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Item 2. Management’s Discussion and Analysis

2025-07-25 compared with 2025-04-25 · 182 added, 107 removed, 193 unchanged (60% of the section changed)

1 unchanged sentence

Overview and Outlook

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.

The macroeconomic landscape in the second quarter of 2025 created a tougher backdrop for the homebuilding sector, with elevated mortgage interest rates, an increase in the supply of resale inventory available and diminished consumer confidence.

We were able to navigate these challenging conditions by leaning in to our strategy to more effectively compete with the resale market with a sufficient inventory of affordable, move-in ready homes with a 60-day closing ready commitment and a willingness to work with third party brokers, who facilitate most residential real estate transactions in the U.S.

This strategy allows us 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.

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 second 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 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.

We achieved our highest second quarter home closing units volume of 4,170 homes in the three months ended June 30, 2025 increasing 1.3% from 4,118 homes in the same prior year period.

The higher closing volume was offset with a 5.8% decrease in average sales price ("ASP") on closings for $1.6 billion in home closing revenue, a 4.6% decline from $1.7 billion in the three months ended June 30, 2024.

The lower ASP is a result of increased utilization of incentives and contributed to the second quarter 2025 home closing gross margin decline of 480 basis points to 21.1%, compared to 25.9% in the prior year period.

The decrease in home closing gross margin was a result of higher lot costs as well as charges incurred related to terminated land contracts, all of which were partially offset by savings in direct costs, leading to Home closing gross profit of $341.3 million in the second quarter 2025 compared to $439.5 million in the prior year period.

Land closing gross loss was a nominal $0.7 million in the second quarter of 2025, and there was no land closing activity in the second quarter of 2024.

Financial services profit of $5.6 million in the three months ended June 30, 2025 increased compared to $4.8 million in 2024.

Commissions and other sales costs of $108.8 million in the three months ended June 30, 2025 increased $4.2 million due primarily to higher commission rates and higher maintenance and utility costs of having more spec homes in inventory.

General and administrative expenses of $55.2 million in the three months ended June 30, 2025 increased $2.0 million from $53.2 million in the same period of 2024 due primarily to incremental start-up costs for our new divisions in Alabama and Mississippi.

Earnings before income taxes for the three months ended June 30, 2025 of $193.1 million decreased $104.3 million year over year from $297.4 million in the same period of 2024.

The effective income tax rate of 23.9% for the three months ended June 30, 2025 increased from 22.1% 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 $146.9 million in the three months ended June 30, 2025 versus $231.6 million in the three months ended June 30, 2024.

For the six months ended June 30, 2025, home closing units volume was relatively flat with prior year and home closing revenue decreased 6.4% due to a 5.9% lower ASP on closings.

Home closing gross margin of 21.5% decreased 440 basis points year over year, for a $180.5 million decrease in Home closing gross profit due to greater utilization of financing incentives, higher lot costs, reduced leverage of fixed costs on lower Home closing revenue, and increased charges incurred related to terminated land contracts, all of which were partially offset by savings in direct costs and improved construction cycle times.

Year to date, Commissions and other sales costs were 6.9% of home closing revenue, 40 basis points higher than the comparable 2024 period, for the same reasons noted above.

General and administrative expenses for the six months ended June 30, 2025 as a percentage of Home closing revenue were 50 basis points higher than the six months ended June 30, 2024 due to reduced leverage of fixed costs on lower Home closing revenue and greater spend on new technology.

margin and profitability and a higher effective tax rate of 23.6% led to net income of $269.7 million for the six months ended June 30, 2025, compared to $417.6 million for the comparable 2024 period.

Home orders of 3,914 for the three months ended June 30, 2025 increased 3.0% from 3,799 home orders in the prior year quarter due to a 7.1% increase in average active communities, which was partially offset by a decrease in orders pace of 4.3 net homes per month in the second quarter of 2025 from 4.5 in the prior year period.

While this decrease reflects the tougher selling environment, it is still above our targeted orders pace of 4.0 net homes per month.

