What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 203 added, 152 removed, 344 unchanged (51% of the section changed)

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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.

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:

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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:

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 Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet and generally provides no option or upgrade opportunities.

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

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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

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.

However, home sales sharply rebounded in May and June of 2020, aided by historically low 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 half of 2021.

While these positive trends and market dynamics continued throughout the first half of 2021, 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 and future increases in COVID-19 positive cases could result in altering of the “re-opening” plans of numerous state and local municipalities, which may include government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and social distancing measures.

Despite overall strong demand and sales of our homes during the first and second quarters 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, interest rates, 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.

Driven by the continued strong demand for our homes throughout the first and second quarters of 2021, we ended the second quarter of 2021 with no amounts outstanding under our revolving line of credit, $419.4 million of cash and cash equivalents, $37.6 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 23.0%.

Additionally, we increased our land acquisition and development activities during the first six months of 2021 to bolster our lot pipeline and support future community growth, which resulted in 65,610 lots owned and controlled at June 30, 2021, a 88.4% increase as compared to June 30, 2020 and a 31.3% increase as compared to December 31, 2020.

Although the trajectory and strength of our markets have continued to remain strong and allowed us to pass on increased costs through price increases and increase our margins, we continued to experience materials and labor supply cost pressures during the first six months of 2021 that could negatively impact our margins in future periods.

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.

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020.

During the three and six months ended June 30, 2021, we delivered 2,771 and 5,568 homes, respectively, with an average sales price of $362.6 thousand and $352.7 thousand, respectively.

These deliveries represent increases of 11.7% and 28.2%, respectively, as compared to the three and six months ended June 30, 2020 and represent a 20.3% and 16.1% increase in average sales price as compared to the three and six months ended June 30, 2020.

During the three and six months ended June 30, 2021, we generated approximately $1.0 billion and $2.0 billion in home sales revenues, respectively, approximately $152.1 million and $283.2 million in income before income tax expense, respectively, and approximately $117.9 million and $219.6 million in net income, respectively, in each case representing substantial increases over the prior year periods.

For the three and six months ended June 30, 2021, our new home contracts, net of cancelations, totaled 3,120 and 6,575, respectively, a 17.1% and 30.1% increase over the same respective periods in 2020.

As of June 30, 2021, we had a backlog of 4,446 homes, a 60.0% increase as compared to June 30, 2020, representing approximately $1,762.5 million in sales value, an 83.1% increase as compared to June 30, 2020.

The following table summarizes our results of operations for the three and six months ended June 30, 2021 and 2020.

(in thousands, except per share amounts)

Three Months Ended March 31,

Increase (Decrease)

Three Months Ended June 30,

Six Months Ended June 30,

Consolidated Statements of Operations:

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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 $0.8 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.

(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 , which is included within inventory impairment and other on our condensed consolidated financial statements.

We recognized nominal inventory impairment for the three and six months ended June 30, 2021.

(3) The selling communities as of June 30, 2020 has been adjusted from prior year presentations to reflect 101 selling communities in our Century Complete segment, which business was acquired in 2018, and for which the number of selling communities was previously not disclosed.

Results of Operations by Segment

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Home Sales Revenues

Income before Income Tax

Three Months Ended March 31,

Income before Income Tax Expense

Three Months Ended June 30,

Century Complete

Financial Services

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.

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.

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.

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.

New Homes Delivered

Average Sales Price of Homes Delivered

Home Sales Revenues

Income before Income Tax Expense

Six Months Ended June 30,

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.

During the three and six months ended June 30, 2021, our West segment generated income before income tax expense of $40.9 million and $68.4 million, respectively, a 197.5% and 135.0% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $71.3 million and $130.5 million, respectively, and increases of 896 basis points and 622 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

The increases in revenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 23.0% and 28.9%, respectively, as well as increases of 16.2% and 12.1%, respectively, in the average sales price per home.

