~~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,~~June 30, 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, CO		80111
(Address of principal executive offices)		(Zip 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	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.

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,~~July 22, 2020, ~~33,332,501~~33,350,633 shares of common stock, par value $0.01 per share, were outstanding.

Table of Contents

CENTURY COMMUNITIES, INC.

FORM 10-Q

For the Three and Six Months Ended ~~March 31,~~June 30, 2020

Index


	Page No.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2020 (unaudited) and December 31, 2019 (audited)	3
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	4
Unaudited Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	5
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	6
Notes to the Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1916
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3335
Item 4. Controls and Procedures	3335
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	3436
Item 1A. Risk Factors	3436
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3638
Item 3. Defaults Upon Senior Securities	3638
Item 4. Mine Safety Disclosures	3638
Item 5. Other Information	3638
Item 6. Exhibits	3739
Signatures	38
	41

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Century Communities, Inc.

Condensed Consolidated Balance Sheets

As of ~~March 31,~~June 30, 2020 and December 31, 2019

(in thousands, except share amounts)


	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Assets	(Unaudited)				(unaudited)		(audited)
Cash and cash equivalents	$	450,973	$	55,436	$	173,521	$	55,436
Cash held in escrow		22,497		35,308		46,619		35,308
Accounts receivable		23,087		27,438		22,846		27,438
Inventories		2,074,509		1,995,549		1,898,503		1,995,549
Mortgage loans held for sale		141,846		185,246		219,615		185,246
Prepaid expenses and other assets		121,017		124,008		115,095		124,008
Property and equipment, net		35,004		35,998		33,277		35,998
Deferred tax assets, net		11,110		10,589		11,911		10,589
Goodwill		30,395		30,395		30,395		30,395
Total assets	$	2,910,438	$	2,499,967	$	2,551,782	$	2,499,967
Liabilities and stockholders' equity
Liabilities:
Accounts payable	$	40,170	$	84,794	$	49,635	$	84,794
Accrued expenses and other liabilities		230,875		213,975		277,526		213,975
Notes payable		899,166		896,704		897,664		896,704
Revolving line of credit		521,900		68,700		—		68,700
Mortgage repurchase facilities		133,794		174,095		197,469		174,095
Total liabilities		1,825,905		1,438,268		1,422,294		1,438,268
Stockholders' equity:
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
Common stock, $0.01 par value, 100,000,000 shares authorized, 33,350,633 and 33,067,375 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively						334		331
Additional paid-in capital		681,060		684,354		687,564		684,354
Retained earnings		403,140		377,014		441,590		377,014
Total stockholders' equity		1,084,533		1,061,699		1,129,488		1,061,699
Total liabilities and stockholders' equity	$	2,910,438	$	2,499,967	$	2,551,782	$	2,499,967

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

(in thousands, except share and per share amounts)


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Revenues
Homebuilding revenues
Home sales revenues	$	572,710	$	523,302	$	747,415	$	608,636	$	1,320,125	$	1,131,938
Land sales and other revenues		20,104		1,355		3,307		1,399		23,411		2,754
Total homebuilding revenues		592,814		524,657		750,722		610,035		1,343,536		1,134,692
Financial services revenue		9,795		8,400		25,722		9,915		35,517		18,315
Total revenues		602,609		533,057		776,444		619,950		1,379,053		1,153,007
Homebuilding cost of revenues
Cost of home sales revenues		(470,526)		(433,757)		(620,655)		(503,928)		(1,091,181)		(937,685)
Cost of land sales and other revenues		(14,167)		(614)		(2,384)		(877)		(16,551)		(1,491)
Total homebuilding cost of revenues		(484,693)		(434,371)		(623,039)		(504,805)		(1,107,732)		(939,176)
Financial services costs		(9,586)		(6,829)		(12,744)		(7,747)		(22,330)		(14,576)
Selling, general and administrative		(73,619)		(68,936)		(86,706)		(75,217)		(160,325)		(144,153)
Inventory impairment		(781)		—
Other income (expense)		158		76
Loss on debt extinguishment						—		(10,832)		—		(10,832)
Inventory impairment and other						(910)		—		(1,691)		—
Other expense						(2,942)		(519)		(2,784)		(443)
Income before income tax expense		34,088		22,997		50,103		20,830		84,191		43,827
Income tax expense		(7,962)		(5,880)		(11,653)		(5,335)		(19,615)		(11,215)
Net income	$	26,126	$	17,117	$	38,450	$	15,495	$	64,576	$	32,612

Earnings per share:
Basic	$	0.79	$	0.57	$	1.15	$	0.51	$	1.94	$	1.08
Diluted	$	0.78	$	0.56	$	1.15	$	0.51	$	1.93	$	1.07
Weighted average common shares outstanding:
Basic		33,207,928		30,203,243		33,340,184		30,341,628		33,274,056		30,272,818
Diluted		33,476,444		30,444,276		33,461,694		30,568,848		33,469,069		30,506,945

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019

(in thousands)


	Three Months Ended March 31,				Six Months Ended June 30,
	2020		2019		2020		2019
Operating activities
Net income	$	26,126	$	17,117	$	64,576	$	32,612
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,415		3,074		6,842		6,196
Stock-based compensation expense		1,685		3,534		8,588		7,468
Fair value of loans held for sale and other						(6,175)		(1,012)
Loss on debt extinguishment						—		10,832
Inventory impairment and other		781		—		1,691		—
Deferred income taxes		(521)		172		(1,322)		428
Loss on disposition of assets		330		358		914		526
Changes in assets and liabilities:
Cash held in escrow		12,811		(320)		(11,311)		(1,495)
Accounts receivable		4,349		1,028		4,592		(2,535)
Inventories		(60,930)		(69,106)		138,049		(121,734)
Mortgage loans held for sale						(30,990)		(9,152)
Prepaid expenses and other assets		2,000		(2,659)		13,229		(4,296)
Accounts payable		(44,624)		(15,831)		(35,158)		7,137
Accrued expenses and other liabilities		(1,198)		(11,296)		20,259		(17,974)
Mortgage loans held for sale		43,400		14,529
Net cash used in operating activities		(12,376)		(59,400)
Net cash provided by (used in) operating activities						173,784		(92,999)
Investing activities
Purchases of property and equipment		(2,686)		(3,270)		(4,913)		(6,274)
Other investing activities		59		(14)		62		59
Net cash used in investing activities		(2,627)		(3,284)		(4,851)		(6,215)
Financing activities
Borrowings under revolving credit facilities		678,000		288,800		678,000		767,600
Payments on revolving credit facilities		(224,800)		(204,300)		(746,700)		(758,100)
Principal payments on notes payable		(2,043)		(7,716)
Proceeds from insurance notes payable		4,137		9,301
Proceeds from issuance of senior notes due 2027						—		500,000
Extinguishment of senior notes due 2022						—		(391,942)
Proceeds from issuance of insurance premium notes and other						4,542		9,301
Principal payments on insurance notes payable						(4,220)		(17,586)
Debt issuance costs						—		(5,728)
Net proceeds from mortgage repurchase facilities		(40,302)		(13,689)		23,374		(3,805)
Repurchases of common stock upon vesting of stock-based compensation		(4,977)		(3,166)
Net proceeds from issuances of common stock						—		2,663
Withholding of common stock upon vesting of restricted stock units						(5,145)		(3,434)
Repurchases of common stock under stock repurchase program		—		(1,439)		—		(1,439)
Net cash provided by financing activities		410,015		67,791
Net increase	$	395,012	$	5,107
Other						(345)		—
Net cash provided by (used in) financing activities						(50,494)		97,530
Net increase (decrease)					$	118,439	$	(1,684)
Cash and cash equivalents and Restricted cash
Beginning of period		58,522		36,441		58,521		36,441
End of period	$	453,534	$	41,548	$	176,960	$	34,757
Supplemental cash flow disclosure
Cash paid for income taxes	$	—	$	—	$	410	$	13,111
Cash and cash equivalents and Restricted cash
Cash and cash equivalents	$	450,973	$	38,115	$	173,521	$	31,704
Restricted cash (Note 5)		2,561		3,433		3,439		3,053
Cash and cash equivalents and Restricted cash	$	453,534	$	41,548	$	176,960	$	34,757

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019

(in thousands)

Three Months Ended June 30, 2020 and 2019


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings		Total Stockholders' Equity
Balance at March 31, 2020	33,319	$	333	$	681,060	$	403,140	$	1,084,533
Issuance of common stock	—		—		—		—		—
Other	—		—		(230)		—		(230)
Vesting of restricted stock units	42		1		(1)		—		—
Withholding of common stock upon vesting of restricted stock units	(10)		—		(168)		—		(168)
Stock-based compensation expense	—		—		6,903		—		6,903
Net income	—		—		—		38,450		38,450
Balance at June 30, 2020	33,351	$	334	$	687,564	$	441,590	$	1,129,488


Balance at March 31, 2019	30,304	$	303	$	593,966	$	281,137	$	875,406
Issuance of common stock	100		1		2,662		—		2,663
Vesting of restricted stock units	45		—		—		—		—
Withholding of common stock upon vesting of restricted stock units	(10)		—		(268)		—		(268)
Stock-based compensation expense	—		—		3,933		—		3,933
Net income	—		—		—		15,495		15,495
Balance at June 30, 2019	30,439	$	304	$	600,293	$	296,632	$	897,229

Six Months Ended June 30, 2020 and 2019


	Common Stock									Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings		Total Stockholders' Equity		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	33,067	$	331	$	684,354	$	377,014	$	1,061,699
Repurchases of common stock	—		—		—		—		—
Issuance of common stock										—		—		—		—		—
Other										—		—		(230)				(230)
Vesting of restricted stock units	412		4		(4)		—		—	454		5		(5)		—		—
Withholding of common stock upon vesting of restricted stock units	(160)		(2)		(4,975)		—		(4,977)	(170)		(2)		(5,143)		—		(5,145)
Stock-based compensation expense	—		—		1,685		—		1,685	—		—		8,588		—		8,588
Net income	—		—		—		26,126		26,126	—		—		—		64,576		64,576
Balance at March 31, 2020	33,319	$	333	$	681,060	$	403,140	$	1,084,533
Balance at June 30, 2020										33,351	$	334	$	687,564	$	441,590	$	1,129,488


Balance at December 31, 2018										30,155	$	302	$	595,037	$	264,020	$	859,359
Issuance of common stock										100		1		2,662		—		2,663
Repurchase of common stock										(83)		(1)		(1,438)		—		(1,439)
Vesting of restricted stock units										413		4		(4)		—		—
Withholding of common stock upon vesting of restricted stock units										(146)		(2)		(3,432)		—		(3,434)
Stock-based compensation expense										—		—		7,468		—		7,468
Net income										—		—		—		32,612		32,612
Balance at June 30, 2019										30,439	$	304	$	600,293	$	296,632	$	897,229

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

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Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

~~March 31,~~June 30, 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 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 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,~~ 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 5 reportable segments: West, Mountain, Texas, Southeast, and Century Complete. Additionally, our indirect wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our homebuyers, have been identified as our Financial Services ~~segment~~.segment.

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.~~operations for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full ~~year.~~year, particularly in light of the novel coronavirus (“COVID-19”) pandemic and measures intended to mitigate the spread. 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, 2019, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 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~~These public health orders generally exempted the sale and construction of new homes, other than a small portion of our operations, which had to ~~shelter~~cease operations in ~~place orders are essential services~~early April. During the latter half of the second quarter of 2020, state and ~~critical businesses.~~local municipalities in the majority of our markets began to lift the most stringent of the public health restrictions and numerous nonessential businesses were allowed to reopen. However, recent increases in COVID-19 positive cases throughout the United States during the later weeks of June and into July of 2020 have resulted in the slowing or altering of “re-opening” plans in numerous states, including many in which we conduct business. As of the date of this filing, ~~other than the state~~we are able to build and sell homes in all 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.~~markets.

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.~~estimates, particularly given the uncertainties associated with the ongoing COVID-19 pandemic.

Recently Adopted Accounting Standards

Financial Instruments - Credit Losses

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326). The standard changes the accounting for credit losses for most financial assets and certain ~~other instruments. Credit losses which have historically been accounted for on an~~

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other instruments. Credit losses that have historically been accounted for on an incurred loss basis ~~will~~are now be accounted for using an estimate of lifetime expected credit losses. This ~~will~~ generally ~~result~~results 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 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~~ASU 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 us beginning January 1, 2021. We do not expect this standard to have a material effect on the 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 17 states. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand is managed by geographic location, and each of our 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 Century Complete brand targets first time homebuyers, primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our Century Complete brand currently has operations in 11 states and is managed separately from our four geographic regions. Accordingly, it is considered a separate operating segment.

The management of our four geographic regions and 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 5 reportable segments:

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 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):

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	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Revenue:
West	$	131,887	$	112,120	$	166,125	$	135,226	$	298,012	$	247,346
Mountain		171,152		159,666		177,569		179,410		348,721		339,076
Texas		60,164		50,486		98,678		61,522		158,842		112,008
Southeast		131,502		112,812		174,626		124,814		306,128		237,626
Century Complete		98,109		89,573		133,724		109,063		231,833		198,636
Financial Services		9,795		8,400		25,722		9,915		35,517		18,315
Corporate		—		—		—		—		—		—
Total revenue	$	602,609	$	533,057	$	776,444	$	619,950	$	1,379,053	$	1,153,007

Income (loss) before income tax expense:
West	$	15,341	$	8,648	$	13,747	$	9,973	$	29,089	$	18,621
Mountain		18,498		19,308		20,616		22,526		39,094		41,834
Texas		5,484		3,749		9,610		5,587		15,108		9,336
Southeast		8,308		5,739		12,020		4,649		20,329		10,388
Century Complete		780		3,973		8,548		8,318		9,333		12,291
Financial Services		209		1,590		12,978		2,168		13,187		3,739
Corporate		(14,532)		(20,010)		(27,416)		(32,391)		(41,949)		(52,382)
Total income before income tax expense	$	34,088	$	22,997	$	50,103	$	20,830	$	84,191	$	43,827

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


	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
West	$	634,491	$	610,248	$	566,724	$	610,248
Mountain		707,925		635,201		691,622		635,201
Texas		233,247		232,887		204,925		232,887
Southeast		425,309		441,818		376,028		441,818
Century Complete		233,394		244,827		189,215		244,827
Financial Services		223,109		254,282		306,519		254,282
Corporate		452,963		80,704		216,749		80,704
Total assets	$	2,910,438	$	2,499,967	$	2,551,782	$	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. Inventories

Inventories included the following (in thousands):



	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Homes under construction	$	1,119,989	$	1,091,576	$	935,543	$	1,091,576
Land and land development		883,683		836,904		892,649		836,904
Capitalized interest		70,837		67,069		70,311		67,069
Total inventories	$	2,074,509	$	1,995,549	$	1,898,503	$	1,995,549

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 using its mortgage repurchase facilities. Mortgage loans in process for which interest rates were committed to borrowers totaled approximately ~~$125.0~~$124.3 million and $37.6 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively, and carried a weighted average interest rate of approximately ~~3.4%,~~3.8% and 3.9%, respectively. As of June 30, 2020 and December 31, 2019, Inspire had mortgage loans held for sale with an aggregate fair value of

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~~respectively. As of March 31, 2020 and December 31, 2019, Inspire had mortgage loans held for sale with an aggregate fair value of $141.8~~$219.6 million and $185.2 million, respectively, and an aggregate outstanding principal balance of ~~$137.8~~$210.3 million and $179.3 million, respectively.

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 on the condensed consolidated statement of operations. Management believes carrying loans held-for-sale and the derivative instruments used to economically hedge 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.

5. Prepaid Expenses and Other Assets

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


	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Prepaid insurance	$	27,497	$	26,175	$	24,067	$	26,175
Lot option and escrow deposits		43,637		48,810		37,826		48,810
Performance deposits						5,776		6,299
Deferred financing costs on revolving line of credit, net						3,890		4,574
Restricted cash ⁽¹⁾						3,439		3,085
Secured note receivable						2,486		2,602
Right of use assets		17,538		18,854		18,008		18,854
Performance deposits		5,776		6,299
Deferred financing costs revolving line of credit, net		4,231		4,574
Restricted cash⁽¹⁾		2,561		3,085
Secured notes receivable		2,571		2,602
Other assets and prepaid expenses		7,714		8,633		7,878		8,633
Mortgage loans held for investment and derivative assets		9,349		4,768		11,640		4,768
Amortizable intangible assets, net		143		208		85		208
Total prepaid expenses and other assets	$	121,017	$	124,008	$	115,095	$	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.

6. Accrued Expenses and Other Liabilities

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



	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Earnest money deposits	$	15,898	$	10,592	$	18,334	$	10,592
Warranty reserve		9,727		9,731		11,221		9,731
Accrued compensation costs		16,322		30,888		29,937		30,888
Land development and home construction accruals		126,930		110,284		152,717		110,284
Accrued interest						14,063		19,306
Lease liabilities - operating leases		18,065		19,306		18,446		14,562
Accrued interest		17,323		14,562
Income taxes payable		2,453		329		7,153		329
Liability for product financing arrangement and other		24,157		18,283
Liability for product financing arrangements and other						25,655		18,283
Total accrued expenses and other liabilities	$	230,875	$	213,975	$	277,526	$	213,975

7. 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 expenses and other liabilities on the 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. Based on warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by ~~$1.1~~$0.2 million and increased our reserve by ~~$22 thousand~~$0.2 million during the three months ended ~~March 31,~~June 30, 2020 and 2019, ~~respectively, which is included~~respectively. We reduced our warranty reserve by $1.3 million during the six months ended June 30, 2020, compared to a $0.2 million increase during the same period in ~~cost of home sales~~2019. These

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adjustments are included in cost of home sales revenues on our consolidated statements of operations. Changes in our warranty accrual for the three and six months ended ~~March 31,~~June 30, 2020 and 2019 are detailed in the table below (in thousands):


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Beginning balance	$	9,731	$	7,970	$	9,727	$	8,633	$	9,731	$	7,970
Warranty expense provisions		1,777		1,661		2,274		2,107		4,051		3,768
Payments		(689)		(1,020)		(612)		(1,174)		(1,301)		(2,194)
Warranty adjustment		(1,092)		22		(168)		202		(1,260)		224
Ending balance	$	9,727	$	8,633	$	11,221	$	9,768	$	11,221	$	9,768

8. Debt

Our outstanding debt obligations included the following as of ~~March 31,~~June 30, 2020 and December 31, 2019 (in thousands):


	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
6.750% senior notes, due May 2027⁽¹⁾	$	494,499	$	494,307	$	494,592	$	494,307
5.875% senior notes, due July 2025⁽¹⁾		396,296		396,120		396,473		396,120
Other financing obligations		8,371		6,277		6,599		6,277
Notes payable		899,166		896,704		897,664		896,704
Revolving line of credit, due April 2023		521,900		68,700		—		68,700
Mortgage repurchase facilities		133,794		174,095		197,469		174,095
Total debt	$	1,554,860	$	1,139,499	$	1,095,133	$	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

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 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, ~~2023~~.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, inat the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.

As of ~~March 31,~~June 30, 2020, we had ~~$521.9 million~~0 amounts outstanding under the credit facility and were in compliance with all covenants.

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 “repurchase facilities”) provide Inspire with uncommitted repurchase facilities of up to an aggregate of ~~$225~~$275 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,~~June 30, 2020, we had ~~$133.8~~$197.5 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.

During the three months ended ~~March 31,~~June 30, 2020 and 2019, we incurred interest expense on the repurchase facilities of ~~$0.7~~$0.5 million and ~~$0.6~~$0.9 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations. During the six months ended June 30, 2020 and 2019, we incurred interest expense on the repurchase facilities of $1.3 million and $1.5 million, respectively.

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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~~six months ended ~~March 31,~~June 30, 2020 and 2019, we capitalized all interest costs incurred during these periods, except for interest incurred on our mortgage repurchase facilities.

Our interest costs are as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Interest capitalized beginning of period	$	67,069	$	53,842	$	70,837	$	59,121	$	67,069	$	53,842
Interest capitalized during period		17,453		17,866		18,168		18,602		35,621		36,467
Less: capitalized interest in cost of sales		(13,685)		(12,587)		(18,694)		(14,655)		(32,379)		(27,241)
Interest capitalized end of period	$	70,837	$	59,121	$	70,311	$	63,068	$	70,311	$	63,068

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 2020 estimated annual effective tax rate of ~~23.7%~~23.4% is driven by our blended federal and state statutory rate of ~~25.4%~~25.6%, and certain other permanent differences between GAAP and tax which decreased our rate by ~~1.7%~~2.2%.

For the ~~three~~six months ended ~~March 31,~~June 30, 2020, our estimated annual rate of ~~23.7%~~23.4% was impacted by discrete items which had a net impact of decreasing our rate by ~~0.3%~~0.1%, including excess tax benefits for vested stock-based compensation.

For the three months ended ~~March 31,~~June 30, 2020 and 2019, we recorded income tax expense of ~~$8.0~~$11.7 million and ~~$5.9~~$5.3 million, respectively. For the six months ended June 30, 2020 and 2019, we recorded income tax expense of $19.6 million and $11.2 million, respectively.

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.

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, 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

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


		June 30, 2020				December 31, 2019

	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Secured notes receivable⁽¹⁾	Level��2	$	2,486	$	2,532	$	2,602	$	2,545
Mortgage loans held for sale⁽²⁾	Level 2	$	219,615	$	219,615	$	185,246	$	185,246
Derivative assets⁽³⁾	Level 2	$	4,827	$	4,827	$	1,382	$	1,382

5.875% senior notes⁽⁴⁾⁽⁵⁾	Level 2	$	396,473	$	401,520	$	396,120	$	415,680
6.750% senior notes⁽⁴⁾⁽⁵⁾	Level 2	$	494,592	$	515,000	$	494,307	$	537,500
Revolving line of credit⁽⁶⁾	Level 3	$	—	$	—	$	68,700	$	68,700
Other financing obligations⁽⁶⁾⁽⁷⁾	Level 2	$	6,599	$	6,599	$	6,277	$	6,277
Derivative liabilities⁽³⁾	Level 2	$	795	$	795	$	147	$	147
Mortgage repurchase facilities⁽⁶⁾	Level 2	$	197,469	$	197,469	$	174,095	$	174,095

⁽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. In May 2020, the maturity of the secured note receivable was extended by one year to May of 2021.

⁽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,~~June 30, 2020, these amounts totaled ~~$5.5~~$5.4 million and ~~$3.7~~$3.5 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%~~6.750% 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,~~June 30, 2020 and December 31, ~~2019.~~2019, which approximated prevailing market rates for similar obligations at each period.

During the three months ended ~~March 31,~~June 30, 2020, we determined that inventory with a carrying value before impairment of ~~$2.3~~$6.6 million within one community in our Texas segment was not recoverable. Accordingly, we recognized an impairment charge of ~~$0.8~~$0.9 million to reflect the estimated fair value of the community of ~~$1.5~~$5.7 million. During the six months ended June 30, 2020, total impairment charges of $1.7 million were recorded, which includes $0.8 million of impairment charges related to one community in our Century Complete segment which was recorded during the three months ended March 31, 2020. The estimated fair value of ~~the community was~~communities are determined through a discounted cash flow approach utilizing Level 3 inputs. ~~This~~Because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventory ~~impairments was primarily incurred~~ in the ~~Century Complete segment.~~future.

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 and ~~resulting from impairment,~~as a result of impairments, if deemed necessary.

12. Stock-Based Compensation

During the three and six months ended ~~March 31,~~June 30, 2020, we granted restricted stock units (which we refer to as “RSUs”) covering ~~0.3~~0.1 million and 0.4 million shares of common stock, respectively, with a grant date fair value of ~~$31.19~~$27.64 and $30.44 per share, respectively, that vest over a three year period. During the three and six months ended ~~March 31,~~June 30, 2020, we ~~did 0t grant any additional~~also granted performance share units (which we refer to as “PSUs”)~~, however our recognition~~ covering up to 0.3 million shares of common stock, ~~based expense associated~~assuming maximum level of performance, with ~~previously granted PSU awards was updated~~a grant date fair value of $26.38 per share that are subject to ~~reflect probable financial results as they relate~~both service and performance vesting conditions. The quantity of shares that will vest under the PSUs ranges from 0% to ~~the performance goals~~250% of ~~the awards. Accordingly, our estimate of the~~a targeted number of shares ~~which~~for each participant and will ~~ultimately vest under our PSU awards decreased by 0.3 million, and we recorded~~be determined based on an achievement of a ~~cumulative catch-up adjustment to decrease stock-based compensation expense~~three year pre-tax income performance goal.

Table of ~~$2.4 million.~~Contents

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


	As of ~~March 31,~~June 30, 2020
Unvested units		~~814~~1,435
Unrecognized compensation cost	$	~~13,823~~22,151
~~Period~~Remaining period to recognize compensation cost		~~1.39 years~~1.84 yrs

During the three months ended ~~March 31,~~June 30, 2020 and 2019, we recognized stock-based compensation expense of ~~$1.7~~$6.9 million and ~~$3.5~~$3.9 million, respectively.During the six months ended June 30, 2020 and 2019, we recognized stock-based compensation expense of $8.6 million and $7.5 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations.

During the three months ended June 30, 2020, we updated our recognition of stock-based compensation expense associated with previously granted PSU awards 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 increased by 0.2 million, and we recorded a cumulative catch-up adjustment to increase stock-based compensation expense of $2.9 million ($2.2 million net of tax), or $0.07 per share (basic and diluted) for the three months ended June 30, 2020.

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,~~June 30, 2020, and December 31, 2019, there were ~~33.3~~33.4 million and 33.1 million shares of common stock issued and outstanding, respectively.

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~~0.5 million and 0.4 million shares of common stock related to the vesting

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of RSUs during the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 2019, respectively. As of ~~March 31,~~June 30, 2020, approximately ~~1.7~~1.1 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan.

On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and 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, 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 all ~~$100~~$100.0 million available for sale as of ~~March 31,~~June 30, 2020. We did 0t sell or issue any shares of our common stock during the three and six months ended ~~March 31, 2020 or~~June 30, 2020. During the three and six months ended ~~March 31, 2019.~~June 30, 2019, we sold and issued an aggregate of 0.1 million shares of our common stock under the previous Distribution Agreement, which provided proceeds of $2.7 million, and in connection with such sales, paid total commissions and fees to the sales agents of $0.1 million. 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.

InOn November 6, 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 and six months ended ~~March 31,~~June 30, 2020, we did not repurchase any shares of common ~~stock~~stock; while, during the three and six months ended ~~March 31,~~June 30, 2019, we repurchased 83,000 shares of common stock under this program for approximately $1.4 million.

14. Earnings Per Share

We use the treasury stock method to calculate earnings per share as our currently issued non-vested RSUs and PSUs do not have participating rights.

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The following table sets forth the computation of basic and diluted EPS for the three and six months ended ~~March 31,~~June 30, 2020 and 2019 (in thousands, except share and per share information):


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2020		2019		2020		2019		2020		2019
Numerator
Net income	$	26,126	$	17,117	$	38,450	$	15,495	$	64,576	$	32,612
Denominator
Weighted average common shares outstanding - basic		33,207,928		30,203,243		33,340,184		30,341,628		33,274,056		30,272,818
Dilutive effect of restricted stock units		268,516		241,033		121,510		227,220		195,013		234,127
Weighted average common shares outstanding - diluted		33,476,444		30,444,276		33,461,694		30,568,848		33,469,069		30,506,945
Earnings per share:
Basic	$	0.79	$	0.57	$	1.15	$	0.51	$	1.94	$	1.08
Diluted	$	0.78	$	0.56	$	1.15	$	0.51	$	1.93	$	1.07

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~~0.8 million and ~~0.3~~0.6 million common unit equivalents from diluted earnings per share during the three and six months ended ~~March 31,~~June 30, 2020 and 2019, respectively, related to the PSUs for which performance conditions remain unsatisfied.

15. Commitments and Contingencies

Letters of Credit and Performance Bonds

Litigation

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 condensed consolidated statements of operations for our estimated loss.

~~Table of Contents~~

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.

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.

~~16. Supplemental Guarantor Information~~

~~Our 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:~~

‎

Table of Contents

Supplemental Condensed Consolidated Balance Sheet
As of March 31, 2020 (in thousands)
Guarantor
Non Guarantor
Elimination
Consolidated
Century
Subsidiaries
Subsidiaries
Entries
Century
Assets
Cash and cash equivalents
$
401,069
6,404
43,500
—
$
450,973
Cash held in escrow
—
22,497
—
—
22,497
Accounts receivable
8,000
13,684
19,003
(17,600)
23,087
Investment in consolidated subsidiaries
2,097,867
—
—
(2,097,867)
—
Inventories
—
2,074,509
—
—
2,074,509
Mortgage loans held for sale
—
—
141,846
—
141,846
Prepaid expenses and other assets
9,449
95,096
16,472
—
121,017
Deferred tax assets, net
11,110
—
—
—
11,110
Property and equipment, net
15,240
18,595
1,169
—
35,004
Goodwill
—
30,395
—
—
30,395
Total assets
$
2,542,735
$
2,261,180
$
221,990
$
(2,115,467)
$
2,910,438
Liabilities and stockholders’ equity
Liabilities:
Accounts payable
$
588
38,963
619
—
$
40,170
Accrued expenses and other liabilities
44,919
189,848
13,708
(17,600)
230,875
Notes payable
890,795
8,371
—
—
899,166
Revolving line of credit
521,900
—
—
—
521,900
Mortgage repurchase facilities
—
—
133,794
—
133,794
Total liabilities
1,458,202
237,182
148,121
(17,600)
1,825,905
Stockholders’ equity:
1,084,533
2,023,998
73,869
(2,097,867)
1,084,533
Total liabilities and stockholders’ equity
$
2,542,735
$
2,261,180
$
221,990
$
(2,115,467)
$
2,910,438

Supplemental Condensed Consolidated Balance Sheet
As of December 31, 2019 (in thousands)
Guarantor
Non Guarantor
Elimination
Consolidated
Century
Subsidiaries
Subsidiaries
Entries
Century
Assets
Cash and cash equivalents
$
1,577
—
53,859
—
$
55,436
Cash held in escrow
—
35,308
—
—
35,308
Accounts receivable
15,363
12,327
(252)
—
27,438
Investment in consolidated subsidiaries
1,996,703
—
—
(1,996,703)
—
Inventories
—
1,995,549
—
—
1,995,549
Mortgage loans held for sale
—
—
185,246
—
185,246
Prepaid expenses and other assets
9,539
101,321
13,148
—
124,008
Deferred tax assets, net
10,589
—
—
—
10,589
Property and equipment, net
15,256
19,614
1,128
—
35,998
Goodwill
—
30,395
—
—
30,395
Total assets
$
2,049,027
$
2,194,514
$
253,129
$
(1,996,703)
$
2,499,967
Liabilities and stockholders’ equity
Liabilities:
Accounts payable
$
(13)
83,853
954
—
$
84,794
Accrued expenses and other liabilities
28,214
173,403
12,358
—
213,975
Notes payable
890,427
6,277
—
—
896,704
Revolving line of credit
68,700
—
—
—
68,700
Mortgage repurchase facilities
—
—
174,095
—
174,095
Total liabilities
987,328
263,533
187,407
—
1,438,268
Stockholders’ equity:
1,061,699
1,930,981
65,722
(1,996,703)
1,061,699
Total liabilities and stockholders’ equity
$
2,049,027
$
2,194,514
$
253,129
$
(1,996,703)
$
2,499,967

‎

~~Table of Contents~~

Supplemental Condensed Consolidated Statement of Operations
For the Three Months Ended March 31, 2020 (in thousands)
Guarantor
Non Guarantor
Elimination
Consolidated
Century
Subsidiaries
Subsidiaries
Entries
CCS
Revenues
Homebuilding revenues
Home sales revenues
$
—
$
572,710
$
—
$
—
$
572,710
Land sales and other revenues
—
20,104
—
—
20,104
Total homebuilding revenues
—
592,814
—
—
592,814
Financial services revenue
—
—
9,795
—
9,795
Total revenues
—
592,814
9,795
—
602,609
Homebuilding cost of revenues
Cost of home sales revenues
—
(470,526)
—
—
(470,526)
Cost of land sales and other revenues
—
(14,167)
—
—
(14,167)
Total homebuilding cost of revenues
—
(484,693)
—
—
(484,693)
Financial services costs
—
—
(9,586)
—
(9,586)
Selling, general and administrative
(13,475)
(60,144)
—
—
(73,619)
Inventory impairment
—
(781)
—
—
(781)
Equity in earnings from consolidated subsidiaries
35,428
—
—
(35,428)
—
Other income (expense)
326
(304)
136
—
158
Income before income tax expense
22,279
46,892
345
(35,428)
34,088
Income tax expense
3,847
(11,723)
(86)
—
(7,962)
Net income
$
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

‎

~~Table of Contents~~

Supplemental Condensed Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 2020 (in thousands)
Guarantor
Non Guarantor
Elimination
Consolidated
Century
Subsidiaries
Subsidiaries
Entries
Century
Net cash provided by/(used in) operating activities
$
(652)
$
(33,043)
$
21,319
$
—
$
(12,376)
Net cash provided by/(used in) investing activities
$
(48,079)
$
(1,670)
$
(146)
$
47,268
$
(2,627)
Financing activities
Borrowings under revolving credit facilities
$
678,000
—
—
—
$
678,000
Payments on revolving credit facilities
(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
—
—
(40,302)
—
(40,302)
Repurchases of common stock upon vesting of stock-based compensation
(4,977)
—
—
—
(4,977)
Repurchases of common stock under our stock repurchase program
—
—
—
—
—
Payments from (and advances to) parent/subsidiary
—
39,379
7,889
(47,268)
—
Net cash provided by/(used in) financing activities
$
448,223
$
41,473
$
(32,413)
$
(47,268)
$
410,015
Net increase (decrease)
$
399,492
$
6,760
$
(11,240)
$
—
$
395,012
Cash and cash equivalents and restricted cash
Beginning of period
$
1,577
341
56,604
—
$
58,522
End of period
$
401,069
$
7,101
$
45,364
$
—
$
453,534
Cash and cash equivalents
$
401,069
6,404
43,500
—
$
450,973
Restricted Cash
—
697
1,864
—
2,561
Cash and cash equivalents and Restricted cash
$
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

‎

~~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”,~~“potential,” the negative of such terms and other comparable terminology and the use of future dates. You can also identify forward-looking statements by discussions of strategy, plans or intentions. 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:

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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Table of Contents

revise any forward-looking statements, whether as a result of new information, future events or otherwise. Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.

As used in this Form 10-Q, references to “we,” “us,” ~~“our”,~~“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, 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 e~~ngaged~~engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 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 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, targets first time homebuyers, primarily sells homes through retail studios and 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 Century Complete. Additionally, our indirect wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our ~~home buyers~~homebuyers 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.~~uncertainty across the nation and abroad. It ~~has~~ resulted in government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and the implementation of social distancing measures, leading to the closure of businesses and ~~causing~~ weakened economic conditions ~~that will likely worsen and may ultimately result~~resulting in an economic slowdown and recession.

The homebuilding industry started to experience slowing sales trends in mid-March through April of 2020 at the outset of the widespread uncertainty concerning the pandemic. However, home sales sharply rebounded in May and June, aided by historically low interest rates, lack of supply, and potential renewed desire from customers to move out of urban areas and/or ~~recession. These actions have begun to adversely impact~~apartments and ~~will likely continue to adversely impact Century directly and indirectly.~~into new homes in suburban areas.

In response to the pandemic and ~~these~~ government restrictions, ~~Century has~~we 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, constructionConstruction and sale of residential real estate has been determined to be an essential business, and accordingly our operations, other than in certain markets during the first weeks of April, have been ~~exempt~~exempted 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~~second quarter 2020 financial results, ~~they~~we recognize that long term macro-economic effects that could ultimately impact the homebuilding industry have ~~begun~~yet to ~~negatively impact our business, including our ability to develop, construct, market~~be known. There is still uncertainty regarding the extent 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~~duration of the COVID-19 pandemic, onas the ~~broader economy~~situation has ~~negatively impacted~~continued to evolve, and ~~will likely continue to negatively impact~~associated government and consumer responses have remained in a state of flux, especially in light of recent spikes in infections in key markets. Unemployment levels are at historically high levels and increases in COVID-19 positive cases in late June and early July of 2020 have resulted in the slowing or altering of the “re-opening” plans of numerous state and local municipalities. Accordingly, despite overall strong demand ~~for new homes. Continued~~and sales during the second quarter of 2020, continued future 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 and anticipated decreased consumer confidence, ~~decreased~~ availability of credit, and other ~~factors. This impact on~~factors, including those described elsewhere in this report. A decrease in demand for our homes ~~will likely~~would 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~~as well as have a direct effect on the origination volume of and revenues from our Financial Services segment. In addition, because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventory in the future.

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Given the significant uncertainty regarding the impact of COVID-19, and in particular during the late March and April 2020 timeframe, we took significant steps to preserve cash and ensure we were positioned appropriately from a working capital perspective, including but not limited to extending the timing of certain land acquisitions, slowing or altering our land development activities, drawing additional amounts on our revolving line of credit, and implementing a reduction in our workforce along with other cost savings measures. As a result, and aided by the strong demand during the second quarter, we ended the second quarter of 2020 with no amounts outstanding on our revolving line of credit, $173.5 million of cash and cash equivalents, $46.6 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 37.5%. While the impact of the COVID-19 pandemic will continue to evolve, we believe that we are well positioned to both operate in an uncertain environment as well as take advantage of strategic opportunities as they arise.

Results of Operations

During the three and six months ended ~~March 31,~~June 30, 2020, we delivered ~~1,864~~2,480 and 4,344 homes, respectively, with an average sales price of ~~$307.2 thousand.~~$301.4 thousand and $303.9 thousand, respectively. These deliveries represent ~~an increase~~increases of ~~12.1%~~26.1% and 19.7%, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2019. During the three and six months ended ~~March 31,~~June 30, 2020, we generated approximately ~~$572.7~~$747.4 million and $1,320.1 million in home sales revenues, respectively, approximately ~~$34.1~~$50.1 million and $84.2 million in income before income tax expense, respectively, and approximately ~~$26.1~~$38.5 million and $64.6 million, respectively, in net income.

For the three and six months ended ~~March 31,~~June 30, 2020, our new home contracts, net of cancelations, totaled ~~2,388,~~2,664 and 5,052, respectively, a ~~28.5%~~22.1% and 25.0% increase over the same ~~period~~respective periods in 2019. As of ~~March 31,~~June 30, 2020, we had a backlog of ~~2,594~~2,778 homes, a ~~9.2%~~7.2% increase as compared to ~~March 31,~~June 30, 2019, representing approximately ~~$861.1~~$962.8 million in sales value, a ~~19.9%~~22.8% increase as compared to ~~March 31,~~June 30, 2019.

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The following table summarizes our results of operations for the three and six months ended ~~March 31,~~June 30, 2020 and 2019.


(in thousands, except per share amounts)	Three Months Ended March 31,						Increase (Decrease)					Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			Amount			%
												2020			2019			2020			2019
Consolidated Statements of Operations:
Revenue
Home sales revenues	$	572,710		$	523,302		$	49,408		9.4	%	$	747,415		$	608,636		$	1,320,125		$	1,131,938
Land sales revenues		20,104			1,355			18,749		1,383.7	%		3,307			1,399			23,411			2,754
		592,814			524,657			68,157		13.0	%		750,722			610,035			1,343,536			1,134,692
Financial services revenue		9,795			8,400			1,395		16.6	%		25,722			9,915			35,517			18,315
Total revenues		602,609			533,057			69,552		13.0	%		776,444			619,950			1,379,053			1,153,007
Homebuilding cost of revenues
Cost of home sales revenues		(470,526)			(433,757)			(36,769)		8.5	%		(620,655)			(503,928)			(1,091,181)			(937,685)
Cost of land sales and other revenues		(14,167)			(614)			(13,553)		2,207.3	%		(2,384)			(877)			(16,551)			(1,491)
		(484,693)			(434,371)			(50,322)		11.6	%		(623,039)			(504,805)			(1,107,732)			(939,176)
Financial services costs		(9,586)			(6,829)			(2,757)		40.4	%		(12,744)			(7,747)			(22,330)			(14,576)
Selling, general, and administrative		(73,619)			(68,936)			(4,683)		6.8	%		(86,706)			(75,217)			(160,325)			(144,153)
Inventory impairment		(781)			—			(781)		NM
Loss on debt extinguishment													—			(10,832)			—			(10,832)
Inventory impairment and other													(910)			—			(1,691)			—
Other income (expense)		158			76			82		107.9	%		(2,942)			(519)			(2,784)			(443)
Income before income tax expense		34,088			22,997			11,091		48.2	%		50,103			20,830			84,191			43,827
Income tax expense		(7,962)			(5,880)			(2,082)		35.4	%		(11,653)			(5,335)			(19,615)			(11,215)
Net income	$	26,126		$	17,117		$	9,009		52.6	%	$	38,450		$	15,495		$	64,576		$	32,612
Earnings per share:
Basic	$	0.79		$	0.57		$	0.22		38.60	%	$	1.15		$	0.51		$	1.94		$	1.08
Diluted	$	0.78		$	0.56		$	0.22		39.29	%	$	1.15		$	0.51		$	1.93		$	1.07
Adjusted diluted earnings per share⁽¹⁾	$	0.80		$	0.60		$	0.20		33.33	%	$	1.21		$	0.77		$	2.00		$	1.38
Other Operating Information (dollars in thousands):
Number of homes delivered		1,864			1,663			201		12.1	%		2,480			1,967			4,344			3,630
Average sales price of homes delivered	$	307.2		$	314.7		$	(7.5)		(2.4)	%	$	301.4		$	309.4		$	303.9		$	311.8
Homebuilding gross margin percentage⁽²⁾		17.7	%		17.1	%		0.6	%	3.5	%		16.9	%		17.2	%		17.2	%		17.2	%
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory ⁽¹⁾		20.2	%		19.8	%		0.4	%	1.9	%		19.5	%		19.6	%		19.8	%		19.7	%
Backlog at end of period, number of homes		2,594			2,376			218		9.2	%		2,778			2,591			2,778			2,591
Backlog at end of period, aggregate sales value	$	861,116		$	718,443		$	142,673		19.9	%	$	962,751		$	784,152		$	962,751		$	784,152
Average sales price of homes in backlog	$	332.0		$	302.3		$	29.7		9.8	%	$	346.6		$	302.6		$	346.6		$	302.6
Net new home contracts		2,388			1,858			530		28.5	%		2,664			2,182			5,052			4,040
Selling communities at period end ⁽³⁾		126			125			1		0.8	%		122			125			122			125
Average selling communities ⁽³⁾		128			129			(1)		(0.8)	%		125			124			127			127
Total owned and controlled lot inventory		35,831			37,932			(2,101)		(5.5)	%		34,832			37,193			34,832			37,193
Adjusted EBITDA⁽¹⁾	$	51,806		$	40,397		$	11,409		28.2	%	$	74,034		$	49,439		$	125,840		$	89,835
Adjusted income before income tax expense⁽¹⁾	$	34,869		$	24,721		$	10,148		41.1	%	$	52,597		$	31,662		$	87,466		$	56,383
Adjusted net income⁽¹⁾	$	26,725		$	18,400		$	8,325		45.2	%	$	40,343		$	23,560		$	67,088		$	41,955
Net homebuilding debt to net capital⁽¹⁾		46.6	%		51.8	%		(5.2)	%	(10.0)	%		37.5	%		53.8	%		37.5	%		53.8	%

~~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 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~~$0.9 million and $1.7 million inventory impairment for the three and six months ended June 30, 2020, respectively, 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.

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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 June 30,					Three Months Ended June 30,							Three Months Ended June 30,							Three Months Ended June 30,
	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019				2020			2019				2020			2019				2020			2019
West		233		200	$	543.2	$	560.3	$	126,562	$	112,064	$	15,341	$	8,648		313		255		$		530.6	$		529.9	$			166,089	$		135,115	$			13,747	$		9,973
Mountain		396		367	$	395.3	$	432.2		156,532		158,631		18,498		19,308		417		411		$		418.6	$		433.9				174,559			178,351				20,616			22,526
Texas		244		166	$	246.5	$	303.7		60,139		50,418		5,484		3,749		400		213		$		246.4	$		288.7				98,558			61,490				9,610			5,587
Southeast		368		335	$	357.1	$	336.2		131,402		112,616		8,308		5,739		515		360		$		338.8	$		346.2				174,492			124,617				12,020			4,649
Century Complete		623		595	$	157.4	$	150.5		98,075		89,573		780		3,973		835		728		$		160.1	$		149.8				133,717			109,063				8,548			8,318
Financial Services		—		—	$	—	$	—		—		—		209		1,590		—		—		$		—	$		—				—			—				12,978			2,168
Corporate		—		—	$	—	$	—		—		—		(14,532)		(20,010)		—		—		$		—	$		—				—			—				(27,416)			(32,391)
Total		1,864		1,663	$	307.2	$	314.7	$	572,710	$	523,302	$	34,088	$	22,997		2,480		1,967		$		301.4	$		309.4	$			747,415	$		608,636	$			50,103	$		20,830

																	New Homes Delivered					Average Sales Price of Homes Delivered							Home Sales Revenues							Income before Income Tax
																	Six Months Ended June 30,					Six Months Ended June 30,							Six Months Ended June 30,							Six Months Ended June 30,
																	2020		2019				2020			2019				2020			2019				2020			2019
West																		546			455	$		536.0	$		543.3	$			292,651	$		247,179	$			29,089	$		18,621
Mountain																		813			778	$		407.2	$		433.1				331,091			336,982				39,094			41,834
Texas																		644			379	$		246.4	$		295.3				158,697			111,908				15,108			9,336
Southeast																		883			695	$		346.4	$		341.3				305,894			237,233				20,329			10,388
Century Complete																		1,458			1,323	$		159.0	$		150.1				231,792			198,636				9,333			12,291
Financial Services																		—			—	$		—	$		—				—			—				13,187			3,739
Corporate																		—			—	$		—	$		—				—			—				(41,949)			(52,382)
Total																		4,344			3,630	$		303.9	$		311.8	$			1,320,125	$		1,131,938	$			84,191	$		43,827

West

In our West segment, for the three and six months ended ~~March 31,~~June 30, 2020, our income before income tax increased by ~~$6.7~~$3.8 million and $10.5 million, respectively, to ~~$15.3 million.~~$13.7 million and $29.1 million, respectively, compared to the same periods in 2019. These increases were primarily due to increases in new home deliveries of 22.7% and 20.0%, respectively, compared to the same periods in 2019, and the benefit of non-recurring land sales in the current year periods. During the three and six months ended ~~March 31,~~June 30, 2020, we delivered ~~233~~313 homes and 546 homes, respectively, with an average sales price of ~~$543.2~~$530.6 thousand and $536.0 thousand, respectively, and generated ~~$126.6~~$166.1 million and $292.7 million, respectively, in home sales revenue. ~~Income before income tax increased during the three months ended March 31, 2020 primarily due to an increase in deliveries of 13% and the benefit of non-recurring land sales.~~

Mountain

In our Mountain segment, for the three and six months ended ~~March 31,~~June 30, 2020, our income before income tax decreased by ~~$0.8~~$1.9 million and $2.7 million, respectively, to ~~$18.5 million. The decrease of income before income tax for~~$20.6 million and $39.1 million, respectively, compared to the ~~three months ended March 31, 2020 is~~same periods in 2019. These decreases were primarily related to ~~the decrease~~decreases in home sales revenue for the three and six months ended June 30, 2020 compared to the same periods in 2019, which ~~was~~were primarily driven by ~~a decrease~~decreases in our average sales ~~price.~~

prices in the current year periods.

Texas

In our Texas segment, for the three and six months ended ~~March 31,~~June 30, 2020, our income before income tax increased by ~~$1.7~~$4.0 million and $5.8 million, respectively, to ~~$5.5~~$9.6 million asand $15.1 million, respectively, compared ~~$3.8 million for~~to the same ~~period~~periods in 2019. ~~The increase in income before income tax is~~These increases were primarily related to ~~a 47% increase~~87.8% and 69.9% increases in the number of homes delivered during the three and six months ended ~~March 31,~~June 30, 2020, respectively, as compared to the same ~~period~~periods in 2019, which ~~was~~were partially offset by ~~a decrease~~decreases in the average sales ~~price~~prices during the current year periods as we continued our shift towards first time homebuyers. For the three months ended June 30, 2020, the increase

~~Southeast~~20

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in income before income tax was partially offset by a $0.9 million impairment charge reflected during the three months ended June 30, 2020.

Southeast

In our Southeast segment, for the three and six months ended ~~March 31,~~June 30, 2020, our income before income tax increased by ~~$2.6~~$7.4 million and $9.9 million, respectively, to ~~$8.3~~$12.0 million and $20.3 million, respectively, as compared to ~~$5.7~~$4.6 million and $10.4 million for the same ~~period~~periods in 2019. These increases were primarily related to 43.0% and 27.1% increases in the number of homes delivered during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019.

Century Complete

For the three and six months ended June 30, 2020, we delivered 835 homes and 1,458 homes, respectively, with an average price of $160.1 thousand and $159.0 thousand, respectively, and generated $133.7 million and $231.8 million in home sales revenues, respectively, in our Century Complete segment. Our income before income tax for the three and six months ended June 30, 2020 was $8.5 million and $9.3 million, respectively, as compared to $8.3 million and $12.3 million for the same periods in 2019. The increase in income before income tax for the three ~~months ended March 31, 2020~~month comparison is primarily ~~related~~attributable to ~~the~~a 14.7% increase in ~~homes delivered, average sales price, and total~~new 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 for the three months ended March 31, 2020 was $0.8 million, as compared to $4.0 million for the same period in 2019.deliveries. The decrease in income before income tax for the six month comparison is primarily attributable to an increase in certain fixed costs and $0.8 million in ~~one-time~~ inventory impairment ~~charges during the three months ended March 31, 2020.~~

charges.

Financial Services

Our indirect wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our ~~home buyers~~homebuyers have been identified as our Financial Services segment. 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. During the three and six months ended ~~March 31,~~June 30, 2020, income before income tax ~~decreased $1.4~~increased $10.8 million and $9.4 million, respectively, to ~~$0.2~~$13.0 million and $13.2 million, respectively, compared to the same ~~period during~~periods in 2019. ~~The decrease was~~These increases were primarily the result of ~~$3.0~~$15.8 million ~~non-cash, unrealized loss related to our hedging activity, partially offset by a $1.4~~and $17.2 million overall ~~increase~~increases in financial services ~~revenue.~~

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revenue during the three and six months ended June 30, 2020, respectively, compared to the same periods in 2019.

Corporate

During the three and six months ended ~~March 31,~~June 30, 2020, our Corporate segment generated losses of ~~$14.5~~$27.4 million and $41.9 million, respectively, as compared to losses of ~~$20.0~~$32.4 million and $52.4 million, respectively, for the same ~~period~~periods in 2019. The decrease ~~in expenses during~~for the three ~~months ended March 31, 2020~~month comparison was primarily attributed to the following: a $10.8 million decrease in loss on debt extinguishment, partially offset by (1) a ~~$4.6~~$5.0 million ~~decrease~~increase in salaries and wages related to ~~lower~~higher bonus ~~and performance share~~ expense, ~~accruals,~~ and (2) ~~a decrease~~an increase in legal costs of ~~$0.8~~$1.1 million. The decrease for six month comparison was primarily attributed to the loss on debt extinguishment of $10.8 million that occurred during the prior year period.

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, ~~increased~~decreased during the three months ended ~~March 31,~~June 30, 2020 to ~~17.7%~~16.9% as compared to ~~17.1%~~17.2% for the same period in 2019, which was primarily driven by impairment charges and a ~~0.6% decrease~~0.2% increase in cost of home sales revenues as a percentage of home sales revenues. Our homebuilding gross margin for the six months ended June 30, 2020 remained consistent at 17.2% compared to the same period in 2019. For a portion of the three months ended June 30, 2020, we made the strategic decision to increase incentives across our markets, leading to an increase in incentives as a percent of home sales revenue as compared to the three months ended June 30, 2019.

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


									Three Months Ended June 30,
	Three Months Ended March 31,
	2020		%		2019		%		2020		%		2019		%

Home sales revenues	$	572,710	100.0	%	$	523,302	100.0	%	$	747,415	100.0	%	$	608,636	100.0	%
Cost of home sales revenues		(470,526)	(82.2)	%		(433,757)	(82.9)	%		(620,655)	(83.0)	%		(503,928)	(82.8)	%
Inventory impairment		(781)	(0.1)	%		—	—	%
Inventory impairment and other										(910)	(0.1)	%		—	—	%
Gross margin from home sales		101,403	17.7	%		89,545	17.1	%		125,850	16.9	%		104,708	17.2	%
Add: Inventory impairment		781	0.1	%		—	—	%
Add: Inventory impairment and other										910	0.1	%		—	—	%
Add: Interest in cost of home sales revenues		13,685	2.4	%		12,587	2.4	%		18,694	2.5	%		14,655	2.4	%
Adjusted homebuilding gross margin excluding interest and inventory impairment		115,869	20.2	%		102,132	19.5	%
Adjusted homebuilding gross margin excluding interest and inventory impairment and other ⁽¹⁾										145,454	19.5	%		119,363	19.6	%
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	%
Adjusted homebuilding gross margin excluding interest, inventory impairment and other and purchase price accounting for acquired work in process inventory ⁽¹⁾									$	145,454	19.5	%	$	119,363	19.6	%


									Six Months Ended June 30,

									2020		%		2019		%

Home sales revenues									$	1,320,125	100.0	%	$	1,131,938	100.0	%
Cost of home sales revenues										(1,091,181)	(82.7)	%		(937,685)	(82.8)	%
Inventory impairment and other										(1,691)	(0.1)	%		—	—	%
Gross margin from home sales										227,253	17.2	%		194,253	17.2	%
Add: Inventory impairment and other										1,691	0.1	%		—	—	%
Add: Interest in cost of home sales revenues										32,379	2.5	%		27,241	2.4	%
Adjusted homebuilding gross margin excluding interest and inventory impairment and other ⁽¹⁾										261,323	19.8	%		221,494	19.6	%
Add: Purchase price accounting for acquired work in process inventory										—	—	%		1,724	0.2	%
Adjusted homebuilding gross margin excluding interest, inventory impairment and other and purchase price accounting for acquired work in process inventory ⁽¹⁾									$	261,323	19.8	%	$	223,218	19.7	%

⁽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 and six months ended ~~March 31,~~June 30, 2020, excluding impairment and other, interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was ~~20.2%~~19.5% and 19.8%, respectively, as compared to ~~19.8%~~19.6% and 19.7% for the same ~~period~~periods in 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
2020
2019
Amount
%
Selling, general and administrative
$
(73,619)
$
(68,936)
$
(4,683)
6.8
%
As a percentage of home sales revenue
(12.9)
%
(13.2)
%

Our selling, general and administrative expense increased $4.7 million for the three months ended March 31, 2020 as compared to the same period in 2019. The increase was primarily attributable to the following: (1) an increase of $3.1 million in commission expense due to the 9.4% increase in home sales revenues, (2) an increase of $0.7 million in franchise tax expenses, (3) an increase of $0.7 million in legal costs, and (4) nominal increases in numerous items associated with our increased scale throughout selling, general and administrative expense.

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Selling, General and Administrative Expense


(dollars in thousands)
	Three Months Ended June 30,						Increase
	2020			2019			Amount		%
Selling, general and administrative	$	(86,706)		$	(75,217)		$	(11,489)	15.3	%
As a percentage of home sales revenue		11.6	%		12.4	%

	Six Months Ended June 30,						Increase
	2020			2019			Amount		%
Selling, general and administrative	$	(160,325)		$	(144,153)		$	(16,172)	11.2	%
As a percentage of homes sales revenue		12.1	%		12.7	%

Our selling, general and administrative expense increased $11.5 million and $16.2 million for the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019. The increase for the three months ended June 30, 2020 was primarily attributable to the following: (1) an increase of $7.5 million in commission expense due to the 22.8% increase in home sales revenues, and (2) an increase of $4.0 million in our estimate of bonuses for 2020 as a result of our strong second quarter 2020 results. The increase for the six months ended June 30, 2020 was primarily attributable to the following: (1) an increase of $10.6 million in commission expense due to the 16.6% increase in home sales revenues, (2) an increase of $6.6 million across various salary and wage expenses, and (3) a increase of $1.2 million in taxes and licenses.

Income Tax Expense

Segment Assets

(Dollars in thousands)


	March 31,		December 31,		Increase (Decrease)				June 30,		December 31,			Increase (Decrease)
	2020		2019		Amount		% Change		2020		2019			Amount	Change
West	$	634,491	$	610,248	$	24,243	4.0	%	$	566,724	$	610,248	$	(43,524)	(7.1)	%
Mountain		707,925		635,201		72,724	11.4	%		691,622		635,201		56,421	8.9	%
Texas		233,247		232,887		360	0.2	%		204,925		232,887		(27,962)	(12.0)	%
Southeast		425,309		441,818		(16,509)	(3.7)	%		376,028		441,818		(65,790)	(14.9)	%
Century Complete		233,394		244,827		(11,433)	(4.7)	%		189,215		244,827		(55,612)	(22.7)	%
Financial Services		223,109		254,282		(31,173)	(12.3)	%		306,519		254,282		52,237	20.5	%
Corporate		452,963		80,704		372,259	461.3	%		216,749		80,704		136,045	168.6	%
Total assets	$	2,910,438	$	2,499,967	$	410,471	16.4	%	$	2,551,782	$	2,499,967	$	51,815	2.1	%

Lots owned and
March 31, 2020
December 31, 2019
% Change
controlled
Owned
Controlled
Total
Owned
Controlled
Total
Owned
Controlled
Total
West
3,243
1,340
4,583
3,133
1,413
4,546
3.5
%
(5.2)
%
0.8
%
Mountain
6,983
4,552
11,535
4,771
7,949
12,720
46.4
%
(42.7)
%
(9.3)
%
Texas
3,066
2,075
5,141
3,326
2,278
5,604
(7.8)
%
(8.9)
%
(8.3)
%
Southeast
4,200
3,062
7,262
4,160
3,827
7,987
1.0
%
(20.0)
%
(9.1)
%
Century Complete
3,360
3,950
7,310
3,324
4,761
8,085
1.1
%
(17.0)
%
(9.6)
%
Total
20,852
14,979
35,831
18,714
20,228
38,942
11.4
%
(25.9)
%
(8.0)
%

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

Total assets increased by $410.7 million, or 16.4%, to $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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Lots owned and	June 30, 2020			December 31, 2019			% Change
controlled	Owned	Controlled	Total	Owned	Controlled	Total	Owned		Controlled		Total

West	2,970	1,566	4,536	3,133	1,413	4,546	(5.2)	%	10.8	%	(0.2)	%
Mountain	6,697	3,740	10,437	4,771	7,949	12,720	40.4	%	(53.0)	%	(17.9)	%
Texas	2,871	2,272	5,143	3,326	2,278	5,604	(13.7)	%	(0.3)	%	(8.2)	%
Southeast	3,724	2,879	6,603	4,160	3,827	7,987	(10.5)	%	(24.8)	%	(17.3)	%
Century Complete	2,935	5,178	8,113	3,324	4,761	8,085	(11.7)	%	8.8	%	0.3	%
Total	19,197	15,635	34,832	18,714	20,228	38,942	2.6	%	(22.7)	%	(10.6)	%

Of our total lots owned and controlled as of June 30, 2020, 55.1% were owned and 44.9% were controlled, as compared to 48.1% owned and 51.9% controlled as of December 31, 2019.

Total assets increased by $51.8 million, or 2.1%, to $2.6 billion at June 30, 2020 as compared to December 31, 2019. The increase is driven by a 169% increase in corporate assets related to excess cash generated partially offset by a decrease in inventories across our markets, which are both attributable to our record home sales during the current year period.

Other Homebuilding Operating Data


	Three Months Ended					Three Months Ended					Six Months Ended
Net new home contracts	March 31,		Increase			June 30,		Increase			June 30,		Increase (Decrease)
	2020	2019	Amount	% Change		2020	2019	Amount	% Change		2020	2019	Amount	% Change
West	336	203	133	65.5	%	389	329	60	18.2	%	725	532	193	36.3	%
Mountain	614	454	160	35.2	%	474	417	57	13.7	%	1,088	871	217	24.9	%
Texas	333	229	104	45.4	%	391	244	147	60.2	%	724	473	251	53.1	%
Southeast	516	345	171	49.6	%	566	411	155	37.7	%	1,082	756	326	43.1	%
Century Complete	589	627	(38)	(6.1)	%	844	781	63	8.1	%	1,433	1,408	25	1.8	%
Total	2,388	1,858	530	28.5	%	2,664	2,182	482	22.1	%	5,052	4,040	1,012	25.0	%

Net new home contracts (new home contracts net of cancellations) for the three months ended ~~March 31,~~June 30, 2020 increased by ~~530~~482 homes, or ~~28.5%~~22.1%, to ~~2,388,~~2,664, compared to ~~1,858~~2,182 for the same period in 2019. Net new home contracts for the six months ended June 30, 2020 increased by 1,012 homes, or 25.0%, to 5,052, compared to 4,040 for the same period in 2019. The ~~increase~~increases in our net new home contracts ~~was~~were primarily driven by stronger sales in our West, Mountain, Texas, and Southeast regions. Since market conditions and further impacts from COVID-19 remain uncertain, it is difficult to predict our future net new home contracts.

Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and six months ended ~~March 31,~~June 30, 2020 by segment are included in the tables below:


	Three Months Ended March 31,		Increase			Three Months Ended June 30,		Increase (Decrease)
	2020	2019	Amount	% Change		2020	2019	Amount	% Change
West	5.3	3.2	2.1	65.6	%	5.6	5.5	0.1	1.8	%
Mountain	5.4	3.5	1.9	54.3	%	4.2	3.3	0.9	27.3	%
Texas	4.3	3.8	0.5	13.2	%	6.2	3.9	2.3	59.0	%
Southeast	4.2	2.8	1.4	50.0	%	4.7	3.3	1.4	42.4	%
Century Complete	NM	NM	NM	NM	%	N/A	N/A	N/A	N/A
Total	4.8	3.3	1.5	45.5	%	5.0	3.7	1.3	35.1	%

						Six Months Ended June 30,		Increase
						2020	2019	Amount	% Change
West						5.3	4.4	0.9	20.5	%
Mountain						4.8	3.5	1.3	37.1	%
Texas						5.7	3.8	1.9	50.0	%
Southeast						4.5	3.0	1.5	50.0	%
Century Complete						N/A	N/A	N/A	N/A
Total						4.9	3.5	1.4	40.0	%

~~NM – Not Meaningful~~24

~~Our~~

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During the three and six months ended June 30, 2020, our absorption rates increased by ~~45.5%~~35.1% and 40.0%, respectively, to ~~4.8~~5.0 and 4.9 per month, respectively, as compared to the same periods in 2019. These increases are attributable to historically low interest rates and strong demand for new homes during current year periods, in particular during the three months ended March 31, 2020, as compared to the same period in 2019. The increase in absorption rate is attributable to the strong homebuilding market and economic trends across our markets that we experienced during the three months ended March 31, 2020 prior to the COVID-19 pandemic.June 30, 2020.



Selling communities at period end	As of March 31,		Increase/(Decrease)			As of June 30,		Increase/(Decrease)
	2020	2019	Amount	% Change		2020	2019	Amount	% Change

West	21	21	—	—	%	23	20	3	15.0	%
Mountain	38	43	(5)	(11.6)	%	38	42	(4)	(9.5)	%
Texas	26	20	6	30.0	%	21	21	—	—	%
Southeast	41	41	—	—	%	40	42	(2)	(4.8)	%
Century Complete	N/A	N/A	N/A	N/A		N/A	N/A	N/A	N/A
Total	126	125	1	0.8	%	122	125	(3)	(2.4)	%

N/A – Not Applicable

Our selling communities ~~increased~~nominally decreased to ~~128~~122 communities at ~~March 31,~~June 30, 2020 as compared to 125 at ~~March 31,~~June 30, 2019. As Century Complete does not sell homes by community, but through studios and other methods, there are no communities or absorptions presented for that segment.

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Backlog

(Dollars in thousands)



	As of March 31,																As of June 30,
	2020					2019					% 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	305	$	158,853	$	520.8	221	$	113,639	$	514.2	38.0	%	39.8	%	1.3	%	381	$	203,395	$	533.8	295	$	146,071	$	495.2	29.2	%	39.2	%	7.8	%
Mountain	591		251,199	$	425.0	488		215,296	$	440.9	21.1	%	16.7	%	(3.6)	%	648		281,999		435.2	494		214,673		434.6	31.2	%	31.4	%	0.1	%
Texas	364		98,767	$	271.3	244		82,934	$	339.9	49.2	%	19.1	%	(20.2)	%	355		95,193		268.1	275		83,172		302.4	29.1	%	14.5	%	(11.3)	%
Southeast	661		239,012	$	361.6	480		160,833	$	335.1	37.7	%	48.6	%	7.9	%	712		262,096		368.1	531		187,306		352.7	34.1	%	39.9	%	4.4	%
Century Complete	673		113,285	$	168.3	943		145,743	$	154.6	(28.6)	%	(22.3)	%	8.9	%	682		120,068		176.1	996		152,930		153.5	(31.5)	%	(21.5)	%	14.7	%
Total / Weighted Average	2,594	$	861,116	$	332.0	2,376	$	718,443	$	302.3	9.2	%	19.9	%	9.8	%	2,778	$	962,751	$	346.6	2,591	$	784,152	$	302.6	7.2	%	22.8	%	14.5	%

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,~~June 30, 2020, we had ~~2,594~~2,778 homes in backlog with a total value of ~~$861.1~~$962.8 million, which represents an increase of ~~9.2%~~7.2% and ~~19.9%~~22.8%, respectively, as compared to ~~March 31,~~June 30, 2019. The increase in backlog dollar value is primarily attributable to the increases in backlog units and a ~~9.8%~~14.5% increase in the backlog average sales price.

Supplemental Guarantor Information

Our 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”). Our subsidiaries associated with our financial services operations (referred to as “Non-Guarantors”) do not guarantee the Senior Notes. The guarantees are senior unsecured obligations of the Guarantors that rank equal with all existing and future senior debt of the Guarantors and senior to all subordinated debt of the Guarantors. The guarantees are effectively subordinated to any secured debt of the 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. As of June 30, 2020, Century Communities, Inc. had outstanding $900.0 million in total principal amount of Senior Notes.

Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture; (2) upon any sale, transfer, exchange or

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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.

If a guarantor were to become a debtor in a case under the US Bankruptcy Code, a court may decline to enforce its guarantee of the Senior Notes. This may occur when, among other factors, it is found that the guarantor originally received less than fair consideration for the guarantee and the guarantor would be rendered insolvent by enforcement of the guarantee. On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the Senior Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay such debts as they mature. The Company cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

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.

On March 2, 2020, the SEC adopted amendments to Rules 3-10 and 3-16 of Regulation S-X, under Rule Release No. 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities (“Rule 33-10762”), that reduce and simplify the financial disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities (which we previously included within the notes to our financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q). The amendments under Rule 33-10762 are effective January 4, 2021, but voluntary compliance is permitted in advance of the effective date. We have adopted the new disclosure requirements permitted under Rule 33-10762 for the period ending June 30, 2020.

The following summarized financial information is presented for Century Communities, Inc. and the Guarantor Subsidiaries on a combined basis after eliminating intercompany transactions and balances among Century Communities, Inc. and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from Non-Guarantor Subsidiaries.

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Century Communities, Inc. and Guarantor Subsidiaries


Summarized Balance Sheet Data (in thousands)	June 30, 2020		December 31, 2019

Assets
Cash and cash equivalents	$	128,516	$	1,577
Cash held in escrow		46,619		35,308
Accounts receivable		20,341		27,690
Inventories		1,898,503		1,995,549
Prepaid expenses and other assets		95,511		110,860
Property and equipment, net		32,202		34,870
Deferred tax assets, net		11,911		10,589
Goodwill		30,395		30,395
Total assets	$	2,263,998	$	2,246,838
Liabilities and stockholders’ equity
Liabilities:
Accounts payable	$	48,875	$	83,840
Accrued expenses and other liabilities		282,015		201,617
Notes payable		897,664		896,704
Revolving line of credit		—		68,700
Total liabilities		1,228,554		1,250,861
Stockholders’ equity:		1,035,444		995,977
Total liabilities and stockholders’ equity	$	2,263,998	$	2,246,838



Summarized Statement of Operations Data (in thousands)	Six Months Ended June 30, 2020		Year Ended December 31, 2019

Total homebuilding revenues		1,343,536		2,492,649
Total homebuilding cost of revenues		(1,107,732)		(2,048,371)
Selling, general and administrative		(160,325)		(301,525)
Loss on debt extinguishment		—		(10,832)
Inventory impairment and other		(1,691)		(4,783)
Other income (expense)		(3,141)		(5,353)
Income before income tax expense		70,647		121,785
Net income		54,418		104,856

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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, 2019, filed with the SEC on February 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 and six months ended ~~March 31,~~June 30, 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, and from time to time proceeds from sales of our 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.

In ~~light of~~response to the ~~current~~ COVID-19 pandemic, we ~~have taken~~took certain measures to ensure we are positioned with cash flow and liquidity to endure an extended period of lower demand for our homes, should it arise. Specifically commencing in mid-March of 2020, we have reduced starting construction on unsold homes in our Century Complete segment, and with few exceptions eliminated them in our Century Communities brand. We will continue to 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 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. In addition, given the uncertainty surrounding the COVID-19 pandemic, we increased our borrowings under our revolving line of credit during the end of the first quarter of 2020 and into the beginning of the second quarter of 2020 as a proactive measure in order to expand our financial flexibility at that time. We repaid these borrowings during the second quarter of 2020 in light of our strong second quarter 2020 operating results and to decrease our interest expense.

Our Financial Services operations use funds generated from operations, and availability under our mortgage repurchase facilities to finance 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 registered transactions from time to 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~~$100.0 million under the shelf registration statement under our at-the-market facility described ~~below~~.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 or through accessing debt or equity capital, as needed or appropriate, although no assurance can be provided that such additional debt or equity capital will be available or on acceptable terms, especially in light of the current COVID-19 ~~pandemic.~~pandemic, its impact on the macro-economy, and market conditions at the time.

Revolving Line of Credit

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 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, 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

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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,~~June 30, 2020, we had ~~$521.9 million~~no amounts outstanding under the credit facility ~~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

During the three and six months ended ~~March 31,~~June 30, 2020, we incurred interest expense on the repurchase facilities of $0.5 million and $1.3 million, respectively. During the same periods in 2019, we incurred interest expense on the repurchase facilities of ~~$0.7~~$0.9 million and ~~$0.6~~$1.5 million, ~~respectively, which are~~respectively. Interest expense on mortgage repurchase facilities is included in financial services costs on our condensed consolidated statements of operations.

At-the-Market Offerings

On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and 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, 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 all $100 million available for sale as of ~~March 31,~~June 30, 2020. We did not sell or issue any shares of our common stock during the three and six months ended ~~March 31, 2020 or~~June 30, 2020. During the three and six months ended ~~March 31, 2019.~~June 30, 2019, we sold and issued an aggregate of 0.1 million shares of our common stock under the previous Distribution Agreement, which provided proceeds of $2.7 million, and in connection with such sales, paid total commissions and fees to the sales agents of $0.1 million. 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.

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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,~~June 30, 2020, and December 31, 2019, we had ~~$343.7~~$335.9 million and $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.

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Debt

Our outstanding debt obligations included the following as of ~~March 31,~~June 30, 2020 and December 31, 2019 (in thousands):



	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
6.750% senior notes, due May 2027⁽¹⁾	$	494,499	$	494,307	$	494,592	$	494,307
5.875% senior notes, due July 2025⁽¹⁾		396,296		396,120		396,473		396,120
Other financing obligations		8,371		6,277		6,599		6,277
Notes payable		899,166		896,704		897,664		896,704
Revolving line of credit, due April 2023		521,900		68,700		—		68,700
Mortgage repurchase facilities		133,794		174,095		197,469		174,095
Total debt	$	1,554,860	$	1,139,499	$	1,095,133	$	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 11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 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. 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~~During the three and six months ended ~~March 31, 2020.~~ June 30, 2020 we did not repurchase any shares of common stock. During the three months ended ~~March 31,~~June 30, 2019 ~~an aggregate~~we did not repurchase any shares of common stock while during the six months ended June 30, 2019, we repurchased 83,000 shares ~~were repurchased~~of common stock under this program 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~~available to be purchased under the stock repurchase program as of ~~March 31,~~June 30, 2020 is 3,812,939.

Cash Flows—~~Three~~ Six Months Ended ~~March 31,~~June 30, 2020 Compared to the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2019

For the ~~three~~six months ended ~~March 31,~~June 30, 2020 and 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~~six months ended ~~March 31,~~June 30, 2020 and 2019, we ~~used $12.5~~generated $173.8 million and ~~$59.4~~used $93.0 million in cash from operations, respectively. The ~~decrease~~increase in cash ~~used in~~provided by operations is primarily a result of a ~~$9.0~~$32.0 million increase in net income ~~and a~~

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and a comparatively favorable ~~decrease in~~ changes in assets and liabilities for the ~~three~~six months ended ~~March 31,~~June 30, 2020 as compared to the ~~three~~six months ended ~~March 31,~~June 30, 2019.

Net cash used in investing activities decreased to ~~$2.5~~$4.9 million during the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to ~~$3.3~~$6.2 million used during the same period in 2019. The decrease was primarily related to less purchases of property and equipment.

Net cash used in financing activities was $50.5 million during the six months ended June 30, 2020, compared to $97.5 million 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~~change for the six months ended June 30, 2020 was primarily attributable to a ~~$368.7~~$78.2 million increase in net ~~borrowings~~payments under our revolving line of credit ~~during the three months ended March 31, 2020 as compared to the same period~~and a $108.1 million decrease in ~~2019,~~proceeds from issuance and extinguishments of senior notes, partially offset by a ~~$26.6~~$27.2 million increase in net ~~payments~~proceeds under our mortgage repurchase facilities.

As of ~~March 31,~~June 30, 2020, our cash and cash equivalents and restricted cash balance was ~~$453.5~~$177.0 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,~~June 30, 2020, we had outstanding purchase contracts and option contracts for ~~14,979~~15,635 lots with a total purchase price of approximately ~~$647.0~~$659.8 million and had ~~$36.1~~$31.8 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 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.

We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of ~~March 31,~~June 30, 2020, and December 31, 2019, we had ~~$343.7~~$335.9 million and $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.

Contractual Obligations

For the three and six months ended June 30, 2020, there have been no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 7, 2020.

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Non-GAAP Financial Measures

In this Form 10-Q, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net homebuilding 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 EBITDA for the three and six months ended ~~March 31,~~June 30, 2020, and 2019. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define 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 (vii) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our Adjusted EBITDA is limited as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.


	Three Months Ended March 31,							Three Months Ended June 30,							Six Months Ended June 30,
	2020		2019		% Change			2020		2019		% Change			2020		2019		% Change
Net income	$	26,126	$	17,117		52.6	%	$	38,450	$	15,495		148.1	%	$	64,576	$	32,612		98.0	%
Income tax expense		7,962		5,880		35.4	%		11,653		5,335		118.4	%		19,615		11,215		74.9	%
Interest in cost of home sales revenues		13,685		12,587		8.7	%		18,694		14,655		27.6	%		32,379		27,241		18.9	%
Interest expense (income)		(163)		15		(1,186.7)	%		(684)		—		NM			(847)		15		(5,746.7)	%
Depreciation and amortization expense		3,415		3,074		11.1	%		3,427		3,122		9.8	%		6,842		6,196		10.4	%
EBITDA		51,025		38,673		31.9	%		71,540		38,607		85.3	%		122,565		77,279		58.6	%
Inventory impairment		781		—		NM
Loss on debt extinguishment									—		10,832		NM			—		10,832		NM
Inventory impairment and other									910		—		NM			1,691		—		NM
Restructuring costs									1,584		—		NM			1,584		—		NM
Purchase price accounting for acquired work in process inventory		—		1,724		NM			—		—		NM			—		1,724		NM
Adjusted EBITDA	$	51,806	$	40,397		28.2	%	$	74,034	$	49,439		49.7	%	$	125,840	$	89,835		40.1	%

NM – Not Meaningful

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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 debt (notes payable and borrowings under our revolving line of credit less cash held in escrow and cash and cash equivalents) by net capital (net 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.


	March 31,		December 31,		June 30,		December 31,
	2020		2019		2020		2019
Total homebuilding debt	$	1,421,066	$	965,404	$	897,664	$	965,404
Total stockholders' equity		1,084,533		1,061,699		1,129,488		1,061,699
Total capital	$	2,505,599	$	2,027,103	$	2,027,152	$	2,027,103
Homebuilding debt to capital		56.7%		47.6%		44.3%		47.6%

Total homebuilding debt	$	1,421,066	$	965,404	$	897,664	$	965,404
Cash and cash equivalents		(450,973)		(55,436)		(173,521)		(55,436)
Cash held in escrow		(22,497)		(35,308)		(46,619)		(35,308)
Net homebuilding debt	$	947,596	$	874,660		677,524		874,660
Total stockholders' equity		1,084,533		1,061,699		1,129,488		1,061,699
Net capital	$	2,032,129	$	1,936,359	$	1,807,012	$	1,936,359

Net homebuilding debt to net capital		46.6%		45.2%		37.5%		45.2%

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Adjusted Diluted Earnings per Common Share

Adjusted Diluted Earnings per Common Share (which we refer to as “Adjusted 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 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 EPS.


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2020		2019		2020		2019		2020		2019
Numerator
Net income	$	26,126	$	17,117	$	38,450	$	15,495	$	64,576	$	32,612
Denominator
Weighted average common shares outstanding - basic		33,207,928		30,203,243		33,340,184		30,341,628		33,274,056		30,272,818
Dilutive effect of restricted stock units		268,516		241,033		121,510		227,220		195,013		234,127
Weighted average common shares outstanding - diluted		33,476,444		30,444,276		33,461,694		30,568,848		33,469,069		30,506,945
Earnings per share:
Basic	$	0.79	$	0.57	$	1.15	$	0.51	$	1.94	$	1.08
Diluted	$	0.78	$	0.56	$	1.15	$	0.51	$	1.93	$	1.07

Adjusted earnings per share
Numerator
Income before income tax expense	$	34,088	$	22,997	$	50,103	$	20,830	$	84,191	$	43,827
Inventory impairment and other		781		-		910		—		1,691		—
Restructuring costs						1,584		—		1,584		—
Loss on debt extinguishment						—		10,832		—		10,832
Purchase price accounting for acquired work in process inventory		-		1,724		—		—		—		1,724
Adjusted income before income tax expense		34,869		24,721		52,597		31,662		87,466		56,383
Adjusted income tax expense⁽¹⁾		(8,144)		(6,321)		(12,254)		(8,102)		(20,378)		(14,428)
Adjusted net income		26,725		18,400		40,343		23,560		67,088		41,955

Denominator - Diluted		33,476,444		30,444,276		33,461,694		30,568,848		33,469,069		30,506,945

Adjusted diluted earnings per share	$	0.80	$	0.60	$	1.21	$	0.77	$	2.00	$	1.38

⁽¹⁾The tax rate used in calculating adjusted net income for the three and six months ended ~~March 31,~~June 30, 2020 was 23.3%, which is reflective of the Company’s GAAP tax rate for the applicable period, as adjusted for certain discrete items. For the three and ~~March 31,~~six months ended June 30, 2019 the tax rate utilized 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~~which bears 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 in~~dustry.~~dustry and the COVID-19 pandemic.

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,~~June 30, 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,~~June 30, 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,~~June 30, 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~~second quarter of 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 – 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, 2019 that was filed with the SEC on February 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~~could 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 the implementation of social distancing measures, leading to the closure of businesses and causing weakened economic conditions ~~that will likely worsen~~ and ~~may ultimately result~~resulting in an economic slowdown orand 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~~exempted 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~~second quarter 2020 financial results, ~~they have begun to negatively~~we recognize that the long term macro-economic effects could ultimately impact the homebuilding industry and 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~~future operating results.

The adverse effect of the COVID-19 pandemic on the broader economy ~~has negatively impacted and will likely continue to~~could negatively impact demand for new homes. ~~Continued~~Despite strong demand and sales during the second quarter of 2020, 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~~could adversely affect our operating results in future periods. In addition, a decline in our home building operations ~~will~~would 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;

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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 reversed course in May and June of 2020. Despite overall strong demand and sales during the second quarter of 2020, continued demand for Century homes is ~~unlikely to return quickly to the record levels that we experienced prior to the pandemic~~uncertain 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%~~11.1% as of the end of ~~March~~June 2020 and it is ~~anticipated to increase~~uncertain how quickly the unemployment rate will improve or if it will further ~~in April 2020.~~deteriorate. 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~~could 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 which reversed course in May and June of 2020. Despite overall strong demand and sales during the second quarter of 2020, continued demand for Century homes is ~~unlikely to return quickly to the record levels that we experienced prior to the pandemic~~uncertain 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.~~

~~ITEM 6. EXHIBITS.~~On July 28, 2020, the Company entered into an amended and restated employment agreement (collectively, the “Amended Co-CEO Employment Agreements”) with each of its Co-Chief Executive Officers, Dale Francescon and Robert J. Francescon (the “Co-CEOs”). The Amended Co-CEO Employment Agreements are nearly identical in their terms. The Amended Co-CEO Employment Agreements reflect the following changes:

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Revision of the definition of “Retirement,” which requires 23 years of employment with the Company rather than 20 years;

Eligibility for a full payout of performance-based equity awards upon a death or disability based on actual performance as opposed to a prorated payout;

Eligibility for a prorated annual bonus payout based on actual performance in the event of a termination of the Co-CEO’s employment by the Company without cause or by the Co-CEO for good reason for the year in which such termination occurs; and

Establishment of a new five-year contract term, with one-year evergreen renewal terms thereafter.

The Amended Co-CEO Employment Agreements also contain certain immaterial changes intended to provide additional clarification.

Additionally, on July 28, 2020, the Company entered into an amended and restated employment agreement (the “Amended CFO Employment Agreement”) with its Chief Financial Officer, David Messenger (the “CFO”). The Amended CFO Employment Agreement reflects the following changes:

Eligibility for a full payout of performance-based equity awards in the event of a termination without cause or for good reason in connection with a change in control based on the greater of target or actual performance, as opposed to a prorated payout based on target performance;

Eligibility for a prorated annual bonus payout based on actual performance in the event of a termination of the CFO’s employment by the Company without cause or by the CFO for good reason in connection with a change in control for the year in which such termination occurs;

Eligibility for a prorated payout of performance-based equity awards based on target performance in the event of termination due to death or disability, even if the CFO worked less than 50% of such performance period;

Inclusion of the CFO’s current base salary; and

Establishment of a new three-year contract term, with one-year evergreen renewal terms thereafter.

The foregoing summaries of the Amended Co-CEO Employment Agreements and Amended CFO Employment Agreement do not purport to be complete and are qualified in their entirety by reference to the complete terms of the respective agreements, which are filed as Exhibits 10.1, 10.2 and 10.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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		Amended and Restated Employment Agreement, effective as of July 28, 2020, between Century Communities, Inc. and Dale Francescon (filed herewith)
10.2		Amended and Restated Employment Agreement, effective as of July 28, 2020, between Century Communities, Inc. and Robert J. Francescon (filed herewith)
10.3		Amended and Restated Employment Agreement, effective as of July 28, 2020, between Century Communities, Inc. and David Messenger (filed herewith)

Table of Contents

22.1		List of Guarantor Subsidiaries (filed herewith)
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 (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

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: ~~April 29,~~July 28, 2020	By:	/s/ Dale Francescon
		Dale Francescon
		Chairman of the Board and Co-Chief Executive Officer (Co-Principal Executive Officer)

Date: ~~April 29,~~July 28, 2020	By:	/s/ Robert J. Francescon
		Robert J. Francescon
		Co-Chief Executive Officer and President (Co-Principal Executive Officer)


Date: ~~April 29,~~July 28, 2020	By:	/s/ David Messenger
		David Messenger
		Chief Financial Officer (Principal Financial Officer)


Date: ~~April 29,~~July 28, 2020	By:	/s/ J. Scott Dixon
		J. Scott Dixon
		Chief Accounting Officer (Principal Accounting Officer)

3841


		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


	Supplemental Condensed Consolidated Balance Sheet
	As of March 31, 2020 (in thousands)

			Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century
Assets
Cash and cash equivalents	$	401,069		6,404		43,500		—	$	450,973
Cash held in escrow		—		22,497		—		—		22,497
Accounts receivable		8,000		13,684		19,003		(17,600)		23,087
Investment in consolidated subsidiaries		2,097,867		—		—		(2,097,867)		—
Inventories		—		2,074,509		—		—		2,074,509
Mortgage loans held for sale		—		—		141,846		—		141,846
Prepaid expenses and other assets		9,449		95,096		16,472		—		121,017
Deferred tax assets, net		11,110		—		—		—		11,110
Property and equipment, net		15,240		18,595		1,169		—		35,004
Goodwill		—		30,395		—		—		30,395
Total assets	$	2,542,735	$	2,261,180	$	221,990	$	(2,115,467)	$	2,910,438
Liabilities and stockholders’ equity
Liabilities:
Accounts payable	$	588		38,963		619		—	$	40,170
Accrued expenses and other liabilities		44,919		189,848		13,708		(17,600)		230,875
Notes payable		890,795		8,371		—		—		899,166
Revolving line of credit		521,900		—		—		—		521,900
Mortgage repurchase facilities		—		—		133,794		—		133,794
Total liabilities		1,458,202		237,182		148,121		(17,600)		1,825,905
Stockholders’ equity:		1,084,533		2,023,998		73,869		(2,097,867)		1,084,533
Total liabilities and stockholders’ equity	$	2,542,735	$	2,261,180	$	221,990	$	(2,115,467)	$	2,910,438


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

			Guarantor		Non Guarantor		Elimination		Consolidated
	Century		Subsidiaries		Subsidiaries		Entries		Century
Assets
Cash and cash equivalents	$	1,577		—		53,859		—	$	55,436
Cash held in escrow		—		35,308		—		—		35,308
Accounts receivable		15,363		12,327		(252)		—		27,438
Investment in consolidated subsidiaries		1,996,703		—		—		(1,996,703)		—
Inventories		—		1,995,549		—		—		1,995,549
Mortgage loans held for sale		—		—		185,246		—		185,246
Prepaid expenses and other assets		9,539		101,321		13,148		—		124,008
Deferred tax assets, net		10,589		—		—		—		10,589
Property and equipment, net		15,256		19,614		1,128		—		35,998
Goodwill		—		30,395		—		—		30,395
Total assets	$	2,049,027	$	2,194,514	$	253,129	$	(1,996,703)	$	2,499,967
Liabilities and stockholders’ equity
Liabilities:
Accounts payable	$	(13)		83,853		954		—	$	84,794
Accrued expenses and other liabilities		28,214		173,403		12,358		—		213,975
Notes payable		890,427		6,277		—		—		896,704
Revolving line of credit		68,700		—		—		—		68,700
Mortgage repurchase facilities		—		—		174,095		—		174,095
Total liabilities		987,328		263,533		187,407		—		1,438,268
Stockholders’ equity:		1,061,699		1,930,981		65,722		(1,996,703)		1,061,699
Total liabilities and stockholders’ equity	$	2,049,027	$	2,194,514	$	253,129	$	(1,996,703)	$	2,499,967


		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

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Emerging Growth Company