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Item 2. Management’s Discussion and Analysis

2025-04-25 compared with 2024-10-31 · 124 added, 202 removed, 176 unchanged (65% of the section changed)

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Overview and Outlook

Our solid results for the third quarter of 2024 reflected the pivot in our strategy to providing affordable, move-in ready homes with a 60-day closing ready commitment.

We continued to offer interest rate buy-downs in the quarter and were further aided in mid-September by the federal interest rate reductions, which contributed to orders volume that slightly outpaced traditional seasonality.

The demand for our product, primarily immediately available entry-level homes, has been spurred by life events within the largest U.S.

population groups of Millennials, Baby Boomers, and now Gen Z, that necessitate a housing change, amid a backdrop of a persistent shortage of existing housing supply.

Our spec building strategy and streamlined operations provide us with appropriate levels of available inventory to capitalize on this demand by providing a quick move-in opportunity, one of the most desirable characteristics for our potential customers and creates an offering similar to the missing resale product.

Although mortgage interest rates remain volatile, we believe that our interest rate buy-downs and other financing incentives provide us with a competitive advantage over resale homes and new home builders that do not offer such incentives.

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 leveraging, 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 have continued to improve, leading to significant improvements in 2024.

We believe that cycle times will approximate normal conditions for the remainder of 2024.

During the first quarter of 2025, the spring selling season was healthy due to sustained demand as a result of favorable demographics and a limited supply of homes available at an affordable price, even as mortgage rates remained high and increasing macroeconomic concerns impacted consumer sentiment.

Our strategy of providing affordable, move-in ready homes with a 60-day closing ready commitment provided us an opportunity to meet the demand for immediately available homes with a comfortable monthly mortgage payment.

Although we expect that mortgage rates will remain volatile and macroeconomic concerns will continue to impact consumer psychology for the near to mid-term, we believe that our interest rate buy-downs, other financing incentives and affordable price points provide us with a competitive advantage, particularly over resale homes as individual home sellers are not typically able to provide such incentives.

Land costs remain elevated following several years of historically high land development activity and have negatively impacted our margins, although we have seen offsetting improvements in margin due to construction cycle times and material costs returning to normalized levels in the first quarter of 2025 after stabilizing in late 2024.

We believe that our strategy has, and will continue to, drive strong performance of key financial measures, including home closing volume, home closing gross margin, selling, general and administrative cost leveraging, balance sheet management and long-term community count growth.

Summary Company Results

Home closing units volume of 3,942 homes in the three months ended September 30, 2024 increased 8.4% from 3,638 homes in the same prior year period.

Home closing revenue of $1.6 billion decreased 1.5% as the increase in volume was more than offset by a 9.1% decrease in average sales price ("ASP") on closings, due primarily to a combination of product mix and geography shift as well as increased utilization of incentives.

Entry-level homes represented 93% of closings in the third quarter of 2024 compared to 86% in the third quarter of 2023.

Third quarter 2024 home closing gross margin of 24.8% decreased 190 basis points for home closing gross profit of $392.6 million compared to 26.7% and $429.6 million, respectively, in the third quarter of 2023.

The decrease in home closing gross margin is primarily due to higher lot costs, increased utilization of incentives and reduced leverage of fixed costs on lower home closing revenue, all of which were partially offset by direct cost savings and shorter construction cycle times.

Commissions and other sales costs of $97.9 million in the three months ended September 30, 2024 decreased $1.2 million, largely as a result of lower home closing revenue.

General and administrative expenses of $59.2 million in the three months ended September 30, 2024 decreased $3.9 million from $63.1 million in the same period of 2023 primarily from lower performance based compensation expense.

Other income, net of $10.7 million decreased $2.6 million due to less interest earned on a lower average cash balance.

In the third quarter of 2023, we recognized a loss on early extinguishment of debt of $0.9 million in connection with the $150.0 million partial redemption of our 6.00% senior notes due 2025 (the "2025 Notes").

There were no such redemptions in the third quarter of 2024.

Earnings before income taxes for the three months ended September 30, 2024 of $249.9 million decreased $35.8 million year over year from $285.7 million in 2023.

The effective income tax rate of 21.6% and 22.4% for the three months ended September 30, 2024 and 2023, respectively, reflect the benefit from earned eligible energy tax credits on qualifying homes under the Inflation Reduction Act ("IRA").

The decrease in year-over-year profitability resulted in net earnings of $196.0 million in the three months ended September 30, 2024 versus $221.8 million in the three months ended September 30, 2023.

For the nine months ended September 30, 2024, 15.4% higher home closing volume led to a 7.5% improvement in home closing revenue as compared to 2023, as lower ASP on closings partially offset the higher home closing volume.

Home closing gross margin of 25.5% improved 80 basis points year over year, for a $121.0 million increase in home closing gross profit.

Higher gross margin and profitability and an effective tax rate of 21.5% led to net income of $613.5 million for the nine months ended September 30, 2024, compared to $539.9 million for the 2023 period.

Home orders of 3,512 for the three months ended September 30, 2024 were mostly in line with 3,474 home orders in the prior year quarter due to a consistent orders pace of 4.1 per month in both periods and a consistent average active community count.

Home order value decreased 4.7% year-over-year to $1.4 billion during the three months ended September 30, 2024, versus $1.5 billion in the same period of 2023.

