What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-28 compared with 2023-04-28 · 182 added, 219 removed, 198 unchanged (67% of the section changed)

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Overview and Outlook

In the first quarter of 2023, housing demand was stronger than anticipated despite ongoing economic uncertainty, the regional banking turmoil and continuing volatility in interest rates.

We saw demand stabilize as we entered the spring selling season as buyers acclimated to the current interest rate environment.

Homebuyers are looking for quick move-in homes, which are increasingly difficult to find as the shortage of readily-available new inventory coupled with extremely limited resale inventory persists, especially in the markets where we operate.

We expect the housing undersupply and favorable demographics to provide a strong long-term runway for future homebuying demand, and believe that our affordable, all-spec strategy with a focus on the largest buying segments of millennials and move-down buyers, provides us the opportunity to capitalize on that demand and continue to grow our market share.

Production costs and cycle times continue to be elevated due to the continuing labor and supply chain issues that first presented themselves in 2020;

however, in the first quarter of 2023 our construction cycle was approximately a week shorter than the same period last year.

We continue to carefully navigate this volatile and constrained operating environment by rebidding all costs with our vendors, expanding our vendor base and strengthening existing critical relationships.

We expect that over time, with lower, normalized volume in the homebuilding market, costs will begin to decline and cycle times will continue to shorten.

The second quarter of 2023 continued to see increased new home demand similar with the first quarter of this year as compared to the latter half of 2022.

Homebuyers have begun to acclimate to higher interest rates and their previous hesitancy to purchase a home during uncertain economic conditions has adjusted accordingly.

Despite the normalization of higher interest rates, homebuyers are still looking for assistance with monthly mortgage affordability, primarily in the form of interest rate locks or buy-downs.

While there is a continuing lack of visibility in the economy, demand has been healthy in 2023.

We expect the housing undersupply in the resale market and favorable demographics to provide a strong long-term runway for future homebuying demand, particularly for affordable, quick move-in homes, and believe that our all-spec strategy with a commitment to finding the market price will allow us to meet the demand and continue to grow our market share.

Production costs continue to be elevated due to persistent inflation but have come down slightly from the second quarter of 2022.

We expect that over the long term, costs will decline and cycle times will continue to shorten and stabilize as the homebuilding market returns to normal levels.

We reduced our construction cycle time by over three weeks for new home starts in the second quarter of 2023 as compared to the first quarter, nearing our historical averages.

Summary Company Results

We achieved our highest first quarter home closing revenue and volume of $1.3 billion on 2,897 homes in the first quarter of 2023, compared to $1.2 billion on 2,858 homes closed for the first quarter of 2022.

The 1.3% increase in home closing revenue year-over-year was driven entirely by the 1.4% higher volume, as average sales price ("ASP") on closings was flat.

First quarter home closing gross margin declined 790 basis points to 22.4%, for home closing gross profit of $282.5 million compared to $377.6 million in the first quarter of 2022.

The margin deterioration is the combined effect of higher direct costs and increased incentives offered in response to the market slowdown that begin in the latter months of 2022.

Commissions and other sales costs of $82.8 million increased $17.3 million due to higher spend on commissions and advertising costs.

General and administrative expenses of $47.5 million in the three months ended March 31, 2023 increased due to severance-related costs and higher spend on technology and insurance, compared to $40.0 million in the prior year quarter.

Earnings before income taxes for the first quarter of 2023 of $165.3 million decreased $120.6 million year over year from $285.9 million in 2022.

We achieved record second quarter home closing revenue and units volume of $1.5 billion on 3,490 homes, up from $1.4 billion on 3,221 homes closed in the second quarter of 2022.

The 9.5% increase in home closing revenue year-over-year was driven primarily by the 8.4% higher volume and aided by a 1.1% increase in average sales price ("ASP") on closings.

ASP on closings improved despite increased incentives due to a favorable mix of closings in higher-priced markets.

Second quarter home closing gross margin declined to 24.4% for home closing gross profit of $377.0 million compared to 31.6% and $444.7 million, respectively, in the second quarter of 2022.

The margin deterioration is due primarily to the increased incentives offered in response to the market slowdown that began in 2022.

Financial services loss of $2.6 million in the second quarter of 2023, as compared to profit of $4.1 million in 2022, reflects $7.9 million of charges taken for unused prepaid interest rate locks that expired during the period.

Commissions and other sales costs of $95.8 million in the three months ended June 30, 2023 increased $26.4 million due to higher home closing revenue and higher broker commission rates paid in response to current market conditions.

General and administrative expenses of $52.1 million in the three months ended June 30, 2023 were 3.4% of home closing revenue, consistent with the same period in 2022.

Other income, net of $12.9 million increased from a net expense of $0.5 million in the prior year primarily due to the higher interest rate earned on a larger cash balance.

Earnings before income taxes for the second quarter of 2023 of $239.5 million decreased $92.2 million year over year from $331.7 million in 2022.

The lower effective income tax rate of 22.0% compared to 24.6% in 2022 reflects the benefit from earned eligible energy tax credits on qualifying homes under the Inflation Reduction Act ("IRA") enacted in August 2022.

The decrease in year-over-year profitability partially offset by a lower tax rate, resulted in net earnings of $131.3 million in the first quarter of 2023 versus $217.3 million in the first quarter of 2022.

Home orders of 3,487 for the quarter ended March 31, 2023 were 10.0% lower than the first quarter of 2022, which was our highest quarterly orders volume in Company history.

Order volume declined despite a 4.2% increase in average active communities due to relatively softer demand, resulting in a 14.3% decline in orders pace to 4.2 per month compared to 4.9 per month in 2022.

We exceeded our orders pace target of 3 - 4 homes per month in the first quarter of 2023 due to the availability of move-in ready homes and a combination of price cuts, mortgage interest rate locks and buy downs, and other incentives tailored to the customer expectations in each of our markets.

Our cancellation rate declined to 15% sequentially in the first quarter of 2023 from 39% in the fourth quarter of 2022, returning to a normalized rate.

Home order value decreased 14.8% year-over-year, to $1.5 billion during the three months ended March 31, 2023, versus $1.8 billion in the same period of 2022, due to the lower volume as well as a 5.3% decrease in ASP on orders.

The lower ASP on orders was due to offering increased incentives to alleviate homebuyer concerns of affordability.

We ended the first quarter of 2023 with 3,922 homes in backlog valued at $1.8 billion, a decrease in units and value of 41.4% and 42.0%, respectively, from March 31, 2022.

The decrease in backlog units is due to an 86.9% backlog conversion rate combined with lower order volume in the first quarter of 2023.

We ended the first quarter of 2023 with 278 active communities, up from 268 at March 31, 2022 and up sequentially from 271 at December 31, 2022.

We purchased approximately 2,100 lots for $89.1 million, spent $221.0 million on land development and started construction on 2,462 homes during the three months ended March 31, 2023.

In recognition of our ongoing efforts to improve the energy efficiency of our homes, we were awarded the 2023 ENERGY STAR® Partner of the Year for Sustained Excellence by the Environmental Protection Agency during the first quarter of 2023, making us a ten-time recipient of this award since 2013.

The decrease in year-over-year profitability partially offset by a lower tax rate, resulted in net earnings of $186.8 million in the second quarter of 2023 versus $250.1 million in the second quarter of 2022.

Similar to the second quarter, 5.1% higher home closing volume led to a 5.7% improvement in home closing revenue for the six months ended June 20, 2023 versus 2022.

Home closing gross margin of 23.5% declined 750 basis points year over year, for a $162.9 million decrease in home closing gross profit.

Lower gross margin, profitability and a lower effective tax rate of 21.4% led to net income of $318.1 million for the six months ended June 30, 2023, compared to $467.3 million for the 2022 period.

Home orders of 3,340 for the quarter ended June 30, 2023 were 11.3% lower than the second quarter of 2022 on a relatively flat average active community count, reflecting an 11.4% decrease in orders pace to 3.9 per month compared to 4.4 in 2022.

The lower orders pace in the second quarter of 2023 was primarily from the timing of community openings and closings with a disproportionate share of closings in the first month of the quarter and openings in the last month of the quarter.

Home order value decreased 18.5% year-over-year, to $1.5 billion during the three months ended June 30, 2023, versus $1.8 billion in the same period of 2022, due to the lower volume as well as an 8.1% decrease in ASP on orders.

The lower ASP on orders year over year is due to increased incentives to assist homebuyer affordability, primarily related to interest rates.

Our cancellation rate returned to a more normalized 12% in the second quarter of 2023, down sequentially from 15% in the first quarter of 2023 and 13% in the second quarter of 2022.

Similar to the second quarter, for the six months ended June 30, 2023, home orders and home order value decreased 10.7% and 16.7%, respectively, over the prior year, with a cancellation rate of 13% compared to 11% for the prior year period.

We ended the second quarter of 2023 with 3,772 homes in backlog valued at $1.7 billion, decreases of 47.9% and 50.9%,

respectively, from June 30, 2022.

The decrease in backlog units is due to an 89.0% backlog conversion rate during the second quarter of 2023 combined with lower order volume.

We ended the second quarter of 2023 with 291 active communities, down from 303 at June 30, 2023 although up sequentially from 278 at March 31, 2023.

We purchased approximately 5,700 lots for $241.6 million, spent $477.0 million on land development and started construction on 6,558 homes during the six months ended June 30, 2023.

Company Positioning

We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our commitment to an all-spec strategy for our entry-level homes, our simplified first move-up design studio process, and industry-leading innovation in energy-efficient product offerings and automation, create a differentiated strategy that has aided us in our growth in the highly competitive new home market.

We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our commitment to being primarily an all-spec builder, and industry-leading innovation in energy-efficient product offerings and automation, create a differentiated strategy that has aided us in our growth in the highly competitive new home market.

Our focus on growing our community count and market share includes the following strategic initiatives:

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• Increasing homeowner satisfaction by offering healthier, energy-efficient homes that come equipped with a suite of home automation standard features.

Our efforts were recognized in the second quarter of 2023 with the 2023 ENERGY STAR ® Residential New Construction Market Leader Award from the Environmental Protection Agency.

In addition to these strategic initiatives, we also remain committed to the following:

• Carefully managing our liquidity and a strong balance sheet;

we ended the first quarter with a 22.1% debt-to-capital ratio and a 4.5% net debt-to-capital ratio;

we ended the second quarter with a 21.4% debt-to-capital ratio and a (0.2)% net debt-to-capital ratio;

• Maximizing returns to our shareholders through improved financial performance, dividend payments and share repurchases;

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The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgments include valuation of real estate and cost of home closings, warranty reserves and valuation of deferred tax assets.

There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2023 compared to those disclosed in Item 7.

There have been no significant changes to our critical accounting estimates during the six months ended June 30, 2023 compared to those disclosed in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2022 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

Home Closing Revenue Three Months Ended June 30, Quarter over Quarter

2023 2022 Change $ Change %

Home Closing Revenue

Dollars $ 1,543,021 $ 1,408,947 $ 134,074 9.5 %

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Average sales price $ 520.8 $ 525.5 $ (4.7) (0.9) %

Dollars $ 178,035 $ 187,410 $ (9,375) (5.0) %

Homes closed 270 275 (5) (1.8) %

Average sales price $ 659.4 $ 681.5 $ (22.1) (3.2) %

Dollars $ 95,702 $ 77,919 $ 17,783 22.8 %

Homes closed 160 131 29 22.1 %

Average sales price $ 598.1 $ 594.8 $ 3.3 0.6 %

West Region Totals

Dollars $ 417,322 $ 463,424 $ (46,102) (9.9) %

Homes closed 785 864 (79) (9.1) %

Average sales price $ 531.6 $ 536.4 $ (4.8) (0.9) %

Central Region - Texas

Central Region Totals

Dollars $ 424,880 $ 347,828 $ 77,052 22.2 %

Homes closed 1,048 873 175 20.0 %

Average sales price $ 405.4 $ 398.4 $ 7.0 1.8 %

Central Region

Dollars $ 456,801 $ 422,327 $ 34,474 8.2 %

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Average sales price $ 405.3 $ 401.1 $ 4.2 1.0 %

North Carolina

Six Months Ended June 30, Quarter over Quarter

2023 2022 Change $ Change %

Dollars $ 2,804,944 $ 2,654,403 $ 150,541 5.7 %

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Average sales price $ 439.2 $ 436.7 $ 2.5 0.6 %

South Carolina

Dollars $ 936,539 $ 949,502 $ (12,963) (1.4) %

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Average sales price $ 525.6 $ 530.7 $ (5.1) (1.0) %

Central Region

Dollars $ 881,681 $ 770,155 $ 111,526 14.5 %

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Average sales price $ 411.6 $ 400.9 $ 10.7 2.7 %

East Region Totals

Dollars $ 986,724 $ 934,746 $ 51,978 5.6 %

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Average sales price $ 400.6 $ 394.6 $ 6.0 1.5 %

Three Months Ended March 31, Quarter over Quarter

Home Orders (1) Three Months Ended June 30, Quarter over Quarter

2023 2022 Change $ Change %

Home Orders (1)

Dollars $ 1,474,713 $ 1,809,870 $ (335,157) (18.5) %

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Average sales price $ 520.5 $ 588.1 $ (67.6) (11.5) %

Dollars $ 272,674 $ 247,343 $ 25,331 10.2 %

Homes ordered 420 346 74 21.4 %

Average sales price $ 649.2 $ 714.9 $ (65.7) (9.2) %

Dollars $ 95,024 $ 125,999 $ (30,975) (24.6) %

Homes ordered 162 209 (47) (22.5) %

Average sales price $ 586.6 $ 602.9 $ (16.3) (2.7) %

West Region Totals

Dollars $ 635,936 $ 613,349 $ 22,587 3.7 %

Homes ordered 1,286 1,105 181 16.4 %

Average sales price $ 494.5 $ 555.1 $ (60.6) (10.9) %

Central Region - Texas

Central Region Totals

Dollars $ 420,521 $ 548,567 $ (128,046) (23.3) %

Homes ordered 1,073 1,296 (223) (17.2) %

Average sales price $ 391.9 $ 423.3 $ (31.4) (7.4) %

Central Region

Dollars $ 440,377 $ 491,394 $ (51,017) (10.4) %

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Average sales price $ 403.9 $ 430.0 $ (26.1) (6.1) %

North Carolina

Six Months Ended June 30, Quarter over Quarter

2023 2022 Change $ Change %

Dollars $ 2,981,606 $ 3,577,580 $ (595,974) (16.7) %

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Average sales price $ 436.7 $ 468.2 $ (31.5) (6.7) %

South Carolina

Dollars $ 1,151,261 $ 1,245,576 $ (94,315) (7.6) %

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Average sales price $ 505.8 $ 571.4 $ (65.6) (11.5) %

Central Region

Dollars $ 860,898 $ 1,039,961 $ (179,063) (17.2) %

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Average sales price $ 402.7 $ 434.8 $ (32.1) (7.4) %

East Region Totals

Dollars $ 969,447 $ 1,292,043 $ (322,596) (25.0) %

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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,

Ending Average Ending Average

Active Communities

Total 278 274.5 268 263.5

Arizona 45 45.5 40 39.5

California 34 32.5 23 22.5

Colorado 17 17.0 18 17.5

West Region Totals 96 95.0 81 79.5

Central Region - Texas

Central Region Totals 82 81.5 75 74.0

Florida 32 30.5 41 41.0

Georgia 20 19.5 15 15.0

North Carolina 30 29.5 29 27.5

South Carolina 9 9.5 13 13.5

Tennessee 9 9.0 14 13.0

East Region Totals 100 98.0 112 110.0

Three Months Ended March 31,

Cancellation Rates (1)

Total 15 % 10 %

Arizona 13 % 12 %

California 13 % 12 %

Colorado 16 % 9 %

West Region Totals 13 % 12 %

Central Region - Texas

Central Region Totals 17 % 11 %

Florida 17 % 4 %

Georgia 18 % 12 %

North Carolina 16 % 7 %

South Carolina 11 % 11 %

Tennessee 7 % 4 %

East Region Totals 15 % 7 %

(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

2023 2022 Change $ Change %

Order Backlog (1)

Dollars $ 1,763,832 $ 3,038,927 $ (1,275,095) (42.0) %

Homes in backlog 3,922 6,695 (2,773) (41.4) %

Average sales price $ 449.7 $ 453.9 $ (4.2) (0.9) %

Dollars $ 328,996 $ 535,586 $ (206,590) (38.6) %

Homes in backlog 834 1,237 (403) (32.6) %

Average sales price $ 394.5 $ 433.0 $ (38.5) (8.9) %

Dollars $ 272,550 $ 331,321 $ (58,771) (17.7) %

Homes in backlog 412 464 (52) (11.2) %

Average sales price $ 661.5 $ 714.1 $ (52.6) (7.4) %

Dollars $ 74,589 $ 246,932 $ (172,343) (69.8) %

Homes in backlog 127 406 (279) (68.7) %

Average sales price $ 587.3 $ 608.2 $ (20.9) (3.4) %

West Region Totals

Dollars $ 676,135 $ 1,113,839 $ (437,704) (39.3) %

Homes in backlog 1,373 2,107 (734) (34.8) %

Average sales price $ 492.5 $ 528.6 $ (36.1) (6.8) %

Central Region - Texas

Central Region Totals

Dollars $ 419,822 $ 973,828 $ (554,006) (56.9) %

Homes in backlog 988 2,301 (1,313) (57.1) %

Average sales price $ 424.9 $ 423.2 $ 1.7 0.4 %

Dollars $ 356,130 $ 411,478 $ (55,348) (13.5) %

Homes in backlog 781 1,002 (221) (22.1) %

Average sales price $ 456.0 $ 410.7 $ 45.3 11.0 %

Dollars $ 107,070 $ 136,266 $ (29,196) (21.4) %

Homes in backlog 255 296 (41) (13.9) %

Average sales price $ 419.9 $ 460.4 $ (40.5) (8.8) %

North Carolina

At June 30, Quarter over Quarter

2023 2022 Change $ Change %

Dollars $ 1,687,536 $ 3,438,853 $ (1,751,317) (50.9) %

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Average sales price $ 447.4 $ 474.9 $ (27.5) (5.8) %

South Carolina

Dollars $ 669,636 $ 1,259,771 $ (590,135) (46.8) %

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Average sales price $ 490.2 $ 558.2 $ (68.0) (12.2) %

Central Region

Dollars $ 401,601 $ 1,042,689 $ (641,088) (61.5) %

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Average sales price $ 418.8 $ 443.9 $ (25.1) (5.7) %

East Region Totals

Dollars $ 616,299 $ 1,136,393 $ (520,094) (45.8) %

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(1) Our backlog represents net home orders that have not closed.

Active Communities and Cancellation Rates

Active Communities Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Ending Average Ending Average Ending Average Ending Average

Total 291 284.5 303 285.5 291 280.1 303 276.9

West Region 98 97.0 107 94.0 98 96.0 107 88.7

Central Region 82 82.0 80 77.5 82 81.7 80 76.1

East Region 111 105.5 116 114.0 111 102.4 116 112.1

Cancellation Rates (2)

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

2023 2022 2023 2022

Total 12 % 13 % 13 % 11 %

West Region 15 % 17 % 14 % 14 %

Central Region 11 % 17 % 14 % 14 %

East Region 9 % 7 % 12 % 7 %

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

Operating Results

Companywide .

In the first quarter of 2023, we achieved our highest first quarter home closing revenue and volume in Company history of 2,897 closings valued at $1.3 billion, compared to 2,858 closings valued at $1.2 billion in the prior year.

Despite entering the 2023 first quarter with lower backlog than the prior period, home closing volume increased 1.4% over the first quarter of 2022 as we successfully sold and closed a high volume of homes in the same quarter, reflecting our availability of move-in ready inventory.

The increase in volume translated to a 1.3% improvement in home closing revenue, as ASP on closings was flat year-over-year.

Despite a 4.2% increase in average active communities, home order volume declined by 10.0% to 3,487 homes as compared to 3,874 homes in the first quarter of 2022.

Home order value of $1.5 billion declined 14.8% from the first quarter of 2022, due to the decrease in order volume and a 5.3% lower ASP on orders.

The first quarter 2023 orders pace of 4.2 per month exceeded our target orders pace of 3 - 4 homes per month, although down from 4.9 per month in the same period of 2022.

Sequentially from the fourth quarter of 2022, orders pace increased notably in every market and returned to historical levels as homebuyers acclimated to the higher interest rates and we adjusted pricing and offered different types of incentives to find the market clearing price.

Community count increased 3.7% year-over-year, ending the first quarter with 278 actively selling communities at March 31, 2023, up from 268 at March 31, 2022 and also up sequentially from 271 at December 31, 2022.

We plan to return to a community count of 300 by the end of 2023.

The quarter ended with 3,922 homes in backlog valued at $1.8 billion, compared to 6,695 units valued at $3.0 billion at March 31, 2022, due to the lower order volume and a high backlog conversion rate during the first quarter of 2023.

The West Region generated $417.3 million in home closing revenue on 785 homes in the first quarter of 2023, down from $463.4 million and 864 homes in the prior year period.

The 9.1% decrease in volume was the mixed result of declines in Arizona and California, while Colorado grew closing volume.

Colorado was the most impacted by the elevated cancellations in the last half of 2022, but experienced some stabilization in the first quarter of 2023.

Home closing revenue decreased 9.9% due to the lower volume and a 0.9% decrease in ASP on closings.

The West Region had the largest decline in ASP on closings in the Company, as it experienced some of the most significant price increases over the past few years and accordingly has required the steepest sales price adjustments to find the market.

Home orders in the first quarter 2023 of 1,286 increased 16.4% over the prior year, driven entirely by the 19.5% increase in average active communities.

The cancellation rate of 13% in the West Region is a return to historical normal levels, although Colorado continues to be slightly elevated.

ASP on orders declined 10.9% as the West Region adjusted pricing to meet market demand.

The increased volume and lower ASPs resulted in a 3.7% increase in home order value to $635.9 million in the first quarter of 2023, up from $613.3 million in the prior year.

The West Region ended the first quarter of 2023 with 1,373 homes in backlog valued at $676.1 million, down from 2,107 units valued at $1.1 billion at March 31, 2022, due to a lower order volume and a 90.0% backlog conversion rate.

The Central Region, made up of our Texas markets, was the only region to grow both home closing revenue and volume in the first quarter of 2023.

With a 20.0% increase in volume to 1,048 homes, and a 1.8% increase in ASP on closings, home closing revenue grew 22.2% to $424.9 million, up from $347.8 million in 2022.

Despite a 10.1% increase in average active communities, home order volume decreased 17.2% to 1,073 homes in the first quarter of 2023.

The decline is partially due to the Region's slightly elevated cancellation rate of 17%, although sequentially it is down significantly from the fourth quarter 2022 rate of 43%.

The lower demand caused a 24.1% decrease in orders pace to 4.4 homes per month, which is still well above our target pace of 3 to 4 homes.

The lower order volume combined with a 7.4% decrease in ASP on orders drove a decrease in order value of 23.3%, to $420.5 million in the first quarter of 2023, from $548.6 million in the prior year quarter.

The Central Region ended the quarter with 988 units in backlog valued at $419.8 million, down 57.1% and 56.9%, respectively, compared to March 31, 2022.

During the three months ended March 31, 2023, the East Region closed 1,064 homes for $419.7 million, compared to 1,121 closings and $434.2 million in home closing revenue in the comparable prior year period.

The 5.1% decrease in volume was partially offset by a 1.9% increase in ASP on closings, resulting in a 3.3% decrease in home closing revenue.

With 10.9% fewer average active communities and a 15.6% decline in orders pace to 3.8 per month, home orders fell 23.4% to 1,128 in the first quarter of 2023 from 1,473 in the prior year.

The cancellation rate increased to 15% in the first quarter of 2023 from 7% in the first quarter of 2022, but is down significantly sequentially from 31% in the fourth quarter of 2022.

We had our highest second quarter home closing revenue and volume in Company history, improving 9.5% and 8.4%, respectively, over prior year, with 3,490 closings valued at $1.5 billion for the three months ended June 30, 2023, compared to 3,221 closings valued at $1.4 billion in 2022.

Despite entering the 2023 second quarter with lower backlog than prior year, home closing volume increased 8.4% over the second quarter of 2022 due to a backlog conversion rate of 89.0%, as compared to 48.1% in the prior second quarter period.

Home order volume declined by 11.3% to 3,340 homes as compared to 3,767 homes in the second quarter of 2022, primarily due to an 11.4% decline in orders pace of 3.9 per month, down from 4.4 per month in the same period of 2022.

Home order value of $1.5 billion declined 18.5% from the second quarter of 2022 due to the decrease in order volume combined with an 8.1% lower ASP on orders as we increased incentives to meet the market's need for affordability impacted by successive interest rate hikes.

Order cancellations of 12% for the second quarter of 2023 improved slightly from 13% in the second quarter of 2022 and are in line with historical averages for the Company.

For the six months ended June 30, 2023, home closing volume increased 5.1% to 6,387 closings, which combined with a 0.6% year-over-year increase in ASP on closings led to home closing revenue of $2.8 billion, up 5.7% from $2.7 billion in the prior year period.

Similar to the second quarter, home order volume of 6,827 was down 10.7% from prior year due to a 10.9% decrease in orders pace that was partially offset by a 1.2% increase in average active communities.

As demand returns to normalized levels, our 2023 year-to-date orders pace of 4.1 homes per month was down from the elevated pace of 4.6 in 2022 but still exceeded our target of 4 homes per month.

The lower order volume and a 6.7% decrease in ASP on orders led to 16.7% decrease in order value of $3.0 billion.

We ended the second quarter of 2023 with 291 actively selling communities, down from 303 June 30, 2022 but up sequentially from 278 at March 31, 2023.

The quarter ended with 3,772 homes in backlog valued at $1.7 billion, compared to 7,241 units valued at $3.4 billion at June 30, 2022, due to entering the quarter with fewer homes in backlog, higher home closing volume, higher backlog conversion rate and lower orders.

The West Region generated $519.2 million in home closing revenue on 997 homes in the second quarter of 2023, up from $486.1 million on 925 homes in the prior year period.

The 7.8% increase in volume resulted in a 6.8% increase in home closing revenue, as ASP on closings decreased 0.9% due to higher incentives.

Home orders in the second quarter of 2023 of 990 were down 7.9% from 1,075 in the prior year, despite a 3.2% increase in average active communities due to a 10.5% decrease in orders pace to 3.4 homes per month from 3.8 per month in 2022.

Home order value of $515.3 million for the second quarter of 2023 decreased 18.5% from prior year, due to the decrease in order volume coupled with lower ASP.

The West Region had some of the most significant price increases over the past few years and accordingly has required the steepest sales price adjustments to find the market clearing price.

In response, we have increased incentives in the Region, resulting in an 11.5% decrease in ASP on orders.

The West Region cancellation rate of 15% in the second quarter of 2023 improved from 17% in the prior year.

For the six months ended June 30, 2023, home closing revenue of $936.5 million decreased 1.4% due to slight declines in both home closing volume and ASP on closings.

Home closing volume gains in both California and Colorado were offset by a decrease in Arizona, and all markets experienced a decrease in ASP on closings.

Order volume in the West Region increased 4.4% year-to-date due entirely to an 8.2% increase in the average number of actively selling communities, as year-to-date orders pace decreased 2.4% to 4.0 homes per month.

ASP on orders decreased 11.5%, and home order value of $1.2 billion was down 7.6% from the combined effect of higher volume and lower ASPs.

The year-to-date cancellation rate of 14% is consistent with the prior year period.

The West Region ended the second quarter of 2023 with 1,366 homes in backlog valued at $669.6 million, compared to 2,257 units valued at $1.3 billion at June 30, 2022, decreases of 39.5% and 46.8%, respectively.

The Central Region closed 1,094 homes in the three months ended June 30, 2023, up 4.4% from 1,048 in 2022.

Home closing revenue of $456.8 million increased 8.2%, driven by the increased volume and a 3.6% increase in ASP on closings from geographic mix.

Home order volume decreased 2.8% to 1,065 homes in the second quarter of 2023, despite a 5.8% increase in average active communities, due to an 8.5% decrease in orders pace to 4.3 homes per month.

Demand remains high in the Central Region, although is returning closer to normalized levels in 2023 from the elevated pace of 4.7 per month in the second quarter of 2022.

The lower order volume combined with a 7.8% decrease in ASP on orders drove a decrease in order value of 10.4%, to $440.4 million in the second quarter of 2023, from $491.4 million in the prior year quarter.

The Central Region had significant improvement in its cancellation rate of 11% in the second quarter of 2023, down year over year and sequentially from 17% in both the second quarter of 2022 and the first quarter of 2023.

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

For the six months ended June 30, 2023, home closing revenue of $881.7 million on 2,142 home closings increased and 14.5% and 11.5%, respectively.

Orders and ASP on orders both declined year-over-year, down 10.6% and 7.4%, respectively, resulting in a 17.2% decrease in order value of $860.9 million on 2,138 homes.

Order volume was lower due to a 15.4% decrease in orders pace, as the Region increased their average active community count by 7.4%.

While orders pace decreased compared to prior year, the Central Region orders pace exceeded our target of 4 homes per month at 4.4, down from an elevated 5.2 in 2022.

The year-to-date

cancellation rate of 14% is consistent with prior year.

The Central Region ended the quarter with 959 units in backlog valued at $401.6 million, down 59.2% and 61.5%, respectively, compared to June 30, 202.

During the three months ended June 30, 2023, the East Region closed 1,399 homes for $567.0 million, compared to 1,248 closings and $500.5 million in home closing revenue in the comparable prior year period.

The 12.1% increase in volume due to improved backlog conversion and closings from our new markets in 2023, coupled with a 1.0% increase in ASP on closings resulted in 13.3% higher home closing revenue.

With 7.5% fewer average active communities and a 12.8% decline in orders pace, home orders fell 19.5% to 1,285 in the second quarter of 2023 from 1,596 in the prior year.

Similar the Central Region, the East Region orders pace of 4.1 homes per month in the second quarter of 2023 exceeded our target pace of 4 per month and is returning closer to normalized levels in 2023 from the elevated orders pace of 4.7 per month in 2022.

The cancellation rate increased to 9% in the second quarter of 2023 from 7% in the second quarter of 2022, although sequentially is down significantly from 15% in the first quarter of 2023.

Home order value of $519.0 million decreased 24.4% from $686.2 million in the prior year period due to the decreased volume and a 6.1% reduction in ASPs.

The East Region ended the quarter with 31.7% fewer units in backlog of 1,561 homes in backlog valued at $667.9 million compared to 2,287 homes valued at $951.3 million at March 31, 2022 due to the lower home order volume and a backlog conversion rate of 71.1% during the first quarter of 2023 as the result of a high number of spec homes being sold and closed in the first quarter of 2023.

The year-to-date results of the East Region were similar to those of the second quarter, with 4.0% and 5.6% improvements in home closing volume and revenue, respectively, compared to the 2022 period, closing 2,463 homes for $986.7 million in home closing revenue for the six months ended June 30, 2023.

Orders volume decreased 21.4% due to the combined impact of an 8.7% decrease in average active communities and a 15.2% decrease in orders pace for the six months ended June 30, 2023.

Order value of $969.4 million decreased 25.0% year over year due to decreased volume and a 4.6% decrease in ASP on orders.

Year-to-date, the East Region's cancellation rate of 12% is up from 7% in the prior year, although still in line with historically normal rates.

The East Region ended the second quarter of 2023 with 1,447 homes in backlog valued at $616.3 million, down 45.1% and 45.8%, respectively, from 2,635 homes valued at $1.1 billion at June 30, 2022.

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 or divest of assets that no longer align with our strategy.

As a result of such sales, we recognized land closing revenue of $17.4 million and $41.5 million for the three months ending March 31, 2023 and 2022, respectively, and profit of $1.4 million and $10.8 million for the three months ending March 31, 2023 and 2022, respectively.

As a result of such sales, we recognized land closing revenue of $24.4 million and $3.4 million for the three months ending June 30, 2023 and 2022, respectively, and profit of $0.2 million and $0.7 million for the three months ending June 30, 2023 and 2022, respectively.

Year-to-date land sales resulted in profits of $1.6 million and $11.4 million for 2023 and 2022, respectively.

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,

2023 2022 2023 2022

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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Companywide .

Gross profit for the first quarter of 2023 was $282.5 million, with a margin of 22.4%.

This is a 790 basis point decline compared to 30.3% in the first quarter of 2022 resulting from the combined impact of increased sales incentives and continued elevated direct costs, including interest rate locks and buy-downs.

Gross profit for the second quarter of 2023 was $377.0 million, with a margin of 24.4%, declined 720 basis points from 31.6% in the second quarter of 2022 resulting from increased sales incentives, primarily interest rate locks and buy-downs, coupled with continued elevated labor, direct and lot costs.

Our use of mortgage rate locks and buy-downs did not begin to impact our home closing gross margins until the back half of 2022.

The West Region delivered home closing gross margin of 17.8% for the first quarter of 2023 versus 31.0% in the first quarter of 2022.

As previously discussed, the West Region experienced steep price appreciation over the past few years, causing significant levels of homebuyer hesitancy when interest rates rose.

To find the market clearing price, the West Region offered significant price cuts and incentives.

These aggressive sales incentives combined with a shift in product mix and the continued elevated direct costs led to the West Region's decline in home closing gross margin year-over-year.

In the first quarter of 2023, the Central Region's home closing gross margin of 24.9% declined 510 basis points from 30.0% in the prior year quarter.

The Central Region's gross margin was negatively impacted by sales incentives that largely began in the second half of 2022, combined with persistent elevated direct costs.

The East Region home closing gross margin of 24.5% in the first quarter of 2023 declined 530 basis points from 29.8% for the comparable 2022 period.

Similar to the other Regions, the home closing gross margin deterioration is due to the increased sales incentives and continued elevated direct costs that have impacted the homebuilding industry nationwide.

Financial Services Profit (in thousands)

Three Months Ended March 31,

Financial services profit $ 2,923 $ 3,334

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 Agency, Inc.

Sequentially, our gross margin improved 200

basis points from the first quarter of 2023, benefiting from our ability to start scaling back on incentives.

Similar to the second quarter, gross profit of $659.4 million and margin of 23.5% for the six months ended June 30, 2023, decreased from $822.4 million and 31.0% in 2022 due to higher production costs and increased sales incentives offered in response to buyer hesitancy that started in the back half of 2022.

The West Region delivered home closing gross margin of 18.4% for the second quarter of 2023 versus 30.6% in the second quarter of 2022.

The West Region experienced steep price appreciation over the past few years and through mid-2022, causing demand to slow substantially when interest rates rose in the back half of 2022 and buyers had affordability concerns.

To find the market clearing price, the West Region offered significant incentives, which combined with persistently higher direct and land development costs and weaker overhead leverage resulted in home closing gross margin deterioration.

Similar to the second quarter, the West Region home closing gross margin of 18.1% for the six months ended June 30, 2023 declined from 30.8% in the 2022 period.

The Central Region's second quarter 2023 home closing gross margin of 27.7%, was down only 440 basis points from 32.1% in the prior year quarter.

While ASP on closings increased due to geographic mix in Texas, the higher sales incentives, still elevated direct costs and increasing lot costs negatively impacted the Region's gross margin.

Compared to the first quarter of 2023, the Central Region's home closing gross margin improved 280 basis points due to fewer incentives.

Year-to-date, the Central Region gross margin of 26.3% in 2023 is down from 31.2% as a result of elevated sales incentives.

The East Region home closing gross margin of 27.3% in the second quarter of 2023 declined 470 basis points from 32.0% for the comparable 2022 period.

Similar to the other Regions, the home closing gross margin deterioration is due to the increased sales incentives, primarily interest rate locks and buy downs, and continued elevated direct costs that impacted the homebuilding industry nationwide.

Like the Central Region, the East Region also had a 280 basis point improvement in home closing gross margin sequentially from the first quarter of 2023 as we scaled back on incentives, and direct costs declined moderately.

For the six months ended June 30, 2023, the East Region home closing gross margin declined 490 basis points to 26.1%, similar to the second quarter of 2023.

Financial Services (Loss)/Profit (in thousands)

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

2023 2022 2023 2022

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

Financial services (loss)/profit represents the net (loss)/profit of our financial services operations, including the operating profit generated by our wholly-owned title and insurance companies, Carefree Title Agency, Inc.

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

Financial services profit was $2.9 million and $3.3 million for the three months ended March 31, 2023 and 2022, respectively.

Financial services loss of $2.6 million in the three months ended June 30, 2023 includes $7.9 million in charges related to unused prepaid interest rate locks that expired in the second quarter of 2023, resulting in a year-over decrease of $6.6 million, versus profit of $4.1 million in the three months ended June 30 2022.

Similar to the second quarter results, year-to-date financial services profit decreased $7.0 million, primarily due to the write off of unused prepaid interest rate locks.

There were no similar charges in the three and six months ended June 30, 2022.

Excluding the write off of unused prepaid interest rate locks for the three and six months ended June 30, 2023, financial services profit increased over prior year due to higher home closing volume and geographical mix.

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,

2023 2022 2023 2022

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

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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 increased $17.3 million to $82.8 million in the three months ended March 31, 2023, primarily resulting from higher commissions as well as increased advertising activities, reflecting the current market dynamics.

Commissions and other sales costs were 6.6% of home closing revenue in the first quarter of 2023, up 130 basis points from 5.3% as home closing revenue was relatively flat year-over-year.

These costs increased $26.4 million to $95.8 million in the three months ended June 30, 2023, due to higher home closing revenue and increased

commissions and advertising activities.

Commissions and other sales costs were 6.2% of home closing revenue in the second quarter of 2023, up 130 basis points from 4.9% due to higher external commission rates and increased advertising to spur traffic in our communities.

Similar to the second quarter, commissions and other sales costs of $178.6 million were 6.4% of home closing revenue, increasing $43.7 million and 130 basis points, respectively, due to higher home closing revenue and elevated commissions and advertising spend.

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, 2023, general and administrative expenses were $47.5 million, $7.5 million higher than the 2022 period, due primarily to severance-related expenses and increased spending on technology and insurance.

As a percentage of home closing revenue, general and administrative expenses increased 60 basis points to 3.8% in the first quarter of 2023.

For the three months ended June 30, 2023, general and administrative expenses were $52.1 million, increasing proportionally with home closing revenue, and were 3.4% of home closing revenue in both the second quarter of 2023 and 2022.

For the six months ended June 30, 2023, general and administrative expenses were $99.7 million, up $11.7 million and 30 basis points from $87.9 million in the 2022 period, due primarily to severance-related expenses and increased spending on technology and insurance incurred in the first quarter of the year, as well as incremental expenses in newer markets as operations ramp up.

Interest Expense.

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

We recognized no interest expense for the three months ended March 31, 2023 as all interest was capitalized.

Interest expense was $41,000 for the same period in 2022.

We recognized no interest expense for the three and months ended June 30, 2023 because all interest was capitalized to qualifying assets.

We recognized no interest expense in the three months ended June 30, 2022, and interest expense of $41,000 for the six months ended June 30, 2022.

Other Income/(Expense), 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.

Other income, net of $8.8 million for the three ended March 31, 2023 increased from an expense of $0.3 million in the prior year, primarily due to a higher interest rate on a higher cash balance.

For the three and six months ended June 30, 2023, Other income was $12.9 million and $21.7 million, respectively, compared to net expense of $0.5 million and $0.8 million in the 2022 comparable periods.

The increase in both quarter and year-to-date is due to higher interest earned on larger cash and cash equivalents balances.

Income Taxes.

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

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

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

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

The lower tax rate for the three and six months ended June 30, 2023 reflects energy-efficient homes tax credits on qualifying homes under the Internal Revenue Code ("IRC") §45L energy-efficient homes federal tax credit from the IRA that was enacted in August 2022.

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

Liquidity and Capital Resources

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In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred.

Similarly, in times of community count growth, we incur significant outlays of cash

through the land purchase, development and community opening stages whereas in in times of community count stability, these cash outlays are incurred in a more even-flow cadence with cash inflows from actively selling communities that are contributing closing volume and home closing revenue.

Similarly, in times of community count growth, we incur significant outlays of cash through the land purchase, development and community opening stages whereas in in times of community count stability, these cash outlays are incurred in a more even-flow cadence with cash inflows from actively selling communities that are contributing closing volume and home closing revenue.

Conversely, in a down turn environment, cash outlays for land and community count growth may be scaled back.

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Over the course of the next twelve months, we expect that our primary demand for funds will be for the construction of homes, as well as acquisition and development of both new and existing lots, operating expenses, including general and administrative expenses, interest and dividend payments and common stock repurchases.

In addition, we may opportunistically

retire or redeem a portion of our senior notes.

We expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents on hand and the net cash flows provided by our operations.

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These obligations impact both short-term and long-term liquidity and capital resource needs.

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of March 31, 2023, while others are considered future commitments for materials or services not yet provided.

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of June 30, 2023, while others are considered future commitments for materials or services not yet provided.

Our contractual obligations primarily consist of principal and interest payments on our senior notes, loans payable and other borrowings, including our Credit Facility, letters of credit and surety bonds and operating leases.

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These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items.

In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated, if any.

We do not engage in commodity trading or other similar activities.

We had no derivative financial instruments at March 31, 2023 or December 31, 2022.

We had no derivative financial instruments at June 30, 2023 or December 31, 2022.

Operating Cash Flow Activities

During the three months ended March 31, 2023 and 2022, net cash provided by operating activities totaled $124.5 million and $12.2 million, respectively.

Operating cash flows in the first quarter of 2023 benefited from cash generated by net earnings of $131.3 million.

Operating cash flows in the first quarter of 2022 benefited from cash generated by net earnings of $217.3 million and an increase in accounts payable and accrued liabilities of $115.9 million due to timing of payments for routine transactions, offset by a $283.9 million increase in real estate assets and a $52.1 million increase in other receivables, prepaids and other assets due to the purchase of fixed rate interest locks for eligible buyers in our backlog.

During the six months ended June 30, 2023, net cash provided by operating activities totaled $355.9 million, compared to net cash used in operations of $206.8 million during the six months ended June 30, 2022.

Operating cash flows in the first six months of 2023 benefited from cash generated by net earnings of $318.1 million.

Operating cash flows in the first six months of 2022 benefited from cash generated by net earnings of $467.3 million and an increase in accounts payable and accrued liabilities of $113.4 million due to timing of payments for routine transactions, offset by a $729.5 million increase in real estate assets largely related to the increase in homes under construction and a $90.4 million increase in other receivables, prepaids and other assets.

Investing Cash Flow Activities

During the three months ended March 31, 2023 and 2022, net cash used in investing activities totaled $8.7 million and $6.2 million, respectively.

Cash used in investing activities for both periods is mainly attributable to the purchases of property and equipment.

During the six months ended June 30, 2023 and 2022, net cash used in investing activities totaled $22.1 million and $18.3 million, respectively.

Cash used in investing activities in the first half of 2023 was mainly attributable to the purchases of property and equipment.

Cash used in investing activities in the first half of 2022 was mainly attributable to the purchases of property and equipment of $12.9 million and investments in unconsolidated entities of $5.7 million.

Financing Cash Flow Activities

During the three months ended March 31, 2023 and 2022, net cash used in financing activities totaled $20.1 million and $103.9 million, respectively.

During the six months ended June 30, 2023 and 2022, net cash used in financing activities totaled $32.1 million and $121.1 million, respectively.

The net cash used in financing activities in 2023 includes $19.9 million of dividends paid and $10.0 million in share repurchases.

The net cash used in financing activities in 2022 primarily reflects $109.3 million in share repurchases.

See 'Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds' for more information about our authorized share repurchase program.

See 'Part II, Item 2 - Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities' for more information about our authorized share repurchase 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, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Senior notes, net, loans payable and other borrowings $ 1,155,346 $ 1,150,647

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Net debt-to-capital (2)

(0.2) % 6.8 %

(1) Debt-to-capital is computed as senior notes, net and loans payable and other borrowings divided by the aggregate of total senior notes, net, loans payable and other borrowings and stockholders' equity.

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We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing.

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.

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.

Credit Facility Covenants

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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.

Our actual financial covenant calculations as of March 31, 2023 are reflected in the table below.

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

Our actual financial covenant calculations as of June 30, 2023 are reflected in the table below.

Financial Covenant (dollars in thousands):

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Leverage Ratio < 60% (0.1)%

Interest Coverage Ratio (1)

Minimum Liquidity (1)

> $60,416 $1,687,724

Investments other than defined permitted investments < $1,286,027 $12,451

(1) We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements.

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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.

During 2020, historical cycles were impacted by COVID-19 and since then have been further impacted by increased demand and supply chain and labor constraints.

Historical seasonality returned in 2022 and we expect it to continue over the long term, although it may, from time to time, be affected by short-term volatility in the homebuilding industry and in the overall economy.

Historical cycles were impacted in 2020 by unprecedented demand that continued through the middle of 2022, and were further impacted by supply chain and labor constraints and rising interest rates.

Historical seasonality returned in the back half of 2022 and we expect it to continue over the long term, although it may, from time to time, 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