What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 193 added, 154 removed, 393 unchanged (47% of the section changed)

8 unchanged sentences

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:

17 unchanged sentences

 the degree and nature of our competition;

 our leverage, debt service obligations and exposure to changes in interest rates;

 our leverage, debt service obligations and exposure to changes in interest rates and our ability to refinance our debt when needed or on favorable terms;

 our ability to continue to fund and succeed in our mortgage lending business and the additional risks involved in that business;

10 unchanged sentences

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.

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.

8 unchanged sentences

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.

9 unchanged sentences

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.

These positive trends and market dynamics continued throughout the remainder of 2020 and through the first nine months of 2021.

While these positive trends and market dynamics continued through the first nine months 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 and hospitalizations 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 nine months 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, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends, and housing demand, 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 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.

Driven by the continued strong demand for our homes through the first nine months of 2021, we ended the third quarter of 2021 with no amounts outstanding under our revolving line of credit, $491.9 million of cash and cash equivalents, $29.2 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 23.1%.

Additionally, we increased our land acquisition and development activities during the first nine months of 2021 to bolster our lot pipeline and support future community growth, which resulted in 75,537 lots owned and controlled at September 30, 2021, a 68.0% increase as compared to September 30, 2020 and a 51.2% 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 shortages and delays and material and labor supply cost pressures during the first nine months of 2021 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 debt refinancing and/or strategic opportunities as they arise.

Results of Operations

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.

During the three and nine months ended September 30, 2021, we delivered 2,332 and 7,890 homes, respectively, with an average sales price of $395.1 thousand and $365.2 thousand, respectively.

These deliveries represent increases of 1.7% and 19.1%, respectively, as compared to the three and nine months ended September 30, 2020 and represent increases of 18.6% and 16.3%, respectively, in average sales price as compared to the three and nine months ended September 30, 2020.

During the three and nine months ended September 30, 2021, we generated $958.0 million and $3.0 billion in total revenues, respectively, approximately $145.8 million and $428.9 million in income before income tax expense, respectively, and approximately $114.0 million and $333.5 million in net income, respectively, in each case representing substantial increases over the respective prior year period.

For the three and nine months ended September 30, 2021, our new home contracts, net of cancelations, totaled 2,742 and 9,317, respectively, a 14.4% decrease and 12.9% increase over the same respective periods in 2020.

As of September 30, 2021, we had a backlog of 4,866 homes, a 31.5% increase as compared to September 30, 2020, representing approximately $1.9 billion in sales value, a 46.8% increase as compared to September 30, 2020.

In August 2021, we completed a private offering of $500.0 million aggregate principal amount of our 3.875% senior notes due 2029, which were issued at 100% of their principal amount and we received net proceeds of $493.8 million.

The indenture covering these notes contains certain restrictive covenants on issuing future secured debt and other transactions.

The aggregate principal balance of the 3.875% senior notes due 2029 is due August 2029, with interest only payments due semi-annually in February and August of each year, beginning on February 15, 2022.

In addition, during the three months ended September 30, 2021, we redeemed $400.0 million in outstanding principal of our 5.875% senior notes due 2025 at a redemption price equal to 102.938% of the principal amount, plus accrued and unpaid interest, totaling $414.8 million.

The redemption transaction resulted in a loss of $14.5 million, which is presented in loss on debt extinguishment in the condensed consolidated statement of operations.

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

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Consolidated Statements of Operations:

8 unchanged sentences

Selling, general, and administrative

Loss on debt extinguishment

Inventory impairment and other

22 unchanged sentences

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

(2) Homebuilding gross margin percentage is inclusive of a $0.9 million and $1.7 million inventory impairment for the three and six months ended June 30, 2020, respectively , 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.

(2) Homebuilding gross margin percentage is inclusive of a $0.0 million and $1.7 million inventory impairment for the three and nine months ended September 30, 2020, respectively , which is included within inventory impairment and other on our condensed consolidated financial statements.

We recognized no inventory impairment for the three months ended September 30, 2021 and nominal inventory impairment for the nine months ended September 30, 2021.

(3) The selling communities as of September 30, 2020 has been adjusted from prior year presentations to reflect 104 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

4 unchanged sentences

Income before Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 30,

Century Complete

4 unchanged sentences

Income before Income Tax Expense

Six Months Ended June 30,

Nine Months Ended September 30,

Century Complete

Financial Services

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.

During the three and nine months ended September 30, 2021, our West segment generated income before income tax expense of $60.9 million and $129.3 million, respectively, a 347.0% and 202.6% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $79.7 million and $210.2 million, respectively, and increases of 1,548 basis points and 982 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.

The revenue increases during the three and nine months ended September 30, 2021 were generated by both increases in the number of homes delivered of 29.4% and 29.1%, respectively, as well as increases of 9.9% and 11.3%, respectively, in the average sales price per home.

During the three and nine months ended September 30, 2021, the increases in the number of homes delivered were driven by favorable market dynamics across our markets.

During the three and nine months ended September 30, 2021, the average sales price increases 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 nine months ended September 30, 2021, our Mountain segment generated income before income tax expense of $50.6 million and $158.4 million, respectively, a 76.2% and 133.6% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $34.1 million and $282.1 million, respectively, and increases of 684 basis points and 670 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.

The revenue increase during the three months ended September 30, 2021 was primarily generated by a 16.6% increase in the average sales price per home, and the revenue increase during the nine months ended September 30, 2021 was generated by a 36.0% increase in the number of homes delivered, as well as an 11.1% increase in the average sales price per home.

During the three months ended September 30, 2021, the number of homes delivered remained relatively consistent with the prior year period.

The increase in the number of homes delivered during the nine months ended September 30, 2021 was driven by favorable market dynamics across our markets.

The average sales price increases for both comparison periods were driven by the mix of deliveries within individual communities, as well as increased pricing

power as a result of strong market dynamics.

During the three and nine months ended September 30, 2021, our Texas segment generated income before income tax expense of $11.9 million and $39.6 million, respectively, a 72.1% and 79.7% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $9.3 million and $69.0 million, respectively, and increases of 482 basis points and 364 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.

The revenue increase during the three months ended September 30, 2021 was primarily generated by a 25.7% increase in the average sales price per home, and the increase in revenue during the nine months ended September 30, 2021 was generated by a 13.5% increase in the number of homes delivered, as well as a 14.0% increase in the average sales price per home.

During the three months ended September 30, 2021, the decrease in the number of homes delivered was driven by a decrease in the number of communities opened, and during the nine months ended September 30, 2021, the increase in the number of homes delivered was driven by favorable market dynamics across our markets The average sales price increases for both comparison periods were driven by the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the three and nine months ended September 30, 2021, our Southeast segment generated income before income tax expense of $20.0 million and $69.5 million, respectively, a 49.1% and 106.1% increase, respectively, over the respective prior year period.

The increase for the three-month comparison was primarily driven by an increase of 646 basis points in the percentage of income before income tax expense to home sales revenues as a result of increased gross margins on home sales.

The increase for the nine-month comparison was driven by an increase in home sales revenue of $61.2 million and an increase of 602 basis points 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.

Homes sales revenue decreased during the three months ended September 30, 2021, primarily generated by a decrease in the number of homes delivered due to a decrease in the number of communities opened, and partially offset by a 11.3% increase in the average sales price per home.

The revenue increase during the nine months ended September 30, 2021 was generated primarily by a 11.8% increase in the average sales price per home.

The average sales price increases for both comparison periods were driven by the mix of deliveries within individual communities, 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.

During the three and nine months ended September 30, 2021, our Century Complete segment generated income before income tax expense of $24.8 million and $69.7 million, respectively, a 217.4 % and 306.0% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $55.4 million and $178.5 million, respectively, and increases of 759 basis points and 824 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 revenue increases during the three and nine months ended September 30, 2021 were generated by increases in the number of homes delivered of 11.0% and 17.8%, respectively, as well as increases of 31.0% and 27.8%, respectively, in the average sales price per home.

During the three and nine months ended September 30, 2021, the increases in the number of homes delivered were driven by favorable market dynamics across our markets, and the average sales price increases were driven by 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.

During the three months ended September 30, 2021, income before income tax expense for our Financial Services segment decreased $6.1 million to $11.4 million compared to the prior year period, primarily as a result of (1) the impact of a favorable fair value adjustment as we initiated mortgage servicing during the third quarter of 2020, (2) a decrease in the net gains on sale of mortgage loans and (3) increased headcount to support continued growth.

During the nine months ended September 30, 2021, income before income tax expense for our Financial Services segment increased $7.8 million to $38.5 million compared to the prior year period.

This increase was primarily the result of a $25.0 million increase in financial services revenue during the nine months ended September 30, 2021 compared to the prior year period.

The increase in financial services revenue was directly attributable to a 43.9%

increase in the number of loans sold during the nine months ended September 30, 2021 compared to the prior year period, offset by (1) reduced gain on sale margin from loans sold and (2) a lower fair value of our loan pipeline compared to the prior year.

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Total originations:

5 unchanged sentences

Number of loans sold

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.

During the three and nine months ended September 30, 2021, our Corporate segment generated losses of $33.9 million and $75.9 million, respectively, as compared to losses of $23.1 million and $65.0 million, respectively, for the same respective periods in 2020.

These increases in losses are primarily attributed to a $14.5 million loss on debt extinguishment during the three and nine months ended September 30, 2021 related to the redemption of our 5.75% senior notes due 2025, partially offset by a decrease in stock-based compensation expense of $2.3 million and $3.7 million during the three and nine months ended September 30, 2020, respectively, primarily due to accelerated expense recognized during 2020 for the updated estimates related to our performance-based share awards.

Homebuilding Gross Margin

1 unchanged sentence

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 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.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased during the three and nine months ended September 30, 2021 to 25.7% and 23.5%, respectively as compared to 17.5% and 17.3%, 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 , as well as the realization of less interest in cost of home sales revenue over the respective prior periods.

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 June 30,

Three Months Ended September 30,

Home sales revenues

5 unchanged sentences

Adjusted homebuilding gross margin excluding interest and inventory impairment and other

Six Months Ended June 30,

Nine Months Ended September 30,

Home sales revenues

7 unchanged sentences

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

For the three and six months ended June 30, 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.

For the three and nine months ended September 30, 2021, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 27.2% and 25.3%, respectively, as compared to 20.0% and 19.9%, 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.

1 unchanged sentence

(dollars in thousands)

Three Months Ended June 30,

Three Months Ended September 30,

Selling, general and administrative

As a percentage of home sales revenue

Six Months Ended June 30,

Nine Months Ended September 30,

Selling, general and administrative

As a percentage of 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.

Our selling, general and administrative expense increased $4.3 million and $35.8 million respectively, for the three and nine months ended September 30, 2021 as compared to the same periods in 2020.

These increases were primarily attributable to increases of $4.6 million and $24.1 million, respectively, in salaries and wages expense as compared to the same periods in 2020.

Additionally, for the nine-month comparison, the increase was driven by $15.6 million in internal and external commission expense, which is directly related to the increases in home sales revenues.

These increases for the three and nine months ended September 30, 2021 were partially offset by decreases in expenses in numerous areas including advertising and legal expenses.

Additionally, during the three and nine months ended September 30, 2021, our selling, general and administrative expense decreased 146 basis points and 205 basis points, respectively, as a percentage of home sales revenue as compared to the same periods ended September 30, 2020, as a result of increased revenues on a partially fixed cost base.

Income Tax Expense

1 unchanged sentence

Our 2021 estimated annual effective tax rate, before discrete items, of 23.4% is driven by our blended federal and state statutory rate of 24.8%, 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 1.4%.

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.

For the nine months ended September 30, 2021, our estimated annual rate of 23.4% was impacted by discrete items which had a net impact of decreasing our rate by 1.2%, 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 September 30, 2021 and 2020, we recorded income tax expense of $31.8 million and $15.1 million, respectively.

For the nine months ended September 30, 2021 and 2020, we recorded income tax expense of $95.4 million and $34.7 million, respectively.

Segment Assets

(dollars in thousands)

September 30,

Increase (Decrease)

1 unchanged sentence

Financial Services

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.

Total assets increased by $365.8 million, or 12.9%, to $3.2 billion at September 30, 2021 as compared to December 31, 2020, as a result of the overall growth of the Company.

Lots owned and controlled

June 30, 2021

September 30, 2021

December 31, 2020

Century Complete

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.

Of our total lots owned and controlled as of September 30, 2021, 33.1% were owned and 66.9% 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

Nine Months Ended

Net new home contracts

September 30,

Increase (Decrease)

September 30,

Increase (Decrease)

Century Complete

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,

Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2021 decreased by 462 homes, or 14.4%, to 2,742, compared to 3,204 for the same period in 2020.

Net new home contracts for the nine months ended September 30, 2021 increased by 1,061 homes, or 12.9%, to 9,317, compared to 8,256 for the same period in 2020.

The decrease for the three-month comparison was primarily driven by decreases in the number of open communities due to robust sales earlier in the year, coupled with self-imposed sales limitations including delaying first offering homes for sale later in the construction cycle.

The increase for the nine-month comparison was primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during the first nine months of 2021, partially offset by a decrease in net new home contracts in the Southeast region.

This decrease in our Southeast segment is driven by a 45.7% 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 nine months ended September 30, 2021 by segment are included in the tables below:

Three Months Ended September 30,

Increase (Decrease)

Century Complete

Six Months Ended June 30,

Nine Months Ended September 30,

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.

During the three months ended September 30, 2021, our absorption rates decreased by 2.0% to 4.9 per month, and during the nine months ended September 30, 2021, our absorption rate increased by 30.2% to 5.6 per month, as compared to the same periods in 2020.

Absorption rates continued to be strong across all of our markets driven by continued historically low interest rates and strong demand for new homes during the current year period.

Selling communities at period end

As of June 30,

As of September 30,

Increase/(Decrease)

Century Complete

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

Our selling communities decreased to 186 communities at September 30, 2021 as compared to 214 at September 30, 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.

While Century Complete purchases land and constructs homes within traditional communities similar to our Century Communities brand, we also purchase land and construct 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.

2 unchanged sentences

(dollars in thousands)

As of June 30,

As of September 30,

Average Sales Price

4 unchanged sentences

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

At June 30, 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.

At September 30, 2021, we had 4,866 homes in backlog with a total value of $1.9 billion, which represents an increase of 31.5% and 46.8%, respectively, as compared to September 30, 2020.

The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 11.6% increase in the average sales price of homes in backlog, partially offset by a decrease in backlog units for our Southeast segment which correlates directly with the decrease in selling communities.

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 6.750% senior notes due 2027 (which we collectively refer to as our “2027 Notes”) and our 3.875% senior notes due 2029 (which we collectively refer to as our “2029 Notes” and together with the 2027 Notes, the “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”).

In addition, our former 5.875% senior notes due 2025 (which we collectively refer to as our “2025 Notes”), which were extinguished during the third quarter of 2021, were our unsecured senior obligations and were fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the Guarantors.

Our subsidiaries associated with our financial services operations (referred to as “Non-Guarantors”) do not guarantee the Senior Notes.

1 unchanged sentence

The guarantees are effectively subordinated to any secured debt of the Guarantors.

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

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

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

had outstanding $1.0 billion 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:

7 unchanged sentences

or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable indenture.

The indenture governing our former 2025 Notes 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.

Only the 2027 Notes and the related guarantees are, and the former 2025 Notes and the related guarantees were, registered securities under the Securities Act of 1933, as amended (the “Securities Act”).

The offer and sale of the 2029 Notes and the related guarantees were not and will not be registered under the Securities Act or the securities laws of any other jurisdiction and instead were issued in reliance upon an exemption from such registration.

Unless they are subsequently registered under the Securities Act, neither the 2029 Notes nor the related guarantees may be offered and sold only in transactions that are exempt from the registration requirements under the Securities Act and the applicable securities laws of any other jurisdiction.

As the guarantees for the 2027 Notes and the guarantees for the former 2025 Notes were made in connection with the issuance of the

2027 Notes and former 2025 Notes and exchange offers effected under the Securities Act in February 2015, October 2015 and April 2017, the Guarantors’ condensed supplemental financial information is presented in this report as if the guarantees existed during the periods presented pursuant to applicable SEC rules and guidance.

If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

10 unchanged sentences

Summarized Balance Sheet Data (in thousands)

June 30, 2021

September 30, 2021

December 31, 2020

15 unchanged sentences

Summarized Statement of Operations Data (in thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Year Ended December 31, 2020

2 unchanged sentences

Selling, general and administrative

Loss on debt extinguishment

Inventory impairment and other

8 unchanged sentences

Liquidity and Capital Resources

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.

Our principal uses of capital for the three and nine months ended September 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.

During the second quarter of 2021, we initiated a quarterly cash dividend, which we intend to fund from our funds generated by operations.

During the third quarter of 2021, we completed a private offering of $500.0 million aggregate principal amount of our 3.875% senior notes due 2029, and used a portion of the net proceeds from the offering to redeem all $400.0 million aggregate principal amount of our 5.875% senior notes due 2025, with the remaining net proceeds from the offering to be used for general corporate purposes.

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

8 unchanged sentences

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 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.

As of September 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 nine months of 2021, which resulted in 75,537 lots owned and controlled at September 30, 2021, a 51.2% 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 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.

In August 2021, 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 debt refinancing and/or strategic opportunities as they arise.

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 debt refinancing and/or strategic opportunities as they arise.

Revolving Line of Credit

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 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.

5 unchanged sentences

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.

As of September 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

1 unchanged sentence

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 June 30, 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 $275 million as of September 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 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.

As of September 30, 2021, we had $211.6 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three and nine months ended September 30, 2021, we incurred interest expense on the repurchase facilities of $0.4 million and $1.8 million, respectively.

During the same periods in 2020, we incurred interest expense on the repurchase facilities of $0.8 million and $2.0 million, respectively.

4 unchanged sentences

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

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

This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, and was amended in July 2021 to acknowledge our filing of a new registration statement on Form S-3 registering the issuance and sale of shares of our common stock under the Distribution Agreement and replace Citigroup Global Markets Inc.

with Wells Fargo Securities, LLC as a sales agent, had all $100 million available for sale as of September 30, 2021.

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

As of September 30, 2021 and December 31, 2020, we had $484.9 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):

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

September 30,

3.875% senior notes, due August 2029 (1)

6.750% senior notes, due May 2027 (1)

9 unchanged sentences

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

The indenture covering these notes contains certain restrictive covenants on issuing future secured debt and other transactions.

The redemption transaction resulted in a $14.5 million loss on debt extinguishment in the condensed consolidated statement of operations.

These note transactions effectively extended the maturity of our senior notes by more than four years, increased the aggregate principal amount by $100.0 million and reduced our weighted average rate on our senior notes by approximately 105 basis points.

Stock Repurchase Program

4 unchanged sentences

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.

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 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:

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

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

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

The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the nine months ended September 30, 2021 (in thousands, except per share information):

Cash Dividends Declared

Declaration Date

June 16, 2021

August 18, 2021

September 1, 2021

September 15, 2021

The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our Board of Directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.

Cash Flows— Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

For the nine months ended September 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 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.

During the nine months ended September 30, 2021 and 2020, we generated $82.8 million and $315.8 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 nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, partially offset by a $219.2 million increase in net income during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

 Net cash used in investing activities decreased to $4.3 million during the nine months ended September 30, 2021, compared to $6.6 million used during the same period in 2020.

The decrease was primarily related to the proceeds from a secured note receivable in July 2021.

 Net cash provided by financing activities increased to $20.6 million during the nine months ended September 30, 2021, compared to net cash used in financing activities of $76.8 million during the same period in 2020.

The increase was primarily attributable to 1) the issuance of $500.0 million in senior notes due 2029, offset by the extinguishment of $411.8 million of our former senior notes due 2025 and 2) a decrease of $68.7 million in net payments under our revolving line of credit.

The increase was partially offset by a $46.7 million increase in net payments on our mortgage repurchase facilities and $10.1 million in dividend payments during the nine months ended September 30, 2021.

As of September 30, 2021, our cash and cash equivalents and restricted cash balance was $497.1 million.

Off-Balance Sheet Arrangements

5 unchanged sentences

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

As of June 30, 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.

As of September 30, 2021, we had outstanding purchase contracts and option contracts for 50,542 lots with a total purchase price of approximately $2.2 billion and had $42.8 million of non-refundable cash deposits pertaining to land option contracts.

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 majority of the purchase and option contracts during the next twelve to eighteen 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.

1 unchanged sentence

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.

As of September 30, 2021, and December 31, 2020, we had $484.9 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 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.

For the three and nine months ended September 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, other than the issuance of $500.0 million aggregate principal amount of our 3.875% senior notes due 2029 and the redemption of $400.0 million in outstanding principal of our former 5.875% senior notes due 2025, as described in more detail above.

Non-GAAP Financial Measures

9 unchanged sentences

EBITDA and Adjusted EBITDA

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

The following table presents EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 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 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) depreciation and amortization expense, (v) loss on debt extinguishment (vi) inventory impairment and other, (vii) restructuring costs, and (viii) 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.

3 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Income tax expense

2 unchanged sentences

Depreciation and amortization expense

Loss on debt extinguishment

Inventory impairment and other

7 unchanged sentences

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 .

(dollars in thousands)

September 30,

Total homebuilding debt

11 unchanged sentences

We believe excluding certain non-recurring items provides more comparable assessment of our financial results from period to period .

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,

We define Adjusted Net Income as consolidated net income before (i) income tax expense, (ii) inventory impairment and other (iii) restructuring costs, and (iv) loss on debt extinguishment, 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, restructuring costs and loss on debt extinguishment from the calculation of reported EPS .

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average common shares outstanding - basic

3 unchanged sentences

Adjusted earnings per share

Income tax expense

Income before income tax expense

1 unchanged sentence

Restructuring costs

Loss on debt extinguishment

Adjusted income before income tax expense

3 unchanged sentences

Adjusted diluted earnings per share

(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%.

(1) The tax rate used in calculating adjusted net income for the three months ended September 30, 2021 was 21.8% and for the nine months ended September 30, 2021 was 22.2% which is reflective of the Company’s estimated annual effective tax rate after discrete items for the applicable period.

For the three and nine months ended September 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.

18 unchanged sentences

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