DFH 10-K & 10-Q changes, risk factors and insider trading

Homebuilding Industry, Economic and Regulatory Risks

OurThe homebuilding industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us.

OurThe businesshomebuilding industry can be substantially affected by adverse changes in general and local economic or business conditions that are outside of our control, including changes in short-term and long-term interest rates; employment levels and job and personal income growth; availability and pricing of mortgage financing; forconsumer homebuyers;spending, as well as both consumer confidence generally and the confidence of potential homebuyers in particular; consumer spendinginflation; financial system and credit market stability; private party and government mortgage loan programs (including changes in FHA, USDA, VA, Fannie Mae and Freddie Mac conforming mortgage loan limits, credit risk/mortgage loan insurance premiums and/or other fees, down payment requirements and underwriting standards), and federal and state regulation, oversight and legal action regarding lending, appraisal, foreclosure and short sale practices; federal and state personal income tax rates and provisions, including provisions for the deduction of mortgage loan interest payments, real estate taxes, the cost of homeowners insurance and other expenses; supply of and prices for available new or resale homes (including lender-owned homes) and other housing alternatives, such as apartments, single-family rentals and other rental housing; homebuyer interest in our current or new product designs and new home community locations; general consumer interest in purchasing a home compared to choosing other housing alternatives; and interest of financial institutions or other businesses in purchasing wholesale homes. Adverse changes in these conditions may affect our business nationally or may be more prevalent or concentrated in particular submarkets in which we operate. The homebuilding industry is cyclical in nature and if we experience a significant or sustained downturn as a result of the economic factors described above or otherwise, it would materially adversely affect our business and results of operations.

The risks described above can cause demand and prices for our homes to fall or cause us to take longer and incur more costs to develop the land and build our homes. We may not be able to recover these increased costs by raising prices because of market conditions. The risks described above could also lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether, which would increase our cancellation rate. If any of the risks described above develops, it could have a material adverse effect on our overall businessbusiness, profitability and results of operations.

Inflation and/or higher interest rates could adversely affect our business and financial results.

The United States has recentlycontinued experiencedto experience inflationary conditions, which, at times, has resulted in increasing costs of land, raw materials and labor needed to operate our business. If our markets have an oversupply of homes relative to demand,demand or if home average selling prices are declining in a geographic region in which we operate, we may be unable to offset any such increases in costs with corresponding higher sales prices for our homes. Inflation may continue to accompany higher interest rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby further decreasing demand. If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease. Furthermore, if we need to lower the price of our homes to create demand, the value of our land inventory may decrease. Inflation can also raise our costs of capital and decrease our purchasing power, making it more difficult and/or more expensive to maintain sufficient funds to operate our business. Our operations havecontinue previouslyto beenbe negatively impacted by inflation due to increasing construction costs, labor and materials, as well as land acquisition financing costs and such impacts could continue into the future. The elevated interest rate environment that persisted into late 2023 negatively impactedimpacts our construction loan financing costs, which in turn affected our gross margin. Additionally, the increased use of sales incentives to combat higher mortgage rates negatively impacted our SG&A expense. If inflationary conditions continue in future periods, it could continue to materially adversely affect our business and financial results.

Almost all of our customers finance their home purchases through lenders that provide mortgage financing. Mortgage interest rates have generally trended downward for the last several decades and reached historic lows in 2021, which —during that period— made the homes we sell more affordable. Mortgage interest rates have increased substantially through December 2024 since their historic lows, which negatively impacted consumer affordability. We cannot predict future mortgage interest rates, and should these rates continue to climb or stay elevated over an extended timeframe, the financing ability of prospective homebuyers could be adversely affected. As a result, our operating results may be significantly impacted. Our homebuilding activities are dependent upon the availability of mortgage financing to homebuyers, which is expected to be impacted by continued regulatory changes and fluctuations in the risk appetites of lenders. The financial documentation, down payment amounts and income to debt ratio requirements are subject to change and could become more restrictive.

RegionalOur geographic concentration and regional factors affecting the homebuilding industry in our current markets could materially and adversely affect us.

Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Florida, Texas, Tennessee, North Carolina, South Carolina, Georgia, Colorado, Arizona, and the Washington, D.C. metropolitan area, which comprises Northern Virginia and Maryland. In addition, we have lot purchase contracts for the right to purchase lots at a future point in time in all of these areas.subdivisions. A prolonged economic downturn in the future in one or more of thesethe areas,regions in which we operate, or a particular industry that is fundamental to one or more of these areas, particularly within Florida and Texas, our largest markets, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. In addition, climate factors such as hurricanes, drought, excessive heat and similar items could also negatively impact the desirability of residing in certain areas, which could also negatively impact our results of operations.

There are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with floods, hurricanes, landslides, prolonged periods of precipitation, earthquakes and other weather-related and geologic events may not be insurable and other losses, such as those arising from terrorism, may not be economically insurable. A sizeablesizable uninsured loss could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

If the market value of our inventory or controlled lot position declines, we may incur write-downs of our real estate assets and our profits could decrease and we may incur losses.decrease.

Additionally, we must continuously seek and make acquisitions of lots for expansion into new markets, as well as for replacement and expansion within our current markets, which we generally accomplish by entering into finished lot option contracts or land bank option contracts. In the event of adverse changes in economic, market or community conditions, we may cease further building activities in certain communities, restructure existing land purchase option contracts or elect not to exercise our land purchase options. Such actions would result in our forfeiture of some or all of any deposits, fees or investments paid or made in respect of such arrangements. Additionally, cross-default provisions in certain contracts, if triggered, could result in further forfeiture of these items in related arrangements with the same counterparty. The forfeiture of land contract deposits or inventory impairments may result in a loss that could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.

For the year ended December 31, 2023,2024, we claimed $3$12 million of Federal Energy Credits. For the year ended December 31, 2024,2025, we have estimated $12$11 million of Federal Energy Credits within our income tax provision. The increase in the amount of expected Federal Energy Credits in 2024 compared to the amount claimed in 2023 was primarily due to more homes delivered in 2024 that are expected to qualify for Federal Energy Credits compared to the prior year. Generally, in a given year, the Company aims to build as many energy-efficient new homes as possible.

Homebuilding Operational Risks

Our backlog reflects sales contracts with customers for homes that have not yet been delivered. We have received a deposit from a homebuyer for most homes reflected in our backlog, and, generally, we have the right to retain the deposit if the homebuyer fails to comply with his or her obligations under the sales contract, subject to certain exceptions or contingencies, including as a result of state and local law, the homebuyer’s inability to sell his or her current home or, in certain circumstances, the homebuyer’s inability to obtain suitable financing. Cancellations negatively impact the number of closed homes, net new orders,sales, homebuilding revenues and results of operations, as well as the backlog. In addition to the contingencies noted above, cancellations can result from declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, and adverse changes in economic conditions. Beginning in the fourth quarter of 2022 and continuing into 2023, demand further tightened in response to additional increases in mortgage rates caused by the Federal Reserve raising interest rates in response to inflationary conditions. The market's reaction to the interest rate environment negatively affected net new orders and continues to have a negative impact on the cancellation rate for the Company. Any continued increase in the level of our cancellations would have a negative impact on our business, prospects, liquidity, financial condition and results of operations. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview and Outlook” for more information.

Our success in recently entered markets or those we may choose to enter in the future depends substantially on our ability to source local labor and local materials on terms that are favorable to us. Our markets may exhibit a reduced level of skilled labor relative to increased homebuilding demand in these markets. In the event of shortages in labor or raw materials in such markets, local subcontractors, tradespeople and suppliers may choose to allocate their resources to homebuilders with an established presence in the market and with whom they have longer-standing relationships. Labor and raw material shortages and price increases for labor and raw materials could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.

Although our preference is to acquire finished lots, from time to time, we also acquire property that requires further development before we can begin building homes. When a community requires additional developments, we devote substantial time and capital in order to obtain development approvals, acquire land and construct significant portions of project infrastructure and amenities before the community generates any revenue. In addition, our land bank option contracts often include provisions under which delays in land development and/or longer land takedown periods cause us to incur additional cost. It can take several years from the time we acquire control of an undeveloped property to the time we make our first home sale on the site. Delays in the development of communities, including delays associated with subcontractors performing the development activities or entitlements, expose us to the risk of changes in market conditions for homes. A decline in our ability to develop and market one of our new undeveloped communities successfully and to generate positive cash flow from these operations in a timely manner could have a material adverse effect on our business and results of operations and on our ability to service our debt and to meet our working capital requirements. In addition, higher than expected absorption rates in existing communities may result in lower than expected inventory levels until the development for replacement communities is completed.

We intend to grow our operations in existing markets, and we intend to expand into new markets and pursue opportunistic purchases of other homebuilders on attractive terms as such opportunities arise. We may be unable to achieve the anticipated benefits of any such growth or expansion, including through targeted acquisitions or through efficiencies that we may be unable to achieve, the anticipated benefits may take longer to realize than expected, or we may incur greater costs than expected in attempting to achieve the anticipated benefits. In such cases, we will likely need to employ additional personnel or consultants that are knowledgeable about such markets. There can be no assurance that we will be able to employ or retain the necessary personnel to successfully implement a disciplined management process and culture with local management, that our expansion operations will be successful or that we will be able to successfully integrate any acquired homebuilder. This could disrupt our ongoing operations and divert management resources that would otherwise focus on developing our existing business.

From time-to-time, we acquire other businesses to expand our presence in new and existing geographic markets or to expand into opportunities to contribute to our long-term strategy. We may not be able to successfully integrate any businesses that we acquire into our operations and may not achieve the synergies we expected from an acquisition. Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations. Moreover, even if we were successful in integrating newly acquired businesses or assets, expected synergies or cost savings may not materialize, resulting in lower than expected benefits to us from such transactions. Additionally, when making acquisitions, it may not be possible for us to conduct a thorough investigation of the nature of the business or assets being acquired, for instance, due to time constraints in making the decision and other factors. We may become responsible for additional liabilities or obligations not foreseen at the time of an acquisition. To the extent we pay the purchase price of an acquisition in cash, such an acquisition would reduce our cash reserves, and, to the extent the purchase price of an acquisition is paid with our stock, such an acquisition could be dilutive to our stockholders. To the extent we pay the purchase price of an acquisition with proceeds from incurring debt, such an acquisition would increase our level of indebtedness and interest expense and could negatively affect our operating results, liquidity and restrict our operations.

InterestWe have a significant amount of debt and interest expense on debt we incurthat may limit our cash available to fund our growth strategies.

If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing. Our current indebtedness also includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest.

Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, covenants that limit our ability to do certain things. For instance, our credit agreement requires the Company to meet certain financial ratios and comply with covenants, such as a maximum debt to capitalization ratio, minimum interest coverage ratios and minimum liquidity ratios. Furthermore, the Company issued senior unsecured notes in August 2023 whichand wereSeptember issued2025 pursuant to an indentureindentures (the “IndentureIndentures”). In addition to customary events of default, the IndentureIndentures containscontain certain restrictive covenants that, among other things, limit our ability to incur or guarantee certain indebtedness, issue certain equity interests or engage in certain capital stock transactions, and impose constraints concerning mergers, consolidations, and asset transfers.

Under the Dream Finders Homes, Inc. Insider Trading Policy (“our Insider Trading Policy”), our directors, officers and employees canare pledgegenerally prohibited from pledging shares of our common stock as collateral for a loan or hold shares of our common stock in a margin account if the value of Company securities held in one or more margin accounts does not exceed 30% of the total value of all of the Company securities owned by the shareholder at the time such loan or loans (individually or in the aggregate) are originated andunless the director, officer or employee obtains pre-clearance from the designated compliance officer.officer and approval by the Board of Directors (without the vote of the requesting person). As of December 31, 2024,2025, Mr. Zalupski had 17,500,00035,500,000 shares of our Class B common stock pledged as security for a margin loan.loans.

Further, our directors, officers and employees mayare purchaseprohibited from purchasing or useusing certain financial instruments (including prepaid variable forward sales contracts, equity swaps, collars and exchange-traded funds). These types of financial instruments are designed to hedge or offset any decrease in the market value of the Company’s securitiessecurities, andwhich can be speculative in nature andand, thereforetherefore, can create the appearance that the transaction is based on material nonpublic information. Accordingly, any such financial instruments must be pre-cleared by the designated compliance officer and approved by the Board of Directors (without the vote of the requesting person). However, our directors, officers and employees may enter into prepaid variable forward sales contracts. As of December 31, 2024,2025, Mr. Zalupski had 2,000,0003,000,000 shares of our Class B common stock subject to prepaid variable forward sales contracts that are expected to settle starting in 2027.

In the event that such margin loanloans (or any other margin loan by an officer or director) were to be called and the shares of common stock were sold on the open market by the lender or if we otherwise have a large number of shares being sold on the open market by the counterparties to variable forward sale contracts, the price of our common stock could decline materially.

There are various potential conflicts of interest in our relationship with DF Capital and certain of its managed funds, including with certain of our executive officers and directorsa former director who are investors in certain funds managed by DF Capital, which could result in decisions that are not in the best interest of our stockholders.

Conflicts of interest may exist or could arise in the future with DF Capital and certain of its managed funds, including with certain of our executive officers and directorsa former director who are also investors in certain funds managed by DF Capital. Once a potential lot acquisition that requires a significant upfront commitment of capital is approved by our land acquisition committee, we seek a land bank partner. Historically, we have provided, and we expect to continue to provide DF Capital with the opportunity to have one of its managed funds participate in transactions that require additional funding. Such transactions may not be on terms that are as attractive as those we might be able to achieve if we sought other partners. If DF Capital does not wish to participate in and finance the transaction, we turn to other potential financing sources. Conflicts with DF Capital and certain of its managed funds may include, without limitation: conflicts arising from the enforcement of agreements between us and DF Capital and/or certain of its managed funds; conflicts in determining whether to offer DF Capital the opportunity to participate in a potential lot acquisition financing; if DF Capital does participate, conflicts in determining the terms of the financing; and conflicts in future transactions that we may pursue with DF Capital and/or one of its managed funds.

