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Item 7. Management’s Discussion and Analysis

2022-02-03 compared with 2021-02-05 · 255 added, 263 removed, 335 unchanged (61% of the section changed)

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This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.

Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Business Overview

We are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in 17 states.

We are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 17 states.

In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.

We build and sell homes under our Century Communities and Century Complete brands.

We build and sell an extensive range of home types across a variety of price points with an emphasis on homes at affordable price points in their markets.

Our Century Communities brand targets a wide range of buyer profiles including:

Our Century Communities brand offers 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 selections.

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

Our 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:

West, Mountain, Texas, Southeast, and Century Complete.

Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our home buyers have been identified as our Financial Services segment .

Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, primarily to our home buyers have been identified as our Financial Services segment .

While we offer homes that appeal to a broad range of entry-level, move-up, and lifestyle homebuyers, our offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments.

Additionally, we prefer building move-in-ready homes over built-to-order homes, which we believe allows for a faster construction process, advantageous pricing with subcontractors, and shortened time period from home sale to home delivery, thus allowing us to more appropriately price the homes and deploy our capital.

Of the 10,805 homes delivered during 2021, approximately 75% of our deliveries were made to entry-level and approximately 87% of homes delivered were built as move-in ready 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 began to sharply rebound in May and June of 2020, aided by historically low interest rates, lack of supply, and potentially renewed desire from customers to move out of urban areas and/or apartments and into new homes in suburban areas, which desire was likely accelerated by the COVID-19 pandemic.

These positive trends continued throughout the remainder of 2020.

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

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

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

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

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

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

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

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

The outbreak of 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.

After an initial slowing of home sales trends in early spring 2020, due in part to consumer uncertainty, home sales sharply rebounded, 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 through the year ended December 31, 2021.

While these positive trends and market dynamics continued through the year ended December 31, 2021, we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry and our home sales 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 changing plans of numerous state and local municipalities, which may include government restrictions, quarantines, travel advisories and social distancing measures.

Despite overall strong demand and sales of our homes during 2021, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment levels, inflation, interest rates, 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 Form 10-K.

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.

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

As a result, and aided by strong demand for our homes during the remainder of 2020, we ended 2020 with no amounts outstanding on our revolving line of credit, $394.0 million of cash and cash equivalents, $23.1 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 27.2%.

Driven by the strong housing market, we increased our land acquisition and development activities during the second half of 2020 to bolster our lot pipeline and support future community growth, which resulted in 49,965 lots owned and controlled at December 31, 2020, a 43.4% increase as compared to June 30, 2020 and a 28.3% increase as compared to December 31, 2019.

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

While the impact

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

Results of Operations – Years Ended December 31, 2020 and 2019

During the year ended December 31, 2020, we generated record home sales revenues of $3.0 billion, an increase of 22.0% over 2019.

The increase was fueled by an 18.2% increase in the number of homes delivered to 9,453 and a 3.2% increase in the average sales price per home to $320,200.

This increase in home sales revenue, combined with a $37.8 million increase in income from our Financial Services segment, a 70 basis point increase in homebuilding gross margin percent, and a 90 basis point decrease in the percentage of selling, general and administrative expense as a percent of home sales revenues, resulted in a record $270.2 million in income before income tax expense for the year ended December 31, 2020.

Our financial results for the year ended December 31, 2020 were driven by advantageous macro-economic conditions during the second half of 2020.

These conditions included an increase in demand for new housing, particularly entry-level housing, as a result of the COVID-19 pandemic, which accelerated the trend of migration out of high-density urban areas and into suburban areas, historically low interest rates on mortgage products, including rates on 30-year fixed mortgages, which decreased over 100 basis points during the year to 2.68% as of December 31, 2020, a low supply of available inventories and positive demographic trends.

These conditions, coupled with our strategy to focus on entry-level housing (approximately 80% of our deliveries in 2020 qualified for FHA mortgages) resulted in a positive sales environment, which we leveraged in 2020 to increase net new home contracts by 37.7% to 10,822, and our average absorption rate per community of 4.6 per month, an increase of 48.4%, in each case over 2019.

The increase in demand has also resulted in increased prices for and shortages of labor, land and raw materials, including in particular lumber.

During 2020, we successfully offset most of these cost increases through increases in our selling prices.

We generated $340.6 million of cash flows from operations during 2020, which we utilized to decrease our net homebuilding debt to net capital to 27.2% as of December 31, 2020 down from 45.2% as of December 31, 2019.

We believe our current net homebuilding debt to net capital position allows us the flexibility to continue to grow our operations and our approximately 50,000 lots owned and controlled in future periods.

Subject to deteriorating market conditions, we believe our operations are well positioned for future growth as a result of the markets in which we operate, our product offerings which span the home buying segment, but focus on affordable price points, as well as current and future inventories of attractive land positions.

As we have grown, we have continued to focus on maintaining prudent leverage, and, as a result, we believe we are well positioned to execute on our growth strategy in order to optimize stockholder returns.

Driven by the continued strong demand for our homes through the year ended December 31, 2021, we ended 2021 with no amounts outstanding under our revolving line of credit, $316.3 million of cash and cash equivalents, $52.3 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 26.3%.

Additionally, we increased our land acquisition and development activities during 2021 to bolster our lot pipeline and support future community growth, which resulted in 79,859 lots owned and controlled at December 31, 2021, a 60.0% 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 increases in our selling prices and increase our margins during 2021, we continued to experience shortages of labor, land and raw materials, delays and material and labor supply cost pressures, and elongated construction cycle times to build homes in many of our markets, caused in part by increased demand, global supply chain disruptions and inflation, during 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, including the emergence of new variants of COVID-19, such as Delta and Omicron, 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.

We anticipate the homebuilding markets in each of our operating segments will continue to be tied to both the local economy and the macro-economic environment.

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Additionally, our results could be impacted by a decrease in home affordability as a result of price appreciation or increases in mortgage interest rates or tightening of mortgage lending standards.

Results of Operations – Years Ended December 31, 2021 and 2020

During the year ended December 31, 2021, we generated record revenues of $4.2 billion, with home sales revenues of $4.0 billion, an increase of 33.2% over 2020, and financial services revenue of $123.7 million, an increase of 19.8% over 2020.

The increase in home sales revenue was fueled by a 14.3% increase in the number of homes delivered to 10,805 and a 16.6% increase in the average sales price per home to $373,300.

This increase in home sales revenue combined with a 580 basis point increase in homebuilding gross margin percent and a 160 basis point decrease in the percentage of selling, general and administrative expense as a percent of home sales revenues, resulted in a record $641.1 million in income before income tax expense for the year ended December 31, 2021.

Our financial results for the year ended December 31, 2021 were driven by continued favorable market dynamics across our markets.

These conditions included an increase in demand for new housing, particularly entry-level housing, impacted by the COVID-19 pandemic, which accelerated the trend of migration out of high-density urban areas and into suburban areas, historically low interest rates on mortgage products, including rates on 30-year fixed mortgages, a low supply of available inventories and positive demographic trends.

These conditions, coupled with our strategy to focus on entry-level housing (approximately 75% of our home deliveries in 2021 qualified for FHA mortgages) resulted in a positive sales environment, which we leveraged in 2021 to increase net new home contracts to 12,017, an 11.0% increase over prior period.

As of December 31, 2021, we had a backlog of 4,651 homes, a 35.2% increase as compared to December 31, 2020, representing approximately $1.9 billion in sales value, a 44.5% increase as compared to December 31, 2020.

The increase in demand has also resulted in increased prices for and shortages of labor, land and raw materials, as well as elongated construction cycle times to build homes in many of our markets.

During 2021, we successfully offset most of the cost increases through increases in our selling prices.

Our results of operations resulted in net income of $498.5 million, or $14.47 per diluted share, compared to $206.2 million, or $6.13 per diluted share in the prior year, and driving our return on equity to 33% for 2021.

In May 2021, our Board of Directors initiated a quarterly cash dividend, which paid our stockholders of record $0.15 per share during the last nine months of 2021.

Our net homebuilding debt to net capital was 26.3% as of December 31, 2021, down from 27.2% as of December 31, 2020.

We believe our current net homebuilding debt to net capital position allows us the flexibility to increase our debt levels if necessary to continue to grow our operations and our approximately 80,000 lots owned and controlled in future periods.

While in early 2022 rates on 30-year fixed mortgages have risen modestly and the Federal reserve has indicated that it may raise interest rates in March 2022, we believe housing demographics and buyer demand will remain strong at least in the short term and we believe we are well-positioned to benefit from the ongoing shortage of both new and resale homes available for purchase .

In August 2021, we completed a private offering of $500.0 million aggregate principal amount of our 3.875% senior notes due 2029 (which we refer to as the “2029 Notes”), 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, in August 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 was conditioned upon our prior consummation of the offering and issuance of the 2029 Notes.

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

Our strategy is focused on increasing the returns on our inventory while generating strong profitability.

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 Maintaining a strong balance sheet and prudent use of leverage;

 While we offer homes that appeal to a broad range of entry-level, move-up, and lifestyle homebuyers, offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments;

 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;

 Preferring 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 home;

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 Expanding into new markets that meet our underwriting criteria either through organic start-up operations or through acquisitions of existing homebuilders;

 Controlling costs, including costs of home sales revenue and selling, general and administrative expenses, and generating further efficiencies, including through the increased reliance on digital marketing and direct outreach to potential customers through our website and digital tools, to achieve increased profitability.

 Evaluation of opportunistic strategies for construction of single-family and multi-family rental units;

Our operating strategy has resulted in significant growth in revenue and income before income taxes over the last five years, and we believe it will continue to produce positive results.

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Home sales revenues

Land sales revenues

Financial services revenue

Land sales and other revenues

Total homebuilding revenues

Financial services revenues

Total revenues

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Homebuilding gross margin percentage (2)

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

Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1)

Backlog at end of period, number of homes

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(1) This is a non-GAAP financial measure and should not be used as a substitute for the Company’s operating results prepared in accordance with GAAP.

See the reconciliations to the most comparable GAAP measure and other information within our Homebuilding Gross Margin section in this Management’s Discussion and Analysis of Financial Condition and Results of Operations .

See the reconciliations to the most comparable GAAP measure and other information within our “Homebuilding Gross Margin” and “Non-GAAP Financial Measures” sections in this Management’s Discussion and Analysis of Financial Condition and Results of Operations .

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 $2.2 million and $2.0 million for the years ended December 31, 2020 and 2019, respectively, in inventory impairment included within inventory impairment and other on our consolidated statements of operations.

(2) Homebuilding gross margin percentage is inclusive of nominal impairment charges and $2.2 million in impairment charges for the years ended December 31, 2021 and 2020, respectively, in inventory impairment included within inventory impairment and other on our consolidated statements of operations.

See Note 12 – Fair Value Disclosures in the Notes to the Consolidated Financial Statements for further detail.

(3) The selling communities at period end for 2019 has been adjusted from prior year presentations to reflect selling communities in our Century Complete segment of 95, which business was acquired in 2018, and for which selling communities was previously not disclosed.

Results of Operations by Segment

(in thousands)

( dollars in thousands)

New Homes Delivered

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Home Sales Revenues

Income before Income Tax

Income before Income Tax Expense

Year Ended December 31,

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Financial Services

Our West segment generated income before income tax of $71.4 million for the year ended December 31, 2020, a 66.0% increase over the prior year.

The increase was driven by the increase in homes sales revenue of $143.4 million and an increase of 250 basis points in the percentage of income before income tax to home sales revenues, as a result of increasing revenues on a partially fixed cost base, for the year ended December 31, 2020 as compared to the prior year.

The increase in revenue was generated by both an increase in the number of homes delivered of 20.7%, as well as an increase of 5.1% 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 33.9%, 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 $114.7 million for the year ended December 31, 2020, a 28.6% increase over the prior year.

The increase was driven by the increase in homes sales revenue of $119.2 million and an increase of 130 basis points in the percentage of income before income tax to home sales revenues, as a result of increasing revenues on a partially fixed cost base, for the year ended December 31, 2020 as compared to the prior year.

The increase in revenue was generated by an increase in the number of homes delivered of 18.5%, which was partially offset by a decrease of 1.6% 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 40.5%, and the decrease in the average sales price was driven by a decrease in the average sales price in our Las Vegas division of 7.4%, as we shifted to more affordable communities period over period.

Our Texas segment generated income before income tax of $34.7 million for the year ended December 31, 2020, a 34.1% increase over the prior year.

The increase was driven by the increase in homes sales revenue of $84.2 million and a consistent percentage of income before income tax to home sales revenues for the year ended December 31, 2020 as compared to the prior year.

The increase in revenue was generated by an increase in the number of homes delivered of 48.2%, which was partially offset by a decrease of 10.0% 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 90.5%, and the decrease in the average sales price was driven by a decrease in the average sales price in our Austin division of 20.6%, as we shifted to more affordable communities period over period.

Our Southeast segment generated income before income tax of $57.2 million for the year ended December 31, 2020, an 81.9% increase over the prior year.

The increase was driven by the increase in homes sales revenue of $123.9 million and an increase of 280 basis points in the percentage of income before income tax to home sales revenues, as a result of increasing revenues on a partially fixed cost base, for the year ended December 31, 2020 as compared to the prior year.

The increase in revenue was generated by both an increase in the number of homes delivered of 19.5%, as well as an increase of 2.6% 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 133.3%, partially offset by a decrease in our selling communities.

During the year ended December 31, 2021, our West segment generated income before income tax expense of $213.3 million, a 198.7% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $330.5 million and an increase of 1,062 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margin on home sales.

The revenue increase during the year ended December 31, 2021 was primarily generated by a 29.0% increase in the number of homes delivered, as well as a 15.3% increase in the average sales price per home.

During the year ended December 31, 2021, the increase in the number of homes delivered was driven by favorable market dynamics across our markets.

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

During the year ended December 31, 2021, our Mountain segment generated income before income tax expense of $212.3 million, an 85.1% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $276.0 million and an increase of 537 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margin on home sales.

The revenue increase during the year ended December 31, 2021 was primarily generated by a 17.3% increase in the number of homes delivered, as well as a 13.3% increase in the average sales price per home.

During the year ended December 31, 2021, the increase in the number of homes delivered was driven by favorable market dynamics across our markets.

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

During the year ended December 31, 2021, our Texas segment generated income before income tax expense of $68.6 million a 97.6% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $139.8 million and an increase of 409 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margin on home sales.

The revenue increase during the year ended December 31, 2021 was primarily generated by a 20.7% increase in the number of homes delivered, as well as a 17.2% increase in the average sales price per home.

During the year ended December 31, 2021, the increase in the number of homes delivered was driven by favorable market dynamics across our markets.

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

During the year ended December 31, 2021, our Southeast segment generated income before income tax expense of $92.4 million a 61.6% increase over the prior year period.

This increase was primarily driven by an increase of 543 basis points in the percentage of income before income tax expense to home sales revenues, as a result of increased gross margin on home sales.

Homes sales revenue decreased during the year ended December 31, 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 an 11.6% increase in the average sales price per home.

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

Century Complete

Our Century Complete segment generated income before income tax of $33.4 million for the year ended December 31, 2020, a 51.7% increase over the prior year.

The increase was driven by the increase in homes sales revenue of $75.0 million and an increase of 150 basis points in the percentage of income before income tax to home sales revenues, primarily the result of increasing revenues on a partially fixed cost base, for the year ended December 31, 2020 as compared to the prior year.

The increase in revenue was generated by both an increase in the number of homes delivered of 6.6%, as well as an increase of 10.3% in the average price per home.

The increase in the number of homes delivered was driven by an increase in the number of selling communities open period over period.

The increase in our average price per home was driven by increased pricing power as a result of strong market dynamics.

Income before income tax for the year ended December 31, 2019 includes $4.5 million of non-recurring items including $2.8 million of impairment charges associated with the rebranding of Wade Jurney Homes to Century Complete and $1.7 million associated with purchase accounting.

During the year ended December 31, 2021, our Century Complete segment generated income before income tax expense of $109.2 million, a 226.5% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $268.3 million and an increase of 751 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margin on home sales.

The revenue increase during the year ended December 31, 2021 was primarily generated by a 19.8% increase in the number of homes delivered, as well as a 28.1% increase in the average sales price per home.

During the year ended December 31, 2021, the increase in the number of homes delivered was driven by favorable market dynamics across our markets.

The average sales price increase was 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 generated income before income tax of $51.2 million for the year ended December 31, 2021, a 5.5% increase over the prior year.

The increase was driven by the year over year increase in the number of mortgages originated of 98% to 6,918 for the year ended December 31, 2020, coupled with increasing spreads on loans sold to third parties as a result of the demand for mortgages.

The increase in the number of mortgages originated was due to an increase in our capture rate from 43% for the year ended December 31, 2019 to 64% for the year ended December 31, 2020 and the increase in the number of homes delivered by our Century Communities and Century Complete brands year over year.

This increase was primarily the result of a $20.4 million increase in financial services revenue during the year ended December 31, 2021 compared to the prior year period.

This increase was due to (1) a 21.1% increase to 8,375 in the number of mortgages originated during the year ended December 31, 2021, due to our increased capture rate of 76% as of December 31, 2021 as compared to 64% for the prior year period and the increase in the number of homes delivered by our Century Communities and Century Complete brands year over year, and (2) a 25.2% increase in the number of loans sold to third parties during the year ended December 31, 2021 as compared to the prior year period.

These increases were partially offset by (1) lower fair value of our mortgage loans held for sale and our mortgage loans in process for which interest rates were locked by borrowers, (2) reduced gain on sale margin from loans sold and (3) increased headcount to support continued growth.

The following table presents selected operational data for our Financial Services segment (dollars in thousands):

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Number of loans

Loan capture rate of Century homebuyers

Capture rate of Century homebuyers

Century Communities

Century Complete

Average FICO score

Century Communities

Century Complete

Loans sold to third parties:

Number of loans sold

During the year ended December 31, 2020, our Corporate segment generated losses of $89.7 million, as compared to losses of $89.6 million during 2019.

During 2020, we experienced an increase in compensation costs for our Corporate segment of approximately $14.5 million as a result of increased non-cash stock-based compensation expense, and increase in bonus expense due to record company performance in 2020.

This increase was partially offset by the non-recurring loss on debt extinguishment of $10.8 million during 2019 and a $3.6 million decrease across various corporate selling, general, and administrative costs due to certain restrictions from the COVID-19 pandemic.

During the year ended December 31, 2021, our Corporate segment generated a loss of $105.9 million, as compared to a loss of $89.7 million during 2020.

This increase in loss is primarily attributed to a $14.5 million loss on debt extinguishment during the year ended December 31, 2021 related to the redemption of our 5.75% senior notes due 2025, as described above, as well as increased compensation and bonus costs for our Corporate segment of approximately $6.4 million, partially offset by a decrease in stock-based compensation expense of $4.7 million primarily due to accelerated expense recognized during 2020 for the updated estimates related to our performance-based share awards.

Homebuilding Gross Margin

Homebuilding gross margin represents home sales revenue less cost of home sales revenues and inventory impairment.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased for the year ended December 31, 2020 to 18.4%, as compared to 17.7% for the year ended December 31, 2019.

The increase is partially driven by purchase accounting for acquired work in process inventory in the prior year period.

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

See “Critical Accounting Policies” below and Note 3 - Business Combinations in the Notes to the Consolidated Financial Statements for additional discussion regarding our methodology for estimating the fair value of acquired work in process inventory.

Homebuilding gross margin represents home sales revenue less cost of home sales revenues and inventory impairment and other.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased to 24.2% for the year ended December 31, 2021, as compared to 18.4% for the year ended December 31, 2020.

This increase was primarily driven by (1) the positive homebuilding sales environment across our markets, which resulted in increased demand, (2) our ability to increase sales price in excess of an increase in our labor and direct costs year over year, (3) benefits from our increased scale driving building efficiencies and streamlined production processes, and (4) the realization of less interest in cost of home sales revenue over the prior period.

In the following table, we calculate our homebuilding gross margin adjusted to exclude inventory impairment and other and interest in cost of home sales revenues.

( dollars in thousands)

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Cost of home sales revenues

Inventory impairment

Inventory impairment and other

Gross margin from home sales

Inventory impairment

Inventory impairment and other

Interest in cost of home sales revenues

Adjusted homebuilding gross margin excluding interest and inventory impairment (1)

Purchase price accounting for acquired work in process inventory

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

Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1)

(1) This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP .

An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

Excluding inventory impairments, interest in cost of home sales and purchase price accounting, our adjusted homebuilding gross margin percentage was 20.8% for the year ended December 31, 2020, as compared to 20.3% for the year ended December 31, 2019.

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

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 year ended December 31, 2021, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 25.9% as compared to 20.8% for 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.

Selling, General and Administrative Expense

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Year Ended December 31,

Increase (Decrease)

Selling, general and administrative

As a percentage of home sales revenue

Our selling, general and administrative costs increased $40.2 million for the year ended December 31, 2020 as compared to 2019.

The increase was primarily attributable to the following:

(1) an increase of $21.4 million in commission expense resulting from a 22.0% increase in home sales revenues, and (2) an increase of $24.6 million in compensation related expenses, including incentive compensation and benefits, as a result of record performance.

These increases were partially offset by a $5.7 million decrease in advertising costs as many of our advertising initiatives shifted online due to the COVID-19 pandemic.

Our selling, general and administrative expense increased $47.9 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

This increase was primarily attributable to an increase of $34.4 million in salaries and wages expense as compared to 2020, as well as an increase of $13.8 million in internal and external commission expense, which is directly related to the increases in home sales revenues.

The increase for the year ended December 31, 2021 was partially offset by a decrease in expenses in numerous areas, including advertising and legal expenses.

During the year ended December 31, 2021, our selling, general and administrative expense decreased 160 basis points as a percentage of home sales revenue as compared to the year ended December 31, 2020, as a result of increased revenues on a partially fixed cost base.

Income Tax Expense

Our income tax expense for the year ended December 31, 2021 was $142.6 million, or 22.2% of income before income tax expense, as compared to $64.1 million, or 23.7% of income before income tax expense, for the year ended December 31, 2020.

Our effective tax rate for the year ended December 31, 2019 was benefited by a $17.3 million benefit related to the Energy Efficient Home Credit.

Our effective tax rate of 23.7% for the year ended December 31, 2020 is comprised of our statutory federal and blended state rate of 25.1% offset by certain permanent differences between taxable income and GAAP income before tax expense.

Our effective tax

rates for the years ended December 31, 2021 and 2020 were benefited by a $16.5 million and $8.5 million benefit, respectively, related to the Energy Efficient Home Credit.

Our effective tax rate of 22.2% for the year ended December 31, 2021 is comprised of our statutory federal and blended state rate of 24.8%, partially offset by certain permanent differences between taxable income and GAAP income before tax expense.

These differences include certain compensation paid to executive officers, which is not deductible for federal income tax purposes and increased our effective tax rate by 0.6%, and the Energy Efficient Home Credit, which benefited our effective tax rate by 2.6%.

The Energy Efficient Home Credit provides eligible contractors a federal income tax credit of $2,000 for each home delivered that meets the energy saving and certification requirements under the statute.

On December 20, 2019, an extension of the Federal Energy Credits was enacted into law, which extended the availability of the credit to homes delivered during the years ended December 31, 2020, 2019 and 2018.

Of the $17.3 million benefit recognized during the year ended December 31, 2019, approximately $6.9 million, $6.1 million and $4.3 million were related to homes closed during the years ended 2019, 2018 and 2017 and prior, respectively.

On December 27, 2020, an additional extension of the Federal Energy Credit was enacted which extended the current provisions through December 31, 2021.

On December 27, 2020, an extension of the Federal Energy Credit was enacted which extended the current provisions through December 31, 2021.

Of the $16.5 million benefit recognized during the year ended December 31, 2021, approximately $2.6 million and $1.6 million were related to homes closed during the years ended 2019 and 2018 and prior, respectively.

Proposed legislation included in the pending “Build Back Better Act” would extend the Federal Energy Credits through December 31, 2031 but would modify the current qualification requirements and provide a $2,500 or $5,000 tiered credit for new single-family homes meeting designated “Energy Star” or “Zero Energy” program requirements, respectively.

Neither the Build Back Better Act nor any similar legislation has been enacted as of the date of this Form 10-K, and it is uncertain whether an extension or similar tax credit will be adopted or available in the future or the scope of any modified program requirements.

Segment Assets

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Financial Services

Lots owned and

Total assets increased by $651.8 million, or 22.9%, to $3.5 billion at December 31, 2021, as compared to $2.8 billion at December 31, 2020, as a result of the overall growth of the Company, and the increase in the number of owned lots year over year.

Lots owned and controlled

December 31, 2021

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Of our total lots owned and controlled as of December 31, 2021, 41.1% were owned and 58.9% were controlled, as compared to 41.6% owned and 58.4% controlled as of December 31, 2020.

Total assets increased by $345.1 million, or 13.8%, to $2.8 billion at December 31, 2020, as compared to $2.5 billion at December 31, 2019.

The increase is primarily driven by excess cash generated from homes sales in 2020 and an increase in mortgage loans originated and closed in our Financial Services segment.

Other Homebuilding Operating Data

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Year Ended December 31,

Increase (Decrease)

Century Complete

Net new home contracts (new home contracts net of cancellations) for the year ended December 31, 2021 increased by 1,195 homes, or 11.0%, to 12,017, as compared to 10,822 for the year ended December 31, 2020.

The increase in our net new home contracts was primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during 2020.

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

The increase in our net new home contracts was primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during 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 42.7% decrease in average selling communities opened during the year as compared to the prior year period.

Monthly Absorption Rate

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the years ended December 31, 2021 and 2020 by segment is included in the table below:

Year Ended December 31,

Increase (Decrease)

Century Complete

Our absorption rate increased from 3.1 per month for the year ended December 31, 2019 to 4.6 per month during the year ended December 31, 2020.

During the year ended December 31, 2021, our absorption rates increased by 8.7% to 5.0 per month as compared to the same period 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

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Century Complete

Our selling communities decreased by 14 communities to 198 communities at December 31, 2020, as compared to 212 communities at December 31, 2019.

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

Century Complete sells primarily from retail studios and online via the internet, instead of from traditional model homes.

While Century Complete has historically purchased land and constructed homes within traditional communities similar to our Century Communities brand, we also purchase land and construct a significant number of homes on scattered lots outside of traditional communities.

As the brand has grown, entered new markets and expanded its land pipeline, we have increasingly operated within traditional communities, and now rely, to a lesser degree, on scattered lots.

Additionally, we have organized our construction and sales operations for scattered lot positions within “pods” which are clustered together lot positions, which we operate more like a traditional community.

Accordingly, our selling communities at period end for the 2019 period has been updated from amounts previously disclosed to reflect the above for our Century Complete brand.

As of December 31,

Our selling communities increased by 4 communities to 202 communities at December 31, 2021, as compared to 198 communities at December 31, 2020.

The increase was a result of new community openings, which outpaced the strong sales environment.

(dollars in thousands)

As of December 31,

Average Sales Price

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Total / Weighted Average

Backlog reflects the number of homes, net of 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 December 31, 2020, we had 3,439 homes in backlog with a total value of $1.3 billion, which represents an increase of 66.1% and 102.9%, respectively, as compared to 2,070 homes in backlog with a total value of $637.8 million at December 31, 2019.

The increase in backlog value is primarily attributable to the increase in backlog units and a 22.1% increase in the backlog average sales price.

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

At December 31, 2021, we had 4,651 homes in backlog with a total value of $1.9 billion, which represents increases of 35.2% and 44.5%, respectively, as compared to 3,439 homes in backlog with a total value of $1.3 billion at December 31, 2020.

The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 6.8% 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.

Liquidity and Capital Resources

Our principal uses of capital for the year ended December 31, 2020 were our land purchases, land development, home construction, and

the payment of routine liabilities.

We use funds generated by operations, available borrowings under our revolving credit facility, 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 liquidity, consisting of our cash and cash equivalents and cash held in escrow and credit facility availability, was $1.2 billion as of December 31, 2021, compared to $1.1 billion as of December 31, 2020.

Our principal uses of capital for the year ended December 31, 2021 were our land purchases, land development, home construction, and the payment of routine liabilities.

We increased our land acquisition and development activities during 2021, which resulted in 79,859 lots owned and controlled at December 31, 2021, a 59.8% increase as compared to December 31, 2020.

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

Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities.

Because these costs are a component of our inventory and not recognized in our statements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings.

Because these costs are a component of our inventory and not recognized in our consolidated statements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings.

In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred.

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As we continue to expand our business, our cash outlays for land purchases and land development to grow our lot inventory may exceed our cash generated by operations.

In response to the COVID-19 pandemic, we took certain measures to ensure we were positioned with cash flow and liquidity to endure an extended period of lower demand for our homes, should it arise.

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

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

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

As of December 31, 2020, we continued to have no amounts outstanding under our revolving line of credit.

We increased our land acquisition and development activities during the second half of 2020, which resulted in 49,965 lots owned and controlled at December 31, 2020, a 43.4% increase as compared to June 30, 2020 and a 28.3% increase as compared to December 31, 2019.

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.

Short-term Liquidity and Capital Resources

We use funds generated by operations, available borrowings under our revolving credit facility, and proceeds from issuances of debt or equity, 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, home construction activities, and other cash needs.

Our Financial Services operations use funds generated from operations, and availability under our mortgage repurchase facilities to finance its 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 an aggregate offering amount of up to $869 million , 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 million under the shelf registration statement under our at-the-market facility described below.

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

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

We believe that we will be able to fund our current liquidity needs for at least the next twelve months 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 and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of strategic opportunities as they arise.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, we believe that our principal uses of capital will be land and inventory purchases and other expenditures to invest in our future growth, as well as principal and interest payments on our long-term debt obligations.

We believe that we will be able to fund our long-term liquidity needs with 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.

To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance debt, or dispose of certain assets to fund our operating activities and capital needs.

Material Cash Requirements

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future.

These obligations impact our short-term and long-term liquidity and capital resource needs.

Our contractual obligations as of December 31, 2021 were as follows (in thousands):

Payments due by period

Less than 1 year

More than 5 years

Long-term debt maturities, including interest (1)

Operating leases (2)

Total contractual obligations

(1) Principal payments in accordance with our revolving line of credit, mortgage repurchase facilities and long-term debt agreements, and interest payments for outstanding long-term debt obligations.

Interest on variable rate debt was calculated using the interest rate as of December 31, 2021.

See Note 9 – Debt in the Notes to the Consolidated Financial Statements for further detail.

(2) Operating lease obligations do not include payments to property owners covering real estate taxes and common area maintenance.

See Note 13 – Leases in the Notes to the Consolidated Financial Statements for further detail.

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes.

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.

Purchase and option contracts for the purchase of land enable us to defer acquiring portions of properties owned by third parties until we have determined whether to exercise our option, which may serve to reduce our financial risks associated with long-term land holdings.

These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements.

We also utilize option contracts with land sellers and others as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.

Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices.

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

As of December 31, 2021, we had outstanding purchase contracts and option contracts for 47,004 lots totaling approximately $2.0 billion and we had $61.6 million of deposits for land contracts, of which $38.1 million were non-refundable cash deposits pertaining to land 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 majority of the purchase and option contracts during the next twelve to eighteen months, with performance on the remaining purchase and option contacts occurring in future periods.

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option

takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics.

Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

Outstanding Debt Obligations and Debt Service Requirements

One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness.

Our outstanding indebtedness is described in detail in Note 9 – Debt to our Notes to the Consolidated Financial Statements .

We are required to meet certain covenants, and as of December 31, 2021, we were in compliance with all such covenants and requirements on our revolving line of credit and mortgage repurchase facilities.

See Note 9 – Debt in the Notes to the Consolidated Financial Statements for further detail.

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

3.875% senior notes, due August 2029 (1)

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.

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.

During the year ended December 31, 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.

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.

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

6.750% Senior Notes Due 2027

In May 2019, we completed a private offering of $500.0 million aggregate principal amount of our Initial 6.750% Senior Notes due 2027 (which we refer to as the “Initial Notes due 2027”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933 (which we refer to as the “Securities Act”).

The Initial Notes due 2027 were issued under the Indenture, dated as of May 23, 2019, among the Company, our subsidiary guarantors party thereto, and U.S.

Bank National Association, as trustee (which we refer to as the “May 2019 Indenture,” as it may be supplemented or amended from time to time).

The Initial Notes due 2027 were issued at 100% of their principal amount and we received net proceeds of $493.9 million.

In connection with this issuance, we deferred $6.1 million of issuance costs, which is presented in the notes payable line item of the consolidated balance sheet.

In February 2020, we completed an offer to exchange approximately $500.0 million in aggregate principal amount of our Initial Notes due 2027, which are registered under the Securities Act (which we refer to as the “Exchange Notes due 2027”), for an equivalent amount of the Initial Notes due 2027 that were tendered and accepted for exchange.

The terms of the Exchange Notes due 2027 are identical in all material respects to the Initial Notes due 2027, except that the Exchange Notes due 2027 are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that are applicable to the Initial Notes due 2027 do not apply to the Exchange Notes due 2027.

The Initial Notes due 2027 and Exchange Notes due 2027 (which we refer to collectively, as the “Existing Notes due 2027”) will be treated as a single series of notes under the May 2019 Indenture, and will vote as a single class of notes for all matters submitted to a vote of holders under the May 2019 Indenture.

The Existing Notes due 2027 are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries.

The May 2019 Indenture governing the Existing Notes due 2027 contains certain restrictive covenants on issuing future secured debt and other transactions.

The aggregate principal balance of the Existing Notes due 2027 is due July 2027, with interest only payments due semi-annually in June and December of each year, which began on December 1, 2019.

As of December 31, 2020, the aggregate obligation, inclusive of unamortized financing costs on the Existing Notes due 2027, was $494.8 million.

5.875% Senior Notes Due 2025

In May 2017, we completed a private offering of $400 million in aggregate principal amount of our 5.875% Senior Notes due 2025 (which we refer to as the “Initial Notes due 2025”) in reliance on Rule 144A and Regulation S under the Securities Act.

The May 2017 Senior Notes were issued under the Indenture, dated as of May 12, 2017, among the Company, our subsidiary guarantors party thereto, and U.S Bank National Association, as trustee (which we refer to as the “May 2017 Indenture,” as it may be supplemented or amended from time to time).

The Initial Notes due 2025 were issued at a price equal to 100.0% of their principal amount, and we received net proceeds of approximately $395.5 million.

In December 2017, we completed an offer to exchange approximately $400.0 million in aggregate principal amount of our Initial Notes due 2025, which are registered under the Securities Act (which we refer to as the “Exchange Notes due 2025”), for an equivalent amount of the Initial Notes due 2025 that were tendered and accepted for exchange.

The terms of the Exchange Notes due 2025 are identical in all material respects to the Initial Notes due 2025, except that the Exchange Notes due 2025 are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that are applicable to the Initial Notes due 2025 do not apply to the Exchange Notes due 2025.

The Initial Notes due 2025 and Exchange Notes due 2025 (which we refer to collectively, as the “Existing Notes due 2025”) will be treated as a single series of notes under the May 2017 Indenture, and will vote as a single class of notes for all matters submitted to a vote of holders under the May 2017 Indenture.

The Existing Notes due 2025 are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries.

The May 2017 Indenture governing the Existing Notes due 2025 contains certain restrictive covenants on issuing future secured debt and other transactions.

The aggregate principal balance of the Existing Notes due 2025 is due July 2025, with interest only payments due semi-annually in January and July of each year.

As of December 31, 2020, the aggregate obligation, inclusive of unamortized financing costs on the Existing Notes due 2025, was $396.8 million.

Former 6.875% Senior Notes Due 2022

From May 2014 through January 2017, we completed three private offerings totaling $385.0 million in aggregate principal amount of our 6.875% Senior Notes due 2022 (the “Notes due 2022”) , under the Securities Act.

The Notes due 2022 were issued under the

Indenture, dated as of May 5, 2014, among the Company, our subsidiary guarantors party thereto, and U.S.

Bank National Association, as trustee (which we refer to as the “May 2014 Indenture”).

The Notes due 2022 were unsecured senior obligations which were guaranteed on an unsecured senior basis by certain of our current and future subsidiaries.

The May 2014 Indenture governing the Notes due 2022 contained certain restrictive covenants on issuing future secured debt and other transactions.

The aggregate principal balance of the 2022 Notes was due May 2022, with interest only payments due semi-annually in May and November of each year.

During the year ended December 31, 2019, we extinguished $385.0 million in outstanding principal of our Notes due 2022.

The extinguishment was the result of two separate transactions whereby a tender offer validly tendered $189.3 million of the Notes due 2022 on March 23, 2019 and the remaining $195.7 million was redeemed in accordance with the Indenture on June 10, 2019.

The transaction resulted in a loss of $10.8 million, which is presented in loss on debt extinguishment in the consolidated statement of operations for the year ended December 31, 2019 .

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 December 31, 2020, no amounts were outstanding under the credit facility and were in compliance with all covenants.

Mortgage Repurchase Facilities – Financial Services

On May 4, 2018, September 14, 2018 and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, J.P.

Morgan and Wells Fargo, respectively.

The mortgage warehouse lines of credit (which we refer to as the “Repurchase Facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate $350 million as of December 31, 2020, 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 December 31, 2020 and 2019, we had $259.1 million and $174.1 million outstanding under these Repurchase Facilities, respectively, and were in compliance with all covenants thereunder.

No assurance can be provided, however, that we will remain in compliance with the covenants or have continued access to these Repurchase Facilities or substitute or replacement facilities in an amount sufficient to fund our mortgage lending business.

During the years ended December 31, 2020 and 2019, we incurred interest expense on our Repurchase Facilities of $3.0 million and $2.7 million, respectively, which are included in financial services costs on our consolidated statements of operations.

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 and others.

As of December 31, 2020 and December 31, 2019, we had $402.7 million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

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

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 December 31, 2021 and December 31, 2020, we had $492.5 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.

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

Revolving Line of Credit

On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (which we refer to as 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 our prior Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (which we refer to as the “Credit Facility”) of up to $800.0 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, we are 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 December 31, 2021, no amounts were outstanding under the Credit Facility and we were in compliance with all covenants.

At-the-Market Offerings

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Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc.

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.

(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, 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 December 31, 2021.

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.

The Distribution Agreement superseded and replaced a prior similar distribution agreement.

During the year ended December 31, 2020, we sold and issued no shares of our common stock under the Distribution Agreement, resulting in $100.0 million remaining as of December 31, 2020.

During the year ended December 31, 2019, we sold and issued an aggregate of 2.7 million shares of our common stock, under the various distribution agreements in effect during this period, which provided gross proceeds to us of $80.1 million and in connection with such sales, we paid total commissions and fees to the sales agents of $0.6 million.

We did not sell or issue any shares of our common stock during the years ended December 31, 2021 and 2020, respectively.

Stock Repurchase Program

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

During the year ended December 31, 2020, no shares were repurchased under our stock share repurchase program.

During the years ended December 31, 2021 and 2020, no shares were repurchased under our stock share repurchase program.

The maximum number of shares that may yet be purchased under the stock repurchase program as of December 31, 2021 is 3,812,939.

On May 19, 2021, our Board of Directors approved 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 year ended December 31, 2021 (in thousands, except per share information):

Cash Dividends Declared

Declaration Date

June 16, 2021

August 18, 2021

September 1, 2021

September 15, 2021

November 10, 2021

December 1, 2021

December 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—Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

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 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.

Net cash provided by operating activities increased to $340.6 million during the year ended December 31, 2020 from net cash used of $68.8 million during 2019.

The increase in cash provided by operations is primarily a result of a $93.2 million increase in net income and comparatively favorable changes in assets and liabilities for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Our primary uses of cash flows from operations are 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.

Net cash used in operating activities was $201.2 million during the year ended December 31, 2021 as compared to net cash provided by operating activities of $340.6 million during 2020 .

The increase in cash used in operations is primarily a result of increased investment in our homebuilding inventories for the year ended December 31, 2021 as compared to the year ended December 31, 2020, partially offset by a $292.3 million increase in net income during year ended December 31, 2021 as compared to the year ended December 31, 2020.

 Net cash used in investing activities was $6.5 million during the year ended December 31, 2021, compared to $8.4 million used during 2020.

The decrease was primarily driven by less purchases of property and equipment.

 Net cash provided by financing activities was $7.4 million during the year ended December 31, 2020, compared to $105.2 million during 2019.

The decrease in cash provided by financing activities was primarily attributable to a $108.1 million decrease in proceeds from issuance and extinguishment of senior notes as compared to the year ended December 31, 2019.

The decrease was primarily related to the proceeds from a secured note receivable during the year ended December 31, 2021.

 Net cash provided by financing activities was $131.8 million during the year ended December 31, 2021, compared to $7.4 million during the year ended December 31, 2020.

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

The increase was partially offset by a $12.1 million decrease in net proceeds on our mortgage repurchase facilities and $15.2 million in dividend payments during the year ended December 31, 2021.

As of December 31, 2021, our cash and cash and equivalents and restricted cash was $322.2 million.

Contractual Obligations

Our contractual obligations as of December 31, 2020 were as follows (in thousands):

Payments due by period

Less than 1 year

More than 5 years

Long-term debt maturities, including interest (1)

Operating leases (2)

Total contractual obligations

(1) Principal payments in accordance with our credit facility, repurchase facilities and long-term debt agreements, and interest payments for outstanding long-term debt obligations.

Interest on variable rate debt was calculated using the interest rate as of December 31, 2020.

(2) Operating lease obligations do not include payments to property owners covering real estate taxes and common area maintenance.

We are subject to certain obligations associated with entering into contracts (including land option contracts) for the purchase, development, and sale of real estate in the routine conduct of our business.

At December 31, 2020, we had $40.0 million of deposits for land option contracts, of which $8.7 million are refundable.

We expect to acquire the majority of such land within the next three years.

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes.

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.

Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices.

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

As of December 31, 2020, we had outstanding purchase contracts and option contracts for 29,164 lots totaling approximately $1.1 billion and had $31.3 million of non-refundable cash deposits pertaining to land option contracts.

While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 50% to 60% of the purchase and option contracts during the year ending December 31, 2020, with performance on the remaining purchase and option contacts occurring in future periods.

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics.

Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

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

As of December 31, 2020 and 2019, we had $402.7 million and $344.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

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

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 year ended December 31, 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.

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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 December 31, 2021, Century Communities, Inc.

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

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:

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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.

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.

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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’ 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.

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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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Accounts receivable

Mortgage loans held for sale

Prepaid expenses and other assets

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Accrued expenses and other liabilities

Intercompany loan payable

Notes payable

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Selling, general and administrative

Loss on debt extinguishment

Inventory impairment and other

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Revenue Recognition

Under ASC 606, revenues from home sales and the related profit are recorded when our performance obligations are satisfied, which generally occurs when the respective homes are closed and title has passed to our homebuyers.

Under Accounting Standards Codification (which we refer to as “ASC”) 606, revenues from home sales and the related profit are recorded when our performance obligations are satisfied, which generally occurs when the respective homes are closed and title has passed to our homebuyers.

We generally satisfy our performance obligations in less than one year from the contract date.

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Inventories and Cost of Sales

We capitalize pre-acquisition, land, development, and other allocated costs, including interest, during development and home construction.

We capitalize pre-acquisition, land, development, and other allocated costs, including interest, during periods of entitlement, development and home construction.

Land, development, and other common costs are allocated to inventory using the relative-sales-value method;

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When a home is closed, the Company generally has not paid all incurred costs necessary to complete the home, and a liability and a charge to cost of home sales revenues are recorded for the amount that is estimated will ultimately be paid related to completed homes.

Impairment of Real Estate Inventories

Impairment of Inventories

We review all of our communities for an indicator of impairment and record an impairment loss when conditions exist where the carrying amount of inventory is not recoverable and exceeds its fair value.

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We prepare and analyze cash flows at the lowest level for which there is identifiable cash flows that are independent of the cash flows of other groups of assets, which we have determined as the community level.

If events or circumstances indicate that the carrying amount may be impaired, such impairment will be measured based upon the difference between the carrying amount and the fair value of such assets determined using the estimated future discounted cash flows, excluding interest charges, generated from the use and ultimate disposition of the respective inventories.

excluding interest charges, generated from the use and ultimate disposition of the respective inventories.

Such losses, if any, are reported within costs of sales.

The discount rate used in determining each asset’s fair value reflects inherent risks associated with the related estimated cash flows, as well as current risk-free rates available in the market and estimated market risk premiums.

We have utilized a discount rate of approximately 12% in our valuations.

When estimating undiscounted cash flows, we make various assumptions, including the following:

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Year ended December 31, 2020

(1) The selling communities at period end for 2019 have been adjusted from prior year presentations to reflect selling communities in our Century Complete segment of 95, which business was acquired in 2018, and for which selling communities was previously not disclosed.

For the year ended December 31, 2020, we recorded impairment charges on four communities totaling $2.2 million.

During the year ended December 31, 2019, we recorded impairment charges on five communities totaling $2.0 million.

The impairment charges are included in inventory impairments and other in our consolidated statement of operations.

For the year ended December 31, 2021, we recorded nominal impairment charges on one community.

During the year ended December 31, 2020, we recorded impairment charges on four communities totaling $2.2 million.

The impairment charges are included in inventory impairment and other in our consolidated statement of operations.

Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized.

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We estimate the grant date fair value of stock-based compensation awards and recognize the fair value as compensation costs over the requisite service period, which is generally three years, for all awards that vest.

We value the fair value our restricted stock units equal to the closing price of our common stock on the New York Stock Exchange on the date of grant.

We value the fair value of our restricted stock units and awards in the form of unrestricted shares of common stock equal to the closing price of our common stock on the New York Stock Exchange on the date of grant.

Stock-based compensation expense associated with outstanding performance share units is measured using the grant date fair value and is based on the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends, recognized on a straight-line basis over the performance period.

Stock-based compensation expense is only recognized for performance share units that we expect to vest, which we estimate based upon an assessment of the probability that the performance criteria will be achieved.

The performance share units granted during the fiscal years ended December 31, 2020 and 2019 have a three year performance-based metric measured over performance periods from January 1, 2019 to December 31, 2021 and from January 1, 2019 to December 31, 2020, respectively.

Stock-based compensation expense associated with outstanding performance share units is updated for actual forfeitures.

The performance share units granted during the fiscal years ended December 31, 2021 and 2020 have three-year performance-based metrics measured over performance periods ending on December 31 for each three-year period.

Stock-based compensation expense associated with outstanding performance share units is

updated for actual forfeitures.

We account for income taxes in accordance with ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of its assets and liabilities.

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Non-GAAP Financial Measures

In this Form 10-K, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net debt to net capital, and adjusted net earnings per diluted common shares.

In this Form 10-K, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net homebuilding debt to net capital, and adjusted net income and adjusted earnings per diluted share.

These non-GAAP financial measures are presented to provide investors additional information to facilitate the comparison of our past and present operations.

We believe these non-GAAP financial measures provide

useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis.

We believe these non-GAAP financial measures provide useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis.

These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies.

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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, and (vi) inventory impairment and other .

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.

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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.

(dollars in thousands)

Year Ended December 31,

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Inventory impairment and other

Purchase price accounting for acquired work in process inventory

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).

Homebuilding debt is our total debt minus outstanding borrowings under our mortgage repurchase facilities.

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

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

(dollars in thousands)

Total homebuilding debt

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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.

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 .

(dollars in thousands, except share and per share information)

Year Ended December 31,

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Adjusted earnings per share

Income tax expense

Income before income tax expense

Inventory impairment and other

Restructuring costs

Loss on debt extinguishment

Inventory impairment and other

Purchase price accounting for acquired work in process inventory

Adjusted income before income tax expense

Income tax expense, adjusted (1)

Adjusted income tax expense (1)

Adjusted net income

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Adjusted diluted earnings per share

(1) For the years ended December 31, 2020 and 2019, our adjusted income tax expense is reflective of our statutory income tax rate adjusted for those permanent differences, including the benefit of Federal Energy Credits of $8.5 million and $17.3 million, respectively, discussed in Note 12 – Income Taxes in the Notes to the Consolidated Financial Statements .

For the year ended December 31, 2018, our adjusted income tax expense is reflective of our statutory income tax rate adjusted for those permanent differences, excluding the remeasurement of our deferred tax assets of $1.5 million, discussed in Note 12 – Income Taxes in the Notes to the Consolidated Financial Statements .

(1) The tax rates used in calculating adjusted net income for the years ended December 31, 2021 and 2020 were 22.2% and 23.7%, respectively, which reflect of the Company’s GAAP tax rates for the applicable periods.

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-K

Item 7. Management’s Discussion and Analysis