Financial Data and Key Metrics Changes - Home closing revenue grew 32% year-over-year to $2 billion in Q4 2022, driven by a 29% increase in home closing volume and a 3% increase in average selling prices (ASPs) [11][49] - The fourth quarter 2022 home closing gross margin was 25.2%, a decline of 380 basis points from 29.8% in Q4 2021, attributed to higher incentives and direct costs [22][49] - Diluted EPS increased by 13% year-over-year to $7.09, supported by higher closing volume and a lower outstanding share count [24][52] Business Line Data and Key Metrics Changes - The company delivered 4,540 homes in Q4 2022, a 29% increase year-over-year, with entry-level homes making up 85% of closings, up from 81% in the prior year [16][49] - Sales orders for Q4 2022 totaled 1,808 homes, with 89% being entry-level homes, an increase from 82% in Q4 2021 [16][43] - The cancellation rate in Q4 2022 was 39%, up from 12% in Q4 2021, significantly impacting net sales [43][49] Market Data and Key Metrics Changes - The highest regional absorption pace was 2.6 homes per month in the Central region, while the West region saw a decline in orders with an absorption pace of 1.6 homes per month [17][18] - In Florida, average selling prices on orders increased by 11% despite a 25% reduction in orders, indicating a shift in product mix [18] - The East region had the lowest decline in orders at 41% year-over-year, with a gross sales pace in line with the target of 3 to 4 homes per month [44] Company Strategy and Development Direction - The company aims to maintain a sales pace of 3 to 4 net sales per month by prestarting 100% of entry-level homes, which are ready for quick sale [30][40] - The strategy includes moderating construction starts to align with lower demand, with approximately 2,100 homes started in Q4 2022 compared to over 3,700 in Q4 2021 [19] - The company is focused on cost reductions and operational efficiencies, targeting a long-term gross margin of 22% or higher [50][81] Management's Comments on Operating Environment and Future Outlook - Management noted that ongoing economic uncertainty, rising mortgage rates, and inflation have overshadowed favorable demographics and low housing inventory [5][39] - The company expressed cautious optimism about January sales, reporting a net absorption pace greater than 4 homes per month, indicating potential recovery in demand [45][65] - Management highlighted the importance of move-in ready inventory in driving sales, as buyers prefer homes that can close within 45 to 60 days [40][70] Other Important Information - The company ended Q4 2022 with a backlog of 3,300 units, improving the conversion rate from 60% last year to 75% this year [20] - The company maintained a strong cash position with over $860 million in cash and generated $562 million of free cash flow in Q4 2022 [25][53] - The company has no impaired communities despite reduced ASPs and higher direct costs, indicating confidence in asset valuations [26][103] Q&A Session Questions and Answers Question: Can you help us think through Q1 gross margins? - Management indicated that Q1 margins are expected to be choppy due to various cost factors and market conditions, with no clear guidance beyond Q1 [32][80] Question: What are the potential cost tailwinds outside of lumber? - Management is actively rebidding vertical costs to capture savings, with some divisions reporting savings of $15,000 per home [35][62] Question: How does the company view the current market conditions? - Management noted that while January showed improvement, the overall market remains uncertain, and they are focused on operational discipline [65][94] Question: What is the strategy regarding community openings? - Management stated that they will prioritize opening communities with strong inventory and cost structures rather than rushing to increase community counts [94][95]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-9977 Meritage Homes Corporation (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorpo ...

Financial Data and Key Metrics Changes - Home closing revenue increased by 25% year-over-year to $1.6 billion due to a 12% greater home closing volume and a 12% increase in average selling prices (ASPs) [43][48] - The gross margin for home closings was 28.7%, a 100 basis points decline from 29.7% a year ago, primarily due to increased incentives and $8.8 million in write-offs for option deposits [44][48] - Diluted EPS reached a record high of $7.10, reflecting a 35% year-over-year increase [48] Business Line Data and Key Metrics Changes - Sales order volume decreased by 33% year-over-year to 2,310 homes, with a cancellation rate of 30%, significantly above the historical average [13][27] - The absorption pace was 2.7 homes per month, down from 5.0 homes per month in the prior year [13][27] - Entry-level homes constituted 84% of closings, up from 78% in the prior year [26] Market Data and Key Metrics Changes - The East region outperformed other regions with an average absorption pace of 3.8 homes per month, while the West region struggled with a pace of 1.5 homes per month [28][29] - Florida maintained strong performance, representing 44% of the East region's orders, with an absorption pace of 5.0 net sales per month [33] - The company experienced the highest cancellation rates in the West region, particularly in Colorado and Arizona, due to affordability issues and supply chain challenges [30][31] Company Strategy and Development Direction - The company is focusing on pre-starting 100% of entry-level homes and prioritizing pace over price to navigate the current market environment [20][63] - A significant pullback on new land deals has been implemented, with a focus on exceptional opportunities only [22][24] - The company aims to maintain a strong balance sheet and liquidity while managing through changing market conditions [50][51] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued weaker demand in the near term due to rising mortgage rates and economic uncertainty [12][20] - The company expects further deterioration in buyer confidence, impacting both new customers and those in the backlog [20] - Future gross margins are projected to be materially impacted by aggressive incentive actions and increasing costs in a rising interest rate environment [60][62] Other Important Information - The company ended the third quarter with a backlog of approximately 6,100 units, with a conversion rate decline from 57% last year to 48% this year [41] - The company has ample liquidity, with a cash balance of $299 million and no draws on its credit facility [50][51] - The company is forecasting total closings for Q4 2022 to be between 4,300 and 4,700 units, with home closing revenue projected at $1.85 billion to $2.10 billion [60][61] Q&A Session Summary Question: What are the expectations for gross margins in the current environment? - Management indicated that predicting future margins is challenging due to fluctuating market dynamics and costs, but they believe they can outperform despite the need for incentives [66][68] Question: What are the current incentive levels across markets? - Incentives vary by region, with high teens in the West and more normal adjustments in the East, reflecting the need to remain competitive [75][78] Question: Has the speed of price adjustments surprised management? - Management expressed surprise at the rapid increase in mortgage rates, which necessitated significant price rollbacks to maintain consumer confidence [88][90] Question: What is the outlook for impairments in the current market? - Management does not anticipate broad-based impairments unless there are significant further declines in ASPs, as many communities are still above impairment thresholds [94][96] Question: What is the expected sales pace for Q4? - Management does not expect a significant improvement in sales pace for Q4, citing ongoing market challenges and the need for rate stabilization [105]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Maryland 86-0611231 (State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.) 8800 E. Raintree Driv ...

