material impact on our financial statement disclosures.

In December 2019, the Financial Accounting Standards Board issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which simplifies the accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification Topic 740, Income Taxes, and clarifying other areas of existing guidance.

ASU 2019-12 was effective for us on January 1, 2021, and the adoption did not have a material impact on our financial statements or financial statement disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Homes under contract under construction (1)

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property taxes, homeowner association dues, etc.) are expensed as incurred.

We capitalize our development period interest costs incurred to applicable qualifying assets in connection with our real estate development and construction activities.

(3) Includes land held for sale of $ 45.4 million and $ 72.7 million as of March 31, 2021 and December 31, 2020, respectively.

Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred to applicable qualifying assets in connection with our real estate development and construction activities.

Capitalized interest is allocated to active real estate when incurred and charged to cost of closings when the related property is delivered.

A summary of our capitalized interest is as follows (in thousands):

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

2020 2019 2020 2019

Three Months Ended March 31,

Capitalized interest, beginning of period $ 58,940 $ 82,014

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We believe these acquisition structures reduce our financial risk associated with land acquisitions and allow us to better leverage our balance sheet.

Based on the provisions of the relevant accounting guidance, we have concluded that when we enter into a purchase or option agreement to acquire land or lots from an entity, a variable interest entity, or “VIE”, may be created.

We evaluate all purchase and option agreements for land to determine whether they are a VIE.

ASC 810, Consolidation , requires that for each VIE, we assess whether we are the primary beneficiary and, if so, consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned.

The liabilities related to consolidated VIEs are generally excluded from our debt covenant calculations.

In order to determine if we are the primary beneficiary, we must first assess whether we have the ability to control the activities of the VIE that most significantly impact its economic performance.

Such activities include, but are not limited to:

the ability to determine the budget and scope of land development work, if any;

the ability to control financing decisions for the VIE;

the ability of the VIE to acquire additional land or dispose of land not under contract with Meritage;

and the ability to change or amend the existing option contract with the VIE.

If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE.

If we do have the ability to control such activities, we will continue our analysis to determine if we are also expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will benefit from a potentially significant amount of the VIE’s expected gains.

In substantially all cases, creditors of the entities with which we have option agreements have no recourse against us and the maximum exposure to loss in our option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs.

Often, we are at risk for items over budget related to land development on property we have under option if we are the land developer.

In these cases, we have contracted to complete development at a fixed cost for subsequent purchase, but on behalf of the land owner, and any budget savings or shortfalls are typically borne by us.

Some of our option deposits may be refundable to us if certain contractual conditions are not performed by the party selling the lots.

The table below presents a summary of our lots under option at September 30, 2020 (dollars in thousands):

In accordance with ASC 810, Consolidation , we evaluate all purchase and option agreements for land to determine whether they are a variable interest entity (“VIE”), and if so, whether we are the primary beneficiary.

Although we do not have legal title to the underlying land, if we are the primary beneficiary we are required to consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned.

As a result of our analyses, we determined that as of March 31, 2021 and December 31, 2020, we were not the primary beneficiary of any VIEs from which we have acquired rights to land or lots under option contracts.

The table below presents a summary of our lots under option at March 31, 2021 (dollars in thousands):

Projected Number

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We have not completed our acquisition evaluation process and we have not internally committed to purchase these lots.

(3) Except for our specific performance contracts recorded on our balance sheet as Real estate not owned (if any), none of our purchase or option contracts require us to purchase lots.

(4) Amount is reflected on our unaudited consolidated balance sheet in Deposits on real estate under option or contract as of September 30, 2020.

(3) Except for our specific performance contracts recorded on our unaudited consolidated balance sheets as Real estate not owned (if any), none of our purchase or option contracts require us to purchase lots.

(4) Amount is reflected on our unaudited consolidated balance sheets in Deposits on real estate under option or contract as of March 31, 2021.

Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots each month or quarter, as determined by the respective agreement.

Although the pre-established number is typically structured to approximate our expected rate of home construction starts and sales absorptions, during a weakened homebuilding market, we may purchase lots at an absorption level that exceeds our sales and home starts pace in order to meet the pre-established minimum number of lots or we will work to restructure our original contract to include terms that more accurately reflect our revised orders pace expectations.

Although the pre-established number is typically structured to approximate our expected rate of home construction starts, during a weakened homebuilding market, we may purchase lots at an absorption level that exceeds our sales and home starts pace needed to meet the pre-established minimum number of lots or restructure our original contract to terms that more accurately reflect our revised sales pace expectations.

During a strong homebuilding market, we may accelerate our pre-established minimum purchases if allowed by the contract.

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED ENTITIES

We may enter into land development joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base.

While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as a primary source of land acquisitions.

We may enter into joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile and leveraging our capital base.

While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as critical to the success of our homebuilding operations.

Our joint venture partners are generally other homebuilders, land sellers or other real estate investors.

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Based on the structure of each joint venture, it may or may not be consolidated into our results.

As of September 30, 2020, we had one active equity-method land venture with limited operations.

As of September 30, 2020, we also participated in one mortgage joint venture, which is engaged in mortgage activities and provides services to our homebuyers.

Our investment in this mortgage joint venture as of September 30, 2020 and December 31, 2019 was $ 0.6 million and $ 0.7 million, respectively.

As of March 31, 2021, we had one active equity-method land venture with limited operations.

As of March 31, 2021, we also participated in one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

Our investment in this mortgage joint venture as of March 31, 2021 and December 31, 2020 was $ 0.8 million and $ 1.0 million, respectively.

Summarized condensed combined financial information related to unconsolidated joint ventures that are accounted for using the equity method was as follows (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

$ 3,764 $ 4,656

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Total liabilities and equity $ 15,401 $ 15,519

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

2020 2019 2020 2019

Three Months Ended March 31,

Revenue $ 8,995 $ 6,723

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Meritage’s share of pre-tax earnings (1) (2)

$ 1,129 $ 3,106 $ 2,864 $ 8,934

(1) Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures.

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Loans payable and other borrowings consist of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Other borrowings, real estate notes payable (1)

$ 23,344 $ 23,094

$ 780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.15 % at September 30, 2020) plus 1.375 % or Prime ( 3.25 % at September 30, 2020) plus 0.375 %

$ 780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.11 % at March 31, 2021) plus 1.375 % or Prime ( 3.25 % at March 31, 2021) plus 0.375 %

Total $ 23,344 $ 23,094

(1) Reflects non-recourse non-interest bearing notes payable in connection with land purchases .

(1) Reflects balance of non-recourse notes payable in connection with land purchases .

The Company entered into an amended and restated unsecured revolving credit facility ("Credit Facility") in 2014 that has been amended from time to time.

In June 2019, the Credit Facility was amended, extending the maturity date to July 2023, along with minor administrative changes.

In December 2020, the Credit Facility was amended to extend the maturity date to December 22, 2025 and provide for the replacement of LIBOR in the event such rate is no longer available.

The Credit Facility's aggregate commitment is $ 780.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $ 880.0 million, subject to certain conditions, including the availability of additional bank commitments.

Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base.

Borrowings under the Credit

Facility are unsecured, but availability is subject to, among other things, a borrowing base.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $ 1.5 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60 %.

In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than our consolidated interest incurred during the trailing 12 months.

We were in compliance with all Credit Facility covenants as of September 30, 2020.

We had no outstanding borrowings under the Credit Facility as of September 30, 2020 and December 31, 2019.

During the first quarter of 2020 we borrowed $ 500.0 million on our Credit Facility, which we repaid in full during the second quarter of 2020.

There were no borrowings or repayments during the three months ended September 30, 2020.

There were no borrowings or repayments during the three and nine months ended September 30, 2019.

As of September 30, 2020, we had outstanding letters of credit issued under the Credit Facility totaling $ 74.6 million, leaving $ 705.4 million available under the Credit Facility to be drawn.

We were in compliance with all Credit Facility covenants as of March 31, 2021.

We had no outstanding borrowings under the Credit Facility as of March 31, 2021 and December 31, 2020.

There were no borrowings or repayments during the three months ended March 31, 2021.

During the first quarter of 2020, we borrowed $ 500.0 million and had no repayments.

As of March 31, 2021, we had outstanding letters of credit issued under the Credit Facility totaling $ 94.7 million, leaving $ 685.3 million available under the Credit Facility to be drawn.

NOTE 6 — SENIOR NOTES, NET

Senior notes, net consist of the following (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

7.00 % senior notes due 2022

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6.00 % senior notes due 2025.

At September 30, 2020 and December 31, 2019 there was approximately $ 3,818 and $ 4,432 in net unamortized premium, respectively.

At March 31, 2021 and December 31, 2020 there was approximately $ 3,409 and $ 3,614 in net unamortized premium, respectively.

403,409 403,614

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The indentures for all of our senior notes contain non-financial covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers.

We were in compliance with all such covenants as of September 30, 2020.

We were in compliance with all such covenants as of March 31, 2021.

Obligations to pay principal and interest on the senior notes are guaranteed by substantially all of our wholly-owned subsidiaries (each a “Guarantor” and, collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation.

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Subsidiaries of Meritage Homes Corporation that are non-guarantor subsidiaries are, individually and in the aggregate, minor.

See Note 16 for information related to the early redemption of our 7.00 % senior notes due 2022 (the "2022 Notes") subsequent to March 31, 2021.

NOTE 7 — FAIR VALUE DISCLOSURES

ASC 820-10 Fair Value Measurement ("ASC 820") defines fair value and establishes a framework for measuring fair value and addresses required disclosures about fair value measurements.

ASC 820-10, Fair Value Measurement ("ASC 820"), defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements.

This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value.

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• Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the company’s own estimates about the assumptions that market participants would use to value the asset or liability.

If the only observable inputs are from inactive markets or for transactions which the Company evaluates as “distressed”, the use of Level 1 inputs should be modified by the Company to properly address these factors, or the reliance of such inputs may be limited, with a greater weight attributed to Level 3 inputs.

Financial Instruments :

The fair value of our fixed-rate debt is derived from quoted market prices by independent dealers (Level 2 inputs as per the discussion above) and is as follows (in thousands):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Principal Estimated Fair

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Basic and diluted earnings per common share were calculated as follows (in thousands, except per share amounts):

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

2020 2019 2020 2019

Three Months Ended March 31,

Basic weighted average number of shares outstanding 37,644 38,085

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The purchase price for acquisitions was allocated based on estimated fair value of the assets and liabilities at the date of the acquisition.

The combined excess purchase price of our acquisitions over the fair value of the net assets is classified as goodwill and is included on our unaudited consolidated balance sheet in Prepaids, other assets and goodwill.

In accordance with ASC 350, we assess the recoverability of goodwill annually, or more frequently, if impairment indicators are present.

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Additions — — — — — —

Balance at September 30, 2020 $ — $ — $ 32,962 $ — $ — $ 32,962

Balance at March 31, 2021 $ — $ — $ 32,962 $ — $ — $ 32,962

NOTE 10 — STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity is presented below (in thousands):

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

(In thousands)

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Balance at March 31, 2021 37,847 $ 378 $ 452,741 $ 2,023,574 $ 2,476,693

Net earnings — — — 90,678 90,678

Stock-based compensation expense — — 3,157 — 3,157

Issuance of stock 6 1 ( 1 ) — —

Balance at June 30, 2020 37,603 377 454,138 1,630,086 2,084,601

Net earnings — — — 109,118 109,118

Stock-based compensation expense — — 6,130 — 6,130

Issuance of stock 9 — — — —

Balance at September 30, 2020 37,612 $ 377 $ 460,268 $ 1,739,204 $ 2,199,849

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

(In thousands)

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Balance at March 31, 2020 37,597 $ 376 $ 450,982 $ 1,539,408 $ 1,990,766

Net earnings — — — 50,828 50,828

Stock-based compensation expense — — 4,201 — 4,201

Issuance of stock 3 — — — —

Balance at June 30, 2019 38,267 383 502,884 1,294,833 1,798,100

Net earnings — — — 69,809 69,809

Stock-based compensation expense — — 5,657 — 5,657

Issuance of stock 32 — — — —

Balance at September 30, 2019 38,299 $ 383 $ 508,541 $ 1,364,642 $ 1,873,566

NOTE 11 — STOCK BASED AND DEFERRED COMPENSATION

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The 2018 Plan authorizes awards to officers, key employees, non-employee directors and consultants.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 1,304,796 shares remain available for grant at September 30, 2020.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 996,271 shares remain available for grant at March 31, 2021.

We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders.

Non-vested stock awards are usually granted with a five -year ratable vesting period for employees, a three -year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and either a three -year cliff vesting or one -year vesting for non-employee directors, dependent on their start date.

Non-vested stock awards are usually granted with a five-year ratable vesting period for employees, a three-year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and either a three-year cliff vesting or one-year cliff vesting for non-employee directors, dependent on their start date.

Compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed, less forfeitures, on a straight-line basis over the vesting period of the award.

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Below is a summary of compensation expense and stock award activity (dollars in thousands):

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

2020 2019 2020 2019

Three Months Ended March 31,

Stock-based compensation expense $ 5,367 $ 6,437

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Performance-based shares issued in excess of target shares granted (1)

37,425 24,054

Restricted stock awards vested (includes performance-based awards) 434,729 398,346

(1) Performance-based shares that vested and were issued as a result of performance achievement exceeding the originally established targeted number of shares related to respective performance metrics.

The following table includes additional information regarding our Stock Plans (dollars in thousands):

September 30, 2020 December 31, 2019

The following table includes additional information regarding our stock compensation plan (dollars in thousands):

March 31, 2021 December 31, 2020

Unrecognized stock-based compensation cost $ 39,322 $ 22,687

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We do not currently offer a contribution match on the deferred compensation plan.

All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three or nine months ended September 30, 2020 or 2019, other than minor administrative costs.

All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three months ended March 31, 2021 or 2020, other than minor administrative costs.

NOTE 12 — INCOME TAXES

Components of the income tax provision are as follows (in thousands):

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

2020 2019 2020 2019

Three Months Ended March 31,

Federal $ 29,113 $ 12,374

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Total $ 34,134 $ 15,681

The effective tax rate for the three and nine months ended September 30, 2020 was 19.5 % and 19.9 %, and for the three and nine months ended September 30, 2019 was 24.4 % and 24.1 %, respectively.

The nine months ended September 30, 2020 tax rate reflects credits earned under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 ("the Act") enacted into law on December 20, 2019.

The Act extended eligibility for the Internal Revenue Code ("IRC") §45L new energy efficient homes credit for years 2018 through 2020.

For the first nine months of 2020, we recorded a tax benefit from the new law based on estimates for qualifying new energy efficient homes.

For the first nine months of 2019, the tax benefit from the new law was not reflected in the tax rate due to the December enactment date.

In the first nine months of 2019 and 2020, we recorded tax benefits from vested equity-based compensation for stock awards.

These tax benefits have a favorable impact on our effective tax rates.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES Act") was enacted into law in response to the widespread economic impact of the COVID-19 pandemic.

Although the CARES Act has several provisions which may benefit our company and its employees, these provisions are not expected to have a material impact on our tax rate in 2020.

We will continue to monitor the CARES Act and will take advantage of favorable tax-related provisions if and when applicable.

At September 30, 2020 and December 31, 2019, we have no unrecognized tax benefits.

The effective tax rate for the three months ended March 31, 2021 and March 31, 2020 was 20.6 % and 18.1 %, respectively.

The tax rate for the three months ended March 31, 2021 and March 31, 2020 reflects credits earned under Internal Revenue Code ("IRC") §45L new energy efficient homes credit, which was enacted into law under the Taxpayer Certainty and Disaster Tax Relief Act of 2019 and subsequently extended through the end of 2021 by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

The tax rate at March 31, 2021 also reflects higher non-deductible senior executive officer stock-based compensation.

At March 31, 2021 and December 31, 2020, we have no unrecognized tax benefits.

We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change.

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This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carry forward periods, experiences with operating losses and experiences of utilizing tax credit carry forwards and tax planning alternatives.

We have no valuation allowance on our deferred tax assets or NOL carryovers at September 30, 2020.

At September 30, 2020, we had no remaining federal NOL carry forward or un-utilized federal tax credits.

At September 30, 2020 and December 31, 2019, we had tax benefits for state NOL carry forwards of $ 0.5 million, net of federal benefit, that begin to expire in 2030.

At September 30, 2020, we have income taxes payable of $ 9.7 million and income taxes receivable of $ 5.0 million.

The income taxes payable primarily consists of current federal and state tax accruals, net of estimated tax payments.

This amount is recorded in Accrued liabilities on the accompanying unaudited balance sheet at September 30, 2020.

The income taxes receivable primarily consists of energy tax credits and is recorded in Other receivables on the accompanying unaudited balance sheet at September 30, 2020.

We have no valuation allowance on our deferred tax assets and no NOL carryovers at March 31, 2021.

At March 31, 2021, we have income taxes payable of $ 56.4 million and income taxes receivable of $ 0.7 million.

The income taxes payable primarily consists of current federal and state tax accruals, net of current energy tax credits and estimated tax payments.

This amount is recorded in Accrued liabilities on the accompanying unaudited consolidated balance sheets at March 31, 2021.

The income taxes receivable primarily consists of additional energy tax credits claimed by amending prior year tax returns and is recorded in Other receivables on the accompanying unaudited consolidated balance sheets at March 31, 2021.

We conduct business and are subject to tax in the U.S.

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federal, state, or local income tax examinations by taxing authorities for years prior to 2016.

We have one state income tax examination being conducted at this time and do not expect it to have a material outcome.

The tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under IRC §382.

Based on our analysis performed as of September 30, 2020 we do not believe that we have experienced an ownership change.

We have no federal or state income tax examinations being conducted at this time.

The future tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under IRC §382.

Based on our analysis performed as of March 31, 2021 we do not believe that we have experienced an ownership change.

As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock.

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The following table presents certain supplemental cash flow information (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid during the year for:

Interest, net of interest capitalized $ ( 15,851 ) $ ( 16,088 )

Income taxes paid $ 49,103 $ 39,491

Income taxes $ 2 $ —

Non-cash operating activities:

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The following segment information is in thousands:

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

2020 2019 2020 2019

Three Months Ended March 31,

Homebuilding revenue (1) :

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(1) Homebuilding revenue includes the following land closing revenue, by segment, as outlined in the table below:

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

2020 2019 2020 2019

Three Months Ended March 31,

Land closing revenue:

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Central 3,799 4,218

East 1,569 875 4,079 11,204

Total $ 3,799 $ 10,596

(2) Balance consists primarily of corporate costs and numerous shared service functions such as finance and treasury that are not allocated to the homebuilding or financial services reporting segments.

At September 30, 2020

At March 31, 2021

West Central East Financial Services Corporate and

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Total assets $ 1,310,257 $ 1,038,624 $ 965,801 $ 617 $ 723,117 $ 4,038,416

(1) Balance consists primarily of cash and property and equipment .

(2) Balance consists primarily of cash, development reimbursements from local municipalities and prepaid expenses and other assets.

(3) Balance consists primarily of cash, goodwill (see Note 9), prepaid expenses and other assets and property and equipment.

(4) Balance consists primarily of cash, our deferred tax asset and prepaid expenses and other assets.

(1) Balance consists primarily of cash and cash equivalents and property and equipment .

(2) Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and prepaid expenses and other assets.

(3) Balance consists primarily of cash and cash equivalents, goodwill (see Note 9), prepaid expenses and other assets and property and equipment.

(4) Balance consists primarily of cash and cash equivalents, deferred tax assets and prepaid expenses and other assets.

At December 31, 2020

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Total assets $ 1,228,513 $ 952,096 $ 916,120 $ 612 $ 767,057 $ 3,864,398

(1) Balance consists primarily of cash and property and equipment .

(2) Balance consists primarily of development reimbursements from local municipalities and prepaid expenses and other assets.

(3) Balance consists primarily of goodwill, prepaid expenses and other assets, and property and equipment.

(4) Balance consists primarily of cash.

(1) Balance consists primarily of cash and cash equivalents and property and equipment .

(2) Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and prepaids and other assets.

(3) Balance consists primarily of cash and cash equivalents, goodwill, prepaids and other assets, and property and equipment.

(4) Balance consists primarily of cash and cash equivalents, deferred tax assets and prepaids and other assets.

NOTE 15 — COMMITMENTS AND CONTINGENCIES

We are involved in various routine legal and regulatory proceedings, including, without limitation, warranty claims and litigation and arbitration proceedings alleging construction defects.

We are involved in various routine legal and regulatory proceedings, including, without limitation, claims and litigation alleging construction defects.

In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors.

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Historically, most disputes regarding warranty claims are resolved prior to litigation.

We believe there are no pending legal or warranty matters as of September 30, 2020 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, within our $ 23.3 million of total warranty reserves at September 30, 2020 we have case specific reserves related to alleged stucco defects in homes in certain Florida communities we developed between 2006 and 2016 and for water drainage issues in a single community in Florida that we developed in 2016.

We believe there are no pending legal or warranty matters as of March 31, 2021 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our $ 23.8 million of total warranty reserves related to alleged stucco defects in homes in certain Florida communities we developed between 2006 and 2016 and for water drainage issues in a single community in Florida that we developed in 2016.

Our review and handling of these two matters is ongoing and our estimate of and reserves for resolving these matters is based on internal data, our judgement and various assumptions and estimates.

Due to the degree of judgment and the potential for variability in our underlying assumptions and estimates, as we obtain additional information, we may revise our estimates and thus our related reserves.