We design, build and sell homes primarily in high-growth markets using our asset-light lot acquisition strategy. Our primary focus is on constructing and selling single-family homes across entry-level, first-time move-up, second-time move-up,move-up and active adult marketsmarkets, as well as homes under built-for-rent contracts. To fully serve our homebuyers and capture ancillary business opportunities, we have financial services operations that offer mortgage banking solutions and title insurance—inclusive of agency and underwriting services. Additionally, we offer homeowners insurance and mortgageadjacent bankingproducts solutions.to homebuyers.

The following table summarizes our results of operations and other financial data (in thousands, except per share amounts and percentages) for the periods indicated:

(2)Refer to Note 14,15, Earnings Per Share to theour consolidated financial statements for disclosures related to the calculation of EPS.earnings per share (“EPS”). Diluted shares were calculated by using the treasury stock method for stock grants and the if-converted method for the redeemable preferred stock and the associated preferred dividends.

(5)Return on participating equity is calculated as net and comprehensive income attributable to DFH, less redeemable preferred stock distributions, divided by average beginning and ending total Dream Finders Homes, Inc. stockholders’ equity (“participating equity”) for the trailing twelve months.

The following table sets forth our results of homebuilding operations and other financial data (in thousandsthousands, except for percentages), as well as other operating data for the periods indicated:

The following tablestable presentpresents income before taxes (in thousands) and homebuilding gross margin (or “gross margin”) percentage by segment for the yearyears ended December 31, 20242025 and 20232024:

Homebuilding Cost of Sales and Homebuilding Gross Margin. The higher homebuilding cost of sales andlower homebuilding gross margin werewas primarily due to the decrease in consolidated ASP of homes closed, partially offset by the slight increase in home closings for the year ended December 31, 20242025 as compared to the year ended December 31, 2023.2024. The decrease in homebuilding gross margin as a percentage of homebuilding revenues when comparing the years ended December 31, 20242025 and 20232024 was primarily attributable to the increased use of sales incentives, as well as higher land and financing costs,costs and changes in geographical product mix, partially offset by direct cost reductions and changescycle-time in product mix. Additionally, amortization of purchase accounting adjustments associated with home closings from the Crescent Homes acquisition negatively impacted the year ended December 31, 2024 homebuilding gross margin percentage by approximately 12 bps.improvements.

Southeast. Our Southeast segment homebuilding revenues for the year ended December 31, 20242025 were $1.4$1,390 billion,million, aan decreaseincrease of $135$3 million, or 9%,million from $1.5$1,387 billionmillion for the year ended December 31, 2023.2024. This decline in revenue growth was primarily driven by aan decreaseincrease in home closings of 332,288, or 10%, partiallywhich was mostly offset by a 3%decrease increaseof 8% in the ASP of homes closed. Homebuilding gross margin percentage was 19.1%18.6% for the year ended December 31, 2024,2025, representing ana increasedecrease of 2050 bps, or 1%,3%, when compared to the year ended December 31, 2023.2024. The increasedecrease in homebuilding gross margin percentage was mostly the result of directhigher costland reductionsand financing costs and, to a lesser extent, cycleincreased timesales improvements,incentives, partially offset by higherdirect landcost reductions. The Liberty Communities operations in Atlanta (“Liberty Atlanta”) contributed $193 million in homebuilding revenues and financing543 costs.home closings with an ASP of $354,276 for the year ended December 31, 2025.

Midwest.Mid-Atlantic. Our MidwestMid-Atlantic segment homebuilding revenues for the year ended December 31, 20242025 were $1.8$1,062 billion,million, ana increasedecrease of $264$101 million, or 17%,9%, from $1.6$1,163 billionmillion for the year ended December 31, 2023.2024. This increasedecline in revenue was dueprimarily todriven higherby a decrease in home closings of 604,131, or 24%,5%, partially offset byand a decrease of 6% in the ASP of homes$20,292, closed.or The decrease in ASP of homes closed was due to changes in the geographic mix of closings within the segment. Homebuilding gross margin percentage was 17.0%5%, for the year ended December 31, 2024,2025 compared to the year ended December 31, 2024. Homebuilding gross margin percentage was 18.3% for the year ended December 31, 2025, representing a decrease of 360130 bps, or 17%,7%, when compared to the year ended December 31, 2023.2024. The reduction in homebuilding gross margin percentage was mainly due to anincreased increasesales inincentives and land costs and, to a lesser extent, higherand financing costs, partially offset by direct cost reductions.

