What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-07-29 · 168 added, 135 removed, 379 unchanged (44% of the section changed)

11 unchanged sentences

 the impact of the COVID-19 pandemic on our business operations

 uncertainties related to and the impact, if any, of the U.S.

presidential, congressional, and numerous state and local elections on our business, our industry and the economy in general;

 economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;

 shortages of or increased prices for labor, land or raw materials, including lumber, used in housing construction;

 a downturn in the homebuilding industry , including a reduction in demand or a decline in real estate values or market conditions resulting in impairment of our assets ;

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 availability or cost of mortgage financing or an increase in the number of foreclosures in the market;

 shortages of or increased prices for labor, land or raw materials used in housing construction;

 delays in land development or home construction resulting from adverse weather conditions or other events outside our control;

31 unchanged sentences

first time, first and second time move up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections.

Our Century Complete brand, formerly referred to as Wade Jurney Homes, targets first time homebuyers, primarily sells homes through retail studios and the internet and provides no option or upgrade selections.

Our Century Complete brand targets first time homebuyers, primarily sells homes through retail studios and the internet and provides no option or upgrade selections.

Our homebuilding operations are organized into the following five reportable segments:

6 unchanged sentences

The homebuilding industry started to experience slowing sales trends in mid-March through April of 2020 at the outset of the widespread uncertainty concerning the pandemic.

However, home sales sharply rebounded in May and June, aided by historically low interest rates, lack of supply, and potential renewed desire from customers to move out of urban areas and/or apartments and into new homes in suburban areas.

However, home sales sharply rebounded in May and June of 2020, aided by historically low interest rates, lack of supply, and potentially renewed desire from customers to move out of urban areas and/or apartments and into new homes in suburban areas, which desire was likely accelerated by the COVID-19 pandemic.

These positive trends continued throughout the third quarter of 2020.

In response to the pandemic and government restrictions, we shifted our sales process to offer additional virtual online tours and appointments and, where permitted, appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols.

Construction and sale of residential real estate has been determined to be an essential business, and accordingly our operations, other than in certain markets during the first weeks of April, have been exempted from the applicable health orders.

While these circumstances did not materially adversely affect our second quarter 2020 financial results, we recognize that long term macro-economic effects that could ultimately impact the homebuilding industry have yet to be known.

There is still uncertainty regarding the extent and duration of the COVID-19 pandemic, as the situation has continued to evolve, and associated government and consumer responses have remained in a state of flux, especially in light of recent spikes in infections in key markets.

Unemployment levels are at historically high levels and increases in COVID-19 positive cases in late June and early July of 2020 have resulted in the slowing or altering of the “re-opening” plans of numerous state and local municipalities.

Accordingly, despite overall strong demand and sales during the second quarter of 2020, continued future demand for Century homes is uncertain in light of higher unemployment rates and anticipated decreased consumer confidence, availability of credit, and other factors, including those described elsewhere in this report.

Construction and sale of residential real estate were deemed essential businesses in almost all of our markets;

and accordingly, our operations, other than in certain markets during the first weeks of April, were exempted from applicable health orders.

While these circumstances did not materially adversely affect our second or third quarter 2020 financial results, we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known.

There is still uncertainty regarding the extent and duration of the COVID-19 pandemic as the situation has continued to evolve and associated government and consumer responses have remained in a state of flux.

Recent increases in COVID-19 positive cases have resulted and could continue to result in the slowing or altering of the “re-opening” plans of numerous state and local municipalities.

Despite overall strong demand and sales of our homes during the second and third quarters of 2020, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment levels, which remain at historically high levels, and the extent to which and how long COVID-19 and related government directives, actions, and economic relief efforts will impact the U.S.

economy, unemployment levels, financial markets, credit and mortgage markets, consumer confidence, availability of mortgage loans to homebuyers, and other factors, including those described elsewhere in this report.

A decrease in demand for our homes would adversely affect our operating results in future periods, as well as have a direct effect on the origination volume of and revenues from our Financial Services segment.

In addition, because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventory in the future.

Given the significant uncertainty regarding the impact of COVID-19, and in particular during the late March and April 2020 timeframe, we took significant steps to preserve cash and ensure we were positioned appropriately from a working capital perspective, including but not limited to extending the timing of certain land acquisitions, slowing or altering our land development activities, drawing additional amounts on our revolving line of credit, and implementing a reduction in our workforce along with other cost savings measures.

As a result, and aided by the strong demand during the second quarter, we ended the second quarter of 2020 with no amounts outstanding on our revolving line of credit, $173.5 million of cash and cash equivalents, $46.6 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 37.5%.

While the impact of the COVID-19 pandemic will continue to evolve, we believe that we are well positioned to both operate in an uncertain environment as well as take advantage of strategic opportunities as they arise.

Given the significant uncertainty regarding the impact of COVID-19, and in particular during the late March and April 2020 timeframe, we took significant steps to preserve cash and ensure we were positioned appropriately from a working capital perspective, including but not limited to initially extending the timing of certain land acquisitions, slowing or altering our land development activities, drawing additional amounts on our revolving line of credit, and implementing a reduction in our workforce, along with other cost savings measures.

As a result, and aided by strong demand for our homes during the second and third quarters of 2020, we ended the third quarter of 2020 with no amounts outstanding on our revolving line of credit, $288.3 million of cash and cash equivalents, $26.3 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 32.9%.

Driven by the strong housing market, we increased our land acquisition and development activities during the third quarter of 2020 to bolster our lot pipeline and support future community growth, which resulted in 44,963 lots owned and controlled at September 30, 2020, a 29.1% increase as compared to June 30, 2020.

Although the trajectory and strength of our markets continues to remain strong, we experienced some building cost pressures, particularly with respect to lumber, that could negatively impact our margins in future periods.

While the impact of the COVID-19 pandemic will continue to evolve and at any given time recovery could be slowed or reversed by a number of factors, we believe we are well positioned from a cash and liquidity standpoint not only to operate in an uncertain environment, but also continue to grow with the market, pay down debt and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of strategic opportunities as they arise.

Results of Operations

During the three and six months ended June 30, 2020, we delivered 2,480 and 4,344 homes, respectively, with an average sales price of $301.4 thousand and $303.9 thousand, respectively.

These deliveries represent increases of 26.1% and 19.7%, respectively, as compared to the three and six months ended June 30, 2019.

During the three and six months ended June 30, 2020, we generated approximately $747.4 million and $1,320.1 million in home sales revenues, respectively, approximately $50.1 million and $84.2 million in income before income tax expense, respectively, and approximately $38.5 million and $64.6 million, respectively, in net income.

For the three and six months ended June 30, 2020, our new home contracts, net of cancelations, totaled 2,664 and 5,052, respectively, a 22.1% and 25.0% increase over the same respective periods in 2019.

As of June 30, 2020, we had a backlog of 2,778 homes, a 7.2% increase as compared to June 30, 2019, representing approximately $962.8 million in sales value, a 22.8% increase as compared to June 30, 2019.

The following table summarizes our results of operations for the three and six months ended June 30, 2020 and 2019.

During the three and nine months ended September 30, 2020, we delivered 2,283 and 6,627 homes, respectively, with an average sales price of $333.0 thousand and $313.9 thousand, respectively.

These deliveries represent increases of 20.7% and 20.0%, respectively, as compared to the three and nine months ended September 30, 2019.

During the three and nine months ended September 30, 2020, we generated approximately $760.2 million and $2,080.4 million in home sales revenues, respectively, approximately $64.9 million and $149.1 million in income before income tax expense, respectively, and approximately $49.8 million and $114.3 million, respectively, in net income, in each case representing substantial increases over the respective prior year periods.

For the three and nine months ended September 30, 2020, our new home contracts, net of cancelations, totaled 3,204 and 8,256, respectively, a 56.6% and 35.7% increase over the same respective periods in 2019.

As of September 30, 2020, we had a backlog of 3,699 homes, a 34.7% increase as compared to September 30, 2019, representing approximately $1,309.4 million in sales value, a 53.2% increase as compared to September 30, 2019.

The following table summarizes our results of operations for the three and nine months ended September 30, 2020 and 2019.

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Consolidated Statements of Operations:

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Land sales revenues

Financial services revenue

Financial services revenues

Total revenues

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See the reconciliations to the most comparable GAAP measure and other information under “Non-GAAP Financial Measures .” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP .

(2) Homebuilding gross margin percentage is inclusive of a $0.9 million and $1.7 million inventory impairment for the three and six months ended June 30, 2020, respectively, included within inventory impairment and other on our consolidated financial statements.

(3) As Century Complete does not sell homes by community, but through studios and other methods, that segment is excluded from the count of selling communities.

(2) Homebuilding gross margin percentage is inclusive of a $0 million and $1.7 million inventory impairment for the three and nine months ended September 30, 2020, respectively, included within inventory impairment and other on our consolidated financial statements.

(3) As Century Complete does not sell homes by community, but through studios and online, that segment is excluded from the count of selling communities.

Results of Operations by Segment

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Average Sales Price of Homes Delivered

Home Sales Revenues

Income before Income Tax

Three Months Ended June 30,

Three Months Ended September 30,

Home Sales Revenues

Three Months Ended September 30,

Century Complete

2 unchanged sentences

Average Sales Price of Homes Delivered

Home Sales Revenues

Income before Income Tax

Six Months Ended June 30,

Nine Months Ended September 30,

Home Sales Revenues

Nine Months Ended September 30,

Century Complete

Financial Services

In our West segment, for the three and six months ended June 30, 2020, our income before income tax increased by $3.8 million and $10.5 million, respectively, to $13.7 million and $29.1 million, respectively, compared to the same periods in 2019.

In our West segment, for the three and nine months ended September 30, 2020, our income before income tax increased by $4.6 million and $15.1 million, respectively, to $13.6 million and $42.7 million, respectively, compared to the same periods in 2019.

These increases were primarily due to increases in new home deliveries of 38.6% and 26.2%, respectively, compared to the same periods in 2019, and the benefit of non-recurring land sales in the current year periods.

During the three and six months ended June 30, 2020, we delivered 313 homes and 546 homes, respectively, with an average sales price of $530.6 thousand and $536.0 thousand, respectively, and generated $166.1 million and $292.7 million, respectively, in home sales revenue.

In our Mountain segment, for the three and six months ended June 30, 2020, our income before income tax decreased by $1.9 million and $2.7 million, respectively, to $20.6 million and $39.1 million, respectively, compared to the same periods in 2019.

These decreases were primarily related to decreases in home sales revenue for the three and six months ended June 30, 2020 compared to the same periods in 2019, which were primarily driven by decreases in our average sales prices in the current year periods.

In our Texas segment, for the three and six months ended June 30, 2020, our income before income tax increased by $4.0 million and $5.8 million, respectively, to $9.6 million and $15.1 million, respectively, compared to the same periods in 2019.

These increases were primarily related to 87.8% and 69.9% increases in the number of homes delivered during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019, which were partially offset by decreases in the average sales prices during the current year periods as we continued our shift towards first time homebuyers.

For the three months ended June 30, 2020, the increase

in income before income tax was partially offset by a $0.9 million impairment charge reflected during the three months ended June 30, 2020.

In our Southeast segment, for the three and six months ended June 30, 2020, our income before income tax increased by $7.4 million and $9.9 million, respectively, to $12.0 million and $20.3 million, respectively, as compared to $4.6 million and $10.4 million for the same periods in 2019.

These increases were primarily related to 43.0% and 27.1% increases in the number of homes delivered during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019.

During the three and nine months ended September 30, 2020, we delivered 316 homes and 862 homes, respectively, with an average sales price of $596.5 thousand and $558.2 thousand, respectively, and generated $188.5 million and $481.1 million, respectively, in home sales revenue.

In our Mountain segment, for the three and nine months ended September 30, 2020, our income before income tax increased by $8.1 million and $5.4 million, respectively, to $28.7 million and $67.8 million, respectively, compared to the same periods in 2019.

These increases were primarily related to increases in new home deliveries of 31.8% and 13.6%, respectively, for the three and nine months ended September 30, 2020 compared to the same periods in 2019.

In our Texas segment, for the three months ended September 30, 2020, our income before income tax decreased by $1.4 million to $6.9 million compared to the same period in 2019, and for the nine months ended September 30, 2020 our income before tax increased by $4.4 million to $22.0 million compared to the same period in 2019.

The decrease for the three month comparison was primarily due to a 10.6% decrease in average home sales prices as we continued to shift towards first time homebuyers, partially offset by a 24.3% increase in number of homes delivered.

The increase for the nine month comparison was primarily related to a 51.9% increase in the number of homes delivered during the nine months ended September 30, 2020 as compared to the same period in 2019, which was

partially offset by the decrease in the average sales price.

For the nine months ended September 30, 2020, the increase in income before income tax was partially offset by a $0.9 million impairment charge reflected during the nine months ended September 30, 2020.

In our Southeast segment, for the three and nine months ended September 30, 2020, our income before income tax increased by $6.3 million and $16.3 million, respectively, to $13.4 million and $33.7 million, respectively, as compared to $7.1 million and $17.5 million for the same periods in 2019.

These increases were primarily related to 23.5% and 25.9% increases in the number of homes delivered during the three and nine months ended September 30, 2020, respectively, as compared to the same periods in 2019.

Century Complete

For the three and six months ended June 30, 2020, we delivered 835 homes and 1,458 homes, respectively, with an average price of $160.1 thousand and $159.0 thousand, respectively, and generated $133.7 million and $231.8 million in home sales revenues, respectively, in our Century Complete segment.

Our income before income tax for the three and six months ended June 30, 2020 was $8.5 million and $9.3 million, respectively, as compared to $8.3 million and $12.3 million for the same periods in 2019.

The increase in income before income tax for the three month comparison is primarily attributable to a 14.7% increase in new home deliveries.

The decrease in income before income tax for the six month comparison is primarily attributable to an increase in certain fixed costs and $0.8 million in inventory impairment charges.

In our Century Complete segment, for the three and nine months ended September 30, 2020, we delivered 725 homes and 2,183 homes, respectively, with an average price of $168.2 thousand and $162.0 thousand, respectively, and generated $122.0 million and $353.7 million in home sales revenues, respectively.

Our income before income tax for the three and nine months ended September 30, 2020 was $7.8 million and $17.2 million, respectively, as compared to $6.0 million and $18.3 million for the same periods in 2019.

