What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-27 · 199 added, 159 removed, 408 unchanged (47% of the section changed)

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Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors.

The forward-looking statements included in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement.

significantly from those expressed in any forward-looking statement.

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

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part I, Item 1A.

Risk Factors” in our Annual Report on Form 10-K, and other risks and uncertainties detailed in

this report, including “Part II, Item 1A.

Risk Factors” in our Annual Report on Form 10-K, and other risks and uncertainties detailed in this report, including “Part II, Item 1A.

Risk Factors,” and our other reports and filings with the SEC.

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This information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends.

Some of the numbers included herein have been rounded for the convenience of presentation.

Business Overview

Century is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 18 states.

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

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.

During the quarter ended March 31, 2023, our Century Living operations were engaged in construction on three multi-family projects in Colorado, which commenced in 2022.

Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, currently all located in Colorado.

During the three and six months ended June 30, 2023, our Century Living operations were engaged in construction on three multi-family projects in Colorado, which commenced construction in 2022.

Century Living, LLC is included in our Corporate segment.

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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 1,912 homes delivered during the first quarter of 2023, approximately 89% of our deliveries were made to entry-level homebuyers that were below the Federal Housing Administration-insured mortgage limits and approximately 98% of homes delivered were built as move-in ready homes.

Despite experiencing challenging market conditions as compared to the prior year period, we generated solid results during the first quarter of 2023 and believe that we are well positioned to operate in this more normalized higher interest rate environment.

The Federal Reserve’s ongoing federal funds interest rate increases to mitigate inflation considerably impacted the U.S.

Of the 4,147 homes delivered during the first half of 2023, approximately 91% of our deliveries were made to entry-level homebuyers that were below the Federal Housing Administration-insured mortgage limits and approximately 98% of homes delivered were built as move-in ready homes.

Financial Overview

We generated solid financial results during the first six months of 2023 and we are encouraged by improving housing market conditions as compared to the second half of 2022, when increased mortgage interest rates, inflation, and macro-economic uncertainty considerably impacted the U.S.

housing market.

Beginning in the second quarter of 2022 and continuing through the first quarter of 2023, we experienced a decline in sales pace across our markets, resulting in a decrease of 31.3% in our net new home contracts for the three months ended March 31, 2023 as compared to the same period in 2022.

This decrease in our sales pace was consistent with trends seen in the overall housing market, as increased mortgage interest rates, 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.

Even with these challenges, we are encouraged by trends in demand, as during the first quarter of 2023, we experienced cancellation rates of a combined 18%, with a 16% cancellation rate for Century Communities and a 20% cancellation rate for Century Complete, which represents a significant reduction from cancellation rates we experienced in the latter half of 2022.

While inflation continues to impact the broader economy, homebuyers are adjusting to a more normalized higher interest rate environment, and we are encouraged by recent trends in demand.

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2023 increased 3.8% as compared to the prior year period, and increased sequentially 14.6% as compared to the first quarter of 2023.

Further, during the three and six months ended June 30, 2023 , our cancellation rates were 14% and 16%, respectively , representing significant improvements from the cancellation rates we experienced in the latter half of 2022.

We continue to focus our strategy on more near-term completions, as economic uncertainty has led a majority of our recent homebuyers to seek homes with near-term completion schedules, allowing them to lock in interest rates closer to a home closing.

Further, in response

to the significant mortgage rate increases experienced in the latter half of 2022, and to maintain sales momentum, we have increased incentive offerings across our communities, including discounts on options and upgrades and financing incentives, which resulted in downward pressure to our homebuilding gross margin during the first quarter of 2023.

We expect we will continue to experience downward pressure to our homebuilding gross margins during the first half of 2023 compared to the prior year period, impacted by elevated construction costs during the first and second quarters of 2022 when the homes were started, as well as incentives.

We have also taken steps to reduce our fixed costs in light of the overall market, including a reduction in staff during the first quarter of 2023.

During the first quarter of 2023, our direct construction costs on our starts decreased by approximately 11% as compared to the high point of our direct construction costs during the second quarter of 2022.

Further, the severity of the labor and raw material shortages and municipal and utility delays have continued to moderate for completed homes that were started in the second half of 2022, and we expect cycle times to continue to decline in future quarters.

Further, with the increasing market demand for our homes experienced during the second quarter of 2023, we began to reduce incentive offerings across our communities as compared to previous quarters, which along with improving construction costs and cycle times, contributed to an improvement to our homebuilding gross margin as compared to the first quarter of 2023.

During the second quarter of 2023, our direct construction costs on our starts decreased by approximately 11% as compared to the high point of our direct construction costs during the second quarter of 2022.

Further, during the second quarter of 2023, the severity of the labor and raw material shortages and municipal and utility delays continued to moderate for completed homes that were started in the second half of 2022.

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

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

While we experienced increased market demand during the second quarter of 2023 compared to recent prior periods, 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 recent and anticipated future increases to the federal funds interest rate by the Federal Reserve;

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

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.

Specifically, a rise in interest rates increases the costs of owning a home and adversely affects the purchasing power of our customers and could decrease homebuyer confidence hindering not only demand for our homes, but also our ability to realize our backlog.

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 future macro-economic uncertainty, especially in relation to the higher interest rate environment, 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 affordable housing.

Despite future macro-economic uncertainty, especially in relation to the interest rate environment, 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 affordable housing.

We believe our operations are well-positioned to withstand volatility in future market conditions as a result of 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.

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Results of Operations

During the three months ended March 31, 2023, we generated $44.0 million in income before income tax expense, as compared to $188.8 million in the prior year period, and net income of $33.3 million, or $1.04 per diluted share, as compared to $142.5 million, or $4.20 per share, in the prior year period.

During the three months ended March 31, 2023, we generated total revenues of $753.0 million and home sales revenues of $735.6 million, as compared to $1.0 billion and $988.4 million, respectively, in the prior year period.

During the three months ended March 31, 2023, we delivered 1,912 homes with an average sales price of $384.7 thousand, as compared to 2,348 homes delivered with an average sales price of $421.0 in the prior year period.

We ended the first quarter of 2023 with no amounts outstanding under our revolving line of credit, $405.7 million of cash and cash equivalents, $12.7 million of cash held in escrow, a homebuilding debt to capital ratio of 31.8%, and a net homebuilding debt to net capital ratio of 21.5%.

During the three months ended March 31, 2023, we paid quarterly cash dividends to our stockholders of $0.23 per share, a 15% increase from the previous quarterly dividend of $0.20 per share.

During the three months ended March 31, 2023, we generated financial services revenue of $15.9 million, representing a decrease of 39.7% as compared to the prior year period, driven by a reduced number of mortgages originated, as well as reduced margins on loans sold to third parties.

Our Century Living operations are engaged in construction on three multi-family projects in Colorado, which commenced in 2022, comprising over 900 units, which we anticipate will be available for leasing beginning in the second half of 2023 and into 2024.

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022.

During the three and six months ended June 30, 2023, we generated $68.7 million and $112.8 million, respectively, in income before income tax expense, as compared to $213.6 million and $402.4 million, respectively, in the respective prior year periods.

During the three and six months ended June 30, 2023, we generated net income of $51.4 million, or $1.60 per diluted share, and $84.8 million, or $2.63 per diluted share, respectively, as compared to $158.7 million, or $4.78 per diluted share, and $301.2 million, or $8.97 per diluted share, respectively, in the respective prior year periods.

During the three and six months ended June 30, 2023, we generated total revenues of $844.2 million and $1.6 billion, respectively, driven primarily by home sales revenue, as compared to $1.2 billion and $2.2 billion, respectively, in the respective prior year period .

During the three and six months ended June 30, 2023, we delivered 2,235 and 4,147 homes, respectively, with an average sales price of $366.2 thousand and $374.7 thousand, respectively.

The number of homes delivered decreased by 17.6% and 18.1%, respectively, as compared to the respective prior year periods, which were primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022.

A verage sales price decreased 12.4% and 10.7% as compared to the respective prior year periods.

We ended the second quarter of 2023 with no amounts outstanding under our revolving line of credit, $350.5 million of cash and cash equivalents, $23.2 million of cash held in escrow, a homebuilding debt to capital ratio of 31.2%, and a net homebuilding debt to net capital ratio of 22.3%.

During the three and six months ended June 30, 2023, we paid quarterly cash dividends to our stockholders of $0.23 per share, a 15% increase from the quarterly dividends paid during the three and six months ended June 30, 2022 of $0.20 per share.

During the three months ended June 30, 2023, we generated financial services revenue of $24.3 million, representing an increase of 6.5% as compared to the prior year period, primarily driven by favorable fair value of our loan pipeline compared to the prior year, partially offset by a reduced number of mortgages originated as compared to the prior year period, and reduced margins on loans sold to third parties period over period.

During the six months ended June 30, 2023, we generated financial services revenue of $40.1 million, a decrease of 18.3% as compared to the prior year period, for the six-month comparison, driven by a decrease in the number of mortgages originated during the six months ended June 30, 2023, and reduced margins on loans sold to third parties period over period, partially offset by a favorable fair value mark on our loan pipeline compared to the prior year period.

The following table summarizes our results of operations for the three and six months ended June 30, 2023 and 2022.

(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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Adjusted diluted earnings per share (1)

Other Operating Information

(dollars in thousands):

Other Operating Information (dollars in thousands):

Number of homes delivered

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Net homebuilding debt to net capital (1)

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

(1) This is a non-GAAP financial measure and should not be used as a substitute for our operating results prepared 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 .

(2) Homebuilding gross margin percentage is inclusive of impairment charges, if applicable.

No impairment charges were recorded for the three months ended March 31, 2023 and 2022.

No impairment charges were recorded for the three and six months ended June 30, 2023 and 2022.

Results of Operations by Segment

Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment.

Accordingly, we have presented segment information under this new basis for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments for the three months ended March 31, 2022.

Accordingly, we have presented segment information under this new basis for the three and six months ended June 30, 2023, and we have restated the corresponding segment information for those segments for the three and six months ended June 30, 2022.

(dollars in thousands)

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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, 2023, our West segment generated income before income tax expense of $8.0 million, an 88.8% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $133.8 million and a decrease of 2,093 basis points in the percentage of income before income tax expense to home sales revenues.

The revenue decrease during the three months ended March 31, 2023 was primarily driven by a 48.7% decrease in the number of homes delivered, and a 4.3% decrease in the average sales price per home.

The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 30.2% decrease in monthly absorption rate.

The average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities.

The decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.

During the three months ended March 31, 2023, our Mountain segment generated income before income tax expense of $27.8 million, a 51.2% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $35.1 million and a decrease of 899 basis points in the percentage of income before income tax expense to home sales revenues.

The revenue decrease during the three months ended March 31, 2023 was primarily driven by an 11.5% decrease in the number of homes delivered and a 1.1% decrease in the average sales price per home.

The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 50.0% decrease in monthly absorption rate.

The average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities.

During the three months ended March 31, 2023, our Texas segment generated income before income tax expense of $3.7 million, an 83.9% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $48.8 million and a decrease of 1,241 basis points in the percentage of income before income tax expense to home sales revenues.

The revenue decrease during the three months ended March 31, 2023 was primarily driven by a 22.7% decrease in the number of homes delivered and a 16.3% decrease in the average sales price per home.

The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 37.5% decrease in monthly absorption rate.

The average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities.

During the three months ended March 31, 2023, our Southeast segment generated income before income tax expense of $12.0 million, a 61.2% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $62.5 million and a decrease of 688 basis points in the percentage of income before income tax expense to home sales revenues.

The revenue decrease was primarily driven by a 45.9% decrease in the number of homes delivered, and partially offset by a 7.5% increase in the average sales price per home.

The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 53.2% decrease in monthly absorption rate.

The average sales price increase was driven by the mix of deliveries within individual communities.

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, 2023, our Century Complete segment generated income before income tax expense of $14.0 million, a 37.8% decrease over the prior year period, which was primarily driven by a decrease of 670 basis points in the percentage of income before income tax expense to home sales revenues, and partially offset by an increase in home sales revenue of $27.4 million.

The decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of decreased gross margins on home sales.

The revenue increase was primarily driven by a 12.3% increase in the number of homes delivered, as well as a 4.5% increase in the average sales price per home.

The increase in the number of homes delivered was driven by an increase in selling communities as compared to the prior year period, and a larger number of homes under construction at the beginning of the period as compared to the prior year period.

The average sales price increase was driven by the mix of deliveries within individual communities.

Financial Services

During the three and six months ended June 30, 2023, our West segment generated income before income tax expense of $15.0 million and $22.9 million, respectively, an 80.8% and 84.6% decrease, respectively, as compared to the respective prior year period.

These decreases were primarily driven by decreases in home sales revenue of $154.4 million and $288.3 million, respectively, and decreases of 15.8% and 18.3%, respectively, in the percentage of income before income tax expense to home sales revenues.

The revenue decreases during the three and six months ended June 30, 2023 were primarily driven by a 40.4% and 44.4% decrease, respectively, in the number of homes delivered, and a 20.5% and 13.3% decrease, 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 primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 10.5% and 16.0% decrease, respectively, in monthly absorption rate.

For both the three- and six-month comparisons, the average sales price decreases were driven by the mix of deliveries and pricing to market within individual communities and the decreases in the percentage of income before income tax expense to home sales revenue were primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.

During the three and six months ended June 30, 2023, our Mountain segment generated income before income tax expense of $24.7 million and $52.5 million, respectively, a 52.1% and 51.6% decrease, respectively, as compared to the respective prior year period.

These decreases were primarily driven by decreases in home sales revenue of $46.0 million and $81.1 million, respectively, and decreases of 7.9% and 8.5%, respectively, in the percentage of income before income tax expense to home sales revenues.

The revenue decrease during the three months ended June 30, 2023 was primarily driven by a 16.2% decrease in the average sales price per home, and the revenue decrease during the six months ended June 30, 2023 was primarily driven by a 6.4% decrease in the number of homes

delivered and an 8.8% decrease in the average sales price per home.

For the six- month comparison, the decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 40.7% decrease in monthly absorption rate.

During the three and six months ended June 30, 2023, our Texas segment generated income before income tax expense of $11.5 million and $15.1 million, respectively, a 62.7% and 71.7% decrease, respectively, as compared to the respective prior year period.

These decreases were primarily driven by decreases in home sales revenue of $26.5 million and $75.3 million, respectively, and decreases of 11.0% and 11.4%, respectively, in the percentage of income before income tax expense to home sales revenues.

The revenue decreases during the three and six months ended June 30, 2023 were primarily driven by an 8.0% and 14.8% decrease, respectively, in the number of homes delivered, and a 10.2% and 13.0% decrease, 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 primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 7.9% and 20.8% decrease, respectively, in monthly absorption rate.

During the three and six months ended June 30, 2023, our Southeast segment generated income before income tax expense of $18.0 million and $30.0, respectively, a 53.6% and 57.0% decrease, respectively, as compared to the respective prior year period.

These decreases were primarily driven by decreases in home sales revenue of $63.1 million and $125.6 million, respectively, and decreases of 6.2% and 6.4%, respectively, in the percentage of income before income tax expense to home sales revenues.

The revenue decrease during the three months ended June 30, 2023 was primarily driven by a 31.9% decrease in the number of homes delivered and a 4.5% decrease in the average sales price per home, and the revenue decrease during the six months ended June 30, 2023 was primarily driven by a 38.6% decrease in the number of homes delivered.

For both the three- and six-month comparisons, the decreases in the number of homes delivered were primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022 and a 33.3% and 43.3% decrease, respectively, in monthly absorption rate.

For the three-month comparison, the average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities, and for both the three- and six-month comparisons, the decreases in the percentage of income before income tax expense to home sales revenue were primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.

Century Complete

During the three and six months ended June 30, 2023, our Century Complete segment generated income before income tax expense of $16.3 million and $30.3 million, respectively, a 53.0% and 47.0% decrease, respectively, as compared to the respective prior year period.

For the three months ended June 30, 2023, the decrease was primarily driven by a decrease in home sales revenue of $26.1 million and a decrease of 7.1% in the percentage of income before income tax expense to home sales revenues, and for the six months ended June 30, 2023, the decrease was primarily driven by a decrease of 6.9% in the percentage of income before income tax expense to home sales revenues.

The decrease in revenue during the three months ended June 30, 2023 was primarily driven by a 14.4% decrease in the number of homes delivered and was partially offset by a 3.7% increase in the average sales price per home driven by the mix of deliveries.

Revenue remained flat during the six months ended June 30, 2023, primarily driven by a 3.5% decrease in the number of homes delivered and partially offset by a 3.9% increase in the average sales price per home driven by the mix of deliveries.

For both the three- and six-month comparisons, the decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and for the six-month comparison a 10.7% decrease in monthly absorption rate.

For the three-month comparison, the decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.

For the six-month comparison, the decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of decreased gross margins on home sales.

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 $5.1 million for the three months ended March 31, 2023, a 54.5% decrease over the prior year period.

This decrease was primarily the result of a $10.5 million decrease in financial services revenue during the three months ended March 31, 2023 compared to the prior year period, primarily driven by (1) a 34.9% decrease in the number of mortgages originated during the three months ended March 31, 2023, and (2) reduced margins on loans sold to third parties period over period.

Our Financial Services segment generated income before income tax of $12.5 million for the three months ended June 30, 2023, a 45.2% increase over the prior year period.

This increase was primarily the result of a $1.5 million increase in financial services revenue during the three months ended June 30, 2023 compared to the prior year period, as well as a decrease in financial services costs due to decreased headcount.

The revenue increase was primarily driven by favorable fair value of our loan

pipeline compared to the prior year, partially offset by a reduced number of mortgages originated as compared to the prior year period, and reduced margins on loans sold to third parties period over period.

Our Financial Services segment generated income before income tax of $17.6 million for the six months ended June 30, 2023, an 11.0% decrease over the prior year period.

This decrease was primarily the result of a $9.0 million decrease in financial services revenue during the six months ended June 30, 2023 compared to the prior year period, primarily driven by (1) a 21.8% decrease in the number of mortgages originated during the six months ended June 30, 2023, and (2) reduced margins on loans sold to third parties period over period, partially offset by a favorable fair value mark on our loan pipeline compared to the prior year 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, 2023, our Corporate segment generated a loss of $26.4 million, remaining consistent with a loss of $26.7 million during the same period in 2022.

During the three and six months ended June 30, 2023, our Corporate segment generated losses of $29.2 million and $55.6 million, respectively, remaining relatively consistent to losses of $28.7 million and $55.4 million, respectively, during the same period respective period in 2022.

Homebuilding Gross Margin

(dollars in thousands)

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

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased to 18.2% for the three months ended March 31, 2023, as compared to 28.3% for the three months ended March 31, 2022.

This decrease was driven by deliveries in the first quarter of 2023 that carried both higher incentives and elevated construction costs due to homes commencing construction during high costs periods in 2022, both of which we expect to continue to adversely impact our gross margins through the first half of 2023.

Homebuilding gross margin represents home sales revenues less cost of home sales revenues and inventory impairment, if applicable.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased for the three and six months ended June 30, 2023 to 19.7% and 19.0%, respectively, as compared to 28.2% for the three and six months ended June 30, 2022.

This decrease was driven by deliveries in the first six months of 2023 that carried both higher incentives and elevated construction costs due to homes commencing construction during high costs periods in 2022.

In the following table, we calculate our homebuilding gross margin, as adjusted to exclude inventory impairment, if applicable, 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 (1)

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

Six Months Ended June 30,

Home sales revenues

Cost of home sales revenues

Inventory impairment

Homebuilding gross margin

Inventory impairment

Interest in cost of home sales revenues

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

(1) This non-GAAP financial measure should not be used as a substitute for our 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, 2023, our adjusted homebuilding gross margin percentage excluding inventory impairment and interest in cost of home sales revenues, was 19.6% as compared to 29.5% for the same period in 2022.

For the three and six months ended June 30, 2023, our adjusted homebuilding gross margin percentage excluding inventory impairment and interest in cost of home sales revenues, was 21.0% and 20.3%, respectively, as compared to 29.4% for the same periods in 2022.

We believe the above information is meaningful as it isolates the impact that indebtedness, inventory impairment (if applicable), 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 decreased $3.3 million for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

This decrease was primarily attributable to a $3.0 million decrease in internal and external commission expense, as well as a $1.7 million decrease in salaries and wages due to decreased headcount, and partially offset by an increase in expenses in numerous areas to support our homebuilding operations.

As a percentage of home sales revenue, our selling, general and administrative expense increased 310 basis points during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022, driven primarily by decreased revenue 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 decreased $4.0 million and $7.4 million, respectively, for the three and six months ended June 30, 2023 as compared to the same periods in 2022.

The decreases for both the three- and six-month comparisons were primarily attributable to decreases of $8.9 million and $10.6 million, respectively, in salaries and wages due to decreased headcount, and partially offset by increases to stock-based compensation expense and by increases in various expenses to support our homebuilding operations.

As a percentage of home sales revenue, our selling, general and administrative expense increased 320 basis points during each of the

three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022, driven primarily by decreased revenue on a partially fixed cost base.

Income Tax Expense

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Our 2023 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 and estimated federal energy home credits for the current year home deliveries, which combined resulted in a net increase of 0.8%.

For the three months ended March 31, 2023, our estimated annual rate of 25.0% was benefitted by discrete items which had a net impact of decreasing our rate by 0.7%, including excess tax benefits for vested stock-based compensation.

Our estimated annual rate for the three months ended March 31, 2023 of 25.0% increased by 260 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4%.

The increase in our estimated rate is a result of the enactment of the Inflation Reduction Act of 2022 during the third quarter of 2022, which modified the energy efficient home credit beginning with homes closed on or after January 1, 2023 and provided for more stringent energy standards than previous periods.

For the three months ended March 31, 2023 and 2022, we recorded income tax expense of $10.7 million and $46.3 million, respectively.

For the six months ended June 30, 2023, our estimated annual rate of 25.5% was benefitted by discrete items which had a net impact of decreasing our rate by 0.7%, including excess tax benefits for vested stock-based compensation.

Our estimated annual rate for the six months ended June 30, 2023 of 25.5% increased by 310 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4%.

The increase in our estimated rate is primarily a result of the enactment of the Inflation Reduction Act of 2022 during the third quarter of 2022, which modified the energy efficient home credit beginning with homes closed on or after January 1, 2023 and provided for more stringent energy standards than previous periods, resulting in fewer closings qualifying for energy efficient home credits.

For the three months ended June 30, 2023 and 2022, we recorded income tax expense of $17.3 million and $55.0 million, respectively.

For the six months ended June 30, 2023 and 2022, we recorded income tax expense of $28.0 million and $101.3 million, respectively.

Segment Assets

Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment.

Accordingly, we have presented segment information under this new basis as of March 31, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022.

Accordingly, we have presented segment information under this new basis as of June 30, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022.

(dollars in thousands)

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Financial Services

Total assets decreased slightly to $3.7 billion as of March 31, 2023 as compared to December 31, 2022, primarily as a result of changes in our inventory balances within our homebuilding segments related to timing of home and land development construction activities, and a decrease in Financial Services assets primarily related to a decrease in mortgage loans held for sale period over period.

These decreases were partially offset by an increase in our Corporate assets, primarily driven by increases in cash and cash equivalents and increases related to Century Living .

Total assets increased to $3.9 billion as of June 30, 2023 as compared to $3.8 billion as of December 31, 2022, primarily as a result of changes in our inventory balances within our homebuilding segments related to timing of home and land development construction activities and an increase in the number of homes under construction, and an increase in our Corporate assets, primarily driven by increases in cash and cash equivalents and increases related to Century Living .

Lots owned and controlled

March 31, 2023

June 30, 2023

December 31, 2022

Century Complete

Of our total lots owned and controlled as of March 31, 2023, 60.8% were owned and 39.2% were controlled, as compared to 60.5% owned and 39.5% controlled as of December 31, 2022.

Of our total lots owned and controlled as of June 30, 2023, 53.6% were owned and 46.4% were controlled, as compared to 60.5% owned and 39.5% controlled as of December 31, 2022.

Other Homebuilding Operating Data

Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment.

Accordingly, we have presented segment information under this new basis as of and for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments as of and for the three months ended March 31, 2022.

Accordingly, we have presented segment information under this new basis as of and for the three and six months ended June 30, 2023, and we have restated the corresponding segment information for those segments as of and for the three and six months ended June 30, 2022.

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, 2023 decreased by 922 homes, or 31.3%, to 2,022 as compared to 2,944 for the three months ended March 31, 2022.

Beginning in the second quarter of 2022 and continuing through the first quarter of 2023, we experienced a decline in home sales pace across our markets as compared to prior year periods.

The decrease in net new home contracts was primarily driven by the reduced number of homes available for sale and the impact on demand for new homes from increased interest rates, inflation, and macro-economic uncertainty.

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2023 increased by 84 homes, or 3.8%, to 2,317 as compared to 2,223 for the same period in 2022.

While inflation continues to impact the broader economy, homebuyers are adjusting to a more normalized higher interest rate environment.

Net new home contracts for the six months ended June 30, 2023 decreased by 838 homes, or 16.2%, to 4,339 as compared to 5,177 for the same period in 2022, primarily driven by the reduced number of homes available for sale.

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, 2023 and 2022 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 cancellations) for the three and six months ended June 30, 2023 and 2022 by segment are included in the tables below:

Three Months Ended June 30,

Increase (Decrease)

Century Complete

During the three months ended March 31, 2023, our absorption rate decreased by 42.0% to 2.9 per month, as compared to the same period in 2022.

Beginning in the second quarter of 2022 and continuing through the first quarter of 2023, we experienced a decline in sales pace across our markets compared to prior year periods.

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

Even with these challenges, during the three months ended March 31, 2023, we experienced cancellation rates of a combined 18%, with a 16% cancellation rate for Century Communities and a 20% cancellation rate for Century Complete, which represents a significant reduction from cancellation rates we experienced in the latter half of 2022.

Six Months Ended June 30,

Increase (Decrease)

Century Complete

During the three and six months ended June 30, 2023, our absorption rates decreased by 5.7% and 24.4%, respectively, to 3.3 per month and 3.1 per month, respectively, as compared to the same periods in 2022.

While home sales pace across our markets has been impacted by increased mortgage interest rates, inflation, and macro-economic uncertainty as compared to the historical record demand in prior year periods, we are encouraged by recent trends in demand.

During the three and six months ended June 30, 2023, we experienced cancellation rates of 14% and 16% respectively , which represents a significant reduction from cancellation rates we experienced in the latter half of 2022 as we believe homebuyers are adjusting to the higher interest rate environment and our strategy of selling homes later in the construction cycle has benefitted our cancellation rate.

Selling communities at period end

As of March 31,

As of June 30,

Increase/(Decrease)

Century Complete

Our selling communities increased by 37 communities to 234 communities at March 31, 2023 as compared to 197 at March 31, 2022.

This increase was a result of new community openings since the end of the prior year period.

Our selling communities increased by 20 communities to 233 communities at June 30, 2023 as compared to 213 at June 30, 2022.

This increase was a result of net new community openings since the end of the prior year period.

(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, 2023, we had 1,920 homes in backlog with a total value of $713.6 million, which represents decreases of 63.4% and 67.1%, respectively, as compared to 5,247 homes in backlog with a total value of $2.2 billion at March 31, 2022.

At June 30, 2023, we had 2,002 homes in backlog with a total value of $750.1 million, which represents decreases of 58.0% and 62.1%, respectively, as compared to 4,767 homes in backlog with a total value of $2.0 billion at June 30, 2022.

The decrease in backlog dollar value is primarily attributable to the decrease in backlog units, and in part due to a 9.7% decrease in the average sales price of homes in backlog.

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

As of March 31, 2023, Century Communities, Inc.

As of June 30, 2023, Century Communities, Inc.

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

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provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures);

(3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture;

required to provide a guarantee pursuant to the applicable indenture;

provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture;

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This may occur when, among other factors, it is found that the guarantor originally received less than fair consideration for the guarantee and the guarantor would be rendered insolvent by enforcement of the guarantee.

On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the Senior Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay

such debts as they mature.

The Company cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

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Summarized Balance Sheet Data (in thousands)

March 31, 2023

June 30, 2023

December 31, 2022

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Summarized Statements of Operations Data (in thousands)

Three Months Ended

March 31, 2023

Six Months Ended

June 30, 2023

December 31, 2022

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Liquidity and Capital Resources

Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and revolving line of credit availability, was $1.2 billion as of March 31, 2023 and December 31, 2022.

Our principal uses of capital for the three months ended March 31, 2023 were our land purchases, land development, home construction, and the payment of routine liabilities.

Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and revolving line of credit availability, was $1.2 billion as of June 30, 2023 and $1.2 billion as of December 31, 2022.

Our principal uses of capital for the three and six months ended June 30, 2023 were our land purchases, land development, home construction, and the payment of routine liabilities.

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

For the three months ended March 31, 2023, 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, 2022 that was filed with the SEC on February 2, 2023.

For the three and six months ended June 30, 2023, there were no material changes to the contractual obligations we previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the SEC on February 2, 2023.

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, 2023, we had outstanding purchase contracts and option contracts for 20,248 lots totaling approximately $897.4 million and we had $42.4 million of deposits for land contracts, of which $21.8 were non-refundable cash deposits pertaining to land contracts.

As of June 30, 2023, we had outstanding purchase contracts and option contracts for 26,804 lots totaling approximately $1.2 billion and we had $41.2 million of deposits for land contracts, of which $19.4 million were non-refundable cash deposits pertaining to land contracts.

For contracts for which cash deposits were non-refundable, and subject to the terms of the outstanding contracts continuing to meet our investment criteria, we currently anticipate performing on the majority of our purchase and option contracts during the next 24 months.

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

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

We are required to meet certain covenants, and as of March 31, 2023, we were in compliance with all such covenants and requirements under the agreements governing our revolving line of credit, mortgage repurchase facilities, and construction loan agreements.

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

Our outstanding debt obligations included the following as of March 31, 2023 and December 31, 2022 (in thousands):

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

We are required to meet certain covenants, and as of June 30, 2023, we were in compliance with all such covenants and requirements under the agreements governing our revolving line of credit, mortgage repurchase facilities, and construction loan agreements.

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

Our outstanding debt obligations included the following as of June 30, 2023 and December 31, 2022 (in thousands):

3.875% senior notes, due August 2029 (1)

6.750% senior notes, due May 2027 (1)

6.750% senior notes, due June 2027 (1)

Other financing obligations (2)

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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 March 31, 2023, other financing obligations included $20.4 million related to insurance premium notes and certain secured borrowings, as well as $14.5 million outstanding under the construction loan agreements, as described below.

As of December 31, 2022, other financing obligations included $20.7 million related to insurance premium notes and certain secured borrowings, as well as $7.4 million outstanding under the construction loan agreements.

(2) As of June 30, 2023, other financing obligations included $17.6 million related to insurance premium notes and certain secured borrowings, as well as $21.1 million outstanding under construction loan agreements, as described below.

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.

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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, 2023 and December 31, 2022, we had $570.8 million and $574.8 million, respectively, in letters of credit and performance and other bonds issued and outstanding.

As of June 30, 2023 and December 31, 2022, we had $546.1 million and $574.8 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.

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Bank National Association, a national banking association, d/b/a Housing Capital Company (which along with UMB Bank, N.A., we collectively refer to as “the lenders”), respectively.

The three construction loan agreements collectively provide that we may borrow up to $187.6 million from the lenders for purposes of construction of multi-family projects in Colorado, with advances made by the lenders upon the satisfaction of certain conditions.

The three construction loan agreements collectively provide that we may borrow up to an aggregate of $187.6 million from the lenders for purposes of construction of multi-family projects in Colorado, with advances made by the lenders upon the satisfaction of certain conditions.

Borrowings under the construction loan agreements bear interest at various rates, including a fixed rate, and floating interest rates per annum equal to the Secured Overnight Financing Rate (which we refer to as “SOFR”) and the Bloomberg Short-term Bank Yield Index, plus an applicable margin.

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The construction loan agreements contain 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 March 31, 2023, $14.5 million was outstanding under the construction loan agreements, with borrowings bearing a weighted average interest rate of 6.778% during the three months ended March 31, 2023, and we were in compliance with all covenants thereunder.

Interest on our construction loan agreements is capitalized to the multi-family properties assets included in prepaid expenses and other assets on the condensed consolidated balance sheets while the related multi-family rental properties are being actively developed and until the projects are completed.

As of June 30, 2023, $21.1 million was outstanding under the construction loan agreements, with borrowings that bore a weighted average interest rate of 7.1% during the six months ended June 30, 2023, and we were in compliance with all covenants thereunder.

Revolving Line of Credit

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On December 21, 2022, we entered into a First Modification Agreement with Texas Capital Bank, as Administrative Agent, amending the Second A&R Credit Agreement pursuant to which, effective January 3, 2023, all existing borrowings using an interest rate based on a LIBOR reference rate had the interest rate replaced with one based on an adjusted term SOFR reference rate, which equals the greater of (i) 0.50% or (ii) the one-month quotation of the secured overnight financing rate administered by the Federal Reserve Bank of New York, plus 0.10%.

As of March 31, 2023, no amounts were outstanding under our revolving line of credit and were in compliance with all covenants under the Second A&R Credit Agreement.

As of June 30, 2023, no amounts were outstanding under our revolving line of credit and were in compliance with all covenants under the Second A&R Credit Agreement.

Mortgage Repurchase Facilities – Financial Services

Inspire is party to mortgage warehouse facilities with Comerica Bank and J.P.

Morgan, and formerly Wells Fargo (since the agreement with Wells Fargo was terminated during the three months ended March 31, 2023) (which facilities we refer to as the “repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $200.0 million as of March 31, 2023, secured by the mortgage loans financed thereunder.

The repurchase facilities have varying short term maturity dates through December 21, 2023 and bear a weighted average interest rate of 6.38% during the three months ended March 31, 2023.

Morgan, (which facilities we refer to as the “repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $275.0 million as of June 30, 2023, secured by the mortgage loans financed thereunder.

The repurchase facilities have varying short term maturity dates through June 21, 2024 and bore a weighted average interest rate of 6.67% during the six months ended June 30, 2023.

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, 2023 and December 31, 2022, we had $149.8 million and $197.6 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder.

As of June 30, 2023 and December 31, 2022, we had $191.0 million and $197.6 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder.

At-the-Market Offerings

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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.

We did not sell or issue any shares of our common stock during the three months ended March 31, 2023 and 2022, respectively, and as of March 31, 2023, all $100.0 million remained available for sale.

We did not sell or issue any shares of our common stock during the three and six months ended June 30, 2023 and 2022, respectively, and as of June 30, 2023, all $100.0 million remained available for sale.

Stock Repurchase Program

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

During the three months ended March 31, 2023, we did not repurchase any shares of our 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 at a weighted average price of $61.52 per share.

The maximum number of shares available to be repurchased under the stock repurchase program as of March 31, 2023 was 1,508,169 shares.

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, 2023 and 2022, respectively (in thousands, except per share information):

Three Months ended March 31, 2023

During the three and six months ended June 30, 2023, an aggregate of 30.4 thousand shares of our common stock were repurchased for a total purchase price of approximately $2.0 million at a weighted average price of $64.84 per share.

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, at a weighted average price of $45.42 and $54.46 per share.

The maximum number of shares available to be repurchased under the stock repurchase program as of June 30, 2023 was 1,477,817 shares.

The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the three and six months ended June 30, 2023 and 2022, respectively (in thousands, except per share information):

Six Months ended June 30, 2023

Cash Dividends Declared and Paid

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March 15, 2023

Three Months ended March 31, 2022

June 14, 2023

Six Months ended June 30, 2022

Cash Dividends Declared and Paid

3 unchanged sentences

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, 2023 Compared to the Three Months Ended March 31, 2022

For the three months ended March 31, 2023 and 2022, the comparison of cash flows is as follows:

Cash Flows— Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

For the six months ended June 30, 2023 and 2022, 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 $191.3 million during the three months ended March 31, 2023 as compared to $109.4 million during the quarter ended March 31, 2022.

The increase in cash provided by operations is primarily a result of a reduction in inventories as a result of reduced land acquisition spend and expenditures associated with the construction of homes during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

This reduction was offset by (1) a decrease in net income of $109.2 million and (2) a reduction in our mortgage loans held for sale of $48.2 million during the three months ended March 31, 2023, as compared to a reduction in mortgage loans held for sale of $144.4 million during the three months ended March 31, 2022.

 Net cash used in investing activities increased to $20.9 million during the three months ended March 31, 2023, compared to $5.1 million used during the three months ended March 31, 2022.

Net cash provided by operating activities was $132.8 million during the six months ended June 30, 2023 as compared to net cash used in operating activities of $102.9 million during the six months ended June 30, 2022.

The increase in cash provided by operations is primarily a result of reduced expenditures related to land acquisition and expenditures associated with the construction of homes during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

This reduction was offset by (1) a decrease in net income of $216.4 million and (2) a reduction in our mortgage loans held for sale of $6.4 million during the six months ended June 30, 2023, as compared to a reduction in mortgage loans held for sale of $128.1 million during the six months ended June 30, 2022.

 Net cash used in investing activities increased to $48.6 million during the six months ended June 30, 2023, compared to $25.3 million during the six months ended June 30, 2022.

The increase was primarily related to $39.5 million in 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 $58.3 million during the three months ended March 31, 2023, compared to $208.4 million used during the three months ended March 31, 2022.

The decrease in cash used in financing activities was primarily attributable to (1) a $91.0 million decrease in net payments on the repurchase facilities in the first three months of 2023 and (2) $62.4 million of repurchases of common stock during the first three months of 2022, as compared to no repurchases of common stock for the first three months of 2023.

As of March 31, 2023, our cash and cash equivalents and restricted cash balance was $420.6 million, as compared to $308.5 million as of December 31, 2022.

 Net cash used in financing activities decreased to $23.4 million during the six months ended June 30, 2023, compared to $96.3 million during the six months ended June 30, 2022.

The decrease in cash used in financing activities was primarily attributable to (1) a $116.3 million decrease in net payments on the repurchase facilities in the first six months of 2023 as compared to the prior year period and (2) $98.3 million of repurchases of common stock during the first six months of 2022, as compared to $2.0 million of repurchases of common stock during the first six months of 2023, partially offset by $141.0 million outstanding on the line of credit during the first six months of 2022, as compared to no amounts outstanding during the first six months of 2023.

As of June 30, 2023, our cash and cash equivalents and restricted cash balance was $369.3 million, as compared to $308.5 million as of December 31, 2022.

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, 2023 and 2022.

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

We define Adjusted EBITDA as net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense (income), (iv) depreciation and amortization expense, (v) loss on debt extinguishment (if applicable), and (vi) inventory impairment (if applicable) .

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.

Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period.

Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance.

The following table presents EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022.

EBITDA and adjusted EBITDA are non-GAAP financial measures we use as a supplemental measure in evaluating operating performance.

We define EBITDA as net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense (income), and (iv) depreciation and amortization expense.

We define adjusted EBITDA as EBITDA before loss on debt extinguishment (if applicable), and inventory impairment (if applicable) .

We believe EBITDA and adjusted EBITDA provide 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.

Accordingly, our management believes that these measurements are useful for comparing general operating performance from period to period.

Neither EBITDA or adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance.

Our presentation of Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items.

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

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

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Income tax expense

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(in thousands, except share and per share information)

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 rates used in calculating adjusted net income for the three months ended March 31, 2023 and 2022 were 24.3% and 24.5%, respectively, which are reflective of our GAAP tax rates for the applicable periods.

(1) The tax rates used in calculating adjusted net income for the three and six months ended June 30, 2023 were 25.2% and 24.8%, respectively, and the tax rates used in calculating adjusted net income for the three and six months ended June 30, 2022 were 25.7% and 25.2%, respectively, which are reflective of our GAAP tax rates for the applicable periods.

QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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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 compared to prior year periods.

Inflation remained elevated during the three months ended March 31, 2023 compared to the prior year period, and the Federal Reserve continued to raise the federal funds interest rate during the first quarter of 2023, which continued to impact interest rates on 30-year fixed mortgages.

Due to higher mortgage rates, we were no longer able to offset cost increases with higher home selling prices in the first quarter of 2023 and if weak housing market conditions continue we will likely continue to be unable to offset cost increases with higher home selling prices in the future.

Inflation remained elevated during the three and six months ended June 30, 2023 compared to the prior year periods, and the Federal Reserve continued to raise the federal funds interest rate during the first half of 2023, which continued to impact interest rates on 30-year fixed mortgages.

Due to higher mortgage rates, we were no longer able to offset cost increases with higher home selling prices in the first half of 2023.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis