What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 205 added, 143 removed, 392 unchanged (47% of the section changed)

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Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements.

Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” the negative of such terms and other comparable terminology and the use of future dates.

Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential,” “outlook,” the negative of such terms and other comparable terminology and the use of future dates.

You can also identify forward-looking statements by discussions of strategy, plans or intentions.

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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 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;

 econo mic changes, either nationally or in the markets in which we operate, including increased interest rates, inflation, and employment levels;

 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;

 changes in assumptions used to make industry forecasts, population growth rates or trends affecting housing demand or prices;

 continued volatility and uncertainty in the credit markets and broader financial markets;

 our future operating results and financial condition;

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 changes in, or the failure or inability to comply with, governmental laws and regulations;

 the timing of r eceipt of regulatory approvals and the opening of projects;

 the timing of r eceipt of municipal, utility and other regulatory approvals and the opening of projects;

 the i mpact and cost of compliance with evolving environmental, health and safety and other laws and regulations and third-party challenges to required permits and other approvals and potential legal liability in connection therewith;

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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.

Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado, with the intent to dispose of properties shortly after achieving stabilized rental operations.

Century Living, LLC is included in our Corporate segment.

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

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

Of the 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.

Of the 5,061 homes delivered during the first six months of 2022, approximately 77% of our deliveries were made to entry-level homebuyers and approximately 96% of homes delivered were built as move-in ready homes.

During the second quarter of 2022 we experienced a moderation of sales pace across our markets resulting in a decrease of 28.4% in our net new home contracts as compared to the prior year period.

This decrease in our sales pace was consistent with second quarter 2022 trends seen in the overall housing market, as increases in interest rates on mortgages, rising inflation, and macro-economic uncertainty caused demand for home sales to decrease from the historically strong market conditions experienced since the second quarter of 2020.

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;

We believe future demand for our homes is uncertain as future economic and market conditions are uncertain, in particular with respect to inflation;

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

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levels of new and existing homes for sale;

availability and cost of land, labor and construction materials;

prevailing home prices, availability and cost of land, labor and construction materials;

demographic trends;

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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.

Specifically, the recent rise in interest rates increases the costs of owning a home and adversely affects the purchasing power of our customers.

Increased interest rates also could decrease homebuyer confidence and hinder not only demand for our homes, but also our ability to realize our backlog.

A decrease in demand for our homes or an increase in cancellations due to increased interest rates or otherwise would adversely affect our operating results in future periods, including our net sales, home deliveries, gross margin, origination volume of and revenues from our Financial Services segment, and net income.

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

Despite the future macro-economic uncertainty, we believe we are well-positioned to benefit from the ongoing shortage of both new and resale homes available for purchase in our key markets and the favorable demographics that support the need for new housing.

Subject to further 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 both span the home buying segment, and 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 an appropriate balance of home and land inventories in relation to anticipated future demand, as well as prudent leverage, and, as a result, we believe we are well positioned to continue to execute on our strategy in order to grow and optimize stockholder returns.

Results of Operations

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.

During the three and six months ended June 30, 2022, we generated $213.6 million and $402.4 million in income before income tax expense, respectively, and net income of $158.7 million, or $4.78 per diluted share, and $301.2 million, or $8.97 per diluted share, respectively, representing substantial increases as compared to the respective prior year periods, and resulting in a 33.7% return on equity on an annualized basis for the three months ended June 30, 2022.

During the first six months of 2022, we paid cash dividends to our stockholders of $0.20 per share, and we also returned capital to our stockholders via share repurchases of 1.8 million shares for $98.3 million or a weighted average price of $54.46 per share.

Our second quarter 2022 financial results for the second quarter are reflective of the strength of our markets during previous quarters when the homes were contracted for which allowed us to pass on higher costs through higher selling prices and thereby positively affecting our margins during the first six months of 2022.

While we continued to experience labor and raw material shortages and municipal and utility delays in many of our markets, the severity of the shortages and delays moderated during the second quarter of 2022.

During the three and six months ended June 30, 2022, we delivered 2,713 and 5,061 homes, respectively, with an average sales price of $418.2 thousand and $419.5 thousand, respectively.

Average sales price increased 15.3% and 18.9% during the three and six months ended June 30, 2022 as compared to the respective prior year period, driving homebuilding revenues of $1.1 billion and $2.1 billion, respectively, representing increases of 12.9% and 7.3% over the respective prior year period.

The number of homes delivered represent decreases of 2.1% and 9.1%, respectively, as compared to the respective prior year period, which were primarily driven by the timing of new community openings.

As of June 30, 2022, we had a backlog of 4,767 homes, a 7.2% increase as compared to June 30, 2021, representing approximately $2.0 billion in sales value, and a 12.2% increase as compared to June 30, 2021.

During the three and six months ended June 30, 2022, we generated financial services revenue of $22.8 million and $49.1 million, respectively, representing decreases of 23.7% and 22.7% over the respective prior year period, driven by a reduced number of mortgages originated, as well as reduced gain on sale margins on loans sold to third parties.

We ended the second quarter of 2022 with $141.0 million outstanding under our revolving line of credit, $78.0 million of cash and cash equivalents, $82.5 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 33.6%.

Additionally, we increased our land acquisition and development activities during the first six months of 2022 to bolster our lot pipeline and support future community growth, which resulted in 75,551 lots owned and controlled at June 30, 2022, a 15.2% increase as compared to June 30, 2021 and a 5.4% decrease as compared to December 31, 2021.

During the six months ended June 30, 2022, our Century Living operations commenced construction on a 425-unit multi-family project in Lone Tree, Colorado, which we anticipate will be available for leasing in 2024.

The following table summarizes our results of operations for the three and six months ended June 30, 2022 and 2021.

(in thousands, except per share amounts)

Three Months Ended March 31,

Increase (Decrease)

Three Months Ended June 30,

Six Months Ended June 30,

Consolidated Statements of Operations:

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Selling, general, and administrative

Inventory impairment and other

Other income (expense)

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(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.

No inventory impairments were recognized for the three and six months ended June 30, 2022 and we recognized nominal inventory impairment for the three and six months ended June 30, 2021.

Results of Operations by Segment

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Income before Income Tax Expense

Three Months Ended March 31,

Three Months Ended June 30,

Century Complete

Financial Services

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.

New Homes Delivered

Average Sales Price of Homes Delivered

Home Sales Revenues

Income before Income Tax Expense

Six Months Ended June 30,

Century Complete

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

During the three and six months ended June 30, 2022, our West segment generated income before income tax expense of $77.9 million and $149.2 million, respectively, a 90.6% and 118.2% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $56.3 million and $133.3 million, respectively, and increases of 931 basis points and 1,066 basis points, respectively, 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 increases during the three and six months ended June 30, 2022 were primarily generated by increases of 10.6% and 16.8% in the number of homes delivered, as well as increases of 11.8% and 12.6% in the average sales price per home.

For both the three and six month comparisons, the increases in the number of homes delivered were driven by an increase in the number of open communities as compared to the prior year period and the average sales price increase were driven by the mix of deliveries within individual communities.

During the three months ended June 30, 2022, our Mountain segment generated income before income tax expense of $51.5 million, a 7.7% decrease over the respective prior year period.

This decrease was primarily driven by a decrease in home sales revenue of $13.8 million.

During the six months ended June 30, 2022, our Mountain segment generated income before income tax expense of $108.5 million, remaining relatively flat over the respective prior year period.

Revenue decreased during the three and six months ended June 30, 2022, primarily driven by decreases of 25.0% and 25.0%, respectively, in the number of homes delivered, partially offset by increases of 27.0% and 28.0%, respectively, in the average sales price per home.

For both the three and six month comparisons, the decreases in the number of homes delivered were driven by the timing of new community openings between the periods and the average sales price increases were driven by the mix of deliveries within individual communities.

During the three and six months ended June 30, 2022, our Texas segment generated income before income tax expense of $25.3 million and $45.9 million, respectively, a 32.3% and 65.9% increase, respectively, over the respective prior year period.

During the three months ended June 30, 2022, the increase was driven by an increase of 602 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 $8.1 million.

The revenue decrease during the three months ended June 30, 2022 was primarily generated by a decrease of 23.9% in the number of homes delivered, partially offset by an increase of 23.2% in the average sales price per home.

During the six months ended June 30, 2022, the increase in income before income tax expense was driven by an increase in home sales revenue of $28.4 million and an increase of 593 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 six months ended June 30, 2022 was primarily generated by an increase of 24.8% in the average sales price per home, partially offset by a 9.4% decrease in the number of homes delivered.

For both the three and six month comparisons, the decreases in the number of homes delivered were driven by the timing of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities.

During the three and six months ended June 30, 2022, our Southeast segment generated income before income tax expense of $38.8 million and $69.6 million, respectively, a 48.6% and 40.6% increase, respectively, over the respective prior year period.

During the three months ended June 30, 2022, the increase was driven by an increase in home sales revenue of $11.9 million and an increase of 601 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 June 30, 2022 was primarily generated by an increase of 13.7% in the average sales price per home.

During the six months ended June 30, 2022, the increase in income before income tax expense was driven by an increase of 837 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 $58.7 million.

The revenue decrease during the six months ended June 30, 2022 was primarily generated by a decrease of 22.8% in the number of homes delivered, partially offset by an increase of 9.9% in the average sales price per home.

For both the three and six month comparisons, the decreases in the number of homes delivered were driven by timing of new community openings.

Century Complete

During the three and six months ended June 30, 2022, our Century Complete segment generated income before income tax expense of $40.1 million and $64.8 million, respectively, a 73.8% and 44.6% increase, respectively, over the respective prior year period.

These increases were driven by increases in home sales revenue of $83.5 million and $79.2 million, respectively.

The revenue increase during the three months ended June 30, 2022 was primarily generated by an increase of 22.2% in the number of homes delivered, driven by an increase in the number of open communities as compared to the prior year period, as well as an increase of 19.9% in the average sales price per home.

The revenue increase during the six months ended June 30, 2022 was primarily generated by an increase of 22.1% in the average sales price per home.

For both the three and six month comparisons, the average sales price increases were driven by the mix of deliveries within individual communities.

Financial Services

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

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 .

Our Financial Services segment generated income before income tax of $8.6 million for the three months ended June 30, 2022, a 26.4% decrease over the prior year period.

This decrease was primarily the result of a $7.1 million decrease in financial services revenue during the three months ended June 30, 2022 compared to the prior year period, due to (1) a 31.5% decrease to 1,465 in the number of mortgages originated during the three months ended June 30, 2022, due in part to a decrease in originations related to refinancing, and (2) reduced gain on sale margins on loans sold to third parties period over period.

Our Financial Services segment generated income before income tax of $19.8 million for the six months ended June 30, 2022, a 26.9% decrease over the prior year period.

This decrease was primarily the result of a $14.4 million decrease in financial services revenue during the six months ended June 30, 2022 compared to the prior year period, due to (1) a 32.8% decrease to 2,985 in the number of mortgages originated during the six months ended June 30, 2022, due in part to a decrease in originations related to refinancing, and (2) reduced gain on sale margins on loans sold to third parties period over period.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Total originations:

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Number of loans sold

During the three months ended March 31, 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.

During the three and six months ended June 30, 2022, our Corporate segment generated losses of $28.7 million and $55.4 million, respectively, as compared to losses of $24.6 million and $42.0 million, respectively, for the same respective period in 2021 .

This increase in losses is primarily attributed to higher compensation costs and other corporate costs to support our growth.

Homebuilding Gross Margin

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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.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased during the three and six months ended June 30, 2022 to 28.2%, as compared to 23.9% and 22.5%, respectively, for the same periods in 2021.

This increase was driven by (1) our ability to increase sales price in excess of an increase in our labor and direct costs period over period, (2) benefits from our increased scale driving building efficiencies and streamlined production processes, and (3) 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 March 31,

Three Months Ended June 30,

Home sales revenues

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

Six Months Ended June 30,

Home sales revenues

Cost of home sales revenues

Inventory impairment and other

Gross margin from home sales

Inventory impairment and other

Interest in cost of home sales revenues

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

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

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2022, excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 29.4%, as compared to 25.7% and 24.4%, respectively, for the same periods 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.

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(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Selling, general and administrative

As a percentage of home sales revenue

Our selling, general and administrative expense increased $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.

Six Months Ended June 30,

Selling, general and administrative

As a percentage of home sales revenue

Our selling, general and administrative expense increased $9.5 million and $19.0 million, respectively, for the three and six months ended June 30, 2022 as compared to the same periods in 2021.

These increases were primarily attributable to increases of $8.5 million and $17.4 million, respectively, in salaries and wages expense as compared to the same respective 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 increases for the three and six months ended June 30, 2022 were partially offset by decreases in internal and external commission expense of $2.7 million and $8.4 million, respectively.

During the three months ended June 30, 2022, our selling, general, and administrative expense decreased 30 basis points as a percentage of home sales revenue as compared to the same period in 2021, and during the six months ended June 30, 2022, our selling, general, and administrative expense increased slightly by 10 basis points as a percentage of home sales revenue as compared to the same period in 2021, which increase was partially offset by increased revenues on a partially fixed cost base.

Income Tax Expense

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Our 2022 estimated annual effective tax rate, before discrete items, of 25.6% 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 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%.

For the six months ended June 30, 2022, our estimated annual rate of 25.6% was impacted by discrete items which had a net impact of decreasing our rate by 0.4%, 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 six months ended June 30, 2022 of 25.6% increased by 340 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.

For the three months ended June 30, 2022 and 2021, we recorded income tax expense of $55.0 million and $34.2 million, respectively.

For the six months ended June 30, 2022 and 2021, we recorded income tax expense of $101.3 million and $63.6 million, respectively.

Segment Assets

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Financial Services

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.

Total assets increased to $3.8 billion as of June 30, 2022 as compared to December 31, 2021, primarily as a result of overall growth of the Company and increased in investment in homebuilding inventory, partially offset by a decrease in Financial Services assets primarily related to a decrease in mortgage loans held for sale period over period.

The decrease in our Corporate assets was driven by a decrease in our cash and cash equivalents, partially offset by increases related to Century Living.

Lots owned and controlled

March 31, 2022

June 30, 2022

December 31, 2021

Century Complete

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.

Of our total lots owned and controlled as of June 30, 2022, 46.5% were owned and 53.5% were controlled, as compared to 41.1% owned and 58.9% controlled as of December 31, 2021.

The decrease in the number of controlled lots was driven by the termination of certain contracts in our markets that did not meet our investment criteria.

Other Homebuilding Operating Data

Three Months Ended

Net new home contracts

Three Months Ended

Six Months Ended

Increase (Decrease)

Century Complete

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.

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2022 decreased by 887 homes, or 28.4%, to 2,233, as compared to 3,120 for the same period in 2021.

Net new home contracts for the six months ended June 30, 2022 decreased by 1,398 homes, or 21.3%, to 5,177, as compared to 6,575 for the same period in 2021.

During the second quarter of 2022 we experienced a moderation of home sales pace across our markets as compared to prior periods.

These decreases were primarily driven by the impact on demand for new homes of increasing interest rates, rising inflation, and macro-economic uncertainty, and to some extent, an increase in cancellations primarily due to interest rate increases.

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,

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and six months ended June 30, 2022 and 2021 by segment are included in the tables below:

Three Months Ended June 30,

Increase (Decrease)

Century Complete

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.

Six Months Ended June 30,

Increase (Decrease)

Century Complete

During the three and six months ended June 30, 2022, our absorption rates decreased by 38.6% and 31.7%, respectively, to 3.5 and 4.1 per month, respectively, as compared to the same periods in 2021.

During the second quarter of 2022, we experienced a moderation of sales pace across our markets compared to prior periods.

The second quarter 2022 decrease in sales pace was consistent with trends seen in the overall housing market, as increases in interest rates on mortgages, rising inflation, and macro-economic uncertainty caused demand to decrease from the historically strong market conditions experienced since the second quarter of 2020.

Selling communities at period end

As of March 31,

As of June 30,

Increase/(Decrease)

Century Complete

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

Our selling communities increased to 213 communities at June 30, 2022 as compared to 184 at June 30, 2021.

This increase was a result of new community openings.

(dollars in thousands)

As of March 31,

As of June 30,

Average Sales Price

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Backlog reflects the number of homes, net of 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.

At June 30, 2022, we had 4,767 homes in backlog with a total value of $2.0 billion, which represents increases of 7.2% and 12.2%, respectively, as compared to 4,446 homes in backlog with a total value of $1.8 billion at June 30, 2021.

The increase in backlog dollar value is primarily attributable to the increase in backlog units and a 4.6% increase in the average sales price of homes in backlog.

Supplemental Guarantor Information

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

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

As of June 30, 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;

(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;

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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.

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.

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Summarized Balance Sheet Data (in thousands)

March 31, 2022

June 30, 2022

December 31, 2021

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Summarized Statements of Operations Data (in thousands)

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

December 31, 2021

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Liquidity and Capital Resources

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.

Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and Credit Facility availability, was $819.5 million as of June 30, 2022, compared to $1.2 billion as of December 31, 2021.

Our principal uses of capital for the three and six months ended June 30, 2022 were our land purchases, land development, home construction, share repurchases, and the payment of routine liabilities.

We increased our investment in homebuilding inventory during 2022, which resulted in 35,133 lots owned at June 30, 2022, a 6.9% 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.

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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.

Our Century Living operations use excess cash from our operations as well as project specific secured financing to fund development of multi-family projects.

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, 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.

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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.

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

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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.

For the three and six months ended June 30, 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.

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

As of March 31, 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.

As of June 30, 2022, we had outstanding purchase contracts and option contracts for 40,418 lots, totaling approximately $1.7 billion, and we had $66.8 million of deposits for land contracts, of which $36.5 million were non-refundable cash deposits pertaining to land contracts.

Subject to the terms of the outstanding contracts continuing to meet our investment criteria, 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 performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change and dependent on future market conditions.

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.

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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):

Our outstanding debt obligations included the following as of June 30, 2022 and December 31, 2021 (in thousands):

3.875% senior notes, due August 2029 (1)

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(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.

(2) As of June 30, 2022, other financing obligations included $18.2 million related to insurance premium notes and certain secured borrowings, as well as $0.9 million outstanding under the Construction Loan Agreement.

As of June 30, 2021, other financing obligations included $9.2 million related to insurance premium notes and certain secured borrowings.

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.

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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.

As of June 30, 2022 and December 31, 2021, we had $564.0 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.

Construction Loan Agreement

On March 17, 2022, a wholly owned subsidiary of Century Living entered into a Construction Loan Agreement with U.S.

Bank National Association, a national banking association, d/b/a Housing Capital Company (which we refer to as “the Lender”).

The Construction Loan Agreement provides that we may borrow up to $80.0 million from the Lender for purposes of construction of a multi-family project in Colorado, with advances made by the Lender upon the satisfaction of certain conditions.

Borrowings under the Construction Loan Agreement bear interest at a rate per annum equal to a forward-looking term rate based on the secured overnight financing rate (which we refer to as “SOFR”) plus 210 basis points.

The outstanding principal balance and all accrued and unpaid interest is due on the maturity date of March 17, 2026, and prepayments of the unpaid principal balance and accrued interest may be prepaid in full or in part, without premium or penalty.

We have the option to extend the maturity date for a period of 12 months if certain conditions are satisfied.

The Construction Loan Agreement contains customary affirmative and negative covenants (including covenants related to construction completion, and limitations on the use of loan proceeds, transfers of land, equipment, and improvements), as well as customary events of default.

As of June 30, 2022, $0.9 million was outstanding under the Construction Loan Agreement, and we were in compliance with all covenants thereunder.

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.

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

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

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

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

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

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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 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.

As of June 30, 2022, we had $141.0 million outstanding under the Credit Facility and were in compliance with all covenants under the Second A&R Credit Agreement.

Mortgage Repurchase Facilities – Financial Services

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Morgan, and Wells Fargo, respectively.

The mortgage warehouse lines of credit (which we refer to as the “Repurchase Facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate of $325 million as of March 31, 2022, 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 $325.0 million as of June 30, 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 2.938%.

Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.

As of March 31, 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.

As of June 30, 2022, we had $209.0 million outstanding under these Repurchase Facilities and were in compliance with all covenants thereunder.

During the three and six months ended June 30, 2022, we incurred interest expense on the Repurchase Facilities of $0.4 million and $0.6 million, respectively.

During the same periods in 2021, we incurred interest expense on the Repurchase Facilities of $0.8 million and $1.4 million, respectively.

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

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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 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.

with Wells Fargo Securities, LLC as a sales agent, had all $100.0 million available for sale as of June 30, 2022.

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

Stock Repurchase Program

On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock.

On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4.5 million shares of our outstanding common stock.

The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws.

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

During the 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 three months ended March 31, 2022, an increase of 33.0% over previously paid quarterly dividends (in thousands, except per share information):

During the three and six months ended June 30, 2022, an aggregate of 0.8 million and 1.8 million shares, respectively, of our common stock were repurchased for a total purchase price of approximately $35.9 million and $98.3 million, respectively, and a weighted average price of $45.42 and $54.46 per share, respectively.

During the three and six months ended June 30, 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 June 30, 2022 was 2,008,994 shares.

The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the six months ended June 30, 2022, (in thousands, except per share information):

Cash Dividends Declared

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March 16, 2022

June 15, 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— 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:

Cash Flows— Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

For the six months ended June 30, 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 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.

Net cash used in operating activities was $102.9 million during the six months ended June 30, 2022 as compared to net cash provided by operating activities of $143.4 million during 2021.

The increase in cash used in operations is primarily a result of increased investment in our homebuilding inventories for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021, partially offset by a decrease in originations of mortgage loans held for sale and a $81.6 million increase in net income during six months ended June 30, 2022 as compared to the six months ended June 30, 2021 .

 Net cash used in investing activities increased to $25.3 million during the six months ended June 30, 2022, compared to $4.4 million used during the same period in 2021.

The increase was primarily related to expenditures related to the development, construction, and management of multi-family rental properties by our wholly owned subsidiary Century Living.

 Net cash used in financing activities decreased to $96.3 million during the six months ended June 30, 2022, compared to net cash used by financing activities of $112.5 million during the same period in 2021.

The decrease in cash used in financing activities was primarily attributable to a $141.0 million cash inflow from borrowings under our revolving line of credit for the six months ended June 30, 2022 compared to no revolving line of credit borrowings outstanding for the six months ended June 30, 2021 partially offset by (1) a $23.6 million increase in net payments on the Repurchase Facilities (2) a $98.3 million increase in repurchases of our common stock and (3) an $8.2 million increase in dividend payments during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

As of June 30, 2022, our cash and cash equivalents and restricted cash balance was $97.8 million.

Non-GAAP Financial Measures

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EBITDA and Adjusted EBITDA

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

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

Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance.

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(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Income tax expense

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The following table presents our ratio of net homebuilding debt to net capital, which is a non-GAAP financial measure.

We calculate this by dividing net 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.

We calculate this by dividing net homebuilding debt (homebuilding debt 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 our outstanding borrowings under our Construction Loan Agreement and our Repurchase Facilities.

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

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Revolving line of credit

Construction loan agreement

Total homebuilding debt

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(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted average common shares outstanding - basic

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Adjusted diluted earnings per share

(1) The tax rate used in calculating adjusted net income for the three months ended March 31, 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.

(1) The tax rates used in calculating adjusted net income for the three and six months ended June 30, 2022 was 25.7% and 25.2%, respectively, and for the three and six months ended June 30, 2021 was 22.5%, which are reflective of the Company’s GAAP tax rates for the applicable periods.

QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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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 senior unsecured revolving line of credit.

Borrowings under the Construction Loan Agreement bear interest at a rate per annum equal to a forward-looking term rate based on the SOFR plus 210 basis points.

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

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

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

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

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.

Our homebuilding operations have been and may continue to be adversely impacted by inflation, primarily from higher land, financing, labor, material, particularly lumber, and construction costs.

In addition, inflation has led and could continue to lead to higher mortgage rates, which has and could continue to significantly affect the affordability of mortgage financing to homebuyers and lead to weakened demand for our homes, as well as increased cancellations.

As inflation remained elevated during the three and six months ended June 30, 2022, interest rates on 30-year fixed mortgages have risen, coupled with the Federal Reserve raising the federal funds interest rate during the first and second quarters of 2022.

While we were generally able to pass on cost increases from inflationary impacts to customers through increased home prices during the three and six months ended June 30, 2022, we may not be able to continue to offset cost increases with higher home selling prices in the future if weak housing market conditions exist.

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

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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 industry, supply chain challenges, 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, changes in demand for our homes, 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