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Item 7. Management’s Discussion and Analysis

2026-02-13 compared with 2025-02-20 · 181 added, 117 removed, 238 unchanged (56% of the section changed)

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Industry Conditions

The market for new homes was healthy in 2024 as the largest U.S.

population cohorts of the millennial, Gen Z and baby boomer generations continue to need affordable, move-in ready homes.

While demand was stable, volatile and elevated interest rates resulted in increased need for interest rate assistance for potential homebuyers to help with monthly mortgage affordability.

The ability to offer financing incentives, including interest rate locks and buy-downs, combined with a short supply of re-sale inventory available has shifted demand to the new home market in recent years.

We believe that our ability to offer financing incentives gives us a competitive advantage, particularly over resale homes, as individual home sellers are not typically able to provide such incentives, and that our all-spec strategy with a commitment to affordability can meet this demand, providing us with ample opportunity to capture and grow our market share.

Supply chain and labor market disruptions, shortages and other economic-related disruptions that impacted construction cycle times for the homebuilding industry during 2022 and 2023 stabilized in 2024.

Throughout 2024, we further reduced our construction cycle time, reaching normalized cycle times of approximately 120 days by the end of the year.

The increased capacity in supply chain has resulted in a decrease in some material costs over the past few years, and our higher volume allowed us to capture additional volume discounts from our national vendors.

Land costs were elevated in 2024 following several years of historically high land development activity and negatively impacted our margins.

We believe that the execution of our all-spec strategy of move-in ready homes with a commitment to affordability will drive strong performance of the key financial goals such as higher home closing revenue, strong home closing gross margin, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.

The market for new homes in 2025 was marked by much softer demand than anticipated, as affordability challenges persisted and consumer confidence deteriorated.

While demand for affordable, move-in ready homes from millennial, Gen Z and baby boomer generations continues, buyers are increasingly reliant on financing assistance to overcome market uncertainty and manage monthly payments.

Our ability to offer financing incentives, including interest rate locks and buy-downs, remains a key differentiator, primarily compared to resale homes, where individual sellers are typically not able to provide such incentives.

With our strategy to provide affordable, move-in ready homes that can close within 60 days, and a commitment to partner with third-party brokers, who facilitate most residential real estate transactions in the U.S., we believe we are well positioned to capture existing demand and grow our market share when demand improves.

During 2025, we further shortened our construction cycle times to under 110 calendar days, below our historical normalized time of approximately 120 days.

Our all-spec strategy minimizes variability and creates efficiencies through repeatability, which combined with increased capacity from declining market demand, were the drivers for this cycle time improvement.

Cycle time improvement was also supported by a healthy channel of materials available in the supply chain.

While material costs have eased, land costs remain elevated following years of historically high land acquisition and development costs.

Our scale and purchasing power allow us to secure volume discounts from national vendors, helping offset some of these cost pressures.

In response to the broader economic conditions, during the fourth quarter of 2025 we conducted an in-depth review of our land portfolio and elected to terminate certain positions to release capital to top-grade our land portfolio as better opportunities become available.

We also took steps to reduce our go-forward overhead costs, with a strategic focus on both cost savings and technological efficiencies for certain back-office functions.

As a result of these strategic reviews, we recognized charges on terminated land contracts of $39.4 million and severance costs totaling $8.4 million during the year ended December 31, 2025.

We believe that the execution of our all-spec strategy of move-in ready homes with a commitment to affordability will drive strong performance of our key financial goals such as strong home closing revenue and home closing gross margin, controlling selling, and general and administrative costs, and maintaining sufficient liquidity.

Summary Company Results

Our results for 2024 reflect the continuing favorable market conditions for affordable, move-in ready homes.

We ended 2024 with 15,611 closings, our highest closing volume in Company history, up 11.7% from 13,976 closings in 2023.

We also achieved record order volume of 14,606 units, up 10.7% over 13,193 in 2023, due to a 7.5% year-over-year increase in orders pace to 4.3 per month in 2024 combined with a 1.4% increase in average active community count.

Our strategy also favorably impacted cancellations as the length of time between sale and closing is shortened, contributing to a cancellation rate of 9.4% for the full year 2024, well below historical averages and improved from 12.8% for the full year 2023.

Reduced construction cycle times and our all spec strategy led to record backlog conversions throughout the full year 2024, resulting in 39.4% fewer homes in backlog at December 31, 2024, with 1,544 units valued at $629.5 million compared to 2,549 units valued at $1.1 billion at December 31, 2023.

Total home closing revenue of $6.3 billion for the year ended December 31, 2024 increased 4.7% from $6.1 billion in 2023, due to 11.7% higher home closing volume and 6.3% lower ASP on closings.

Home closing gross margin was 24.9% for the year ended December 31, 2024, consistent with 24.8% in 2023, as lower direct costs, leverage of higher home closing revenue on overhead costs and shorter construction cycle times were offset by greater utilization of financing incentives and higher lot costs.

Commissions and other sales costs of $409.1 million for the full year ended December 31, 2024 increased $24.2 million from the prior year period due to higher home closing revenue.

Commissions and other sales costs were 6.5% of home closing revenue in 2024, relatively consistent with the prior year.

General and administrative expenses of $230.9 million for the year ended December 31, 2024 were 3.6% of home closing revenue and improved 20 basis points year over year, primarily due to leverage of higher home closing revenue on fixed overhead expenses and lower performance-based compensation.

Other income, net of $45.2 million in 2024 decreased 5.8% from the prior year primarily due to lower interest income earned on smaller cash balances.

In May 2024 we redeemed the remaining $250.0 million of our 6.00% Senior Notes due 2025 (the "2025 Notes"), resulting in charges of $0.6 million reflected in Loss on early extinguishment of debt, compared with charges of $0.9 million in 2023.

Earnings before income taxes of $1.0 billion in 2024 increased 5.6% from $949.4 million in 2023.

Our effective tax rate for the year ended December 31, 2024 was 21.6% as compared to 22.2% in 2023, leading to net income of $786.2 million and $738.7 million for the years ended December 31, 2024 and 2023, respectively.

Despite a tougher economic backdrop, we ended 2025 with 15,026 closings, down 3.7% from 15,611 closings in 2024.

Home order volume for the year ended December 31, 2025 of 14,650 units was consistent with prior year, as an 11.6% increase in average active community count was mostly offset by a 9.3% year-over-year decrease in orders pace.

A cancellation rate of 11% in 2025 was higher than 9% in 2024, but still 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.

Reduced construction cycle times and our all spec strategy led to record backlog conversions throughout the full year 2025, resulting in 24.4% fewer homes in backlog at December 31, 2025, with 1,168 units valued at $440.6 million compared to 1,544 units valued at $629.5 million at December 31, 2024.

Total home closing revenue of $5.8 billion for the year ended December 31, 2025 decreased 9.1% from $6.3 billion in 2024, due to 3.7% fewer home closings and a 5.6% reduction in ASP on closings.

Home closing gross margin was 19.7% for the year ended December 31, 2025 compared to 24.9% in 2024.

The year-over-year margin decline was due to increased utilization of financing incentives, higher lot costs, and reduced leverage of fixed costs on lower home closing revenue, all of which offset savings in direct costs and faster cycle times.

Home closing gross margin was also impacted by $39.4 million in charges incurred related to terminated land contracts, $16.5 million of real estate-related impairments, and $4.3 million of severance costs.

Excluding these costs, adjusted home closing gross margin was 20.8% for the year ended December 31, 2025, compared to adjusted home closing gross margin of 25.0% in 2024 which included $6.7 million in terminated land contracts.

Financial services profit of $18.6 million increased from $14.4 million in the same period of 2024 due to fewer charges in the current period related to the expiration of interest rate forward commitments.

Commissions and other sales costs of $404.4 million for the full year ended December 31, 2025 decreased $4.7 million from the prior year period due to lower home closing revenue, offset by higher maintenance and utility costs as a result of having more spec homes in inventory.

General and administrative expenses of $211.8 million for the year ended December 31, 2025 decreased $19.1 million year over year, primarily due to lower performance-based compensation, which was partially offset by increased technology spend and severance costs.

Other income, net of $44.1 million in 2025 was relatively flat with prior year.

Earnings before income taxes of $584.6 million in 2025 decreased 41.7% from $1.0 billion in 2024.

Our effective tax rate for the year ended December 31, 2025

was 22.5% as compared to 21.6% in 2024, leading to net income of $453.0 million and $786.2 million for the years ended December 31, 2025 and 2024, respectively.

Company Positioning

We believe that the investments in our new communities designed for the first-time and first move-up homebuyer, our move-in ready homes with our recently introduced 60-day closing ready commitment, and our partnership with external realtors create a differentiated strategy that has aided us in our growth in the highly competitive new home market.

We believe that the investments in our communities designed for the first-time and first move-up homebuyer, our move-in ready homes with our recently introduced 60-day closing ready commitment, and our partnership with external realtors create a differentiated strategy that has aided us in our growth in the highly competitive new home market.

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

• 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;

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

• 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, move-in ready homes;

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

• Providing homebuyers with our 60-day closing ready commitment;

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

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

• Increasing homeowner satisfaction by offering energy-efficient homes that are cleaner and healthier.

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 potentially 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 year with a 20.6% debt-to-capital ratio and a 11.7% net debt-to-capital ratio, after issuing $575.0 million of convertible senior notes;

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

We ended the year with a 26.0% debt-to-capital ratio and a 16.9% net debt-to-capital ratio, after issuing $500.0 million of senior notes;

• 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 inclusion and belonging, 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

We have established various accounting policies that govern the application of United States generally accepted accounting principles (“GAAP”) in the preparation and presentation of our consolidated financial statements.

Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Form 10-K.

Our significant accounting policies are described in Note 1 of the accompanying consolidated financial statements included in this Annual Report.

Certain of these policies involve critical accounting estimates, which are significant judgments, assumptions and estimates by management in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

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Changes in estimates are revised when circumstances warrant.

Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements.

Such changes in estimates and refinements in methodologies are reflected in our reported results of operations and, if

material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements.

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

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

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

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

Real Estate Valuation and Cost of Home Closings

Real estate inventory is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by ASC 360-10, Property, Plant and Equipment.

Real estate inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any.

Real estate inventory is stated at cost unless the community or land is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment.

Real estate inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, and direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any.

Land and development costs are typically allocated and transferred to homes when home construction begins.

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Capitalized interest is included in cost of closings when the related inventory is closed.

Included within our Real estate inventory is land held for development and land held for sale.

Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future.

Included within our Real estate inventory is land held for development, land held for sale, and mothball communities.

Land held for development primarily represents land and development costs related to land where development activity is not currently underway but is expected to begin in the future.

For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years.

Mothball communities represent communities where we have elected to stop development of an existing actively selling community because we believe the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve.

We do not capitalize interest for these inactive assets, and all ongoing costs of land ownership (i.e.

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All of our land inventory and related real estate assets are periodically reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP.

Community-level reviews are performed quarterly to determine if indicators of potential impairment exist.

Existing communities.

Community-level reviews on active communities are performed quarterly, with the community review bifurcated between started and unstarted lots, to determine if indicators of potential impairment exist.

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

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

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

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

The impairment of a community is allocated across the remaining lots in the community and is recognized in Cost of home closings in the period in which the impairment is determined.

The fair value of the community’s assets is determined using either a market-based approach for projects to be sold or a discounted cash flow model for projects we intend to build out.

If a market-based approach is used, we determine fair value based on recent comparable purchase and sale activity in the local market, adjusted for variances as determined by our knowledge of the region and general real estate expertise.

If a discounted cash flow approach is used, we compute fair value using projections, estimates and observable and unobservable inputs such as (i) home selling prices in the community adjusted for current and expected sales discounts and incentives, (ii) costs related to the community — both land development and home construction — including costs spent to date and budgeted remaining costs to spend, (iii) projected sales absorption rates, reflecting any product mix change strategies implemented to stimulate the orders pace, (iv) expected cancellation rates, (v) alternative land uses including disposition of all or a portion of the land owned, if applicable, and (vi) discount rate, which is currently 10-14% and varies based on the perceived risk inherent in the community’s other cash flow assumptions.

These assumptions vary widely across different communities and geographies and are largely dependent on local market conditions.

Community-level factors that may impact our key estimates include:

• Our current experience in the market;

• The presence and significance of local competitors, including their offered product type, comparable lot size, remaining lots and competitive actions such as incentive offerings;

• Economic and related demographic conditions for the surrounding community, such as major employers;

• Desirability of the particular community, including unique amenities or other favorable or unfavorable attributes;

• Existing home inventory supplies for the surrounding community.

These local circumstances may significantly impact our assumptions and the resulting computation of fair value and are, therefore, closely evaluated by our division personnel in their preparation of the discounted cash flow models.

The models are also evaluated by regional and corporate personnel for consistency and integration, as decisions that affect pricing or absorption at one community may have resulting consequences for neighboring communities.

Mothball communities.

In certain cases, we may elect to stop development of an existing actively selling community (mothball) if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve.

The decision may be based on financial and/or operational metrics.

If we decide to mothball a community, we will impair it to its fair value, if applicable, as discussed above and then cease future development activity until such a time when management believes that market conditions have improved and economic performance will be maximized.

Impairment charges, if any, are recognized in Cost of home closings in the period in which the impairment is determined.

No costs are capitalized to communities that are designated as mothballed.

When a community is initially placed into mothball status, it is management’s belief that the community is affected by local market conditions that are expected to improve within the next 1-5 years.

Mothball communities are reviewed at least annually to determine if they are at risk of future impairment.

The financial and operational status and expectations of these communities are analyzed as well as any unique attributes that could be viewed as indicators for future impairments.

Adjustments are made accordingly and incremental impairments, if any, are recorded at each re-evaluation.

Land held for sale or future development.

Land held for sale or future development is reviewed at least annually to determine if it is at risk of future impairment.

Our assessments on land held for sale or land held for future development typically involve third-party valuations, such as broker opinions, and recent comparable land sales in the area.