Home order value during the three months ended June 30, 2025 of $1.5 billion decreased 1.7% year-over-year, as the higher order volume was offset by a 4.5% decrease in ASP on orders.

Reduced ASP is a result of the financing incentives as discussed previously.

Our cancellation rate of 10% in the second quarter of 2025 was consistent with the second quarter of 2024 and below the Company's historical average.

We ended the second quarter of 2025 with 1,748 homes in backlog valued at $695.5 million, decreases of 35.6% and 37.3%, respectively, from June 30, 2024.

The lower backlog units is directly tied to the backlog conversion rate of 208% during the second quarter of 2025, compared to 136% in the same quarter of 2024.

The decrease in backlog and higher backlog conversion rate is a direct output of 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 second quarter of 2025, approximately 58% were sold within the same quarter, compared to approximately 41% in the prior year period.

We ended the second quarter of 2025 with 312 active communities, up from 287 at June 30, 2024.

We purchased approximately 4,600 lots for $234.0 million, spent $275.4 million on land development, net of reimbursements, and started construction on 7,684 homes during the six months ended June 30, 2025.

Company Positioning

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• 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;

We ended the second quarter of 2025 with a 25.8% debt-to-capital ratio and a 14.6% 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;

3 unchanged sentences

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.

There have been no significant changes to our critical accounting estimates during the six months ended June 30, 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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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

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

2025 2024 Change $ Change %

12 unchanged sentences

Average sales price $ 359.3 $ 383.9 $ (24.6) (6.4) %

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

Six Months Ended June 30, Quarter over Quarter

2025 2024 Change $ Change %

Dollars $ 2,957,813 $ 3,159,834 $ (202,021) (6.4) %

Homes closed 7,586 7,625 $ (39) (0.5) %

Average sales price $ 389.9 $ 414.4 $ (24.5) (5.9) %

Dollars $ 1,028,841 $ 1,138,469 $ (109,628) (9.6) %

Homes closed 2,163 2,279 $ (116) (5.1) %

Average sales price $ 475.7 $ 499.5 $ (23.8) (4.8) %

Central Region

Dollars $ 892,962 $ 1,012,150 $ (119,188) (11.8) %

Homes closed 2,561 2,735 $ (174) (6.4) %

Average sales price $ 348.7 $ 370.1 $ (21.4) (5.8) %

Dollars $ 1,036,010 $ 1,009,215 $ 26,795 2.7 %

Homes closed 2,862 2,611 $ 251 9.6 %

Average sales price $ 362.0 $ 386.5 $ (24.5) (6.3) %

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

2025 2024 Change $ Change %

Dollars $ 1,547,438 $ 1,573,456 $ (26,018) (1.7) %

Homes ordered 3,914 3,799 115 3.0 %

10 unchanged sentences

Average sales price $ 363.7 $ 386.3 $ (22.6) (5.9) %

Six Months Ended June 30, Quarter over Quarter

2025 2024 Change $ Change %

Dollars $ 3,105,615 $ 3,204,651 $ (99,036) (3.1) %

Homes ordered 7,790 7,790 — — %

Average sales price $ 398.7 $ 411.4 $ (12.7) (3.1) %

Dollars $ 1,024,350 $ 1,138,101 $ (113,751) (10.0) %

Homes ordered 2,094 2,284 (190) (8.3) %

Average sales price $ 489.2 $ 498.3 $ (9.1) (1.8) %

Central Region

Dollars $ 964,435 $ 1,027,223 $ (62,788) (6.1) %

Homes ordered 2,663 2,774 (111) (4.0) %

Average sales price $ 362.2 $ 370.3 $ (8.1) (2.2) %

Dollars $ 1,116,830 $ 1,039,327 $ 77,503 7.5 %

Homes ordered 3,033 2,732 301 11.0 %

Average sales price $ 368.2 $ 380.4 $ (12.2) (3.2) %

(1) Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations.