During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 73.2% and 64.2%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the three and six months ended June 30, 2021, our Mountain segment generated income before income tax expense of $55.8 million and $107.8 million, respectively, a 170.7% and 175.7% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $114.5 million and $248.0 million, respectively, and increases of 750 basis points and 681 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

The increases in revenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 46.5% and 59.4%, respectively, as well as increases of 13.0% and 9.7%, respectively, in the average sales price per home.

During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 81.0% and 102.1%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the three and six months ended June 30, 2021, our Texas segment generated income before income tax expense of $19.1 million and $27.7 million, respectively, a 99.2% and 83.1% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $32.1 million and $59.7 million, respectively, and increases of 490 basis points and 315 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

The increases in revenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 19.3% and 25.0%, respectively, as well as increases of 11.2% and 10.1%, respectively, in the average sales price per home.

During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 53.2% and 91.2%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the three months ended June 30, 2021, our Southeast segment generated income before income tax expense of $26.1 million, a 117.1% increase over the prior year period, driven by an increase of 860 basis points in the percentage of income before income tax expense to home sales revenues.

Home sales revenues decreased during the three months ended June 30, 2021, generated by a decrease in the number of homes delivered of 16.7%, partially offset by an increase of 15.9% in the average sales price per home.

During the three months ended June 30, 2021, the decrease in the number of homes delivered was driven by a decrease in our monthly absorption rate of 6.4%.

The increase in the average sales price was driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the six months ended June 30, 2021, our Southeast segment generated income before income tax expense of $49.5 million, a 143.7% increase, respectively, over the prior year period.

The increase was driven by the increase in home sales revenue of $82.6 million, and an increase of 610 basis points in the percentage of income before income tax expense to home sales revenues, as a result of increased revenues on a partially fixed cost base.

The increase in revenue during the six months ended June 30, 2021 was generated by both an increase in the number of homes delivered of 12.9% as well as an increase of 12.5% in the average sales price per home.

During the six months ended June 30, 2021, the increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 28.9% and the increase in the average sales price was driven by both the mix of deliveries within individual communities between years, as well as increased pricing power as a result of strong market dynamics.

Century Complete

During the three and six months ended June 30, 2021, our Century Complete segment generated income before income tax expense of $23.1 million and $44.8 million, respectively, a 170.1% and 380.2% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $45.6 million and $123.1 million, respectively, and increases of 649 basis points and 860 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of increased revenues on a partially fixed cost base.

The increases in revenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 4.1% and 21.1%, respectively, as well as increases of 28.9% and 26.4%, respectively, in the average sales price per home.

During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 50.0% and 178.6%, respectively, and increases in the average sales price were driven by both the mix of deliveries within markets between years, as well as increased pricing power as a result of strong market dynamics.

Financial Services

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

During the three months ended June 30, 2021, income before income tax expense for our Financial Services segment decreased $1.3 million to $11.7 million compared to the same period in 2020.

This decrease was primarily the result of a $3.0 million favorable fair value adjustment on mortgage loans held for sale during the second quarter of 2020, and was partially offset by a 59.5% increase in the number of loans sold during the three months ended June 30, 2021 as compared to the same period in 2020.

During the six months ended June 30, 2021, income before income tax expense for our Financial Services segment increased $13.8 million to $27.0 million compared to the same period in 2020.

The increase was primarily the result of a $28.0 million overall increase in financial services revenue during the six months ended June 30, 2021 compared to the same period in 2020.

The increase in financial services

revenue was directly attributable to an 84.3% increase in the number of loans sold during the six months ended June 30, 2021 as compared to the same period in 2020.

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,

Three Months Ended June 30,

Six Months Ended June 30,

Total originations:

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Number of loans sold

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.

During the three and six months ended June 30, 2021, our Corporate segment generated losses of $24.6 million and $42.0 million, respectively, as compared to losses of $27.4 million and $41.9 million, respectively, for the same periods in 2020.

The decrease in loss for the three-month comparison is primarily due to the cumulative catch-up adjustment to stock-based compensation expense of $2.9 million that occurred in the prior year period.

The increase in loss for the six-month comparison is primarily attributed to higher compensation costs, including estimated bonuses, during the six months ended June 30, 2021, partially offset by increased stock-based compensation expense due to the cumulative catch-up adjustment that occurred in the prior year period.

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, 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.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased during the three and six months ended June 30, 2021 to 23.9% and 22.5%, respectively as compared to 16.9% and 17.2%, respectively, for the same periods in 2020.

This increase was primarily driven by the positive homebuilding sales environment across our markets, which resulted in our ability to increase sales price in excess of an increase in our labor and direct costs period over period .

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,

Three Months Ended June 30,

Home sales revenues

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Adjusted homebuilding gross margin excluding interest and inventory impairment and other

Six Months Ended June 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

Adjusted homebuilding gross margin excluding interest and inventory impairment and other

(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.

For the three and six months ended June 30, 2021, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 25.7% and 24.4%, respectively, as compared to 19.5% and 19.8%, respectively, for the same periods 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.

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(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Selling, general and administrative

As a percentage of home sales revenue

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.

Six Months Ended June 30,

Selling, general and administrative

As a percentage of home sales revenue

Our selling, general and administrative expense increased $13.0 million and $31.5 million respectively, for the three and six months ended June 30, 2021 as compared to the same periods in 2020.

These increases were primarily attributable to the following:

(1) increases of $10.0 million and $19.5 million, respectively, in salaries and wages, primarily related to increased bonus expense as compared to the same periods in 2020 and (2) increases of $3.5 million and $15.6 million, respectively, in internal and external commission expense, which are directly related to the increases in home sales revenues.

These increases were partially offset by decreases in expenses in numerous areas including advertising and legal expenses.

Additionally, during the three and six months ended June 30, 2021, our selling, general and administrative expense decreased 170 basis points and 230 basis points, respectively, as a percentage of home sales revenue as compared to the same periods ended June 30, 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.

Our 2021 estimated annual effective tax rate, before discrete items, of 23.5% is driven by our blended federal and state statutory rate of 24.7%, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation and estimated federal energy credits for current year home deliveries, which decreased our rate by 1.2%.

For the six months ended June 30, 2021, our estimated annual rate of 23.5% was impacted by discrete items which had a net impact of decreasing our rate by 1.0%, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits for vested stock-based compensation.

For the three months ended June 30, 2021 and 2020, we recorded income tax expense of $34.2 million and $11.7 million, respectively.

For the six months ended June 30, 2021 and 2020, we recorded income tax expense of $63.6 million and $19.6 million, respectively.

Segment Assets

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Financial Services

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

Total assets increased moderately by $49.2 million, or 1.7%, to $2.9 billion at June 30, 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

June 30, 2021

December 31, 2020

Century Complete

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.

Of our total lots owned and controlled as of June 30, 2021, 34.4% were owned and 65.6% were controlled, as compared to 41.6% owned and 58.4% controlled as of December 31, 2020.

Other Homebuilding Operating Data

Three Months Ended

Six Months Ended

Net new home contracts

Increase (Decrease)

Century Complete

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

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,

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2021 increased by 456 homes, or 17.1%, to 3,120, compared to 2,664 for the same period in 2020.

Net new home contracts for the six months ended June 30, 2021 increased by 1,523 homes, or 30.1%, to 6,575, compared to 5,052 for the same period in 2020.

These increases were primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during the first six months of 2021, partially offset by a decrease in the Southeast region.

The decrease in our Southeast segment is driven by a 45.0%

decrease in selling communities at period end as compared to the end of the prior year period.

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, 2021 by segment are included in the table below:

Three Months Ended June 30,

Increase (Decrease)

Century Complete

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.

Six Months Ended June 30,

Increase (Decrease)

Century Complete

During the three and six months ended June 30, 2021, our absorption rates increased by 42.5% and 200.0%, respectively, to 5.7 and 6.0 per month, respectively, as compared to the same periods in 2020.

These increases were attributable to continued historically low interest rates and strong demand for new homes during the current year periods.

Furthermore, our absorption rate during the six months ended June 30, 2020 was negatively impacted by the initial outbreak of COVID-19.