Our assessments typically include highly subjective estimates for future performance, including the timing of development, the product to be offered, orders pace and selling prices of the product when the community is anticipated to open for sales, and the projected costs to develop and construct the community.

We evaluate various factors to develop our forecasts, including the availability of and demand for homes and finished lots within the surrounding community, historical, current and future sales trends, and third-party data, if available.

Based on these factors, we reach conclusions for future performance based on our judgment.

If land held for sale or future development is deemed to be impaired, impairment changes are recognized in the period in which the impairment is determined.

Impairments on land held for sale are recognized in Cost of land closings and impairments on land held for future development are recognized in Cost of home closings.

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

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A 10% increase in our warranty reserve rate would have increased our accrual and corresponding cost of home closings by approximately $1.9 million in 2025.

As a result of the routine review described previously, we decreased our reserve balance by $1.0 million related to specific case reserves during the year ended December 31, 2024.

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

As a result of the routine review described previously, there were no adjustments to our reserve balance during the year ended December 31, 2025, and we decreased our reserve balance by $1.0 million related to specific case reserves during the year ended December 31, 2024.

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

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We have not made any material changes in our methodology or significant assumptions used to record and evaluate our warranty reserves during the past three years.

Fiscal 2025 Compared to Fiscal 2024

For discussion of our fiscal 2024 results compared to our fiscal 2023 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our Annual Report on Form 10-K for the year ended December 31, 2024 .

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

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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.

For discussion of our fiscal 2023 results compared to our fiscal 2022 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our Annual Report on Form 10-K for the year ended December 31, 2023 .

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

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

Fiscal 2024 Compared to Fiscal 2023

Companywide .

We achieved record home closing volume of 15,611 units in 2024, compared to 13,976 units in 2023.

Home closing revenue of $6.3 billion for the year ended December 31, 2024 increased 4.7% from $6.1 billion in the prior period, as the 11.7% higher home closing volume was partially offset by a 6.3% lower ASP on closings.

The lower ASP on closings was caused by higher utilization of financing incentives and a shift in geographic and product mix.

Entry-level homes represented 91% of closings in 2024, compared to 85% in 2023.

We also achieved record orders in 2024, with 14,606 orders increasing 10.7% from 13,193 in 2024.

The improvement in order volume was driven primarily by a 7.5% increase in orders pace of 4.3 homes per month combined with a 1.4% increase in average active community count.

Higher order volume offset by a 5.3% decrease in ASP on orders led to a 4.8% increase in home order value of $6.0 billion for the year ended December 31, 2024, compared to $5.7 billion in the prior year period.

The cancellation rate of 9.4% in 2024 improved from 12.8% in 2023 and is below historical normal levels, partially due to our move-in ready strategy which shortens the period between sale and closing.

We ended the year with 1,544 homes in backlog valued at $629.5 million, compared to 2,549 homes in backlog valued at $1.1 billion, decreases of 39.4% and 42.1%, respectively, compared to 2023.

The number of homes in backlog decreased year over year due to our higher backlog conversion rates throughout 2024.

We closed 15,026 homes with home closing revenue of $5.8 billion for the year ended December 31, 2025, compared to 15,611 units and home closing revenue of $6.3 billion in 2024.

The lower home closing revenue was driven by 3.7% lower home closing volume and a 5.6% decrease in ASP on closings.

The reduction in ASP is the result of higher utilization of financing incentives.

Home order volume of 14,650 units was relatively flat year over year, as average active community count increased 11.6% but was offset by a lower orders pace of 3.9 homes per month, as compared to 4.3 homes per month in 2024.

Home order value declined 3.8% to $5.7 billion for the year ended December 31, 2025, from $6.0 billion in the prior year, due to a 4.1% decrease in ASP on orders.

The lower ASP on both closings and orders was also due in part to geographic mix shift, as the West Region with our highest ASPs comprised a smaller portion of our total closings and orders in 2025.

The cancellation rate of 11% in 2025 increased from 9% in 2024, as the result of buyer hesitancy after initial sale from affordability concerns.

Despite the year over year increase, the 2025 cancellation rate continues to be below historical normal levels.

We ended the year with 1,168 homes in backlog valued at $440.6 million, compared to 1,544 homes in backlog valued at $629.5 million, decreases of 24.4% and 30.0%, respectively, compared to 2024.

The number of homes in backlog declining year over year is the result of our higher backlog conversion rates throughout 2025, as well as lower orders in the fourth quarter of 2025 due to market conditions.

As anticipated with our strategy of offering move-in ready homes, we are selling a higher percentage of spec homes later in the construction cycle, contributing to the higher backlog conversion rates in all of our regions.

The West Region generated $2.2 billion in home closing revenue for the year ended December 31, 2024, a 5.5% increase from $2.1 billion in the prior year, due to a 10.1% increase in home closing volume that was partially offset by a 4.2% decrease in ASP on closings as a result of geographic mix within the region, product shift mix to more entry-level homes, and increased utilization of financing incentives.

Order value of $2.1 billion in 2024 was relatively consistent with prior year, as a 5.8% increase in order volume for the year ended December 31, 2024 to 4,215 homes from 3,983 in 2023 was offset by a 3.7% decrease in ASP on orders.

Order volume increased due to a 13.5% higher orders pace per community to 4.2 homes per month compared to 3.7 per month in 2023, more than offsetting the 6.0% decrease in average actively selling communities.

The West Region's cancellation rate of 9.4% improved significantly from 14.2% in 2023.

Backlog of 435 homes valued at $214.4 million at December 31, 2024 was down 41.7% and 43.6%, respectively, from 746 homes valued at $379.8 million at December 31, 2023.

The Central Region, made up of our Texas markets, closed 4,834 homes and generated home closing revenue of $1.7 billion for the year ended December 31, 2024 compared to 4,486 homes and $1.8 billion in 2023.

The 7.8% increase in home closing volume was fully offset by a 10.2% decrease in ASP on closings, which led to the 3.3% lower home closing revenue.

ASP on closings decreased due to product shift mix to more entry-level homes and higher incentives.

The Central Region order volume of 4,508 increased 5.1% from 4,291, while order value decreased 3.1% to $1.6 billion compared to $1.7 billion in 2023 due to a 7.7% decrease in ASP on orders.

The increase in order volume was due to an 11.6% higher orders pace of 4.8 homes per month in 2024, as average actively selling communities decreased 4.8% year over year.

The Central Region cancellation rate of 10.3% in 2024 was down from 13.6% in 2023.

The Central Region ended the year with 442 homes in backlog valued at $159.5 million, compared to 768 homes in backlog valued at $289.4 million in 2023.

The East Region had strong growth in 2024, closing 6,251 homes in the year ended December 31, 2024, up 16.2% from 5,381 homes in 2023, and generating 10.6% higher home closing revenue of $2.4 billion with the higher home closing volume partially offset by 4.8% decrease in ASP on closings.

ASP on closings decreased due to product mix shift to more entry-level homes and higher utilization of financing incentives.

Order volume of 5,883 homes increased 19.6% from 4,919 homes, combined with a 4.0% decrease in ASP on orders for a 14.8% increase in home order value of $2.2 billion for the year ended December 31, 2024, compared to $2.0 billion in 2023.

Order pace of 4.2 homes per month in 2024 improved from 4.0 homes per month in 2023, and the East Region grew its average active community count by 13.0%.

The East Region ended 2024 with 667 homes in backlog valued at $255.6 million, down 35.6% and 39.0%, respectively, from 1,035 homes in backlog valued at $419.0 million in 2023.

Land Closing Revenue and Gross Profit (dollars in thousands)

The West Region generated $1.8 billion in home closing revenue for the year ended December 31, 2025, a 17.7% decrease from $2.2 billion in the prior year, due to a 15.6% lower home closing volume and a 2.6% decrease in ASP on closings.

Geographic mix shift within the region and increased utilization and cost of financing incentives both contributed to the lower ASP on closings.

Home order volume declined 15.3% to 3,571 units, resulting entirely from a 16.7% lower orders pace of 3.5 homes per month compared to 4.2 per month in the prior year, as the average active community count was relatively consistent year-over-year.

Lower home order volume contributed nearly entirely to a 15.8% decrease in order value of $1.8 billion, as ASP on orders remained relatively flat year over year.

The West Region's cancellation rate of 9% for the year ended December 31, 2025 was the lowest rate in the Company and consistent with prior year.

Backlog of 185 homes valued at $91.9 million at December 31, 2025 was down 57.5% and 57.1%, respectively, from 435 homes valued at $214.4 million at December 31, 2024, resulting from the combined effect of fewer orders and higher backlog conversion rates in 2025 as compared to 2024.

The Central Region closed 5,264 homes and generated home closing revenue of $1.8 billion for the year ended December 31, 2025, compared to 5,525 homes and $2.0 billion in 2024.

The 8.9% lower home closing revenue was the result of the combined impact of 4.7% and 4.4% decreases in home closing volume and ASP on closings, respectively.

The decline in ASP on closings is primarily due to greater utilization of financing incentives.

The Central Region order volume of 5,240 homes increased 1.5% year over year, due entirely to a 2.2% increase in average active community count as orders pace was consistent year over year.

Orders pace of 4.7 homes per month was the highest pace in the Company for both years.

Home order value of $1.9 billion for the year ended December 31, 2025, was relatively flat year over year, as the increase in order volume was offset by a 2.3% decrease in ASP on orders.

The Central Region cancellation rate of 11% in 2025 was up from 10% in 2024.

The Central Region ended the year with 457 homes in backlog valued at $165.0 million, compared to 481 homes in backlog valued at $177.5 million at December 31, 2024.

The East Region had continued growth in 2025, closing 5,941 homes in the year ended December 31, 2025, a 6.9% improvement over 5,560 in 2024.

Home closing revenue of $2.1 billion for the year ended December 31, 2025 was consistent with 2024, as the higher home closing volume was offset by a 6.6% decline in ASP on closings, reflecting increased utilization of financing incentives and a shift in geographic mix within the region.

Order volume of 5,839 homes increased 11.7% from 5,226 homes, combined with a 5.0% decrease in ASP on orders, led to a 6.2% increase in home order value of $2.1 billion for the year ended December 31, 2025, compared to $2.0 billion in 2024.

The East Region's order volume improvement was due entirely to a 27.9% increase in average active community count, as order pace of 3.6 homes per month in 2025 was lower than 4.2 homes per month in 2024.

Both home closing and order volumes reflect our acquisitions and green field start-ups in our new markets in Alabama and Mississippi.

The East Region cancellation rate of 11% for the year ended December 31, 2025 was up from 9% in the prior year, but still below historical averages for the Company.

The East Region ended 2025 with 526 homes in backlog valued at $183.6 million, down 16.2% and 22.7%, respectively, from 628 homes in backlog valued at $237.7 million at December 31, 2024.

The decrease in backlog units is the result of higher backlog conversion rates throughout 2025, which is an expected result of our 60-day closing ready commitment.

Land Closing Revenue and Gross Profit (in thousands)

Years ended December 31,

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Therefore, the revenue and gross profit from land closings will fluctuate from period to period.

Other Operating Information (dollars in thousands)

Home Closing Gross Profit (dollars in thousands)

Years ended December 31,

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Total $ 1,136,192 19.7 % $ 1,579,843 24.9 %

Real estate impairments 16,532 —

Write-off of terminated land contracts 39,382 6,702

Severance costs 4,297 —

Adjusted Home Closing Gross Profit (2)

$ 1,196,403 20.8 % $ 1,586,545 25.0 %

West $ 368,119 20.1 % $ 508,020 22.8 %

Real estate impairments 742 —

Write-off of terminated land contracts 8,599 2,478

Severance costs 1,085 —

Adjusted Home Closing Gross Profit (2)

$ 378,545 20.7 % $ 510,498 23.0 %

Central $ 383,906 20.9 % $ 523,378 26.0 %

Real estate impairments 5,697 —

Write-off of terminated land contracts 5,204 1,562

Severance costs 1,568 —

Adjusted Home Closing Gross Profit (2)

$ 396,375 21.6 % $ 524,940 26.0 %

East $ 384,167 18.3 % $ 548,445 26.1 %

Real estate impairments 10,093 —

Write-off of terminated land contracts 25,579 2,662

Severance costs 1,644 —

Adjusted Home Closing Gross Profit (2)

$ 421,483 20.1 % $ 551,107 26.2 %

(1) Home closing gross profit represents home closing revenue less cost of home closings, including impairments, if any.

Cost of home closings includes land and associated development costs, direct home construction costs, an allocation of common community costs (such as architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Fiscal 2024 Compared to Fiscal 2023

(2) Adjusted home closing gross profit is a non-GAAP measure and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measures.

We believe this non-GAAP financial measure is relevant and useful to investors in understanding our operating results and may be helpful in comparing the Company with other companies in the homebuilding and other industries to the extent they provide similar information.

Companywide .

Home closing gross margin of 24.9% for the year ended December 31, 2024 was consistent with 24.8% in the prior year, as lower direct costs, leverage of higher home closing revenue on overhead costs and shorter construction cycle times were partially offset by greater utilization of financing incentives and higher lot costs.

Higher home closing revenue and relatively flat home closing gross margin led to higher home closing gross profit of $1.6 billion, up from $1.5 billion in 2023.

For the year ended December 31, 2024, the West Region home closing gross margin was 22.8% a 210 basis point improvement from 20.7% in 2023.

The demand in this region recovered in 2024 from several challenging years and was able to generate margin improvements with savings in direct costs and leverage of higher home closing revenue and shorter construction cycle times despite higher lot costs.

The Central Region home closing gross margin of 26.2% declined 60 basis points year-over-year from 26.8% in the prior year, primarily due to increased financing incentives combined with higher lot costs, which were partially offset by lower direct construction costs and savings resulting from shorter construction cycle times.

The East Region home closing gross margin of 25.9% in 2024 declined 130 basis points from 27.2% in the prior year.

The East Region increased financing incentives to address challenging demand conditions in the later half of 2024, particularly in Florida.

The 2024 home closing gross margin in the East Region was also negatively impacted by higher lot costs which were partially offset by lower direct costs year over year.

Home closing gross margin of 19.7% for the year ended December 31, 2025 was down 520 basis points from 24.9% in the prior year due to increased utilization of financing incentives, higher lot costs, real estate-related impairments and charges related to terminated land contracts, and severance costs, all of which offset lower direct costs and savings generated from faster construction cycle times.

Excluding terminated land contracts, real estate-related impairments, and severance costs, adjusted home closing gross margin was 20.8% for the year ended December 31, 2025, compared to adjusted home closing gross margin of 25.0% in 2024 when excluding $6.7 million in terminated land contracts.

There were no impairments or severance costs during the year ended December 31, 2024.

For the year ended December 31, 2025, the West Region home closing gross margin was 20.1% a 270 basis point decline from 22.8% in the same period of 2024, due primarily to increased utilization and cost of financing incentives, along with higher lot costs that were offset by savings in direct costs and improvements in construction cycle times.

Additionally, 2025 home closing gross margin negatively impacted by real estate impairments, charges related to terminated land contracts, and severance costs by 60 basis points and 20 basis points in 2025 and 2024, respectively.

Excluding these charges, adjusted home closing gross margin in the West Region was 20.7% and 23.0% for the years ended December 31, 2025 and 2024, respectively.

The Central Region home closing gross margin was 20.9% for the year ended December 31, 2025, the highest in the Company.

The 510 basis point decrease from 26.0% in 2024 was due to an increase in utilization of financing incentives and elevated lot costs, offset by lower direct costs and faster construction cycle times.

Non-recurring charges for impairments on real estate, terminated land contracts, and severance costs also contributed to the margin decline.

Excluding these non-recurring charges, adjusted home closing gross margin for the Central Region was 21.6% and 26.0% for the years ending December 31, 2025 and 2024, respectively.

The East Region home closing gross margin of 18.3% for the year ended December 31, 2025 decreased 780 basis points from 26.1% in the prior year period.

The decline in home closing gross margin reflects greater utilization and higher cost of financing incentives and elevated lot costs, which were offset in part by savings in directs costs and construction cycle time improvements.

The East Region home closing gross margin in 2025 was negatively impacted by charges for terminated land contracts, real-estate impairments and severance costs.

Excluding these items, adjusted home closing gross margin in the East Region was 20.1% in 2025, compared to adjusted home closing gross margin of 26.2% the year ended December 31, 2024.

Financial Services Profit (in thousands)

Years Ended December 31,

($ in thousands)

Financial services profit $ 18,618 $ 14,410

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

Financial services profit of $14.4 million for the year ended December 31, 2024 increased from $12.5 million in the prior year, as higher home closing volume generated greater title and insurance company profits.

Financial services profit of $18.6 million for the year ended December 31, 2025 increased from $14.4 million in the prior year due to fewer charges related to expired and unused interest rate forward commitments in the current year as compared to the prior year period.

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

Years Ended December 31,

($ in thousands)

Commissions and Other Sales Costs $ (404,405) $ (409,069)

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Provision for Income Taxes $ (131,587) $ (216,684)

Fiscal 2024 Compared to Fiscal 2023

Commissions and Other Sales Costs.

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

These costs increased $24.2 million due to higher home closing volume and revenue, but as a percentage of home closing revenue, commissions and other sales costs of 6.5% were relatively flat with 6.4% in 2023.

For the year ended December 31, 2025, these costs decreased $4.7 million, to $404.4 million, but increased to 7.0% of home closing revenue, compared to 6.5% in the prior year.

The lower dollar spend was due primarily to lower home closing volume and revenue, with an offsetting increase in spend for spec maintenance and utilities as a result of higher levels of spec inventory.

As a percentage of home closing revenue, the 50 basis point increase is largely the result of higher external broker commission rates reflecting the tougher selling environment, coupled with a higher external broker participation rate, as well as higher costs for maintaining a larger number of completed homes.

The increase in spec home inventory and associated overhead expenses is a result 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 year ended December 31, 2024, general and administrative expenses were $230.9 million compared to $231.7 million for the prior year period.

General and administrative expenses were 3.6% of home closing revenue in 2024, a 20 basis point improvement from 3.8% in 2023.

The improvement as a percentage of home closing revenue is due to leverage of higher home closing revenue on fixed overhead expenses and lower performance-based compensation.

For the year ended December 31, 2025, general and administrative expenses of $211.8 million decreased $19.1 million from $230.9 million in the prior year, as a result of lower performance-based compensation expense, which was partially offset by increased spend on new technology, start-up expenses associated with our new divisions in Alabama and Mississippi, and severance costs.

Despite lower home closing revenue, general and administrative expenses as a percentage of home closing revenue held relatively steady at 3.7% in 2025, compared to 3.6% in 2024.

Interest Expense.

Interest expense is comprised of interest incurred, but not capitalized, on our senior and convertible senior notes, other borrowings and our $910.0 million amended and restated unsecured revolving credit facility agreement (the "Credit Facility").

We had no interest expense for the years ended December 31, 2024 and 2023.

We had no interest expense for the years ended December 31, 2025 and 2024, as all interest incurred was capitalized to qualifying assets.

Other Income, Net.

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Loss on Early Extinguishment of Debt.

Loss on early extinguishment of debt of $0.6 million for the year ended December 31, 2024 is related to the $250.0 million full redemption of our remaining 2025 Notes.

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

Loss on early extinguishment of debt of $0.6 million for the year ended December 31, 2024 is related to the $250.0 million full redemption of our remaining 6.00% Senior Notes due 2025 ("2025 Notes").

There were no similar charges for the year ended December 31, 2025.

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

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The effective tax rate was 22.5% and 21.6% for 2025 and 2024, respectively.

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

The higher rate in 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, which was partially offset by acquired below-market transferrable clean fuel production tax credits in 2025.

Liquidity and Capital Resources

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

We also opportunistically repurchase or redeem our senior notes, as we did this year with the $250.0 million early redemption of our 2025 Notes.

We also opportunistically repurchase or redeem our senior notes.

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

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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.

As a means of accessing parcels of land, both undeveloped and finished, with minimal cash outlay, we may use option contracts and joint ventures to secure land rights.

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.

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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 repurchase or redeem a portion of our senior notes.

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

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

We plan to fund these commitments primarily with cash flows generated by operations, but may also utilize

additional debt or equity financing and borrowing capacity under our Credit Facility.

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

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

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

Reference is made to Notes 1, 3, 5, and 16 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K and are incorporated by reference herein.

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

Reference is made to Notes 1, 3, 5, and 16 in the accompanying consolidated financial statements included in this Annual 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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Operating Cash Flow Activities

During the year ended December 31, 2024, net cash used by operations totaled $227.6 million, compared to net cash provided by operations of $355.6 million during the year ended December 31, 2023.

During the year ended December 31, 2025, net cash provided by operations totaled $118.3 million, compared to net cash used in operations of $227.6 million during the year ended December 31, 2024.

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

Operating cash flow results in 2025 primarily reflect $453.0 million in Net earnings, and were offset by a $274.1 million increase in Real estate and a $92.4 million decrease in Accounts payable and Accrued liabilities.

The decrease in Accounts payable and Accrued liabilities was due primarily to decreased accruals related to real estate development and construction activities, as well as lower performance based compensation accruals.

Operating cash flow results in 2024 primarily reflect $786.2 million in Net earnings, and were offset by a $979.3 million increase in Real estate and an $81.4 million increase in Deposits on real estate under option or contract.

The increases in Real estate and Deposits on real estate under option or contract were due to increased land acquisition and development activities as well as construction activities on a greater number of homes under construction.

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

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

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

Investing Cash Flow Activities

During the years ended December 31, 2025 and 2024, net cash used in investing activities totaled $57.7 million and $44.1 million, respectively.

Cash used in investing activities in 2024 was mainly attributable to purchases of property and equipment of $28.7 million and investments in unconsolidated entities of $18.5 million.

Cash used in investing activities in 2023 was mainly attributable to purchases of property and equipment of $38.2 million.

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

Financing Cash Flow Activities

During the year ended December 31, 2024, net cash provided by financing activities totaled $2.0 million, as compared to net cash used in financing activities of $252.3 million during the year ended December 31, 2023.

During the years ended December 31, 2025 and 2024, net cash provided by financing activities totaled $63.0 million and $2.0 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 $295.0 million of share repurchases and $121.1 million of dividends paid.

The net cash provided by financing activities in 2024 primarily reflects the net proceeds of $557.9 million from the issuance of our 1.750% Convertible Senior Notes due 2028 (the "2028 Convertible Notes"), offset by the early redemption of our remaining 2025 Notes of $250.0 million aggregate principal and $61.8 million for the purchase of capped calls relating to the 2028 Convertible Notes, along with $125.9 million of share repurchases and $108.6 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, $59.1 million in share repurchases and $39.5 million of dividends paid.

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

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Quarterly dividends declared and paid cumulatively totaled $1.72 and $1.50 per share for the years ended December 31, 2025 and 2024, respectively.

Dividend amounts have been retroactively adjusted for the Stock Split.

See Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

See Part II, Item 5 - "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities".

Credit Facility Covenants

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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-K

Item 7. Management’s Discussion and Analysis