M.D.C. (MDC) 10-Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2024

OR

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

Commission File No. 1-8951

M.D.C. HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	84-0622967
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)

4350 South Monaco Street, Suite 500	80237
Denver, Colorado	(Zip code)
(Address of principal executive offices)

(303) 773-1100

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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 check mark whether the registrant has submitted electronically every Interactive Data 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 definition 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 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 check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒

As of November 4, 2024, the registrant’s outstanding common stock consisted of 100 shares of common stock, $0.01 par value per share, all of which were held by an affiliate of SH Residential Holdings, LLC (“Parent”).

M.D.C. HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED September 30, 2024

INDEX

		Page No.
Part I. Financial Information:
Item 1.	Unaudited Consolidated Financial Statements:
	Consolidated Balance Sheets at September 30, 2024 and December 31, 2023	1
	Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2024 and 2023	2
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43
Part II. Other Information:
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	#
Item 5.	Other Information	#
Item 6.	Exhibits	44
Signatures		45

EXPLANATORY NOTE

The Company is filing this Quarterly Report on Form 10-Q on a voluntary basis to disclose the events reported herein. The Company no longer has an obligation to file reports with the Securities and Exchange Commission ("SEC") as it no longer has any class of securities registered under Sections 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934. The Company, in its sole discretion, may stop making filings with the SEC at any time and no assumptions should be made as to continued reporting with the SEC.

(i)

PART I. FINANCIAL INFORMATION

Item 1.    Unaudited Consolidated Financial Statements

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets

	September 30, 2024		December 31, 2023
	(unaudited)
	(Dollars in thousands, except share and per share amounts)
ASSETS
Homebuilding:
Cash and cash equivalents	$	807,999	$	1,475,964
Restricted cash	1,522		4,094
Trade and other receivables	145,919		119,004
Accounts receivable due from Parent	22,190		—
Inventories:
Housing completed or under construction	2,033,503		1,881,268
Land and land under development	1,354,088		1,419,778
Total inventories	3,387,591		3,301,046
Property and equipment, net	69,774		82,218
Deferred tax asset, net	24,657		38,830
Prepaids and other assets	104,872		76,036
Total homebuilding assets	4,564,524		5,097,192
Financial Services:
Cash and cash equivalents	191,206		162,839
Marketable securities	89,628		78,250
Mortgage loans held-for-sale, net	230,740		258,212
Other assets	29,603		34,592
Total financial services assets	541,177		533,893
Total Assets	$	5,105,701	$	5,631,085
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	120,570	$	114,852
Accrued and other liabilities	284,544		326,478
Revolving credit facility	1,000		10,000
Senior notes, net	1,484,048		1,483,404
Total homebuilding liabilities	1,890,162		1,934,734
Financial Services:
Accounts payable and accrued liabilities	121,972		113,485
Mortgage repurchase facility	171,221		204,981
Total financial services liabilities	293,193		318,466
Total Liabilities	2,183,355		2,253,200
Stockholders' Equity
Common stock, $0.01 par value; 150 and 250,000,000 shares authorized; 100 and 74,661,479 issued and outstanding at September 30, 2024 and December 31, 2023, respectively	—		747
Additional paid-in-capital	1,197,734		1,824,434
Retained earnings	1,724,567		1,552,653
Accumulated other comprehensive income	45		51
Total Stockholders' Equity	2,922,346		3,377,885
Total Liabilities and Stockholders' Equity	$	5,105,701	$	5,631,085

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Homebuilding:
Home sale revenues	$	1,386,655	$	1,087,050	$	4,123,303	$	3,210,536
Home cost of sales	(1,133,532)		(872,624)		(3,372,423)		(2,622,362)
Inventory impairments	(6,300)		(6,200)		(16,750)		(27,500)
Total cost of sales	(1,139,832)		(878,824)		(3,389,173)		(2,649,862)
Gross profit	246,823		208,226		734,130		560,674
Selling, general and administrative expenses	(129,096)		(101,311)		(479,792)		(303,032)
Interest and other income	11,115		20,414		45,688		51,812
Transaction costs	(329)		—		(38,595)		—
Other income (expense)	(739)		55		(4,323)		987
Homebuilding pretax income	127,774		127,384		257,108		310,441
Financial Services:
Revenues	43,357		23,769		112,289		85,874
Expenses	(21,010)		(15,494)		(59,733)		(46,231)
Other income, net	5,559		4,148		15,657		11,742
Financial services pretax income	27,906		12,423		68,213		51,385
Income before income taxes	155,680		139,807		325,321		361,826
Provision for income taxes	(22,143)		(32,502)		(70,831)		(80,328)
Net income	$	133,537	$	107,305	$	254,490	$	281,498
Other comprehensive income net of tax:
Unrealized gain (loss) related to available-for-sale debt securities	$	21	$	1	$	(6)	$	91
Other comprehensive income (loss)	21		1		(6)		91
Comprehensive income (loss)	$	133,558	$	107,306	$	254,484	$	281,589

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except share amounts)

	Nine Months Ended September 30, 2024
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Amount
Balance at December 31, 2023	74,661,479	$	747	$	1,824,434	$	1,552,653	$	51	$	3,377,885
Net income	—	—		—		95,819		—		95,819
Other comprehensive income (loss)	—	—		—		—		(47)		(47)
Shares issued under stock-based compensation programs, net	386,523	3		(25,629)		—		—		(25,626)
Cash dividends declared	—	—		—		(41,276)		—		(41,276)
Stock-based compensation expense	—	—		2,632		—		—		2,632
Forfeiture of restricted stock	(301)	—		—		—		—		—
Balance at March 31, 2024	75,047,701	$	750	$	1,801,437	$	1,607,196	$	4	$	3,409,387
Net Income	—	—		—		25,134		—		25,134
Other comprehensive income (loss)	—	—		—		—		20		20
Shares issued under stock-based compensation programs, net	1,653	—		28		—		—		28
Stock-based compensation expense	—	—		173		—		—		173
Effect of Merger transaction	(75,049,254)	(750)		(603,904)		—		—		(604,654)
Balance at June 30, 2024	100	$	—	$	1,197,734	$	1,632,330	$	24	$	2,830,088
Net Income	—	—		—		133,537		—		133,537
Cash dividends declared	—	—		—		(41,300)		—		(41,300)
Other comprehensive income (loss)	—	—		—		—		21		21
Balance at September 30, 2024	100	$	—	$	1,197,734	$	1,724,567	$	45	$	2,922,346

	Nine Months Ended September 30, 2023
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Amount
Balance at December 31, 2022	72,585,596	$	726	$	1,784,173	$	1,306,885	$	—	$	3,091,784
Net income	—	—		—		80,700		—		80,700
Other comprehensive income (loss)	—	—		—		—		323		323
Shares issued under stock-based compensation programs, net	503,022	5		(11,745)		—		—		(11,740)
Cash dividends declared	—	—		—		(36,543)		—		(36,543)
Stock-based compensation expense	—	—		5,597		—		—		5,597
Forfeiture of restricted stock	(1,283)	—		—		—		—		—
Balance at March 31, 2023	73,087,335	$	731	$	1,778,025	$	1,351,042	$	323	$	3,130,121
Net Income	—	—		—		93,493		—		93,493
Other comprehensive income (loss)	—	—		—		—		(233)		(233)
Shares issued under stock-based compensation programs, net	1,459,256	14		31,318		—		—		31,332
Cash dividends declared	—	—		—		(36,566)		—		(36,566)
Stock-based compensation expense	—	—		2,956		—		—		2,956
Forfeiture of restricted stock	(2,370)	—		—		—		—		—
Balance at June 30, 2023	74,544,221	$	745	$	1,812,299	$	1,407,969	$	90	$	3,221,103
Net Income	—	—		—		107,305		—		107,305
Other comprehensive income (loss)	—	—		—		—		1		1

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Shares issued under stock-based compensation programs, net	118,247	2		1,218		—		—		1,220
Cash dividends declared	—	—		—		(41,063)		—		(41,063)
Stock-based compensation expense	—	—		3,977		—		—		3,977
Forfeiture of restricted stock
Balance at September 30, 2023	74,662,468	$	747	$	1,817,494	$	1,474,211	$	91	$	3,292,543

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

	Nine Months Ended September 30,
	2024		2023
	(Dollars in thousands)
Operating Activities:
Net income	$	254,490	$	281,498
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense	1,319		14,358
Depreciation and amortization	24,759		17,870
Inventory impairments	16,750		27,500
Project abandonment costs	3,411		(963)
Amortization of discount of marketable debt securities	(4,252)		(24,864)
Deferred income tax benefit	14,175		2,608
Net changes in assets and liabilities:
Trade and other receivables	(28,064)		44,979
Accounts receivable due from Parent	(22,190)		—
Mortgage loans held-for-sale, net	27,472		65,259
Housing completed or under construction	(158,927)		(202,912)
Land and land under development	52,865		456,441
Prepaids and other assets	(23,476)		(3,097)
Accounts payable and accrued and other liabilities	(19,236)		(55,528)
Net cash provided by operating activities	139,096		623,149
Investing Activities:
Purchases of marketable securities	(177,133)		(1,088,433)
Maturities of marketable securities	170,000		1,249,000
Purchases of property and equipment	(11,830)		(14,880)
Net cash provided by (used in) investing activities	(18,963)		145,687
Financing Activities:
Payments on mortgage repurchase facility, net	(33,760)		(30,282)
Payments on homebuilding line of credit, net	(9,000)		—
Dividend payments	(82,576)		(114,172)
Distribution to Parent	(611,369)		—
Issuance of shares under stock-based compensation programs, net	(25,598)		20,812
Net cash used in financing activities	(762,303)		(123,642)
Net increase (decrease) in cash, cash equivalents and restricted cash	(642,170)		645,194
Cash, cash equivalents and restricted cash:
Beginning of period	1,642,897		717,095
End of period	$	1,000,727	$	1,362,289
Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents	$	807,999	$	1,207,532
Restricted cash	1,522		4,300
Financial Services:
Cash and cash equivalents	191,206		150,457
Total cash, cash equivalents and restricted cash	$	1,000,727	$	1,362,289

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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1.    Basis of Presentation

The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refer to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at September 30, 2024 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, 2023.

Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.

Where necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation.

2.    Recently Issued Accounting Standards

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through additional and more detailed information about a reportable segment's expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, (2) the amount of income taxes paid (net of refunds received) (disaggregated by federal, state, and foreign taxes) as well as individual jurisdictions in which income taxes paid are equal to or greater than 5 percent of total income taxes paid net of refunds. (3) the income or loss from continuing operations before income tax expense or benefit (disaggregated between domestic and foreign) and (4) income tax expense or benefit from continuing operations (disaggregated by federal, state and foreign). The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, while retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

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3.    Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. We have identified our CODM as two key executives—the Executive Chairman and the Chief Executive Officer (“CEO”).

We have identified each homebuilding division as an operating segment. Our homebuilding operating segments have been aggregated into the reportable segments noted below because they are similar in the following regards: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes. Our homebuilding reportable segments for the comparable periods include operations in the following states:

•West (Arizona, California, Nevada, New Mexico, Oregon, Texas and Washington)

•Mountain (Colorado, Idaho and Utah)

•East (Alabama, Florida, Maryland, Pennsylvania, Tennessee and Virginia)

Our financial services business consists of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (3) StarAmerican Insurance Ltd. (“StarAmerican”); (4) American Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company. Due to its contributions to consolidated pretax income, we consider HomeAmerican to be a reportable segment (“mortgage operations”). The remaining operating segments have been aggregated into one reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported profit of all operating segments that did not report a loss or (b) the positive value of the combined reported loss of all operating segments that reported losses; or (3) consolidated assets.

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets and, to a lesser degree, a portion of Corporate expenses are allocated to the financial services segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.

The following table summarizes revenues for our homebuilding and financial services operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Homebuilding
West	$	804,561	$	651,472	$	2,477,208	$	1,845,964
Mountain	340,034		284,142		1,016,284		931,367
East	242,060		151,436		629,811		433,205
Total homebuilding revenues	$	1,386,655	$	1,087,050	$	4,123,303	$	3,210,536
Financial Services
Mortgage operations	$	26,391	$	12,098	$	69,192	$	53,275
Other	16,966		11,671		43,097		32,599
Total financial services revenues	$	43,357	$	23,769	$	112,289	$	85,874

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The following table summarizes pretax income (loss) for our homebuilding and financial services operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Homebuilding
West	$	81,270	$	60,792	$	248,004	$	133,631
Mountain	36,044		38,211		101,196		107,923
East	12,732		15,891		38,304		45,349
Corporate	(2,272)		12,490		(130,396)		23,538
Total homebuilding pretax income (loss)	$	127,774	$	127,384	$	257,108	$	310,441
Financial Services
Mortgage operations	$	14,257	$	3,098	$	35,130	$	26,676
Other	13,649		9,325		33,083		24,709
Total financial services pretax income	$	27,906	$	12,423	$	68,213	$	51,385
Total pretax income	$	155,680	$	139,807	$	325,321	$	361,826

The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents, trade and other receivables and deferred tax assets. The assets in our financial services segment consist mostly of cash and cash equivalents, marketable securities and mortgage loans held-for-sale.

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Homebuilding assets
West	$	2,005,497	$	2,155,357
Mountain	1,041,949		874,031
East	539,484		459,078
Corporate	977,594		1,608,726
Total homebuilding assets	$	4,564,524	$	5,097,192
Financial services assets
Mortgage operations	$	270,317	$	295,092
Other	270,860		238,801
Total financial services assets	$	541,177	$	533,893
Total assets	$	5,105,701	$	5,631,085

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4.    Merger

On April 19, 2024, the Company completed the transactions contemplated by the Agreement and Plan of Merger, dated as of January 17, 2024 (the “Merger Agreement”), by and among the Company, SH Residential Holdings, LLC (“Parent”), Clear Line, Inc., a wholly owned subsidiary of Parent (“Merger Sub”), and, solely for the purposes of Section 6.2, Section 6.17 and Section 9.15 of the Merger Agreement, Sekisui House, Ltd. (“Guarantor”), providing for the merger of Merger Sub with and into the Company, with the Company continuing as the surviving corporation (the “Merger”). At the effective time of the Merger (the “Effective Time”):

(i) each share of common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) outstanding as of immediately prior to the Effective Time (other than shares of Company Common Stock that are (A)(1) held by the Company as treasury stock; (2) held directly by Parent or Merger Sub; or (3) held by any direct or indirect wholly owned Subsidiary of Parent or Merger Sub, in each case, immediately prior to the Effective Time (collectively, the “Owned Company Shares”), (B) held by any direct or indirect wholly owned Subsidiary of the Company immediately prior to the Effective Time, (C) held by a holder who is entitled to demand, and has properly and validly demanded, appraisal for such shares of Company Common Stock in accordance with, and who complies in all respects with, Section 262 of the DGCL (“Dissenting Shares”), or (D) subject to vesting restrictions and/or forfeiture back to the Company (“Company RSAs”)) was automatically converted into the right to receive $63.00 per share, in cash, without interest thereon (the “Merger Consideration”);

(ii) each Owned Company Share was automatically cancelled and ceased to exist, and no consideration or payment will be delivered in exchange therefor or in respect thereof; and

(iii) each share of Company Common Stock held by any direct or indirect wholly owned Subsidiary of the Company was be converted into such number of shares of common stock of the surviving corporation with an aggregate value immediately after the consummation of the Merger equal to the Merger Consideration.

The Merger Agreement also provides that, at the Effective Time, by virtue of the Merger:

(i) each option to purchase shares of Company Common Stock granted under any Company Equity Plan (each, a “Company Option”) that was outstanding and unexercised, whether vested or unvested, as of immediately prior to the Effective Time was fully vested, cancelled and automatically converted into the right to receive an amount in cash (without interest), if any, equal to the product of (A) the excess (if any) of (1) the Merger Consideration over (2) the exercise price per share of such Company Option, multiplied by (B) the number of shares of Company Common Stock subject to such Company Option, subject to any required withholding of Taxes; provided, however, that any Company Option with respect to which the applicable per share exercise price is greater than the Merger Consideration will be cancelled without consideration;

(ii) each Company RSA, whether vested or unvested, that was outstanding as of immediately prior to the Effective Time was fully vested, cancelled and automatically converted into the right to receive an amount in cash (without interest) equal to the product of (A) the aggregate number of shares of Company Common Stock subject to such Company RSA, multiplied by (B) the Merger Consideration, subject to any required withholding of Taxes; and

(iii) each performance stock unit award relating to shares of Company Common Stock granted under any Company Equity Plan (each, a “Company PSU”), whether vested or unvested, that was outstanding as of immediately prior to the Effective Time was fully vested, cancelled and automatically converted into the right to receive an amount in cash equal to the product of (A) the aggregate number of shares of Company Common Stock subject to such Company PSU based on maximum performance, multiplied by (B) the Merger Consideration, subject to any required withholding of Taxes.

The Merger Agreement further provides that, at the Effective Time, by virtue of the Merger each issued and outstanding share of common stock, par value $0.01 per share, of Merger Sub shall be automatically converted into and become one fully paid and non-assessable share of Surviving Corporation Stock. This resulted in 100 shares of common stock at a $0.01 par value per share issued and outstanding.

The aggregate consideration of the Merger was approximately $4.9 billion, of which the Company funded $664.6 million. Included within these amounts is $53.2 million of compensation expense for the nine months ended September 30, 2024, related to the vesting of equity awards as of the closing of the Merger, which are included within the Selling, general and administrative expenses line item within the Consolidated Statements of Operations and Comprehensive Income.

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On April 19, 2024, the New York Stock Exchange (“NYSE”) filed with the SEC a notification of removal from listing and registration on Form 25 to effect the delisting of all shares of the Company’s Common Stock from the NYSE, as well as the deregistration of the Company’s Common Stock under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, the Company’s Common Stock will no longer be listed on the NYSE.

On April 30, 2024, the Company filed with the SEC a certification on Form 15, requesting the termination of registration of the shares of the Company’s Common Stock under Section 12(g) of the Exchange Act and the suspension of the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act with respect to the shares of the Company’s Common Stock.

On June 13, 2024, the Company filed with the SEC a certification on Form 15, requesting the termination of registration of the shares of the Company’s 6.000% Senior Notes due 2043 under Section 12(g) of the Exchange Act and the suspension of the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act with respect to the all of the Company's senior notes.

Parent has accounted for the Merger under the acquisition method of accounting with the Company deemed to be the acquiree for accounting purposes. The Company and Parent have elected not to push down purchase accounting adjustments to reflect the assets and liabilities acquired at fair value, and therefore amounts reflected in the financial statements hereto have not been adjusted.

The Company incurred $0.3 million and $38.6 million of transaction costs during the three and nine months ended September 30, 2024, respectively, in connection with the Merger, which are disclosed within the Transaction costs line item within the Consolidated Statements of Operations and Comprehensive Income. There were no transaction related costs during the same periods in the prior year. Further, the Company incurred $19.4 million of expense during the nine months ended September 30, 2024, related to key executives' transaction bonuses in connection with the Merger, which are included within the Selling, general and administrative expenses line item within the Consolidated Statements of Operations and Comprehensive Income.

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5.    Fair Value Measurements

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis, except those for which the carrying values approximate fair values:

		Fair Value
Financial Instrument	Hierarchy	September 30, 2024		December 31, 2023
		(Dollars in thousands)
Marketable securities
Debt securities (available-for-sale)	Level 1	$	89,628	$	78,250
Mortgage loans held-for-sale, net	Level 2	$	230,740	$	258,212
Derivative and financial instruments, net (Note 17)
Interest rate lock commitments	Level 2	$	250	$	5,118
Forward sales of mortgage-backed securities	Level 2	$	(221)	$	(5,388)
Mandatory delivery forward loan sale commitments	Level 2	$	(95)	$	(816)
Best-effort delivery forward loan sale commitments	Level 2	$	5	$	(4)

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of September 30, 2024 and December 31, 2023.

Debt securities. Our debt securities consist of U.S. government treasury securities with original maturities upon acquisition of less than six months and are treated as available-for-sale investments and, as such, are recorded at fair value with all changes in fair value initially recorded through other comprehensive income. Debt securities are reviewed on a regular basis for impairment. There were no impairments recorded during both the three and nine months ended September 30, 2024 and 2023.

The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for debt securities by major classification are as follows:

	September 30, 2024								December 31, 2023
	(Dollars in thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Government	$	89,571	$	57	$	—	$	89,628	$	78,185	$	65	$	—	$	78,250
Total Debt Securities	$	89,571	$	57	$	—	$	89,628	$	78,185	$	65	$	—	$	78,250

Mortgage loans held-for-sale, net.  Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At September 30, 2024 and December 31, 2023, we had $42.5 million and $105.1 million, respectively, of mortgage loans held-for-sale at fair value under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At September 30, 2024 and December 31, 2023, we had $188.3 million and $153.1 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Gains (losses) on mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and nine months ended September 30, 2024, we

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recorded gains (losses) on mortgage loans held-for-sale, net of $10.4 million and $13.7 million, respectively, compared to $(2.3) million and $(7.9) million for the same period in the prior year.

Derivative and financial instruments, net. Our derivatives and financial instruments, which include (1) interest rate lock commitments, (2) forward sales of mortgage-backed securities, (3) mandatory delivery forward loan sale commitments and (4) best-effort delivery forward loan sale commitments, are measured at fair value on a recurring basis based on market prices for similar instruments.

For the financial assets and liabilities that the Company does not reflect at fair value, the following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents (excluding debt securities with an original maturity of three months or less), restricted cash, trade and other receivables, prepaids and other assets, accounts payable, accrued and other liabilities and borrowings on our revolving credit facility. Fair value approximates carrying value.

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes that were provided by multiple sources.

	September 30, 2024				December 31, 2023
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
$300 million 3.850% Senior Notes due January 2030, net	$	298,409	$	289,227	$	298,207	$	273,580
$350 million 2.500% Senior Notes due January 2031, net	347,934		309,908		347,708		286,957
$500 million 6.000% Senior Notes due January 2043, net	491,534		532,573		491,351		464,658
$350 million 3.966% Senior Notes due August 2061, net	346,171		299,885		346,138		227,262
Total	$	1,484,048	$	1,431,593	$	1,483,404	$	1,252,457

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6.    Inventories

The following table sets forth, by reportable segment, information relating to our homebuilding inventories:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Housing completed or under construction:
West	$	1,075,899	$	1,163,495
Mountain	608,891		448,735
East	348,713		269,038
Subtotal	2,033,503		1,881,268
Land and land under development:
West	807,782		874,605
Mountain	390,907		382,897
East	155,399		162,276
Subtotal	1,354,088		1,419,778
Total inventories	$	3,387,591	$	3,301,046

Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable.  We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:

•actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);

•forecasted Operating Margin for homes in backlog;

•actual and trending net home orders;

•homes available for sale;

•market information for each sub-market, including competition levels, home foreclosure levels, the size and style of homes currently being offered for sale and lot size; and

•known or probable events indicating that the carrying value may not be recoverable.

If events or circumstances indicate that the carrying value of our inventory may not be recoverable, assets are reviewed for impairment by comparing the undiscounted estimated future cash flows from an individual subdivision (including capitalized interest) to its carrying value. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.

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If land is classified as held for sale, we measure it in accordance with ASC 360 at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies, which are considered Level 3 inputs. If the fair value less estimated costs to sell is lower than the current carrying value, the land is impaired down to its estimated fair value less costs to sell.

Inventory impairments recognized by segment for the three and nine months ended September 30, 2024 and 2023 are shown in the table below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)				(Dollars in thousands)
Housing Completed or Under Construction:
West	$	2,520	$	1,106	$	4,851	$	2,893
Mountain	—		700		400		1,364
East	1,042		—		1,922		—
Subtotal	3,562		1,806		7,173		4,257
Land and Land Under Development:
West	2,080		2,994		6,749		14,707
Mountain	—		1,400		—		8,536
East	658		—		2,828		—
Subtotal	2,738		4,394		9,577		23,243
Total Inventory Impairments	$	6,300	$	6,200	$	16,750	$	27,500

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.

	Impairment Data					Quantitative Data
Three Months Ended	Number of Subdivisions Impaired	Inventory Impairments		Fair Value of Inventory After Impairments		Discount Rate
	(Dollars in thousands)
September 30, 2024	3	$	6,300	$	27,423	15%
June 30, 2024	4	4,550		$	27,834	12%	—	15%
March 31, 2024	3	5,900		$	17,634	12%	—	18%
Total		$	16,750
September 30, 2023	2	$	6,200	$	17,116	15%	—%	18%
June 30, 2023	1	13,500		$	17,886	18%
March 31, 2023	1	7,800		$	13,016	18%
Total		$	27,500

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7.    Capitalization of Interest

We capitalize interest to inventories during the period of development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Homebuilding interest incurred	$	17,254	$	17,482	$	51,928	$	52,386
Less: Interest capitalized	(17,254)		(17,482)		(51,928)		(52,386)
Homebuilding interest expensed	$	—	$	—	$	—	$	—
Interest capitalized, beginning of period	$	60,242	$	61,953	$	64,659	$	59,921
Plus: Interest capitalized during period	17,254		17,482		51,928		52,386
Less: Previously capitalized interest included in home cost of sales	(20,171)		(14,007)		(59,262)		(46,879)
Interest capitalized, end of period	$	57,325	$	65,428	$	57,325	$	65,428

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8.    Leases

We lease certain property, land and equipment, the majority of which comprise property related leases to provide office space where we operate our business. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Our property related leases typically have terms of between three and five years, with the exception of the lease governing the Company’s headquarters. All of our property related leases are classified as operating leases. These leases do not contain any residual value guarantees or restrictive covenants and do not include variable lease payments, except for the payment of common area maintenance and real estate taxes. Many of our property related leases give us the option to extend the lease term for a period of time, generally consistent with the initial lease term. These options are excluded from our calculation of the right-of-use asset and lease liability until such time as we determine it is reasonably certain that the option will be exercised.

The property related lease for the Company’s headquarters in Denver, Colorado is ten years in length with an expiration date of October 31, 2026 and contains a ten year option to extend the term of the lease through 2036. This option has been excluded from our calculation of the right-of-use asset and lease liability as it is not currently considered reasonably certain that the option will be exercised.

Operating lease expense is included as a component of selling, general and administrative expenses in the homebuilding section and expenses in the financial services section of our consolidated statements of operations and comprehensive income. Components of operating lease expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Operating lease cost 1	$	2,130	$	2,011	$	6,418	$	6,387
Less: Sublease income	(47)		(148)		(342)		(440)
Net lease cost	$	2,083	$	1,863	$	6,076	$	5,947

1Includes variable lease costs, which are immaterial.

Supplemental cash flow information related to leases was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,334	$	1,955	$	6,620	$	6,251
Leased assets obtained in exchange for new operating lease liabilities	$	108	$	1,344	$	1,384	$	3,238

Weighted-average remaining lease term and discount rate for operating leases were as follows:

	September 30, 2024		September 30, 2023
Weighted-average remaining lease term (in years)	2.7		3.5
Weighted-average discount rate	5.5	%	5.5	%

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Maturities of operating lease liabilities were as follows:

	Year Ended December 31,
	(Dollars in thousands)
2024 (excluding the nine months ended September 30, 2024)	$	1,448
2025	8,408
2026	7,118
2027	2,120
2028	1,178
Thereafter	81
Total operating lease payments	$	20,353
Less: Effects of discounting	1,471
Present value of operating lease liabilities 1	$	18,882

_______________________________________________________________

1Homebuilding and financial services operating lease liabilities of $18.7 million and $0.1 million, respectively, are included as a component of accrued and other liabilities and accounts payable and accrued liabilities, respectively, in the homebuilding and financial services sections of our consolidated balance sheet at September 30, 2024.

9.    Homebuilding Prepaids and Other Assets

The following table sets forth the components of homebuilding prepaids and other assets:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Land option deposits	$	49,732	$	27,988
Operating lease right-of-use asset (Note 8)	17,933		21,817
Prepaids	24,868		15,323
Goodwill	6,008		6,008
Deferred debt issuance costs on revolving credit facility, net	2,097		3,355
Other	4,234		1,545
Total prepaids and other assets	$	104,872	$	76,036

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10.    Homebuilding Accrued and Other Liabilities and Financial Services Accounts Payable and Accrued Liabilities

The following table sets forth information relating to homebuilding accrued and other liabilities:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Accrued compensation and related expenses	$	67,624	$	93,013
Customer and escrow deposits	11,744		33,633
Warranty accrual (Note 11)	46,712		44,082
Lease liability (Note 8)	18,744		22,939
Land development and home construction accruals	21,401		19,262
Accrued interest	14,889		30,934
Construction defect claim reserves (Note 12)	11,537		11,433
Retentions payable	13,141		14,765
Other accrued liabilities	78,752		56,417
Total accrued and other liabilities	$	284,544	$	326,478

The following table sets forth information relating to financial services accounts payable and accrued liabilities:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
Insurance reserves (Note 12)	$	100,135	$	89,326
Accounts payable and other accrued liabilities	21,837		24,159
Total accounts payable and accrued liabilities	$	121,972	$	113,485

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11.    Warranty Accrual

Our homes are sold with limited third-party warranties and, under our agreement with the issuer of the third-party warranties, we are responsible for performing all of the work for the first two years of the warranty coverage, and paying for certain work required to be performed subsequent to year two. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring.

Our warranty accrual is included in accrued and other liabilities in the homebuilding section of our consolidated balance sheets and adjustments to our warranty accrual are recorded as an increase or reduction to home cost of sales in the homebuilding section of our consolidated statements of operations and comprehensive income.

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three and nine months ended September 30, 2024 and 2023. The warranty accrual during the nine months ended September 30, 2024 increased due to a $3.1 million adjustment to increase our warranty accrual during the period. This adjustment was due to higher general warranty related expenditures.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Balance at beginning of period	$	46,427	$	47,209	$	44,082	$	46,857
Expense provisions	7,210		5,629		20,933		17,566
Cash payments	(6,925)		(7,246)		(21,353)		(18,831)
Adjustments	—		—		3,050		—
Balance at end of period	$	46,712	$	45,592	$	46,712	$	45,592

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12.    Insurance and Construction Defect Claim Reserves

The establishment of reserves for estimated losses associated with insurance policies issued by Allegiant and re-insurance agreements issued by StarAmerican are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns, and changing regulatory and legal environments. It is possible that changes in the insurance payment experience used in estimating our ultimate insurance losses could have a material impact on our insurance reserves.

The establishment of reserves for estimated losses to be incurred by our homebuilding subsidiaries associated with: (1) the self-insured retention (“SIR”) portion of construction defect claims that are expected to be covered under insurance policies with Allegiant and (2) the entire cost of any construction defect claims that are not expected to be covered by insurance policies with Allegiant, are based on third party actuarial studies that include known facts similar to those for our insurance reserves. It is possible that changes in the payment experience used in estimating our ultimate losses for construction defect claims could have a material impact on our reserves.

The table set forth below summarizes our insurance and construction defect claim reserves activity for the three and nine months ended September 30, 2024 and 2023. These reserves are included as a component of accounts payable and accrued liabilities and accrued and other liabilities in the financial services and homebuilding sections, respectively, of the consolidated balance sheets.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Balance at beginning of period	$	108,078	$	95,125	$	100,759	$	94,574
Expense provisions	5,417		4,024		15,938		11,913
Cash payments, net of recoveries	(1,824)		(2,690)		(5,026)		(10,028)
Balance at end of period	$	111,671	$	96,459	$	111,671	$	96,459

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of what future cash payments will be for subsequent periods.

13.    Income Taxes

As a result of the Merger described in Footnote 4, and effective April 20, 2024, the Company is included in the Sekisui House US Holdings ("SHUSH") (parent of SH Residential Holdings, LLC) consolidated tax group for U.S. federal income tax purposes. Although the Company’s post-merger results are included in the SHUSH consolidated return, our income tax provision is calculated primarily as though we were a separate taxpayer for the full year. However, under certain circumstances, transactions between the Company and SHUSH are assessed using consolidated tax return rules and any difference in liability between the separate company method will be addressed in a future tax sharing arrangement.

Our overall effective income tax rates were 14.2% and 21.8% for the three and nine months ended September 30, 2024 and 23.2% and 22.2% for the three and nine months ended September 30, 2023, respectively. The rates for the three and nine months ended September 30, 2024 resulted in an income tax expense of $22.1 million and $70.8 million, respectively, compared to $32.5 million and $80.3 million for the three and nine months ended September 30, 2023, respectively. The year-over-year decrease in the effective tax rates for the three and nine months ended September 30, 2024, is primarily due to deductible executive compensation, partially offset by non-deductible transaction costs and excise taxes as well as a tax reserve related to the Merger.

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14.    Senior Notes

The carrying values of our senior notes as of September 30, 2024 and December 31, 2023, net of any unamortized debt issuance costs or discount, were as follows:

	September 30, 2024		December 31, 2023
	(Dollars in thousands)
3.850% Senior Notes due January 2030, net	$	298,409	$	298,207
2.500% Senior Notes due January 2031, net	347,934		347,708
6.000% Senior Notes due January 2043, net	491,534		491,351
3.966% Senior Notes due August 2061, net	346,171		346,138
Total	$	1,484,048	$	1,483,404

Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries.

15.    Stock-Based Compensation

The following table sets forth share-based award expense activity for the three and nine months ended September 30, 2024 and 2023, which is included as a component of selling, general and administrative expenses and expenses in the homebuilding and financial services sections, respectively, of our consolidated statements of operations and comprehensive income:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)
Stock option grants expense	$	—	$	—	$	—	$	202
Restricted stock awards expense	—		2,293		1,319		8,818
Performance share units expense	—		1,780		—		5,338
Total stock-based compensation	$	—	$	4,073	$	1,319	$	14,358

As of September 30, 2024, there are no awards outstanding.

Additional detail on the performance share units ("PSUs") expense is included below:

2021 PSU Grants. The 2021 PSU awards vested on February 2, 2024. For the three and nine months ended September 30, 2023, the Company recorded share-based award expense of $1.8 million and $5.3 million, respectively, related to these awards.

2023 PSU Grants. For the quarter to date and year to date period through April 19, 2024, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense and as such, no expense related to these awards was recognized. As a part of the Merger, all PSUs, whether vested or unvested, outstanding as of immediately prior to the closing of the Merger were fully vested, cancelled and automatically converted into the right to receive an amount in cash. As such, no share-based compensation expense related to these awards was recognized.

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16.    Commitments and Contingencies

Surety Bonds and Letters of Credit. We are required to obtain surety bonds and letters of credit in support of our obligations for land development and subdivision improvements, homeowner association dues, warranty work, contractor license fees and earnest money deposits. At September 30, 2024, we had outstanding surety bonds and letters of credit totaling $317.0 million and $184.1 million, respectively, including $147.8 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately $120.4 million and $136.0 million, respectively. All letters of credit as of September 30, 2024, excluding those issued by HomeAmerican, were issued under our unsecured revolving credit facility (see Note 18 for further discussion of the revolving credit facility). We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

We have made no material guarantees with respect to third-party obligations.

Litigation. Due to the nature of the homebuilding business, we have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. In certain cases, these contracts will be settled shortly following the end of the period. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At September 30, 2024, we had cash deposits, capitalized costs and letters of credit totaling $44.7 million, $7.8 million and $11.6 million, respectively, at risk associated with options to purchase 6,104 lots.

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17.    Derivative and Financial Instruments

In the normal course of business, we enter into interest rate lock commitments ("IRLCs") with borrowers who have applied for loan funding and meet defined credit and underwriting criteria. Since we can terminate IRLCs if the borrower does not comply with the terms of the contract, and some IRLCs may expire without being utilized, these IRLCs do not necessarily represent future cash requirements.

Market risk arises if interest rates move adversely between the time we originate a mortgage loan or we enter into an IRLC and the date the loan is committed or sold to an investor. We mitigate our exposure to interest rate market risk relating to mortgage loans held-for-sale and IRLCs using: (1) forward sales of mortgage-backed securities, which are commitments to sell a specified financial instrument at a specified future date for a specified price, (2) mandatory delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price within a specified time period, and (3) best-effort delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price subject to the underlying mortgage loans being funded and closed. The best-effort delivery forward loan sale commitments do not meet the definition of a derivative financial instrument in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). We have elected the fair value option for the best-effort delivery forward loan sale commitments in accordance with ASC Topic 825, Financial Instruments ("ASC 825").

Forward sales of mortgage-backed securities are the predominant derivative and financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is committed under a best-effort or mandatory delivery forward loan sale commitment.

The following table sets forth the notional amounts and fair value measurement of our derivative and financial instruments at September 30, 2024 and December 31, 2023:

	September 30, 2024								December 31, 2023
	Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net		Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net
	(Dollars in thousands)								(Dollars in thousands)
Interest rate lock commitments	$	275,255	$	2,261	$	2,011	$	250	$	229,165	$	5,124	$	6	$	5,118
Forward sales of mortgage-backed securities	419,500		277		498		(221)		311,500		—		5,388		(5,388)
Mandatory delivery forward loan sale commitments	41,788		83		178		(95)		100,255		122		938		(816)
Best-effort delivery forward loan sale commitments	1,691		7		2		5		5,392		6		10		(4)

For the three and nine months ended September 30, 2024, we recorded net gains (losses) on these derivative and financial instruments measured on a recurring basis of $(8.1) million and $(3.8) million, respectively, in revenues in the financial services section of our consolidated statements of operations and comprehensive income, compared to net gains of $4.1 million and $5.6 million for the same periods in 2023. There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal.

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18.    Lines of Credit

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on December 28, 2020 to (1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the “Commitment”), (2) extend the Revolving Credit Facility maturity of $1.125 billion of the Commitments to December 18, 2025 with the remaining Commitment terminated on December 18, 2023 and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.7 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents.

Effective April 11, 2023, the Revolving Credit Facility was amended to transition from a eurocurrency based interest rate to an interest rate based on the Secured Overnight Financing Rate ("SOFR"). As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus 0.50%, and (4) the one month term SOFR screen rate plus the SOFR adjustment plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on SOFR borrowings are equal to the greater of (1) 0.0% and (2) the sum of the term SOFR screen rate for such interest period plus the SOFR adjustment, plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

Effective March 20, 2024, the Revolving Credit Facility was amended to provide that the Merger (1) does not constitute a change in control triggering an event of default under the Revolving Credit Facility and (2) does not constitute a prohibited merger under the Revolving Credit Facility.

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of September 30, 2024.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At September 30, 2024 and December 31, 2023, there were $36.3 million and $40.8 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. At September 30, 2024 and December 31, 2023, we had $1.0 million and $10.0 million, respectively, outstanding under the Revolving Credit Facility. As of September 30, 2024, availability under the Revolving Credit Facility was approximately $1.09 billion.

Mortgage Repurchase Facility. HomeAmerican entered into the Second Amended and Restated Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”) on September 20, 2024. The Mortgage Repurchase Facility amends and restates the prior agreement dated as of September 16, 2016, as amended. The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $150 million (subject to increase by up to $150 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Amended and Restated Custody Agreement (“Custody Agreement”), dated as of September 20, 2024, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The total capacity of the facility at September 30, 2024 was $175 million. The termination date of the Mortgage Repurchase Facility is August 8, 2025.

At September 30, 2024 and December 31, 2023, HomeAmerican had $171.2 million and $205.0 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that

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HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Pricing under the Mortgage Repurchase Facility is based on SOFR.

Effective March 5, 2024, HomeAmerican entered into a Waiver and Consent agreement with USBNA, in which USBNA as agent waived any events of default under the Mortgage Repurchase Facility arising with respect to the change of control occurring as a result of the Merger. USBNA also consented and agreed to the consummation of the Merger as well as any reconstitution of the Company's board of directors that might result from the Merger.

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of September 30, 2024.

19.    Related Party Transactions

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Executive Chairman of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company as disclosed in the Form 8-K filed July 27, 2005 and the Form 8-K filed March 28, 2006. The current sublease term commenced November 1, 2016 and will continue through October 31, 2026. The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the term from $26.50 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

SH Residential Holdings, LLC and affiliates are considered a related party for the period subsequent to the Merger closing on April 19, 2024. As of September 30, 2024, the Company had accounts receivable due from Parent of $22.2 million related to payments in connection with the Merger funded by the Company that are included within Accounts receivable due from Parent in the Consolidated Balance Sheets.

Further, the Company purchased $26.0 million of land from affiliates of SH Residential Holdings, LLC included in Total inventories in the Consolidated Balance Sheet as of September 30, 2024.

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20.    Supplemental Guarantor Information

Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the following subsidiaries (collectively, the "Guarantor Subsidiaries"), which are 100%-owned subsidiaries of the Company:

•M.D.C. Land Corporation

•RAH of Florida, Inc.

•Richmond American Construction, Inc.

•Richmond American Construction NM, Inc.

•Richmond American Homes of Arizona, Inc.

•Richmond American Homes of Colorado, Inc.

•Richmond American Homes of Florida, LP

•Richmond American Homes of Idaho, Inc.

•Richmond American Homes of Maryland, Inc.

•Richmond American Homes of Nevada, Inc.

•Richmond American Homes of New Mexico, Inc.

•Richmond American Homes of Oregon, Inc.

•Richmond American Homes of Pennsylvania, Inc.

•Richmond American Homes of Tennessee, Inc.

•Richmond American Homes of Texas, Inc.

•Richmond American Homes of Utah, Inc.

•Richmond American Homes of Virginia, Inc.

•Richmond American Homes of Washington, Inc.

The senior note indentures do not provide for a suspension of the guarantees. Other than for the senior notes due 2061, the senior note indentures, provide that any Guarantor may be released from its guarantee so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). The indenture for the senior notes due 2061 provides that, if a Guarantor is released under its guarantees of our credit facilities or other publicly traded debt securities, the Guarantor will also be released under its guarantee of the senior notes due 2061. Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of December 3, 2002, the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.

As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. As of September 30, 2024 and December 31, 2023, amounts due to (due from) non-guarantor subsidiaries from the Obligor Group totaled $(52.0) million and $(39.6) million, respectively.

21.    Subsequent Events

On October 28, 2024, the Board of Directors of M.D.C. Holdings, Inc. ("MDC") announced the planned departure of Larry A. Mizel, MDC’s Founder and Executive Chairman of the Board of Directors, and David D. Mandarich, MDC’s President, Chief Executive Officer and Director, effective December 31, 2024. Their departure will result in a lump sum payment of approximately $11 million to Mr. Mizel and $10 million to Mr. Mandarich, as further set forth within their respective Amended and Restated Employment Agreements dated April 19, 2024.

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

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 and this Quarterly Report on Form 10-Q.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
	(Dollars in thousands)
Homebuilding:
Home sale revenues	$	1,386,655		$	1,087,050		$	4,123,303		$	3,210,536
Home cost of sales	(1,133,532)			(872,624)			(3,372,423)			(2,622,362)
Inventory impairments	(6,300)			(6,200)			(16,750)			(27,500)
Total cost of sales	(1,139,832)			(878,824)			(3,389,173)			(2,649,862)
Gross profit	246,823			208,226			734,130			560,674
Gross margin	17.8		%	19.2		%	17.8		%	17.5		%
Selling, general and administrative expenses	(129,096)			(101,311)			(479,792)			(303,032)
Interest and other income	11,115			20,414			45,688			51,812
Transaction costs	(329)			—			(38,595)
Other income (expense)	(739)			55			(4,323)			987
Homebuilding pretax income	127,774			127,384			257,108			310,441
Financial Services:
Revenues	43,357			23,769			112,289			85,874
Expenses	(21,010)			(15,494)			(59,733)			(46,231)
Other income, net	5,559			4,148			15,657			11,742
Financial services pretax income	27,906			12,423			68,213			51,385
Income before income taxes	155,680			139,807			325,321			361,826
Provision for income taxes	(22,143)			(32,502)			(70,831)			(80,328)
Net income	$	133,537		$	107,305		$	254,490		$	281,498
Cash provided by (used in):
Operating Activities	$	88,721		$	(28,780)		$	139,096		$	623,149
Investing Activities	$	85,390		$	252,727		$	(18,963)		$	145,687
Financing Activities	$	(94,161)		$	(17,524)		$	(762,303)		$	(123,642)

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Overview

Industry Conditions and Outlook for MDC*

During the third quarter of 2024, the homebuilding industry remained stable as mortgage interest rates decreased compared to the second quarter of 2024. During 2024, the market for new homes has benefited from a healthy job market and the stabilization of interest rates, alongside Federal Reserve interest rate cuts, which have given consumers the confidence to move forward with their home purchase decisions. Concurrently, the housing market continues to see inventory levels that remain undersupplied relative to demand due to (1) the underproduction of new homes over the past decade, and (2) the continuing low levels of existing home resale inventory as the majority of homeowners with a mortgage have an interest rate below 4%.

We continue executing on our strategic plan to build more quick move-in inventory in order to meet ongoing consumer preferences. We ended the quarter with 21.3 unsold homes under construction, excluding model homes, ("speculative homes" or "spec homes") per active community and just 4.5 completed spec homes per active community. Our timely pivot to building more spec homes has helped drive order volume, minimize cancellation activity and address the needs of first-time homebuyers. Further, the pivot helped drive a decrease in construction cycle times.

We believe that we are well equipped to navigate any continued market volatility given our seasoned leadership team, strong financial position and distinct operating strategy. We remain focused on maximizing risk-adjusted returns while minimizing the risks of excess leverage and land ownership. We ended the quarter with total cash and cash equivalents and marketable securities of $1.10 billion, total liquidity of $2.18 billion, a debt-to-capital ratio of 33.7% and no senior note maturities until 2030.

Three Months Ended September 30, 2024

For the three months ended September 30, 2024, our net income was $133.5 million, a 24% increase compared to net income of $107.3 million for the same period in the prior year. Our financial services business was the primary driver of the increase, as pretax income increased $15.5 million, or 125% year-over-year. The increase was further driven by a decrease to our overall effective income tax rate of 14.2% during the three months ended September 30, 2024 compared to 23.2% in the same period in the prior year. The homebuilding business was relatively flat year-over year, as pretax income increased $0.4 million to $127.8 million during the three months ended September 30, 2024. The increase in financial services pretax income was due to our mortgage operations as well as our other financial services operations.The increase in pretax income for our mortgage operations was driven by increased volume due to our homebuilding operations and capture rate. This was partially offset by increased salary related expenses driven by higher headcount and commissions. The increase in other financial services operations was driven by our insurance operations, which saw an increase in revenue due to an increase in homes closed. Our financial services business saw an increase in interest income due to an increase in cash and short-term investments year-over-year. The decrease in our overall effective income tax rate was primarily due to executive compensation that is no longer limited under IRS Code Section 162(m). The slight increase in homebuilding pretax income was primarily due to a 28% increase in home sale revenues. This was offset by a decrease in gross margin from home sales and a decrease in interest income due to a lower average cash balance. The decrease in gross margin from home sales was driven largely by increased incentive levels.

Nine Months Ended September 30, 2024

For the nine months ended September 30, 2024, our net income was $254.5 million, a 10% decrease compared to net income of $281.5 million for the same period in the prior year. Our homebuilding business was the primary driver of the decrease, as pretax income decreased $53.3 million, or 17% year-over-year. This was partially offset by our financial services business, as its pretax income increased $16.8 million, or 33%, compared to the same period in the prior year. The decrease in homebuilding pretax income was due to our Corporate segment, partially offset by our homebuilding business. The decrease in our Corporate segment was driven by a 220 basis point increase in our selling, general and administrative expenses as a percentage of homebuilding revenue. This increase was driven by the accelerated vesting of equity awards and key executives' transaction bonuses in connection with the closing of the Merger. Further contributing to the decrease was $38.6 million of transaction costs related to the Merger incurred during the nine months ended September 30, 2024. The decrease in our Corporate segment pretax income was partially offset by an increase in our homebuilding business pretax income driven by a 28% increase in home sale revenues and a 30 basis point increase in gross margins from home sales. The increase in gross margin from home sales was driven largely by inventory impairments of $27.5 million during the prior year compared to $16.8 million in the current year. The main drivers of the increase in financial services pretax income are consistent with the third quarter commentary discussed above.

* See "Forward-Looking Statements" below.

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Homebuilding

Pretax Income (Loss):

	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2024		2023		Amount		%		2024		2023		Amount		%
	(Dollars in thousands)
West	$	81,270	$	60,792	$	20,478	34	%	$	248,004	$	133,631	$	114,373	86	%
Mountain	36,044		38,211		(2,167)		(6)	%	101,196		107,923		(6,727)		(6)	%
East	12,732		15,891		(3,159)		(20)	%	38,304		45,349		(7,045)		(16)	%
Corporate	(2,272)		12,490		(14,762)		(118)	%	(130,396)		23,538		(153,934)		(654)	%
Total Homebuilding pretax income	$	127,774	$	127,384	$	390	—	%	$	257,108	$	310,441	$	(53,333)	(17)	%

For the three months ended September 30, 2024, we recorded homebuilding pretax income of $127.8 million, which increased slightly compared to $127.4 million for the same period in the prior year. The increase was primarily due to a 28% increase in home sales revenue. This was offset by a decrease in gross margin from home sales and a decrease in interest income.

Our West segment experienced a $20.5 million year-over-year increase in pretax income, due to an increase in gross margin from home sales, a 23% increase in home sale revenues, and a decrease in selling, general and administrative costs as a percentage of revenue. Our Mountain segment experienced a $2.2 million decrease in pretax income from the prior year, as a result of a decrease in gross margin from home sales, partially offset by a decrease in selling, general and administrative costs as a percentage of revenue and a 20% increase in home sale revenues. Our East segment experienced a $3.2 million decrease in pretax income from the prior year, due primarily to a decrease in gross margin from home sales, partially offset by a 60% increase in home sale revenues and a decrease in selling, general and administrative costs as a percentage of revenue. Our Corporate segment experienced a $14.8 million decrease in pretax income due to decreased interest income and an increase in cash bonus expense, which is mostly offset by decreased stock based compensation expense.

For the nine months ended September 30, 2024, we recorded homebuilding pretax income of $257.1 million, a decrease of 17% from $310.4 million for the same period in the prior year. The decrease was due to a 220 basis point increase in our selling, general and administrative expenses as a percentage of home sale revenues and $38.6 million of transaction costs related to the Merger. These decreases were partially offset by 28% increase in home sale revenues and a 30 basis point increase in gross margin from home sales. Commentary on the drivers of the increase in pretax income in our West homebuilding segment and decrease in the Mountain and East homebuilding segments is consistent with the 2024 third quarter discussion above. The decrease in the Corporate segment is due to the accelerated vesting of equity awards, key executives' transaction bonuses and transaction costs in connection with the closing of the Merger, decrease in interest income and bonus compensation that was historically paid in the form of equity awards that were instead paid in cash. This was partially offset by decreased stock-based compensation expenses.

Assets:

	September 30, 2024		December 31, 2023		Change
					Amount		%
	(Dollars in thousands)
West	$	2,005,497	$	2,155,357	$	(149,860)	(7)	%
Mountain	1,041,949		874,031		167,918		19	%
East	539,484		459,078		80,406		18	%
Corporate	977,594		1,608,726		(631,132)		(39)	%
Total homebuilding assets	$	4,564,524	$	5,097,192	$	(532,668)	(10)	%

Total homebuilding assets decreased $532.7 million, or 10%, from December 31, 2023 to September 30, 2024, primarily driven by our Corporate segment. The decrease in the Corporate segment was driven by an decrease in cash and cash equivalents as a result of funding $664.6 million of the aggregate consideration of the Merger. The decrease in the West Segment was driven by a decrease in land and land under development as well as housing completed or under construction. The increase in the

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Mountain and East segments were driven by increased housing completed and under construction at period end, due to an increase in the number of homes under construction at period end.

New Home Deliveries & Home Sale Revenues:

Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below.

	Three Months Ended September 30,
	2024					2023					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price
	(Dollars in thousands)
West	1,413	$	804,561	$	569.4	1,198	$	651,472	$	543.8	18	%	23	%	5	%
Mountain	542	340,034		627.4		441	284,142		644.3		23	%	20	%	(3)	%
East	584	242,060		414.5		329	151,436		460.3		78	%	60	%	(10)	%
Total	2,539	$	1,386,655	$	546.1	1,968	$	1,087,050	$	552.4	29	%	28	%	(1)	%

	Nine Months Ended September 30,
	2024					2023					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price
	(Dollars in thousands)
West	4,342	$	2,477,208	$	570.5	3,424	$	1,845,964	$	539.1	27	%	34	%	6	%
Mountain	1,628	1,016,284		624.3		1,467	931,367		634.9		11	%	9	%	(2)	%
East	1,497	629,811		420.7		937	433,205		462.3		60	%	45	%	(9)	%
Total	7,467	$	4,123,303	$	552.2	5,828	$	3,210,536	$	550.9	28	%	28	%	0	%

For the three and nine months ended September 30, 2024, the increase in the number of new homes delivered in each of our segments was primarily driven by an increase in the number of homes under construction (excluding models) to begin the period. Further, each segment saw an increase in monthly absorption rates during the three and nine months ended September 30, 2024 as compared to the prior year periods. The West and Mountain segments saw decreased cycle times for the three months ended September 30, 2024 compared to the prior year, and each segments saw decreased cycle times for the nine months ended September 30, 2024. The average selling price of homes delivered during the three and nine months ended September 30, 2024 increased in our West segment as a result of a shift in mix to our California divisions from our Arizona divisions. The average selling price of homes delivered during the three and nine months ended September 30, 2024 in our East segment decreased as a result of a change in mix to our more affordable product, a shift in mix to lower priced communities in our Florida markets.

Gross Margin from Home Sales:

Our gross margin from home sales for the three months ended September 30, 2024 decreased 140 basis points year-over-year from 19.2% to 17.8%. The decrease in gross margin from home sales was driven by increased incentive levels and increased land costs, partially offset by decreased indirect construction costs due to a decrease in cycle times.

Our gross margin from home sales for the nine months ended September 30, 2024 increased 30 basis points year-over-year from 17.5% to 17.8%. The increase in gross margin from home sales was driven largely by $16.8 million of inventory impairments recognized during the current year period compared to $27.5 million in the prior year period. The increase was also driven by decreased indirect construction costs due to a decrease in cycle times, partially offset by increased land costs.

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Inventory Impairments:

Inventory impairments recognized by segment for the three and nine months ended September 30, 2024 and 2023 are shown in the table below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(Dollars in thousands)				(Dollars in thousands)
Housing Completed or Under Construction:
West	$	2,520	$	1,106	$	4,851	$	2,893
Mountain	—		700		400		1,364
East	1,042		—		1,922		—
Subtotal	3,562		1,806		7,173		4,257
Land and Land Under Development:
West	2,080		2,994		6,749		14,707
Mountain	—		1,400		—		8,536
East	658		—		2,828		—
Subtotal	2,738		4,394		9,577		23,243
Total Inventory Impairments	$	6,300	$	6,200	$	16,750	$	27,500

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.

	Impairment Data					Quantitative Data
Three Months Ended	Number of Subdivisions Impaired	Inventory Impairments		Fair Value of Inventory After Impairments		Discount Rate
	(Dollars in thousands)
September 30, 2024	3	$	6,300	$	27,423	15%
June 30, 2024	4	4,550		$	27,834	12%	—	15%
March 31, 2024	3	5,900		$	17,634	12%	—	18%
Total		$	16,750
September 30, 2023	2	$	6,200	$	17,116	15%	—	18%
June 30, 2023	1	13,500		$	17,886	18%
March 31, 2023	1	7,800		$	13,016	18%
Total		$	27,500

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Selling, General and Administrative Expenses:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2024			2023			Change		2024			2023			Change
	(Dollars in thousands)
General and administrative expenses	$	57,362		$	46,232		$	11,130	$	268,947		$	141,213		$	127,734
General and administrative expenses as a percentage of home sale revenues	4.1		%	4.3		%	-20 bps		6.5		%	4.4		%	210 bps
Marketing expenses	$	28,994		$	24,875		$	4,119	$	87,406		$	70,608		$	16,798
Marketing expenses as a percentage of home sale revenues	2.1		%	2.3		%	-20 bps		2.1		%	2.2		%	-10 bps
Commissions expenses	$	42,740		$	30,204		$	12,536	$	123,439		$	91,211		$	32,228
Commissions expenses as a percentage of home sale revenues	3.1		%	2.8		%	30 bps		3.0		%	2.8		%	20 bps
Total selling, general and administrative expenses	$	129,096		$	101,311		$	27,785	$	479,792		$	303,032		$	176,760
Total selling, general and administrative expenses as a percentage of home sale revenues	9.3		%	9.3		%	0 bps		11.6		%	9.4		%	220 bps

General and administrative expenses increased for the three and nine months ended September 30, 2024. The increase was driven by the increased salary related expenses due to increased headcount and increased cash bonus expense, which is mostly offset by a decrease in stock-based compensation expense. The nine months ended September 30, 2024 increase was further due to the vesting of equity awards and key executives' transaction bonuses in connection with the closing of the Merger as well as bonus compensation that was historically paid in the form of equity awards that were instead paid in cash.

Marketing expenses increased for the three and nine months ended September 30, 2024 driven by increased deferred selling amortization and master marketing expenses due to an increase in home closings year over year.

Commissions expenses increased for the three and nine months ended September 30, 2024 due to increases in home sale revenues and an increase in external broker commissions driven by higher participation.

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Other Homebuilding Operating Data

Net New Orders and Active Subdivisions:

Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below.

	Three Months Ended September 30,
	2024						2023						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate
	(Dollars in thousands)
West	963	$	539,761	$	560.5	3.15	1,022	$	590,558	$	577.8	2.38	(6)	%	(9)	%	(3)	%	32	%
Mountain	473	289,908		612.9		3.06	401	250,285		624.2		2.39	18	%	16	%	(2)	%	28	%
East	468	194,832		416.3		4.05	272	124,655		458.3		2.45	72	%	56	%	(9)	%	65	%
Total	1,904	$	1,024,501	$	538.1	3.29	1,695	$	965,498	$	569.6	2.39	12	%	6	%	(6)	%	37	%

	Nine Months Ended September 30,
	2024						2023						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate
	(Dollars in thousands)
West	3,667	$	2,070,669	$	564.7	3.52	3,375	$	1,939,875	$	574.8	2.68	9	%	7	%	(2)	%	31	%
Mountain	1,533	950,243		619.9		3.19	1,285	781,530		608.2		2.55	19	%	22	%	2	%	25	%
East	1,442	607,546		421.3		4.31	969	439,187		453.2		2.91	49	%	38	%	(7)	%	48	%
Total	6,642	$	3,628,458	$	546.3	3.58	5,629	$	3,160,592	$	561.5	2.68	18	%	15	%	(3)	%	33	%

*Calculated as total net new orders (gross orders less cancellations) in period ÷ average active communities during period ÷ number of months in period.

					Average Active Subdivisions				Average Active Subdivisions
	Active Subdivisions				Three Months Ended				Nine Months Ended
	September 30,		%		September 30,		%		September 30,		%
	2024	2023	Change		2024	2023	Change		2024	2023	Change
West	94	141	(33)	%	102	143	(29)	%	116	140	(17)	%
Mountain	51	55	(7)	%	52	56	(7)	%	53	56	(5)	%
East	38	39	(3)	%	39	37	5	%	37	37	—	%
Total	183	235	(22)	%	193	236	(18)	%	206	233	(12)	%

West Segment Commentary

For the three months ended September 30, 2024, the decrease in the number of net new orders was driven by a decrease in average active subdivisions, offset partially by an increase in the monthly sales absorption rate due to an increase in spec home inventory and a decrease in cancellations as a percentage of gross sales. For the nine months ended September 30, 2024, the increase in the number of net new orders was driven by an increase in the monthly sales absorption rate due to an increase in spec home inventory and a decrease in cancellations as a percentage of gross sales, offset partially by a decrease in average active subdivisions. The increased cancellations experienced during the three and nine months ended September 30, 2023 was the result of the sharp rise in mortgage interest rates and homebuyer concerns about purchasing in an uncertain housing market.

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Mountain Segment Commentary

For the three and nine months ended September 30, 2024, the increase in the number of net new orders was driven by an increase in the monthly sales absorption rate due to an increase in spec home inventory and a decrease in cancellations as a percentage of gross sales, offset partially by a decrease in average active subdivisions. The increased cancellations experienced during the three and nine months ended September 30, 2023 was the result of the sharp rise in mortgage interest rates and homebuyer concerns about purchasing in an uncertain housing market.

East Segment Commentary

For the three and nine months ended September 30, 2024, the increase in the number of net new orders was driven by an increase in the monthly sales absorption rate due to an increase in spec home inventory and a decrease in cancellations as a percentage of gross sales. Further, for the three months ended September 30, 2024 an increase in average active subdivisions. The increased cancellations experienced during the three and nine months ended September 30, 2023 was the result of the sharp rise in mortgage interest rates and homebuyer concerns about purchasing in an uncertain housing market. The decrease in the average selling price in our East segment was due to change in mix to more affordable product in our Florida markets.

Cancellation Rate:

	Cancellations as a Percentage of Homes in Beginning Backlog
	Three Months Ended
	2024						2023
	September 30,		June 30,		March 31,			September 30,		June 30,		March 31,
West	22	%	21	%	20	%		16	%	19	%	26	%
Mountain	25	%	24	%	24	%		22	%	21	%	25	%
East	38	%	33	%	33	%		21	%	16	%	24	%
Total	26	%	24	%	22	%		17	%	19	%	25	%

	Cancellations as a Percentage of Gross Sales
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
West	19	%	24	%	17	%	25	%
Mountain	14	%	24	%	15	%	26	%
East	21	%	26	%	18	%	21	%
Total	19	%	24	%	17	%	25	%

In light of our pivot to build more spec homes, we believe it is appropriate to view our cancellations as a product of both our beginning backlog as well as our gross sales during the period. Our cancellation rate as a percentage of homes in beginning backlog increased during the three months ended September 30, 2024 compared to the same period in 2023, due to a decrease in beginning backlog to start the period, partially offset by a decrease in cancellations in our West and Mountain segments during the three months ended September 30, 2024. Further, our cancellation rate as a percentage of gross sales decreased year-over-year during the three and nine months ended September 30, 2024 as a result of improved demand as well as the impact the increase in mortgage interest rates in the prior year period had on our homebuyers in backlog who where unable to lock their interest rate prior to these increases.

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Backlog:

	September 30,
	2024					2023					% Change
	Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes		Dollar Value		Average Price
	(Dollars in thousands)
West	597	$	365,888	$	612.9	1,842	$	1,113,867	$	604.7	(68)	%	(67)	%	1	%
Mountain	249	162,675		653.3		533	355,759		667.5		(53)	%	(54)	%	(2)	%
East	219	99,952		456.4		400	188,972		472.4		(45)	%	(47)	%	(3)	%
Total	1,065	$	628,515	$	590.2	2,775	$	1,658,598	$	597.7	(62)	%	(62)	%	(1)	%

At September 30, 2024, we had 1,065 homes in backlog with a total value of $628.5 million. This represented a 62% decrease in the number of homes in backlog and a 62% decrease in the dollar value of those homes in backlog from September 30, 2023. The decrease in the number of homes in backlog was primarily a result of a shift in consumer preference to quick move-in homes and our associated pivot to build more spec homes. The increase in average selling price in the West segment was driven by a change in mix from our Arizona communities to our California communities. The decrease in average selling price in our East segment was driven by a change in mix to our more affordable product.

Homes Completed or Under Construction (WIP lots):

	September 30,		%
	2024	2023	Change
Unsold:
Completed	824	236	249	%
Under construction	3,075	2,445	26	%
Total unsold started homes	3,899	2,681	45	%
Sold homes under construction or completed	1,062	2,585	(59)	%
Model homes under construction or completed	478	552	(13)	%
Total homes completed or under construction	5,439	5,818	(7)	%

The increase in total unsold started homes and decrease in sold homes under construction or completed is due to our pivot to build more spec homes.

Lots Owned and Optioned (including homes completed or under construction):

	September 30, 2024			September 30, 2023
	Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
West	9,242	2,504	11,746	10,128	1,092	11,220	5	%
Mountain	5,228	1,041	6,269	4,420	1,793	6,213	1	%
East	3,405	2,559	5,964	3,218	1,702	4,920	21	%
Total	17,875	6,104	23,979	17,766	4,587	22,353	7	%

Our total owned and optioned lots at September 30, 2024 were 23,979, which represented a 7% increase year-over-year. We believe that our total lot supply is sufficient to meet our operating needs, consistent with our philosophy of maintaining a two to three year supply of land. See "Forward-Looking Statements" below.

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Financial Services

	Three Months Ended								Nine Months Ended
	September 30,				Change				September 30,				Change
	2024		2023		Amount		%		2024		2023		Amount		%
	(Dollars in thousands)
Financial services revenues
Mortgage operations	$	26,391	$	12,098	$	14,293	118	%	$	69,192	$	53,275	$	15,917	30	%
Other	16,966		11,671		5,295		45	%	43,097		32,599		10,498		32	%
Total financial services revenues	$	43,357	$	23,769	$	19,588	82	%	$	112,289	$	85,874	$	26,415	31	%
Financial services pretax income
Mortgage operations	$	14,257	$	3,098	$	11,159	360	%	$	35,130	$	26,676	$	8,454	32	%
Other	13,649		9,325		4,324		46	%	33,083		24,709		$	8,374	34	%
Total financial services pretax income	$	27,906	$	12,423	$	15,483	125	%	$	68,213	$	51,385	$	16,828	33	%

For the three months ended September 30, 2024, our financial services pretax income increased to $27.9 million compared to $12.4 million in the third quarter of 2023. For the nine months ended September 30, 2024, our financial services pretax income increased to $68.2 million compared to $51.4 million in the same period in the prior year. The increase in financial services pretax income was driven by both our mortgage operations and other financial services segments. The increase in mortgage operations was driven by increased volume due to our homebuilding operations and capture rate. This was partially offset by increased salary related expenses driven by higher headcount and commissions. The increase in other financial services was driven by our insurance operations which saw an increase in revenue due to an increase in homes closed.

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The following table sets forth information for our mortgage operations segment relating to mortgage loans originated and capture rate.

	Three Months Ended						% or Percentage		Nine Months Ended						% or Percentage Change
	September 30,								September 30,
	2024			2023			Change		2024			2023
	(Dollars in thousands)
Total Originations (including transfer loans):
Loans	1,949			1,225			59	%	5,588			3,766			48	%
Principal	$	892,798		$	544,428		64	%	$	2,576,867		$	1,696,923		52	%
Capture Rate Data:
Capture rate as % of all homes delivered	77		%	62		%	15	%	75		%	65		%	10	%
Capture rate as % of all homes delivered (excludes cash sales)	84		%	69		%	15	%	82		%	71		%	11	%
Mortgage Loan Origination Product Mix:
FHA loans	32		%	28		%	4	%	31		%	23		%	8	%
Other government loans (VA & USDA)	17		%	18		%	(1)	%	17		%	19		%	(2)	%
Total government loans	49		%	46		%	3	%	48		%	42		%	6	%
Conventional loans	51		%	54		%	(3)	%	52		%	58		%	(6)	%
	100		%	100		%	—	%	100		%	100		%	—	%
Loan Type:
Fixed rate	100		%	100		%	—	%	94		%	100		%	(6)	%
ARM	—		%	—		%	—	%	6		%	—		%	6	%
Credit Quality:
Average FICO Score	742			744			—	%	743			741			—	%
Other Data:
Average Combined LTV ratio	83		%	82		%	1	%	84		%	82		%	2	%
Full documentation loans	100		%	100		%	—	%	100		%	100		%	—	%
Loans Sold to Third Parties:
Loans	2,093			1,201			74	%	5,652			3,890			45	%
Principal	$	960,618		$	532,315		80	%	$	2,596,284		$	1,758,383		48	%

Income Taxes

As a result of the Merger described in Footnote 4, and effective April 20, 2024, the Company is included in the Sekisui House US Holdings ("SHUSH") (parent of SH Residential Holdings, LLC) consolidated tax group for U.S. federal income tax purposes. Although the Company’s post-merger results are included in the SHUSH consolidated return, our income tax provision is calculated primarily as though we were a separate taxpayer for the full year. However, under certain circumstances, transactions between the Company and SHUSH are assessed using consolidated tax return rules and any difference in liability between the separate company method will be addressed in a future tax sharing arrangement.

Our overall effective income tax rates were 14.2% and 21.8% for the three and nine months ended September 30, 2024 and 23.2% and 22.2% for the three and nine months ended September 30, 2023, respectively. The rates for the three and nine months ended September 30, 2024 resulted in an income tax expense of $22.1 million and $70.8 million, respectively, compared to $32.5 million and $80.3 million for the three and nine months ended September 30, 2023, respectively. The year-over-year decrease in the effective tax rates for the three and nine months ended September 30, 2024, is primarily due to deductible executive compensation, partially offset by non-deductible transaction costs and excise taxes as well as a tax reserve related to the Merger.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary. Actual results could differ from these estimates if conditions are significantly different in the future. See "Forward-Looking Statements" below.

Our critical accounting estimates and policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

We use our liquidity and capital resources to (1) support our operations, including the purchase of land, land development and construction of homes; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Our liquidity includes our cash and cash equivalents, marketable securities, Revolving Credit Facility (as defined below) and Mortgage Repurchase Facility (as defined below).

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of September 30, 2024, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our Mortgage Repurchase Facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds) and operating leases. Other material cash requirements include land acquisition and development costs not yet contracted for, home construction costs, operating expenses, including our selling, general and administrative expenses, investments and funding of capital improvements and dividend payments.

At September 30, 2024, we had outstanding senior notes with varying maturities totaling an aggregate principal amount of $1.50 billion, with none payable within 12 months. Future interest payments associated with the notes total $1.19 billion, with $64.2 million payable within 12 months. As of September 30, 2024, we had $20.4 million of required operating lease future minimum payments.

At September 30, 2024, we had deposits of $49.7 million in the form of cash and $14.6 million in the form of letters of credit that secured option contracts to purchase 6,104 lots for a total estimated purchase price of $856.7 million.

At September 30, 2024, we had outstanding surety bonds and letters of credit totaling $317.0 million and $184.1 million, respectively, including $147.8 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit was approximately $120.4 million and $136.0 million, respectively. We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit. We have made no material guarantees with respect to third-party obligations.

Capital Resources

Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our 3.850% senior notes due 2030, 2.500% senior notes due 2031, 6.000% senior notes due 2043, and 3.966% senior notes due 2061; (3) our Revolving Credit Facility; and (4) our Mortgage Repurchase Facility. Because of our current balance of cash, cash equivalents, marketable securities, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are adequate to

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satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See “Forward-Looking Statements” below.

We may from time to time seek to retire or purchase our outstanding senior notes through cash purchases, whether through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility

Senior Notes. Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries. We believe that we are in compliance with the representations, warranties and covenants in the senior note indentures.

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders, which may be used for general corporate purposes. This agreement was amended on December 28, 2020 to (1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the "Commitment"), (2) extend the Revolving Credit Facility maturity of $1.125 billion of the Commitments to December 18, 2025 with the remaining Commitment terminated on December 18, 2023 and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.7 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents.

Effective April 11, 2023, the Revolving Credit Facility was amended to transition from a eurocurrency based interest rate to an interest rate based on the Secured Overnight Financing Rate ("SOFR"). As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus 0.50%, and (4) the one month term SOFR screen rate plus the SOFR adjustment plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on SOFR borrowings are equal to the greater of (1) 0.0% and (2) the sum of the term SOFR screen rate for such interest period plus the SOFR adjustment, plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

Effective March 20, 2024, the Revolving Credit Facility was amended to provide that the Merger (1) does not constitute a change in control triggering an event of default under the Revolving Credit Facility and (2) does not constitute a prohibited merger under the Revolving Credit Facility.

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of September 30, 2024.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At September 30, 2024 and December 31, 2023, there were $36.3 million and $40.8 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. At September 30, 2024 and December 31, 2023, we had $1.0 million and $10.0 million, respectively, outstanding under the Revolving Credit Facility. As of September 30, 2024, availability under the Revolving Credit Facility was approximately $1.09 billion.

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Mortgage Repurchase Facility. HomeAmerican entered into the Second Amended and Restated Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”) on September 20, 2024. The Mortgage Repurchase Facility amends and restates the prior agreement dated as of September 16, 2016, as amended. The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $150 million (subject to increase by up to $150 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Amended and Restated Custody Agreement (“Custody Agreement”), dated as of September 20, 2024, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The total capacity of the facility at September 30, 2024 was $175 million. The termination date of the Mortgage Repurchase Facility is August 8, 2025.

At September 30, 2024 and December 31, 2023, HomeAmerican had $171.2 million and $205.0 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Pricing under the Mortgage Repurchase Facility is based on SOFR.

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of September 30, 2024.

Effective March 5, 2024, HomeAmerican entered into a Waiver and Consent agreement with USBNA, in which USBNA as agent waived any events of default under the Mortgage Repurchase Facility arising with respect to the change of control occurring as a result of the Merger. USBNA also consented and agreed to the consummation of the Merger as well as any reconstitution of the Company's board of directors that might result from the Merger.

The Merger would have triggered a change in control event of default under the Mortgage Repurchase Facility, and the Company obtained lender’s consent to the Merger obviating a default.

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Consolidated Cash Flow

During the nine months ended September 30, 2024, net cash provided by operating activities was $139.1 million compared with $623.1 million in the prior year period. During the nine months ended September 30, 2024 and 2023, one of the most significant sources of cash provided by operating activities was net income of $254.5 million and $281.5 million, respectively. Another significant source of cash provided by operating activities during the nine months ended September 30, 2024 and 2023 was cash provided by the decrease in land and land under development of $52.9 million and $456.4 million, respectively. The decrease in 2024 and 2023 was the result of home starts outnumbering lot acquisitions during the respective periods. During the nine months ended September 30, 2024 and 2023, cash used by housing completed or under construction was $158.9 million and $202.9 million, respectively. Cash used in the nine months ended September 30, 2024 and 2023 were impacted by an increase in the number of homes under construction during the period. Cash used by the increase in trade and other receivables for the nine months ended September 30, 2024 was $28.1 million compared to cash provided by the decrease in trade and other receivables of $45.0 million for the nine months ended September 30, 2023. The decrease during the nine months ended September 30, 2024 was driven by a increase of homes closed at the end of the period as well as an increase in taxes receivable as a result of benefits associated with deductible executive compensation. Cash used in accounts receivable due from Parent was $22.2 million during the nine months ended September 30, 2024, driven by payments in connection with the Merger funded by the Company. There was no cash used in accounts receivable due from Parent in the nine months ended September 30, 2023. Cash used in the change in accounts payable and accrued liabilities for the nine months ended September 30, 2024 and 2023 was $19.2 million and $55.5 million, respectively. The change in accounts payable and accrued liabilities was due to decreased accrued compensation as a result of payments made in connection with the closing of the Merger as well as decreased escrow deposits. Cash used to increase mortgage loans held-for-sale was $27.5 million compared to cash provided by the decrease in mortgage loans held-for-sale of $65.3 million in the nine months ended September 30 2024 and 2023, respectively. The increase in mortgage loans held-for-sale was a result of a increase in loan originations for the nine months ended September 30, 2024 compared to the same period in 2023.

During the nine months ended September 30, 2024, net cash used in investing activities was $19.0 million compared to net cash provided by investing activities of $145.7 million in the same period in the prior year. The primary driver of this decrease is the increase of net reinvestment into marketable securities from marketable security maturities during the nine months ended September 30, 2024.

During the nine months ended September 30, 2024 and 2023, net cash used in financing activities was $762.3 million and $123.6 million respectively. The primary driver of this increase in net cash used in financing activities was the increase in distribution to Parent of $611.4 million during the nine months ended September 30, 2024 due to the Company's funding of a portion of the consideration of the Merger. Cash used to fund dividend payments decreased in the nine months ended September 30, 2024 due to no dividend being paid in the second quarter of 2024, slightly offset by an increase in the dividend per share during the first quarter of 2024 to $0.55 from $0.50. During the nine months ended September 30, 2024, cash used in the payments on mortgage repurchase facility, net was $33.8 million compared to $30.3 million. During the nine months ended September 30, 2024 and 2023 there was a higher level of originations compared to loan sales at period end. Cash used in issuance of shares under stock-based compensation programs, net was $25.6 million during the nine months ended September 30, 2024 compared to cash provided by issuances of shares under stock-based compensation programs, net of $20.8 million during the same period in the prior year. The change was resulting from a decrease in cash received from the exercise of stock options driven by a decrease in the number of stock options exercised year-over-year.

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OTHER

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” "opinion," “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us are contained under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and Item 1A of Part II of this Quarterly Report on Form 10-Q.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk

We have a cash and investment policy that enables us to achieve an appropriate investment return while preserving principal and managing risk. Under this policy, cash and cash equivalents may include U.S. government securities, commercial bank deposits, commercial paper, certificates of deposit and money market funds, and time deposits, with maturities of three months or less. Marketable securities under this policy may include holdings in U.S. government securities with a maturity of more than three months, equity securities and corporate debt securities.

As of September 30, 2024, our cash and cash equivalents included commercial bank deposits and money market funds and our marketable securities included U.S. government treasury securities with original maturities upon acquisition of less than six months.

We are exposed to market risks related to fluctuations in interest rates on mortgage loans held-for-sale, mortgage interest rate lock commitments, marketable securities and debt. Financial instruments utilized in the normal course of business by HomeAmerican include forward sales of mortgage-backed securities, which are commitments to sell a specified financial instrument at a specified future date for a specified price, mandatory delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price within a specified time period, and best-effort delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price subject to the underlying mortgage loans being funded and closed. Such contracts are the only significant financial and derivative instruments utilized by MDC. HomeAmerican’s mortgage loans in process for which an interest rate lock commitment had been made to a borrower that had not closed at September 30, 2024 had an aggregate principal balance of $275.3 million, of which $274.4 million had not yet been committed to a mortgage purchaser. In addition, HomeAmerican had mortgage loans held-for-sale with an aggregate principal balance of $233.0 million at September 30, 2024, of which $190.3 million had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, HomeAmerican had forward sales of securities totaling $419.5 million and $311.5 million at September 30, 2024 and December 31, 2023, respectively.

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HomeAmerican provides mortgage loans that generally are sold forward on a best-efforts or mandatory commitment basis and subsequently delivered to a third-party purchaser between 5 and 35 days after closing. Forward sale commitments and forward sales of mortgage-backed securities are used for non-trading purposes to sell mortgage loans and economically hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed and mortgage loans held-for-sale. Due to this economic hedging philosophy, the market risk associated with these mortgages is limited. For forward sales commitments, forward sales of mortgage-backed securities and commitments to originate mortgage loans that are still outstanding at the end of a reporting period, we record the changes in fair value of these financial instruments in revenues in the financial services section of the consolidated statements of operations and comprehensive income with an offset to either other assets or accounts payable and accrued liabilities in the financial services section of our consolidated balance sheets, depending on the nature of the change.

We utilize our Revolving Credit Facility, our Mortgage Repurchase Facility and senior notes in our financing strategy. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but do not affect our earnings or cash flows. We do not have an obligation to prepay our senior notes prior to maturity and, as a result, interest rate risk and changes in fair value do not have an impact on our financial position, results of operations or cash flows. For variable rate debt such as our Revolving Credit Facility and Mortgage Repurchase Facility, changes in interest rates generally do not affect the fair value of the outstanding borrowing on the debt facilities, but do affect our earnings and cash flows. See “Forward-Looking Statements” above.

Item 4.        Controls and Procedures

(a)Conclusion regarding the effectiveness of disclosure controls and procedures - An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed under the supervision, and with the participation, of our management, including the Executive Chairman (principal executive officer) and the Chief Financial Officer (principal financial officer).  Based on that evaluation, our management, including the Executive Chairman and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)Changes in internal control over financial reporting - There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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M.D.C. HOLDINGS, INC.

FORM 10-Q

PART II. OTHER INFORMATION

Item 1.        Legal Proceedings

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of our homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Item 1A.     Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors that appeared under Item 1A. Risk Factors in the Company’s 2023 Annual Report on Form 10-K. There are no material changes from the risk factors included within the Company’s 2023 Annual Report on Form 10-K. However, the Merger was completed on April 19, 2024, thereby mitigating or eliminating the risk factors pertaining to the Merger described in the Form 10-K.

Item 6.        Exhibits

10.1	Employment Agreement between Robert N. Martin and the Company, dated as of July 12, 2024
10.2	Twelfth Amendment to Amended and Restated Master Repurchase Agreement between HomeAmerican Mortgage Corporation, as Seller, and U.S. Bank National Association, as Agent and Buyer, dated as of August 8, 2024 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on August 12, 2024). *
10.3	Second Amended and Restated Master Repurchase Agreement among HomeAmerican Mortgage Corporation and U.S. Bank National Association as Agent and a Buyer, dated as of September 20, 2024 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on September 26, 2024). *
22	Subsidiary Guarantors (incorporated by reference to Exhibit 22 to the Company's Form 10-Q for the quarter ended June 30, 2021). *
31.1	Certification of principal executive officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of principal financial officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of principal executive officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of principal financial officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial statements, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, (ii) Consolidated Statements of Operations and Comprehensive Income for the nine months ended September 30, 2024 and 2023, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2024 and 2023, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; and (v) Notes to the Unaudited Consolidated Financial Statements, tagged as blocks of text.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

____________________

*Incorporated by reference.

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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.

	M.D.C. HOLDINGS, INC.
	(Registrant)
Date: November 5, 2024	By: /s/ Robert N. Martin
	Robert N. Martin Senior Vice President and Chief Financial Officer (principal financial officer and duly authorized officer)
Date: November 5, 2024	By: /s/ Derek R. Kimmerle
	Derek R. Kimmerle
	Vice President, Controller and Chief Accounting Officer (chief accounting officer and duly authorized officer)

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