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Order Backlog (1)

At March 31, Quarter over Quarter

At June 30, Quarter over Quarter

2025 2024 Change $ Change %

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Active Communities and Cancellation Rates

Active Communities Three Months Ended March 31,

Ending Average Ending Average

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

2025 2024 2025 2024

Ending Average Ending Average Ending Average Ending Average

Total 312 301.0 287 281.0 312 297.8 287 277.2

3 unchanged sentences

Cancellation Rates (2)

Three Months Ended March 31,

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

2025 2024 2025 2024

Total 10 % 10 % 9 % 9 %

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Companywide .

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.

In the three months ended June 30, 2025, we closed 4,170 homes, up 1.3% from 4,118 closings in the three months ended June 30, 2024.

The decrease in home closing volume combined with a 5.8% lower ASP on closings led to $1.6 billion in home closing revenue for the three months ended June 30, 2025, 4.6% lower than the same period in 2024.

Home order volume in the three months ended June 30, 2025 of 3,914 homes was 3.0% higher than 3,799 homes in the three months ended June 30, 2024, due to a 7.1% increase in average active communities, which was partially offset by a 4.4% lower orders pace of 4.3 net homes per month in the three months ended June 30, 2025 compared to 4.5 in the same period in 2024.

The improvement in home order volume offset by a 4.5% lower ASP on orders led to home order value of $1.5 billion for the three months ended June 30, 2025, down by 1.7% from the prior year period.

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

Order cancellations of 10% for the three months ended June 30, 2025 was consistent year over year.

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

For the six months ended June 30, 2025, home closing volume of 7,586 closings was relatively flat year over year, and ASP on closings decreased 5.9%, leading to home closing revenue of $3.0 billion, down 6.4% from $3.2 billion in the prior year period.

Home order volume of 7,790 for the six months ended June 30, 2025 was consistent with the prior year period, which with a 3.1% lower ASP on orders led to a 3.1% decrease in home order value of $3.1 billion.

We ended the second quarter of 2025 with 312 actively selling communities, up from 287 at June 30, 2024.

The quarter ended with 1,748 homes in backlog valued at $695.5 million, compared to 2,714 units valued at $1.1 billion at June 30, 2024.

The lower backlog year over year is a result of the significant improvement in our backlog conversion rate of 208% compared to 136% in the prior year period, as we are selling spec homes later in the construction cycle.

The West Region generated $549.2 million in home closing revenue in the three months ended June 30, 2025, a 11.8% decrease compared to the $622.8 million in the prior year period.

The lower revenue was driven by lower ASP on closings coupled with 7.9% lower closing volume of 1,165 homes in the three months ended June 30, 2025, compared to 1,265 homes in the prior year period.

Home orders for the three months ended June 30, 2025 of 1,001 were down 10.1% from 1,114 in the prior year period, resulting from an 11.4% decrease in orders pace to 3.9 net homes per month, reflecting the tougher selling environment, with a relatively flat average active community count year over year.

Home order value of $484.8 million for the second quarter of 2025 decreased 13.0% due to the lower order volume and a 3.2% lower ASP on orders.

The decline in ASP on both closings and orders was the combined effect of increased utilization of financing incentives and a shift in geographic mix within the region.

The West Region cancellation rate of 9% in the three months ended June 30, 2025 improved from 10% in the prior year.

For the six months ended June 30, 2025, home closing revenue of $1.0 billion decreased 9.6% due to a 5.1% decrease in home closing volume and a 4.8% lower ASP on closings resulting from the same reasons as noted above for the second quarter.

Home order volume in the West Region of 2,094 decreased 8.3% as a 14.9% decrease in orders pace to 4.0 net homes per month, reflecting the tougher selling environment, was partially offset by a 6.2% increase in the number of average actively selling communities.

Home order value of $1.0 billion was down 10.0% due the lower volume and a 1.8% decrease in ASP.

The year-to-date cancellation rate of 8% improved from 9% in the prior year period.

The West Region ended the second quarter of 2025 with 366 homes in backlog valued at $182.3 million, compared to 751 units valued at $367.4 million at June 30, 2024.

The lower backlog is due to a higher backlog conversion rate of 220% for the three months ended June 30, 2025 compared to 140% in the same period of 2024, and lower orders pace in 2025 year to date.

The Central Region closed 1,374 homes in the three months ended June 30, 2025, down 4.6% from 1,440 in the prior year period.

Home closing revenue of $480.4 million in the three months ended June 30, 2025 was 9.1% lower from $528.4 million in the prior year period, due to the combined impact of lower home closing volume and a 4.7% 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 March 31,

Home order volume increased 1.9% to 1,298 homes in the three months ended June 30, 2025 as a 13.0% improvement in orders pace of 5.2 homes per month more than offset the 9.2% drop in average active community count.

Home order value of $475.3 million in the three months ended June 30, 2025 was relatively flat with the prior year period.

The Central Region cancellation rate of 11% in the three months ended June 30, 2025 was down from 12% in the prior year period.

The Central Region had home closing revenue of $893.0 million for the six months ended June 30, 2025, 11.8% lower than the prior year due to a 6.4% decline in closing volume of 2,561 and a 5.8% decrease in ASP on closings.

ASP on closings decreased due to increased use of financing incentives during the six months ended June 30, 2025.

Home order volume decreased 4.0%, combined with a 2.2% drop in ASP on orders, leading to a 6.1% decrease in home order value of $964.4 million compared to $1.0 billion for the prior year period.

Order volume decreased as a result of a 9.2% decrease in average

active communities, which was partially offset by a 6.1% increase in orders pace to 5.2 net homes per month.

The year-to-date cancellation rate of 10% for the six months ended June 30, 2025 was consistent with the prior year period.

The Central Region ended the quarter with 583 units in backlog valued at $220.9 million, down 33.8% and 32.9%, respectively, compared to June 30, 2024, due to a higher backlog conversion rate of 209% in the second quarter of 2025 compared to 138% in the comparable prior year quarter, as well as lower order volume.

During the three months ended June 30, 2025, the East Region closed 1,631 homes for $586.1 million, up 15.4% and 8.0%, respectively from 1,413 closings and $542.5 million in home closing revenue in the comparable prior year period.

The higher closing volume was the result of a 26.2% higher average active community count in the second quarter of 2025 and a shorter order to close timeline.

The higher volume was partially offset by a 6.4% lower ASP on home closings, resulting from greater utilization of financing incentives.

The East Region improved home order volume over prior year by 14.5%, with orders of 1,615 for the three months ended June 30, 2025, due entirely to the higher average active community count, which was partially offset by an 8.9% lower orders pace of 4.1 net homes per month compared to 4.5 in the prior year.

Order value of $587.4 million in the three months ended June 30, 2025 increased 7.8% from $545.1 million in the prior year period due to the higher volume offset by a 5.9% decrease in ASP on orders year over year caused by increased use of financing incentives and geographic mix within the region.

The East Region cancellation rate of 10% in the three months ended June 30, 2025 was up from 8% in the same prior year period but remains lower than our historical company average.

For the six months ended June 30, 2025, the East Region saw improvements in home closing volume and revenue of 9.6% and 2.7%, respectively, compared to the 2024 period, closing 2,862 homes for $1.0 billion in home closing revenue for the six months ended June 30, 2025.

Home order volume increased 11.0% due to a 24.0% increase in average active communities, partially offset by an 11.1% lower orders pace of 4.0 net homes per month for the six months ended June 30, 2025, and includes our first orders from the new divisions in Alabama and Mississippi.

The higher order volume led to a 7.5% increase in home order value of $1.1 billion.

ASP on closing and orders both declined due to the increased use of financing incentives and geographic mix within the region.

Similar to the second quarter, the East Region's cancellation rate of 10% increased from 8% in the prior year.

The East Region ended the second quarter of 2025 with 799 homes in backlog valued at $292.3 million, down 26.2% and 29.2%, respectively, from 1,083 homes valued at $412.9 million at June 30, 2024.

The East Region had a backlog conversion rate of 200% in the second quarter of 2025 compared to 130% in the prior year quarter.

Land Closing Revenue and Gross (Loss)/Profit (in thousands)

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

2025 2024 2025 2024

Land closing revenue $ 8,277 $ — $ 23,698 $ 2,305

Land closing gross profit $ 3,165 $ 7

Land closing gross (loss)/profit $ (719) $ — $ 2,446 $ 7

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.

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Other Operating Information (dollars in thousands)

Three Months Ended March 31,

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

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

2025 2024 2025 2024

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

Home Closing Gross Profit (1)

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Companywide .

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)

Home closing gross profit for the three months ended June 30, 2025 was $341.3 million, with a home closing gross margin of 21.1%, down 480 basis points from 25.9% in the three months ended June 30, 2024.

The margin decline in all regions was due to the combined impact of increased utilization of financing incentives that resulted in lower ASPs, and higher lot costs, which were partially offset by savings in direct costs and improved construction cycle time.

Home closing gross margin was also negatively impacted in the three months ended June 30, 2025 by $4.2 million of charges related to terminated land contracts, compared to $1.4 million of charges in the three months ended June 30, 2024.

Excluding the charges related to terminated land contracts, adjusted home closing gross margin was 21.4% and 26.0%, for the three months ended June 30, 2025 and 2024, respectively.

For the six months ended June 30, 2025, home closing gross profit was $637.0 million, or 21.5%, down 440 basis points from 25.9% in the three months ended June 30, 2024.

The lower margin for in all regions for the six months ended June 30, 2025 resulted from the combined effect of increased utilization of financing incentives, reduced leverage of overhead costs on lower home closing revenue, and higher lot costs, which were partially offset by savings in direct costs.

Similar to the second quarter of 2025, the home closing gross margin for the six months ended June 30, 2025 included $5.6 million of charges related to terminated land deals, compared to $1.9 million in the same period of the prior year.

Excluding the charges related to terminated land contracts, adjusted home closing gross margin was 21.7% and 25.9%, for the six months ended June 30, 2025 and 2024, respectively.

Financial Services Profit (in thousands)

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

2025 2024 2025 2024

Financial services profit $ 5,611 $ 4,837 $ 9,174 $ 4,147

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 $3.6 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.

Financial services profit of $5.6 million in the three months ended June 30, 2025 increased $0.8 million from the prior year due to new divisions being serviced by our title company.

Financial services profit of $9.2 million for the six months ended June 30, 2025 increased $5.0 million from $4.1 million in the same prior year period.

The favorable variance year over year is entirely attributable to $7.8 million of charges related to expired interest rate forward commitments in the prior year period, compared to $2.1 million in the current period.

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

Three Months Ended March 31,

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

2025 2024 2025 2024

Commissions and other sales costs $ (108,830) $ (104,665) $ (203,550) $ (206,215)

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Other income, net $ 10,853 $ 11,498 $ 20,351 $ 20,520

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

Provision for income taxes $ (46,181) $ (65,806) $ (83,534) $ (113,805)

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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 $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.

These costs increased $4.2 million and 50 basis points, to $108.8 million and 6.7% of Home closing revenue in the three months ended June 30, 2025 compared to the prior year period.

Both increases were due to higher external broker commission rates due to the tougher selling environment, as well as higher maintenance and utility costs associated with having more spec homes in inventory.

Year to date, commissions and other sales costs were 6.9% and 6.5% of Home closing revenue in 2025 and 2024, respectively, due to higher commission rates and greater spec maintenance and utility costs for higher levels of spec inventory.

The increase in spec home inventory and associated overhead expenses is an output of 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 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.

For the three months ended June 30, 2025, General and administrative expenses of $55.2 million increased $2.0 million from $53.2 million in the prior year period, and as a percentage of Home closing revenue increased 30 basis points to 3.4%, due to reduced leverage of fixed costs on lower Home closing revenue, and expenses for our new divisions in Alabama and Mississippi.

For the six months ended June 30, 2025, General and administrative expenses of $112.2 million increased $8.3 million over the prior year, and as a percentage of home closing revenue increased 50 basis points to 3.8%.

The increase in the six month period was due to increased spend on new technology and lost leverage on lower home closing revenue.

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 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.

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

We recognized no interest expense for the three and six months ended June 30, 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 $9.5 million and $9.0 million for the three months ended March 31, 2025 and 2024, respectively.

Other income, net was $10.9 million and $11.5 million for the three months ended June 30, 2025 and 2024, respectively, and $20.4 million and $20.5 million for the six months ended June 30, 2025 and 2024, respectively.

Loss on Early Extinguishment of Debt.

For the three and six months ended June 30, 2025, there was no loss on early extinguishment of debt.

For the three and six months ended June 30, 2024, loss on early extinguishment of debt of $0.6 million was related to the $250.0 million redemption of our 6.00% Senior Notes due 2025 ("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.

Income Taxes.

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.

Our effective tax rate was 23.9% and 22.1% for the three months ended June 30, 2025 and 2024, respectively, and 23.6% and 21.4% for the six months ended June 30, 2025 and 2024, respectively.

The higher rate in the three and six months ended June 30, 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.

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.

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.

We strive to align our capital allocation and cash outlays with current market conditions.

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.

At June 30, 2025, we had $930.5 million of cash and cash equivalents and $815.0 million available under the Credit Facility, thereby providing approximately $1.7 billion of total available capacity.

Short-term Liquidity and Capital Resources

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

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of March 31, 2025, while others are considered future commitments for materials or services not yet provided.

Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of June 30, 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.

We have no material debt maturities until 2027.

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.

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.

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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 March 31, 2025 or December 31, 2024.

We had no derivative financial instruments that required derivative accounting under ASC 815-10, Derivatives and Hedging , at June 30, 2025 or December 31, 2024.

Operating Cash Flow Activities

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.

During the six months ended June 30, 2025 and 2024, net cash used in operating activities totaled $28.9 million and $36.0 million, respectively.

Operating cash flows in the six months ended June 30, 2025 benefited from cash generated by net earnings of $269.7 million, which were offset by a $224.6 million increase in real estate.

Operating cash flows in the six months ended June 30, 2024 benefited from cash generated from net earnings of $417.6 million, which were offset by a $450.6 million increase in real estate.

Investing Cash Flow Activities

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.

During the six months ended June 30, 2025 and 2024, net cash used in investing activities totaled $21.6 million and $19.6 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 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.

During the six months ended June 30, 2025 and 2024, net cash provided by financing activities totaled $329.4 million and of $127.4 million, respectively.

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 $90.0 million of share repurchases and $61.5 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.

The net cash provided by financing activities in the 2024 period 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 $55.9 million of share repurchases and $54.5 million of dividends paid.

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):

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Senior and convertible senior notes, net, loans payable and other borrowings $ 1,827,729 $ 1,335,878

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14.6 % 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.

(1) Debt-to-capital is computed as senior and convertible senior notes, net, 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.

(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 and convertible senior notes, net and loans payable and other borrowings, less cash and cash equivalents.

Net debt is comprised of total senior and convertible senior notes, net, 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.

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.

During the three months ended June 30, 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.

Quarterly dividends paid during the six months ended June 30, 2025 and 2024, totaled $0.86 and $0.75 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 March 31, 2025.

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

We were in compliance with all Credit Facility covenants as of June 30, 2025.

Our actual financial covenant calculations as of June 30, 2025 are reflected in the table below.

Financial Covenant (dollars in thousands):

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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.

While we expect the seasonal orders pattern to continue over the long term, a higher backlog conversion rate and our 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.

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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