Greetings. Welcome to Century Communities Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded. I will now turn the conference over to Hunter Wells, 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 third quarter ended September 30, 2021. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs 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 most recently filed Annual Report on Form 10-K as supplemented by our other SEC filings. Our SEC filings are available at www.sec.gov and on our website at www.centurycommunities.com. The company undertakes no duty to update any forward-looking statements that are made during this call. 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. Management will be available after the call, should you have any questions that did not get answered. Hosting call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer and President; and David Messenger, Chief Financial Officer. Following today's prepared remarks, we will open the line up for questions. With that, I will turn the call over to Dale.

Thank you, Hunter, and welcome everyone to our quarterly conference call. We are now more than three-fourth through the year and are pleased to report a continuation of the strong homebuilding dynamics that we experienced earlier in the year, enabling us to achieve record setting performance. Excluding charges related to debt extinguishment, pre-tax income for the third quarter was $160 million, net income was $125 million and diluted earnings per share was $3.63, all company records. On a GAAP basis, pre-tax income increased 125% to $146 million and net income increased 129% to $114 million or $3.31 per diluted share, driving our return on equity to 31%, our 10th sequential quarter of improved ROE and nearly doubled the 16% at the end of the 2020 third quarter. Our home sales revenues were $917 million, a 21% increase on a year-on-year basis. This top line growth was a result of 2,322 total home deliveries, propelled by double-digit increases within our West region and Century Complete line. Home sales gross margins were 25.7%, an 820 basis point increase and the fifth quarter in a row of sequential improvement. Excluding interest, homebuilding gross margins were 27.2% compared to 20% in the prior year quarter. We achieved an SG&A ratio of 9.8%, the result of our increased scale and the diversity of our geographic footprint, coupled with our success in managing and mitigating increased operational costs. This is our third quarter in a row of single-digit SG&A ratio. Excluding charges related to debt extinguishment, our pre-tax income margin improved to 16.7%, reflecting the seventh quarter of sequential improvement and an increase of 850 basis points over the same period in the prior year. Our impressive results were achieved while maintaining a strong balance sheet, with $1.3 billion of liquidity, a conservative net homebuilding debt…

Thank you, Dale. With another successful quarter behind us, we look forward to continuing this positive momentum and are excited for the opportunities ahead of us. Our business is based on a land light investment thesis that emphasizes controlling a large number of future lots while limiting own lots to ones we will need for construction over the near-term. Our total land portfolio has continued to expand. During the third quarter, we sourced nearly 10,000 net new lots ending with more than 75,000 owned and controlled lots the highest in our history with more than two- thirds held off balance sheet. We have achieved this growth in every region where we build while maintaining conservative underwriting hurdles. This extensive land pipeline is what will fuel our future growth. Between our Century Communities and Century Complete brands, we have delivered 7,890 homes year-to-date an increase of 19% with an average sales price of $365,000, a 16% year-over-year increase. Our Century Communities brand has continued to perform, benefiting from national broad-based demand, for our entry-level priced homes across highly desirable and rapidly growing markets throughout our four regions led by our West region which increased deliveries and backlog by 29% and 23% respectively. In the first nine months of 2021, home deliveries for our Century Communities brand have increased by 19% to 5,319 homes compared to 4,444 homes in the same period of last year at an average selling price of approximately $442,000. Our Century Complete brand, which is 100% entry-level focused, will also be a material driver to our organic growth in 2022 and beyond. By acquiring only finished lots Century Complete is highly scalable requires less capital investment in new markets and yields quicker asset turns and higher returns on investment. In the third quarter homes and backlog for Century…

Thank you. Rob. During the third quarter, net income increased 129% to $114 million or $3.31 per diluted share, compared to net income of $49.8 million or $1.48 per diluted share in the prior year quarter. Excluding charges related to debt extinguishment, net income increased 152% to $125.3 million or $3.63 per diluted share, the highest in our company history. During the quarter, our diluted shares increased to $34.5 million, as a result of certain compensation plans, achieving their hurdle rates given our robust financial and operational results. Third quarter pre-tax income was $145.8 million, an increase of 125%. Excluding the loss on debt extinguishment, pre-tax income increased 147% to $160.2 million, a 16.7% margin more than twice the 8.2% in the prior year quarter. Our third quarter EBITDA, increased almost 90% to $163 million and year-to-date. we are more than double the first three quarters of the prior year. Home sales revenues for the third quarter were $917.3 million an increase of 21% compared to $760.2 million in the prior year quarter. Deliveries increased to 2,322 homes. driven by double-digit increases in the West region and Century Complete. Gross margins as a percent of home sales including adjusted have increased sequentially each quarter, since the second quarter of 2020. Homebuilding gross margin percentage improved to 25.7% compared to 17.5% for the same period last year, an increase of 820 basis points. Adjusted homebuilding gross margin percentage was 27.2% compared to 20% in the prior year quarter. Third quarter margins exceeded our original expectations, supported by continued home price appreciation, which we experienced in every region on a year-over-year basis. Looking at our backlog margins, we anticipate continued year-over-year margin improvement in the fourth quarter and for margins in the fourth quarter to end up between our second quarter and…

Thank you. At this time, we will be conducting a question-and-answer session Our first question comes from the line of Michael Rehaut with JP Morgan. You may proceed with your question.

Hi. This is Maggie on for Mike. Congrats on the quarter. First question is on the gross margin performance. I mean obviously, really, really strong performance there up over 800 bps year-on-year. I was wondering if on a year-over-year basis, you could talk about how much of that improvement was driven purely by price versus other factors such as maybe any change in mix or increased efficiency or operational changes?

Maggie, this is Dale. On a year-over-year basis, there's really not a difference from a mix standpoint. So it's really a function of price increases that have occurred as well as trying to manage the increased costs that we've taken as all other homebuilders have seen. But it's – the vast majority of it relates to price increases that we've been able to take.

Got it. Thank you. And second just – I think you mentioned that cycle times are now at about three to five weeks, which is I think compared – that's only about a week longer than the extension last quarter. So you've been managing well through the challenges and you talked about some of the ways that you're mitigating those. But I was wondering if you've seen – just as you look at the bottlenecks in the process, have you seen any improvement or worsening in any of those stages and what kind of stages of the building process are you currently seeing the most challenges in?

Maggie, this is Rob. It varies and it varies depending on kind of month by month what we're seeing where some of the bottlenecks are. We have not seen as a general statement a loosening of that and we expect this to persist at least for the next three or four quarters at this point. But in terms of specific things like garage doors are one thing now, paint, windows have been a primary as well. And so each month kind of it's a new thing but we are not seeing as a general statement a loosening of this. Q –Maggie Wellborn: Got it. Thank you.

Our next question comes from the line of Alex Rygiel with B. Riley. You may proceed with your question.

Thank you and fantastic quarter gentlemen. A couple of quick questions here. First, coming back to the gross margin conversation. Do you feel like gross margins are now at sort of a new normal level and understanding that nothing is normal in the world? But given your mix, given your strong execution, given your pricing discipline, do you feel like gross margins are at a new norm relative to maybe where they were a few years ago?

Hey, Alex, this is Dave. I don't know if we call it a new normal in a time where nothing is normal like you said. But obviously, we've had very strong gross margin performance over the past several quarters. Looking at our backlog, thinking Q4 is probably going to land somewhere between Q2 and Q3. Margins as a result of -- Q4, we've got probably the highest lumber pricing we paid. You're going have peak lumber pricing rolling through. You've got additional supply chain-related costs. At the same time, we are trying to push ASP to offset some of that. But I think right now for the next couple of quarters you probably do have some improved gross margin performance over where we would have been a couple of years ago back in 2019 and 2018.

That's helpful. And then as it relates to the 40 new communities coming on stream in the fourth quarter, what's the mix relative to sort of your traditional communities versus the Century Complete communities? And then it looked like I believe your lot inventory increased a lot in the Mountain division. Maybe touch upon that as well?

Yes. I'll hit the community -- I'll hit the new community section and I'll let Rob touch on the land. So for the more than 40 communities that we're looking to open in the fourth quarter that's going to be heavily weighted towards our central complete product line. As we had said last quarter that we thought we're going to be seeing community count growth the majority of that's going to be coming out of our Century Complete brand, given that that's where we are taking down finished lots. We're asset-light, we're look at third-party developers and vacant lots that we're bringing online. So the majority of that -- those 40 communities are going to be coming out of that line.

So in terms of your question Alex on the land for the Mountain region, I mean, if you really look at all of our regions, they all are up pretty significantly on a year-over-year basis. But with that specifically on the Mountain as we look at Colorado, we look at Utah, we look at Las Vegas, and we look at Arizona all of those markets we have continued to increase our controlled lots and purchase lots in those markets.

Thank you very much.

Thanks.

Our next question comes from the line of Deepa Raghavan with Wells Fargo. You may proceed with your question.

Hi. Good afternoon everyone. Great quarter. I echo what everyone says. Quick questions, two questions from me. One is on growth outlook. You talked about community count openings getting delayed. And I think your prior outlook for 2022 was somewhere in the low double-digit growth vicinity. Is that still valid? I mean, at this point in time, or do you have an updated guide for us to think about in terms of community count growth into next year?

Hey, Deepa, this is Dave. I would say that outlook on 2022 is still valid. We are dealing with a lot of the same land development delays that everybody else in the industry is dealing with. And so we've had some community openings pushed from this year to next year. But as we look at the full year of 2022, we expect to be growing community count into those ranges, and we think it will happen sequentially, as we go throughout the year, as Dale said in the prepared remarks.

Okay. That's good to know. Any thoughts on pricing? I don't know if I heard Dave correctly. Did you mention Dave that you took a pause on pricing you're not necessarily increasing for the newer inflationary headwinds? Can you clarify that? And also, I'd say, in our -- in some of my field checks, I did take up that some builders have been taking a pause on pricing recently. And just curious if you have seen that in your market as well?

Deepa it really – if we go back a few months ago, we were taking price increases in every community that we had in every market every few sales. And now, it's in a more typical range of raising prices that it's down to the subdivision level. And so we're really looking at it in terms of – we're getting those price increases still wherever we can. And just like in a normal market, we're not raising prices in every subdivision all the time. Where in other subdivisions we're still raising them on a every few number of sales. And so that's the type of market that we're in today. So we're continuing to raise prices whenever we can. We're doing it. But the price increases the frequency of them is not at the same rate that it was going back a few months ago.

Got it. That's pretty similar to what we've been picking up from the rest of the world too. So my question ROE, oh my God. Just when you think the builders cancel prices any more to the upside 31% is pretty robust. Can you talk to some of the drivers to those? And particularly I'm looking for sustainable drivers within, or if you don't think that 31% is like a pretty sustainable on a longer-term outlook, what would be a more sustainable ROE for us to think about for your mix going forward?

Hey, Deepa, this is Dave. Yeah, we're very pleased with the 31% ROE this quarter, and think that that will be near the top of the industry as everyone's reporting. And we think that as we look into 2022, look at Q4 and looking at – going into 2022 with a strong lot pipeline nearly 75,000 lots that we'll start to work through in 2022. We expect a strong demand backdrop. We're seeing demographics are positive. We expect to be growing community count next year, with all of that being said, we expect to be delivering ROE next year near the top of the industry again. So we think that a lot of it's coming from our operations and how we've got our balance sheet structure in the markets that we're in today.

All right. That's fair. I'll talk to you guys offline. Thanks so much for the color. And great quarter once again.

Thanks, Deepa. Thank you.

Our next question comes from the line of Jay McCanless with Wedbush. You may proceed with your question.

Hey. Good afternoon. The first question I had could you talk about where you think the SG& A percentage is going to end up for 4Q especially with the ramp you're talking about with the community count moving into next year?

We're going to keep trying to manage that SG&A as low as we can. We've had three successful quarters being sub-10%. And I would expect that we continue to hang out somewhere in this range. That very high single-digits maybe we trip over 10% a little bit but I think that we're high single-digits going forward.

And then was a impressive commentary around being able to source land in some of these further out locals, what type of pressure or competition are you seeing for land deals in those further out regions from the single-family for rent operators that we've heard are trying to ramp up and put some money to work?

So we're – Jay, we're definitely seeing competition from the for rent operators. Some of the prices and some of the terms that they're doing are out there in our opinion. In terms of some of the locations, if you look at our Century Complete business, where we're only buying finished lots. The bigger challenge is getting the developers in the areas that are competent to put those finished lots on the ground for us on a just-in-time basis. And so that's where a lot of the effort is. But for those particular areas, we've been very fortunate with our team. And as you see we've grown the Century Complete up to 15 – just over 15,000 lots. That feels really good. And we're really doing that across the board. It's not just Century Complete, but across all of our divisions, our teams have worked very hard to get us in the right positions.

That's great. And then the other question, I had it looks like in terms of monthly average closings per community decelerated from 5% even in the second quarter down to about 4.2% in the third quarter. Is the goal to get that back up closer to 5% as we think ahead to next year, or is a mid-4s pace kind of what you think is a comfortable run rate for your monthly average closings for the business?

Hey Jay, It's Dave. From a closing perspective, by community, by month, we're always going to look to close more hubs if at all possible. So where that number shakes out whether it's 4.2% or 5%, it probably end up somewhere in between there going forward. But right now, we're obviously constrained by supply chain challenges that everybody else is. So that helps bring that number down this last quarter. So I would expect that it probably stays in that lower range for another quarter or two but we will definitely look to push closings whenever possible to monetize that land and that inventory.

Okay, great. Thanks for taking my questions.

Thanks, Jay.

Our next question comes from the line of Alex Barron with Housing Research Center. You may proceed with your question.

Hey, gentlemen. Congratulations on the quarter.

Thanks, Alex.

Thanks, Alex.

I wanted to ask given your improvement in margins balance sheet returns, how you guys are thinking about potential share buybacks here?

Yes. We have a share buyback program in place. We have about 3.8 million shares remaining on it. We've utilized it in the past. We haven't for the past couple of years, but we have done it opportunistically previously. And it's something that we'll look at going forward. We have a strong balance sheet today. We've got solid results incredible ROE right now, and we'll continue to look at that as an option for future investments.

Okay, great. And then in terms of the margins, I mean I think I heard you say that, it's been largely a function of your spec strategy combined with the pricing increases. So, given where we sit right now, I assume the lumber costs or the peak lumber costs are going through your next quarter. So would it be reasonable to expect your margins to continue to improve in your view given where lumber has been since the summer?

I think that if you're looking a little further out your margins into 2022 have an opportunity that to have some lumber benefits. But I would say that as we look into Q4, we're expecting margins probably to be somewhere between our Q2 and Q3 margins given the peak pricing that we have. Looking ahead into 2022, without trying to provide any numerical guidance, you are going to have some benefits of lower lumber pricing that's now off its peak so you'll have some relief there. But we're also going to -- we're also experiencing inflation in all of the other costs building a home. So we'll have to see as we get into the January-February-March sales period, how those costs end up weighing against each other. And if we have a net benefit or a net deduct.

Got it. And then, as it pertains to your Century Complete business, I know historically it used to be pretty low price points. But given everything cost increases and demand supply imbalances, are you guys still able to find land that pencils to keep the price point low, or are you finding that's a little bit more difficult these days?

No, we are still finding that land, Alex. And again, we have about 15,000 lots in the Century Complete owned and controlled. Our average price point is around $207,000 on closings in Q3. And when you look at that that's still a very affordable price point, and we are able to source land that allows us to make margin in that line and compete in that line.

Okay and great. Best of luck.

Thank you.

Thanks.

Our next question comes from the line of Alan Ratner with Zelman & Associates. You may proceed with your question.

Hey, guys. Good afternoon. Nice quarter and thanks for all details so far.

Hey, Alan.

First question Dave, and I apologize if I missed this, but last quarter you kind of flagged the expectation for orders to be down, which was really just a function of the timing of where your spec inventory was under construction. As you look forward to the fourth quarter now you've got community count that should inflect positively year-over-year. Where do you see your inventory position today? Does it support a reacceleration year-over-year growth in order activity assuming the demand environment stays where it is today?

Probably not you yet. I think that inflection point will probably happen in early -- we're looking for hopefully in early 22. But right now, given our October experience our limited inventory that we have on the ground today, timing of new community openings. We're probably tracking to be down about 10% year-over-year when compared to Q4 of last year.

That's for orders or community? Sorry I just want to clarify.

That's for orders.

Got it. Okay. That's helpful. I appreciate that.

New contracts yes.

Got it. Got it. Okay. Second question we heard from another builder. They talked -- and admittedly they're probably maybe talking their own book to some extent. But they've said, they've seen some increase in incentives in periphery locations which you guys obviously build in those locations. And you mentioned the normalization in pricing. That's not necessarily the same as incentives. But A, I'm curious are you seeing that at all in the submarkets you build in any uptick in incentives as more spec inventory starts to slowly build up? And B, going back to the margin question earlier about the sustainability, I'm not necessarily looking for a longer-term guidance here. But if pricing does normalize to something that we've seen more historically low single-digit appreciation, let's say. Why wouldn't margins revert back to that low 20% gross margin over time? I guess what's different now? If you don't have outsized price appreciation why should margins stay at this 25% plus level? Thank you.

Well Alan on the first question with regard to incentives, we're really not seeing that in any of our markets. And whether it be in our Century Complete business or a Century Communities business. So that's not something that we're really experiencing today. In terms of margin profile, it's really kind of a function of where all the input costs are and where the available sales prices are going to be. And over time in this business, it always changes. It goes up and it goes down depending on the circumstances. As Dave said right now, we're not projecting that we're going to have a big adjustment with regard to gross margins. But as circumstances change, it's certainly possible. I know from our own perspective part of the benefit that we've had with regard to the increase in gross margins is, we've obviously benefited from the increase in sales prices like a lot of our competitors have. But we've also initiated a lot of efficiencies in our operation as we've continued to take all the companies that we've acquired over the years and continue to get more efficient out of them. And we grow our scale that gives us additional efficiencies. And so that's also impacted our margins from a positive perspective. So even if things settle back down from a ASP standpoint, we wouldn't expect that our margins would go back down to where they were a number of years ago in our case.

Got it. That’s really helpful. I appreciate the insights there. Thanks a lot.

Thanks Alan.

At this time we have reached the end of the question-and-answer session. We will now turn the line back over to Dale for some brief closing remarks.

Thank you all for your time today. On behalf of our entire leadership team, I'd like to thank all of our employees for their hard work and ongoing dedication to Century as well as their commitment to providing exceptional service to our valued homebuyers. We're grateful for all that you do. To our shareholders and analysts on the call today, we appreciate your continued support and investment and look forward to speaking to you again next quarter.