Financial Data and Key Metrics Changes - Home closing revenue grew 11% year-over-year to $1.4 billion in Q2 2022, driven by a 13% increase in average selling price (ASP) despite a 2% decline in closing volumes due to supply chain issues [35][39] - The gross margin for home closings reached a record 31.6%, a 430 basis points improvement from 27.3% a year ago, attributed to higher ASPs and lower land costs [35][38] - Diluted EPS increased by 55% year-over-year to $6.77, reflecting improved pricing power and expanded margins [38][39] Business Line Data and Key Metrics Changes - The company achieved its highest second quarter sales order volume of 3,767 homes, a 6% increase from the previous year, with entry-level homes comprising 86% of quarterly orders [9][20] - Order cancellation rates increased from 10% in Q1 to 13% in Q2, with some buyers opting for move-in ready homes [21][29] Market Data and Key Metrics Changes - Demand was strongest in the East region, with a 24% increase in order volume, primarily due to a 37% increase in active communities [23] - South Carolina saw a 64% year-over-year increase in order volume, while Texas experienced flat order volume due to a decline in average orders placed [24][25] Company Strategy and Development Direction - The company aims to focus on affordable products and streamline operations, with a disciplined land acquisition process to move down the price band [49][50] - The strategy includes offering rate locks to help buyers secure monthly payments and adjusting pricing and incentives based on local market conditions [17][33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a softening housing market due to rising mortgage rates and changing buyer psychology, but remains optimistic about long-term demand driven by favorable demographics [8][18] - The company expects to navigate the current market dynamics and maintain volume and market share through strategic adjustments [19][50] Other Important Information - The company opened 49 new communities, increasing its community count to 303, and plans to maintain this count for the rest of the year [44] - The cash balance at June 30, 2022, was $272 million, with a net debt to capitalization ratio of 20.6% [40] Q&A Session Summary Question: Impact of rate locks and lumber costs on gross margin - Management indicated that rate locks would weigh on gross margin, with an estimated impact of around 100 basis points, while lumber savings are expected to materialize late in Q4 [54][56] Question: Normal absorption levels and incentives - Management expects normal absorption levels to be between 3 and 4 sales per month, with current incentives aligned with historical averages [57][59] Question: Cancellation rates and buyer behavior - Cancellation rates were reported at 13% in Q2, with a mix of recent and legacy buyers contributing to this figure [64][65] Question: Build-to-rent segment performance - The build-to-rent segment accounted for approximately 5% of orders, with steady demand anticipated as more communities come online [66][68] Question: Land acquisition strategy - Management is closely scrutinizing land deals, renegotiating terms where necessary, and has not walked away from significant options yet [75][79]

Financial Performance - The company achieved record quarterly sales order volume in Q1 2022[20] - Home closing revenue increased by 15% to $1,245.5 million in 1Q22, compared to $1,080.0 million in 1Q21[19] - Home closing gross profit increased significantly by 42% to $377.6 million in 1Q22, compared to $266.7 million in 1Q21[19] - Home closing gross margin improved by 560 basis points to 30.3% in 1Q22, compared to 24.7% in 1Q21[19] - Diluted EPS increased by 68% to $5.79 in 1Q22, compared to $3.44 in 1Q21[19] Community Growth and Orders - Average community count increased significantly, with entry-level communities growing from 96 in 1Q21 to 176 in 1Q22, a 83% increase[10] - Total orders increased from 3,102 in 1Q20 to 3,874 in 1Q22[11] - The company had 268 active communities at March 31, 2022, a 32% increase from 203 at March 31, 2021[22] Land and Inventory - Total lots controlled amounted to 75,176 in 1Q22, compared to 58,085 in 1Q21[22] - The supply of lots is 5.9 years, with 65% owned and 35% optioned[22] - Real estate assets spending was $371 million in 1Q22, similar to $370 million in 1Q21[22] Balance Sheet and Capital Allocation - The company has $520 million in cash and nothing drawn under its $780 million credit facility as of March 31, 2022[21] - Net debt-to-capital ratio is 16.9% as of March 31, 2022[21] - The company repurchased over 1 million shares for $99.3 million in 2022[21]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-9977 Meritage Homes Corporation (Exact Name of Registrant as Specified in its Charter) (State or Other Jurisdiction of Incorporati ...

Financial Data and Key Metrics Changes - Homebuilding revenue grew 15% year-over-year to $1.2 billion in Q1 2022, driven by a 17% increase in average selling prices (ASPs) [45][46] - Home closing gross margin reached a record 30.3%, a 560 basis point improvement from 24.7% a year ago, primarily due to higher ASPs offsetting increased commodity costs [46][50] - Diluted EPS increased by 68% year-over-year to $5.79 [50] Business Line Data and Key Metrics Changes - Entry-level homes comprised 86% of closings, up from 72% in the prior year, reflecting a shift in product mix [26][27] - Total orders for Q1 2022 were 3,874, reflecting a 12% year-over-year increase, driven by a 32% increase in average asset community count [26][28] - Cancellation rate remained stable at 9.6%, similar to the last eight quarters [22] Market Data and Key Metrics Changes - The central region, primarily Texas, saw a 16% increase in order volume, attributed to a 21% increase in average asset communities [28] - The east region experienced a 15% year-over-year order growth, primarily due to a 45% increase in average asset communities [29] - The west region's order volume increased by 5% year-over-year, despite a 19% decline in average order pace [31] Company Strategy and Development Direction - The company focuses on entry-level and first move-up markets, emphasizing affordability and efficient operations [18][67] - A new division was announced for the Salt Lake City market, expanding operations into a region with steady growth [14] - The company plans to maintain a disciplined approach to land acquisition, evaluating opportunities in light of rising interest rates [100][101] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that rising interest rates may impact buyer psychology and affordability but believes underlying demand remains solid [11][62] - The company expects total closings for 2022 to be between 14,500 and 15,500 units, with home closing revenue projected at $6.5 billion to $6.9 billion [63] - Management remains prepared for market fluctuations and is focused on maintaining a healthy land position [67] Other Important Information - The company has initiated a tree planting program in partnership with the Arbor Day Foundation as part of its ESG initiatives [16] - A new general counsel was appointed, bringing extensive legal experience to the company [15] Q&A Session Summary Question: Is the entry-level segment still a good place to be in a rising rate environment? - Management indicated that demand is based on current rates, with buyers adjusting their expectations accordingly [73][76] Question: What is the outlook for gross margins and incentives? - Management expects margins to stabilize and anticipates some incremental incentives to be necessary in the rising interest rate environment [80][81] Question: How is consumer behavior changing in the current market? - There is more handholding required to get buyers comfortable with financing, but demand remains strong [87][89] Question: What is the level of investor activity in core for-sale communities? - The company maintains a tight control on investor activity, limiting it to around 5% of overall community sales [91] Question: What are the economics of the build-for-rent (BFR) platform? - The BFR platform is expected to be net neutral for the company, with some cost savings passed to operator partners [96] Question: What is the strategy regarding land acquisition? - The company plans to adopt a more measured approach to land acquisition, focusing on quality over quantity in light of rising interest rates [100][101]

Part I [Business](index=4&type=section&id=Item%201.%20Business) Meritage Homes is a leading single-family homebuilder focused on affordable, energy-efficient homes for entry-level and first move-up buyers across nine states, achieving record financial performance in 2021 [The Company and Strategy](index=4&type=section&id=The%20Company%20and%20Strategy) Meritage Homes designs and builds energy-efficient, quick move-in homes for entry-level and first move-up buyers across nine states, supported by a financial services segment - The company operates in three regions (West, Central, East) across **nine states**[12](index=12&type=chunk) - The operational strategy focuses on affordable, quick move-in homes for entry-level and first move-up markets, using a **100% speculative building approach** for entry-level products[20](index=20&type=chunk) - All new homes meet or exceed **ENERGY STAR standards** and include advanced features like MERV-13 air filters and the M.Connected Home™ Automation Suite[21](index=21&type=chunk) [Recent Industry and Company Developments](index=7&type=section&id=Recent%20Industry%20and%20Company%20Developments) In 2021, the company achieved record financial performance, including a 580 basis point improvement in gross margin and 75% diluted EPS growth, driven by strong housing demand and its focus on affordable homes FY 2021 Financial Performance Highlights | Metric | 2021 Value | Change vs 2020 | | :--- | :--- | :--- | | Home Closing Revenue Growth | 14% | - | | Home Closing Volume Growth | 8% | - | | ASP on Closings Growth | 6% | - | | Home Closing Gross Margin | 27.8% | +580 bps | | Net Earnings Growth | 74% | - | | Diluted EPS Growth | 75% | - | Balance Sheet Position (as of Dec 31, 2021) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $618.3 million | $745.6 million | | Inventory | $3.7 billion | - | | Debt-to-Capital Ratio | 27.6% | 30.3% | | Net Debt-to-Capital Ratio | 15.1% | 10.5% | - First-time and first move-up buyers accounted for approximately **97% of 2021 closings**[27](index=27&type=chunk) [Land Acquisition and Development](index=8&type=section&id=Land%20Acquisition%20and%20Development) The company aggressively invested approximately $2.0 billion in land acquisition and development in 2021, securing nearly 34,000 new lots, primarily for entry-level communities, to maintain a four-to-five year supply Land Position and Investment (FY 2021) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Investment in Land Acquisition & Development | ~$2.0 billion | - | | Net New Lots Secured | ~34,000 | ~27,200 | | Total Lots Under Control (Year-End) | 75,049 | 55,502 | | Year Supply of Lots (based on 2021 closings) | 5.9 years | - | - Approximately **90% of lots acquired in 2021** are designated for entry-level communities[31](index=31&type=chunk) - At year-end 2021, the company controlled **26,495 lots** under option or purchase contracts with a total purchase price of approximately **$1.0 billion**, secured by **$82.7 million** in cash deposits[38](index=38&type=chunk) [Operations and Sales](index=10&type=section&id=Operations%20and%20Sales) The company navigated 2021 building material cost pressures and supply chain constraints, expanded digital marketing, and saw its sales backlog increase significantly by 39% in value - The company experienced **building material cost pressures** and **supply chain constraints** in 2021, with expectations for continuation[44](index=44&type=chunk) - Marketing and sales expanded **digital offerings**, including online scheduling, virtual tours, and digital contract signing[46](index=46&type=chunk)[51](index=51&type=chunk) Sales Backlog (as of Dec 31, 2021) | Metric | Dec 31, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Backlog Units | 5,679 | 4,672 | +22% | | Backlog Value | $2.5 billion | $1.8 billion | +39% | [Human Capital](index=15&type=section&id=Human%20Capital) As of December 31, 2021, Meritage Homes had 1,773 full-time employees, demonstrating a commitment to DE&I with 40% female and 25% minority representation, and implemented COVID-19 safety measures Employee Statistics (as of Dec 31, 2021) | Category | Number/Percentage | | :--- | :--- | | Total Full-Time Employees | 1,773 | | Management & Administration | 346 | | Sales & Marketing | 494 | | Construction & Warranty | 878 | | Female Employees | 40% | | Minority Employees | 25% | - In 2021, the company adopted a Human Rights Policy and donated **$300,000** to organizations supporting racial equity and inclusion[72](index=72&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including rising interest rates, supply chain shortages, land availability, IT failures, and regulatory changes, which could impact its operations and financial performance - Housing demand is adversely affected by increases in **interest rates** and lack of mortgage availability, with predictions for further increases in 2022 and beyond[84](index=84&type=chunk) - **Supply chain constraints** for construction materials, which lengthened cycle times in 2021, are expected to persist in 2022 and potentially beyond[88](index=88&type=chunk) - A shift in market demand away from **entry-level and first move-up homes** could negatively impact operations[106](index=106&type=chunk) - **Information technology failures** and **data security breaches** pose significant operational risks, though a Q1 2020 malware attack was remediated without material adverse effect[111](index=111&type=chunk)[112](index=112&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported[133](index=133&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company leases its 72,000 square foot corporate office in Scottsdale, Arizona, and an additional 325,000 square feet for operating divisions - The corporate office is a leased space of approximately **72,000 square feet** in Scottsdale, Arizona[134](index=134&type=chunk) - Approximately **325,000 square feet** of office space is leased for operating divisions and other corporate offices[134](index=134&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, mainly warranty and construction defect claims, which are expected to be covered by subcontractor obligations and insurance, with no material adverse impact anticipated - The company is involved in routine legal proceedings, primarily **warranty and construction defect claims**, generally covered by subcontractor indemnities and insurance[136](index=136&type=chunk) - Pending legal and warranty matters are not expected to have a **material adverse impact** beyond existing reserves[137](index=137&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[138](index=138&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Meritage Homes' common stock trades on the NYSE (MTH), with no cash dividends planned, while the company repurchased $61.0 million in shares during 2021 under an ongoing program - The company's common stock is listed on the **NYSE** under the symbol **"MTH"**[141](index=141&type=chunk) - The company does not intend to declare **cash dividends** in the foreseeable future, retaining earnings for operations and growth[146](index=146&type=chunk) Share Repurchase Activity (FY 2021) | Metric | Value | | :--- | :--- | | Shares Repurchased | 639,346 | | Aggregate Purchase Price | $61.0 million | | Amount Available for Repurchase (as of Dec 31, 2021) | $153.4 million | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, the company achieved record home closing revenue of $5.1 billion and net earnings of $737.4 million, driven by strong market conditions and strategic focus, despite negative operating cash flow due to inventory investment [Summary Company Results](index=29&type=section&id=Summary%20Company%20Results) In 2021, the company achieved record home closing revenue of $5.1 billion and net income of $737.4 million, with gross margin expanding to 27.8%, while year-end backlog value grew 38.8% FY 2021 vs. FY 2020 Key Results | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Home Closing Revenue | $5.1 billion | $4.5 billion | | Home Closing Gross Margin | 27.8% | 22.0% | | Pre-tax Net Earnings | $954.8 million | $533.6 million | | Net Income | $737.4 million | $423.5 million | | Homes Closed | 12,801 | 11,834 | | Backlog Value (Year-End) | $2.5 billion | $1.8 billion | - Orders were intentionally **metered** to align with production constraints, resulting in relatively flat year-over-year order volume[152](index=152&type=chunk) [Home Closing Revenue, Home Orders and Order Backlog - Segment Analysis](index=32&type=section&id=Home%20Closing%20Revenue%2C%20Home%20Orders%20and%20Order%20Backlog%20-%20Segment%20Analysis) In 2021, total home closing revenue increased 14.1% to $5.1 billion, with the East Region showing strongest growth, and year-end backlog value rising 38.8% to $2.5 billion Home Closing Revenue by Region (FY 2021 vs 2020) | Region | 2021 Revenue ($M) | 2020 Revenue ($M) | % Change | | :--- | :--- | :--- | :--- | | West | $1,914.4 | $1,795.2 | +6.6% | | Central | $1,500.7 | $1,273.7 | +17.8% | | East | $1,679.8 | $1,395.5 | +20.4% | | **Total** | **$5,094.9** | **$4,464.4** | **+14.1%** | Home Orders by Region (FY 2021 vs 2020) | Region | 2021 Orders (Units) | 2020 Orders (Units) | % Change | | :--- | :--- | :--- | :--- | | West | 4,276 | 4,781 | -10.6% | | Central | 4,413 | 4,476 | -1.4% | | East | 5,119 | 4,467 | +14.6% | | **Total** | **13,808** | **13,724** | **+0.6%** | Order Backlog (as of Dec 31) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Backlog Value | $2,516.2 M | $1,812.5 M | +38.8% | | Homes in Backlog | 5,679 | 4,672 | +21.6% | [Other Operating Information](index=38&type=section&id=Other%20Operating%20Information) Home closing gross margin improved to 27.8% in 2021, driven by pricing power, while sales costs decreased as a percentage of revenue and the effective tax rate increased Home Closing Gross Profit Margin by Region (FY 2021 vs 2020) | Region | 2021 Margin | 2020 Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | West | 27.1% | 21.2% | +590 bps | | Central | 29.9% | 23.9% | +600 bps | | East | 26.8% | 21.2% | +560 bps | | **Total** | **27.8%** | **22.0%** | **+580 bps** | - Commissions and other sales costs decreased to **5.6% of home closing revenue** in 2021 from 6.4% in 2020, driven by lower broker commissions and digital sales solutions[187](index=187&type=chunk)[188](index=188&type=chunk) - The effective tax rate increased to **22.8%** in 2021 from 20.6% in 2020, primarily due to higher profits in states with higher tax rates[193](index=193&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) In 2021, net cash used in operations was $152.1 million, primarily due to a $948.1 million investment in real estate inventory, while the company maintained a strong balance sheet with a 27.6% debt-to-capital ratio Cash Flow Summary (FY 2021 vs 2020) | Cash Flow Activity ($M) | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash (Used in)/Provided by Operating Activities | ($152.1) | $530.4 | | Net Cash Used in Investing Activities | ($26.8) | ($18.2) | | Net Cash Provided by/(Used in) Financing Activities | $51.6 | ($86.0) | - Negative operating cash flow in 2021 was primarily due to a **$948.1 million increase in real estate inventory** for homes under construction and new land acquisitions[205](index=205&type=chunk) Leverage Ratios (as of Dec 31) | Ratio | 2021 | 2020 | | :--- | :--- | :--- | | Debt-to-Capital | 27.6% | 30.3% | | Net Debt-to-Capital | 15.1% | 10.5% | [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity, as rising mortgage rates can adversely affect housing demand and its variable-rate borrowing costs, though most debt is fixed-rate - The company's operations are sensitive to **interest rates**, as higher mortgage rates can negatively impact homebuyer affordability and demand[217](index=217&type=chunk) - The company's fixed-rate debt comprises **$1.2 billion in senior notes**, with no maturities until 2025[215](index=215&type=chunk)[216](index=216&type=chunk) - There were **no outstanding borrowings** under the variable-rate Credit Facility at year-end 2021 or 2020[215](index=215&type=chunk) [Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2021, with an unqualified auditor's opinion, highlighting real estate valuation as a critical audit matter [Report of Independent Registered Public Accounting Firm](index=44&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on the company's consolidated financial statements and internal control over financial reporting, identifying real estate valuation as a critical audit matter - The auditor issued an **unqualified opinion**, affirming the fair presentation of the company's financial position[221](index=221&type=chunk) - The **valuation of real estate** was identified as a Critical Audit Matter due to significant management judgments and estimates in assessing recoverability[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) [Consolidated Financial Statements](index=46&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets increased to $4.81 billion, total closing revenue rose to $5.12 billion, and net earnings grew 74% to $737.4 million in 2021 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $618,335 thousand | $745,621 thousand | | Real estate | $3,734,408 thousand | $2,778,039 thousand | | **Total assets** | **$4,807,533 thousand** | **$3,864,398 thousand** | | Senior notes, net | $1,142,486 thousand | $996,991 thousand | | **Total liabilities** | **$1,763,144 thousand** | **$1,516,530 thousand** | | **Total stockholders' equity** | **$3,044,389 thousand** | **$2,347,868 thousand** | Consolidated Income Statement Highlights (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total closing revenue | $5,120,110 thousand | $4,482,120 thousand | | Total closing gross profit | $1,417,294 thousand | $959,614 thousand | | Earnings before income taxes | $954,834 thousand | $533,566 thousand | | **Net earnings** | **$737,444 thousand** | **$423,475 thousand** | | Diluted EPS | $19.29 | $11.00 | [Notes to Consolidated Financial Statements](index=50&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including $2.1 million in real estate impairment charges, the issuance of $450 million in new senior notes, and segment performance, with the Central region showing the highest operating income margin - **Real estate impairment charges** were **$2.1 million** in 2021, down from $24.9 million in 2020, primarily due to selling non-strategic assets[272](index=272&type=chunk) - In April 2021, the company issued **$450.0 million** of 3.875% Senior Notes due 2029 and redeemed **$300.0 million** of 7.00% Senior Notes due 2022, incurring an **$18.2 million loss** on early extinguishment[302](index=302&type=chunk) Homebuilding Segment Operating Income (in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | West | $379,093 thousand | $213,918 thousand | | Central | $319,435 thousand | $185,202 thousand | | East | $302,487 thousand | $157,971 thousand | | **Total** | **$1,001,015 thousand** | **$557,091 thousand** | [Controls and Procedures](index=70&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, a conclusion affirmed by the independent auditor - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2021[339](index=339&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of December 31, 2021, a conclusion audited and affirmed by Deloitte & Touche LLP[342](index=342&type=chunk)[345](index=345&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=72&type=section&id=Items%2010-14) Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, and security ownership, is incorporated by reference from the 2022 Proxy Statement - Information for **Items 10-14** is incorporated by reference from the registrant's Proxy Statement for the 2022 Annual Meeting of Stockholders[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=73&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, with consolidated financial statements in Item 8 and a comprehensive list of exhibits provided - The consolidated financial statements are included under **Part II, Item 8** of the report[360](index=360&type=chunk) - A list of exhibits filed with the report includes **governance documents, debt agreements, employment agreements, and certifications**[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2021, home closing revenue grew 6% year-over-year to $1.5 billion, driven by a 13% increase in average selling price (ASP) despite a 6% decline in home closing volume due to supply chain issues [44][50]. - Home closing gross margin improved by 500 basis points to 29% from 24% a year ago, primarily due to pricing power outweighing cost pressures [45]. - Diluted EPS increased by 57% year-over-year to $6.25, reflecting strong profit growth and lower outstanding share count [50]. Business Line Data and Key Metrics Changes - Entry-level homes comprised 81% of total closings in Q4 2021, up from 72% in the prior year, indicating a strategic focus on this segment [27][30]. - Total orders for Q4 2021 were 3,367, a 6% increase year-over-year, supported by a 24% increase in average active community count [28]. Market Data and Key Metrics Changes - The Central region, particularly Texas, led in average absorption pace with 5.3 homes per month, contributing to an 11% increase in order volume [31]. - The East region saw a 34% increase in average community count year-over-year, although average absorption pace decreased by 21% [33]. Company Strategy and Development Direction - The company aims to capitalize on strong demand for entry-level homes, with a forecast of continued double-digit community growth in 2022 [14][66]. - A disciplined land acquisition strategy is in place, focusing on larger parcels to reduce costs and enhance affordability [65]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong margins despite rising costs, citing the ability to leverage pricing power due to high demand and limited supply [79][80]. - The company anticipates a robust spring selling season in 2022, with projected closings between 14,500 and 15,500 units and home closing revenue of $6.1 billion to $6.5 billion [67]. Other Important Information - The company opened 48 new communities in Q4 2021, increasing community count by 33% year-over-year to 259 [58]. - The balance sheet remains strong, with a cash balance of $618 million and a net debt-to-cap ratio of 15.1% as of December 31, 2021 [52][53]. Q&A Session Summary Question: Impact of interest rate outlook on demand - Management noted that January showed strong demand with no discernible impact from rising interest rates, attributing demand to a lack of housing supply [73][76]. Question: Drivers of gross margin compression - Management indicated that the modest compression in gross margin is entirely related to rising costs, with no changes in incentives or marketing costs anticipated [78][80]. Question: Cycle times and future expectations - Cycle times lengthened by two weeks in Q4, with no expected improvement in 2022 due to ongoing supply chain challenges [85][89]. Question: Pricing power and ASP trends - Management stated that while ASPs were stable in Q4, they have seen an acceleration in pricing power in January, indicating a strong demand environment [104][110]. Question: Customer demographics and migration trends - The company is seeing a diverse customer base, including millennials and baby boomers, with significant in-migration to key markets like Florida and Texas [119][120]. Question: Cash flow outlook for 2022 - Management expects to be neutral or slightly positive in operating cash flow for 2022, despite significant land acquisition spending [122].