This year over year decline was the result of a 5.7% decrease in ASP on orders, mainly from product and geographic mix, and increased usage of financing incentives.

Entry-level homes represented 92% of

orders in the third quarter of 2024 compared to 88% in the third quarter of 2023.

Our cancellation rate of 10% in the third quarter of 2024 slightly improved from 11% in the third quarter of 2023.

For the nine months ended September 30, 2024, home orders and home order value increased 9.7% and 3.4%, respectively, over the prior year and the cancellation rate of 9% improved from 13% in the prior year period.

We ended the third quarter of 2024 with 2,284 homes in backlog valued at $0.9 million, decreases of 36.7% and 40.2%, respectively, from September 30, 2023.

The lower backlog units is directly tied to our higher backlog conversion rate of 145.2% during the third quarter of 2024, compared to 96.4% in the second quarter of 2023.

As anticipated with our strategy of offering move-in ready homes with a 60-day closing ready commitment, we are selling a higher percentage of spec homes later in the construction cycle, contributing to the higher backlog conversion rate.

We ended the third quarter of 2024 with 278 active communities, up from 272 at September 30, 2023.

We purchased approximately 13,900 lots for $787.3 million, spent $933.6 million on land development and started construction on 12,259 homes during the nine months ended September 30, 2024.

Home closing revenue of $1.3 billion decreased 8.5% due to lower volume and a 6.0% decrease in average sales price ("ASP") on closings.

Home closing units volume of 3,416 homes in the three months ended March 31, 2025 decreased 2.6% from 3,507 homes in the same prior year period.

The lower ASP is a result of increased utilization of incentives and contributed to the first quarter 2025 home closing gross margin decline of 380 basis points to 22.0%, compared to 25.8% in the prior year.

The decrease in home closing gross margin was also the result reduced leverage of fixed costs on lower home closing revenue and higher lot costs, all of which were partially offset by direct cost savings.

Home closing gross profit of $295.7 million in the first quarter 2025 compared to $378.0 million in the prior year period.

Land closing gross profit was $3.2 million in the first quarter of 2025, compared to nominal profit in the first quarter of 2024.

Financial services profit was $3.6 million in the three months ended March 31, 2025 compared to financial services loss of $0.7 million in 2024.

The loss in the prior year period was driven by charges taken for unused prepaid interest rate forward commitments.

Commissions and other sales costs of $94.7 million in the three months ended March 31, 2025 decreased $6.8 million due to lower home closing revenue.

General and administrative expenses of $57.0 million in the three months ended March 31, 2025 increased $6.3 million from $50.7 million in the same period of 2024 due to incremental start-up costs for our new divisions in Alabama and Mississippi, as well as increased spend on technology.

Earnings before income taxes for the three months ended March 31, 2025 of $160.2 million decreased $73.9 million year over year from $234.0 million in 2024.

The effective income tax rate of 23.3% for the three months ended March 31, 2025 increased from 20.5% in 2024 due to fewer homes qualifying for energy tax credits under the Inflation Reduction Act ("IRA") in 2025.

The decrease in year-over-year profitability resulted in net earnings of $122.8 million in the three months ended March 31, 2025 versus $186.0 million in the three months ended March 31, 2024.

Home orders of 3,876 for the three months ended March 31, 2025 decreased 2.9% from 3,991 home orders in the prior year quarter due to a 10.2% decrease in orders pace, which was partially offset by a 6.8% increase in average active communities.

Orders pace of 4.4 net homes per month in the first quarter of 2025 is down from 4.9 in the prior year period, reflecting the tougher selling environment, although still above our targeted orders pace of 4.0 net homes per month.

Home order value during the three months ended March 31, 2025 of $1.6 billion decreased 4.5% year-over-year, as a result of the lower order volume and a 1.6% decrease in ASP on orders.

Our cancellation rate of 9% in the first quarter of 2025 was relatively flat with 8% in the first quarter of 2024 and below the Company's historical average.

We ended the first quarter of 2025 with 2,004 homes in backlog valued at $812.4 million, decreases of 33.9% and 34.7%, respectively, from March 31, 2024.

The lower backlog units is directly tied to our record high backlog conversion rate of 221.2% during the first quarter of 2025, compared to 137.6% in the same quarter of 2024.

The decrease in backlog and higher backlog conversion rate was anticipated with our strategy of offering move-in ready homes with a 60-day closing ready commitment, as we are selling homes later in the construction cycle and are therefore able to shorten the time between home sale and home closing.

Of the homes closed in first quarter of 2025, approximately 61% were sold within the same quarter, compared to approximately 48% in the prior year period.

We ended the first quarter of 2025 with 290 active communities, up from 275 at March 31, 2024.

We purchased approximately 2,900 lots for $222.1 million, spent $242.7 million on land development, net of reimbursements, and started construction on 3,601 homes during the three months ended March 31, 2025.

Company Positioning

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• Delivering affordable homes on a shorter timeline through simplification of production processes and maintaining levels of spec inventory that are aligned with our strategy;

• Offering our customers affordable, turnkey homes;

• Embracing external realtor relationships, as we view realtors as a trusted resource for potential customers, particularly for first-time buyers;

• Offering our customers affordable, move-in ready homes with a 60-day closing ready commitment;

• Embracing external realtor relationships, as we view realtors as a strategic partner who assists with sourcing homebuyers, particularly first-time homebuyers who view the realtor as a trusted advisor;

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

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

• Increasing homeowner satisfaction by offering 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;

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

• Achieving or maintaining a top 5 market position in all of our markets, and maintaining our status as a top 5 national builder (based on homes closed in 2024);

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

• 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 third quarter of 2024 with a 20.7% debt-to-capital ratio and an 8.8% net debt-to-capital ratio, after issuing $575.0 million of convertible senior notes during the second quarter of 2024;

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

• Carefully managing our liquidity and maintaining a strong balance sheet.

We ended the first quarter of 2025 with a 26.1% debt-to-capital ratio and a 13.7% net debt-to-capital ratio, after issuing $500.0 million of senior notes during the first quarter of 2025;

• Balancing return of capital to our stockholders 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.

• Promoting a positive environment for our employees through our commitment to inclusion, culture, and belonging, and providing market-competitive benefits in order to develop and motivate our employees, minimize turnover and maximize recruitment efforts.

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 nine months ended September 30, 2024 compared to those disclosed in Item 7.

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 and warranty reserves.

There have been no significant changes to our critical accounting estimates during the three months ended March 31, 2025 compared to those disclosed in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our 2024 Annual Report on Form 10-K for the year ended December 31, 2024 (the "Annual Report").

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These variations result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods.

As previously disclosed in Note 1, effective January 1, 2025, all segment information included in this Quarterly Report on Form 10-Q has been recast for all periods presented to reflect Tennessee in the Central Region.

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 September 30, Quarter over Quarter

2024 2023 Change $ Change %

Dollars $ 1,585,784 $ 1,610,317 $ (24,533) (1.5) %

Homes closed 3,942 3,638 304 8.4 %

Average sales price $ 402.3 $ 442.6 $ (40.3) (9.1) %

Dollars $ 594,509 $ 606,833 $ (12,324) (2.0) %

Homes closed 1,220 1,172 48 4.1 %

Average sales price $ 487.3 $ 517.8 $ (30.5) (5.9) %

Central Region

Dollars $ 416,802 $ 452,687 $ (35,885) (7.9) %

Homes closed 1,174 1,102 72 6.5 %

Average sales price $ 355.0 $ 410.8 $ (55.8) (13.6) %

Dollars $ 574,473 $ 550,797 $ 23,676 4.3 %

Homes closed 1,548 1,364 184 13.5 %

Average sales price $ 371.1 $ 403.8 $ (32.7) (8.1) %

Nine Months Ended September 30, Quarter over Quarter

Home Closing Revenue Three Months Ended March 31, Quarter over Quarter

2025 2024 Change $ Change %

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Average sales price $ 365.5 $ 389.6 $ (24.1) (6.2) %

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

2024 2023 Change $ Change %

Dollars $ 1,425,610 $ 1,495,542 $ (69,932) (4.7) %

Homes ordered 3,512 3,474 38 1.1 %

Average sales price $ 405.9 $ 430.5 $ (24.6) (5.7) %

Dollars $ 521,029 $ 521,049 $ (20) — %

Homes ordered 1,067 985 82 8.3 %

Average sales price $ 488.3 $ 529.0 $ (40.7) (7.7) %

Central Region

Dollars $ 366,524 $ 425,165 $ (58,641) (13.8) %

Homes ordered 1,031 1,099 (68) (6.2) %

Average sales price $ 355.5 $ 386.9 $ (31.4) (8.1) %

Dollars $ 538,057 $ 549,328 $ (11,271) (2.1) %

Homes ordered 1,414 1,390 24 1.7 %

Average sales price $ 380.5 $ 395.2 $ (14.7) (3.7) %

Nine Months Ended September 30, Quarter over Quarter

Home Orders (1) Three Months Ended March 31, Quarter over Quarter

2025 2024 Change $ Change %

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Order Backlog (1)

At September 30, Quarter over Quarter

At March 31, Quarter over Quarter

2025 2024 Change $ Change %

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Active Communities and Cancellation Rates

Active Communities Three Months Ended September 30, Nine Months Ended September 30,

2024 2023 2024 2023

Ending Average Ending Average Ending Average Ending Average

Active Communities Three Months Ended March 31,

Ending Average Ending Average

Total 290 291.0 275 272.5

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Cancellation Rates (2)

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

2024 2023 2024 2023

Three Months Ended March 31,

Total 9 % 8 %

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Companywide .

We reported our highest third quarter home closing volume in Company history, with 3,942 closings for the three months ended September 30, 2024, up 8.4% from 3,638 closings in the three months ended September 30, 2023.

The increase in home closing volume was due to a higher backlog conversion rate of 145.2% for the three months ended September 30, 2024, compared to 96.4% in the same period of 2023.

Despite the increase in home closing volume, home closing revenue of $1.6 billion decreased 1.5% as the higher home closing volume was offset by a 9.1% lower ASP on closings, primarily the result of product and geographic mix shifts and increased utilization of financing incentives.

Entry-level homes represented 93% of third quarter 2024 closings compared to 86% in the third quarter of 2023.

Home order volume in the three months ended September 30, 2024 of 3,512 homes were relatively consistent with 3,474 homes in the three months ended September 30, 2023 due to similar average active community count and orders pace of 4.1 homes per month in both of the three month periods ending September 30, 2024 and 2023.

The 1.1% increase in home order volume combined with a 5.7% decrease in ASP on home orders led to overall 4.7% lower home order value of $1.4 billion in the three months ended September 30, 2024 compared to $1.5 billion in the three months ended September 30, 2023.

The decline in ASP on orders was driven by a higher percentage of entry-level, a shift in geographic mix and increased incentives, similar to ASP on home closings.

Order cancellations of 10% for the three months ended September 30, 2024 were down from 11% in the three months ended September 30, 2023;

the current run rate for cancellations across the company is below our historical company average and demonstrates the tightening of overall inventory availability and attractiveness of move-in ready homes with a 60-day closing ready commitment coupled with our financing incentives.

For the nine months ended September 30, 2024, home closing volume increased 15.4% to 11,567 closings, which led to home closing revenue of $4.7 billion, up 7.5% from $4.4 billion in the prior year.

The increased volume was partially offset by a 6.8% year-over-year decrease in ASP on closings.

Home order volume of 11,302 was up 9.7% and home order value of $4.6 billion was up 3.4% from prior year due to higher volume and a 5.7% decrease in ASP on orders.

The increase in home order volume was driven entirely by 9.8% increase in orders pace of 4.5 homes per month, compared to 4.1 in 2023, on a relatively flat average active community count.

We ended the third quarter of 2024 with 278 actively selling communities, up from 272 at September 30, 2023.

The quarter ended with 2,284 homes in backlog valued at $931.7 million, compared to 3,608 units valued at $1.6 billion at September 30, 2023.

The lower backlog year over year is a result of the significant improvement in our backlog conversion rate, as we are selling spec homes later in the construction cycle.

The West Region generated $594.5 million in home closing revenue in the three months ended September 30, 2024, a 2.0% decrease compared to the $606.8 million in prior year period.

The lower revenue was due to lower ASP on closings, which was partially offset by 4.1% higher volume of 1,220 homes in the three months ended September 30, 2024, up from 1,172 homes in the prior year period.

The 5.9% year over year decline in ASP is due to geographic mix within the region, as well as product mix shift to more entry-level homes.

Home orders in the three months ended September 30, 2024 of 1,067 were up 8.3% from 985 in the prior year, resulting from a 16.7% increase in orders pace to 4.2 homes per month, more than offsetting the 6.0% lower number of average active communities.

Although the West Region average active community count is down from 2023, it has increased sequentially from the second quarter of 2024.

Home order value of $521.0 million for the third quarter of 2024 was consistent with prior year as the impact of the higher order volume was offset by a 7.7% lower ASP on orders caused by geographic and product mix shift.

The West Region cancellation rate of 10% in the three months ended September 30, 2024 improved from 14% in the prior year.

For the nine months ended September 30, 2024, home closing revenue of $1.7 billion increased 12.3% due to an 18.4% increase in home closing volume, while ASP on closings decreased 5.2% compared to prior year due to geographic and product mix shift, as previously mentioned.

Home order volume in the West Region of 3,351 increased 2.8% as a 15.4% increase in orders pace to 4.5 homes per month was mostly offset by the 10.6% decrease in the average number of actively selling communities.

Home order value of $1.7 billion was down 0.8% due to a 3.5% lower ASP.

The year-to-date cancellation rate of 10% improved from 14% in the prior year period.

The West Region ended the third quarter of 2024 with 598 homes in backlog valued at $286.3 million, compared to 1,179 units valued at $579.8 million at September 30, 2023.

The lower backlog is due entirely to a higher backlog conversion rate of 162.5% for the three months ended September 30, 2024 compared to 85.8% in the same period of 2023.

The Central Region closed 1,174 homes in the three months ended September 30, 2024, up 6.5% from 1,102 in the prior year period due to an increase in the backlog conversion rate of 157.4% compared to 114.9% for the same prior year period.

Home closing revenue of $416.8 million in the three months ended September 30, 2024 was down 7.9% from the prior year period, as the higher volume was offset by a 13.6% decrease in ASP on closings due to product mix shift and higher utilization of incentives.

Home order volume decreased 6.2% to 1,031 homes in the three months ended September 30, 2024 as a 9.8% decrease in average active communities outweighed the 2.2% orders pace improvement to 4.6 homes per month.

Home order value of $366.5 million in the three months ended September 30, 2024 declined 13.8% from $425.2 million in the prior

year quarter due the combined impact of lower home order volume and an 8.1% decrease in ASP on orders caused by product mix shift to more entry-level homes and increased utilization of financing incentives.

The Central Region cancellation rate of 11% in the three months ended September 30, 2024 improved from 13% in the three months ended September 30, 2023.

Year-to-date, the Central Region closed 3,606 homes, an 11.2% increase over prior year, and had relatively flat home closing revenue of $1.3 billion for the nine months ended September 30, 2024 and 2023, respectively, as the increase in volume was muted by a 12.1% decrease in ASP on closings.

Home order volume increased 6.3%, partially offset by an 8.7% drop in ASP on orders, leading to a 2.9% overall decrease in home order value of $1.2 billion.

Order volume benefited from a 9.1% increase in orders pace to 4.8 homes per month that was partially offset by a 3.2% decrease in average active communities.

The year-to-date cancellation rate of 11% for the nine months ended September 30, 2024 improved from 14% in the prior year period.

The Central Region ended the quarter with 603 units in backlog valued at $223.9 million, down 36.9% and 39.5%, respectively, compared to September 30, 2023, due to the higher backlog conversion rate discussed previously.

During the three months ended September 30, 2024, the East Region closed 1,548 homes for $574.5 million, compared to 1,364 closings and $550.8 million in home closing revenue in the comparable prior year period.

The 13.5% increase in volume, largely benefiting from the 127.2% backlog conversion rate, was partially offset by an 8.1% lower ASP on home closings.

The decline in ASP on home closings was due to product mix shift and increased financing incentives.

Home orders of 1,414 in the three months ended September 30, 2024 increased 1.7% due to a 13.4% higher average active community count offset by an 11.6% lower orders pace of 3.8 homes for the three months ended September 30, 2024.

The decrease in orders pace was a function of the timing of community openings and closings.

Order value of $538.1 million in the three months ended September 30, 2024, was down 2.1% from $549.3 million in the prior year period due to the 1.7% higher volume, partially offset by the 3.7% lower ASP on orders.

The combination of product mix shift and increased financing incentives led to the lower ASP on orders.

The East Region cancellation rate of 10% in the three months ended September 30, 2024 was up from 8% in the same prior year period but still well below our historical company average.

For the nine months ended September 30, 2024, the East Region saw improvements in home closing volume and revenue of 16.6% and 11.2% improvements in, respectively, compared to the 2023 period, closing 4,462 homes for $1.7 billion in home closing revenue for the nine months ended September 30, 2024.

Home order volume increased 18.6% due to an 11.8% increase in average active communities coupled with a 4.9% higher orders pace for the nine months ended September 30, 2024.

The higher order volume led to a 13.4% increase in home order value of $1.7 billion, as ASP on orders declined 4.4% due to a higher mix of entry-level homes.

Year-to-date, the East Region's cancellation rate of 8% saw a significant drop from 11% in the prior year.

The East Region ended the third quarter of 2024 with 1,083 homes in backlog valued at $421.5 million, down 26.5% and 30.7%, respectively, from 1,473 homes valued at $608.6 million at September 30, 2023.

In the three months ended March 31, 2025, we closed 3,416 homes, down 2.6% from 3,507 closings in the three months ended March 31, 2024.

The decrease in home closing volume combined with a 6.0% lower ASP on closings led to $1.3 billion in home closing revenue for the three months ended March 31, 2025, 8.5% lower than the same period in 2024.

The decline in ASP on closings was caused by increased utilization of financing incentives.

Home order volume in the three months ended March 31, 2025 of 3,876 homes was 2.9% lower than 3,991 homes in the three months ended March 31, 2024, due to a 10.2% lower orders pace of 4.4 net homes per month in the three months ended March 31, 2025 compared to 4.9 in 2024, which was offset by a 6.8% increase in average active communities.

The decline in ASP on orders was driven by increased financing incentives, similar to ASP on home closings.

Order cancellations of 9% for the three months ended March 31, 2025 were relatively flat with 8% in the three months ended March 31, 2024;

the current run rate for cancellations across the company is below our historical company average and we believe that this demonstrates the shorter timeline between home order and home closing that's a product of our move-in ready homes with a 60-day closing ready commitment.

The quarter ended with 2,004 homes in backlog valued at $812.4 million, compared to 3,033 units valued at $1.2 billion at March 31, 2024.

The lower backlog year over year is a result of the increase in our backlog conversion rate, as we are selling spec homes later in the construction cycle.

The West Region generated $479.6 million in home closing revenue in the three months ended March 31, 2025, a 7.0% decrease compared to the $515.6 million in prior year period.

The lower revenue was due to lower ASP on closings and 1.6% lower volume of 998 homes in the three months ended March 31, 2025, compared to 1,014 homes in the prior year period.

The 5.5% year over year decline in ASP is due to increased use of financing incentives and geographic mix within the region.

Home orders for the three months ended March 31, 2025 of 1,093 were down 6.6% from 1,170 in the prior year, resulting from a 14.6% decrease in orders pace to 4.1 net homes per month, which was offset by a 9.3% higher average active community count.

Home order value of $539.6 million for the first quarter of 2025 decreased 7.1% due to the lower order volume on a relatively consistent ASP on orders, the combined effect of increased utilization of financing incentives and a shift in geographic mix within the region.

The West Region cancellation rate of 7% in the three months ended March 31, 2025 improved from 9% in the prior year.

The West Region ended the first quarter of 2025 with 530 homes in backlog valued at $262.6 million, compared to 902 units valued at $440.0 million at March 31, 2024.

The lower backlog is due entirely to a higher backlog conversion rate of 229.4% for the three months ended March 31, 2025 compared to 135.9% in the same period of 2024.

The Central Region closed 1,187 homes in the three months ended March 31, 2025, down 8.3% from 1,295 in the prior year period.

Home closing revenue of $412.5 million in the three months ended March 31, 2025 was down 14.7% from $483.8 million in the prior year period, due to the combined impact of lower home closing volume and a 7.0% decrease in ASP on closings.

The decline in ASP on closings is a result of higher utilization of incentives.

Home order volume decreased 9.0% to 1,365 homes in the three months ended March 31, 2025 as 10.9% lower average active communities outweighed the 1.9% improvement in orders pace to 5.3 net homes per month.

Home order value of $489.2 million in the three months ended March 31, 2025 declined 12.0% from $556.2 million in the prior year quarter due the combined impact of lower home order volume and an 3.3% decrease in ASP on orders caused by increased utilization of financing incentives.

The Central Region cancellation rate of 9% in the three months ended March 31, 2025 was flat year over year.

The Central Region ended the quarter with 659 units in backlog valued at $242.9 million, down 37.0% and 37.8%, respectively, compared to March 31, 2024, due to a higher backlog conversion rate of 246.8% in the first quarter of 2025 compared to 154.0% in the prior year quarter.

During the three months ended March 31, 2025, the East Region closed 1,231 homes for $449.9 million, compared to 1,198 closings and $466.7 million in home closing revenue in the comparable prior year period.

The 2.8% increase in volume was due to a higher average active community count in the first quarter of 2025 combined with an increase in the percentage of orders that converted to closings within the same quarter.

The higher volume was offset by a 6.2% lower ASP on home closings, resulting in a 3.6% decrease in home closing revenue.

The East Region's lower ASP on home closings was due to greater utilization financing incentives and geographic mix shift within the region.

The East Region was the only region with improved home order volume over prior year, with orders of 1,418 for the three months ended March 31, 2025, including our first orders from the new divisions in Alabama and Mississippi, and increasing 7.3% over prior year due entirely to a 22.5% higher average active community count, which was partially offset by a 13.0% lower orders pace of 4.0 net homes per month compared to 4.6 in the prior year.

Order value of $529.4 million in the three months ended March 31, 2025 increased 7.1% from $494.2 million in the prior year period due to the higher volume and a consistent ASP on orders year over year.

The East Region cancellation rate of 10% in the three months ended March 31, 2025 was up from 8% in the same prior year period.

The East Region ended the first quarter of 2025 with 815 homes in backlog valued at $306.8 million, down 24.9% and 25.8%, respectively, from 1,085 homes valued at $413.5 million at March 31, 2024.

The East Region had a backlog conversion rate of 196.0% in the first quarter of 2025 compared to 124.5% in the prior year quarter.

Land Closing Revenue and Gross Profit (in thousands)

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

2024 2023 2024 2023

Three Months Ended March 31,

Land closing revenue $ 15,421 $ 2,305

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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.

Therefore, the timing of land closings is not typically consistent between periods.

Other Operating Information (dollars in thousands)

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

2024 2023 2024 2023

Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue

Three Months Ended March 31,

Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue

Home Closing Gross Profit (1)

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Companywide .

Home closing gross profit for the three months ended September 30, 2024 was $392.6 million, with a home closing gross margin of 24.8%, down 190 basis points from 26.7% in the three months ended September 30, 2023.

The margin decline was due to the combined effect of higher lot costs, increased utilization of financing incentives and, to a lessor extent, reduced leverage of fixed costs on lower home closing revenue, which were partially offset by cost savings and shorter construction cycle times.

For the nine months ended September 30, 2024, gross profit of $1.2 billion and margin of 25.5% increased from $1.1 billion and 24.7% in nine months ended September 30, 2023, for a gross margin improvement of 80 basis points, due to lower direct costs, leverage of higher home closing revenue on overhead costs and shorter construction cycle times, partially offset by higher lot costs.

The West Region had home closing gross margin of 23.3% for the three months ended September 30, 2024, flat with the three months ended September 30, 2023, as higher lots costs offset the savings in direct costs and shorter construction cycle times.

Year-to-date gross margin improved 300 basis point to 23.2% in 2024 compared to 20.2% in 2023 due to direct cost savings, leverage of higher home closing revenue on overhead costs and shorter construction cycle times, all of which were partially offset by higher lot costs.

Additionally, home closing gross margin for both the three and nine month periods ended September 30, 2023 were negatively impacted by significant financing incentives to address affordability concerns.

The Central Region home closing gross margin of 26.1% for the three months ended September 30, 2024 decreased 230 basis points from 28.4% in the prior year quarter as a result of increased utilization of financing incentives, higher lot costs and reduced leverage of fixed costs on lower home closing revenue, which were partially offset by direct cost savings and shorter construction cycle times.

Year-to-date, the Central Region gross margin of 26.8% in 2024 was relatively consistent with 27.0% in 2023.

The East Region home closing gross margin of 25.3% for the three months ended September 30, 2024, down 370 basis points from 29.0% for the comparable 2023 period, due to higher lot costs and utilization of financing incentives, which more than offset savings in direct costs and leverage of higher home closing revenue on overhead costs.

For the nine months ended September 30, 2024, East Region home closing gross margin of 26.8% decreased 30 basis points as lower direct costs and leverage of higher home closing revenue on overhead costs were exceeded by higher lot costs.

Financial Services Profit (in thousands)

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

2024 2023 2024 2023

Financial services profit $ 3,101 $ 5,700 $ 7,248 $ 6,066

Home closing gross profit for the three months ended March 31, 2025 was $295.7 million, with a home closing gross margin of 22.0%, down 380 basis points from 25.8% in the three months ended March 31, 2024.