Contingent Consideration Revaluation. $30The $24 million ofchange the decrease infrom contingent consideration expense to income for the year ended December 31, 20242025 was primarily attributable to lower fair value adjustments of future expected earnout payments related to the MHI acquisition, as actual results remainedachieved in line with forecasts when compared toduring the year ended December 31, 2023. As thelast earnout period for the MHI acquisition iswhen nearingcompared itsto completionpre-tax inincome forecasts for the same period. The earnout period for the MHI acquisition concluded as of the end of the third quarter of 2025,2025 itand isthe lessfinal susceptiblepayment towas changesmade in long-termDecember underlying2025. projections. Additionally, theThe earnout period related to the 2020 acquisition of H&H Constructors of Fayetteville, LLC concluded in the third quarter of 2024 and the final payment for the contingent consideration agreement was made in the fourth quarter of 2024.

Income Beforebefore Taxes Related toof Homebuilding Operations. The increasedecrease in income before taxes related toof homebuilding operations duringfor the year ended December 31, 20242025 as compared to the year ended December 31, 20232024 was primarily attributable to the increaseincreases in homeSG&A, closingas volumewell andas the reduction in contingentASP considerationand expense,homebuilding gross margin, partially offset by the increasechange in SG&A,contingent consideration from expense to income, all of which are explained above.

Net Sales, BacklogClosings and ClosingsBacklog

The following table presents information concerning our net sales, starts and closings in each of our homebuilding segments for the periodsyear setended forthDecember below31, 2025 and 2024:

Backlog of sold homes as of December 31, 20242025 was 2,5991,839 homes valued at approximately $1.3$821 billionmillion based on ASP, a decrease of 1,379760 homes and $583$483 million in value, or 35%29% and 31%,37%, respectively, from 3,9782,599 homes valued at approximately $1.9$1,304 billionmillion as of December 31, 2023.2024. Approximately 72 of the homes in our backlog are expected to be delivered in 2027 and beyond. The overall decrease in backlog was mostly reflective of a constrained sales environment as well as a continued trend toward move-in ready spec homes relative to pre-order sales,sales andand, to a lesser extent, a reduction infewer built-for-rent contracts in backlog. Spec homes typically result in quicker closings and turnover of the backlog within the same reporting period. Approximately 187 of the homes in our backlog are expected to be delivered in 2026 and beyond.

Midwest.Southeast. Backlog for the MidwestSoutheast segment as of December 31, 20242025 was 771833 homes, a decrease of 374317 from 1,1451,150 homes as of December 31, 2023.2024. The decrease from prior year was mostlyprimarily a result of higher closings relativeattributable to netfewer sales,built-for-rent ascontracts wellin asending thebacklog and a continued trend toward more sales of move-in-ready spec homes relative to pre-order sales.

Our Financial Services segment provides mortgage financingbanking solutions and title insurance services—inclusive primarilyof agency and underwriting services—through our whollywholly-owned owned subsidiaries,subsidiaries Jet HomeLoans, LP (“Jet HomeLoans and”), DF Title, respectively.LLC Thedoing followingbusiness tableas presentsGolden selectedDog financialTitle information& Trust and supplementalGolden dataDog forTitle our(“DF Title”) and Alliant National Title Insurance Company, Inc. (“Alliant Title”). Additionally, the Financial Services segment foroffers thehomeowners year ended December 31, 2024insurance and 2023ancillary (dollarsproducts into thousands,homebuyers unlessthrough otherwiseour indicated):wholly-owned insurance broker.

(1)Supplemental data reflectsincludes the operations of Jet HomeLoans prior to its consolidation in the Company’s consolidated financial statements beginning on July 1, 2024. Refer to Note 2, Acquisitions to theour consolidated financial statements for additional information.

TheMortgage $35banking million, or 100%, increase in mortgage revenues, $21 million of the increase in financial services expense and $11 million of the increase in the financial services income before taxesrevenues for the year ended December 31, 20242025 aswere compared$69 tomillion, an increase of $34 million or 97%, from $35 million for the year ended December 31, 2023,2024. respectively,Financial services income before taxes related to mortgage banking for the year ended December 31, 2025 was $28 million, an increase of $6 million from $22 million for the year ended December 31, 2024. These increases were all primarily due to the consolidation of Jet HomeLoans beginning July 1, 2024. The income before taxes of Jet HomeLoans prior to July 1, 2024 was included in income from unconsolidated entities in the Consolidated Statements of Comprehensive Income.Operations.

AffordabilityThe remainsmost the primarysignificant challenge forfacing homebuyers across our markets,markets particularlycontinues withinto be affordability, especially at entry-level price points, as persistently elevated mortgage interest rates continueand to remain elevated andbroader macroeconomic uncertainty weighs onpressure consumer confidence. InTo response,address this, we continuehave continued to align our product offerings and pricing withto current market conditions toand promotedrive sales activity, primarilyactivity through targeted incentives, including mortgage rate buydowns.

These actionsmeasures have impactedweighed on margins and profitability, and may continue to do so in the near term as we navigate the balance between pricing, incentives,incentives and sales pace in a competitive and evolving environment. Demand has varied across our communities and remains highlyparticularly sensitive to changesfluctuations in mortgage interest rates and broader economic conditions.

WeOur remainfocus focusedremains on executingadvancing our land-light strategy, improvingenhancing operational efficiencyefficiencies and delivering homes that meetaddress customer needs and differentiateset us apart in our markets. WhileAlthough longer-term housing fundamentals,fundamentals remain favorable, including supplyconstrained constraints, remain positive,supply, near-term performanceresults may continue to be influencedshaped by macroeconomic conditions and interest rate trends.movements.

(1)Represents amounts within our corporate component (“Corporate”).component.

Net Income. In addition to the operational results by segment discussed below, infor the firstthree quarterand ofsix months ended June 30, 2026, investing activities unrelated to our core homebuilding operations resulted in a net loss of approximately $1 million. Additionally, consolidated net income wasincluded negatively affected by approximately $1$9 million dueand $8 million, respectively, of gains on equity securities, primarily attributable to aunrealized higher effective tax rate primarily as a result of decreased tax benefitsgains from stock-basedchanges compensation.in fair value.

The following tables summarize home closings and average sales price (“ASP”) of homes closed by homebuilding segment for the three months ended March 31, 2026 and 2025, as well as active communitiescommunities, for and as of Marchthe 31,periods 2026indicated, and 2025respectively:

The following table presents income before taxes (in thousands) and homebuilding gross margin (or “gross margin”) percentage by segment for the threeperiods months ended March 31, 2026 and 2025indicated:

Homebuilding Revenues. The decrease in homebuilding revenues was primarily attributable to a lower consolidated ASP of homes closed, which decreased 10%9%, whenpartially comparingoffset theby three months ended March 31, 2026 to the three months ended March 31, 2025, largely due to the higher use oflower sales incentives as a percentage of homebuilding revenues, which increaseddecreased by 12077 basis points (“bps”), or 15%,8%, when comparedcomparing the three months ended June 30, 2026 to the three months ended MarchJune 31,30, 2025.2025, as well as changes in geographic and product mix during the period. This reduction in homebuilding revenues was alsopartially dueoffset toby aan decreaseincrease in home closings of 5558 homeshomes, or 3%, for the three months ended MarchJune 31,30, 2026 to 1,8702,290 from 1,9252,232 home closings for the three months ended MarchJune 31,30, 2025. The Mid-Atlantic segment had an increase of 115 closings with an ASP of homes closed of $372,812, which was the lowest homebuilding segment ASP of homes closed, and the Midwest segment had a decrease of 104 closings with an ASP of homes closed of $514,341, which was the highest homebuilding segment ASP of homes closed.

Homebuilding Gross Margin. The lower homebuilding gross margin was primarily due to the decrease in consolidated ASP of homes closed, as well as the decrease in home closings,closed for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. In addition to the increased use of sales incentives as a percentage of homebuilding revenues, theThe decrease in homebuilding gross margin as a percentage of homebuilding revenues when comparing the three months ended MarchJune 31,30, 2026 and 2025 was primarily attributable to higher land and financing costs, partially offset by direct cost reductions and cycle-time improvements.

Southeast. Our Southeast segment homebuilding revenues for the three months ended MarchJune 31,30, 2026 were $273$388 million, aan decreaseincrease of $35$20 million, or 11%,6%, from $308$368 million for the three months ended MarchJune 31,30, 2025. This revenue contractiongrowth was primarily driven by aan decreaseincrease in home closings of 73,47, or 11%,6%, asand wellhigher asrevenue from percentage of completion contracts where we build homes on buyer-owned land, partially offset by a 2% decrease in the ASP of homes closed. Homebuilding gross margin percentage was 15.8%14.2% for the three months ended MarchJune 31,30, 2026, representing a decrease of 370 bps, or 19%,21%, when compared to the three months ended MarchJune 31,30, 2025. The decrease in homebuilding gross margin percentage was mostly the result of higher land and financing costs, partially offset by direct cost reductions.

Mid-Atlantic. Our Mid-Atlantic segment homebuilding revenues for the three months ended MarchJune 31,30, 2026 were $232$264 million, a decrease of $6$11 million, or 3%,4%, from $238$275 million for the three months ended MarchJune 31,30, 2025. This decline in revenue was primarily driven by a decrease in ASP of homes closed of $74,434,$71,759, or 16%, as well as lower revenue from percentage of completion contracts where we build homes on buyer-owned land, and was largely offset by an increase in home closings of 105,115, or 20%.19%. The reduction in ASP was mostly driven by higher use of sales incentives as a percentage of homebuilding revenues, which increased by 240133 bps, or 60%,30%, when compared to the three months ended MarchJune 31,30, 2025, as well as a higher relative and absolute number of built-for-contractbuilt-for-rent closings with lower ASPs. Homebuilding gross margin percentage was 15.6%14.6% for the three months ended MarchJune 31,30, 2026, representing a decrease of 600330 bps, or 28%,18%, when compared to the three months ended MarchJune 31,30, 2025. The reduction in homebuilding gross margin percentage was mainly due to increased sales incentivesincentives, andas well as land and financing costs.costs, partially offset by direct cost reductions and cycle time improvements.

Midwest. Our Midwest segment homebuilding revenues for the three months ended MarchJune 31,30, 2026 were $332$355 million, a decrease of $92$102 million, or 22%, from $424$457 million for the three months ended MarchJune 31,30, 2025. This decrease was primarily due to lower home closings of 104, or 13%, as well as a decrease in ASP of homes closed of $55,539,$39,648, or 10%, as well as lower home closings of 87, or 12%.7%. The decline in ASP was mostly driven by higher use of sales incentives as a percentage of homebuilding revenues, which increased by 160 bps, or 15%, when compared to the three months ended March 31, 2025. Additionally, ASP was impacted by changes in product mix, including the strategic introduction of lower-priced offerings in 2025, particularly in our Texas markets, which were not yet fully reflected in the results for the three months ended MarchJune 31,30, 2025. HomebuildingAdditionally, grossstrategic marginlot percentagesales was 12.6% forwithin the threesegment monthswere endedlower Marchby 31,$17 2026, representing a decrease of 510 bps, or 29%,million when compared to the three months ended MarchJune 31,30, 2025. Homebuilding gross margin percentage was 14.0% for the three months ended June 30, 2026, representing a decrease of 60 bps, or 4%, when compared to the three months ended June 30, 2025. The reduction in homebuilding gross margin percentage was primarily due to higher sales incentives and changes in product mix, as well as an increase inincreased land and financing costs.costs, largely offset by direct cost reductions.

Selling, General and Administrative Expense. The dollar decrease in Homebuilding SG&A was primarily driven by lower compensation cost of $13$9 millionmillion, mostly due tofrom reductions commensurate with operational volume and financial results. In addition, the corporate allocation of SG&A attributable to the homebuilding operations decreased by $3 million. The decrease in Homebuilding SG&A was partially offset by a $4 million increase in spend on forward mortgage commitment programs to allow our homebuyers to access lower mortgage interest rates on home loans when compared to the three months ended March 31, 2025. $10$5 million of the decrease in compensation costs and $2 million of the increase in spend on forward mortgage commitment programs during the three months ended March 31, 2026 were includedattributable into our Midwest segment. Homebuilding SG&A as a percentage of homebuilding revenues was 12.5%12.4% for the three months ended MarchJune 31,30, 2026, an increase of 5020 bpsbps, fromor 12.0%2%, forwhen compared to the three months ended MarchJune 31,30, 2025. The percentage increase in Homebuilding SG&A was primarily attributable to reduced absorption.absorption per active community, as well as increased investments in technology and growth initiatives.

Income Before Taxes Of Homebuilding Operations. The decrease in income before taxes of homebuilding operations during the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025 was primarily attributable to the reduction in homebuilding revenues, the decrease in gross marginmargin, the change in contingent consideration income and the increase in Homebuilding SG&A as a percentage of homebuilding revenues, all of which are explained above.

As of MarchJune 31,30, 2026 and December 31, 2025, our lot deposits for finished lot option and land bank option contracts were $534$502 million and $545 million, respectively. As of MarchJune 31,30, 2026 and December 31, 2025, we controlled 60,62954,091 and 63,121 lots under finished lot option and land bank option contracts, respectively. The risk of loss related to finished lot and land bank option deposits and related fees was $792.6$812 million and $773.4$773 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively. Risk of loss includes the lot deposits noted above, which are reported as such on the condensedCondensed consolidatedConsolidated balanceBalance sheet,Sheets, pre-acquisition land costs, which include due diligence costs, lot option fees and property taxes, which are included in inventories on the condensed consolidated balance sheet, and any applicable termination fees.

The following table presents our controlled lots through option contracts by homebuilding segment as of Marchthe 31,periods 2026 and December 31, 2025indicated:

(2)As of MarchJune 31,30, 2026 and December 31, 2025, we had 252320 and 731 controlled lots under built-for-rent contracts, respectively.

A community becomes active once the model is completed or the community has its fifth net sale. A community becomes inactive when it has fewer than five units remaining to sell. Ending active community count is an important metric to forecast future net sales for our business. As of MarchJune 31,30, 2026, we had 332353 active communities, an increase of 7482 communities, or 29%,30%, as compared to 258271 active communities as of MarchJune 31,30, 2025. As of MarchJune 31,30, 2026, the Company had 1,3471,004 completed quick move-in ready homes, which represents approximately 43 spec homes per ending active community.

Our active community count excludes communities under built-for-rent contracts, as all sales to third-party investors occur at one point in time and these communities would have no homesites remaining to sell. As of MarchJune 31,30, 2026, we had 1210 communities delivering closings under built-for-rent contracts, as compared to 57 communities as of MarchJune 31,30, 2025.

The following table presents information concerning our net sales, starts and closings in each of our homebuilding segments for the threeperiods months ended March 31, 2026 and 2025indicated:

(1)Excluding built-for-rent contracts,activity, net sales in the Mid-AtlanticSoutheast segment increased by 14%36% when comparing the three months ended MarchJune 31,30, 2026 to the three months ended MarchJune 31,30, 2025.

The following table presents information concerning our backlog in number of homes, ASP and aggregate value (in thousands) for our homebuilding segments as of the datesperiods set forth belowindicated:

Backlog of sold homes as of MarchJune 31,30, 2026 was 2,3772,319 homes valued at approximately $1.1$1.2 billion based on ASP, a decrease of 425194 homes and $0.3$47 billionmillion in value, or 15%8% and 20%,4%, respectively, from 2,8022,513 homes valued at approximately $1.4$1.2 billion as of MarchJune 31,30, 2025. Approximately 106213 of the homes in our backlog are expected to be delivered in 2027 and beyond. The overall decrease in backlog was reflective of athe continuedcumulative impact of constrained sales environment, despite an increaseactivity in netprior sales in the current period, as well as a continued trend toward move-in ready spec homes relative to pre-order salesperiods, and, to a lesser extent, fewer built-for-rent contracts in backlog.backlog, which outpaced the increase in net sales during the current period. Our backlog is primarily comprised of spec homes. Spec homes typically result in quicker closings and turnover of the backlog within the same reporting period.

Mid-Atlantic.Southeast. Backlog for the Mid-AtlanticSoutheast segment as of MarchJune 31,30, 2026 was 7781,016 homes, an increase of 6018 from 718998 homes as of MarchJune 31,30, 2025. The increase in backlog from prior year was primarily attributable to increasedan increase in net sales activityin andthe current period and, to a lesser extent, the decrease in home closings, mostly due to built-for-rent contract backlog of 145 homes.activity.

Midwest.Mid-Atlantic. Backlog for the MidwestMid-Atlantic segment as of MarchJune 31,30, 2026 was 562694 homes, a decrease of 292118 from 854812 homes as of MarchJune 31,30, 2025. The decrease in backlog from prior year was mostlyprimarily aattributable result ofto the continuedcumulative effect of constrained sales environment,activity slightlyin offsetprior byperiods, higheras netwell salesas relativeincreased tobuilt-for-rent closings.

The following table presents information concerning our cancellation rates for each of our homebuilding segments for the periods set forth belowindicated:

Our cancellation rate for the three months ended MarchJune 31,30, 2026 was 7.5%,11.1%, an improvement of 420290 bps when compared to the 11.7%14.0% cancellation rate for the three months ended MarchJune 31,30, 2025. Our cancellation rate for the six months ended June 30, 2026 was 9.3%, an improvement of 350 bps when compared to the 12.8% cancellation rate for the six months ended June 30, 2025. The improvement is partly attributable to the higher number of spec sales contracts, which have shorter closing cycles, typically resulting in lower cancellations when compared to pre-sold home sales contracts.

The following tabletables presentspresent selected financial information and supplemental data for our Financial Services segment for the threeperiods months ended March 31, 2026 and 2025indicated (dollars in thousands, unless otherwise indicated):

Mortgage Banking. Mortgage banking revenues for the three months ended MarchJune 31,30, 2026 wereincreased $18to million, an increase of $3$20 million or 22%, from $15$18 million for the three months ended MarchJune 31,30, 2025. Financial services income before taxes related to mortgage banking for the three months ended MarchJune 31,30, 2026 was $9$10 million, an increase of $4$3 millionmillion, or 43%, from $5$7 million for the three months ended MarchJune 31,30, 2025. These increases were primarily due to continued execution efficiency and hedgingbenefits strategiesfrom implemented afterhedging the first quarter of 2025.strategies.