Selling communities at period end

As of March 31,

As of June 30,

Increase/(Decrease)

Century Complete

Our selling communities decreased to 188 communities at March 31, 2021 as compared to 228 at March 31, 2020.

Our selling communities decreased to 184 communities at June 30, 2021 as compared to 223 at June 30, 2020.

This decrease was a result of the strong sales environment, which outpaced new community openings.

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(dollars in thousands)

As of March 31,

As of June 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 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.

At June 30, 2021, we had 4,446 homes in backlog with a total value of $1,762.5 million, which represents an increase of 60.0% and 83.1%, respectively, as compared to June 30, 2020.

The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 14.4% increase in the average sales price of homes in backlog.

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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.

As of June 30, 2021, Century Communities, Inc.

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

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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.

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.

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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.

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 consolidated financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q).

The amendments under Rule 33-10762 were effective January 4, 2021, but voluntary compliance was 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 ended June 30, 2020.

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

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Summarized Balance Sheet Data (in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

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Summarized Statement of Operations Data (in thousands)

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Year Ended December 31, 2020

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Liquidity and Capital Resources

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.

Our principal uses of capital for the three and six months ended June 30, 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 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.

During the three months ended June 30, 2021, we initiated a quarterly cash dividend, which we intend to fund from our funds generated by operations.

Cash flows for each of our communities depend on the stage in the development cycle and can differ substantially from reported earnings.

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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.

As of June 30, 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 six months of 2021, which resulted in 65,610 lots owned and controlled at June 30, 2021, a 31.3% 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.

Under our shelf registration statement, which we filed with the SEC on July 1, 2021 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.

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

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.

On June 5, 2018, we entered into 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 Agreement”), which provided us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, was scheduled to mature on April 30, 2023.

On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with, Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders party thereto.

The Second A&R Credit Agreement , which amended and restated the Amended and Restated Credit Agreement , provides us with a senior unsecured revolving line of credit (the “Credit Facility”) of up to $800 million , and unless terminated earlier, will mature on April 30, 2026 .

The Credit Facility includes a $250.0 million sublimit for standby letters of credit.

Under the terms of the Second A&R Credit Agreement, the Company is entitled to request an increase in the size of the Credit Facility by an amount not exceeding $200 million.

Our obligations under the Second A&R Credit Agreement are guaranteed by certain of our subsidiaries.

The Second A&R 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.

Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.05% and 2.65% per annum, and if made available in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.05% and 1.65% per annum

As of June 30, 2021, we had no amounts outstanding under the Credit Facility and were in compliance with all covenants under the Second A&R Credit Agreement.

Mortgage Repurchase Facilities – Financial Services

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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.

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 June 30, 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.

As of June 30, 2021, we had $159.8 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three and six months ended June 30, 2021, we incurred interest expense on the repurchase facilities of $0.6 million and $1.4 million, respectively.

During the same periods in 2020, we incurred interest expense on the repurchase facilities of $0.5 million and $1.3 million, respectively.

Interest expense on mortgage repurchase facilities is included in financial services costs on our condensed consolidated statements of operations .

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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 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.

This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, had all $100 million available for sale as of June 30, 2021.

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

Sales cannot be made under the Distribution Agreement unless and until we file a prospectus supplement to our recently filed shelf registration statement that was filed on July 1, 2021, which prospectus supplement we intend to file in the near future.

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.

Our outstanding debt obligations included the following as of March 31, 2021 and December 31, 2020 (in thousands):

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

As of June 30, 2021, and December 31, 2020, we had $464.6 million and $402.7 million, respectively, in letters of credit and performance and other 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 and other bonds are not generally released until all development and construction activities are completed.

Our outstanding debt obligations included the following as of June 30, 2021 and December 31, 2020 (in thousands):

6.750% senior notes, due May 2027 (1)

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Notes payable

Revolving line of credit, due April 2023

Revolving line of credit

Mortgage repurchase facilities

(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.

(1) The carrying value of the 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 consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 5, 2021 and in Note 8 to our condensed consolidated financial statements in this Form 10-Q.

We may from time to time seek to refinance or increase our outstanding debt or 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.

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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.

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:

No shares were repurchased during the three and six months ended June 30, 2021 and 2020, respectively.

The maximum number of shares available to be purchased under the stock repurchase program as of June 30, 2021 is 3,812,939.

On May 19, 2021, our Board of Directors announced the initiation of a quarterly cash dividend.

Additionally on May 19, 2021, our Board of Directors declared our first quarterly cash dividend of $0.15 per share and totaling $5.1 million, which was paid on June 16, 2021 to stockholders of record of our common stock as of June 2, 2021.

Cash Flows— Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

For the six months ended June 30, 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.

 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.

During the six months ended June 30, 2021 and 2020, we generated $143.4 million and $173.8 million in cash from operations, respectively.

The decrease in cash provided by operations is primarily a result of increased investment in our homebuilding

inventories for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, partially offset by a $155.0 million increase in net income during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

 Net cash used in investing activities decreased to $4.4 million during the six months ended June 30, 2021, compared to $4.9 million used during the same period in 2020.

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

 Net cash used in financing activities increased to $112.5 million during the six months ended June 30, 2021, compared to $50.5 million used during the same period in 2020.

The increase was primarily attributable to a $122.6 million increase in net payments on our mortgage repurchase facilities, partially offset by a $68.7 million decrease in net payments under our revolving line of credit.

As of June 30, 2021, our cash and cash equivalents and restricted cash balance was $424.7 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 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.

As of June 30, 2021, we had outstanding purchase contracts and option contracts for 43,049 lots with a total purchase price of approximately $1.7 billion and had $35.2 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.

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

As of June 30, 2021, and December 31, 2020, we had $464.6 million and $402.7 million, respectively, in letters of credit and performance and other 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.

For the three and six months ended June 30, 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.

Non-GAAP Financial Measures

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EBITDA and Adjusted EBITDA

The following table presents EBITDA and Adjusted EBITDA for the three months ended March 31, 2021 and 2020.

The following table presents EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020.

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Income tax expense

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Inventory impairment and other

Restructuring costs

Adjusted EBITDA

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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).

We calculate this by dividing net homebuilding debt (notes payable and borrowings under our revolving line of credit less cash and cash equivalents and cash held in escrow) by net capital (net homebuilding debt plus total stockholders’ equity).

The most directly comparable GAAP measure is the ratio of debt to total capital.

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Net homebuilding debt to net capital

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.

Adjusted Net Income and Adjusted Diluted Earnings per Share

Adjusted Net Income and Adjusted Diluted Earnings per Share (which we refer to as “Adjusted EPS”) are non-GAAP financial measures that we believe are 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

We define Adjusted Net Income as consolidated net income before (i) income tax expense, (ii) inventory impairment and other and (iii) restructuring costs, less adjusted income tax expense, calculated using the Company’s estimated annual effective tax rate after discrete items for the applicable period.

Adjusted Diluted EPS is calculated by excluding the effect of loss on inventory impairment and other and restructuring costs from the calculation of reported EPS .

Three Months Ended June 30,

Six Months Ended June 30,

Weighted average common shares outstanding - basic

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Inventory impairment and other

Restructuring costs

Adjusted income before income tax expense

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Adjusted diluted earnings per share

(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.

(1) The tax rate used in calculating adjusted net income for the three and six months ended June 30, 2021 was 22.5% which is reflective of the Company’s estimated annual effective tax rate after discrete items for the applicable period.

For the three and six months ended June 30, 2020, the tax rate utilized was our estimated annual effective tax rate after discrete items of 23.3%.

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.

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.

Our primary exposure to market risk is interest rate risk associated with Second A&R Credit Agreement .

The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Second A&R Credit Agreement.

The Second A&R 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 Credit Facility.

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.

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We also typically hedge our interest rate exposure through entering into interest rate swap futures .

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, particularly lumber, and construction costs.

In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.

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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