The margin decline in all regions was due to the combined effect of increased utilization of financing incentives, reduced leverage of fixed costs on lower home closing revenue, and higher lot costs, which were partially offset by savings in direct costs.

Financial Services Profit/(Loss) (in thousands)

Three Months Ended March 31,

Financial services profit/(loss) $ 3,563 $ (690)

Financial services profit represents the net profit/(loss) 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, Inc., respectively, as well as our portion of earnings from a mortgage joint venture.

Financial services profit of $3.1 million in the three months ended September 30, 2024 decreased $2.6 million from $5.7 million in the same prior year period, primarily due to current period charges of $3.0 million related to expired interest rate forward commitments, which were offset by higher profits for both the title and insurance companies as a result of higher home closing volume.

There were no charges related to expired interest rate forward commitments in the third quarter of 2023.

Similar to the third quarter results, year-to-date financial services profit increased $1.2 million as greater title and insurance company profits were offset by higher charges related to unused interest rate forward commitments of $10.9 million in the nine months ended September 30, 2024 compared to $9.8 million in the prior year period.

Financial services profit of $3.6 million in the three months ended March 31, 2025 increased $4.3 million from financial services loss of $0.7 million in the same prior year period.

The favorable variance year over year is entirely attributable to $5.8 million of charges related to expired interest rate forward commitments in the prior year period, compared to $0.4 million in the current period.

Selling, General and Administrative Expenses and Other Expenses (dollars in thousands)

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

2024 2023 2024 2023

Three Months Ended March 31,

Commissions and other sales costs $ (94,720) $ (101,550)

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Other income, net $ 9,498 $ 9,022

Loss on early extinguishment of debt $ — $ (907) $ (631) $ (907)

Provision for income taxes $ (37,353) $ (47,999)

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Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs.

These costs decreased $1.2 million to $97.9 million in the three months ended September 30, 2024 compared to the prior year period, primarily due to decreased commissions expense on lower home closing revenue, partially offset by increased costs associated with maintaining higher levels of spec inventory.

Commissions and other sales costs were 6.2% of home closing revenue in both third quarter periods.

For the nine months ended September 30, 2024, commissions and other sales costs of $304.1 million were 6.4% of home closing revenue, increases of $26.3 million and 10 basis points, respectively, due to higher home closing revenue and increased costs associated with maintaining higher levels of spec inventory.

These costs decreased $6.8 million to $94.7 million in the three months ended March 31, 2025 compared to the prior year period, primarily due to decreased commissions expense on lower home closing revenue.

Commissions and other sales costs were 7.1% and 6.9% of home closing revenue in the three months ended March 31, 2025 and 2024, respectively, due to higher maintenance and utility costs associated with having more spec homes in inventory.

The increase in spec home inventory and related costs was anticipated with our new 60-day closing ready commitment in order to have sufficient inventory available.

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 September 30, 2024, general and administrative expenses of $59.2 million decreased $3.9 million from $63.1 million in the prior year period, and as a percentage of home closing revenue improved 20 basis points to 3.7% due primarily to lower expense associated with performance based compensation.

For the nine months ended September 30, 2024, general and administrative expenses of $163.1 million increased $0.4 million, but as a percentage of home closing revenue improved 30 basis points due to leverage of higher home closing revenue on fixed overhead expenses and lower performance based compensation expense.

For the three months ended March 31, 2025, general and administrative expenses of $57.0 million increased $6.3 million from $50.7 million in the prior year period, and as a percentage of home closing revenue increased 70 basis points to 4.2% due to increased spend on new technology and expenses associated with the start up of our new divisions in Alabama and Mississippi.

Interest Expense.

Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes, loans payable and other borrowings, and our revolving credit facility agreement ("Credit Facility").

We recognized no interest expense for the three and nine months ended September 30, 2024 and 2023 because all interest was capitalized to qualifying assets.

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

We recognized no interest expense for the three months ended March 31, 2025 and 2024, as all interest incurred was capitalized to qualifying assets.

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 $10.7 million and $13.3 million for the three months ended September 30, 2024 and 2023, respectively, and $31.2 million and $35.0 million for the nine months ended September 30, 2024 and 2023, respectively.

The decreases in both the three and nine month periods ended September 30, 2024 are due to less interest earned on a lower average cash balance.

Loss on Early Extinguishment of Debt.

For the three and nine months ended September 30, 2024, there was zero and $0.6 million loss on early extinguishment of debt, respectively, related to the May 2024 $250.0 million final redemption of our 2025 Notes.

For the three and nine months ended September 30, 2023, loss on early extinguishment of debt of $0.9 million was related to the $150.0 million partial redemption of our 2025 Notes.

See Note 6 to the unaudited consolidated financial statements included in this report for more information related to the redemption of our 2025 Notes.

Other income, net was $9.5 million and $9.0 million for the three months ended March 31, 2025 and 2024, respectively.

Income Taxes.

Our effective tax rate was 21.6% and 22.4% for the three months ended September 30, 2024 and 2023, respectively, and was 21.5% and 21.8% for the nine months ended September 30, 2024 and 2023.

The rate for all periods reflect energy-efficient homes tax credits on qualifying homes under the Internal Revenue Code ("IRC") §45L energy-efficient homes federal tax credit.

Our effective tax rate was 23.3% and 20.5% for the three months ended March 31, 2025 and 2024, respectively.

The higher rate in the three months ended March 31, 2025 reflects fewer homes qualifying for energy tax credits under the Internal Revenue Code ("IRC") §45L energy-efficient homes federal tax credit, given the new higher construction thresholds required to earn these tax credits beginning in 2025.

Liquidity and Capital Resources

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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.

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.

At March 31, 2025, we had $1.0 billion of cash and cash equivalents and $770.6 million available under the Credit Facility, thereby providing approximately $1.8 billion of total available capacity.

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 common stock repurchases.

Although we don't anticipate any early redemptions in the near term, we may opportunistically retire or redeem a portion of our senior notes.

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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 and convertible 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.

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

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of September 30, 2024, while others are considered future commitments for materials or services not yet provided.

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of March 31, 2025, 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 and convertible senior notes, loans payable and other borrowings, including our Credit Facility, letters of credit and surety bonds and operating leases.

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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, senior and convertible 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.

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.

For information about our loans payable and other borrowings, including our Credit Facility, senior and convertible senior notes, reference is made to Notes 5 and 6 in the notes to 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 - Leases in the consolidated financial statements included in our Annual Report.

Reference is made to Notes 1, 3, 4, and 15 in the notes to 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.

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

We had no derivative financial instruments that required derivative accounting under ASC 815-10, Derivatives and Hedging , at September 30, 2024 or December 31, 2023.

We had no derivative financial instruments that required derivative accounting under ASC 815-10, Derivatives and Hedging , at March 31, 2025 or December 31, 2024.

Operating Cash Flow Activities

During the nine months ended September 30, 2024, net cash used in operating activities totaled $128.0 million, versus net cash provided by operating activities of $460.1 million for the nine months ended September 30, 2023.

Operating cash flows in the nine months ended September 30, 2024 benefited from cash generated by net earnings of $613.5 million, which were offset by a $723.8 million increase in real estate.

Operating cash flows in the nine months ended September 30, 2023 benefited from cash generated from net earnings of $539.9 million and were partially offset by a $137.5 million increase in real estate.

During the three months ended March 31, 2025, net cash used in operating activities totaled $42.6 million, versus net cash provided by operating activities of $81.9 million for the three months ended March 31, 2024.

Operating cash flows in the three months ended March 31, 2025 benefited from cash generated by net earnings of $122.8 million, which were offset by increases in real estate and deposits on real estate under option or contract of $60.8 million and $62.2 million, respectively.

Operating cash flows in the three months ended March 31, 2024 benefited from cash generated from 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.

Investing Cash Flow Activities

During the nine months ended September 30, 2024 and 2023, net cash used in investing activities totaled $31.4 million and $34.7 million.

Cash used in investing activities in the first nine months of 2024 was mainly attributable to purchases of property and equipment of $21.2 million and investments in unconsolidated entities of $10.4 million.

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

During the three months ended March 31, 2025 and 2024, net cash used in investing activities totaled $11.4 million and $7.8 million, respectively.

Cash used in investing activities in both periods was mainly attributable to purchases of property and equipment and investments in unconsolidated entities.

Financing Cash Flow Activities

During the nine months ended September 30, 2024, net cash provided by financing activities totaled $69.8 million as compared to net cash used in financing activities of $238.2 million for the nine months ended September 30, 2023.

The net cash provided by financing activities in 2024 primarily reflects the net proceeds of $557.7 million from the issuance of our 1.75% Convertible Senior Notes due 2028, offset by the early redemption of our 2025 Notes of $250.0 million principal and $61.8 million for the purchase of capped calls, along with $85.9 million of share repurchases and $81.6 million of dividends paid.

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, $55.0 million in share repurchases and $29.7 million of dividends paid.

During the three months ended March 31, 2025, net cash provided by financing activities totaled $414.1 million as compared to net cash used in financing activities of $90.1 million for the three months ended March 31, 2024.

The net cash provided by financing activities in 2025 primarily reflects the net proceeds of $492.1 million from the issuance of our 5.650% Senior Notes due 2035, offset by $45.0 million of share repurchases and $30.9 million of dividends paid.

The net cash used in financing activities in 2024 includes $27.2 million of dividends paid and $55.9 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.

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Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands):

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Senior and convertible senior notes, net, loans payable and other borrowings $ 1,835,268 $ 1,335,878

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Net debt-to-capital (2)

13.7 % 11.7 %

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

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

During the three months ended September 30, 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.

Quarterly dividends declared and paid during the nine months ended September 30, 2024 and 2023 totaled $2.25 and $0.81 per share, respectively.

During the three months ended March 31, 2025 and 2024, our Board of Directors approved, and we paid, a quarterly cash dividend on common stock of $0.43 and $0.375 per share, respectively.

Credit Facility Covenants

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The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of $3.3 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 September 30, 2024.

Our actual financial covenant calculations as of September 30, 2024 are reflected in the table below.

We were in compliance with all Credit Facility covenants as of March 31, 2025.

Our actual financial covenant calculations as of March 31, 2025 are reflected in the table below.

Financial Covenant (dollars in thousands):

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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.

We typically take orders for more homes in the first half of the year than in the second half, which has created additional working capital requirements in the first and second quarters to build our inventories to satisfy seasonally higher demand with our 60-day closing ready commitment homes.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis