UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2022



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-9977

Meritage Homes Corporation

(Exact Name of Registrant as Specified in its Charter)

Maryland

86-0611231

(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

~~Maryland~~

~~86-0611231~~

~~(State or Other Jurisdiction~~

8800 E. Raintree Drive, Suite 300, Scottsdale, Arizona 85260

(Address of Principal Executive Offices) (Zip Code)

~~Incorporation or Organization)~~

~~(IRS Employer~~

~~Identification No.)~~

~~8800 E. Raintree Drive, Suite 300,~~

~~Scottsdale, Arizona~~

~~85260(Address of Principal Executive Offices)(Zip Code)~~

(480) 515-8100

(Registrant’s telephone number, including area code)

N/A

(Former Name, Former Address and ~~Formal~~Former Fiscal Year, if Changed Since Last Report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock $.01 par value	MTH	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ☐

Indicate by a checkmark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Date File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒ý	Accelerated filer	☐
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨

Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Common shares outstanding as of ~~October 26, 2017: 40,326,062~~

April 25, 2022: 36,695,048

MERITAGE HOMES CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2022

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021			3

Unaudited Consolidated Income Statements for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021			4

Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021			5

Notes to Unaudited Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2322

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3933

Item 4. Controls and Procedures			3933

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			4035

Item 1A. Risk Factors			4035

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4035

Items 3-5. Not Applicable

Item 6. Exhibits			4137

SIGNATURES			4238

INDEX OF EXHIBITS			4238

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

September 30, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 115,167
$ 131,702
Other receivables 78,933
70,355
Real estate 2,762,269

2,422,063
Real estate not owned 39,793
—
Deposits on real estate under option or contract 67,547
85,556
Investments in unconsolidated entities 16,378
17,097
Property and equipment, net 32,080
33,202
Deferred tax asset 56,870
53,320
Prepaids, other assets and goodwill 83,121
75,396
Total assets $ 3,252,158
$ 2,888,691
Liabilities
Accounts payable $ 140,492
$ 140,682
Accrued liabilities 193,102

170,852
Home sale deposits 39,446
28,348
Liabilities related to real estate not owned 35,768
—
Loans payable and other borrowings 38,082
32,195
Senior and convertible senior notes, net 1,266,160
1,095,119
Total liabilities 1,713,050
1,467,196
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at September 30, 2017 and December 31, 2016 —
—
Common stock, par value $0.01. Authorized 125,000,000 shares; issued 40,326,062 and 40,030,518 shares at September 30, 2017 and December 31, 2016, respectively 403
400
Additional paid-in capital 582,414
572,506
Retained earnings 956,291
848,589
Total stockholders’ equity 1,539,108
1,421,495
Total liabilities and stockholders’ equity $ 3,252,158
$ 2,888,691



	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	520,395	$	618,335

Other receivables	155,380		147,548
Real estate	4,027,950		3,734,408
Real estate not owned	8,011		8,011
Deposits on real estate under option or contract	93,432		90,679
Investments in unconsolidated entities	5,631		5,764
Property and equipment, net	38,299		37,340
Deferred tax assets, net	40,515		40,672
Prepaids, other assets and goodwill	168,548		124,776
Total assets	$	5,058,161	$	4,807,533
Liabilities
Accounts payable	$	280,114	$	216,009
Accrued liabilities	388,921		337,277
Home sale deposits	48,278		42,610
Liabilities related to real estate not owned	7,210		7,210
Loans payable and other borrowings	22,561		17,552
Senior notes, net	1,142,762		1,142,486
Total liabilities	1,889,846		1,763,144
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at March 31, 2022 and December 31, 2021	—		—
Common stock, par value $0.01. Authorized 125,000,000 shares; 36,695,048 and 37,340,855 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	367		373
Additional paid-in capital	321,519		414,841
Retained earnings	2,846,429		2,629,175

Total stockholders’ equity	3,168,315		3,044,389
Total liabilities and stockholders’ equity	$	5,058,161	$	4,807,533

See accompanying notes to unaudited consolidated financial ~~statements~~statements.

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Homebuilding:
Home closing revenue $ 805,008
$ 735,870
$ 2,263,405
$ 2,127,332
Land closing revenue 589
16,987
16,942
21,187
Total closing revenue 805,597
752,857
2,280,347
2,148,519
Cost of home closings (659,350 ) (604,891 ) (1,869,569 ) (1,755,260 )
Cost of land closings (1,646 ) (16,092 ) (15,504 ) (19,485 )
Total cost of closings (660,996 ) (620,983 ) (1,885,073 ) (1,774,745 )
Home closing gross profit 145,658
130,979
393,836
372,072
Land closing gross (loss)/profit (1,057 ) 895
1,438
1,702
Total closing gross profit 144,601
131,874
395,274
373,774
Financial Services:
Revenue 3,549
3,139
10,142
9,115
Expense (1,524 ) (1,398 ) (4,454 ) (4,152 )
Earnings from financial services unconsolidated entities and other, net 3,489
4,215
9,673
10,802
Financial services profit 5,514
5,956
15,361
15,765
Commissions and other sales costs (55,845 ) (52,478 ) (158,866 ) (155,034 )
General and administrative expenses (31,636 ) (33,258 ) (90,849 ) (91,774 )
(Loss)/earnings from other unconsolidated entities, net (91 ) 440
852
856
Interest expense (1,116 ) (167 ) (3,561 ) (5,127 )
Other income, net 2,028
1,435
5,218
3,263
Earnings before income taxes 63,455
53,802
163,429
141,723
Provision for income taxes (20,905 ) (16,915 ) (55,727 ) (43,989 )
Net earnings $ 42,550
$ 36,887
$ 107,702
$ 97,734
Earnings per common share:
Basic $ 1.06
$ 0.92
$ 2.67
$ 2.45
Diluted $ 1.02
$ 0.88
$ 2.55
$ 2.33
Weighted average number of shares:
Basic 40,323
40,022
40,273
39,958
Diluted 42,011
42,608
42,585
42,541


	Three Months Ended March 31,
	2022		2021
Homebuilding:
Home closing revenue	$	1,245,456	$	1,079,982
Land closing revenue	41,478		3,799
Total closing revenue	1,286,934		1,083,781
Cost of home closings	(867,807)		(813,327)
Cost of land closings	(30,685)		(3,252)
Total cost of closings	(898,492)		(816,579)
Home closing gross profit	377,649		266,655
Land closing gross profit	10,793		547
Total closing gross profit	388,442		267,202
Financial Services:
Revenue	4,672		4,751
Expense	(2,512)		(2,171)
Earnings from financial services unconsolidated entities and other, net	1,174		1,180
Financial services profit	3,334		3,760
Commissions and other sales costs	(65,540)		(67,744)
General and administrative expenses	(39,995)		(37,949)

Interest expense	(41)		(90)
Other (expense)/ income, net	(317)		798
Earnings before income taxes	285,883		165,977
Provision for income taxes	(68,629)		(34,134)
Net earnings	$	217,254	$	131,843
Earnings per common share:
Basic	$	5.87	$	3.50
Diluted	$	5.79	$	3.44
Weighted average number of shares:
Basic	36,996		37,644
Diluted	37,527		38,339

See accompanying notes to unaudited consolidated financial ~~statements~~statements.

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net earnings $ 107,702
$ 97,734
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 12,071
11,470
Stock-based compensation 9,898
11,042
Excess income tax provision from stock-based awards —
540
Equity in earnings from unconsolidated entities (10,525 ) (11,658 )
Distributions of earnings from unconsolidated entities 10,410
11,439
Other 1,265
4,942
Changes in assets and liabilities:
Increase in real estate (336,069 ) (318,490 )
Decrease/(increase) in deposits on real estate under option or contract 13,633
(3,160 )
Increase in other receivables, prepaids and other assets (15,207 ) (14,201 )
Increase in accounts payable and accrued liabilities 21,298
61,206
Increase in home sale deposits 11,098
791
Net cash used in operating activities (174,426 ) (148,345 )
Cash flows from investing activities:
Investments in unconsolidated entities (404 ) (242 )
Distributions of capital from unconsolidated entities 1,250
—
Purchases of property and equipment (12,038 ) (12,256 )
Proceeds from sales of property and equipment 251
144
Maturities/sales of investments and securities 1,297
645
Payments to purchase investments and securities (1,297 ) (645 )
Net cash used in investing activities (10,941 ) (12,354 )
Cash flows from financing activities:
Proceeds from Credit Facility, net 10,000
25,000
Repayment of loans payable and other borrowings (10,491 ) (18,286 )
Repurchase of convertible senior notes (126,691 ) —
Proceeds from issuance of senior notes 300,000
—
Payment of debt issuance costs (3,986 ) —
Excess income tax provision from stock-based awards —
(540 )
Proceeds from stock option exercises —
232
Net cash provided by financing activities 168,832
6,406
Net decrease in cash and cash equivalents (16,535 ) (154,293 )
Cash and cash equivalents, beginning of period 131,702
262,208
Cash and cash equivalents, end of period $ 115,167
$ 107,915


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net earnings	$	217,254	$	131,843
Adjustments to reconcile net earnings to net cash provided by/(used in) operating activities:
Depreciation and amortization	5,759		6,535
Stock-based compensation	5,975		5,367


Equity in earnings from unconsolidated entities	(936)		(750)

Distributions of earnings from unconsolidated entities	1,069		1,100
Other	208		2,651
Changes in assets and liabilities:
Increase in real estate	(283,885)		(193,395)
Increase in deposits on real estate under option or contract	(2,753)		(4,821)
Increase in other receivables, prepaids and other assets	(52,098)		(7,118)
Increase in accounts payable and accrued liabilities	115,927		38,743
Increase in home sale deposits	5,668		5,899
Net cash provided by/(used in) operating activities	12,188		(13,946)
Cash flows from investing activities:
Investments in unconsolidated entities	—		(1)

Purchases of property and equipment	(6,423)		(4,993)
Proceeds from sales of property and equipment	178		84
Maturities/sales of investments and securities	2,213		2,566
Payments to purchase investments and securities	(2,213)		(2,566)
Net cash used in investing activities	(6,245)		(4,910)
Cash flows from financing activities:

Repayment of loans payable and other borrowings	(4,580)		(1,947)




Repurchase of shares	(99,303)		(8,385)

Net cash used in financing activities	(103,883)		(10,332)
Net decrease in cash and cash equivalents	(97,940)		(29,188)
Cash and cash equivalents, beginning of period	618,335		745,621
Cash and cash equivalents, end of period	$	520,395	$	716,433

See Supplemental Disclosure of Cash Flow Information in Note 13.

See accompanying notes to unaudited consolidated financial ~~statements~~statements.

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Organization. Meritage Homes Corporation ("Meritage Homes") is a leading designer and builder of single-family homes. We primarily build in historically high-growth regions of the United States and offer a variety of ~~homes that are designed to appeal to a wide range of homebuyers, including first-time,~~entry-level and first move-up ~~active adult and luxury.~~homes. We have homebuilding operations in ~~three~~3 regions: West, Central and East, which are comprised of ~~nine~~10 states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina, Tennessee and ~~Tennessee.~~Utah. We also operate a ~~wholly-owned~~financial services reporting segment. In this segment, we offer title ~~company,~~and escrow, mortgage, and insurance services. Carefree Title Agency, Inc. ("Carefree Title")~~. Carefree Title's core business includes~~, our wholly-owned title company, provides title insurance and closing/settlement services ~~we offer~~ to our homebuyers. ~~Through~~Managing our ~~predecessors, we~~own title operations allows us greater control over the entire escrow and closing cycles in addition to generating additional revenue. Meritage Homes Insurance Agency (“Meritage Insurance”), our wholly-owned insurance broker, works in collaboration with insurance companies nationwide to offer homeowners insurance and other insurance products to our homebuyers. Our financial services operations also provides mortgage services to our homebuyers through an unconsolidated joint venture.

We commenced our homebuilding operations in ~~1985.~~1985 through our predecessor company, Monterey Homes. Meritage Homes Corporation was incorporated in ~~1988 in~~ the state of ~~Maryland.~~

~~Our~~Maryland in 1988 under the name of Homeplex Mortgage Investments Corporation and merged with Monterey Homes in 1996, at which time our name was changed to Monterey Homes Corporation and later ultimately to Meritage Homes Corporation. Since that time, we have engaged in homebuilding and ~~marketing~~related activities. Meritage Homes Corporation operates as a holding company and has no independent assets or operations. Its homebuilding construction, development and sales activities are conducted through its subsidiaries. Our homebuilding activities are conducted under the name of Meritage Homes in each of our homebuilding markets. ~~We also offer luxury homes under the brand name of Monterey Homes in some markets.~~ At ~~September 30, 2017~~,March 31, 2022, we were actively selling homes in ~~250~~268 communities, with base prices ranging from approximately ~~$170,000~~$244,000 to ~~$1,390,000~~.$1,300,000.

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021. The unaudited consolidated financial statements include the accounts of Meritage Homes Corporation and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities (see Note 3) in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”). Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements include all normal and recurring adjustments ~~(consisting only of normal recurring entries),~~that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full fiscal year.

Cash and Cash Equivalents. Liquid investments with an initial maturity of three months or less are classified as cash equivalents. Amounts in transit from title companies or closing agents for home closings of approximately ~~$58.8~~$104.1 million and ~~$75.3~~$95.4 million are included in cash and cash equivalents at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively.

Real Estate. Real estate inventory is stated at cost unless the ~~asset~~community or land is determined to be impaired, at which point the inventory is written down to fair value as required by Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment (“("ASC ~~360-10”~~360-10"). Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, ~~capitalized~~and direct overhead costs incurred during development and home construction that benefit the entire community, less impairments, if any. Land and development costs are typically allocated and transferred to homes ~~under construction~~ when home construction begins. Home construction costs are accumulated on a per-home basis, while selling and marketing costs are expensed as incurred. Cost of home closings includes the specific construction costs of the home and all related allocated land acquisition, land development and other common costs (both incurred and estimated to be incurred) that are allocated based upon the total number of homes expected to be closed in each community or phase. Any changes to the estimated total development costs of a community or phase are allocated to the remaining homes in ~~the~~that community or phase. When a home closes, we may have incurred costs for goods and services that have not yet been paid. ~~An accrued~~We accrue a liability to capture such obligations ~~is recorded~~ in connection with the home closing ~~and~~which is charged directly to Cost of home closings.

We capitalize qualifying interest to inventory during the development and construction periods. Capitalized interest is included in cost of ~~sales.~~

closings when the related inventory is closed. Included within our real estate inventory is land held for development and land held for sale. Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for these inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.

We rely on certain estimates to determine our construction and land development costs. Construction and land costs are comprised of direct and allocated costs, including estimated future costs. In determining these costs, we compile project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred. ~~It is possible that actual~~Actual results ~~could~~can differ from budgeted amounts for various reasons, including construction delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues encountered during construction and development and other factors beyond our control. To address uncertainty in these budgets, we assess, update and revise project budgets on a regular basis, utilizing the most current information available to estimate home construction and land development costs.

Typically, a community's life cycle ranges from three to five years, commencing with the acquisition of the land, continuing through the land development phase, if applicable, and concluding with the sale, construction and closing of the homes. Actual community lives will vary based on the size of the community, the ~~sales~~orders absorption ~~rate~~rates and whether the land purchased was raw, partially-developed or in finished status. Master-planned communities encompassing several phases and super-block land parcels may have significantly longer lives and projects involving smaller finished lot purchases may be significantly shorter.

All of our land inventory and related real estate assets are periodically reviewed for recoverability when certain criteria are met, but at least annually, as our inventory is considered “long-lived” in accordance with GAAP. ~~Impairment charges are recorded to write down an asset to its estimated fair value if~~If the undiscounted cash flows expected to be generated by ~~the~~an asset are lower than its carrying ~~amount.~~amount, impairment charges are recorded to write down the asset to its estimated fair value. Our determination of fair value is based on projections and estimates. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. ~~Such~~We conduct an analysis ~~is conducted~~ if ~~there is an indication~~indicators of a decline in value of our land and real estate ~~assets.~~assets exists. If an asset is deemed to be impaired, the impairment recognized is measured as the amount by which the assets' carrying amount exceeds their fair value. The impairment of a community is allocated to each lot on a straight-line basis. See Note 2 for additional information related to real estate.

Deposits. Deposits paid related to land ~~options~~option and purchase contracts are recorded and classified as Deposits on real estate under option or contract until the related land is purchased. Deposits are reclassified as a component of real estate inventory at the time the deposit is ~~applied~~used to offset the acquisition price of the ~~lots~~land based on the terms of the underlying agreements. To the extent they are non-refundable, deposits are ~~charged~~expensed to ~~expense~~Cost of home closings if the land acquisition ~~contract~~ is terminated or no longer considered probable. Since our acquisition contracts typically do not require specific performance, we do not consider such contracts to be contractual obligations to purchase the land and our total exposure under such contracts is limited to the loss of ~~the~~any non-refundable deposits and any ancillary capitalized costs. Our ~~deposits~~Deposits on real estate under option or contract were ~~$67.5~~$93.4 million and ~~$85.6~~$90.7 million as of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, respectively.

Goodwill. In accordance with ASC 350, Intangibles, Goodwill and Other ("ASC 350"), we analyze goodwill on an annual basis (or whenever indication of impairment exists) through a qualitative assessment to determine whether it is necessary to perform a ~~two-step~~ goodwill impairment test. ASC 350 states that an entity may ~~first~~ assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test. Such qualitative factors include: (1) macroeconomic conditions, such as a deterioration in general economic conditions, (2) industry and market considerations such as deterioration in the environment in which the entity operates, (3) cost factors such as increases in raw materials, ~~and~~ labor costs, etc., and (4) overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings. If the qualitative analysis determines that additional impairment testing is required, ~~the~~a two-step impairment ~~testing~~test in accordance with ASC 350 would be initiated. We continually evaluate our qualitative inputs to assess whether events and circumstances have occurred that indicate the goodwill balance may not be recoverable. See Note 9 for additional information on our goodwill assets.

Leases. We lease certain office space and equipment for use in our operations. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases ("ASC 842"). In order to meet the definition of a lease under ASC 842, the contractual arrangement must convey to us the right to control the use of an identifiable asset for a period of time in exchange for consideration. Leases that meet the criteria of ASC 842 are recorded on our balance sheets as right-of-use ("ROU") assets and lease liabilities. ROU assets are classified within Prepaids, other assets

and goodwill on the accompanying unaudited consolidated balance sheets, while lease liabilities are classified within Accrued liabilities on the accompanying unaudited consolidated balance sheets.

The table below outlines our ROU assets and lease liabilities (in thousands):


	As of
	March 31, 2022		December 31, 2021
ROU assets	$	19,314	$	21,038
Lease liabilities	24,052		26,171

Off-Balance Sheet Arrangements - Joint Ventures. We may participate in land development joint ventures as a means of accessing larger parcels of land and lot positions, expanding our market opportunities, managing our risk profile and leveraging our capital ~~base.~~base, although our participation in such ventures is currently limited. See Note 4 for additional discussion of our investments in unconsolidated entities.

Off-Balance Sheet Arrangements - Other. In the normal course of business, we may acquire lots from various development entities pursuant to ~~option~~purchase and ~~purchase~~option agreements. The purchase price generally approximates the market price at the date the contract is executed (with possible future escalators). and may have staggered purchase schedules. See Note 3 for additional information on these off-balance sheet arrangements.

Surety Bonds and Letters of Credit. We provide surety bonds orand letters of credit in support of our obligations relating to the development of our projects and other corporate ~~purposes. Surety bonds are generally posted~~purposes in lieu of ~~letters of credit or~~ cash deposits. The amount of these obligations outstanding at any time varies depending on the stage and level of ~~completion of~~ our development activities. Bonds are generally not wholly released until all development activities under the bond are complete. In the event a bond or letter of credit is drawn upon, we would be obligated to reimburse the issuer for any amounts advanced under the bond or letter of credit. We believe it is unlikely that any significant amounts of these bonds or letters of credit will be drawn upon.

The table below outlines our surety bond and letter of credit obligations (in thousands):


	As of
	March 31, 2022				December 31, 2021
	Outstanding		Estimated work remaining to complete		Outstanding		Estimated work remaining to complete
Sureties:

Sureties related to owned projects and lots under contract	$	677,014	$	379,639	$	620,297	$	352,152
Total Sureties	$	677,014	$	379,639	$	620,297	$	352,152
Letters of Credit (“LOCs”):

LOCs for land development	56,571		N/A		57,396		N/A
LOCs for general corporate operations	5,000		N/A		5,000		N/A
Total LOCs	$	61,571	N/A		$	62,396	N/A

As of
September 30, 2017 December 31, 2016
Outstanding
Estimated work
remaining to
complete
Outstanding
Estimated work
remaining to
complete
Sureties:
Sureties related to owned projects and lots under contract $ 278,779
$ 123,970
$ 239,246
$ 85,706
Total Sureties $ 278,779
$ 123,970
$ 239,246
$ 85,706
Letters of Credit (“LOCs”):
LOCs in lieu of deposits for contracted lots $ 250
N/A
$ 250
N/A
LOCs for land development 62,497
N/A
39,839
N/A
LOCs for general corporate operations 3,750
N/A
3,750
N/A
Total LOCs $ 66,497
N/A
$ 43,839
N/A

Accrued Liabilities. Accrued liabilities at ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~2021 consisted of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Accruals related to real estate development and construction activities	$	131,697	$	115,214
Payroll and other benefits	57,205		102,773
Accrued interest	21,459		5,556
Accrued taxes	103,366		37,297
Warranty reserves	26,667		26,264
Lease liabilities	24,052		26,171
Other accruals	24,475		24,002
Total	$	388,921	$	337,277

As of
September 30, 2017 December 31, 2016
Accruals related to real estate development and construction activities $ 63,227
$ 53,778
Payroll and other benefits 46,922
52,941
Accrued interest 30,722
15,017
Accrued taxes 11,847
9,637
Warranty reserves 24,432

22,660
Legal reserves (1) 600
673
Other accruals 15,352
16,146
Total $ 193,102
$ 170,852


~~(1)~~	~~See Note 15 for additional information related to our legal reserves.~~

Warranty Reserves. We provide home purchasers with limited warranties against certain building defects and we have certain obligations related to those post-construction warranties for closed homes. The specific terms and conditions of these limited warranties vary by state, but overall the nature of the warranties include a complete workmanship and materials warranty ~~typically during~~for the first ~~one to~~year after the close of the home, a major mechanical warranty for two years after the close of the home and a structural warranty that typically extends up to 10 years ~~subsequent to~~after the close of the home. With the assistance of an actuary, we have estimated ~~the~~these reserves for the structural warranty based on the number of homes still under warranty and historical data and trends for our communities. We ~~also~~may use industry data with respect to similar product types and geographic areas in markets where our experience is incomplete to draw a meaningful conclusion. We regularly review our warranty reserves and adjust them, as necessary, to reflect changes in trends as information becomes available. InBased on such reviews of warranty costs incurred, we did not adjust the ~~nine months ended September 30, 2016 we decreased our~~ warranty reserve balance ~~by $275,000, which decreased our cost of sales.~~ in the three months ended March 31, 2022 or 2021. Included in the warranty reserve balances at March 31, 2022 and December 31, 2021 reflected in the table below are case-specific reserves for warranty matters, as discussed in Note 15.

A summary of changes in our warranty reserves follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Balance, beginning of period $ 23,620
$ 22,699
$ 22,660
$ 21,615
Additions to reserve from new home deliveries 4,366
4,110
12,491
12,068
Warranty claims (3,554 ) (4,843 ) (10,719 ) (11,442 )
Adjustments to pre-existing reserves —
—
—
(275 )
Balance, end of period $ 24,432

$ 21,966
$ 24,432
$ 21,966


	Three Months Ended March 31,
	2022		2021
Balance, beginning of period	$	26,264	$	23,743
Additions to reserve from new home deliveries	4,528		3,810
Warranty claims	(4,125)		(3,786)
Adjustments to pre-existing reserves	—		—
Balance, end of period	$	26,667	$	23,767

Warranty reserves are included in Accrued liabilities on the accompanying unaudited consolidated balance sheets, and additions and adjustments to the reserves ~~if any,~~ are included in Cost of home closings within the accompanying unaudited

consolidated income statements. These reserves are intended to cover costs associated with our contractual and statutory warranty obligations, which include, among other items, claims involving defective workmanship and materials. We believe that our total reserves, coupled with our contractual relationships and rights with our trades and the ~~general liability~~ insurance we maintain, are sufficient to cover our general warranty obligations. However, as unanticipated changes in legal, weather, environmental or other conditions could have an impact on our actual warranty costs, future costs could differ significantly from our estimates.

~~Recent Accounting Pronouncements.~~

Revenue Recognition. In ~~August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments (Topic 230)~~ ("ASU 2016-15"). ASU 2016-15 adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, reducing the existing diversity in practice that has resulted from the lack of consistent principles on this topic. ASU 2016-15 is effective for us beginning January 1, 2018. We are currently evaluating the impact adopting this guidance will have on classifications in our statement of cash flows.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, ASU 2016-09 permits entities to make an election to either estimate forfeitures or recognize them as they occur. ASU 2016-09 was effective for us beginning January 1, 2017, and is reflected prospectively in the provision for income taxes in the accompanying unaudited consolidated income statement. The impact of the adoption was not material to our consolidated financial statements, including our prior year statement of cash flow, which was not revised. We continue to estimate forfeitures in calculating stock-based compensation expense and have not elected to recognize forfeitures as they occur.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases (Topic 842)~~ ("ASU 2016-02"), which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. ASU 2016-02 will be effective for us beginning January 1, 2019, and early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application,accordance with ~~an option to use certain transition relief. We are currently evaluating the impact adopting this guidance will have on our financial statements.~~

~~In May 2014, the FASB issued ASU 2014-09,~~ ASC 606, Revenue from Contracts with Customers, ~~(Topic 606),~~ (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by applyingwe apply the following ~~steps:~~steps in determining the timing and amount of revenue to recognize: (1) identify the ~~contract(s)~~contract with aour customer; (2) identify the performance ~~obligations~~obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the ~~contract;~~contract, if applicable; and (5) recognize revenue when (or as) we satisfy the ~~entity satisfies a~~ performance ~~obligation. ASU 2014-09 supersedes the~~obligations. The performance obligations and subsequent revenue recognition ~~requirements in ASU 605,~~ for our three sources of revenue are outlined below:

•Revenue ~~Recognition, most industry-specific guidance throughout~~from closings of residential real estate is recognized when closings have occurred, the ~~industry topics~~risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.

•Revenue from land sales is recognized when a significant down payment is received, title passes, and collectability of the ~~ASC,~~receivable, if any, is reasonably assured, and ~~some cost guidance~~we have no continuing involvement with the property, which is generally upon the close of escrow.

•Revenue from financial services is recognized when closings have occurred and all financial services have been rendered, which is generally upon the close of escrow.

Home closing and land closing revenue expected to be recognized in any future year related to ~~construction-type and production-type contracts. ASU 2014-09 is effective for us on January 1, 2018,~~remaining performance obligations (if any) and the ~~guidance allows~~associated contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. Revenue from financial services includes estimated future insurance policy renewal commissions as our performance obligations are satisfied upon issuance of the initial policy with a third party broker. The related contract assets for ~~full retrospective or modified retrospective methods~~these estimated future renewal commissions are not material at March 31, 2022 and December 31, 2021. Our three sources of ~~adoption. We~~revenue are disaggregated by type in the accompanying unaudited consolidated income statements.

Recent Accounting Pronouncements.

There are no recent accounting pronouncements that are expected to have ~~substantially completed our evaluation on the~~a material impact ~~that the adoption of ASU 2014-09 will have~~ on our financial ~~statements. We do not expect it to have an impact on the amount~~statements or ~~timing of our homebuilding revenues, although we expect there to be an immaterial impactto the timing of expense recognition related to ceasing the capitalization of certain selling costs we incur as part of the selling process.~~

financial statement disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Homes under contract under construction (1)	$	1,294,680	$	1,039,822
Unsold homes, completed and under construction (1)	496,058		484,999
Model homes (1)	81,770		81,049
Finished home sites and home sites under development (2)(3)	2,155,442		2,128,538
Total	$	4,027,950	$	3,734,408

As of
September 30, 2017 December 31, 2016
Homes under contract under construction ⁽¹⁾
$ 677,456
$ 508,927
Unsold homes, completed and under construction ⁽¹⁾
484,701
431,725
Model homes ⁽¹⁾
140,326
147,406
Finished home sites and home sites under development ⁽²⁾
1,459,786
1,334,005
Total $ 2,762,269

$ 2,422,063
(1)Includes the allocated land and land development costs associated with each lot for these homes.

(2)Includes raw land, land held for development and land held for sale, less impairments, if any. Land held for development primarily represents land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.


~~(1)~~	~~Includes the allocated land and land development costs associated with each lot for these homes.~~

~~(2)~~

Includes raw land, land held for development and land held for sale. Land held for development primarily reflects land and land development costs related to land where development activity is not currently underway but is expected to begin in the future. For these parcels, we may have chosen not to currently develop certain land holdings as they typically represent a portion or phases of a larger land parcel that we plan to build out over several years. We do not capitalize interest for inactive assets, and all ongoing costs of land ownership (i.e. property taxes, homeowner association dues, etc.) are expensed as incurred.

(3)Includes land held for sale of $57.7 million and $62.1 million as of March 31, 2022 and December 31, 2021, respectively.

Subject to sufficient qualifying assets, we capitalize our development period interest costs incurred to applicable qualifying assets in connection with our real estate development and construction activities. Capitalized interest is allocated to active real estate when incurred and charged to ~~cost~~Cost of closings when the related property is delivered. A summary of our capitalized interest is as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Capitalized interest, beginning of period	$	56,253	$	58,940
Interest incurred	15,213		16,092
Interest expensed	(41)		(90)
Interest amortized to cost of home and land closings	(12,343)		(17,402)
Capitalized interest, end of period	$	59,082	$	57,540

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Capitalized interest, beginning of period $ 72,327
$ 64,682
$ 68,196
$ 61,202
Interest incurred 21,024
17,372
58,199
52,644
Interest expensed (1,116 ) (167 ) (3,561 ) (5,127 )
Interest amortized to cost of home and land closings (15,462 ) (14,256 ) (46,061 ) (41,088 )
Capitalized interest, end of period $ 76,773
$ 67,631
$ 76,773
$ 67,631

NOTE 3 — VARIABLE INTEREST ENTITIES AND CONSOLIDATED REAL ESTATE NOT OWNED

We enter into purchase and option agreements for land or lots as part of the normal course of business. These purchase and option agreements enable us to acquire properties at one or multiple future dates at pre-determined prices. We believe these acquisition structures allow us to better leverage our balance sheet and reduce our financial risk associated with land ~~acquisitions and allow us to better leverage our balance sheet.~~

~~Based on the provisions of the relevant accounting guidance,~~acquisitions. In accordance with ASC 810, Consolidation, we ~~have concluded that when we enter into a purchase or option agreement to acquire land or lots from an entity, a variable interest entity, or “VIE”, may be created. We~~ evaluate all purchase and option agreements for land to determine whether they are a ~~VIE. ASC 810,~~ ~~Consolidation~~variable interest entity ("VIE"), ~~requires that for each VIE, we assess~~and if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are the primary beneficiary ~~and, if so,~~we are required to consolidate the VIE in our financial statements and reflect such assets and liabilities as Real estate not owned. ~~The liabilities related to consolidated VIEs are generally excluded from~~As a result of our ~~debt covenant calculations.~~

~~In order to determine if~~analyses, we ~~are the primary beneficiary,~~determined that as of March 31, 2022 and December 31, 2021, we ~~must first assess whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are~~were not limited to: the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability of the VIE to acquire additional land or dispose of land not under contract with Meritage; and the ability to change or amend the existing option contract with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of ~~the VIE. If we do have the ability to control such activities, we will continue our analysis~~

~~to determine if we are also expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will benefit~~any VIEs from ~~a potentially significant amount of the VIE’s expected gains.~~

~~In substantially all cases, creditors of the entities with~~ which we have option agreements have no recourse against us and the maximum exposure to loss in our option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. Often, we are at risk for items over budget relatedacquired rights to land ~~development on property we have~~or lots under option if we are the land developer. In these cases, we have contracted to complete development at a fixed cost for our benefit, but on behalf of the land owner, and any budget savings or shortfalls are typically borne by us. Some of our option deposits may be refundable to us if certain contractual conditions are not performed by the party selling the lots.contracts.

The table below presents a summary of our lots under option at ~~September 30, 2017~~March 31, 2022 (dollars in thousands):

Projected Number
of Lots

Purchase
Price

Option/
Earnest Money
Deposits–Cash

Purchase and option contracts recorded on balance sheet as Real estate not owned 242
$ 39,793
$ 4,025

Option contracts — non-refundable deposits, committed (1)
3,858
283,709
37,927

Purchase contracts — non-refundable deposits, committed (1)
6,610
300,962
24,255

Purchase and option contracts —refundable deposits, committed 560
17,669
902

Total committed 11,270
642,133
67,109

Purchase and option contracts — refundable deposits, uncommitted (2)
8,465
232,952
4,463

Total lots under contract or option 19,735
$ 875,085
$ 71,572

Total purchase and option contracts not recorded on balance sheet (3)
19,493
$ 835,292
$ 67,547
(4)


	Projected Number of Lots	Purchase Price		Option/ Earnest Money Deposits–Cash
Purchase and option contracts recorded on balance sheet as Real estate not owned (1)	1	$	8,011	$	801
Option contracts — non-refundable deposits, committed (2)	12,549	691,670		60,730
Purchase contracts — non-refundable deposits, committed (2)	11,573	317,561		23,346
Purchase and option contracts —refundable deposits, committed	1,890	59,854		1,490
Total committed	26,013	1,077,096		86,367
Purchase and option contracts — refundable deposits, uncommitted (3)	25,895	805,606		7,866
Total lots under contract or option	51,908	$	1,882,702	$	94,233
Total purchase and option contracts not recorded on balance sheet (4)	51,907	$	1,874,691	$	93,432	(5)


~~(1)~~	~~Deposits are non-refundable except if certain contractual conditions are not performed by the selling party.~~


~~(2)~~	~~Deposits are refundable at our sole discretion. We have not completed our acquisition evaluation process and we have not internally committed to purchase these lots.~~


~~(3)~~	~~Except for our specific performance contracts recorded on our balance sheet as Real estate not owned, none of our option agreements require us to purchase lots.~~


~~(4)~~	~~Amount is reflected on our consolidated balance sheet in Deposits on real estate under option or contract as of September 30, 2017.~~

(1)Real estate not owned represents a single parcel of land intended for multi-family housing that, once purchased, the Company intends to sell.

(2)Deposits are non-refundable except if certain contractual conditions are not performed by the selling party.

(3)Deposits are refundable at our sole discretion. We have not completed our acquisition evaluation process and we have not internally committed to purchase these lots.

(4)Except for our specific performance contracts recorded on our unaudited consolidated balance sheets as Real estate not owned (if any), none of our purchase or option contracts require us to purchase lots.

(5)Amount is reflected in our unaudited consolidated balance sheets in Deposits on real estate under option or contract as of March 31, 2022.

Generally, our options to purchase lots remain effective so long as we purchase a pre-established minimum number of lots each month or quarter, as determined by the respective agreement. Although the pre-established number is typically structured to approximate our expected rate of home construction starts, during a weakened homebuilding market, we may purchase lots at an absorption level that exceeds our sales and home starts pace ~~in order~~needed to meet the pre-established minimum number of lots or ~~we will work to~~ restructure our original contract to terms that more accurately reflect our revised orders pace expectations. During a strong homebuilding market, we may accelerate our pre-established minimum purchases if allowed by the contract.

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED ENTITIES

We may enter into ~~land development~~ joint ventures as a means of accessing larger parcels of land, expanding our market opportunities, managing our risk profile, optimizing deal structure for the impacted parties and leveraging our capital base. While purchasing land through a joint venture can be beneficial, currently we do not view joint ventures as critical to the success of our homebuilding operations. ~~In 2016, we entered into our first new joint venture since 2008. Based on the structure of each joint venture, it may or may not be consolidated into our results.~~ Our joint venture partners generally are ~~generally~~ other homebuilders, land sellers or other real estate investors. We generally do not have a controlling interest in these ventures, which means our joint venture partners could cause the venture to take actions we disagree with, or fail to take actions we believe should be undertaken, including the sale of the underlying property to repay debt or recoup all or part of the partners' investments. Based on the structure of these joint ventures, they may or may not be consolidated into our results. As of ~~September 30, 2017~~,March 31, 2022, we had ~~three~~2 active equity-method land ~~ventures.~~

~~As of~~ ~~September 30, 2017, we also participated in one~~ventures and 1 mortgage joint venture, which is engaged in mortgage activities and primarily provides services to ~~both~~ our ~~homebuyers as well as other buyers. Our investment in this mortgage joint venture as of September 30, 2017 and December 31, 2016 was $1.6 million and $2.3 million, respectively.~~homebuyers.

Summarized condensed combined financial information related to unconsolidated joint ventures that are accounted for using the equity method was as follows (in thousands):


	As of
	March 31, 2022		December 31, 2021
Assets:
Cash	$	8,419	$	7,983
Real estate	7,992		7,989
Other assets	12,078		3,903
Total assets	$	28,489	$	19,875
Liabilities and equity:
Accounts payable and other liabilities	$	16,581	$	7,899

Equity of:
Meritage (1)	4,726		4,752
Other	7,182		7,224
Total liabilities and equity	$	28,489	$	19,875

As of
September 30, 2017 December 31, 2016
Assets:
Cash $ 7,865
$ 7,446
Real estate 54,214
54,319
Other assets 4,151
6,461
Total assets $ 66,230
$ 68,226
Liabilities and equity:
Accounts payable and other liabilities $ 6,072
$ 7,339
Notes and mortgages payable 24,304
23,000
Equity of:
Meritage ⁽¹⁾
14,340
14,245
Other 21,514
23,642
Total liabilities and equity $ 66,230
$ 68,226


	Three Months Ended March 31,
	2022		2021
Revenue	$	9,238	$	8,995
Costs and expenses	(8,272)		(8,125)
Net earnings of unconsolidated entities	$	966	$	870
Meritage’s share of pre-tax earnings (1) (2)	$	984	$	750

(1)Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures. This balance may differ from the balance reported in the accompanying unaudited consolidated financial statements due to the following reconciling items: (i) timing differences for revenue and distributions recognition, (ii) step-up basis and corresponding amortization, (iii) capitalization of interest on qualified assets, (iv) income deferrals as discussed in Note (2) below and (v) the cessation of allocation of losses from joint ventures in which we have previously written down our investment balance to zero and where we have no commitment to fund additional losses.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenue $ 9,593
$ 13,374
$ 30,622
$ 34,875
Costs and expenses (4,138 ) (5,762 ) (14,724 ) (15,408 )
Net earnings of unconsolidated entities $ 5,455
$ 7,612
$ 15,898
$ 19,467
Meritage’s share of pre-tax earnings ^{(1) (2)}
$ 3,398
$ 4,681
$ 10,648
$ 11,719

~~(1)~~

Balance represents Meritage’s interest, as reflected in the financial records of the respective joint ventures. This balance may differ from the balance reported in our consolidated financial statements due to the following reconciling items: (i) timing differences for revenue and distributions recognition, (ii) step-up basis and corresponding amortization, (iii) capitalization of interest on qualified assets, (iv) income deferrals as discussed in Note (2) below and (v) the cessation of allocation of losses from joint ventures in which we have previously written down our investment balance to zero and where we have no commitment to fund additional losses.

~~(2)~~

(2)Our share of pre-tax earnings from our mortgage joint venture is recorded in Earnings from financial services unconsolidated entities and other, net on the accompanying unaudited consolidated income statements. Our share of pre-tax earnings from all other net and (Loss)/earnings from other unconsolidated entities, net on our consolidated income statements and excludes joint venture profit related to lots we purchased from the joint ventures. Such profit is deferred until homes are delivered by us and title passes to a homebuyer.

~~Our total investment in all of these~~ joint ventures is ~~$16.4 million and $17.1 million as of~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. We believe these ventures are~~recorded in ~~compliance with their respective debt agreements, if applicable, and such debt is non-recourse to us.~~

Other (expense)/income, net on the accompanying unaudited consolidated income statements.

NOTE 5 — LOANS PAYABLE AND OTHER BORROWINGS

Loans payable and other borrowings consist of the following (in thousands):


	As of
	March 31, 2022		December 31, 2021
Other borrowings, real estate notes payable (1)	$	22,561	$	17,552
$780.0 million unsecured revolving credit facility	—		—
Total	$	22,561	$	17,552

(1)Reflects balance of non-recourse notes payable in connection with land purchases.

As of
September 30, 2017 December 31, 2016
Other borrowings, real estate notes payable ⁽¹⁾
$ 13,082
$ 17,195
$625 million unsecured revolving credit facility with interest approximating LIBOR (approximately 1.23% at September 30, 2017) plus 1.75% or Prime (4.25% at September 30, 2017) plus 0.75% 25,000
15,000
Total $ 38,082
$ 32,195


~~(1)~~	~~Reflects balance of non-recourse notes payable in connection with land purchases, with interest rates ranging from 0% to 8%.~~

The Company ~~has a $625.0 million~~entered into an amended and restated unsecured revolving credit facility ("Credit Facility"), in 2014 that has been amended from time to time. In December 2021, the Credit Facility was amended to extend the maturity date to December 22, 2026 and replace LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate ("SOFR") as described below. The Credit Facility's aggregate commitment is $780.0 million with an accordion feature ~~that permits~~permitting the size of the facility to increase to a maximum of ~~$725.0 million. In May 2017,~~$880.0 million, subject to certain conditions, including the ~~maturity date~~availability of ~~the credit facility was extended whereby $60.0 million matures in July 2019 with the remainder maturing in July 2021.~~additional bank

commitments. Borrowings under the Credit Facility bear interest at the Company's option, at either (1) term SOFR (based on 1, 3, or 6 month interest periods, as selected by the Company) plus a 10 basis point adjustment plus an applicable margin (ranging from 125 basis points to 175 basis points (the "applicable margin")) based on the Company's leverage ratio as determined in accordance with a pricing grid, (2) the higher of (i) the prime lending rate, (ii) an overnight bank rate plus 50 basis points and (3) term SOFR (based on a 1 month interest period) plus a 10 basis point adjustment plus 1%, in each case plus a margin ranging from 25 basis points to 75 basis points based on the Company's leverage in accordance with a pricing grid, or (iii) daily simple SOFR plus a 10 basis point adjustment plus the applicable margin. At March 31, 2022, the interest rate on outstanding borrowings under the Credit Facility would have been 1.640% per annum. We are ~~unsecured but availability is subject~~obligated to ~~among other things,~~pay a ~~borrowing base.~~ fee on the undrawn portion of the Credit Facility at a rate equal to the applicable margin then in effect.

The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of ~~$987.4 million~~$1.9 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 therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) 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 of March 31, 2022.

We had ~~$25.0 million of~~no outstanding borrowings under the Credit Facility as of ~~September 30, 2017~~March 31, 2022 and ~~$15.0 million in borrowings at~~ December 31, ~~2016. During~~2021. There were no borrowings or repayments during the ~~nine~~three months ended ~~September 30, 2017 we had $320.0 million of gross borrowings~~March 31, 2022 and ~~$310.0 million of repayments. During the nine months ended September 30, 2016 we had $106.0 million of gross borrowings and $81.0 million of repayments.~~2021. As of ~~September 30, 2017~~March 31, 2022, we had outstanding letters of credit issued under the Credit Facility totaling ~~$66.5~~$61.6 million, leaving ~~$533.5~~$718.4 million available under the Credit Facility to be drawn.

NOTE 6 — SENIOR ~~AND CONVERTIBLE SENIOR~~ NOTES, NET

Senior ~~and convertible senior~~ notes, net consist of the following (in thousands):

As of
September 30, 2017 December 31, 2016
4.50% senior notes due 2018 $ 175,000
$ 175,000
7.15% senior notes due 2020. At September 30, 2017 and December 31, 2016 there was approximately $1,422 and $1,849 in net unamortized premium, respectively 301,422
301,849
7.00% senior notes due 2022 300,000
300,000
6.00% senior notes due 2025 200,000
200,000
5.125% senior notes due 2027 300,000
—
1.875% convertible senior notes due 2032 —
126,500
Net debt issuance costs (10,262 ) (8,230 )
Total $ 1,266,160
$ 1,095,119

In June 2017, we completed an offering of $300.0 million aggregate principal amount of Senior Notes due 2027 (the "2027 Notes"). The 2027 Notes bear interest at 5.125% per annum, payable on June 6 and December 6 of each year, commencing on December 6, 2017.

Using the proceeds from the 2027 Notes offering, in June 2017 we repurchased in privately negotiated transactions $51.9 million of our convertible senior notes ("Convertible Notes") aggregate principal amount, incurring a loss on extinguishment of debt of $0.3 million included in Other income, net, in the accompanying consolidated income statements for the nine months ended September 30, 2017.

The Convertible Notes could be redeemed by the note-holders on the fifth, tenth and fifteenth anniversary dates of the Convertible Notes. The fifth anniversary of the Convertible Notes was on September 15, 2017. During September 2017, through a combination of holder redemptions and an exercise of our call option, we redeemed for cash all remaining Convertible Notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest.


	As of
	March 31, 2022		December 31, 2021



6.00% senior notes due 2025. At March 31, 2022 and December 31, 2021 there was approximately $2,591 and $2,795 in net unamortized premium, respectively.	402,591		402,795
5.125% senior notes due 2027	300,000		300,000
3.875% senior notes due 2029	450,000		450,000
Net debt issuance costs	(9,829)		(10,309)
Total	$	1,142,762	$	1,142,486

The indentures for all of our senior notes contain non-financial covenants including, among others, limitations on the amount of secured debt we may incur, and limitations on sale and leaseback transactions and mergers. We ~~believe we are~~were in compliance with all such covenants as of ~~September 30, 2017.~~March 31, 2022.

Obligations to pay principal and interest on the senior ~~(and previously our Convertible Notes)~~notes are guaranteed by substantially all of our wholly-owned subsidiaries (each a “Guarantor” and, collectively, the “Guarantor Subsidiaries”), each of which is directly or indirectly 100% owned by Meritage Homes Corporation. Such guarantees are full and unconditional, and joint and several. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the equity interests of any Guarantor then held by Meritage and its subsidiaries, then that Guarantor may be released and relieved of any obligations under its note guarantee. There are no significant restrictions on our ability or the ability of any Guarantor to obtain funds from their respective subsidiaries, as applicable, by dividend or loan. We do not provide separate financial statements of the Guarantor Subsidiaries because Meritage (the parent company) has no independent assets or operations and the guarantees are full and unconditional and joint and several. Subsidiaries of Meritage Homes Corporation that are non-guarantor subsidiaries are, individually and in the aggregate, minor.

NOTE 7 — FAIR VALUE DISCLOSURES

~~We account for non-recurring fair value measurements of our non-financial assets and liabilities in accordance with~~ ASC 820-10, Fair Value Measurement ("ASC 820")~~. This guidance~~, defines fair value, establishes a framework for measuring fair value and addresses required disclosures about fair value measurements. This standard establishes a three-level hierarchy for fair value measurements based upon the significant inputs used to determine fair value. Observable inputs are those which are obtained from market participants external to the ~~company~~Company while unobservable inputs are generally developed internally, utilizing management’s estimates, assumptions and specific knowledge of the assets/liabilities and related markets. The three levels are defined as follows:

•Level 1 — Valuation is based on quoted prices in active markets for identical assets and liabilities.

•Level 2 — Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.

•Level 3 — Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on the ~~company’s~~Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

If the only observable inputs are from inactive markets or for transactions which the Company evaluates as “distressed”, the use of Level 1 inputs should be modified by the Company to properly address these factors, or the reliance of such inputs may be limited, with a greater weight attributed to Level 3 inputs.

Financial Instruments: The fair value of our fixed-rate debt is derived from quoted market prices by independent dealers ~~(level~~(Level 2 inputs as per the discussion above) and is as follows (in thousands):

As of
September 30, 2017 December 31, 2016

Aggregate
Principal

Estimated Fair
Value

Aggregate
Principal

Estimated Fair
Value
4.50% senior notes $ 175,000
$ 175,875
$ 175,000
$ 177,625
7.15% senior notes $ 300,000
$ 330,000
$ 300,000
$ 325,500
7.00% senior notes $ 300,000
$ 342,750
$ 300,000
$ 324,750
6.00% senior notes $ 200,000
$ 213,000
$ 200,000
$ 202,500
5.125% senior notes $ 300,000
$ 300,750
$ —
$ —
1.875% convertible senior notes $ —
$ —
$ 126,500
$ 126,105


	As of
	March 31, 2022				December 31, 2021
	Aggregate Principal		Estimated Fair Value		Aggregate Principal		Estimated Fair Value



6.00% senior notes	$	400,000	$	420,600	$	400,000	$	446,520
5.125% senior notes	$	300,000	$	303,000	$	300,000	$	329,640
3.875% senior notes	$	450,000	$	423,000	$	450,000	$	472,500

Due to the short-term nature of other financial assets and liabilities, including our Loans payable and other borrowings, we consider the carrying amounts of our other short-term financial instruments to approximate fair value.

NOTE 8 — EARNINGS PER SHARE

Basic and diluted earnings per common share were calculated as follows (in thousands, except per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic weighted average number of shares outstanding 40,323
40,022
40,273
39,958
Effect of dilutive securities:
Convertible Notes ⁽¹⁾
1,105
2,176
1,754
2,176
Unvested restricted stock 583
410
558
407
Diluted average shares outstanding 42,011
42,608
42,585
42,541
Net earnings as reported $ 42,550
$ 36,887
$ 107,702
$ 97,734
Interest attributable to Convertible Notes, net of income taxes 201
403
942
1,210
Net earnings for diluted earnings per share $ 42,751
$ 37,290
$ 108,644
$ 98,944
Basic earnings per share $ 1.06
$ 0.92
$ 2.67
$ 2.45
Diluted earnings per share ⁽¹⁾
$ 1.02
$ 0.88
$ 2.55
$ 2.33
Antidilutive stock not included in the calculation of diluted earnings per share 2
17
4
5


	Three Months Ended March 31,
	2022		2021
Basic weighted average number of shares outstanding	36,996		37,644
Effect of dilutive securities:

Unvested restricted stock	531		695
Diluted average shares outstanding	37,527		38,339
Net earnings	$	217,254	$	131,843


Basic earnings per share	$	5.87	$	3.50
Diluted earnings per share	$	5.79	$	3.44


~~(1)~~	~~In accordance with ASC 260-10,~~ ~~Earnings Per Share, ("ASC 260-10") we calculate the dilutive effect of convertible securities using the "if-converted" method based on the number of days our Convertible Notes were outstanding during the period.~~ 14

NOTE 9 — ACQUISITIONS AND GOODWILL

Goodwill. ~~Over the past several~~ In prior years, we have entered new markets through the acquisition of the homebuilding assets and operations of local/regional homebuilders in Georgia, South Carolina and Tennessee. As a result of these transactions, we recorded approximately $33.0 million of goodwill. Goodwill represents the excess ~~of the~~ purchase price of our acquisitions over the fair value of the net assets acquired. Our acquisitions ~~are~~were recorded in accordance with ASC 805, Business ~~Combination~~sCombinations, and ASC 820, using the acquisition method of accounting. The purchase price for acquisitions iswas allocated based on estimated fair value of the assets and liabilities at the date of the acquisition. The combined excess purchase price of our acquisitions over the fair value of the net assets is classified as goodwill and is included onin our unaudited consolidated balance ~~sheet~~sheets in Prepaids, other assets and goodwill. In accordance with ASC 350, we assess the recoverability of goodwill annually, or more frequently, if impairment indicators are present.

A summary of the carrying amount of goodwill follows (in thousands):


	West		Central		East		Financial Services		Corporate		Total
Balance at December 31, 2021	$	—	$	—	$	32,962	$	—	$	—	$	32,962
Additions	—		—		—		—		—		—

Balance at March 31, 2022	$	—	$	—	$	32,962	$	—	$	—	$	32,962

West Central East Financial Services Corporate Total
Balance at December 31, 2016 $ —
$ —
$ 32,962
$ —
$ —
$ 32,962
Additions —
—
—
—
—
—
Impairments —
—
—
—
—
—
Balance at September 30, 2017 $ —
$ —
$ 32,962
$ —
$ —
$ 32,962

NOTE 10 — STOCKHOLDERS’ EQUITY

A summary of changes in stockholders’ equity is presented below (in thousands):


	Three Months Ended March 31, 2022
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital		Retained Earnings		Total
Balance at December 31, 2021	37,341	$	373	$	414,841	$	2,629,175	$	3,044,389
Net earnings	—	—		—		217,254		217,254
Stock-based compensation expense	—	—		5,975		—		5,975
Issuance of stock	392	4		(4)		—		—
Share repurchases	(1,038)	(10)		(99,293)		—		(99,303)
Balance at March 31, 2022	36,695	$	367	$	321,519	$	2,846,429	$	3,168,315


	Three Months Ended March 31, 2021
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital		Retained Earnings		Total
Balance at December 31, 2020	37,512	$	375	$	455,762	$	1,891,731	$	2,347,868
Net earnings	—	—		—		131,843		131,843
Stock-based compensation expense	—	—		5,367		—		5,367
Issuance of stock	435	4		(4)		—		—
Share repurchases	(100)	(1)		(8,384)		—		(8,385)


Balance at March 31, 2021	37,847	$	378	$	452,741	$	2,023,574	$	2,476,693

Nine Months Ended September 30, 2017
(In thousands)

Number of
Shares

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings
Total
Balance at December 31, 2016 40,031
$ 400
$ 572,506
$ 848,589
$ 1,421,495
Net earnings —
—
—
107,702
107,702
Exercise/vesting of stock-based awards 295
3
(3 ) —
—
Stock-based compensation expense —
—
9,911
—
9,911
Balance at September 30, 2017 40,326
$ 403
$ 582,414
$ 956,291
$ 1,539,108

Nine Months Ended September 30, 2016
(In thousands)

Number of
Shares

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings
Total
Balance at December 31, 2015 39,669
$ 397
$ 559,492
$ 699,048
$ 1,258,937
Net earnings —
—
—
97,734
97,734
Exercise/vesting of stock-based awards 356
3
229
—
232
Excess income tax benefit from stock-based awards —
—
(540 ) —
(540 )
Stock-based compensation expense —
—
11,042
—
11,042
Balance at September 30, 2016 40,025
$ 400
$ 570,223
$ 796,782
$ 1,367,405

NOTE 11 — ~~STOCK BASED~~STOCK-BASED AND DEFERRED COMPENSATION

We have a ~~stock-based~~stock compensation plan, the ~~Amended and Restated 2006~~Meritage Homes Corporation 2018 Stock Incentive Plan (the ~~“Plan”~~“2018 Plan"), that ~~was adopted in 2006 and has been amended or restated from time to time. The Plan~~ was approved by our Board of Directors and our stockholders and adopted in May 2018. The 2018 Plan is administered by our Board of ~~Directors. The provisions of the Plan allow~~Directors and allows for the grant of stock appreciation rights, restricted stock awards, restricted stock units, performance share awards and performance-based awards in addition to non-qualified and incentive stock options. All available shares from expired, terminated, or forfeited awards that remained under prior plans were merged into and became available for grant under the 2018 Plan. The 2018 Plan authorizes awards to officers, key employees, non-employee directors and ~~consultants for up to~~ ~~5,350,000~~consultants. The 2018 Plan authorizes 6,600,000 shares of ~~common~~ stock to be awarded, of which ~~1,131,155~~709,246 shares remain available for grant at ~~September 30, 2017. The available shares include shares from expired, terminated or forfeited awards under prior plans that have since expired and are thus available for grant under the Plan.~~March 31, 2022. We believe that such awards provide a means of performance-based compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders. Non-vested stock awards are usually granted with a ~~five-year~~five-year ratable vesting period for employees, ~~and with~~ a ~~three-year~~three-year cliff vesting for both ~~non-vested~~restricted stock and performance-based awards granted to ~~certain~~ senior executive officers, and either a three-year cliff vesting or one-year vesting for non-employee ~~directors.~~directors, dependent on their start date.

Compensation cost related to time-based restricted stock awards is measured as of the closing price on the date of grant and is expensed, less forfeitures, on a straight-line basis over the vesting period of the award. Compensation cost related to performance-based restricted stock awards is also measured as of the closing price on the date of grant but is expensed in accordance with ASC 718-10-25-20, Compensation – Stock Compensation ("ASC 718"), which requires an assessment of probability of attainment of the performance target. As our performance targets are dependent on performance over a specified measurement period, once we determine that the performance target outcome is probable, the cumulative expense is recorded immediately with the remaining expense recorded on a straight-line basis through the end of the award vesting period. ~~Beginning with grants in 2014, a~~A portion of the performance-based restricted stock awards granted to our executive officers contain market conditions as defined by ASC 718. ~~The guidance in~~ ASC 718 requires that compensation expense for stock awards with market conditions be expensed based on a derived grant date fair value and expensed over the service period. We ~~engaged~~engage a third party to perform a valuation analysis on the awards containing market conditions and our associated expense with those awards is based on the derived fair value from that analysis and is ~~being~~ expensed straight-line over the service period of the awards. Below is a summary of stock-based compensation expense and stock award activity (dollars in thousands):


	Three Months Ended March 31,
	2022		2021
Stock-based compensation expense	$	5,975	$	5,367
Non-vested shares granted	264,862		221,552
Performance-based non-vested shares granted	40,004		46,593

Performance-based shares issued in excess of target shares granted (1)	37,146		37,425
Restricted stock awards vested (includes performance-based awards)	392,160		434,729

(1)Performance-based shares that vested and were issued as a result of performance achievement exceeding the originally established targeted number of shares related to respective performance metrics.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock-based compensation expense $ 4,113
$ 3,729
$ 9,898
$ 11,042
Non-vested shares granted 14,075
3,500
430,575
497,365
Performance-based non-vested shares granted —
—
154,120
66,698
Stock options exercised ⁽¹⁾
—
—
—
14,400
Restricted stock awards vested (includes performance-based awards) 5,780
6,940
295,544
341,490


~~(1)~~	~~As of December 31, 2016, we have no remaining unexercised stock options.~~

The following table includes additional information regarding our ~~Plan~~stock compensation plan (dollars in thousands):


	As of
	March 31, 2022		December 31, 2021
Unrecognized stock-based compensation cost	$	42,406	$	25,007
Weighted average years expense recognition period	2.30		1.97
Total equity awards outstanding (1)	829,638		883,280

As of
September 30, 2017 December 31, 2016
Unrecognized stock-based compensation cost $ 21,920
$ 18,528
Weighted average years expense recognition period 2.75
2.56
Total stock-based awards outstanding ⁽¹⁾
1,302,176
1,147,271


~~(1)~~	~~Includes unvested restricted stock, performance-based awards (at target level) and restricted stock units.~~

(1)Includes unvested restricted stock awards, restricted stock units and performance-based awards (assuming 100%/target payout).

We also offer a non-qualified deferred compensation plan ("deferred compensation plan") to highly compensated employees in order to allow them additional pre-tax income deferrals above and beyond the limits that qualified plans, such as ~~401k~~401(k) plans, impose on highly compensated employees. We do not currently offer a contribution match on the deferred compensation plan. All contributions to the plan to date have been funded by the employees and, therefore, we have no associated expense related to the deferred compensation plan for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 or ~~2016,~~2021, other than minor administrative costs.

NOTE 12 — INCOME TAXES

Components of the income tax provision are as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Federal	$	56,345	$	29,113
State	12,284		5,021
Total	$	68,629	$	34,134

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Federal $ 18,890
$ 15,032
$ 49,678
$ 38,141
State 2,015
1,883
6,049
5,848
Total $ 20,905
$ 16,915
$ 55,727
$ 43,989

The effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and March 31, 2021 was ~~32.9%~~24.0% and ~~34.1%~~20.6%, ~~respectively, and~~respectively. The higher tax rate for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2022 is due to the expiration of Internal Revenue Code ("IRC") §45L new energy efficient homes credit, which was ~~31.4%~~enacted into law under the Taxpayer Certainty and ~~31.0%, respectively. Our tax rate~~Disaster Tax Relief Act of 2019 and subsequently extended through December 31, 2021 by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Since the new energy efficient homes credit has not yet been ~~favorably impacted in both years by~~extended beyond 2021, the ~~homebuilding manufacturing deduction. The lower 2016~~ effective tax rate ~~reflects~~in the ~~benefit~~first quarter of federal energy credits for homes sold in both 2016 and in prior periods as a result of the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act was the enabling legislation for claiming federal energy tax credits on homes qualifying in 2015 and 2016. This legislation has expired and has not been renewed for 2017. Accordingly, our effective tax rate for 20172022 does not ~~reflect a tax benefit from federal energy credits for homes sold in 2017.~~

include such benefits.

At ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016,~~2021, we have no unrecognized tax benefits. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense.

We determine our deferred tax assets and liabilities in accordance with ASC ~~740-10,~~ 740, Income Taxes. We evaluate our deferred tax assets, including the benefit from net operating losses ("NOLs"), by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carry forward periods, experiences with operating losses and experiences of utilizing tax credit carry forwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and no NOL carryovers at ~~September 30, 2017.~~March 31, 2022.

At ~~September 30, 2017,~~March 31, 2022, we ~~had~~have a current income tax payable of $91.6 million and no remaining federal NOL carry forward or un-utilized federal tax credits. At September 30, 2017, and December 31, 2016 we had tax benefits for state NOL carry forwards of $1.4 million, net of federal benefit, that begin to expire in 2028.

~~At September 30, 2017, we have~~income taxes receivable. The income taxes payable ~~of $5.7 million, which~~ primarily consists of current federal and state income tax accruals, net of current energy tax credits and estimated tax ~~payments and tax credits.~~payments. This amount is recorded in Accrued liabilities on the accompanying unaudited consolidated balance ~~sheet~~sheets at September 30, 2017. At September 30, 2017, we have an income tax receivable of $2.0 million from amending prior year tax returns to claim additional federal energy tax credits which is included in Other receivables on the accompanying unaudited balance sheet.March 31, 2022.

We conduct business and are subject to tax in the U.S. both federally and in several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to ~~2013.~~2017. We have ~~one~~no federal or state income tax ~~examination of multiple years under audit~~examinations being conducted at this ~~time and do not expect it to have a material outcome.~~time.

The future tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under ~~Internal Revenue Code~~IRC §382. Based on our analysis performed as of ~~September 30, 2017~~March 31, 2022 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of any tax benefit for future utilization.

NOTE 13 — SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The following table presents certain supplemental cash flow information (in thousands):


	Three Months Ended March 31,
	2022		2021
Cash paid during the year for:
Interest, net of interest capitalized	$	(15,035)	$	(15,851)
Income taxes	$	3	$	2
Non-cash operating activities:

Real estate acquired through notes payable	$	9,589	$	2,197

Nine Months Ended September 30,
2017 2016
Interest capitalized, net $ (14,454 ) $ (9,053 )
Income taxes paid $ 61,034
$ 43,860
Non-cash operating activities:
Real estate not owned increase $ 39,793
$ —
Real estate acquired through notes payable $ 6,378
$ 14,199

NOTE 14 — OPERATING AND REPORTING SEGMENTS

We operate with ~~two~~2 principal business segments: homebuilding and financial services. As defined in ASC 280-10, Segment Reporting, we have ~~nine~~10 homebuilding operating segments. The homebuilding segments are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes and providing warranty and customer services. We aggregate our homebuilding operating segments into reporting segments based on similar long-term economic characteristics and geographical proximity. Our current reportable homebuilding segments are as follows:



			West:			Arizona, California, Colorado and ~~Colorado~~Utah
			Central:			Texas
			East:			Florida, Georgia, North Carolina, South Carolina and Tennessee

Management’s evaluation of segment performance is based on segment operating income, which we define as ~~homebuilding~~home and land closing revenues less cost of home ~~construction,~~and land closings, commissions and other sales costs, land development and other land sales costs and other costs incurred by or allocated to each segment, including impairments. Each reportable segment follows the same accounting policies described in Note 1, “Organization and Basis of Presentation.” Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity for the periods presented.

The following segment information is in thousands:


	Three Months Ended March 31,
	2022		2021
Homebuilding revenue (1):
West	$	494,506	$	393,430
Central	355,624		322,184
East	436,804		368,167
Consolidated total	$	1,286,934	$	1,083,781
Homebuilding segment operating income:
West	$	120,856	$	64,251
Central	75,260		56,993
East	93,548		50,179
Total homebuilding segment operating income	289,664		171,423
Financial services segment profit	3,334		3,760
Corporate and unallocated costs (2)	(6,757)		(9,914)
Interest expense	(41)		(90)
Other (expense)/income, net	(317)		798
Net earnings before income taxes	$	285,883	$	165,977

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Homebuilding revenue ⁽¹⁾:

West $ 373,708
$ 330,805
$ 1,055,086
$ 924,494
Central 236,884
200,446
637,394
571,036
East 195,005
221,606
587,867
652,989
Consolidated total $ 805,597
$ 752,857
$ 2,280,347
$ 2,148,519
Homebuilding segment operating income:
West $ 35,026
$ 27,829
$ 94,169
$ 71,387
Central 26,404
18,635
63,524
52,313
East 4,954
9,737
12,675
27,918
Total homebuilding segment operating income 66,384
56,201
170,368
151,618
Financial services segment profit 5,514
5,956
15,361
15,765
Corporate and unallocated costs ⁽²⁾
(9,264 ) (10,063 ) (24,809 ) (24,652 )
(Loss)/earnings from other unconsolidated entities, net (91 ) 440
852
856
Interest expense (1,116 ) (167 ) (3,561 ) (5,127 )
Other income, net 2,028
1,435
5,218
3,263
Net earnings before income taxes $ 63,455
$ 53,802
$ 163,429
$ 141,723


~~(1)~~	~~Homebuilding revenue includes the following land closing revenue, by segment, as outlined in the table below.~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Land closing revenue:
West $ —
$ 15,543
$ 11,800
$ 15,608
Central 125
947
247
4,659
East 464
497
4,895
920
Total $ 589
$ 16,987
$ 16,942
$ 21,187
(1)Homebuilding revenue includes the following land closing revenue, by segment:


	Three Months Ended March 31,
	2022		2021
Land closing revenue:
West	$	31,082	$	—
Central	7,796		3,799
East	2,600		—
Total	$	41,478	$	3,799


~~(2)~~	~~Balance consists primarily of corporate costs and numerous shared service functions such as finance and treasury that are not allocated to the homebuilding or financial services reporting segments.~~

(2)Balance consists primarily of corporate costs and numerous shared service functions such as finance and treasury that are not allocated to the homebuilding or financial services reporting segments.


	At March 31, 2022
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	25,636		$	10,461		$	57,335		$	—	$	—		$	93,432
Real estate	1,668,976			1,175,478			1,183,496			—		—			4,027,950
Investments in unconsolidated entities	81			2,951			1,707			—		892			5,631
Other assets	68,328		(1)	195,978		(2)	110,971		(3)	724		555,147		(4)	931,148
Total assets	$	1,763,021		$	1,384,868		$	1,353,509		$	724	$	556,039		$	5,058,161

(1)Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and property and equipment.

(2)Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and prepaid expenses and other assets.

(3)Balance consists primarily of cash and cash equivalents, goodwill (see Note 9), prepaid expenses and other assets and property and equipment.

(4)Balance consists primarily of cash and cash equivalents, deferred tax assets and prepaid expenses and other assets.


	At December 31, 2021
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	26,687		$	11,132		$	52,860		$	—	$	—		$	90,679
Real estate	1,571,477			1,076,300			1,086,631			—		—			3,734,408
Investments in unconsolidated entities	87			2,974			1,707			—		996			5,764
Other assets	66,897		(1)	199,791		(2)	102,073		(3)	610		607,311		(4)	976,682
Total assets	$	1,665,148		$	1,290,197		$	1,243,271		$	610	$	608,307		$	4,807,533

(1)Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and property and equipment.

(2)Balance consists primarily of cash and cash equivalents, development reimbursements from local municipalities and prepaid expenses and other assets.

(3)Balance consists primarily of cash and cash equivalents, real estate not owned, goodwill, prepaid expenses and other assets and property and equipment.

(4)Balance consists primarily of cash and cash equivalents, deferred tax assets and prepaid expenses and other assets.

At September 30, 2017
West Central East Financial Services
Corporate and
Unallocated
Total
Deposits on real estate under option or contract $ 21,275
$ 23,237
$ 23,035
$ —
$ —
$ 67,547
Real estate 1,183,953
701,516
876,800
—
—
2,762,269
Investments in unconsolidated entities 7,660
7,158
—
—
1,560
16,378
Other assets 47,648
(1) 104,063
(2) 117,411
(3) 615
136,227
(4) 405,964
Total assets $ 1,260,536
$ 835,974
$ 1,017,246
$ 615
$ 137,787
$ 3,252,158


~~(1)~~	~~Balance consists primarily of cash and property and equipment.~~


~~(2)~~	~~Balance consists primarily of development reimbursements from local municipalities and cash.~~


~~(3)~~	~~Balance consists primarily of real estate not owned and goodwill (see Note 9).~~


~~(4)~~	~~Balance consists primarily of our deferred tax asset and cash.~~

At December 31, 2016
West Central East Financial Services
Corporate and
Unallocated
Total
Deposits on real estate under option or contract $ 25,863
$ 27,669
$ 32,024
$ —
$ —
$ 85,556
Real estate 1,120,038
595,485
706,540
—
—
2,422,063
Investments in unconsolidated entities 7,362
7,450
—
—
2,285
17,097
Other assets 45,624
(1) 94,299
(2) 93,245
(3) 812
129,995
(4) 363,975
Total assets $ 1,198,887
$ 724,903
$ 831,809
$ 812
$ 132,280
$ 2,888,691


~~(1)~~	~~Balance consists primarily of cash and property and equipment.~~


~~(2)~~	~~Balance consists primarily of development reimbursements from local municipalities and cash.~~


~~(3)~~	~~Balance consists primarily of goodwill (see Note 9), prepaid permits and fees to local municipalities and cash.~~


~~(4)~~	~~Balance consists primarily of cash and our deferred tax asset.~~

NOTE 15 — COMMITMENTS AND CONTINGENCIES

We are involved in various routine legal and regulatory proceedings, including, without limitation, ~~warranty~~ claims and litigation ~~and arbitration proceedings~~ alleging construction defects. In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors. Additionally, some such claims are also covered by insurance. With respect to the majority of ~~such legal proceedings,~~pending litigation matters, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable. Historically, most disputes regarding warranty claims are resolved ~~without the initiation of legal proceedings.~~prior to litigation. We believe there are ~~not any~~no pending legal or warranty matters as of March 31, 2022 that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved.

As discussed in Note 1 under the heading “Warranty Reserves”, we have case specific reserves within our $26.7 millionof total warranty reserves related to alleged stucco defects in certain homes we constructed predominantly between 2006 and 2017. Our review and handling of this matter is ongoing and our estimate of and reserves for resolving this matter is based on internal data, our judgment and various assumptions and estimates. Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimate and thus our related reserves. As of March 31, 2022, after considering potential recoveries from the consultants and contractors involved and their insurers and the potential recovery under our general liability insurance policies, we believe our reserves are sufficient to cover the above mentioned matter. See Note 1 for information related to our warranty obligations.

Special Note of Caution Regarding Forward-Looking Statements

In passing the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Congress encouraged public companies to make “forward-looking statements” by creating a safe-harbor to protect companies from securities law liability in connection with forward-looking statements. We intend to qualify both our written and oral forward-looking statements for protection under the PSLRA.

The words “believe,” “expect,” “anticipate,” “forecast,” “plan,” “intend,” ~~"may,~~“may,” “will,” “should,” “could,” “estimate,” "target," ~~"will," "should," "could," “estimate,”~~and “project” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. All statements we make other than statements of historical fact are forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of ~~1934.~~1934 (the "Exchange Act"). Forward-looking statements in this ~~Quarterly~~Annual Report ~~include:~~include statements concerning ~~trends in~~our belief that we have ample liquidity; our goals, strategies and strategic initiatives and the ~~homebuilding industry in general,~~anticipated benefits relating thereto; our intentions and the expected benefits and advantages of our product and land positioning strategies, including with respect to our focus on the first-time and first move-up buyer and housing demand for affordable homes; the benefits of and our ~~markets~~intentions to use options to acquire land; our design center strategy; our exposure to supplier concentration risk and ~~results specifically;~~other matters concerning our ~~operating strategy~~supply chain; our delivery of substantially all of our backlog existing as of year end; our positions and ~~initiatives, including~~ our ~~strategy~~expected outcome relating to ~~expand~~litigation in general; the ~~number~~sufficiency of ~~communities that target~~our warranty reserves; our intentions to not pay dividends; growth in the first-time buyer ~~segment; demand~~segment that are seeking entry-level homes; the timing, locations and ~~pricing trends~~targeted number of new community openings in ~~the short-term throughout our geographies;~~2022 and beyond; that we may ~~opportunistically~~ repurchase our debt and equity securities; our non-use of derivative financial instruments; expectations regarding our industry and our business in 2022 and beyond, including the ~~benefits~~potential impact thereon of COVID-19 and governmental imposed restrictions and reaction thereto; the demand for and the pricing of our homes; our land and lot acquisition strategy (including that we will redeploy cash to acquire well-positioned finished lots and ~~structures, including the use~~that we may participate in joint ventures or opportunities outside of our existing markets if opportunities arise and the benefits ~~of option contracts and joint ventures;~~relating thereto); that we ~~expect to redeploy cash generated from operations to acquire~~may expand into new markets; the availability of labor and ~~develop lot positions; management estimates regarding joint venture exposure;~~materials for our operations; that we may seek additional debt or equity capital; our expectation that existing guarantees, letters of credit and performance and surety bonds will not be drawn on; the ~~adequacy~~sufficiency of our insurance coverage and warranty reserves; the ~~expected outcome of legal proceedings we are involved in and the~~ sufficiency of our ~~reserves relating thereto; the sufficiency of our liquidity and~~ capital resources to support our business strategy; the sufficiency of our ~~ability~~land pipeline; the impact of new accounting standards and ~~willingness to acquire land under option or contract; our strategy and~~changes in accounting estimates; trends and expectations concerning sales prices, sales ~~pace, closings,~~ orders, cancellations, ~~material~~construction and ~~labor~~materials costs, ~~for land development and home construction,~~ gross margins, ~~gross profit, revenues, net earnings, operating leverage, backlog,~~ land ~~prices, changes in~~costs, community counts and ~~location of active communities, seasonality~~profitability and ~~the amount, type and timing of new community openings;~~future home inventories; our future cash needs; that we may seek to raise additional debt and equity capital; and our intentions regarding the payment of dividends and the use of derivative contracts; our perceptions about the importance of joint ventures to our business; and the impact of ~~changes in interest rates.~~seasonality; and our future compliance with debt covenants.

Important factors that could cause actual results to differ materially from those in forward-looking statements, and that could negatively affect our business include, but are not limited to, the following: potential adverse impacts on our Houston and Florida orders, closings, revenue and costs due to Hurricanes Harvey and Irma; growth in first-time homebuyers; the availability and cost of finished lots and undeveloped land; changes in interest rates and the availability and pricing of residential mortgages; the ~~success~~potential benefits of our strategic initiatives; shortages in the availability and cost of labor; changes in tax laws that adversely impact us or our homebuyers; the ability of our potential buyers to sell their existing homes; cancellation rates;rate locks; inflation in the cost of materials used to develop communities and construct homes; supply chain and labor constraints; our ability to acquire and develop lots may be negatively impacted if we are unable to obtain performance and surety bonds; the ability of our potential buyers to sell their existing homes; legislation related to tariffs; the adverse effect of ~~slower order~~slow absorption rates; impairments of our real estate inventory; cancellation rates; competition; home warranty and construction defect claims; failures in health and safety performance; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing if our credit ratings are downgraded; our potential exposure to and impacts from natural disasters or severe weather conditions; the availability and cost of finished lots and undeveloped land; the success of our strategy to offer and market entry-level and first move-up homes; a change to the feasibility of projects under option or contract that could result in the write-down or write-off of earnest or option deposits; our potential exposure to natural disasters or severe weather conditions; competition; construction defect and home warranty claims; failures in health and safety performance; our success in prevailing on contested tax positions; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; enactment of new regulations or our failure to comply with laws and regulations; our limited geographic diversification; fluctuations in quarterly operating results; our level of indebtedness; our ability to obtain financing; our ability to successfully integrate acquired companies and achieve anticipated benefits from these acquisitions; our compliance with government regulations; the effect of legislative and other government actions, orders, policies or initiatives that impact housing, labor availability, construction, mortgage availability, our access to capital, the cost of capital or the economy in general, or other initiatives that seek to restrain growth of new housing construction or similar measures; legislation relating to energy and climate change; the replication of our energy-efficient technologies by our competitors; shortages in the availability and cost of subcontract labor; our exposure to information technology failures and security ~~breaches;~~breaches and the impact thereof; the loss of key personnel; changes in tax laws that adversely impact us or our homebuyers; our inability to prevail on contested tax positions; failure of our employees and representatives to comply with laws and regulations; our compliance with government regulations related to our financial services operations; negative publicity that affects our reputation; potential disruptions to our business by an epidemic or pandemic (such as COVID-19), and measures that federal, state and local governments and/or health authorities implement to address it; and other factors identified in documents filed by the Company with the Securities and Exchange Commission, including those set forth in this Form 10-Q and our Form 10-K for the year ended December 31, ~~2016~~2021 under the caption ~~“Risk Factors,” which can be found on our website.~~"Risk Factors."

Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain, as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, the investment community is urged not to place undue reliance on forward-looking statements. In addition, we disclaim and undertake no ~~obligations~~obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Outlook

~~The~~Favorable demand in the housing market ~~has~~ continued in the first quarter of 2022 due to ~~improve~~the low supply of new and existing housing inventory and homebuying trends for entry-level and first move-up homes from millennials and baby boomers. The supply chain constraints and labor shortages that presented themselves in 2021, caused by COVID-19 and other economic-related disruptions and exacerbated by the war in Ukraine, have impacted our production costs and cycle times and the homebuilding industry as a whole and have continued throughout the first ~~nine months~~quarter of 2017 as evidenced by a favorable demand environment assisted by historically low interest rates and strong consumer confidence combined with a limited supply of resale homes. While these dynamics have translated to rising average sales prices in some markets, the increase in demand has also resulted in rising land and construction material costs limiting the potential expansion in gross margins. Unprecedented devastation hit two of our key markets in the third quarter with the recent hurricanes in Houston and Florida. While we were fortunate to incur minimal physical damage, we2022. We have been ~~impacted~~successful, to date, in offsetting the higher costs with ~~delays in orders and closings, as many communities were closed, some up to several weeks, due~~sales price increases thanks to the ~~storms. We are working to quantify what, if any, impact the storms will have on our future cycle times and margins as a result of labor shortages and/or material price increases.~~

~~The desire for new homes continues to be healthy across most of our markets, especially for our entry-level and LiVE.NOW communities that target the first-time homebuyer who has returned to the market~~elevated buyer demand in a meaningful way in recent years. We expect first-time buyers to continue to grow as a percentage of total homebuyers. Our entry-level product is also attracting some move-down buyers with select floor plans that appeal to an age targeted audience.this current environment. We continue to ~~focus on strategic initiatives that are designed to position us for further growth and improve our margins, while pivoting to increase our focus on the first-time buyer. We remain committed to~~carefully navigate this constrained operating environment by expanding our ~~presence~~trade base and strengthening critical relationships.

While we believe that the demographics support a continuing increased need for housing, we also recognize the impact that increased home prices have had on both the buyer psychology and reality of tighter affordability. To help alleviate concerns for our customers surrounding their purchase and future monthly payments, in March 2022, we purchased fixed interest rate locks on all eligible floating-rate loans for homes in our ~~markets by increasing~~backlog scheduled to close in the second half of 2022. In this rising price and interest rate environment, we believe that our ~~community count~~strategy centered on affordable entry-level and ~~offering~~first move-up homes and delivering homes that offer surprisingly more value to our homebuyers provides us with ~~energy-efficient features and appealing designs for today's homebuyer.~~an opportunity to expand our customer base to include buyers that will become priced out of move-up communities.

Summary Company Results

Total home closing revenue was ~~$805.0 million~~$1.2 billion on 2,858 homes closed for the three months ended ~~September 30, 2017, an increase~~March 31, 2022 compared to $1.1 billion on 2,890 homes closed for the first quarter of ~~$69.1 million over the corresponding prior year period due to the 169 additional homes closed. The 9.4%~~2021. This 15.3% increase in home closing revenue ~~and 30-basis-point improvement~~year-over-year was entirely driven by the 16.6% increase in average sales price ("ASP") on closings due to pricing power resulting from strong buyer demand, with flat volume of closings due to production delays. In addition to higher home closing revenue, first quarter home closing gross margin ~~provided $14.7~~improved 560 basis points, up $111.0 million ~~in additional~~year-over-year increase for home closing gross profit of $377.6 million compared to $266.7 million in the first quarter of 2021. The margin improvement is primarily due to the benefit of rising ASPs which ~~combined with reduced general and administrative costs of $1.6 million, helped to~~more than offset higher commodity costs and lower amortization of previously capitalized interest ~~expense~~due to a lower interest cost achieved over the past several years through multiple debt refinancing transactions. Land closing gross profit was $10.8 million in the three months ended March 31, 2022 compared to $0.5 million in the same prior year period, as we sold several parcels of land that did not fit our strategy. Earnings before income taxes improved by $119.9 million, or 72.2%, year over year to $285.9 million for the first quarter of 2022. These improved year-over-year results were partially offset with a higher effective income tax rate of 24.0% as compared to 20.6% in 2021, and ~~contributed~~led to ~~our~~net earnings of $217.3 million in the first quarter of 2022 versus $131.8 million in the first quarter of 2021.

In addition to growth in home closing revenue and improved ~~net income~~profitability, we had another record breaking quarter in home orders, with the highest quarterly orders in Company history of ~~$42.6 million~~3,874 for the three months ended ~~September 30, 2017 versus $36.9 million for~~March 31, 2022, a 12.0% increase over 3,458 in the ~~2016 period. Third quarter 2017 results reflect a higher provision for income taxes due~~same period of 2021. The growth in orders was attributable to a higher effective tax rate of 32.9% versus 2016 of 31.4%. The lower 2016 effective tax rate is inclusive of the benefit of federal energy credits for homes sold in both 2016 and in prior periods, as the legislation providing for these credits expired in 2016 and has not been renewed for 2017. Year-to-date results reflect $136.1 million in additional home closing revenue and $21.8 million higher home closing gross profit versus the nine months ended September 30, 2016. Higher gross profit combined with lower year-over-year general and administrative costs, lower interest expense and an32.4% increase in ~~other income,~~average active communities partially offset by slower orders pace as we metered orders to align starts with production capacity. Home order value increased 31.0% year-over-year, to $1.8 billion during the ~~increased tax rate, led~~three months ended March 31, 2022, versus $1.3 billion in the same period of 2021. The increase in order value is due to ~~net income of $107.7 million~~the higher volume and a 17.0% increase in ASP on orders. Order cancellation rates remained stable at 10% for the ~~nine months ended September 30, 2017~~first quarter of 2022, compared to ~~$97.7 million~~11% for the prior year period. We ended the first quarter of 2022 with 6,695 homes in ~~2016.~~

Onbacklog valued at $3.0 billion, a ~~consolidated basis, we experienced year over year growth in closings and orders, both~~27.8% increase in units and a 45.9% increase in value over March 31, 2021.

We remained steadfast in reaching our goals for community count growth, opening 32 new communities during the three ~~and nine~~ months ended ~~September 30, 2017. We~~March 31, 2022 and ending the quarter with 268 active communities, up from 203 at March 31, 2021 and sequentially from 259 at December 31, 2021. In addition, we purchased approximately 4,400 lots for $149.4 million, spent $222.1 million on land development and started construction on 4,020 homes during the three months ended the third quarter of 2017 with 3,333 homes in backlog, 2.5% higher than 2016 providing a backlog value of $1.4 billion, a 2.4% increase over September 30, 2016. The slight growth in year over year backlog is primarily the result of the increase in the number of average communities at September 30, 2017 compared to prior year combined with consistent year-over-year orders pace.March 31, 2022.

Company Positioning

We believe that the investments in our new communities ~~particularly those~~ designed for the first-time 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, and industry-leading innovation in energy-efficient product offerings and automation create a differentiated strategy that has aided us in our growth in the highly competitive new home market. ~~We remain focused on our main goals of growing our orders, revenue and profit, and maintaining a strong balance sheet. To help meet these goals, we continue to~~

Our focus onincludes the following ~~initiatives:~~strategies:

~~Continuing~~•Expanding our community count and market share;

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

•Simplifying our production process to ~~actively acquire~~allow us to more efficiently build our homes and ~~develop land~~reduce our construction costs, which in ~~key markets in~~turn allows us to competitively price our homes and deliver them on a shorter timeline;

•Improving our home closing gross profit by growing closing volume, allowing us to better leverage our overhead;

•Leveraging and expanding on technological solutions through digital offerings to our customers, such as our virtual home tours, interactive maps, digital financial services offerings and online warranty portal; and

•Increasing homeowner satisfaction by setting industry standards for energy-efficiency and offering healthier, safer homes that come equipped with standard features such as multi-speed HVAC systems to save energy and improve air quality and enhanced security features.

In order to maintain ~~and grow~~focus on growing our ~~lot supply and active community count;~~business, we also remain committed to the following:

~~Expanding the number of 'entry-level plus' communities that target the growing first-time homebuyer segment;~~

~~Introducing newly designed plan offerings to meet homebuyers changing preferences in our markets, most recently an entire new product library in our East Region;~~

~~Expanding market share in our smaller markets;~~

•Managing construction efficiencies and ~~cost increases~~costs through national and regional vendor relationships with a focus on quality construction and warranty management;

~~Growing revenue while~~•Carefully managing ~~costs, allowing us~~our liquidity and a strong balance sheet; we ended the quarter with a 26.9% debt-to-capital ratio and a 16.9% net debt-to-capital ratio;

•Maximizing returns to ~~improve overhead operating leverage;~~

~~Generating additional working capital and maintaining adequate liquidity,~~our shareholders, most recently through our improved financial performance and share repurchase program;

•Achieving or maintaining a ~~$300 million senior note debt issuance, the pay-off~~position of at least 5% market share in all of our ~~Convertible Notes,~~markets;

•Promoting a positive environment for our employees through our commitment to foster diversity, equity and ~~expansion of~~inclusion ("DE&I") and providing market-competitive benefits in order to develop and motivate our ~~Credit Facility capacity;~~employees and to minimize turnover and to maximize recruitment efforts;

~~Increasing~~•Maintaining a healthy orders pace through the use of our consumer and market research to ensure that we build homes that offer our buyers their desired features and ~~amenities;~~


•	~~Continuing to innovate and promote our energy efficiency program and our recently announced M. Connected~~^TM ~~Automation Suite to drive sales;~~

~~Adapting sales and marketing efforts to increase traffic and allow us to favorably compete with both resale and new homes;~~

~~Actively monitoring and adjusting~~amenities, although currently our sales ~~construction~~metering due to supply chain constraints is impacting our pace; and ~~closing processes~~

•Continuing to ~~incorporate enhancements identified through customer satisfaction surveys;~~innovate and promote our energy efficiency program and our M.Connected® Automation Suite to create differentiation for the Meritage brand.

~~Promoting a positive environment for our employees in order to develop and motivate them and to minimize turnover.~~

Critical Accounting ~~Policies~~Estimates

The critical accounting ~~policies~~estimates that we deem ~~most critical~~ to ~~us and that~~ involve the most difficult, subjective or complex judgments include ~~revenue recognition,~~ valuation of real estate ~~goodwill,~~and cost of home closings, warranty reserves and valuation of deferred tax ~~assets and warranty reserves as well as the calculation of compensation cost relating to share-based payments.~~assets. There have been no significant changes to our critical accounting ~~policies~~estimates during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our ~~2016~~2021 Annual Report on Form 10-K.

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.~~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 March 31,				Quarter over Quarter
	2022		2021		Change $		Change %
Home Closing Revenue
Total
Dollars	$	1,245,456	$	1,079,982	$	165,474	15.3	%
Homes closed	2,858		2,890		(32)		(1.1)	%
Average sales price	$	435.8	$	373.7	$	62.1	16.6	%
West Region
Arizona
Dollars	$	198,095	$	137,268	$	60,827	44.3	%
Homes closed	458		410		48		11.7	%
Average sales price	$	432.5	$	334.8	$	97.7	29.2	%
California
Dollars	$	187,410	$	171,899	$	15,511	9.0	%
Homes closed	275		277		(2)		(0.7)	%
Average sales price	$	681.5	$	620.6	$	60.9	9.8	%
Colorado
Dollars	$	77,919	$	84,263	$	(6,344)	(7.5)	%
Homes closed	131		175		(44)		(25.1)	%
Average sales price	$	594.8	$	481.5	$	113.3	23.5	%
West Region Totals
Dollars	$	463,424	$	393,430	$	69,994	17.8	%
Homes closed	864		862		2		0.2	%
Average sales price	$	536.4	$	456.4	$	80.0	17.5	%
Central Region - Texas
Central Region Totals
Dollars	$	347,828	$	318,385	$	29,443	9.2	%
Homes closed	873		963		(90)		(9.3)	%
Average sales price	$	398.4	$	330.6	$	67.8	20.5	%
East Region
Florida
Dollars	$	168,075	$	140,828	$	27,247	19.3	%
Homes closed	438		417		21		5.0	%
Average sales price	$	383.7	$	337.7	$	46.0	13.6	%
Georgia
Dollars	$	56,434	$	55,139	$	1,295	2.3	%
Homes closed	127		146		(19)		(13.0)	%
Average sales price	$	444.4	$	377.7	$	66.7	17.7	%
North Carolina
Dollars	$	119,004	$	107,013	$	11,991	11.2	%
Homes closed	297		299		(2)		(0.7)	%
Average sales price	$	400.7	$	357.9	$	42.8	12.0	%
South Carolina
Dollars	$	39,713	$	27,846	$	11,867	42.6	%
Homes closed	121		85		36		42.4	%
Average sales price	$	328.2	$	327.6	$	0.6	0.2	%
Tennessee
Dollars	$	50,978	$	37,341	$	13,637	36.5	%
Homes closed	138		118		20		16.9	%
Average sales price	$	369.4	$	316.4	$	53.0	16.8	%
East Region Totals
Dollars	$	434,204	$	368,167	$	66,037	17.9	%
Homes closed	1,121		1,065		56		5.3	%
Average sales price	$	387.3	$	345.7	$	41.6	12.0	%


											Three Months Ended March 31,				Quarter over Quarter
	Three Months Ended September 30,				Quarter over Quarter						2022		2021		Change $		Change %
	2017		2016		Change $			Change %
Home Closing Revenue
Home Orders (1)										Home Orders (1)
Total										Total
Dollars	$	805,008	$	735,870	$	69,138		9.4	%	Dollars	$	1,767,710	$	1,349,130	$	418,580	31.0	%
Homes closed	1,969		1,800		169			9.4	%
Homes ordered										Homes ordered	3,874		3,458		416		12.0	%
Average sales price	$	408.8	$	408.8	$	—		—	%	Average sales price	$	456.3	$	390.1	$	66.2	17.0	%
West Region										West Region
Arizona										Arizona
Dollars	$	141,249	$	89,092	$	52,157		58.5	%	Dollars	$	240,007	$	222,435	$	17,572	7.9	%
Homes closed	424		253		171			67.6	%
Homes ordered										Homes ordered	550		602		(52)		(8.6)	%
Average sales price	$	333.1	$	352.1	$	(19.0	)	(5.4	)%	Average sales price	$	436.4	$	369.5	$	66.9	18.1	%
California										California
Dollars	$	154,731	$	142,056	$	12,675		8.9	%	Dollars	$	247,343	$	173,391	$	73,952	42.7	%
Homes closed	261		251		10			4.0	%
Homes ordered										Homes ordered	346		286		60		21.0	%
Average sales price	$	592.8	$	566.0	$	26.9		4.7	%	Average sales price	$	714.9	$	606.3	$	108.6	17.9	%
Colorado										Colorado
Dollars	$	77,728	$	84,114	$	(6,386	)	(7.6	)%	Dollars	$	125,999	$	89,779	$	36,220	40.3	%
Homes closed	135		167		(32		)	(19.2	)%
Homes ordered										Homes ordered	209		169		40		23.7	%
Average sales price	$	575.8	$	503.7	$	72.1		14.3	%	Average sales price	$	602.9	$	531.2	$	71.7	13.5	%
West Region Totals										West Region Totals
Dollars	$	373,708	$	315,262	$	58,446		18.5	%	Dollars	$	613,349	$	485,605	$	127,744	26.3	%
Homes closed	820		671		149			22.2	%
Homes ordered										Homes ordered	1,105		1,057		48		4.5	%
Average sales price	$	455.7	$	469.8	$	(14.1	)	(3.0	)%	Average sales price	$	555.1	$	459.4	$	95.7	20.8	%
Central Region - Texas										Central Region - Texas
Central Region Totals										Central Region Totals
Dollars	$	236,759	$	199,499	$	37,260		18.7	%	Dollars	$	548,567	$	391,968	$	156,599	40.0	%
Homes closed	647		542		105			19.4	%
Homes ordered										Homes ordered	1,296		1,115		181		16.2	%
Average sales price	$	365.9	$	368.1	$	(2.1	)	(0.6	)%	Average sales price	$	423.3	$	351.5	$	71.8	20.4	%
East Region										East Region
Florida										Florida
Dollars	$	77,652	$	85,647	$	(7,995	)	(9.3	)%	Dollars	$	226,914	$	179,109	$	47,805	26.7	%
Homes closed	185		206		(21		)	(10.2	)%
Homes ordered										Homes ordered	572		479		93		19.4	%
Average sales price	$	419.7	$	415.8	$	4.0		1.0	%	Average sales price	$	396.7	$	373.9	$	22.8	6.1	%
Georgia										Georgia
Dollars	$	29,019	$	27,477	$	1,542		5.6	%	Dollars	$	100,891	$	61,557	$	39,334	63.9	%
Homes closed	95		83		12			14.5	%
Homes ordered										Homes ordered	220		164		56		34.1	%
Average sales price	$	305.5	$	331.0	$	(25.6	)	(7.7	)%	Average sales price	$	458.6	$	375.3	$	83.3	22.2	%
North Carolina										North Carolina
Dollars	$	48,129	$	71,641	$	(23,512	)	(32.8	)%	Dollars	$	163,008	$	157,687	$	5,321	3.4	%
Homes closed	107		177		(70		)	(39.5	)%
Homes ordered										Homes ordered	373		419		(46)		(11.0)	%
Average sales price	$	449.8	$	404.8	$	45.1		11.1	%	Average sales price	$	437.0	$	376.3	$	60.7	16.1	%
South Carolina										South Carolina
Dollars	$	25,164	$	22,658	$	2,506		11.1	%	Dollars	$	52,656	$	26,402	$	26,254	99.4	%
Homes closed	74		76		(2		)	(2.6	)%
Homes ordered										Homes ordered	154		76		78		102.6	%
Average sales price	$	340.1	$	298.1	$	41.9		14.1	%	Average sales price	$	341.9	$	347.4	$	(5.5)	(1.6)	%
Tennessee										Tennessee
Dollars	$	14,577	$	13,686	$	891		6.5	%	Dollars	$	62,325	$	46,802	$	15,523	33.2	%
Homes closed	41		45		(4		)	(8.9	)%
Homes ordered										Homes ordered	154		148		6		4.1	%
Average sales price	$	355.5	$	304.1	$	51.4		16.9	%	Average sales price	$	404.7	$	316.2	$	88.5	28.0	%
East Region Totals										East Region Totals
Dollars	$	194,541	$	221,109	$	(26,568	)	(12.0	)%	Dollars	$	605,794	$	471,557	$	134,237	28.5	%
Homes closed	502		587		(85		)	(14.5	)%
Homes ordered										Homes ordered	1,473		1,286		187		14.5	%
Average sales price	$	387.5	$	376.7	$	10.9		2.9	%	Average sales price	$	411.3	$	366.7	$	44.6	12.2	%

(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.

Nine Months Ended September 30, Quarter over Quarter
2017 2016 Chg $ Chg %
Home Closing Revenue
Total
Dollars $ 2,263,405
$ 2,127,332
$ 136,073
6.4 %
Homes closed 5,456
5,238
218
4.2 %
Average sales price $ 414.8
$ 406.1
$ 8.7
2.1 %
West Region
Arizona
Dollars $ 382,814
$ 258,139
$ 124,675
48.3 %
Homes closed 1,139
749
390
52.1 %
Average sales price $ 336.1
$ 344.6
$ (8.5 ) (2.5 )%
California
Dollars $ 427,095
$ 418,834
$ 8,261
2.0 %
Homes closed 702
738
(36 ) (4.9 )%
Average sales price $ 608.4
$ 567.5
$ 40.9
7.2 %
Colorado
Dollars $ 233,377
$ 231,913
$ 1,464
0.6 %
Homes closed 417
474
(57 ) (12.0 )%
Average sales price $ 559.7
$ 489.3
$ 70.4
14.4 %
West Region Totals
Dollars $ 1,043,286
$ 908,886
$ 134,400
14.8 %
Homes closed 2,258
1,961
297
15.1 %
Average sales price $ 462.0
$ 463.5
$ (1.4 ) (0.3 )%
Central Region - Texas
Central Region Totals
Dollars $ 637,147
$ 566,377
$ 70,770
12.5 %
Homes closed 1,752
1,563
189
12.1 %
Average sales price $ 363.7
$ 362.4
$ 1.3
0.4 %
East Region
Florida
Dollars $ 225,674
$ 252,311
$ (26,637 ) (10.6 )%
Homes closed 518
619
(101 ) (16.3 )%
Average sales price $ 435.7
$ 407.6
$ 28.1
6.9 %
Georgia
Dollars $ 74,860
$ 76,874
$ (2,014 ) (2.6 )%
Homes closed 223
229
(6 ) (2.6 )%
Average sales price $ 335.7
$ 335.7
$ —
0.0 %
North Carolina
Dollars $ 164,596
$ 198,525
$ (33,929 ) (17.1 )%
Homes closed 370
474
(104 ) (21.9 )%
Average sales price $ 444.9
$ 418.8
$ 26.0
6.2 %
South Carolina
Dollars $ 75,085
$ 71,577
$ 3,508
4.9 %
Homes closed 217
231
(14 ) (6.1 )%
Average sales price $ 346.0
$ 309.9
$ 36.2
11.7 %
Tennessee
Dollars $ 42,757
$ 52,782
$ (10,025 ) (19.0 )%
Homes closed 118
161
(43 ) (26.7 )%
Average sales price $ 362.3
$ 327.8
$ 34.5
10.5 %
East Region Totals
Dollars $ 582,972
$ 652,069
$ (69,097 ) (10.6 )%
Homes closed 1,446
1,714
(268 ) (15.6 )%
Average sales price $ 403.2
$ 380.4
$ 22.7
6.0 %


	Three Months Ended March 31,
	2022		2021
	Ending	Average	Ending	Average
Active Communities
Total	268	263.5	203	199.0
West Region
Arizona	40	39.5	33	33.0
California	23	22.5	19	17.5
Colorado	18	17.5	12	11.5
West Region Totals	81	79.5	64	62.0
Central Region - Texas
Central Region Totals	75	74.0	59	61.0
East Region
Florida	41	41.0	30	30.5
Georgia	15	15.0	12	9.5
North Carolina	29	27.5	24	22.5
South Carolina	13	13.5	6	6.0
Tennessee	14	13.0	8	7.5
East Region Totals	112	110.0	80	76.0


	Three Months Ended March 31,
	2022		2021
Cancellation Rates (1)
Total	10	%	11	%
West Region
Arizona	12	%	10	%
California	12	%	13	%
Colorado	9	%	11	%
West Region Totals	12	%	11	%
Central Region - Texas
Central Region Totals	11	%	11	%
East Region
Florida	4	%	11	%
Georgia	12	%	14	%
North Carolina	7	%	8	%
South Carolina	11	%	17	%
Tennessee	4	%	9	%
East Region Totals	7	%	10	%

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

Three Months Ended September 30, Quarter over Quarter
2017 2016 Change $ Change %
Home Orders ⁽¹⁾

Total
Dollars $ 765,027
$ 715,562
$ 49,465
6.9 %
Homes ordered 1,874
1,737
137
7.9 %
Average sales price $ 408.2
$ 412.0
$ (3.7 ) (0.9 )%
West Region
Arizona
Dollars $ 116,757
$ 116,815
$ (58 ) 0.0 %
Homes ordered 348
345
3
0.9 %
Average sales price $ 335.5
$ 338.6
$ (3.1 ) (0.9 )%
California
Dollars $ 124,339
$ 125,920
$ (1,581 ) (1.3 )%
Homes ordered 200
216
(16 ) (7.4 )%
Average sales price $ 621.7
$ 583.0
$ 38.7
6.6 %
Colorado
Dollars $ 55,459
$ 66,213
$ (10,754 ) (16.2 )%
Homes ordered 92
121
(29 ) (24.0 )%
Average sales price $ 602.8
$ 547.2
$ 55.6
10.2 %
West Region Totals
Dollars $ 296,555
$ 308,948
$ (12,393 ) (4.0 )%
Homes ordered 640
682
(42 ) (6.2 )%
Average sales price $ 463.4
$ 453.0
$ 10.4
2.3 %
Central Region - Texas
Central Region Totals
Dollars $ 213,241
$ 178,934
$ 34,307
19.2 %
Homes ordered 593
488
105
21.5 %
Average sales price $ 359.6
$ 366.7
$ (7.1 ) (1.9 )%
East Region
Florida
Dollars $ 120,243
$ 95,946
$ 24,297
25.3 %
Homes ordered 269
208
61
29.3 %
Average sales price $ 447.0
$ 461.3
$ (14.3 ) (3.1 )%
Georgia
Dollars $ 33,039
$ 28,841
$ 4,198
14.6 %
Homes ordered 102
85
17
20.0 %
Average sales price $ 323.9
$ 339.3
$ (15.4 ) (4.5 )%
North Carolina
Dollars $ 59,976
$ 61,537
$ (1,561 ) (2.5 )%
Homes ordered 147
149
(2 ) (1.3 )%
Average sales price $ 408.0
$ 413.0
$ (5.0 ) (1.2 )%
South Carolina
Dollars $ 28,449
$ 22,434
$ 6,015
26.8 %
Homes ordered 86
71
15
21.1 %
Average sales price $ 330.8
$ 316.0
$ 14.8
4.7 %
Tennessee
Dollars $ 13,524
$ 18,922
$ (5,398 ) (28.5 )%
Homes ordered 37
54
(17 ) (31.5 )%
Average sales price $ 365.5
$ 350.4
$ 15.1
4.3 %
East Region Totals
Dollars $ 255,231
$ 227,680
$ 27,551
12.1 %
Homes ordered 641
567
74
13.1 %
Average sales price $ 398.2
$ 401.6
$ (3.4 ) (0.8 )%


~~(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 as a sales contract until the contingency is removed.


	At March 31,				Quarter over Quarter
	2022		2021		Change $		Change %
Order Backlog (1)
Total
Dollars	$	3,038,927	$	2,082,259	$	956,668	45.9	%
Homes in backlog	6,695		5,240		1,455		27.8	%
Average sales price	$	453.9	$	397.4	$	56.5	14.2	%
West Region
Arizona
Dollars	$	535,586	$	429,171	$	106,415	24.8	%
Homes in backlog	1,237		1,185		52		4.4	%
Average sales price	$	433.0	$	362.2	$	70.8	19.5	%
California
Dollars	$	331,321	$	276,202	$	55,119	20.0	%
Homes in backlog	464		453		11		2.4	%
Average sales price	$	714.1	$	609.7	$	104.4	17.1	%
Colorado
Dollars	$	246,932	$	110,279	$	136,653	123.9	%
Homes in backlog	406		202		204		101.0	%
Average sales price	$	608.2	$	545.9	$	62.3	11.4	%
West Region Totals
Dollars	$	1,113,839	$	815,652	$	298,187	36.6	%
Homes in backlog	2,107		1,840		267		14.5	%
Average sales price	$	528.6	$	443.3	$	85.3	19.2	%
Central Region - Texas
Central Region Totals
Dollars	$	973,828	$	645,959	$	327,869	50.8	%
Homes in backlog	2,301		1,782		519		29.1	%
Average sales price	$	423.2	$	362.5	$	60.7	16.7	%
East Region
Florida
Dollars	$	411,478	$	253,188	$	158,290	62.5	%
Homes in backlog	1,002		612		390		63.7	%
Average sales price	$	410.7	$	413.7	$	(3.0)	(0.7)	%
Georgia
Dollars	$	136,266	$	64,355	$	71,911	111.7	%
Homes in backlog	296		174		122		70.1	%
Average sales price	$	460.4	$	369.9	$	90.5	24.5	%
North Carolina
Dollars	$	269,898	$	214,079	$	55,819	26.1	%
Homes in backlog	641		574		67		11.7	%
Average sales price	$	421.1	$	373.0	$	48.1	12.9	%
South Carolina
Dollars	$	57,643	$	39,785	$	17,858	44.9	%
Homes in backlog	166		111		55		49.5	%
Average sales price	$	347.2	$	358.4	$	(11.2)	(3.1)	%
Tennessee
Dollars	$	75,975	$	49,241	$	26,734	54.3	%
Homes in backlog	182		147		35		23.8	%
Average sales price	$	417.4	$	335.0	$	82.4	24.6	%
East Region Totals
Dollars	$	951,260	$	620,648	$	330,612	53.3	%
Homes in backlog	2,287		1,618		669		41.3	%
Average sales price	$	415.9	$	383.6	$	32.3	8.4	%

(1)Our backlog represents net sales that have not closed.

Nine Months Ended September 30, Quarter over Quarter
2017 2016 Chg $ Chg %
Home Orders ⁽¹⁾

Total
Dollars $ 2,536,448
$ 2,365,508
$ 170,940
7.2 %
Homes ordered 6,162
5,797
365
6.3 %
Average sales price $ 411.6
$ 408.1
$ 3.6
0.9 %
West Region
Arizona
Dollars $ 380,459
$ 322,807
$ 57,652
17.9 %
Homes ordered 1,148
935
213
22.8 %
Average sales price $ 331.4
$ 345.2
$ (13.8 ) (4.0 )%
California
Dollars $ 480,694
$ 442,863
$ 37,831
8.5 %
Homes ordered 802
775
27
3.5 %
Average sales price $ 599.4
$ 571.4
$ 27.9
4.9 %
Colorado
Dollars $ 214,532
$ 237,237
$ (22,705 ) (9.6 )%
Homes ordered 368
459
(91 ) (19.8 )%
Average sales price $ 583.0
$ 516.9
$ 66.1
12.8 %
West Region Totals
Dollars $ 1,075,685
$ 1,002,907
$ 72,778
7.3 %
Homes ordered 2,318
2,169
149
6.9 %
Average sales price $ 464.1
$ 462.4
$ 1.7
0.4 %
Central Region - Texas
Central Region Totals
Dollars $ 719,656
$ 597,947
$ 121,709
20.4 %
Homes ordered 2,000
1,629
371
22.8 %
Average sales price $ 359.8
$ 367.1
$ (7.2 ) (2.0 )%
East Region
Florida
Dollars $ 342,754
$ 295,453
$ 47,301
16.0 %
Homes ordered 791
702
89
12.7 %
Average sales price $ 433.3
$ 420.9
$ 12.4
2.9 %
Georgia
Dollars $ 88,306
$ 102,392
$ (14,086 ) (13.8 )%
Homes ordered 270
305
(35 ) (11.5 )%
Average sales price $ 327.1
$ 335.7
$ (8.7 ) (2.6 )%
North Carolina
Dollars $ 187,683
$ 205,562
$ (17,879 ) (8.7 )%
Homes ordered 440
497
(57 ) (11.5 )%
Average sales price $ 426.6
$ 413.6
$ 12.9
3.1 %
South Carolina
Dollars $ 76,827
$ 95,123
$ (18,296 ) (19.2 )%
Homes ordered 224
296
(72 ) (24.3 )%
Average sales price $ 343.0
$ 321.4
$ 21.6
6.7 %
Tennessee
Dollars $ 45,537
$ 66,124
$ (20,587 ) (31.1 )%
Homes ordered 119
199
(80 ) (40.2 )%
Average sales price $ 382.7
$ 332.3
$ 50.4
15.2 %
East Region Totals
Dollars $ 741,107
$ 764,654
$ (23,547 ) (3.1 )%
Homes ordered 1,844
1,999
(155 ) (7.8 )%
Average sales price $ 401.9
$ 382.5
$ 19.4
5.1 %

Three Months Ended September 30,
2017 2016
Ending Average Ending Average
Active Communities
Total 250 253.5 237
239.0
West Region
Arizona 40 39.5 40
41.5
California 24 25.0 29
27.0
Colorado 9 9.5 10
11.0
West Region Totals 73 74.0 79
79.5
Central Region - Texas
Central Region Totals 93 92.5 74
73.5
East Region
Florida 29 29.5 26
26.0
Georgia 17 18.0 17
17.0
North Carolina 18 19.0 19
20.5
South Carolina 14 14.0 15
15.5
Tennessee 6 6.5 7
7.0
East Region Totals 84 87.0 84
86.0

Nine Months Ended September 30,
2017 2016
Ending Average Ending Average
Active Communities

Total 250 246.5 237
245.5
West Region

Arizona 40 41.0 40
40.5
California 24 26.0 29
26.5
Colorado 9 9.5 10
13.0
West Region Totals 73 76.5 79
80.0
Central Region - Texas

Central Region Totals 93 86.5 74
73.0
East Region

Florida 29 28.0 26
28.5
Georgia 17 17.0 17
17.0
North Carolina 18 17.5 19
22.5
South Carolina 14 14.5 15
16.5
Tennessee 6 6.5 7
8.0
East Region Totals 84 83.5 84
92.5

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Cancellation Rates ⁽¹⁾

Total 13 % 14 % 13 % 12 %
West Region
Arizona 12 % 12 % 12 % 12 %
California 19 % 19 % 14 % 13 %
Colorado 8 % 13 % 10 % 10 %
West Region Totals 14 % 14 % 13 % 12 %
Central Region - Texas
Central Region Totals 14 % 16 % 14 % 15 %
East Region
Florida 9 % 13 % 11 % 11 %
Georgia 12 % 12 % 16 % 13 %
North Carolina 8 % 10 % 8 % 8 %
South Carolina 11 % 15 % 11 % 8 %
Tennessee 14 % 7 % 13 % 8 %
East Region Totals 10 % 12 % 11 % 10 %


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

At September 30, Quarter over Quarter
2017 2016 Change $ Change %
Order Backlog ⁽¹⁾

Total
Dollars $ 1,408,801
$ 1,375,857
$ 32,944
2.4 %
Homes in backlog 3,333
3,251
82
2.5 %
Average sales price $ 422.7
$ 423.2
$ (0.5 ) (0.1 )%
West Region
Arizona
Dollars $ 158,988
$ 182,574
$ (23,586 ) (12.9 )%
Homes in backlog 453
503
(50 ) (9.9 )%
Average sales price $ 351.0
$ 363.0
$ (12.0 ) (3.3 )%
California
Dollars $ 207,237
$ 208,175
$ (938 ) (0.5 )%
Homes in backlog 331
326
5
1.5 %
Average sales price $ 626.1
$ 638.6
$ (12.5 ) (2.0 )%
Colorado
Dollars $ 135,239
$ 167,475
$ (32,236 ) (19.2 )%
Homes in backlog 224
317
(93 ) (29.3 )%
Average sales price $ 603.7
$ 528.3
$ 75.4
14.3 %
West Region Totals
Dollars $ 501,464
$ 558,224
$ (56,760 ) (10.2 )%
Homes in backlog 1,008
1,146
(138 ) (12.0 )%
Average sales price $ 497.5
$ 487.1
$ 10.4
2.1 %
Central Region - Texas
Central Region Totals
Dollars $ 437,243
$ 381,764
$ 55,479
14.5 %
Homes in backlog 1,179
1,008
171
17.0 %
Average sales price $ 370.9
$ 378.7
$ (7.9 ) (2.1 )%
East Region
Florida
Dollars $ 233,534
$ 161,148
$ 72,386
44.9 %
Homes in backlog 526
370
156
42.2 %
Average sales price $ 444.0
$ 435.5
$ 8.4
1.9 %
Georgia
Dollars $ 46,809
$ 58,944
$ (12,135 ) (20.6 )%
Homes in backlog 138
171
(33 ) (19.3 )%
Average sales price $ 339.2
$ 344.7
$ (5.5 ) (1.6 )%
North Carolina
Dollars $ 110,339
$ 118,515
$ (8,176 ) (6.9 )%
Homes in backlog 263
283
(20 ) (7.1 )%
Average sales price $ 419.5
$ 418.8
$ 0.8
0.2 %
South Carolina
Dollars $ 42,378
$ 53,657
$ (11,279 ) (21.0 )%
Homes in backlog 123
153
(30 ) (19.6 )%
Average sales price $ 344.5
$ 350.7
$ (6.2 ) (1.8 )%
Tennessee
Dollars $ 37,034
$ 43,605
$ (6,571 ) (15.1 )%
Homes in backlog 96
120
(24 ) (20.0 )%
Average sales price $ 385.8
$ 363.4
$ 22.4
6.2 %
East Region Totals
Dollars $ 470,094
$ 435,869
$ 34,225
7.9 %
Homes in backlog 1,146
1,097
49
4.5 %
Average sales price $ 410.2
$ 397.3
$ 12.9
3.2 %


~~(1)~~	~~Our backlog represents net sales that have not closed.~~

Operating Results

Companywide. ~~Home~~In the first quarter of 2022, home closing revenue ~~increased by 9.4%~~improved 15.3% to ~~$805.0 million~~$1.2 billion on ~~1,969~~2,858 closings ~~for the three months ended September 30, 2017~~ compared to ~~$735.9 million from 1,800~~$1.1 billion on 2,890 closings ~~during~~in the ~~same~~first quarter of ~~the prior year,~~2021. The increase in home closing revenue year-over-year was driven entirely by ~~increased~~the 16.6% increase in ASP on closings, as closing ~~volume. Average sales prices on~~volume declined marginally by 1.1% due to elongated construction cycle times. We achieved our highest quarterly home ~~closings were consistent with the prior year, as price increases in some markets are being fully offset by a higher percentage~~orders of ~~entry-level~~3,874 homes ~~in our closing mix. Home orders also improved year-over-year, with order value growing by 6.9% to $765.0 million on 1,874 homes~~valued at $1.8 billion in the ~~third~~first quarter of ~~2017~~2022 as compared to ~~$715.6 million on 1,737~~3,458 homes valued at $1.3 billion in the ~~third~~first quarter of ~~2016.~~2021. The higher order volume is due to a 32.4% increase in average active communities, while orders pace declined 15.5% to 4.9 per month, down from 5.8 in the first quarter of 2021 which was one of the highest quarterly orders paces in Company history. As a result of the increased construction cycle time caused by supply-chain and labor constraints, we continued to meter orders in the first quarter of 2022 to align our orders and starts with production capacity. Home order value increased 31.0% year-over-year, the combined result of higher volumes and rising ASP as we experienced pricing power driven by buyer demand. We ended the quarter with ~~250~~268 actively selling communities, ~~a 5.5% improvement over prior year~~up from 203 at March 31, 2021. We ended the first quarter of 2022 with 6,695 homes in backlog valued at $3.0 billion, up from 5,240 homes valued at $2.1 billion at March 31, 2021. The year-over-year increases in backlog are the direct result of the favorable order volumes and ~~maintained a~~pricing. Order cancellations were relatively flat ~~company-wide orders pace~~at 10% for the first three months of ~~7.4 homes ordered per average community~~2022, as compared to 11% during the three month period in 2021, a further indication of strong demand in the ~~third~~market.

West. The West Region closed 864 homes in the first quarter of ~~2017 compared to 7.3~~2022, relatively flat with the 862 homes closed in 2021. Despite the ~~comparable 2016 quarter. For~~flat volume, the ~~nine months ended September 30, 2017, home closing units and revenue grew by 218 units and $136.1 million for total~~Region improved home closing revenue 17.8% to $463.4 million resulting from an $80,000 increase in ASP due to sustained increases over the past few quarters from strong market demand. Orders and order value in the first quarter of ~~$2.3 billion, 6.4% higher than the nine month period in 2016. Orders for the nine months ended September 30, 2017~~2022 of 1,105 homes valued at $613.3 million were up ~~6.3%~~ from 1,057 homes valued at $485.6 million in the ~~prior year resulting~~2021 period. The 4.5% higher order volume was due to a 28.2% increase in average community count, partially offset by an 19.3% decrease in orders pace year-over-year. As a result of our intentional choice to meter orders as previously discussed, orders pace decreased to 4.6 per month in the first quarter of 2022, versus 5.7 in 2021. The West Region had the Company's highest increase in ASP on orders of $95,700, or 20.8%, combined with the increase in volume resulted in a 26.3% increase in order ~~value of $2.5 billion, a 7.2% increase from the 2016 period. We~~value. The West Region ended the first quarter of 2022 with ~~3,333~~2,107 homes in backlog reflecting a $32.9 million, or 2.4%, increase from 2016 driven entirely by volume as average sales prices are beginning to temper as we shift toward a higher percentage of backlog from entry-level homes.

~~West~~. During the three months ended September 30, 2017, the West region led the company in home closing units and revenue in addition to contributing the largest growth in closing volume year over year. Home closing revenue rose 18.5% over the 2016 period, due to a 22.2% increase in homes closed partially offset by a slight decline in average sales prices, resulting in 820 closings valued at ~~$373.7 million for the three months ended September 30, 2017. Average community count in the West region was down 6.9%, although orders pace was consistent at 8.6, resulting in order~~$1.1 billion, up from 1,840 units ~~and value declining by 6.2% and 4.0%, respectively. The region ended the third quarter of 2017 with 640 orders~~ valued at ~~$296.6~~$815.7 million at March 31, 2021, increases of 14.5% and a 2.3% increase in average sales prices. Average sales prices in the Region are starting to temper as Arizona is contributing a larger percentage to the Region's results and is shifting to a higher number of lower priced, faster selling communities aimed to first-time buyers. Strong demand is evident in all markets in the region where our orders pace continues to outpace the rest of the company. As a result, communities are selling out faster than anticipated. We are actively working to open additional communities throughout the region and we anticipate over forty new community openings in the next twelve months, with over half of those targeted toward the first-time homebuyer where we are experiencing particularly strong demand.36.6%, respectively.

For the nine months ended September 30, 2017, similar to the third quarter results, the number and value of units closed versus prior year improved by 15.1% and 14.8%, respectively, driven by significant growth in Arizona. Orders in Arizona were also the driver for the Region's 6.9% higher orders year to date. The Region ended the nine-month period with overall growth in order value of $72.8 million on 149 additional units and ending backlog of $501.5 million on 1,008 units.

Central. In the ~~third~~first quarter of ~~2017,~~2022, the Central Region ~~made up of our Texas markets,~~ closed ~~647~~873 homes and generated ~~$236.8~~$347.8 million in home closing revenue, improvements of 19.4% and 18.7%, respectively, leading to year over year home closing revenue growth of $37.3 million despite some delays in deliveries and construction cycle times from the hurricane that impacted the Houston market. Orders grew by 21.5% to a total of 593 units valued at $213.2 million at September 30, 2017 as compared to ~~488 units valued~~963 homes at ~~$178.9~~$318.4 million in the ~~prior year. We continue to see improved demand trends in the Central Region, evidenced by the rising orders in the third~~first quarter of ~~2017 aided~~2021. The 9.3% decrease in closings was more than offset by 20.5% higher ASP to achieve a ~~25.9%~~9.2% increase in average communities. Third quarter orders pace dipped slightly partially due to sales office closures from the hurricane and related flooding. We are responding to the entry-level demand in this Region with a strong transition to first-time buyer product offerings, as evidenced in the marginally decreasing average sales prices year over year on both closings and orders.

~~Year-to-date saw overall improvements in the Region as well. Home closings and~~ home closing ~~revenue results were similar to the third quarter with increases of 12.1% and 12.5%, respectively, compared to prior year. Orders~~revenue. Both orders and order value ~~were up year over year by 22.8% and 20.4%, respectively, aided by a 18.5%~~improved year-over-year, with 1,296 homes ordered at $548.6 million in the first quarter of 2022, compared to 1,115 homes valued at $392.0 million in 2021. Order volume grew 16.2% due to the Region's 21.3% increase in average active communities, ~~and~~partially offset by a ~~3.6%~~4.9% decrease in orders pace to 5.8 per month in the first quarter of 2022, down slightly from 6.1 in 2021. With the Company's largest Regional increase in ~~orders pace.~~order volume of 16.2% and pricing power that drove ASP up by 20.4%, home order value improved 40.0% in the first quarter of 2022. The Central Region ended the first quarter of 2022 with ~~1,179~~2,301 homes in backlog valued at ~~$437.2~~$973.8 million, ~~17.0% and 14.5% improvements, respectively.~~up from 1,782 units valued at $646.0 million at March 31, 2021.

East. ~~Our~~The East ~~region generated 502~~Region delivered 1,121 closings and ~~$194.5~~$434.2 million in home closing revenue during the first quarter of 2022, compared to 1,065 closings and $368.2 million in home closing revenue in the ~~third~~comparable prior year period, improvements of 5.3% and 17.9%, respectively. Orders and order value in the East Region grew by 14.5% and 28.5%, respectively, for the first quarter of ~~2017, declines of 14.5% and 12.0%, respectively, from~~2022 with 1,473 units valued at $605.8 million compared to 1,286 units valued at $471.6 million in the prior ~~year.~~year period. The ~~decline in closing volume was partially offset with~~higher orders is due to a ~~2.9% or $10,900~~44.7% increase in average ~~sales price, as nearly all markets~~active communities, the largest Regional increase in the ~~Region experienced higher average sales prices on their third quarter closings versus prior year. Order volume increased by 13.1% compared to prior year~~Company, which ~~led to~~more than offset a 12.1% increase in order value, ending the third quarter of 2017 with 641 units valued at $255.2 million. New community openings in high-demand sub-markets is a strategic focus for us in the East Region. We held back some community openings until the roll-out of our new product offering throughout the majority of the region which impacted orders in the first several months of the year and accordingly third quarter closings. While certain markets have seen community count growth thus far, we still have a significant number of additional new communities anticipated to open in the next several months in the region. In the third quarter of 2017, orders pace in the East region improved by 12.1% which we believe demonstrates the desirability of our updated plan offerings in newer community locations. Both closing and order volumes in the third quarter of 2017 were impacted by the hurricane-related delays as sales offices in certain areas of Florida were closed for several weeks and construction cycle times have been slowed due primarily to utility and municipal delays in the area.

The year-to-date closing results of the East Region were similar to those of the third quarter, with 1,446 units closed, providing $583.0 million in home closing revenue, 15.6% and 10.6% lower than the 2016 period, respectively. The region ended the nine month period of 2017 with a 7.8%19.6% year-over-year decrease in orders ~~and a 3.1% decrease in order value~~pace to 4.5 per month compared to the prior year ~~attributable to a 9.7% decline in average communities related to~~order pace of 5.6. The East Region ended the ~~delay in community openings pending the introduction of our new product offering. Similar to the third~~first quarter of ~~2017, year-to-date orders pace improved by 2.3% over the comparable 2016 period. Backlog units and value improved in the region by 4.5% and 7.9%, respectively, to end the quarter~~2022 with ~~1,146 units~~2,287 homes in backlog valued at ~~$470.1 million.~~$951.3 million, up from 1,618 units valued at $620.6 million at March 31, 2021.

Land Closing Revenue and Gross 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~~a specific ~~geography.~~geography, particularly with assets that no longer align with our strategy. As a result of such sales, we recognized land closing revenue of ~~$0.6~~$41.5 million and ~~$17.0~~$3.8 million for the three months ending ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively, and ~~$16.9~~profits of $10.8 million and ~~$21.2 million for the nine months ended September 30, 2017 and 2016, respectively. We recognized a loss of $1.1~~$0.5 million for the three months ended September 30, 2017 compared to a nominal profit of $0.9 million in the third quarter of the prior year. For the nine months ended September 30, both periods recognized land closing gross profits of $1.4 millionMarch 31, 2022 and ~~$1.7 million,~~2021, respectively.

Other Operating Information (dollars in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue Dollars Percent of Home Closing Revenue
Home Closing Gross Profit ⁽¹⁾

Total $ 145,658
18.1 % $ 130,979
17.8 % $ 393,836
17.4 % $ 372,072
17.5 %

West $ 67,225
18.0 % $ 56,381
17.9 % $ 181,692
17.4 % $ 156,879
17.3 %

Central $ 49,746

21.0 % $ 39,546
19.8 % $ 128,878
20.2 % $ 112,664
19.9 %

East $ 28,687
14.7 % $ 35,052
15.9 % $ 83,266
14.3 % $ 102,529
15.7 %


	Three Months Ended March 31,
	2022				2021
	Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue
Home Closing Gross Profit (1)
Total	$	377,649	30.3	%	$	266,655	24.7	%

West	$	143,759	31.0	%	$	97,057	24.7	%

Central	$	104,405	30.0	%	$	85,373	26.8	%

East	$	129,485	29.8	%	$	84,225	22.9	%

~~(1)~~

Home closing gross profit represents home closing revenue less cost of home closings, including impairments. Cost of home closings includes land and lot 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.

(1)Home closing gross profit represents home closing revenue less cost of home closings, including impairments, if any. Cost of home closings includes land and lot development costs, direct home construction costs, an allocation of common community costs (such as architectural, legal and zoning costs), interest, sales tax, impact fees, warranty, construction overhead and closing costs.

Companywide. Home closing gross margin for the ~~third~~first quarter of ~~2017 increased by 30~~2022 improved 560 basis points ~~over~~to 30.3% compared to 24.7% in the ~~prior year, combined with higher~~first quarter of 2021. The improvement in home closing gross margin is largely attributable to pricing power fueled by the sustained strong buyer demand and low supply of available homes, allowing ASPs on home closings to accelerate at a greater pace than both direct costs and lot costs. In addition, cost of home closings in the first three months of 2022 benefited from lower interest cost, the result of the lower interest rates from our debt refinancing transactions in recent years. Higher home closing revenue ~~resulted in~~combined with the margin improvement led to a ~~$14.7~~$111.0 million increase in home closing gross ~~profit. With improved demand and pricing power, we have been successful in some markets in minimizing~~profit of $377.6 million for the ~~impact of rising costs and improving our leverage of construction overhead costs on increased revenues.Charges incurred on asset write-offs in the third quarter of 2017 of approximately $1.8 million impacted gross margin by 20 basis points as~~three months ended March 31, 2022, compared to ~~the third quarter of 2016 with a~~

~~10 basis point impact on home closing gross margin. Home closing gross margin has improved sequentially throughout 2017. Accordingly, combined with higher home closing revenue,~~$266.7 million for the ~~nine~~three months ended ~~September 30, 2017 home closing gross profit increased by $21.8 million over the 2016 period with margins of 17.4% in 2017 compared to 17.5% in 2016.~~March 31, 2021.

West. ~~Our~~The West Region reported slightly higher year-over-year home closing gross margin for the third quarter of 2017 of 18.0% compared to 17.9% in 2016, and 17.4% versus 17.3% for the nine months ended September 30, 2017 and 2016, respectively. We are making concerted efforts to maximize margins in the Region and have been successful with raising average sales prices in certain markets to offset land and labor cost increases. Higher volume and simplified product, particularly in markets with a face paced, entry-level focus, has also helped with leveraging construction overhead costs and improving home closing gross margin.

~~Central. The Central Region produced~~had the highest home closing gross margin in the ~~company and improved 120 basis points year over year, with 21.0% in 2017 versus 19.8% in 2016. In~~Company of 31.0% for the ~~third~~first quarter of ~~2017, we were successful~~2022, a 630 basis point improvement over 24.7% in ~~maintaining~~the first quarter of 2021. The improvement in home closing margin is mainly due to the favorable pricing ~~in alignment with~~environment where ASP increases have outpaced rising commodity and labor ~~construction and land cost increases. The increased volume of closings and higher revenue~~costs.

Central. Home closing gross margin in the Central ~~region helped~~Region improved 320 basis points to 30.0% for the first quarter of 2022 from 26.8% in the prior year quarter. The year-over-year improvement is due to pricing power leverage ~~construction overhead~~on both direct costs ~~resulting~~and lot costs.

East. The East Region saw the greatest improvement in ~~an improved~~ home closing gross margin ~~both~~at 690 basis points year-over-year to 29.8% in the ~~third~~first quarter ~~and year to date. Year to date,~~of 2022 versus 22.9% for the ~~Region's margins improved by 30 basis points, increasing from 19.9%~~comparable 2021 period. High demand in ~~2016 to 20.2% in 2017.~~

~~East. The~~the East Region ~~experienced lower year-over-year gross margins in both~~has created opportunity to lift selling prices which have more than offset the three and nine months ended September 30, 2017 of 14.7% and 14.3%, respectively, versus 15.9% and 15.7% for the same periods in 2016. A primary contributor to the decline was impairment charges partially stemming from terminated land contracts. These charges impacted third quarter margins by 90 basis points as compared to the third quarter of 2016 where impairment charges negatively impacted margins by 10 basis points. The lower gross margin was also partially driven by reduced leverage of construction overhead costs due to the decrease in closing volume compared to prior year. We have experienced sequential home closing gross margin improvement throughout the year and as we remain in a period of growth in several of the markets in this Region, we expect that our new product offerings in high demand areas will continue to provide us with pricing power opportunities as well as greater leverage of overheadsteadily increasing commodity costs.

Financial Services Profit (in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Financial services profit $ 5,514
$ 5,956
$ 15,361
$ 15,765


	Three Months Ended March 31,
	2022		2021
Financial services profit	$	3,334	$	3,760

Financial services profit represents the net profit of our financial services operations, including the operating profit generated by our wholly-owned title ~~company,~~and insurance companies, Carefree Title and Meritage Insurance, as well as our portion of earnings from a mortgage joint venture. ~~The decline is the result of a decline~~Financial services profit decreased $0.4 million in the ~~capture rate~~first quarter of ~~homebuyers by our mortgage joint venture~~2022 to $3.3 million versus $3.8 million in 2021 due to a change in mix of financial services closing volume in markets where we provide financial services, as Carefree Title does not provide title and escrow services in all of the ~~East region.~~markets in which we have homebuilding operations.

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


	Three Months Ended March 31,
	2022			2021
Commissions and other sales costs	$	(65,540)		$	(67,744)
Percent of home closing revenue	5.3		%	6.3		%
General and administrative expenses	$	(39,995)		$	(37,949)
Percent of home closing revenue	3.2		%	3.5		%

Interest expense	$	(41)		$	(90)
Other (expense)/income, net	$	(317)		$	798
Provision for income taxes	$	(68,629)		$	(34,134)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Commissions and Other Sales Costs
Dollars $ (55,845 ) $ (52,478 ) $ (158,866 ) $ (155,034 )
Percent of home closing revenue 6.9 % 7.1 % 7.0 % 7.3 %
General and Administrative Expenses
Dollars $ (31,636 ) $ (33,258 ) $ (90,849 ) $ (91,774 )
Percent of home closing revenue 3.9 % 4.5 % 4.0 % 4.3 %
(Loss)/Earnings from Other Unconsolidated Entities, Net
Dollars $ (91 ) $ 440
$ 852
$ 856
Interest Expense
Dollars $ (1,116 ) $ (167 ) $ (3,561 ) $ (5,127 )
Other Income, Net
Dollars $ 2,028
$ 1,435
$ 5,218
$ 3,263
Provision for Income Taxes
Dollars $ (20,905 ) $ (16,915 ) $ (55,727 ) $ (43,989 )

Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs ~~increased by $3.4~~were $65.5 million, or 5.3% of home closing revenue, for the three months ended ~~September 30, 2017 versus 2016 and increased $3.8~~March 31, 2022, $2.2 million, ~~year to date as a result of increased closing volume. As a percentage of home closing revenue, commissions and other sales costs declined by 20~~or 100 basis points, lower than the prior year comparable period, resulting from a decrease in commissions paid to ~~6.9% during the three months ended September 30, 2017, and by 30 basis points~~third party brokers that bring prospective buyers to ~~7.0% for the nine months ended September 30, 2017. This is the result of improved overhead leverage on higher revenues and the revised commission structure we implemented in the latter half of 2016.~~our communities.

General and Administrative Expenses. General and administrative expenses represent corporate and divisional overhead expenses such as salaries and bonuses, occupancy, insurance and travel expenses. For the three months ended ~~September 30, 2017,~~March 31, 2022, general and administrative expenses ~~were $31.6~~increased $2.0 million ~~as compared~~ to ~~$33.3~~$40.0 million, up from $37.9 million for the ~~2016~~2021 period. This decrease is primarily related to our focus on various cost cutting initiatives throughout the company as we continually strive to optimize overhead leverage through cost control efforts at both corporate and divisional levels. For the nine months ended September 30, 2017, these costs were $90.8 million versus $91.8 million in 2016. As a percentage of home closing revenue, ~~general and administrative~~these expenses ~~decreased by 60 basis points for the three-month period ending September 30, 2017 to 3.9% and~~ decreased by 30 basis points to ~~4.0% year~~3.2%. The increase in general administrative expenses year-over-year is due primarily to ~~date.The improved leverage year to date is mainly attributable to the additional closing revenue in 2017 over 2016 in addition to lower costs overall.~~a higher employee headcount.

~~(Loss)/Earnings from Other Unconsolidated Entities, Net.~~ Earnings from other unconsolidated entities, net represents our portion of pre-tax earnings/(losses) from non-financial services joint ventures. Included in this amount is both the pass through of earnings/(losses) from the joint ventures' most recently available financial statements as well as any accrued expected earnings/(losses) for the periods presented that might not have been reflected in the joint ventures' financial statements provided to us. The three-month period ended September 30, 2017 reported a slight loss of $0.1 million compared to earnings of $0.4 million in the respective 2016 period. The nine-month periods ended September 30, 2017 and 2016 both reported earnings of $0.9 million.

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, ~~Convertible Notes,~~ other borrowings, and our amended and restated unsecured revolving credit facility ("Credit ~~Facility.~~Facility"). Interest expense ~~increased year over year in the third quarter to $1.1 million for 2017 compared to $0.2 million in 2016 as we had a higher amount of outstanding debt~~totaled $41,000 and ~~associated interest charges from our 5.125% senior notes entered into in June 2017. Our non-capitalizable interest expense was $3.6 million~~$90,000 for the ~~nine~~three months ended ~~September 30, 2017 compared to $5.1 million for the 2016 period due to a higher balance of inventory under development that qualifies for interest capitalization.~~March 31, 2022 and 2021, respectively.

Other (Expense)/Income, Net. Other (expense)/income, net, primarily consists of (i) ~~forfeited deposits from potential homebuyers who canceled their purchase contracts with us, (ii)~~ sublease income, ~~(iii)~~(ii) interest earned on our cash and cash equivalents, ~~and (iv)~~(iii) payments and awards related to legal ~~settlements.~~settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. For the three months ended March 31, 2022, Other (expense)/income, net was ~~favorably impacted in 2017 both~~expense of $0.3 million, compared to income of $0.8 million in the third quarter and year to date primarily by additional interest income from municipalities related to reimbursable land development costs and forfeited buyer deposits compared to the prior year periods.2021 comparable period.

Income Taxes. Our effective tax rate was ~~32.9%~~24.0% and ~~31.4%~~20.6% for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016, respectively, and 34.1% and 31.0%~~2021, respectively. The higher tax rate for the ~~nine~~three months ended ~~September 30, 2017 and 2016, respectively. Our tax rate has been favorably impacted in both years by~~March 31, 2022 is due to the ~~homebuilding manufacturing deduction and federal~~expiration of the Internal Revenue Code §45L new energy ~~tax credits. Although the legislation related to federal energy tax~~efficient homes credits ~~has expired for tax years after 2016, we continue to claim and recognize a benefit in 2017 and later years for additional energy tax credits from years prior to 2017.~~on December 31, 2021.

Liquidity and Capital Resources

~~Overview~~

We have historically generated cash and funded our operations primarily from cash flows from operating activities. Additional sources of funds may include additional debt or equity financing and borrowing capacity under our Credit Facility. 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. Our principal uses of ~~capital in the first nine months of 2017 were~~cash include acquisition and development of new and ~~strategic~~previously controlled land and lot positions, home construction, operating expenses, ~~home construction~~ and the payment of interest and routine liabilities. ~~We used funds generated by operations,~~From time to time, we opportunistically repurchase our ~~new~~common stock and senior notes, and borrowings under our Credit Facility to meet our short-term working capital requirements and to pay off our Convertible Notes. We remain focused on acquiring desirable land positions, generating increasing 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 nine months ended September 30, 2017 and September 30, 2016, net cash used in operations totaled $174.4 million and $148.3 million, respectively. Operating cash flows in both 2017 and 2016 benefited from cash generated by net earnings of $107.7 million and $97.7 million, respectively, offset mainly by increases in real estate of $336.1 million and $318.5 million, respectively, reflecting increased land and land development spending.

~~Investing Cash Flow Activities~~

During the nine months ended September 30, 2017, net cash used in investing activities totaled $10.9 million as compared to $12.4 million for the same period in 2016. Cash used in investing activities in the first nine months of 2017 and 2016 is mainly attributable to the purchases of property and equipment of $12.0 million and $12.3 million for the 2017 and 2016 periods, respectively.

~~Financing Cash Flow Activities~~

During the nine months ended September 30, 2017, net cash provided by financing activities totaled $168.8 million as compared to $6.4 million for the same period in 2016. The net cash provided by financing activities in 2017 is primarily the result of $300.0 million in net proceeds received from our 5.125% bond issuance offset partially by the redemption of our Convertible Notes. Our 2016 results were mainly attributable to $25.0 million in proceeds from our Credit Facility partially offset by $18.3 million in payments of loans payable and other borrowings.

~~Overview of Cash Management~~

notes.

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 are not recognized in our income statement ~~of operations~~ 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,~~

Short-term Liquidity and Capital Resources

Over the course of the next twelve months, we ~~are currently actively acquiring and developing lots in~~expect that our ~~markets to maintain and grow our lot supply and active community count. We are also using our cash on hand and draws under our Credit Facility, as needed, to fund operations in newer markets. As~~primary demand for ~~new~~funds will be for the construction of homes, improves and we continue to expand our business, we expect cash outlays for land purchases, land development and home construction will continue to exceed our cash generated from operations in the near term.

During the nine months ended September 30, 2017, we closed 5,456 homes, purchased about 9,000 lots for $477.8 million, spent $247.5 million on land development, paid $45.8 million in lot purchase and option deposits, and started construction on 6,416 homes. The opportunity to purchase substantially finished lots in desired locations continues to be more limited and competitive as compared to prior years. As a result, we are purchasing more undeveloped land and partially-finished lots than in recent years and subsequently incurring development dollars 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 inventorywell as acquisition and ~~development.~~development of both new and existing lots, operating expenses, including general and administrative expenses, interest payments and opportunistic common stock repurchases. We ~~ended the third quarter of 2017 with $115.2 million of~~expect to meet these short-term liquidity requirements primarily through our cash and cash equivalents ~~a $16.5 million decrease from December 31, 2016.~~on hand and our net cash flows provided by operations.

~~We expect to generate~~Between our cash ~~from~~and cash equivalents on hand combined with the ~~sale~~availability of funds in our ~~inventory, but~~Credit Facility, we ~~intend to redeploy that cash to acquire and develop strategic and well-positioned lots to grow our business. We~~ believe that we currently have ~~strong~~sufficient liquidity. Nevertheless, we may seek additional capital to strengthen our liquidity position, enable us to ~~opportunistically~~ acquire additional land inventory in anticipation of improving market conditions, and/or strengthen our long-term capital structure. ~~Such~~

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the construction of homes, land acquisition and development activities needed to grow our lot supply and active community count, payments of principal and interest on our senior notes as they become due or mature and common stock repurchases. We expect our existing and generated cash will be adequate to fund our ongoing operating activities as well as providing capital for investment in future land purchases and related development activities. To the extent the sources of capital described above are insufficient to meet our long-term cash needs, we may also conduct additional ~~capital may be in the form~~public offerings of ~~equity~~our securities, refinance or secure new debt ~~financing and may be from a variety~~or dispose of ~~sources.~~certain assets to fund our operating activities. 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.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact both short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on our unaudited consolidated balance sheets as of March 31, 2022, while others are considered future commitments for materials or services not yet provided. Our contractual obligations primarily consist of principal and interest payments on our senior notes, loans payable and other borrowings, including our Credit Agreement, letters of credit and surety bonds and operating leases. We have no debt maturities until 2025. We also have certain short-term lease commitments, commitments to fund our existing unconsolidated joint ventures and other purchase obligations in the normal course of business. Other material cash requirements include land acquisition and development costs, home construction costs and operating expenses, including our selling, general and administrative expenses. We plan to fund these commitments primarily with cash flows generated by operations, but may also ~~from time~~utilize additional debt or equity financing and borrowing capacity under our Credit Facility. Our maximum exposure to ~~time engage in opportunistic repurchases of~~loss on our ~~common stock in open market or privately-negotiated transactions as well as repurchase~~purchase and option agreements is generally limited to non-refundable deposits and capitalized pre-acquisition costs.

For information about our ~~outstanding senior notes.~~

~~In May 2017, we entered into an amendment to~~loans payable and other borrowings, including our Credit Facility, ~~which among other things, increased the total commitments available from $540.0 million to $625.0 million~~ and extended the maturity date of a substantial portion of the Credit Facility. Of the total commitments, $60.0 million matures in July 2019 and the remaining $565.0 million matures in July 2021. In June 2017, we completed an offering of $300 million aggregate principal amount of Senior Notes due 2027, bearing interest at 5.125%. In addition, in June 2017 we redeemed $51.9 million of aggregate principal amount of our Convertible Notes in privately negotiated transactions. In September of 2017, on the fifth anniversary of the Convertible Notes, the remaining $74.6 million of our Convertible Notes was redeemed for cash through a combination of holder redemptions and an exercise of our call option, in each case at a redemption price equal to 100% of the principal amount of thesenior notes, ~~redeemed, plus accrued and unpaid interest. Reference~~reference is made to Notes 5 and 6 in the accompanying notes to the unaudited consolidated financial ~~statements.~~statements included in this Quarterly Report on Form 10-Q and are incorporated by reference herein. For information about our lease obligations, reference is made to Note 4 in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 and are incorporated by reference herein.

Reference is made to Notes 1, 3, 4, and 15 in the accompanying notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q and are incorporated by reference herein. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. 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, if any.

We do not engage in commodity trading or other similar activities. We had no derivative financial instruments at March 31, 2022 or December 31, 2021.

Operating Cash Flow Activities

During the three months ended March 31, 2022, net cash provided by operating activities totaled $12.2 million versus net cash used in operating activities of $13.9 million during the three months ended March 31, 2021. Operating cash flows in the first quarter of 2022 benefited from cash generated by net earnings of $217.3 million and an increase in accounts payable and accrued liabilities of $115.9 million due to timing of payments for routine transactions, offset by a $283.9 million increase in real estate assets and a $52.1 million increase in other receivables, prepaids and other assets. The increase in other receivables, prepaids and other assets was largely due to the purchase of fixed rate interest locks for eligible buyers in our backlog. During the first quarter of 2021, operating cash flows benefited from cash generated by net earnings of $131.8 million and a $38.7 million increase in accounts payable and accrued liabilities, offset by an increase in real estate assets of $193.4 million.

Investing Cash Flow Activities

During the three months ended March 31, 2022 and 2021, net cash used in investing activities totaled $6.2 million and $4.9 million, respectively. Cash used in investing activities for both periods is mainly attributable to the purchases of property and equipment of $6.4 million and $5.0 million, respectively.

Financing Cash Flow Activities

During the three months ended March 31, 2022 and 2021, net cash used in financing activities totaled $103.9 million and $10.3 million, respectively. The net cash used in financing activities in 2022 and 2021 primarily reflect $99.3 million and $8.4 million in share repurchases, respectively. Our Board of Directors has authorized the expenditure of up to $300.0 million to repurchase shares of our common stock under our current stock repurchase program, of which $54.1 million remained available as of March 31, 2022. There is no stated expiration for this program and repurchases may be made in the open market, privately negotiated transactions, or otherwise.

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
September 30, 2017 December 31, 2016
Notes payable and other borrowings $ 1,304,242
$ 1,127,314
Stockholders’ equity 1,539,108
1,421,495
Total capital $ 2,843,350
$ 2,548,809
Debt-to-capital ⁽¹⁾
45.9 % 44.2 %
Notes payable and other borrowings $ 1,304,242
$ 1,127,314
Less: cash and cash equivalents (115,167 ) (131,702 )
Net debt 1,189,075
995,612
Stockholders’ equity 1,539,108
1,421,495
Total net capital $ 2,728,183
$ 2,417,107
Net debt-to-capital ⁽²⁾
43.6 % 41.2 %


	As of
	March 31, 2022			December 31, 2021
Senior notes, net, loans payable and other borrowings	$	1,165,323		$	1,160,038
Stockholders’ equity	3,168,315			3,044,389
Total capital	$	4,333,638		$	4,204,427
Debt-to-capital (1)	26.9		%	27.6		%
Senior notes, net, loans payable and other borrowings	$	1,165,323		$	1,160,038
Less: cash and cash equivalents	(520,395)			(618,335)
Net debt	644,928			541,703
Stockholders’ equity	3,168,315			3,044,389
Total net capital	$	3,813,243		$	3,586,092
Net debt-to-capital (2)	16.9		%	15.1		%


~~(1)~~	Debt-to-capital is computed as senior and convertible senior notes, net and loans payable and other borrowings divided by the aggregate of total senior and convertible senior notes, net 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 total senior and convertible 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 total 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.

(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, 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, restrictions imposed by our Credit Facility, 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 ~~$987.4 million~~$1.9 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 therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) 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 of ~~September 30, 2017.~~March 31, 2022. Our actual financial covenant calculations as of ~~September 30, 2017~~March 31, 2022 are reflected in the table below.



Financial Covenant (dollars in thousands):	Covenant Requirement	Actual
Minimum Tangible Net Worth	> ~~$1,029,472~~$2,176,919	$~~1,499,496~~3,127,202
Leverage Ratio	< 60%	~~43%~~15.1%
Interest Coverage Ratio ⁽¹⁾	> 1.50	~~4.49~~19.40
Minimum Liquidity ⁽¹⁾	> ~~$75,903~~$61,957	$~~648,670~~1,238,824
Investments other than defined permitted investments	< ~~$449,849~~$938,161	$~~16,378~~5,631


~~(1)~~	~~We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.~~

~~Off-Balance Sheet Arrangements~~

~~Reference is made~~(1)We are required to ~~Notes 1, 3, 4, and 15 in~~meet either 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.Interest Coverage Ratio or Minimum Liquidity, but not both.

Seasonality

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically ~~take orders for~~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 ~~seasonally higher~~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. During 2020, historical cycles were impacted by COVID-19 and since then have been further impacted by sustained increased demand. We have continued to experience these impacts in the first quarter of 2022; however, we expect ~~this~~our historical seasonal pattern to continue over the long ~~term.~~term, although it will continue to be affected by short-term volatility in the homebuilding industry and in the overall economy.

~~Recently~~Recent Issued Accounting Pronouncements

See Note 1 to our unaudited consolidated financial statements included in this report for discussion of recently issued accounting ~~standards.~~

pronouncements.



Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Our fixed rate debt is made up primarily of ~~$175.0 million~~$1.2 billion in principal of our 4.50% senior notes, $300.0 million in principal of our 7.15% senior notes, $300.0 million in principal of our 7.00% senior notes, $200.0 million in principal of our 6.00% senior notes, and $300.0 million of our 5.125% senior notes. Except in limited circumstances, we do not have an obligation to prepay our fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed rate borrowings until we would be required to repay such debt and access the capital markets to issue new debt. Our Credit Facility is subject to interest rate changes as the borrowing rates are based on ~~LIBOR~~SOFR or ~~PRIME~~Prime (see Note 5 in the accompanying notes to the unaudited consolidated financial statements included in this Form 10-Q).

Our operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in mortgage interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates and/or rapidly increasing interest rates could adversely affect our revenues, gross margins, ~~and~~ net income and cancellation rates and would also increase our variable rate borrowing ~~costs.~~costs on our Credit Facility, if any. We do not enter into, or intend to enter into, derivative interest rate swap financial instruments for trading or speculative purposes.



Item 4.			Controls and Procedures

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, we have developed and implemented disclosure controls and procedures. Our management, with

the participation of our ~~chief executive officer~~CEO and ~~chief financial officer,~~CFO, has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in ~~Securities~~ Exchange Act Rules 13a-15(e) and 15d-15(e), as of ~~the end of the period covered by this Form 10-Q~~March 31, 2022 (the “Evaluation Date”). Based on such evaluation, our management has concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective at a reasonable assurance level in ensuring that information that is required to be disclosed in the reports we file or submit under the ~~Securities~~ Exchange Act ~~of 1934 (the “Exchange Act”)~~ is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

During the fiscal quarter covered by this Form 10-Q, there has not been any change in our internal control over financial reporting that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION



Item 1.			Legal Proceedings

We are involved in various routine legal and regulatory proceedings, including, without limitation, claims and litigation alleging construction defects. In general, the proceedings are incidental to our business, and most exposure is subject to and should be covered by warranty and indemnity obligations of our consultants and subcontractors. Additionally, some such claims are also covered by insurance. With respect to the majority of pending legal proceedings, our ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to these matters are not considered probable. Historically, most disputes regarding warranty claims are resolved prior to the initiation of legal proceedings. We believe there are not any pending legal or warranty matters that could have a material adverse impact upon our consolidated financial condition, results of operations or cash flows that have not been sufficiently reserved. Information related to pending legal proceedings is presented inSee Note 15 ~~- Commitments on Contingencies,~~ in the accompanying notes to the unaudited consolidated financial statements ~~and is incorporated by reference herein.~~in this report for a discussion of our legal proceedings.



Item 1A.			Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item ~~1A.~~IA "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, financial condition and/or operating results. Except as described below, there has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Increases in interest rates or decreases in mortgage availability may make purchasing a home more difficult or less desirable and may negatively impact the ability to sell new and existing homes.

In general, housing demand is adversely affected by increases in interest rates and a lack of availability of mortgage financing. Most of our buyers finance their home purchases through our mortgage joint venture or third-party lenders providing mortgage financing. If mortgage interest rates increase and, consequently, the ability of prospective buyers to finance home purchases is adversely affected, our home sales and cash flow may be adversely affected and the impact may be material. Additionally, rapid increases in interest rates may negatively impact affordability of a home purchase for existing buyers in backlog who have not yet locked in a mortgage interest rate for their loan. This could lead to an increase in the number of contract cancellations in our reported sales order numbers. For example, although long-term interest rates remain low compared to historical averages, in the first three months of 2022 they have trended upward and are anticipated to continue to increase for the foreseeable future.

A homebuyers' ability to obtain a mortgage loan is largely subject to prevailing interest rates, lenders’ credit standards and appraisals, and the availability of government-supported programs, such as those from the FHA, the VA, Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). If credit standards or appraisal guidelines are tightened, or mortgage loan programs are curtailed, potential buyers of our homes may not be able to obtain necessary mortgage financing. There can be no assurance that these programs will continue to be available or that they will be as accommodating as they currently are. Continued legislative and regulatory actions and more stringent underwriting standards could have a material adverse effect on our business if certain buyers are unable to obtain mortgage financing. A prolonged tightening of the financial markets could also negatively impact our business.

The above risks can also indirectly impact us to the extent our customers need to sell their existing homes to purchase a new home from us if the potential buyer of their home is unable to obtain mortgage financing.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

~~Issuer Purchases of Equity Securities:~~

~~A summary of the Company's repurchase activity for the three months ended September 30, 2017 is as follows:~~

Period
Total Number of Shares Purchased ⁽¹⁾
Average price paid per share Total number of shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs ⁽²⁾
July 1, 2017 - July 31, 2017 —
$ —
—
$ 130,202,650
August 1, 2017 - August 31, 2017 —
$ —
—
$ 130,202,650
September 1, 2017 - September 30, 2017 —
$ —
—
$ 130,202,650
Total —
—

~~(1)~~

During the third quarter of 2017, the Company (i) repurchased $26.0 million in aggregate principal amount of its Convertible Notes pursuant to the noteholder's exercise of their put provision of the Convertible Notes and (ii) called the remaining $48.6 million of outstanding Convertible Notes pursuant to our exercise of the call provision of the Convertible Notes, in each case at a price of 100% of the principal amount of the Convertible Notes, plus accrued interest (See Note 6 - Senior and Convertible Senior Notes, Net in the Notes to the Consolidated Financial Statements in Item I of this Form 10-Q for additional details).

~~(2)~~

On February 21, 2006, we announced that our Board of Directors approved a stock repurchase program, authorizing the expenditure of up to $100 million to repurchase shares of our common stock, in open market or privately negotiated transactions, based on market conditions and subject to certain price parameters. On August 15, 2006, the Board of Directors authorized an additional $100 million under this program. There is no stated expiration date for this program. As of September 30, 2017, we had approximately $130.2 million of the authorized amount available to repurchase shares under this program.

We have never declared cash ~~dividends, nor do~~dividends. Currently, we ~~intend to declare cash dividends in the foreseeable future. We~~ plan to retain our cash to finance the continuing development of the business. Future cash dividends, if any, will depend upon financial condition, results of operations, capital requirements, statutory requirements, ~~compliance with certain restrictive debt covenants,~~restrictions imposed by our Credit Facility, as well as other factors considered relevant by our Board of Directors.

Issuer Purchases of Equity Securities

On February 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. On November 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. On August 12, 2021, the Board of Directors authorized the expenditure of an additional $100.0 million to repurchase shares of our common stock under this program, which was announced on August 17, 2021. 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 the 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. As of March 31, 2022 there was $54.1 million available under this program to repurchase shares. We purchased 1,037,967 shares under the program during the three months ended March 31, 2022.


Period	Total Number of Shares Purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
January 1, 2022 - January 31, 2022	232,312	$	98.63	232,312	$	130,468,038
February 1, 2022 - February 28, 2022	647,641	$	93.96	647,641	$	69,615,096
March 1, 2022 - March 31, 2022	158,014	$	98.33	158,014	$	54,077,423
Total	1,037,967			1,037,967



Item 6.			Exhibits



Exhibit Number	Description	Page or Method of Filing
3.1	Restated Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Exhibit 3 of Form 8-K dated June 20, 2002

3.1.1	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Exhibit 3.1 of Form 10-Q for the quarter ended September 30, 1998

3.1.2	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Exhibit 3.1 of Form 8-K dated September 15, 2004

~~3.1.2~~3.1.3	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix A of the Proxy Statement for the Registrant's 2006 Annual Meeting of Stockholders

~~3.1.3~~3.1.4	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix B of Proxy Statement for the Registrant's 2008 Annual Meeting of Stockholders

~~3.1.4~~3.1.5	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix A of the Definitive Proxy Statement filed by the Registrant with the Securities and Exchange Commission on January 9, 2009

3.2	Amended and Restated Bylaws of Meritage Homes Corporation	Incorporated by reference to Exhibit 3.1 of Form 8-K dated ~~May 10, 2017~~November 23, 2021

~~31.1~~10.1 *	Employment Agreement between the Company and Malissia Clinton	Filed herewith

22	List of Guarantor Subsidiaries	Incorporated by reference to Exhibit 22 of Form 10-K for the year ended December 31, 2021

31.1	Rule 13a-14(a)/15d-14(a) Certification of ~~Steven J. Hilton,~~Phillippe Lord, Chief Executive Officer	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification of Hilla Sferruzza, Chief Financial Officer	Filed herewith

32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	Furnished herewith

101.0	The following financial statements from the Meritage Homes Corporation Quarterly Report on Form 10-Q as of and for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2022 were formatted in Inline XBRL (Extensible Business Reporting Language); (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Income Statements, (iii) Unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Consolidated Financial Statements.

104.0	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL.

* Indicates a management contract or compensation plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	MERITAGE HOMES CORPORATION, a Maryland ~~Corporation~~ corporation

By:		/s/ HILLA SFERRUZZA
		Hilla Sferruzza ~~Chief Financial Officer~~Executive Vice President and Chief ~~Accounting~~Financial Officer (Duly Authorized Officer and Principal Financial Officer)

~~Date:~~	~~October 30, 2017~~

~~INDEX OF EXHIBITS~~



~~3.1~~Date:			April 29, 2022

INDEX OF EXHIBITS


3.1						Restated Articles of Incorporation of Meritage Homes Corporation

3.1.1						Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.2						Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.3						Amendment to Articles of Incorporation of Meritage Homes Corporation

3.1.4						Amendment to Articles of Incorporation of Meritage Homes Corporation

~~3.2~~3.1.5						Amendment to Articles of Incorporation of Meritage Homes Corporation

3.2						Amended and Restated Bylaws of Meritage Homes Corporation

~~31.1~~10.1*						Employment Agreement between the Company and Malissia Clinton

22						List of Guarantor Subsidiaries

31.1						Rule 13a-14(a)/15d-14(a) Certification of ~~Steven J. Hilton,~~Phillippe Lord, Chief Executive Officer

31.2						Rule 13a-14(a)/15d-14(a) Certification of Hilla Sferruzza, Chief Financial Officer

32.1						Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

101.0						The following financial statements from the Meritage Homes Corporation Quarterly Report on Form 10-Q as of and for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2022 were formatted in Inline XBRL (Extensible Business Reporting Language); (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Income Statements, (iii) Unaudited Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Consolidated Financial Statements.

104.0						The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL.

* Indicates a management contract or compensation plan.




	September 30, 2017		December 31, 2016
Assets
Cash and cash equivalents	$	115,167	$	131,702
Other receivables	78,933		70,355
Real estate	2,762,269		2,422,063
Real estate not owned	39,793		—
Deposits on real estate under option or contract	67,547		85,556
Investments in unconsolidated entities	16,378		17,097
Property and equipment, net	32,080		33,202
Deferred tax asset	56,870		53,320
Prepaids, other assets and goodwill	83,121		75,396
Total assets	$	3,252,158	$	2,888,691
Liabilities
Accounts payable	$	140,492	$	140,682
Accrued liabilities	193,102		170,852
Home sale deposits	39,446		28,348
Liabilities related to real estate not owned	35,768		—
Loans payable and other borrowings	38,082		32,195
Senior and convertible senior notes, net	1,266,160		1,095,119
Total liabilities	1,713,050		1,467,196
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; none issued and outstanding at September 30, 2017 and December 31, 2016	—		—
Common stock, par value $0.01. Authorized 125,000,000 shares; issued 40,326,062 and 40,030,518 shares at September 30, 2017 and December 31, 2016, respectively	403		400
Additional paid-in capital	582,414		572,506
Retained earnings	956,291		848,589
Total stockholders’ equity	1,539,108		1,421,495
Total liabilities and stockholders’ equity	$	3,252,158	$	2,888,691



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Homebuilding:
Home closing revenue	$	805,008		$	735,870		$	2,263,405		$	2,127,332
Land closing revenue	589			16,987			16,942			21,187
Total closing revenue	805,597			752,857			2,280,347			2,148,519
Cost of home closings	(659,350		)	(604,891		)	(1,869,569		)	(1,755,260		)
Cost of land closings	(1,646		)	(16,092		)	(15,504		)	(19,485		)
Total cost of closings	(660,996		)	(620,983		)	(1,885,073		)	(1,774,745		)
Home closing gross profit	145,658			130,979			393,836			372,072
Land closing gross (loss)/profit	(1,057		)	895			1,438			1,702
Total closing gross profit	144,601			131,874			395,274			373,774
Financial Services:
Revenue	3,549			3,139			10,142			9,115
Expense	(1,524		)	(1,398		)	(4,454		)	(4,152		)
Earnings from financial services unconsolidated entities and other, net	3,489			4,215			9,673			10,802
Financial services profit	5,514			5,956			15,361			15,765
Commissions and other sales costs	(55,845		)	(52,478		)	(158,866		)	(155,034		)
General and administrative expenses	(31,636		)	(33,258		)	(90,849		)	(91,774		)
(Loss)/earnings from other unconsolidated entities, net	(91		)	440			852			856
Interest expense	(1,116		)	(167		)	(3,561		)	(5,127		)
Other income, net	2,028			1,435			5,218			3,263
Earnings before income taxes	63,455			53,802			163,429			141,723
Provision for income taxes	(20,905		)	(16,915		)	(55,727		)	(43,989		)
Net earnings	$	42,550		$	36,887		$	107,702		$	97,734
Earnings per common share:
Basic	$	1.06		$	0.92		$	2.67		$	2.45
Diluted	$	1.02		$	0.88		$	2.55		$	2.33
Weighted average number of shares:
Basic	40,323			40,022			40,273			39,958
Diluted	42,011			42,608			42,585			42,541



	Nine Months Ended September 30, 2017
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital			Retained Earnings		Total
Balance at December 31, 2016	40,031	$	400	$	572,506		$	848,589	$	1,421,495
Net earnings	—	—		—			107,702		107,702
Exercise/vesting of stock-based awards	295	3		(3		)	—		—
Stock-based compensation expense	—	—		9,911			—		9,911
Balance at September 30, 2017	40,326	$	403	$	582,414		$	956,291	$	1,539,108



	Nine Months Ended September 30, 2016
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital			Retained Earnings		Total
Balance at December 31, 2015	39,669	$	397	$	559,492		$	699,048	$	1,258,937
Net earnings	—	—		—			97,734		97,734
Exercise/vesting of stock-based awards	356	3		229			—		232
Excess income tax benefit from stock-based awards	—	—		(540		)	—		(540		)
Stock-based compensation expense	—	—		11,042			—		11,042
Balance at September 30, 2016	40,025	$	400	$	570,223		$	796,782	$	1,367,405



	At September 30, 2017
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	21,275		$	23,237		$	23,035		$	—	$	—		$	67,547
Real estate	1,183,953			701,516			876,800			—		—			2,762,269
Investments in unconsolidated entities	7,660			7,158			—			—		1,560			16,378
Other assets	47,648		(1)	104,063		(2)	117,411		(3)	615		136,227		(4)	405,964
Total assets	$	1,260,536		$	835,974		$	1,017,246		$	615	$	137,787		$	3,252,158



	At December 31, 2016
	West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	$	25,863		$	27,669		$	32,024		$	—	$	—		$	85,556
Real estate	1,120,038			595,485			706,540			—		—			2,422,063
Investments in unconsolidated entities	7,362			7,450			—			—		2,285			17,097
Other assets	45,624		(1)	94,299		(2)	93,245		(3)	812		129,995		(4)	363,975
Total assets	$	1,198,887		$	724,903		$	831,809		$	812	$	132,280		$	2,888,691



	At September 30,				Quarter over Quarter
	2017		2016		Change $			Change %
Order Backlog ⁽¹⁾
Total
Dollars	$	1,408,801	$	1,375,857	$	32,944		2.4	%
Homes in backlog	3,333		3,251		82			2.5	%
Average sales price	$	422.7	$	423.2	$	(0.5	)	(0.1	)%
West Region
Arizona
Dollars	$	158,988	$	182,574	$	(23,586	)	(12.9	)%
Homes in backlog	453		503		(50		)	(9.9	)%
Average sales price	$	351.0	$	363.0	$	(12.0	)	(3.3	)%
California
Dollars	$	207,237	$	208,175	$	(938	)	(0.5	)%
Homes in backlog	331		326		5			1.5	%
Average sales price	$	626.1	$	638.6	$	(12.5	)	(2.0	)%
Colorado
Dollars	$	135,239	$	167,475	$	(32,236	)	(19.2	)%
Homes in backlog	224		317		(93		)	(29.3	)%
Average sales price	$	603.7	$	528.3	$	75.4		14.3	%
West Region Totals
Dollars	$	501,464	$	558,224	$	(56,760	)	(10.2	)%
Homes in backlog	1,008		1,146		(138		)	(12.0	)%
Average sales price	$	497.5	$	487.1	$	10.4		2.1	%
Central Region - Texas
Central Region Totals
Dollars	$	437,243	$	381,764	$	55,479		14.5	%
Homes in backlog	1,179		1,008		171			17.0	%
Average sales price	$	370.9	$	378.7	$	(7.9	)	(2.1	)%
East Region
Florida
Dollars	$	233,534	$	161,148	$	72,386		44.9	%
Homes in backlog	526		370		156			42.2	%
Average sales price	$	444.0	$	435.5	$	8.4		1.9	%
Georgia
Dollars	$	46,809	$	58,944	$	(12,135	)	(20.6	)%
Homes in backlog	138		171		(33		)	(19.3	)%
Average sales price	$	339.2	$	344.7	$	(5.5	)	(1.6	)%
North Carolina
Dollars	$	110,339	$	118,515	$	(8,176	)	(6.9	)%
Homes in backlog	263		283		(20		)	(7.1	)%
Average sales price	$	419.5	$	418.8	$	0.8		0.2	%
South Carolina
Dollars	$	42,378	$	53,657	$	(11,279	)	(21.0	)%
Homes in backlog	123		153		(30		)	(19.6	)%
Average sales price	$	344.5	$	350.7	$	(6.2	)	(1.8	)%
Tennessee
Dollars	$	37,034	$	43,605	$	(6,571	)	(15.1	)%
Homes in backlog	96		120		(24		)	(20.0	)%
Average sales price	$	385.8	$	363.4	$	22.4		6.2	%
East Region Totals
Dollars	$	470,094	$	435,869	$	34,225		7.9	%
Homes in backlog	1,146		1,097		49			4.5	%
Average sales price	$	410.2	$	397.3	$	12.9		3.2	%



Period	Total Number of Shares Purchased ⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs ⁽²⁾
July 1, 2017 - July 31, 2017	—	$	—	—	$	130,202,650
August 1, 2017 - August 31, 2017	—	$	—	—	$	130,202,650
September 1, 2017 - September 30, 2017	—	$	—	—	$	130,202,650
Total	—			—