Title

Presentation

Century Communities, Inc. beats earnings expectations. Reported EPS is $1.37, expectations were $1.16.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Century Communities, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, July 23, 2025. I would now like to turn the conference over to Tyler Langton. Please go ahead.

Tyler J. Langton: Good afternoon. Thank you for joining us today for Century Communities’s earnings conference call for the second quarter of 2025. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading Risk Factors in the company’s latest 10-K, as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements.

Additionally, certain non- GAAP financial measures will be discussed on this concall. The company’s presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescon, Executive Chairman; Rob Francescon, Chief Executive Officer and President; and Scott Dixon, Chief Financial Officer. Following today’s prepared remarks, we will open up the line for questions. With that, I’ll turn the call over to Dale.

Dale Francescon: Thank you, Tyler, and good afternoon, everyone. In the second quarter, we continued to execute well in a challenging environment generating results that were in line with the expectations outlined during our first quarter conference call back in April. Similar to the trends from the first quarter, order activity for new homes has continued to be impacted by elevated mortgage rates, affordability constraints, economic uncertainty and lower consumer confidence. While we saw improvement in our order activity as the second quarter progressed, buyers are still cautious and hesitant and as expected, our incentives increased in the second quarter as we look to maintain an appropriate sales pace. Despite the market headwinds, our deliveries of 2,587 homes increased 13% on a sequential basis and exceeded our guidance of 2,300 and 2,500 homes as customers responded to incentives, enabling us to sell and close a greater number of homes within the quarter.

While the spring selling season was clearly muted compared to historical trends, we continue to believe that there is underlying demand for affordable new homes supported by solid demographic trends and we were encouraged by several trends that we saw during the second quarter. Both our net orders and absorption rates increased on a sequential basis in May and June, while our cancellation rates remained in line with the levels the we have seen over the past several years and well below our pre-COVID averages in the 20% to 25% range. Also, absorption rates for our Century Complete brand were roughly flat on a year-over-year basis. And we believe the business continues to benefit from its focus on markets where there is less direct competition from other large builders.

However, despite these positive trends, our second quarter absorptions were below seasonal expectations and given typical seasonality. So far in July, our absorption rate is trending below second quarter 2025 levels. Our Indian community count increased to 327 communities at the end of the second quarter, a record for the company. While we have remained disciplined on the land front and reassess deals to make sure they pencil in the current environment. We also continue to expect our year-end 2025 community count to increase in the mid-single-digit percentage range on a year-over- year basis, which will provide a strong base to execute from over the next couple of years. As we have stated in the past, we are not focused on growth for the sake of growth alone and we look to balance pace and price at the community level to optimize our returns.

We are also taking a balanced approach towards capital allocation. We repurchased $48 million of our shares in the second quarter or approximately 3% of shares outstanding at the beginning of the quarter, bringing our year-to-date total to [ $104 ] million or 5% of our shares outstanding at the beginning of the year. Additionally, since the start of 2024, we have repurchased over 8% of our shares outstanding. Our book value per share increased by 10% on a year-over-year basis to $86.39, a company record. Before turning the call over to Rob, I wanted to highlight that Century was recently recognized as 1 of the best companies to work for by U.S. News & Work Report. It is our people that make Century Communities a great company, and I want to thank our team members for all they do to create a culture of excellence in support of our mission of providing our customers a home for every dream.

I’ll now turn the call over to Rob to discuss our operations and land position in more detail.

Robert J. Francescon: Thank you, Dale, and good afternoon, everyone. Our second quarter net new contracts totaled 2,546 homes with both our orders and absorption rates increasing sequentially in May and June. Our ending community count increased to 327 communities at the end of the second quarter, a record for the company. I would like to point out that all of the net growth in our community count this quarter came in June and especially in the back half of June with our April and May community counts below our first quarter ending community count of 318. As a result, our orders in the second quarter did not see a significant benefit from the growth in our quarter end community count. We currently expect our year-end 2025 community count to increase in the mid-single-digit percentage range which coupled with our 28% year-over-year growth for the full year 2024 will provide a strong base for future growth in the years ahead.

We had continued success in controlling our costs in the second quarter. Our direct construction costs on the homes we delivered declined by 3% on a year-over-year basis and 2% sequentially. As housing starts have slowed, our negotiating power has increased, and we expect to see further cost reductions in the quarters ahead. On the land side, our finished lot costs on the homes we delivered in the second quarter were flat on a quarter-over-quarter basis, similar to the trend that we saw last quarter. Going forward, we would expect to see some land inflation flow through on our deliveries that will be partially offset by direct cost reductions. As expected, given the competitive pressures in the new home market, our incentives on closed homes increased to approximately 1,050 basis points in the second quarter 2025 and up from roughly 900 basis points in the first quarter.

Looking forward, we continue to expect incentive levels to be the largest driver of changes to our gross margins in the near term given our success in managing our costs. We currently expect incentives to increase by up to another 100 basis points in our third quarter closings. During the second quarter, our cycle times continue to improve on a sequential basis and currently sit at approximately 4 months, and we have not seen any impacts from integration reform on our labor base so far. In the second quarter, we started 2,485 homes and similar to the past several quarters have continued our focus on maintaining an appropriate level of spec home inventory by generally matching our starts with our sales. Turning to land. We ended the second quarter with nearly 70,000 owned and controlled lots.

Our own lot count has remained relatively steady since the third quarter of last year, and we have remained disciplined on the land front and continue to underwrite deals to current market assumptions. During the quarter, we were also able to renegotiate a portion of our existing contracts for controlled lots, securing better terms for the most part and lower prices in some cases. Given our discipline, our controlled lot count decreased by 12,000 lots sequentially as we exited deals that no longer met our criteria, which resulted in approximately $2.6 million of charges. As we have said in the past, we believe that our low-risk land-light business strategy that is primarily based on more traditional option agreements with individual land owners and third-party land developers allows us greater flexibility to renegotiate terms versus what could be achieved through an option strategy based on land banking agreements.

While the industry as a whole is currently facing headwinds. We remain focused on growing our community count, maintaining a solid balance sheet, being opportunistic with our allocation of capital and building value for our shareholders. I’ll now turn the call over to Scott to discuss our financial results in more detail.

John Scott Dixon: Thank you, Rob. In the second quarter, pretax income was $47 million and net income was $35 million or $1.14 per diluted share. Adjusted net income was $42 million or $1.37 per diluted sure. EBITDA for the quarter were $66 million and adjusted EBITDA was $76 million. Home sales revenues for the second quarter were $976 million, up 10% sequentially on higher deliveries. Our deliveries of 2,587 homes in the second quarter was essentially flat on a year-over-year basis with elevated mortgage rates and economic uncertainty weighing on order activity. Our second quarter average sales price of $378,000 decreased by 3% on a year-over-year basis, primarily due to higher levels of incentives. For the third quarter 2025, we expect our deliveries to range from 2,300 to 2,500 homes.

This estimate is based on our backlog heading into the quarter an anticipated seasonal absorptions. As a reminder, we usually see a sequential decrease in our absorption rates in the third quarter with July and August typically representing some of the slower months of the year. At quarter end, our backlog of sold homes was 1,217 valued at $466 million with an average sales price of $383,000. In the second quarter, adjusted homebuilding gross margin was 20% compared to 21.6% in the first quarter of this year, and homebuilding gross margin, excluding inventory impairment, was 18.4% and versus 19.9% in the first quarter. The quarter-over- quarter differential was driven almost entirely by increased incentive levels. Consistent with the first quarter, purchase price accounting associated with our 2 acquisitions in 2024, reduced our second quarter 2025 gross margin by 20 basis points.

We would expect purchase price accounting to have a similar impact on our homebuilding gross margin in the third and fourth quarters of 2025. We also took an inventory impairment charge of $7 million in the second quarter related to 5 communities that were in their closeout phase and located primarily in Florida. For the third quarter 2025, we expect our homebuilding gross margin to ease on a sequential basis by up to 100 basis points compared to our second quarter, primarily due to higher levels of incentives. SG&A as a percentage of home sales revenue was 13.2% in the second quarter. Assuming the midpoint of our full year home sales revenue guidance, we expect our SG&A as a percent of home sales revenue season roughly 13% for the full year 2025, with SG&A as a percent of home sales revenue of 14% for the third quarter.

Revenues from financial services were $23.8 million in the second quarter, and the business generated pretax income of $6.2 million. Our Financial Services results benefited from the sale of mortgage servicing rights on loans with $3 billion of unpaid principal for approximately $47.3 million. This transaction resulted in a gain of $4 million. This gain was partially offset by mark-to-market adjustments related to our mortgage loans held for investment. We currently anticipate that the contribution margin from Financial Services in the back half of the year will more closely resemble our first quarter results. Our tax rate was 26% in the second quarter of 2025. We continue to expect our full year tax rate for 2025 to be in the range of 25% to 26%, with the increase over our full year 2020 tax rate of 24.1%, primarily driven by a reduced number of homes expected to qualify for $45 products.

Our second quarter 2025 net homebuilding debt to net capital ratio equaled 31% and compare the first quarter 2025 levels of 30.1%. Our homebuilding debt to capital ratio equaled 33.3% in the second quarter and compared to first quarter 2025 levels or 32.4%. During the quarter, we maintained our quarterly cash dividend of $0.29 per share and also repurchased 884,000 shares of our common stock for $48 million at an average share price of $54.35 or a 37% discount to our book value per share of $86.39 as of the end of the second quarter. Through the first 6 months of the year, we have repurchased 1.6 million shares or 5% of our shares outstanding at the beginning of the year. We ended the quarter with $2.6 billion in stockholders’ equity and $858 million of liquidity.

We also have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Turning to guidance. Due to current market conditions, we are revising our full year 2025 home delivery guidance to be in the range of 10,000 to 10,500 homes and home sales revenues to be in the range of $3.8 billion to $4 billion. In closing, we are taking the necessary steps to address the headwinds facing the market, including reducing our costs, remaining disciplined on the land front and maintaining an appropriate level of spec home inventory by matching our starts with our sales. Given where our shares have been trading, we have been opportunistic with share repurchases while still positioning the company well for future growth that is supported by our lot pipeline community count and strong balance sheet.

With that, I’ll open the lines for questions. Operator?

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes Alex Rygiel of Texas Capital.

Alex Rygiel: First question, how are you thinking about your land investment in the second half of the year versus the first half?

Robert J. Francescon: So we’re going to redo Alex, first off, great to hear from you. But we’re going to reduce our land investment going forward. And as we pointed out, we dropped about 12,000 lots in the second quarter, as we’re getting a more disciplined underwriting to bring everything to market now, that was the bulk of things, we believe. But things are being pushed out because candidly, we don’t need a lot of the lots right now. So we’re changing the terms to push things out into and that’s kind of our focus right now. But the big kind of purge, if you will, was in Q2.

John Scott Dixon: And Alex, this is Scott. If I could just add on, I think I think 1 of the benefits that we’re seeing of our maybe more traditional land- light strategy, it’s just our ability to have flexibility within our runway on the lot side. we were able to really move a significant number of lots either out or obtain better pricing with really, really small impact from a feasibility cost perspective.

Alex Rygiel: Sure. Understood. And then can you talk a little bit about the mortgage products your buyers are using? And are you seeing any buyers use any arms?

John Scott Dixon: Yes. Great question and very topical at the moment. So we’re running about 70% on governmental, 30% on conventionals. Just generally speaking, we’ve really been leaning into the arms really from kind of a late Q1 into Q2, and we’re certainly seeing the buyer acceptance of that continue to pick up sequentially as the quarter and the year has gone on. .

Operator: Your second question comes from Rohit Seth of B. Riley.

Rohit Seth: Just on the 2025 deliveries guidance, maybe just talk to the drivers behind lowering it, what you’re seeing in July, as the traffic affordability? Just any color you can add there. And my follow-up would be on if you just discuss kind of what you’re seeing across your footprint?

John Scott Dixon: Sure. Absolutely. And this is Scott, Rohit. So from a guide perspective, we really step back and look at it — and look where look where our backlog is at the moment going into the quarter, knowing that the third quarter from a demand perspective is generally 1 of the slowest periods of the year, especially at the beginning of the quarter from July and August. That was really a large driver of the revision that we did. We’re just looking up to the third quarter. From a market perspective, I can hit a handful of things here. I think I think as you run through our various regions, West for the most part, I think it’s held up as strong as any of our markets. Certainly, we’ve seen a little bit of recent slowing maybe in California.

But West, in general, continues to be very strong. Mountain is a little bit of the tale of various different markets. We see Vegas started out the year very, very strong and has slowed slightly, but it’s still a very strong market for us with maybe Colorado at the moment, working through some affordability issues. Moving on to Texas. We have a very small footprint in Dallas. I think Dallas generally has been very challenged. But Houston and San Antonio, which are — or slightly larger positions from us are certainly working through some affordability items and some inventory supply. But where we continue to move product and our merchants continue to be rather consistent within Texas. And then I think our strongest market overall really has been Southeast Atlanta is a large driver of our position in the Southeast as well as Charlotte and Nashville.

And generally speaking, I would say that those have held up the best of any of our markets. And then the last piece that is an interesting dynamic that we’re really excited to see is our brand, our Century Complete brand, which really attracts even a more affordable buyer type, it really attracts and doesn’t compete necessarily directly with some of the larger public in certain markets. That has really held up quite well. The Carolinas as well as the Midwest or since we complete are ones that I would call out as being quite strong.

Rohit Seth: Okay. And if I could squeeze 1 more in on the gross margin. You kind of — you hit about the 20% on the adjusted side, raising incentives a little bit here. And so are there any offsets that we should think about and you talked about lower costs — lower direct costs, labor costs coming in, savings coming in, but you had some higher lands. Just trying to get a sense of we touched the bottom here for margins? Or you still got a little bit more pressure here?

John Scott Dixon: Yes, Rohit, obviously, a little bit difficult to specifically tell. I would say, on the cost side, we have been very successful in getting direct costs out of our homes, and we believe there’s continued opportunity to do that. We see that flowing through from a deliveries perspective, certainly in the back half of the year. However, to some degree, that is offset from really some normal inflation on the land side. So apples-to-apples rather consistent on the cost side, and we continue to think that incentives as they move through the P&L will be really the largest driver on the margin side.

Operator: Your third question comes from Alan Ratner of Zelman & Associates.

Alan S. Ratner: The detail and all the helpful guidance. It’s appreciated. First question, you alluded to this in a prior response to a question, but you walked away from, I think 12,000 or so lots, but you did allude to renegotiations that are ongoing and even some price concessions from land sellers. I’m curious, what type of magnitude are you seeing there? Are you seeing real capitulation yet in the land market? And if so, is there any ability to actually lower land cost on actively selling communities? Or are these more kind of go-forward projects that are earlier in the due diligence?

Robert J. Francescon: Yes, it’s more go forward, and we’re not seeing really huge changes in pricing, more on structure of deals pushing out takes for a more just-in-time basis. But in terms of pricing, there is some of that in select markets, but I would not say that’s an overreaching item through all the markets. We have not seen that across the board.

Alan S. Ratner: Got it. Okay. Second question, if I look at your margin guidance for third quarter, take roughly the down 100 basis points on gross margin and the 14% on SG&A. I’m getting to a pretax margin in the low single-digit range overall, which would definitely be the lowest level we’ve seen in quite a while. And that’s traditionally a level I would imagine where if that’s a company average, there’s a decent number of projects that are closer to breakeven. So do you have any disclosure you gave in terms of — I know some builders gave like an impairment watch list, what percentage of communities are on that watch list that have indicators of potential impairment.

John Scott Dixon: Yes, Alan, all of our — all of the required disclosures including how we evaluate it, which is consistent with the industry will be in our 10-Q, which is filed later today. One important item to note is the gross margin item that we called out is really ex the impairment. The $7 million impairment from our perspective is really directly related to a handful of communities that we’re in close out that we really decided to get aggressive on pricing. I think we would need to see the market deteriorate rather significantly from here for there be significant additional impairments.

Alan S. Ratner: Okay. Yes, I was just referring to more — you did, I think, 20% this quarter ex impairments and capitalized interest, interest is running about 1.5 points. So that’s more like 18.5% less the 14% SG&A. That’s just how I was getting there.

John Scott Dixon: Yes, correct. And 1 little note just on the specific GAAP requirement of impairment, you ignore the SG&A. It’s just direct cost in and out. So it’s really much more akin to your gross margin than your pretax. .

Operator: Your fourth question comes from Michael Rehaut of JPMorgan.

Andrew Azzi: This is Andrew Azzi on for Michael Rehaut. Just wanted to kind of appreciate all the color you’ve given so far. I would love to drill down if possible on I think we talked about July a bit. Would love to get a sense of what happened in April, May to June, and given the volatility with rates, what you were seeing in terms of your sales pace versus your expectations month-to-month?

John Scott Dixon: Yes, absolutely. So pretty consistent with some of the items that we outlined in the prepared remarks. We saw sequential improvement from a sales perspective throughout the month. So May were significantly better than April, and June was significantly better than May. I think consistent with maybe some of the commentary that you may have heard from others, the end of June was certainly very strong, taking advantage of some of the dips and rates. And then we’ve paused at the beginning of July, and it’s been a little bit choppy so far within July. And so that’s from a cadence perspective, really where we’ve been at from a sales perspective.

Andrew Azzi: Got it. And then in terms of potential incremental Canadian tariffs on lumber, can you provide maybe your exposure to Canadian lumber versus U.S. source? And what kind of impact you’d expect?

John Scott Dixon: Yes, absolutely. So obviously, difficult to tell the exact impact at the moment. We’ll need to wait to see until those additional tariffs are potentially finalized here. We generally source between 20% and 30% of our lumber from Canada. It’s market dependent, but from a general rule, that would be our exposure. And certainly, we’re not seeing that currently running through any cost, but we’ll just have to see where that lands going forward.

Operator: [Operator Instructions] For your next question, Ken Zener of Seaport Research Partners.

Kenneth Robinson Zener: Thank you for the time. So orders on a community count more attributable to quarter-end inventory — excuse me, community growth. So I understand that. But the orders are still down like in the West quite a bit and the mountain specifically. Could you kind of provide details around what that driver was versus the baseline that you guys were — I don’t know. Something less bad than you guys printed, I guess, is what I’m asking. the driver of that?

John Scott Dixon: Sure. I mean there’s a handful of factors, obviously, that’s playing itself into it. From an overall perspective, the way the quarter will play itself out from the consumer demand perspective where the sequential growth from May to April and obviously in June to April was something that we experienced, but April certainly was off from March. So that was part of the driver from an absorption standpoint. The other item that we called out really in our prepared remarks is really the significant amount of the community count did come online in the back half of the year — or excuse me, of the quarter, with most of it really coming online in June. And so that’s some of the dynamics that you’re seeing flow themselves through Mountain in particular.

Kenneth Robinson Zener: So the 51, I assume quarter end community count versus 47, which is up. You’re suggesting of the — not suggesting I’m not trying to pin you down here, but orders down — contracts down 39%. Is that fair to think that over half of that was attributable to an average community count being below the quarter end community count what you’re suggesting?

John Scott Dixon: Yes. Without quantifying that specifically and potentially we can walk through some of the details or the majority of the Canadian count growth coming in Mountain occurred in June and therefore it wasn’t open throughout the entire period.

Kenneth Robinson Zener: Got it. Okay. So it’s not to be — that’s where it was most expressed is what you’re saying, the late or the community average community count. That’s not necessarily a Mountain Century Communities issue is just that community count not being available there. Okay. I do appreciate that. Do you guys have a comment on what you think — if I wasn’t mistaken, did I hear you correctly saying your units under construct — well, with your starts at 2,485, is that correct?

Robert J. Francescon: That’s right.

Kenneth Robinson Zener: Do you expect kind of the starts to reflect the orders growth as it has been more or less in the back half?

Robert J. Francescon: Yes, more or less.

Kenneth Robinson Zener: And then more or less, what do you guys expect your inventory — your units under construction, right? So wherever you are now, which you don’t disclose, but like starts closing so we can kind of get there. What’s the magnitude that you expect that to be down in the fourth quarter year-over-year?

John Scott Dixon: I think in all honesty, it’s really — yes, I think to some degree, it’s dependent on where the market is in terms of our ability to continue to drive starts. So we began the year with obviously a little bit of a higher level of units either under construction and/or finished and really focused on working those down to levels that we feel quite frankly, very confident in putting more units out into the market for the back half of the year to the extent that we believe — we believe that the market continues to support that level of starts. So it will be market dependent and demand dependent on an individual market basis.

Kenneth Robinson Zener: Excellent. And the last question, which I’ve been asking builders is the census data has inventory for sale, 3 categories, complete, under construction, not started. But do you guys respond to census bureau requests for inventory or sales or any of that type of information? Do you provide them data is what I’m asking?

John Scott Dixon: Ken, I don’t believe we provide them specific inventory data from a census on a regular basis. .

Kenneth Robinson Zener: It’s interesting. I don’t know what builder is. So it’s getting to be interesting. Thank you very much, John.

Operator: Your next question comes from Alex Barrón of Housing Research Center.

Alex Barrón: Yes. I think I heard you say that the build times currently are around 4 months.

John Scott Dixon: That’s correct.

Alex Barrón: If that’s correct, I was wondering, is there any room for improvement from that level? Do you feel that’s about as efficient as the business gets? And if there is, is there any other initiatives you guys are potentially trying such as vertical integration or acquiring certain trades or anything like that?

Robert J. Francescon: So as far as acquiring certain trades, Alex, we have not been looking at that. But in terms of improving cycle times, sequentially each quarter, they’ve gotten better. Candidly, month by month, they’ve gotten better. That 4 months is a consolidated average. We have homes, some that are being built in the low 70-day range, certainly a lot in the 80 and 90, and we have other product-specific and basement markets where the time frame may be a little bit longer than that 4-month period. But on average, that’s what we’re doing. We do see that potentially even getting better over time. But that has been a bright spot that we’re continuing to reduce that down.

Alex Barrón: Got it. And as far as incentives, especially as it pertains to finished spec inventory, are you guys primarily just doing rate buy-downs? Or are you also having to do price cuts?

John Scott Dixon: It’s a mixture of both. Certainly, our most aggressive opportunities on the mortgage side are generally geared towards our slow and moving communities, aged inventory and/or consumer profiles that need that assistance. It generally is a mix of both, however.

Operator: There are no further questions at this time. I will now turn the call over to Dale. Please continue.

Dale Francescon: For everyone on the call, thank you for your time today and interest in Century Communities. To our team members, thank you for your hard work, dedication to Century and commitment to our valued homebuyers.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.