What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-28 compared with 2021-10-28 · 213 added, 264 removed, 322 unchanged (60% of the section changed)

10 unchanged sentences

Statements regarding the following subjects, among others, may be forward-looking and subject to risks and uncertainties including among others:

 the impact of the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular;

 the impact of the COVID-19 pandemic and measures taken in response to the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular;

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

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

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

 a downturn in the homebuilding industry, including a reduction in demand or a decline in real estate values or market conditions resulting in an adverse impact on our business, operating results and financial conditions, including an impairment of our assets;

16 unchanged sentences

 availability of qualified personnel and contractors and our ability to retain key personnel and contractor relationships;

 our ability to pay dividends in the future;

 taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance;

8 unchanged sentences

If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements.

New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those

matters or the manner in which they may affect us.

Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us.

Except as required by law, we are not obligated to, and do not intend to, update or

revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.

7 unchanged sentences

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

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

Our Century Communities brand 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 opportunities.

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

We now have six states where both Century brands have a presence and we believe there are more opportunities for increased penetration within our over 45 high-growth markets to enable both brands to benefit from increased scale and enhanced operational efficiencies.

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

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

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

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

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

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

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.

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

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

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

While these positive trends and market dynamics continued through the first nine months of 2021, we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known.

There is still uncertainty regarding the extent and duration of the COVID-19 pandemic and future increases in COVID-19 positive cases and hospitalizations could result in altering of the “re-opening” plans of numerous state and local municipalities, which may include government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and social distancing measures.

Despite overall strong demand and sales of our homes during the first nine months of 2021, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment levels, and the extent to which and how long COVID-19 and related government directives, actions, and economic relief efforts will impact the U.S.

economy, unemployment levels, financial markets, credit and mortgage markets, consumer confidence, interest rates, availability of mortgage loans to homebuyers, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends, and housing demand, and other factors, including those described elsewhere in this report.

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

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

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

Additionally, we increased our land acquisition and development activities during the first nine months of 2021 to bolster our lot pipeline and support future community growth, which resulted in 75,537 lots owned and controlled at September 30, 2021, a 68.0% increase as compared to September 30, 2020 and a 51.2% increase as compared to December 31, 2020.

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

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

Of the 2,348 homes delivered during the first quarter of 2022, approximately 80% of our deliveries were made to entry-level homebuyers and approximately 97% of homes delivered were built as move-in ready homes.

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.

Despite overall strong demand and sales of our homes during the first quarter of 2022, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to inflation;

the impact of raising the federal funds interest rate by the Federal Reserve;

the extent to which and how long COVID-19 and related government directives, actions, and economic relief efforts will impact the U.S.

economy, financial markets, credit and mortgage markets;

consumer confidence;

interest rates;

availability and cost of mortgage loans to homebuyers;

household formations;

levels of new and existing homes for sale;

availability and cost of land, labor and construction materials;

demographic trends;

housing demand;

and other factors, including those described elsewhere in this Form 10-Q.

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

As a result, our past performance may not be indicative of future results.

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

While interest rates on 30-year fixed mortgages have risen in recent months, they still remain near historic lows and we believe housing demographics and buyer demand will continue to remain strong at least in the short term and that we are well-positioned to benefit from the ongoing shortage of both new and resale homes available for purchase.

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, and our 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.

Results of Operations

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

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

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

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

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

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

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

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

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

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

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

During the three months ended March 31, 2022, we generated total revenues of $1.0 billion, with home sales revenues of $988.4 million, an increase of 3.0% over the prior year period, and financial services revenue of $26.3 million, a decrease of 21.8% over the prior year period.

The increase in home sales revenue was fueled by a 22.7% increase in the average sales price per home to $421,000, partially offset by a 16.1% decrease in the number of homes delivered to 2,348 due to ongoing supply chain and labor challenges.

This increase in home sales revenue combined with a 720 basis point increase in homebuilding gross margin percent resulted in a $188.8 million in income before income tax expense, net income of $142.5 million, or $4.20 per diluted share, compared to $101.7 million, or $3.00 per diluted share in the prior year period, and driving our return on equity to 33.7% on an annualized basis for the first quarter of 2022.

During the first quarter of 2022, we paid cash dividends to our stockholders of $0.20 per share, an increase of 33.0% over previously paid quarterly dividends.

We also returned capital to our stockholders via share repurchases of 1.0 million shares for $62.4 million or a weighted average price of $61.52 per share.

As of March 31, 2022, we had a backlog of 5,247 homes, a 28.1% increase as compared to March 31, 2021, representing approximately $2.2 billion in sales value, a 37.4% increase as compared to March 31, 2021.

Driven by the continued strong demand for our homes through the first quarter of 2022, we ended the first quarter of 2022 with no amounts outstanding under our revolving line of credit, $209.0 million of cash and cash equivalents, $45.2 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 29.3%.

Additionally, we increased our land acquisition and development activities during the first quarter of 2022 to bolster our lot pipeline and support future community growth, which resulted in 85,577 lots owned and controlled at March 31, 2022, a 48.7% increase as compared to March 31, 2021 and a 7.2% increase as compared to December 31, 2021.

Although the trajectory and strength of our markets have continued to remain strong and allowed us to pass on higher costs through selling price increases and thereby positively affecting our margins during the first quarter of 2022, we continued to experience labor, land and raw material shortages and 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, inflation, and municipal and utility delays, that could negatively impact our sales and margins in future periods.

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021.

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

Consolidated Statements of Operations:

1 unchanged sentence

Land sales and other revenues

Total homebuilding revenues

Financial services revenues

5 unchanged sentences

Selling, general, and administrative

Loss on debt extinguishment

Inventory impairment and other

Other income (expense)

21 unchanged sentences

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

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

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

(3) The selling communities as of September 30, 2020 has been adjusted from prior year presentations to reflect 104 selling communities in our Century Complete segment, which business was acquired in 2018, and for which the number of selling communities was previously not disclosed.

(2) Homebuilding gross margin percentage includes inventory impairment, which is included within inventory impairment and other on our condensed consolidated financial statements.

No inventory impairments were recognized for the three months ended March 31, 2022 and 2021.

Results of Operations by Segment

4 unchanged sentences

Income before Income Tax Expense

Three Months Ended September 30,

Century Complete

Financial Services

New Homes Delivered

Average Sales Price of Homes Delivered

Home Sales Revenues

Income before Income Tax Expense

Nine Months Ended September 30,

Three Months Ended March 31,

Century Complete

Financial Services

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

These increases were driven by increases in home sales revenue of $79.7 million and $210.2 million, respectively, and increases of 1,548 basis points and 982 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

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

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

During the three and nine months ended September 30, 2021, the average sales price increases were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

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

These increases were driven by increases in home sales revenue of $34.1 million and $282.1 million, respectively, and increases of 684 basis points and 670 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

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

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

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

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

power as a result of strong market dynamics.

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

These increases were driven by increases in home sales revenue of $9.3 million and $69.0 million, respectively, and increases of 482 basis points and 364 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

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

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

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

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

The increase for the nine-month comparison was driven by an increase in home sales revenue of $61.2 million and an increase of 602 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales.

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

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

The average sales price increases for both comparison periods were driven by the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.

During the three months ended March 31, 2022, our West segment generated income before income tax expense of $71.2 million, a 159.4% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $76.9 million and an increase of 1,234 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 margins on home sales.

The revenue increase during the three months ended March 31, 2022 was primarily generated by a 24.1% increase in the number of homes delivered, as well as a 13.9% increase in the average sales price per home.

During the three months ended March 31, 2022, the increase in the number of homes delivered was driven by favorable market dynamics across our markets, in the midst of ongoing supply chain and labor challenges.

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 three months ended March 31, 2022, our Mountain segment generated income before income tax expense of $57.0 million, a 9.7% increase over the prior year period.

This increase was driven by an increase of 239 basis points in the percentage of income before income tax expense to home sales revenues as a result of increased gross margins on home sales, partially offset by a decrease in home sales revenue of $9.4 million.

The revenue decrease during the three months ended March 31, 2022 was primarily generated by a 25.0% decrease in the number of homes delivered, partially offset by a 28.9% increase in the average sales price per home.

During the three months ended March 31, 2022, the decrease in the number of homes delivered was driven by ongoing supply chain and labor challenges , and 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 three months ended March 31, 2022, our Texas segment generated income before income tax expense of $20.6 million, a 141.1% increase over the prior year period.

This increase was driven by an increase in home sales revenue of $36.5 million and an increase of 683 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 margins on home sales.

The revenue increase during the three months ended March 31, 2022 was primarily generated by a 11.6% increase in the number of homes delivered, as well as a 26.9% 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

During the three months ended March 31, 2022, our Southeast segment generated income before income tax expense of $30.9 million, a 31.7% increase over the prior year period.

This increase was driven by an increase of 1,000 basis points in the percentage of income before income tax expense to home sales revenues as a result of increased gross margins on home sales, partially offset by a decrease in home sales revenue of $70.6 million.

The revenue decrease during the three months ended March 31, 2022 was primarily generated by a 35.6% decrease in the number of homes delivered, partially offset by a 5.4% increase in the average sales price per home.

three months ended March 31, 2022, the decrease in the number of homes delivered was driven ongoing supply chain and labor challenges, and 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

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

These increases were driven by increases in home sales revenue of $55.4 million and $178.5 million, respectively, and increases of 759 basis points and 824 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales .

The revenue increases during the three and nine months ended September 30, 2021 were generated by increases in the number of homes delivered of 11.0% and 17.8%, respectively, as well as increases of 31.0% and 27.8%, respectively, in the average sales price per home.

During the three and nine months ended September 30, 2021, the increases in the number of homes delivered were driven by favorable market dynamics across our markets, and the average sales price increases were driven by the mix of deliveries within markets between years, as well as increased pricing power as a result of strong market dynamics.

During the three months ended March 31, 2022, our Century Complete segment generated income before income tax expense of $24.7 million, a 13.6% increase over the prior year period.

This increase was driven by an increase of 204 basis points in the percentage of income before income tax expense to home sales revenues as a result of increased gross margins on home sales, partially offset by a decrease in home sales revenue of $4.3 million.

The revenue decrease during the three months ended March 31, 2022 was primarily generated by a 21.3% decrease in the number of homes delivered, partially offset by a 23.9% increase in the average sales price per home.

During the three months ended March 31, 2022, the decrease in the number of homes delivered was driven ongoing supply chain and labor challenges, and 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.

Financial Services

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

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

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

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

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

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

Our Financial Services segment generated income before income tax of $11.2 million for the three months ended March 31, 2022, a 27.2% decrease over the prior year period.

This decrease was primarily the result of a $7.3 million decrease in financial services revenue during the three months ended March 31, 2022 compared to the prior year period, due to (1) a 33.9% decrease to 1,520 in the number of mortgages originated during the three months ended March 31, 2022, due to the decrease in the number of homes delivered by our Century Communities and Century Complete brands over the prior year period, and (2) reduced gain on sale margins on loans sold to third parties period over period due to market conditions driving increased interest rates .

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total originations:

1 unchanged sentence

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

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

During the three months ended March 31, 2022, our Corporate segment generated a loss of $26.7 million as compared to a loss of $17.4 million for the same period in 2021 .

This increase in loss is primarily attributed to higher compensation costs, including estimated bonuses.

Homebuilding Gross Margin

(dollars in thousands)

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

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased during the three and nine months ended September 30, 2021 to 25.7% and 23.5%, respectively as compared to 17.5% and 17.3%, respectively, for the same periods in 2020.

This increase was primarily driven by the positive homebuilding sales environment across our markets, which resulted in our ability to increase sales price in excess of an increase in our labor and direct costs period over period , as well as the realization of less interest in cost of home sales revenue over the respective prior periods.

Homebuilding gross margin represents home sales revenues 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 during the three months ended March 31, 2022 to 28.3% as compared to 21.1% for the same period in 2021.

This increase was 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 period over period, (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, as adjusted to exclude inventory impairment and other and interest in cost of home sales revenues.

Three Months Ended September 30,

Home sales revenues

Cost of home sales revenues

Inventory impairment and other

Gross margin from home sales

Inventory impairment and other

Interest in cost of home sales revenues

Adjusted homebuilding gross margin excluding interest and inventory impairment and other

Nine Months Ended September 30,

Three Months Ended March 31,

Home sales revenues

7 unchanged sentences

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

For the three and nine months ended September 30, 2021, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 27.2% and 25.3%, respectively, as compared to 20.0% and 19.9%, respectively, for the same periods in 2020.

For the three months ended March 31, 2022, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 29.5% as compared to 23.1% for the same period in 2021.

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

1 unchanged sentence

(dollars in thousands)

Three Months Ended September 30,

Selling, general and administrative

As a percentage of home sales revenue

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative

As a percentage of home sales revenue

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

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

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

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

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

Our selling, general and administrative expense increased $9.5 million for the three months ended March 31, 2022 as compared to the prior year period.

This increase was primarily attributable to an increase of $9.0 million in salaries and wages expense as compared to the same period in 2021 due to increased headcount, increased base pay due to market conditions, and increased incentive based compensation accruals, as well as increases in expenses in numerous areas to support our growth.

The increase for the three months ended March 31, 2022 was partially offset by a decrease in internal and external commission expense of $5.7 million.

During the three months ended March 31, 2022, our selling, general, and administrative expense increased 70 basis points as a percentage of home sales revenue as compared to the prior year period, that was partially mitigated as a result of increased revenues on a partially fixed cost base.

Income Tax Expense

At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period.

Our 2021 estimated annual effective tax rate, before discrete items, of 23.4% is driven by our blended federal and state statutory rate of 24.8%, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation and estimated federal energy credits for current year home deliveries, which decreased our rate by 1.4%.

For the nine months ended September 30, 2021, our estimated annual rate of 23.4% was impacted by discrete items which had a net impact of decreasing our rate by 1.2%, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits for vested stock-based compensation.

For the three months ended September 30, 2021 and 2020, we recorded income tax expense of $31.8 million and $15.1 million, respectively.

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

Our 2022 estimated annual effective tax rate, before discrete items, of 25.5% is driven by our blended federal and state statutory rate of 24.7%, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation which increased our rate by 0.8%.

For the three months ended March 31, 2022, our estimated annual rate of 25.5% was impacted by discrete items which had a net impact of decreasing our rate by 1.0%, including excess tax benefits for vested stock-based compensation and federal energy tax credits claimed on prior year home deliveries in excess of previous estimates .

Our estimated annual rate for the three months ended March 31, 2022 of 25.5% increased by 330 basis points as compared to our effective tax rate for the year ended December 31, 2021 of 22.2%.

The increase in our estimated rate is driven by the expiration of the Energy Efficient Home Credit on December 31, 2021.

The Energy Efficient Home Credit provided a $2,000 tax credit for each home delivered that met the energy saving and certification requirements under the statute.

For the three months ended March 31, 2022 and 2021, we recorded income tax expense of $46.3 million and $29.4 million, respectively.

Segment Assets

(dollars in thousands)

September 30,

Increase (Decrease)

1 unchanged sentence

Financial Services

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

Total assets remained relatively consistent at $3.5 billion as of March 31, 2022 as compared to December 31, 2021, primarily as a result of a decrease in mortgage loans held for sale period over period, partially offset by overall growth of the Company and the increase in the number of lots owned period over period.

Lots owned and controlled

September 30, 2021

March 31, 2022

December 31, 2021

Century Complete

Of our total lots owned and controlled as of September 30, 2021, 33.1% were owned and 66.9% were controlled, as compared to 41.6% owned and 58.4% controlled as of December 31, 2020.

Of our total lots owned and controlled as of March 31, 2022, 40.7% were owned and 59.3% were controlled, as compared to 41.1% owned and 58.9% controlled as of December 31, 2021.

Other Homebuilding Operating Data

Three Months Ended

Nine Months Ended

Net new home contracts

September 30,

Increase (Decrease)

September 30,

Increase (Decrease)

Century Complete

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

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

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

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

This decrease in our Southeast segment is driven by a 45.7% decrease in selling communities at period end as compared to the

end of the prior year period.

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and nine months ended September 30, 2021 by segment are included in the tables below:

Three Months Ended September 30,

Increase (Decrease)

Century Complete

Nine Months Ended September 30,

Net new home contracts (new home contracts net of cancellations) for the three months ended March 31, 2022 decreased by 511 homes, or 14.8%, to 2,944, as compared to 3,455 for the three months ended March 31, 2021.

The decrease was primarily driven by having fewer homes available to sell 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 three months ended March 31, 2022 and 2021 by segment are included in the tables below:

Three Months Ended March 31,

Increase (Decrease)

Century Complete

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

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

During the three months ended March 31, 2022, our absorption rates decreased by 18.0% to 5.0 per month as compared to the same period in 2021.

The decrease was primarily driven by the decrease in net new home contracts primarily as a result of having fewer homes available to sell compared to the prior year period .

Absorption rates, however, continued to be strong across all of our markets driven by favorable market dynamics across our markets.

Selling communities at period end

As of September 30,

As of March 31,

Increase/(Decrease)

Century Complete

Our selling communities decreased to 186 communities at September 30, 2021 as compared to 214 at September 30, 2020.

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

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

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

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

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

Accordingly, our selling communities at period end for the 2020 period have been updated from amounts previously disclosed to include communities for our Century Complete brand.

Our selling communities increased to 197 communities at March 31, 2022 as compared to 188 at March 31, 2021.

This increase was a result of new community openings.

(dollars in thousands)

As of September 30,

As of March 31,

Average Sales Price

3 unchanged sentences

Total / Weighted Average

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

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

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

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 March 31, 2022, we had 5,247 homes in backlog with a total value of $2.2 billion, which represents increases of 28.1% and 37.4%, respectively, as compared to 4,097 homes in backlog with a total value of $1.6 billion at March 31, 2021.

The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 7.3% increase in the average sales price of homes in backlog, partially offset by a decreases in backlog units for our Texas and West segments.

Supplemental Guarantor Information

Our 6.750% senior notes due 2027 (which we collectively refer to as our “2027 Notes”) and our 3.875% senior notes due 2029 (which we collectively refer to as our “2029 Notes” and together with the 2027 Notes, the “Senior Notes”) are our unsecured senior obligations and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to collectively as “Guarantors”).

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

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.

1 unchanged sentence

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

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

As of March 31, 2022, Century Communities, Inc.

had outstanding $1.0 billion in total principal amount of Senior Notes.

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

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

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

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

13 unchanged sentences

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.

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.

We have determined that separate, full financial statements of the Guarantors would not be material to investors, and accordingly, supplemental financial information is presented below.

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 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.

4 unchanged sentences

Summarized Balance Sheet Data (in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

8 unchanged sentences

Accrued expenses and other liabilities

Intercompany loan payable

Notes payable

3 unchanged sentences

Total liabilities and stockholders’ equity

Summarized Statement of Operations Data (in thousands)

Nine Months Ended September 30, 2021

Year Ended December 31, 2020

Summarized Statements of Operations Data (in thousands)

Three Months Ended

March 31, 2022

December 31, 2021

Total homebuilding revenues

12 unchanged sentences

Liquidity and Capital Resources

Our principal uses of capital for the three and nine months ended September 30, 2021 were our land purchases, land development, home construction, and the payment of routine liabilities.

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

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

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

Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and Credit Facility availability, was $1.1 billion as of March 31, 2022, compared to $1.2 billion as of December 31, 2021.

Our principal uses of capital for the three months ended March 31, 2022 were our land purchases, land development, home construction, share repurchases, and the payment of routine liabilities.

We increased our land acquisition and development activities during 2022, which resulted in 34,811 lots owned at March 31, 2022, a 6.0% increase as compared to December 31, 2021.

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

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

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

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.

1 unchanged sentence

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

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

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

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

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

As of September 30, 2021, we continued to have no amounts outstanding under our revolving line of credit.

We increased our land acquisition and development activities during the first nine months of 2021, which resulted in 75,537 lots owned and controlled at September 30, 2021, a 51.2% increase as compared to December 31, 2020.

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

Under our shelf registration statement, which we filed with the SEC on July 1, 2021 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in registered transactions from time to time and as needed as part of our ongoing financing strategy and subject to market conditions.

In August 2021, we filed a prospectus supplement to offer up to $100.0 million under the shelf registration statement under our at-the-market facility described below.

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

While the impact of the COVID-19 pandemic will continue to evolve, we believe we are well positioned from a cash and liquidity standpoint to not only operate

in an uncertain environment, but also continue to grow with the market, pay down debt and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of debt refinancing and/or strategic opportunities as they arise.

Short-term Liquidity and Capital Resources

We use funds generated by operations, available borrowings under our 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.

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.

For the three months ended March 31, 2022, there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that was filed with the SEC on February 3, 2022.

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 March 31, 2022, we had outstanding purchase contracts and option contracts for 50,766 lots totaling approximately $2.2 billion and we had $67.1 million of deposits for land contracts, of which $38.4 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

Our outstanding debt obligations included the following as of March 31, 2022 and December 31, 2021 (in thousands):

3.875% senior notes, due August 2029 (1)

6.750% senior notes, due May 2027 (1)

Other financing obligations

Notes payable

Revolving line of credit

Mortgage repurchase facilities

(1) The carrying value of the senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

A summary of our debt obligations is included in Note 9 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 3, 2022 and in Note 8 to our condensed consolidated financial statements in this Form 10-Q.

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

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

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

Letters of Credit and Performance Bonds

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

As of March 31, 2022 and December 31, 2021, we had $528.9 million and $492.5 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.

Revolving Line of Credit

On June 5, 2018, we entered into an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of our subsidiaries (which we refer to as the “Amended and Restated Credit Agreement”), which provided us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, was scheduled to mature on April 30, 2023.

6 unchanged sentences

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

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

As of March 31, 2022, we had no amounts outstanding under the Credit Facility and were in compliance with all covenants under the Second A&R Credit Agreement.

Mortgage Repurchase Facilities – Financial Services

1 unchanged sentence

Morgan, and Wells Fargo, respectively.

The mortgage warehouse lines of credit (which we refer to as the “repurchase facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate of $275 million as of September 30, 2021, secured by the mortgage loans financed thereunder.

The mortgage warehouse lines of credit (which we refer to as the “Repurchase Facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate of $325 million as of March 31, 2022, secured by the mortgage loans financed thereunder.

The Repurchase Facilities have varying short term maturity dates through August 23, 2022 and bear a weighted average interest rate of 2.172%.

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

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

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

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

As of March 31, 2022, we had $193.0 million outstanding under these Repurchase Facilities and were in compliance with all covenants thereunder.

During the three months ended March 31, 2022 and 2021, we incurred interest expense on the Repurchase Facilities of $0.4 million and $0.8 million, respectively.

Interest expense on the Repurchase Facilities is included in financial services costs on our condensed consolidated statements of operations .

At-the-Market Offerings

3 unchanged sentences

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

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

We did not sell or issue any shares of our common stock during the three and nine months ended September 30, 2021 and 2020, respectively.

with Wells Fargo Securities, LLC as a sales agent, had all $100 million available for sale as of March 31, 2022.

We did not sell or issue any shares of our common stock during the three months ended March 31, 2022 and 2021, respectively.

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

Letters of Credit and Performance Bonds

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

As of September 30, 2021 and December 31, 2020, we had $484.9 million and $402.7 million, respectively, in letters of credit and performance and other bonds issued and outstanding.

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

September 30,

3.875% senior notes, due August 2029 (1)

6.750% senior notes, due May 2027 (1)

5.875% senior notes, due July 2025 (1)

Other financing obligations

Notes payable

Revolving line of credit

Mortgage repurchase facilities

(1) The carrying value of the senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

A summary of our debt obligations is included in Note 10 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 5, 2021 and in Note 8 to our condensed consolidated financial statements in this Form 10-Q.

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.

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

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

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

Stock Repurchase Program

2 unchanged sentences

The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions.

We intend to finance any stock repurchases through available cash and our revolving credit facility.

We intend to finance any stock repurchases through available cash and our Credit Facility.

Repurchases also may be made under a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased when we otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions.

The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time

without notice at our discretion.

The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time without notice at our discretion.

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

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

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

During the three months ended March 31, 2022, an aggregate of 1.0 million shares of our common stock were repurchased for a total purchase price of approximately $62.4 million and a weighted average price of $61.52 per share.

During the three months ended March 31, 2021, we did not repurchase any shares of our common stock.

The maximum number of shares available to be purchased under the stock repurchase program as of March 31, 2022 was 2,799,552 shares.

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

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

The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the three months ended March 31, 2022, an increase of 33.0% over previously paid quarterly dividends (in thousands, except per share information):

Cash Dividends Declared

Declaration Date

June 16, 2021

August 18, 2021

September 1, 2021

September 15, 2021

February 16, 2022

March 2, 2022

March 16, 2022

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

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

For the nine months ended September 30, 2021 and 2020, the comparison of cash flows is as follows:

Cash Flows— Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

For the three months ended March 31, 2022 and 2021, the comparison of cash flows is as follows:

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

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

During the nine months ended September 30, 2021 and 2020, we generated $82.8 million and $315.8 million in cash from operations, respectively.

The decrease in cash provided by operations is primarily a result of increased investment in our homebuilding inventories for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, partially offset by a $219.2 million increase in net income during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

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

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

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

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

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

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

Off-Balance Sheet Arrangements

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

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

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

As of September 30, 2021, and December 31, 2020, we had $484.9 million and $402.7 million, respectively, in letters of credit and performance and other bonds issued and outstanding.

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

Contractual Obligations

For the three and nine months ended September 30, 2021, there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that was filed with the SEC on February 5, 2021, other than the issuance of $500.0 million aggregate principal amount of our 3.875% senior notes due 2029 and the redemption of $400.0 million in outstanding principal of our former 5.875% senior notes due 2025, as described in more detail above.

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 provided by operating activities was $109.4 million during the three months ended March 31, 2022 as compared to net cash provided by operating activities of $96.1 million during 2021.

The increase in cash provided by operations is primarily a result of increased investment in our homebuilding inventories for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021, partially offset by a decrease in mortgage loans held for sale and a $40.8 million increase in net income during three months ended March 31, 2022 as compared to the three months ended March 31, 2021 .

 Net cash used in investing activities increased to $5.1 million during the three months ended March 31, 2022, compared to $2.9 million used during the same period in 2021.

The increase was primarily related to more purchases of property and equipment during the current year period.

 Net cash used in financing activities increased to $208.4 million during the three months ended March 31, 2022, compared to net cash provided by financing activities of $16.3 million during the same period in 2021.

The increase in cash used in financing activities was primarily attributable to (1) a $164.8 million increase in net payments on the Repurchase Facilities (2) a $62.4 million increase in repurchases of our common stock and (3) $6.7 million in dividend payments during the three months ended March 31, 2022 compared to no dividend payments during the prior year period.

As of March 31, 2022, our cash and cash equivalents and restricted cash balance was $218.2 million.

Non-GAAP Financial Measures

9 unchanged sentences

EBITDA and Adjusted EBITDA

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

The following table presents EBITDA and Adjusted EBITDA for the three months ended March 31, 2022 and 2021.

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) depreciation and amortization expense, (v) loss on debt extinguishment (vi) inventory impairment and other, (vii) restructuring costs, and (viii) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations.

We believe Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring.

4 unchanged sentences

(dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Income tax expense

2 unchanged sentences

Depreciation and amortization expense

Loss on debt extinguishment

Inventory impairment and other

Restructuring costs

Adjusted EBITDA

3 unchanged sentences

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.

1 unchanged sentence

(dollars in thousands)

September 30,

Notes payable

Revolving line of credit

Total homebuilding debt

14 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Weighted average common shares outstanding - basic

6 unchanged sentences

Inventory impairment and other

Restructuring costs

Loss on debt extinguishment

Adjusted income before income tax expense

3 unchanged sentences

Adjusted diluted earnings per share

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

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

(1) The tax rate used in calculating adjusted net income for the three months ended March 31, 2022 and March 31, 2021 was 24.5% and 22.4%, respectively, which is reflective of the Company’s estimated annual effective tax rate after discrete items for the applicable period.

QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

1 unchanged sentence

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

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

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

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

The Second A&R Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Credit Facility.

For fixed rate debt, such as our senior notes, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows.

As interest rates increase, the fair value of the debt instrument will decrease.

Our Financial Services business utilizes mortgage backed securities forward commitments, option contracts and investor commitments to protect the value of rate-locked commitments and loans held for sale from fluctuations in mortgage-related interest rates.

3 unchanged sentences

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

While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

As inflation remained elevated during the three months ended March 31, 2022, interest rates on 30-year fixed mortgages have risen, coupled with the Federal Reserve raising the federal funds interest rate in March 2022.

During the three months ended March 31, 2022, we were generally able to pass on cost increases from inflationary impacts to customers through increased prices;

however, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.

We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.

Since it typically takes four to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries.

Since it historically has taken four to eight months to construct a new home, we typically deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries.

Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year.

We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding in dustry and the COVID-19 pandemic.

We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding industry, supply chain challenges, and the COVID-19 pandemic.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis