Century Communities, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND A NALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” the negative of such terms and other comparable terminology and the use of future dates. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. The forward-looking statements included in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking and subject to risks and uncertainties including among others: the impact of the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular;  econo mic 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 an adverse impact on our business, operating results and financial conditions, including an impairment of our assets;  changes in assumptions used to make industry forecasts, population growth rates, or trends affecting housing demand or prices;  continued volatility and uncertainty in the credit markets and broader financial markets;  our future operating results and financial condition;  our business operations;  changes in our business and investment strategy;  availability and price of land to acquire, and our ability to acquire such land on favorable terms or at all;  availability, terms and deployment of capital;  availability or cost of mortgage financing or an increase in the number of foreclosures in the market;  delays in land development or home construction resulting from adverse weather conditions or other events outside our control;  impact of construction defect, product liability, and/or home warranty claims, including the adequacy of accruals and the applicability and sufficiency of our insurance coverage;  changes in, or the failure or inability to comply with, governmental laws and regulations; 16 Table of Contents  the timing of r eceipt of regulatory approvals and the opening of projects;  the i mpact and cost of compliance with evolving environmental, health and safety and other laws and regulations and third-party challenges to required permits and other approvals and potential legal liability in connection therewith;  the degree and nature of our competition;  our leverage, debt service obligations and exposure to changes in interest rates;  our ability to continue to fund and succeed in our mortgage lending business and the additional risks involved in that business;  availability of qualified personnel and contractors and our ability to retain key personnel and contractor relationships;  taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance; and  changes in United States generally accepted accounting principles (which we refer to as “GAAP”). Forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us. Forward-looking statements are not guarantees of future events or of our performance. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these events and factors are described above and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K, and other risks and uncertainties detailed in this report, including “Part II, Item 1A. Risk Factors”, and our other reports and filings with the SEC. If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q. As used in this Form 10-Q, references to “we,” “us,” “our,” “Century” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates. The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We use certain non-GAAP financial measures that we believe are important for purposes of comparison to prior periods. This information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends. Some of the numbers included herein have been rounded for the convenience of presentation. Overview Century is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: entry-level, 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 opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet and provides no option or upgrade opportunities. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, primarily to our homebuyers have been identified as our Financial Services segment. While we offer homes that appeal to a broad range of entry-level, move-up, and lifestyle homebuyers, our offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments. Additionally, we prefer building move-in-ready homes over built-to-order homes, which we believe allows for a faster construction process, advantageous pricing with subcontractors, and shortened time period from home sale to home delivery, thus allowing us to more appropriately price the homes. Impact of COVID-19 Pandemic The outbreak of the novel coronavirus, (COVID-19), which was declared a pandemic by the World Health Organization on March 11, 2020, created significant volatility, disruption, and uncertainty across the nation and abroad. It resulted in government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and the implementation of social distancing measures, leading to the closure of businesses and weakened economic conditions resulting in an economic slowdown and recession. 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 of 2020, aided by historically low 17 Table of Contents interest rates, lack of supply, and 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 and market dynamics continued throughout the remainder of 2020 and throughout the first quarter of 2021. While the COVID-19 pandemic did not materially adversely affect our full year 2020 or first quarter 2021 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. Increases in COVID-19 positive cases could 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 first quarter of 2021, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment 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 inventories in the future. Driven by the continued strong demand for our homes throughout the first quarter of 2021, we ended the first quarter of 2021 with no amounts outstanding under our revolving line of credit, $502.9 million of cash and cash equivalents, $54.2 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 19.9%. Additionally, we increased our land acquisition and development activities during the first quarter of 2021 to bolster our lot pipeline and support future community growth, which resulted in 57,536 lots owned and controlled at March 31, 2021, a 60.6% increase as compared to March 31, 2020 and a 15.2% increase as compared to December 31, 2020. Although the trajectory and strength of our markets continue to remain strong and have allowed us to pass on increased costs through price increases and maintain and even increase our margins, we continued to experience materials and labor supply cost pressures during the first quarter of 2021, particularly with respect to lumber and increases in the price of land, 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 to continue to grow with the market 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 months ended March 31, 2021, we delivered 2,797 homes with an average sales price of $343.0 thousand, representing an 50.1% increase in deliveries and an 11.7% increase in average sales price as compared to the three months ended March 31, 2020. During the three months ended March 31, 2021, we generated approximately $959.3 million in home sales revenues, approximately $131.0 million in income before income tax expense, and approximately $101.7 million in net income, in each case representing substantial increases over the prior year period. For the three months ended March 31, 2021, our new home contracts, net of cancelations, totaled 3,455, a 44.7% increase over the same period in 2020. As of March 31, 2021, we had a backlog of 4,097 homes, a 57.9% increase as compared to March 31, 2020, representing approximately $1,579.6 million in sales value, a 83.4% increase as compared to March 31, 2020. ‎ 18 Table of Contents The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020. (in thousands, except per share amounts) Three Months Ended March 31, Increase (Decrease) 2021 2020 Amount % Consolidated Statements of Operations: Revenue Home sales revenues $ 959,279 $ 572,710 $ 386,569 67.5 % Land sales and other revenues 15,670 20,104 (4,434) (22.1) % 974,949 592,814 382,135 64.5 % Financial services revenues 33,620 9,795 23,825 243.2 % Total revenues 1,008,569 602,609 405,960 67.4 % Homebuilding cost of revenues Cost of home sales revenues (756,507) (470,526) (285,981) 60.8 % Cost of land sales and other revenues (10,020) (14,167) 4,147 (29.3) % (766,527) (484,693) (281,834) 58.1 % Financial services costs (18,301) (9,586) (8,715) 90.9 % Selling, general, and administrative (92,151) (73,619) (18,532) 25.2 % Inventory impairment and other — (781) 781 (100.0) % Other income (expense) (541) 158 (699) (442.4) % Income before income tax expense 131,049 34,088 96,961 284.4 % Income tax expense (29,397) (7,962) (21,435) 269.2 % Net income $ 101,652 $ 26,126 $ 75,526 289.1 % Earnings per share: Basic $ 3.03 $ 0.79 $ 2.24 283.5 % Diluted $ 3.00 $ 0.78 $ 2.22 284.6 % Adjusted diluted earnings per share (1) $ 3.00 $ 0.80 $ 2.20 275.0 % Other Operating Information (dollars in thousands): Number of homes delivered 2,797 1,864 933 50.1 % Average sales price of homes delivered $ 343.0 $ 307.2 $ 35.8 11.7 % Homebuilding gross margin percentage (2) 21.1 % 17.7 % 3.4 % 19.2 % Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) 23.1 % 20.2 % 2.9 % 14.4 % Backlog at end of period, number of homes 4,097 2,594 1,503 57.9 % Backlog at end of period, aggregate sales value $ 1,579,599 $ 861,116 $ 718,483 83.4 % Average sales price of homes in backlog $ 385.6 $ 332.0 $ 53.6 16.1 % Net new home contracts 3,455 2,388 1,067 44.7 % Selling communities at period end (3) 188 228 (40) (17.5) % Average selling communities (3) 194 220 (26) (11.8) % Total owned and controlled lot inventory 57,536 35,831 21,705 60.6 % Adjusted EBITDA (1) $ 152,121 $ 51,806 $ 100,315 193.6 % Adjusted income before income tax expense (1) $ 131,049 $ 34,869 $ 96,180 275.8 % Adjusted net income (1) $ 101,652 $ 26,725 $ 74,927 280.4 % Net homebuilding debt to net capital (1) 19.9 % 46.6 % (26.7) % (57.3) % (1) This is a non-GAAP financial measure and should not be used as a substitute for the Company’s operating results prepared in accordance with GAAP. 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 $0.8 million inventory impairment for the three months ended March 31, 2020, which is included within inventory impairment and other on our condensed consolidated financial statements. We recognized no inventory impairment for the three months ended March 31, 2021. (3) The selling communities as of March 31, 2020 has been adjusted from prior year presentations to reflect selling communities in our Century Complete segment of 102, which business was acquired in 2018, and for which selling communities was previously not disclosed. ‎ 19 Table of Contents Results of Operations by Segment (dollars in thousands) New Homes Delivered Average Sales Price of Homes Delivered Home Sales Revenues Income before Income Tax Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31, 2021 2020 2021 2020 2021 2020 2021 2020 West 319 233 $ 582.4 $ 543.2 $ 185,790 $ 126,562 $ 27,461 $ 15,341 Mountain 685 396 $ 423.5 $ 395.3 290,065 156,532 51,980 18,498 Texas 328 244 $ 267.5 $ 246.5 87,739 60,139 8,531 5,484 Southeast 568 368 $ 387.5 $ 357.1 220,081 131,402 23,440 8,308 Century Complete 897 623 $ 195.8 $ 157.4 175,604 98,075 21,730 780 Financial Services — — $ — $ — — — 15,319 209 Corporate — — $ — $ — — — (17,412) (14,532) Total 2,797 1,864 $ 343.0 $ 307.2 $ 959,279 $ 572,710 $ 131,049 $ 34,088 West Our West segment generated income before income tax of $27.5 million for the quarter ended March 31, 2021, a 79.0% increase over the prior year period. The increase was driven by the increase in homes sales revenue of $59.2 million and an increase of 270 basis points in the percentage of income before income tax to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue was generated by both an increase in the number of homes delivered of 36.9%, as well as an increase of 7.2% in the average price per home. The increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 30.2%, and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years, as well as increased pricing power as a result of strong market dynamics. Mountain Our Mountain segment generated income before income tax of $52.0 million for the quarter ended March 31, 2021, a 181.0% increase over the prior year period. The increase was driven by the increase in homes sales revenue of $133.5 million and an increase of 610 basis points in the percentage of income before income tax to home sales revenues, as a result of increased revenues on a partially fixed cost base, as well as the benefit of a non-recurring land sale which contributed $5.0 million of pre-tax income during the quarter. The increase in revenue was generated by both an increase in the number of homes delivered of 73.0%, as well as an increase of 7.1% in the average price per home. The increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 50.0%, and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years, as well as increased pricing power as a result of strong market dynamics. Texas Our Texas segment generated income before income tax of $8.5 million for the quarter ended March 31, 2021, a 55.6% increase over the prior year period. The increase was driven by the increase in homes sales revenue of $27.6 million and an increase of 60 basis points in the percentage of income before income tax to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue was generated by both an increase in the number of homes delivered of 34.4%, as well as an increase of 8.5% in the average price per home. The increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 209.3%, and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years, as well as increased pricing power as a result of strong market dynamics. Southeast Our Southeast segment generated income before income tax of $23.4 million for the quarter ended March 31, 2021 a 182.1% increase over the prior year period. The increase was driven by the increase in homes sales revenue of $88.7 million and an increase of 430 basis points in the percentage of income before income tax to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue was generated by both an increase in the number of homes delivered of 54.3%, as well as an increase of 8.5% in the average price per home. The increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 88.1%, and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years, as well as increased pricing power as a result of strong market dynamics. 20 Table of Contents Century Complete Our Century Complete segment generated income before income tax of $21.7 million for the quarter ended March 31, 2021 an increase of $21.0 million over the prior year period. The increase was driven by the increase in homes sales revenue of $77.5 million and an increase of 1,160 basis points in the percentage of income before income tax to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue was generated by both an increase in the number of homes delivered of 44.0%, as well as an increase of 24.4% in the average price per home. The increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 100.0%, and the increase in the average sales price was driven by both the mix of deliveries within individual communities and markets between years, as well as increased pricing power as a result of strong market dynamics. Financial Services During the three months ended March 31, 2021, income before income tax for our Financial Services segment increased $15.1 million to $15.3 million compared to the same period in 2020. This increase was primarily the result of a $23.8 million overall increase in financial services revenue during the three months ended March 31, 2021, compared to the same period in 2020. The increase in financial services revenue was directly attributable to a 118.9% increase in the volume of loans sold during the three-month period ended March 31, 2021 as compared to the same period in 2020. Our Financial Services segment primarily originates mortgages for our homebuyers, and as such, performance typically 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 March 31, 2021 2020 Total originations: Number of loans 2,301 933 Principal $ 709,291 $ 271,792 Capture rate of Century homebuyers 76 % 52 % Century 84 % 64 % Century Complete 58 % 27 % Average FICO score 737 734 Loans sold to third parties: Number of loans sold 2,279 1,041 Principal $ 681,157 $ 309,470 Corporate During the three months ended March 31, 2021, our Corporate segment generated a loss of $17.4 million, as compared to a loss of $14.5 million for the same period in 2020. This increase was primarily attributed to higher compensation costs, including estimated bonuses. Homebuilding Gross Margin (dollars in thousands) 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, increased during the three months ended March 31, 2021 to 21.1% as compared to 17.7% for the same period in 2020. This increase was primarily driven by the positive homebuilding sales environment, which resulted in our ability to increase sales price in excess of an increase in our labor and direct costs period over period. 21 Table of Contents In the following table, we calculate our homebuilding gross margin, as adjusted to exclude inventory impairment and other and interest in cost of home sales revenues. Three Months Ended March 31, 2021 % 2020 % Home sales revenues $ 959,279 100.0 % $ 572,710 100.0 % Cost of home sales revenues (756,507) (78.9) % (470,526) (82.2) % Inventory impairment and other — — % (781) (0.1) % Gross margin from home sales 202,772 21.1 % 101,403 17.7 % Add: Inventory impairment and other — — % 781 0.1 % Add: Interest in cost of home sales revenues 18,377 1.9 % 13,685 2.4 % Adjusted homebuilding gross margin excluding interest and inventory impairment and other 221,149 23.1 % 115,869 20.2 % (1) This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP. 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 months ended March 31, 2021, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 23.1%, as compared to 20.2% for the same period in 2020. We believe the above information is meaningful as it isolates the impact that inventory impairment, indebtedness and acquisitions (if applicable) have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors. ‎ 22 Table of Contents Selling, General and Administrative Expense (dollars in thousands) Three Months Ended March 31, Increase 2021 2020 Amount % Selling, general and administrative $ 92,151 $ 73,619 $ 18,532 25.2 % As a percentage of home sales revenue 9.6 % 12.9 % Our selling, general and administrative expense increased $18.5 million for the three months ended March 31, 2021 as compared to the same period in 2020. This increase was primarily attributable to the following: (1) an increase of $12.1 million in internal and external commission expense, which is directly related to our increase in home sales revenues and (2) an increase of $9.5 million in salaries and wages, primarily related to increased bonus expense as compared to the first quarter of 2020. These increases were partially offset by decreases in expenses in numerous areas including: advertising, legal expenses, and travel and entertainment. Additionally, our selling, general and administrative expense decreased 330 basis points as a percentage of home sales revenue as compared to the quarter ended March 31, 2020, as a result of increased revenues on a partially fixed cost base. Income Tax Expense At the end of each interim period, we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 2021 estimated annual effective tax rate of 23.6% is driven by our blended federal and state statutory rate of 24.7%, and certain other permanent differences between GAAP and tax which decreased our rate by 1.1%. For the three months ended March 31, 2021, our estimated annual rate of 23.6% was impacted by discrete items which had a net impact of decreasing our rate by 1.2%, including excess tax benefits for vested stock-based compensation. For the three months ended March 31, 2021 and 2020, we recorded income tax expense of $29.4 million and $8.0 million, respectively. 23 Table of Contents Segment Assets (dollars in thousands) March 31, December 31, Increase (Decrease) 2021 2020 Amount Change West $ 543,938 $ 536,907 $ 7,031 1.3 % Mountain 801,217 778,198 23,019 3.0 % Texas 226,367 207,746 18,621 9.0 % Southeast 356,600 329,930 26,670 8.1 % Century Complete 236,707 218,604 18,103 8.3 % Financial Services 447,182 421,153 26,029 6.2 % Corporate 339,673 352,555 (12,882) (3.7) % Total assets $ 2,951,684 $ 2,845,093 $ 106,591 3.7 % Total assets increased moderately by $106.6 million, or 3.7%, to $3.0 billion at March 31, 2021 as compared to December 31, 2020, primarily as a result of the overall growth of the Company Lots owned and controlled March 31, 2021 December 31, 2020 % Change Owned Controlled Total Owned Controlled Total Owned Controlled Total West 3,127 4,952 8,079 3,266 3,392 6,658 (4.3) % 46.0 % 21.3 % Mountain 7,721 7,954 15,675 7,951 5,910 13,861 (2.9) % 34.6 % 13.1 % Texas 3,070 6,322 9,392 3,035 5,873 8,908 1.2 % 7.6 % 5.4 % Southeast 2,701 8,886 11,587 3,076 6,389 9,465 (12.2) % 39.1 % 22.4 % Century Complete 3,887 8,916 12,803 3,473 7,600 11,073 11.9 % 17.3 % 15.6 % Total 20,506 37,030 57,536 20,801 29,164 49,965 (1.4) % 27.0 % 15.2 % Of our total lots owned and controlled as of March 31, 2021, 35.6% were owned and 64.4% were controlled, as compared to 41.6% owned and 58.4% controlled as of December 31, 2020. Other Homebuilding Operating Data Three Months Ended Net new home contracts March 31, Increase (Decrease) 2021 2020 Amount % Change West 394 336 58 17.3 % Mountain 947 614 333 54.2 % Texas 518 333 185 55.6 % Southeast 476 516 (40) (7.8) % Century Complete 1,120 589 531 90.2 % Total 3,455 2,388 1,067 44.7 % Net new home contracts (new home contracts net of cancellations) for the three months ended March 31, 2021 increased by 1,067 homes, or 44.7%, to 3,455, compared to 2,388 for the same period in 2020. This increase was primarily driven by stronger sales across 24 Table of Contents all of our segments as the homebuilding industry continued to experience positive trends during the first quarter of 2021. Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three months ended March 31, 2021 by segment are included in the table below: Three Months Ended March 31, Increase 2021 2020 Amount % Change West 6.9 5.3 1.6 30.2 % Mountain 8.1 5.4 2.7 50.0 % Texas 13.3 4.3 9.0 209.3 % Southeast 7.9 4.2 3.7 88.1 % Century Complete 3.8 1.9 1.9 100.0 % Total 6.1 3.5 2.6 74.3 % During the three months ended March 31, 2021, our absorption rate increased by 74.3% to 6.1 per month as compared to the same period in 2020. The increase was attributable to continued historically low interest rates and strong demand for new homes during current year period. Furthermore, our absorption rate during the three months ended March 31, 2020 was negatively impacted by the initial outbreak of COVID-19. Selling communities at period end As of March 31, Increase/(Decrease) 2021 2020 Amount % Change West 19 21 (2) (9.5) % Mountain 39 38 1 2.6 % Texas 13 26 (13) (50.0) % Southeast 20 41 (21) (51.2) % Century Complete 97 102 (5) (4.9) Total 188 228 (40) (17.5) % Our selling communities decreased to 188 communities at March 31, 2021 as compared to 228 at March 31, 2020. This decrease was a result of the strong sales environment, which outpaced new community openings. Century Complete sells primarily from retail studios and online via the internet, instead of from traditional model homes. While Century Complete has historically purchased land and constructed homes within traditional communities similar to our Century Communities brand, we also purchase land and construct a significant number of homes on scattered lots outside of traditional communities. As the Century Complete brand has grown, entered new markets and expanded its land pipeline, we have increasingly operated within traditional communities, and now rely, to a lesser degree, on scattered lots. Additionally, we have organized our construction and sales operations for scattered lot positions within “pods” which are clustered together lot positions, which we operate more like a traditional community. Accordingly, our selling communities at period end for the 2020 period have been updated from amounts previously disclosed to include communities for our Century Complete brand. Backlog (dollars in thousands) As of March 31, 2021 2020 % Change Homes Dollar Value Average Sales Price Homes Dollar Value Average Sales Price Homes Dollar Value Average Sales Price West 561 $ 342,688 $ 610.9 305 $ 158,853 $ 520.8 83.9 % 115.7 % 17.3 % Mountain 1,051 520,004 494.8 591 251,199 425.0 77.8 % 107.0 % 16.4 % Texas 575 187,594 326.3 364 98,767 271.3 58.0 % 89.9 % 20.3 % Southeast 709 279,904 394.8 661 239,012 361.6 7.3 % 17.1 % 9.2 % Century Complete 1,201 249,409 207.7 673 113,285 168.3 78.5 % 120.2 % 23.4 % Total / Weighted Average 4,097 $ 1,579,599 $ 385.6 2,594 $ 861,116 $ 332.0 57.9 % 83.4 % 16.1 % 25 Table of Contents 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 March 31, 2021, we had 4,097 homes in backlog with a total value of $1,579.6 million, which represents an increase of 57.9% and 83.4%, respectively, as compared to March 31, 2020. The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 16.1% increase in the average sales price of homes in backlog. Supplemental Guarantor Information Our 5.875% senior notes due 2025 and 6.750% senior notes due 2027 (which we collectively refer to as our “Senior Notes”) are our unsecured senior obligations and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to collectively as “Guarantors”). Our subsidiaries associated with our financial services operations (referred to as “Non-Guarantors”) do not guarantee the Senior Notes. The guarantees are senior unsecured obligations of the Guarantors that rank equal with all existing and future senior debt of the Guarantors and senior to all subordinated debt of the Guarantors. The guarantees are effectively subordinated to any secured debt of the Guarantors. 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 March 31, 2021, 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; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the respective Indentures), in accordance with the applicable indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable indenture. The indenture governing our former 6.875% senior notes due 2022 contained a similar provision. If a guarantor were to become a debtor in a case under the US Bankruptcy Code, a court may decline to enforce its guarantee of the Senior Notes. This may occur when, among other factors, it is found that the guarantor originally received less than fair consideration for the guarantee and the guarantor would be rendered insolvent by enforcement of the guarantee. On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the Senior Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay such debts as they mature. The Company cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. As the guarantees were made in connection with exchange offers effected in February 2015, October 2015 and April 2017 and the issuance of the 5.875% senior notes due 2025 and of the 6.750% senior notes due 2027, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively. We have determined that separate, full financial statements of the Guarantors would not be material to investors, and accordingly, supplemental financial information is presented below. 26 Table of Contents On March 2, 2020, the SEC adopted amendments to Rules 3-10 and 3-16 of Regulation S-X, under Rule Release No. 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities (“Rule 33-10762”), that reduce and simplify the financial disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities (which we previously included within the notes to our financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q). The amendments under Rule 33-10762 are effective January 4, 2021, but voluntary compliance is permitted in advance of the effective date. 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. and the Guarantor Subsidiaries on a combined basis after eliminating intercompany transactions and balances among Century Communities, Inc. and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from Non-Guarantor Subsidiaries. ‎ 27 Table of Contents Century Communities, Inc. and Guarantor Subsidiaries Summarized Balance Sheet Data (in thousands) March 31, 2021 December 31, 2020 Assets Cash and cash equivalents $ 402,360 $ 307,167 Cash held in escrow 54,220 23,149 Accounts receivable 22,972 18,742 Inventories 1,853,199 1,929,664 Prepaid expenses and other assets 100,678 94,181 Property and equipment, net 27,262 27,360 Deferred tax assets, net 15,213 12,450 Goodwill 30,395 30,395 Total assets $ 2,506,299 $ 2,443,108 Liabilities and stockholders’ equity Liabilities: Accounts payable $ 82,634 $ 106,288 Accrued expenses and other liabilities 297,281 267,708 Intercompany loan payable — 17,600 Notes payable 897,778 894,875 Revolving line of credit — — Total liabilities 1,277,693 1,286,471 Stockholders’ equity: 1,228,606 1,156,637 Total liabilities and stockholders’ equity $ 2,506,299 $ 2,443,108 Summarized Statement of Operations Data (in thousands) Three Months Ended March 31, 2021 Year Ended December 31, 2020 Total homebuilding revenues 974,949 3,057,884 Total homebuilding cost of revenues (766,527) (2,490,062) Selling, general and administrative (92,151) (341,710) Inventory impairment and other — (2,172) Other income (expense) (720) (3,014) Income before income tax expense 115,551 220,926 Income tax expense (25,920) (52,389) Net income 89,631 168,537 ‎ 28 Table of Contents Critical Accounting Policies Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 5, 2021, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.” Liquidity and Capital Resources Overview Our principal uses of capital for the three months ended March 31, 2021 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 proceeds from sales of common stock, including our current at-the-market facility, to fund our short term working capital obligations and fund our purchases of land, as well as land development and home construction activities. Cash flows for each of our communities depend on the stage in the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities. As we continue to expand our business, our cash outlays for land purchases and land development to grow our lot inventory may exceed our cash generated by operations. In response to the COVID-19 pandemic, we took certain measures to ensure we are positioned with cash flow and liquidity to endure an extended period of lower demand for our homes, should it arise. Specifically commencing in mid-March of 2020, we slowed our land acquisition and 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 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 March 31, 2021, we continued to have no amounts outstanding under our revolving line of credit. We increased our land acquisition and development activities during the first quarter of 2021, which resulted in 57,536 lots owned and controlled at March 31, 2021, a 15.2% increase as compared to December 31, 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. Under our shelf registration statement, which we filed with the SEC in July 2018 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in registered transactions from time to time and as needed as part of our ongoing financing strategy and subject to market conditions. In November 2019, we filed a prospectus supplement to offer up to $100.0 million under the shelf registration statement under our at-the-market facility described below. 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 we refer to as the “Amended and Restated Credit 29 Table of Contents 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. The Amended and Restated Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. 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 March 31, 2021, we had no amounts outstanding under the credit facility and were in compliance with all covenants. Mortgage Repurchase Facilities – Financial Services On May 4, 2018, September 14, 2018, and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the “repurchase facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate of $350 million as of March 31, 2021, secured by the mortgage loans financed thereunder. 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 March 31, 2021, we had $285.1 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder. During the three months ended March 31, 2021 and 2020, we incurred interest expense on the repurchase facilities of $0.8 million and $0.7 million, respectively. Interest expense on mortgage repurchase facilities is included in financial services costs on our condensed consolidated statements of operations . At-the-Market Offerings On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (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 March 31, 2021. We did not sell or issue any shares of our common stock during the three months ended March 31, 2021 and 2020, 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. Letters of Credit and Performance Bonds 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 March 31, 2021, and December 31, 2020, we had $441.2 million and $402.7 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. 30 Table of Contents Debt Our outstanding debt obligations included the following as of March 31, 2021 and December 31, 2020 (in thousands): March 31, December 31, 2021 2020 6.750% senior notes, due May 2027 (1) $ 494,972 $ 494,768 5.875% senior notes, due July 2025 (1) 396,997 396,821 Other financing obligations 5,809 3,286 Notes payable 897,778 894,875 Revolving line of credit, due April 2023 — — Mortgage repurchase facilities 285,050 259,050 Total debt $ 1,182,828 $ 1,153,925 (1) The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes. A summary of our debt obligations is included in Note 10 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 5, 2021. 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 On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws. The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions. We intend to finance any stock repurchases through available cash and our revolving credit facility. Repurchases also may be made under a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased when we otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time without notice at our discretion. 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. No shares were repurchased during the three months ended March 31, 2021 and 2020, respectively. The maximum number of shares available to be purchased under the stock repurchase program as of March 31, 2021 is 3,812,939. Cash Flows— Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 For the three months ended March 31, 2021 and 2020, 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 three months ended March 31, 2021 and 2020, we generated $96.1 million and used $12.4 million in cash from operations, respectively. The increase in cash provided by operations is primarily a result of a $75.5 million increase in net income and comparatively favorable changes in assets and liabilities for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.  Net cash used in investing activities increased to $2.9 million during the three months ended March 31, 2021, compared to $2.6 million used during the same period in 2020. The increase was primarily related to more purchases of property and equipment. ‎ 31 Table of Contents  Net cash provided in financing activities decreased to $16.3 million during the three months ended March 31, 2021, compared to $410.0 million provided during the same period in 2020. The change for the three months ended March 31, 2021 was primarily attributable to a $453.2 million decrease in net payments under our revolving line of credit. As of March 31, 2021, our cash and cash equivalents and restricted cash balance was $507.6 million. Off-Balance Sheet Arrangements In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and others as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. 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 March 31, 2021, we had outstanding purchase contracts and option contracts for 37,030 lots with a total purchase price of approximately $1.5 billion and had $35.6 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 the substantial majority of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contracts occurring in future periods. Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions. We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of March 31, 2021, and December 31, 2020, we had $441.2 million and $402.7 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 months ended March 31, 2021, 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, 2020 that was filed with the SEC on February 5, 2021. ‎ 32 Table of Contents Non-GAAP Financial Measures In this Form 10-Q, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net homebuilding debt to net capital, and adjusted net earnings per diluted common shares. These non-GAAP financial measures are presented to provide investors additional information to facilitate the comparison of our past and present operations. We believe these non-GAAP financial measures provide useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP. These measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures. Accordingly, we qualify our use of non-GAAP financial information in a statement when non-GAAP financial information is presented. EBITDA and Adjusted EBITDA The following table presents EBITDA and Adjusted EBITDA for the three months ended March 31, 2021 and 2020. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define Adjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense, (iv) loss on debt extinguishment, (v) inventory impairment and other, (vi) depreciation and amortization expense, and (vii) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. 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 March 31, 2021 2020 % Change Net income $ 101,652 $ 26,126 289.1 % Income tax expense 29,397 7,962 269.2 % Interest in cost of home sales revenues 18,377 13,685 34.3 % Interest expense (income) (111) (163) (31.9) % Depreciation and amortization expense 2,806 3,415 (17.8) % EBITDA 152,121 51,025 198.1 % Inventory impairment and other — 781 NM Adjusted EBITDA $ 152,121 $ 51,806 193.6 % NM – Not Meaningful ‎ 33 Table of Contents Net Homebuilding Debt to Net Capital The following table presents our ratio of net homebuilding debt to net capital, which is a non-GAAP financial measure. We calculate this by dividing net debt (notes payable and borrowings under our revolving line of credit less cash held in escrow and cash and cash equivalents) by net capital (net debt plus total stockholders’ equity). The most directly comparable GAAP measure is the ratio of debt to total capital. 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 . March 31, December 31, 2021 2020 Total homebuilding debt $ 897,778 $ 894,875 Total stockholders' equity 1,373,169 1,280,705 Total capital $ 2,270,947 $ 2,175,580 Homebuilding debt to capital 39.5% 41.1% Total homebuilding debt $ 897,778 $ 894,875 Cash and cash equivalents (502,906) (394,001) Cash held in escrow (54,220) (23,149) Net homebuilding debt 340,652 477,725 Total stockholders' equity 1,373,169 1,280,705 Net capital $ 1,713,821 $ 1,758,430 Net homebuilding debt to net capital 19.9% 27.2% ‎ 34 Table of Contents Adjusted Diluted Earnings per Common Share Adjusted Diluted Earnings per Common Share (which we refer to as “Adjusted EPS”) is a non-GAAP financial measure that we believe is useful to management, investors and other users of our financial information in evaluating our operating results and understanding our operating trends without the effect of certain non-recurring items. We believe excluding certain non-recurring items provides more comparable assessment of our financial results from period to period. Adjusted Diluted EPS is calculated by excluding the effect of acquisition costs and purchase price accounting for acquired work in process from the calculation of reported EPS . Three Months Ended March 31, 2021 2020 Numerator Net income $ 101,652 $ 26,126 Denominator Weighted average common shares outstanding - basic 33,563,903 33,207,928 Dilutive effect of restricted stock units 320,372 268,516 Weighted average common shares outstanding - diluted 33,884,275 33,476,444 Earnings per share: Basic $ 3.03 $ 0.79 Diluted $ 3.00 $ 0.78 Adjusted earnings per share Numerator Income before income tax expense $ 131,049 $ 34,088 Inventory impairment and other — 781 Adjusted income before income tax expense 131,049 34,869 Adjusted income tax expense (1) (29,397) (8,144) Adjusted net income 101,652 26,725 Denominator - Diluted 33,884,275 33,476,444 Adjusted diluted earnings per share $ 3.00 $ 0.80 (1) The tax rate used in calculating adjusted net income for the three months ended March 31, 2021 and March 31, 2020 was 22.4% and 23.4%, respectively, which is reflective of the Company’s GAAP tax rate for the applicable period. ‎ 35 Table of Contents ITEM 3. QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rates 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 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. 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. The Amended and Restated Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the revolving line of credit. For fixed rate debt, such as our senior notes, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Our Financial Services business utilizes mortgage-backed securities, forward commitments, option contracts and investor commitments to protect the value of rate-locked commitments and loans held-for-sale from fluctuations in mortgage-related interest rates. To mitigate interest risk associated with loans held-for-sale, we typically use derivative financial instruments to hedge our exposure to risk from the time a borrower locks a loan until the time the loan is securitized. We also typically hedge our interest rate exposure through entering into interest rate swap futures . Inflation Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices. Seasonality Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding in dustry and the COVID-19 pandemic.