The increase in income before income tax for the three month comparison is primarily attributable to a 5.8% increase in new home deliveries in conjunction with a 10.7% increase in average sales price.

The decrease in income before income tax for the nine month comparison is primarily attributable to an increase in certain fixed costs and $0.8 million in inventory impairment charges.

Financial Services

1 unchanged sentence

Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days.

During the three and six months ended June 30, 2020, income before income tax increased $10.8 million and $9.4 million, respectively, to $13.0 million and $13.2 million, respectively, compared to the same periods in 2019.

These increases were primarily the result of $15.8 million and $17.2 million overall increases in financial services revenue during the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019.

During the three and six months ended June 30, 2020, our Corporate segment generated losses of $27.4 million and $41.9 million, respectively, as compared to losses of $32.4 million and $52.4 million, respectively, for the same periods in 2019.

The decrease for the three month comparison was primarily attributed to the following:

a $10.8 million decrease in loss on debt extinguishment, partially offset by (1) a $5.0 million increase in salaries and wages related to higher bonus expense, and (2) an increase in legal costs of $1.1 million.

The decrease for six month comparison was primarily attributed to the loss on debt extinguishment of $10.8 million that occurred during the prior year period.

During the three and nine months ended September 30, 2020, income before income tax for our Financial Services segment increased $15.3 million and $24.7 million, respectively, to $17.5 million and $30.7 million, respectively, compared to the same periods in 2019.

These increases were primarily the result of $21.6 million and $38.8 million overall increases in financial services revenue during the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019.

The increases in financial services revenue from the prior year periods were directly attributable to increases in the volume of loans sold during the three and nine month periods ended September 30, 2020 as compared to the same period in the previous year, of 116% and 97%, respectively.

Our Financial Services segment primarily originates mortgages for our homebuyers, and as such, performance correlates to the increase in the number of homes delivered.

The following table presents selected operational data for our Financial Services segment in relation to our loan origination activities (dollars in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Total originations:

Number of loans

Average FICO score

Loans sold to third parties:

Number of loans sold

During the three and nine months ended September 30, 2020, our Corporate segment generated losses of $23.1 million and $65.0 million, respectively, as compared to losses of $18.4 million and $70.8 million, respectively, for the same periods in 2019.

The increase for the three month comparison was primarily attributed to the following:

a $7.3 million increase in salaries and wages related to higher bonus and stock compensation expense, partially offset by (1) a decrease in legal costs of $0.4 million, (2) a decrease in IT expenses of $0.5

million, and (3) a decrease in other taxes and licenses of $0.5 million.

The decrease for nine month comparison was primarily attributed to the loss on debt extinguishment of $10.8 million that occurred during the prior year period in conjunction with decreases in other taxes and licenses of $0.9 million and travel and entertainment costs of $0.8 million, partially offset by an $8.5 million increase in salaries and wages related to higher bonus and stock compensation expense.

Homebuilding Gross Margin

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Homebuilding gross margin represents home sales revenues less cost of home sales revenues.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three months ended June 30, 2020 to 16.9% as compared to 17.2% for the same period in 2019, which was primarily driven by impairment charges and a 0.2% increase in cost of home sales revenues as a percentage of home sales revenues.

Our homebuilding gross margin for the six months ended June 30, 2020 remained consistent at 17.2% compared to the same period in 2019.

For a portion of the three months ended June 30, 2020, we made the strategic decision to increase incentives across our markets, leading to an increase in incentives as a percent of home sales revenue as compared to the three months ended June 30, 2019.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three months ended September 30, 2020 to 17.5% as compared to 18.1% for the same period in 2019, which was primarily driven by 0.6% increase in cost of home sales revenues as a percentage of home sales revenues.

Our homebuilding gross margin decreased for the nine months ended September 30, 2020 to 17.3% compared to 17.5% for the same period in 2019.

In the following table, we calculate our homebuilding gross margin, as adjusted to exclude inventory impairment and other, interest in cost of home sales revenues, and purchase price accounting for acquired work in process inventory.

Three Months Ended June 30,

Three Months Ended September 30,

Home sales revenues

Cost of home sales revenues

Inventory impairment and other

Gross margin from home sales

Inventory impairment and other

Interest in cost of home sales revenues

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Adjusted homebuilding gross margin excluding interest, inventory impairment and other and purchase price accounting for acquired work in process inventory (1)

Six Months Ended June 30,

Nine Months Ended September 30,

Home sales revenues

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See the reconciliations to the most comparable GAAP measure and other information under “—Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

For the three and six months ended June 30, 2020, excluding impairment and other, interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 19.5% and 19.8%, respectively, as compared to 19.6% and 19.7% for the same periods in 2019.

For the three and nine months ended September 30, 2020, excluding impairment and other, interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 20.0% and 19.9%, respectively, as compared to 20.6% and 20.0% for the same periods in 2019.

We believe the above information is meaningful as it isolates the impact that inventory impairment, indebtedness and acquisitions have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors.

