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Item 1. Financial Statements

2023-07-28 compared with 2023-04-28 · 117 added, 96 removed, 572 unchanged (27% of the section changed)

3 unchanged sentences

(in thousands, except share amounts)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 1,163,243 $ 861,561

16 unchanged sentences

Authorized 10,000,000 shares;

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

none issued and outstanding at June 30, 2023 and December 31, 2022

Common stock, par value $ 0.01 .

Authorized 125,000,000 shares;

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

36,765,267 and 36,571,393 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 328,277 327,878

6 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

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

2023 2022 2023 2022

Homebuilding:

11 unchanged sentences

Expense ( 2,972 ) ( 2,581 ) ( 6,039 ) ( 5,093 )

Earnings from financial services unconsolidated entities and other, net

Financial services profit 2,923 3,334

(Loss)/earnings from financial services unconsolidated entities and other, net ( 5,795 ) 1,521 ( 5,536 ) 2,695

Financial services (loss)/profit ( 2,557 ) 4,079 366 7,413

Commissions and other sales costs ( 95,798 ) ( 69,383 ) ( 178,644 ) ( 134,923 )

15 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net earnings $ 318,137 $ 467,338

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

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

Depreciation and amortization 11,196 11,723

6 unchanged sentences

Decrease/(increase) in deposits on real estate under option or contract 5,491 ( 7,288 )

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

Decrease/(increase) in other receivables, prepaids and other assets 8,962 ( 90,419 )

(Decrease)/increase in accounts payable and accrued liabilities ( 27,754 ) 113,421

Increase in home sale deposits 11,818 18,210

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

Net cash provided by/(used in) operating activities 355,885 ( 206,827 )

Cash flows from investing activities:

Investments in unconsolidated entities ( 1,277 ) ( 5,653 )

Distributions of capital from unconsolidated entities 43 —

22 unchanged sentences

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

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

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

We also operate a financial services reporting segment.

1 unchanged sentence

Carefree Title Agency, Inc.

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

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

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

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

Our financial services operations also provides mortgage services to our homebuyers through an unconsolidated joint venture.

Meritage Homes Insurance Agency, Inc.

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

Our financial services operation also provides mortgage services to our homebuyers through an unconsolidated joint venture.

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

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

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

At June 30, 2023, we were actively selling homes in 291 communities, with base prices ranging from approximately $ 240,000 to $ 1,400,000 .

Basis of Presentation .

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These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

The unaudited consolidated financial statements include the accounts of Meritage Homes Corporation and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities (see Note 3) in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”).

The unaudited consolidated financial statements include the accounts of Meritage Homes and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities (see Note 3) in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”).

Intercompany balances and transactions have been eliminated in consolidation.

3 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 $ 81.2 million and $ 161.5 million are included in Cash and cash equivalents at March 31, 2023 and December 31, 2022, respectively.

Amounts in transit from title companies or closing agents for home closings of approximately $ 51.7 million and $ 161.5 million are included in Cash and cash equivalents at June 30, 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”) .

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

Real estate inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, and direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any.

Land and development costs are typically allocated and transferred to homes when home construction begins.

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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 related capitalized costs.

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.

Our Deposits on real estate under option or contract were $ 71.0 million and $ 76.7 million as of June 30, 2023 and December 31, 2022, respectively.

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

13 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

ROU assets $ 21,787 $ 19,129

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

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

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

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

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Outstanding Estimated work

7 unchanged sentences

Accrued Liabilities .

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

March 31, 2023 December 31, 2022

Accrued liabilities at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023 December 31, 2022

Accruals related to real estate development and construction activities $ 151,883 $ 139,447

12 unchanged sentences

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

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

Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three or six months ended June 30, 2023 or 2022.

Included in the warranty reserve balances at June 30, 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 March 31,

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

2023 2022 2023 2022

Balance, beginning of period $ 37,063 $ 26,667 $ 35,575 $ 26,264

Additions to reserve from new home deliveries 5,982 5,308 10,388 9,836

Warranty claims ( 2,918 ) ( 4,125 )

Warranty claims and recoveries ( 6,830 ) ( 538 ) (1) ( 9,748 ) ( 4,663 ) (1)

Adjustments to pre-existing reserves — — — —

Balance, end of period $ 36,215 $ 31,437 $ 36,215 $ 31,437

(1) Includes 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.

1 unchanged sentence

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

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

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

Revenue Recognition.

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

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

The related contract assets for these estimated future renewal commissions are no t material at

June 30, 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):

March 31, 2023 December 31, 2022

June 30, 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 $ 29.0 million and $ 66.8 million as of March 31, 2023 and December 31, 2022, respectively .

(3) Includes land held for sale of $ 8.6 million and $ 66.8 million as of June 30, 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 March 31,

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

2023 2022 2023 2022

Capitalized interest, beginning of period $ 62,452 $ 59,082 $ 60,169 $ 56,253

9 unchanged sentences

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):

As a result of our analyses, we determined that as of June 30, 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 June 30, 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 March 31, 2023.

(4) Amount is reflected on the accompanying unaudited consolidated balance sheets in Deposits on real estate under option or contract as of June 30, 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.

7 unchanged sentences

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

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.

As of June 30, 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):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

$ 3,114 $ 3,389

6 unchanged sentences

Total liabilities and equity $ 29,135 $ 33,007

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenue $ 11,710 $ 9,840 $ 21,226 $ 19,078

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/(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.

(2) Our share of pre-tax earnings/(loss) from our mortgage joint venture is recorded in (Loss)/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.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Other borrowings, real estate notes payable (1)

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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.

In June 2023, the Credit Facility was amended to increase the facility size to $835.0 million, extend the maturity date to June 2, 2028, amend the accordion feature to permit the facility to increase by up to fifty percent of the facility size, increase the letter of credit sublimit up to the maximum size of the facility, eliminate the

liquidity and interest coverage covenant and adjust certain covenant basket amounts.

The Credit Facility's aggregate commitment is $ 835.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $ 1.3 billion, 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 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.

At June 30, 2023, the interest rate on outstanding borrowings under the Credit Facility would have been 6.490 % 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.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $ 2.8 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60 %.

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

We were in compliance with all Credit Facility covenants as of 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.

We were in compliance with all Credit Facility covenants as of June 30, 2023.

We had no outstanding borrowings under the Credit Facility as of June 30, 2023 and December 31, 2022.

There were no borrowings or repayments under the Credit Facility during the three and six months ended June 30, 2023 and 2022.

As of June 30, 2023, we had outstanding letters of credit issued under the Credit Facility totaling $ 40.1 million, leaving $ 794.9 million available under the Credit Facility to be drawn.

NOTE 6 — SENIOR NOTES, NET

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

6.00 % senior notes due 2025.

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

At June 30, 2023 and December 31, 2022 there was approximately $ 1,568 and $ 1,977 in net unamortized premium, respectively.

401,568 401,977

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 March 31, 2023.

We were in compliance with all such covenants as of June 30, 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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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):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Principal Estimated Fair

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Basic weighted average number of shares outstanding 36,765 36,647 36,715 36,820

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Additions — — — — — —

Balance at March 31, 2023 $ — $ — $ 32,962 $ — $ — $ 32,962

Balance at June 30, 2023 $ — $ — $ 32,962 $ — $ — $ 32,962

NOTE 10 — STOCKHOLDERS’ EQUITY

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

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

(In thousands)

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

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

Share repurchases ( 93 ) ( 1 ) ( 9,999 ) — ( 10,000 )

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

Three Months Ended March 31, 2022

Net earnings — — — 186,836 186,836

Stock-based compensation expense — — 4,176 — 4,176

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

Balance at June 30, 2023 36,765 $ 368 $ 328,277 $ 3,919,650 $ 4,248,295

Six Months Ended June 30, 2022

(In thousands)

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Issuance of stock 392 4 ( 4 ) — —

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

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

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

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.

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

During the three months ended June 30, 2023, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $ 0.27 per share.

Quarterly dividends declared and paid during the six months ended June 30, 2023 totaled $ 0.54 per share.

There were no such transactions in the three and six months ended June 30, 2022.

NOTE 11 — STOCK BASED AND DEFERRED COMPENSATION

We have a stock compensation plan, the Meritage Homes Corporation 2018 Stock Incentive Plan (the “2018 Plan"), that was approved by our Board of Directors and our stockholders and adopted in May 2018.

In May 2023, the Board of Directors and stockholders approved an amendment to the Plan to increase the number of shares available for issuance by 800,000 .

The 2018 Plan is administered by our Board of Directors and allows for the grant of stock appreciation rights, restricted stock awards, restricted stock units, performance share awards and performance-based awards in addition to non-qualified and incentive stock options.

1 unchanged sentence

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 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.

The 2018 Plan authorizes 7,400,000 shares of stock to be awarded, of which 1,308,894 shares remain available for grant at June 30, 2023.

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

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

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Stock-based compensation expense $ 4,176 $ 4,070 $ 10,401 $ 10,045

6 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Unrecognized stock-based compensation cost $ 36,709 $ 29,187

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

All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three months ended March 31, 2023 or 2022, 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 and six months ended June 30, 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 March 31,

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

2023 2022 2023 2022

Federal $ 41,831 $ 67,118 $ 68,271 $ 123,463

1 unchanged sentence

Total $ 52,688 $ 81,611 $ 86,690 $ 150,240

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 effective tax rate for the three and six months ended June 30, 2023 was 22.0 % and 21.4 %, and for the three and six months ended June 30, 2022 was 24.6 % and 24.3 %, respectively.

The lower tax rate for the three and six months ended June 30, 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 six 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.

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 and six months ended June 30, 2023.

At June 30, 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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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 have no NOLs or credit carryovers, and determined that no valuation allowance on our deferred tax assets is necessary at June 30, 2023.

At June 30, 2023, we have $ 11.0 million in income taxes payable and no income taxes receivable.

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

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federal, state, or local income tax examinations by taxing authorities for years prior to 2018.

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

We have one state income tax examination covering various years pending resolution at this time.

NOTE 13 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

Three Months Ended March 31,

Six Months Ended June 30,

Cash paid during the year for:

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We aggregate our homebuilding operating segments into reporting segments based on similar long-term economic characteristics and geographical proximity.

Our current reportable homebuilding segments are as follows:

Our three reportable homebuilding segments are as follows:

Arizona, California, Colorado and Utah

Florida, Georgia, North Carolina, South Carolina and Tennessee

Management’s evaluation of segment performance is based on segment operating income, which we define as home and land closing revenue less cost of home and land closings, including land development and other land sales costs, commissions and other sales costs, and other general and administrative costs incurred by or allocated to each segment, including impairments.

Management’s evaluation of segment performance is based on homebuilding segment operating income, which we define as home and land closing revenue less cost of home and land closings, including land development and other land sales costs, commissions and other sales costs, and other general and administrative costs incurred by or allocated to each segment, including impairments.

Each reportable segment follows the same accounting policies described in Note 1, “Organization and Basis of Presentation.” Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

The following segment information is in thousands:

Three Months Ended March 31,

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

2023 2022 2023 2022

Homebuilding revenue (1) :

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Land closing revenue:

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Central 1,908 1,709 2,478 9,505

East 12,711 — 12,711 2,600

Total $ 24,379 $ 3,434 $ 41,764 $ 44,912

(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

At June 30, 2023

West Central East Financial Services Corporate and

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

We believe there are no pending legal or warranty matters as of 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.

We believe there are no pending legal or warranty matters as of June 30, 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 $ 36.2 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.

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 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.

As of June 30, 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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Forward-looking statements in this Annual Report include statements concerning our belief that we have ample liquidity;

our goals, strategies and strategic initiatives including our all-spec strategy for entry-level homes and the anticipated benefits relating thereto;

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

our goals, strategies and strategic initiatives including our all-spec strategy and the anticipated benefits relating thereto;

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

the benefits of and our intentions to use options to acquire land;

our delivery of substantially all of our backlog existing as of period end;

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

our intentions to pay quarterly dividends;

the sustainability of our tax positions;

that we may repurchase our debt and equity securities;

our non-use of derivative financial instruments;

expectations regarding our industry and our business for the remainder of 2023 and beyond, including our all-spec strategy for entry-level homes;

expectations regarding our industry and our business for the remainder of 2023 and beyond;

the demand for and the pricing of our homes;

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our expectation that existing guarantees, letters of credit and performance and surety bonds will not be drawn on;

the sufficiency of our insurance coverage and warranty reserves;

the sufficiency of our capital resources to support our business strategy;

the sufficiency of our insurance coverage and legal and warranty reserves;

the outcome of pending litigation;

the sources and sufficiency of our capital resources to support our business strategy;

the sufficiency of our land pipeline;

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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;

the impact of seasonality;

and our future compliance with debt covenants.

our future cash needs and sources, and the impact of seasonality.

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:

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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