MDC(MDC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis of M.D.C. Holdings, Inc. for the quarter ended June 30, 2025 Item 1. Unaudited Consolidated Financial Statements This section provides the unaudited consolidated financial statements for M.D.C. Holdings, Inc., including balance sheets, income statements, equity changes, and cash flows, along with detailed explanatory notes Consolidated Balance Sheets This section presents the consolidated balance sheets, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 | ASSETS (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Cash and cash equivalents (Homebuilding) | $272,039 | $605,653 | | Total inventories | $4,194,651 | $3,752,253 | | Total homebuilding assets | $4,762,023 | $4,679,791 | | Total financial services assets | $336,746 | $490,851 | | Total Assets | $5,098,769| $5,170,642 | | LIABILITIES AND EQUITY (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Senior notes, net | $1,484,712 | $1,484,267 | | Total Liabilities | $2,170,127 | $2,220,901 | | Total Stockholders' Equity | $2,928,642 | $2,949,741 | | Total Liabilities and Stockholders' Equity | $5,098,769| $5,170,642 | Consolidated Statements of Operations and Comprehensive Income This section presents the consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2025 and 2024 | (Dollars in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Home sale revenues | $1,106,405 | $1,411,446 | $2,079,302 | $2,736,648 | | Gross profit | $138,640 | $255,321 | $289,895 | $487,307 | | Homebuilding pretax income | $15,219 | $20,758 | $53,559 | $129,334 | | Financial Services revenues | $32,800 | $37,580 | $57,572 | $68,932 | | Financial services pretax income | $17,838 | $22,643 | $28,811 | $40,307 | | Income before income taxes | $33,057 | $43,401 | $82,370 | $169,641 | | Net income | $25,655 | $25,134 | $65,737 | $120,953 | Consolidated Statements of Changes in Stockholders' Equity This section details the changes in stockholders' equity for the six months ended June 30, 2025 | (Dollars in thousands) | Balance at Dec 31, 2024 | Net Income (Q1 2025) | Balance at Mar 31, 2025 | Net Income (Q2 2025) | Cash Dividends Declared | Balance at Jun 30, 2025 | | :--------------------- | :---------------------- | :------------------- | :---------------------- | :------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $2,949,741 | $40,082 | $2,989,823 | $25,655 | $(86,836) | $2,928,642 | - The company declared cash dividends of $86.8 million during the six months ended June 30, 2025[17] Consolidated Statements of Cash Flows This section presents the consolidated statements of cash flows for the six months ended June 30, 2025 and 2024 | (Dollars in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(281,345) | $50,375 | | Net cash used in investing activities | $(11,871) | $(104,353) | | Net cash used in financing activities | $(138,492) | $(668,142) | | Net decrease in cash, cash equivalents and restricted cash | $(431,708) | $(722,120) | | Cash, cash equivalents and restricted cash, End of period | $407,384 | $920,777 | Notes to Unaudited Consolidated Financial Statements This section provides detailed notes explaining the basis of presentation, accounting standards, segment reporting, and other financial disclosures for the unaudited consolidated financial statements 1. Basis of Presentation This note outlines the basis for preparing the unaudited consolidated financial statements in accordance with SEC rules and GAAP - The unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, reflecting all normal and recurring adjustments. They should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2024[22] - The Company is filing this 10-Q voluntarily and no longer has an obligation to file reports with the SEC, reserving the right to stop future filings at any time[9] 2. Recently Issued Accounting Standards This note discusses the adoption and evaluation of recently issued accounting standards and their impact on the financial statements - The Company adopted ASU 2023-07, "Segment Reporting," in Q4 2024, which had no material impact on consolidated financial statements but updated Footnote 3 disclosures[25] - The Company is evaluating ASU 2023-09, "Income Taxes," effective for annual periods beginning after December 15, 2024, and ASU 2024-03, "Expense Disaggregation Disclosures," effective for annual periods beginning after December 15, 2026, for potential impacts[26][27] 3. Segment Reporting This note provides financial information by operating segment, including pretax income and total assets for Homebuilding and Financial Services - The Company operates in two main segments: Homebuilding (aggregated from divisions in West, Mountain, and East regions) and Financial Services (including mortgage operations and other services)[29][32] Pretax Income by Segment (Three Months Ended June 30, 2025 vs 2024) | Segment (Dollars in thousands) | 2025 | 2024 | Change Amount | Change % | | :----------------------------- | :---------- | :---------- | :------------ | :------- | | West | $7,447 | $84,607 | $(77,160) | (91)% | | Mountain | $17,065 | $39,610 | $(22,545) | (57)% | | East | $(1,678) | $12,898 | $(14,576) | (113)% | | Corporate | $(7,615) | $(116,357) | $108,742 | 93% | | Total Homebuilding | $15,219 | $20,758 | $(5,539) | (27)%| | Mortgage operations | $7,822 | $11,672 | $(3,850) | (33)% | | Other Financial Services | $10,016 | $10,971 | $(955) | (9)% | | Total Financial Services | $17,838 | $22,643 | $(4,805) | (21)%| | Total Pretax Income | $33,057 | $43,401 | $(10,344) | (24)%| Total Assets by Segment (June 30, 2025 vs December 31, 2024) | Segment (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | West | $2,469,619 | $2,261,391 | | Mountain | $1,069,118 | $1,055,134 | | East | $800,438 | $593,167 | | Corporate | $422,848 | $770,099 | | Total Homebuilding assets | $4,762,023| $4,679,791 | | Mortgage operations | $203,821 | $260,899 | | Other Financial Services | $132,925 | $229,952 | | Total financial services assets | $336,746 | $490,851 | | Total assets | $5,098,769| $5,170,642 | 4. Earnings Per Share This note clarifies the Company's disclosure requirements regarding earnings per share following the Merger - Earnings Per Share disclosure is not required as the Company no longer has publicly-traded equity securities following the Merger[38] 5. Fair Value Measurements This note details the fair value measurements of financial instruments, including mortgage loans held-for-sale and senior notes Fair Value of Financial Instruments (Dollars in thousands) | Financial Instrument | Hierarchy | June 30, 2025 | December 31, 2024 | | :------------------- | :-------- | :------------ | :---------------- | | Mortgage loans held-for-sale, net | Level 2 | $176,121 | $236,806 | | Interest rate lock commitments | Level 2 | $(3,691) | $(277) | | Forward sales of mortgage-backed securities | Level 2 | $(2,369) | $4,047 | | Mandatory delivery forward loan sale commitments | Level 2 | $(1,127) | $515 | | Best-effort delivery forward loan sale commitments | Level 2 | $(616) | $3 | - Gains/losses on mortgage loans held-for-sale, net, were $(46.5) million for Q2 2025 and $(63.0) million for H1 2025, compared to $2.7 million and $3.3 million for the same periods in 2024, respectively[43] Fair Value of Senior Notes (Dollars in thousands) | Senior Notes | Carrying Amount (Jun 30, 2025) | Fair Value (Jun 30, 2025) | Carrying Amount (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :----------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | Total | $1,484,712 | $1,270,087 | $1,484,267 | $1,340,119 | 6. Inventories This note provides a breakdown of homebuilding inventories by category and segment, along with impairment details Homebuilding Inventories by Segment (Dollars in thousands) | Inventory Category | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | Housing completed or under construction: | | | | West | $1,225,177 | $1,112,172 | | Mountain | $666,705 | $616,200 | | East | $426,048 | $387,857 | | Subtotal | $2,317,930 | $2,116,229 | | Land and land under development: | | | | West | $1,165,120 | $1,069,594 | | Mountain | $370,205 | $408,189 | | East | $341,396 | $158,241 | | Subtotal | $1,876,721 | $1,636,024 | | Total inventories | $4,194,651| $3,752,253 | Total Inventory Impairments (Dollars in thousands) | Period | 2025 | 2024 | | :--------------------- | :---------- | :---------- | | Three Months Ended June 30, | $9,750 | $4,550 | | Six Months Ended June 30, | $9,750 | $10,450 | - For the three months ended June 30, 2025, 6 subdivisions were impaired, totaling $9.75 million, with fair value after impairments of $44.3 million and discount rates between 12%-15%[57] 7. Capitalization of Interest This note explains the Company's policy and amounts related to the capitalization of homebuilding interest - All homebuilding interest incurred was capitalized for the three and six months ended June 30, 2025 and 2024, as qualified assets exceeded homebuilding debt[58] Homebuilding Interest Activity (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Homebuilding interest incurred | $16,967 | $17,253 | $33,956 | $34,674 | | Interest capitalized, end of period | $59,575 | $60,242 | $59,575 | $60,242 | 8. Leases This note details the Company's lease arrangements, including lease costs, terms, and right-of-use assets - The Company leases property, land, and equipment, primarily office space, with most property leases classified as operating leases with terms of 3-5 years[60][61] - The headquarters lease was extended to October 31, 2028[62] Net Lease Cost (Dollars in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net lease cost | $1,994 | $2,017 | $4,010 | $3,993 | - As of June 30, 2025, the weighted-average remaining lease term for operating leases was 3.1 years with a weighted-average discount rate of 5.5%[64] 9. Homebuilding Prepaids and Other Assets This note provides a breakdown of homebuilding prepaids and other assets, including land option deposits and goodwill Homebuilding Prepaids and Other Assets (Dollars in thousands) | Asset Category | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Land option deposits | $35,249 | $52,038 | | Operating lease right-of-use asset | $19,324 | $16,146 | | Goodwill | $6,008 | $6,008 | | Total prepaids and other assets | $107,473 | $121,505 | 10. Homebuilding Accrued and Other Liabilities and Financial Services Accounts Payable and Accrued Liabilities This note details the Company's accrued and other liabilities for both homebuilding and financial services segments Homebuilding Accrued and Other Liabilities (Dollars in thousands) | Liability Category | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | Accrued compensation and related expenses | $49,638 | $86,925 | | Warranty accrual | $54,117 | $50,753 | | Lease liability | $19,725 | $16,867 | | Construction defect claim reserves | $10,342 | $11,209 | | Total accrued and other liabilities | $296,423 | $316,197 | Financial Services Accounts Payable and Accrued Liabilities (Dollars in thousands) | Liability Category | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | Insurance reserves | $97,875 | $96,851 | | Total accounts payable and accrued liabilities | $126,672 | $121,667 | 11. Warranty Accrual This note explains the changes and activity in the Company's warranty accrual - The warranty accrual increased during Q2 and H1 2025 due to a shift in closing mix to divisions with higher warranty accrual rates[72] Warranty Accrual Activity (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $51,766 | $47,328 | $50,753 | $46,427 | | Expense provisions | $7,144 | $7,102 | $13,170 | $13,170 | | Cash payments | $(4,793) | $(8,003) | $(9,806) | $(9,806) | | Balance at end of period | $54,117 | $46,427 | $54,117 | $46,427 | 12. Insurance and Construction Defect Claim Reserves This note details the Company's reserves for insurance and construction defect claims, including activity and basis of estimation - Reserves for insurance and construction defect claims are based on actuarial studies and historical trends, with potential for material impact from changes in payment experience[74][75] Insurance and Construction Defect Claim Reserves Activity (Dollars in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $108,252 | $104,338 | $108,060 | $100,759 | | Expense provisions | $4,390 | $5,396 | $8,166 | $10,522 | | Cash payments, net of recoveries | $(4,425) | $(1,656) | $(8,009) | $(3,203) | | Balance at end of period | $108,217 | $108,078 | $108,217 | $108,078 | 13. Income Taxes This note outlines the Company's income tax provision, effective tax rates, and the impact of the Merger - The Company's income tax provision is calculated as if it were a separate taxpayer, despite being included in the Sekisui House US Holdings consolidated tax group post-Merger[78] Effective Income Tax Rates and Expense (Dollars in thousands) | Period | Effective Tax Rate (2025) | Effective Tax Rate (2024) | Income Tax Expense (2025) | Income Tax Expense (2024) | | :----- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Three Months Ended June 30, | 22.4% | 42.1% | $7,402 | $18,267 | | Six Months Ended June 30, | 20.2% | 28.7% | $16,633 | $48,688 | - The decrease in effective tax rates for 2025 is primarily due to reduced non-deductible executive compensation (no longer subject to IRC Section 162(m)) and the absence of prior year one-time non-deductible Merger transaction costs[79] 14. Senior Notes This note provides details on the Company's outstanding senior notes, including carrying values and guarantees Carrying Values of Senior Notes (Dollars in thousands) | Senior Notes | June 30, 2025 | December 31, 2024 | | :----------- | :------------ | :---------------- | | 3.850% Senior Notes due January 2030, net | $298,616 | $298,478 | | 2.500% Senior Notes due January 2031, net | $348,165 | $348,010 | | 6.000% Senior Notes due January 2043, net | $491,725 | $491,596 | | 3.966% Senior Notes due August 2061, net | $346,206 | $346,183 | | Total | $1,484,712| $1,484,267 | - The senior notes are unsecured, do not contain financial covenants, and are fully and unconditionally guaranteed by most homebuilding segment subsidiaries[80] 15. Stock-Based Compensation This note explains the Company's stock-based compensation expense and the impact of the Merger on equity awards Stock-Based Compensation Expense (Dollars in thousands) | Expense Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Restricted stock awards expense | $0 | $281 | $0 | $1,319 | | Total stock-based compensation | $0 | $281 | $0 | $1,319 | - No stock-based compensation expense was recognized for the three and six months ended June 30, 2025, and no awards were outstanding as of June 30, 2025, due to the Merger's effect on equity awards in 2024[81][82] 16. Commitments and Contingencies This note details the Company's various commitments and contingencies, including letters of credit, surety bonds, and land options - As of June 30, 2025, the Company had $7.2 million in letters of credit outstanding under its $25.0 million LOC Facility[83] - Outstanding surety bonds and letters of credit totaled $349.8 million and $179.0 million, respectively, at June 30, 2025, securing obligations with estimated completion costs of $175.8 million and $147.6 million[84] - The Company had $30.8 million in cash deposits, $8.0 million in capitalized costs, and $12.6 million in letters of credit at risk for options to purchase 5,676 lots, with an estimated total purchase price of $808.2 million[88] 17. Derivative and Financial Instruments This note describes the Company's use of derivative and financial instruments to mitigate interest rate risk - The Company uses forward sales of mortgage-backed securities, mandatory delivery forward loan sale commitments, and best-effort delivery forward loan sale commitments to mitigate interest rate market risk on mortgage loans held-for-sale and interest rate lock commitments (IRLCs)[91][92] Notional Amounts and Fair Value of Derivative and Financial Instruments (Dollars in thousands) | Instrument | Notional Value (Jun 30, 2025) | Derivatives, Net (Jun 30, 2025) | Notional Value (Dec 31, 2024) | Derivatives, Net (Dec 31, 2024) | | :--------- | :---------------------------- | :------------------------------ | :---------------------------- | :------------------------------ | | Interest rate lock commitments | $141,443 | $(3,691) | $57,807 | $(277) | | Forward sales of mortgage-backed securities | $254,500 | $(2,369) | $189,000 | $4,047 | | Mandatory delivery forward loan sale commitments | $46,789 | $(1,127) | $101,557 | $515 | | Best-effort delivery forward loan sale commitments | $11,444 | $(616) | $1,306 | $3 | - Net gains (losses) on these instruments were $4.7 million for Q2 2025 and $(7.6) million for H1 2025, compared to $4.4 million and $4.3 million for the same periods in 2024[92] 18. Lines of Credit This note provides information on the Company's Revolving Credit Facility and Mortgage Repurchase Facility, including availability and covenants - The Company has an unsecured Revolving Credit Facility of up to $900.0 million (expandable to $1.40 billion), maturing November 17, 2028, with $874.6 million available as of June 30, 2025[93][97] - HomeAmerican's Mortgage Repurchase Facility provides up to $150 million in liquidity, with $126.0 million in repurchase obligations at June 30, 2025. The facility's termination date is August 8, 2025, and negotiations for extension are ongoing[98][99][186] - HomeAmerican received a waiver for an event of default under the Mortgage Repurchase Facility for not meeting the minimum Adjusted Tangible Net Worth requirement as of February 28, 2025[100] 19. Related Party Transactions This note details transactions between the Company and its related parties, including land purchases and sales - As of June 30, 2025, there was no outstanding accounts receivable due from Parent (SH Residential Holdings, LLC), compared to $22.2 million at December 31, 2024[102] - The Company purchased $78.0 million of land from SH Residential Holdings, LLC affiliates as of June 30, 2025, and sold lots acquired from affiliates, generating $22.3 million in home sales revenues and $3.0 million in gross margin for Q2 2025[103] 20. Supplemental Guarantor Information This note clarifies the guarantees on senior notes and the presentation of financial information for the Obligor Group - Most homebuilding segment subsidiaries fully and unconditionally guarantee the Company's senior notes[105] - Separate summarized financial information for the Obligor Group (Company and Guarantor Subsidiaries) is not included as their combined assets, liabilities, and operations are not materially different from the homebuilding section of the consolidated statements[106] 21. Merger This note provides details on the Company's merger with SH Residential Holdings, LLC, including transaction terms and post-merger status - On April 19, 2024, the Company completed its merger with Merger Sub, a subsidiary of SH Residential Holdings, LLC, resulting in the Company becoming a wholly-owned subsidiary[108] - Each outstanding share of common stock was converted into the right to receive $63.00 per share in cash, and all equity awards (options, RSAs, PSUs) were fully vested, cancelled, and converted into cash[108][109] - The aggregate consideration for the Merger was approximately $4.9 billion, with the Company funding $664.6 million. The Company incurred $27.6 million and $38.3 million in transaction costs for Q2 and H1 2024, respectively[111][116] - Following the Merger, the Company's common stock was delisted from the NYSE, and the Company filed to terminate registration and suspend reporting obligations under the Exchange Act[112][113][114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial condition and operational results for the three and six months ended June 30, 2025, covering industry outlook, segment performance, and liquidity Overview This section provides a high-level summary of the Company's financial performance, market conditions, and strategic position - The homebuilding industry experienced softening market conditions in Q2 2025 due to affordability concerns, macroeconomic uncertainty, and elevated mortgage rates, leading to decreased sales absorption rates[119] - Net income for Q2 2025 increased 2% YoY to $25.7 million, driven by a lower effective tax rate (22.4% vs 42.1% in Q2 2024), despite decreases in pretax income for both homebuilding (down 27%) and financial services (down 21%)[121] - Net income for H1 2025 decreased 46% YoY to $65.7 million, primarily due to significant decreases in homebuilding pretax income (down 59%) and financial services pretax income (down 29%), partially offset by a lower effective tax rate (20.2% vs 28.7% in H1 2024)[122] - The Company maintains a strong financial position with $407.4 million in cash and cash equivalents, $1.30 billion in total liquidity, and a debt-to-capital ratio of 33.6%, with no senior note maturities until 2030[120] Homebuilding This section details the financial performance and operational data of the Company's homebuilding segment Pretax Income (Loss) This section analyzes the pretax income and loss for each homebuilding division and the corporate segment Homebuilding Pretax Income (Dollars in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change Amount | Change % | | :------ | :------------------------------- | :------------------------------- | :------------ | :------- | | West | $7,447 | $84,607 | $(77,160) | (91)% | | Mountain| $17,065 | $39,610 | $(22,545) | (57)% | | East | $(1,678) | $12,898 | $(14,576) | (113)% | | Corporate| $(7,615) | $(116,357) | $108,742 | 93% | | Total| $15,219 | $20,758 | $(5,539) | (27)%| | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change Amount | Change % | | :------ | :----------------------------- | :----------------------------- | :------------ | :------- | | West | $35,468 | $166,734 | $(131,266) | (79)% |\ | Mountain| $31,676 | $65,152 | $(33,476) | (51)% | | East | $(1,773) | $25,572 | $(27,345) | (107)% | | Corporate| $(11,812) | $(128,124) | $116,312 | 91% | | Total| $53,559 | $129,334 | $(75,775) | (59)%| - The decrease in homebuilding pretax income for Q2 2025 was due to a 22% decrease in home sale revenues, a 560 basis point decrease in gross margin, and lower interest income, partially offset by a $27.6 million reduction in Merger-related transaction costs and a 420 basis point decrease in SG&A as a percentage of revenue[125] - Corporate segment pretax income increased significantly due to the absence of accelerated equity awards vesting, executive transaction bonuses, and transaction costs related to the Merger in the prior year[125] Assets This section details the total homebuilding assets by segment and the factors influencing their changes Total Homebuilding Assets by Segment (Dollars in thousands) | Segment | June 30, 2025 | December 31, 2024 | Change Amount | Change % | | :------ | :------------ | :---------------- | :------------ | :------- | | West | $2,469,619 | $2,261,391 | $208,228 | 9% | | Mountain| $1,069,118 | $1,055,134 | $13,984 | 1% | | East | $800,438 | $593,167 | $207,271 | 35% | | Corporate| $422,848 | $770,099 | $(347,251) | (45)% | | Total| $4,762,023| $4,679,791 | $82,232 | 2% | - Total homebuilding assets increased 2% from December 31, 2024, to June 30, 2025, primarily due to increased land acquisition and development in the East and West segments, and an increase in finished homes in inventory across all segments[127][128] - The Corporate segment's assets decreased due to a reduction in cash and cash equivalents, driven by increased land acquisition and development spending[127] New Home Deliveries & Home Sale Revenues This section presents data on new home deliveries, home sale revenues, and average selling prices by segment New Home Deliveries and Home Sale Revenues (Three Months Ended June 30) | Segment | 2025 Homes | 2025 Revenues ($k) | 2025 Avg Price ($k) | 2024 Homes | 2024 Revenues ($k) | 2024 Avg Price ($k) | Homes % Change | Revenues % Change | Avg Price % Change | | :------ | :--------- | :----------------- | :------------------ | :--------- | :----------------- | :------------------ | :------------- | :---------------- | :----------------- | | West | 1,016 | $560,263 | $551.4 | 1,476 | $842,561 | $570.8 | (31)% | (34)% | (3)% | | Mountain| 600 | $352,881 | $588.1 | 586 | $366,071 | $624.7 | 2% | (4)% | (6)% | | East | 456 | $193,261 | $423.8 | 471 | $202,814 | $430.6 | (3)% | (5)% | (2)% | | Total| 2,072 | $1,106,405 | $534.0 | 2,533 | $1,411,446 | $557.2 | (18)% | (22)% | (4)% | New Home Deliveries and Home Sale Revenues (Six Months Ended June 30) | Segment | 2025 Homes | 2025 Revenues ($k) | 2025 Avg Price ($k) | 2024 Homes | 2024 Revenues ($k) | 2024 Avg Price ($k) | Homes % Change | Revenues % Change | Avg Price % Change | | :------ | :--------- | :----------------- | :------------------ | :--------- | :----------------- | :------------------ | :------------- | :---------------- | :----------------- | | West | 1,929 | $1,074,782 | $557.2 | 2,929 | $1,672,647 | $571.1 | (34)% | (36)% | (2)% | | Mountain| 1,107 | $652,845 | $589.7 | 1,086 | $676,250 | $622.7 | 2% | (3)% | (5)% | | East | 821 | $351,675 | $428.3 | 913 | $387,751 | $424.7 | (10)% | (9)% | 1% | | Total| 3,857 | $2,079,302 | $539.1 | 4,928 | $2,736,648 | $555.3 | (22)% | (24)% | (3)% | - Decreases in new home deliveries for the West and East segments were due to lower beginning backlog and decreased net home sales. The Mountain segment saw a slight increase in deliveries due to higher net home sales, offset by lower beginning backlog[132][134][136] - The decrease in average selling price across all segments was primarily a result of increased incentive levels, though the East segment's decrease was partially offset by a shift to higher-priced communities[132][134][136] Gross Margin from Home Sales This section analyzes the gross margin from home sales and the factors contributing to its changes - Gross margin from home sales decreased by 560 basis points YoY to 12.5% for Q2 2025 and by 390 basis points YoY to 13.9% for H1 2025[137] - The decline in gross margin was primarily driven by increased incentive levels, and to a lesser extent, higher land costs and decreased base home prices[137] Inventory Impairments This section details the inventory impairments by category and segment for the reporting periods Inventory Impairments by Segment (Dollars in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Housing Completed or Under Construction: | | | | | | West | $5,789 | $1,423 | $5,789 | $2,331 | | East | $750 | $880 | $750 | $880 | | Subtotal | $6,539 | $2,303 | $6,539 | $3,611 | | Land and Land Under Development: | | | | | | West | $3,211 | $77 | $3,211 | $4,669 | | East | $0 | $2,170 | $0 | $2,170 | | Subtotal | $3,211 | $2,247 | $3,211 | $6,839 | | Total Inventory Impairments | $9,750 | $4,550 | $9,750 | $10,450 | - Total inventory impairments for Q2 2025 were $9.75 million across 6 subdivisions, compared to $4.55 million across 4 subdivisions in Q2 2024[141] Selling, General and Administrative Expenses This section analyzes the selling, general and administrative expenses and their impact on home sale revenues Selling, General and Administrative Expenses (Dollars in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($k) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($k) | | :--------------- | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | General and administrative expenses | $57,258 | $145,272 | $(88,014) | $111,045 | $211,585 | $(100,540) | | Marketing expenses | $28,871 | $29,109 | $(238) | $55,920 | $58,412 | $(2,492) | | Commissions expenses | $38,261 | $42,165 | $(3,904) | $71,717 | $80,699 | $(8,982) | | Total SG&A | $124,390 | $216,546 | $(92,156)| $238,682 | $350,696 | $(112,014)| - General and administrative expenses decreased significantly due to the absence of accelerated equity awards vesting, executive transaction bonuses, and Merger-related transaction costs present in the prior year[143] - Total SG&A as a percentage of home sale revenues decreased by 420 basis points to 11.2% for Q2 2025 and by 120 basis points to 11.5% for H1 2025[143] Other Homebuilding Operating Data This section provides additional operational data for the homebuilding segment, including new orders, backlog, and inventory Net New Orders and Active Subdivisions This section presents data on net new home orders, average selling prices, monthly absorption rates, and active subdivisions Net New Orders (Three Months Ended June 30) | Segment | 2025 Homes | 2025 Dollar Value ($k) | 2025 Avg Price ($k) | 2025 Monthly Absorption Rate | 2024 Homes | 2024 Dollar Value ($k) | 2024 Avg Price ($k) | 2024 Monthly Absorption Rate | Homes % Change | Dollar Value % Change | Avg Price % Change | Absorption Rate % Change | | :------ | :--------- | :--------------------- | :------------------ | :--------------------------- | :--------- | :--------------------- | :------------------ | :--------------------------- | :------------- | :-------------------- | :----------------- | :----------------------- | | West | 842 | $498,167 | $591.6 | 2.89 | 1,284 | $725,770 | $565.2 | 3.54 | (34)% | (31)% | 5% | (18)% | | Mountain| 537 | $338,230 | $629.9 | 3.03 | 488 | $299,809 | $614.4 | 2.80 | 10% | 13% | 3% | 8% | | East | 394 | $183,685 | $466.2 | 3.37 | 496 | $211,837 | $427.1 | 3.94 | (21)% | (13)% | 9% | (14)% | | Total| 1,773 | $1,020,082 | $575.3 | 3.03 | 2,268 | $1,237,416 | $545.6 | 3.44 | (22)% | (18)% | 5% | (12)% | Average Active Subdivisions | Segment | June 30, 2025 Active Subdivisions | June 30, 2024 Active Subdivisions | % Change | Three Months Ended June 30, 2025 Avg Active Subdivisions | Three Months Ended June 30, 2024 Avg Active Subdivisions | % Change | Six Months Ended June 30, 2025 Avg Active Subdivisions | Six Months Ended June 30, 2024 Avg Active Subdivisions | % Change | | :------ | :-------------------------------- | :-------------------------------- | :------- | :--------------------------------------- | :--------------------------------------- | :------- | :------------------------------------- | :------------------------------------- | :------- | | West | 99 | 115 | (14)% | 97 | 121 | (20)% | 99 | 129 | (23)% | | Mountain| 60 | 58 | 3% | 59 | 58 | 2% | 58 | 59 | (2)% | | East | 40 | 41 | (2)% | 39 | 42 | (7)% | 39 | 40 | (3)% | | Total| 199 | 214 | (7)% | 195 | 220 | (11)%| 196 | 229 | (14)%| - The Company updated its methodology for determining active subdivisions from five net sales to the first sale, with prior periods updated for consistency[149] Cancellation Rate This section analyzes the cancellation rate as a percentage of gross sales and its contributing factors Cancellations as a Percentage of Gross Sales | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | West | 18% | 17% | 15% | 16% | | Mountain| 18% | 17% | 16% | 15% | | East | 17% | 17% | 15% | 17% | | Total| 18% | 17% | 15% | 16% | - The cancellation rate as a percentage of gross sales increased YoY for Q2 2025 due to decreased gross sales, partially offset by lower beginning backlog. It decreased YoY for H1 2025 due to lower beginning backlog, partially offset by decreased gross sales[156] Backlog This section details the number and dollar value of homes in backlog by segment Homes in Backlog (June 30) | Segment | 2025 Homes | 2025 Dollar Value ($k) | 2025 Avg Price ($k) | 2024 Homes | 2024 Dollar Value ($k) | 2024 Avg Price ($k) | Homes % Change | Dollar Value % Change | Avg Price % Change | | :------ | :--------- | :--------------------- | :------------------ | :--------- | :--------------------- | :------------------ | :------------- | :-------------------- | :----------------- | | West | 289 | $186,118 | $644.0 | 1,047 | $637,602 | $609.0 | (72)% | (71)% | 6% | | Mountain| 160 | $115,834 | $724.0 | 318 | $216,325 | $680.3 | (50)% | (46)% | 6% | | East | 136 | $72,690 | $534.5 | 335 | $151,461 | $452.1 | (59)% | (52)% | 18% | | Total| 585 | $374,642 | $640.4 | 1,700 | $1,005,388 | $591.4 | (66)% | (63)% | 8% | - The number of homes in backlog decreased by 66% and the dollar value by 63% YoY at June 30, 2025, primarily due to a shift in consumer preference to quick move-in homes and the Company's pivot to build more spec homes[157] Homes Completed or Under Construction (WIP lots) This section provides a breakdown of homes completed or under construction, including unsold, sold, and model homes Homes Completed or Under Construction (June 30) | Category | 2025 | 2024 | % Change | | :------- | :--- | :--- | :------- | | Unsold: | | | | | Completed| 1,775| 370 | 380% | | Under construction | 2,833| 3,612| (22)% | | Total unsold started homes | 4,608| 3,982| 16% | | Sold homes under construction or completed | 576 | 1,697| (66)% | | Model homes under construction or completed | 405 | 483 | (16)% | | Total homes completed or under construction | 5,589| 6,162| (9)% | - The increase in unsold started homes and decrease in sold homes under construction reflects the Company's pivot to build more spec homes and a slower sales pace in Q2 2025[158] Lots Owned and Optioned This section presents the total number of lots owned and optioned by segment Lots Owned and Optioned (June 30) | Segment | 2025 Owned | 2025 Optioned | 2025 Total | 2024 Owned | 2024 Optioned | 2024 Total | Total % Change | | :------ | :--------- | :------------ | :--------- | :--------- | :------------ | :--------- | :------------- | | West | 10,064 | 2,132 | 12,196 | 9,236 | 1,546 | 10,782 | 13% | | Mountain| 4,591 | 873 | 5,464 | 5,079 | 1,148 | 6,227 | (12)% | | East | 4,978 | 2,671 | 7,649 | 3,016 | 2,904 | 5,920 | 29% | | Total| 19,633 | 5,676 | 25,309 | 17,331 | 5,598 | 22,929 | 10% | - Total owned and optioned lots increased by 10% YoY to 25,309 at June 30, 2025, which the Company believes is sufficient for its operating needs[159][161] Financial Services This section details the financial performance of the Company's financial services segment, including mortgage operations Financial Services Pretax Income (Dollars in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change Amount | Change % | | :------ | :------------------------------- | :------------------------------- | :------------ | :------- | | Mortgage operations | $7,822 | $11,672 | $(3,850) | (33)% | | Other | $10,016 | $10,971 | $(955) | (9)% | | Total| $17,838 | $22,643 | $(4,805) | (21)%| | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change Amount | Change % | | :------ | :----------------------------- | :----------------------------- | :------------ | :------- | | Mortgage operations | $6,603 | $20,873 | $(14,271) | (68)% | | Other | $22,208 | $19,434 | $2,774 | 14% | | Total| $28,811 | $40,307 | $(11,496) | (29)%| - The decrease in financial services pretax income for Q2 2025 was primarily due to mortgage operations, impacted by special financing programs and decreased interest income, partially offset by an increase in capture rate[121][160] - For H1 2025, other financial services benefited from increased premium revenue due to higher renewal rates and profit sharing from third-party insurance providers[162] Mortgage Operations Key Data | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :----- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Total Originations (Loans) | 1,735 | 1,928 | (10)% | 3,165 | 3,639 | (13)% | | Total Originations (Principal, $k) | $854,174 | $902,249 | (5)% | $1,551,789 | $1,684,070 | (8)% | | Capture rate as % of all homes delivered | 84% | 76% | 8% | 82% | 74% | 8% | | Total government loans (% of mix) | 56% | 47% | 9% | 54% | 47% | 7% | | Conventional loans (% of mix) | 44% | 53% | (9)% | 46% | 53% | (7)% | Income Taxes This section discusses the Company's effective income tax rates and the factors influencing them - The Company's effective income tax rates were 22.4% for Q2 2025 (down from 42.1% in Q2 2024) and 20.2% for H1 2025 (down from 28.7% in H1 2024)[165] - The decrease in effective tax rates is primarily attributed to reduced non-deductible executive compensation and the absence of prior year one-time non-deductible transaction costs related to the Merger[165] CRITICAL ACCOUNTING ESTIMATES AND POLICIES This section confirms the Company's critical accounting estimates and policies remain consistent with prior reports - Management's critical accounting estimates and policies remain unchanged from those reported in the Annual Report on Form 10-K for the year ended December 31, 2024[168] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the Company's liquidity position and capital resources, including cash requirements and credit facilities Material Cash Requirements This section details the Company's significant cash obligations, including senior notes, land options, and surety bonds - As of June 30, 2025, the Company had $1.50 billion in outstanding senior notes (none due within 12 months) with future interest payments totaling $1.16 billion ($64.2 million payable within 12 months)[172] - The Company had $35.2 million in cash deposits and $13.6 million in letters of credit securing options to purchase 5,676 lots for an estimated $808.2 million[173] - Outstanding surety bonds and letters of credit totaled $349.8 million and $179.0 million, respectively, with estimated completion costs of $175.8 million and $147.6 million[174] Capital Resources This section describes the Company's capital structure and its adequacy to meet financial requirements - The Company's capital structure includes stockholders' equity, long-term senior notes, a Revolving Credit Facility, and a Mortgage Repurchase Facility[175] - Management believes current capital resources are adequate to meet short and long-term capital requirements, including senior note payments, due to cash balances, capital market access, and available capacity under credit facilities[175][176] Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility This section provides details on the Company's senior notes and various credit facilities, including terms and availability - The Revolving Credit Facility has an aggregate commitment of $900.0 million (expandable to $1.40 billion) and matures on November 17, 2028. As of June 30, 2025, $874.6 million was available[179][183] - HomeAmerican's Mortgage Repurchase Facility provides up to $150 million in liquidity, with $126.0 million in repurchase obligations at June 30, 2025. The facility expires on August 8, 2025, and an extension is being negotiated[186][187] - HomeAmerican received a waiver for a covenant default related to its Adjusted Tangible Net Worth under the Mortgage Repurchase Facility as of February 28, 2025[188] Consolidated Cash Flow This section analyzes the Company's consolidated cash flows from operating, investing, and financing activities - Net cash used in operating activities was $281.3 million for H1 2025, a significant change from $50.4 million provided in H1 2024, primarily due to increased land acquisition and development spending[191] - Net cash used in investing activities decreased to $11.9 million for H1 2025 from $104.4 million in H1 2024, mainly due to lower marketable securities purchases in 2025[192] - Net cash used in financing activities decreased to $138.5 million for H1 2025 from $668.1 million in H1 2024, primarily due to the $611.4 million distribution to Parent in H1 2024 related to the Merger[193] - Dividend payments increased to $86.8 million in H1 2025 from $41.3 million in H1 2024, due to the absence of a dividend payment in Q2 2024[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to market risks, particularly those related to interest rate fluctuations affecting mortgage loans, interest rate lock commitments, and debt instruments. It details the hedging strategies employed by HomeAmerican Mortgage Corporation to mitigate these risks - The Company is exposed to market risks from interest rate fluctuations on mortgage loans held-for-sale, mortgage interest rate lock commitments (IRLCs), and debt[197] - HomeAmerican uses forward sales of mortgage-backed securities and mandatory/best-effort delivery forward loan sale commitments to economically hedge price risk on rate-locked mortgage loans and held-for-sale mortgages[199][200] - As of June 30, 2025, HomeAmerican had $141.4 million in IRLCs and $181.2 million in mortgage loans held-for-sale, with $141.4 million and $122.9 million, respectively, not yet committed to a mortgage purchaser[199] - For fixed-rate debt (senior notes), interest rate changes affect fair value but not earnings or cash flows, while for variable-rate debt (Revolving Credit Facility, Mortgage Repurchase Facility), changes affect earnings and cash flows but not fair value[201][202] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[204] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2025[204] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section addresses legal actions and claims against the Company, primarily arising from its homebuilding operations - The Company is involved in various ordinary course legal actions, including product liability and claims related to home sales and financing[206] - Management believes the outcome of these matters will not have a material adverse effect on the Company's financial condition, results of operations, or cash flows[206] - All claims against SHRH in the Building Trades Pension Fund of Western Pennsylvania matter were dismissed without prejudice on or about March 3, 2025[87] Item 1A. Risk Factors This section refers to the risk factors previously disclosed in the Company's annual report - There are no material changes to the risk factors from those included in the Company's 2024 Annual Report on Form 10-K[207] Item 5. Other Information This section indicates that there is no other information to report - No other information is reported in this section[208] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications and financial statements in iXBRL format - Exhibits include Subsidiary Guarantors, certifications from principal executive and financial officers (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and financial statements in iXBRL format[211] Signatures This section contains the required signatures for the Form 10-Q - The report is signed by Robert N. Martin, Director, Senior Vice President and Chief Financial Officer, and Derek R. Kimmerle, Vice President, Controller and Chief Accounting Officer, on August 5, 2025[212]