Century Communities, Inc.

Good afternoon, ladies and gentlemen. Welcome to the Century Community's third quarter 2025 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, October 22nd, 2025. I would now like to turn the conference over to Tyler Langton. Please go ahead.

Good afternoon. Thank you for joining us today for Century Community's earnings conference call for the third quarter 2025. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading risk factors in the company's latest 10-K as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this 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 Franceskin, Executive Chairman, Rob Franceskin, Chief Executive Officer and President, and Scott Dixon, 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 third quarter, we performed well in a challenging environment and generated solid financial and operational results. meeting or exceeding the expectations detailed on our second quarter conference call. We delivered 2,486 homes hitting the high end of our guidance and our adjusted home building gross margin of 20.1% was up slightly on a sequential basis as reductions in our direct costs offset higher incentives in the quarter. We continue to control our fixed G&A costs and successfully refinanced our 2027 senior notes with the offering of our 2033 notes at a slightly lower interest rate. We also repurchased an additional $20 million of our shares this quarter, bringing our year-to-date repurchases to 6% of our shares outstanding at the beginning of the year. While home buyer demand has been more muted this year due to weaker consumer confidence, we continue to believe there is pent-up demand for affordable new homes supported by solid demographic trends. Buyers remain hesitant and cautious given the current level of economic uncertainty, but still have the desire to own a new home. As a result, we expect that any interest rate relief and improvement in consumer confidence will start to unlock buyer demand. Before turning the call over to Rob, I wanted to briefly talk about our current strategy and some recent achievements. While we will remain disciplined in slower markets like we are experiencing now, we are still positioning the company for future growth as demonstrated by our expectations for our 2025 year-end community count to increase in the mid single-digit percentage range. As we have said in the past, we expect this growth to come primarily from increasing our share within our existing markets. We currently hold top 10 positions in 13 of the 50 largest U.S. markets with a goal of further increasing this penetration. We have also continued to invest in people, processes, and systems that will drive top and bottom line improvements going forward. And we have made significant progress even in this difficult environment. While the operational benefits of our strategy are already apparent, as Rob will discuss, some of the financial benefits have been clouded by the higher incentives we've been offering this year and the impact of lower deliveries on our fixed G&A. Once the market begins to normalize, we are confident the value of these investments will be fully realized. I'll now turn the call over to Rob to discuss our operations and land position in more detail. Thank you, Dale, and good afternoon, everyone. We are encouraged by the operational improvements that continue to accrue at the company and believe Century is well positioned to further leverage these gains as the market normalizes. These improvements run throughout the organization, including continued success in reducing our costs in the third quarter. Our direct construction costs on the homes we delivered are down 3% on a year-to-date basis, Through the third quarter, we have not seen any material increases in direct costs from tariffs and don't expect any impacts in the fourth quarter given the price protection agreements with our preferred supplier partners. During the third quarter, our cycle times also continue to improve on both a year-over-year and sequential basis and currently sit at an average of 115 calendar days, with one-third of our divisions at 100 calendar days or less. Our customer satisfaction scores are at all-time highs, which leads to more referrals for both home buyers and brokers, as well as lower warranty costs. We have and continue to make meaningful improvements to both cost structures and cycle times, and are proud of the best-in-class operations our teams have built. Our third quarter net new contracts of 2,386 homes declined by 6% on a sequential basis, better than our historical average decline of 9% from 2019 through 2024. We saw a month-over-month increase in our web traffic from June to September, and in line with typical seasonality, our net orders and absorption rates were the lowest in July, with both August and September levels ahead of July. So far in October, our orders are seasonally consistent with August and September levels. Even with headwinds from the market and seasonal pressures, our incentives on closed homes in the third quarter came in lower than the 100 basis point increase we forecasted on our second quarter conference call and averaged roughly 1,100 basis points in the third quarter 2025. Looking forward, we continue to expect incentive levels to be the largest driver of changes to our gross margins in the near term, given our success in managing costs. We currently expect incentives to increase by up to another 100 basis points in our fourth quarter deliveries as we compete with other builders for year-end closings. In the third quarter, we started 2,440 homes, and similar to the past several quarters, have continued our focus on maintaining an appropriate level of spec home inventory by generally matching our starts with our sales. Our third quarter ending community count of 321 communities increased by 5% on a year-over-year basis. We continue to expect our year-end 2025 community count to increase in the mid-single-digit percentage range, which coupled with our 28% year-over-year growth for the full year 2024 will position us well for the upcoming spring selling season and provide a strong base for future growth in the years ahead. On the land side, our finished lot costs on the homes we delivered in the third quarter increased in the mid single digit range on both a year-over-year and sequential basis, and we expect our finished lot costs in the fourth quarter to be roughly flat on a sequential basis. We ended the third quarter with over 62,000 owned and controlled lots. Our owned lot count has remained relatively steady since the third quarter of last year. We have remained disciplined on the land front and continue to underwrite deals to current market assumptions. Land sellers are adjusting terms, and we are starting to see some reductions in our raw land and development costs. I also want to briefly talk about a trend that we have recently seen with mortgages in our financial services business. In the first quarter of this year, adjustable rate mortgages accounted for less than 5% of the mortgages that we originated. In the third quarter, however, arms accounted for close to 20% of the mortgages we originated. Given the length of time that the average first-time buyer stays in their home and the lower interest rates of arms, we think they can make sense for many of our homebuyers and help partially address the market's affordability challenges. We are pleased with the results we achieved in the third quarter. Our focus on cost reductions and controlling increases in incentives allowed us to improve our home building gross margin as well as pre-tax and net margins on a sequential basis. Our team has done a good job operating within a difficult market environment, and I want to thank them for their hard work and dedication. I'll now turn the call over to Scott to discuss our financial results in more detail. Thank you, Rob. In the third quarter, pre-tax income was $48 million and net income was $37 million or $1.25 per diluted share, up 7% and 10% respectively on a sequential basis. Adjusted net income was $46 million or $1.52 per diluted share. EBITDA for the quarter was $70 million and adjusted EBITDA was $82 million. Home sales revenues for the third quarter were $955 million, down 2% on a sequential basis. Our deliveries of 2,486 homes declined by 4% on a sequential basis, while our average sales price of $384,000 increased by 2% on a quarter-over-quarter basis, benefiting from a higher percentage of deliveries from our west and mountain regions and a lower percentage from Century Complete. At quarter end, our backlog of sold homes was 1,117 valued at 417 million with an average price of 373,000. In the third quarter, adjusted home building gross margin was 20.1% compared to 20% in the second quarter of this year. And gap home building gross margin was up 30 basis points to 17.9% versus 17.6% in the second quarter. The improvement of our third quarter gross margin versus second quarter levels was driven by lower direct costs offsetting higher incentives and finished lot costs. Purchase price accounting associated with our two acquisitions in 2024 reduced our third quarter 2025 gross margin by 30 basis points. We would expect purchase price accounting to have a similar impact on our home building gross margin in the fourth quarter of 2025. took an inventory impairment charge of 3.2 million in the third quarter related to several closeout communities the 6.1 million of other expense this quarter was comprised of 5.2 million for the abandonment of lot option contracts and 1.4 million for the loss of extinguishment of debt with a partial offset from other income For the fourth quarter 2025, we expect our home building gross margin to ease on a sequential basis by up to 100 basis points compared to our third quarter, primarily due to higher levels of incentives. SG&A as a percent of home sales revenue was 12.6% in the third quarter and benefited from ongoing cost reduction efforts. Assuming the midpoint of our full year home sales revenue guidance, we expect our SG&A as a percent of home sales revenue to be roughly 13% for the full year 2025, with SG&A as a percentage of home sales revenue of 12.5% for the fourth quarter. Revenues from financial services were $19 million in the third quarter, and the business generated pre-tax income of $3 million. We currently anticipate that the contribution margin from financial services in the fourth quarter to be similar to our third quarter results. Our tax rate was 21.8% in the third quarter 2025, which was driven by $45 tax credits received in excess of previous estimates. We expect our full year tax rate for 2025 to be in the range of 24.5% to 25.5%. Our third quarter 2025 net home building debt to net capital ratio improved to 31.4% compared to third quarter 2024 levels of 32.1%. Our home building debt to capital ratio also improved to 34.5% in the third quarter compared to year ago levels of 35.8%. We ended the quarter with $2.6 billion in stockholders' equity and $836 million of liquidity. During the quarter, we completed a private offering of $500 million of six and five-eighths senior notes due 2033, with the proceeds being used to redeem our $500 million six and three-quarters senior notes due 2027. With this transaction, we have no senior debt maturities until August of 2029, providing us ample flexibility with our leverage manager. During the quarter, we maintained our quarterly cash dividend of $0.29 per share and repurchased 297,000 shares of our common stock for $20 million at an average share price of $67.36 or a 23% discount to our company record book value per share of $87.74 as of the end of the third quarter. Assuming similar attractive valuations, we expect to continue repurchasing our shares in the fourth quarter. Through the first nine months of the year, we have repurchased 1.9 million shares or 6% of our shares outstanding at the beginning of the year. Turning to guidance. We are narrowing our full year 2025 home delivery guidance to be in the range of 10,000 to 10,250 homes and home sales revenues to be in the range of 3.8 to $3.9 billion. In closing, our healthy balance sheet allows us to both return capital to our shareholders through share repurchases and dividends, as well as continue to invest in our business to generate future growth. We believe we are well-positioned to navigate the current headwinds facing the market and prosper when the market rebounds. We remain focused on our strategy of deepening our share in our existing markets, growing our community count, lowering our direct cost and cycle times, and maintaining an adequate supply of land while controlling our finished lot costs. With that, I'll open the line for questions. Operator?