Meritage Homes CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview and Outlook Demand for new homes was strong in the first quarter of 2024, as the Millennial, Gen Z and move-down Baby Boomer generations are experiencing life events that necessitate a dwelling change while there continues to be a shortage of existing housing supply. Our spec building strategy and streamlined operations provide us with appropriate levels of available inventory to capitalize on this strong housing demand by providing a quick move-in opportunity, the most desirable characteristic for our potential customers. Combined with financing and other incentives offered in our commitment to affordability, we believe our homes provide an attractive opportunity for homeownership. We believe that the execution of our strategy has, and will continue to, 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, and while both are still elevated, we have experienced significant year-over-year improvements in the first quarter of 2024 as compared to 2023. Summary Company Results Home closing revenue of $1.5 billion on 3,507 home closings in the three months ended March 31, 2024 was up from $1.3 billion on 2,897 homes in the three months ended March 31, 2023. The 16.2% increase in home closing revenue year-over-year was driven by the 21.1% higher volume, offset by average sales price ("ASP") on closings which was down 4.0% due to product mix shift. Home closing gross margin in the three months ended March 31, 2024 improved 340 basis points to 25.8%, for home closing gross profit of $378.0 million compared to home closing gross margin and profit of 22.4% and $282.5 million, respectively, in the three months ended March 31, 2023. The margin improvement is due to lower direct costs and shorter construction cycle times, reduced utilization of interest rate lock incentives and leverage of higher home closing revenue on overhead costs, which were partially offset by higher lot costs. Financial services loss of $0.7 million in the three months ended March 31, 2024, as compared to profit of $2.9 million in 2023, reflects $5.8 million of charges taken for unused prepaid interest rate forward commitments that expired during the period, compared to $1.9 million of similar charges in the three months ended March 31, 2023. Commissions and other sales costs of $101.6 million increased $18.7 million due to higher commissions resulting from higher home closing revenue combined with higher commission rates paid to external brokers. General and administrative expenses of $50.7 million in the three months ended March 31, 2024 increased $3.2 million due to higher headcount and operating lease costs for new office spaces, as well as increased investment in technology. Earnings before income taxes for the three months ended March 31, 2024 of $234.0 million increased $68.7 million year over year from $165.3 million in 2023. The effective income tax rate was 20.5% in the three months ended March 31, 2024, consistent with 20.6% in 2023. Both periods reflect the benefit from earned eligible energy tax credits on qualifying homes under the Inflation Reduction Act ("IRA"). The increase in year-over-year profitability resulted in net earnings of $186.0 million in the three months ended March 31, 2024 versus $131.3 million in the three months ended March 31, 2023. We had our highest quarterly home orders in Company history of 3,991 in the three months ended March 31, 2024, 14.5% higher than the same period in 2023 despite a relatively flat average active community count, as strong demand led to a 16.7% increase in orders pace to 4.9 per month compared to 4.2 per month in 2023. Our cancellation rate of 8% improved significantly from 15% in the three months ended March 31, 2023 and is well below our historical average, indicating strong buyer sentiment and a faster order-to-close timeline. Home order value increased 8.2% year-over-year, to $1.6 billion in the three months ended March 31, 2024, versus $1.5 billion in the same period of 2023, due to the higher order volume which was offset by a 5.4% decrease in ASP on orders. We ended the first quarter of 2024 with 3,033 homes in backlog valued at $1.2 billion, down 22.7% and 29.5%, respectively, from March 31, 2023. The decrease in backlog units is due to a higher a backlog conversion rate in the first quarter of 2024 of 138%, compared to 87% in the first quarter of 2023. A higher percentage of spec homes sold later in the construction cycle contributed to the higher backlog conversion rate and resulted in an increased percentage of home orders that converted to closings within the same quarter. 22 We ended the first quarter of 2024 with 275 active communities, down slightly from 278 at March 31, 2023 and up sequentially from 270 at December 31, 2023. We purchased approximately 2,900 lots for $162.2 million, spent $268.2 million on land development and started construction on 4,142 homes during the three months ended March 31, 2024. Company Positioning We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our commitment to being an all-spec builder, and our offerings of energy-efficient products and automation in our entry-level homes 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 levels of spec inventory that are aligned with our strategy; • Continuously improving the overall home buying experience through simplification and innovation; • 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; and • Increasing homeowner satisfaction by offering healthier, energy-efficient homes that come equipped with a suite of home automation standard features. In addition to these strategic initiatives, we also remain committed to the following: • Achieving or maintaining a top 5 market position in all of our markets; • Maintaining and where possible, expanding, 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. We ended the first quarter of 2024 with a 17.5% debt-to-capital ratio and a 2.0% 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 diversity, equity and inclusion and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts; and • 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. Critical Accounting Estimates The critical accounting estimates that we deem to involve the most difficult, subjective or complex judgments include real estate valuation 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, 2024 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2023 Annual Report on Form 10-K. 23 Home Closing Revenue, Home Orders and Order Backlog 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. cul-de-sac, view lots, greenbelt lots). These variations result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods. The tables on the following pages present operating and financial data that we consider most critical to managing our operations (dollars in thousands): Home Closing Revenue Three Months Ended March 31, Quarter over Quarter 2024 2023 Change $ Change % Total Dollars $ 1,466,096 $ 1,261,923 $ 204,173 16.2 % Homes closed 3,507 2,897 610 21.1 % Average sales price $ 418.0 $ 435.6 $ (17.6) (4.0) % West Region Dollars $ 515,632 $ 417,322 $ 98,310 23.6 % Homes closed 1,014 785 229 29.2 % Average sales price $ 508.5 $ 531.6 $ (23.1) (4.3) % Central Region - Texas Dollars $ 427,565 $ 424,880 $ 2,685 0.6 % Homes closed 1,167 1,048 119 11.4 % Average sales price $ 366.4 $ 405.4 $ (39.0) (9.6) % East Region Dollars $ 522,899 $ 419,721 $ 103,178 24.6 % Homes closed 1,326 1,064 262 24.6 % Average sales price $ 394.3 $ 394.5 $ (0.2) (0.1) % Home Orders (1) Three Months Ended March 31, Quarter over Quarter 2024 2023 Change $ Change % Total Dollars $ 1,631,195 $ 1,506,893 $ 124,302 8.2 % Homes ordered 3,991 3,487 504 14.5 % Average sales price $ 408.7 $ 432.1 $ (23.4) (5.4) % West Region Dollars $ 580,805 $ 635,936 $ (55,131) (8.7) % Homes ordered 1,170 1,286 (116) (9.0) % Average sales price $ 496.4 $ 494.5 $ 1.9 0.4 % Central Region - Texas Dollars $ 482,183 $ 420,521 $ 61,662 14.7 % Homes ordered 1,310 1,073 237 22.1 % Average sales price $ 368.1 $ 391.9 $ (23.8) (6.1) % East Region Dollars $ 568,207 $ 450,436 $ 117,771 26.1 % Homes ordered 1,511 1,128 383 34.0 % Average sales price $ 376.0 $ 399.3 $ (23.3) (5.8) % (1) Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed. 24 Order Backlog (1) At March 31, Quarter over Quarter 2024 2023 Change $ Change % Total Dollars $ 1,244,257 $ 1,763,832 $ (519,575) (29.5) % Homes in backlog 3,033 3,922 (889) (22.7) % Average sales price $ 410.2 $ 449.7 $ (39.5) (8.8) % West Region Totals Dollars $ 439,957 $ 676,135 $ (236,178) (34.9) % Homes in backlog 902 1,373 (471) (34.3) % Average sales price $ 487.8 $ 492.5 $ (4.7) (1.0) % Central Region Totals Dollars $ 341,691 $ 419,822 $ (78,131) (18.6) % Homes in backlog 911 988 (77) (7.8) % Average sales price $ 375.1 $ 424.9 $ (49.8) (11.7) % East Region Totals Dollars $ 462,609 $ 667,875 $ (205,266) (30.7) % Homes in backlog 1,220 1,561 (341) (21.8) % Average sales price $ 379.2 $ 427.9 $ (48.7) (11.4) % (1) Our backlog represents net home orders that have not closed. Active Communities Three Months Ended March 31, 2024 2023 Ending Average Ending Average Total 275 272.5 278 274.5 West Region 83 80.5 96 95.0 Central Region 80 84.0 82 81.5 East Region 112 108.0 100 98.0 Cancellation Rates (1) Three Months Ended March 31, 2024 2023 Total 8 % 15 % West Region 9 % 13 % Central Region 9 % 17 % East Region 8 % 15 % (1) Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period. 25 Operating Results Companywide . In the three months ended March 31, 2024, we closed 3,507 closings valued at $1.5 billion, compared to 2,897 closings valued at $1.3 billion in the prior year. The 21.1% increase in home closing volume, driven by a record backlog conversion rate of 138%, led to a 16.2% improvement in home closing revenue. We had a partial offset to the volume growth from a 4.0% decrease in ASP on closings resulting primarily from product mix shift to more entry-level homes, which represented 88% of home closings in the three months ended March 31, 2024 versus 84% in the prior year period. Home orders of 3,991, our highest quarterly orders in Company history, were up 14.5% over 3,487 homes ordered in the three months ended March 31, 2023. Strong housing demand coupled with having the right amount of available inventory drove the orders growth even as our average active communities decreased slightly. The first quarter 2024 orders pace of 4.9 per month increased from 4.2 per month in the same period of 2023, benefiting from a historically low cancellation rate of 8% in the first quarter of 2024, a significant improvement over 15% in the same period of 2023. ASP on orders declined 5.4% due to geographic mix and a higher mix of entry-level homes, which constituted 91% of total orders in the three months ended March 31, 2024 compared to 87% in 2023. The lower ASP on orders was fully offset by higher order volume, resulting in an 8.2% increase in home order value of $1.6 billion for the quarter ended March 31, 2024. We ended the quarter with 3,033 homes in backlog valued at $1.2 billion, compared to 3,922 units valued at $1.8 billion at March 31, 2023, due to the improved backlog conversion rate in the first quarter of 2024 resulting from a higher percentage of spec homes being sold later in the construction cycle which resulted in an increased percentage of home orders that converted to closings within the same quarter. West . The West Region generated $515.6 million in home closing revenue on 1,014 homes in the three months ended March 31, 2024, increasing from $417.3 million and 785 homes in the prior year period. The 29.2% increase in volume and 4.3% decrease in ASP on closings due to a higher percentage of entry-level homes led to a 23.6% increase in home closing revenue year over year. Home orders of 1,170 during the quarter ended March 31, 2024 decreased 9.0% from the prior year due entirely to a 15.3% decrease in average actively selling communities that was partially offset by a 6.7% increase in orders pace to 4.8 homes per month. The West Region entered the year with a lower community count but made progress replenishing it in the first quarter of 2024 by opening 15 new communities. Home order value of $580.8 million in the first quarter of 2024 decreased 8.7% from $635.9 million in 2023 due to the lower volume as ASP on orders held relatively steady. The West Region's cancellation rate of 9% in the three months ended March 31, 2024 improved from 13% in the prior year. The West Region ended the first quarter of 2024 with 902 homes in backlog valued at $440.0 million, down from 1,373 homes in backlog valued at $676.1 million at March 31, 2023, due to lower order volume and a 136% backlog conversion rate, up from 90% in the prior year. Central . The Central Region, made up of our Texas markets, closed 1,167 homes during the three months ended March 31, 2024, up 11.4% from 1,048 homes in 2023. Home closing revenue of $427.6 million in the three months ended March 31, 2024 held relatively steady as the increase in volume was offset by a corresponding decrease in ASP on closings caused by a shift to a higher mix of entry-level product. A 3.1% increase in average actively selling communities coupled with an 18.2% increase in orders pace of 5.2 per month led to a 22.1% increase in home orders of 1,310 in the three months ended March 31, 2024, up from 1,073 in 2023. Home order value of $482.2 million in the three months ended March 31, 2024 was up 14.7% from the prior year, as the increase in volume more than offset a 6.1% decrease in ASP on orders due to product mix shift. The Central Region's cancellation rate of 9% was the Company's greatest improvement, down from 17% in 2023. The Central Region ended the quarter with 911 homes in backlog valued at $341.7 million, down 7.8% and 18.6%, respectively, largely due to a backlog conversion rate of 152% in the first quarter of 2024, compared to 109% in 2023. East . During the quarter ended March 31, 2024, the East Region closed 1,326 homes for $522.9 million, compared to 1,064 closings and $419.7 million in home closing revenue in the comparable prior year period. The 24.6% improvement in home closing revenue was attributable entirely to the 24.6% increase in volume, as ASP on closings was consistent year over year. With 10.2% more average active communities combined with a 23.7% increase in orders pace to 4.7 per month, home orders increased 34.0% to 1,511 in the three months ended March 31, 2024 from 1,128 in the prior year period. A 5.8% lower ASP on orders due to a higher mix of entry-level homes, combined with the higher order volume, translated to a 26.1% increase in home order value of $568.2 million in the three months ended March 31, 2024, up from $450.4 million in the comparable prior year period. The East Region had a cancellation rate of 8% in the three months ended March 31, 2024, down from 15% in the first quarter of 2023. The East Region ended the first quarter of 2024 with 1,220 homes in backlog valued at $462.6 million, down 21.8% and 30.7%, respectively, from 1,561 homes valued at $667.9 million at March 31, 2023. The decrease in backlog units is due to a 128% backlog conversion rate in 2024, compared to 71% during the first quarter of 2023. 26 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 $2.3 million and $17.4 million for the three months ended March 31, 2024 and 2023, respectively, and profit of $7,000 and $1.4 million for the three months ended March 31, 2024 and 2023, respectively. Other Operating Information (dollars in thousands) Three Months Ended March 31, 2024 2023 Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Home Closing Gross Profit (1) Total $ 377,958 25.8 % $ 282,461 22.4 % West $ 115,128 22.3 % $ 74,087 17.8 % Central $ 116,620 27.3 % $ 105,710 24.9 % East $ 146,210 28.0 % $ 102,664 24.5 % (1) Home closing gross profit represents home closing revenue less cost of home closings, including impairments, if any. Cost of home closings includes land and associated development costs, direct home construction costs, an allocation of common community costs (such as architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs. Companywide . Gross profit for the three months ended March 31, 2024 was $378.0 million with a home closing gross margin of 25.8%, a 340 basis point improvement from 22.4% in the three months ended March 31, 2023. The margin improvement was due to lower direct costs, reduced utilization of interest rate lock incentives, leverage of higher home closing revenue on overhead costs and shorter construction cycle times, all of which were partially offset by higher lot cost. West. The West Region delivered a 450 basis point improvement in home closing gross margin of 22.3% for the three months ended March 31, 2024, up from 17.8% in the three months ended March 31, 2023. The West Region's home closing gross margin benefited from lower direct costs, reduced utilization of interest rate lock incentives, which were heavily utilized in early 2023 to address the challenging market conditions, and improved leverage of higher home closing revenue on overhead costs. The West Region's home closing gross margin for the three months ended March 31, 2024 was negatively impacted by higher lot costs. Central. In the quarter ended March 31, 2024, the Central Region's home closing gross margin of 27.3% improved 240 basis points from 24.9% in the prior year quarter, due largely to improvements in direct costs while higher lot costs year-over-year negatively impacted home closing gross margin. East. The East Region had the Company's highest home closing gross margin of 28.0% in the three months ended March 31, 2024, up 350 basis points from 24.5% for the comparable 2023 period. The East Region had the greatest reduction of interest rate lock incentive utilization in the three months ended March 31, 2024, which combined with lower direct costs and greater leverage of home closing revenue on overhead costs to offset the higher lot costs. 27 Financial Services (Loss)/Profit (in thousands) Three Months Ended March 31, 2024 2023 Financial services (loss)/profit $ (690) $ 2,923 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 loss of $0.7 million for the three months ended March 31, 2024 included $5.8 million in charges related to unused prepaid interest rate forward commitments that expired. Financial services profit of $2.9 million for the three months ended March 31, 2023 included $1.9 million in charges related to unused prepaid interest rate forward commitments that expired. The increase in charges related to unused prepaid interest rate forward commitments was partially offset by increases in both title and insurance company profits resulting from higher home closing revenue. Selling, General and Administrative Expenses and Other Expenses (dollars in thousands) Three Months Ended March 31, 2024 2023 Commissions and other sales costs $ (101,550) $ (82,846) Percent of home closing revenue 6.9 % 6.6 % General and administrative expenses $ (50,732) $ (47,519) Percent of home closing revenue 3.5 % 3.8 % Interest expense $ — $ — Other income, net $ 9,022 $ 8,844 Provision for income taxes $ (47,999) $ (34,002) Commissions and Other Sales Costs. 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 $18.7 million to $101.6 million in the three months ended March 31, 2024, and as a percentage of home closing revenue increased 30 basis points. The year-over-year increase in both dollars and as a percentage of home closing revenue was due primarily to higher commissions resulting from higher home closing revenue combined with higher commission rates 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 three months ended March 31, 2024, general and administrative expenses were $50.7 million, $3.2 million higher than the 2023 period, due to higher employee headcount, increased operating lease costs for new corporate and division office spaces, and increased investments in technology. As a percentage of home closing revenue, general and administrative expenses improved 30 basis points to 3.5% in the first quarter of 2024, down from 3.8% in the three months ended March 31, 2023, due to improved leverage from higher 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. We recognized no interest expense in the three months ended March 31, 2024 and 2023, respectively, as all interest was capitalized. Other Income, Net. Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. Other income, net was $9.0 million and $8.8 million for the three months ended March 31, 2024 and 2023, respectively, and consists primarily of interest income in both periods. Income Taxes. Our effective tax rate was 20.5% and 20.6% for the three months ended March 31, 2024 and 2023, respectively. Both periods reflect energy-efficient homes tax credits on qualifying homes under the Internal Revenue Code ("IRC") §45L energy-efficient homes federal tax credit. 28 Liquidity and Capital Resources Overview 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 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, share repurchases and the payment of interest, routine liabilities and dividends. We also opportunistically repurchase our senior notes, as we did in 2023 with a partial redemption of $150.0 million of aggregate principal amount 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. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and are not recognized in our income statement until a home closes, we incur significant cash outlays prior to recognition of earnings. 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. 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 and dividend payments and share 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. Between our cash and cash equivalents on hand combined with the availability of liquidity from our Credit Facility, we believe that we currently have sufficient liquidity. Nevertheless, we may seek additional capital to strengthen our liquidity position, enable us to acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure. 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, share repurchases and dividend payments. 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. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs. Material Cash Requirements We are a party to many contractual obligations involving commitments to make payments to third parties. 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, 2024, 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. 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. We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize additional debt or equity financing and 29 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 or committed pre-acquisition costs. For information about our loans payable and other borrowings, including our Credit Facility, and senior notes, reference is made to Notes 5 and 6 in the notes to our unaudited consolidated financial statements included in this report and are incorporated by reference herein. For information about our lease obligations, reference is made to Note 4 in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Reference is made to Notes 1, 3, 4, and 15 in the notes to our unaudited consolidated financial statements included in this report and are incorporated by reference herein. 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, 2024 or December 31, 2023. Operating Cash Flow Activities During the three months ended March 31, 2024 and 2023, net cash provided by operating activities totaled $81.9 million and $124.5 million, respectively. Operating cash flows in the first quarter of 2024 benefited from cash generated by net earnings of $186.0 million and timing of other receivables, prepaids and other assets, offset by a $193.4 million increase in real estate. Operating cash flows in the first quarter of 2023 was primarily comprised of cash generated by net earnings of $131.3 million. Investing Cash Flow Activities During the three months ended March 31, 2024, net cash used in investing activities totaled $7.8 million and consisted primarily of purchases of property and equipment and investments in unconsolidated entities. Cash used in investing activities totaled $8.7 million for the quarter ended March 31, 2023 and was mainly attributable to purchases of property and equipment. Financing Cash Flow Activities During the three months ended March 31, 2024 and 2023, net cash used in financing activities totaled $90.1 million and $20.1 million, respectively. The net cash used in financing activities in 2024 includes $27.2 million of dividends paid and $55.9 million in share repurchases. The net cash used in financing activities in 2023 includes $9.9 million of dividends paid and $10.0 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. 30 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): As of March 31, 2024 December 31, 2023 Senior notes, net, loans payable and other borrowings $ 1,001,570 $ 1,008,215 Stockholders’ equity 4,720,573 4,611,900 Total capital $ 5,722,143 $ 5,620,115 Debt-to-capital (1) 17.5 % 17.9 % Senior notes, net, loans payable and other borrowings $ 1,001,570 $ 1,008,215 Less: cash and cash equivalents (905,298) (921,227) Net debt 96,272 86,988 Stockholders’ equity 4,720,573 4,611,900 Total net capital $ 4,816,845 $ 4,698,888 Net debt-to-capital (2) 2.0 % 1.9 % (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 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. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. 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. Dividends During the three months ended March 31, 2024 and 2023, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $0.75 and $0.27 per share, respectively. 31 Credit Facility Covenants Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. 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%. We were in compliance with all Credit Facility covenants as of March 31, 2024. Our actual financial covenant calculations as of March 31, 2024 are reflected in the table below. Financial Covenant (dollars in thousands): Covenant Requirement Actual Minimum Tangible Net Worth > $3,214,372 $4,674,448 Leverage Ratio < 60% 1.7% Investments other than defined permitted investments < $1,427,334 $18,743 Seasonality Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders for more homes in the first half of the fiscal year than in the second half, which has created additional working capital requirements in the second and third quarters to build our inventories to satisfy seasonally higher closings in the second half of the year. While we expect the seasonal orders pattern to continue over the long term, our higher backlog conversion rate and all-spec strategy may shift the timing of home closings and capital requirements to build our inventories to earlier in the year. Additionally, seasonality may, from time to time, be affected by short-term volatility in the homebuilding industry and in the overall economy. Recent Accounting Pronouncements See Note 1 to our unaudited consolidated financial statements included in this report for discussion of recently issued accounting pronouncements.