What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-14 compared with 2023-02-15 · 147 added, 265 removed, 214 unchanged (66% of the section changed)

1 unchanged sentence

Industry Conditions

During the second half of 2020 and throughout all of 2021, the homebuilding industry experienced unprecedented growth.

The expansion continued in the first quarter of 2022, but the market steadily weakened throughout the rest of 2022, as interest rates began rapidly increasing in mid-2022 and significantly cooled demand in the second half of the year.

Affordability constraints combined with the uncertainty of future interest rates, inflation levels and deterioration in the general economy created homebuyer hesitancy, leading to reduced demand and a significant increase in cancellations in the back half of the year and reduced net orders year over year.

Although these economic conditions are applying current downward pressure on the housing market, we believe favorable homebuyer demographics support long-term demand, although at a more normalized pace than what was experienced in the past two years.

We believe our all-spec strategy targeting affordable homes offers our customers readily available inventory which is highly desired in today's market, and when combined with our financing and other incentives, still provides an attractive opportunity for homeownership.

At Meritage, we continue to focus on our entry-level and first move-up homes and streamlined processes and remain focused on our key financial measures of home closing volume, home closing gross margin, selling, general and administrative cost control, balance sheet management and long-term community count growth.

As of December 31, 2022, nearly all of our actively selling communities are targeted to first-time or first move-up buyers and those buyer segments together represented approximately 99% of our orders in 2022.

In both 2021 and 2022, disruptions in the supply chain impacted production costs and cycle times in the homebuilding industry as a whole.

We were successful through the middle of 2022 in offsetting the higher costs with sales price increases due to the elevated buyer demand, although we have experienced elongated cycle times and more recently, have not been able to offset these cost increases as we previously had.

We continue to carefully navigate this 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 shorten.

Since the start of the COVID-19 pandemic and until the aggressive rise of interest rates beginning in mid-2022, the homebuilding industry experienced unprecedented growth.

Since mid-2022, the industry slow down was driven by affordability concerns due to rapidly rising interest rates, combined with uncertainty of future interest rates, inflation levels and deterioration in the general economy, the combination of which created homebuyer hesitancy.

In 2023, homebuyers began to acclimate to the new interest rate environment and consumer confidence improved, which combined with favorable demographic need-based housing and the persistent shortage of existing homes for sale, shifted demand to the new home market.

We believe that favorable homebuyer demographics will support long-term demand and our all-spec strategy will be ready to capture this demand with readily available inventory, which is highly desired.

Combined with financing and other incentives offered in our commitment to affordability, we believe our homes provide an attractive opportunity for homeownership.

At Meritage, we believe that the execution of our strategy will drive strong performance of the key financial measures of home closing volume, home closing gross margin, selling, general and administrative cost control, balance sheet management and long-term community count growth.

Supply chain disruptions that impacted production costs and cycle times in the homebuilding industry as a whole over the last several years began to ease in 2023.

We expect that over time, as industry conditions normalize, costs and cycle times will continue to trend downward.

Summary Company Results

Our results for 2022 reflect the mixed market, which started strong and weakened in the second half due to rapidly rising interest rates, uncertainty about current economic conditions and changes in personal finances.

We ended 2022 with 14,106 closings, our highest closing volume in Company history and a 10.2% increase over 12,801 closings in 2021.

Order volume declined 14.8% to 11,759 orders for the year compared to 13,808 in 2021 due to decreased overall demand and a higher cancellation rate of 21.0% in 2022 compared to 10.2% in 2021.

Higher home closing volumes and lower sales orders year-over-year resulted in 41.3% fewer homes in backlog at December 31, 2022, with 3,332 units valued at $1.5 billion compared to 5,679 units at $2.5 billion at December 31, 2021.

In order to ensure we are entering 2023 with only buyers who are committed to close and can re-deploy available homes back into the market, we proactively and aggressively validated every sale in our backlog during the fourth quarter.

Total home closing revenue increased 21.8% due to higher home closing volume and higher ASPs, growing to our highest annual home closing revenue in Company history of $6.2 billion for the year ended December 31, 2022 from $5.1 billion in 2021.

Home closing gross margin for the year ended December 31, 2022 improved by 80 basis points to 28.6% compared to 27.8% in 2021.

The margin improvement in 2022 resulted from higher ASPs on closings and improved leverage of our land costs which held steady on increased home closing revenue, both of which more than offset rising material and labor costs and higher incentives.

We recognized land closing gross profit of $11.6 million for the year ended December 31, 2022, compared to a loss of $1.1 million for the year ended December 31, 2021.

Commissions and other sales costs of $323.3 million increased 13.3%, or $37.9 million from 2021, due to higher home closing revenues and associated commission expense, and increased advertising and selling costs due to the higher number of average active communities.

As a percentage of revenue, these expenses improved by 40 basis points due to greater leverage of fixed expenses on higher home closing revenue.

General and administrative expenses increased $11.5 million during the year ended December 31, 2022, primarily due to higher employee headcount, but as a percentage of home closing revenue decreased to 3.1% compared to 3.6% in 2021.

During the year ended December 31,2021, we recognized an $18.2 million loss on early extinguishment of debt in connection with the early redemption of our 2022 Senior Notes in April 2021.

There were no such transactions in 2022.

Earnings before income taxes of $1.3 billion in 2022 increased 35.0% from $954.8 million in 2021.

Our effective tax rate in 2022 was 23.0% as compared to 22.8% in 2021, leading to net income of $992.2 million and $737.4 million for the years ended December 31, 2022 and 2021, respectively.

Our results for 2023 reflect recovering buyer confidence throughout the year.

We ended 2023 with 13,976 closings, our second highest closing volume in Company history, down just 0.9% from 14,106 closings in 2022.

Order volume increased 12.2% to 13,193 in 2023, up from 11,759 in 2022 due to an 11.1% year-over-year increase in orders pace to 4.0 per month in 2023 while average active community count remained essentially flat.

Cancellations returned to more normalized levels of 12.8% for the full year 2023, down from 21.0% in 2022.

Reduced construction cycle times and higher backlog conversion resulted in 23.5% fewer homes in backlog at December 31, 2023, with 2,549 units valued at $1.1 billion compared to 3,332 units valued at $1.5 billion at December 31, 2022.

Total home closing revenue of $6.1 billion for the year ended December 31, 2023 decreased 2.4% from $6.2 billion in 2022, due to 0.9% lower home closing volume and a 1.5% reduction in ASPs.

Home closing gross margin was 24.8% for the year ended December 31, 2023, down 380 basis points from 28.6% in 2022, due to more costly financing incentives, rising land costs, elevated direct costs and declining ASPs on closings.

While direct construction costs are up year over year, they did decline sequentially each quarter in 2023.

We recognized land closing gross profit of $4.4 million for the year ended December 31, 2023, compared to $11.6 million for the year ended December 31, 2022.

Commissions and other sales costs of $384.9 million increased $61.6 million from 2022, due to increased advertising activities and higher commissions, both in response to the current sales environment.

Commissions and other sales costs were 6.4% and 5.2% of home closing revenue in 2023 and 2022, respectively.

General and administrative expenses of $231.7 million for the year ended December 31, 2023 were 3.8% of home closing revenue, an increase of $38.7 million or 70 basis points year over year, primarily due to higher performance-based compensation and insurance costs, and a greater investment in technology.

Other income, net of $47.9 million increased from $2.7 million in the prior year primarily due to interest income from higher interest rates earned on larger cash balances.

In September 2023 we partially redeemed $150.0 million of our 6.00% Senior Notes due 2025 (the "2025 Notes"), resulting in charges of $0.9 million reflected in Loss on early extinguishment of debt, with no similar charges in 2022.

Earnings before income taxes of $949.4 million in 2023 decreased 26.4% from $1.3 billion in 2022.

Our effective tax rate in 2023 was 22.2% in 2023 as compared to 23.0% in 2022, leading to net income of $738.7 million and $992.2 million for the years ended December 31, 2023 and 2022, respectively.

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.

Our focus includes the following strategic initiatives:

• Growing our community count and market share;

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:

• Delivering affordable homes on a shorter timeline through simplification of production processes and maintaining market-appropriate levels of spec inventory;

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

• Maintaining our home closing gross profit by growing closing volume, allowing us to better leverage our overhead;

• Leveraging and expanding on technological solutions through digital offerings to our customers, such as our virtual home tours, interactive maps, digital financial services offerings and online warranty portal;

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

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

• Carefully managing our liquidity and a strong balance sheet;

we ended the year with a 22.6% debt-to-capital ratio and an 6.8% net debt-to-capital ratio;

• Maximizing returns to our shareholders, through both our improved financial performance and share repurchase program;

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

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

• Maintaining our home closing gross profit by growing closing volume, allowing us to better leverage our direct overhead;

• Carefully managing our liquidity and a strong balance sheet, including a $150.0 million early redemption of debt this year, we ended the year with a 17.9% debt-to-capital ratio and a 1.9% net debt-to-capital ratio;

• Balancing return of capital to our shareholders with internal growth goals, utilizing both share repurchases and dividend payments;

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

• Promoting a positive environment for our employees through our commitment to foster DE&I and providing market-competitive benefits in order to develop and motivate our employees and to minimize turnover and to maximize recruitment efforts;

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

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

• Promoting a positive environment for our employees through our commitment to foster DE&I and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts;

• Targeting a strong yet sustainable orders pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and amenities;

• Continuing to innovate and promote our energy efficiency program and our M.Connected ® Automation Suite to create differentiation from existing available inventory.

Critical Accounting Estimates

8 unchanged sentences

The judgments, assumptions and estimates we use and believe to be critical to our business are based on historical experience, knowledge of the accounts, industry practices, and other factors, which we believe to be reasonable under the circumstances.

Because of the

nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.

Because of the nature of the judgments and assumptions we have made, actual results may differ from these judgments and estimates and could have a material impact on the carrying values of assets and liabilities and the results of our operations.

The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgements are as follows:

1 unchanged sentence

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 ASC 360-10, Property, Plant and Equipment.

Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, 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, 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.

Home construction costs are accumulated on a per-home basis, while selling and marketing costs are expensed as incurred.

Home construction costs are accumulated on a per-home basis, while commissions and other sales costs are expensed as incurred.

Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase.

Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in that community or phase.

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

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

We accrue a liability to capture such obligations in connection with the home closing which is charged directly to Cost of home closings.

9 unchanged sentences

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

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

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

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

5 unchanged sentences

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

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

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

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

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

We recorded $0.2 million and $2.1 million of impairment charges during the years ended December 31, 2022 and 2021, respectively, due to the disposition of certain assets that no longer align with our focus on entry-level and first move-up homes.

We have not made any material changes in our methodology or significant assumptions used to record and evaluate our Real estate and Cost of home closings during the past three years.

Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions, although if financial metrics improve, we do not reverse impairments once recorded.

We have not made any material changes in our methodology or significant assumptions used to record and evaluate our Real estate inventory and Cost of home closings during the past three years.

Warranty Reserves

6 unchanged sentences

A 10% increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by approximately $2.3 million in 2023.

As a result of the regular review described previously, we increased our reserve balance $10.9 million related to specific cases during the year ended December 31, 2022.

See Notes 1 and 16 in the accompanying consolidated financial statements for more information.

There were no adjustments to our reserve balance during the year ended December 31, 2023.

As a result of the routine review described previously, we increased our reserve balance $10.9 million related to specific cases during the year ended December 31, 2022.

See Notes 1 and 16 in the accompanying consolidated financial statements for more information.

While we believe that the warranty reserve is sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs.

7 unchanged sentences

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

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experience with operating losses and experience of utilizing tax credit carryforwards and tax planning alternatives.

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experience with NOLs and experience of utilizing tax credit carryforwards and tax planning alternatives.

We have no valuation allowance on our deferred tax assets and NOL carryovers at December 31, 2023.

We have not made any material changes in our methodology or significant assumptions used to evaluate our Deferred tax assets during the past three years.

We have not made any material changes in our methodology or significant assumptions used to evaluate our Deferred tax assets, net during the past three years.

Home Closing Revenue, Home Orders and Order Backlog - Segment Analysis

The composition of our closings, home orders and backlog is constantly changing and is based on a dissimilar mix of communities between periods as new projects open and existing projects wind down.

The composition of our closings, home orders and backlog is constantly changing and is based on a changing mix of communities with various price points between periods as new projects open and existing projects wind down and close out.

Further, individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots (e.g.

3 unchanged sentences

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

Years Ended December 31, Year Over Year

Home Closing Revenue Years Ended December 31, Year Over Year

2023 2022 Chg $ Chg %

Home Closing Revenue

Dollars $ 6,056,784 $ 6,207,498 $ (150,714) (2.4) %

4 unchanged sentences

Average sales price $ 512.8 $ 538.1 $ (25.3) (4.7) %

Dollars $ 887,292 $ 776,528 $ 110,764 14.3 %

Homes closed 1,265 1,242 23 1.9 %

Average sales price $ 701.4 $ 625.2 $ 76.2 12.2 %

Dollars $ 377,242 $ 335,490 $ 41,752 12.4 %

Homes closed 627 630 (3) (0.5) %

Average sales price $ 601.7 $ 532.5 $ 69.2 13.0 %

West Region Totals

Dollars $ 2,202,109 $ 1,914,419 $ 287,690 15.0 %

Homes closed 4,092 4,055 37 0.9 %

Average sales price $ 538.1 $ 472.1 $ 66.0 14.0 %

Central Region - Texas

Central Region Totals

Dollars $ 1,835,498 $ 1,500,682 $ 334,816 22.3 %

Homes closed 4,556 4,165 391 9.4 %

Average sales price $ 402.9 $ 360.3 $ 42.6 11.8 %

Dollars $ 806,769 $ 600,554 $ 206,215 34.3 %

Homes closed 2,076 1,663 413 24.8 %

Average sales price $ 388.6 $ 361.1 $ 27.5 7.6 %

Dollars $ 328,031 $ 249,882 $ 78,149 31.3 %

Homes closed 738 647 91 14.1 %

Average sales price $ 444.5 $ 386.2 $ 58.3 15.1 %

North Carolina

Dollars $ 590,729 $ 528,840 $ 61,889 11.7 %

Homes closed 1,421 1,390 31 2.2 %

Average sales price $ 415.7 $ 380.5 $ 35.2 9.3 %

South Carolina

Dollars $ 194,412 $ 129,367 $ 65,045 50.3 %

Homes closed 604 377 227 60.2 %

Average sales price $ 321.9 $ 343.1 $ (21.2) (6.2) %

Central Region

Dollars $ 1,798,939 $ 1,835,498 $ (36,559) (2.0) %

1 unchanged sentence

Average sales price $ 401.0 $ 402.9 $ (1.9) (0.5) %

East Region Totals

Dollars $ 2,150,750 $ 2,169,891 $ (19,141) (0.9) %

1 unchanged sentence

Average sales price $ 399.7 $ 397.6 $ 2.1 0.5 %

Years Ended December 31, Year Over Year

Home Orders (1) Years Ended December 31, Year Over Year

2023 2022 Chg $ Chg %

Home Orders (1)

Dollars $ 5,675,892 $ 5,255,600 $ 420,292 8.0 %

4 unchanged sentences

Average sales price $ 513.7 $ 552.0 $ (38.3) (6.9) %

Dollars $ 796,935 $ 773,166 $ 23,769 3.1 %

Homes ordered 1,134 1,191 (57) (4.8) %

Average sales price $ 702.8 $ 649.2 $ 53.6 8.3 %

Dollars $ 256,958 $ 429,499 $ (172,541) (40.2) %

Homes ordered 424 750 (326) (43.5) %

Average sales price $ 606.0 $ 572.7 $ 33.3 5.8 %

West Region Totals

Dollars $ 1,710,156 $ 2,154,395 $ (444,239) (20.6) %

Homes ordered 3,098 4,276 (1,178) (27.5) %

Average sales price $ 552.0 $ 503.8 $ 48.2 9.6 %

Central Region - Texas

Central Region Totals

Dollars $ 1,501,591 $ 1,700,744 $ (199,153) (11.7) %

Homes ordered 3,641 4,413 (772) (17.5) %

Average sales price $ 412.4 $ 385.4 $ 27.0 7.0 %

Dollars $ 830,897 $ 738,132 $ 92,765 12.6 %

Homes ordered 2,040 1,981 59 3.0 %

Average sales price $ 407.3 $ 372.6 $ 34.7 9.3 %

Dollars $ 324,126 $ 283,649 $ 40,477 14.3 %

Homes ordered 737 694 43 6.2 %

Average sales price $ 439.8 $ 408.7 $ 31.1 7.6 %

North Carolina

Dollars $ 503,664 $ 591,193 $ (87,529) (14.8) %

Homes ordered 1,197 1,501 (304) (20.3) %

Average sales price $ 420.8 $ 393.9 $ 26.9 6.8 %

South Carolina

Dollars $ 170,149 $ 132,779 $ 37,370 28.1 %

Homes ordered 529 390 139 35.6 %

Average sales price $ 321.6 $ 340.5 $ (18.9) (5.6) %

Central Region

Dollars $ 1,678,484 $ 1,501,591 $ 176,893 11.8 %

1 unchanged sentence

Average sales price $ 391.2 $ 412.4 $ (21.2) (5.1) %

East Region Totals

Dollars $ 1,951,157 $ 2,043,853 $ (92,696) (4.5) %

3 unchanged sentences

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.

Years Ended December 31,

Ending Average Ending Average

Active Communities

Total 271 275.2 259 223.8

Arizona 46 46.6 39 36.2

California 31 28.0 22 19.0

Colorado 17 17.8 17 14.6

West Region Totals 94 92.4 78 69.8

Central Region - Texas

Central Region Totals 81 76.6 73 65.4

Florida 29 36.4 41 34.8

Georgia 19 16.2 15 11.2

North Carolina 29 28.6 26 24.6

South Carolina 10 13.2 14 8.8

Tennessee 9 11.8 12 9.2

East Region Totals 96 106.2 108 88.6

Years Ended December 31,

Cancellation Rates (1)

Total 21.0 % 10.2 %

Arizona 27.4 % 10.8 %

California 20.9 % 10.0 %

Colorado 31.3 % 10.4 %

West Region Totals 25.7 % 10.5 %

Central Region - Texas

Central Region Totals 25.1 % 11.9 %

Florida 9.8 % 7.0 %

Georgia 18.9 % 10.3 %

North Carolina 16.2 % 7.0 %

South Carolina 21.0 % 15.9 %

Tennessee 10.4 % 9.5 %

East Region Totals 14.1 % 8.5 %

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

At December 31, Year Over Year

Order Backlog (1) At December 31, Year Over Year

2023 2022 Chg $ Chg %

Order Backlog (1)

Dollars $ 1,088,137 $ 1,524,775 $ (436,638) (28.6) %

4 unchanged sentences

Average sales price $ 509.1 $ 527.4 $ (18.3) (3.5) %

Dollars $ 177,954 $ 271,383 $ (93,429) (34.4) %

Homes in backlog 262 393 (131) (33.3) %

Average sales price $ 679.2 $ 690.5 $ (11.3) (1.6) %

Dollars $ 75,783 $ 198,832 $ (123,049) (61.9) %

Homes in backlog 125 328 (203) (61.9) %

Average sales price $ 606.3 $ 606.2 $ 0.1 — %

West Region Totals

Dollars $ 459,873 $ 963,790 $ (503,917) (52.3) %

Homes in backlog 872 1,866 (994) (53.3) %

Average sales price $ 527.4 $ 516.5 $ 10.9 2.1 %

Central Region - Texas

Central Region Totals

Dollars $ 425,371 $ 772,871 $ (347,500) (45.0) %

Homes in backlog 963 1,878 (915) (48.7) %

Average sales price $ 441.7 $ 411.5 $ 30.2 7.3 %

Dollars $ 371,505 $ 352,584 $ 18,921 5.4 %

Homes in backlog 832 868 (36) (4.1) %

Average sales price $ 446.5 $ 406.2 $ 40.3 9.9 %

Dollars $ 84,575 $ 91,781 $ (7,206) (7.9) %

Homes in backlog 202 203 (1) (0.5) %

Average sales price $ 418.7 $ 452.1 $ (33.4) (7.4) %

North Carolina

Dollars $ 135,528 $ 225,854 $ (90,326) (40.0) %

Homes in backlog 341 565 (224) (39.6) %

Average sales price $ 397.4 $ 399.7 $ (2.3) (0.6) %

South Carolina

Dollars $ 19,198 $ 44,673 $ (25,475) (57.0) %

Homes in backlog 58 133 (75) (56.4) %

Average sales price $ 331.0 $ 335.9 $ (4.9) (1.5) %

Central Region

Dollars $ 289,375 $ 425,371 $ (135,996) (32.0) %

1 unchanged sentence

Average sales price $ 376.8 $ 441.7 $ (64.9) (14.7) %

East Region Totals

Dollars $ 418,977 $ 639,531 $ (220,554) (34.5) %

2 unchanged sentences

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

Active Communities Years Ended December 31,

Ending Average Ending Average

Total 270 276.4 271 275.2

West Region 78 90.0 94 92.4

Central Region 88 83.0 81 76.6

East Region 104 103.4 96 106.2

Cancellation Rates (1) Years Ended December 31,

Total 12.8 % 21.0 %

West Region 14.2 % 25.7 %

Central Region 13.6 % 25.1 %

East Region 10.8 % 14.1 %

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

Fiscal 2023 Compared to Fiscal 2022

Companywide .

In 2022, home closing revenue grew by 21.8% to $6.2 billion on 14,106 units compared to $5.1 billion on 12,801 units in 2021.

The improved revenue reflects a 10.2% increase in volume and a 10.6% increase in ASP on closings resulting from pricing power on continued elevated demand in the homebuilding market due to the macroeconomic environment during the first half of the year, as discussed in "Industry Conditions." Order value decreased 9.3% to $5.3 billion from $5.8 billion, as a 14.8% decrease in volume was partially offset by a 6.5% increase in ASP on orders.

Despite a 23.0% increase in average active communities, order volume of 11,759 for the year ended December 31, 2022 was down from 13,808 in 2021 due to the decreased demand and increase in cancellations caused by rising interest rates and inflationary concerns.

The slower demand and higher cancellation rate of 21.0% in 2022 compared to 10.2% in 2021 led to a corresponding decline in orders pace of 3.6 homes per community per month in 2022 compared to 5.1 in 2021.

We ended the year with 3,332 homes in backlog valued at $1.5 billion, down 41.3% and 39.4%, respectively, compared to 2021, as the lower number of homes was partially offset by a 3.3% increase in ASP on homes in backlog.

The West Region generated $2.2 billion in home closing revenue for the year ended December 31, 2022, a 15.0% increase over the $1.9 billion in the prior year, with pricing power contributing almost entirely to the increase as closings were relatively flat at 4,092 homes in 2022 compared to 4,055 homes in 2021.

Order value of $1.7 billion in 2022 decreased 20.6% compared to $2.2 billion in 2021, as a 27.5% decrease in order volume during the year ended December 31, 2022 to 3,098 homes from 4,276 home orders in 2021 was offset by a 9.6% increase in ASP on orders.

The West Region has been the most impacted by the recent macroeconomic decline as this region experienced some of the most significant price increases over the past few years and accordingly have required the steepest sales price adjustments to combat buyer hesitancy.

The decline in order volume was caused by the decreased demand, particularly in the second half of the year as previously discussed.

The West had the highest cancellation rate in the Company at 25.7% in 2022 versus 10.5% in 2021, contributing to a 45.1% decline in year-over-year orders pace per community to 2.8 per month in 2022 compared to 5.1 in 2021.

The West Region also had the largest increase in average actively selling communities of 32.4%, and ended 2022 with 94 actively selling communities as compared to 78 for the prior year.

Backlog of 872 homes valued at $459.9 million at December 31, 2022, versus 1,866 homes at $963.8 million in 2022, decreased 53.3% and 52.3% over the prior year, respectively.

The Central Region, made up of our Texas markets, closed 4,556 homes for the year ended December 31, 2022 compared to 4,165 in 2021.

The 9.4% improvement in closing units and 11.8% higher ASP generated a 22.3% increase in home closing revenue to $1.8 billion, up from $1.5 billion in 2021.

Similar to the West Region, the Central Region had year-over-year declines in both order volume and value of 17.5% and 11.7%, respectively, with a 7.0% increase in ASP on orders partially offsetting the lower order volume.

Orders during the year ended December 31, 2022 were 3,641 valued at $1.5 billion, compared to 4,413 valued at $1.7 billion in 2021.

The decline in order volume was driven entirely by the softening demand and elevated cancellation rate of 25.1%, offset by a 17.1% increase in average active communities, While orders pace decreased 28.6% year over year, the Central Region had the Company's highest orders pace in 2022 of 4.0 homes per month.

The Central Region ended 2022 with backlog of 963 homes valued at $425.4 million compared to 1,878 units valued at $772.9 million at December 31, 2021, reflecting a 7.3% improvement in ASP.

The East Region generated the strongest year-over-year improvements in both volume and value of closings.

Home closing volume and revenue increased 19.1% and 29.2%, respectively, to $2.2 billion on 5,458 homes in 2022 from $1.7 billion on 4,581 homes in 2021.

Home closing revenue benefited from the increase in volume and an 8.4% higher ASP on closings.

Despite a slight decline in orders volume, the East Region was the only region to see improvement in order value, as slower price appreciation over the past two years have protected the East Region from the same level of declines in demand and affordability concerns that were experienced by the Central and West regions.

Order value improved 5.3% to $2.0 billion on 5,020 homes compared to $1.9 billion on 5,119 homes, with a 7.3% increase in ASP on orders offsetting the 1.9% decline in order volume.

The year-over-year decline in order volume was caused by a lower orders pace of 3.9 homes per month in 2022, down 18.8% from 4.8 in 2021, offsetting the 19.9% increase in average active communities.

The East Region ended 2022 with 1,497 units in backlog valued at $639.5 million, decreases of 22.6% and 18.0%, respectively, compared to the prior year.

Home closing revenue was $6.1 billion on 13,976 units in 2023, compared to $6.2 billion on 14,106 units in 2022, driven by reduced home closing volume of 0.9% and a 1.5% lower ASP on closings.

The lower ASP on closings was caused by higher incentives, primarily in the form of financing incentives.

Order value increased 8.0% to $5.7 billion from $5.3 billion, as improved demand led to a 12.2% higher order volume that was partially offset by a 3.7% decrease in ASP on orders.

Order volume of 13,193 units for the year ended December 31, 2023 rose from 11,759 in 2022 primarily due to an 11.1% increase in orders pace of 4.0 homes per month on an essentially flat average active community count.

The cancellation rate of 12.8% returned to more normalized levels from the elevated rate of 21.0% in 2022.

We ended the year with 2,549 homes in backlog valued at $1.1 billion, compared to 3,332 homes in backlog valued at $1.5 billion, down 23.5% and 28.6%, respectively, compared to 2022.

The number of homes in backlog decreased year over year due to reduced cycle times, allowing us to close homes more quickly.

The West Region generated $2.1 billion in home closing revenue for the year ended December 31, 2023, a 4.3% decrease from $2.2 billion in the prior year, due entirely to a 4.7% decrease in ASP on closings as a result of increased financing incentives.

Order value of $2.0 billion in 2023 increased 19.7% from $1.7 billion in 2022, as a 28.6% increase in order volume for the year ended December 31, 2023 to 3,983 homes from 3,098 in 2022 was offset by a 6.9% decrease in ASP on orders.

The West Region had the greatest year over year improvement in home orders in the Company, as price adjustments and increased financing incentives combined with improved consumer confidence boosted demand and helped to overcome the buyer hesitancy that impacted the Region in 2022, particularly in the latter half.

The improved demand is also evidenced by the West Region's improved cancellation rate of 14.2% in 2023, compared to 25.7% in 2022, which contributed to a 32.1% increase in year-over-year orders pace per community to 3.7 homes per month compared to 2.8 per month in 2022, more than offsetting the 2.6% decrease in average actively selling communities.

Backlog of 746 homes valued at $379.8 million at December 31, 2023 was down 14.4% and 17.4%, respectively, from 872 homes valued at $459.9 million at December 31, 2022.

The Central Region, made up of our Texas markets, closed 4,486 homes and generated home closing revenue of $1.8 billion for the year ended December 31, 2023 compared to 4,556 homes and $1.8 billion in 2022.

The 1.5% decrease in closing units led to a 2.0% decrease in home closing revenue as ASP on closings was relatively flat year over year.

Similar to the West Region, the Central Region also had year over year increases in both order volume and value of 17.9% and 11.8%, respectively, with a 5.1% decrease in ASP on orders partially offsetting the higher order volume.

Orders during the year ended December 31, 2023 of 4,291 valued at $1.7 billion, compared to 3,641 homes valued at $1.5 billion in the prior year.

The increase in order volume was due to an 8.4% increase in average actively selling communities coupled with a 7.5% higher orders pace resulting from the stabilization of demand.

The Central Region exceeded our target orders pace of 3-4 homes per month, with 4.3 homes per month for the full year 2023 compared to 4.0 in 2022.

The Central Region cancellation rate of 13.6% in 2023 improved significantly from 25.1% in the prior year.

The Central Region ended the year with 768 homes in backlog valued at $289.4 million, compared to 963 homes valued at $425.4 million in 2022, reflecting a 14.7% decrease in ASP.

The lower backlog units is due to improved cycle times.

The East Region closed 5,381 homes in the year ended December 31, 2023, down 1.4% from 5,458 homes in 2022, generating $2.2 billion in home closing revenue.

Lower home closing volume led to a 0.9% decrease in home closing revenue, as ASP on closings was relatively flat year over year.

Order pace of 4.0 homes per month in 2023 improved slightly from 3.9 homes per month in 2022, and offset the 2.6% decrease in average active communities.

The East Region was least impacted by the difficult market conditions in late 2022, and therefore did not have the same outsized year over year improvements in 2023 in home orders activity as the West and Central Regions.

Order volume of 4,919 homes decreased 2.0% from 5,020 homes, combined with a 2.6% decrease in ASP on orders for a 4.5% decrease in home order value of $2.0 billion for the year ended December 31, 2023, compared to $2.0 billion in 2022.

The East Region ended 2023 with 1,035 homes in backlog valued at $419.0 million, down 30.9% and 34.5%, respectively, from 1,497 homes valued at $639.5 million, due to lower orders volume and cycle time improvements.

Land Closing Revenue and Gross Profit/(Loss)

From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we buy larger parcels of land or land with commercial tracks that provide better all-in pricing.

As a result of such sales, we recognized land closing revenue of $61.2 million and $25.2 million for the years ending December 31, 2022 and 2021, respectively.

We recognized land closing profit of $11.6 million in 2022, compared to a loss of $1.1 million in 2021.

The loss recognized in 2021 includes impairment charges of $2.0 million.

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 and gross profit of $56.2 million and $4.4 million, respectively, for the year ending December 31, 2023, and $61.2 million and $11.6 million, respectively, for the year ending December 31, 2022.

Other Operating Information (dollars in thousands)

10 unchanged sentences

Companywide .

Home closing gross margin improved to 28.6% for the year ended December 31, 2022 compared to 27.8% in the prior year.

Home closing gross profit increased by $354.6 million to $1.8 billion in 2022 versus $1.4 billion in 2021, driven by higher home closing revenue and an 80 basis point increase in home closing gross margin.

The improvement in home closing gross margin is primarily due to pricing power from the strong buyer demand that existed in 2021 and continued into the first half of 2022, combined with the benefit of land costs holding steady year-over-year on higher home closing revenue, which more than offset the rising commodity costs and increased incentives in the second half of the year.

Our West Region home closing gross margin was relatively flat year over year, at 27.4% in 2022 versus 27.1% in 2021.

The 30 basis point improvement was achieved despite the heavy economic impact experienced in this Region in the latter half of the year, as pricing power provided leverage on consistent land costs year-over-year, offset increases in material and labor costs and higher incentives in the latter half of the year.

The Central Region home closing gross margin of 29.0% declined 90 basis points year-over-year from 29.9% in the prior year.

The decline in gross margin was primarily due to increased incentives and material and labor costs, which were offset by leverage of stable land costs on higher home closing revenue year-over-year.

The East Region reported the highest home closing gross margin and the greatest margin improvement in the Company in 2022.

Home closing gross margin of 29.4% was a 260 basis point improvement over 26.8% in 2021.

The margin improvement in the Region is due to pricing power, leverage of higher home closing revenue on land costs that remained steady year-over-year, and ramped up operations in some of our newer divisions.

Home closing gross margin of 24.8% for the year ended December 31, 2023 declined 380 basis points compared 28.6% in the prior year, due to increased financing incentives, rising land costs, and still elevated direct costs, as lower lumber costs have been offset by other cost increases.

While direct construction costs are up year over year, they have declined sequentially each quarter in 2023.

Lower home closing revenue and home closing gross margin led to lower home closing gross profit of $1.5 billion, down from $1.8 billion in 2022.

For the year ended December 31, 2023, the West Region home closing gross margin was 20.7%, versus 27.4% in 2022.

This region experienced more challenging demand conditions throughout most of 2023.

In response, the region aggressively increased financing incentives, which combined with rising land costs and higher direct construction costs led to the decline in home closing gross margin.

The Central Region home closing gross margin of 26.8% for the declined 220 basis points year-over-year from 29.0% in the prior year, primarily due to increased financing incentives combined with higher land costs and direct construction costs.

The East Region had the Company's highest home closing gross margin of 27.2% in 2023, representing a 220 basis point decline from 29.4% in the prior year.

The margin deterioration in the East Region was due to increased financing incentives and higher land costs, as savings in lumber costs were offset by increases in other direct construction costs.

Years Ended December 31,

2 unchanged sentences

Financial services profit.

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

Year-over-over results were relatively flat with an increase of $0.3 million, despite the higher home closing volume in our homebuilding operations.

This is due largely to a change in the geography of closing volume in markets where we provide financial services, as well as increased overhead expenses due to a higher employee headcount.

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

Financial services profit of $12.5 million for the year ended December 31, 2023 decreased from $18.3 million in the prior year, primarily from $9.9 million in charges related to unused prepaid interest rate locks that expired.

These charges were partially offset by increased profits from our insurance operations due to higher premiums.

Years Ended December 31,

11 unchanged sentences

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 $37.9 million, or 13.3%.

The higher spend year-over-year is primarily attributable to commissions paid on higher home closing revenue and increased advertising and selling costs associated with a higher community count.

As a percentage of home closing revenue, commissions and other sales costs improved 40 basis points to 5.2% in 2022 compared to 5.6% in 2021, primarily due to leverage of higher home closing revenue on fixed overhead expenses and lower commissions and advertising costs in the first half of the year.

These costs increased $61.6 million, or 19.1% year over year.

The higher spend in 2023 is primarily attributable to increased commission rates, higher external broker participation rates and increased advertising activities, all reflective of the more challenging sales environment.

As a percentage of home closing revenue, commissions and other sales costs increased 120 basis points to 6.4% in 2023 compared to 5.2%, primarily due to higher commissions paid to external brokers.

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 year ended December 31, 2022, general and administrative expenses were $193.0 million or 3.1% of home closing revenue as compared to $181.4 million or 3.6% of home closing revenue in 2021.

The $11.5 million increase is due primarily to increased payroll and performance-based bonus compensation expenses on higher employee headcount.

As a percentage of revenue, general and administrative expenses improved 50 basis points due to leverage of fixed costs on higher home closing revenue.

We continually strive to optimize overhead leverage through cost control efforts at both corporate and divisional levels.

For the year ended December 31, 2023, general and administrative expenses increased $38.7 million, or 20.1%.

General and administrative expenses were 3.8% of home closing revenue in 2023, a 70 basis point increase from 3.1% in 2022.

The increase in dollars and as a percentage of home closing revenue is due to higher performance-based compensation costs, including staff for our new and growing market operations, higher insurance costs, increased investment in technology and reduced overhead expense leverage from lower home closing revenue.

Interest Expense.

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

For the years ended December 31, 2022 and 2021 interest expense totaled $41,000 and $318,000, respectively.

We had no interest expense for the year ended December 31, 2023, and had interest expense of $41,000 for the year ended December 31, 2022.

Other Income, Net.

Other income, net primarily consists of (i) sub lease 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 decreased to $2.7 million in 2022 compared to $4.9 million in 2021.

Other income, net primarily consists of (i) interest earned on our cash and cash equivalents, (ii) sub lease income, (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 $47.9 million in 2023 increased from $2.7 million in 2022 due to higher interest earned on larger cash and cash equivalents balances.

Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt of $18.2 million for the year ended December 31, 2021 is related to the early redemption of our 2022 Notes.

Loss on early extinguishment of debt of $0.9 million for the year ended December 31, 2023 is related to the $150.0 million partial redemption of our 2025 Notes.

There were no similar charges for the year ended December 31, 2022.

See Note 7 in the accompanying consolidated financial statements for more information related to the early redemption.

See Note 7 in the accompanying consolidated financial statements for more information related to the partial redemption of our 2025 Notes.

Income Taxes .

The effective tax rate was 22.2% and 23.0% for 2023 and 2022, respectively.

The effective rate in both years reflects the availability of the Internal Revenue Code energy efficient homes credits (the "energy tax credit") from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the "2019 Act") for 2021 and by the Inflation Reduction Act of 2022 (the "IRA") for 2022.

The effective tax rate in both years reflects the energy-efficient homes tax credits on qualifying homes under the Inflation Reduction Act of 2022 (the "IRA").

The lower rate for 2023 reflects the increased per-home energy-efficiency credit amount starting in 2023.

Liquidity and Capital Resources

We have historically generated cash and funded our operations primarily from cash flows from operating activities.

Additional sources of funds may include additional debt or equity financing and borrowing capacity under our unsecured revolving credit facility ("Credit Facility").

Additional sources of funds may include additional debt or equity financing and borrowing capacity under our Credit Facility.

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

Our principal uses of cash include acquisition and development of land and lots, home construction, operating expenses, and the payment of interest and routine liabilities.

We also opportunistically repurchase our common stock and, from time to time, our senior notes.

Our principal uses of cash include acquisition and development of land and lots, home construction, operating expenses, share repurchases and the payment of interest, routine liabilities, and dividends.

We also opportunistically repurchase our senior notes, as we did this year with a $150.0 million partial redemption of our 2025 Notes.

Cash flows for each of our communities depend on their stage of the development cycle, and can differ substantially from reported earnings.

3 unchanged sentences

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.

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

Short-term Liquidity and Capital Resources

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 payments and opportunistic common stock repurchases.

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.

2 unchanged sentences

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to maintain our lot supply and active community count, payments of principal and interest on our senior notes as they become due or mature and common stock repurchases.

We expect our existing and generated cash will be adequate to fund our ongoing operating activities as well as providing capital for investment in future land purchases and related development activities.

We expect our existing and future generated cash will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities.

To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional public offerings of our securities, refinance or secure new debt or dispose of certain assets to fund our operating activities.

4 unchanged sentences

Certain contractual obligations are reflected on our consolidated balance sheets as of December 31, 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.

We have no debt maturities until 2025.

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

We have no senior note maturities until 2025.

We also have requirements for certain short-term lease commitments, funding working capital needs of our existing unconsolidated joint ventures, and other purchase obligations in the normal course of business.

Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our selling, general and administrative expenses, as previously discussed.

Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our commissions and other sales costs and our general and administrative expenses, as previously discussed.

We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and borrowing capacity under our Credit Facility.

Our maximum exposure to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized pre-acquisition costs.

Our maximum exposure

to loss on our purchase and option agreements is generally limited to non-refundable deposits and capitalized or committed pre-acquisition costs.

For information about our lease obligations, loans payable and other borrowings, including our Credit Facility, and senior notes, reference is made to Notes 4, 6, and 7 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein.

5 unchanged sentences

Operating Cash Flow Activities

During the years ended December 31, 2022 and 2021, net cash provided by operations totaled $405.3 million versus net cash used in operations of $152.1 million during the year ended December 31, 2021.

During the years ended December 31, 2023 and 2022, net cash provided by operations totaled $355.6 million and $405.3 million, respectively.

Generally, our operating cash flows fluctuate primarily based on changes in our net earnings, real estate inventory and, to a lesser extent, timing of payments of accounts payable and accrued liabilities.

Operating cash flow results in 2022 primarily reflect $992.2 million in net earnings, which were offset by a $624.5 million increase in real estate and a $103.0 million increase in receivables, prepaids and other assets.

The increase in real estate was due to construction activities on a greater number of homes under construction, as well as land acquisition and development activities.

The increase in other receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and the purchase of fixed rate interest locks for eligible buyers in our backlog.

Operating cash flow results in 2021 reflect the $737.4 million in net earnings which were offset by a $948.1 million increase in real estate due to construction of homes and land acquisitions.

Operating cash flow results in 2023 primarily reflect $738.7 million in net earnings, and were offset by a $357.4 million increase in real estate and a $64.2 million increase in receivables, prepaids and other assets.

The increase in real estate was due to increased land acquisition and development activities as well as construction activities on a greater number of homes under construction.

The increase in other receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and timing of receivables from title companies and closing agents.

Operating cash flow results in 2022 reflect $992.2 million in net earnings which were offset by a $624.5 million increase in real estate and a $103.0 million increase in receivables, prepaids and other assets.

The increase in real estate was due to construction of homes as well as land acquisition and development activities.

The increase in other receivables, prepaids and other assets was largely due to receivables from municipalities for land development reimbursements and the purchase of fixed rate interest locks.

Investing Cash Flow Activities

During the year ended December 31, 2022, net cash used in investing activities totaled $32.3 million as compared to $26.8 million for the same period in 2021.

Cash used in investing activities in both 2022 and 2021 is mainly attributable to the purchases of property, plant and equipment of $27.0 million and $25.7 million, respectively.

During the years ended December 31, 2023 and 2022, net cash used in investing activities totaled $43.6 million $32.3 million, respectively.

Cash used in investing activities in both periods is mainly attributable to the purchases of property, plant and equipment totaling $38.2 million and $27.0 million, respectively.

Financing Cash Flow Activities

During the year ended December 31, 2022, net cash used in financing activities totaled $129.8 million, versus net cash provided by financing activities of $51.6 million for the same period in 2021.

During the years ended December 31, 2023 and 2022, net cash used in financing activities totaled $252.3 million and $129.8 million, respectively.

The net cash used in financing activities in 2023 includes $150.0 million for the partial redemption of our 2025 Notes and associated early tender fees of $0.9 million, $59.1 million in share repurchases and $39.5 million of dividends paid.

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

See Part II, Item 5 - "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information about our authorized share repurchase program.

The net cash provided by financing activities in 2021 primarily reflects the net proceeds of $450.0 million from the issuance of our 3.875% Senior Notes due 2029, offset by the early redemption of our 7.00% Senior Notes due 2022 of $300.0 million principal and associated early tender fees of $17.7 million, along with share repurchases of $61.0 million.

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.

12 unchanged sentences

(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.

(2) Net debt-to-capital is computed as net debt divided by the aggregate of net debt and stockholders' equity.

(2) Net debt-to-capital is considered a non-GAAP financial measure, and is computed as net debt divided by the aggregate of net debt and stockholders' equity.

Net debt is comprised of total senior notes, net and loans payable and other borrowings, less cash and cash equivalents.

1 unchanged sentence

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.

We have never declared cash dividends, although we may do so in the future.

Currently, we plan to utilize our cash to manage our liquidity and fund operations, while also considering opportunities to increase our shareholder returns.

Future cash dividends, if any, will depend upon economic and financial conditions, results of operations, capital requirements, statutory requirements, restrictions imposed by our Credit Facility, as well as other factors considered relevant by our Board of Directors.

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

Quarterly dividends declared and paid during 2023 totaled $1.08 per share.

There were no such transactions in 2022.

Credit Facility Covenants

1 unchanged sentence

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 December 31, 2023.

4 unchanged sentences

Leverage Ratio < 60% 1.6%

Interest Coverage Ratio (1) > 1.50 23.25

Minimum Liquidity (1) > $60,599 $1,587,119

Investments other than defined permitted investments < $1,395,024 $17,170

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

Recent Accounting Standards

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included in this report for discussion of recently issued accounting standards.

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-K

Item 7. Management’s Discussion and Analysis