0001576940ccs:SeniorNotes6.750PercentMember2020-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020


☐o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36491

Century Communities, Inc.

(Exact name of registrant as specified in its charter)


Delaware		68-0521411
(State or other jurisdiction of ‎incorporation or organization)		(I.R.S. Employer ‎Identification No.)

8390 East Crescent Parkway, Suite 650 ‎Greenwood Village, ~~Colorado~~CO		80111
(Address of principal executive offices)		(Zip ~~code)~~Code)

(Registrant’s telephone number, including area code): (303) 770-8300

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	CCS	~~The~~ New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒x No ☐o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large ~~accelerated filer~~Accelerated Filer	☒x	Accelerated ~~filer~~Filer	☐o
Non-accelerated Filer	o	Smaller Reporting Company	o
~~Non-accelerated filer~~	☐	~~Smaller reporting company~~Emerging Growth Company	☐
		~~Emerging growth company~~	☐¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x

On April 23, ~~2019, 30,317,457~~2020, 33,332,501 shares of common stock, par value $0.01 per share, were outstanding.

Table of Contents

CENTURY COMMUNITIES, INC.

FORM 10-Q

For the Three Months ~~ended~~Ended March 31, ~~2019~~2020

Index


	Page No.
PART I – FINANCIAL INFORMATION
Item 1. ~~Unaudited Condensed Consolidated~~ Financial Statements
~~Unaudited~~ Condensed Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	3
Unaudited Condensed Consolidated Statements of Operations for the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~2019	4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~ 2019	5
Unaudited Condensed Consolidated Statements ~~Stockholders~~of Stockholders' Equity for the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~2019	6
Notes to the Unaudited Condensed Consolidated Financial Statements ~~– March 31, 2019~~	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2219
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3533
Item 4. Controls and Procedures	3533
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	3634
Item 1A. Risk Factors	3634
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3. Defaults Upon Senior Securities	36
Item 4. Mine Safety Disclosures	36
Item 5. Other Information	36
Item 6. Exhibits	37
Signatures	38

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Century Communities, Inc.

Condensed Consolidated Balance Sheets

As of March 31, ~~2019~~2020 and December 31, ~~2018~~2019

(in thousands, except share amounts)


	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Assets	(Unaudited)				(Unaudited)
Cash and cash equivalents	$	38,115	$	32,902	$	450,973	$	55,436
Cash held in escrow		24,664		24,344		22,497		35,308
Accounts receivable		12,436		13,464		23,087		27,438
Inventories		1,943,792		1,848,243		2,074,509		1,995,549
Mortgage loans held for sale		98,591		114,074		141,846		185,246
Prepaid expenses and other assets		123,248		138,717		121,017		124,008
Property and equipment, net		33,471		33,258		35,004		35,998
Deferred tax assets, net		13,591		13,763		11,110		10,589
Amortizable intangible assets, net		4,762		5,095
Goodwill		30,395		30,395		30,395		30,395
Total assets	$	2,323,065	$	2,254,255	$	2,910,438	$	2,499,967
Liabilities and stockholders' equity
Liabilities:
Accounts payable	$	74,075	$	89,907	$	40,170	$	84,794
Accrued expenses and other liabilities		208,846		213,157		230,875		213,975
Notes payable		786,872		784,777		899,166		896,704
Revolving line of credit		287,000		202,500		521,900		68,700
Mortgage repurchase facilities		90,866		104,555		133,794		174,095
Total liabilities		1,447,659		1,394,896		1,825,905		1,438,268
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding		—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 30,304,081 and 30,154,791 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		303		302
Preferred stock, $0.01 par value, 50,000,000 shares authorized, NaN outstanding						—		—
Common stock, $0.01 par value, 100,000,000 shares authorized, 33,319,125 and 33,067,375 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively						333		331
Additional paid-in capital		593,966		595,037		681,060		684,354
Retained earnings		281,137		264,020		403,140		377,014
Total stockholders' equity		875,406		859,359		1,084,533		1,061,699
Total liabilities and stockholders' equity	$	2,323,065	$	2,254,255	$	2,910,438	$	2,499,967

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~2019

(in thousands, except share and per share amounts)


	Three months ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Revenues
Homebuilding revenues
Home sales revenues	$	523,302	$	394,831	$	572,710	$	523,302
Land sales and other revenues		1,355		1,459		20,104		1,355
		524,657		396,290
Total homebuilding revenues						592,814		524,657
Financial services revenue		8,400		5,556		9,795		8,400
Total revenues		533,057		401,846		602,609		533,057
Homebuilding cost of revenues
Cost of home sales revenues		(433,757)		(319,583)		(470,526)		(433,757)
Cost of land sales and other revenues		(614)		(877)		(14,167)		(614)
		(434,371)		(320,460)
Total homebuilding cost of revenues						(484,693)		(434,371)
Financial services costs		(6,829)		(4,395)		(9,586)		(6,829)
Selling, general and administrative		(68,936)		(56,522)		(73,619)		(68,936)
Acquisition expense		—		(173)
Equity in income of unconsolidated subsidiaries		—		3,168
Inventory impairment						(781)		—
Other income (expense)		76		(357)		158		76
Income before income tax expense		22,997		23,107		34,088		22,997
Income tax expense		(5,880)		(3,088)		(7,962)		(5,880)
Net income	$	17,117	$	20,019	$	26,126	$	17,117

Earnings per share:
Basic	$	0.57	$	0.68	$	0.79	$	0.57
Diluted	$	0.56	$	0.67	$	0.78	$	0.56
Weighted average common shares outstanding:
Basic		30,203,243		29,515,531		33,207,928		30,203,243
Diluted		30,444,276		29,833,729		33,476,444		30,444,276

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~2019

(in thousands)


	Three Months Ended March 31,
	2020		2019
Operating activities
Net income	$	26,126	$	17,117
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		3,415		3,074
Stock-based compensation expense		1,685		3,534
Inventory impairment and other		781		—
Deferred income taxes		(521)		172
Loss on disposition of assets		330		358
Changes in assets and liabilities:
Cash held in escrow		12,811		(320)
Accounts receivable		4,349		1,028
Inventories		(60,930)		(69,106)
Prepaid expenses and other assets		2,000		(2,659)
Accounts payable		(44,624)		(15,831)
Accrued expenses and other liabilities		(1,198)		(11,296)
Mortgage loans held for sale		43,400		14,529
Net cash used in operating activities		(12,376)		(59,400)
Investing activities
Purchases of property and equipment		(2,686)		(3,270)
Other investing activities		59		(14)
Net cash used in investing activities		(2,627)		(3,284)
Financing activities
Borrowings under revolving credit facilities		678,000		288,800
Payments on revolving credit facilities		(224,800)		(204,300)
Principal payments on notes payable		(2,043)		(7,716)
Proceeds from insurance notes payable		4,137		9,301
Net proceeds from mortgage repurchase facilities		(40,302)		(13,689)
Repurchases of common stock upon vesting of stock-based compensation		(4,977)		(3,166)
Repurchases of common stock under stock repurchase program		—		(1,439)
Net cash provided by financing activities		410,015		67,791
Net increase	$	395,012	$	5,107
Cash and cash equivalents and Restricted cash
Beginning of period		58,522		36,441
End of period	$	453,534	$	41,548
Supplemental cash flow disclosure
Cash paid for income taxes	$	—	$	—
Cash and cash equivalents and Restricted cash
Cash and cash equivalents	$	450,973	$	38,115
Restricted cash (Note 5)		2,561		3,433
Cash and cash equivalents and Restricted cash	$	453,534	$	41,548

Three months ended March 31,

2019

2018
Operating activities

Net income

$
17,117

$
20,019
Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

3,074

2,726
Stock-based compensation expense

3,534

2,516
Deferred income taxes

172

(2,808)
Distributions from unconsolidated subsidiaries

—

3,460
Equity in income of unconsolidated subsidiaries

—

(3,168)
(Gain) loss on disposition of assets

358

259
Changes in assets and liabilities:

Cash held in escrow

(320)

16,188
Accounts receivable

1,028

994
Inventories

(69,106)

(82,377)
Prepaid expenses and other assets

(2,659)

56
Accounts payable

(15,831)

(1,637)
Accrued expenses and other liabilities

(11,296)

(12,947)
Mortgage loans held for sale

14,529

12,148
Net cash used in operating activities

(59,400)

(44,571)
Investing activities

Purchases of property and equipment

(3,270)

(2,370)
Other investing activities

(14)

295
Net cash used in investing activities

(3,284)

(2,075)
Financing activities

Borrowings under revolving credit facilities

288,800

60,000
Payments on revolving credit facilities

(204,300)

(60,000)
Proceeds from issuance of insurance premium notes and other

9,301

—
Principal payments on notes payable

(7,716)

—
Net proceeds from mortgage repurchase facilities

(13,689)

(11,307)
Net proceeds from issuances of common stock

—

5,021
Repurchases of common stock upon vesting of stock based compensation

(3,166)

(4,790)
Repurchases of common stock under our stock repurchase program

(1,439)

—
Net cash provided by (used in) financing activities

67,791

(11,076)
Net increase (decrease)

$
5,107

$
(57,722)
Cash and cash equivalents and Restricted cash

Beginning of period

36,441

93,713
End of period

$
41,548

$
35,991
Supplemental cash flow disclosure

Cash paid for income taxes

$
—

$
606
Cash and cash equivalents and Restricted cash

Cash and cash equivalents

$
38,115

$
29,986
Restricted cash (Note 6)

3,433

6,005
Cash and cash equivalents and Restricted cash

$
41,548

$
35,991

See Notes to Unaudited Condensed Consolidated Financial Statements

‎

Table of Contents

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of ~~Stockholders~~Stockholders’ Equity

For the Three Months ~~ended~~Ended March 31, ~~2019~~2020 and ~~2018~~2019

(in thousands)


	Shares	Amount		Additional Paid-In Capital		Retained Earnings		Total Stockholders Equity		Common Stock
Balance at December 31, 2018	30,155	$	302	$	595,037	$	264,020	$	859,359
Repurchase of common stock	(83)		—		(1,438)		—		(1,438)
										Shares	Amount		Additional Paid-In Capital		Retained Earnings		Total Stockholders' Equity
Balance at December 31, 2019										33,067	$	331	$	684,354	$	377,014	$	1,061,699
Repurchases of common stock										—		—		—		—		—
Vesting of restricted stock units	232		1		(3,167)		—		(3,166)	412		4		(4)		—		—
Withholding of common stock upon vesting of restricted stock units										(160)		(2)		(4,975)		—		(4,977)
Stock-based compensation expense	—		—		3,534		—		3,534	—		—		1,685		—		1,685
Net income	—		—		—		17,117		17,117	—		—		—		26,126		26,126
Balance at March 31, 2019	30,304		303		593,966		281,137		875,406
Balance at March 31, 2020										33,319	$	333	$	681,060	$	403,140	$	1,084,533

Shares

Amount

Additional Paid-In Capital

Retained Earnings

Total Stockholders Equity
Balance at December 31, 2017

29,503

$
295

$
566,790

$
168,148

$
735,233
Adoption of ASC 606

—

—

—

(583)

(583)
Issuance of common stock

446

3

5,018

—

5,021
Repurchase of common stock

—

—

—

—

—
Repurchase of common stock upon vesting of restricted stock awards

(159)

—

(4,788)

—

(4,788)
Stock-based compensation expense

—

—

2,516

—

2,516
Net income

—

—

—

20,019

20,019
Balance at March 31, 2018

29,790

$
298

$
569,536

$
187,584

$
757,418


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings		Total Stockholders Equity
Balance at December 31, 2018	30,155	$	302	$	595,037	$	264,020	$	859,359
Repurchases of common stock	(83)		—		(1,438)		—		(1,438)
Vesting of restricted stock units	367		3		(3)		—		—
Withholding of common stock upon vesting of restricted stock units	(135)		(2)		(3,164)		—		(3,166)
Stock-based compensation expense	—		—		3,534		—		3,534
Net income	—		—		—		17,117		17,117
Balance at March 31, 2019	30,304	$	303	$	593,966	$	281,137	$	875,406

See Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, ~~2019~~2020

1. Basis of Presentation

Century Communities, Inc. (which we refer to as “we,” “CCS,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in ~~the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Nevada, North Carolina, Ohio, South Carolina, Tennessee, Texas, Utah, and Washington.~~metropolitan areas in 17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and ~~Wade Jurney Homes~~Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: first time, 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 selections. Our Century Complete brand, formerly referred to as Wade Jurney Homes, ~~brand solely~~ targets first time homebuyers, primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. On February 6, 2020 we announced the rebranding of Wade Jurney Homes to Century Complete. Our homebuilding operations are organized into the following ~~five~~5 reportable segments: West, Mountain, Texas, Southeast, and ~~Wade Jurney Homes.~~Century Complete. Additionally, our indirect ~~wholly-owned~~wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our ~~home buyers~~homebuyers have been identified as our Financial Services ~~segment.~~segment.

On June 14, 2018, we acquired the remaining 50% ownership interest in WJH, LLC (which we refer to as “WJH” or “Wade Jurney Homes”) for $37.5 million. WJH specializes in providing single family homes for first time buyers. On the acquisition date, WJH had operations in Alabama, Florida, Georgia, North Carolina and South Carolina.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, ~~2018,~~2019, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 that was filed with the SEC on February ~~13, 2019.~~7, 2020.

The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our operations and customer demand. Through late April, there is still significant uncertainty regarding the duration and severity of the disruption caused by this pandemic.

Commencing in March 2020 numerous state and local municipalities issued public health orders with varying expiration dates requiring the closure of nonessential businesses, as well as ordering individuals to stay at home and/or shelter in place whenever possible. General exceptions to shelter in place orders are essential services and critical businesses. As of the date of this filing, other than the state of Michigan and certain municipalities within the Bay Area market of Northern California, construction and sale of residential real estate has been determined to be an essential business, and accordingly our operations have been generally exempted from these applicable health orders.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities for which the Company is deemed to be the primary beneficiary. We currently do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Recently Adopted Accounting Standards

~~Leases~~Financial Instruments - Credit Losses

~~The Financial Accounting Standards Board (which we refer to as “FASB”) issued ASC 842,~~ ~~Leases~~ (which we refer to as “ASC 842”) which requires the recognition of lease assets and lease liabilities by lessees for most leases. ASC 842 is effective for the Company beginning January 1, 2019 and interim periods within the annual period. We adopted ASC 842 under a modified retrospective approach using the option to apply the transition provisions on the effective date January 1, 2019. The modified retrospective approach allows the Company to carryforward our historical lease classification, and to present historical periods under legacy lease accounting guidance. The Company’s leases primarily consist of leases for office space, and computer and office equipment where we are the lessee.

~~Table of Contents~~

ASC 842 includes several practical expedients which we elected upon adoption including to (a) not reassess the lease classification for any expired or existing leases and (b) not reassess whether previously capitalized initial direct costs qualify for capitalization under ASC 842. Additionally, we elected to utilize hindsight when determining the lease term.

The adoption of ASC 842 resulted in the establishment of a right of use asset of $17.7 million and a lease liability of $18.7 million on our consolidated balance sheet as of January 1, 2019. The adoption of ASC 842 did not impact stockholders’ equity.

~~Recently Issued Accounting Standards~~

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments—~~Instruments – Credit Losses (Topic 326):~~Measurement of Credit Losses on Financial Instruments~~ ~~(which we refer to as “ASU 2016-13”), which~~. The standard changes the ~~impairment model~~accounting for credit losses for most financial assets and certain other instruments. ~~ASU 2016-13 changes the probable threshold~~Credit losses which have historically been accounted for ~~initial recognition~~on an

Table of ~~a credit~~Contents

incurred loss ~~in current GAAP to a model that reflects~~basis will now be accounted for using an ~~entity’s current~~ estimate of ~~all~~lifetime expected credit losses. This will generally result in earlier recognition of allowances for credit losses. We adopted this standard on January 1, 2020 with no material effect on the consolidated financial statements and related disclosures.

Internal-Use Software

In August 2018, the FASB issued ASU ~~2016-13~~2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This update is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. We adopted this standard on January 1, 2020 with no material effect on the consolidated financial statements and related disclosures.

Recently Issued Accounting Standards

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The standard simplifies the accounting for income taxes, eliminates certain exceptions, and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for ~~our interim and annual reporting periods~~us beginning January 1, ~~2020.~~2021. We ~~are currently evaluating~~do not expect this standard to have a material effect on the ~~impact of ASU 2016-13 on our~~ consolidated financial statements and related disclosures.

2. Reporting Segments

Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 1517 states. We build and sell homes under our Century Communities and ~~Wade Jurney Homes~~Century Complete brands. Our Century Communities brand is managed by geographic location, and each of our ~~four~~4 geographic regions targets a wide range of buyer profiles including: first time, 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 selections. Each of our four geographic regions is considered a separate operating segment. Our ~~Wade Jurney Homes~~Century Complete brand ~~solely~~ targets first time homebuyers, primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our ~~Wade Jurney Homes~~Century Complete brand currently has operations in ~~ten~~11 states and is managed separately from our four geographic ~~regions, accordingly,~~regions. Accordingly, it is considered a separate operating segment.

The management of our four geographic regions and ~~Wade Jurney Homes~~Century Complete reports to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company. The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability and to allocate resources. Accordingly, we have presented our homebuilding operations as the following ~~five~~5 reportable segments:

~~West (California and Washington)~~

~~Mountain (Colorado, Nevada and Utah)~~

~~Texas~~

~~Southeast (Georgia, North Carolina, South Carolina and Tennessee)~~

~~Wade Jurney Homes (Alabama, Arizona, Florida, Georgia, Indiana, North Carolina, Ohio, South Carolina, Tennessee, and Texas)~~

West (California and Washington)

Mountain (Colorado, Nevada and Utah)

Texas

Southeast (Georgia, North Carolina, South Carolina and Tennessee)

Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Iowa, Michigan, North Carolina, Ohio, South Carolina, and Texas)

We have also identified our Financial Services operations, which provide mortgage, title, and insurance services to our homebuyers, as a sixth reportable segment. Our Corporate operations are a non-operating segment, as ~~it serves~~they serve to support our homebuilding, and to a lesser extent our financial services operations, through functions, such as our executive, finance, treasury, human resources, accounting and legal departments. The following table summarizes total revenue and income before income tax expense by segment (in ~~thousands)~~thousands):

‎

Three months ended March 31,

2019

2018
Revenue:

West
$
112,120

$
118,920
Mountain

159,666

145,493
Texas

50,486

38,028
Southeast

112,812

93,849
Wade Jurney Homes

89,573

—
Financial Services

8,400

5,556
Corporate

—

—
Total revenue
$
533,057

$
401,846

Income (loss) before income tax expense:

West
$
8,648

$
9,869
Mountain

19,308

17,923
Texas

3,749

1,808

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Southeast

5,739

4,681
Wade Jurney Homes

3,973

—
Financial Services

1,590

1,161
Corporate

(20,010)

(12,335)
Total income before income tax expense
$
22,997

$
23,107


	Three Months Ended March 31,
	2020		2019
Revenue:
West	$	131,887	$	112,120
Mountain		171,152		159,666
Texas		60,164		50,486
Southeast		131,502		112,812
Century Complete		98,109		89,573
Financial Services		9,795		8,400
Corporate		—		—
Total revenue	$	602,609	$	533,057

Income (loss) before income tax expense:
West	$	15,341	$	8,648
Mountain		18,498		19,308
Texas		5,484		3,749
Southeast		8,308		5,739
Century Complete		780		3,973
Financial Services		209		1,590
Corporate		(14,532)		(20,010)
Total income before income tax expense	$	34,088	$	22,997

The following table summarizes total assets by operating segment (in thousands):


	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
West	$	541,455	$	502,381	$	634,491	$	610,248
Mountain		636,258		621,757		707,925		635,201
Texas		217,538		209,550		233,247		232,887
Southeast		441,454		448,681		425,309		441,818
Wade Jurney		235,126		204,925
Century Complete						233,394		244,827
Financial Services		142,633		146,710		223,109		254,282
Corporate		108,601		120,251		452,963		80,704
Total assets	$	2,323,065	$	2,254,255	$	2,910,438	$	2,499,967

Corporate assets primarily include certain cash and cash equivalents, certain property and equipment, prepaid insurance, and deferred financing costs on our revolving line of credit.

3. ~~Business Combinations~~Inventories

~~WJH, LLC - Wade Jurney Homes~~

On June 14, 2018, we acquired the remaining 50% ownership interest in WJH for $37.5 million, whereby WJH became a 100% owned subsidiary of the Company. We initially acquired a 50% ownership interest in WJH in November 2016 as part of a joint venture, which was accounted for under the equity method of accounting. Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios and the internet, and provides no option or upgrade selections. The acquired assets primarily include homes under construction that are in various stages of completion and are geographically dispersed. We determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.4 million in acquisition costs.

Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings. As such, we valued our previously held equity interest in WJH at $35.6 million, which was inclusive of an estimated discount for lack of control of $1.9 million, and recognized a gain of $7.2 million during the year ended December 31, 2018.

~~The following table outlines the total consideration transferred, inclusive of cash acquired and the fair value of our previously held equity interest (in thousands):~~


~~Cash consideration transferred for 50% ownership interest~~	$	~~37,500~~
~~Previously held equity interest acquisition date fair value~~		~~35,625~~
~~Net assets acquired~~	$	~~73,125~~

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~~The following table summarizes our estimates of the assets acquired and liabilities assumed as of the acquisition date (in thousands):~~


~~Cash and cash equivalents~~	$	~~9,464~~
~~Cash held in escrow~~		~~260~~
~~Accounts receivable~~		~~1,042~~
~~Inventories~~		~~156,828~~
~~Prepaid expenses and other assets~~		~~7,710~~
~~Amortizable intangible assets, net~~		~~3,600~~
~~Goodwill~~		~~3,317~~
	$	~~182,221~~

~~Accounts payable~~	$	~~12,516~~
~~Accrued expenses and other liabilities~~		~~2,349~~
~~Total senior notes and revolving line of credit~~		~~94,231~~
~~Total liabilities~~		~~109,096~~
~~Fair value of assets acquired~~	$	~~73,125~~

~~Acquired inventories consist primarily of work in process inventories. We estimated the fair value of acquired work in process inventories~~ based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts. The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences. Amortizable intangible assets include acquired trade names and a non-compete agreement, which were estimated to have fair values of $3.3 million and $0.3 million, respectively, and are amortized over 10 years and 2 years, respectively.

~~We determined that WJH’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.~~

WJH’s results of operations, which include homebuilding revenues of $89.6 million and income before tax inclusive of purchase price accounting, of $4.0 million are included in our accompanying Consolidated Statement of Operations for the three months ended March 31, 2019.

~~Pro Forma Financial Information~~

Pro forma revenue and income before tax expense for the quarter ended March 31, 2018 gives effect to the results of the acquisition of WJH. The effect of the WJH acquisition is reflected as though the acquisition date was as of January 1, 2018. Unaudited pro forma income before tax expense adjusts the operating results of WJH to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the year preceding the year of the acquisition and excludes acquisition expense incurred related to the transactions.


	~~Three months ended~~ ~~March 31, 2018~~
~~Total revenues~~	$	~~474,452~~

~~Income before tax expense~~	$	~~23,113~~
~~Tax expense~~		~~(3,086)~~
~~Net income~~	$	~~20,027~~
~~Less: Undistributed earnings allocated to participating securities~~		~~(49)~~
~~Numerator for basic and diluted pro forma EPS~~	$	~~19,978~~

~~Pro forma weighted average shares-basic~~		~~29,515,531~~
~~Pro forma weighted average shares-diluted~~		~~29,833,729~~

~~Pro forma basic EPS~~	$	~~0.68~~
~~Pro forma diluted EPS~~	$	~~0.67~~

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~~4. Inventories~~

Inventories included the following (in thousands):



	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Homes under construction	$	989,153	$	1,073,682	$	1,119,989	$	1,091,576
Land and land development		895,518		720,719		883,683		836,904
Capitalized interest		59,121		53,842		70,837		67,069
Total inventories	$	1,943,792	$	1,848,243	$	2,074,509	$	1,995,549

5.4. Financial Services

Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans, Inc. (which we refer to as “Inspire”). Inspire is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates and their related servicing rights in the secondary mortgage market within a short period of time after origination, generally within 30 days. Inspire primarily finances these loans ~~under~~using its mortgage repurchase facilities. Mortgage loans in process for which interest rates were committed to borrowers totaled approximately ~~$45.2~~$125.0 million and ~~$26.2~~$37.6 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and carried a weighted average interest rate of approximately ~~4.4%~~3.4%, and ~~4.7%~~3.9%,

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respectively. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, Inspire had mortgage loans held for sale with an aggregate fair value of ~~$98.6~~$141.8 million and ~~$114.1~~$185.2 million, respectively, and an aggregate outstanding principal balance of ~~$93.8~~$137.8 million and ~~$108.0~~$179.3 million, respectively. ~~Interest rate risks related to these obligations are mitigated by the preselling of loans to investors or through our interest rate hedging program.~~

Mortgage loans held-for-sale, including the rights to service the mortgage loans, as well as the derivative instrument used to economically hedge our interest rate risk, which are typically forward commitments on mortgage backed securities, are carried at fair value and changes in fair value are reflected in ~~Financial Services Revenue~~financial services revenue on the ~~Consolidated Statement~~condensed consolidated statement of ~~Operations.~~operations. Management believes carrying loans held-for-sale ~~at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans~~ and the derivative instruments used to economically hedge ~~them.~~them at fair value improves financial reporting by more accurately reflecting the underlying transaction. Refer to Note 11 – Fair Value Disclosures for further information regarding our derivative instruments.

6.5. Prepaid Expenses and Other Assets

Prepaid expenses and other assets included the following (in thousands):


	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Prepaid insurance	$	31,780	$	20,226	$	27,497	$	26,175
Lot option and escrow deposits		46,070		51,038		43,637		48,810
Right of use assets						17,538		18,854
Performance deposits		6,626		4,552		5,776		6,299
Deferred financing costs revolving line of credit, net		4,226		4,155		4,231		4,574
Restricted cash		3,433		3,539
Secured note receivable		2,700		4,947
Right of use assets		17,254		—
Insurance receivable and other		11,159		50,260
Restricted cash⁽¹⁾						2,561		3,085
Secured notes receivable						2,571		2,602
Other assets and prepaid expenses						7,714		8,633
Mortgage loans held for investment and derivative assets						9,349		4,768
Amortizable intangible assets, net						143		208
Total prepaid expenses and other assets	$	123,248	$	138,717	$	121,017	$	124,008

⁽¹⁾Restricted cash consists of earnest money deposits for home sale contracts held by third parties as required by various jurisdictions, and certain pledge balances associated with our mortgage repurchase facilities.

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7.6. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following (in thousands):



	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Earnest money deposits	$	12,922	$	13,990	$	15,898	$	10,592
Warranty reserve		8,633		7,970		9,727		9,731
Accrued compensation costs		17,259		29,770		16,322		30,888
Land development and home construction accruals		118,653		77,748		126,930		110,284
Lease liabilities - operating leases						18,065		19,306
Accrued interest		16,583		15,636		17,323		14,562
Lease liabilities - operating leases		18,184		—
Income taxes payable		3,638		—		2,453		329
Liability for product financing arrangements and other		12,974		68,043
Liability for product financing arrangement and other						24,157		18,283
Total accrued expenses and other liabilities	$	208,846	$	213,157	$	230,875	$	213,975

7. Warranties

~~8. Warranties~~

Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in ~~Accrued~~accrued expenses and other liabilities on the ~~Consolidated Balance Sheets,~~consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded if necessary. WeBased on warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $1.1 million and increased our ~~warranty~~ reserve by $22 thousand during the three months ended March 31, 2020 and 2019, ~~compared to a $45 thousand decrease during the same period in 2018. This adjustment~~respectively, which is included ~~as a reduction to Cost~~in cost of home sales

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revenues on our ~~Consolidated Statements~~consolidated statements of ~~Operations.~~operations. Changes in our warranty accrual for the three months ended March 31, 2020 and 2019 are detailed in the table below (in thousands):


	Three months ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Beginning balance	$	7,970	$	8,531	$	9,731	$	7,970
Warranty expense provisions		1,661		1,434		1,777		1,661
Payments		(1,020)		(959)		(689)		(1,020)
Warranty adjustment		22		(45)		(1,092)		22
Ending balance	$	8,633	$	8,961	$	9,727	$	8,633

8. Debt

~~9. Debt~~

Our outstanding debt obligations included the following as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

March 31,

December 31,

2019

2018
6.875% senior notes, due May 2022(1)

$
380,900

$
380,567
5.875% senior notes, due July 2025(1)

395,591

395,415
Insurance premium notes and other financing obligations

10,381

8,795
Senior notes payable

786,872

784,777
Revolving line of credit, due April 2022

287,000

202,500
Mortgage repurchase facility

90,866

104,555
Total debt

$
1,164,738

$
1,091,832


	March 31,		December 31,
	2020		2019
6.750% senior notes, due May 2027⁽¹⁾	$	494,499	$	494,307
5.875% senior notes, due July 2025⁽¹⁾		396,296		396,120
Other financing obligations		8,371		6,277
Notes payable		899,166		896,704
Revolving line of credit, due April 2023		521,900		68,700
Mortgage repurchase facilities		133,794		174,095
Total debt	$	1,554,860	$	1,139,499

⁽¹⁾The carrying value of 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.

Revolving Line of Credit

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the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries. The Amended and Restated 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. These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly. Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

As of March 31, ~~2019,~~2020, we had ~~$287.0~~$521.9 million outstanding under the credit facility ~~leaving $353.0 million in availability~~ and were in compliance with all covenants.

Mortgage Repurchase Facilities – Financial Services

On May 4, 2018, ~~and~~ September 14, 2018, and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, ~~and~~ J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the ~~“Repurchase Facilities”~~“repurchase facilities”) provide Inspire with uncommitted repurchase facilities of up to ~~$140~~an aggregate of $225 million, secured by the mortgage loans financed thereunder. Amounts outstanding under the ~~Repurchase Facilities~~repurchase facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of March 31, ~~2019,~~2020, we had ~~$90.9~~$133.8 million outstanding under these ~~Repurchase Facilities~~repurchase facilities and were in compliance with all covenants thereunder. No assurance can be provided, however, that we will remain in compliance with the covenants or have continued access to these facilities or substitute or replacement facilities in an amount sufficient to fund our mortgage lending business.

During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we incurred interest expense on ~~our Repurchase Facilities~~the repurchase facilities of ~~$0.6~~$0.7 million and ~~$0.2~~$0.6 million, respectively, which are included in financial services costs on our ~~Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations.

~~10.~~

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9. Interest

Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed. As our qualifying assets exceeded our outstanding debt during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we capitalized all interest costs incurred during these periods, except for interest incurred on our ~~Mortgage~~mortgage repurchase facilities.

Our interest costs are as follows (in thousands):


	Three months ended March 31,				Three Months Ended March 31,
	2019		2018		2020		2019
Interest capitalized beginning of period	$	53,842		41,762	$	67,069	$	53,842
Interest capitalized during period		17,866		13,357		17,453		17,866
Less: capitalized interest in cost of sales		(12,587)		(8,959)		(13,685)		(12,587)
Interest capitalized end of period	$	59,121		46,160	$	70,837	$	59,121

~~11.~~

10. Income Taxes

At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our ~~2019~~2020 estimated annual effective tax rate of ~~26.7%~~23.7% is driven by our blended federal and state statutory rate of ~~24.9%~~25.4%, and certain other permanent differences between GAAP and tax which ~~increased~~decreased our rate by ~~1.8%~~1.7%.

For the three months ended March 31, ~~2019~~2020, our estimated annual rate of ~~26.7%~~23.7% was impacted by discrete items which had a net impact of decreasing our rate by ~~1.2%~~0.3%, including excess tax benefits for vested stock-based compensation.

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we recorded income tax expense of $8.0 million and $5.9 million, ~~and $3.1 million,~~ respectively.

~~12.~~11. Fair Value Disclosures

Accounting Standards Codification Topic 820, Fair Value Measurement, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

Level 1 — Quoted prices for identical instruments in active markets.

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Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

The following table presents carrying values and estimated fair values of financial instruments (in thousands):

March 31, 2019

December 31, 2018

Hierarchy

Carrying

Fair Value

Carrying

Fair Value
Secured notes receivable(1)

Level 2

$
2,700

$
2,616

$
4,947

$
4,830
Mortgage loans held for sale(2)

Level 2

$
98,591

$
98,591

$
114,074

$
114,074

6.875% senior notes(3)

Level 2

$
380,900

$
385,308

$
380,567

$
367,618
5.875 % senior notes (3)

Level 2

$
395,591

$
373,591

$
395,415

$
351,414
3.278% insurance premium notes(4)

Level 2

$
10,381

$
10,381

$
6,475

$
6,475
Revolving line of credit(4)

Level 3

$
287,000

$
287,000

$
202,500

$
202,500
Other financing obligation(4)

Level 2

$
—

$
—

$
2,320

$
2,320
Mortgage repurchase facilities(4)

Level 2

$
90,866

$
90,866

$
104,555

$
104,555


		March 31, 2020				December 31, 2019

	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Secured notes receivable⁽¹⁾	Level 2	$	2,571	$	2,522	$	2,602	$	2,545
Mortgage loans held for sale⁽²⁾	Level 2	$	141,846	$	141,846	$	185,246	$	185,246
Derivative assets⁽³⁾	Level 2	$	2,962	$	2,962	$	1,382	$	1,382

5.875% senior notes⁽⁴⁾⁽⁵⁾	Level 2	$	396,296	$	335,520	$	396,120	$	415,680
6.750% senior notes⁽⁴⁾⁽⁵⁾	Level 2	$	494,499	$	414,700	$	494,307	$	537,500
Revolving line of credit⁽⁶⁾	Level 3	$	521,900	$	521,900	$	68,700	$	68,700
Other financing obligations⁽⁶⁾⁽⁷⁾	Level 2	$	8,371	$	8,371	$	6,277	$	6,277
Derivative liabilities⁽³⁾	Level 2	$	3,159	$	3,159	$	147	$	147
Mortgage repurchase facilities⁽⁶⁾	Level 2	$	133,794	$	133,794	$	174,095	$	174,095

⁽¹⁾

~~Estimated fair value of the secured notes receivable was based on cash flow models discounted at market interest rates that considered the underlying risks of the note.~~

⁽²⁾

~~The mortgage loans held for sale are carried at fair value, which was based on quoted market prices for those committed mortgage loans.~~

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⁽³⁾

~~Estimated fair value of the senior notes incorporated recent trading activity in inactive markets.~~

⁽⁴⁾

~~Carrying amount approximates fair value due to short-term nature and interest rate terms.~~

⁽¹⁾Estimated fair value of the secured notes receivable was based on cash flow models discounted at market interest rates which considered the underlying risks of the note.

⁽²⁾The mortgage loans held for sale are carried at fair value, which is based on quoted market prices for committed mortgage loans.

⁽³⁾Derivative instruments are carried at fair value and based on market prices for similar instruments. Changes in fair value are reflected in financial services revenue on the condensed consolidated statement of operations. Derivative assets are presented within prepaid expenses and other assets on the condensed consolidated balance sheets. Derivative liabilities are presented within accrued expenses and other liabilities on the condensed consolidated balance sheets.

⁽⁴⁾Estimated fair value of the senior notes is based on recent trading activity in inactive markets.

⁽⁵⁾Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of March 31, 2020, these amounts totaled $5.5 million and $3.7 million for the 6.750% senior notes and 5.875% senior notes, respectively. As of December 31, 2019, these amounts totaled $5.7 million and $3.9 million for the 6.875% senior notes and 5.875% senior notes, respectively.

⁽⁶⁾Carrying amount approximates fair value due to short-term nature and interest rate terms.

⁽⁷⁾Insurance premium notes including in other financing obligations bore interest rates ranging from 3.278% to 3.240% during the periods ending March 31, 2020 and December 31, 2019.

During the three months ended March 31, 2020, we determined that inventory with a carrying value before impairment of $2.3 million within one community was not recoverable. Accordingly, we recognized an impairment charge of $0.8 million to reflect the estimated fair value of the community of $1.5 million. The estimated fair value of the community was determined through a discounted cash flow approach utilizing Level 3 inputs. This inventory impairments was primarily incurred in the Century Complete segment.

The carrying amount of cash and cash equivalents approximates fair value. Non-financial assets and liabilities include items such as inventory and property and equipment that are measured at fair value when acquired ~~in a business combination. Long-lived assets determined to be impaired are measured at fair value.~~and resulting from impairment, if deemed necessary.

~~13.~~

12. Stock-Based Compensation

During the three months ended March 31, ~~2019,~~2020, we granted performance share units (which we refer to as “PSUs”) covering up to 0.3 million shares of common stock, assuming maximum level of performance, with a grant date fair value of $22.01 per share that are subject to both service and performance vesting conditions. The quantity of shares that will vest under the PSUs ranges from 0% to 250% of a targeted number of shares for each participant and will be determined based on an achievement of a three-year pre-tax income performance goal. During the three months ended March 31, 2019, we also granted restricted stock units (which we refer to as “RSUs”) covering ~~0.5~~0.3 million shares of common stock with a grant date fair value of ~~$23.76~~$31.19 per share that vest over a ~~three-year~~three year period. ~~As of~~During the three months ended March 31, ~~2019,~~2020 we ~~had no remaining unvested restricted stock awards~~did 0t grant any additional performance share units (which we refer to as ~~“RSAs”~~“PSUs”) ~~outstanding.~~ , however our recognition of stock based expense associated with previously granted PSU awards was updated to reflect probable financial results as they relate to the performance goals of the awards. Accordingly, our estimate of the number of shares which will ultimately vest under our PSU awards decreased by 0.3 million, and we recorded a cumulative catch-up adjustment to decrease stock-based compensation expense of $2.4 million.

A summary of our outstanding RSUs and PSUs, assuming ~~maximum~~target level of performance, are as follows (in thousands, except years):


	As of March 31, ~~2019~~2020
Unvested units		~~1,326~~ 814
Unrecognized compensation cost	$	~~24,442~~ 13,823
Period to recognize compensation cost		~~2.0~~1.39 years

During the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we recognized stock-based compensation expense of ~~$3.5~~$1.7 million and ~~$2.5~~$3.5 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our ~~Consolidated Statements~~condensed consolidated statements of ~~Operations.~~operations.

~~14.~~13. Stockholders’ Equity

Our authorized capital stock consists of 100.0 million shares of common stock, par value $0.01 per share, and 50.0 million shares of preferred stock, par value $0.01 per share. As of March 31, ~~2019~~2020, and December 31, ~~2018,~~2019, there were ~~30.3~~33.3 million and ~~30.2~~33.1 million shares of common stock issued and outstanding, respectively.

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On May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term Incentive Plan. We had reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, of which approximately 0.6 million shares rolled over into the 2017 Incentive Plan when it became effective. On May 8, 2019, our stockholders approved the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “Amended 2017 Incentive Plan”), which increased the number of shares of our common stock authorized for issuance under the 2017 Incentive Plan by an additional 1.631 million shares. We issued 0.4 million and 0.4 million shares of common stock related to the vesting

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of RSUs during the three months ended March 31, ~~2019.~~2020 and 2019, respectively. As of March 31, ~~2019,~~2020, approximately ~~0.2~~1.7 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan.

On ~~July 3, 2018,~~November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and ~~Merrill Lynch, Pierce, Fenner & Smith Incorporated,~~Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the sales agents party thereto in “at-the-market” ~~offerings.~~ offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar Distribution Agreement, had ~~$72.7~~all $100 million available for sale as of March 31, ~~2019.~~ 2020. We did ~~not~~0t sell or issue any shares of our common stock during the three months ended March 31, ~~2019. During~~2020 or the three months ended March 31, 2018, we sold and issued an aggregate of 0.2 million shares of our common stock under a prior Distribution Agreement, which provided net proceeds of $5.0 million, and in connection with such sales, paid total commissions and fees to the Sales Agents of $0.1 million.2019. 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.

~~15.~~In November 2018, we authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. During the three months ended March 31, 2020 we did not repurchase any shares of common stock while during the three months ended March 31, 2019, we repurchased 83,000 shares of common stock under this program for approximately $1.4 million.

14. Earnings Per Share

We use the two-class method of calculating EPS as our non-vested RSAs have non-forfeitable rights to dividends and, accordingly, represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period. We use the treasury stock method to calculate ~~the dilutive effect of~~earnings per share as our currently issued non-vested RSUs and PSUs ~~as these awards~~ do not have participating rights.

The following table sets forth the computation of basic and diluted EPS for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (in thousands, except share and per share information):


	Three months ended				Three Months Ended
	March 31,				March 31,
	2019		2018		2020		2019
Numerator
Net income	$	17,117	$	20,019	$	26,126	$	17,117
Less: Undistributed earnings allocated to participating securities		—		(49)
Net income allocable to common stockholders	$	17,117	$	19,970
Denominator
Weighted average common shares outstanding - basic		30,203,243		29,515,531		33,207,928		30,203,243
Dilutive effect of restricted stock units		241,033		318,198		268,516		241,033
Weighted average common shares outstanding - diluted		30,444,276		29,833,729		33,476,444		30,444,276
Earnings per share:
Basic	$	0.57	$	0.68	$	0.79	$	0.57
Diluted	$	0.56	$	0.67	$	0.78	$	0.56

Stock-based awards are excluded from the calculation of diluted EPS in the event they are subject to unsatisfied performance conditions or are antidilutive. We excluded 0.6 million and 0.3 million common unit equivalents from diluted earnings per share during the three months ended March 31, 2020 and 2019, respectively, related to the PSUs ~~granted during the periods. We did not have any common unit equivalents to exclude from diluted earnings per share during the three months ended March 31, 2018.~~for which performance conditions remain unsatisfied.

~~16.~~15. Commitments and Contingencies

Letters of Credit and Performance Bonds

Litigation

~~Table of Contents~~

We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of our management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and the eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative expense on our ~~Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations for our estimated loss.

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Under various insurance policies, we have the ability to recoup costs in excess of applicable self-insured retentions. Estimates of such amounts are recorded in other assets when recovery is probable. As of December 31, 2018, substantially all of the amounts reflected in Insurance receivable and other were related to construction claims, which were settled and amounts collected under the applicable insurance policies during the quarter ended March 31, 2019.

We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flows.

~~17. Leases~~

Under ASC 842, the Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

We primarily enter into operating leases for the right to use office space, and computer and office equipment, which have lease terms that generally range from 1 to 7 years and often include one or more options to renew. We include renewal terms in the lease term when it is reasonably certain that we will exercise the option. For leases entered into after January 1, 2019, we establish a right of use asset and a lease liability at the commencement date of the lease based on the present value of future minimum lease payments. As the rate implicit in each lease is not readily determinable, we utilize our incremental borrowing rate in determining the present value of future minimum payments. Our incremental borrowing rate is determined based on information available at the commencement date. We account for the lease components and non-lease components as a single lease component. As of March 31, 2019, the Company had $17.3 million and $18.2 million recognized as a right of use asset and lease liability, respectively, which are presented on the consolidated balance sheet within Prepaid expenses and other assets and Accrued expenses and other liabilities, respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on the Company's balance sheet.

Under both ASC 840 and ASC 842, operating lease expense is recognized on a straight-line basis over the lease term and was $1.4 million and $0.9 million for the quarters ended March 31, 2019 and 2018, respectively.

~~Information related to the Company’s right of use asset and lease liability were as follows (in thousands):~~



	~~Three Months Ended~~ ~~March 31, 2019~~
~~Cash paid for operating lease liabilities~~	$	~~1,311~~
~~Right-of-use assets obtained in exchange for new operating lease obligations~~	$	~~847~~
~~Weighted-average remaining lease term~~		~~4.29 years~~
~~Weighted-average discount rate~~		~~6.39~~	%

~~Maturities of lease liabilities as of March 31, 2019 were as follows (in thousands):~~

Due in 12 month period ended March 31,

2020

$
5,492
2021

5,023
2022

4,027
2023

2,861
2024

2,258
Thereafter

1,251
Total

20,912
Less: discount

(2,728)
Total lease liabilities

$
18,184

~~Table of Contents~~

~~18.~~16. Supplemental Guarantor Information

Our ~~6.875% senior notes due 2022 and~~ 5.875% senior notes due 2025 and 6.750% senior notes due 2027 (which we collectively refer to as our “Senior Notes”) are our unsecured senior obligations and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to collectively as “Guarantors”). In addition, our former 6.875% senior notes due 2022 which were extinguished during the second quarter of 2019, were our unsecured senior obligations and were fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the Guarantors.

Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the respective Indentures), in accordance with the applicable indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable indenture. The indenture governing our former 6.875% senior notes due 2022 contained a similar provision.

As the guarantees were made in connection with exchange offers effected in February 2015, October 2015 and April 2017 and the issuance of the 5.875% senior notes due 2025 and of the 6.750% senior notes due 2027, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

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

‎

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											Supplemental Condensed Consolidated Balance Sheet
	Supplemental Condensed Consolidated Balance Sheet										As of March 31, 2020 (in thousands)
	As of March 31, 2019 (in thousands)
			Guarantor		Non Guarantor		Elimination		Consolidated				Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century		Century		Subsidiaries		Subsidiaries		Entries		Century
Assets
Cash and cash equivalents	$	643		2,596		34,876		—	$	38,115	$	401,069		6,404		43,500		—	$	450,973
Cash held in escrow		—		24,664		—		—		24,664		—		22,497		—		—		22,497
Accounts receivable		3,627		8,754		55		—		12,436		8,000		13,684		19,003		(17,600)		23,087
Investment in consolidated subsidiaries		1,928,076		—		—		(1,928,076)		—		2,097,867		—		—		(2,097,867)		—
Inventories		—		1,943,792		—		—		1,943,792		—		2,074,509		—		—		2,074,509
Mortgage loans held for sale		—		—		98,591		—		98,591		—		—		141,846		—		141,846
Prepaid expenses and other assets		13,807		101,649		7,792		—		123,248		9,449		95,096		16,472		—		121,017
Deferred tax assets, net		13,591		—		—		—		13,591		11,110		—		—		—		11,110
Property and equipment, net		13,966		18,578		927		—		33,471		15,240		18,595		1,169		—		35,004
Amortizable intangible assets, net		—		4,762		—		—		4,762
Goodwill		—		30,395		—		—		30,395		—		30,395		—		—		30,395
Total assets	$	1,973,710	$	2,135,190	$	142,241	$	(1,928,076)	$	2,323,065	$	2,542,735	$	2,261,180	$	221,990	$	(2,115,467)	$	2,910,438
Liabilities and stockholders’ equity
Liabilities:
Accounts payable	$	835		73,002		238		—	$	74,075	$	588		38,963		619		—	$	40,170
Accrued expenses and other liabilities		33,978		166,029		8,839		—		208,846		44,919		189,848		13,708		(17,600)		230,875
Notes payable		776,491		10,381		—		—		786,872		890,795		8,371		—		—		899,166
Revolving line of credit		287,000		—		—		—		287,000		521,900		—		—		—		521,900
Mortgage repurchase facilities		—		—		90,866		—		90,866		—		—		133,794		—		133,794
Total liabilities		1,098,304		249,412		99,943		—		1,447,659		1,458,202		237,182		148,121		(17,600)		1,825,905
Stockholders’ equity:		875,406		1,885,778		42,298		(1,928,076)		875,406		1,084,533		2,023,998		73,869		(2,097,867)		1,084,533
Total liabilities and stockholders’ equity	$	1,973,710	$	2,135,190	$	142,241	$	(1,928,076)	$	2,323,065	$	2,542,735	$	2,261,180	$	221,990	$	(2,115,467)	$	2,910,438


	Supplemental Condensed Consolidated Balance Sheet										Supplemental Condensed Consolidated Balance Sheet
	As of December 31, 2018 (in thousands)										As of December 31, 2019 (in thousands)

			Guarantor		Non Guarantor		Elimination		Consolidated				Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century		Century		Subsidiaries		Subsidiaries		Entries		Century
Assets
Cash and cash equivalents	$	2,183		2,101		28,618		—	$	32,902	$	1,577		—		53,859		—	$	55,436
Cash held in escrow		—		24,344		—		—		24,344		—		35,308		—		—		35,308
Accounts receivable		6,117		7,424		(77)		—		13,464		15,363		12,327		(252)		—		27,438
Investment in consolidated subsidiaries		1,827,456		—		—		(1,827,456)		—		1,996,703		—		—		(1,996,703)		—
Inventories		—		1,848,243		—		—		1,848,243		—		1,995,549		—		—		1,995,549
Mortgage loans held for sale		—		—		114,074		—		114,074		—		—		185,246		—		185,246
Prepaid expenses and other assets		51,177		85,224		2,316		—		138,717		9,539		101,321		13,148		—		124,008
Deferred tax assets, net		13,763		—		—		—		13,763		10,589		—		—		—		10,589
Property and equipment, net		13,274		18,989		995		—		33,258		15,256		19,614		1,128		—		35,998
Amortizable intangible assets, net		—		5,095		—		—		5,095
Goodwill		—		30,395		—		—		30,395		—		30,395		—		—		30,395
Total assets	$	1,913,970	$	2,021,815	$	145,926	$	(1,827,456)	$	2,254,255	$	2,049,027	$	2,194,514	$	253,129	$	(1,996,703)	$	2,499,967
Liabilities and stockholders’ equity
Liabilities:
Accounts payable	$	623		88,627		657		—	$	89,907	$	(13)		83,853		954		—	$	84,794
Accrued expenses and other liabilities		75,506		131,548		6,103		—		213,157		28,214		173,403		12,358		—		213,975
Notes payable		775,982		8,795		—		—		784,777		890,427		6,277		—		—		896,704
Revolving line of credit		202,500		—		—		—		202,500		68,700		—		—		—		68,700
Mortgage repurchase facilities		—		—		104,555		—		104,555		—		—		174,095		—		174,095
Total liabilities		1,054,611		228,970		111,315		—		1,394,896		987,328		263,533		187,407		—		1,438,268
Stockholders’ equity:		859,359		1,792,845		34,611		(1,827,456)		859,359		1,061,699		1,930,981		65,722		(1,996,703)		1,061,699
Total liabilities and stockholders’ equity	$	1,913,970	$	2,021,815	$	145,926	$	(1,827,456)	$	2,254,255	$	2,049,027	$	2,194,514	$	253,129	$	(1,996,703)	$	2,499,967

‎

Table of Contents


													Supplemental Condensed Consolidated Statement of Operations
		Supplemental Condensed Consolidated Statement of Operations										For the Three Months Ended March 31, 2020 (in thousands)
	For the Three Months Ended March 31, 2019 (in thousands)
				Guarantor		Non Guarantor		Elimination		Consolidated					Guarantor		Non Guarantor		Elimination		Consolidated
		Century		Subsidiaries		Subsidiaries		Entries		Century			Century		Subsidiaries		Subsidiaries		Entries		CCS
Revenues
Homebuilding revenues
Home sales revenues		$	—		523,302		—		—	$	523,302		$	—	$	572,710	$	—	$	—	$	572,710
Land sales and other revenues			—		1,355		—		—		1,355			—		20,104		—		—		20,104
			—		524,657		—		—		524,657
Total homebuilding revenues														—		592,814		—		—		592,814
Financial services revenue			—		—		8,400				8,400			—		—		9,795		—		9,795
Total revenues			—		524,657		8,400		—		533,057			—		592,814		9,795		—		602,609
Homebuilding cost of revenues
Cost of home sales revenues			—		(433,757)		—		—		(433,757)			—		(470,526)		—		—		(470,526)
Cost of land sales and other revenues			—		(614)		—		—		(614)			—		(14,167)		—		—		(14,167)
			—		(434,371)		—		—		(434,371)
Total homebuilding cost of revenues														—		(484,693)		—		—		(484,693)
Financial services costs			—		—		(6,829)				(6,829)			—		—		(9,586)		—		(9,586)
Selling, general and administrative			(18,655)		(50,281)		—		—		(68,936)			(13,475)		(60,144)		—		—		(73,619)
Acquisition expense			—		—		—		—		—
Inventory impairment														—		(781)		—		—		(781)
Equity in earnings from consolidated subsidiaries			31,163		—		—		(31,163)		—			35,428		—		—		(35,428)		—
Equity in income of unconsolidated subsidiaries			—		—		—		—		—
Other income (expense)			101		(45)		20		—		76			326		(304)		136		—		158
Income before income tax expense			12,609		39,960		1,591		(31,163)		22,997			22,279		46,892		345		(35,428)		34,088
Income tax expense			4,508		(9,990)		(398)		—		(5,880)			3,847		(11,723)		(86)		—		(7,962)
Net income		$	17,117	$	29,970	$	1,193	$	(31,163)	$	17,117		$	26,126	$	35,169	$	259	$	(35,428)	$	26,126


		Supplemental Condensed Consolidated Statement of Operations
	For the Three Months Ended March 31, 2019 (in thousands)

				Guarantor		Non Guarantor		Elimination		Consolidated
		Century		Subsidiaries		Subsidiaries		Entries		Century
Revenues
Homebuilding revenues
Home sales revenues		$	—	$	523,302	$	—	$	—	$	523,302
Land sales and other revenues			—		1,355		—		—		1,355
Total homebuilding revenues			—		524,657		—		—		524,657
Financial services revenue			—		—		8,400		—		8,400
Total revenues			—		524,657		8,400		—		533,057
Homebuilding cost of revenues
Cost of home sales revenues			—		(433,757)		—		—		(433,757)
Cost of land sales and other revenues			—		(614)		—		—		(614)
Total homebuilding cost of revenues			—		(434,371)		—		—		(434,371)
Financial services costs			—		—		(6,829)		—		(6,829)
Selling, general and administrative			(18,655)		(50,281)		—		—		(68,936)
Equity in earnings from consolidated subsidiaries			31,163		—		—		(31,163)		—
Other income (expense)			101		(45)		20		—		76
Income before income tax expense			12,609		39,960		1,591		(31,163)		22,997
Income tax expense			4,508		(9,990)		(398)		—		(5,880)
Net income		$	17,117	$	29,970	$	1,193	$	(31,163)	$	17,117

‎

Supplemental Condensed Consolidated Statement of Operations

For the Three Months Ended March 31, 2018 (in thousands)

Guarantor

Non Guarantor

Elimination

Consolidated

Century

Subsidiaries

Subsidiaries

Entries

Century
Revenues

Homebuilding revenues

Home sales revenues

$
—

$
394,831

$
—

$
—

$
394,831
Land sales and other revenues

—

1,459

—

—

1,459

—

396,290

—

—

396,290
Financial services revenue

—

—

5,556

—

5,556
Total revenues

—

396,290

5,556

—

401,846
Homebuilding cost of revenues

Cost of home sales revenues

—

(319,583)

—

—

(319,583)
Cost of land sales and other revenues

—

(877)

—

—

(877)

—

(320,460)

—

—

(320,460)
Financial services costs

—

—

(4,395)

—

(4,395)
Selling, general and administrative

(15,462)

(41,060)

—

—

(56,522)
Acquisition expense

(173)

—

—

—

(173)
Equity in earnings from consolidated subsidiaries

26,497

—

—

(26,497)

—
Equity in income of unconsolidated subsidiaries

3,168

—

—

—

3,168
Other income (expense)

(233)

(124)

—

—

(357)
Income before income tax expense

13,797

34,646

1,161

(26,497)

23,107
Income tax expense

6,222

(9,008)

(302)

—

(3,088)
Net income

$
20,019

$
25,638

$
859

$
(26,497)

$
20,019

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	Supplemental Condensed Consolidated Statement of Cash Flows										Supplemental Condensed Consolidated Statement of Cash Flows
	For the Three Months Ended March 31, 2019 (in thousands)										For the Three Months Ended March 31, 2020 (in thousands)
			Guarantor		Non Guarantor		Elimination		Consolidated				Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century		Century		Subsidiaries		Subsidiaries		Entries		Century
Net cash provided by/(used in) operating activities	$	(36,731)		(36,216)		13,547		—	$	(59,400)	$	(652)	$	(33,043)	$	21,319	$	—	$	(12,376)
Net cash provided by/(used in) investing activities	$	(44,704)		(2,031)		67		43,384	$	(3,284)	$	(48,079)	$	(1,670)	$	(146)	$	47,268	$	(2,627)
Financing activities
Borrowings under revolving credit facilities	$	288,800		—		—		—	$	288,800	$	678,000		—		—		—	$	678,000
Payments on revolving credit facilities		(204,300)		—		—		—		(204,300)		(224,800)		—		—		—		(224,800)
Principal payments on notes payable												—		(2,043)		—		—		(2,043)
Proceeds from insurance notes payable												—		4,137		—		—		4,137
Net proceeds from mortgage repurchase facilities		—		—		(13,689)		—		(13,689)		—		—		(40,302)		—		(40,302)
Proceeds from insurance notes payable		—		9,301		—		—		9,301
Principal payments on notes payable		—		(7,716)		—		—		(7,716)
Issuance of common stock		—		—		—		—		—
Repurchases of common stock upon vesting of stock-based compensation												(4,977)		—		—		—		(4,977)
Repurchases of common stock under our stock repurchase program		(1,439)		—		—		—		(1,439)		—		—		—		—		—
Repurchases of common stock upon vesting of stock based compensation		(3,166)		—		—		—		(3,166)
Payments from (and advances to) parent/subsidiary		—		36,890		6,494		(43,384)		—		—		39,379		7,889		(47,268)		—
Net cash provided by/(used in) financing activities	$	79,895	$	38,475	$	(7,195)	$	(43,384)	$	67,791	$	448,223	$	41,473	$	(32,413)	$	(47,268)	$	410,015
Net decrease	$	(1,540)	$	228	$	6,419	$	—	$	5,107
Cash and cash equivalents and Restricted cash
Net increase (decrease)											$	399,492	$	6,760	$	(11,240)	$	—	$	395,012

Cash and cash equivalents and restricted cash
Beginning of period	$	2,183		4,006		30,252		—	$	36,441	$	1,577		341		56,604		—	$	58,522
End of period	$	643	$	4,234	$	36,671	$	—	$	41,548	$	401,069	$	7,101	$	45,364	$	—	$	453,534

Cash and cash equivalents	$	643		2,596		34,876		—	$	38,115	$	401,069		6,404		43,500		—	$	450,973
Restricted Cash		—		1,638		1,795		—		3,433		—		697		1,864		—		2,561
Cash and cash equivalents and Restricted cash	$	643	$	4,234	$	36,671	$	—	$	41,548	$	401,069	$	7,101	$	45,364	$	—	$	453,534


	Supplemental Condensed Consolidated Statement of Cash Flows
	For the Three Months Ended March 31, 2019 (in thousands)
			Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century
Net cash provided by/(used in) operating activities	$	(36,731)	$	(36,216)	$	13,547	$	—	$	(59,400)
Net cash provided by/(used in) investing activities		(44,704)	$	(2,031)	$	67	$	43,384	$	(3,284)
Financing activities										—
Borrowings under revolving credit facilities	$	288,800		—		—		—	$	288,800
Payments on revolving credit facilities		(204,300)		—		—		—		(204,300)
Principal payments on notes payable		—		(7,716)		—		—		(7,716)
Proceeds from insurance notes payable		—		9,301		—		—		9,301
Net proceeds from mortgage repurchase facilities		—		—		(13,689)		—		(13,689)
Repurchases of common stock upon vesting of stock-based compensation		(3,166)		—		—		—		(3,166)
Repurchases of common stock under our stock repurchase program		(1,439)		—		—		—		(1,439)
Payments from (and advances to) parent/subsidiary		—		36,890		6,494		(43,384)		—
Net cash provided by/(used in) financing activities	$	79,895	$	38,475	$	(7,195)	$	(43,384)	$	67,791
Net increase (decrease)	$	(1,540)	$	228	$	6,419	$	—	$	5,107

Cash and cash equivalents and restricted cash
Beginning of period	$	2,183		4,006		30,252		—	$	36,441
End of period	$	643	$	4,234	$	36,671	$	—	$	41,548

Cash and cash equivalents	$	643		2,596		34,876		—	$	38,115
Restricted Cash		—		1,638		1,795		—		3,433
Cash and cash equivalents and Restricted cash	$	643	$	4,234	$	36,671	$	—	$	41,548

‎

2018

Table of Contents

Supplemental Condensed Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2018 (in thousands)

Guarantor

Non Guarantor

Elimination

Consolidated

Century

Subsidiaries

Subsidiaries

Entries

Century
Net cash provided by/(used in) operating activities

$
(13,651)

(43,713)

12,793

—

$
(44,571)
Net cash provided by/(used in) investing activities

$
(33,265)

(1,782)

(25)

32,997

$
(2,075)
Financing activities

Borrowings under revolving credit facilities

$
60,000

—

—

—

$
60,000
Payments on revolving credit facilities

(60,000)

—

—

—

(60,000)
Net proceeds from mortgage repurchase facilities

—

—

(11,307)

—

(11,307)
Proceeds from insurance notes payable

—

—

—

—

—
Principal payments on notes payable

—

—

—

—

—
Issuance of common stock - taxes for vesting

5,021

—

—

—

5,021
Repurchases of common stock under our stock repurchase program

—

—

—

—

—
Repurchases of common stock upon vesting of stock based compensation

(4,790)

—

—

—

(4,790)
Payments from (and advances to) parent/subsidiary

(584)

29,888

3,693

(32,997)

—
Net cash provided by/(used in) financing activities

$
(353)

$
29,888

$
(7,614)

$
(32,997)

$
(11,076)
Net decrease

$
(47,269)

$
(15,607)

$
5,154

$
—

$
(57,722)
Cash and cash equivalents and Restricted cash

Beginning of period

$
56,234

28,044

9,435

—

$
93,713
End of period

$
8,965

$
12,437

$
14,589

$
—

$
35,991

Cash and cash equivalents

$
8,965

8,039

12,982

—

$
29,986
Restricted Cash

—

4,398

1,607

—

6,005
Cash and cash equivalents and Restricted cash

$
8,965

$
12,437

$
14,589

$
—

$
35,991

~~Table of Contents~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or, the negative of such terms and other comparable ~~terminology.~~terminology and the use of future dates. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors.

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

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

~~a downturn in the homebuilding industry, including a decline in real estate values or market conditions resulting in impairment of our assets;~~

~~changes in assumptions used to make industry forecasts;~~

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

~~our future operating results and financial condition;~~

~~our business operations;~~

~~changes in our business and investment strategy;~~

~~availability of land to acquire, and our ability to acquire such land on favorable terms or at all;~~

~~availability, terms and deployment of capital;~~

~~availability of mortgage financing or an increase in the number of foreclosures in the market;~~

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

~~delays in land development or home construction resulting from adverse weather conditions or other events outside our control;~~

~~impact of construction defect, product liability, and/or home warranty claims, including the adequacy of accruals and the applicability and sufficiency of our insurance coverage;~~

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

~~the timing of receipt of regulatory approvals and the opening of projects;~~

~~the degree and nature of our competition;~~

~~our leverage, debt service obligations and exposure to changes in interest rates;~~

~~our ability to successfully integrate the acquired businesses and realize projected cost savings and other benefits;~~

~~availability of qualified personnel and our ability to retain our key personnel;~~

~~taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance, including as a result of the Tax Cuts and Jobs Act; and~~

~~changes in GAAP.~~

the impact of the COVID-19 pandemic on our business operations

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

a downturn in the homebuilding industry, including a reduction in demand or a decline in real estate values or market conditions resulting in impairment of our assets;

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

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

our future operating results and financial condition;

our business operations;

changes in our business and investment strategy;

availability of land to acquire, and our ability to acquire such land on favorable terms or at all;

availability, terms and deployment of capital;

availability or cost of mortgage financing or an increase in the number of foreclosures in the market;

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

delays in land development or home construction resulting from adverse weather conditions or other events outside our control;

impact of construction defect, product liability, and/or home warranty claims, including the adequacy of accruals and the applicability and sufficiency of our insurance coverage;

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

the timing of receipt of regulatory approvals and the opening of projects;

the impact and cost of compliance with evolving environmental laws and regulations and third-party challenges to required permits and other approvals;

the degree and nature of our competition;

our leverage, debt service obligations and exposure to changes in interest rates;

our ability to continue to fund and succeed in our mortgage lending business;

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

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

changes in United States generally accepted accounting principles (which we refer to as “GAAP”).

Forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us. Forward-looking statements are not guarantees of future events or of our performance. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. 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. Risk Factors” in our Annual Report on Form 10-K, and other risks and uncertainties detailed in this report, including “Part II, Item 1A. Risk Factors”, and our other reports and filings with the SEC. If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or

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revise any forward-looking statements, whether as a result

~~Table of Contents~~

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.

As used in this Form 10-Q, references to “we,” “us,” “our”, “Century” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.

The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note About Forward-Looking Statements” and the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019. We use certain non-GAAP financial measures that we believe are important for purposes of comparison to prior periods. This information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends. Some of the numbers included herein have been rounded for the convenience of presentation.

Overview

Century is ~~engaged~~engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in ~~the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Nevada, North Carolina, Ohio, South Carolina, Tennessee, Texas, Utah, and Washington.~~metropolitan areas in 17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and ~~Wade Jurney Homes~~Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: first time, 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 selections. Our ~~Wade Jurney Homes~~Century Complete brand ~~solely~~ targets first time homebuyers primarily sells homes through retail studios and ~~over~~ the internet and provides no option or upgrade selections. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and ~~Wade Jurney Homes.~~Century Complete. Additionally, our indirect ~~wholly-owned~~wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our home buyers have been identified as our Financial Services segment.

On February 6, 2020, in order to better align with our Century brand, we announced the rebranding of our Wade Jurney Homes brand to Century Complete. We believe this rebranding will assist in showcasing the value proposition to potential buyers.

We build and sell an extensive range of home types across a variety of price points.

Potential Impact of COVID-19 Pandemic

The recent outbreak of the novel coronavirus, COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has created significant volatility, disruption, and uncertainty. It has resulted in government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and social distancing, leading to the closure of businesses and causing weakened economic conditions that will likely worsen and may ultimately result in an economic slowdown or recession. These actions have begun to adversely impact and will likely continue to adversely impact Century directly and indirectly.

In response to the pandemic and these government restrictions, Century has shifted our sales process to offer additional virtual online tours and appointments and, where permitted, appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols. We have limited our construction and other operations to those that are authorized under the various applicable governmental orders and shifted our corporate and other office functions to work remotely. As of the date of this filing, other than the state of Michigan and certain municipalities within the Bay Area market of Northern California, construction and sale of residential real estate has been determined to be an essential business, and accordingly our operations have been exempt from the applicable health orders. We are uncertain as to how long these restrictions will remain in place and whether the COVID-19 public health effort will be intensified to further restrict our business. While these circumstances did not materially adversely affect our first quarter 2020 financial results, they have begun to negatively impact our business, including our ability to develop, construct, market and sell homes, and beginning in April 2020, have begun to negatively impact and will likely continue to negatively impact our revenues and other operating results.

The adverse effect of the COVID-19 pandemic on the broader economy has negatively impacted and will likely continue to negatively impact demand for new homes. Continued demand for Century homes is uncertain but is unlikely to return quickly to the record levels that we experienced prior to the pandemic in light of anticipated higher unemployment rates, decreased consumer confidence, decreased availability of credit, and other factors. This impact on demand for our homes will likely adversely affect our operating results in future periods, although, we cannot reasonably estimate the amount or duration of the impact at this time. In addition, a decline in our home building operations will have a direct effect on the origination volume of and revenues from our Financial Services segment.

Table of Contents

Results of Operations

During the three months ended March 31, ~~2019,~~2020, we delivered ~~1,663~~1,864 homes, with an average sales price of ~~$314.7 thousand, a 76.7%~~$307.2 thousand. These deliveries represent an increase ~~and a 25.0% decrease, respectively,~~of 12.1%, as compared to the three months ended March 31, ~~2018.~~2019. During the ~~same period,~~three months ended March 31, 2020, we generated approximately ~~$523.3~~$572.7 million in home sales revenues, approximately ~~$23.0~~$34.1 million in income before income tax expense, and approximately ~~$17.1~~$26.1 million in net ~~income which represented a 32.5% increase, 0.5% decrease, and 14.5% decrease, respectively, as compared to the same period in 2018.~~income.

For the three months ended March 31, ~~2019,~~2020, our new home contracts, net of cancelations, totaled ~~1,858,~~2,388, a ~~34.8%~~28.5% increase over the same ~~respective~~ period in ~~2018.~~2019. As of March 31, ~~2019,~~2020, we had a backlog of ~~2,376,~~2,594 homes, a ~~35.3%~~9.2% increase as compared to March 31, ~~2018,~~2019, representing approximately ~~$718.4~~$861.1 million in sales value, a ~~2.7% decrease~~19.9% increase as compared to March 31, ~~2018.~~2019.

‎

Table of Contents

The following table summarizes our results of operations for the three months ended March 31, ~~2019~~2020 and ~~2018.~~ 2019.


(in thousands, except per share amounts)	Three months ended March 31,						Three Months Ended March 31,						Increase (Decrease)
							2020			2019			Amount			%
	2019			2018
Consolidated Statements of Operations:
Revenue
Home sales revenues	$	523,302		$	394,831		$	572,710		$	523,302		$	49,408		9.4	%
Land sales revenues		1,355			1,459			20,104			1,355			18,749		1,383.7	%
		524,657			396,290			592,814			524,657			68,157		13.0	%
Financial services revenue		8,400			5,556			9,795			8,400			1,395		16.6	%
Total revenues		533,057			401,846			602,609			533,057			69,552		13.0	%
Homebuilding cost of revenues
Cost of home sales revenues		(433,757)			(319,583)			(470,526)			(433,757)			(36,769)		8.5	%
Cost of land sales and other revenues		(614)			(877)			(14,167)			(614)			(13,553)		2,207.3	%
		(434,371)			(320,460)			(484,693)			(434,371)			(50,322)		11.6	%
Financial services costs		(6,829)			(4,395)			(9,586)			(6,829)			(2,757)		40.4	%
Selling, general, and administrative		(68,936)			(56,522)			(73,619)			(68,936)			(4,683)		6.8	%
Acquisition expense		—			(173)
Equity in income of unconsolidated subsidiaries		—			3,168
Inventory impairment								(781)			—			(781)		NM
Other income (expense)		76			(357)			158			76			82		107.9	%
Income before income tax expense		22,997			23,107			34,088			22,997			11,091		48.2	%
Income tax expense		(5,880)			(3,088)			(7,962)			(5,880)			(2,082)		35.4	%
Net income	$	17,117		$	20,019		$	26,126		$	17,117		$	9,009		52.6	%
Earnings per share:
Basic	$	0.57		$	0.68		$	0.79		$	0.57		$	0.22		38.60	%
Diluted	$	0.56		$	0.67		$	0.78		$	0.56		$	0.22		39.29	%
Adjusted diluted earnings per share(1)	$	0.60		$	0.75		$	0.80		$	0.60		$	0.20		33.33	%
Other Operating Information (dollars in thousands):
Number of homes delivered		1,663			941			1,864			1,663			201		12.1	%
Average sales price of homes delivered	$	314.7		$	419.6		$	307.2		$	314.7		$	(7.5)		(2.4)	%
Homebuilding gross margin percentage(2)		17.1	%		19.1	%		17.7	%		17.1	%		0.6	%	3.5	%
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory (1)		19.8	%		23.2	%		20.2	%		19.8	%		0.4	%	1.9	%
Backlog at end of period, number of homes		2,376			1,757			2,594			2,376			218		9.2	%
Backlog at end of period, aggregate sales value	$	718,443		$	738,015		$	861,116		$	718,443		$	142,673		19.9	%
Average sales price of homes in backlog	$	302.3		$	420.0		$	332.0		$	302.3		$	29.7		9.8	%
Net new home contracts		1,858			1,378			2,388			1,858			530		28.5	%
Selling communities at period end(3)		125			125			126			125			1		0.8	%
Average selling communities(3)		129			125			128			129			(1)		(0.8)	%
Total owned and controlled lot inventory		37,932			30,333			35,831			37,932			(2,101)		(5.5)	%
Adjusted EBITDA(1)	$	40,397		$	42,266		$	51,806		$	40,397		$	11,409		28.2	%
Adjusted income before income tax expense(1)	$	24,721		$	30,549		$	34,869		$	24,721		$	10,148		41.1	%
Adjusted net income(1)	$	18,400		$	22,453		$	26,725		$	18,400		$	8,325		45.2	%
Net homebuilding debt to net capital⁽¹⁾								46.6	%		51.8	%		(5.2)	%	(10.0)	%

NM – Not Meaningful

⁽¹⁾This is a non-GAAP financial measure and should not be used as a substitute for the Company’s operating results prepared in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and other information under ~~“ - Non-GAAP~~“Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

⁽²⁾Homebuilding gross margin percentage is inclusive of a $0.8 million inventory impairment included within inventory impairment and other on our consolidated financial statements.

⁽³⁾ As Century Complete does not sell homes by community, but through studios and other methods, that segment is excluded from the count of selling communities.

‎

2422

Table of Contents

Results of Operations by Segment

(dollars in thousands)


	New Homes Delivered				Average Sales Price of Homes Delivered				Home Sales Revenues				Income before Income Tax				New Homes Delivered				Average Sales Price of Homes Delivered				Home Sales Revenues				Income before Income Tax
	Three months ended March 31,				Three months ended March 31,				Three months ended March 31,				Three months ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,				Three Months Ended March 31,
	2019		2018		2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019		2020		2019
West		200		200	$	560.3	$	594.6	$	112,064	$	118,920	$	8,648	$	9,869		233		200	$	543.2	$	560.3	$	126,562	$	112,064	$	15,341	$	8,648
Mountain		367		343	$	432.2	$	420.6		158,631		144,261		19,308		17,923		396		367	$	395.3	$	432.2		156,532		158,631		18,498		19,308
Texas		166		108	$	303.7	$	349.9		50,418		37,786		3,749		1,808		244		166	$	246.5	$	303.7		60,139		50,418		5,484		3,749
Southeast		335		290	$	336.2	$	323.7		112,616		93,864		5,739		4,681		368		335	$	357.1	$	336.2		131,402		112,616		8,308		5,739
WJH		595		—	$	150.5	$	—		89,573		—		3,973		—
Century Complete																		623		595	$	157.4	$	150.5		98,075		89,573		780		3,973
Financial Services		—		—	$	—	$	—		—		—		1,590		1,161		—		—	$	—	$	—		—		—		209		1,590
Corporate		—		—	$	—	$	—		—		—		(20,010)		(12,335)		—		—	$	—	$	—		—		—		(14,532)		(20,010)
Total		1,663		941	$	314.7	$	419.6	$	523,302	$	394,831	$	22,997	$	23,107		1,864		1,663	$	307.2	$	314.7	$	572,710	$	523,302	$	34,088	$	22,997

West

In our West segment, for the three months ended March 31, ~~2019,~~2020, our income before income tax ~~decreased~~increased by ~~$1.2~~$6.7 million, to ~~$8.6~~$15.3 million. No purchase accounting adjustments were made for our West segment for the three months ended March 31, 2019. Our income before income tax is inclusive of $6.8 million of purchase accounting adjustments for the three months ended March 31, 2018. During the three months ended March 31, ~~2019,~~2020, we delivered ~~200~~233 homes, with an average sales price of ~~$560.3~~$543.2 thousand, and generated ~~$112.1~~$126.6 million in home sales ~~revenue in the West. Our operating margins in the West were impacted~~revenue. Income before income tax increased during the three months ended March 31, ~~2019 by~~2020 primarily due to an increase in deliveries of 13% and the ~~geographic mix~~benefit of ~~deliveries that occurred as compared to the three months ended March 31, 2018.~~non-recurring land sales.

Mountain

In our Mountain segment, for the three months ended March 31, ~~2019,~~2020, our income before income tax ~~increased~~decreased by ~~$1.4~~$0.8 million, to ~~$19.3 million, as compared to $17.9 million~~$18.5 million. The decrease of income before income tax for the ~~same period in 2018. This increase~~three months ended March 31, 2020 is primarily related to ~~an increase~~the decrease in ~~the number of homes delivered of 7% and an increase~~home sales revenue which was driven by a decrease in ~~the~~our average ~~selling price of those homes of 3% as compared to the same period in 2018.~~ sales price.

Texas

In our Texas segment, for the three months ended March 31, ~~2019,~~2020, our income before income tax increased by ~~$1.9~~$1.7 million, to ~~$3.7~~$5.5 million, as compared ~~$1.8~~$3.8 million for the same period in ~~2018.~~2019. The increase in income before income tax is primarily related to ana 47% increase in the number of homes delivered during the three months ended March 31, 2020 as compared to the same period in 2019, ~~of 54%,~~ which was partially offset by a decrease in the average sales price as we ~~shifted~~continued our ~~focus~~shift towards first time homebuyers.

Southeast

In our Southeast segment, for the three months ended March 31, ~~2019,~~2020, our income before income tax increased by ~~$1.0~~$2.6 million, to ~~$5.7~~$8.3 million, as compared to ~~$4.7~~$5.7 million for the same period in ~~2018. No purchase accounting adjustments were made for our Southeast segment~~2019. The increase in income before income tax for the three months ended March 31, ~~2019.~~2020 is primarily related to the increase in homes delivered, average sales price, and total home sales revenues.

Century Complete

For the three months ended March 31, 2020, we delivered 623 homes, with an average price of $157.4 thousand, and generated $98.1 million in home sales revenues. Our income before income tax ~~is inclusive of $0.4 million of purchase accounting adjustments~~ for the three months ended March 31, ~~2018. This increase~~2020 was $0.8 million, as compared to $4.0 million for the same period in 2019. The decrease in income before income tax is primarily ~~related~~attributable to an increase in ~~the number of homes delivered of 16% as well as an increase~~certain fixed costs and $0.8 million in ~~the average selling price of those homes in 2019.~~

~~Wade Jurney Homes~~

~~On June 14, 2018, we acquired the remaining 50% ownership interest in WJH for $37.5 million. For~~one-time inventory impairment charges during the three months ended March 31, 2019, we delivered 595 new homes with an average price of $150.5 thousand and generated $89.6 million in home sales revenues in our WJH segment. Our income before income tax of $4.0 million is inclusive of the remaining $1.7 million of purchase accounting adjustment.2020.

Financial Services

Our indirect ~~wholly-owned~~wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our home buyers have been identified as our Financial Services segment. ~~We began providing mortgage services to our customers during the second quarter of 2017.~~ Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. ~~The increase in our~~

~~Table of Contents~~

~~income before income tax of $0.4 million is a result of an increase in the number of mortgages originated of 75.1% as compared to 2018.~~ During the three months ended March 31, ~~2019, we originated and closed 585 loans with a total principal amount of $181.2~~2020, income before income tax decreased $1.4 million asto $0.2 million compared to ~~334 loans for a total principal of $104.9 million during~~ the same period ~~in 2018.~~during 2019. The ~~results~~decrease was primarily the result of ~~Parkway Title, LLC and IHL Home Insurance Agency, LLC for the three months ended March 31, 2019 and 2018 were not material~~$3.0 million non-cash, unrealized loss related to our ~~Financial Services segment.~~hedging activity, partially offset by a $1.4 million overall increase in financial services revenue.

~~Corporate~~
‎

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Corporate

During the three months ended March 31, ~~2019,~~2020, our Corporate segment generated losses of ~~$20.0~~$14.5 million, as compared to losses of ~~$12.3~~$20.0 million for the same period in ~~2018.~~2019. The ~~increase~~decrease in expenses during the three months ended March 31, ~~2019~~2020 was primarily attributed to the following: (1) ~~an increase of $2.0~~a $4.6 million decrease in ~~compensation~~salaries and wages related ~~expenses, including non-cash expenses for~~to lower bonus and performance share ~~based payments, driven by an increase in our number of employees as~~expense accruals, and (2) a ~~result of growth and our acquisition of WJH, (2) an increase of $1.2 million~~decrease in legal costs and (3) nominal increases in numerous items associated with our increased scale including rent, insurance, consulting, travel, and depreciation. These increases were partially offset by a $3.2 million reduction in equity in earnings on unconsolidated subsidiaries.of $0.8 million.

Homebuilding Gross Margin

(dollars in thousands)

Homebuilding gross margin represents home sales revenues less cost of home sales revenues. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, ~~decreased~~increased during the three months ended March 31, ~~2019~~2020 to ~~17.1%~~, 17.7% as compared to ~~19.1%~~17.1% for the same period in ~~2018.~~ ~~The decrease~~2019, which was primarily ~~related to the geographic mix~~driven by a 0.6% decrease in cost of ~~closings between periods, continued cost pressure, and higher incentives throughout our markets.~~home sales revenues.

In the following table, we calculate our homebuilding gross margin, as adjusted to exclude inventory impairment, interest in cost of home sales revenues, and purchase price accounting for acquired work in process inventory.

Three months ended March 31,

2019

%

2018

%

Home sales revenues

$
523,302

100.0
%

$
394,831

100.0
%
Cost of home sales revenues

(433,757)

(82.9)
%

(319,583)

(80.9)
%
Gross margin from home sales

89,545

17.1
%

75,248

19.1
%
Add: Interest in cost of home sales revenues

12,587

2.4
%

8,959

2.3
%
Adjusted homebuilding gross margin excluding interest

102,132

19.5
%

84,207

21.3
%
Add: Purchase price accounting for acquired work in process inventory

1,724

0.3
%

7,269

1.8
%
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory

$
103,856

19.8
%

$
91,476

23.2
%

~~(1)~~

This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and other information under “—Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.


	Three Months Ended March 31,
	2020		%		2019		%

Home sales revenues	$	572,710	100.0	%	$	523,302	100.0	%
Cost of home sales revenues		(470,526)	(82.2)	%		(433,757)	(82.9)	%
Inventory impairment		(781)	(0.1)	%		—	—	%
Gross margin from home sales		101,403	17.7	%		89,545	17.1	%
Add: Inventory impairment		781	0.1	%		—	—	%
Add: Interest in cost of home sales revenues		13,685	2.4	%		12,587	2.4	%
Adjusted homebuilding gross margin excluding interest and inventory impairment		115,869	20.2	%		102,132	19.5	%
Add: Purchase price accounting for acquired work in process inventory		—	—	%		1,724	0.3	%
Adjusted homebuilding gross margin excluding interest, inventory impairment and purchase price accounting for acquired work in process inventory	$	115,869	20.2	%	$	103,856	19.8	%

⁽¹⁾This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and other information under “—Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

For the three months ended March 31, ~~2019,~~2020, excluding impairment, interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was ~~19.8%,~~20.2% as compared to ~~23.2%,~~19.8% for the same period in ~~2018. The decrease was primarily related to the geographic mix of closings between periods, continued cost pressure, and higher incentives throughout our markets.~~2019. We believe the above information is meaningful as it isolates the impact that inventory impairment, indebtedness and acquisitions have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors.

Selling, General and Administrative Expense


(dollars in thousands)
	Three months ended March 31,						Increase				Three Months Ended March 31,						Increase
	2019			2018			Amount		%		2020			2019			Amount		%
Selling, general and administrative	$	(68,936)		$	(56,522)		$	(12,414)	22.0	%	$	(73,619)		$	(68,936)		$	(4,683)	6.8	%
As a percentage of home sales revenue		13.2	%		14.3	%						(12.9)	%		(13.2)	%

Our selling, general and administrative ~~costs~~expense increased ~~$12.4~~$4.7 million for the three months ended March 31, ~~2019~~2020 as compared to the same period in ~~2018.~~2019. The increase was primarily attributable to the following: (1) an increase of ~~$4.6~~$3.1 million in commission expense

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~~resulting from a 32.5%~~ due to the 9.4% increase in home sales revenues, ~~and our acquisition of WJH,~~ (2) an increase of ~~$6.0~~$0.7 million in ~~our compensation-related~~franchise tax expenses, ~~including incentive compensation associated with higher headcount to support our growth, and~~ (3) an increase of ~~$0.9~~$0.7 million in ~~litigation expenses. Our~~legal costs, and (4) nominal increases in numerous items associated with our increased scale throughout selling, general and administrative ~~costs as a percentage~~expense.

‎

Table of ~~home sales revenue improved 110-basis points primarily due to process enhancements, tighter cost controls and scale benefits derived from our expanded homebuilding platform.~~Contents

Income Tax Expense

For the three months ended March 31, ~~2019,~~2020, our estimated annual rate of ~~26.7%~~23.7% was impacted by discrete items which had a net impact of decreasing our rate by ~~1.2%~~0.3%, including excess tax benefits for vested stock-based compensation.

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we recorded income tax expense of $8.0 million and $5.9 million, ~~and $3.1 million,~~ respectively.

Segment Assets

(Dollars in thousands)


	March 31,		December 31,			Increase (Decrease)			March 31,		December 31,		Increase (Decrease)
	2019		2018			Amount	Change		2020		2019		Amount		% Change
West	$	541,455	$	502,381	$	39,074	7.8	%	$	634,491	$	610,248	$	24,243	4.0	%
Mountain		636,258		621,757		14,501	2.3	%		707,925		635,201		72,724	11.4	%
Texas		217,538		209,550		7,988	3.8	%		233,247		232,887		360	0.2	%
Southeast		441,454		448,681		(7,227)	(1.6)	%		425,309		441,818		(16,509)	(3.7)	%
WJH		235,126		204,925		30,201	14.7	%
Century Complete										233,394		244,827		(11,433)	(4.7)	%
Financial Services		142,633		146,710		(4,077)	(2.8)	%		223,109		254,282		(31,173)	(12.3)	%
Corporate		108,601		120,251		(11,650)	(9.7)	%		452,963		80,704		372,259	461.3	%
Total assets	$	2,323,065	$	2,254,255	$	68,810	3.1	%	$	2,910,438	$	2,499,967	$	410,471	16.4	%


Lots owned and	March 31, 2019			December 31, 2018			% Change						March 31, 2020			December 31, 2019			% Change
controlled	Owned	Controlled	Total	Owned	Controlled	Total	Owned		Controlled		Total		Owned	Controlled	Total	Owned	Controlled	Total	Owned		Controlled		Total

West	3,377	1,575	4,952	3,457	1,790	5,247	(2.3)	%	(12.0)	%	(5.6)	%	3,243	1,340	4,583	3,133	1,413	4,546	3.5	%	(5.2)	%	0.8	%
Mountain	5,314	5,904	11,218	5,335	5,641	10,976	(0.4)	%	4.7	%	2.2	%	6,983	4,552	11,535	4,771	7,949	12,720	46.4	%	(42.7)	%	(9.3)	%
Texas	3,819	1,439	5,258	3,943	2,616	6,559	(3.1)	%	(45.0)	%	(19.8)	%	3,066	2,075	5,141	3,326	2,278	5,604	(7.8)	%	(8.9)	%	(8.3)	%
Southeast	4,853	2,231	7,084	4,828	2,808	7,636	0.5	%	(20.5)	%	(7.2)	%	4,200	3,062	7,262	4,160	3,827	7,987	1.0	%	(20.0)	%	(9.1)	%
Wade Jurney Homes	3,237	6,183	9,420	3,447	4,054	7,501	NM		NM		NM
Century Complete													3,360	3,950	7,310	3,324	4,761	8,085	1.1	%	(17.0)	%	(9.6)	%
Total	20,600	17,332	37,932	21,010	16,909	37,919	(2.0)	%	2.5	%	0.0	%	20,852	14,979	35,831	18,714	20,228	38,942	11.4	%	(25.9)	%	(8.0)	%

~~NM – Not Meaningful~~

Of our total lots owned and controlled as of March 31, ~~2019, 54.3%~~2020, 58.2% were owned and ~~45.7%~~41.8% were controlled, as compared to ~~55.4%~~48.1% owned and ~~44.6%~~51.2% controlled as of December 31, ~~2018.~~2019.

Total assets increased by ~~$68.8~~$410.7 million, or ~~3.1%~~16.4%, to ~~$2.3~~$2.9 billion at March 31, 2020 as compared to December 31, 2019. The increase is driven by investments in inventory during the period in addition to a $395.5 million increase in cash and cash equivalents.

‎

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Other Homebuilding Operating Data


	Three months ended					Three Months Ended
Net new home contracts	March 31,		Increase (Decrease)			March 31,		Increase
	2019	2018	Amount	% Change		2020	2019	Amount	% Change
West	203	216	(13)	(6.0)	%	336	203	133	65.5	%
Mountain	454	545	(91)	(16.7)	%	614	454	160	35.2	%
Texas	229	149	80	53.7	%	333	229	104	45.4	%
Southeast	345	468	(123)	(26.3)	%	516	345	171	49.6	%
WJH	627	—	627	NM
Century Complete						589	627	(38)	(6.1)	%
Total	1,858	1,378	480	34.8	%	2,388	1,858	530	28.5	%

~~NM – Not Meaningful~~

~~Table of Contents~~

Net new home contracts (new home contracts net of cancellations) for the three months ended March 31, ~~2019~~2020 increased by ~~480~~530 homes, or ~~34.8%~~28.5%, to ~~1,858,~~2,388, compared to ~~1,378~~1,858 for the same period in ~~2018.~~2019. The increase in our net new home contracts was primarily driven by stronger sales in our ~~acquisition of WJH.~~West, Mountain, Texas, and Southeast regions.

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three months ended March 31, ~~2019~~2020 by segment are included in the tables below:


	Three months ended March 31,		Increase (Decrease)			Three Months Ended March 31,		Increase
	2019	2018	Amount	% Change		2020	2019	Amount	% Change
West	3.2	4.8	(1.6)	(33.3)	%	5.3	3.2	2.1	65.6	%
Mountain	3.5	5.9	(2.4)	(40.7)	%	5.4	3.5	1.9	54.3	%
Texas	3.8	1.8	2.0	111.1	%	4.3	3.8	0.5	13.2	%
Southeast	2.8	3.1	(0.3)	(9.7)	%	4.2	2.8	1.4	50.0	%
WJH	N/A	N/A	N/A	N/A
Century Complete						NM	NM	NM	NM	%
Total	3.3	3.7	(0.4)	(10.8)	%	4.8	3.3	1.5	45.5	%

~~N/A~~NM – Not ~~Applicable~~Meaningful

Our absorption rates ~~decreased~~increased by ~~10.8%~~45.5% to ~~3.3~~4.8 per month during the three months ended March 31, ~~2019,~~2020, as compared to the same ~~periods~~period in ~~2018. Our absorptions for~~2019. The increase in absorption rate is attributable to the strong homebuilding market and economic trends across our ~~Century Communities brand moderated slightly~~markets that we experienced during the three months ended March 31, ~~2019 as compared~~2020 prior to ~~2018. The moderation was a result of muted sales early in~~ the ~~quarter due to general uncertainty in the macroeconomic environment.~~COVID-19 pandemic.



Selling communities at period end	As of March 31,		Increase/(Decrease)			As of March 31,		Increase/(Decrease)
	2019	2018	Amount	% Change		2020	2019	Amount	% Change

West	21	14	7	50.0	%	21	21	—	—	%
Mountain	43	31	12	38.7	%	38	43	(5)	(11.6)	%
Texas	20	29	(9)	(31.0)	%	26	20	6	30.0	%
Southeast	41	51	(10)	(19.6)	%	41	41	—	—	%
Wade Jurney Homes	N/A	N/A	N/A	N/A
Century Complete						N/A	N/A	N/A	N/A
Total	125	125	—	—	%	126	125	1	0.8	%

N/A – Not Applicable

Our selling communities ~~remained at 125~~increased to 128 communities at March 31, ~~2019~~2020 as compared to 125 at March 31, ~~2018.~~2019. As ~~WJH~~Century Complete does not sell homes by community, but through studios and other methods, there isare no ~~community~~communities or absorptions presented for that segment.

~~Backlog~~
‎

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Backlog

(Dollars in thousands)



	As of March 31,																As of March 31,
	2019					2018					% Change						2020					2019					% Change

	Homes	Dollar Value		Average Sales Price		Homes	Dollar Value		Average Sales Price		Homes		Dollar Value		Average Sales Price		Homes	Dollar Value		Average Sales Price		Homes	Dollar Value		Average Sales Price		Homes		Dollar Value		Average Sales Price

West	221	$	113,639	$	514.2	286	$	176,351	$	616.6	(22.7)	%	(35.6)	%	(16.6)	%	305	$	158,853	$	520.8	221	$	113,639	$	514.2	38.0	%	39.8	%	1.3	%
Mountain	488		215,296		440.9	657		282,131		429.2	(25.7)	%	(23.7)	%	2.7	%	591		251,199	$	425.0	488		215,296	$	440.9	21.1	%	16.7	%	(3.6)	%
Texas	244		82,934		339.9	256		92,726		362.2	(4.7)	%	(10.6)	%	(6.2)	%	364		98,767	$	271.3	244		82,934	$	339.9	49.2	%	19.1	%	(20.2)	%
Southeast	480		160,833		335.1	558		186,806		334.8	(14.0)	%	(13.9)	%	0.1	%	661		239,012	$	361.6	480		160,833	$	335.1	37.7	%	48.6	%	7.9	%
Wade Jurney Homes	943		145,743		154.6	—		—		—	NM		NM		NM
Century Complete																	673		113,285	$	168.3	943		145,743	$	154.6	(28.6)	%	(22.3)	%	8.9	%
Total / Weighted Average	2,376	$	718,443	$	302.3	1,757	$	738,015	$	420.0	35.2	%	(2.7)	%	(28.0)	%	2,594	$	861,116	$	332.0	2,376	$	718,443	$	302.3	9.2	%	19.9	%	9.8	%

~~NM – Not Meaningful~~

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home. At March 31, ~~2019,~~2020, we had ~~2,376~~2,594 homes in backlog with a total value of ~~$718.4~~$861.1 million, which represents an increase of ~~35.2%~~9.2% and ~~decrease of 2.7%~~19.9%, respectively, as compared to March 31, ~~2018.~~2019. The increase in backlog dollar value is primarily attributable to ~~our acquisition of WJH, partially offset by decreases~~the increases in backlog units and a 9.8% increase in the ~~other segments. The~~

~~Table of Contents~~

~~decrease in~~backlog average sales ~~price of homes in backlog and the overall dollar value of backlog is driven by our acquisition of WJH, which sells homes at lower average sales prices.~~ price.

~~Supplemental Pro Forma Information~~

The supplemental pro forma information below presents pro forma combined financial and operating data reflecting the WJH acquisition as if it had occurred on January 1, 2018. The selected condensed combined pro forma data combines the historical home sales revenues, net new home contracts, new homes delivered and average sales price of homes delivered of Century and WJH. The pro forma information is for informational purposes only and supplements our Condensed Consolidated Financial Statements prepared in accordance with US GAAP. We believe that the pro forma information is useful as it provides additional information given the significant impact of the acquisition, and a reflection of how the combined business performed year over year that is not readily discernible from the actual year over year comparison. The pro forma information below does not purport to reflect the results of operations that would have occurred if WJH had been acquired on January 1, 2018~~, nor does the pro forma information purport to represent the results of operations~~ ~~of the Company for any future dates or periods.~~

(dollars in thousands)

Three months ended March 31, 2018

Pro Forma Home Sales Revenues

Pro Forma Net New Home Contracts

Pro Forma Homes Delivered

Pro Forma Average Sales Price
West

$
118,920

216

200

$
594.6
Mountain

144,261

545

343

420.6
Texas

37,786

149

108

349.9
Southeast

93,864

468

290

323.7
WJH

78,162

838

517

151.2
Total

$
472,993

2,216

1,458

$
324.4

Critical Accounting Policies

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~13, 2019,~~7, 2020, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.”

Liquidity and Capital Resources

Overview

Our principal uses of capital for the three months ended March 31, ~~2019~~2020 were our land purchases, land development, home construction, and the payment of routine liabilities. We use funds generated by operations, available borrowings under our revolving line of credit, ~~facility,~~ and from time to time proceeds from sales of common stock, including under our current at-the-market facility, and debt securities to fund our short term working capital obligations and fund our purchases of land, as well as land development and home construction activities.

Cash flows for each of our communities depend on the stage in the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. ~~From a liquidity standpoint,~~

In light of the current COVID-19 pandemic, we have taken certain measures to ensure we are ~~actively acquiring~~positioned with cash flow and ~~developing lots~~liquidity to endure an extended period of lower demand, should it arise. Specifically, we have reduced starting construction on unsold homes in our ~~markets to maintain~~Century Complete segment, and ~~grow~~with few exceptions eliminated them in our ~~lot supply and active~~

~~Table of Contents~~

~~selling communities. As we continue to expand our business, we expect that our cash outlays for land purchases and land development to grow our lot inventory~~Century Communities brand. We will continue to ~~exceed~~start construction on pre-sold homes where we have appropriate deposits and loan approvals. Additionally, we have terminated a number of pending land acquisitions and we have successfully extended expected closing dates. We have also slowed or stopped our ~~cash generated by operations.~~ land

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development activities and instituted a variety of actions designed to reduce our operating expenses including a reduction in the size of our workforce through a targeted layoff in April 2020.

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

Under our shelf registration statement, which we filed with the SEC in July 2018 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in ~~an aggregate offering amount of up~~registered transactions from time to ~~$869 million,~~time and as needed as part of our ongoing financing strategy and subject to market conditions.In November 2019, we filed a prospectus supplement to offer up to $100 million under the shelf registration statement under our at-the-market facility described below.

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

Revolving Line of Credit ~~Facility~~

We are party to an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of our subsidiaries, which, as amended most recently on ~~February 12,~~December 13, 2019, provides us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, will mature on April 30, ~~2022.~~2023. Under the terms of the Amended and Restated Credit Agreement, we may request a twelve-month extension of the maturity date. Our obligations under the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries. The Amended and Restated 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. These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly. Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

As of March 31, ~~2019,~~2020, we had ~~$287.0~~$521.9 million outstanding under the credit facility ~~leaving $353.0~~with $118.1 million in availability, and were in compliance with all covenants. Given the uncertainty surrounding the COVID-19 pandemic, the Company increased its borrowing during the first quarter of 2020 as a proactive measure in order to expand financial flexibility during this period of potential business disruption.

Mortgage Repurchase Facilities – Financial Services

On May 4, 2018, September 14, 2018, and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the ~~Market~~“repurchase facilities”) provide Inspire with uncommitted repurchase facilities of up to an aggregate of $225 million, secured by the mortgage loans financed thereunder. Amounts outstanding under the repurchase facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of March 31, 2020, we had $133.8 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three months ended March 31, 2020 and 2019, we incurred interest expense on the repurchase facilities of $0.7 million and $0.6 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations.

At-the-Market Offerings

On ~~July 3,~~ ~~2018,~~November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and ~~Merrill Lynch, Pierce, Fenner & Smith Incorporated,~~Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the sales agents party thereto in “at-the-market” ~~offerings.~~ offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar Distribution Agreement, had ~~$72.7~~all $100 million available for sale as of March 31, ~~2019.~~ 2020. We did not sell or issue any shares of our common stock during the three months ended March 31, ~~2019. During~~2020 or the three months ended March 31, 2018, we sold and issued an aggregate of 0.2 million shares of our common stock under a prior Distribution Agreement, which provided net proceeds of $5.0 million, and in connection with such sales, paid total commissions and fees to the Sales Agents of $0.1 million.2019. 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.

~~Mortgage Repurchase Facility~~ ~~and Mortgage Warehouse Line of Credit – Financial Services~~

On May 4, 2018 and September 14, 2018 Inspire entered into mortgage warehouse facilities, with Comerica Bank, and J.P. Morgan, respectively. The mortgage warehouse lines of credit (which we refer to as the “Repurchase Facilities”) provides Inspire with uncommitted repurchase facilities of up to $140 million, secured by the mortgage loans financed thereunder. Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of March 31, 2019, we had $90.9 million outstanding under these Repurchase Facilities and were in compliance with all covenants thereunder. No assurance can be provided, however, that we will remain in compliance with the covenants or have continued access to these facilities or substitute or replacement facilities in an amount sufficient to fund our mortgage lending business.

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Letters of Credit and Performance Bonds

In the normal course of business, we post letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of March 31, ~~2019~~2020, and December 31, ~~2018,~~2019, we had ~~$298.0~~$343.7 million and ~~$289.8~~$344.1 million, respectively, in letters of credit and performance 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 bonds are not generally released until all development and construction activities are completed.

Debt

Our outstanding debt obligations included the following as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

March 31,

December 31,

2019

2018
6.875% senior notes, due May 2022(1)

$
380,900

$
380,567
5.875% senior notes, due July 2025(1)

395,591

395,415
Other financing obligations

10,381

8,795
Senior notes payable

786,872

784,777
Revolving line of credit, due April 2022

287,000

202,500
Mortgage repurchase facility

90,866

104,555
Total debt

$
1,164,738

$
1,091,832



	March 31,		December 31,
	2020		2019
6.750% senior notes, due May 2027⁽¹⁾	$	494,499	$	494,307
5.875% senior notes, due July 2025⁽¹⁾		396,296		396,120
Other financing obligations		8,371		6,277
Notes payable		899,166		896,704
Revolving line of credit, due April 2023		521,900		68,700
Mortgage repurchase facilities		133,794		174,095
Total debt	$	1,554,860	$	1,139,499

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

A summary of our debt obligations is included in Note 1211 to our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, filed with the SEC on February ~~13, 2019.~~ 7, 2020.

Stock Repurchase Program

On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws. The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions.

We intend to finance any stock repurchases through available cash and our revolving credit facility. Repurchases also may be made under a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased when we otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. ~~There is no guarantee as to the number of shares that will be repurchased, and the~~The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time without notice at our discretion. All shares of common stock repurchased under the program will be cancelled and returned to the status of authorized but unissued shares of common stock.

No shares were repurchased during the three months ended March 31, 2020. During the three months ended March 31, ~~2018,~~2019, an aggregate of 83,000 shares were repurchased for a total purchase price of approximately $1.4 million or an average of $17.14 per share.The maximum number of shares that may yet be purchased under the stock repurchase program as of March 31, 2020 is 3,812,939.

Cash Flows—Three ~~months ended~~Months Ended March 31, ~~2019~~2020 Compared to the Three ~~months ended~~Months Ended March 31, ~~2018~~2019

For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, the comparison of cash flows is as follows:

Our primary sources of cash flows from operations are from the sale of single family attached and detached homes and mortgages. Our primary uses of cash flows from operations is the acquisition of land and expenditures associated with the construction of our single family attached and detached homes and the origination of mortgages held for sale. During the three months ended March 31, 2020 and 2019, we used $12.5 million and $59.4 million in cash from operations, respectively. The decrease in cash used in operations is primarily a result of a $9.0 million increase in net income and a

Our primary sources of cash flows from operations are from the sale of single family attached and detached homes and mortgages. Our primary uses of cash flows from operations is the acquisition of land and expenditures associated with the construction of our single family attached and detached homes and the origination of mortgage held for sale. During the three months ended March 31, 2019 and 2018 we used $59.4 million and $44.6 million in cash from operations,

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respectively. The increase in cash used from operations is a result of additional expenditures on working capital items, including inventories, which were partially offset by increases in home sale revenues during the period.

Net cash used in investing activities increased to $3.3 million during the three months ended March 31, 2019, compared to $2.1 million used during the same period in 2018. This increase was primarily related to the increase in purchases of property and equipment during 2019 as compared to 2018.

Net cash provided by financing activities was $67.8 million during the three months ended March 31, 2019, compared to $11.1 million used during the same period in 2018. This increase was primarily attributable to net proceeds received from an increase in net draws on our revolving credit facility and proceeds from insurance notes payable, partially offset by increases in our principal payments on notes payable.

comparatively favorable decrease in changes in assets and liabilities for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.

Net cash used in investing activities decreased to $2.5 million during the three months ended March 31, 2020, compared to $3.3 million used during the same period in 2019. The decrease was primarily related to less purchases of property and equipment.

Net cash provided by financing activities was $410.0 million during the three months ended March 31, 2020, compared to $67.8 million during the same period in 2019. The increase was primarily attributable to a $368.7 million increase in net borrowings under our revolving line of credit during the three months ended March 31, 2020 as compared to the same period in 2019, partially offset by a $26.6 million increase in net payments under our mortgage repurchase facilities.

As of March 31, ~~2019,~~2020, our cash and cash equivalents and restricted cash balance was ~~$41.5~~$453.5 million.

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and others as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. Our obligations with respect to purchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of March 31, ~~2019,~~2020, we had outstanding purchase contracts and option contracts for ~~17,332~~14,979 lots ~~totaling $397.8~~with a total purchase price of approximately $647.0 million and had ~~$37.4~~$36.1 million of non-refundable cash deposits pertaining to land option contracts. While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 50% to 60% of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option ~~contacts~~contracts occurring in future periods, if at all.

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. ~~Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.~~

We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of March 31, ~~2019~~2020, and December 31, ~~2018,~~2019, we had ~~$298.0~~$343.7 million and ~~$289.8~~$344.1 million, respectively, in letters of credit and performance bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.

Non-GAAP Financial Measures

In this Form 10-Q, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net debt to net capital, and adjusted net earnings per diluted common shares. These non-GAAP financial measures are presented to provide investors additional information to facilitate the comparison of our past and present operations. We believe these non-GAAP financial measures provide useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP. These measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures. Accordingly, we qualify our use of non-GAAP financial information in a statement when non-GAAP financial information is presented.

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EBITDA and Adjusted EBITDA

The following table presents EBITDA and ~~adjusted~~Adjusted EBITDA for the three months ended March 31, ~~2019~~2020, and ~~2018.~~2019. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define ~~adjusted~~Adjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense, (iv) loss on debt extinguishment, (v) inventory impairment and other, (vi) depreciation and amortization expense, and ~~(v)~~(vii) adjustments resulting from the application of purchase accounting for acquired work in

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process inventory related to business ~~combinations and purchase price accounting for investment in unconsolidated subsidiaries, and (vi) acquisition expense.~~combinations. We believe ~~adjusted~~Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of ~~adjusted~~Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our ~~adjusted~~Adjusted EBITDA is limited as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under ~~GAAP.~~GAAP.


	Three months ended March 31,							Three Months Ended March 31,
	2019		2018		% Change			2020		2019		% Change
Net income	$	17,117	$	20,019		(14.5)	%	$	26,126	$	17,117		52.6	%
Income tax expense		5,880		3,088		90.4	%		7,962		5,880		35.4	%
Interest in cost of home sales revenues		12,587		8,959		40.5	%		13,685		12,587		8.7	%
Interest expense (income)		15		2		650.0	%		(163)		15		(1,186.7)	%
Depreciation and amortization expense		3,074		2,726		12.8	%		3,415		3,074		11.1	%
EBITDA		38,673		34,794		11.1	%		51,025		38,673		31.9	%
Inventory impairment									781		—		NM
Purchase price accounting for acquired work in process inventory		1,724		7,269		(76.3)	%		—		1,724		NM
Purchase price accounting for investment in unconsolidated subsidiaries outside basis		—		30		(100.0)	%
Acquisition expense		—		173		(100.0)	%
Adjusted EBITDA	$	40,397	$	42,266		(4.4)	%	$	51,806	$	40,397		28.2	%

NM – Not Meaningful

Net Homebuilding Debt to Net Capital

The following table presents our ratio of net homebuilding debt to net capital, which is a non-GAAP financial measure. We calculate this by dividing net ~~homebuilding~~ debt ~~(senior notes~~(notes payable and ~~borrowing~~borrowings under our revolving line of credit less cash held in escrow and cash ~~equivalents~~ and cash ~~held in escrow)~~equivalents) by net capital (net ~~homebuilding~~ debt plus total stockholders’ equity). The most directly comparable GAAP measure is the ratio of debt to total capital. We believe the ratio of net homebuilding debt to net capital is a relevant and useful financial measure to investors in understanding the leverage employed in our operations and as an indicator of our ability to obtain external ~~financing.~~financing.


	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Total homebuilding debt	$	1,073,872	$	987,277	$	1,421,066	$	965,404
Total stockholders' equity		875,406		859,359		1,084,533		1,061,699
Total capital	$	1,949,278	$	1,846,636	$	2,505,599	$	2,027,103
Debt to capital		55.1%		53.5%
Homebuilding debt to capital						56.7%		47.6%

Total homebuilding debt	$	1,073,872	$	987,277	$	1,421,066	$	965,404
Cash and cash equivalents		(38,115)		(32,902)		(450,973)		(55,436)
Cash held in escrow		(24,664)		(24,344)		(22,497)		(35,308)
Net debt		1,011,093		930,031
Net homebuilding debt					$	947,596	$	874,660
Total stockholders' equity		875,406		859,359		1,084,533		1,061,699
Net capital	$	1,886,499	$	1,789,390	$	2,032,129	$	1,936,359

Net homebuilding debt to net capital		53.6%		52.0%		46.6%		45.2%

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Adjusted Diluted Earnings per Common Share

Adjusted ~~diluted earnings~~Diluted Earnings per ~~share~~Common Share (which we refer to as “Adjusted ~~Diluted~~ EPS”) is a non-GAAP financial measure that we believe is useful to management, investors and other users of our financial information in evaluating our operating results and understanding our operating trends without the effect of certain non-recurring items. We believe excluding certain non-recurring items provides more

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comparable assessment of our financial results from period to period. Adjusted Diluted EPS is calculated by excluding the effect of acquisition costs and purchase price accounting for acquired work in process from the calculation of reported ~~earnings per share.~~EPS.


	Three months ended				Three Months Ended
	March 31,				March 31,
	2019		2018		2020		2019
Numerator
Net income	$	17,117	$	20,019	$	26,126	$	17,117
Less: Undistributed earnings allocated to participating securities		—		(49)
Net income allocable to common stockholders	$	17,117	$	19,970
Denominator
Weighted average common shares outstanding - basic		30,203,243		29,515,531		33,207,928		30,203,243
Dilutive effect of restricted stock units		241,033		318,198		268,516		241,033
Weighted average common shares outstanding - diluted		30,444,276		29,833,729		33,476,444		30,444,276
Earnings per share:
Basic	$	0.57	$	0.68	$	0.79	$	0.57
Diluted	$	0.56	$	0.67	$	0.78	$	0.56

Adjusted Earnings per share
Adjusted earnings per share
Numerator
Income before income tax expense	$	22,997	$	23,107	$	34,088	$	22,997
Inventory impairment and other						781		-
Purchase price accounting for acquired work in process inventory		1,724		7,269		-		1,724
Acquisition expense		-		173
Adjusted income before income tax expense		24,721		30,549		34,869		24,721
Adjusted income tax expense(1)		(6,321)		(8,096)		(8,144)		(6,321)
Adjusted net income		18,400		22,453		26,725		18,400
Less: Adjusted undistributed earnings allocated to participating securities		—		(55)
Adjusted net income allocable to common stockholders	$	18,400	$	22,398

Denominator - Diluted		30,444,276		29,833,729		33,476,444		30,444,276

Adjusted diluted earnings per share	$	0.60	$	0.75	$	0.80	$	0.60

⁽¹⁾

The tax rate used in calculating adjusted net income for the three months ended March 31, 2019 was our GAAP tax rate of 25.6%. For the three months ended March 31, 2018, the tax rate utilized was 26.5% which is reflective of the Company’s GAAP tax rate for the applicable period adjusted for certain discrete items.

⁽¹⁾The tax rate used in calculating adjusted net income for the three months ended March 31, 2020 and March 31, 2019 was our GAAP tax rate of 23.4% and 25.6%, respectively.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our Amended and Restated Credit Agreement Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum. The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Amended and Restated Credit Agreement. The Amended and Restated Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the revolving line of credit.

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.

In our Financial Services business, we utilize 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 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 hedge our interest rate exposure through entering into interest rate swap futures.

Inflation

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding industry.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our co-principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”)) as of March 31, ~~2019,~~2020, the end of the period covered by this Form 10-Q. Based on this evaluation, our co-principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, ~~2019~~2020 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or furnish under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the financial statement close for the quarter ended March 31, 2020, the substantial majority of accounting and finance employees worked remotely due to the COVID-19 pandemic. All internal control over financial reporting continued as in the past, but with certain necessary documentation changes in light of the remote working environment. There were no other changes during the first quarter of ~~2019~~2020 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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~~PART~~ II

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 that was filed with the SEC on February ~~13,~~7, 2020, other than one new risk factor and the four revised risk factors below.

The global novel strain of coronavirus (COVID-19) pandemic has begun to adversely impact and will likely continue to adversely impact our business, operating results and financial condition.

The global COVID-19 pandemic has created significant volatility, disruption and uncertainty. It has resulted in government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and social distancing, leading to the closure of businesses and causing weakened economic conditions that will likely worsen and may ultimately result in an economic slowdown or recession. These actions have begun to adversely impact and will likely continue to adversely impact Century directly and indirectly.

In response to the pandemic and these government restrictions, Century has shifted our sales process to offer additional virtual online tours and appointments and, where permitted, appointment-only in-person meetings that comply with social distancing and other health and safety requirements and protocols. We have limited our construction and other operations to those that are authorized under the various applicable governmental orders and shifted our corporate and other office functions to work remotely. As of the date of this filing, other than the State of Michigan and certain counties within the Bay Area market of Northern California, construction and sale of residential real estate has been determined to be an essential business, and accordingly our operations have been exempt from the applicable health orders. We are uncertain as to how long these restrictions will remain in place and whether the COVID-19 public health effort will be intensified to further restrict our business. While these circumstances did not materially adversely affect our first quarter 2020 financial results, they have begun to negatively impact our business, including our ability to develop, construct, market and sell homes, and beginning in April 2020, have begun to negatively impact and will likely continue to negatively impact our revenues and other operating results.

The adverse effect of the COVID-19 pandemic on the broader economy has negatively impacted and will likely continue to negatively impact demand for new homes. Continued demand for Century homes is uncertain but is unlikely to return quickly to the record levels that we experienced prior to the pandemic in light of anticipated higher unemployment rates, decreased consumer confidence, decreased availability of credit, and other factors. This impact on demand for our homes will likely adversely affect our operating results in future periods. In addition, a decline in our home building operations will have a direct effect on the origination volume of and revenues from our Financial Services segment.

The COVID-19 pandemic may have other adverse effects on our business, operating results and financial condition, including:

costs incurred as a result of necessary actions and preparedness plans to help ensure the health and safety of our employees and continued operations, including remote working accommodations, enhanced cleaning processes, and protocols designed to implement appropriate social distancing practices;

availability of employees, their ability to conduct work away from normal working locations and/or under revised work environment protocols, as well as the general willingness of employees to come to and perform work;

an increase in our use of sales incentives and concessions, which could adversely affect our margins;

an increase in customer cancellations of home purchase contracts;

deteriorating individual credit quality and an increase in default rates on mortgage loans we originated which may expose us to repurchase obligations or other liabilities, reduce our ability to sell or finance the loans we originate or on less favorable terms, lead us to impose stricter loan qualification standards, or result in us no longer being able to offer financing terms that are attractive to potential buyers;

an increase in the costs or decrease in the supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts;

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one or more of our suppliers or subcontractors may experience financial distress, cancel, postpone or delay orders, be unable to perform under a contract, file for bankruptcy protection, go out of business, or suffer disruptions in their business or we may need to offer special payment terms or relief to our suppliers and subcontractors, subjecting us heightened credit risk;

increased costs and delays in the completion of our development projects;

decreased land acquisitions and the termination or modification of option contracts to conserve our cash resources;

potential future restructuring, impairment and other charges, which may be material, for inventory impairments or land option contract abandonments, or both;

potential disruption and volatility in the global capital and credit markets, which could adversely affect our ability to access lending, capital markets, and other sources of liquidity when needed and on reasonable terms and costs, or the ability of potential homebuyers to obtain suitable financing, especially if mortgage loan underwriting criteria tighten or default rates increase; and

our ability to comply with the financial covenants in our debt agreements if a material or extended economic downturn occurs.

We are uncertain of the potential full magnitude or duration of the business and economic impacts from the COVID-19 pandemic. This inherent uncertainty, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions thereto, makes it challenging for our management to estimate the future performance of our business and plan accordingly. The full extent to which the COVID-19 pandemic will impact our business will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact. Should the potential adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, decreases in our homes delivered, average selling prices, net new home contracts, revenues and profitability.

Finally, the impacts from the COVID-19 pandemic and efforts to contain it have heightened the risks in certain of the other risk factors described in our Annual Report Form 10-K for the year ended December 31, 2019.

We are subject to demand fluctuations in the housing industry. Reductions in demand for our homes will adversely affect our business, results of operations, and financial condition.

Demand for our homes is subject to fluctuations, often due to factors outside of our control. In a housing market downturn when demand for our homes decreases, our revenues and results of operations are typically adversely affected; we may have significant inventory impairments and other write-offs; our gross margins may decline significantly from historical levels; and we may incur substantial losses from operations. At any particular time, we cannot predict whether housing market conditions existing at that time will continue. For example, while rising interest rates and tightening affordability created an industry-wide deceleration in housing growth during the second half of 2018 and into 2019, this deceleration reversed during the remainder of 2019 due in part to reduced mortgage rates. More recently, as a result of the COVID-19 pandemic, beginning in mid-March 2020, we began to experience a decrease in demand for our homes which is unlikely to return quickly to the record levels that we experienced prior to the pandemic in light of anticipated higher unemployment rates, decreased consumer confidence, decreased availability of credit, and other factors, including those described elsewhere in this report.

Adverse changes in general economic conditions typically reduce the demand for our homes which may result in a material adverse effect on our business, results of operations and financial condition.

The residential homebuilding industry is cyclical and is highly sensitive to changes in local and general economic conditions that are outside our control, including:

consumer confidence, levels of employment, job growth, spending levels, wage and personal income growth, personal indebtedness levels, and household debt-to-income levels of potential homebuyers;

the availability and cost of financing for homebuyers or restrictive mortgage standards, including private and federal mortgage financing programs and federal, state, and provincial regulation of lending practices;

real estate taxes and federal and state income tax provisions, including provisions for the deduction of mortgage interest payments;

U.S. and global financial system and credit markets, including short- and long-term interest rates and inflation;

housing demand from population growth, household formations, new home buying catalysts (such as marriage and children), second home buying catalysts (such as retirement), home sale catalysts (such as an aging population), demographic changes (including immigration levels and trends in urban and suburban migration), generational shifts, or otherwise, or perceptions regarding the strength of the housing market, and home price appreciation and depreciation resulting therefrom;

competition from other real estate investors with significant capital, including other real estate operating companies and developers, institutional investment funds and companies solely focused on single family rentals; and

the supply of new or existing homes, including foreclosures, and other housing alternatives, such as apartments and other residential rental property, and the aging of existing housing inventory.

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In the event these economic and business factors occur, we could experience a decline in the demand and pricing for our homes, an increase in customer cancellations, an increase in selling concessions and downward pressure on the market value of our inventory, which could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations and increase the risk for asset impairments. The current COVID-19 pandemic has led to weakened economic conditions that ultimately may result in an economic slowdown or recession. A significant or sustained downturn in the homebuilding market would likely have an adverse effect on our business and results of operations for multiple years.

In addition, an important segment of our customer base consists of first- and second-time move-up buyers, who often purchase homes subject to contingencies related to the sale of their existing homes. If these potential buyers face difficulties in selling their homes, whether due to periods of weak economic conditions, oversupply, high interest rates, restrictive mortgage standards or otherwise, our sales may be adversely affected. Moreover, we may need to reduce our sales prices and offer greater incentives to buyers to compete for sales that may result in reduced margins.

Furthermore, deployments of U.S. military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, related domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

Increases in unemployment or underemployment typically lead to reduced demand for our homes and an increase in the number of loan delinquencies and property repossessions, which could have an adverse impact on our business and results of operations.

In the United States, the unemployment rate was 3.5% as of the end of December 2019, according to the U.S. Bureau of Labor Statistics. As a result of impacts from the COVID-19 pandemic and efforts to contain it, the unemployment rate increased to 4.4% as of the end of March 2020 and is anticipated to increase further in April 2020. People who are not employed, are underemployed or are concerned about the loss of their jobs are less likely to purchase new homes, may be forced to try to sell the homes they own and may face difficulties in making required mortgage payments. Therefore, an increase in unemployment or underemployment may lead to an increase in the number of loan delinquencies and property repossessions and have an adverse impact on our business by both reducing the demand for the homes we build and increasing the supply of homes for sale, which would also likely adversely affect our Financial Services business, which is dependent upon the sale of our homes. In addition, an increase in unemployment or underemployment may result in increased default rates on mortgage loans we originated, which could expose us to repurchase obligations or other liabilities, reduce our ability to sell or finance the loans we originate or require us to sell or finance the loans we originate on less favorable terms, lead us to impose stricter loan qualification standards, or result in us no longer being able to offer financing terms that are attractive to potential buyers, all of which would adversely affect our Financial Services business.

Our Financial Services segment will likely be adversely affected by reduced demand for our homes or by a slowdown in mortgage refinancing.

Approximately 98.3% of the mortgage loans made by our Financial Services segment in 2019 were made to buyers of homes we built. Therefore, a decrease in the demand for our homes would adversely affect the revenues of this segment of our business. As a result of the COVID-19 pandemic, beginning in mid-March 2020, we began to experience a decrease in demand for our homes and is unlikely to return quickly to the record levels that we experienced prior to the pandemic in light of anticipated higher unemployment rates, decreased consumer confidence, decreased availability of credit, and other factors, including those described elsewhere in this report. We expect this decrease in demand to adversely affect the revenues of our Financial Services segment beginning with our second quarter of 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5.OTHER INFORMATION.

None.

~~None.~~ITEM 6. EXHIBITS.

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~~ITEM 6. EXHIBITS.~~

The following exhibits are either filed herewith or incorporated herein by reference:



Item No.		Description
3.1		Certificate of Incorporation of Century Communities, Inc., as amended (incorporated by reference to Exhibit 3.1 to the initial filing of the Company’s Registration Statement on Form S-1, filed with the SEC on May 5, 2014 (File No. 333-195678))
3.2		Bylaws of Century Communities, Inc. (incorporated by reference to Exhibit 3.2 to the initial filing of the Company’s Registration Statement on Form S-1, filed with the SEC on May 5, 2014 (File No. 333-195678))
3.3		Amendment to the Bylaws of Century Communities, Inc., adopted and effective on April 10, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 11, 2017 (File No. 001-36491))
~~10.1~~31.1		Commitment Increase and Joinder Agreement, dated February 12, 2019, among Century Communities, Inc., the subsidiary guarantors party thereto and BMO Harris Bank, CIBC Bank USA, Flagstar Bank, LegacyTexas Bank, and Texas Capital Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 15, 2019 (File No. 001-36491))
~~31.1~~		Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith)
31.2		Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith)
31.3		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith)
32.1		Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2		Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.3		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS		Inline XBRL Instance Document ~~(filed herewith)~~(The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)
101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		Inline XBRL Taxonomy Definition Linkbase Document (filed herewith)
101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document (filed herewith)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Century Communities, Inc.



Date: ~~May 2, 2019~~April 29, 2020	By:	/s/ Dale Francescon
		Dale Francescon
		Chairman of the Board and Co-Chief Executive Officer (Co-Principal Executive Officer)

Date: ~~May 2, 2019~~April 29, 2020	By:	/s/ Robert J. Francescon
		Robert J. Francescon
		Co-Chief Executive Officer and President (Co-Principal Executive Officer)


Date: ~~May 2, 2019~~April 29, 2020	By:	/s/ David Messenger
		David Messenger
		Chief Financial Officer (Principal Financial Officer)


Date: ~~May 2, 2019~~April 29, 2020	By:	/s/ J. Scott Dixon
		J. Scott Dixon
		Chief Accounting Officer (Principal Accounting Officer)



Due in 12 month period ended March 31,
2020	$	5,492
2021		5,023
2022		4,027
2023		2,861
2024		2,258
Thereafter		1,251
Total		20,912
Less: discount		(2,728)
Total lease liabilities	$	18,184



(dollars in thousands)	Three months ended March 31, 2018
		Pro Forma Home Sales Revenues	Pro Forma Net New Home Contracts	Pro Forma Homes Delivered		Pro Forma Average Sales Price
West	$	118,920	216	200	$	594.6
Mountain		144,261	545	343		420.6
Texas		37,786	149	108		349.9
Southeast		93,864	468	290		323.7
WJH		78,162	838	517		151.2
Total	$	472,993	2,216	1,458	$	324.4