What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-25 compared with 2023-10-26 · 166 added, 244 removed, 385 unchanged (52% of the section changed)

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 unstable economic and political conditions as well as geopolitical conflicts, could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels and cause higher interest rates, inflation or general economic uncertainty;

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

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

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

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

 our ability to pay dividends in the future;

 availability of qualified personnel and contractors and our ability to obtain additional or retain existing key personnel and contractor relationships;

 our ability to continue to pay dividends and make stock repurchases in the future;

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

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Some of these events and factors are described above and in “Item 2.

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

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.

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

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

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

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

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

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

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

In many of our projects, in addition to building homes, we entitle and develop the underlying land.

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

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

Our Century Communities brand has an emphasis on serving the entry-level homebuilding market but offers a wide range of buyer profiles including:

entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade opportunities.

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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 reportable segment.

Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, IHL Home Insurance Agency, LLC, and IHL Escrow Inc., which provide mortgage, title, insurance, and escrow 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, currently all located in Colorado.

During the three and nine months ended September 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 our customers greater certainty on their financing and allowing us to more appropriately price the homes and deploy our capital.

Of the 6,411 homes delivered during the first nine months 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 nine months of 2023 and we are encouraged by the 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.

While inflation continued to impact the broader economy during the first nine months of 2023, homebuyers are adjusting to a more normalized higher interest rate environment, and we experienced more typical seasonality surrounding demand.

Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2023 increased 63.1% as compared to the prior year period.

Further, during the three and nine months ended September 30, 2023 , our cancellation rates were 16.2% and 15.8%, respectively , representing significant improvements from the cancellation rates we experienced in the latter half of 2022.

During the third quarter of 2023, we continued to experience improved cycle times and benefitted from reduced direct construction costs on our starts as compared to the high point of our direct construction costs during the second quarter of 2022.

Further, during the second and third quarters of 2023, we reduced incentive offerings across our communities as compared to previous quarters, which along with improved construction costs and cycle times, contributed to an improvement to our homebuilding gross margin during the third quarter of 2023 as compared to the first and second quarters of 2023.

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.

While we experienced strengthened market demand during the third quarter of 2023 compared to the latter half of 2022, 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 potential for future increases to the federal funds interest rate by the Federal

Of the 2,358 homes delivered during the first three months of 2024, approximately 94% 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.

We generated solid financial results during the three months ended March 31, 2024 and are encouraged by recent housing market conditions demonstrating strong, underlying demand for affordable new homes.

While uncertainty remains surrounding interest rates , we experienced strong demand during the first quarter of 2024, as net new home contracts (new home contracts net of cancellations) for the three months ended March 31, 2024 increased 41.7% as compared to the prior year period.

We have continued to provide, when necessary, incentive offerings across our communities during the first quarter of 2024, including discounts on base home prices, lot premiums, and options and upgrades and financing incentives, including interest rate buydowns.

During the three months ended March 31, 2024, cycle times have remained in the four- to five-month timeframe.

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, and we expect our operating strategy will continue to adapt to market changes, though we cannot provide any assurance that our strategies will remain consistent or continue to be successful.

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

the impact of potential future increases or decreases to the federal funds interest rate by the Federal Reserve;

interest rates;

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the extent to which and how long government monetary directives, actions, and economic relief efforts will impact the U.S.

economy, consumer confidence;

consumer confidence;

household formations;

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

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.

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,

changes in mortgage interest rates impact the costs of owning a home and affect the purchasing power of our customers and could impact homebuyer confidence.

Changes in demand for our homes or cancellations due to mortgage interest rates or otherwise 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.

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We believe our operations are prepared 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.

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 optimize stockholder returns.

Results of Operations

During the three and nine months ended September 30, 2023, we generated $112.0 million and $224.8 million, respectively, in income before income tax expense, as compared to $172.1 million and $574.5 million, respectively, in the respective prior year periods.

During the three and nine months ended September 30, 2023, we generated net income of $83.2 million, or $2.58 per diluted share, and $167.9 million, or $5.21 per diluted share, respectively, as compared to $144.5 million, or $4.44 per diluted share, and $445.6 million, or $13.41 per diluted share, respectively, in the respective prior year periods.

During the three and nine months ended September 30, 2023, we generated total revenues of $889.4 million and $2.5 billion, respectively, driven primarily by home sales revenue, as compared to $1.1 billion and $3.3 billion, respectively, in the respective prior year periods .

During the three and nine months ended September 30, 2023, we delivered 2,264 and 6,411 homes, respectively, with an average sales price of $382.1 thousand and $377.3 thousand, respectively.

The number of homes delivered decreased by 13.9% and 16.6%, 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 10.2% and 10.5% during the three and nine months ended September 30, 2023 as compared to the respective prior year periods.

We ended the third quarter of 2023 with no amounts outstanding under our revolving line of credit, $193.1 million of cash and cash equivalents, $52.5 million of cash held in escrow, a homebuilding debt to capital ratio of 30.8%, and a net homebuilding debt to net capital ratio of 25.3%.

During the three and nine months ended September 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 nine months ended September 30, 2022 of $0.20 per share.

During the three months ended September 30, 2023, we generated financial services revenue of $23.6 million, representing an increase of 1.6% as compared to the prior year period.

During the nine months ended September 30, 2023, we generated financial services revenue of $63.8 million, a decrease of 11.9% as compared to the prior year period, primarily driven by reduced margins on loans sold to third parties period over period and a decrease in the number of mortgages originated during the current year period, partially offset by a smaller fair value markdown on our loan pipeline as compared to the prior year period, and increased revenue related to discount points compared to the prior year period .

Our Century Living operations are engaged in construction on three multi-family projects in Colorado, which commenced in 2022 and comprise over 900 total units.

The first multi-family property consisting of over 200 units became available for leasing during the third quarter of 2023, and we anticipate the remaining projects will be available for leasing during 2024.

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

During the three months ended March 31, 2024, we generated $84.3 million in income before income tax expense, as compared to $44.0 million in the prior year period, and net income of $64.3 million, or $2.00 per diluted share, as compared to $33.3 million, or $1.04 per diluted share, respectively, in the prior year period.

During the three months ended March 31, 2024, we generated total revenues of $948.5 million, a 25.4% increase as compared to the prior year period, driven primarily by home sales revenue .

During the three months ended March 31, 2024, we delivered 2,358 homes with an average sales price of $391.2 thousand, as compared to 1,912 homes with an average sales price of $384.7 thousand in the prior year period.

Net new contracts increased 41.7% to 2,866, as compared to 2,022 in the prior year period.

We ended the first quarter of 2024 with no amounts outstanding under our revolving line of credit, $122.8 million of cash and cash equivalents, $84.8 million of cash held in escrow, a homebuilding debt to capital ratio of 29.4%, and a net homebuilding debt to net capital ratio of 24.9%.

During the three months ended March 31, 2024, we paid a quarterly cash dividend to our stockholders of $0.26 per share, which represents a 13% increase from the $0.23 per share quarterly dividend paid during the three months ended March 31, 2023.

We have continued to strategically manage our lot pipeline, resulting in 75,089 lots owned and controlled at March 31, 2024.

During the three months ended March 31, 2024, we generated financial services revenue of $24.9 million, representing an increase of 57.2% as compared to the prior year period, driven by a 52.3% increase in the number of mortgages originated period over period, primarily due to our increased capture rate of 81% as of March 31, 2024 as compared to 66% for the prior year period, as well as a 41.2% increase in the number of loans sold to third parties period over period.

Our Century Living operations are engaged in construction on three multi-family for rent projects in Colorado, which commenced in 2022 and comprise over 900 total units.

The first multi-family property consisting of over 200 units became available for leasing during 2023, and we anticipate the remaining projects will be available for leasing during 2024.

On January 22, 2024, we closed on the acquisition of substantially all the assets of Landmark Homes of Tennessee, Inc.

(“Landmark”), a homebuilder with operations, including six active communities, in Nashville, Tennessee, for approximately $33.4 million in cash, inclusive of customary holdbacks.

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

Consolidated Statements of Operations:

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Cost of land sales and other revenues

Total homebuilding cost of revenues

Financial services costs

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Homebuilding gross margin percentage (2)

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

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

Backlog at end of period, number of homes

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

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

No impairment charges were recorded for the three months ended March 31, 2024 and 2023.

NM – Not Meaningful

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 and nine months ended September 30, 2023, and we have restated the corresponding segment information for those segments for the three and nine months ended September 30, 2022.

(dollars in thousands)

New Homes Delivered

Average Sales Price

of Homes Delivered

Home Sales Revenues

Income before

Income Tax Expense

Three Months Ended

September 30,

Three Months Ended

September 30,

Three Months Ended

September 30,

Three Months Ended September 30,

Century Complete

Financial Services

New Homes Delivered

Average Sales Price

of Homes Delivered

Average Sales Price of Homes Delivered

Home Sales Revenues

Income before

Income Tax Expense

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,

Income before Income Tax Expense

Three Months Ended March 31,

Century Complete

Financial Services

During the three and nine months ended September 30, 2023, our West segment generated income before income tax expense of $31.4 million and $54.4 million, respectively, a 38.4% and 72.8% decrease, respectively, as compared to the respective prior year periods.

These decreases were primarily driven by decreases in home sales revenue of $87.2 million and $375.5 million, respectively.

The revenue decreases during the three and nine months ended September 30, 2023 were primarily driven by a 25.7% and 38.5% decrease, respectively, in the number of homes delivered, and a 11.5% and 12.7% decrease, respectively, in the average sales price per home.

For both the three- and nine-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.

For both the three- and nine-month comparisons, the average sales price decreases were driven by the mix of deliveries and pricing to market within individual communities.

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 decreased revenue on a partially fixed cost base, and for the nine-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.

During the three and nine months ended September 30, 2023, our Mountain segment generated income before income tax expense of $25.4 million and $77.9 million, respectively, a 50.2% and 51.1% decrease, respectively, as compared to the respective prior year periods.

These decreases were primarily driven by decreases in home sales revenue of $80.9 million and $162.0 million, respectively.

The revenue decreases during the three and nine months ended September 30, 2023 were primarily driven by a 16.0% and 9.6% decrease, respectively, in the number of homes delivered, and a 14.4% and 10.6% decrease, respectively, in the average sales price per home.

For both the three- and nine-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 the average sales price decreases were driven by the mix of deliveries and pricing to market within individual communities.

During the three and nine months ended September 30, 2023, our Texas segment generated income before income tax expense of $16.4 million and $31.5 million, respectively, an 18.5% and 57.2% decrease, respectively, as compared to the respective prior year periods.

For both the three- and nine-month comparisons, the decreases were primarily driven by a decrease in home sales revenue of $21.1 million and $96.4 million, respectively.

The revenue decrease during the three months ended September 30, 2023 was primarily driven a 16.6% decrease in the average sales price per home, and the revenue decrease during the nine months ended September 20, 2023 was primarily driven by a 10.2% decrease in the number of homes delivered and a 13.9% decrease in the average sales price per home.

For both the three- and nine-month comparisons, the average sales price decreases were driven by the mix of deliveries and pricing to market within individual communities, and for the nine-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.

For the nine-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.

During the three and nine months ended September 30, 2023, our Southeast segment generated income before income tax expense of $33.7 million and $63.7 million, respectively, a 12.2% and 41.1% decrease, respectively, as compared to the respective prior year periods.

For the three- and nine-month comparisons, the decreases were primarily driven by a decrease in home sales revenue of $31.5 million and $157.1 million, respectively.

The revenue decreases during the three- and nine months ended September 30, 2023 were primarily driven by a 10.6% and 28.7% decrease, respectively, in the number of homes delivered, and a 6.1% and 1.7% decrease, respectively, in the average sales price per home.

For the three- and nine-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.

For both the three- and nine-month comparisons, the average sales price decreases were driven by the mix of deliveries and pricing to market within individual communities.

During the three months ended March 31, 2024, our West segment generated income before income tax expense of $26.7 million, a 235.0% increase over the prior year period, which was driven by an increase in home sales revenue of $43.4 million.

The revenue increase during the three months ended March 31, 2024 was primarily driven by a 39.9% increase in the number of homes delivered, partially offset by a 4.5% decrease in the average sales price per home.

The increase in the number of homes delivered was primarily driven by an increase in the number of homes under construction.

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

During the three months ended March 31, 2024, our Mountain segment generated income before income tax expense of $27.8 million, remaining consistent with the prior year period.

Home sales revenue increased $8.5 million during the three months ended March 31, 2024, primarily driven by an 8.8% increase in the number of homes delivered, and partially offset by a 4.9% decrease in the average sales price per home.

The increase in the number of homes delivered was primarily driven by an increase in the number of homes under construction.

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

For the three months ended March 31, 2024, the decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of the mix of margin profiles within individual communities.

During the three months ended March 31, 2024, our Texas segment generated income before income tax expense of $13.9 million, a 277.7% increase over the prior year period, which was driven by an increase in home sales revenue of $41.7 million.

The revenue increase during the three months ended March 31, 2024 was primarily driven by both a 29.7% increase in the number of homes delivered and by a 13.1% increase in the average sales price per home.

The increase in the number of homes delivered was primarily driven by an increase in the number of homes under construction, and the average sales price increase was driven by the mix of deliveries within individual communities.

During the three months ended March 31, 2024, our Southeast segment generated income before income tax expense of $20.8 million, an 73.8% increase over the prior year period, which was driven by an increase in home sales revenue of $74.6 million.

The revenue increase during the three months ended March 31, 2024 was primarily driven by a 91.4% increase in the number of homes delivered, partially offset by a 2.9% decrease in the average sales price per home.

The increase in the number of homes delivered was primarily driven by an increase in the number of homes under construction, and the average sales price decrease was driven by the mix of deliveries within individual communities.

Century Complete

During the three and nine months ended September 30, 2023, our Century Complete segment generated income before income tax expense of $30.9 million and $61.2 million, respectively, a 9.0% and 32.9% decrease, respectively, as compared to the respective prior year periods.

For the three- and nine-month comparisons, the decreases were primarily driven by a decrease in home sales revenue of $32.8 million and $31.5 million, respectively.

The revenue decreases during the three- and nine months ended September 30, 2023 were primarily driven by a 15.5% and 8.0% decrease, respectively, in the number of homes delivered, and partially offset by a 2.6% and 3.3% increase, respectively, in the average sales price per home.

For the three- and nine-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.

For both the three- and nine-month comparisons, the average sales price increases were driven by the mix of deliveries and pricing to market within individual communities.

During the three months ended March 31, 2024, our Century Complete segment generated income before income tax expense of $21.1 million, a 51.3% increase over the prior year period, which was driven by an increase in home sales revenue of $18.6 million.

The revenue increase during the three months ended March 31, 2024 was primarily driven by both a 6.4% increase in the number of homes delivered and by a 3.4% increase in the average sales price per home.

The increase in the number of homes delivered was primarily

driven by an increase in the number of homes under construction, and the average sales price increase was 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 $12.2 million for the three months ended September 30, 2023, a 30.5% increase over the prior year period.

This increase was primarily the result of a $2.5 million decrease in financial services costs due to decreased headcount period over period .

Our Financial Services segment generated income before income tax of $29.8 million for the nine months ended September 30, 2023, a nominal increase over the prior year period, primarily the result of a $9.3 million decrease in financial services costs due to decreased headcount as compared to the prior year period, partially offset by an $8.6 million decrease in financial services revenue as compared to the prior year period.

The decrease in financial services revenue was primarily driven by reduced margins on loans sold to third parties period over period and a 17.1% decrease in the number

of mortgages originated during the nine months ended September 30, 2023, and partially offset by a smaller fair value markdown on our loan pipeline as compared to the prior year period, and increased revenue related to discount points compared to the prior year period.

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

Our Financial Services segment generated income before income tax of $10.0 million for the three months ended March 31, 2024, an increase of $5.0 million, or 98.0%, over the prior year period.

This increase was driven by a $9.1 million increase in financial services revenue as compared to the prior year period.

The increase in financial services revenue was primarily driven by a 52.3% increase in the number of mortgages originated period over period, primarily due to our increased capture rate of 81% as of March 31, 2024 as compared to 66% for the prior year period, as well as a 41.2% increase in the number of 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Total originations:

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Number of loans sold

During the three and nine months ended September 30, 2023, our Corporate segment generated losses of $38.0 million and $93.7 million, respectively, as compared to losses of $31.8 million and $87.2 million, respectively, during the same respective period in 2022.

These increases in losses were primarily driven by adjustments to increase stock-based compensation expense during the three and nine months ended September 30, 2023 of $7.4 million and $10.8 million, respectively, to reflect an increased estimate in the number of shares which will ultimately vest and be issued under certain performance share awards.

During the three months ended March 31, 2024, our Corporate segment generated a loss of $36.0 million as compared to a loss of $26.4 million during the same period in 2023.

The increase in loss was primarily due to a $7.7 million impairment related to other investments during March 31, 2024.

Homebuilding Gross Margin

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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 nine months ended September 30, 2023 to 24.6% and 21.0%, respectively, as compared to 24.8% and 27.0% during the same respective periods in 2022.

The decreases for the three and nine-month comparisons were primarily driven by deliveries during the period that carried both higher incentives and elevated construction costs due to homes commencing construction during high costs periods in 2022.

Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, increased for the three months ended March 31, 2024 to 21.3% as compared to 18.2% during the same period in 2023.

The increase was primarily driven by deliveries during the prior year period 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 September 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)

Nine Months Ended September 30,

Three Months Ended March 31,

Home sales revenues

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

Purchase price accounting for acquired work in process inventory

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

(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 and nine months ended September 30, 2023, our adjusted homebuilding gross margin percentage excluding inventory impairment and interest in cost of home sales revenues, was 25.8% and 22.3%, respectively, as compared to 26.0% and 28.2% for the same respective periods in 2022.

For the three ended March 31, 2024, our adjusted homebuilding gross margin percentage excluding interest in cost of home sales revenues, inventory impairment, and purchase price accounting for work in process inventory, was 22.8% as compared to 19.6% for the same period in 2023.

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 September 30,

Selling, general and administrative

As a percentage of home sales revenue

Nine Months Ended September 30,

Three Months Ended March 31,

Selling, general and administrative

As a percentage of home sales revenue

Our selling, general and administrative expense remained relatively consistent for the three months ended September 30, 2023, and decreased $6.1 million for nine months ended September 30, 2023 as compared to the same respective periods in 2022.

The increase for the three month comparison was primarily attributable to an adjustment of $7.4 million in stock-based compensation expense to reflect an increased estimate in the number of shares which will ultimately vest and be issued under certain performance share awards, partially offset by various decreases in other expenses, including advertising.

The decrease for the nine month comparison was primarily

attributable to a decrease of $9.2 million in salaries and wages due to decreased headcount and a decrease of $4.7 million in internal and external commission expense, partially offset by $10.8 million in stock-based compensation expense to reflect an increased estimate in the number of shares which will ultimately vest and be issued under certain performance share awards..

As a percentage of home sales revenue, our selling, general and administrative expense increased 300 basis points and 310 basis points, respectively, during each of the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022, respectively, driven primarily by decreased revenue on a partially fixed cost base.

Our selling, general and administrative expense increased $15.8 million for the three months ended March 31, 2024 as compared to the prior year period.

This increase was primarily attributable to an increase in internal and external commission expense associated with the increase in home sales revenue and increased compensation and other costs due to increased active community count.

These increases were partially offset by a decrease in stock compensation expense related to forfeitures during the period .

As a percentage of home sales revenue, our selling, general and administrative expense decreased 100 basis points during the three months ended March 31, 2024, driven primarily by increased revenue on a partially fixed cost base.

Income Tax Expense

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Our 2024 estimated annual effective tax rate, before discrete items of 25.0%, 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 offset by estimated federal energy home credits for current year home deliveries, which combined resulted in a net increase of 0.3%.

For the nine months ended September 30, 2023, our estimated annual rate of 26.4% was benefitted by discrete items which had a net impact of decreasing our rate by 1.1%, including federal energy home tax credits claimed for prior year home deliveries in excess of previous estimates and the impact of excess tax benefits for vested stock-based compensation.

Our effective tax rate for the nine months ended September 30, 2023 of 25.3% increased by 290 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4%.

The increase in our effective tax 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 closed homes qualifying for energy efficient home credits, as well as the impact of disallowed deductions for executive compensation during 2023.

For the three months ended September 30, 2023 and 2022, we recorded income tax expense of $28.8 million and $27.6 million, respectively.

For the nine months ended September 30, 2023 and 2022, we recorded income tax expense of $56.9 million and $128.9 million, respectively.

For the three months ended March 31, 2024, our estimated annual rate of 25.0% was benefitted by discrete items which had a net impact of decreasing our rate by 1.3%, including the impact of excess tax benefits for vested stock-based compensation.

For the three months ended March 31, 2024 and 2023, we recorded income tax expense of $20.0 million and $10.7 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 September 30, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022.

(dollars in thousands)

September 30,

Increase (Decrease)

1 unchanged sentence

Financial Services

Total assets increased to $3.9 billion as of September 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 .

Total assets remained consistent at $4.1 billion as of March 31, 2024 and December 31, 2023 .

Lots owned and controlled

September 30, 2023

March 31, 2024

December 31, 2023

Century Complete

Of our total lots owned and controlled as of September 30, 2023, 44.1% were owned and 55.9% 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 March 31, 2024, 42.2% were owned and 57.8% were controlled, as compared to 41.5% owned and 58.5% controlled as of December 31, 2023.

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 and nine months ended September 30, 2023, and we have restated the corresponding segment information for those segments as of and for the three and nine months ended September 30, 2022.

Net new home contracts

Three Months Ended

Nine Months Ended

September 30,

Increase (Decrease)

September 30,

Increase (Decrease)

Century Complete

Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2023 increased by 831 homes, or 63.1%, to 2,149 as compared to 1,318 for the same period in 2022, when increased mortgage interest rates, inflation, and macro-economic uncertainty considerably impacted the U.S.

housing market .

Net new home contracts for the nine months ended September 30, 2023 remained relative flat at 6,488 as compared to 6,495 for the same period in 2022.

Net new home contracts (new home contracts net of cancellations) for the three months ended March 31, 2024 increased by 844 homes, or 41.7%, to 2,866 as compared to 2,022 for the same period in 2023, primarily due to more homes available for sale, as well as favorable market conditions.

Monthly absorption rate

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the three and nine months ended September 30, 2023 and 2022 by segment are included in the tables below:

Three Months Ended September 30,

Increase (Decrease)

Century Complete

Nine Months Ended September 30,

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the three months ended March 31, 2024 and 2023 by segment are included in the tables below:

Three Months Ended March 31,

Increase (Decrease)

Century Complete

During the three months ended September 30, 2023, our absorption rate increased by 40.0% to 2.8 per month as compared to the same period in 2022.

During the nine months ended September 30, 2023, our absorption rate decreased by 12.1% to 2.9 per month as compared to the same period in 2022.

During the three and nine months ended September 30, 2023, we experienced cancellation rates of 16.2% and 15.8% respectively , which represent 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.

During the three months ended March 31, 2024, our absorption rate increased by 31.0% to 3.8 per month as compared to the same period in 2023, driven by strong demand for new homes during the current period as homebuyers adjust to the higher interest rate environment.

Selling communities at period end

As of September 30,

As of March 31,

Increase/(Decrease)

Century Complete

Our selling communities increased by 35 communities to 252 communities at September 30, 2023 as compared to 217 at September 30, 2022.

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

Our selling communities increased by 19 communities to 253 communities at March 31, 2024 as compared to 234 at March 31, 2023.

This 8.1% increase was a result of an increased land pipeline that resulted in new community openings in excess of community closeouts during the first quarter of 2024.

(dollars in thousands)

As of September 30,

As of March 31,

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 September 30, 2023, we had 1,887 homes in backlog with a total value of $707.2 million, which represents decreases of 45.4% and 48.7%, respectively, as compared to 3,455 homes in backlog with a total value of $1.4 billion at September 30, 2022.

The decrease in backlog dollar value is primarily attributable to the decrease in backlog units, partially due to our strategy of selling homes later in the construction cycle and in part due to a 6.1% decrease in the average sales price of homes in backlog.

At March 31, 2024, we had 1,590 homes in backlog with a total value of $667.2 million, which represents decreases of 17.2% and 6.5%, respectively, as compared to 1,920 homes in backlog with a total value of $713.6 million at December 31, 2023.

The decrease in backlog dollar value is primarily attributable to the decrease in backlog units.

Supplemental Guarantor Information

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

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

As of March 31, 2024, Century Communities, Inc.

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

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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.

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)

September 30, 2023

March 31, 2024

December 31, 2023

2 unchanged sentences

Accounts receivable

Due from non-guarantors

Prepaid expenses and other assets

4 unchanged sentences

Accrued expenses and other liabilities

Due to non-guarantors

Notes payable

4 unchanged sentences

Summarized Statements of Operations Data (in thousands)

Nine Months Ended

September 30, 2023

March 31, 2024

December 31, 2023

12 unchanged sentences

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 $1.0 billion as of September 30, 2023 and $1.2 billion as of December 31, 2022.

Our principal uses of capital for the three and nine months ended September 30, 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 $1.0 billion as of March 31, 2024 and $1.1 billion as of December 31, 2023.

Our principal uses of capital for the three months ended March 31, 2024 were our land purchases, land development, home construction, the acquisition of Landmark Homes, share repurchases, dividends, 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 and nine months ended September 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.

For the three months ended March 31, 2024, 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, 2023 that was filed with the SEC on February 5, 2024.

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 September 30, 2023, we had outstanding purchase contracts and option contracts for 38,333 lots totaling approximately $1.8 billion and we had $46.8 million of deposits for land contracts, of which $19.5 million were non-refundable cash deposits pertaining to land contracts.

As of March 31, 2024, we had outstanding purchase contracts and option contracts for 43,379 lots totaling approximately $2.2 billion and we had $64.1 million of deposits for land contracts, of which $37.4 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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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 September 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.

We are required to meet certain covenants, and as of March 31, 2024, 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 September 30, 2023 and December 31, 2022 (in thousands):

September 30,

Our outstanding debt obligations included the following as of March 31, 2024 and December 31, 2023 (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 September 30, 2023, other financing obligations included $30.0 million related to insurance premium notes and certain secured borrowings, as well as $28.8 million outstanding under construction loan agreements, as described below.

(2) As of March 31, 2024, other financing obligations included $15.6 million related to insurance premium notes and certain secured borrowings, as well as $60.9 million outstanding under construction loan agreements, as described below.

As of December 31, 2023, other financing obligations included $24.7 million related to insurance premium notes and certain secured borrowings, as well as $44.9 million outstanding under construction loan agreements.

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.

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

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

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

1 unchanged sentence

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

As of September 30, 2023 and December 31, 2022, we had $513.9 million and $574.8 million, respectively, in letters of credit and performance and other bonds issued and outstanding.

As of March 31, 2024 and December 31, 2023, we had $509.0 million and $510.5 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 fully released until all development and construction activities are completed.

Construction Loan Agreements

Certain wholly owned subsidiaries of Century Living, LLC, are parties to construction loan agreements entered into during 2022 and the first quarter of 2023 with various banks, (which we collectively refer to as “the lenders”).

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.

Certain wholly owned subsidiaries of Century Living, LLC, are parties to construction loan agreements with various banks, (which we collectively refer to as “the lenders”).

These 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.

The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates through March 17, 2028, with certain of the construction loan agreements allowing for the option to extend the maturity dates for a period of 12 months if certain conditions are satisfied.

The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates from March 17, 2026 through March 17, 2028, with certain of the construction loan agreements allowing for the option to extend the maturity dates for a period of 12 months if certain conditions are satisfied.

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.

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.

As of September 30, 2023, $28.8 million was outstanding under the construction loan agreements, with borrowings that bore a weighted average interest rate of 7.2% during the nine months ended September 30, 2023, and we were in compliance with all covenants thereunder.

As of March 31, 2024, $60.9 million was outstanding under the construction loan agreements, with borrowings that bore a weighted average interest rate of 7.5% during the three months ended March 31, 2024, and we were in compliance with all covenants thereunder.

Revolving Line of Credit

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

The Second A&R Credit Agreement provides us with a senior unsecured revolving line of credit (which we refer to as the “revolving line of credit”) of up to $800.0 million, and unless terminated earlier, will mature on April 30, 2026.

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

The Second A&R Credit Agreement , which amended and restated our prior Amended and Restated Credit Agreement , provides us with a senior unsecured revolving line of credit (which we refer to as the “revolving line of credit”) of up to $800.0 million, and unless terminated earlier, will mature on April 30, 2026.

The revolving line of credit includes a $250.0 million sublimit for standby letters of credit.

2 unchanged sentences

The Second A&R Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default.

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 September 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.

Borrowings under the Second A&R Credit Agreement are 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, 2024 and December 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.

Mortgage Repurchase Facilities – Financial Services

Inspire is a party to a mortgage warehouse facility with J.P.

Morgan, which provides Inspire with uncommitted repurchase facilities of up to an aggregate of $200.0 million as of September 30, 2023, secured by the mortgage loans financed thereunder, and a maturity date through January 19, 2024.

During the three months ended September 30, 2023, we terminated our mortgage warehouse facility agreement with Comerica, which provided uncommitted repurchase facilities of up to an aggregate of $75.0 million , with outstanding principal and interest due on December 29, 2023.

The repurchase facilities bore a weighted average interest rate of 6.80% during the nine months ended September 30, 2023.

Inspire is party to mortgage warehouse facilities with J.P.

Morgan Chase Bank, N.A., Texas Capital Bank, and U.S.

Bank National Association, which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $450.0 million as of March 31, 2024, secured by the mortgage loans financed thereunder.

The repurchase facilities have varying short term maturity dates through March 21, 2025.

Borrowings under the mortgage repurchase facilities bear interest at variable interest rates per annum equal to SOFR plus an applicable margin, and bore a weighted average interest rate of 7.2% during the year ended March 31, 2024.

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

As of September 30, 2023 and December 31, 2022, we had $162.1 million and $197.6 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder.

As of March 31, 2024 and December 31, 2023, we had $212.4 million and $239.3 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder.

At-the-Market Offerings

3 unchanged sentences

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 and nine months ended September 30, 2023 and 2022, respectively, and as of September 30, 2023, all $100.0 million remained available for sale.

We did not sell or issue any shares of our common stock during the three months ended March 31, 2024 and 2023, respectively, and as of March 31, 2024, all $100.0 million remained available for sale.

Stock Repurchase Program

6 unchanged sentences

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 and nine months ended September 30, 2023, an aggregate of 247.8 thousand and 278.2 thousand shares, respectively, were repurchased for a total purchase price of approximately $17.3 million and $19.2 million, respectively, and a weighted average price of $69.61 and $69.09 per share, respectively.

During the three and nine months ended September 30, 2022, an aggregate of 0.5 million and 2.3 million shares, respectively, were repurchased for a total purchase price of approximately $22.3 million and $120.6 million, respectively, and a weighted average price of $44.58 and $52.32 per share, respectively.

The maximum number of shares available to be repurchased under the stock repurchase program as of September 30, 2023 was 1,230,010 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 nine months ended September 30, 2023 and 2022, respectively (in thousands, except per share information):

Nine Months Ended September 30, 2023

During the three months ended March 31, 2024, an aggregate of 186.9 thousand shares were repurchased for a total purchase price of approximately $16.1 million and a weighted average price of $86.16 per share.

During the three months ended March 31, 2023, we did not repurchase any shares of common stock.

The maximum number of shares available to be repurchased under the stock repurchase program as of March 31, 2024 was 1,043,123 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, 2024 and 2023, respectively (in thousands, except per share information):

Three Months Ended March 31, 2024

Cash Dividends Declared and Paid

1 unchanged sentence

February 7, 2024

March 1, 2023

February 28, 2024

March 13, 2024

June 14, 2023

August 16, 2023

August 30, 2023

September 13, 2023

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Cash Dividends Declared and Paid

3 unchanged sentences

March 15, 2023

June 15, 2022

August 17, 2022

August 31, 2022

September 14, 2022

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

Cash Flows— Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

For the nine months ended September 30, 2023 and 2022, the comparison of cash flows is as follows:

Cash Flows— Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

For the three months ended March 31, 2024 and 2023, 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 $33.0 million during the nine months ended September 30, 2023 as compared to net cash used in operating activities of $67.1 million during the nine months ended September 30, 2022.

The increase in net 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 nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

This reduction was offset by (1) a decrease in net income of $277.7 million and (2) a reduction in our mortgage loans held for sale of $36.3 million during the nine months ended September 30, 2023, as compared to a reduction in mortgage loans held for sale of $142.3 million during the nine months ended September 30, 2022.

 Net cash used in investing activities increased $37.3 million during the nine months ended September 30, 2023 as compared to the prior year period.

The increase in net cash used in investing activities was primarily attributable to a $41.7 million increase in expenditures related to the development, construction, and management of multi-family rental properties by our wholly owned subsidiary, Century Living, LLC, during the nine months ended September 30, 2023 as compared to the prior year period.

 Net cash used in financing activities decreased $51.7 million during the nine months ended September 30, 2023 as compared to the prior year period.

The decrease in net cash used in financing activities was primarily attributable to (1) a $101.3 million decrease in net payments on the repurchase facilities in the first nine months of 2023 as compared to the prior year period and (2) $120.6 million of repurchases of common stock during the first nine months of 2022, as compared to $19.2 million of repurchases of common stock during the first nine months of 2023, partially offset by $165.0 million in net borrowings on the line of credit during the nine months ended September 30, 2022, as compared to no net borrowings during the nine months ended September 30, 2023.

As of September 30, 2023, our cash and cash equivalents and restricted cash balance was $210.1 million, as compared to $308.5 million as of December 31, 2022.

Net cash provided by operating activities was $21.6 million during the three months ended March 31, 2024 as compared to $191.3 million during the prior year period.

This decrease is primarily a result of increased expenditures related to land acquisition and expenditures associated with the construction of homes during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

This reduction was primarily offset by a $31.0 million increase in net income.

 Net cash used in investing activities increased to $64.6 million during the three months ended March 31, 2024, compared to $20.9 million used during the prior year period.

This increase was primarily related to (1) $9.7 million increase in expenditures related to the development, construction, and management of multi-family rental properties by our wholly owned subsidiary, Century Living;

and (2) $32.7 million in expenditures related to a business combination during the three months ended March 31, 2024.

 Net cash used in financing activities was $54.7 million during the three months ended March 31, 2024, compared $58.3 million during the prior year period.

This decrease was primarily attributable to (1) a $21.0 million decrease in net payments on our mortgage repurchase facilities and (2) an $8.8 million increase in borrowings under construction loan agreements, partially offset by (1) $16.1 million in repurchases of our common stock during the three months ended March 31, 2024 as compared to no repurchases of our common stock during the prior year period;

and (2) an $8.7 million net increase in payments for insurance premium notes.

As of March 31, 2024, our cash and cash equivalents and restricted cash balance was $144.3 million, as compared to $242.0 million as of December 31, 2023.

Non-GAAP Financial Measures

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EBITDA and Adjusted EBITDA

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

The following table presents EBITDA and adjusted EBITDA for the three months ended March 31, 2024 and 2023.

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 define adjusted EBITDA as EBITDA before loss on debt extinguishment (if applicable), inventory impairment (if applicable), purchase price accounting for acquired work in process inventory (if applicable), and impairment on other investments (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.

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(dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Income tax expense

Interest in cost of home sales revenues

Interest expense (income)

Interest income

Depreciation and amortization expense

Inventory impairment

Impairment on other investment

Purchase price accounting for acquired work in process inventory

Adjusted EBITDA

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(dollars in thousands)

September 30,

Notes payable

2 unchanged sentences

Total homebuilding debt

Total stockholders'

Total stockholders' equity

Total capital

4 unchanged sentences

Net homebuilding debt

Total stockholders'

Total stockholders' equity

Net homebuilding debt to net capital

2 unchanged sentences

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

We define adjusted net income as consolidated net income before (i) income tax expense, (ii) inventory impairment, if applicable (iii) restructuring costs, if applicable and (iv) loss on debt extinguishment, if applicable, less adjusted income tax expense, calculated using our estimated annual effective tax rate after discrete items for the applicable period.

We define adjusted net income as consolidated net income before (i) income tax expense, (ii) inventory impairment, if applicable (iii) restructuring costs, if applicable, (iv) loss on debt extinguishment, if applicable, (v) purchase price accounting for acquired work in process inventory, if applicable, and (vi) impairment on other investments, if applicable, less adjusted income tax expense, calculated using our estimated annual effective tax rate after discrete items for the applicable period.

Adjusted EPS is calculated by dividing adjusted net income by weighted average common shares – diluted.

(in thousands, except share and per share information)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Weighted average common shares outstanding - basic

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Inventory impairment

Impairment on other investment

Purchase price accounting for acquired work in process inventory

Adjusted income before income tax expense

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Adjusted diluted earnings per share

(1) The tax rates used in calculating adjusted net income for the three and nine months ended September 30, 2023 were 25.8% and 25.3%, respectively, and the tax rates used in calculating adjusted net income for the three and nine months ended September 30, 2022 were 16.0% and 22.4%, 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 months ended March 31, 2024 and 2023 were 23.7% and 24.3%, 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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Our primary exposure to market risk is interest rate risk associated with our Second A&R Credit Agreemen t and construction loan agreements.

On December 21, 2022, we entered into a First Modification Agreement with Texas Capital Bank (formerly known as Texas Capital Bank, National Association), as Administrative Agent, amending the Second A&R Credit Agreement.

Per the First Modification Agreement, 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%.

Borrowings under the construction loan agreements bear interest at various rates, including a fixed rate, and floating interest rates per annum equal to the SOFR and the Bloomberg Short-term Bank Yield Index, plus an applicable margin.

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

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

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

To mitigate interest risk associated with loans held for sale, we typically use derivative financial instruments to hedge our exposure to risk from the time a borrower locks a loan until the time the loan is securitized.

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

There have been no material changes in our market risk since December 31, 2023.

For additional information regarding our market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the year ended December 31, 2023.

Our homebuilding operations have been and may continue to be adversely impacted by inflation, primarily from higher land, financing, labor, material, 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 compared to prior year periods.

Inflation remained elevated during the three and nine months ended September 30, 2023 compared to the prior year periods, and the Federal Reserve continued to raise the federal funds interest rate during the first nine months 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 nine months of 2023.

Inflation remained elevated during the three months ended March 31, 2024.

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

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

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

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

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

We expect this seasonal pattern, especially with respect to sales, to return this year after being obscured by the COVID-driven sales boom that began in 2020 and continued until the interest rate led softening in the second half of 2022, and to continue over the long term, although it may be affected by volatility in the homebuilding industry, supply chain challenges, and changes in demand for our homes.

This seasonality pattern may be affected by volatility in the homebuilding industry, supply chain challenges, and changes in demand for our homes.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis