MERITAGE HOMES CORPORATION Overview and Outlook Housing market conditions in the second quarter of 2021 remained strong, driven by the demand created by continuing low interest rates, a limited supply of available homes, and an increased desire for healthier, safer homes with indoor space to accommodate work and school from home needs. We believe the needs of both the millennial and baby boomer generations support a continued elevated level of demand over the next several years, although individual market results will vary in response to each respective market's economic factors but will likely taper to a normalized pace in the near term. Our strategy to provide buyers with affordable, quick move-in ready homes has positioned us to take full advantage of the current market, resulting in the highest second quarter closing volume and the highest quarterly home closing gross margin in the Company's history. In addition to our strong growth in closings and profitability during the second quarter of 2021, we made notable progress on our goals for community count growth. As ofJune 30, 2021 , we had 226 active communities, up from 203 atMarch 31, 2021 , although down fromJune 30, 2020 due to the sustained accelerated orders pace throughout 2020 and into 2021. Ongoing pandemic-related supply chain disruptions combined with over a year of sustained demand have resulted in some production constraints for the homebuilding industry. As a result of these constraints, we experienced construction cycle delays of approximately four weeks from our typical construction cycle times during the current quarter, which impacted both orders and closings. We were able to successfully navigate these supply-chain challenges by working with our long-term trade partners to minimize the impact on our production, where possible, and were able to close 3,273 homes, our highest second quarter closing volume in history, while also seeing an increase in our average absorption pace year-over-year, even as we metered the number of homes available for sale to align with the current production constraints. Summary Company Results Total home closing revenue was$1.3 billion on 3,273 homes closed for the three months endedJune 30, 2021 compared to$1.0 billion on 2,770 homes closed for the second quarter of 2020, 22.6% and 18.2% increases, respectively. In addition to higher home closing revenue, we achieved our highest home closing gross margin in Company history of 27.3%, a 590 basis point increase year-over-year that resulted in a$124.6 million increase in home closing gross profit to$345.3 million compared to$220.7 million in the second quarter of 2020. This improvement was due to pricing power from strong buyer demand, combined with leverage of overhead costs on higher volumes, which have more than offset the impact of rising material costs, particularly lumber. As a result of rising sales prices, our consolidated average sales price ("ASP") on home closings is up 3.8% year-over-year, despite our shift in product mix toward entry-level homes. Interest expense decreased year-over-year by$2.0 million as we benefited from lower interest rates as a result of our debt refinancing inApril 2021 . As a result of this refinancing transaction, we recognized an$18.2 million loss on early extinguishment of debt (see Note 6 in the accompanying unaudited financial statements for additional information). Earnings before income taxes improved by$99.8 million year-over-year to$215.7 million for the second quarter of 2021. These improved year-over-year results combined with our effective income tax rate of 22.4% as compared to 21.7% in the prior year period led to net earnings of$167.4 million in the second quarter of 2021 versus$90.7 million in the second quarter of 2020. For the six months endedJune 30, 2021 , home closing revenue was$2.3 billion on 6,163 homes closed, 22.0% and 21.2% increases over 2020, respectively. Similar to the second quarter, year-to-date results reflect an increase of$212.9 million in home closing gross profit versus the six months endedJune 30, 2020 . Higher gross profit and lower interest expense were partially offset by the loss on early extinguishment of debt and a slightly higher effective tax rate of 21.6%, leading to net income of$299.2 million for the six months endedJune 30, 2021 compared to$161.8 million for the 2020 period. Order volume declined slightly by 1.5% in the three months endedJune 30, 2021 compared to the same period in 2020, due to 10.3% fewer active communities open for sales, which was almost fully offset by an increase in per community orders pace of 5.5 in the second quarter 2021 compared to 5.0 in the second quarter 2020. Due to an 18.0% increase in ASP, order value increased$209.2 million , or 16.2%. Our order cancellation rate dropped to 8% for the second quarter of 2021 compared to 15% for the prior year period. For the six months endedJune 30, 2021 , home orders and home order value increased 4.5% and 15.3%, respectively, over the prior year, and our order cancellation rate dropped to 9% compared to 14% for the prior year period. We ended the second quarter of 2021 with 5,509 homes in backlog valued at$2.3 billion , a 25.3% increase in units and a 40.6% increase in value overJune 30, 2020 . 23 -------------------------------------------------------------------------------- Company Positioning We believe that our ongoing investments in new communities designed for the entry-level and first move-up homebuyer, our commitment to an all-spec strategy for our entry-level homes, our simplified first move-up design studio process, industry-leading innovation in our energy-efficient product offerings, automation, and transformative customer buying experience, create a differentiated strategy that has aided us in our success in the highly-competitive new home market and will continue to do so in the long-term. Our focus includes the following strategies: •Expanding our community count and market share; •Continuously improving the overall home buying experience through simplification and innovation. Studio M streamlines the option selection process for move-up buyers, while all of our LiVE.NOW® communities feature interactive technology tools offering homebuyers the ability to electronically search for available homes with their desired home features and based on their preferred availability or move-in dates; •Leveraging and expanding on technological solutions through digital offerings, including virtual tours in all of our communities for both prospective buyers and home closing walkthroughs,3-D tours and dynamic floor plans, partial or fully virtual closings in states where such services are permitted, and online scheduling for in-person model home tours and self-guided tours in select locations. Our website also provides a comprehensive online suite of financial services such as mortgage pre-qualifications, on-demand homeowners' insurance quotes and a warranty portal for our homeowners to submit and track warranty-related matters; •Increasing homeowner satisfaction by setting industry standards for energy-efficiency and offering healthier homes with enhanced security features. Every new home we construct meets or exceeds ENERGY STAR® standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered today for residential construction, and a multispeed HVAC system, allowing owners to better manage the comfort of their home while reducing their environmental impact and operating costs. In addition, each of our newly constructed homes includes home automation features through our M.Connected Home™ Automation Suite which includes the Honeywell Pro Series Hub ("the Hub") that allows homeowners to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors, a video doorbell and smart door locks. We recently partnered with SafeStreets to provide our homebuyers professional installation of various smart home technologies and connectivity to the Hub, training and expanded security options. •Simplifying our production process to allow us to more efficiently build our homes and reduce our construction costs, which in turn allows us to competitively price our homes and deliver them on a shortened timeline; and •Improving our home closing gross profit by growing closing volume while streamlining our operations, allowing us to better leverage our overhead; In order to maintain focus on growing our business, we remain committed to the following: •Maintaining a healthy order pace through the use of our consumer and market research to build homes that offer our buyers their desired features and amenities; •Achieving or maintaining a position of at least 5% market share in all of our markets; •Continuing to innovate and promote our energy efficiency program and our M.Connected Home™ Automation Suite to create differentiation for the Meritage brand; •Managing construction efficiencies and costs through national and regional vendor relationships with a focus on quality construction and warranty management; •Carefully managing our liquidity and a strong balance sheet; we ended the quarter with a 30.6% debt-to-capital ratio and a 15.4% net debt-to-capital ratio; •Maximizing returns to our shareholders, most recently through our improved financial performance and share repurchase program; and 24 -------------------------------------------------------------------------------- •Promoting a positive environment for our employees through our commitment to drive diversity, equity, and inclusion and providing market-competitive benefits in order to develop and motivate our employees and to minimize turnover and to maximize recruitment efforts. Critical Accounting Policies The accounting policies we deem most critical to us and that involve the most difficult, subjective or complex judgments include revenue recognition, valuation of real estate, warranty reserves and valuation of deferred tax assets. There have been no significant changes to our critical accounting policies during the six months endedJune 30, 2021 compared to those disclosed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2020 Annual Report on Form 10-K. 25 --------------------------------------------------------------------------------
Home Closing Revenue, Home Orders and Order Backlog The composition of our closings, home orders and backlog is constantly changing and is based on a changing mix of communities with various price points between
periods as new projects open and existing projects wind down and close-out.
Further, individual homes within a community can range significantly in price
due to differing square footage, option selections, lot sizes and quality and location of lots (e.g. cul-de-sac, view lots, greenbelt lots). These variations
result in a lack of meaningful comparability between our home orders, closings and backlog due to the changing mix between periods. The tables on the following
pages present operating and financial data that we consider most critical to
managing our operations (dollars in thousands):
Three Months Ended June 30, Quarter over Quarter
2021 2020 Change $ Change %
Home Closing Revenue
Total
Dollars $ 1,264,643 $ 1,031,591 $ 233,052 22.6 %
Homes closed 3,273 2,770 503 18.2 %
Average sales price $ 386.4 $ 372.4 $ 14.0 3.8 %
West Region
Arizona
Dollars $ 165,990 $ 142,359 $ 23,631 16.6 %
Homes closed 481 427 54 12.6 %
Average sales price $ 345.1 $ 333.4 $ 11.7 3.5 %
California
Dollars $ 198,232 $ 150,343 $ 47,889 31.9 %
Homes closed 318 247 71 28.7 %
Average sales price $ 623.4 $ 608.7 $ 14.7 2.4 %
Colorado
Dollars $ 74,987 $ 89,087 $ (14,100) (15.8) %
Homes closed 145 184 (39) (21.2) %
Average sales price $ 517.2 $ 484.2 $ 33.0 6.8 %
West Region Totals
Dollars $ 439,209 $ 381,789 $ 57,420 15.0 %
Homes closed 944 858 86 10.0 %
Average sales price $ 465.3 $ 445.0 $ 20.3 4.6 %
Central Region - Texas
Central Region Totals
Dollars $ 403,838 $ 295,975 $ 107,863 36.4 %
Homes closed 1,154 914 240 26.3 %
Average sales price $ 349.9 $ 323.8 $ 26.1 8.1 %
East Region
Florida
Dollars $ 160,377 $ 138,608 $ 21,769 15.7 %
Homes closed 443 367 76 20.7 %
Average sales price $ 362.0 $ 377.7 $ (15.7) (4.2) %
Georgia
Dollars $ 62,477 $ 58,698 $ 3,779 6.4 %
Homes closed 171 166 5 3.0 %
Average sales price $ 365.4 $ 353.6 $ 11.8 3.3 %
North Carolina
Dollars $ 119,838 $ 98,738 $ 21,100 21.4 %
Homes closed 330 288 42 14.6 %
Average sales price $ 363.1 $ 342.8 $ 20.3 5.9 %
South Carolina
Dollars $ 28,209 $ 30,206 $ (1,997) (6.6) %
Homes closed 81 98 (17) (17.3) %
Average sales price $ 348.3 $ 308.2 $ 40.1 13.0 %
Tennessee
Dollars $ 50,695 $ 27,577 $ 23,118 83.8 %
Homes closed 150 79 71 89.9 %
Average sales price $ 338.0 $ 349.1 $ (11.1) (3.2) %
East Region Totals
Dollars $ 421,596 $ 353,827 $ 67,769 19.2 %
Homes closed 1,175 998 177 17.7 %
Average sales price $ 358.8 $ 354.5 $ 4.3 1.2 %
26--------------------------------------------------------------------------------
Six Months Ended June 30, Quarter over Quarter
2021 2020 Change $ Change %
Home Closing Revenue
Total
Dollars $ 2,344,625 $ 1,922,008 $ 422,617 22.0 %
Homes closed 6,163 5,086 1,077 21.2 %
Average sales price $ 380.4 $ 377.9 $ 2.5 0.7 %
West Region
Arizona
Dollars $ 303,258 $ 293,603 $ 9,655 3.3 %
Homes closed 891 886 5 0.6 %
Average sales price $ 340.4 $ 331.4 $ 9.0 2.7 %
California
Dollars $ 370,131 $ 285,145 $ 84,986 29.8 %
Homes closed 595 455 140 30.8 %
Average sales price $ 622.1 $ 626.7 $ (4.6) (0.7) %
Dollars$ 159,250 $ 180,771 $ (21,521) (11.9) % Homes closed 320 370 (50) (13.5) % Average sales price$ 497.7 $ 488.6 $ 9.1 1.9 % West Region Totals Dollars$ 832,639 $ 759,519 $ 73,120 9.6 % Homes closed 1,806 1,711 95 5.6 % Average sales price$ 461.0 $ 443.9 $ 17.1 3.9 %Central Region -Texas Central Region Totals Dollars$ 722,223 $ 551,884 $ 170,339 30.9 % Homes closed 2,117 1,688 429 25.4 % Average sales price$ 341.2 $ 326.9 $ 14.3 4.4 % East Region Florida Dollars$ 301,205 $ 232,397 $ 68,808 29.6 % Homes closed 860 603 257 42.6 % Average sales price$ 350.2 $ 385.4 $ (35.2) (9.1) % Georgia Dollars$ 117,616 $ 100,696 $ 16,920 16.8 % Homes closed 317 281 36 12.8 % Average sales price$ 371.0 $ 358.3 $ 12.7 3.5 % North Carolina Dollars$ 226,851 $ 178,155 $ 48,696 27.3 % Homes closed 629 510 119 23.3 % Average sales price$ 360.7 $ 349.3 $ 11.4 3.3 % South Carolina Dollars$ 56,055 $ 47,611 $ 8,444 17.7 % Homes closed 166 151 15 9.9 % Average sales price$ 337.7 $ 315.3 $ 22.4 7.1 % Tennessee Dollars$ 88,036 $ 51,746 $ 36,290 70.1 % Homes closed 268 142 126 88.7 % Average sales price$ 328.5 $ 364.4 $ (35.9) (9.9) % East Region Totals Dollars$ 789,763 $ 610,605 $ 179,158 29.3 % Homes closed 2,240 1,687 553 32.8 % Average sales price$ 352.6 $ 361.9 $ (9.3) (2.6) % 27
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Three Months Ended June 30, Quarter over Quarter
2021 2020 Change $ Change %
Home Orders (1)
Total
Dollars $ 1,499,672 $ 1,290,454 $ 209,218 16.2 %
Homes ordered 3,542 3,597 (55) (1.5) %
Average sales price $ 423.4 $ 358.8 $ 64.6 18.0 %
West Region
Arizona
Dollars $ 256,804 $ 231,057 $ 25,747 11.1 %
Homes ordered 624 737 (113) (15.3) %
Average sales price $ 411.5 $ 313.5 $ 98.0 31.3 %
California
Dollars $ 217,228 $ 224,639 $ (7,411) (3.3) %
Homes ordered 344 388 (44) (11.3) %
Average sales price $ 631.5 $ 579.0 $ 52.5 9.1 %
Colorado
Dollars $ 104,134 $ 70,831 $ 33,303 47.0 %
Homes ordered 181 153 28 18.3 %
Average sales price $ 575.3 $ 462.9 $ 112.4 24.3 %
West Region Totals
Dollars $ 578,166 $ 526,527 $ 51,639 9.8 %
Homes ordered 1,149 1,278 (129) (10.1) %
Average sales price $ 503.2 $ 412.0 $ 91.2 22.1 %
Central Region - Texas
Central Region Totals
Dollars $ 428,375 $ 392,502 $ 35,873 9.1 %
Homes ordered 1,101 1,215 (114) (9.4) %
Average sales price $ 389.1 $ 323.0 $ 66.1 20.5 %
East Region
Florida
Dollars $ 176,118 $ 136,362 $ 39,756 29.2 %
Homes ordered 468 390 78 20.0 %
Average sales price $ 376.3 $ 349.6 $ 26.7 7.6 %
Georgia
Dollars $ 77,309 $ 65,434 $ 11,875 18.1 %
Homes ordered 193 190 3 1.6 %
Average sales price $ 400.6 $ 344.4 $ 56.2 16.3 %
North Carolina
Dollars $ 153,032 $ 106,383 $ 46,649 43.9 %
Homes ordered 390 326 64 19.6 %
Average sales price $ 392.4 $ 326.3 $ 66.1 20.3 %
South Carolina
Dollars $ 32,595 $ 29,262 $ 3,333 11.4 %
Homes ordered 88 95 (7) (7.4) %
Average sales price $ 370.4 $ 308.0 $ 62.4 20.3 %
Tennessee
Dollars $ 54,077 $ 33,984 $ 20,093 59.1 %
Homes ordered 153 103 50 48.5 %
Average sales price $ 353.4 $ 329.9 $ 23.5 7.1 %
East Region Totals
Dollars $ 493,131 $ 371,425 $ 121,706 32.8 %
Homes ordered 1,292 1,104 188 17.0 %
Average sales price $ 381.7 $ 336.4 $ 45.3 13.5 %
(1)Home orders for any period represent the aggregate sales price of all homes
ordered, net of cancellations. We do not include orders contingent upon the sale
of a customer's existing home or a mortgage pre-approval as a sales contract
until the contingency is removed.
28
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Six Months Ended June 30, Quarter over Quarter
2021 2020 Change $ Change %
Home Orders (1)
Total
Dollars $ 2,848,802 $ 2,470,391 $ 378,411 15.3 %
Homes ordered 7,000 6,699 301 4.5 %
Average sales price $ 407.0 $ 368.8 $ 38.2 10.4 %
West Region
Arizona
Dollars $ 479,239 $ 414,428 $ 64,811 15.6 %
Homes ordered 1,226 1,307 (81) (6.2) %
Average sales price $ 390.9 $ 317.1 $ 73.8 23.3 %
Dollars$ 390,619 $ 449,571 $ (58,952) (13.1) % Homes ordered 630 740 (110) (14.9) % Average sales price$ 620.0 $ 607.5 $ 12.5 2.1 %Colorado Dollars$ 193,913 $ 169,296 $ 24,617 14.5 % Homes ordered 350 352 (2) (0.6) % Average sales price$ 554.0 $ 481.0 $ 73.0 15.2 % West Region Totals Dollars$ 1,063,771 $ 1,033,295 $ 30,476 2.9 % Homes ordered 2,206 2,399 (193) (8.0) % Average sales price$ 482.2 $ 430.7 $ 51.5 12.0 %Central Region -Texas Central Region Totals Dollars$ 820,343 $ 735,492 $ 84,851 11.5 % Homes ordered 2,216 2,274 (58) (2.6) % Average sales price$ 370.2 $ 323.4 $ 46.8 14.5 % East Region Florida Dollars$ 355,227 $ 255,804 $ 99,423 38.9 % Homes ordered 947 707 240 33.9 % Average sales price$ 375.1 $ 361.8 $ 13.3 3.7 % Georgia Dollars$ 138,866 $ 120,417 $ 18,449 15.3 % Homes ordered 357 346 11 3.2 % Average sales price$ 389.0 $ 348.0 $ 41.0 11.8 % North Carolina Dollars$ 310,719 $ 207,638 $ 103,081 49.6 % Homes ordered 809 613 196 32.0 % Average sales price$ 384.1 $ 338.7 $ 45.4 13.4 % South Carolina Dollars$ 58,997 $ 57,176 $ 1,821 3.2 % Homes ordered 164 182 (18) (9.9) % Average sales price$ 359.7 $ 314.2 $ 45.5 14.5 % Tennessee Dollars$ 100,879 $ 60,569 $ 40,310 66.6 % Homes ordered 301 178 123 69.1 % Average sales price$ 335.1 $ 340.3 $ (5.2) (1.5) % East Region Totals Dollars$ 964,688 $ 701,604 $ 263,084 37.5 % Homes ordered 2,578 2,026 552 27.2 % Average sales price$ 374.2 $ 346.3 $ 27.9 8.1 % (1)Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer's existing home or a mortgage pre-approval as a sales contract until the contingency is removed. 29 -------------------------------------------------------------------------------- Three Months Ended June 30, 2021 2020 Ending Average Ending Average Active Communities Total 226 214.5 237 239.0West Region Arizona 38 35.5 38 35.5 California 20 19.5 28 28.5 Colorado 17 14.5 13 13.0 West Region Totals 75 69.5 79 77.0Central Region -Texas Central Region Totals 64 61.5 68 73.0East Region Florida 34 32.0 36 35.0 Georgia 10 11.0 17 16.0 North Carolina 26 25.0 21 20.5 South Carolina 7 6.5 5 6.0 Tennessee 10 9.0 11 11.5 East Region Totals 87 83.5 90 89.0 Six Months Ended June 30, 2021 2020 Ending Average Ending Average Active Communities Total 226 207.8 237 240.5West Region Arizona 38 34.6 38 34.5 California 20 18.3 28 26.0 Colorado 17 13.3 13 15.5 West Region Totals 75 66.2 79 76.0Central Region -Texas Central Region Totals 64 62.0 68 72.5East Region Florida 34 31.6 36 34.5 Georgia 10 9.7 17 17.5 North Carolina 26 23.7 21 23.0 South Carolina 7 6.3 5 7.0 Tennessee 10 8.3 11 10.0 East Region Totals 87 79.6 90 92.0 30
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Cancellation Rates (1)
Total 8 % 15 % 9 % 14 %
West Region
Arizona 7 % 11 % 9 % 12 %
California 6 % 18 % 9 % 16 %
Colorado 6 % 18 % 8 % 15 %
West Region Totals 7 % 14 % 9 % 14 %
Central Region - Texas
Central Region Totals 9 % 20 % 10 % 17 %
East Region
Florida 8 % 15 % 9 % 14 %
Georgia 6 % 9 % 10 % 11 %
North Carolina 6 % 9 % 7 % 8 %
South Carolina 9 % 11 % 13 % 12 %
Tennessee 13 % 14 % 11 % 20 %
East Region Totals 8 % 12 % 9 % 12 %
(1)Cancellation rates are computed as the number of canceled units for the period divided by the gross sales units for the same period.
31
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At June 30, Quarter over Quarter
2021 2020 Change $ Change %
Order Backlog (1)
Total
Dollars $ 2,317,534 $ 1,648,451 $ 669,083 40.6 %
Homes in backlog 5,509 4,395 1,114 25.3 %
Average sales price $ 420.7 $ 375.1 $ 45.6 12.2 %
West Region
Arizona
Dollars $ 520,034 $ 307,302 $ 212,732 69.2 %
Homes in backlog 1,328 932 396 42.5 %
Average sales price $ 391.6 $ 329.7 $ 61.9 18.8 %
California
Dollars $ 295,198 $ 256,694 $ 38,504 15.0 %
Homes in backlog 479 430 49 11.4 %
Average sales price $ 616.3 $ 597.0 $ 19.3 3.2 %
Colorado
Dollars $ 139,437 $ 86,158 $ 53,279 61.8 %
Homes in backlog 238 178 60 33.7 %
Average sales price $ 585.9 $ 484.0 $ 101.9 21.1 %
West Region Totals
Dollars $ 954,669 $ 650,154 $ 304,515 46.8 %
Homes in backlog 2,045 1,540 505 32.8 %
Average sales price $ 466.8 $ 422.2 $ 44.6 10.6 %
Central Region - Texas
Central Region Totals
Dollars $ 670,583 $ 556,787 $ 113,796 20.4 %
Homes in backlog 1,729 1,634 95 5.8 %
Average sales price $ 387.8 $ 340.8 $ 47.0 13.8 %
East Region
Florida
Dollars $ 268,971 $ 187,241 $ 81,730 43.6 %
Homes in backlog 637 475 162 34.1 %
Average sales price $ 422.2 $ 394.2 $ 28.0 7.1 %
Georgia
Dollars $ 79,207 $ 69,559 $ 9,648 13.9 %
Homes in backlog 196 198 (2) (1.0) %
Average sales price $ 404.1 $ 351.3 $ 52.8 15.0 %
North Carolina
Dollars $ 247,292 $ 109,026 $ 138,266 126.8 %
Homes in backlog 634 322 312 96.9 %
Average sales price $ 390.1 $ 338.6 $ 51.5 15.2 %
South Carolina
Dollars $ 44,175 $ 34,054 $ 10,121 29.7 %
Homes in backlog 118 102 16 15.7 %
Average sales price $ 374.4 $ 333.9 $ 40.5 12.1 %
Tennessee
Dollars $ 52,637 $ 41,630 $ 11,007 26.4 %
Homes in backlog 150 124 26 21.0 %
Average sales price $ 350.9 $ 335.7 $ 15.2 4.5 %
East Region Totals
Dollars $ 692,282 $ 441,510 $ 250,772 56.8 %
Homes in backlog 1,735 1,221 514 42.1 %
Average sales price $ 399.0 $ 361.6 $ 37.4 10.3 %
(1)Our backlog represents net sales that have not closed.
32
--------------------------------------------------------------------------------Operating Results
Companywide. In the second quarter of 2021, we achieved our highest second quarter home closing volume in Company history, with an 18.2% improvement over the second quarter of 2020, to 3,273 closings valued at$1.3 billion compared to 2,770 closings valued at$1.0 billion . The increase in closings year-over-year was driven by entering the quarter with a higher backlog as compared to prior year, as well as an accelerated orders pace of spec homes during the quarter that were able to close byJune 30, 2021 . Home closing revenue increased by 22.6% over the second quarter of 2020 due to the higher closing volume and a 3.8% increase in ASP. Home order volume declined slightly by 1.5% to 3,542 homes as compared to 3,597 homes in the second quarter of 2020, due to a 10.3% decrease in average active communities that was partially offset by an increased orders pace. Higher ASP on orders as we continue to experience pricing power drove a 16.2% increase in order value to$1.5 billion in the second quarter of 2021, up from$1.3 billion in the second quarter of 2020. Orders pace improved by 9.3% year-over-year to 5.5 homes ordered per average active community per month during the second quarter of 2021, up from 5.0 homes in the second quarter of 2020. This increase demonstrates the continuing demand for homes in the current market. Our focus on entry level and first move-up buyers, with our entry-level communities offering only spec homes for sale and shorter construction cycle times than other higher-end product, allows for quicker move-ins for our customers, increasing the desirability of our products, as reflected in our higher orders and closing volumes. Although community count is down 4.6% year-over-year due to sustained high orders pace over the last 12 months, community count grew sequentially, ending the second quarter with 226 actively selling communities atJune 30, 2021 , up from 203 atMarch 31, 2021 . Our order cancellation rate improved to 8% and 9% for the three and six month periods in 2021, respectively, as compared to 15% and 14% during the three and six month periods in 2020, respectively, a further indication of strong demand in the market. For the six months endedJune 30, 2021 , home closing volume grew by 1,077 units, or 21.2%, and home closing revenue improved by$422.6 million on 6,163 closings valued at$2.3 billion . Orders also increased year-over-year by 301 units and$0.4 billion to 7,000 orders valued at$2.8 billion for the six months endedJune 30, 2021 , 4.5% and 15.3% higher, respectively from prior year results. Demand for our affordable entry-level homes drove the increase in orders, resulting in a 20.8% higher orders pace than in 2020. We ended the quarter with 5,509 homes in backlog valued at$2.3 billion , compared to 4,395 units valued at$1.6 billion atJune 30, 2020 . The year-over-year increase in backlog value was positively impacted by rising ASP on orders as discussed above. West.The West Region closed 944 homes and generated$439.2 million in home closing revenue in the second quarter of 2021, compared to 858 homes and$381.8 million in home closing revenue in the comparable 2020 period. Order volume decreased 10.1% to 1,149 homes in the second quarter of 2021 compared to 1,278 in 2020, due almost entirely to the 9.7% decline in average active community count. Strong demand and pricing power resulted in a 22.1% increase in ASP and contributed to the overall 9.8% higher order value in the second quarter of 2021 of$578.2 million , up from$526.5 million in the 2020 period. Orders pace was consistent year-over-year at 5.5 homes per average community per month during both the three months endedJune 30, 2021 and 2020. As discussed previously, the year-over-year drop in community count is due to the accelerated close-out of communities in 2020.The West Region ended the second quarter of 2021 with 2,045 homes in backlog valued at$954.7 million , up from 1,540 units valued at$650.2 million atJune 30, 2020 . Despite the decrease in order volume, backlog increased year-over-year due to entering the period with a higher backlog and some closing delays caused by supply chain constraints. Year-to-date results in theWest Region were similar to those of the second quarter. The number and value of homes closed versus prior year increased by 5.6% and 9.6%, respectively, and ASP increased 3.9%. Order volumes for the Region declined 8.0% year-to-date, due to a 12.9% decline in the average number of actively selling communities, partially offset by a 5.4% year-to-date orders pace improvement. Order value was positively impacted by a 12.0% increase in ASP, which resulted in 2.9% higher order value for the six months endedJune 30, 2021 . Central. In the second quarter of 2021, theCentral Region , made up of ourTexas markets, closed 1,154 homes and generated$403.8 million in home closing revenue, up 26.3% and 36.4%, respectively, from prior year comparable period results of 914 homes and$296.0 million of home closing revenue. Order volume declined 9.4% due to a 15.8% decrease in average community count, offset by an increase in orders pace of 7.8%. Despite the lower volume, order value increased 9.1% to$428.4 million in the second quarter of 2021, compared to$392.5 million in the prior year quarter, due to pricing power that drove ASP up by 20.5% in the Region. We also experienced improvements in the Region for the six months endedJune 30, 2021 . Home closings and home closing revenue were up 25.4% and 30.9%, respectively. Order value and ASP on orders was up 11.5% and 14.5%, respectively, year-over-year. Similar to the second quarter, order volume decreased 2.6% due to a lower average active community count, mostly offset by increased orders pace. The Region ended the quarter with 1,729 units in backlog, up 5.8%, and backlog value of$670.6 million , up 20.4% compared to the prior year. 33 -------------------------------------------------------------------------------- East. During the three months endedJune 30, 2021 , theEast Region delivered 1,175 closings and$421.6 million in home closing revenue compared to 998 closings and$353.8 million in home closing revenue in the comparable prior year period, improvements of 17.7% and 19.2%, respectively.The East Region also generated an increase in order volume in the second quarter of 2021, with an improvement in both volume and value of 17.0% and 32.8%, respectively, with 1,292 units valued at$493.1 million compared to 1,104 units valued at$371.4 million in the prior year period. The improvement in orders reflected a 25.0% increase in orders pace per community which more than offset the 6.2% decrease in average active communities, while the improvement in order value benefited from both the increase in volume as well as a 13.5% higher ASP. The year-to-date results of theEast Region were similar to those of the second quarter, with 32.8% and 29.3% improvements in home closing volume and revenue, respectively, compared to 2020, providing 2,240 closings and$789.8 million in home closing revenue for the six month period endingJune 30, 2021 . The number and value of orders improved by 27.2% and 37.5%, respectively, due to a 47.3% increase in orders pace for the six months endedJune 30, 2021 compared to prior year, which more than offset the 13.5% decrease in average active communities.The East Region ended the quarter with 1,735 homes in backlog valued at$692.3 million compared to 1,221 homes valued at$441.5 million atJune 30, 2020 , a 42.1% increase in units and 56.8% in order value from strong demand and pricing power. Land Closing Revenue and Gross (Loss)/Profit From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in the specific geography. As a result of such sales, we recognized land closing revenue of$13.0 million and$1.5 million for the three months endingJune 30, 2021 and 2020, respectively, and losses of$0.3 million and$1.4 for the second quarter of 2021 and 2020, respectively. Year-to-date land sales resulted in a profit of$0.2 million for the six months endedJune 30, 2021 and a loss of$1.1 million loss in the prior year. Other Operating Information (dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Percent of Percent of Percent of Percent of Home Closing Home Closing Home Closing Home Closing Dollars Revenue Dollars Revenue Dollars Revenue Dollars Revenue Home Closing Gross Profit (1) Total$ 345,301 27.3 %$ 220,696 21.4 %$ 611,956 26.1 %$ 399,056 20.8 % West$ 114,184 26.0 %$ 80,166 21.0 %$ 211,241 25.4 %$ 154,597 20.4 % Central$ 119,415 29.6 %$ 67,788 22.9 %$ 204,788 28.4 %$ 121,979 22.1 % East$ 111,702 26.5 %$ 72,742 20.6 %$ 195,927 24.8 %$ 122,480 20.1 % (1)Home closing gross profit represents home closing revenue less cost of home closings, including impairments. Cost of home closings includes land and associated development costs, direct home construction costs, an allocation of common community costs (such as model complex costs and architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs. Companywide. Home closing gross margin for the second quarter of 2021 improved 590 basis points to our highest quarterly home closing gross margin in company history of 27.3%, compared to 21.4% in the second quarter of 2020. The higher margin combined with higher revenue contributed to a$124.6 million improvement in home closing gross profit to end the quarter with$345.3 million compared to$220.7 million in 2020. Gross margin was up 530 basis points to 26.1% versus 20.8% for the six months endedJune 30, 2021 and 2020, respectively. The improved margins in 2021 are due to pricing power from strong buyer demand and leverage of overhead costs on our all-spec strategy for entry-level homes, which have more than offset the impact of rising material costs, particularly lumber. Margins for the second quarter 2020 were negatively impacted by 30 basis points due to terminated land contract costs for exiting non-core communities, with a charge of$3.3 million compared to$0.6 million of such charges in the 2021 period. 34 -------------------------------------------------------------------------------- West. Home closing gross margin for theWest Region improved by 500 basis points to 26.0% for the second quarter of 2021 versus 21.0% in the second quarter of 2020. For the six months endedJune 30, 2021 , home closing gross margin also improved by 500 basis points to 25.4% versus 20.4% for the same period in the prior year. The improvements in theWest Region's gross margins are due to pricing power from strong market demand and streamlined operations which allowed us to leverage our overhead costs on higher revenue and offset the impact of rising commodity costs. Central.The Central Region provided the highest home closing gross margin in the Company, which at 29.6% for the second quarter of 2021 was our most notable improvement and was up 670 basis points from 22.9% in the prior year quarter. Pricing power generated higher ASP combined with higher closing volume which expanded our leverage of overhead costs to improve gross margin. For the six months endedJune 30, 2021 , gross margin was up 630 basis points to 28.4% as compared to 22.1% for the same 2020 period. East. Home closing gross margin in theEast Region was up 590 basis points year-over-year to 26.5% in the second quarter of 2021 versus 20.6% for the comparable 2020 period. For the six months endedJune 30, 2021 , gross margin was up 470 basis points to 24.8% versus 20.1% for the same period in the prior year. The improvement in gross margin for both the three and six months endedJune 30, 2021 compared to the respective 2020 periods, is the result of pricing power and greater leverage of overhead costs on higher closing volume. Financial Services Profit (in thousands) Three Months Ended June 30,
Six Months Ended
2021 2020 2021 2020
Financial services profit $ 4,615 $ 3,789 $ 8,375 $ 6,627
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 Agency, Inc. and Meritage Homes
Insurance Agency, Inc. , as well as our portion of earnings from our mortgage
joint venture. Financial services profit increased $0.8 million in the second
quarter of 2021 to $4.6 million versus $3.8 million in 2020, and by $1.8 million
for the six months ended June 30, 2021 to $8.4 million versus $6.6 million for
the same period in 2020, due to the year-over-year higher closing volumes.
Selling, General and Administrative Expenses and Other Expenses (dollars in
thousands)
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Commissions and other sales costs $ (73,889) $
(70,408)
5.8 % 6.8 % 6.0 % 6.8 %
General and administrative expenses
3.4 % 3.5 % 3.5 % 3.7 %
Interest expense $ (77) $ (2,105) $ (167) $ (2,121)
Other income, net $ 1,377 $ 1,514 $ 2,175 $ 2,125
Loss on early extinguishment of debt $ (18,188) $ - $ (18,188) $ -
Provision for income taxes $ (48,262) $
(25,184)
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 were$73.9 million for the three months endedJune 30, 2021 ,$3.5 million higher than the prior year comparable period, although as a percentage of home closing revenue, decreased 100 basis points to 5.8% for the second quarter of 2021 compared to the prior year period. For the six months endedJune 30, 2021 , commissions and other sales costs decreased 80 basis points and were$10.1 million higher than the corresponding prior year period. For both the three and six month comparative periods, the increase in commissions and other sales costs in dollars compared to prior year is due to higher home closing volume, partially offset by savings in advertising costs as we continued to leverage more digital technologies and incurred fewer expenses associated with active communities, such as sales office and model home maintenance expenses. In addition, the second quarter of 2020 commissions and other sales costs was negatively impacted by additional commission incentives that were offered during COVID-19 sales events. The decline as a percentage of home closing revenue is due to the combination of leverage from higher closing volume, the efficiencies integrated into our sales and marketing structure, and the decrease in costs associated with a lower number of active communities. 35 -------------------------------------------------------------------------------- General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the three months endedJune 30, 2021 , general and administrative expenses were$43.2 million ,$7.0 million higher than$36.2 million for the 2020 period, although as a percentage of home closing revenue, decreased by 10 basis points. For the six months endedJune 30, 2021 and 2020, general and administrative expenses were$81.1 million or 3.5% of home closing revenue, as compared to$70.3 million or 3.7% of home closing revenue in 2020. The increased leveraging of costs against higher revenue and the continued pull-back on certain corporate expenditures, including those due to COVID-19 precautions, aided in the improvement. As COVID-19 restrictions ease, we expect a portion of these costs to gradually return as employees return to the office and resume travel. We continually strive to optimize overhead leverage through cost control efforts and expect some long-term efficiencies as we start to generate higher revenue from our increased community count in the coming quarters. Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, other borrowings, and our Credit Facility. Interest expense for the three and six months endedJune 30, 2021 totaled$0.1 million and$0.2 million , respectively, compared to$2.1 million in both the three and six months endedJune 30, 2020 . The decrease in both quarter-to-date and year-to-date interest expense is due to lower interest rates on our senior notes, increased capitalization of interest incurred with development and construction activities, and interest charges incurred in the first half of 2020 on our Credit Facility which had$500.0 million outstanding for several weeks during that period. Other Income, Net. Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. For the three months endedJune 30, 2021 , Other income, net was$1.4 million , compared to$1.5 million in the 2020 comparable period. For the six months endedJune 30, 2021 , Other income, net was$2.2 million compared to$2.1 million in the 2020 period. Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of$18.2 million for the three and six months endedJune 30, 2021 is related to the early redemption of our$300.0 million 7.00% Senior Notes due 2022 during the second quarter of 2021. There were no similar charges for the three and six months endedJune 30, 2020 . See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our Senior Notes due 2022. Income Taxes. Our effective tax rate was 22.4% and 21.7% for the three months endedJune 30, 2021 and 2020, respectively, and 21.6% and 20.2% for the six months endedJune 30, 2021 and 2020, respectively. The tax rates for the three and six months endedJune 30, 2021 , reflect credits earned under IRC §45L new energy efficient homes and higher non-deductible senior executive officer stock-based compensation. The tax rates for the three and six months endedJune 30, 2020 , reflect credits earned under Internal Revenue Code §45L new energy efficient homes. Liquidity and Capital Resources Overview Our principal uses of capital in the first six months of 2021 were acquisition and development of new lot positions, home construction, operating expenses, the payment of routine liabilities, and repurchases of our common stock. We used funds generated by operations to meet our short-term working capital requirements. In addition, in the second quarter of 2021, we received proceeds from issuing new 3.875% senior notes due 2029, which were used in part to pay off existing 7.00% senior notes due 2022. See Note 6 in the accompanying unaudited consolidated financial statements for more information. We remain focused long-term on acquiring desirable land positions, generating favorable margins in our homebuilding operations and maintaining a strong balance sheet to support future needs and growth, while leveraging land options where possible. Operating Cash Flow Activities During the six months endedJune 30, 2021 , net cash used in operating activities totaled$143.5 million versus cash provided by operating activities of$237.4 million during the six months endedJune 30, 2020 . Operating cash flows in 2021 and 2020 benefited from cash generated by net earnings of$299.2 million and$161.8 million , respectively. For the six months endedJune 30, 2021 , operating cash flows generated by net earnings were offset by a$469.7 million increase in real estate assets due to our increased home construction land acquisition and development activities. For the six months endedJune 30, 2020 , operating cash flows also benefited from an increase in accounts payable and accrued liabilities of$34.8 million due to timing of payments for routine transactions. 36 -------------------------------------------------------------------------------- Investing Cash Flow Activities During the six months endedJune 30, 2021 , net cash used in investing activities totaled$10.7 million as compared to$9.1 million for the same period in 2020. Cash used in investing activities in the first six months of 2021 and 2020 is mainly attributable to the purchases of property and equipment of$11.0 million and$10.3 million for the 2021 and 2020 periods, respectively. Financing Cash Flow Activities During the six months endedJune 30, 2021 , net cash provided by financing activities totaled$92.9 million as compared to net cash used of$63.2 million for the same period in 2020. The net cash provided by financing activities in 2021 primarily reflects the net proceeds of$450.0 million from the issuance of our Senior Notes due 2029, offset by the early redemption of our Senior Notes due 2022 of$300.0 million principal and associated early tender fees of$17.7 million , along with share repurchases of$27.5 million . An additional$0.5 million of non-cash charges associated with the early redemption of our Senior Notes due 2022 were recognized as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements. The activity in 2020 was primarily due to$60.8 million of share repurchases.
Overview of Cash Management
Cash flows for each of our communities depend on their stage of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and not recognized in our income statement until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently acquiring and developing lots in our markets to grow our lot supply and active community count. We intend to increase our land and development spending over the next several years, consistent with our growth initiatives. We are also using our cash on hand to fund operations. During the six months endedJune 30, 2021 , we closed 6,163 homes, purchased approximately 15,000 lots for$539.3 million , spent$382.0 million on land development and started construction on 7,147 homes. We primarily purchase undeveloped land or partially-finished lots requiring development in order to bring them to a finished status ready for home construction. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land and inventory acquisition and development. We ended the second quarter of 2021 with$684.4 million of cash and cash equivalents, a decrease of$61.2 million fromDecember 31, 2020 , with no outstanding borrowings on our Credit Facility. We expect to generate cash from the sale of our inventory, but we intend to redeploy that cash primarily to acquire and develop strategic and well-positioned lots to grow our business. Between our available cash and liquidity in our Credit Facility, we believe that we currently have sufficient liquidity to manage through our strategic growth goals. Nevertheless, we may seek additional capital to strengthen our liquidity position. Such additional capital may be in the form of equity or debt financing and may be from a variety of sources. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs. We may also from time to time engage in opportunistic repurchases of our common stock in open market or privately-negotiated transactions as well as repurchase or redeem our outstanding senior notes. InApril 2021 , we completed an offering of$450.0 million aggregate principal amount of 3.875% Senior Notes due 2029. The proceeds were used to redeem all$300.0 million aggregate principal amount outstanding of our 7.00% Senior Notes due 2022. See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our 7.00% Senior Notes due 2022. OnFebruary 13, 2019 , our Board of Directors authorized a new stock repurchase program, authorizing the expenditure of up to$100.0 million to repurchase shares of our common stock. OnNovember 13, 2020 , the Board of Directors authorized the expenditure of an additional$100.0 million to repurchase shares of our common stock under this program. There is no stated expiration for this program. The repurchases of the Company's shares may be made in the open market, in privately negotiated transactions, or otherwise. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. The Company intends to retire any shares repurchased. In the six months endedJune 30, 2021 , we purchased and retired 300,000 shares of our common stock at an aggregate purchase price of$27.5 million and as ofJune 30, 2021 ,$86.8 million remained available under this program. 37 -------------------------------------------------------------------------------- We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. Debt-to-capital and net debt-to-capital are calculated as follows (dollars in thousands): As of June 30, 2021 December 31, 2020 Senior notes, net, loans payable and other borrowings$ 1,161,468 $ 1,020,085 Stockholders' equity 2,628,144 2,347,868 Total capital$ 3,789,612 $ 3,367,953 Debt-to-capital (1) 30.6 % 30.3 % Senior notes, net, loans payable and other borrowings$ 1,161,468 $ 1,020,085 Less: cash and cash equivalents (684,374) (745,621) Net debt 477,094 274,464 Stockholders' equity 2,628,144 2,347,868 Total net capital$ 3,105,238 $ 2,622,332 Net debt-to-capital (2) 15.4 % 10.5 % (1)Debt-to-capital is computed as senior notes, net and loans payable and other borrowings divided by the aggregate of total senior notes, net and loans payable and other borrowings and stockholders' equity. (2)Net debt-to-capital is computed as net debt divided by the aggregate of net debt and stockholders' equity. Net debt is comprised of total senior notes, net and loans payable and other borrowings, less cash and cash equivalents. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We have never declared cash dividends. Currently, we plan to utilize our cash to manage our liquidity and to grow community count. Future cash dividends, if any, will depend upon economic and financial conditions, results of operations, capital requirements, statutory requirements, compliance with certain restrictive debt covenants, as well as other factors considered relevant by our Board of Directors. Credit Facility Covenants Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of$1.5 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined in the credit facility) of at least 1.50 to 1.00 or (ii) liquidity (as defined in the credit facility) of an amount not less than our consolidated interest incurred during the trailing 12 months. We were in compliance with all Credit Facility covenants as ofJune 30, 2021 . Our actual financial covenant calculations as ofJune 30, 2021 are reflected in the table below. Financial Covenant (dollars in thousands): Covenant Requirement Actual Minimum Tangible Net Worth >$1,739,099 $2,587,767 Leverage Ratio < 60% 13% Interest Coverage Ratio (1) > 1.50 13.68 Minimum Liquidity (1) >$64,617 $1,316,133 Investments other than defined permitted investments <$776,330 $3,943
(1)We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.
38--------------------------------------------------------------------------------
Off-Balance Sheet Arrangements Reference is made to Notes 1, 3, and 4 in the accompanying notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which 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. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated. Seasonality Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically sell more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. We typically benefit from the cash generated from home closings more in the third and fourth quarters than in the first and second quarters. In 2020, historical cycles were impacted by COVID-19 and its impact on consumer behavior, particularly as it relates to the homebuilding market. However, we expect our historical seasonal pattern to continue over the long term although it may continue to be affected by short-term volatility in the homebuilding industry and in the overall economy. Recent Issued Accounting Pronouncements See Note 1 to our unaudited consolidated financial statements included in this report for discussion of recently issued accounting pronouncements.
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