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(dollars in thousands)

Three Months Ended June 30,

Three Months Ended September 30,

Selling, general and administrative

As a percentage of home sales revenue

Six Months Ended June 30,

Nine Months Ended September 30,

Selling, general and administrative

As a percentage of homes sales revenue

Our selling, general and administrative expense increased $11.5 million and $16.2 million for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019.

The increase for the three months ended June 30, 2020 was primarily attributable to the following:

(1) an increase of $7.5 million in commission expense due to the 22.8% increase in home sales revenues, and (2) an increase of $4.0 million in our estimate of bonuses for 2020 as a result of our strong second quarter 2020 results.

The increase for the six months ended June 30, 2020 was primarily attributable to the following:

(1) an increase of $10.6 million in commission expense due to the 16.6% increase in home sales revenues, (2) an increase of $6.6 million across various salary and wage expenses, and (3) a increase of $1.2 million in taxes and licenses.

Our selling, general and administrative expense increased $13.0 million and $29.1 million for the three and nine months ended September 30, 2020, respectively, as compared to the same periods in 2019.

The increase for the three months ended September 30, 2020 was primarily attributable to the following:

(1) an increase of $6.0 million in commission expense due to the 32.5% increase in home sales revenues, and (2) an increase of $7.7 million in our estimate of bonuses for 2020 as a result of our third quarter 2020 results.

The increase for the nine months ended September 30, 2020 was primarily attributable to the following:

(1) an increase of $16.5 million in commission expense due to the 22.0% increase in home sales revenues, (2) an increase of $8.8 million in our estimate of bonuses for 2020 as a result of our year to date results, and (3) an increase of $3.0 million in our stock-based compensation expense.

Income Tax Expense

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Our 2020 estimated annual effective tax rate of 23.4% is driven by our blended federal and state statutory rate of 25.1%, and certain other permanent differences between GAAP and tax which decreased our rate by 1.7%.

For the six months ended June 30, 2020, our estimated annual rate of 23.4% was impacted by discrete items which had a net impact of decreasing our rate by 0.1%, including excess tax benefits for vested stock-based compensation.

For the three months ended June 30, 2020 and 2019, we recorded income tax expense of $11.7 million and $5.3 million, respectively.

For the six months ended June 30, 2020 and 2019, we recorded income tax expense of $19.6 million and $11.2 million, respectively .

For the nine months ended September 30, 2020, our estimated annual rate of 23.4% was impacted by discrete items which had a net impact of decreasing our rate by 0.1%, including excess tax benefits for vested stock-based compensation.

For the three months ended September 30, 2020 and 2019, we recorded income tax expense of $15.1 million and $7.8 million, respectively.

For the nine months ended September 30, 2020 and 2019, we recorded income tax expense of $34.7 million and $19.0 million, respectively .

Segment Assets

(Dollars in thousands)

September 30,

Increase (Decrease)

1 unchanged sentence

Financial Services

Total assets increased by $91.4 million, or 3.7%, to $2.6 billion at September 30, 2020 as compared to December 31, 2019.

The increase is driven by a 281.7% increase in corporate assets related to excess cash generated partially offset by a decrease in inventories across our markets, which are both attributable to our record home sales during the current year period.

Lots owned and

June 30, 2020

September 30, 2020

December 31, 2019

Century Complete

Of our total lots owned and controlled as of June 30, 2020, 55.1% were owned and 44.9% were controlled, as compared to 48.1% owned and 51.9% controlled as of December 31, 2019.

Total assets increased by $51.8 million, or 2.1%, to $2.6 billion at June 30, 2020 as compared to December 31, 2019.

The increase is driven by a 169% increase in corporate assets related to excess cash generated partially offset by a decrease in inventories across our markets, which are both attributable to our record home sales during the current year period.

Of our total lots owned and controlled as of September 30, 2020, 44.4% were owned and 55.6% were controlled, as compared to 48.1% owned and 51.9% controlled as of December 31, 2019.

Other Homebuilding Operating Data

Three Months Ended

Six Months Ended

Nine Months Ended

Net new home contracts

September 30,

Increase (Decrease)

Century Complete

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2020 increased by 482 homes, or 22.1%, to 2,664, compared to 2,182 for the same period in 2019.

Net new home contracts for the six months ended June 30, 2020 increased by 1,012 homes, or 25.0%, to 5,052, compared to 4,040 for the same period in 2019.

The increases in our net new home contracts were primarily driven by stronger sales in our West, Mountain, Texas, and Southeast regions.

Since market conditions and further impacts from COVID-19 remain uncertain, it is difficult to predict our future net new home contracts .

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and six months ended June 30, 2020 by segment are included in the tables below:

Three Months Ended June 30,

Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2020 increased by 1,158 homes, or 56.6%, to 3,204, compared to 2,046 for the same period in 2019.

Net new home contracts for the nine months ended September 30, 2020 increased by 2,170 homes, or 35.7%, to 8,256, compared to 6,086 for the same period in 2019.

The increases in our net new home contracts were primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends.

Since market conditions and future impacts from COVID-19 remain uncertain, it is difficult to predict our future net new home contracts .

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and nine months ended September 30, 2020 by segment are included in the tables below:

Three Months Ended September 30,

Increase (Decrease)

Century Complete

Six Months Ended June 30,

Nine Months Ended September 30,

Century Complete

During the three and six months ended June 30, 2020, our absorption rates increased by 35.1% and 40.0%, respectively, to 5.0 and 4.9 per month, respectively, as compared to the same periods in 2019.

These increases are attributable to historically low interest rates and strong demand for new homes during current year periods, in particular during the three months ended June 30, 2020.

During the three and nine months ended September 30, 2020, our absorption rates increased by 83.3% and 68.6%, respectively, to 6.6 and 5.9 per month, respectively, as compared to the same periods in 2019.

These increases are attributable to historically low interest rates and strong demand for new homes during current year periods, in particular during the three months ended September 30, 2020.

Selling communities at period end

As of June 30,

As of September 30,

Increase/(Decrease)

1 unchanged sentence

N/A – Not Applicable

Our selling communities nominally decreased to 122 communities at June 30, 2020 as compared to 125 at June 30, 2019.

As Century Complete does not sell homes by community, but through studios and other methods, there are no communities or absorptions presented for that segment.

Our selling communities decreased to 110 communities at September 30, 2020 as compared to 129 at September 30, 2019.

As Century Complete does not sell homes by community, but through studios and online, there are no communities or absorptions presented for that segment.

(Dollars in thousands)

As of June 30,

As of September 30,

Average Sales Price

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Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home.

At June 30, 2020, we had 2,778 homes in backlog with a total value of $962.8 million, which represents an increase of 7.2% and 22.8%, respectively, as compared to June 30, 2019.

At September 30, 2020, we had 3,699 homes in backlog with a total value of $1,309.4 million, which represents an increase of 34.7% and 53.2%, respectively, as compared to September 30, 2019.

The increase in backlog dollar value is primarily attributable to the increases in backlog units and a 13.7% increase in the backlog average sales price.

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In addition, our former 6.875% senior notes due 2022 which were extinguished during the second quarter of 2019, were our unsecured senior obligations and were fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the Guarantors.

As of June 30, 2020, Century Communities, Inc.

As of September 30, 2020, Century Communities, Inc.

had outstanding $900.0 million in total principal amount of Senior Notes.

Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged:

(1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture;

(2) upon any sale, transfer, exchange or

other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture;

indentures) or is made in compliance with applicable provisions of the applicable indenture;

(2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture;

provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures);

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The amendments under Rule 33-10762 are effective January 4, 2021, but voluntary compliance is permitted in advance of the effective date.

We have adopted the new disclosure requirements permitted under Rule 33-10762 for the period ending June 30, 2020.

We adopted the new disclosure requirements permitted under Rule 33-10762, beginning with the three and six month period ending June 30, 2020.

The following summarized financial information is presented for Century Communities, Inc.

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Summarized Balance Sheet Data (in thousands)

June 30, 2020

September 30, 2020

December 31, 2019

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Accrued expenses and other liabilities

Intercompany loan payable

Notes payable

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Summarized Statement of Operations Data (in thousands)

Six Months Ended June 30, 2020

Year Ended December 31, 2019

Nine Months Ended

September 30, 2020

December 31, 2019

Total homebuilding revenues

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Income before income tax expense

Income tax expense

Critical Accounting Policies

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Liquidity and Capital Resources

Our principal uses of capital for the three and six months ended June 30, 2020 were our land purchases, land development, home construction, and the payment of routine liabilities.

Our principal uses of capital for the three and nine months ended September 30, 2020 were our land purchases, land development, home construction, and the payment of routine liabilities.

We use funds generated by operations, available borrowings under our revolving line of credit, and from time to time proceeds from sales of our common stock, including under our current at-the-market facility, and debt securities to fund our short term working capital obligations and fund our purchases of land, as well as land development and home construction activities.

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Specifically commencing in mid-March of 2020, we slowed our land development activities and instituted a variety of actions designed to reduce our operating expenses, including a reduction in the size of our workforce through a targeted layoff in April 2020.

In addition, given the uncertainty surrounding the COVID-19 pandemic, we increased our borrowings under our revolving line of credit during the end of the first quarter of 2020 and into the beginning of the second quarter of 2020 as a proactive measure in order to expand our financial flexibility at that time.

We repaid these borrowings during the second quarter of 2020 in light of our strong second quarter 2020 operating results and to decrease our interest expense.

In addition, given the uncertainty surrounding the COVID-19 pandemic, we initially increased our borrowings under our revolving line of credit during the end of the first quarter of 2020 and into the beginning of the second quarter of 2020 as a proactive measure in order to expand our financial flexibility at that time.

We repaid these borrowings during the second quarter of 2020 in light of our second quarter 2020 operating results and to decrease our interest expense.

As of September 30, 2020, we continued to have no amounts outstanding under our revolving line of credit.

We increased our land acquisition and development activities during the third quarter, which resulted in 44,963 lots owned and controlled at September 30, 2020, a 29.1% increase as compared to June 30, 2020

Our Financial Services operations use funds generated from operations and availability under our mortgage repurchase facilities to finance operations including originations of mortgage loans to our homebuyers.

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We believe that we will be able to fund our current and foreseeable liquidity needs with our cash on hand, cash generated from operations, and cash expected to be available from our revolving line of credit or through accessing debt or equity capital, as needed or appropriate, although no assurance can be provided that such additional debt or equity capital will be available or on acceptable terms, especially in light of the current COVID-19 pandemic, its impact on the macro-economy, and market conditions at the time .

While the impact of the COVID-19 pandemic will continue to evolve, we believe we are well positioned from a cash and liquidity standpoint to not only operate in an uncertain environment, but also continue to grow with the market, pay down debt and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of strategic opportunities as they arise.

Revolving Line of Credit

We are party to an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of our subsidiaries, which, as amended most recently on December 13, 2019, provides us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, will mature on April 30, 2023.

Under the terms of the Amended and Restated Credit Agreement, we may request a twelve-month extension of the maturity date.

Agreement”), which, as amended most recently on December 13, 2019, provides us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, will mature on April 30, 2023.

Our obligations under the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries.

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These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly.

Borrowings under the Amended and Restated Credit Agreement bear interest

at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

As of June 30, 2020, we had no amounts outstanding under the credit facility and were in compliance with all covenants.

Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

As of September 30, 2020, we had no amounts outstanding under the credit facility and were in compliance with all covenants.

Mortgage Repurchase Facilities – Financial Services

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Amounts outstanding under the repurchase facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.

As of June 30, 2020, we had $197.5 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three and six months ended June 30, 2020, we incurred interest expense on the repurchase facilities of $0.5 million and $1.3 million, respectively.

As of September 30, 2020, we had $173.4 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three and nine months ended September 30, 2020, we incurred interest expense on the repurchase facilities of $0.8 million and $2.0 million, respectively.

During the same periods in 2019, we incurred interest expense on the repurchase facilities of $0.6 million and $2.1 million, respectively.

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(which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the sales agents party thereto in “at-the-market” offerings, in accordance with the terms and conditions set forth in the Distribution Agreement.

This Distribution Agreement, which superseded and replaced a prior similar Distribution Agreement, had all $100 million available for sale as of June 30, 2020.

We did not sell or issue any shares of our common stock during the three and six months ended June 30, 2020.

During the three and six months ended June 30, 2019, we sold and issued an aggregate of 0.1 million shares of our common stock under the previous Distribution Agreement, which provided proceeds of $2.7 million, and in connection with such sales, paid total commissions and fees to the sales agents of $0.1 million .

This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, had all $100 million available for sale as of September 30, 2020.

We did not sell or issue any shares of our common stock during the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2019, we sold and issued an aggregate of 0.8 million and 0.9 million, respectively, shares of our common stock under the previous distribution agreement, which provided gross proceeds of $23.7 million and $26.5 million, respectively, and in connection with such sales, paid total commissions and fees to the sales agents of $0.6 million and $0.7 million, respectively.

The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement.

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In the normal course of business, we post letters of credit and performance bonds related to our land development performance obligations with local municipalities.

As of June 30, 2020, and December 31, 2019, we had $335.9 million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

As of September 30, 2020, and December 31, 2019, we had $360.1

million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and performance bonds are not generally released until all development and construction activities are completed.

Our outstanding debt obligations included the following as of June 30, 2020 and December 31, 2019 (in thousands):

Our outstanding debt obligations included the following as of September 30, 2020 and December 31, 2019 (in thousands):

September 30,

6.750% senior notes, due May 2027 (1)

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A summary of our debt obligations is included in Note 11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 7, 2020.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise.

Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

The amounts involved may or may not be material during any particular reporting period.

Stock Repurchase Program

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All shares of common stock repurchased under the program will be cancelled and returned to the status of authorized but unissued shares of common stock.

During the three and six months ended June 30, 2020 we did not repurchase any shares of common stock.

During the three months ended June 30, 2019 we did not repurchase any shares of common stock while during the six months ended June 30, 2019, we repurchased 83,000 shares of common stock under this program for approximately $1.4 million .

The maximum number of shares available to be purchased under the stock repurchase program as of June 30, 2020 is 3,812,939.

Cash Flows— Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

For the six months ended June 30, 2020 and 2019, the comparison of cash flows is as follows:

During the three and nine months ended September 30, 2020, we did not repurchase any shares of common stock.

During the three months ended September 30, 2019, we did not repurchase any shares of common stock while during the nine months ended September 30, 2019, we repurchased 83,000 shares of common stock under this program for approximately $1.4 million .

The maximum number of shares available to be purchased under the stock repurchase program as of September 30, 2020 is 3,812,939.

Cash Flows— Nine months Ended September 30, 2020 Compared to the Nine months Ended September 30, 2019

For the nine months ended September 30, 2020 and 2019, the comparison of cash flows is as follows:

 Our primary sources of cash flows from operations are from the sale of single family attached and detached homes and mortgages.

Our primary uses of cash flows from operations is the acquisition of land and expenditures associated with the construction of our single family attached and detached homes and the origination of mortgages held for sale.

During the six months ended June 30, 2020 and 2019, we generated $173.8 million and used $93.0 million in cash from operations, respectively.

The increase in cash provided by operations is primarily a result of a $32.0 million increase in net income

and a comparatively favorable changes in assets and liabilities for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.

 Net cash used in investing activities decreased to $4.9 million during the six months ended June 30, 2020, compared to $6.2 million used during the same period in 2019.

During the nine months ended September 30, 2020 and 2019, we generated $315.8 million and used $149.0 million in cash from operations, respectively.

The increase in cash provided by operations is primarily a result of a $54.7 million increase in

net income and comparatively favorable changes in assets and liabilities for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

 Net cash used in investing activities decreased to $6.6 million during the nine months ended September 30, 2020, compared to $11.6 million used during the same period in 2019.

The decrease was primarily related to less purchases of property and equipment.

 Net cash used in financing activities was $50.5 million during the six months ended June 30, 2020, compared to $97.5 million provided by financing activities during the same period in 2019.

The change for the six months ended June 30, 2020 was primarily attributable to a $78.2 million increase in net payments under our revolving line of credit and a $108.1 million decrease in proceeds from issuance and extinguishments of senior notes, partially offset by a $27.2 million increase in net proceeds under our mortgage repurchase facilities.

As of June 30, 2020, our cash and cash equivalents and restricted cash balance was $177.0 million.

 Net cash used in financing activities was $76.8 million during the nine months ended September 30, 2020, compared to $165.7 million provided by financing activities during the same period in 2019.

The change for the nine months ended September 30, 2020 was primarily attributable to a $145.0 million increase in net payments under our revolving line of credit and a $108.1 million decrease in proceeds from issuance and extinguishments of senior notes.

As of September 30, 2020, our cash and cash equivalents and restricted cash balance was $290.9 million.

Off-Balance Sheet Arrangements

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Our obligations with respect to purchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits.

As of June 30, 2020, we had outstanding purchase contracts and option contracts for 15,635 lots with a total purchase price of approximately $659.8 million and had $31.8 million of non-refundable cash deposits pertaining to land option contracts.

As of September 30, 2020, we had outstanding purchase contracts and option contracts for 24,996 lots with a total purchase price of approximately $999.4 million and had $31.3 million of non-refundable cash deposits pertaining to land option contracts.

While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 50% to 60% of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contracts occurring in future periods, if at all.

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We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities.

As of June 30, 2020, and December 31, 2019, we had $335.9 million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

As of September 30, 2020, and December 31, 2019, we had $360.1 million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.

Contractual Obligations

For the three and six months ended June 30, 2020, there have been no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 7, 2020.

For the three and nine months ended September 30, 2020, there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 7, 2020.

Non-GAAP Financial Measures

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EBITDA and Adjusted EBITDA

The following table presents EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2020, and 2019.

The following table presents EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2020, and 2019.

Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance.

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Our Adjusted EBITDA is limited as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP .

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax expense

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We believe the ratio of net homebuilding debt to net capital is a relevant and useful financial measure to investors in understanding the leverage employed in our operations and as an indicator of our ability to obtain external financing .

September 30,

Total homebuilding debt

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted average common shares outstanding - basic

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Adjusted diluted earnings per share

(1) The tax rate used in calculating adjusted net income for the three and six months ended June 30, 2020 was 23.3%, which is reflective of the Company’s GAAP tax rate for the applicable period, as adjusted for certain discrete items.

For the three and six months ended June 30, 2019 the tax rate utilized was our GAAP tax rate of 25.6% .

(1) The tax rate used in calculating adjusted net income for the three and nine months ended September 30, 2020 was 23.3%, which is reflective of the Company’s GAAP tax rate for the applicable period, as adjusted for certain discrete items.

For the three and nine months ended September 30, 2019 the tax rate utilized was 22.4% and 24.2%, respectively, representing our GAAP tax rate adjusted for certain discrete items.

QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.

Our primary exposure to market risk is interest rate risk associated with our Amended and Restated Credit Agreement Borrowings under the Amended and Restated Credit Agreement, which bears interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

Our primary exposure to market risk is interest rate risk associated with our Amended and Restated Credit Agreement.

Borrowings under the Amended and Restated Credit Agreement, which bears interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Amended and Restated Credit Agreement.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis