Century Communities, Inc.

Greetings. Welcome to Century Community's second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded. I will now turn the conference over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Century Communities Earnings Conference Call for the second quarter 2023. Before the call begins, I'd like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statement. Certain of these risks and uncertainties can be found under the heading Risk Factors in the company's latest 10-K as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescan, Chairman and Co-Chief Executive Officer, Rob Francescan, Co-Chief Executive Officer and President, and David Messinger, Chief Financial Officer. Following today's prepared remarks, we'll open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. In the second quarter, we experienced strong sequential gains across our business, including substantial increases in net orders, deliveries, starts, and gross margins. We generated $69 million in pre-tax income, $51 million in net income, diluted earnings per share of $1.60, and $80 million of EBITDA. Strong underlying demand for affordably priced homes, a scarcity of existing homes on the market, and consumers adjusting to higher interest rates are all contributing to and increasing new home sales. Our net new contracts in the second quarter totaled 2,317 homes, a 15% improvement over first quarter 2023, and a 4% increase over year-ago levels. Net new contracts were especially strong in our Century Complete business, increasing 40% sequentially and 16% on a year-over-year basis in the second quarter. Century Complete had an average sales price of $257,000 in the quarter, and we are seeing strong demand for affordable, entry-level homes across both our brands. This lower price segment of the market is benefiting from favorable demographics and has the widest range of potential buyers. As a reminder, The century-complete portion of our business only purchases finished lots on a just-in-time basis, which helps to drive above-average returns for this segment. Consistent with the past several quarters, we are continuing to concentrate our sales efforts on homes with near-term completions as it allows our buyers certainty in their interest rates. Our quarter-end backlog consisted of 2002 sold homes valued at $750 million, and we are not focused at this point on building up a significant sold backlog of later term deliveries. Our cancellation rate was 14% in the second quarter, an improvement versus our 18% rate in the first quarter of 2023, and a significant reduction from the 37% rate we saw in the fourth quarter of 2022 as buyers are adjusting to the higher interest rate environment. Our strategy of selling homes later in the construction cycle is another factor in driving this lower cancellation rate. For comparison purposes, our cancellation rate was typically in the low to mid 20% range in the years prior to COVID. Our cadence of orders was relatively consistent throughout the quarter. As we commented on our earnings call last quarter in terms of sales patterns, we expect more typical seasonality to return this year, resulting in sales slowing during the summer months and then picking up in the fall. In the second quarter, we delivered 2,235 homes. Our second quarter deliveries increased 17% sequentially and exceeded the guidance we provided last quarter. These better than expected deliveries were the result of moving up homes due to improving cycle times that were originally expected to complete in the third quarter. Since the beginning of the year, we have been increasing our starts given the improvement in our sales activity and margins on these newly started homes. In the first quarter, 2023, we started 2,354 homes which further increased to 3,041 homes in the second quarter. To put these starts into perspective, the number of homes we started in the first half of 2023 were twice the number we started in the second half of 2022, and as a result, we continue to expect to see higher deliveries in the second half of this year as compared to the first half. Revenues from home sales were $818 million in the second quarter. Our average sales price on deliveries decreased by 12% on a year-over-year basis to $366,000, reflecting our strategy of properly incentivizing homes with near-term deliveries, building more affordably priced homes, and more closings coming from some of our lower-priced regions. In the second quarter, The average sales price on our backlog equaled $375,000, and we expect our average selling price to increase in the second half of this year over second quarter levels as we continue to reduce incentives and selectively increase base prices. I also want to highlight that we released our 2023 ESG report last week. In this report, we published our greenhouse gas emissions inventory for the years 2019 through 2022 and provided details on our significant accomplishments over the past two years since our inaugural ESG report in 2021. As we detailed in the report, we are committed to providing our team members with the ongoing training and development so that we can continuously raise the bar for the home buying experience and want to thank all of our employees for their hard work and dedication to our valued customers. With the first half of the year behind us, we are on track to grow our business and increase our margins and returns in the second half of this year. Buyers are currently looking for affordably priced homes with near-term completions, and we are well positioned to meet this demand. We have continued to increase our starts given our confidence that the homes we're starting now will carry higher margins and returns. As a result, not only do we expect our deliveries in the second half to exceed first half levels, but our gross margins should continue to improve sequentially due to lower direct costs, improved cycle times, and reduced level of incentives. I'll now turn the call over to Rob to discuss our business and plans going forward in more detail.