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 the 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 lines 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-fourths 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 double 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 a 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 to net capital ratio of 23.1% and increasing stockholders' equity to over $1.6 billion, a 35% year-over-year increase. We ended 3Q with a company record backlog of 4,866 homes valued at over $1.9 billion. Consistent with our expectations, net new home contracts decreased to 2,742 compared to 3,204 contracts in the prior year. This anticipated decrease, as previously communicated on our second quarter earnings call, was due to a reduction in the number of homes available for sale resulting from robust sales earlier in the year causing communities to sell out much earlier than expected. Additionally, we released homes for sale later in the construction process than typical in order to ensure all current input costs were captured. We have opened in excess of 125 new communities year-to-date and expect to open over 40 in Q4. While we have experienced delays in land development activities, for both our self-developed communities, as well as those being developed for us by third parties, we expect our open and actively selling communities to be above 200 by year-end with incremental improvement each successive quarter thereafter. We remain committed to a land-light acquisition strategy as reflected by our percentage of controlled lots increasing to 67% compared to 56% last year. This is the seventh consecutive quarter we've increased our overall percentage of controlled lots and our highest percent since going public in 2014. Our focus on a land-light model frees up capital, de-risks the business and provides us increased flexibility to quickly adapt to changing market conditions. This strategy is further reflected in our inventory composition where the percentage of inventory dollars invested in land has decreased to approximately 40% compared to 44% in the third quarter of last year as we have increased our investment in homes under construction by 27% to meet the continued broad-based demand we are experiencing while only increasing our investment in owned land by 5% during the same period. We are extremely pleased with our third quarter results, as well as our year-to-date performance. Looking ahead, we remain confident that tight supply, historically low interest rates and favorable demographic trends will continue to support new home demand. Net income for the first nine months of 2021 has already exceeded the entirety of 2020 by over 60% and we are on track to more than double the prior year by the end of the fourth quarter. Our substantial land portfolio positions us strongly for ongoing organic growth as we expand more deeply into our over 40 high-growth markets. With that, I'll turn the call over to Rob to discuss our business in greater detail.

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 owned 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 Complete doubled to 1,925, while net new contracts for Century Complete as a percentage of total company contracts improved to 39% compared to 32% in the prior year. With Century Complete's limited investment in local infrastructure, it has been able to organically expand into new markets including Jacksonville, Gainesville, and the Panhandle in Florida, Louisville, Kentucky, College Station, and Dallas-Fort Worth, Texas as well as Northwest Indiana over the last year and we expect deliveries from all of these markets in 2022. During the first nine months of 2021, we have delivered 2,571 homes in our Century Complete brand with an ASP of $207,000. To achieve this affordable price point, Century Complete homes are typically built outside the most expensive areas of busy metropolitan environments, but with easy access to employment, transportation, and retail corridors. In many of these markets in which Century Complete operates, there is limited competition from other large public builders presenting ample opportunity for us to expand share across hundreds of smaller-sized markets on the periphery of large metro areas where competitors do not have our level of financial purchasing, personnel, and system resources. Century Complete does not offer options and the vast majority of deliveries come from our 15 most popular plans creating a streamlined, efficient build process that allows us to provide new affordable homes to our buyers. One hundred percent of our Century Complete homes are priced below FHA limits. Our typical Century Complete homeowner has an impressive, healthy financial profile with an average FICO score of 712 based on our loan originations. We, like all homebuilders, have experienced significant increases in our direct construction cost this year. Year-to-date the cost to construct our average home has increased approximately 12% with the largest increase coming from lumber which is now well off its peak levels. In response, we have aggressively raised the sales prices of our homes, while being mindful of potential affordability concerns. While we continue to raise sales prices where possible, the pace of such sales price increases has moderated. Given our company-wide preference for spec home construction, during the third quarter, only 7% of our new contracts represented presale homes. The spec build model enables us to price the home later in the construction process and helps maximize the profitability potential of the home as evidenced by the nearly 26% gross margin achieved in the quarter. This spec focus also allows our trade partners to be more efficient and helps lessen some of the construction delays associated with today's industry-wide supply chain challenges. While we are still experiencing increased cycle times in many of our communities of up to three to five weeks compared to a year ago, we are focused on mitigating and creatively solving production issues and we continue to be impressed by our team's ability to proactively address these challenges. We've leveraged our national agreements and relationships to develop and execute solutions involving shortages of appliances, plumbing, trusses, windows, paint, and other materials. We've also reduced and optimized the number of SKUs in our homes enabling us to simplify and bulk order key materials. Many of these solutions and adjustments being employed today will lead to lasting changes in our processes that will continue to benefit us long after the current supply challenges are behind us. I'll now turn the call over to Dave to discuss our financial results in more detail.

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 third quarter margins, as many of those deliveries will be impacted by peak lumber pricing. SG&A as a percent of home sales revenues improved 150 basis points to 9.8% in the third quarter compared to 11.3% in the prior year. This is the third sequential quarter our SG&A ratio was below 10%. Our financial services business continues to perform according to our expectations. During the quarter, it generated $29.1 million in revenues compared to $32 million last year and pre-tax income was $11.4 million compared to $17.5 million. Additionally, in the first nine months, we captured 71% of the business versus 66% last year, and in the first nine months, increased the number of loans funded by approximately 40% on a year-over-year basis. The decrease in pre-tax income compared to the prior year period was a result of three components: one, a favorable fair market value adjustment in 2020 as we initiated a mortgage servicing portfolio; two, selling loans into the secondary markets at normalized margins compared to the 2020 frenzy; and three, increased investments in people and systems supporting our increased business. During the quarter, we issued $500 million of 3.875% bonds due in 2029. A portion of the proceeds were used to redeem our $400 million 5.875% bonds that were due in 2025. The transaction resulted in a reduction of 200 basis points in rate, annual cash savings in excess of $4 million and a $14.5 million one-time charge. Concurrent with this transaction, our ratings were upgraded to Ba3 stable and BB- positive. In the second quarter of next year, our $500 million 6.75% 2027 bonds become callable. We expect to be able to similarly refinance these bonds with a combination of cash and new bonds that will be accretive to our long-term earnings. Our net homebuilding debt to net capital ratio improved to 23.1%, down significantly from 32.9% in the prior year quarter and basically flat with the second quarter of this year. We ended the quarter with approximately $521 million of cash and total liquidity of $1.3 billion. We currently have no borrowings outstanding on our $800 million revolving credit facility that does not mature until April 2026. Our tax rate was 21.8% in the third quarter compared to 23.3% last year, a result of additional 45L certificates received during the quarter. All of these activities culminated in achieving an ROE of 31%, our 10th sequential quarter of improvement and first quarter greater than 30%. We accomplished this milestone strictly through the implementation of operational efficiencies within our business and believe that our land-light spec-based model well positions us to continue delivering ROE near the top of the industry. We are revising our full-year revenue guidance to be in the range of $3.9 billion to $4.1 billion and home deliveries to be in the range of 10,750 to 11,500. Our impressive year-to-date results have us set up to achieve our full-year objectives and continue to deliver top-line growth, profitability expansion and improved operational performance into 2022 and beyond. With that I'll open the lines up for questions. Operator?

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 basis points 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. The vast majority of it relates to price increases that we've been able to take.

Got it. Thank you. And second, I think you mentioned that cycle times are now about three to five weeks, which is I think compared to the extension last quarter only about a week longer. 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, as you look at the bottlenecks in the process, 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 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. In terms of specific things, garage doors are one thing now; paint and windows have been a primary issue as well. Each month it's a new thing, but we are not seeing, as a general statement, a loosening of these constraints.

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, we think Q4 is probably going to land somewhere between Q2 and Q3. Margins as a result of Q4 will have peak lumber pricing rolling through. You'll have 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 portion and I'll let Rob touch on the land. 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 Century Complete product line. As we had said last quarter, we thought we'd be seeing community count growth and 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 look at third-party developers and vacant lots that we're bringing online. So the majority of those 40 communities are going to be coming out of that line.

In terms of your question on the land for the Mountain region, if you really look at all of our regions, they all are up pretty significantly on a year-over-year basis. Specifically for the Mountain region, as we look at Colorado, Utah, Las Vegas, and 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 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 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. 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, that you're not necessarily increasing for the newer inflationary headwinds? Can you clarify that? Also, in some of my field checks, I did pick up that some builders have been taking a pause on pricing recently. Have you seen that in your markets as well?

Deepa, a few months ago we were taking price increases in every community we had in every market every few sales. Now, it's at a more typical cadence of raising prices at the subdivision level. We're continuing to raise prices wherever we can, but the frequency is not at the same rate as earlier in the year. In some communities we still raise prices every few sales, in others we raise them more broadly at the subdivision level. We're doing it when appropriate, but the frequency of increases has moderated.

Got it. That's similar to what we've been picking up elsewhere. My next question is on ROE — 31% is very robust. Can you talk to some of the drivers of that? Particularly I'm looking for sustainable drivers; if you don't think 31% is sustainable long term, what would be a more sustainable ROE for us to think about given your mix going forward?

Hey Deepa, this is Dave. 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. Looking into 2022, with a strong lot pipeline of nearly 75,000 lots that we'll start to work through in 2022, we expect a strong demand backdrop. Demographics are positive. We expect to be growing community count next year. With all of that said, we expect to be delivering ROE next year near the top of the industry again. A lot of it comes from our operations and how we've structured our balance sheet and the markets 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.

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 SG&A as low as we can. We've had three successful quarters being sub-10%. I would expect we continue to hang out somewhere in this range. Very high single-digits; we may trip over 10% a little bit, but I think we'll be in the high single-digits going forward.

The commentary around being able to source land in further-out locales was impressive. What type of pressure or competition are you seeing for land deals in those peripheral regions from single-family-for-rent operators that we've heard are trying to ramp up and put money to work?

Jay, we're definitely seeing competition from the for-rent operators. Some of the prices and terms they're doing are out there, in our opinion. For Century Complete where we're only buying finished lots, the bigger challenge is getting competent developers in the areas to put those finished lots on the ground for us on a just-in-time basis. That's where a lot of the effort is. We've been fortunate with our team. As you see, we've grown Century Complete to just over 15,000 lots. That feels really good. We're executing that across the board, not just Century Complete, and our teams have worked very hard to get us in the right positions.

That's great. It looks like monthly average closings per community decelerated from around 5% 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?

From a closings-per-community-per-month perspective, we'll always look to close more homes if possible. So whether that number shakes out at 4.2% or 5% it will probably end up somewhere in between going forward. Right now we're constrained by supply chain challenges that help bring that number down this last quarter. I would expect that it probably stays in that lower range for another quarter or two, but we will look to push closings whenever possible to monetize that land and 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.

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

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've done it opportunistically previously. It's something we'll look at going forward. We have a strong balance sheet today, solid results and incredible ROE right now, and we'll continue to look at buybacks as an option for future investments.

And then on margins, I think you said it's been largely a function of your spec strategy combined with pricing increases. Given where we sit right now, lumber costs or peak lumber costs are going through your next quarter. Would it be reasonable to expect margins to continue to improve given where lumber has been since the summer?

If you're looking further out, margins into 2022 have an opportunity to benefit from lower lumber prices that are now off peak. But for Q4, we expect margins to be probably between our Q2 and Q3 margins given peak lumber pricing that we paid. While lumber may moderate, we're also experiencing inflation in other building costs, so we'll need to see in the January-February-March sales period how those costs weigh against each other to determine net benefit or drag.

Got it. And as it pertains to your Century Complete business, given cost increases and demand-supply imbalances, are you still able to find land that pencils to keep the price point low, or is that becoming more difficult?

We are still finding that land, Alex. 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. 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 effectively.

Okay, 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 the details so far. First question Dave — last quarter you flagged the expectation for orders to be down due to the timing of spec inventory under construction. As you look forward to the fourth quarter now with 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 yet. I think that inflection point will probably happen in early 2022. Given our October experience, our limited inventory on the ground today and the timing of new community openings, we're probably tracking to be down about 10% year-over-year when compared to Q4 of last year for new contracts.

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

That's for orders, new contracts, yes.

Got it. Second question — we've heard from another builder that they've seen some increase in incentives in peripheral locations which you obviously build in. That's not necessarily the same as normalization in pricing. A: Are you seeing any uptick in incentives in the submarkets you build in as more spec inventory slowly builds up? And B: Going back to the margin question earlier about sustainability, if pricing reverts to something more normal like low single-digit appreciation, why wouldn't margins revert back to low-20% gross margins over time? What's different now that would keep margins at 25% plus if price appreciation slows?

Alan, on incentives we're really not seeing that in any of our markets, whether in Century Complete or Century Communities. As for margin profile, it's a function of input costs and the sales prices. Over time the business changes and margins can go up or down. We haven't projected a big adjustment to gross margins right now, but circumstances could change. Part of the benefit to our margin has been sales price increases, but also operational efficiencies. We've integrated acquired companies, improved efficiency, and grown scale, which provides additional benefits. So even if ASPs settle back, we wouldn't expect our margins to revert to levels from several years ago given the efficiencies we've implemented.

Got it. That's really helpful. I appreciate the insights. 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.