CENTURY COMMUNITIES, INC. 2026 Q3 Earnings Call

Thank you for joining us today for Century Communities earnings conference call for the third quarter 2026. 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, to be filed shortly, 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.

Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are included in the earnings release furnished to the SEC and posted on our investor relations website. The company's presentation of this information is not intended to be considered in isolation or a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescon, Executive Chairman, Rob Francescon, Chief Executive Officer, and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. The third quarter was marked by a significant rise in interest rates, continued inflation, and macroeconomic uncertainty, which weighed heavily on consumer confidence in general and first-time homebuyers in particular. As we moved through the quarter, our buyers became more cautious, did not feel an urgency to transact, and felt more comfortable moving to the sidelines. As a result, our traffic conversions and orders all slowed, weighing on our deliveries and gross margins. These trends have thus far continued into October. Despite these pressures, we continue to make good progress on the operational side of the business during the third quarter and continue to execute on our strategy of deepening our share in existing markets. We grew our ending community count by 7% year-over-year and 4% sequentially to a new company record of 343 communities.

Our direct construction costs, finished lot costs, and fixed G&A, excluding advertising, all decreased versus the prior quarter as we continue to effectively manage our costs. We also grew our book value per share to a new company record of $90.61. In early October, we acquired HistoryMaker Homes, Texas' longest standing production homebuilder that builds exclusively in the Dallas-Fort Worth market. Consistent with our strategy of deepening our share in existing markets, this transaction gives us the scale, land position, and local talent to accelerate our growth in the largest housing market in the country, and one that we believe will benefit from solid long-term fundamentals. HistoryMaker also diversifies our product offering given its focus on both the entry-level and move-up markets. While the industry is clearly facing headwinds, our strong balance sheet and land strategy provide us with ample flexibility to navigate the current environment.

We remain focused on deepening our share in existing markets through both organic growth and opportunistic acquisitions. Our increased community count within our existing markets gives us a platform to increase scale without significant additions to our overhead structure. I'll now turn the call over to Rob to discuss our strategy, operations, and land position in more detail.

Thank you, Dale, and good afternoon, everyone. We had net orders of 2,284 homes in the quarter. While we saw typical seasonality in our orders in July and August, with July orders softening followed by an uptick in August, our orders in September were impacted by the approximately 75 basis point increase in mortgage rates as homebuyers became more cautious and affordability continued to weaken. While we experienced a challenging demand environment, our cancellation rate remained low at 14.6% in the third quarter, demonstrating our strict qualification process prior to sales acceptance and the commitment of buyers once they have made the decision to purchase a new home. Our average community count was 339 communities in the third quarter, and we ended the quarter with 343 communities, up 7% versus the prior year and 4% on a sequential basis to a new company record.

Our success in increasing our community count has helped mitigate the impact to us of industry-wide slowing absorption levels. We expect to end the year with between 360 and 370 communities, which includes the contribution of 29 communities from HistoryMaker Homes. Additionally, the community count for Century Complete, which accounted for 38% of our third quarter deliveries, increased 9% both sequentially and year-over-year to 122 communities, the second highest level in its history. This growth is encouraging, as Century Complete's business has held up relatively well in the current environment, with gross margins above the company average, as it tends to compete more with the used resale market and less with the public homebuilders, given its focus on more secondary locations. We delivered 2,442 homes during the third quarter.

As a reminder, approximately 60% of our deliveries are typically sold and closed in the quarter. The pressure on our orders this quarter from increasingly higher interest rates clearly weighed on our deliveries. Incentives on our third quarter deliveries averaged approximately 1,300 basis points, compared to 1,200 basis points in the second quarter. We expect incentives on closed homes in the fourth quarter of 2026 to be 200-250 basis points higher than third quarter levels as we navigate a higher rate environment, muted consumer confidence, and compete with other builders for year-end closings. In the third quarter, adjustable rate mortgages accounted for nearly 35% of the mortgages that we originated by volume of principal, roughly in line with second quarter 2026 levels. Buyers remain quite receptive to ARMs, and we continue to believe that increased adoption of ARMs could help partially address the market's affordability challenges.

While incentives remain a headwind to margins, our operations continued to perform well in the third quarter. Our direct construction costs on homes we delivered declined by 2% on a sequential basis, and our cycle times averaged 118 calendar days. Given pressures from energy costs and tightening in the trades from heightened immigration enforcement, we expect savings in our direct costs to begin leveling off. Our finished lot costs in the third quarter declined by 3% sequentially. Given the muted sales environment in the third quarter, we decreased our starts by 8% year-over-year and 12% sequentially to 2,502 homes. We ended the third quarter with just over 60,000 owned and controlled lots. On a year-over-year basis, our own lots down 8%, but our controlled lot count up 7% as we continue to proactively manage our land position.

As a reminder, our current option lot count of over 27,000 lots is secured by deposits that total just $85 million, or approximately 3% of equity, and we only utilize land banking arrangements on a very limited basis and do not cross-collateralize any deals. Before turning the call over to Scott, I wanted to provide a little more detail on our acquisition of HistoryMaker Homes and the strategy behind it. As Dale mentioned in his remarks, this transaction gives us the scale, land position, and local talent to accelerate our growth in the largest housing market in the country. In its fifth generation, HistoryMaker is highly respected in the DFW market, has land positions that broaden our footprint in the market, and has a strong management team that has joined our Dallas division.

Consistent with our strategy of increasing depth in existing markets, the transaction will grow our Dallas division's active communities from 12 to 41 as of September 30, 2026, and triple deliveries from 211 to 669 homes on an LTM basis through the third quarter of 2026. HistoryMaker also serves a wider range of the DFW market through its focus on both entry-level and move-up homes. As part of the transaction, we will also maintain an ongoing contractual relationship with HistoryMaker's sister land development company, which was not acquired in the transaction, but will provide us additional land opportunities in the Dallas-Fort Worth market. While the DFW market, and Texas in general, are impacted like the rest of the country by elevated interest rates and other macro factors, we believe in the long-term fundamentals of these markets.

Dallas continues to benefit from solid household growth that is being supported by corporate relocations, a business-friendly climate, in-migration, employment growth, and relative affordability. As Scott will outline in more detail, we are lowering our guidance for our full year 2026 deliveries and home sales revenues, and expect incremental pressure on our fourth quarter gross margins to reflect the impact of an industry-wide slowdown in absorption rates and higher incentives. To help mitigate the impact of these pressures, we are controlling our cost, matching starts with sales, and leveraging our low deposit structures to manage our land pipeline. Additionally, we are continuing to execute on a longer term strategy of deepening our share in our existing markets to drive improved margins and returns. Our balance sheet remains strong. We have ample liquidity and minimal exposure to off-balance sheet obligations through land banking.

I will now turn the call over to Scott to discuss our financial results in more detail.