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Management Discussion

• Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
• As the U.S. economy began to recover from the severe impacts of the COVID-19 pandemic that started in the 2020 second quarter, housing market conditions remained generally healthy from the 2020 second half through the six months ended May 31, 2021. Continued solid first-time buyer interest in homeownership, underscoring the large millennial and Generation Z demographic groups that are in or entering their prime homebuying years, along with a limited supply of new and resale inventory and low mortgage interest rates, created a favorable environment for our business throughout the period. First-time buyers accounted for 64% of our homes delivered in the three months ended May 31, 2021. Reflecting the robust demand in our served markets, the number and value of our net orders for the 2021 second quarter rose 145% and 196%, respectively, from the 2020 second quarter, when our net orders were adversely affected by the outbreak of the COVID-19 pandemic as described below under “COVID-19 Pandemic Impact.”
• In order to balance pace, price and construction starts to optimize the performance of our inventory assets and improve returns amid the considerable demand for our homes and steadily increasing construction labor and building materials costs, particularly for lumber, we raised selling prices in the vast majority of our communities and, in some instances, managed the pace of lot releases during the 2021 second quarter. However, with the strong housing demand and improving general economy, we experienced supply-chain disruptions that created intermittent shortages of certain construction materials and other products, as well as trade labor availability constraints and municipality delays, with respect to permitting, inspections and utilities. These factors extended our construction cycle times in the 2021 second quarter, and pushed some expected deliveries and new community openings into the third quarter. Along with the accelerated close-out of communities due to our exceptionally strong monthly net order pace, we had year-over-year and sequential decreases in our average and ending community counts for the quarter. We are closely monitoring the risks to our construction cycle times and new community openings, and believe the above-described unfavorable trends will generally persist for the remainder of the year. Therefore, we have incorporated them into our 2021 third quarter and full-year performance expectations as presented below under “Outlook.”