Century Communities, Inc. Stock

Greetings. Welcome to the Century Communities Second Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions] Please note, this conference call 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 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 as 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. We delivered strong second quarter results despite continued headwinds from macro challenges and weak consumer sentiment, with earnings per diluted share of $1.26 and increasing by 11% on a year-over-year basis and 50% sequentially. Our deliveries of 2,506 homes exceeded our guidance of 2,200 and to 2,400 on a stronger absorption rate, which increased by 6% on a quarter-over-quarter basis compared to a historic average second quarter decline of 7% over the previous 5 years. We coupled this improvement in our sales pace with effective management of our incentives and costs. Our adjusted gross margin of 20% and increased by 30 basis points on a sequential basis, benefiting from lower incentives and direct costs.

We also continued to successfully control our fixed general and administrative costs while our financial services business generated strong results. As a result, we grew our book value per share to a company record of $90.24. We ended the quarter with a company record 330 open communities and expect our average community count in 2026 to increase in the low to mid-single-digit percentage range on a year-over-year basis. Our land acquisition and development spend continues to be supportive of the increased scale and allow for a 10% annual delivery growth over the next several year period once market conditions improve. During the second quarter, we continued our balanced approach to capital allocation and repurchased 1% of our shares outstanding at a 38% discount to book value, bringing our year-to-date acquisition total to 3% and at a 32% discount to book value. We are pleased by our second quarter results as we navigate market headwinds and position Century for the years ahead.

I'll now turn the call over to Rob to discuss our strategy, operations and land positions in more detail.

Thank you, Dale, and good afternoon, everyone. We were encouraged by our order activity in the quarter, especially as the strength in our sales was accompanied by a continued decline in incentives. Our net orders of 2,615 homes increased 3% year-over-year and 10% sequentially, with the majority of this increase being driven by improved absorption rates. Our order activity was also very consistent throughout the quarter with June orders roughly in line with both May and April. Our average community count was 321 communities in the second quarter and we ended the quarter with 330 communities, up 4% on a sequential basis and a record for the company. I would also like to point out that the net growth in our community count this quarter came in June with our community count in April and May, roughly in line with our first quarter ending community count of 316.

As a result, our orders in the second quarter did not see a significant benefit from the growth in our quarter end community count. Our traffic in the second quarter was roughly 9% higher than first quarter levels. while our traffic in June was 18% higher than April levels, demonstrating the solid demand and interest for new homes. Our cancellation rate of 13.2% in the second quarter decreased on a year-over-year basis, demonstrating the commitment of buyers once they have made the decision to purchase a new home. Order activity so far in July has been in line with typical seasonality. We delivered 2,506 homes during the second quarter a 25% sequential increase and our incentives on these homes averaged 1,200 basis points, down approximately 50 basis points from first quarter 2026 levels and 100 basis points from fourth quarter 2025 levels. Similar to our order activity, our incentives on closed homes were also relatively consistent throughout the second quarter. Assuming current market conditions, we expect incentives on closed homes in the third quarter of 2026 to be consistent with levels experienced in the first half of this year.

In the second quarter, adjustable rate mortgages accounted for nearly 35% of the mortgages that we originated by volume of principal, a further increase from first quarter 2026 levels of approximately 30% and well above first quarter 2025 levels of less than 5%. Receptivity of our buyers to ARMs has been increasing and this increased adoption of ARMs could help partially address the market's affordability challenges. While incentives remain a headwind to margins, our operations continue to perform extremely well in the second quarter. Our direct construction costs on the homes we delivered declined by 5% on a sequential basis. Our cycle times averaged 112 calendar days, down on both a year-over-year and sequential basis and a company record. Our finished lot costs in the second quarter were flat on a sequential basis. And we continue to expect our average finished lot cost for 2026 to only be 2% to 3% higher than fourth quarter 2025 levels.

In the second quarter, we started 2,841 homes and remain focused on managing our inventory levels, ending the quarter with approximately 3 finished specs per community. We ended the second quarter with just over 60,000 owned and controlled lots with on a sequential basis, our owned lots, down 2% but our total lot count up 3% as we continue to proactively manage our land position. In 2026, we continue to expect our land acquisition and development expense to be in the range of $1 billion to $1.2 billion. We have the ability to accelerate this number if market conditions improve, given the strength of our balance sheet or to reduce it if marketing conditions warrant without impacting our near-term growth prospects. We are optimistic about our results in the second quarter. We saw a healthy pickup in our activity accompanied by a decline in incentives and continued ability to control our costs and inventory levels.

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

Thank you, Rob. In the second quarter, pretax income was $49 million and net income was $36 million or $1.26 per diluted share, a 50% sequential increase. Home sales revenues for the second quarter were $898 million with an average sales price of $358,000. Our deliveries of 2,506 homes increased 25% on a quarter-over-quarter basis compared to an average sequential increase of 11% over the previous 5 years and benefited from the strength in our order activity this quarter. For the third quarter 2026, we expect our deliveries to range from 2,500 to 2,700 homes with a further sequential increase in the fourth quarter. Our second quarter 2026 homebuilding gross margin of 18.1% and adjusted gross margin of 20%, both increased by 30 basis points over first quarter 2026 levels. .

However, I would like to remind everyone that our first quarter gross margin and adjusted gross margin benefited by 90 basis points from a reduction to our warranty accrual in rebate collections in excess of previous estimates, while there was no impact from those 2 items in the second quarter. As a result, if we were to exclude this 90 basis point benefit from the first quarter, our second quarter gross margin would have increased by 120 basis points on a sequential basis, with the improvement driven by lower incentives and direct construction costs. For the third quarter 2026, we expect the most significant driver of our adjusted homebuilding gross margin to continue to be incentives needed to generate an acceptable sales pace, which, as Rob noted earlier, we currently expect to be consistent with levels experienced in the first half of this year.

SG&A as a percent of home sales revenues was 14.2% in the second quarter. While lower home sales revenue and higher commissions and advertising expense continue to pressure this percentage, we are effectively managing our fixed costs with our SG&A, excluding commissions and advertising down slightly on a year-over-year basis. Assuming the midpoint of our full year 2026 home sales revenue guidance we expect our SG&A as a percent of home sales revenue to be roughly 14% for the full year 2026, with SG&A as a percentage of home sales revenue of 13.5% for the third quarter. Revenues from financial services were $25 million in the second quarter and the business generated pretax income of $10 million. This segment benefited from both lower cost and a positive fair value adjustment. Excluding the impact of any fair value adjustments, we expect the contribution margin percent from financial services in the second half of this year to be closer to full year 2025 levels. Our tax rate was 26.3% in the second quarter of 2026, and we expect our full year tax rate for 2026 to be in the range of 26% to 27%.

Our second quarter 2026 net homebuilding debt to net capital ratio was 31.9%, and our homebuilding debt to capital ratio was 34.2%, basically consistent with the prior year quarter. We ended the quarter with $2.6 billion in stockholders' equity and $802 million of liquidity. During the quarter, we maintained our quarterly cash dividend of $0.32 per share and repurchased 353,000 shares of our common stock for $20 million at an average share price of $55.54, or a 38% discount to our book value per share of $9.24 and as of the end of the second quarter. Through the first 6 months of the year, we have repurchased 970,000 shares of our common stock for $60 million or over 3% of our shares outstanding at the beginning of the year at an average share price of $61.44 or a 32% discount to our second quarter ending book value.

Turning to guidance. we are raising the midpoint and low end of our full year 2026 home delivery guidance and now expect our deliveries to range from 9,750 to 10,500 homes and our home sales revenues to be in the range of $3.5 billion to $3.8 billion. In closing, we are pleased with our performance in the current environment. We are effectively balancing pace and price and controlling our cost and inventory levels. We have bought back over 3% of our shares outstanding to date at a significant discount to book value, while continuing to position Century for future growth.

With that, I'll open the line for questions. Operator?

[Operator Instructions]. Your first question comes from the line of Alex Rygiel with Texas Capital.

Very nice performance there on the gross margin of 20% in the quarter. And clearly, your guidance would suggest that you should be able to hold that in the back half of the year. Can you talk about some of the variables that we should be looking for that might offer you an opportunity to drive that margin a little bit higher even in a flattish environment that we've got here.

Yes, sure, Alex, and good to talk to you. So I think generally speaking, from where we sit right now, a lot of the same drivers on the margin line that we've been experiencing over the last couple of quarters continue. So the biggest driver is going to be incentives. We're very pleased with our ability here during the second quarter to pull back on incentives. A lot of that's been driven by our continued introduction of ARM product. So going forward, I think incentives to be -- is going to continue to be the largest driver of our margin profile. We've done a good job holding the line on cost of construction and in lots of cases, getting direct cost of construction out. There's certainly a variable there given the macro that's a little bit difficult to predict how it's going to evolve over the back half of the year. So those are really the 2 main drivers from our perspective. We feel good about where our finished lot cost is currently in where it's projected to be in the back half of the year.

And then I did notice that the number of selling communities in Texas actually picked up kind of notably here. Can you talk a bit more about sort of that market and the health of that market today?

Yes. So overall, Texas, we feel very good about. We feel like it's starting to come back from maybe the low that it was. It's starting to pick up a little bit. The open community counts, this is a reflection of our investment in the market as this has come to fruition with actually opening for sales and getting these communities started. When we look at it, we've got a very dominant position in Houston, and we feel good about that market. We are really catering to the more entry-level first-time home buyer in that market. And it's incentive-driven, but it's actually doing quite well. San Antonio is another bright spot for us, where operationally, that has actually been running better than we have in the last several years. It's actually done very well. Austin seems to be picking up. And then Dallas our operation in Dallas, we are really just getting going. We're not to scale yet there. There's a lot of VDLs on the ground there. And so we're hopeful for a bigger operation there. But overall, we like the Texas market, as you can see by our investment and we're -- we believe it's a bright future in Texas. .

Your next question comes from the line of Natalie Kulasekere with Zelman Associates.

Congrats on a good quarter. Just 1 for me. You saw some reductions in direct construction cost this quarter. But have you also started seeing special from vendors about any potential price increases because of fuel costs and even commodity price increases like lumber? Could you maybe provide more detail about what you're seeing on this front and how you think it will impact margins going forward?

Sure. So one, we're very pleased with the 5% reduction in direct on a quarter-over-quarter basis. And that's based on an initiative that we started company-wide with our team members at the end of last year, beginning of this year that started to roll through the closings in Q2. So again, we feel very positive about where that's going. In terms of where we are today in the market, of course, like all the builders with oil prices up we're getting on the land development front for diesel or asphalt, other things, we're getting some, what I would call requests we are pushing back on those requests at this point in time, but that is potential to have increases on land development on a go-forward basis, although we're trying to mute that. And so far, we've been able to do it. on the lumber front, where we've experienced what I would call, tailwinds that's probably ended. And so we're basically flat to up right now. Again, on a percentage basis, it's not a meaningful number, but we're watching it very closely.

Your next question comes from Jay McCanless with Citizens.

Could you guys talk through again where the incentives are? I think you said 1,200 basis points for orders this quarter, and that was down 50 basis points sequentially. Is that correct?

That's correct.

Okay. And then I was going to ask also, where is your sold and closed percentage now? Is it still running pretty high? Are you trying to bring that down a little bit?

We're still running pretty consistently where we have been in terms of sold units into a quarter. That's generally been pretty consistent for us, jay, over the last, I call it, 4 to 6 quarters. Generally, we are selling and closing somewhere around 50% to 60% of our units in truck order.

Okay. And then the next 1 I had do with all the M&A going on in the industry right now, is this opening up some opportunities? You talked about VDLs in Dallas, but are there some other opportunities that are owning up to maybe get some land, expand inside some of the geographies where you've already put a flag?

Jay, it's consistent with how we've always looked at M&A. We always look at transactions. And as I think you know, we have a solid track record in M&A. We've completed 9 acquisitions since 2013. The team has done every 1 of them, a great job on integration. And we will pursue M&A when it makes sense for our platform. So we're -- nothing has changed on that front. We're continuing to look at M&A in the marketplace.

Great. And then the other thing I did want to ask is the last 1 on the marketplace. I guess what are you seeing, especially on entry level from competitive supply One of your larger competitors this week talked about maybe slowing down the pace of starts to realize a little more gross margin. I'm just wondering if you all are seeing that in the field, not only from some of the larger competitors, but maybe some of the midsized companies as well.

Yes. As a general statement and this is our perspective, inventory levels are in normal ranges right now. They're not out of balance in our opinion. I think people are pretty judicious on how they're looking at starts and all. Regarding entry level, a lot of that's market by market, Jay. We've taken a closer pace versus price balance, as you can see by how our margins changed. But it's still -- we're not seeing some of the crazy discounting that was happening even last year, early this year. And so I think that's moderated a little bit. We'll see -- there hasn't been that many builders come out yet on earnings, but it seems like the incentives hopefully have kind of bottomed and we'll see where this goes. And all that's based on though, of course, where interest rates and a variety of other things go from a macroeconomic standpoint. But we have not seen any anything unusual recently.

The 1 thing I would add real quick on that is, we mentioned it in our prepared remarks, we have been really focused on managing our QMI inventory. We're at 3, slightly below 3 per community at the end of June. We like that amount. That allows us to really serve that buyer. So from our perspective, we feel we feel really in a good shape with where our inventory is and our specific communities and markets.

[Operator Instructions] Your next question comes from the line of Rohit Seth with B. Riley Securities.

Just with the rising rates over the last little while, just wondering how the traffic response has been in July.

Yes, Rohit, great question. A little bit difficult for us to discern too much from July. July historically is 1 of our slower months of the year along with January, it builds each week, which we certainly have seen it do so far. But coming off of the July 4 holiday. July typically is a little bit more muted from a pace perspective. It's following so far, very seasonal trends as to what we've seen in previous Julys. So a little bit too early to tell the recent rate increases in terms of how the consumer has responded directly to that.

And then the ARM trends, you reached 35% now. Do you see some headroom there to continue to push that ahead?

We think we can push it higher. And if you look at it on a year-over-year growth basis, it's actually gone up quite a bit. So we went from 5% now sequentially quarter-over-quarter 30% to 35%, and we think we can push that. And that's candidly an affordable option, especially for the duration, a lot of the people would stay in their homes. It makes a lot of sense.

All right. Okay. And then just on the community count cadence you mentioned 330 communities, but the growth rate on the annual basis at low to mid. And so maybe you can talk through the cadence of how you see the back half playing out.

Yes, Rohit, great question. So from the mid- to -- so mid digit increase that we had in our prepared remarks, that's an average year-over-year number as opposed to an ending where we think we will average throughout the entire year. We do think we have the ability to increase community count above the 330 as we move sequentially throughout the back half of the year. But from an average perspective, we believe we'll be up about mid-single digits over last year's average premium account. .

Your next question comes from the line of Jay McCanless with Citizens.

I wanted to ask, in the mountain, it looks like closings were up year-on-year, probably the first time in a few quarters. Since that Charles home market. Could you maybe talk a little bit about what you're seeing there and what the competitive sets looking like in that segment?

Yes. So in the Mountain region, when we look at Las Vegas, that's actually been a really strong division for the company, and that's holding up really well. there's been a lot of demand out of that. When we look at Colorado, where our home base is, it's still a challenging market. It's heavily seized. And you look at the price points in Colorado for a non-coastal market, it's very expensive. So that has not really recovered as much. Phoenix, we're getting some good traction in that and also in Utah. And we really like the Utah market. We like a lot of things about it as well as the potential future growth within that market. And so that's actually been performing above our expectations.

There are no further questions at this time. We will now turn the call back to Rob for brief closing remarks.

Thank you. Everyone on the call, thank you for your time today and interest in Century Communities to our team members, thank you for your hard work, dedication to Century and commitment to our valued homebuyers.

This concludes today's call. Thank you for attending. You may now disconnect.

Greetings. Welcome to Century Communities First Quarter 2026 Earnings Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Please note this conference call 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 First 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 and 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. 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 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. We are pleased with our first quarter results given continued market pressures, which intensified even further beginning in early March. While demand at the start of the quarter was roughly in line with year ago levels, geopolitical issues and increased economic uncertainties, coupled with higher interest rates and gas prices, further eroded consumer settlement, which weighed on our order activity most meaningfully in March, typically the highest sales month of the quarter.

Despite these macro challenges, our operations continued to perform well. Our first quarter adjusted gross margin increased by 140 basis points sequentially, and we grew our first quarter ending community count by 4% versus the prior quarter. We also continue to effectively manage our inventory levels with our finished specs at the end of the first quarter, down 16% sequentially and 31% year-over-year.

We also continue to be encouraged by bipartisan efforts to address the shortage of affordable housing and are still well positioned for growth when demand improves. Based on our current owned and controlled lot count, we have the ability to grow our deliveries by 10% or more annually once market conditions improve.

So long as slower market conditions persist. We will continue to balance pace and price, control our cost and inventory levels and return capital to our shareholders through dividends and opportunistically repurchasing shares at what we view as very attractive levels.

In the first quarter, we repurchased approximately 2% of our shares outstanding at the beginning of the year, at a 27% discount to our book value and increased our quarterly cash dividend by 10% to $0.32 per share.

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. Starting with sales, while in the fourth quarter of last year, we focused more on pace versus price, -- we took the more balanced approach in the first quarter 2026 that we outlined on our conference call last quarter. The quarter started off on a relatively healthy basis with our absorption rates in January, roughly flat on a year-over-year basis. .

In line with typical seasonality, we also saw sequential increases in absorption rates in both February and March. That said, our absorption rate in March declined on a year-over-year basis as the conflict in the Middle East as well as higher gas prices and interest rates weighed on home buyer settlement and we ended the quarter with net new orders totaling 2,379 homes.

We were pleased to see our traffic increase each month during the first quarter, with March levels up 13% over January, and we continue to believe that there is solid underlying demand for new homes. We are also optimistic that any interest rate relief and improvement in consumer confidence will unlock buyer demand and drive our conversion rates higher. Additionally, our cancellation rate of 12.2% in the first quarter was below the levels we experienced throughout most of 2025, demonstrating the commitment of buyers once they have made the decision to purchase a home.

Our order activity so far in April has trended better than March with orders also improving sequentially over the past several weeks. We delivered 2,013 homes during the first quarter and our incentives on these homes averaged approximately 1,250 basis points, down roughly 50 basis points from fourth quarter 2025 levels.

Within the first quarter, our incentives on closed homes were at the lowest level in January and increased as the quarter progressed as we look to maintain an appropriate pace as macro headwinds intensified. Assuming current market conditions, we expect incentives on closed homes in the second quarter of 2026 to be similar with first quarter levels.

In the first quarter, adjustable rate mortgages accounted for roughly 30% of the mortgages that we originated by volume of principal, a further increase from fourth quarter 2025 levels of approximately 25% and well above first quarter 2025 levels of less than 5%. Receptivity of our buyers to arms has been increasing. And this increased adoption of arms could help partially address the market's affordability challenges.

While incentives are weighing on our margins, our operations continue to perform extremely well in the first quarter. Our direct construction costs on the homes we delivered declined by 2% on a sequential basis. Our cycle times averaged 114 calendar days down 15% from 134 days in the year ago quarter. Our finished lot costs in the first quarter decreased by 1% on a sequential basis and we continue to expect our average finished lot costs for 2026 to be 2% to 3% higher than fourth quarter 2025 levels.

In the first quarter, we started 2,749 homes in advance of the spring selling season and remain focused on managing our inventory levels, ending the quarter with less than 3 finished specs per community. Our average community count was 309 communities in the first quarter, and we ended the quarter with 316 communities, up 4% on a sequential basis.

For 2026, we continue to expect our average community count to increase in the low to mid-single-digit percentage range on a year-over-year basis. We ended the first quarter with nearly 60,000 owned and controlled lots with our total lot count roughly flat on a sequential basis as we continue to proactively manage our land position.

In 2026, we expect our land acquisition and development expense to be in the range of $1 billion to $1.2 billion. We have the ability to reduce this number if market conditions warrant without impacting our near-term growth prospects or accelerate if market conditions improve, given the strength of our balance sheet.

As we have stated over the past several quarters, the attractive growth profile and cost position of our land is also underpinned by a traditional land option strategy that is both flexible and reduces risk with minimal exposure to land banking. The flexibility of our option agreement has allowed us to adjust terms in many cases and increasingly achieve lower prices as sellers have started to adjust their expectations.

At the end of the first quarter, only 11 of our 316 communities or roughly 3% utilized a land bank. As a result, we have much more control over the pace at which we start homes rather than having fixed takedown schedules and higher interest costs influence our pace. Additionally, our current option lot count of 24,000 lots is secured by deposits that totaled just $97 million or less than 4% of equity. We remain focused on controlling our costs, maintaining an appropriate sales pace and preserving the ability of our favorable land position to drive meaningful growth so that we can take advantage of improved conditions when the market rebounds.

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

Thank you, Rob. In the first quarter, pretax income was $33 million and net income was $24 million or $0.84 per diluted share. Adjusted net income was $26 million or $0.88 per diluted share. Home sales revenues for the first quarter were $734 million with our average sales price of $365,000, roughly flat on a sequential basis. .

Our deliveries of 2013 homes were impacted by the reduced order activity that we experienced in March. For the second quarter 2026, we expect our deliveries to range from 2,200 to 2,400 homes with further sequential increases in both the third and fourth quarters. In the first quarter, land sales and other revenues totaled $33 million and generated a profit of approximately $11 million, driven primarily by a single transaction in our Southeast region.

Our first quarter 2026 GAAP homebuilding gross margin of 17.8% increased by 240 basis points over fourth quarter 2025 margins of 15.4%. Our first quarter margin benefited by 90 basis points from a reduction to our warranty accrual and rebate collections in excess of previous estimates, but was impacted by 10 basis points of purchase price accounting.

Our adjusted gross margin in the first quarter was 19.7% compared to 18.3% in the fourth quarter of 2025. The sequential improvement in our adjusted gross margin was primarily driven by lower incentives. For the second quarter 2026, we expect the most significant driver of our adjusted homebuilding gross margin to continue to be incentives needed to generate an acceptable sales pace, which, as Rob noted earlier, we currently expect to be similar to first quarter levels.

SG&A as a percentage of home sales revenue was 15.8% in the first quarter and impacted by lower-than-expected deliveries. Assuming the midpoint of our full year 2026 home sales revenue guidance we expect our SG&A as a percent of home sales revenue to be roughly 14% for the full year 2026, with SG&A as a percentage of home sales revenue of 14.5% for the second quarter.

Revenues from financial services were $22 million in the first quarter, and the business generated pretax income of $8 million. Revenues benefited from a fair value adjustment associated with an increase in our locked loan pipeline and mortgage servicing rights portfolio.

We currently anticipate the contribution margin percent from financial services in 2026 to be similar to 2025 levels. Our tax rate was 26.8% in the first quarter of 2026, and we expect our full year tax rate for 2026 to be in the range of 26% to 27%. Our first quarter 2026 net homebuilding debt to net capital ratio was 30.5%, and our homebuilding debt-to-capital ratio was 32.2%, basically consistent with the prior year quarter.

We ended the quarter with $2.6 billion in stockholders' equity and $886 million of liquidity. During the quarter, we increased our quarterly cash dividend by 10% to $0.32 per share and repurchased 617,000 shares of our common stock for $40 million at an average share price of $64.82 or a 27% discount to our book value per share of $88.75 as of the end of the first quarter.

Given the impact of the conflict in the Middle East with lower consumer confidence and higher interest rates and gas prices adversely affecting our order activity we are reducing our full year 2026 home delivery guidance by 5% and now expected to be in the range of 9,500 to 10,500 homes and our home sales revenues to be in the range of $3.5 billion to $3.8 billion.

In closing, we are pleased with our performance in the current environment as we effectively balance the pace and price and manage our costs and inventory levels. We increased our quarterly dividend and bought back 2% of our shares outstanding in the first quarter and will continue to be opportunistic with buybacks while continuing to position the company for future growth.

With that, I'll open the line for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Your first question comes from Alex Rygiel with Texas Capital Securities.

Good evening, gentlemen, nice quarter. Couple quick questions here. So I appreciate the commentary with regards to sort of reducing spec inventory and whatnot sequentially and year-over-year. Can you comment on how you think your competitors in your markets have adjusted their spec inventory? And how do you feel about spec inventory just broadly across all your portfolio?

Yes, Alex, this is Scott. So generally speaking, I think we -- think we're pretty optimistic with what we see from a market perspective in terms of the level that our specs are out there. from a finished perspective, especially as we kind of compare back to maybe this quarter or mid last year.

So generally speaking, I think we're comfortable with most markets with where the overall finished spec inventory is at. From our perspective, really a focus area to really ensure at a community level, we feel like we're in a pretty strong position from pricing as well as consumer demand. And so that's really where the focus has come from our perspective on our finished count inventory at the end of the quarter.

And a few years back, we were, I don't know, fairly on a fairly regular basis, you were entering new geographies or new markets. I feel like that message has slowed a little bit here. At what point do you think Century sort of reaccelerate such geographic expansion?

Well, I think the focus, Alex, was to get a larger geographic reach in the past. We're now in over 45 markets coast to coast, and we like the markets we're in. As far as new markets, we continue to look at new markets. But candidly, our biggest focus is growing within our existing footprint -- and because when you look at our size of company, we actually have -- that's 1 of our competitive advantages is we have a large geographic reach.

But the key is really to start growing deeper in each 1 of those markets to be in top 10 if we're not already in a top 10 position or in a top 5 position or even higher than that within the market. So that's really what our focus is. We would still look at new markets, but that would come secondary to growing in our existing markets.

Next question comes from Natalie Kulasekere with Zelman & Associates.

Have you received any communication regard cost increases or field surcharges from your vendors? And if you have, do you think it's something that could be negotiated? Or do you expect a reacceleration in cost inflation towards the latter part of this year or even heading into next year? .

Well, to date, we've been able to avoid price increases. And sequentially, our costs were down 2% on our direct. With that said, of course, there's a lot of headlines on oil and petroleum products, diesel fuel and all of that. And that runs through various channels, as you know, within the home building SKUs of people we use.

But with that, so far, we've been able to hold off on that. Is that something that's going to be a topic in Q3 and Q4, don't know. We hope that this is short-lived and everything gets back to normal on those prices. But to date, what I can tell you is we've been able to avoid price increases as it's related to oil.

All right. And are you able to provide more detail about the land sales? I know you said it was a single transaction in the Southeast, but are there any more in the pipeline? And how should we kind of look at this line item going forward? .

Sure. Natalie, really just an opportunistic item that came up in the Southeast that we went ahead and took advantage of. So it's so much more of an opportunistic transaction that came our way in the first quarter that we wouldn't have executed on. And it was a community where it was a larger community. These were back half lots that we did not need for the foreseeable future. So it made sense to pay that investment down. .

Your next question comes from Jay McCanless with Citizens.

So just wanted to kind of pick through the regions. It looks like Southeast you saw a jump in closing or gaining closings there. The West is doing a little better. were some regions of the country affected more than others? And maybe what have you seen so far in April in terms of regional strength versus weakness? .

So the Southeast still remains really strong. Within that, Nashville would be 1 of our top markets. Austin, we're seeing some green shoots coming out of Austin. And candidly, on the West, the Bay Area has probably been the slowest or the weakest market that we're experiencing right now. But generally, the Southeast has been very good. .

Okay. That's good to hear. And then as we -- as you think about trying to hold the line on pricing, I mean, right now, is it still pretty aggressive incentives out there. You said 12.5%, I think, this quarter, you're expecting maybe the same for second quarter. I guess, what are you seeing out of competitors? Are they still leaning in pretty aggressively on incentives as well. What's happening there? .

I think that definitely the market is driven by incentives, of course. In terms of the peak on that, hopefully, it was like Q4 end of last year and things are tempering slightly. We're at 50 basis points less. We think we'll be flat in Q2, still remains to be seen. I think other builders are messaging the same thing that there is a little bit of a pullback, but when you look at some buyer uncertainty out there with everything that's going on, it's a needed thing today to move passes. .

Your next question comes from Michael Rehaut with JPMorgan. .

Thanks. Good afternoon, everyone. Wanted to kind of get a sense for sales pace in April. I'm sorry if I missed those comments earlier. But sales pace for the first quarter rather, was down about 9% year-over-year, and it seems like it maybe got worse throughout the quarter, if I also heard that right. If you could give us any kind of sense of how April is trending and I guess I have a follow-up as well. .

So just going back to Q1 January started out kind of roughly flat year-over-year. Incrementally, we picked up pace from February versus January and from March versus February. However, March with a lot of the things that were happening within the marketplace, our year-over-year was actually down quite significantly for March. So we didn't have another way to say we didn't have as good of March as we had hoped for based on the Mid-East conflict and all that. When you look at April, April has actually started out better than March and we're trending higher in the month of April. So that feels good right now. .

So when you say trending higher, do you mean higher sequentially or year-over-year or both? .

Both. .

Okay. No, that's good to hear. And I guess it kind of leads me to the second question. With the expectation that incentives will be flat in 2Q versus 1Q. Is that something that you think can hold as long as sales pace also kind of holds on a year-over-year basis? Or are there markets that you're kind of watching right now in terms of inventory levels or competitive trends that could potentially make you rethink the incentive approach if sales pace doesn't hit a certain level?

Well, of course, Michael, it's always fluid. But right now, we feel fairly comfortable where the market is that from an incentive basis, we will be flat at worst from where we were in Q1 to where we'll be in Q2. As far as markets, it really goes down to the subdivision level, and you could have a market that is good, but you have a subdivision that may need additional incentive or less incentive. And so that just really plays out at the individual subdivision level. But all in all, we think right now, incentives are going to be flat from Q2 to Q1.

[Operator Instructions] As there are no more questions, we will now turn the line back over to Rob for some brief closing remarks. .

Everyone on the call, thank you for your time today and interest in Century Communities. To our team members, thank you for your hard work, dedication to Century and commitment to our valued homebuyers. .

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Greetings, and welcome to the Century Communities Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call 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 Fourth Quarter and Full Year 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 Francescon, Executive Chairman; Rob Francescon, Chief Executive Officer and President; and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we'll open up the line with questions.

With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. We are pleased with our accomplishments and results in what was a challenging year for the new home market. We closed the year by exceeding our recent guidance across most financial and operating metrics, including the delivery of 3,435 residential units comprised of 3,030 new homes 105 previously leased rental homes and 300 multifamily units delivered through our Century Living business, bringing our full year residential units delivered to 10,792. During the year, we repurchased over 7% of our shares outstanding at the beginning of the year, invested $1.2 billion in land acquisition and development to continue to position Century for future growth and ended the year with a record book value per share of $89, all while reducing our net leverage to 26% and generating cash flow from operations of over $150 million.

Our fourth quarter deliveries of 3,030 new homes benefited from our focus on increasing sales pace particularly in older, higher-cost communities and communities and close out through the continued use of price and financing incentives. As a result, our fourth quarter net orders of 2,702 homes set a company record, increasing 13% sequentially versus an average historical sequential decline of 6%.

Our team's accomplishments for the full year 2025 included reducing our direct construction costs on starts by an average of $13,000 per home and cycle times by 13 days to a new company record of 114 calendar days with our faster build times, allowing us to reduce our finished spec inventory by nearly 30%. We decreased our SG&A excluding conditions and advertising by 5% year-over-year and maintain customer satisfaction scores and mortgage capture rates at all-time highs.

As we look into 2026 and the years ahead, Century is well positioned for future growth. Given our land spend over the past several years, assuming improved market conditions, we have the ability to grow our deliveries by 10% annually in 2026 and 2027 and based solely on our existing lot count as of the end of 2025.

That said, we will remain disciplined if slower market conditions persist. And will not look to grow either our lot pipeline or deliveries for the sake of growth alone as our more traditional land option strategy gives us significant flexibility in adjusting the timing in terms of land takedowns given the limited capital we have at risk. We leaned into share repurchases in 2025 given our valuation levels and our strong balance sheet is supportive of continued flexibility in our capital allocations in 2026 without limiting our ability to quickly ramp growth when the market rebounds.

We expect any interest rate relief, improvement in consumer confidence or governmental support for homebuyers to unlock buyer demand with Century's well positioned to meet. And we continue to believe there is meaningful pent-up demand for affordable new homes.

For 2025, Newsweek named Century as one of America's most trustworthy companies for the third consecutive year, while Century was designated as one of U.S. news and world reports, best companies to work for. These recognitions are a testament to the commitment of our team members and trade partners that allow us to achieve our mission of consistently delivering a home for every dream, and we want to thank them for your efforts.

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. Starting with sales, our net new contracts of 2,702 homes was a fourth quarter company record and represented an increase of 10% versus the prior year and 13% on a sequential basis, a significant improvement over our historic average fourth quarter sequential decline of approximately 6%. The strength in our orders was primarily driven by improved absorption rates, which averaged 2.9 homes per community in the fourth quarter, an increase of 12% year-over-year and 16% sequentially.

While we focus more on pace versus price for older, higher-cost communities and communities in closeout in the fourth quarter, we plan to take a more balanced approach between pace and price as we enter 2026. While our sales pace thus far in 2026 has been slower than the same period in 2025, we are encouraged by slightly stronger traffic trends on a year-over-year basis as we look forward to the upcoming traditionally strong selling months of the year.

Our incentives on closed homes increased in the fourth quarter by 200 basis points and average roughly 1,300 basis points driven by our fourth quarter pace strategy as well as the general market dynamics as we compete with other builders for year-end closings.

As a reminder, since the beginning of 2024, our incentives have ranged from 600 basis points to the high point of 1,300 basis points this quarter. And so we have ample leverage once improved market conditions enable us to meaningful pullback on incentives.

As we look to resume our more balanced approach to pace, we currently expect incentives on closed homes in the first quarter of 2026 to improve by up to 50 basis points from fourth quarter 2025 levels. In the fourth quarter, adjustable rate mortgages accounted for roughly 25% of the mortgages that we originated up from nearly 20% in the third quarter and less than 5% in the first quarter. Receptivity of our buyers to arms has been increasing, and we are encouraged that there is room for further adoption of arms going forward, which could help partially address the market's affordability challenges.

While incentives have clearly weighed on our margins, our operations continue to perform extremely well. Our direct construction costs on the homes we delivered in the fourth quarter declined by 4% on a sequential basis. Our cycle times in the fourth quarter averaged 114 calendar days, down 10% from 127 days in the year ago quarter. Given our record cycle times and advantageous direct construction costs, we are well positioned to take advantage of any favorable market conditions during the spring selling season and accelerate our starts from the 2,069 homes we started in the fourth quarter.

Our 2025 average community count increased by 13% to 318 communities, while our year-end community count ended at 305. While we have been expecting modest growth in our ending community count this year, we closed a greater number of communities than initially expected with that trend, especially pronounced in the second half of the fourth quarter given our increased sales pace.

For 2026, we expect our average community count to increase in the low to mid-single-digit percentage range on a year-over-year basis.

Before turning the call over to Scott, I wanted to provide some additional details on our land position that is supportive of our growth while also having an attractive risk and cost profile. We ended the fourth quarter with roughly 61,000 owned and controlled lots and spent approximately $1.2 billion on land acquisition and development in 2025. And nearly matching the 2024 levels of $1.3 billion.

In 2026, we currently expect our land acquisition and development expense to be roughly flat with 2025 levels. We have the ability to reduce this number if market conditions warrant without impacting our near-term growth prospects or accelerate if market conditions improve, given the strength of our balance sheet.

More specifically on the topic of growth, given our land spend over the past several years, we have the ability to grow our deliveries, assuming improved market conditions by 10% annually in both 2026 and 2027 based solely on our existing lot count both owned and auction as of the end of 2025. I think it is also important to note that we generated positive cash flow from operations of $126 million in 2024 and and $153 million in 2025, even with this level of land spend, further supporting Century's ability to self-fund future growth.

In addition to providing attractive future growth, our land position also has an attractive cost basis. In the fourth quarter, our finished lot costs were roughly flat on a sequential basis and we expect our average finished lot cost for 2026 to only be 2% to 3% higher than fourth quarter 2025 levels. The attractive growth profile and cost position of our land is also underpinned by a traditional land option strategy that is both flexible and reduces risk with minimal exposure to land banking. The flexibility of our option agreements allowed us to adjust terms in many cases and achieve lower prices in some cases over the course of 2025.

As a result, we have much more control over the pace at which we start homes rather than having fixed takedown schedules and higher interest costs influence our pace. Additionally, our current auction lot count of 26,000 lots is secured by nonrefundable deposits that totaled just $74 million.

In addition to having significant flexibility with our land position, a large portion of our land is also close to monetization, which further reduces the risk profile of our land. Specifically, 43% of our total owned land inventory at the end of the fourth quarter was in finished lots, with another 32% in land under development.

Going forward with our land investments, we remain focused on deepening our share in our existing markets to drive improved margins and returns. We are pleased with our performance in both the fourth quarter and for the full year. We meaningfully reduced our cycle times and direct costs and controlled our fixed G&A. We derisk our land inventory where necessary, while preserving the ability of our land position to drive meaningful growth at attractive costs for the years ahead.

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

Thank you, Rob. In the fourth quarter, pretax income was $47 million and net income was $36 million or $1.21 per diluted share. Adjusted net income was $47 million or $1.59 per diluted share. Home sales revenues for the fourth quarter were $1.1 billion, up 16% on a sequential basis. Our deliveries of 3,030 new homes increased by 22% on a sequential basis while our average sales price of $367,000 decreased by 5% on a quarter-over-quarter basis, with the decrease in our ASP, largely driven by increased incentive levels.

For the first quarter of 2026, we expect our deliveries to range from 2,100 to 2,300 homes which should represent a low point for the year as we expect our community count to increase over the course of 2026. Our total revenues in the fourth quarter also benefited from the sale of a 300-unit multifamily community within our Century Living segment for $97 million.

In the fourth quarter, GAAP homebuilding gross margin was 15.4%, which is negatively impacted by 100 basis points of inventory impairment and 10 basis points of purchase price accounting from our 2 acquisitions in 2024. The $10.9 million impairment charge this quarter was related to several closeout communities. Adjusted homebuilding gross margin in the fourth quarter was 18.3%.

For the first quarter of 2026, we expect the most significant driver of our adjusted homebuilding gross margin to continue to be incentives needed to generate an acceptable sales pace. SG&A as a percent of home sales revenue was 12.2% in the fourth quarter and benefited from ongoing cost reduction efforts. Assuming the midpoint of our full year 2026 home sales revenue guidance, we expect SG&A as a percent of home sales revenue to be roughly 13% for the full year 2026 with SG&A as a percentage of home sales revenue of 14.5% for the first quarter.

Revenues from financial services were $25 million in the fourth quarter and the business generated pretax income of $8 million benefiting from higher volumes in the quarter. We currently anticipate the contribution margin from financial services in 2026 to be similar to 2025 levels. Our mortgage capture rate of 84% in both the fourth quarter 2025 and the full year 2025, representing quarterly and annual records. Our tax rate was 23.5% in the fourth quarter of 2025 and 24.1% for the full year, and we expect our full year tax rate for 2026 to be in a range of 25% to 26%.

Our fourth quarter 2025 net homebuilding debt to net capital ratio improved to 25.9% compared to third quarter 2025 levels of 31.4%. Our homebuilding debt to capital ratio also improved to 29.1% in the fourth quarter compared to third quarter 2025 levels of 34.5%. We ended the quarter with $2.6 billion in stockholders' equity and $1.1 billion of liquidity.

In 2025, we generated cash flow from operations of $153 million, which follows the $126 million we generated in 2024, even as we continue to invest in land to support our future growth. During the quarter, we maintained our quarterly cash dividend of $0.29 per share and repurchased 334,000 shares of our common stock for $20 million at an average share price of $59.90 or a 33% discount to our company record book value per share of $89.21 as of the end of the fourth quarter.

For the full year 2025, we repurchased 2.3 million shares or 7% of our shares outstanding at the beginning of the year at an average price of $63.32 or a 29% discount to our book value. During the year, we returned a record $178 million to our shareholders through dividends and share repurchases.

Turning to guidance. Assuming no significant changes to the current economic environment, we currently expect our full year 2026 new home deliveries to be in the range of 10,000 to 11,000 homes our home sales revenues to be in the range of $3.6 billion to $4.1 billion. Our current guidance reflects an increase in our average open community in the mid-single-digit percentage range and a similar per community absorption levels at the back half of 2025. Given our current loss and community count, we do have the ability to drive our deliveries above the high end of our guidance if absorption rates and overall market conditions are supportive of that growth.

In closing, given our investments in land over the past several years, we are well positioned for growth in the market rebound. We are also well situated to navigate the current market given our flexible land strategy and success in reducing our direct costs and fixed G&A expenses, which has allowed us to generate solid levels of cash flow, invest in the business and opportunistically repurchase shares in what we view as very attractive levels.

With that, I'll open the line for questions. Operator?

[Operator Instructions] Your first question comes from the line of Andrew Azzi from JPMorgan.

Just wanted to kind of dial in on and clarify maybe some of the comments you made, you gave a lot of great color. I mean, I believe you guys were intimating maybe the spring selling season might look a little bit stronger year-over-year. I mean I'd love to kind of dive into that and just kind of what you're seeing from the consumer and how the consumer is behaving alongside kind of potentially reduced incentives?

Yes. So Andrew, so far, in January, our sales pace, as we mentioned, has actually been slower versus the year ago period. However, the order activity has improved sequentially over the first 3 weeks of January and our -- when we look at our potential leads, that has actually gone up as well. So -- and those take some time to convert anywhere from 15 to 45 days, depending on the situation. So we're hopeful that, that will start picking up.

And as you know, last year's spring selling season, while everyone was very hopeful that we were going to have a great spring selling season, it did not mature, and it did not turn out that way. So we're hopeful this year that, that's going to be the case. There's obviously a lot of publicity and PR out there on a variety of fronts right now on housing. And so we're hopeful that, that will be tailwinds for us going into the spring selling, and it will be better.

Okay. And are those kind of efforts by the administration kind of baked into your guidance? Or would that just kind of be additional help -- or is it kind of towards the high end of the range? How are you guys thinking about these kind of actions?

That would be additional help at this point.

Got it. And maybe I'd sneak in one more. I mean, the community count, it looks like you're getting some low to mid-single digits. I mean, how do we think about how that looks quarter-to-quarter? Is it -- is that steady year-over-year increases? Or is it more lumpy than that?

Yes, Andrew, this is Scott. So from a community count perspective, certainly, our average community count this year was was up to 318, we did have a little bit of a dip as we close out the year just as we as we really move through pretty focused [indiscernible] closeout communities as well as older specs. So we would anticipate that really to continue to grow throughout the year, especially kind of in the middle and back half of the year from an average community count perspective.

Your next question comes from the line of [ Jay McCanless ] [indiscernible].

I guess the first one, maybe drilling down on the gross margin a little bit. Do you think that it's going to be in line to maybe a little worse than the fourth quarter. Is that what I'm hearing?

Jay, this is Scott. I'll take that one. And great to have you and congrats on your new role, obviously. Congratulations, Jay. Just some commentary from a gross margin perspective, really really what you're seeing come through the fourth quarter margins is some intentionality on our perspective to really focus on some closeout communities and really move some units. We ended up from a sales pace over 2,700 units which is a 16% increase quarter-over-quarter from pace. So we were pretty focused on the incentive side of the levers here in the first quarter. And really, we've been taking a more balanced approach all in. And I think you'll see us revert back to that as we get into next year. Obviously, we'll see where the spring selling season is at and where the consumer is at. But I think as we get into the first quarter, that's reflective in the commentary that we do think you'll see a slight pullback of about 50 basis points from our current incentive levels in Q4.

Okay. Okay. I guess the second question I had is you talked about -- it sounds like traffic is a little bit better, but order pace is a little slower. Are there any geographic standouts in terms of better versus worse?

Yes. Jay, this is Scott. I can jump in. I don't know that I would call out any specific one of our regions or markets so far this year that has performed really outside of some of the trends that we were working through all of last year. Certainly, we're excited about a little bit of increased traffic. We have seen some of the headlines as we got a little bit closer to 6% on the mortgage rate, drive a lot more traffic, and that's something that we're certainly excited to see play itself out in the spring selling season, I think, unfortunately, being so early here in January, and January historically being a much more muted month, but we need a few more weeks really to get back underneath us before we have a good feel for where each region is at and where the spring selling season is building towards.

Understood. And then just a housekeeping question. Can you remind us how much you have left on the stock repurchase authorization.

Yes, we have around 1.5 million shares underneath the stock repurchase program.

Your next question comes from the line of Nathalie Kulasekere from Zelman & Associates.

So if I'm not mistaken, you said that SG&A as a share of sales is going to be 14.5% in 1Q '26. Is that correct?

Correct, 14.5% in 1Q 2026.

Okay. So that's a little higher than the run rate that you've been going at. So I'm just trying to figure out what would cause the spike, especially given that community count growth was much higher last year and -- so could you maybe like talk through the moving pieces of that?

Sure. So full year, we're really looking at 2025 and 2026 at the moment to be pretty flat from an SG&A as a percentage of revenue perspective. So this year, we ended 12.9%. We're really looking somewhere around similar levels next year, which is -- which the initial guide here is $13 million. As we look into Q1 specifically, there's a handful of factors within that piece. The first is Q1 is typically our lowest closing quarter of the year. And therefore, from a percentage is certainly 1 of our highest. Additionally, as we kind of look at where our ASP is at in backlog and the implied guide, those 2 items really factor into that 14.5% for Q1.

Okay. And I guess my next question is you said that order activity is trending kind of lower year-over-year for 3 weeks in Jan. So I'm just curious how confident are you in your ability to dial back incentives more as you head to the spring and things don't -- if things are still tracking down year-over-year?

Well, again, we're going to have to see how that plays out. And again, as I mentioned last year, we were very hopeful as all the other builders were that it was going to be a great spring selling in 2025 that did not materialize this year, again, for some of the reasons that I previously stated that we think it will be better this year -- but again, we're just going to have to wait and see. And when we say we're behind pace, I mean, we're not that far behind pace. But as we sit here today, we know that is an accurate statement, of course.

Your next question comes from the line of Alex Rygiel from Texas Capital.

I appreciate the transparency and all the information you provide on this is very helpful. First question, it sounds like, obviously, the fourth quarter had some margin headwind from higher incentives on closeouts. But was there any pressure from the sale of the Century Living units?

Alex, specifically those -- the sales Century Living units are not included in the gross margin nor are they included in the incentive commentary that we provided.

Helpful. And then as it relates to your teaser interest rate on your website of [ $3.75 million ] are you finding that, that's sort of that magical number that is really causing buyers to take action?

Alex, there's a handful of different things going on, on the mortgage side from a product perspective. When you kind of step back and look all in at the average rate that we originated our mortgages at this year. And our Financial Services segment has an 84% capture rate. So it's certainly the vast majority of our consumers. We're kind of in the 5.25% to 5.5% range all in. We certainly move product or solve certain equations for our buyer, and you will see tesa rates below 4, especially on our ARM product. You also will see a very popular product is a [ 475 ], 30-year fix is certainly another product that will certainly help solve some of the affordability equation for for our consumer. But all in, we're pretty consistent over the last 4 or 5 quarters that we're originating our mortgages somewhere around that 5.25% to 5.5% range.

And then more broadly, as we enter the spring selling season, how do you see sort of the industry's level of spec inventory developing right now?

I think as we look at last year, and we were no different as we pushed pace over price. We entered the year with less specs than we did year-over-year as we entered January of -- and when we look at it, I think people have generally done the same thing vis-a-vis not getting ahead of themselves on starts or all of that. But the positive side of that is that can be ramped up very quickly if the market is there because cycle times have dropped for us and other builders. Ours is at 114 calendar days and other builders are somewhat similar depending on their product types. So with that, new product can be created fairly quickly.

[Operator Instructions] We will now turn back the line over to Rob for some brief closing remarks. Please go ahead.

To everyone on the call, thank you for your time today and interest in Century Communities. To our team members, thank you for your hard work, dedication to Century and your unwavering commitment to our valued homebuyers.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen. Welcome to the Century Communities Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, October 22, 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 Communities 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 and 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 Francescon, Executive Chairman; Rob Francescon, Chief Executive Officer and President; 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. 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 homebuilding 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 continued to improve on both a year-over-year and sequential basis and currently sit at an average of 115 calendar days, with 1/3 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 homebuyers 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 average 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 own block 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 homebuilding gross margin as well as pretax 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, pretax 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 homebuilding gross margin was 20.1% compared to 20% in the second quarter of this year. In GAAP homebuilding 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 in finished lot costs.

Purchase price accounting associated with our 2 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 homebuilding gross margin in the fourth quarter of 2025. We 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 through 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 homebuilding 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 pretax 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 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 homebuilding debt to net capital ratio improved to 31.4% compared to third quarter 2024 levels of 32.1%. Our homebuilding 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 6 5/8% senior notes due 2033 with the proceeds being used to redeem our $500 million 6 3/4% 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 9 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 billion 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 rebalances. We remain focused on our strategy of deepening our share in our existing markets, growing our community count, lowering our direct costs and cycle times and maintaining an adequate supply of land while controlling our finished lot comps.

With that, I'll open the line for questions. Operator?

[Operator Instructions] Your first question comes from Alex Rygiel with Texas Capital..

Can you hear us, Alex. .

Yes, I can. Sorry about that, guys. I appreciate it. As it relates to your adjusted gross margin that came in a bit above your guidance, was this more due to sort of rooting cost controls? Or was it due to less incentives to some of the new sales?

Yes. Alex, great question. A handful of factors obviously, running through that line item. I think we were very pleased with the continued success that we've seen on the direct cost side in terms of and bricks, not only in the third quarter, but really earlier in the first and second quarter as well. So we really saw some of that benefit come through in the third quarter. I think in our prepared remarks, we mentioned that from a year-to-date perspective, we're down 3% on the direct cost. We did see and anticipated that we would see some additional pressures on -- from a competitive standpoint on incentives that we certainly did see that during the quarter, I believe, we were up about 50 basis points on incentives or so. But really, that was moderated by the cost savings that came to the P&L during the quarter.

So we were pleased with that result. Our teams have been doing tremendous work. really to get as much cost out of our homes as possible as we navigate the current environment.

And then secondly, you brought up the shift here in the buyers use of adjustable rate mortgages. Can you talk about how that might change going into the fourth quarter and talk about how that sort of impacts your business? Is it -- are they generally more profitable, less profitable, the margins a little bit better or less and so on.

Yes. Alex, the way we really look at it is it's a product that has certainly continued to gain lighter consumer acceptance this year. Especially for our buyer type, from a first-time home buyer perspective. Really, when you look at historical trends in terms of how long they're in the home, there's not a lot of need for us to buy down a fixed rate for a 30-year period of time. So it allows us to get a buyer into a home at may be a little bit of a lower rate initially go ahead and buy down that rate and provide that really exceptional benefit to the buyer from a monthly payment perspective but not need to do it over the entire 30-year term. So something that we're excited to see the consumer continue to have some acceptance with we're seeing acceptance on 71 rooms on 76 ARMs as well as 51 ARMs. So really across the different opportunities that are out there, we are certainly seeing good momentum. A little difficult to tell what that will look like in Q4, but I would expect it to be -- continue to be a meaningful part of the loans that we're originating with our financial services side.

Your next question comes from Rohit Seth with B. Riley Securities.

Great execution on the quarter, guys. Just on the community count guidance, you mentioned -- and if I heard this correctly, the community count going up mid-single digit by year end, is that right?

That's correct. That's a year-over-year from beginning of the year to end of the year number. So around that 5% mark year-over-year. .

That does imply a significant ramp-up in the fourth quarter, a pretty sizable working out. I guess help me bridge that .

Yes. Correct. And it's -- when that number specifically is an ending community counts and not necessarily the average during the quarter. And it's something that we've been monitoring really throughout the year and been pretty consistent with anticipating those communities continuing to come online.

Okay. Absorption rates are also, I guess, pretty good sequentially into the quarter. Just maybe you any color on what you're seeing on the consumer side and how the consumer is behaving. You did mention that you didn't need as much incentives in the quarter, but then you're raising incentives in the fourth quarter. And so just help me understand what's happening at the consumer level.

Well, we're still seeing a very uncertain consumer, especially at the entry-level price points that we serve and if we look at the fourth quarter, the reason we're putting that out there that it could be up another 100 basis points as all the builders compete for year-end closings. We just think that there's going to be more incentives in the market. But generally speaking, from a consumer standpoint, the entry-level consumer has been the hardest hit along the chain of the various price points. And we're hopeful that going into next year, that starts to settle down a little bit. But just based on some of the uncertainty out there, people are a little more cautious right now.

Your next question comes from Natalie Kozek with Zelman Associates.

Congratulations on good quarter. I wanted to drill in a bit more on the SG&A upside you saw this time around and what drove your costs lower year-over-year. Is it operational efficiencies that you've been working on in the back end? Or is it through maybe head count reductions, which you've heard in the past? And just wanted to get your thoughts on what would be a sustainable rate for this going forward. Sure.

Absolutely. Let me touch on a handful of things, and this is Scott. So really, when we look at the SG&A line item, it's certainly been, as we've mentioned on previous calls, a pretty big focus area for us this year, just given the overall market and the tightening on the consumer side. So we have discussed the various points in time this year, various different cost control activities that we've initiated, and we do believe that we're seeing some of the benefit of those coming through here in the third quarter. Those kind of are across the board from back-office efficiencies to ensuring that our head count is really where we think it needs to be to support the current organization.

There's some additional compensation-related benefits that came through the quarter as well that are in there. And then when we look at -- go forward, we have -- we gave some specific outlines in terms of where we anticipate the fourth quarter to come in. There's a handful of things that could potentially drive the numbers. So from a fourth quarter perspective, we're looking at about 12.5% at the midpoint of our guide. It does assume continued use of broker commissions as well as potentially utilizing a little bit more on the advertising line, just given the competitive market set that's out there. So a line item that we're continuing to focus on to ensure we're as efficient as possible.

All right. Got it. And 1 more for me. Could you drill a bit more on the lots that you walked away from during this quarter, it was pretty sizable similar to the second quarter as well? -- like maybe about like what year these committees were set to come online and what stage of like due diligence ever in?

Yes. So as we mentioned in the prepared remarks, we're underwriting to current market conditions. So as we look at that, our owned lots have remained fairly steady for some period of time right now at just under 37,000, but our controlled lots have changed. We still have almost 26,000 on controlled lots, but that has come down, as you mentioned. And the vintage of those -- a lot of those would have been near-term projects that we just didn't think they fit the underwriting today and so those were positions we exited. And so I wouldn't say that we had a necessarily a larger spike in Q3. This is something that's kind of been going on for the most part of 25 million, and as we look going forward, we're still looking to grow in our various markets. We have plenty of land that's owned on our balance sheet to handle this over the next couple of years. But as we look at projects, we're looking for things -- projects that would come on potentially a little bit later in the time frame as opposed to immediate.

[Operator Instructions] The next question comes from Michael Rehaut with JPMorgan.

This is Andy on for Michael. Just wanted to touch a little bit on the order looks like there was a little bit of a sequential lift would love to just get some more context on that number. Was that driven more so by incentives? Or were there any mix dynamics that might have driven that improvement? .

Yes, Angie, thanks for the question. Really from an ASP perspective, any volatility that we're seeing currently, kind of within various different metrics is a little bit more driven by mix. The incentives commentary that we walked through in our prepared remarks. But while we certainly have some regions that may be a little bit higher on the incentive from a train perspective, it's really consistent across the board. So what you're seeing on the ASP is really a little bit more driven by mix. For instance, on the delivery side, we're a little higher here in Q3 than we had been in Q2. And a lot of that is just a little bit more from the West and Mountain regions coming through this quarter as compared to our Century Complete business line.

I appreciate that. And then -- sorry, I didn't mean to cut you off, if I did, but just maybe moving on to kind of the tariff impact I believe you said earlier in your prepared remarks that there isn't really an expected impact in 4Q. I was wondering if there's any way you can kind of size or estimate maybe an impact towards next year? Or is it a little bit too early -- would love to hear your thoughts there.

Yes. It's really too early to tell for next year. it's obviously a fluid environment as it relates to the tariffs. But for Q4 and historically, we have not had an impact this year. But going into next year, it's really too early to say exactly what an impact could be.

There are no further questions at this time. I will now turn the call over to Dale Francescon for closing remarks. Please continue.

To everyone on the call, thank you for your time today and interest in Century Communities. To our team members, thank you for your hard work, dedication to Century and commitment to our valued homebuyers.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.