As of September 30, 2020, after considering potential recoveries from the consultants and contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the above mentioned matters.

Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimates and thus our related reserves.

As of March 31, 2021, after considering potential recoveries from the consultants and contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the above mentioned matters.

See Note 1 for information related to our warranty obligations.

NOTE 16 — SUBSEQUENT EVENTS

In April 2021, we completed an offering of $ 450.0 million aggregate principal amount of 3.875 % senior notes due 2029 issued at par.

The proceeds were used to repurchase all $ 300.0 million aggregate principal amount outstanding of our 2022 Notes with the remaining proceeds to be used for general corporate purposes.

As a result of the early redemption of the 2022 Notes, we expect to record a loss on early extinguishment of debt of approximately $ 18.2 million in the second quarter of 2021.

Special Note of Caution Regarding Forward-Looking Statements

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statements concerning our expectations for our financial results, business, operations, and the economy and society in general ;

trends and economic factors in the homebuilding industry in general, and our markets and results specifically, including the impact thereon of COVID-19 and governmental imposed restrictions and reaction thereto;

our operating strategy and initiatives, including our strategy to expand the number of communities that target the first-time and first move-up buyers and the benefits of our virtual tours and solutions including our actions in light of COVID-19;

trends and economic factors in the homebuilding industry in general, and our markets and results specifically, including the impact thereon of COVID-19;

our goals, strategies and strategic initiatives and the anticipated benefits relating thereto;

our intentions and the expected benefits and advantages of our product and land positioning strategies, including with respect to our focus on the entry-level and first move-up buyer and housing demand for affordable homes;

supply chain constraints and construction cycle times;

the timing and targeted number of new community openings in 2021 and beyond;

demand and pricing trends in the short-term throughout our geographies;

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our ability and willingness to acquire land under option or contract;

our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, material and labor costs for land development and home construction, gross margins, gross profit, revenues, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings;

our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, land investments and spend, material and labor costs for land development and home construction, gross margins, gross profit, revenues, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings;

our future cash needs;

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Important factors that could cause actual results to differ materially from those in forward-looking statements, and that could negatively affect our business include, but are not limited to, the following:

disruptions to our business by COVID-19, fear of a similar event, and measures that federal, state and local governments and/or health authorities implement to address it;

the availability and cost of finished lots and undeveloped land;

shortages in the availability and cost of labor;

the ability of our potential buyers to sell their existing homes;

changes in interest rates and the availability and pricing of residential mortgages;

our exposure to information technology failures and security breaches and the impact thereof;

legislation related to tariffs;

inflation in the cost of materials used to develop communities and construct homes;

our ability to obtain performance and surety bonds in connection with our development work;

the ability of our potential buyers to sell their existing homes;

legislation related to tariffs;

the adverse effect of slow absorption rates;

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cancellation rates;

changes in tax laws that adversely impact us or our homebuyers;

a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits;

our potential exposure to and impacts from natural disasters or severe weather conditions;

home warranty and construction defect claims;

failures in health and safety performance;

our ability to obtain performance and surety bonds in connection with our development work;

the loss of key personnel;

failure to comply with laws and regulations;

our limited geographic diversification;

fluctuations in quarterly operating results;

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our ability to obtain financing if our credit ratings are downgraded;

our compliance with government regulations;

the effect of legislative and other governmental actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures;

legislation relating to energy and climate change;

our potential exposure to and impacts from natural disasters or severe weather conditions;

the availability and cost of finished lots and undeveloped land;

the success of our strategy to offer and market entry-level and first move-up homes;

a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits;

our limited geographic diversification;

the replication of our energy-efficient technologies by our competitors;

negative publicity that affects our reputatio n;

and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in this Form 10-Q and our Form 10-K for the year ended December 31, 2019 under the caption "Risk Factors.

shortages in the availability and cost of subcontract labor;

our exposure to information technology failures and security breaches and the impact thereof;

the loss of key personnel;

changes in tax laws that adversely impact us or our homebuyers;

our inability to prevail on contested tax positions;

failure to comply with laws and regulations;

our compliance with government regulations;

negative publicity that affects our reputation;

disruptions to our business by COVID-19, fear of a similar event, and measures that federal, state and local governments and/or health authorities implement to address it;

and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2020 under the caption "Risk Factors."

Forward-looking statements express expectations of future events.

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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 1. Financial Statements