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~~June 30, ~~2020~~2021


☐			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.)

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 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 every Interactive Date File required to be submitted 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 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

Accelerated filer

☐

Non-accelerated filer

☐

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 23, 2020: 37,612,127~~July 26, 2021: 37,646,856

MERITAGE HOMES CORPORATION

FORM 10-Q FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets as of S e ~~ptember~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020			3

Unaudited Consolidated Income Statements for the Three ~~Months~~ and ~~Nine~~Six Months Ended S e ~~ptember~~June 30, ~~2020~~2021 and ~~2019~~2020			4

Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~ June 30, ~~2020~~202 1 and ~~2019~~20 2 0			5

Notes to Unaudited Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23

Item 3. Quantitative and Qualitative Disclosures About Market Risk			39

Item 4. Controls and Procedures			4039

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			4140

Item 1A. Risk Factors			4140

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4240

Items 3-5. Not Applicable

Item 6. Exhibits			4341

SIGNATURES			4442

INDEX OF EXHIBITS			4442

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

September 30, 2020 December 31, 2019
Assets
Cash and cash equivalents $ 609,979 $ 319,466
Other receivables 96,702 88,492
Real estate 2,741,016 2,744,361
Deposits on real estate under option or contract 62,967 50,901
Investments in unconsolidated entities 3,819 4,443
Property and equipment, net 42,730 50,606
Deferred tax asset 28,425 25,917
Prepaids, other assets and goodwill 101,680 114,063
Total assets $ 3,687,318 $ 3,398,249
Liabilities
Accounts payable $ 167,788 $ 155,024
Accrued liabilities 274,371 226,008
Home sale deposits 25,509 24,246
Loans payable and other borrowings 23,031 22,876
Senior notes, net 996,770 996,105
Total liabilities 1,487,469 1,424,259
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; NaN issued and outstanding at September 30, 2020 and December 31, 2019 0 0
Common stock, par value $0.01. Authorized 125,000,000 shares; 37,612,127 and 38,199,111 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 377 382
Additional paid-in capital 460,268 505,352
Retained earnings 1,739,204 1,468,256
Total stockholders’ equity 2,199,849 1,973,990
Total liabilities and stockholders’ equity $ 3,687,318 $ 3,398,249



	June 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	684,374	$	745,621

Other receivables	131,104		98,573
Real estate	3,251,787		2,778,039

Deposits on real estate under option or contract	74,397		59,534
Investments in unconsolidated entities	3,943		4,350
Property and equipment, net	36,224		38,933
Deferred tax assets, net	33,502		36,040
Prepaids, other assets and goodwill	106,222		103,308
Total assets	$	4,321,553	$	3,864,398
Liabilities
Accounts payable	$	215,221	$	175,250
Accrued liabilities	282,762		296,121
Home sale deposits	33,958		25,074

Loans payable and other borrowings	19,534		23,094
Senior notes, net	1,141,934		996,991
Total liabilities	1,693,409		1,516,530
Stockholders’ Equity
Preferred stock, par value $0.01. Authorized 10,000,000 shares; NaN issued and outstanding at June 30, 2021 and December 31, 2020	0		0
Common stock, par value $0.01. Authorized 125,000,000 shares; 37,646,856 and 37,512,127 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively	376		375
Additional paid-in capital	436,805		455,762
Retained earnings	2,190,963		1,891,731

Total stockholders’ equity	2,628,144		2,347,868
Total liabilities and stockholders’ equity	$	4,321,553	$	3,864,398

See accompanying notes to unaudited consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Homebuilding:
Home closing revenue	$	1,264,643	$	1,031,591	$	2,344,625	$	1,922,008
Land closing revenue	12,956		1,488		16,755		12,084
Total closing revenue	1,277,599		1,033,079		2,361,380		1,934,092
Cost of home closings	(919,342)		(810,895)		(1,732,669)		(1,522,952)
Cost of land closings	(13,288)		(2,936)		(16,540)		(13,149)
Total cost of closings	(932,630)		(813,831)		(1,749,209)		(1,536,101)
Home closing gross profit	345,301		220,696		611,956		399,056
Land closing gross (loss)/profit	(332)		(1,448)		215		(1,065)
Total closing gross profit	344,969		219,248		612,171		397,991
Financial Services:
Revenue	5,665		4,478		10,416		8,390
Expense	(2,367)		(1,758)		(4,538)		(3,493)
Earnings from financial services unconsolidated entities and other, net	1,317		1,069		2,497		1,730
Financial services profit	4,615		3,789		8,375		6,627
Commissions and other sales costs	(73,889)		(70,408)		(141,633)		(131,581)
General and administrative expenses	(43,156)		(36,176)		(81,105)		(70,346)

Interest expense	(77)		(2,105)		(167)		(2,121)
Other income, net	1,377		1,514		2,175		2,125
Loss on early extinguishment of debt	(18,188)		0		(18,188)		0
Earnings before income taxes	215,651		115,862		381,628		202,695
Provision for income taxes	(48,262)		(25,184)		(82,396)		(40,865)
Net earnings	$	167,389	$	90,678	$	299,232	$	161,830
Earnings per common share:
Basic	$	4.43	$	2.41	$	7.93	$	4.28
Diluted	$	4.36	$	2.38	$	7.80	$	4.20
Weighted average number of shares:
Basic	37,818		37,599		37,731		37,842
Diluted	38,377		38,169		38,357		38,512

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Homebuilding:
Home closing revenue $ 1,133,221 $ 939,185 $ 3,055,229 $ 2,500,888
Land closing revenue 4,870 1,695 16,954 12,747
Total closing revenue 1,138,091 940,880 3,072,183 2,513,635
Cost of home closings (889,654) (753,068) (2,412,606) (2,039,191)
Cost of land closings (4,360) (1,721) (17,509) (14,149)
Total cost of closings (894,014) (754,789) (2,430,115) (2,053,340)
Home closing gross profit 243,567 186,117 642,623 461,697
Land closing gross profit/(loss) 510 (26) (555) (1,402)
Total closing gross profit 244,077 186,091 642,068 460,295
Financial Services:
Revenue 4,939 4,317 13,329 11,705
Expense (2,026) (1,725) (5,519) (4,949)
Earnings from financial services unconsolidated entities and other, net 1,402 2,990 3,132 9,559
Financial services profit 4,315 5,582 10,942 16,315
Commissions and other sales costs (73,282) (63,450) (204,863) (176,130)
General and administrative expenses (40,737) (37,191) (111,083) (105,536)
Interest expense (55) (1,068) (2,176) (8,350)
Other income, net 1,188 2,402 3,313 5,816
Earnings before income taxes 135,506 92,366 338,201 192,410
Provision for income taxes (26,388) (22,557) (67,253) (46,361)
Net earnings $ 109,118 $ 69,809 $ 270,948 $ 146,049
Earnings per common share:
Basic $ 2.90 $ 1.82 $ 7.17 $ 3.83
Diluted $ 2.84 $ 1.79 $ 7.04 $ 3.76
Weighted average number of shares:
Basic 37,607 38,296 37,763 38,119
Diluted 38,405 39,079 38,491 38,841

See accompanying notes to unaudited consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,
2020 2019
Cash flows from operating activities:
Net earnings $ 270,948 $ 146,049
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 22,496 19,553
Stock-based compensation 15,724 15,719
Equity in earnings from unconsolidated entities (2,821) (8,934)
Distributions of earnings from unconsolidated entities 2,449 11,261
Other 1,881 3,902
Changes in assets and liabilities:
Decrease/(increase) in real estate 9,080 (110,295)
(Increase)/decrease in deposits on real estate under option or contract (12,910) 5,773
Decrease/(increase) in other receivables, prepaids and other assets 4,933 (3,108)
Increase in accounts payable and accrued liabilities 60,039 84,632
Increase in home sale deposits 1,263 2,808
Net cash provided by operating activities 373,082 167,360
Cash flows from investing activities:
Investments in unconsolidated entities (4) (1,112)
Distributions of capital from unconsolidated entities 1,000 7,250
Purchases of property and equipment (14,771) (18,376)
Proceeds from sales of property and equipment 528 267
Maturities/sales of investments and securities 632 675
Payments to purchase investments and securities (632) (675)
Net cash used in investing activities (13,247) (11,971)
Cash flows from financing activities:
Repayment of loans payable and other borrowings (8,509) (3,086)
Repurchase of shares (60,813) (8,957)
Net cash used in financing activities (69,322) (12,043)
Net increase in cash and cash equivalents 290,513 143,346
Cash and cash equivalents, beginning of period 319,466 311,466
Cash and cash equivalents, end of period $ 609,979 $ 454,812


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net earnings	$	299,232	$	161,830
Adjustments to reconcile net earnings to net cash (used in)/provided by operating activities:
Depreciation and amortization	13,414		14,551
Stock-based compensation	8,590		9,594
Loss on early extinguishment of debt	18,188		0
Equity in earnings from unconsolidated entities	(1,807)		(1,691)

Distributions of earnings from unconsolidated entities	2,215		1,491
Other	2,266		2,548
Changes in assets and liabilities:
(Increase)/decrease in real estate	(469,733)		9,655
(Increase)/decrease in deposits on real estate under option or contract	(14,863)		2,225
(Increase)/decrease in other receivables, prepaids and other assets	(36,390)		3,469
Increase in accounts payable and accrued liabilities	26,532		34,772
Increase/(decrease) in home sale deposits	8,884		(999)
Net cash (used in)/provided by operating activities	(143,472)		237,445
Cash flows from investing activities:
Investments in unconsolidated entities	(1)		(3)
Distributions of capital from unconsolidated entities	0		1,000
Purchases of property and equipment	(10,970)		(10,343)
Proceeds from sales of property and equipment	292		259
Maturities/sales of investments and securities	2,697		632
Payments to purchase investments and securities	(2,697)		(632)
Net cash used in investing activities	(10,679)		(9,087)
Cash flows from financing activities:

Repayment of loans payable and other borrowings	(5,758)		(2,389)
Repayment of senior notes	(317,690)		0
Proceeds from issuance of senior notes	450,000		0
Payment of debt issuance costs	(6,102)		0

Repurchase of shares	(27,546)		(60,813)

Net cash provided by/(used in) financing activities	92,904		(63,202)
Net (decrease)/increase in cash and cash equivalents	(61,247)		165,156
Cash and cash equivalents, beginning of period	745,621		319,466
Cash and cash equivalents, end of period	$	684,374	$	484,622

See Supplemental Disclosure of Cash Flow Information in Note 13.

See accompanying notes to unaudited consolidated financial statements

MERITAGE HOMES CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION

Organization. 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~~for the ~~first-time~~entry-level and first move-up ~~markets.~~buyers. We have homebuilding operations in 3 regions: West, Central and East, which are comprised of 9 states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. 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. Managing our own title~~Beginning~~ operations allows us greater control over the entire escrow and closing cycles in ~~the fourth quarter of 2019, we commenced operations of wholly-owned~~addition to generating additional revenue. Meritage Homes Insurance Agency, Inc. (“Meritage ~~Insurance”~~Insurance")~~. 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 provide mortgage services to our homebuyers through an unconsolidated joint venture.

We commenced our homebuilding operations in 1985 through our predecessor company known as Monterey Homes. Meritage Homes Corporation was incorporated in the state of 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 related activities and ceased to operate as a real estate investment trust. 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. At ~~September~~June 30, ~~2020,~~2021, we were actively selling homes in ~~204~~226 communities, with base prices ranging from approximately ~~$188,000~~$229,000 to ~~$1,300,000.~~$869,000.

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, ~~2019.~~2020. 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 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 ~~$58.9~~$77.0 million and ~~$54.5~~$61.3 million are included in cash and cash equivalents at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Real Estate. Real estate 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”). Inventory includes the costs of land acquisition, land development, home construction, capitalized interest, real estate taxes, and capitalized direct overhead costs incurred during development, less impairments, if any. Land and development costs are typically allocated and transferred to homes 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 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 liability to capture such obligations is recorded in connection with the home closing and charged directly to ~~Cost~~cost of ~~home closings.~~sales.

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 and weather delays, labor or material shortages, slower absorptions, increases in costs that have not yet been committed, changes in governmental requirements, or other unanticipated issues or delays 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 absorption rate 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 the undiscounted cash flows expected to be generated by the asset are lower than its carrying amount. 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 an~~Our analysis is conducted if ~~there is an~~ indication 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 asset's carrying amount exceeds its fair value. The impairment of a community is ~~required, the impairment charges are~~ allocated to each lot on a straight-line basis.

Deposits. Deposits paid ~~for~~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~~real estate inventory at the time the deposit is ~~applied~~used to offset the acquisition price of the ~~land~~lots based on the terms of the underlying agreements. To the extent they are non-refundable, deposits are charged to expense 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 non-refundable~~any nonrefundable deposits and any ancillary capitalized costs. Our Deposits on real estate under option or contract were ~~$63.0~~$74.4 million and ~~$50.9~~$59.5 million as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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 goodwill impairment test. ASC 350 states that an entity may 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, 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 unaudited consolidated balance ~~sheet~~sheets as right-of-use ("ROU") assets and lease liabilities. ROU assets are classified within Prepaids, other assets and goodwill on our unaudited consolidated balance ~~sheet,~~sheets, while lease liabilities are classified within Accrued liabilities on our unaudited consolidated balance ~~sheet.~~sheets.

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


	As of
	June 30, 2021		December 31, 2020
ROU assets	$	18,546	$	21,624
Lease liabilities	24,439		28,254

As of
September 30, 2020 December 31, 2019
ROU assets $ 22,881 $ 26,332
Lease liabilities 29,739 34,231

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, optimizing deal structure for the impacted parties and leveraging our capital base, although our participation in such ventures is currently very 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 and purchase agreements. The purchase price generally approximates the market price at the date the contract is executed (with possible future escalators). See Note 3 for additional information on these off-balance sheet arrangements.

Surety Bonds and Letters of Credit. We ~~may~~ provide surety bonds or 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 ~~applicable~~ 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
September 30, 2020 December 31, 2019
Outstanding Estimated work
remaining to
complete Outstanding Estimated work
remaining to
complete
Sureties:
Sureties related to owned projects and lots under contract $ 428,912 $ 160,639 $ 405,017 $ 186,986
Total Sureties $ 428,912 $ 160,639 $ 405,017 $ 186,986
Letters of Credit (“LOCs”):
LOCs for land development 70,860 N/A 57,192 N/A
LOCs for general corporate operations 3,750 N/A 3,750 N/A
Total LOCs $ 74,610 N/A $ 60,942 N/A


	As of
	June 30, 2021				December 31, 2020
	Outstanding		Estimated work remaining to complete		Outstanding		Estimated work remaining to complete
Sureties:

Sureties related to owned projects and lots under contract	$	612,942	$	326,213	$	478,788	$	216,708
Total Sureties	$	612,942	$	326,213	$	478,788	$	216,708
Letters of Credit (“LOCs”):

LOCs for land development	70,745		N/A		93,661		N/A
LOCs for general corporate operations	3,375		N/A		3,750		N/A
Total LOCs	$	74,120	N/A		$	97,411	N/A

Accrued Liabilities. Accrued liabilities at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


		As of							As of
		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Accruals related to real estate development and construction activities	Accruals related to real estate development and construction activities	$	97,028	$	74,448	Accruals related to real estate development and construction activities	$	106,766	$	92,701
Payroll and other benefits	Payroll and other benefits	64,331		67,734		Payroll and other benefits	68,150		88,337
Accrued interest	Accrued interest	23,979		8,758		Accrued interest	7,280		8,457
Accrued taxes	Accrued taxes	17,311		8,459		Accrued taxes	29,695		34,373
Warranty reserves	Warranty reserves	23,259		22,015		Warranty reserves	25,065		23,743
Lease liabilities	Lease liabilities	29,739		34,231		Lease liabilities	24,439		28,254
Other accruals	Other accruals	18,724		10,363		Other accruals	21,367		20,256
Total	Total	$	274,371	$	226,008	Total	$	282,762	$	296,121

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 for the first 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 after the close of the home. With the assistance of an actuary, we have estimated the reserves for the structural warranty based on the number of homes still under warranty and our historical data and trends for our communities. We 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. Based on such reviews of warranty costs incurred, we did not adjust the warranty reserve balance in the three or ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019.~~2020. Included in the warranty reserve balances at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 reflected in the table below are case-specific reserves for a warranty matter related to alleged stucco defects in certain Florida homes we constructed between 2006 and 2016 and water drainage issues in a single community in Florida. See Note 15 ~~in the accompanying unaudited financial statements~~ for additional information regarding these case-specific reserves.

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Balance, beginning of period $ 21,578 $ 20,927 $ 22,015 $ 24,552
Additions to reserve from new home deliveries 4,592 4,150 12,620 11,425
Warranty claims (2,911) (3,766) (11,376) (14,666)
Adjustments to pre-existing reserves 0 0 0 0
Balance, end of period $ 23,259 $ 21,311 $ 23,259 $ 21,311


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Balance, beginning of period	$	23,767	$	22,090	$	23,743	$	22,015
Additions to reserve from new home deliveries	4,514		4,218		8,324		8,028
Warranty claims	(3,216)		(4,730)		(7,002)		(8,465)
Adjustments to pre-existing reserves	0		0		0		0
Balance, end of period	$	25,065	$	21,578	$	25,065	$	21,578

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, as discussed previously. We believe that our total reserves, coupled with our contractual relationships and rights with our ~~trade partners~~trades and the ~~general liability~~ insurance we and our trades 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.

Revenue Recognition. In accordance with ASC 606, Revenue from Contracts with Customers, we apply the following steps in determining the timing and amount of revenue to recognize: (1) identify the contract with our customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract, if applicable; and (5) recognize revenue when (or as) we satisfy the performance obligations. The performance obligations and subsequent revenue recognition for our three sources of revenue are outlined below:

•Revenue from closings of residential real estate is recognized when closings have occurred, the 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 receivable, if any, is reasonably assured, and 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 sale revenue expected to be recognized in any future year related to remaining performance obligations (if any) and the 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 these estimated future renewal commissions are 0t material at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Our three sources of revenue are disaggregated by type in the accompanying unaudited consolidated income statements.

Recent Accounting Pronouncements.

In ~~August 2018,~~December 2019, the Financial Accounting Standards Board ~~("FASB")~~ issued Accounting Standards Update ("ASU") No. ~~2018-15,~~2019-12, ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)~~Income Taxes (Topic 740): ~~Customer's~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~ Income Taxes(" ("ASU ~~2018-15"~~2019-12"), which ~~aligns~~simplifies the ~~requirements~~accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Entities need to consider both the natureincome taxes by eliminating certain exceptions within Accounting Standards Codification Topic 740, Income Taxes, and clarifying other areas of ~~the costs and the phase of development in which the implementation costs are incurred to determine whether the costs should be capitalized or expensed.~~existing guidance. ASU ~~2018-15~~2019-12 was effective for us ~~beginning~~on January 1, ~~2020 on a prospective basis to all implementation costs incurred after~~2021, and the ~~date of adoption. The~~ adoption ~~of ASU 2018-15~~ did not have a material impact on our financial ~~statement disclosures.~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~ ("ASU 2018-13"), which eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 was effective for us beginning January 1, 2020. As we currently only have Level 2 financial instruments, the adoption of ASU 2018-13 did not have a material impact on ourstatements or financial statement disclosures.

NOTE 2 — REAL ESTATE AND CAPITALIZED INTEREST

Real estate consists of the following (in thousands):

As of
September 30, 2020 December 31, 2019
Homes under contract under construction ⁽¹⁾
$ 967,222 $ 564,762
Unsold homes, completed and under construction ⁽¹⁾
395,151 686,948
Model homes ⁽¹⁾
86,933 121,340
Finished home sites and home sites under development ⁽²⁾
1,291,710 1,371,311
Total $ 2,741,016 $ 2,744,361


	As of
	June 30, 2021		December 31, 2020
Homes under contract under construction (1)	$	1,069,511	$	873,365
Unsold homes, completed and under construction (1)	353,047		357,861
Model homes (1)	73,846		82,502
Finished home sites and home sites under development (2) (3)	1,755,383		1,464,311
Total	$	3,251,787	$	2,778,039

(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 ~~reflects~~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.

We(3)Includes land held for sale of $29.9 million and $72.7 million as of June 30, 2021 and December 31, 2020, 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 of closings when the related property is delivered. A summary of our capitalized interest is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Capitalized interest, beginning of period $ 72,882 $ 88,307 $ 82,014 $ 88,454
Interest incurred 16,103 21,319 50,188 64,227
Interest expensed (55) (1,068) (2,176) (8,350)
Interest amortized to cost of home and land closings (21,380) (20,363) (62,476) (56,136)
Capitalized interest, end of period $ 67,550 $ 88,195 $ 67,550 $ 88,195


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Capitalized interest, beginning of period	$	57,540	$	78,162	$	58,940	$	82,014
Interest incurred	16,321		17,550		32,413		34,085
Interest expensed	(77)		(2,105)		(167)		(2,121)
Interest amortized to cost of home and land closings	(17,074)		(20,725)		(34,476)		(41,096)
Capitalized interest, end of period	$	56,710	$	72,882	$	56,710	$	72,882

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 reduce our financial risk associated with land acquisitions and allow us to better leverage our balance sheet.

In accordance with ASC 810, Based on the provisions of the relevant accounting guidance, 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”Consolidation, ~~may be created. We~~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 June 30, 2021 and December 31, 2020, 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 benefitany 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 subsequent purchase, 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~~June 30, ~~2020~~2021 (dollars in thousands):


		Projected Number of Lots	Purchase Price		Option/ Earnest Money Deposits–Cash				Projected Number of Lots	Purchase Price		Option/ Earnest Money Deposits–Cash
Purchase and option contracts recorded on balance sheet as Real estate not owned	Purchase and option contracts recorded on balance sheet as Real estate not owned	0	$	0	$	0		Purchase and option contracts recorded on balance sheet as Real estate not owned	0	$	0	$	0
Option contracts — non-refundable deposits, committed (1)	Option contracts — non-refundable deposits, committed (1)	8,740	469,067		36,885			Option contracts — non-refundable deposits, committed (1)	8,901	469,798		38,094
Purchase contracts — non-refundable deposits, committed (1)	Purchase contracts — non-refundable deposits, committed (1)	9,298	336,146		21,332			Purchase contracts — non-refundable deposits, committed (1)	11,871	359,331		28,600
Purchase and option contracts —refundable deposits, committed	Purchase and option contracts —refundable deposits, committed	2,208	59,719		1,075			Purchase and option contracts —refundable deposits, committed	2,650	89,326		886
Total committed	Total committed	20,246	864,932		59,292			Total committed	23,422	918,455		67,580
Purchase and option contracts — refundable deposits, uncommitted (2)	Purchase and option contracts — refundable deposits, uncommitted (2)	15,059	432,573		3,675			Purchase and option contracts — refundable deposits, uncommitted (2)	27,311	733,026		6,817
Total lots under contract or option	Total lots under contract or option	35,305	$	1,297,505	$	62,967		Total lots under contract or option	50,733	$	1,651,481	$	74,397
Total purchase and option contracts not recorded on balance sheet (3)	Total purchase and option contracts not recorded on balance sheet (3)	35,305	$	1,297,505	$	62,967	(4)	Total purchase and option contracts not recorded on balance sheet (3)	50,733	$	1,651,481	$	74,397	(4)

(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 unaudited consolidated balance ~~sheet~~sheets as Real estate not owned (if any), none of our purchase or option contracts require us to purchase lots.

(4)Amount is reflected on our unaudited consolidated balance ~~sheet~~sheets in Deposits on real estate under option or contract as of ~~September~~June 30, ~~2020.~~2021.

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, ~~and sales absorptions,~~ 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 ~~include~~ 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 ~~a primary source~~critical to the success of ~~land acquisitions.~~our homebuilding operations. Our joint venture partners 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 each joint venture, it may or may not be consolidated into our results. As of ~~September~~June 30, ~~2020,~~2021, we had 1 active equity-method land joint venture with limited operations.

As of ~~September~~June 30, ~~2020,~~2021, we also participated in 1 mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our homebuyers. Our investment in this mortgage joint venture as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$0.6~~$0.7 million and ~~$0.7~~$1.0 million, respectively.

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
	June 30, 2021		December 31, 2020
Assets:
Cash	$	3,949	$	4,656
Real estate	5,729		5,745
Other assets	4,524		5,118
Total assets	$	14,202	$	15,519
Liabilities and equity:
Accounts payable and other liabilities	$	4,525	$	5,588

Equity of:
Meritage (1)	5,195		5,330
Other	4,482		4,601
Total liabilities and equity	$	14,202	$	15,519

As of
September 30, 2020 December 31, 2019
Assets:
Cash $ 4,662 $ 6,329
Real estate 6,212 6,654
Other assets 3,599 4,382
Total assets $ 14,473 $ 17,365
Liabilities and equity:
Accounts payable and other liabilities $ 4,756 $ 6,580
Equity of:
Meritage ⁽¹⁾
5,205 5,678
Other 4,512 5,107
Total liabilities and equity $ 14,473 $ 17,365

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenue $ 9,630 $ 13,232 $ 26,903 $ 33,076
Costs and expenses (8,138) (7,491) (21,945) (17,206)
Net earnings of unconsolidated entities $ 1,492 $ 5,741 $ 4,958 $ 15,870
Meritage’s share of pre-tax earnings ^{(1) (2)}
$ 1,129 $ 3,106 $ 2,864 $ 8,934


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue	$	10,108	$	10,550	$	19,103	$	17,273
Costs and expenses	(8,404)		(7,944)		(16,529)		(13,807)
Net earnings of unconsolidated entities	$	1,704	$	2,606	$	2,574	$	3,466
Meritage’s share of pre-tax earnings (1) (2)	$	1,057	$	1,048	$	1,807	$	1,735

(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 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.

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

NOTE 5 — LOANS PAYABLE AND OTHER BORROWINGS

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

As of
September 30, 2020 December 31, 2019
Other borrowings, real estate notes payable ⁽¹⁾
$ 23,031 $ 22,876
$780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.15% at September 30, 2020) plus 1.375% or Prime (3.25% at September 30, 2020) plus 0.375% 0 0
Total $ 23,031 $ 22,876


	As of
	June 30, 2021		December 31, 2020
Other borrowings, real estate notes payable (1)	$	19,534	$	23,094
$780.0 million unsecured revolving credit facility with interest approximating LIBOR (approximately 0.10% at June 30, 2021) plus 1.375% or Prime (3.25% at June 30, 2021) plus 0.375%	0		0
Total	$	19,534	$	23,094

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

The Company entered into an amended and restated unsecured revolving credit facility ("Credit Facility") in 2014 that has been amended from time to time. In ~~June 2019,~~December 2020, the Credit Facility was amended ~~extending~~to extend the maturity date to ~~July 2023, along with minor administrative changes.~~December 22, 2025 and provide for the replacement of LIBOR in the event such reference rate is no longer available. The Credit Facility's aggregate commitment is $780.0 million with an accordion feature permitting the size of the facility to increase to a maximum of $880.0 million, subject to certain conditions, including the availability of additional bank commitments. Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of ~~$1.1~~$1.5 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined 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~~June 30, ~~2020.~~2021.

We had 0 outstanding borrowings under the Credit Facility as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020. There were 0 borrowings or repayments during the three and six months ended June 30, 2021. During the first quarter of 2020 we borrowed $500.0 million on our Credit Facility in connection with the perceived potential instability of the financial markets around the COVID-19 pandemic, which we repaid in full during the second quarter of 2020. ~~There were 0 borrowings or repayments during the three months ended September 30, 2020. There were 0 borrowings or repayments during the three and nine months ended September 30, 2019.~~ As of ~~September~~June 30, ~~2020,~~2021, we had outstanding letters of credit issued under the Credit Facility totaling ~~$74.6~~$74.1 million, leaving ~~$705.4~~$705.9 million available under the Credit Facility to be drawn.

NOTE 6 — SENIOR NOTES, NET

Senior notes, net consist of the following (in thousands):

As of
September 30, 2020 December 31, 2019
7.00% senior notes due 2022 300,000 300,000
6.00% senior notes due 2025. At September 30, 2020 and December 31, 2019 there was approximately $3,818 and $4,432 in net unamortized premium, respectively. 403,818 404,432
5.125% senior notes due 2027 300,000 300,000
Net debt issuance costs (7,048) (8,327)
Total $ 996,770 $ 996,105


	As of
	June 30, 2021		December 31, 2020


7.00% senior notes due 2022	$	0	$	300,000
6.00% senior notes due 2025. At June 30, 2021 and December 31, 2020 there was approximately $3,204 and $3,614 in net unamortized premium, respectively.	403,204		403,614
5.125% senior notes due 2027	300,000		300,000
3.875% senior notes due 2029	450,000		0
Net debt issuance costs	(11,270)		(6,623)
Total	$	1,141,934	$	996,991

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 were in compliance with all such covenants as of ~~September~~June 30, ~~2020.~~2021.

Obligations to pay principal and interest on the senior 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.

In April 2021, we completed an offering of $450.0 million aggregate principal amount of 3.875% Senior Notes due 2029. We used a portion of the net proceeds from this offering to redeem all $300.0 million aggregate principal outstanding of our 7.00% Senior Notes due 2022, incurring $18.2 million in early debt extinguishment charges in the three and six months ended June 30, 2021, reflected as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements.

NOTE 7 — FAIR VALUE DISCLOSURES

ASC 820-10, Fair Value Measurement ("ASC 820"), defines fair value, ~~and~~ 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 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, 2020 December 31, 2019
Aggregate
Principal Estimated Fair
Value Aggregate
Principal Estimated Fair
Value
7.00% senior notes $ 300,000 $ 318,000 $ 300,000 $ 327,390
6.00% senior notes $ 400,000 $ 444,520 $ 400,000 $ 449,200
5.125% senior notes $ 300,000 $ 333,030 $ 300,000 $ 319,500


	As of
	June 30, 2021				December 31, 2020
	Aggregate Principal		Estimated Fair Value		Aggregate Principal		Estimated Fair Value


7.00% senior notes due 2022	$	0	$	0	$	300,000	$	319,758
6.00% senior notes due 2025	$	400,000	$	456,800	$	400,000	$	451,913
5.125% senior notes due 2027	$	300,000	$	337,140	$	300,000	$	333,328
3.875% senior notes due 2029	$	450,000	$	465,750	$	0	$	0

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,
2020 2019 2020 2019
Basic weighted average number of shares outstanding 37,607 38,296 37,763 38,119
Effect of dilutive securities:
Unvested restricted stock 798 783 728 722
Diluted average shares outstanding 38,405 39,079 38,491 38,841
Net earnings $ 109,118 $ 69,809 $ 270,948 $ 146,049
Basic earnings per share $ 2.90 $ 1.82 $ 7.17 $ 3.83
Diluted earnings per share $ 2.84 $ 1.79 $ 7.04 $ 3.76


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Basic weighted average number of shares outstanding	37,818		37,599		37,731		37,842
Effect of dilutive securities:

Unvested restricted stock	559		570		626		670
Diluted average shares outstanding	38,377		38,169		38,357		38,512
Net earnings	$	167,389	$	90,678	$	299,232	$	161,830


Basic earnings per share	$	4.43	$	2.41	$	7.93	$	4.28
Diluted earnings per share	$	4.36	$	2.38	$	7.80	$	4.20

NOTE 9 — ACQUISITIONS AND GOODWILL

Goodwill. 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 were recorded in accordance with ASC 805, Business Combinations, and ASC 820, using the acquisition method of accounting. The purchase price for acquisitions was 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 on 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, 2019 $ 0 $ 0 $ 32,962 $ 0 $ 0 $ 32,962
Additions 0 0 0 0 0 0
Balance at September 30, 2020 $ 0 $ 0 $ 32,962 $ 0 $ 0 $ 32,962


	West		Central		East		Financial Services		Corporate		Total
Balance at December 31, 2020	$	0	$	0	$	32,962	$	0	$	0	$	32,962
Additions	0		0		0		0		0		0

Balance at June 30, 2021	$	0	$	0	$	32,962	$	0	$	0	$	32,962

NOTE 10 — STOCKHOLDERS’ EQUITY

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

Nine Months Ended September 30, 2020
(In thousands)
Number of
Shares Common
Stock Additional
Paid-In
Capital Retained
Earnings Total
Balance at December 31, 2019 38,199 $ 382 $ 505,352 $ 1,468,256 $ 1,973,990
Net earnings — — — 71,152 71,152
Stock-based compensation expense — — 6,437 — 6,437
Issuance of stock 398 4 (4) — 0
Share repurchases (1,000) (10) (60,803) — (60,813)
Balance at March 31, 2020 37,597 $ 376 $ 450,982 $ 1,539,408 $ 1,990,766
Net earnings — — — 90,678 90,678
Stock-based compensation expense — — 3,157 — 3,157
Issuance of stock 6 1 (1) — 0
Balance at June 30, 2020 37,603 377 454,138 1,630,086 2,084,601
Net earnings — — — 109,118 109,118
Stock-based compensation expense — — 6,130 — 6,130
Issuance of stock 9 — — — —
Balance at September 30, 2020 37,612 $ 377 $ 460,268 $ 1,739,204 $ 2,199,849


	Six Months Ended June 30, 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)		—		0
Share repurchases	(100)	(1)		(8,384)		—		(8,385)
Balance at March 31, 2021	37,847	$	378	$	452,741	$	2,023,574	$	2,476,693
Net earnings	—	—		—		167,389		167,389
Stock-based compensation expense	—	—		3,223		—		3,223

Share repurchases	(200)	(2)		(19,159)		—		(19,161)
Balance at June 30, 2021	37,647	$	376	$	436,805	$	2,190,963	$	2,628,144


		Nine Months Ended September 30, 2019																	Six Months Ended June 30, 2020
		(In thousands)																	(In thousands)
		Number of Shares	Common Stock		Additional Paid-In Capital		Retained Earnings		Total			Number of Shares	Common Stock		Additional Paid-In Capital		Retained Earnings		Total
Balance at December 31, 2018		38,073	$	381	$	501,781	$	1,218,593	$	1,720,755
Balance at December 31, 2019											Balance at December 31, 2019	38,199	$	382	$	505,352	$	1,468,256	$	1,973,990
Net earnings	Net earnings	—	—		—		25,412		25,412		Net earnings	—	—		—		71,152		71,152
Stock-based compensation expense	Stock-based compensation expense	—	—		5,861		—		5,861		Stock-based compensation expense	—	—		6,437		—		6,437
Issuance of stock	Issuance of stock	400	4		(4)		—		0		Issuance of stock	398	4		(4)		—		0
Share repurchases	Share repurchases	(209)	(2)		(8,955)		—		(8,957)		Share repurchases	(1,000)	(10)		(60,803)		—		(60,813)

Balance at March 31, 2019		38,264	$	383	$	498,683	$	1,244,005	$	1,743,071
Balance at March 31, 2020											Balance at March 31, 2020	37,597	$	376	$	450,982	$	1,539,408	$	1,990,766
Net earnings	Net earnings	—	—		—		50,828		50,828		Net earnings	—	—		—		90,678		90,678
Stock-based compensation expense	Stock-based compensation expense	—	—		4,201		—		4,201		Stock-based compensation expense	—	—		3,157		—		3,157
Issuance of stock	Issuance of stock	3	0		0		—		0		Issuance of stock	6	1		(1)		—		0
Balance at June 30, 2019		38,267	383		502,884		1,294,833		1,798,100
Net earnings		—	—		—		69,809		69,809
Stock-based compensation expense		—	—		5,657		—		5,657
Issuance of stock		32	0		0		—		0
Balance at September 30, 2019		38,299	$	383	$	508,541	$	1,364,642	$	1,873,566
Balance at June 30, 2020											Balance at June 30, 2020	37,603	$	377	$	454,138	$	1,630,086	$	2,084,601

NOTE 11 — STOCK BASED AND DEFERRED COMPENSATION

We have a stock compensation plan, the Meritage Homes Corporation 2018 Stock Incentive Plan (the “2018 Plan"), that 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 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. The 2018 Plan authorizes 6,600,000 shares of stock to be awarded, of which ~~1,304,796~~1,029,153 shares remain available for grant at ~~September~~June 30, ~~2020.~~2021. 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, a ~~three-year~~three-year cliff vesting for both non-vested stock and performance-based awards granted to senior executive officers and either a ~~three-year~~three-year cliff vesting or ~~one-year~~one-year vesting for non-employee 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. A portion of the performance-based restricted stock awards granted to our executive officers contain market conditions as defined by ASC 718. 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 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 compensation expense and stock award activity (dollars in thousands):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Stock-based compensation expense	Stock-based compensation expense	$	6,130	$	5,657	$	15,724	$	15,719	Stock-based compensation expense	$	3,223	$	3,157	$	8,590	$	9,594
Non-vested shares granted	Non-vested shares granted	2,112		3,314		225,593		385,328		Non-vested shares granted	0		0		221,552		223,481
Performance-based non-vested shares granted	Performance-based non-vested shares granted	0		0		56,139		94,152		Performance-based non-vested shares granted	0		0		46,593		56,139

Performance-based shares issued in excess of target shares granted ⁽¹⁾	Performance-based shares issued in excess of target shares granted ⁽¹⁾	0		0		24,054		0		Performance-based shares issued in excess of target shares granted (1)	0		0		37,425		24,054
Restricted stock awards vested (includes performance-based awards)	Restricted stock awards vested (includes performance-based awards)	8,610		32,369		413,016		435,292		Restricted stock awards vested (includes performance-based awards)	0		6,060		434,729		404,406

(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.

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

As of
September 30, 2020 December 31, 2019
Unrecognized stock-based compensation cost $ 26,568 $ 22,341
Weighted average years expense recognition period 2.27 1.70
Total equity awards outstanding ⁽¹⁾
1,101,671 1,240,529


	As of
	June 30, 2021		December 31, 2020
Unrecognized stock-based compensation cost	$	35,022	$	22,687
Weighted average years expense recognition period	2.15		2.01
Total equity awards outstanding (1)	932,589		1,098,545

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

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 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 or ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 or ~~2019,~~2020, other than minor administrative costs.

NOTE 12 — INCOME TAXES

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Federal	Federal	$	21,692	$	18,644	$	54,594	$	38,312	Federal	$	38,713	$	20,528	$	67,826	$	32,902
State	State	4,696		3,913		12,659		8,049		State	9,549		4,656		14,570		7,963
Total	Total	$	26,388	$	22,557	$	67,253	$	46,361	Total	$	48,262	$	25,184	$	82,396	$	40,865

The effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~19.5%~~22.4% and ~~19.9%~~21.6%, and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~24.4%~~21.7% and ~~24.1%~~20.2%, respectively. The ~~nine~~tax rate for the three and six months ended ~~September~~June 30, ~~2020 tax rate~~2021 reflects credits earned under ~~the Taxpayer Certainty and Disaster Tax Relief Act of 2019 ("the Act") enacted into law on December 20, 2019. The Act extended eligibility for~~ the Internal Revenue Code ("IRC") §45L new energy efficient homes credit, for years 2018 through 2020. For the first nine months of 2020, we recorded a tax benefit from the new law based on estimates for qualifying new energy efficient homes. For the first nine months of 2019, the tax benefit from the new law was not reflected in the tax rate due to the December enactment date. In the first nine months of 2019 and 2020, we recorded tax benefits from vested equity-based compensation for stock awards. These tax benefits have a favorable impact on our effective tax rates.

~~On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES Act")~~which was enacted into law ~~in response to~~under the ~~widespread economic impact~~Taxpayer Certainty and Disaster Tax Relief Act of 2019 and subsequently extended through the end of 2021 by enactment of the ~~COVID-19 pandemic. Although the CARES~~Taxpayer Certainty and Disaster Tax Relief Act ~~has several provisions which may benefit our company and its employees, these provisions are not expected to have a material impact on our~~of 2020. The tax rate ~~in 2020. We will continue to monitor the CARES Act and will take advantage of favorable tax-related provisions if and when applicable.~~at June 30, 2021 also reflects higher non-deductible senior executive officer stock-based compensation.

At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we have 0 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, 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 0 valuation allowance on our deferred tax assets or NOL carryovers at ~~September~~June 30, ~~2020.~~2021.

At ~~September~~June 30, 2020, we had 0 remaining federal NOL carry forward or un-utilized federal tax credits. At September 30, 2020 and December 31, 2019, we had tax benefits for state NOL carry forwards of $0.5 million, net of federal benefit, that begin to expire in 2030.

~~At September 30, 2020,~~2021, we have income taxes payable of ~~$9.7~~$21.0 million and income taxes receivable of ~~$5.0~~$0.7 million. The income taxes payable primarily consists of current federal and state tax accruals, net of current energy tax credits and estimated tax payments. This amount is recorded in Accrued liabilities on the accompanying unaudited consolidated balance ~~sheet~~sheets at ~~September~~June 30, ~~2020.~~2021. The income taxes receivable primarily consists of additional energy tax credits claimed by amending prior year tax returns and is recorded in Other receivables on the accompanying unaudited consolidated balance ~~sheet~~sheets at ~~September~~June 30, ~~2020.~~2021.

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 ~~2015.~~2016. We have ~~one~~no federal or state income tax ~~examination~~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 IRC §382. Based on our analysis performed as of ~~September~~June 30, ~~2020~~2021 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):

Nine Months Ended September 30,
2020 2019
Cash paid during the year for:
Interest, net of interest capitalized $ (14,756) $ (13,622)
Income taxes paid $ 49,103 $ 39,491
Non-cash operating activities:
Real estate acquired through notes payable $ 8,664 $ 2,248


	Six Months Ended June 30,
	2021		2020
Cash paid during the year for:
Interest, net of interest capitalized	$	227	$	1,089
Income taxes paid	$	83,127	$	0
Non-cash operating activities:

Real estate acquired through notes payable	$	2,198	$	402

NOTE 14 — OPERATING AND REPORTING SEGMENTS

We operate with 2 principal business segments: homebuilding and financial services. As defined in ASC 280-10, Segment Reporting, we have 9 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 and Colorado
			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 home and land closing revenues less cost of home 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 September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Homebuilding revenue ⁽¹⁾:	Homebuilding revenue ⁽¹⁾:									Homebuilding revenue (1):
West	West	$	434,289	$	366,149	$	1,198,782	$	938,117	West	$	452,165	$	382,245	$	845,595	$	764,493
Central	Central	353,208		279,564		909,692		761,702		Central	403,838		296,357		726,022		556,484
East	East	350,594		295,167		963,709		813,816		East	421,596		354,477		789,763		613,115
Consolidated total	Consolidated total	$	1,138,091	$	940,880	$	3,072,183	$	2,513,635	Consolidated total	$	1,277,599	$	1,033,079	$	2,361,380	$	1,934,092
Homebuilding segment operating income:	Homebuilding segment operating income:									Homebuilding segment operating income:
West	West	$	53,423	$	41,237	$	140,059	$	83,619	West	$	78,938	$	44,742	$	143,189	$	86,636
Central	Central	52,394		31,979		119,208		72,795		Central	84,965		37,895		141,958		66,814
East	East	37,791		24,326		97,343		53,235		East	73,477		37,791		123,656		59,552
Total homebuilding segment operating income	Total homebuilding segment operating income	143,608		97,542		356,610		209,649		Total homebuilding segment operating income	237,380		120,428		408,803		213,002
Financial services segment profit	Financial services segment profit	4,315		5,582		10,942		16,315		Financial services segment profit	4,615		3,789		8,375		6,627
Corporate and unallocated costs ⁽²⁾	Corporate and unallocated costs ⁽²⁾	(13,550)		(12,092)		(30,488)		(31,020)		Corporate and unallocated costs (2)	(9,456)		(7,764)		(19,370)		(16,938)
Interest expense	Interest expense	(55)		(1,068)		(2,176)		(8,350)		Interest expense	(77)		(2,105)		(167)		(2,121)
Other income, net	Other income, net	1,188		2,402		3,313		5,816		Other income, net	1,377		1,514		2,175		2,125
Loss on early extinguishment of debt										Loss on early extinguishment of debt	(18,188)		0		(18,188)		0
Net earnings before income taxes	Net earnings before income taxes	$	135,506	$	92,366	$	338,201	$	192,410	Net earnings before income taxes	$	215,651	$	115,862	$	381,628	$	202,695

(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,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Land closing revenue:	Land closing revenue:									Land closing revenue:
West	West	$	0	$	0	$	4,974	$	30	West	$	12,956	$	456	$	12,956	$	4,974
Central	Central	3,301		820		7,901		1,513		Central	0		382		3,799		4,600
East	East	1,569		875		4,079		11,204		East	0		650		0		2,510
Total	Total	$	4,870	$	1,695	$	16,954	$	12,747	Total	$	12,956	$	1,488	$	16,755	$	12,084

(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 September 30, 2020																															At June 30, 2021
		West			Central			East			Financial Services		Corporate and Unallocated			Total			West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	Deposits on real estate under option or contract	$	24,085		$	12,807		$	26,075		$	0	$	0		$	62,967	Deposits on real estate under option or contract	$	27,918		$	14,214		$	32,265		$	0	$	0		$	74,397
Real estate	Real estate	1,198,314			716,968			825,734			0		0			2,741,016		Real estate	1,395,152			952,733			903,902			0		0			3,251,787
Investments in unconsolidated entities	Investments in unconsolidated entities	260			2,987			0			0		572			3,819		Investments in unconsolidated entities	207			3,002			0			0		734			3,943
Other assets	Other assets	47,869		(1)	113,800		(2)	87,300		(3)	564		629,983		(4)	879,516		Other assets	59,078		(1)	162,813		(2)	75,701		(3)	641		693,193		(4)	991,426
Total assets	Total assets	$	1,270,528		$	846,562		$	939,109		$	564	$	630,555		$	3,687,318	Total assets	$	1,482,355		$	1,132,762		$	1,011,868		$	641	$	693,927		$	4,321,553

(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 ~~our~~and cash equivalents, deferred tax ~~asset~~assets and prepaid expenses and other assets.


		At December 31, 2019																															At December 31, 2020
		West			Central			East			Financial Services		Corporate and Unallocated			Total			West			Central			East			Financial Services		Corporate and Unallocated			Total
Deposits on real estate under option or contract	Deposits on real estate under option or contract	$	10,568		$	10,963		$	29,370		$	0	$	0		$	50,901	Deposits on real estate under option or contract	$	22,493		$	11,154		$	25,887		$	0	$	0		$	59,534
Real estate	Real estate	1,223,949			708,786			811,626			0		0			2,744,361		Real estate	1,154,488			814,919			808,632			0		0			2,778,039
Investments in unconsolidated entities	Investments in unconsolidated entities	260			3,508			0			0		675			4,443		Investments in unconsolidated entities	261			3,090			0			0		999			4,350
Other assets	Other assets	58,173		(1)	107,791		(2)	83,475		(3)	765		348,340		(4)	598,544		Other assets	51,271		(1)	122,933		(2)	81,601		(3)	612		766,058		(4)	1,022,475
Total assets	Total assets	$	1,292,950		$	831,048		$	924,471		$	765	$	349,015		$	3,398,249	Total assets	$	1,228,513		$	952,096		$	916,120		$	612	$	767,057		$	3,864,398

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

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

(3)Balance consists primarily of cash and cash equivalents, goodwill, ~~prepaid expenses~~prepaids and other assets and property and equipment.

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

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 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 prior to litigation. We believe there are no pending legal or warranty matters as of ~~September~~June 30, ~~2020~~2021 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 ~~$23.3~~$25.1 million of total warranty reserves ~~at September 30, 2020 we have case specific reserves~~ related to alleged stucco defects in ~~homes in~~ certain Florida ~~communities~~homes we ~~developed~~constructed between 2006 and 2016 and for water drainage issues in a single community in Florida that we developed in 2016. Our review and handling of these two matters is ongoing and our estimate of and reserves for resolving these matters is based on internal data, our judgement and various assumptions and estimates. Due to the degree of judgment and the potential for variability in our underlying assumptions and ~~estimates,~~data, as we obtain additional information, we may revise our estimates and thus our related reserves. As of ~~September~~June 30, ~~2020,~~2021, 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 matters. 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," "will," "should," "could," “estimate,” “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 (the "Exchange Act"). Forward-looking statements in this Quarterly Report include: statements concerning our expectations for our financial results, business, operations, housing demand and the economy and society in general; trends and economic factors in the homebuilding industry in general, and our markets and results specifically, including the impact thereon of ~~COVID-19~~COVID-19; our goals, strategies and ~~governmental imposed restrictions~~strategic initiatives and ~~reaction~~the anticipated benefits relating thereto; our ~~operating strategy~~intentions and ~~initiatives,~~the expected benefits and advantages of our product and land positioning strategies, including with respect to our ~~strategy to expand~~focus on the ~~number of communities that target the first-time~~entry-level and first move-up ~~buyers~~buyer and housing demand for affordable homes; supply chain constraints and construction cycle times; the ~~benefits~~timing and targeted number of ~~our virtual tours~~new community openings in 2021 and ~~solutions including our actions in light of COVID-19;~~beyond; demand and pricing trends in the short-term throughout our geographies; that we may opportunistically repurchase or redeem our debt; the benefits of our land acquisition strategy and structures, including the use and the benefits of option contracts; our expectation that existing guarantees, letters of credit and performance and surety bonds will not be drawn on; the adequacy 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; seasonality; our ability and willingness to acquire land under option or contract; our strategy and trends and expectations concerning sales prices, sales pace, closings, orders, cancellations, land investments and spend, material and labor costs for land development and home construction, gross margins, gross profit, revenues, general and administrative expenses, net earnings, operating leverage, backlog and backlog conversion, land prices, changes in and location of active communities, and the amount, type and timing of new community openings; ~~seasonality;~~ our future cash needs; the impact of new accounting standards; that we may seek to raise additional debt and equity capital; 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.

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: changes in interest rates and the availability and pricing of residential mortgages; inflation in the cost of materials used to develop communities and construct homes; supply chain constraints; our ability to obtain performance and surety bonds in connection with our development work; the ability of our potential buyers to sell their existing homes; legislation related to tariffs; the adverse effect of 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 limited geographic diversification; 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 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 to comply with laws and regulations; our compliance with government regulations; negative publicity that affects our reputation; disruptions to our business by COVID-19, fear of a similar event, and measures that federal, state and local governments and/or health authorities implement to address it; the availability and cost of finished lots and undeveloped land; shortages in the availability and cost of labor; the ability of our potential buyers to sell their existing homes; changes in interest rates and the availability and pricing of residential mortgages; our exposure to information technology failures and security breaches and the impact thereof; legislation related to tariffs; inflation in the cost of materials used to develop communities and construct homes; the adverse effect of slow absorption rates; impairments of our real estate inventory; cancellation rates; competition; changes in tax laws that adversely impact us or our homebuyers; 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 and impacts from natural disasters or severe weather conditions; home warranty and construction defect claims; failures in health and safety performance; our ability to obtain performance and surety bonds in connection with our development work; the loss of key personnel; 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 if our credit ratings are downgraded; our compliance with government regulations; the effect of legislative and other governmental 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; negative publicity that affects our reputation; 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, ~~2019~~2020 under the caption "Risk Factors."

Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain, especially with respect to the impact of COVID-19, 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 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 United States and world economies have been dramatically affected~~Housing market conditions in the second quarter of 2021 remained strong, driven by ~~COVID-19 as there has been inherent uncertainty due to rapidly changing governmental orders, public health concerns,~~ the resulting market reactions, related unemployment and the psychology of potential homebuyers. Such a fluid environment makes it challenging to estimate the impact that this pandemic may have on the future performance of our business. However, the desire to have larger, healthier single-family homes with additional space and technological capabilities to accommodate work or school-from-home scenarios,demand created by continuing low interest rates, a limited supply of ~~existing~~available homes, ~~coupled with low interest rates, have contributed to~~and an ~~unanticipated spike in the demand~~increased desire for new home offerings as a whole, particularly for readily-available inventory at lower price points, which aligns well with our strategy. As a result, we have experienced significant increases in sales, closings, and pricing power across our geographies throughout the second and third quarters of 2020. We have also accelerated various company-wide digital initiatives that were already in progress that facilitate the marketing, selling and closing ofhealthier, safer homes ~~for buyers who are more comfortable transacting remotely.~~

~~We believe the digital and online efforts helped us effectively navigate the initial shelter-in-place orders and continue to provide a simple, streamlined solution to our customers through:~~

•~~Offering virtual tours in all of our communities to prospective customers;~~

•~~Offering extensive online tools such as 3-D tours and dynamic floor plans to mimic the live experience of walking through a model home;~~

•~~Offering our homebuyers virtual tours of homes that are pending closing;~~

•~~Offering virtual grand opening events to the broker community to introduce our new communities;~~

•~~Continuing to pre-qualify buyers for mortgages through digital solutions on our website;~~

•~~Collecting earnest money payments remotely through third-party hosted money-transfer solutions; and~~

•~~Offering drive-through and partial or fully virtual closings in states where such services are permitted.~~

Throughout this ever changing environment, our primary concern has and continues to be the health and well-being of our employees, customers, business partners and the communities we build in. Since the inception of this pandemic, we have followed all applicable government orders and guidelines of public health agencies, and have modified our standards and protocols to safeguard all of our stakeholders as conditions change. In order to address the changing environment, we temporarily closed our sales centers and model homes, as well as our Studio M design centers, to the general public, shifting to an appointment-only home sales process in March 2020. All sales centers and Studio M centers are now open. We have implemented responsible hygiene and cleaning, social distancing and other processes in all of our operations.

As of September 30, 2020 approximately 93% of our communities are targeted to first-time or first move-up buyers and those buyer segments represented approximately 94% of our orders in the third quarter of 2020.

~~Summary Company Results~~

Our results for the third quarter of 2020 reflect continued strong growth in closings and orders, compared to the third quarter of 2019 as buyers took advantage of the historically low interest-rate environment and capitalized on their desire to move out of their existing home and transition to a larger, healthier home with indoor space to accommodate work and school from home needs. We believe the needs of both the millennial and ~~outdoor space~~baby boomer generations support a continued elevated level of demand over the next several years, although individual market results will vary in response to ~~enjoy~~each respective market's economic factors but will likely taper to a normalized pace in the near term. Our strategy to provide buyers with affordable, quick move-in ready homes has positioned us to take full advantage of the current market, resulting in the highest second quarter closing volume and the highest quarterly home closing gross margin in the Company's history.

In addition to our strong growth in closings and profitability during the second quarter of 2021, we made notable progress on our goals for community count growth. As of June 30, 2021, we had 226 active communities, up from 203 at March 31, 2021, although down from June 30, 2020 due to the sustained accelerated orders pace throughout 2020 and into 2021. Ongoing pandemic-related supply chain disruptions combined with over a year of sustained demand have resulted in some production constraints for the homebuilding industry. As a result of these constraints, we experienced construction cycle delays of approximately four weeks from our typical construction cycle times during the current quarter, which impacted both orders and closings. We were able to successfully navigate these supply-chain challenges by working with our long-term trade partners to minimize the impact on our production, where possible, and were able to close 3,273 homes, our highest second quarter closing volume in history, while ~~practicing social distancing.~~ also seeing an increase in our average absorption pace year-over-year, even as we metered the number of homes available for sale to align with the current production constraints.

Summary Company Results

Total home closing revenue was ~~$1.1~~$1.3 billion on ~~3,004~~3,273 homes closed for the three months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$939.2 million~~$1.0 billion on ~~2,419~~2,770 homes closed for the ~~third~~second quarter of ~~2019, 20.7%~~2020, 22.6% and ~~24.2%~~18.2% increases, respectively. In addition to higher home closing revenue, ~~third quarter results benefited from a 170 basis point increase in~~we achieved our highest home closing gross margin in Company history of 27.3%, a 590 basis point increase year-over-year that resulted in a ~~$57.5~~$124.6 million ~~year-over-year~~ increase in home closing gross profit to ~~$243.6~~$345.3 million compared to ~~$186.1~~$220.7 million in the ~~third~~second quarter of ~~2019. We attribute this gross profit~~2020. This improvement was due to ~~our simplified product offerings with more efficient product designs which reduce both construction costs and construction cycle times. In addition, we experienced~~ pricing power ~~in all~~from strong buyer demand, combined with leverage of ~~our geographies due to the strength of the new home market,~~overhead costs on higher volumes, which have more than offset ~~building~~the impact of rising material costs, ~~increases,~~ particularly ~~with respect to~~ lumber. ~~We also realized significant savings~~As a result of rising sales prices, our consolidated average sales price ("ASP") on home closings is up 3.8% year-over-year, despite our shift in ~~sales and marketing spending~~product mix toward entry-level homes. Interest expense decreased year-over-year by $2.0 million as we ~~leveraged more digital platforms and scaled back certain corporate expenditures due to COVID-19.~~benefited from lower interest rates as a result of our debt refinancing in April 2021. As a result of this refinancing transaction, we recognized an $18.2 million loss on early extinguishment of debt (see Note 6 in the accompanying unaudited financial statements for additional information). Earnings before income taxes improved by ~~$43.1~~$99.8 million ~~year over year~~year-over-year to ~~$135.5~~$215.7 million for the ~~third~~second quarter of ~~2020.~~2021. These improved year-over-year results combined with ~~a lower~~our effective income tax rate of ~~19.5%~~22.4% as compared to ~~24.4%~~21.7% in ~~2019~~the prior year period led to net earnings of ~~$109.1~~$167.4 million in the ~~third~~second quarter of ~~2020~~2021 versus ~~$69.8~~$90.7 million in the ~~third~~second quarter of ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, home closing revenue was ~~$3.1~~$2.3 billion on ~~8,090~~

6,163 homes closed, ~~22.2%~~22.0% and ~~25.7%~~21.2% increases over ~~2019,~~2020, respectively. Similar to the ~~third~~second quarter, year-to-date results reflect an increase of ~~$180.9~~$212.9 million in home closing gross profit versus the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Higher gross profit ~~lower selling, general,~~ and ~~administrative expenses, combined with a $6.2 million decrease in~~lower interest expense ~~year-over year due to~~were partially offset by the ~~December 2019~~loss on early ~~redemption~~extinguishment of ~~$300 million~~debt and a slightly higher effective tax rate of ~~senior notes, led~~21.6%, leading to net income of ~~$270.9~~$299.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2021 compared to ~~$146.0~~$161.8 million for the ~~2019~~2020 period.

~~In addition~~Order volume declined slightly by 1.5% in the three months ended June 30, 2021 compared to the ~~positive trends~~same period in ~~our home closings and financial results,~~2020, due to 10.3% fewer active communities open for sales, which was almost fully offset by an increase in per community orders pace of 5.5 in the second quarter 2021 compared to 5.0 in the second quarter 2020. Due to an 18.0% increase in ASP, order value increased $209.2 million, or 16.2%. Our order cancellation rate dropped to 8% for the ~~three and nine~~second quarter of 2021 compared to 15% for the prior year period. For the six months ended ~~September~~June 30, ~~2020 were up significantly as well. Home~~2021, home orders ~~were 70.5%~~ and ~~40.2% higher,~~home order value increased 4.5% and 15.3%, respectively, over the prior year, and our order cancellation rate dropped to ~~13% for the third quarter of 2020~~9% compared to ~~17%~~14% for the prior year period. We ended the ~~third~~second quarter of ~~2020~~2021 with ~~5,242~~5,509 homes in backlog valued at ~~$2.0~~$2.3 billion, a ~~49.0%~~25.3% increase in units and a ~~43.5%~~40.6% increase in value over ~~September~~June 30, ~~2019.~~2020.

Company Positioning

We believe that our ~~on-going~~ongoing investments in new communities designed for the ~~first-time~~entry-level and first move-up homebuyer, our commitment to an all-spec strategy for our entry-level homes, our simplified first move-up design studio process, industry-leading innovation in our energy-efficient product offerings, automation, and transformative customer buying experience, create a differentiated strategy that has aided us in our success in the highly-competitive new home market and will continue to do so in the long-term.

Our focus includes the following ~~strategic initiatives:~~

•~~Ensuring sufficient speculative/started inventory is available in all communities to accommodate our customers' desire for a quick move-in home;~~strategies:

•Expanding ~~the number of actively selling communities that target the growing number of first-time~~our community count and first move-up homebuyers. After a short pause in the latter part of the first quarter and the start of the second quarter due to COVID-19 uncertainties, we have been aggressively acquiring and contracting for lots and communities;market share;

•~~Improving~~Continuously improving the overall ~~customer~~home buying experience ~~leveraging our simplified customer home purchase~~through simplification and innovation. Studio M streamlines the option selection process for move-up buyers, ~~at Studio M;~~while all of our LiVE.NOW® communities feature interactive technology tools offering homebuyers the ability to electronically search for available homes with their desired home features and based on their preferred availability or move-in dates;

•~~Demonstrating our commitment to innovation~~Leveraging and expanding on technological solutions through digital offerings, including virtual tours in all of our communities for both prospective buyers and home closing walkthroughs, 3-D tours and ~~solutions available~~dynamic floor plans, partial or fully virtual closings in states where such services are permitted, and online scheduling for in-person model home tours and self-guided tours in select locations. Our website also provides a comprehensive online suite of financial services such as mortgage pre-qualifications, on-demand homeowners’ insurance quotes and a warranty portal for our homeowners to submit and track warranty-related matters;

•Increasing homeowner satisfaction by setting industry standards for energy-efficiency and offering healthier homes with enhanced security features. Every new home we construct meets or exceeds ENERGY STAR® standards and comes standard with the MERV-13 air filter, one of the most advanced air filtration systems offered today for residential construction, and a multispeed HVAC system, allowing owners to better manage the comfort of their home while reducing their environmental impact and operating costs. In addition, each of our ~~customers~~newly constructed homes includes home automation features through our M.Connected Home™ Automation Suite which includes the Honeywell Pro Series Hub ("the Hub") that ~~allow~~allows homeowners to monitor and control key components of their homes, such as Wi-Fi enabled thermostats, garage doors, a video doorbell and smart door locks. We recently partnered with SafeStreets to provide our homebuyers professional installation of various smart home technologies and connectivity to the ~~entire home marketing~~Hub, training and ~~sales processes, and in some geographies the closing process, to be conducted on-line;~~expanded security options.

•Simplifying our production process ~~and adding consistency~~ to ~~our production cadence allowing~~allow us to more efficiently build our homes ~~shorten our construction timeline~~ and reduce our construction costs, which in turn allows us to competitively price our ~~homes;~~homes and deliver them on a shortened timeline; and

•Improving our home closing gross profit by growing closing volume while streamlining our operations, allowing us to better leverage our ~~overhead.~~overhead;

In order to maintain focus on growing our business, we ~~also~~ remain committed to the following:

•~~Increasing orders and~~Maintaining a healthy order 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;

•Achieving or maintaining a position of at least 5% market share in all of our markets;

•Continuing to innovate and promote our energy efficiency program and our M.Connected^® Home™ Automation Suite to create differentiation for the Meritage brand;

•Managing construction efficiencies and costs through national and regional vendor relationships with a focus on ~~simplified product and limited SKUs,~~ quality construction and warranty management;

•Carefully managing our liquidity and ~~maintaining~~ a strong balance ~~sheet. We~~sheet; we ended the quarter with a ~~31.7%~~30.6% debt-to-capital ratio and a ~~15.7%~~15.4% net debt-to-capital ratio;

•Maximizing returns to our shareholders, most recently through our improved financial performance ~~debt repayment~~ and share repurchase program; and

•~~Creating an inclusive and positive culture focused on cultivating an environment where every team member can be highly engaged in embracing opportunities to develop and grow in their careers.~~

•Promoting a positive environment for our employees through our commitment to drive diversity, equity, and inclusion and providing market-competitive benefits in order to develop and motivate our employees and to minimize turnover and to maximize recruitment efforts.

Critical Accounting Policies

The accounting policies we deem most critical to us and that involve the most difficult, subjective or complex judgments include revenue recognition, valuation of real estate, warranty reserves and valuation of deferred tax assets. There have been no significant changes to our critical accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our ~~2019~~2020 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 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 September 30, Quarter over Quarter
2020 2019 Change $ Change %
Home Closing Revenue
Total
Dollars $ 1,133,221 $ 939,185 $ 194,036 20.7 %
Homes closed 3,004 2,419 585 24.2 %
Average sales price $ 377.2 $ 388.3 $ (11.1) (2.9) %
West Region
Arizona
Dollars $ 143,630 $ 144,920 $ (1,290) (0.9) %
Homes closed 429 440 (11) (2.5) %
Average sales price $ 334.8 $ 329.4 $ 5.4 1.6 %
California
Dollars $ 202,460 $ 135,555 $ 66,905 49.4 %
Homes closed 332 200 132 66.0 %
Average sales price $ 609.8 $ 677.8 $ (68.0) (10.0) %
Colorado
Dollars $ 88,199 $ 85,674 $ 2,525 2.9 %
Homes closed 183 169 14 8.3 %
Average sales price $ 482.0 $ 506.9 $ (24.9) (4.9) %
West Region Totals
Dollars $ 434,289 $ 366,149 $ 68,140 18.6 %
Homes closed 944 809 135 16.7 %
Average sales price $ 460.1 $ 452.6 $ 7.5 1.7 %
Central Region - Texas
Central Region Totals
Dollars $ 349,907 $ 278,744 $ 71,163 25.5 %
Homes closed 1,059 810 249 30.7 %
Average sales price $ 330.4 $ 344.1 $ (13.7) (4.0) %
East Region
Florida
Dollars $ 124,836 $ 118,804 $ 6,032 5.1 %
Homes closed 339 302 37 12.3 %
Average sales price $ 368.2 $ 393.4 $ (25.2) (6.4) %
Georgia
Dollars $ 62,921 $ 46,984 $ 15,937 33.9 %
Homes closed 178 139 39 28.1 %
Average sales price $ 353.5 $ 338.0 $ 15.5 4.6 %
North Carolina
Dollars $ 98,322 $ 77,696 $ 20,626 26.5 %
Homes closed 295 206 89 43.2 %
Average sales price $ 333.3 $ 377.2 $ (43.9) (11.6) %
South Carolina
Dollars $ 25,502 $ 23,768 $ 1,734 7.3 %
Homes closed 78 75 3 4.0 %
Average sales price $ 326.9 $ 316.9 $ 10.0 3.2 %
Tennessee
Dollars $ 37,444 $ 27,040 $ 10,404 38.5 %
Homes closed 111 78 33 42.3 %
Average sales price $ 337.3 $ 346.7 $ (9.4) (2.7) %
East Region Totals
Dollars $ 349,025 $ 294,292 $ 54,733 18.6 %
Homes closed 1,001 800 201 25.1 %
Average sales price $ 348.7 $ 367.9 $ (19.2) (5.2) %


	Three Months Ended June 30,				Quarter over Quarter
	2021		2020		Change $		Change %
Home Closing Revenue
Total
Dollars	$	1,264,643	$	1,031,591	$	233,052	22.6	%
Homes closed	3,273		2,770		503		18.2	%
Average sales price	$	386.4	$	372.4	$	14.0	3.8	%
West Region
Arizona
Dollars	$	165,990	$	142,359	$	23,631	16.6	%
Homes closed	481		427		54		12.6	%
Average sales price	$	345.1	$	333.4	$	11.7	3.5	%
California
Dollars	$	198,232	$	150,343	$	47,889	31.9	%
Homes closed	318		247		71		28.7	%
Average sales price	$	623.4	$	608.7	$	14.7	2.4	%
Colorado
Dollars	$	74,987	$	89,087	$	(14,100)	(15.8)	%
Homes closed	145		184		(39)		(21.2)	%
Average sales price	$	517.2	$	484.2	$	33.0	6.8	%
West Region Totals
Dollars	$	439,209	$	381,789	$	57,420	15.0	%
Homes closed	944		858		86		10.0	%
Average sales price	$	465.3	$	445.0	$	20.3	4.6	%
Central Region - Texas
Central Region Totals
Dollars	$	403,838	$	295,975	$	107,863	36.4	%
Homes closed	1,154		914		240		26.3	%
Average sales price	$	349.9	$	323.8	$	26.1	8.1	%
East Region
Florida
Dollars	$	160,377	$	138,608	$	21,769	15.7	%
Homes closed	443		367		76		20.7	%
Average sales price	$	362.0	$	377.7	$	(15.7)	(4.2)	%
Georgia
Dollars	$	62,477	$	58,698	$	3,779	6.4	%
Homes closed	171		166		5		3.0	%
Average sales price	$	365.4	$	353.6	$	11.8	3.3	%
North Carolina
Dollars	$	119,838	$	98,738	$	21,100	21.4	%
Homes closed	330		288		42		14.6	%
Average sales price	$	363.1	$	342.8	$	20.3	5.9	%
South Carolina
Dollars	$	28,209	$	30,206	$	(1,997)	(6.6)	%
Homes closed	81		98		(17)		(17.3)	%
Average sales price	$	348.3	$	308.2	$	40.1	13.0	%
Tennessee
Dollars	$	50,695	$	27,577	$	23,118	83.8	%
Homes closed	150		79		71		89.9	%
Average sales price	$	338.0	$	349.1	$	(11.1)	(3.2)	%
East Region Totals
Dollars	$	421,596	$	353,827	$	67,769	19.2	%
Homes closed	1,175		998		177		17.7	%
Average sales price	$	358.8	$	354.5	$	4.3	1.2	%

Nine Months Ended September 30, Quarter over Quarter
2020 2019 Change $ Change %
Home Closing Revenue
Total
Dollars $ 3,055,229 $ 2,500,888 $ 554,341 22.2 %
Homes closed 8,090 6,437 1,653 25.7 %
Average sales price $ 377.7 $ 388.5 $ (10.8) (2.8) %
West Region
Arizona
Dollars $ 437,233 $ 368,762 $ 68,471 18.6 %
Homes closed 1,315 1,126 189 16.8 %
Average sales price $ 332.5 $ 327.5 $ 5.0 1.5 %
California
Dollars $ 487,605 $ 304,846 $ 182,759 60.0 %
Homes closed 787 464 323 69.6 %
Average sales price $ 619.6 $ 657.0 $ (37.4) (5.7) %
Colorado
Dollars $ 268,970 $ 264,479 $ 4,491 1.7 %
Homes closed 553 507 46 9.1 %
Average sales price $ 486.4 $ 521.7 $ (35.3) (6.8) %
West Region Totals
Dollars $ 1,193,808 $ 938,087 $ 255,721 27.3 %
Homes closed 2,655 2,097 558 26.6 %
Average sales price $ 449.6 $ 447.3 $ 2.3 0.5 %
Central Region - Texas
Central Region Totals
Dollars $ 901,791 $ 760,189 $ 141,602 18.6 %
Homes closed 2,747 2,176 571 26.2 %
Average sales price $ 328.3 $ 349.4 $ (21.1) (6.0) %
East Region
Florida
Dollars $ 357,233 $ 321,364 $ 35,869 11.2 %
Homes closed 942 809 133 16.4 %
Average sales price $ 379.2 $ 397.2 $ (18.0) (4.5) %
Georgia
Dollars $ 163,617 $ 132,440 $ 31,177 23.5 %
Homes closed 459 380 79 20.8 %
Average sales price $ 356.5 $ 348.5 $ 8.0 2.3 %
North Carolina
Dollars $ 276,477 $ 204,866 $ 71,611 35.0 %
Homes closed 805 558 247 44.3 %
Average sales price $ 343.4 $ 367.1 $ (23.7) (6.5) %
South Carolina
Dollars $ 73,113 $ 66,513 $ 6,600 9.9 %
Homes closed 229 202 27 13.4 %
Average sales price $ 319.3 $ 329.3 $ (10.0) (3.0) %
Tennessee
Dollars $ 89,190 $ 77,429 $ 11,761 15.2 %
Homes closed 253 215 38 17.7 %
Average sales price $ 352.5 $ 360.1 $ (7.6) (2.1) %
East Region Totals
Dollars $ 959,630 $ 802,612 $ 157,018 19.6 %
Homes closed 2,688 2,164 524 24.2 %
Average sales price $ 357.0 $ 370.9 $ (13.9) (3.7) %


	Six Months Ended June 30,				Quarter over Quarter
	2021		2020		Change $		Change %
Home Closing Revenue
Total
Dollars	$	2,344,625	$	1,922,008	$	422,617	22.0	%
Homes closed	6,163		5,086		1,077		21.2	%
Average sales price	$	380.4	$	377.9	$	2.5	0.7	%
West Region
Arizona
Dollars	$	303,258	$	293,603	$	9,655	3.3	%
Homes closed	891		886		5		0.6	%
Average sales price	$	340.4	$	331.4	$	9.0	2.7	%
California
Dollars	$	370,131	$	285,145	$	84,986	29.8	%
Homes closed	595		455		140		30.8	%
Average sales price	$	622.1	$	626.7	$	(4.6)	(0.7)	%
Colorado
Dollars	$	159,250	$	180,771	$	(21,521)	(11.9)	%
Homes closed	320		370		(50)		(13.5)	%
Average sales price	$	497.7	$	488.6	$	9.1	1.9	%
West Region Totals
Dollars	$	832,639	$	759,519	$	73,120	9.6	%
Homes closed	1,806		1,711		95		5.6	%
Average sales price	$	461.0	$	443.9	$	17.1	3.9	%
Central Region - Texas
Central Region Totals
Dollars	$	722,223	$	551,884	$	170,339	30.9	%
Homes closed	2,117		1,688		429		25.4	%
Average sales price	$	341.2	$	326.9	$	14.3	4.4	%
East Region
Florida
Dollars	$	301,205	$	232,397	$	68,808	29.6	%
Homes closed	860		603		257		42.6	%
Average sales price	$	350.2	$	385.4	$	(35.2)	(9.1)	%
Georgia
Dollars	$	117,616	$	100,696	$	16,920	16.8	%
Homes closed	317		281		36		12.8	%
Average sales price	$	371.0	$	358.3	$	12.7	3.5	%
North Carolina
Dollars	$	226,851	$	178,155	$	48,696	27.3	%
Homes closed	629		510		119		23.3	%
Average sales price	$	360.7	$	349.3	$	11.4	3.3	%
South Carolina
Dollars	$	56,055	$	47,611	$	8,444	17.7	%
Homes closed	166		151		15		9.9	%
Average sales price	$	337.7	$	315.3	$	22.4	7.1	%
Tennessee
Dollars	$	88,036	$	51,746	$	36,290	70.1	%
Homes closed	268		142		126		88.7	%
Average sales price	$	328.5	$	364.4	$	(35.9)	(9.9)	%
East Region Totals
Dollars	$	789,763	$	610,605	$	179,158	29.3	%
Homes closed	2,240		1,687		553		32.8	%
Average sales price	$	352.6	$	361.9	$	(9.3)	(2.6)	%


		Three Months Ended September 30,						Quarter over Quarter							Three Months Ended June 30,				Quarter over Quarter
		2020		2019		Change $		Change %			2021		2020		Change $		Change %
Home Orders ⁽¹⁾	Home Orders ⁽¹⁾									Home Orders (1)
Total	Total									Total
Dollars	Dollars	$	1,488,480	$	858,395	$	630,085	73.4	%	Dollars	$	1,499,672	$	1,290,454	$	209,218	16.2	%
Homes ordered	Homes ordered	3,851		2,258		1,593		70.5	%	Homes ordered	3,542		3,597		(55)		(1.5)	%
Average sales price	Average sales price	$	386.5	$	380.2	$	6.3	1.7	%	Average sales price	$	423.4	$	358.8	$	64.6	18.0	%
West Region	West Region									West Region
Arizona	Arizona									Arizona
Dollars	Dollars	$	240,151	$	159,778	$	80,373	50.3	%	Dollars	$	256,804	$	231,057	$	25,747	11.1	%
Homes ordered	Homes ordered	709		482		227		47.1	%	Homes ordered	624		737		(113)		(15.3)	%
Average sales price	Average sales price	$	338.7	$	331.5	$	7.2	2.2	%	Average sales price	$	411.5	$	313.5	$	98.0	31.3	%
California	California									California
Dollars	Dollars	$	319,680	$	124,201	$	195,479	157.4	%	Dollars	$	217,228	$	224,639	$	(7,411)	(3.3)	%
Homes ordered	Homes ordered	510		198		312		157.6	%	Homes ordered	344		388		(44)		(11.3)	%
Average sales price	Average sales price	$	626.8	$	627.3	$	(0.5)	(0.1)	%	Average sales price	$	631.5	$	579.0	$	52.5	9.1	%
Colorado	Colorado									Colorado
Dollars	Dollars	$	88,972	$	74,498	$	14,474	19.4	%	Dollars	$	104,134	$	70,831	$	33,303	47.0	%
Homes ordered	Homes ordered	188		156		32		20.5	%	Homes ordered	181		153		28		18.3	%
Average sales price	Average sales price	$	473.3	$	477.6	$	(4.3)	(0.9)	%	Average sales price	$	575.3	$	462.9	$	112.4	24.3	%
West Region Totals	West Region Totals									West Region Totals
Dollars	Dollars	$	648,803	$	358,477	$	290,326	81.0	%	Dollars	$	578,166	$	526,527	$	51,639	9.8	%
Homes ordered	Homes ordered	1,407		836		571		68.3	%	Homes ordered	1,149		1,278		(129)		(10.1)	%
Average sales price	Average sales price	$	461.1	$	428.8	$	32.3	7.5	%	Average sales price	$	503.2	$	412.0	$	91.2	22.1	%
Central Region - Texas	Central Region - Texas									Central Region - Texas
Central Region Totals	Central Region Totals									Central Region Totals
Dollars	Dollars	$	395,453	$	217,648	$	177,805	81.7	%	Dollars	$	428,375	$	392,502	$	35,873	9.1	%
Homes ordered	Homes ordered	1,183		649		534		82.3	%	Homes ordered	1,101		1,215		(114)		(9.4)	%
Average sales price	Average sales price	$	334.3	$	335.4	$	(1.1)	(0.3)	%	Average sales price	$	389.1	$	323.0	$	66.1	20.5	%
East Region	East Region									East Region
Florida	Florida									Florida
Dollars	Dollars	$	179,607	$	111,471	$	68,136	61.1	%	Dollars	$	176,118	$	136,362	$	39,756	29.2	%
Homes ordered	Homes ordered	491		293		198		67.6	%	Homes ordered	468		390		78		20.0	%
Average sales price	Average sales price	$	365.8	$	380.4	$	(14.6)	(3.8)	%	Average sales price	$	376.3	$	349.6	$	26.7	7.6	%
Georgia	Georgia									Georgia
Dollars	Dollars	$	62,541	$	47,527	$	15,014	31.6	%	Dollars	$	77,309	$	65,434	$	11,875	18.1	%
Homes ordered	Homes ordered	172		138		34		24.6	%	Homes ordered	193		190		3		1.6	%
Average sales price	Average sales price	$	363.6	$	344.4	$	19.2	5.6	%	Average sales price	$	400.6	$	344.4	$	56.2	16.3	%
North Carolina	North Carolina									North Carolina
Dollars	Dollars	$	132,988	$	69,017	$	63,971	92.7	%	Dollars	$	153,032	$	106,383	$	46,649	43.9	%
Homes ordered	Homes ordered	386		188		198		105.3	%	Homes ordered	390		326		64		19.6	%
Average sales price	Average sales price	$	344.5	$	367.1	$	(22.6)	(6.2)	%	Average sales price	$	392.4	$	326.3	$	66.1	20.3	%
South Carolina	South Carolina									South Carolina
Dollars	Dollars	$	28,140	$	17,520	$	10,620	60.6	%	Dollars	$	32,595	$	29,262	$	3,333	11.4	%
Homes ordered	Homes ordered	90		55		35		63.6	%	Homes ordered	88		95		(7)		(7.4)	%
Average sales price	Average sales price	$	312.7	$	318.5	$	(5.8)	(1.8)	%	Average sales price	$	370.4	$	308.0	$	62.4	20.3	%
Tennessee	Tennessee									Tennessee
Dollars	Dollars	$	40,948	$	36,735	$	4,213	11.5	%	Dollars	$	54,077	$	33,984	$	20,093	59.1	%
Homes ordered	Homes ordered	122		99		23		23.2	%	Homes ordered	153		103		50		48.5	%
Average sales price	Average sales price	$	335.6	$	371.1	$	(35.5)	(9.6)	%	Average sales price	$	353.4	$	329.9	$	23.5	7.1	%
East Region Totals	East Region Totals									East Region Totals
Dollars	Dollars	$	444,224	$	282,270	$	161,954	57.4	%	Dollars	$	493,131	$	371,425	$	121,706	32.8	%
Homes ordered	Homes ordered	1,261		773		488		63.1	%	Homes ordered	1,292		1,104		188		17.0	%
Average sales price	Average sales price	$	352.3	$	365.2	$	(12.9)	(3.5)	%	Average sales price	$	381.7	$	336.4	$	45.3	13.5	%

(1)Home orders for any period represent the aggregate sales price of all homes ordered, net of cancellations. We do not include orders contingent upon the sale of a customer’s existing home or a mortgage pre-approval as a sales contract until the contingency is removed.


		Nine Months Ended September 30,						Quarter over Quarter							Six Months Ended June 30,				Quarter over Quarter
		2020		2019		Change $		Change %			2021		2020		Change $		Change %
Home Orders ⁽¹⁾	Home Orders ⁽¹⁾									Home Orders (1)
Total	Total									Total
Dollars	Dollars	$	3,958,870	$	2,879,369	$	1,079,501	37.5	%	Dollars	$	2,848,802	$	2,470,391	$	378,411	15.3	%
Homes ordered	Homes ordered	10,550		7,523		3,027		40.2	%	Homes ordered	7,000		6,699		301		4.5	%
Average sales price	Average sales price	$	375.2	$	382.7	$	(7.5)	(2.0)	%	Average sales price	$	407.0	$	368.8	$	38.2	10.4	%
West Region	West Region									West Region
Arizona	Arizona									Arizona
Dollars	Dollars	$	654,579	$	493,391	$	161,188	32.7	%	Dollars	$	479,239	$	414,428	$	64,811	15.6	%
Homes ordered	Homes ordered	2,016		1,521		495		32.5	%	Homes ordered	1,226		1,307		(81)		(6.2)	%
Average sales price	Average sales price	$	324.7	$	324.4	$	0.3	0.1	%	Average sales price	$	390.9	$	317.1	$	73.8	23.3	%
California	California									California
Dollars	Dollars	$	769,251	$	368,194	$	401,057	108.9	%	Dollars	$	390,619	$	449,571	$	(58,952)	(13.1)	%
Homes ordered	Homes ordered	1,250		572		678		118.5	%	Homes ordered	630		740		(110)		(14.9)	%
Average sales price	Average sales price	$	615.4	$	643.7	$	(28.3)	(4.4)	%	Average sales price	$	620.0	$	607.5	$	12.5	2.1	%
Colorado	Colorado									Colorado
Dollars	Dollars	$	258,268	$	290,060	$	(31,792)	(11.0)	%	Dollars	$	193,913	$	169,296	$	24,617	14.5	%
Homes ordered	Homes ordered	540		580		(40)		(6.9)	%	Homes ordered	350		352		(2)		(0.6)	%
Average sales price	Average sales price	$	478.3	$	500.1	$	(21.8)	(4.4)	%	Average sales price	$	554.0	$	481.0	$	73.0	15.2	%
West Region Totals	West Region Totals									West Region Totals
Dollars	Dollars	$	1,682,098	$	1,151,645	$	530,453	46.1	%	Dollars	$	1,063,771	$	1,033,295	$	30,476	2.9	%
Homes ordered	Homes ordered	3,806		2,673		1,133		42.4	%	Homes ordered	2,206		2,399		(193)		(8.0)	%
Average sales price	Average sales price	$	442.0	$	430.8	$	11.2	2.6	%	Average sales price	$	482.2	$	430.7	$	51.5	12.0	%
Central Region - Texas	Central Region - Texas									Central Region - Texas
Central Region Totals	Central Region Totals									Central Region Totals
Dollars	Dollars	$	1,130,943	$	799,293	$	331,650	41.5	%	Dollars	$	820,343	$	735,492	$	84,851	11.5	%
Homes ordered	Homes ordered	3,457		2,346		1,111		47.4	%	Homes ordered	2,216		2,274		(58)		(2.6)	%
Average sales price	Average sales price	$	327.1	$	340.7	$	(13.6)	(4.0)	%	Average sales price	$	370.2	$	323.4	$	46.8	14.5	%
East Region	East Region									East Region
Florida	Florida									Florida
Dollars	Dollars	$	435,411	$	369,503	$	65,908	17.8	%	Dollars	$	355,227	$	255,804	$	99,423	38.9	%
Homes ordered	Homes ordered	1,198		925		273		29.5	%	Homes ordered	947		707		240		33.9	%
Average sales price	Average sales price	$	363.4	$	399.5	$	(36.1)	(9.0)	%	Average sales price	$	375.1	$	361.8	$	13.3	3.7	%
Georgia	Georgia									Georgia
Dollars	Dollars	$	182,958	$	149,731	$	33,227	22.2	%	Dollars	$	138,866	$	120,417	$	18,449	15.3	%
Homes ordered	Homes ordered	518		431		87		20.2	%	Homes ordered	357		346		11		3.2	%
Average sales price	Average sales price	$	353.2	$	347.4	$	5.8	1.7	%	Average sales price	$	389.0	$	348.0	$	41.0	11.8	%
North Carolina	North Carolina									North Carolina
Dollars	Dollars	$	340,626	$	241,573	$	99,053	41.0	%	Dollars	$	310,719	$	207,638	$	103,081	49.6	%
Homes ordered	Homes ordered	999		658		341		51.8	%	Homes ordered	809		613		196		32.0	%
Average sales price	Average sales price	$	341.0	$	367.1	$	(26.1)	(7.1)	%	Average sales price	$	384.1	$	338.7	$	45.4	13.4	%
South Carolina	South Carolina									South Carolina
Dollars	Dollars	$	85,316	$	65,540	$	19,776	30.2	%	Dollars	$	58,997	$	57,176	$	1,821	3.2	%
Homes ordered	Homes ordered	272		205		67		32.7	%	Homes ordered	164		182		(18)		(9.9)	%
Average sales price	Average sales price	$	313.7	$	319.7	$	(6.0)	(1.9)	%	Average sales price	$	359.7	$	314.2	$	45.5	14.5	%
Tennessee	Tennessee									Tennessee
Dollars	Dollars	$	101,518	$	102,084	$	(566)	(0.6)	%	Dollars	$	100,879	$	60,569	$	40,310	66.6	%
Homes ordered	Homes ordered	300		285		15		5.3	%	Homes ordered	301		178		123		69.1	%
Average sales price	Average sales price	$	338.4	$	358.2	$	(19.8)	(5.5)	%	Average sales price	$	335.1	$	340.3	$	(5.2)	(1.5)	%
East Region Totals	East Region Totals									East Region Totals
Dollars	Dollars	$	1,145,829	$	928,431	$	217,398	23.4	%	Dollars	$	964,688	$	701,604	$	263,084	37.5	%
Homes ordered	Homes ordered	3,287		2,504		783		31.3	%	Homes ordered	2,578		2,026		552		27.2	%
Average sales price	Average sales price	$	348.6	$	370.8	$	(22.2)	(6.0)	%	Average sales price	$	374.2	$	346.3	$	27.9	8.1	%


		Three Months Ended September 30,								Three Months Ended June 30,
		2020			2019				2021		2020
		Ending	Average	Ending	Average		Ending	Average	Ending	Average
Active Communities	Active Communities					Active Communities
Total	Total	204	220.5	250	252.0	Total	226	214.5	237	239.0
West Region	West Region					West Region
Arizona	Arizona	35	36.5	37	38.5	Arizona	38	35.5	38	35.5
California	California	20	24.0	24	22.0	California	20	19.5	28	28.5
Colorado	Colorado	11	12.0	20	20.5	Colorado	17	14.5	13	13.0
West Region Totals	West Region Totals	66	72.5	81	81.0	West Region Totals	75	69.5	79	77.0
Central Region - Texas	Central Region - Texas					Central Region - Texas
Central Region Totals	Central Region Totals	58	63.0	74	73.5	Central Region Totals	64	61.5	68	73.0
East Region	East Region					East Region
Florida	Florida	34	35.0	36	36.0	Florida	34	32.0	36	35.0
Georgia	Georgia	11	14.0	18	19.5	Georgia	10	11.0	17	16.0
North Carolina	North Carolina	20	20.5	22	22.5	North Carolina	26	25.0	21	20.5
South Carolina	South Carolina	6	5.5	10	9.5	South Carolina	7	6.5	5	6.0
Tennessee	Tennessee	9	10.0	9	10.0	Tennessee	10	9.0	11	11.5
East Region Totals	East Region Totals	80	85.0	95	97.5	East Region Totals	87	83.5	90	89.0


		Nine Months Ended September 30,								Six Months Ended June 30,
		2020			2019				2021		2020
		Ending	Average	Ending	Average		Ending	Average	Ending	Average
Active Communities	Active Communities					Active Communities
Total	Total	204	232.1	250	261.0	Total	226	207.8	237	240.5
West Region	West Region					West Region
Arizona	Arizona	35	34.3	37	38.5	Arizona	38	34.6	38	34.5
California	California	20	25.3	24	20.5	California	20	18.3	28	26.0
Colorado	Colorado	11	13.8	20	20.0	Colorado	17	13.3	13	15.5
West Region Totals	West Region Totals	66	73.4	81	79.0	West Region Totals	75	66.2	79	76.0
Central Region - Texas	Central Region - Texas					Central Region - Texas
Central Region Totals	Central Region Totals	58	70.3	74	84.5	Central Region Totals	64	62.0	68	72.5
East Region	East Region					East Region
Florida	Florida	34	34.4	36	33.5	Florida	34	31.6	36	34.5
Georgia	Georgia	11	15.3	18	20.0	Georgia	10	9.7	17	17.5
North Carolina	North Carolina	20	21.6	22	23.5	North Carolina	26	23.7	21	23.0
South Carolina	South Carolina	6	6.8	10	11.0	South Carolina	7	6.3	5	7.0
Tennessee	Tennessee	9	10.3	9	9.5	Tennessee	10	8.3	11	10.0
East Region Totals	East Region Totals	80	88.4	95	97.5	East Region Totals	87	79.6	90	92.0


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Cancellation Rates ⁽¹⁾	Cancellation Rates ⁽¹⁾									Cancellation Rates (1)
Total	Total	13	%	17	%	14	%	14	%	Total	8	%	15	%	9	%	14	%
West Region	West Region									West Region
Arizona	Arizona	10	%	14	%	11	%	12	%	Arizona	7	%	11	%	9	%	12	%
California	California	13	%	16	%	15	%	15	%	California	6	%	18	%	9	%	16	%
Colorado	Colorado	15	%	18	%	15	%	12	%	Colorado	6	%	18	%	8	%	15	%
West Region Totals	West Region Totals	12	%	16	%	13	%	12	%	West Region Totals	7	%	14	%	9	%	14	%
Central Region - Texas	Central Region - Texas									Central Region - Texas
Central Region Totals	Central Region Totals	15	%	22	%	16	%	17	%	Central Region Totals	9	%	20	%	10	%	17	%
East Region	East Region									East Region
Florida	Florida	12	%	13	%	12	%	10	%	Florida	8	%	15	%	9	%	14	%
Georgia	Georgia	12	%	17	%	12	%	16	%	Georgia	6	%	9	%	10	%	11	%
North Carolina	North Carolina	11	%	11	%	9	%	10	%	North Carolina	6	%	9	%	7	%	8	%
South Carolina	South Carolina	15	%	20	%	13	%	19	%	South Carolina	9	%	11	%	13	%	12	%
Tennessee	Tennessee	12	%	12	%	17	%	9	%	Tennessee	13	%	14	%	11	%	20	%
East Region Totals	East Region Totals	11	%	14	%	12	%	12	%	East Region Totals	8	%	12	%	9	%	12	%

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


		At September 30,						Quarter over Quarter							At June 30,				Quarter over Quarter
		2020		2019		Change $		Change %			2021		2020		Change $		Change %
Order Backlog ⁽¹⁾	Order Backlog ⁽¹⁾									Order Backlog (1)
Total	Total									Total
Dollars	Dollars	$	2,004,981	$	1,397,033	$	607,948	43.5	%	Dollars	$	2,317,534	$	1,648,451	$	669,083	40.6	%
Homes in backlog	Homes in backlog	5,242		3,519		1,723		49.0	%	Homes in backlog	5,509		4,395		1,114		25.3	%
Average sales price	Average sales price	$	382.5	$	397.0	$	(14.5)	(3.7)	%	Average sales price	$	420.7	$	375.1	$	45.6	12.2	%
West Region	West Region									West Region
Arizona	Arizona									Arizona
Dollars	Dollars	$	404,044	$	258,341	$	145,703	56.4	%	Dollars	$	520,034	$	307,302	$	212,732	69.2	%
Homes in backlog	Homes in backlog	1,212		738		474		64.2	%	Homes in backlog	1,328		932		396		42.5	%
Average sales price	Average sales price	$	333.4	$	350.1	$	(16.7)	(4.8)	%	Average sales price	$	391.6	$	329.7	$	61.9	18.8	%
California	California									California
Dollars	Dollars	$	373,949	$	129,880	$	244,069	187.9	%	Dollars	$	295,198	$	256,694	$	38,504	15.0	%
Homes in backlog	Homes in backlog	608		199		409		205.5	%	Homes in backlog	479		430		49		11.4	%
Average sales price	Average sales price	$	615.0	$	652.7	$	(37.7)	(5.8)	%	Average sales price	$	616.3	$	597.0	$	19.3	3.2	%
Colorado	Colorado									Colorado
Dollars	Dollars	$	87,047	$	129,167	$	(42,120)	(32.6)	%	Dollars	$	139,437	$	86,158	$	53,279	61.8	%
Homes in backlog	Homes in backlog	183		258		(75)		(29.1)	%	Homes in backlog	238		178		60		33.7	%
Average sales price	Average sales price	$	475.7	$	500.6	$	(24.9)	(5.0)	%	Average sales price	$	585.9	$	484.0	$	101.9	21.1	%
West Region Totals	West Region Totals									West Region Totals
Dollars	Dollars	$	865,040	$	517,388	$	347,652	67.2	%	Dollars	$	954,669	$	650,154	$	304,515	46.8	%
Homes in backlog	Homes in backlog	2,003		1,195		808		67.6	%	Homes in backlog	2,045		1,540		505		32.8	%
Average sales price	Average sales price	$	431.9	$	433.0	$	(1.1)	(0.3)	%	Average sales price	$	466.8	$	422.2	$	44.6	10.6	%
Central Region - Texas	Central Region - Texas									Central Region - Texas
Central Region Totals	Central Region Totals									Central Region Totals
Dollars	Dollars	$	602,709	$	413,229	$	189,480	45.9	%	Dollars	$	670,583	$	556,787	$	113,796	20.4	%
Homes in backlog	Homes in backlog	1,758		1,151		607		52.7	%	Homes in backlog	1,729		1,634		95		5.8	%
Average sales price	Average sales price	$	342.8	$	359.0	$	(16.2)	(4.5)	%	Average sales price	$	387.8	$	340.8	$	47.0	13.8	%
East Region	East Region									East Region
Florida	Florida									Florida
Dollars	Dollars	$	242,419	$	213,427	$	28,992	13.6	%	Dollars	$	268,971	$	187,241	$	81,730	43.6	%
Homes in backlog	Homes in backlog	627		488		139		28.5	%	Homes in backlog	637		475		162		34.1	%
Average sales price	Average sales price	$	386.6	$	437.4	$	(50.8)	(11.6)	%	Average sales price	$	422.2	$	394.2	$	28.0	7.1	%
Georgia	Georgia									Georgia
Dollars	Dollars	$	69,204	$	63,730	$	5,474	8.6	%	Dollars	$	79,207	$	69,559	$	9,648	13.9	%
Homes in backlog	Homes in backlog	192		174		18		10.3	%	Homes in backlog	196		198		(2)		(1.0)	%
Average sales price	Average sales price	$	360.4	$	366.3	$	(5.9)	(1.6)	%	Average sales price	$	404.1	$	351.3	$	52.8	15.0	%
North Carolina	North Carolina									North Carolina
Dollars	Dollars	$	143,741	$	104,162	$	39,579	38.0	%	Dollars	$	247,292	$	109,026	$	138,266	126.8	%
Homes in backlog	Homes in backlog	413		277		136		49.1	%	Homes in backlog	634		322		312		96.9	%
Average sales price	Average sales price	$	348.0	$	376.0	$	(28.0)	(7.4)	%	Average sales price	$	390.1	$	338.6	$	51.5	15.2	%
South Carolina	South Carolina									South Carolina
Dollars	Dollars	$	36,723	$	31,474	$	5,249	16.7	%	Dollars	$	44,175	$	34,054	$	10,121	29.7	%
Homes in backlog	Homes in backlog	114		92		22		23.9	%	Homes in backlog	118		102		16		15.7	%
Average sales price	Average sales price	$	322.1	$	342.1	$	(20.0)	(5.8)	%	Average sales price	$	374.4	$	333.9	$	40.5	12.1	%
Tennessee	Tennessee									Tennessee
Dollars	Dollars	$	45,145	$	53,623	$	(8,478)	(15.8)	%	Dollars	$	52,637	$	41,630	$	11,007	26.4	%
Homes in backlog	Homes in backlog	135		142		(7)		(4.9)	%	Homes in backlog	150		124		26		21.0	%
Average sales price	Average sales price	$	334.4	$	377.6	$	(43.2)	(11.4)	%	Average sales price	$	350.9	$	335.7	$	15.2	4.5	%
East Region Totals	East Region Totals									East Region Totals
Dollars	Dollars	$	537,232	$	466,416	$	70,816	15.2	%	Dollars	$	692,282	$	441,510	$	250,772	56.8	%
Homes in backlog	Homes in backlog	1,481		1,173		308		26.3	%	Homes in backlog	1,735		1,221		514		42.1	%
Average sales price	Average sales price	$	362.7	$	397.6	$	(34.9)	(8.8)	%	Average sales price	$	399.0	$	361.6	$	37.4	10.3	%

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

Operating Results

Companywide. In the ~~third~~second quarter of 2021, we achieved our highest second quarter home closing volume in Company history, with an 18.2% improvement over the second quarter of 2020, ~~home closing volume improved by 24.2%~~ to ~~3,004~~3,273 closings valued at ~~$1.1~~$1.3 billion compared to ~~2,419~~2,770 closings valued at ~~$939.2 million in the third quarter of 2019.~~$1.0 billion. The increase in closings year-over-year was driven ~~primarily~~ by entering the quarter with a higher backlog as compared to prior year, as well as an accelerated orders pace of spec homes during the quarter that were able to close by June 30, 2021. Home closing revenue increased by 22.6% over the second quarter of 2020 due to the higher closing volume and a ~~higher~~3.8% increase in ASP. Home order volume declined slightly by 1.5% to 3,542 homes as compared to 3,597 homes in the second quarter of 2020, due to a 10.3% decrease in average active communities that was partially offset by an increased orders pace. Higher ASP on orders as we continue to experience pricing power drove a 16.2% increase in order value to $1.5 billion in the second quarter of 2021, up from $1.3 billion in the second quarter of 2020. Orders pace improved by 9.3% year-over-year to 5.5 homes ordered per average active community per month during the second quarter of 2021, up from 5.0 homes in the second quarter of 2020. This increase demonstrates the continuing demand for homes in the current quarter as well as increased backlog conversion due to selling and closing more speculative inventory homes in the third quarter of 2020 compared to the prior year. The higher volume of spec sales and a notably higher orders pace year-over-year are due to the heightened demand in today's market for available, new and healthier single-family homes at affordable price points as previously discussed. This customer demand is aligned with ourmarket. Our focus on ~~the~~ entry level and first move-up buyers, aswith our entry-level communities ~~offer~~offering only spec homes for sale and ~~in both our entry-level and first move-up communities we have achieved~~ shorter construction cycle times ~~allowing~~than other higher-end product, allows for quicker move-ins for our ~~customers.Home~~customers, increasing the desirability of our products, as reflected in our higher orders and closing ~~revenue increased by 20.7%~~volumes. Although community count is down 4.6% year-over-year due to sustained high orders pace over the ~~third~~last 12 months, community count grew sequentially, ending the second quarter ~~of 2019 due entirely~~with 226 actively selling communities at June 30, 2021, up from 203 at March 31, 2021. Our order cancellation rate improved to 8% and 9% for the ~~increase~~three and six month periods in closing volume as our average sales prices declined 2.9%, reflective of a higher percentage of lower-priced entry-level homes in our closing mix. Home order volume improved by 70.5% to 3,851 homes valued at $1.5 billion in the third quarter of 20202021, respectively, as compared to 2,258 homes valued at $0.9 billion in the third quarter of 2019. The improvement in orders was due to a 94.4% increase in orders pace year-over-year to 17.5 homes ordered per average active community, up from 9.0 in the third quarter of 2019, representing our highest quarterly orders pace since 2005. We ended the quarter with 204 actively selling communities, an 18.4% decline from the prior year as communities experienced accelerated close-outs due to higher orders volume and delays in certain community openings due in part to municipal delays related to COVID-19. While we have a robust pipeline of community openings scheduled over the next four to eight quarters, we expect our community counts to be choppy due to early close-outs and municipal delays. Order cancellation rates were 13% and 14% for the first three and nine months of 2020, as compared to 17%15% and 14% during the three and ~~nine~~six month periods in ~~2019.~~2020, respectively, a further indication of strong demand in the market.

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, home closing volume grew by ~~1,653~~1,077 units, or ~~25.7%~~21.2%, and home closing revenue improved by ~~$554.3~~$422.6 million ~~from 8,090~~on 6,163 closings valued at ~~$3.1~~$2.3 billion. Orders also increased ~~significantly year over year~~year-over-year by ~~3,027~~301 units and ~~$1.1~~$0.4 billion to ~~10,550~~7,000 orders valued at ~~$4.0~~$2.8 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2020, 40.2%~~2021, 4.5% and ~~37.5% increases,~~15.3% higher, respectively from prior year results. ~~Similar to third quarter results, demand~~Demand for our affordable entry-level homes drove the increase in orders, resulting in a ~~58.0%~~20.8% higher orders pace than in ~~2019.~~2020. We ended the quarter with ~~5,242~~5,509 homes in backlog valued at ~~$2.0~~$2.3 billion, compared to ~~3,519~~4,395 units valued at ~~$1.4~~$1.6 billion at ~~September~~June 30, ~~2019.~~2020. The year-over-year increase in backlog value was positively impacted by rising ASP on orders as discussed above.

West. The West Region closed 944 homes and generated ~~$434.3~~$439.2 million in home closing revenue in the ~~third~~second quarter of ~~2020~~2021, compared to ~~809~~858 homes and ~~$366.1~~$381.8 million in home closing revenue in the comparable ~~2019~~2020 period. ~~The Region ended~~Order volume decreased 10.1% to 1,149 homes in the ~~third~~second quarter of 2021 compared to 1,278 in 2020, ~~with 1,407 orders valued at $648.8 million versus 836 orders valued at $358.5 million in~~due almost entirely to the third quarter of 2019. The 16.7% improvement in closings was driven by entering the quarter with 31.8% higher backlog than the 2019 period. The 68.3% improvement in order volume was driven by an 88.3% year-over-year increase in orders pace per community, which was achieved on a 10.5%9.7% decline in average active ~~communities. All states~~community count. Strong demand and pricing power resulted in a 22.1% increase in ASP and contributed to the overall 9.8% higher order value in the Region saw significant increases in orders pace, most notably in California which experienced a 136.7% increase in quarterly orders pace to lead the Company with 21.3 homes sold per community, as compared to 9.0second quarter of 2021 of $578.2 million, up from $526.5 million in the ~~2019~~2020 period. InOrders pace was consistent year-over-year at 5.5 homes per average community per month during both the ~~West Region, approximately 65%~~three months ended June 30, 2021 and ~~26% of our communities target~~2020. As discussed previously, the ~~first-time and first move-up buyers, respectively, at September 30, 2020. We believe the high demand~~year-over-year drop in ~~this Region was directly attributable~~community count is due to the ~~product offerings and desirable locations we have designed for these buyers.~~accelerated close-out of communities in 2020. The West Region ended the ~~third~~second quarter of ~~2020~~2021 with ~~2,003~~2,045 homes in backlog valued at ~~$865.0~~$954.7 million, up from ~~1,195~~1,540 units valued at ~~$517.4~~$650.2 million at June 30, 2020. Despite the decrease in ~~2019.~~order volume, backlog increased year-over-year due to entering the period with a higher backlog and some closing delays caused by supply chain constraints.

Year-to-date results in the West Region were similar to those of the ~~third~~second quarter. The number and value of homes closed versus prior year increased by ~~26.6%~~5.6% and ~~27.3%~~9.6%, respectively, ~~while the average sales price was nominally higher year over year. Orders~~and ASP increased 3.9%. Order volumes for the Region ~~improved 42.4%~~declined 8.0% year-to-date, ~~which resulted in 46.1% higher order value. Despite the shift to lower priced entry-level and first move-up homes, average sales price increased in the Region~~ due to ~~additional California volume year over year, which has the highest average sales prices~~a 12.9% decline in ~~the Region. Similar to third quarter results, orders pace improved by 53.6% and~~ the average number of actively selling communities, ~~declined~~partially offset by ~~7.1%~~a 5.4% year-to-date orders pace improvement. Order value was positively impacted by a 12.0% increase in ~~the Region~~ASP, which resulted in 2.9% higher order value for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Central. In the ~~third~~second quarter of ~~2020,~~2021, the Central Region, made up of our Texas markets, closed ~~1,059~~1,154 homes and generated ~~$349.9~~$403.8 million in home closing revenue, up ~~30.7%~~26.3% and ~~25.5%~~36.4%, respectively, from prior year comparable period results of ~~810~~914 homes and ~~$278.7~~$296.0 million of home closing revenue. ~~Average sales prices in the Region~~Order volume declined ~~4.0% year-over-year resulting from our focus on the first-time and first move-up buyer. Orders and value grew by 82.3% and 81.7%, respectively,~~9.4% due to a ~~113.6% increase in orders pace in the Region, more than offsetting the 14.3%~~15.8% decrease in average community count, offset by an increase in orders pace of 7.8%. Despite the lower volume, order value increased 9.1% to $428.4 million in the second quarter of 2021, compared to ~~the prior year period. The Region ended the third quarter of 2020 with 1,183 units ordered valued at $395.5 million compared to 649 units valued at $217.6~~$392.5 million in the prior year ~~quarter. The fast absorption pace of our communities has resulted~~quarter, due to pricing power that drove ASP up by 20.5% in ~~us selling out of communities faster than we have been able to open new replacement communities.~~ the Region.

We ~~have responded~~also experienced improvements in the Region for the six months ended June 30, 2021. Home closings and home closing revenue were up 25.4% and 30.9%, respectively. Order value and ASP on orders was up 11.5% and 14.5%, respectively, year-over-year. Similar to the ~~entry-level demand~~second quarter, order volume decreased 2.6% due to a lower average active community count, mostly offset by increased orders pace. The Region ended the quarter with 1,729 units in ~~this Region with a strong transition~~backlog, up 5.8%, and backlog value of $670.6 million, up 20.4% compared to ~~first-time buyer product~~the prior year.

~~offerings over recent years. Approximately 69% and 29% of actively selling communities at September 30, 2020 were targeted toward the first-time and first move-up buyers, respectively.~~

We also saw overall improvements in the Region for the nine months ended September 30, 2020. Home closings and home closing revenue were up 26.2% and 18.6%, respectively, and orders and order value were up year-over-year by 47.4% and 41.5%, respectively. Orders pace increased by 77.0%, helping the Region end the quarter with 1,758 units in backlog, up 52.7% and backlog value of $602.7 million, up 45.9%, compared to the prior year.

East. During the three months ended ~~September~~June 30, ~~2020,~~2021, the East Region delivered ~~1,001~~1,175 closings and ~~$349.0~~$421.6 million in home closing revenue compared to ~~800~~998 closings and ~~$294.3~~$353.8 million in home closing revenue in the comparable prior year period, improvements of ~~25.1%~~17.7% and ~~18.6%~~19.2%, respectively. ~~Orders and~~The East Region also generated an increase in order ~~value~~volume in the ~~East Region improved by 63.1%~~second quarter of 2021, with an improvement in both volume and ~~57.4%~~value of 17.0% and 32.8%, respectively, ~~for the third quarter of 2020~~ with ~~1,261~~1,292 units valued at ~~$444.2~~$493.1 million compared to ~~773~~1,104 units valued at ~~$282.3~~$371.4 million in the prior year period. The improvement in orders ~~is due to~~reflected a ~~87.3%~~25.0% increase in orders pace per community which more than offset the ~~12.8%~~6.2% decrease in average active ~~communities. Approximately 58% and 33% of actively selling~~ communities, ~~at September 30, 2020 were targeted toward~~while the ~~first-time and first move-up buyers, respectively.~~improvement in order value benefited from both the increase in volume as well as a 13.5% higher ASP.

The year-to-date results of the East Region were similar to those of the ~~third~~second quarter, with ~~24.2%~~32.8% and ~~19.6%~~29.3% improvements in home closing volume and revenue, respectively, compared to ~~2019~~2020, providing ~~2,688~~2,240 closings and ~~$959.6~~$789.8 million in home closing revenue for the ~~nine~~six month period ending ~~September~~June 30, ~~2020.~~2021. The number and value of orders improved by ~~31.3%~~27.2% and ~~23.4%~~37.5%, respectively, due to a ~~44.7%~~47.3% increase in orders pace for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to prior ~~year.~~year, which more than offset the 13.5% decrease in average active communities. The East Region ended the quarter with ~~1,481~~1,735 homes in backlog valued at ~~$537.2~~$692.3 million compared to ~~1,173~~1,221 homes valued at ~~$466.4~~$441.5 million at ~~September~~June 30, ~~2019,~~2020, a ~~26.3%~~42.1% increase in units and ~~15.2%~~56.8% in order value from ~~the shift to more entry-level homes~~strong demand and ~~lower average sales prices.~~pricing power.

Land Closing Revenue and Gross ~~Profit/~~(Loss)/Profit

From time to time, we may sell certain lots or land parcels to other homebuilders, developers or investors if we feel the sale will provide a greater economic benefit to us than continuing home construction or where we are looking to diversify our land positions in the specific geography. As a result of such sales, we recognized land closing revenue of ~~$4.9~~$13.0 million and ~~$1.7~~$1.5 million for the three months ending ~~September~~June 30, 2021 and 2020, respectively, and ~~2019, respectively,~~losses of $0.3 million and $1.4 for the second quarter of 2021 and 2020, respectively. Year-to-date land sales resulted in a profit of ~~$0.5~~$0.2 million infor the ~~third quarter of 2020~~six months ended June 30, 2021 and a loss of ~~$26,000 for the third quarter of 2019. Year to date land sales resulted in losses of $0.6 million in 2020 and a $1.4~~$1.1 million loss in the prior year. ~~Land sales in 2020 and 2019 primarily reflect the sale of land in communities that do not fit our current focus on entry-level and first move-up product offerings.~~

Other Operating Information (dollars in thousands)


		Three Months Ended September 30,														Nine Months Ended September 30,																Three Months Ended June 30,					Six Months Ended June 30,
		2020						2019						2020								2019						2021				2020				2021	2020
		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue		Dollars		Percent of Home Closing Revenue			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⁾	Home Closing Gross Profit ⁽¹⁾																	Home Closing Gross Profit (1)
Total	Total	$	243,567	21.5	%	$	186,117	19.8	%	$	642,623	21.0	%	$	461,697	18.5	%	Total	$	345,301	27.3		%	$	220,696	21.4	%	$	611,956	26.1	%	$	399,056	20.8	%

West	West	$	88,655	20.4	%	$	72,380	19.8	%	$	243,252	20.4	%	$	171,279	18.3	%	West	$	114,184	26.0		%	$	80,166	21.0	%	$	211,241	25.4	%	$	154,597	20.4	%

Central	Central	$	83,452	23.8	%	$	59,156	21.2	%	$	205,431	22.8	%	$	151,136	19.9	%	Central	$	119,415	29.6		%	$	67,788	22.9	%	$	204,788	28.4	%	$	121,979	22.1	%

East	East	$	71,460	20.5	%	$	54,581	18.5	%	$	193,940	20.2	%	$	139,282	17.4	%	East	$	111,702	26.5		%	$	72,742	20.6	%	$	195,927	24.8	%	$	122,480	20.1	%

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

Companywide. Home closing gross margin for the ~~third~~second quarter of ~~2020~~2021 improved ~~170~~590 basis points to ~~21.5%~~our highest quarterly home closing gross margin in company history of 27.3%, compared to ~~19.8%~~21.4% in the ~~third~~second quarter of ~~2019.~~2020. The higher margin combined with higher revenue contributed to a ~~$57.5~~$124.6 million improvement in home closing gross profit to end the quarter with ~~$243.6~~$345.3 million compared to ~~$186.1~~$220.7 million in ~~2019. With our growing demand,~~2020. Gross margin was up 530 basis points to 26.1% versus 20.8% for the six months ended June 30, 2021 and 2020, respectively. The improved margins in 2021 are due to pricing power ~~was~~from strong buyer demand and leverage of overhead costs on our all-spec strategy for entry-level homes, which have more than offset the impact of rising material costs, particularly lumber. Margins for the second quarter 2020 were negatively impacted by 30 basis points due to terminated land contract costs for exiting non-core communities, with a ~~major driver~~charge of $3.3 million compared to $0.6 million of such charges in ~~our gross margin improvement as we have experienced price increases in~~the 2021 period.

~~all of our markets, which offset the impact of rising lumber costs~~. For the nine months ended September 30, 2020, gross margin was up 250 basis points to 21.0% versus 18.5% for the same period in the prior year. As expected with our shift to entry-level and first-time move up product offerings, we have shortened our construction cycle times and simplified our product, achieving national purchasing savings on materials, while also gaining efficiency from production, all of which are contributing to higher gross margin.

West. Home closing gross margin for the West Region improved by 60500 basis points to ~~20.4%~~26.0% for the ~~third~~second quarter of ~~2020~~2021 versus ~~19.8%~~21.0% in the ~~third~~second quarter of ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, home closing gross margin also improved by ~~210~~500 basis points to ~~20.4%~~25.4% versus ~~18.3%~~20.4% for the same period in the prior year. ~~Pricing~~The improvements in the West Region's gross margins are due to pricing power ~~particularly in Arizona, contributed significantly~~from strong market demand and streamlined operations which allowed us to ~~the improved margins year over year, as demand has been very strong in our entry-level and first move-up communities. In addition, greater~~ leverage of our overhead costs on higher revenue ~~combined with construction efficiencies driven by our simplified product offerings~~ and ~~shorter construction cycle times have favorably impacted margins across~~offset the ~~West Region.~~impact of rising commodity costs.

Central. The Central Region provided the highest home closing gross margin in the ~~company,~~Company, which at ~~23.8%~~29.6% for the ~~third~~second quarter of ~~2020~~2021 was our most notable improvement and was up ~~260~~670 basis points from ~~21.2%~~22.9% in the prior year quarter. ~~Construction efficiencies driven by our simplified product offerings and lower costs~~Pricing power generated higher ASP combined with higher closing volume ~~have~~which expanded our leverage of overhead costs to improve gross margin. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, gross margin was up ~~290~~630 basis points to ~~22.8%~~28.4% as compared to ~~19.9%~~22.1% for the same ~~2019~~2020 period.

East. Home closing gross margin in the East Region was up ~~200~~590 basis points year-over-year to ~~20.5%~~26.5% in the ~~third~~second quarter of ~~2020~~2021 versus ~~18.5%~~20.6% for the comparable ~~2019~~2020 period. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, gross margin was up ~~280~~470 basis points to ~~20.2%~~24.8% versus ~~17.4%~~20.1% for the same period in the prior year. The ~~quarter-over-quarter~~ improvement in gross margin for both the three and six months ended June 30, 2021 compared to the respective 2020 periods, is the result of pricing power ~~resulting from high demand combined with~~and greater leverage of overhead costs on higher closing volume as compared to the prior quarter period. The year-over-year improvement in gross margin is the result of more efficient plan designs with shorter construction cycle times combined with greater leverage of overhead costs on higher closing volume as compared to the prior year period.volume.

Financial Services Profit (in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Financial services profit $ 4,315 $ 5,582 $ 10,942 $ 16,315


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Financial services profit	$	4,615	$	3,789	$	8,375	$	6,627

Financial services profit represents the net profit of our financial services operations, ~~including: (1)~~including the operating profit generated by our wholly-owned title ~~company,~~and insurance companies, Carefree Title ~~(2)~~Agency, Inc. and Meritage Homes Insurance Agency, Inc., as well as our portion of earnings from aour mortgage joint ~~venture and (3) to a lesser degree, the limited activity from our wholly owned insurance company, which only began operating in the fourth quarter of 2019.~~venture. Financial services profit ~~declined $1.3~~increased $0.8 million in the ~~third~~second quarter of ~~2020~~2021 to ~~$4.3~~$4.6 million versus ~~$5.6~~$3.8 million in ~~2019~~2020, and by ~~$5.4~~$1.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 to ~~$10.9~~$8.4 million versus ~~$16.3~~$6.6 million for the same period in ~~2019. The lower financial services profit year-over-year both for the quarter and year to date results is~~2020, due to ~~a change in~~ the ~~structure of customer incentives offered by our mortgage joint venture. The profits associated with these incentives in the 2020 periods are captured as part of home~~year-over-year higher closing ~~revenue, whereas in the 2019 periods these incentives were recorded as financial services earnings. This change was effective in the fourth quarter of 2019.~~

volumes.

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Commissions and other sales costs
Dollars $ (73,282) $ (63,450) $ (204,863) $ (176,130)
Percent of home closing revenue 6.5 % 6.8 % 6.7 % 7.0 %
General and administrative expenses
Dollars $ (40,737) $ (37,191) $ (111,083) $ (105,536)
Percent of home closing revenue 3.6 % 4.0 % 3.6 % 4.2 %
Interest expense
Dollars $ (55) $ (1,068) $ (2,176) $ (8,350)
Other income, net
Dollars $ 1,188 $ 2,402 $ 3,313 $ 5,816
Provision for income taxes
Dollars $ (26,388) $ (22,557) $ (67,253) $ (46,361)


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Commissions and other sales costs	$	(73,889)		$	(70,408)		$	(141,633)		$	(131,581)
Percent of home closing revenue	5.8		%	6.8		%	6.0		%	6.8		%
General and administrative expenses	$	(43,156)		$	(36,176)		$	(81,105)		$	(70,346)
Percent of home closing revenue	3.4		%	3.5		%	3.5		%	3.7		%

Interest expense	$	(77)		$	(2,105)		$	(167)		$	(2,121)
Other income, net	$	1,377		$	1,514		$	2,175		$	2,125
Loss on early extinguishment of debt	$	(18,188)		$	—		$	(18,188)		$	—
Provision for income taxes	$	(48,262)		$	(25,184)		$	(82,396)		$	(40,865)

Commissions and Other Sales Costs. Commissions and other sales costs are comprised of internal and external commissions and related sales and marketing expenses such as advertising and sales office costs. These costs were ~~$73.3~~$73.9 million for the three months ended ~~September~~June 30, ~~2020, $9.8~~2021, $3.5 million higher than the prior year comparable period, although as a percentage of home closing revenue, decreased 30100 basis points to ~~6.5%~~5.8% for the ~~third~~second quarter of ~~2020~~2021 compared to the prior year period. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, commissions and other sales costs decreased 3080 basis points and were ~~$28.7~~$10.1 million higher than the corresponding prior year period. ~~The~~For both the three and six month comparative periods, the increase in commissions and other sales costs in dollars compared to prior year ~~reflects~~is due to higher home closing ~~revenue as well as certain increased commission incentives that were temporarily offered during the early stages of the pandemic,~~volume, partially offset by savings in advertising ~~spend~~costs as we ~~leveraged~~continued to leverage more digital ~~platforms.~~technologies and incurred fewer expenses associated with active communities, such as sales office and model home maintenance expenses. In addition, the second quarter of 2020 commissions and other sales costs was negatively impacted by additional commission incentives that were offered during COVID-19 sales events. The decline as a percentage of home closing revenue is due to the combination of leverage from higher closing volume, ~~and~~ the ~~more efficient~~efficiencies integrated into our sales and marketing structure, and the decrease in costs associated with a lower number of ~~our entry-level and first move-up~~active 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~~June 30, ~~2020,~~2021, general and administrative expenses were ~~$40.7~~$43.2 million, ~~$3.5~~$7.0 million higher than ~~$37.2~~$36.2 million for the ~~2019~~2020 period, although as a percentage of home closing revenue, ~~these expenses~~ decreased by 4010 basis points. For the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, general and administrative expenses were ~~$111.1~~$81.1 million or ~~3.6%~~3.5% of home closing revenue, as compared to ~~$105.5~~$70.3 million or ~~4.2%~~3.7% of home closing revenue in ~~2019.~~2020. The increased leveraging of costs against higher revenue and the continued pull-back on certain corporate expenditures, including those due to COVID-19 precautions, aided in the improvement. As COVID-19 restrictions ease, we expect a portion of these costs to gradually return as employees return to the office and resume travel. We continually strive to optimize overhead leverage through cost control efforts and expect some long-term ~~improvements~~efficiencies as we start to ~~result~~generate higher revenue from our increased community count in the ~~technological enhancements achieved during COVID-19.~~coming quarters.

Interest Expense. Interest expense is comprised of interest incurred, but not capitalized, on our senior notes, other borrowings, and our ~~amended and restated unsecured revolving credit facility ("~~Credit ~~Facility").~~Facility. Interest expense for the three and six months ended ~~September~~June 30, ~~2020~~2021 totaled $0.1 million and $0.2 million, respectively, compared to ~~$1.1~~$2.1 million in both the ~~corresponding prior year period reflecting the early redemption of $300.0 million of~~three and six months ended June 30, 2020. The decrease in both quarter-to-date and year-to-date interest expense is due to lower interest rates on our senior notes, ~~which we redeemed~~increased capitalization of interest incurred with development and construction activities, and interest charges incurred in the ~~fourth quarter~~first half of ~~2019. We experienced similar decreases in year to date interest expense with $2.2 million in~~ 2020 ~~compared to $8.4 million in the prior year resulting from the previously mentioned early redemption, partially offset by interest charges from~~on our Credit Facility which had $500.0 million outstanding for ~~the majority of the first half of 2020.~~several weeks during that period.

Other Income, Net. Other income, net, primarily consists of (i) sublease income, (ii) interest earned on our cash and cash equivalents, (iii) payments and awards related to legal settlements and (iv) our portion of pre-tax income or loss from non-financial services joint ventures. For the three months ended ~~September~~June 30, ~~2020,~~2021, Other income, net was ~~$1.2~~$1.4 million, compared to ~~$2.4~~$1.5 million in the ~~2019~~2020 comparable period. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, Other income, net was ~~$3.3~~$2.2 million compared to ~~$5.8~~$2.1 million in the ~~2019~~2020 period.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of $18.2 million for the three and six months ended June 30, 2021 is related to the early redemption of our $300.0 million 7.00% Senior Notes due 2022 during the second quarter of 2021. There were no similar charges for the three and six months ended June 30, 2020. See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our Senior Notes due 2022.

Income Taxes. Our effective tax rate was ~~19.5%~~22.4% and ~~24.4%~~21.7% for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~19.9%~~21.6% and ~~24.1%~~20.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~reduced rate at September~~tax rates for the three and six months ended June 30, ~~2020, is due to availability of the~~2021, reflect credits earned under IRC §45L new energy efficient homes ~~credits from~~and higher non-deductible senior executive officer stock-based compensation. The tax rates for the ~~enactment of the Taxpayer Certainty~~three and ~~Disaster Tax Relief Act on December 20, 2019, which extended the energy credit tax benefit to 2020. We also~~

~~recorded a larger amount of tax benefit from equity-based compensation for stock awards that vested in the nine~~six months ended ~~September~~June 30, 2020, ~~as compared to the same period in 2019.~~reflect credits earned under Internal Revenue Code §45L new energy efficient homes.

Liquidity and Capital Resources

Overview

Our principal uses of capital in the first ~~nine~~six months of ~~2020~~2021 were acquisition and development of new ~~and strategic~~ lot positions, home construction, operating expenses, the payment of routine liabilities, and repurchases of our common stock. We used funds generated by operations to meet our short-term working capital requirements. In addition, in the second quarter of 2021, we received proceeds from issuing new 3.875% senior notes due 2029, which were used in part to pay off existing 7.00% senior notes due 2022. See Note 6 in the accompanying unaudited consolidated financial statements for more information. We remain focused long-term on acquiring desirable land positions, generating ~~increasing~~favorable margins in our homebuilding operations and maintaining a strong balance sheet to support future needs and growth, while leveraging land options where possible.

Operating Cash Flow Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash used in operating activities totaled $143.5 million versus cash provided by operating activities ~~totaled $373.1 million versus $167.4~~of $237.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Operating cash flows in ~~2020~~2021 and ~~2019~~2020 benefited from cash generated by net earnings of ~~$270.9~~$299.2 million and ~~$146.0~~$161.8 million, respectively. For the ~~nine~~six months ended ~~September~~June 30, 2021, operating cash flows generated by net earnings were offset by a $469.7 million increase in real estate assets due to our increased home construction land acquisition and development activities. For the six months ended June 30, 2020, operating cash flows also benefited from an increase in accounts payable and accrued liabilities of ~~$60.0~~$34.8 million due to timing of payments for routine transactions. For the nine months ended September 30, 2019, operating cash flows were negatively impacted by an increase in real estate of $110.3 million, but benefited from an increase in accounts payable and accrued liabilities of $84.6 million due to timing of cash payments for increased real estate and construction spending.

Investing Cash Flow Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash used in investing activities totaled ~~$13.2~~$10.7 million as compared to ~~$12.0~~$9.1 million for the same period in ~~2019.~~2020. Cash used in investing activities in the first ~~nine~~six months of ~~2020~~2021 and ~~2019~~2020 is mainly attributable to the purchases of property and equipment of ~~$14.8~~$11.0 million and ~~$18.4~~$10.3 million for the ~~2020~~2021 and ~~2019~~2020 periods, respectively. ~~For the 2019 period, this was partially offset by a final distribution from the sale of our interest in an unconsolidated entity of $7.3 million.~~

Financing Cash Flow Activities

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net cash ~~used in~~provided by financing activities totaled ~~$69.3~~$92.9 million as compared to ~~$12.0~~net cash used of $63.2 million for the same period in ~~2019.~~2020. The net cash provided by financing activities in 2021 primarily reflects the net proceeds of $450.0 million from the issuance of our Senior Notes due 2029, offset by the early redemption of our Senior Notes due 2022 of $300.0 million principal and associated early tender fees of $17.7 million, along with share repurchases of $27.5 million. An additional $0.5 million of non-cash charges associated with the early redemption of our Senior Notes due 2022 were recognized as Loss on early extinguishment of debt in the accompanying unaudited consolidated income statements. The activity in 2020 iswas primarily ~~from~~due to $60.8 million inof share repurchases. ~~Similarly in 2019, the net cash used in financing activities in 2019 primarily reflects repurchases of our common stock of $9.0 million.~~

Overview of Cash Management

Cash flows for each of our communities depend on their stage of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, zoning plat and other approvals, community and lot development, and construction of model homes, roads, utilities, landscape and other amenities. Because these costs are a component of our inventory and not recognized in our income statement until a home closes, we incur significant cash outlays prior to recognition of earnings. In the later stages of a community, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, ~~with the exception of a limited pause due to COVID-19 uncertainties in late first quarter~~we are currently acquiring and ~~early second quarter, we have significantly increased our acquisition and development of~~developing lots in our markets to grow our lot supply and active community count. We intend to increase our land and development spending over the next several years, consistent with our growth initiatives. We are also using our cash on hand to fund operations.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we closed ~~8,090~~6,163 homes, purchased approximately ~~11,500~~15,000 lots for ~~$407.2~~$539.3 million, spent ~~$351.4~~$382.0 million on land development and started construction on ~~9,511~~7,147 homes. We primarily purchase undeveloped land or partially-finished lots requiring development in order to bring them to a finished status ready for home construction. We exercise strict controls and believe we have a prudent strategy for Company-wide cash management, including those related to cash outlays for land and inventory acquisition and development. We ended the ~~third~~second quarter of ~~2020~~2021 with ~~$610.0~~$684.4 million of cash and cash equivalents, ~~an increase~~a decrease of ~~$290.5~~$61.2 million from December 31, ~~2019. During the nine months ended September 30,~~ 2020, ~~we had gross borrowings and repayments on our Credit Facility of $500 million, each, and had~~with no outstanding borrowings on our Credit ~~Facility at September 30, 2020~~Facility. We expect to generate cash from the sale of our inventory, but we intend to redeploy that cash primarily to acquire and ~~December 31, 2019.~~develop strategic and well-positioned lots to grow our business.

Between our available cash and liquidity in our Credit Facility, we believe that we currently have sufficient liquidity to manage through ~~both~~ our strategic growth ~~goals and the uncertainties of the current COVID-19 environment.~~goals. Nevertheless, we may seek additional capital to strengthen our liquidity position. Such additional capital may be in the form of equity or debt financing and may be from a variety of sources. There can be no assurances that we would be able to obtain such additional capital on terms acceptable to us, if at all, and such additional equity or debt financing could dilute the interests of our existing stockholders or increase our interest costs. We may also from time to time engage in opportunistic repurchases of our common stock in open market or privately-negotiated transactions as well as repurchase or redeem our outstanding senior notes. In April 2021, we completed an offering of $450.0 million aggregate principal amount of 3.875% Senior Notes due 2029. The proceeds were used to redeem all $300.0 million aggregate principal amount outstanding of our 7.00% Senior Notes due 2022. See Note 6 in the accompanying unaudited consolidated financial statements for more information related to the early redemption of our 7.00% Senior Notes due 2022.

On February 13, 2019, ~~the Company's~~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. There is no stated expiration for this program. The repurchases of the Company's shares may be made in the open market, in privately negotiated transactions, or otherwise. The timing and amount of repurchases, if any, will be determined by the Company's management at its discretion and be based on a variety of factors such as market price of the Company's common stock, corporate and contractual requirements, prevailing market and economic conditions and legal requirements. The share repurchase program may be modified, suspended or discontinued at any time. The Company intends to retire any shares repurchased. In the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, we purchased and retired ~~1,000,000~~300,000 shares of our common stock at an aggregate purchase price of ~~$60.8~~$27.5 million and as of ~~September~~June 30, ~~2020, $23.2~~2021, $86.8 million remained available under this program.

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										As of
		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
Notes payable and other borrowings		$	1,019,801		$	1,018,981
Senior notes, net, loans payable and other borrowings								Senior notes, net, loans payable and other borrowings	$	1,161,468		$	1,020,085
Stockholders’ equity	Stockholders’ equity	2,199,849			1,973,990			Stockholders’ equity	2,628,144			2,347,868
Total capital	Total capital	$	3,219,650		$	2,992,971		Total capital	$	3,789,612		$	3,367,953
Debt-to-capital ⁽¹⁾	Debt-to-capital ⁽¹⁾	31.7		%	34.0		%	Debt-to-capital (1)	30.6		%	30.3		%
Notes payable and other borrowings		$	1,019,801		$	1,018,981
Senior notes, net, loans payable and other borrowings								Senior notes, net, loans payable and other borrowings	$	1,161,468		$	1,020,085
Less: cash and cash equivalents	Less: cash and cash equivalents	(609,979)			(319,466)			Less: cash and cash equivalents	(684,374)			(745,621)
Net debt	Net debt	409,822			699,515			Net debt	477,094			274,464
Stockholders’ equity	Stockholders’ equity	2,199,849			1,973,990			Stockholders’ equity	2,628,144			2,347,868
Total net capital	Total net capital	$	2,609,671		$	2,673,505		Total net capital	$	3,105,238		$	2,622,332
Net debt-to-capital ⁽²⁾	Net debt-to-capital ⁽²⁾	15.7		%	26.2		%	Net debt-to-capital (2)	15.4		%	10.5		%

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

(2)Net debt-to-capital is computed as net debt divided by the aggregate of net debt and stockholders' equity. Net debt is comprised of total senior notes, net and loans payable and other borrowings, less cash and cash equivalents. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing.

We have never declared cash dividends. Currently, we plan to utilize our cash to manage our liquidity and to grow community count. Future cash dividends, if any, will depend upon economic and financial conditions, results of operations, capital requirements, statutory requirements, compliance with certain restrictive debt covenants, as well as other factors considered relevant by our Board of Directors.

Credit Facility Covenants

Borrowings under the Credit Facility are unsecured, but availability is subject to, among other things, a borrowing base. The Credit Facility also contains certain financial covenants, including (a) a minimum tangible net worth requirement of ~~$1.1~~$1.5 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), and (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 60%. In addition, we are required to maintain either (i) an interest coverage ratio (EBITDA to interest expense, as defined in the credit facility) of at least 1.50 to 1.00 or (ii) liquidity (as defined in the credit facility) of an amount not less than our consolidated interest incurred during the trailing 12 months. We were in compliance with all Credit Facility covenants as of ~~September~~June 30, ~~2020.~~2021. Our actual financial covenant calculations as of ~~September~~June 30, ~~2020~~2021 are reflected in the table below.


Financial Covenant (dollars in thousands):	Covenant Requirement	Actual
Minimum Tangible Net Worth	>$~~1,462,470~~1,739,099	$~~2,161,742~~2,587,767
Leverage Ratio	< 60%	13%
Interest Coverage Ratio ⁽¹⁾	> 1.50	~~8.67~~13.68
Minimum Liquidity ⁽¹⁾	>$~~69,817~~64,617	$~~1,240,759~~1,316,133
Investments other than defined permitted investments	<$~~648,523~~776,330	$~~3,819~~3,943

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

Off-Balance Sheet Arrangements

Reference is made to Notes 1, 3, 4 and 154 in the accompanying notes to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which are incorporated by reference herein. These Notes discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in connection with the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated.

Seasonality

Historically, we have experienced seasonal variations in our quarterly operating results and capital requirements. We typically ~~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. In 2020, historical cycles ~~have been~~were impacted by ~~low interest rates~~COVID-19 and ~~COVID-19 related demand; however,~~its impact on consumer behavior, particularly as it relates to the homebuilding market. However, we expect our historical seasonal pattern to continue over the long ~~term.~~term although it may continue to be affected by short-term volatility in the homebuilding industry and in the overall economy.

Recent Issued Accounting Pronouncements

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

pronouncements.


Item 3.			Quantitative and Qualitative Disclosures About Market Risk

Our fixed rate debt is made up primarily of ~~$1.0~~$1.2 billion in principal of our 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 (or its future substitute) or 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 could adversely affect our revenues, gross margins and net income and would also increase our variable rate borrowing costs. 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 and chief financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of ~~the end of the period covered by this Form 10-Q~~June 30, 2021 (the “Evaluation Date”). Based on such evaluation, 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 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.

4039

PART II - OTHER INFORMATION


Item 1.			Legal Proceedings

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. We have only limited legal reserves not related to warranty or construction defect matters. See ~~Note 1 and~~ Note 15 of the accompanying notes to the unaudited consolidated financial statements in this report for ~~additional information related to construction defect and warranty related reserves. With respect to the majority~~a discussion of ~~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 prior to litigation.

We believe there are no pending legal or warranty matters that have not been sufficiently reserved that could have a material adverse impact upon our unaudited consolidated financial condition, results of operations or cash flows.

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 IA "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which could materially affect our business, financial condition or future results. The risks described below and 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. ~~There~~, 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, ~~2019 except as described below.~~2020.

~~Our business~~Supply shortages and other risks related to the demand for building materials could be materially ~~disrupted by an epidemic or pandemic (such as the present COVID-19 pandemic), or fear of such an event,~~disrupt our operations and ~~the measures that federal, state and local governments and/or health authorities implement to address it.~~increase costs.

~~Demand for our homes is dependent~~We depend on ~~a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand,~~continued availability of ~~financing for home buyers,~~building materials in order to timely construct our homes. The availability ~~and prices~~ of ~~new homes compared to existing inventory, and demographic trends. These factors~~these materials can be significantly ~~adversely affected~~impacted by a variety of factors ~~beyond~~outside of our control. ~~The COVID-19 pandemic~~Constraints of raw materials and ~~the measures undertaken by governmental authorities to address it, initially disrupted~~finished goods or ~~prevented us from operating our business~~ in the ~~ordinary course. Future disruptions~~distribution channels of our construction inputs can delay delivery of our homes to customers and ~~governmental actions combined with any associated economic and/~~can increase our building costs or ~~social instability or distress, may have an adverse impact on our results~~lead to sales orders cancellations. For example, in 2021, supply chain constraints for various construction materials related to sustained demand amid the backdrop of ~~operations, financial condition and cash flows.~~

~~On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as~~ a global pandemic ~~and recommended containment and mitigation measures. On March 13, 2020,~~have delayed our construction cycle times. These delays impact the United States declared a national emergency concerning the outbreak, and since that date most states and municipalities have declared public health emergencies. As a result, there have been extraordinary and wide-ranging actions taken by federal, state and local public health and governmental authorities to contain and combat the outbreak and spreadtiming of COVID-19 across the United States, including quarantines and “shelter-in-place” ("SIP") orders which substantially restricted daily activities. Although many, if not all, have since been lifted, some state and local governments have paused their efforts to re-openour expected home closings and may ~~re-implement or modify various closure and restrictive measures. During the initial SIP orders,~~also result in ~~nearly all of the markets in which~~cost increases that we ~~build homes, construction operations were deemed “essential” by the local governments and we had been~~may not be able to ~~maintain~~pass to our ~~operations.~~

~~While we are currently experiencing exceptionally high demand and pricing power, we cannot anticipate~~current or ~~predict possible~~ future ~~business and economic impacts from COVID-19, which could include:~~

•~~declining orders and declining closing volume and associated revenues;~~

•~~declining sales prices thereby reducing home closing margin, which if severe and sustained could result in potential real estate impairments;~~

•customers. Sustained increases in ~~unemployment, decreases in wages and other changes that could impact the ability of customers to purchase homes;~~construction costs may, over time, erode our margins.

•~~tightening of mortgage lending thereby reducing the number of potential homebuyers;~~

•~~increases in cancellations of home orders;~~

•~~disruptions in our supply chain which would delay construction and completion of our homes;~~

•~~intensifying public health efforts to such an extent that we will not be able to conduct any business operations in certain of our served markets or at all for an indefinite period;~~

•~~a change in the classification of our business as “essential” in one or more of our markets that would preclude us from our development and construction activities;~~

•~~inefficiencies and increased costs in our development, construction and administrative processes due to social distancing and personal protective equipment requirements;~~

•~~limitations on employee resources and availability, including due to sickness, school closures, government restrictions or the desire of employees to avoid contact with large groups of people;~~

•~~should any key employees become ill with COVID-19 and unable to work, the attention of management could be diverted, and~~

•~~significant volatility in financial markets and a sharp decrease in the value of equity securities, including our common stock.~~


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

We have never declared cash dividends. Currently, 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, as well as other factors considered relevant by our Board of Directors.

Issuer Purchases of Equity Securities

On February 13, 2019, ~~the Company's~~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. 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 ~~September~~June 30, ~~2020~~2021 there was ~~$23.2~~$86.8 million available under this program to repurchase shares. ~~There were no share repurchases~~We purchased 200,000 shares under the program during the three months ended ~~September~~June 30, ~~2020.~~2021.


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
April 1, 2021 - April 30, 2021	—	$	—	—	$	105,988,761
May 1, 2021 - May 31, 2021	—	$	—	—	$	105,988,761
June 1, 2021 - June 30, 2021	200,000	$	95.80	200,000	$	86,827,896
Total	200,000			200,000

4240


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 8-K dated September 15, 2004

3.1.2	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	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	Amendment to Articles of Incorporation of Meritage Homes Corporation	Incorporated by reference to Appendix A of the Definitive Proxy Statement filed 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

10.1	Form of Director and Officer Indemnification Agreement*	Filed herewith

10.2	Meritage Homes Corporation 2015 Nonqualified Deferred Compensation Plan*	Filed herewith

22	List of Guarantor Subsidiaries	Incorporated by reference to Exhibit 22 of Form 10-K for the year ended December 31, 2020

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 months and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 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 ~~September~~June 30, ~~2020,~~2021, 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

By:

/s/ HILLA SFERRUZZA

Hilla Sferruzza

Chief Financial Officer and Chief Accounting Officer

(Duly Authorized Officer and Principal Financial Officer)

Date:

~~October 27, 2020~~July 30, 2021

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						Amended and Restated Bylaws of Meritage Homes Corporation

10.1						Form of Director and Officer Indemnification Agreement*

10.2						Meritage Homes Corporation 2015 Nonqualified Deferred Compensation Plan*

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 months and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 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 ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL.

* Indicates a management contract or compensation plan.


	Nine Months Ended September 30, 2020
	(In thousands)
	Number of Shares	Common Stock		Additional Paid-In Capital		Retained Earnings		Total
Balance at December 31, 2019	38,199	$	382	$	505,352	$	1,468,256	$	1,973,990
Net earnings	—	—		—		71,152		71,152
Stock-based compensation expense	—	—		6,437		—		6,437
Issuance of stock	398	4		(4)		—		0
Share repurchases	(1,000)	(10)		(60,803)		—		(60,813)
Balance at March 31, 2020	37,597	$	376	$	450,982	$	1,539,408	$	1,990,766
Net earnings	—	—		—		90,678		90,678
Stock-based compensation expense	—	—		3,157		—		3,157
Issuance of stock	6	1		(1)		—		0
Balance at June 30, 2020	37,603	377		454,138		1,630,086		2,084,601
Net earnings	—	—		—		109,118		109,118
Stock-based compensation expense	—	—		6,130		—		6,130
Issuance of stock	9	—		—		—		—
Balance at September 30, 2020	37,612	$	377	$	460,268	$	1,739,204	$	2,199,849