What changed in this filing

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Item 1. Financial Statements

2023-04-28 compared with 2022-10-28 · 116 added, 148 removed, 552 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 957,210 $ 861,561

1 unchanged sentence

Real estate 4,355,178 4,358,263

Real estate not owned — 8,011

Deposits on real estate under option or contract 65,841 76,729

7 unchanged sentences

Home sale deposits 47,892 37,961

Liabilities related to real estate not owned — 7,210

Loans payable and other borrowings 6,889 7,057

4 unchanged sentences

Authorized 10,000,000 shares;

none issued and outstanding at September 30, 2022 and December 31, 2021

none issued and outstanding at March 31, 2023 and December 31, 2022

Common stock, par value $ 0.01 .

Authorized 125,000,000 shares;

36,571,393 and 37,340,855 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

36,765,267 and 36,571,393 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 324,101 327,878

6 unchanged sentences

(in thousands, except per share amounts)

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

2022 2021 2022 2021

Three Months Ended March 31,

Homebuilding:

12 unchanged sentences

Earnings from financial services unconsolidated entities and other, net

1,338 1,324 4,033 3,821

Financial services profit 2,923 3,334

2 unchanged sentences

Interest expense — ( 41 )

Other (expense)/income, net ( 74 ) 1,268 ( 849 ) 3,443

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

Other income/(expense), net 8,844 ( 317 )

Earnings before income taxes 165,303 285,883

11 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net earnings $ 131,301 $ 217,254

Adjustments to reconcile net earnings to net cash used in operating activities:

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

Depreciation and amortization 5,208 5,759

Stock-based compensation 6,225 5,975

Loss on early extinguishment of debt — 18,188

Equity in earnings from unconsolidated entities ( 1,346 ) ( 936 )

2 unchanged sentences

Changes in assets and liabilities:

Increase in real estate ( 990,106 ) ( 810,731 )

Decrease/(increase) in real estate 2,999 ( 283,885 )

Decrease/(increase) in deposits on real estate under option or contract 10,886 ( 2,753 )

Increase in other receivables, prepaids and other assets ( 11,749 ) ( 52,098 )

Increase in accounts payable and accrued liabilities 118,636 67,301

(Decrease)/increase in accounts payable and accrued liabilities ( 31,687 ) 115,927

Increase in home sale deposits 9,931 5,668

Net cash used in operating activities ( 169,809 ) ( 248,706 )

Net cash provided by operating activities 124,472 12,188

Cash flows from investing activities:

Investments in unconsolidated entities ( 5,674 ) ( 1 )

Distributions of capital from unconsolidated entities 43 —

Purchases of property and equipment ( 8,899 ) ( 6,423 )

5 unchanged sentences

Repayment of loans payable and other borrowings ( 168 ) ( 4,580 )

Repayment of senior notes — ( 317,690 )

Proceeds from issuance of senior notes — 450,000

Payment of debt issuance costs — ( 6,102 )

Dividends paid ( 9,927 ) —

Repurchase of shares ( 10,000 ) ( 99,303 )

Net cash (used in)/provided by financing activities ( 124,256 ) 82,883

Net decrease in cash and cash equivalents ( 318,948 ) ( 183,330 )

Net cash used in financing activities ( 20,095 ) ( 103,883 )

Net increase/(decrease) in cash and cash equivalents 95,649 ( 97,940 )

Cash and cash equivalents, beginning of period 861,561 618,335

6 unchanged sentences

Organization.

Meritage Homes Corporation ("Meritage Homes") is a leading designer and builder of single-family homes.

Meritage Homes Corporation ("Meritage Homes") is a leading designer and builder of single-family attached and detached homes.

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

We have homebuilding operations in three regions:

We have operations in three regions:

West, Central and East, which are comprised of ten states:

13 unchanged sentences

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

At September 30, 2022, we were actively selling homes in 275 communities, with base prices ranging from approximately $ 250,000 to $ 1,400,000 .

At March 31, 2023, we were actively selling homes in 278 communities, with base prices ranging from approximately $ 250,000 to $ 1,300,000 .

Basis of Presentation .

8 unchanged sentences

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 $ 94.6 million and $ 95.4 million are included in Cash and cash equivalents at September 30, 2022 and December 31, 2021, respectively.

Amounts in transit from title companies or closing agents for home closings of approximately $ 81.2 million and $ 161.5 million are included in Cash and cash equivalents at March 31, 2023 and December 31, 2022, respectively.

Real estate inventory 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”) .

16 unchanged sentences

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.

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

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

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 orders absorption rates and whether the land purchased was raw, partially-developed or in finished status.

3 unchanged sentences

If indicators of potential impairment exist and the undiscounted cash flows expected to be generated by an asset are lower than its carrying amount, impairment charges are recorded to write down the asset to its estimated fair value.

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

The impairment of a community is allocated to each remaining unstarted lot in the community on a straight-line basis and is recognized in Cost of home closings in the period in which the impairment is determined.

Our determination of fair value is based on projections and estimates.

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.

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, although if financial metrics improve, we do not reverse impairments once recorded.

See Note 2 for additional information related to real estate.

2 unchanged sentences

To the extent they are non-refundable, deposits are expensed to Cost of home closings 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 non-refundable deposits and any ancillary capitalized costs.

Our Deposits on real estate under option or contract were $ 88.4 million and $ 90.7 million as of September 30, 2022 and December 31, 2021, respectively.

Our Deposits on real estate under option or contract were $ 65.8 million and $ 76.7 million as of March 31, 2023 and December 31, 2022, respectively.

See Note 3 for additional information related to Deposits on real estate.

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.

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

Such qualitative factors include:

6 unchanged sentences

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 balance sheets as right-of-use ("ROU") assets and lease liabilities.

Leases that meet the criteria of ASC 842 are recorded on

our balance sheets as right-of-use ("ROU") assets and lease liabilities.

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

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

ROU assets $ 20,419 $ 19,129

1 unchanged sentence

Off-Balance Sheet Arrangements - Joint Ventures .

We may participate in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile and leveraging our capital base, although our participation in such ventures is currently limited.

We may participate in land development joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile, optimizing deal structure for the impacted parties and leveraging our capital, although our participation in such ventures is currently limited.

See Note 4 for additional discussion of our investments in unconsolidated entities .

10 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Outstanding Estimated work

7 unchanged sentences

Accrued Liabilities .

Accrued liabilities at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):

September 30, 2022 December 31, 2021

Accrued liabilities at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31, 2023 December 31, 2022

Accruals related to real estate development and construction activities $ 130,340 $ 139,447

9 unchanged sentences

The specific terms and conditions of these limited warranties vary by state, but overall the nature of the warranties include a complete workmanship and materials warranty for the first year after the close of the home, a major mechanical warranty for two years after the close of the home and a structural warranty that typically extends up to 10 years after the close of the home.

With the assistance of an actuary, we have estimated these reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our communities.

With the assistance of an actuary, we have estimated these reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our geographies.

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, 2022 or 2021.

Included in the warranty reserve balances at September 30, 2022 and December 31, 2021 reflected in the table below are case-specific reserves for warranty matters, as discussed in Note 15.

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three months ended March 31, 2023 or 2022.

Included in the warranty reserve balances at March 31, 2023 and December 31, 2022 are case-specific reserves for warranty matters, as discussed in Note 15.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Balance, beginning of period $ 35,575 $ 26,264

3 unchanged sentences

Balance, end of period $ 37,063 $ 26,667

(1) Net of recoveries for costs incurred over several years on a foundation design and performance matter that affected a single community in Texas.

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.

16 unchanged sentences

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, 2022 and December 31, 2021.

The related contract assets for these estimated future renewal commissions are no t material at March 31, 2023 and December 31, 2022.

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

3 unchanged sentences

Real estate consists of the following (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Homes under contract under construction (1)

11 unchanged sentences

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

(3) Includes land held for sale of $ 62.2 million and $ 62.1 million as of September 30, 2022 and December 31, 2021, respectively .

(3) Includes land held for sale of $ 29.0 million and $ 66.8 million as of March 31, 2023 and December 31, 2022, 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.

1 unchanged sentence

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Capitalized interest, beginning of period $ 60,169 $ 56,253

8 unchanged sentences

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 and Liabilities related to real estate not owned, respectively.

As a result of our analyses, we determined that as of September 30, 2022 and December 31, 2021, 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 September 30, 2022 (dollars in thousands):

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 its assets and liabilities as Real estate not owned and Liabilities related to real estate not owned, respectively.

As a result of our analyses, we determined that as of March 31, 2023 and December 31, 2022, 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, 2023 (dollars in thousands):

Projected Number

18 unchanged sentences

(3) Except for our specific performance contracts recorded on the accompanying 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 the accompanying unaudited consolidated balance sheets in Deposits on real estate under option or contract as of September 30, 2022.

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.

(4) Amount is reflected on the accompanying unaudited consolidated balance sheets in Deposits on real estate under option or contract as of March 31, 2023.

Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots on a pre-determined schedule in accordance with each respective agreement.

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 expected orders and home starts pace to meet the pre-established minimum number of lots or restructure our original contract to terms that more accurately reflect our revised orders pace expectations.

6 unchanged sentences

Based on the structure of these joint ventures, they may or may not be consolidated into our results.

As of September 30, 2022, we had two active equity-method land joint ventures and one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

As of March 31, 2023, we had two active equity-method land joint ventures and one mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers.

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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

$ 2,729 $ 3,389

18,031 17,965

Total assets $ 27,033 $ 33,007

1 unchanged sentence

Accounts payable and other liabilities $ 5,391 $ 11,397

10,386 10,356

Other 11,256 11,254

Total liabilities and equity $ 27,033 $ 33,007

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

2022 2021 2022 2021

Three Months Ended March 31,

Revenue $ 9,516 $ 9,238

6 unchanged sentences

(i) timing differences for revenue and distributions recognition, (ii) step-up basis and corresponding amortization, (iii) capitalization of interest on qualified assets, (iv) income deferrals as discussed in Note (2) below and (v) the cessation of allocation of losses from joint ventures in which we have previously written down our investment balance to zero and where we have no commitment to fund additional losses.

(2) Our share of pre-tax earnings from our mortgage joint venture is recorded in Earnings from financial services unconsolidated entities and other, net on the accompanying unaudited consolidated income statements.

Our share of pre-tax earnings from all other joint ventures is recorded in Other (expense)/income, net on the accompanying unaudited consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures, if any.

(2) Our share of pre-tax earnings/(loss) from our mortgage joint venture is recorded in Earnings from financial services unconsolidated entities and other, net on the accompanying unaudited consolidated income statements.

Our share of pre-tax earnings/(loss) from all other joint ventures is recorded in Other income/(expense), net on the accompanying unaudited consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures, if any.

Such profit is deferred until homes are delivered by us and title passes to a homebuyer.

1 unchanged sentence

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Other borrowings, real estate notes payable (1)

3 unchanged sentences

(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.

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

In December 2021, the Credit Facility was amended to extend the maturity date to December 22, 2026 and replace LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate ("SOFR") as described below.

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.

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 bear interest at the Company's option, at either (1) term SOFR (based on 1, 3, or 6 month interest periods, as selected by the Company) plus a 10 basis point adjustment plus an applicable margin (ranging from 125 basis points to 175 basis points (the "applicable margin")) based on the Company's leverage ratio as determined in accordance with a pricing grid, (2) the higher of (i) the prime lending rate ("Prime"), (ii) an overnight bank rate plus 50 basis points and (iii) term SOFR (based on a 1 month interest period) plus a 10 basis point adjustment plus 1 %, in each case plus a margin ranging from 25 basis points to 75 basis points based on the Company's leverage in accordance with a pricing grid, or (3) daily simple SOFR plus a 10 basis point adjustment plus the applicable margin.

At September 30, 2022, the interest rate on outstanding borrowings under the Credit Facility would have been 4.390 % per annum, calculated in accordance with option (1) discussed previously and using the 1 month term SOFR.

At March 31, 2023, the interest rate on outstanding borrowings under the Credit Facility would have been 6.150 % per annum, calculated in accordance with option (1) discussed previously and using the 1 month term SOFR.

We are obligated to pay a fee on the undrawn portion of the Credit Facility at a rate equal to the applicable margin then in effect.

1 unchanged sentence

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, 2022.

We had no outstanding borrowings under the Credit Facility as of September 30, 2022 and December 31, 2021.

We had $ 40.0 million in borrowings and repayments during the three and nine months ended September 30, 2022, and no borrowings or repayments during the three and nine months ended September 30, 2021.

As of September 30, 2022, we had outstanding letters of credit issued under the Credit Facility totaling $ 59.8 million, leaving $ 720.2 million available under the Credit Facility to be drawn.

We were in compliance with all Credit Facility covenants as of March 31, 2023.

We had no outstanding borrowings under the Credit Facility as of March 31, 2023 and December 31, 2022.

There were no borrowings or repayments under the Credit Facility during the three months ended March 31, 2023 and 2022.

As of March 31, 2023, we had outstanding letters of credit issued under the Credit Facility totaling $ 49.5 million, leaving $ 730.5 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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

6.00 % senior notes due 2025.

At September 30, 2022 and December 31, 2021 there was approximately $ 2,182 and $ 2,795 in net unamortized premium, respectively.

At March 31, 2023 and December 31, 2022 there was approximately $ 1,773 and $ 1,977 in net unamortized premium, respectively.

401,773 401,977

6 unchanged sentences

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, 2022.

We were in compliance with all such covenants as of March 31, 2023.

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.

In April 2021, we completed an offering of $ 450.0 million aggregate principal amount of 3.875 % Senior Notes due 2029.

We used a portion of the net proceeds from this offering to redeem all $ 300.0 million aggregate principal outstanding of our 7.00 % Senior Notes due 2022, incurring $ 18.2 million in early debt extinguishment charges in the nine months ended September 30, 2021, reflected as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements.

NOTE 7 — FAIR VALUE DISCLOSURES

9 unchanged sentences

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, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Principal Estimated Fair

8 unchanged sentences

Due to the short-term nature of other financial assets and liabilities, including our Loans payable and other borrowings, we consider the carrying amounts of our other short-term financial instruments to approximate fair value.

Non-Financial Instruments:

Our Real estate assets are Level 3 instruments that are required to be recorded at fair value on non-recurring basis when events and circumstances indicate that the carrying value may not be recoverable.

Refer to Note 1 for information regarding the valuation of these assets.

NOTE 8 — EARNINGS PER SHARE

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,

2022 2021 2022 2021

Three Months Ended March 31,

Basic weighted average number of shares outstanding 36,664 36,996

17 unchanged sentences

Additions — — — — — —

Balance at September 30, 2022 $ — $ — $ 32,962 $ — $ — $ 32,962

Balance at March 31, 2023 $ — $ — $ 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, 2022

Three Months Ended March 31, 2023

(In thousands)

7 unchanged sentences

Issuance of stock 287 3 ( 3 ) — —

Share repurchases ( 1,038 ) ( 10 ) ( 99,293 ) — ( 99,303 )

Dividends declared — — — ( 9,927 ) ( 9,927 )

Repurchase of shares ( 93 ) ( 1 ) ( 9,999 ) — ( 10,000 )

Balance at March 31, 2023 36,765 $ 368 $ 324,101 $ 3,742,741 $ 4,067,210

Net earnings — — — 250,084 250,084

Stock-based compensation expense — — 4,070 — 4,070

Share repurchases ( 128 ) ( 1 ) ( 9,999 ) — ( 10,000 )

Balance at June 30, 2022 36,567 $ 366 $ 315,590 $ 3,096,513 $ 3,412,469

Net earnings — — — 262,489 262,489

Stock-based compensation expense — — 6,852 — 6,852

Issuance of stock 4 — — — —

Share repurchases — — — — —

Balance at September 30, 2022 36,571 $ 366 $ 322,442 $ 3,359,002 $ 3,681,810

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(In thousands)

7 unchanged sentences

Issuance of stock 392 4 ( 4 ) — —

Share repurchases ( 100 ) ( 1 ) ( 8,384 ) — ( 8,385 )

Repurchase of shares ( 1,038 ) ( 10 ) ( 99,293 ) — ( 99,303 )

Balance at March 31, 2022 36,695 $ 367 $ 321,519 $ 2,846,429 $ 3,168,315

Net earnings — — — 167,389 167,389

Stock-based compensation expense — — 3,223 — 3,223

Share repurchases ( 200 ) ( 2 ) ( 19,159 ) — ( 19,161 )

Balance at June 30, 2021 37,647 — 376 — 436,805 — 2,190,963 — 2,628,144

Net earnings — — — 200,752 200,752

Stock-based compensation expense — — 5,845 — 5,845

Issuance of stock 3 — — — —

Share repurchases ( 95 ) — ( 9,471 ) — ( 9,471 )

Balance at September 30, 2021 37,555 $ 376 $ 433,179 $ 2,391,715 $ 2,825,270

On February 16, 2023, our Board of Directors approved the initiation of a recurring quarterly cash dividend on common stock of $ 0.27 per share.

The first dividend was paid on March 31, 2023 to shareholders of record as of the close of trading on March 15, 2023.

NOTE 11 — STOCK BASED AND DEFERRED COMPENSATION

3 unchanged sentences

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 731,405 shares remain available for grant at September 30, 2022.

The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which 487,809 shares remain available for grant at March 31, 2023.

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.

6 unchanged sentences

We engage a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is expensed straight-line over the service period of the awards.

Below is a summary of stock-based

compensation expense and stock award activity (dollars in thousands):

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

2022 2021 2022 2021

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

Three Months Ended March 31,

Stock-based compensation expense $ 6,225 $ 5,975

6 unchanged sentences

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Unrecognized stock-based compensation cost $ 42,820 $ 29,187

5 unchanged sentences

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, 2022 or 2021, 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, 2023 or 2022, 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,

2022 2021 2022 2021

Three Months Ended March 31,

Federal $ 26,440 $ 56,345

1 unchanged sentence

Total $ 34,002 $ 68,629

The effective tax rate for the three and nine months ended September 30, 2022 was 20.3 % and 22.9 %, and for the three and nine months ended September 30, 2021 was 23.3 % and 22.3 %, respectively.

The lower tax rate for the three months ended September 30, 2022 compared to the same period in 2021 is due to the retroactive extension of the new energy-efficient homes credits for homes closed in the first half of 2022, described below.

The 2021 rates benefited from the Taxpayer Certainty and Disaster Tax Relief Act that was passed in December 2019 and expired on December 31, 2021.

On August 16, 2022, the Inflation Reduction Act of 2022 ("the IRA") was signed into law.

The IRA retroactively extended the Internal Revenue Code ("IRC") §45L new energy-efficient homes federal tax credit to homes delivered from January 1, 2022 through December 31, 2032, and also modifies the energy standards required to qualify for the tax credit and increases the per-home credit amount starting in 2023.

As a result of the adoption of the IRA, the effective tax rates for the three and nine months ended September 30, 2022 reflect the benefit of the new energy-efficient homes credits on qualifying homes we delivered during 2022.

The IRA, among other provisions, also creates a 15% corporate alternative minimum tax on certain profits and a 1% excise tax on stock repurchases, which will be effective for us on January 1, 2023, and we do not expect to have a material impact on our consolidated financial statements.

At September 30, 2022 and December 31, 2021, we have no unrecognized tax benefits.

The effective tax rate for the three months ended March 31, 2023 and 2022 was 20.6 % and 24.0 %, respectively.

The lower tax rate for the three months ended March 31, 2023 reflects the increased §45L energy-efficient homes federal tax credit on qualifying homes under the Internal Revenue Code ("IRC") enacted in the Inflation Reduction Act ("IRA") in August 2022.

There were no such credits available in the first three months of 2022.

The IRA retroactively extended the IRC §45L energy-efficient homes federal tax credit to homes delivered from January 1, 2022 through December 31, 2032, modified the energy standards required to qualify for the tax credit and increased the per-home credit amount starting in 2023.

Among other provisions, the IRA also created a 15% corporate alternative minimum tax on certain profits and a 1% excise tax on net stock repurchases.

The alternative minimum tax and excise tax were effective for us on January 1, 2023 and did not have a material impact on our consolidated financial statements for the three months ended March 31, 2023.

At March 31, 2023 and December 31, 2022, we have no unrecognized tax benefits.

We believe 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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We evaluate our deferred tax assets, including the benefit from net operating losses ("NOLs"), by jurisdiction to determine if a valuation allowance is required.

Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified.

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 and no NOL carryovers at September 30, 2022.

At September 30, 2022, we have income taxes receivable of $ 3.7 million and no incomes tax payable.

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

This amount is recorded in Other receivables on the accompanying unaudited consolidated balance sheets at September 30, 2022.

This evaluation 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 NOLs or credit carryovers, and determined that no valuation allowance on our deferred tax assets is necessary at March 31, 2023.

At March 31, 2023, we have $ 45.4 million in income taxes payable and no income taxes receivable.

The income taxes payable primarily consists of current federal and state tax accruals, net of current energy tax credits and estimated tax payments and is recorded in Accrued liabilities on the accompanying unaudited consolidated balance sheets at March 31, 2023.

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

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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:

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The following segment information is in thousands:

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

2022 2021 2022 2021

Three Months Ended March 31,

Homebuilding revenue (1) :

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Interest expense — ( 41 )

Other (expense)/ income, net ( 74 ) 1,268 ( 849 ) 3,443

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

Other income/(expense), net 8,844 ( 317 )

Earnings before income taxes $ 165,303 $ 285,883

(1) Homebuilding revenue includes the following land closing revenue, by segment:

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

2022 2021 2022 2021

Three Months Ended March 31,

Land closing revenue:

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Central 570 7,796

East — — 2,600 —

Total $ 17,385 $ 41,478

(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, 2022

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

At March 31, 2023

West Central East Financial Services Corporate and

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(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, real estate not owned, goodwill, prepaids and other assets and property and equipment, net.

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

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

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Additionally, some such claims are also covered by insurance.

With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable.

With respect to the majority of pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential material losses related to these matters are not considered probable.

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, 2022 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 $ 31.7 million of total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017.

Our review and handling of this matter is ongoing and our estimate of and reserves for resolving this matter is based on internal data, our judgment and various assumptions and estimates.

We believe there are no pending legal or warranty matters as of March 31, 2023 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 $ 37.1 million of total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017 and HVAC condensation issues in limited geographies for homes constructed and delivered in 2021 and the first half of 2022.

Our review and handling of these matters is ongoing and our estimate of and reserves for resolving them is based on

internal data, our judgment and various assumptions and estimates.

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 estimate and thus our related reserves.

As of September 30, 2022, 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 matter.

As of March 31, 2023, 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 matter.

See Note 1 for information related to our warranty obligations.

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our positions and our expected outcome relating to litigation and regulatory proceedings in general;

our intentions to not pay dividends;

our intentions to pay quarterly dividends;

that we may repurchase our debt and equity securities;

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the impact of new accounting standards and changes in accounting estimates;

trends and expectations concerning future demand for homes, sales prices, sales orders, cancellations, construction and materials costs and availability, gross margins, land costs, community counts and profitability and future home supply and inventories;

trends and expectations concerning future demand for homes, home construction cycle times, sales prices, sales orders, cancellations, construction and materials costs and availability, gross margins, land costs, community counts and profitability and future home supply and inventories;

our future cash needs and sources;

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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:

increases in mortgage interest rates and the availability and pricing of residential mortgages and the potential benefits of rate locks;

increases in mortgage interest rates and the availability and pricing of residential mortgages;

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

cancellation rates;

supply chain and labor constraints;

our ability to acquire and develop lots may be negatively impacted if we are unable to obtain performance and surety bonds;

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

legislation related to tariffs;

our ability to acquire and develop lots may be negatively impacted if we are unable to obtain performance and surety bonds;

the adverse effect of slow absorption rates;

legislation related to tariffs;

impairments of our real estate inventory;

cancellation rates;

home warranty and construction defect claims;

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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;

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

our limited geographic diversification;

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potential disruptions to our business by an epidemic or pandemic (such as COVID-19), 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 this Form 10-Q and our Form 10-K for the year ended December 31, 2021 under the caption "Risk Factors."

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, 2022 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