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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 262 added, 115 removed, 294 unchanged (56% of the section changed)

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Overview and Outlook

Housing market conditions in the first quarter of 2021 continued to benefit from the demand created by continuing low interest rates, a limited supply of homes, and an increased desire for healthier, safer homes with indoor space to accommodate work and school from home needs.

Assuming interest rates remain affordable, we believe the strong demographic trends of millennials entering the market in a meaningful way and the baby boomer generation downsizing supports a continuation of a solid homebuilding cycle, although individual market results will vary, responding to each respective market's economic factors.

Our strategy to provide buyers with affordable, quick move-in homes has positioned us to take full advantage of the current market, resulting in the highest first quarter closings and orders in the Company's history and a 49.5% year-over-year increase in home closing gross profit.

In addition to our strong growth in closings, orders and profitability during the first quarter of 2021, we made progress on our goals for community count growth.

As of March 31, 2021, we had 203 active communities, up from 195 at December 31, 2020, although down from prior year due to accelerated orders pace throughout 2020 and into 2021.

Despite a weather event in Texas and some delays in the building materials supply chain, we were able to open our expected communities on time during the first quarter of 2021, and remain on track to reach our goal of 300 communities by mid-2022.

Ongoing pandemic-related supply chain disruptions combined with over a year of sustained demand have resulted in some production constraints for the homebuilding industry in general.

While these constraints had minimal impact on our first quarter 2021 results, we are currently experiencing delays of two to four weeks from our typical construction cycle times.

We continue to innovate and promote our energy efficiency program, and during the first quarter of 2021, we were awarded the ENERGY STAR ® Partner of the Year for Sustained Excellence by the Environmental Protection Agency, making us an eight-time recipient of this award since 2013.

Housing market conditions in the second quarter of 2021 remained strong, driven by the demand created by continuing low interest rates, a limited supply of available homes, and an increased desire for healthier, safer homes with indoor space to accommodate work and school from home needs.

We believe the needs of both the millennial and baby boomer generations support a continued elevated level of demand over the next several years, although individual market results will vary in response to each respective market's economic factors but will likely taper to a normalized pace in the near term.

Our strategy to provide buyers with affordable, quick move-in ready homes has positioned us to take full advantage of the current market, resulting in the highest second quarter closing volume and the highest quarterly home closing gross margin in the Company's history.

In addition to our strong growth in closings and profitability during the second quarter of 2021, we made notable progress on our goals for community count growth.

As of June 30, 2021, we had 226 active communities, up from 203 at March 31, 2021, although down from June 30, 2020 due to the sustained accelerated orders pace throughout 2020 and into 2021.

Ongoing pandemic-related supply chain disruptions combined with over a year of sustained demand have resulted in some production constraints for the homebuilding industry.

As a result of these constraints, we experienced construction cycle delays of approximately four weeks from our typical construction cycle times during the current quarter, which impacted both orders and closings.

We were able to successfully navigate these supply-chain challenges by working with our long-term trade partners to minimize the impact on our production, where possible, and were able to close 3,273 homes, our highest second quarter closing volume in history, while also seeing an increase in our average absorption pace year-over-year, even as we metered the number of homes available for sale to align with the current production constraints.

Summary Company Results

Total home closing revenue was $1.1 billion on 2,890 homes closed for the three months ended March 31, 2021 compared to $890.4 million on 2,316 homes closed for the first quarter of 2020, increases of 21.3% and 24.8%, respectively.

In addition to higher home closing revenue, first quarter results benefited from a 470 basis point increase in home closing gross margin that resulted in an $88.3 million year-over-year increase in home closing gross profit to $266.7 million compared to $178.4 million in the first quarter of 2020.

We attribute this improvement to the increased leverage on higher closing volumes and our pricing power in all of our geographies due to the strength of the new home market, which more than offset the rising costs of lumber and other commodities.

Our consolidated average sales price ("ASP") is down slightly year-over-year, and the 2.8% decrease is reflective of a higher percentage of lower-priced entry-level homes in our closing mix.

We also realized significant savings in sales and marketing spending as we continue to leverage the digital platforms that we introduced in 2020.

Earnings before income taxes improved by $79.1 million, or 91.1%, year over year to $166.0 million for the first quarter of 2021.

These improved year-over-year results combined with our effective income tax rate of 20.6% as compared to 18.1% in 2020, led to net earnings of $131.8 million in the first quarter of 2021 versus $71.2 million in the first quarter of 2020.

In addition to the positive trends in our home closings and financial results, orders for the three months ended March 31, 2021 were up as well.

Home orders and home order value increased 11.5% and 14.3% higher, respectively, over the prior year, and our order cancellation rate dropped to 11% for the first quarter of 2021 compared to 13% for the prior year period.

We ended the first quarter of 2021 with 5,240 homes in backlog valued at $2.1 billion, a 46.9% increase in units and a 50.0% increase in value over March 31, 2020.

Total home closing revenue was $1.3 billion on 3,273 homes closed for the three months ended June 30, 2021 compared to $1.0 billion on 2,770 homes closed for the second quarter of 2020, 22.6% and 18.2% increases, respectively.

In addition to higher home closing revenue, we achieved our highest home closing gross margin in Company history of 27.3%, a 590 basis point increase year-over-year that resulted in a $124.6 million increase in home closing gross profit to $345.3 million compared to $220.7 million in the second quarter of 2020.

This improvement was due to pricing power from strong buyer demand, combined with leverage of overhead costs on higher volumes, which have more than offset the impact of rising material costs, particularly lumber.

As a result of rising sales prices, our consolidated average sales price ("ASP") on home closings is up 3.8% year-over-year, despite our shift in product mix toward entry-level homes.

Interest expense decreased year-over-year by $2.0 million as we benefited from lower interest rates as a result of our debt refinancing in April 2021.

As a result of this refinancing transaction, we recognized an $18.2 million loss on early extinguishment of debt (see Note 6 in the accompanying unaudited financial statements for additional information).

Earnings before income taxes improved by $99.8 million year-over-year to $215.7 million for the second quarter of 2021.

These improved year-over-year results combined with our effective income tax rate of 22.4% as compared to 21.7% in the prior year period led to net earnings of $167.4 million in the second quarter of 2021 versus $90.7 million in the second quarter of 2020.

For the six months ended June 30, 2021, home closing revenue was $2.3 billion on 6,163 homes closed, 22.0% and 21.2% increases over 2020, respectively.

Similar to the second quarter, year-to-date results reflect an increase of $212.9 million in home closing gross profit versus the six months ended June 30, 2020.

Higher gross profit and lower interest expense were partially offset by the loss on early extinguishment of debt and a slightly higher effective tax rate of 21.6%, leading to net income of $299.2 million for the six months ended June 30, 2021 compared to $161.8 million for the 2020 period.

Order volume declined slightly by 1.5% in the three months ended June 30, 2021 compared to the same period in 2020, due to 10.3% fewer active communities open for sales, which was almost fully offset by an increase in per community orders pace of 5.5 in the second quarter 2021 compared to 5.0 in the second quarter 2020.

Due to an 18.0% increase in ASP, order value increased $209.2 million, or 16.2%.

Our order cancellation rate dropped to 8% for the second quarter of 2021 compared to 15% for the prior year period.

For the six months ended June 30, 2021, home orders and home order value increased 4.5% and 15.3%, respectively, over the prior year, and our order cancellation rate dropped to 9% compared to 14% for the prior year period.

We ended the second quarter of 2021 with 5,509 homes in backlog valued at $2.3 billion, a 25.3% increase in units and a 40.6% increase in value over June 30, 2020.

Company Positioning

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• Expanding our community count and market share;

• Continuously improving the overall home buying and home ownership experience through simplification of the customer home purchase and option selection process for move-up buyers at Studio M.

Providing flexible online scheduling for in-person model home tours and self-guided tours in select locations, a shortened construction timeline, and providing a warranty portal for our homeowners to submit and track warranty-related matters;

• Demonstrating our commitment to innovation by extending our digital offerings, including virtual tours in all of our communities for both prospective buyers and home closing walkthroughs, 3-D tours and dynamic floor plans, partial or fully virtual closings in states where such services are permitted.

On our website, we also offer a fully-automated and secured digital loan pre-approval process and on-demand homeowner's insurance quotes;

• Enhancing our website and sales offices through investments in technology.

All of our LiVE.NOW ® communities feature interactive technology tools offering homebuyers the ability to electronically search for available homes with their desired home features and based on their preferred availability or move-in dates;

• Simplifying our production process to allow us to more efficiently build our homes and reduce our construction costs, which in turn allows us to competitively price our homes;

• Continuously improving the overall home buying experience through simplification and innovation.

Studio M streamlines the option selection process for move-up buyers, while all of our LiVE.NOW ® communities feature interactive technology tools offering homebuyers the ability to electronically search for available homes with their desired home features and based on their preferred availability or move-in dates;

• Leveraging and expanding on technological solutions through digital offerings, including virtual tours in all of our communities for both prospective buyers and home closing walkthroughs, 3-D tours and dynamic floor plans, partial or fully virtual closings in states where such services are permitted, and online scheduling for in-person model home tours and self-guided tours in select locations.

Our website also provides a comprehensive online suite of financial services such as mortgage pre-qualifications, on-demand homeowners’ insurance quotes and a warranty portal for our homeowners to submit and track warranty-related matters;

• Increasing homeowner satisfaction by setting industry standards for energy-efficiency and offering healthier homes with enhanced security features.

Every new home we construct meets or exceeds ENERGY STAR ® standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered today for residential construction, and a multispeed HVAC system, allowing owners to better manage the comfort of their home while reducing their environmental impact and operating costs.

In addition, each of our newly constructed homes includes home automation features through our M.Connected Home™ Automation Suite which includes the Honeywell Pro Series Hub ("the Hub") that allows homeowners to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors, a video doorbell and smart door locks.

We recently partnered with SafeStreets to provide our homebuyers professional installation of various smart home technologies and connectivity to the Hub, training and expanded security options.

• Simplifying our production process to allow us to more efficiently build our homes and reduce our construction costs, which in turn allows us to competitively price our homes and deliver them on a shortened timeline;

• Improving our home closing gross profit by growing closing volume while streamlining our operations, allowing us to better leverage our overhead;

In order to maintain focus on growing our business, we remain committed to the following:

• Increasing orders and maintaining a healthy order pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities;

• Maintaining a healthy order pace through the use of our consumer and market research to build homes that offer our buyers their desired features and amenities;

• Achieving or maintaining a position of at least 5% market share in all of our markets;

• Continuing to innovate and promote our energy efficiency program and our M.Connected® Automation Suite to create differentiation for the Meritage brand;

• Continuing to innovate and promote our energy efficiency program and our M.Connected Home™ Automation Suite to create differentiation for the Meritage brand;

• Managing construction efficiencies and costs through national and regional vendor relationships with a focus on quality construction and warranty management;

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The accounting policies we deem most critical to us and that involve the most difficult, subjective or complex judgments include revenue recognition, valuation of real estate, warranty reserves and valuation of deferred tax assets.

There have been no significant changes to our critical accounting policies during the three months ended March 31, 2021 compared to those disclosed in Item 7.

There have been no significant changes to our critical accounting policies during the six months ended June 30, 2021 compared to those disclosed in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2020 Annual Report on Form 10-K.

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The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands):

Three Months Ended March 31, Quarter over Quarter

Three Months Ended June 30, Quarter over Quarter

2021 2020 Change $ Change %

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Average sales price $ 358.8 $ 354.5 $ 4.3 1.2 %

Three Months Ended March 31, Quarter over Quarter

Six Months Ended June 30, Quarter over Quarter

2021 2020 Change $ Change %

Home Closing Revenue

Dollars $ 2,344,625 $ 1,922,008 $ 422,617 22.0 %

Homes closed 6,163 5,086 1,077 21.2 %

Average sales price $ 380.4 $ 377.9 $ 2.5 0.7 %

Dollars $ 303,258 $ 293,603 $ 9,655 3.3 %

Homes closed 891 886 5 0.6 %

Average sales price $ 340.4 $ 331.4 $ 9.0 2.7 %

Dollars $ 370,131 $ 285,145 $ 84,986 29.8 %

Homes closed 595 455 140 30.8 %

Average sales price $ 622.1 $ 626.7 $ (4.6) (0.7) %

Dollars $ 159,250 $ 180,771 $ (21,521) (11.9) %

Homes closed 320 370 (50) (13.5) %

Average sales price $ 497.7 $ 488.6 $ 9.1 1.9 %

West Region Totals

Dollars $ 832,639 $ 759,519 $ 73,120 9.6 %

Homes closed 1,806 1,711 95 5.6 %

Average sales price $ 461.0 $ 443.9 $ 17.1 3.9 %

Central Region - Texas

Central Region Totals

Dollars $ 722,223 $ 551,884 $ 170,339 30.9 %

Homes closed 2,117 1,688 429 25.4 %

Average sales price $ 341.2 $ 326.9 $ 14.3 4.4 %

Dollars $ 301,205 $ 232,397 $ 68,808 29.6 %

Homes closed 860 603 257 42.6 %

Average sales price $ 350.2 $ 385.4 $ (35.2) (9.1) %

Dollars $ 117,616 $ 100,696 $ 16,920 16.8 %

Homes closed 317 281 36 12.8 %

Average sales price $ 371.0 $ 358.3 $ 12.7 3.5 %

North Carolina

Dollars $ 226,851 $ 178,155 $ 48,696 27.3 %

Homes closed 629 510 119 23.3 %

Average sales price $ 360.7 $ 349.3 $ 11.4 3.3 %

South Carolina

Dollars $ 56,055 $ 47,611 $ 8,444 17.7 %

Homes closed 166 151 15 9.9 %

Average sales price $ 337.7 $ 315.3 $ 22.4 7.1 %

Dollars $ 88,036 $ 51,746 $ 36,290 70.1 %

Homes closed 268 142 126 88.7 %

Average sales price $ 328.5 $ 364.4 $ (35.9) (9.9) %

East Region Totals

Dollars $ 789,763 $ 610,605 $ 179,158 29.3 %

Homes closed 2,240 1,687 553 32.8 %

Average sales price $ 352.6 $ 361.9 $ (9.3) (2.6) %

Three Months Ended June 30, Quarter over Quarter

2021 2020 Change $ Change %

Home Orders (1)

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We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed.

Three Months Ended March 31,

Six Months Ended June 30, Quarter over Quarter

2021 2020 Change $ Change %

Home Orders (1)

Dollars $ 2,848,802 $ 2,470,391 $ 378,411 15.3 %

Homes ordered 7,000 6,699 301 4.5 %

Average sales price $ 407.0 $ 368.8 $ 38.2 10.4 %

Dollars $ 479,239 $ 414,428 $ 64,811 15.6 %

Homes ordered 1,226 1,307 (81) (6.2) %

Average sales price $ 390.9 $ 317.1 $ 73.8 23.3 %

Dollars $ 390,619 $ 449,571 $ (58,952) (13.1) %

Homes ordered 630 740 (110) (14.9) %

Average sales price $ 620.0 $ 607.5 $ 12.5 2.1 %

Dollars $ 193,913 $ 169,296 $ 24,617 14.5 %

Homes ordered 350 352 (2) (0.6) %

Average sales price $ 554.0 $ 481.0 $ 73.0 15.2 %

West Region Totals

Dollars $ 1,063,771 $ 1,033,295 $ 30,476 2.9 %

Homes ordered 2,206 2,399 (193) (8.0) %

Average sales price $ 482.2 $ 430.7 $ 51.5 12.0 %

Central Region - Texas

Central Region Totals

Dollars $ 820,343 $ 735,492 $ 84,851 11.5 %

Homes ordered 2,216 2,274 (58) (2.6) %

Average sales price $ 370.2 $ 323.4 $ 46.8 14.5 %

Dollars $ 355,227 $ 255,804 $ 99,423 38.9 %

Homes ordered 947 707 240 33.9 %

Average sales price $ 375.1 $ 361.8 $ 13.3 3.7 %

Dollars $ 138,866 $ 120,417 $ 18,449 15.3 %

Homes ordered 357 346 11 3.2 %

Average sales price $ 389.0 $ 348.0 $ 41.0 11.8 %

North Carolina

Dollars $ 310,719 $ 207,638 $ 103,081 49.6 %

Homes ordered 809 613 196 32.0 %

Average sales price $ 384.1 $ 338.7 $ 45.4 13.4 %

South Carolina

Dollars $ 58,997 $ 57,176 $ 1,821 3.2 %

Homes ordered 164 182 (18) (9.9) %

Average sales price $ 359.7 $ 314.2 $ 45.5 14.5 %

Dollars $ 100,879 $ 60,569 $ 40,310 66.6 %

Homes ordered 301 178 123 69.1 %

Average sales price $ 335.1 $ 340.3 $ (5.2) (1.5) %

East Region Totals

Dollars $ 964,688 $ 701,604 $ 263,084 37.5 %

Homes ordered 2,578 2,026 552 27.2 %

Average sales price $ 374.2 $ 346.3 $ 27.9 8.1 %

(1) Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations.

We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed.

Three Months Ended June 30,

Ending Average Ending Average

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East Region Totals 87 83.5 90 89.0

Three Months Ended March 31,

Six Months Ended June 30,

Ending Average Ending Average

Active Communities

Total 226 207.8 237 240.5

Arizona 38 34.6 38 34.5

California 20 18.3 28 26.0

Colorado 17 13.3 13 15.5

West Region Totals 75 66.2 79 76.0

Central Region - Texas

Central Region Totals 64 62.0 68 72.5

Florida 34 31.6 36 34.5

Georgia 10 9.7 17 17.5

North Carolina 26 23.7 21 23.0

South Carolina 7 6.3 5 7.0

Tennessee 10 8.3 11 10.0

East Region Totals 87 79.6 90 92.0

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

2021 2020 2021 2020

Cancellation Rates (1)

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(1) Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period.

At March 31, Quarter over Quarter

At June 30, Quarter over Quarter

2021 2020 Change $ Change %

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Companywide .

In the first quarter of 2021, home closing volume improved by 24.8% to 2,890 closings valued at $1.1 billion compared to 2,316 closings valued at $890.4 million in the first quarter of 2020.

The increase in closings year-over-year was driven primarily by entering the quarter with a higher backlog as compared to prior year.

Home closing revenue increased by 21.3% over the first quarter of 2020 due entirely to the increase in closing volume as our ASP declined 2.8%, reflective of a higher percentage of lower-priced entry-level homes in our closing mix.

A 34.9% higher orders pace year-over-year demonstrates the demand present in the current market for available, new and healthier single-family homes at affordable price points.

This customer demand is aligned with our focus on the entry level and first move-up buyers, as our entry-level communities offer only spec homes for sale, and in both our entry-level and first move-up communities we have achieved shorter construction cycle times than for our higher-end product, allowing quicker move-ins for our customers.

Home order volume improved by 11.5% to 3,458 homes valued at $1.3 billion in the first quarter of 2021 as compared to 3,102 homes valued at $1.2 billion in the first quarter of 2020, despite a decrease in active communities.

The higher orders were due to the increase in orders pace year-over-year to 5.8 homes ordered per average active community per month, up from 4.3 in the first quarter of 2020.

The improved order value year-over-year was primarily a reflection of the higher volume, but rising ASP on orders also contributed as we experienced pricing power due to high buyer demand.

We ended the quarter with 203 actively selling communities, a 15.8% decline from the prior year as the strong demand in 2020 caused communities to sell and close out faster than we were able to open replacement communities.

Community count improved during the first quarter of 2021, as we saw a net increase in active community count to 203 at March 31, 2021, up from 195 at December 31, 2020.

We ended the first quarter of 2021 with 5,240 homes in backlog valued at $2.1 billion, up from 3,568 homes valued at $1.4 billion at March 31, 2020.

In the second quarter of 2021, we achieved our highest second quarter home closing volume in Company history, with an 18.2% improvement over the second quarter of 2020, to 3,273 closings valued at $1.3 billion compared to 2,770 closings valued at $1.0 billion.

The increase in closings year-over-year was driven by entering the quarter with a higher backlog as compared to prior year, as well as an accelerated orders pace of spec homes during the quarter that were able to close by June 30, 2021.

Home closing revenue increased by 22.6% over the second quarter of 2020 due to the higher closing volume and a 3.8% increase in ASP.

Home order volume declined slightly by 1.5% to 3,542 homes as compared to 3,597 homes in the second quarter of 2020, due to a 10.3% decrease in average active communities that was partially offset by an increased orders pace.

Higher ASP on orders as we continue to experience pricing power drove a 16.2% increase in order value to $1.5 billion in the second quarter of 2021, up from $1.3 billion in the second quarter of 2020.

Orders pace improved by 9.3% year-over-year to 5.5 homes ordered per average active community per month during the second quarter of 2021, up from 5.0 homes in the second quarter of 2020.

This increase demonstrates the continuing demand for homes in the current market.

Our focus on entry level and first move-up buyers, with our entry-level communities offering only spec homes for sale and shorter construction cycle times than other higher-end product, allows for quicker move-ins for our customers, increasing the desirability of our products, as reflected in our higher orders and closing volumes.

Although community count is down 4.6% year-over-year due to sustained high orders pace over the last 12 months, community count grew sequentially, ending the second quarter with 226 actively selling communities at June 30, 2021, up from 203 at March 31, 2021.

Our order cancellation rate improved to 8% and 9% for the three and six month periods in 2021, respectively, as compared to 15% and 14% during the three and six month periods in 2020, respectively, a further indication of strong demand in the market.

For the six months ended June 30, 2021, home closing volume grew by 1,077 units, or 21.2%, and home closing revenue improved by $422.6 million on 6,163 closings valued at $2.3 billion.

Orders also increased year-over-year by 301 units and $0.4 billion to 7,000 orders valued at $2.8 billion for the six months ended June 30, 2021, 4.5% and 15.3% higher, respectively from prior year results.

Demand for our affordable entry-level homes drove the increase in orders, resulting in a 20.8% higher orders pace than in 2020.

We ended the quarter with 5,509 homes in backlog valued at $2.3 billion, compared to 4,395 units valued at $1.6 billion at June 30, 2020.

The year-over-year increase in backlog value was positively impacted by rising ASP on orders as discussed above.

Order cancellation rate improved to 11% for the first three months of 2021, as compared to 13% during the three month period in 2020, a further indication of strong demand in the market.

The West Region closed 862 homes and generated $393.4 million in home closing revenue in the first quarter of 2021, compared to 853 homes and $377.7 million in home closing revenue in the comparable 2020 period.

Orders and order value in the first quarter of 2021 were 1,057 homes valued at $485.6 million, down from 1,121 homes valued at $506.8 million in the 2020 period.

The 5.7% decrease in order volume was due entirely to a 16.2% decrease in average community count, which was partially offset by a 12.6% increase in orders pace year-over-year.

As discussed previously, the drop in community count is due to an accelerated close-out of communities in 2020.

The 4.2% decrease in order value was the result of the decrease in volume, partially offset by an increase in ASP.

ASP for the Region increased 1.6% due to pricing power, although it was muted by California's drop in ASP as the product mix has shifted to more entry-level and first move-up product.

The West Region ended the first quarter of 2021 with 1,840 homes in backlog valued at $815.7 million, up from 1,120 units valued at $505.2 million at March 31, 2020.

Despite the decrease in order volume, backlog increased year-over-year due to entering the period with a higher backlog and some closing delays caused by production constraints.

In the first quarter of 2021, the Central Region, made up of our Texas markets, closed 963 homes and generated $318.4 million in home closing revenue, up 24.4% in both volume and value, from prior year comparable period results of 774 homes and $255.9 million of home closing revenue.

A 33.6% increase in orders pace more than offset the 21.3% decrease in average community count compared to the prior year period, providing orders of 1,115 homes valued at $392.0 million in the first quarter of 2021, compared to 1,059 homes valued at $343.0 million in 2020.

ASP increased 8.5% as we leveraged pricing power in nearly all of our communities.

The Central Region ended the first quarter of 2021 with 1,782 homes in backlog valued at $646.0 million, up from 1,333 units valued at $459.9 million at March 31, 2020.

The East Region experienced the largest year over year increases in closings and orders during the three months ended March 31, 2021.

The Region delivered 1,065 closings and $368.2 million in home closing revenue compared to 689 closings and $256.8 million in home closing revenue in the comparable prior year period, improvements of 54.6% and 43.4%, respectively, largely due to entering the period with 58.4% more homes in backlog than the prior period.

Orders and order value in the East Region improved by 39.5% and 42.8%, respectively, for the first quarter of 2021 with 1,286 units valued at $471.6 million compared to 922 units valued at $330.2 million in the prior year period.

The improvement in orders is due to a 67.3% increase in orders pace, which more than offset the 16.5% decrease in average active communities.

All states in the Region saw significant increases in orders pace, and Tennessee experienced the highest orders pace in the Company at 6.6 homes sold per month per community.

The East Region ended the first quarter of 2021 with 1,618 homes in backlog valued at $620.6 million, up from 1,115 units valued at $423.4 million at March 31, 2020.

Land Closing Revenue and Gross Profit

From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in a specific geography.

As a result of such sales, we recognized land closing revenue of $3.8 million and $10.6 million for the three months ending March 31, 2021 and 2020, respectively, and profits of $0.5 million and $0.4 million for the first quarter of 2021 and 2020, respectively.

The West Region closed 944 homes and generated $439.2 million in home closing revenue in the second quarter of 2021, compared to 858 homes and $381.8 million in home closing revenue in the comparable 2020 period.

Order volume decreased 10.1% to 1,149 homes in the second quarter of 2021 compared to 1,278 in 2020, due almost entirely to the 9.7% decline in average active community count.

Strong demand and pricing power resulted in a 22.1% increase in ASP and contributed to the overall 9.8% higher order value in the second quarter of 2021 of $578.2 million, up from $526.5 million in the 2020 period.

Orders pace was consistent year-over-year at 5.5 homes per average community per month during both the three months ended June 30, 2021 and 2020.

As discussed previously, the year-over-year drop in community count is due to the accelerated close-out of communities in 2020.

The West Region ended the second quarter of 2021 with 2,045 homes in backlog valued at $954.7 million, up from 1,540 units valued at $650.2 million at June 30, 2020.

Despite the decrease in order volume, backlog increased year-over-year due to entering the period with a higher backlog and some closing delays caused by supply chain constraints.

Year-to-date results in the West Region were similar to those of the second quarter.

The number and value of homes closed versus prior year increased by 5.6% and 9.6%, respectively, and ASP increased 3.9%.

Order volumes for the Region declined 8.0% year-to-date, due to a 12.9% decline in the average number of actively selling communities, partially offset by a 5.4% year-to-date orders pace improvement.

Order value was positively impacted by a 12.0% increase in ASP, which resulted in 2.9% higher order value for the six months ended June 30, 2021.

In the second quarter of 2021, the Central Region, made up of our Texas markets, closed 1,154 homes and generated $403.8 million in home closing revenue, up 26.3% and 36.4%, respectively, from prior year comparable period results of 914 homes and $296.0 million of home closing revenue.

Order volume declined 9.4% due to a 15.8% decrease in average community count, offset by an increase in orders pace of 7.8%.

Despite the lower volume, order value increased 9.1% to $428.4 million in the second quarter of 2021, compared to $392.5 million in the prior year quarter, due to pricing power that drove ASP up by 20.5% in the Region.

We also experienced improvements in the Region for the six months ended June 30, 2021.

Home closings and home closing revenue were up 25.4% and 30.9%, respectively.

Order value and ASP on orders was up 11.5% and 14.5%, respectively, year-over-year.

Similar to the second quarter, order volume decreased 2.6% due to a lower average active community count, mostly offset by increased orders pace.

The Region ended the quarter with 1,729 units in backlog, up 5.8%, and backlog value of $670.6 million, up 20.4% compared to the prior year.

During the three months ended June 30, 2021, the East Region delivered 1,175 closings and $421.6 million in home closing revenue compared to 998 closings and $353.8 million in home closing revenue in the comparable prior year period, improvements of 17.7% and 19.2%, respectively.

The East Region also generated an increase in order volume in the second quarter of 2021, with an improvement in both volume and value of 17.0% and 32.8%, respectively, with 1,292 units valued at $493.1 million compared to 1,104 units valued at $371.4 million in the prior year period.

The improvement in orders reflected a 25.0% increase in orders pace per community which more than offset the 6.2% decrease in average active communities, while the improvement in order value benefited from both the increase in volume as well as a 13.5% higher ASP.

The year-to-date results of the East Region were similar to those of the second quarter, with 32.8% and 29.3% improvements in home closing volume and revenue, respectively, compared to 2020, providing 2,240 closings and $789.8 million in home closing revenue for the six month period ending June 30, 2021.

The number and value of orders improved by 27.2% and 37.5%, respectively, due to a 47.3% increase in orders pace for the six months ended June 30, 2021 compared to prior year, which more than offset the 13.5% decrease in average active communities.

The East Region ended the quarter with 1,735 homes in backlog valued at $692.3 million compared to 1,221 homes valued at $441.5 million at June 30, 2020, a 42.1% increase in units and 56.8% in order value from strong demand and pricing power.

Land Closing Revenue and Gross (Loss)/Profit

As a result of such sales, we recognized land closing revenue of $13.0 million and $1.5 million for the three months ending June 30, 2021 and 2020, respectively, and losses of $0.3 million and $1.4 for the second quarter of 2021 and 2020, respectively.

Year-to-date land sales resulted in a profit of $0.2 million for the six months ended June 30, 2021 and a loss of $1.1 million loss in the prior year.

Other Operating Information (dollars in thousands)

Three Months Ended March 31,

Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue

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

2021 2020 2021 2020

Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue

Home Closing Gross Profit (1)

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(1) Home closing gross profit represents home closing revenue less cost of home closings, including impairments.

Cost of home closings includes land and lot development costs, direct home construction costs, an allocation of common community costs (such as model complex costs and architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Cost of home closings includes land and associated development costs, direct home construction costs, an allocation of common community costs (such as model complex costs and architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Companywide .

Home closing gross margin for the first quarter of 2021 improved 470 basis points to 24.7% compared to 20.0% in the first quarter of 2020.

The higher margin combined with higher revenue contributed to an $88.3 million improvement in home closing gross profit to end the quarter with $266.7 million compared to $178.4 million in 2020.

With growing buyer demand, pricing power was a major driver in our gross margin improvement as we have experienced pricing power in all of our markets, which more than offset the impact of rising material costs, particularly lumber .

As our shift to entry-level and first-move up product offerings is complete, we continue to benefit from national purchasing savings on materials, construction efficiencies and leverage of overhead costs, all of which are contributing to higher gross margin.

Home closing gross margin for the West Region improved by 500 basis points to 24.7% for the first quarter of 2021 versus 19.7% in the first quarter of 2020.

The year-over-year improvement is due to pricing power, as demand has been very strong in both our entry-level and first move-up communities.

In addition, greater leverage of our overhead costs on higher revenue combined with construction efficiencies driven by our simplified product offerings have favorably impacted margins across the West Region.

The Central Region provided the highest home closing gross margin in the company, which at 26.8% for the first quarter of 2021 was our most notable improvement, up 560 basis points from 21.2% in the prior year quarter.

Construction efficiencies driven by our simplified product offerings and pricing power combined with higher closing volume have expanded our leverage of overhead costs to improve gross margin.

Home closing gross margin in the East Region was up 350 basis points year-over-year to 22.9% in the first quarter of 2021 versus 19.4% for the comparable 2020 period.

Similar to the other regions, the year-over-year improvement in gross margin is the result of pricing power resulting from high demand combined with construction efficiencies and greater leverage of overhead costs on higher closing volume as compared to the prior quarter period.

Home closing gross margin for the second quarter of 2021 improved 590 basis points to our highest quarterly home closing gross margin in company history of 27.3%, compared to 21.4% in the second quarter of 2020.

The higher margin combined with higher revenue contributed to a $124.6 million improvement in home closing gross profit to end the quarter with $345.3 million compared to $220.7 million in 2020.

Gross margin was up 530 basis points to 26.1% versus 20.8% for the six months ended June 30, 2021 and 2020, respectively.

The improved margins in 2021 are due to pricing power from strong buyer demand and leverage of overhead costs on our all-spec strategy for entry-level homes, which have more than offset the impact of rising material costs, particularly lumber.

Margins for the second quarter 2020 were negatively impacted by 30 basis points due to terminated land contract costs for exiting non-core communities, with a charge of $3.3 million compared to $0.6 million of such charges in the 2021 period.

Home closing gross margin for the West Region improved by 500 basis points to 26.0% for the second quarter of 2021 versus 21.0% in the second quarter of 2020.

For the six months ended June 30, 2021, home closing gross margin also improved by 500 basis points to 25.4% versus 20.4% for the same period in the prior year.

The improvements in the West Region's gross margins are due to pricing power from strong market demand and streamlined operations which allowed us to leverage our overhead costs on higher revenue and offset the impact of rising commodity costs.

The Central Region provided the highest home closing gross margin in the Company, which at 29.6% for the second quarter of 2021 was our most notable improvement and was up 670 basis points from 22.9% in the prior year quarter.

Pricing power generated higher ASP combined with higher closing volume which expanded our leverage of overhead costs to improve gross margin.

For the six months ended June 30, 2021, gross margin was up 630 basis points to 28.4% as compared to 22.1% for the same 2020 period.

Home closing gross margin in the East Region was up 590 basis points year-over-year to 26.5% in the second quarter of 2021 versus 20.6% for the comparable 2020 period.

For the six months ended June 30, 2021, gross margin was up 470 basis points to 24.8% versus 20.1% for the same period in the prior year.

The improvement in gross margin for both the three and six months ended June 30, 2021 compared to the respective 2020 periods, is the result of pricing power and greater leverage of overhead costs on higher closing volume.

Financial Services Profit (in thousands)

Three Months Ended March 31,

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

2021 2020 2021 2020

Financial services profit $ 4,615 $ 3,789 $ 8,375 $ 6,627

Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title and Meritage Insurance, as well as our portion of earnings from a mortgage joint venture.

Financial services profit increased $1.0 million in the first quarter of 2021 to $3.8 million versus $2.8 million in 2020, due to the year-over-year higher closing volume.

and Meritage Homes Insurance Agency, Inc., as well as our portion of earnings from our mortgage joint venture.

Financial services profit increased $0.8 million in the second quarter of 2021 to $4.6 million versus $3.8 million in 2020, and by $1.8 million for the six months ended June 30, 2021 to $8.4 million versus $6.6 million for the same period in 2020, due to the year-over-year higher closing volumes.

Selling, General and Administrative Expenses and Other Expenses (dollars in thousands)

Three Months Ended March 31,

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

2021 2020 2021 2020

Commissions and other sales costs $ (73,889) $ (70,408) $ (141,633) $ (131,581)

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Other income, net $ 1,377 $ 1,514 $ 2,175 $ 2,125

Loss on early extinguishment of debt $ (18,188) $ — $ (18,188) $ —

Provision for income taxes $ (48,262) $ (25,184) $ (82,396) $ (40,865)

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Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs.

These costs were $67.7 million for the three months ended March 31, 2021, $6.6 million higher than the prior year comparable period, although as a percentage of home closing revenue, decreased 60 basis points to 6.3% for the first quarter of 2021 compared to the prior year period.

The increase in commissions and other sales costs in dollars compared to prior year is due to higher home closing volume, partially offset by savings in advertising as we continue to leverage more digital technologies, and incurred fewer expenses associated with active communities, such as sales office and model home maintenance expenses.

The decline as a percentage of home closing revenue is due to the due to the combination of leverage from higher closing volume, the efficiencies integrated into our sales and marketing structure, and the decrease in costs associated with a lower number of active communities.

These costs were $73.9 million for the three months ended June 30, 2021, $3.5 million higher than the prior year comparable period, although as a percentage of home closing revenue, decreased 100 basis points to 5.8% for the second quarter of 2021 compared to the prior year period.

For the six months ended June 30, 2021, commissions and other sales costs decreased 80 basis points and were $10.1 million higher than the corresponding prior year period.

For both the three and six month comparative periods, the increase in commissions and other sales costs in dollars compared to prior year is due to higher home closing volume, partially offset by savings in advertising costs as we continued to leverage more digital technologies and incurred fewer expenses associated with active communities, such as sales office and model home maintenance expenses.

In addition, the second quarter of 2020 commissions and other sales costs was negatively impacted by additional commission incentives that were offered during COVID-19 sales events.

The decline as a percentage of home closing revenue is due to the combination of leverage from higher closing volume, the efficiencies integrated into our sales and marketing structure, and the decrease in costs associated with a lower number of active communities.

General and Administrative Expenses.

General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses.

For the three months ended March 31, 2021, general and administrative expenses were $37.9 million, $3.8 million higher than $34.2 million for the 2020 period, although as a percentage of home closing revenue, these expenses decreased by 30 basis points.

For the three months ended June 30, 2021, general and administrative expenses were $43.2 million, $7.0 million higher than $36.2 million for the 2020 period, although as a percentage of home closing revenue, decreased by 10 basis points.

For the six months ended June 30, 2021 and 2020, general and administrative expenses were $81.1 million or 3.5% of home closing revenue, as compared to $70.3 million or 3.7% of home closing revenue in 2020.

The increased leveraging of costs against higher revenue and the continued pull-back on certain corporate expenditures, including those due to COVID-19 precautions, aided in the improvement.

We continually strive to optimize overhead leverage through cost control efforts and expect some long-term improvements to result from our on-going technological enhancements.

As COVID-19 restrictions ease, we expect a portion of these costs to gradually return as employees return to the office and resume travel.

We continually strive to optimize overhead leverage through cost control efforts and expect some long-term efficiencies as we start to generate higher revenue from our increased community count in the coming quarters.

Interest Expense.

Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, other borrowings, and our amended and restated unsecured revolving credit facility ("Credit Facility").

Interest expense for the three months ended March 31, 2021 totaled $90,000, relatively flat compared to $16,000 in the corresponding prior year period.

Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, other borrowings, and our Credit Facility.

Interest expense for the three and six months ended June 30, 2021 totaled $0.1 million and $0.2 million, respectively, compared to $2.1 million in both the three and six months ended June 30, 2020.

The decrease in both quarter-to-date and year-to-date interest expense is due to lower interest rates on our senior notes, increased capitalization of interest incurred with development and construction activities, and interest charges incurred in the first half of 2020 on our Credit Facility which had $500.0 million outstanding for several weeks during that period.

Other Income, Net.

Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures.

For the three months ended March 31, 2021, Other income, net was $0.8 million, relatively flat compared to $0.6 million in the 2020 comparable period.

For the three months ended June 30, 2021, Other income, net was $1.4 million, compared to $1.5 million in the 2020 comparable period.

For the six months ended June 30, 2021, Other income, net was $2.2 million compared to $2.1 million in the 2020 period.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt of $18.2 million for the three and six months ended June 30, 2021 is related to the early redemption of our $300.0 million 7.00% Senior Notes due 2022 during the second quarter of 2021.

There were no similar charges for the three and six months ended June 30, 2020.

See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our Senior Notes due 2022.

Income Taxes.

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

The tax rate for the three months ended March 31, 2021 and March 31, 2020 reflects credits earned under Internal Revenue Code §45L new energy efficient homes credit.

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

Our effective tax rate was 22.4% and 21.7% for the three months ended June 30, 2021 and 2020, respectively, and 21.6% and 20.2% for the six months ended June 30, 2021 and 2020, respectively.

The tax rates for the three and six months ended June 30, 2021, reflect credits earned under IRC §45L new energy efficient homes and higher non-deductible senior executive officer stock-based compensation.

The tax rates for the three and six months ended June 30, 2020, reflect credits earned under Internal Revenue Code §45L new energy efficient homes.

Liquidity and Capital Resources

Our principal uses of capital in the first three months of 2021 were acquisition and development of new lot positions, home construction, operating expenses, the payment of routine liabilities, and repurchases of our common stock.

Our principal uses of capital in the first six months of 2021 were acquisition and development of new lot positions, home construction, operating expenses, the payment of routine liabilities, and repurchases of our common stock.

We used funds generated by operations to meet our short-term working capital requirements.

In addition, in the second quarter of 2021, we received proceeds from issuing new 3.875% senior notes due 2029, which were used in part to pay off existing 7.00% senior notes due 2022.

See Note 6 in the accompanying unaudited consolidated financial statements for more information.

We remain focused long-term on acquiring desirable land positions, generating favorable margins in our homebuilding operations and maintaining a strong balance sheet to support future needs and growth, while leveraging land options where possible.

Operating Cash Flow Activities

During the three months ended March 31, 2021, net cash used in operating activities totaled $13.9 million versus net cash provided by operations of $43.9 million during the three months ended March 31, 2020.

During the six months ended June 30, 2021, net cash used in operating activities totaled $143.5 million versus cash provided by operating activities of $237.4 million during the six months ended June 30, 2020.

Operating cash flows in 2021 and 2020 benefited from cash generated by net earnings of $299.2 million and $161.8 million, respectively.

For the three months ended March 31, 2021, cash flows generated by net earnings also benefited from an increase in accounts payable and accrued liabilities of $38.7 million due to timing of payments for routine transactions, offset by an increase of $193.4 million in real estate assets.

For the three months ended March 31, 2020, operating cash flows were primarily offset by an increase in real estate of $45.2 million.

For the six months ended June 30, 2021, operating cash flows generated by net earnings were offset by a $469.7 million increase in real estate assets due to our increased home construction land acquisition and development activities.

For the six months ended June 30, 2020, operating cash flows also benefited from an increase in accounts payable and accrued liabilities of $34.8 million due to timing of payments for routine transactions.

Investing Cash Flow Activities

During the three months ended March 31, 2021, net cash used in investing activities totaled $4.9 million as compared to $4.2 million for the same period in 2020.

Cash used in investing activities in the first three months of 2021 and 2020 is mainly attributable to the purchases of property and equipment of $5.0 million and $5.3 million for the 2021 and 2020 periods, respectively.

During the six months ended June 30, 2021, net cash used in investing activities totaled $10.7 million as compared to $9.1 million for the same period in 2020.

Cash used in investing activities in the first six months of 2021 and 2020 is mainly attributable to the purchases of property and equipment of $11.0 million and $10.3 million for the 2021 and 2020 periods, respectively.

Financing Cash Flow Activities

During the three months ended March 31, 2021, net cash used in financing activities totaled $10.3 million as compared to net cash provided by financing activities of $438.2 million for the same period in 2020.

The net cash used in financing activities in 2021 primarily reflects $8.4 million in share repurchases.

The activity in 2020 is the result of $500.0 million in proceeds from our Credit Facility offset by $60.8 million in share repurchases.

During the six months ended June 30, 2021, net cash provided by financing activities totaled $92.9 million as compared to net cash used of $63.2 million for the same period in 2020.

The net cash provided by financing activities in 2021 primarily reflects the net proceeds of $450.0 million from the issuance of our Senior Notes due 2029, offset by the early redemption of our Senior Notes due 2022 of $300.0 million principal and associated early tender fees of $17.7 million, along with share repurchases of $27.5 million.

An additional $0.5 million of non-cash charges associated with the early redemption of our Senior Notes due 2022 were recognized as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements.

The activity in 2020 was primarily due to $60.8 million of share repurchases.

Overview of Cash Management

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We are also using our cash on hand to fund operations.

During the three months ended March 31, 2021, we closed 2,890 homes, purchased approximately 5,700 lots for $202.6 million, spent $167.2 million on land development and started construction on 3,317 homes.

We primarily purchase undeveloped land or partially-finished lots requiring development spend in order to bring them to a finished status ready for home construction.

During the six months ended June 30, 2021, we closed 6,163 homes, purchased approximately 15,000 lots for $539.3 million, spent $382.0 million on land development and started construction on 7,147 homes.

We primarily purchase undeveloped land or partially-finished lots requiring development in order to bring them to a finished status ready for home construction.

We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land and inventory acquisition and development .

We ended the first quarter of 2021 with $716.4 million of cash and cash equivalents, a decrease of $29.2 million from December 31, 2020, with no outstanding borrowings on our Credit Facility.

We ended the second quarter of 2021 with $684.4 million of cash and cash equivalents, a decrease of $61.2 million from December 31, 2020, with no outstanding borrowings on our Credit Facility.

We expect to generate cash from the sale of our inventory, but we intend to redeploy that cash primarily to acquire and develop strategic and well-positioned lots to grow our business.

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See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our 7.00% Senior Notes due 2022.

On February 13, 2019, the Board of Directors authorized a new stock repurchase program, authorizing the expenditure of up to $100.0 million to repurchase shares of our common stock.

On February 13, 2019, our Board of Directors authorized a new stock repurchase program, authorizing the expenditure of up to $100.0 million to repurchase shares of our common stock.

On November 13, 2020, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program.

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The Company intends to retire any shares repurchased.

In the three months ended March 31, 2021, we purchased and retired 100,000 shares of our common stock at an aggregate purchase price of $8.4 million and as of March 31, 2021, $106.0 million remained available under this program.

In the six months ended June 30, 2021, we purchased and retired 300,000 shares of our common stock at an aggregate purchase price of $27.5 million and as of June 30, 2021, $86.8 million remained available under this program.

We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management.

Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands):

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Senior notes, net, loans payable and other borrowings $ 1,161,468 $ 1,020,085

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In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined in the credit facility) of at least 1.50 to 1.00 or (ii) liquidity (as defined in the credit facility) 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 March 31, 2021.

Our actual financial covenant calculations as of March 31, 2021 are reflected in the table below.

We were in compliance with all Credit Facility covenants as of June 30, 2021.

Our actual financial covenant calculations as of June 30, 2021 are reflected in the table below.

Financial Covenant (dollars in thousands):

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We typically benefit from the cash generated from home closings more in the third and fourth quarters than in the first and second quarters.

In 2020, historical cycles were impacted by low interest rates and COVID-19.

However, we expect our historical seasonal pattern to continue over the long term although it may continue to be affected by volatility in the homebuilding industry and in the overall economy.

In 2020, historical cycles were impacted by COVID-19 and its impact on consumer behavior, particularly as it relates to the homebuilding market.

However, we expect our historical seasonal pattern to continue over the long term although it may continue to be affected by short-term volatility in the homebuilding industry and in the overall economy.

Recent Issued Accounting Pronouncements

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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