Century Communities, Inc. Q2 FY2025 earnings call

• Order activity for new homes was impacted by elevated mortgage rates, affordability constraints, etc., but deliveries of 2,587 homes increased 13% sequentially and exceeded guidance. - Ending community count increased to 327, a record. - Direct construction costs on delivered homes declined 3% year-over-year and 2% sequentially. - Finished lot costs on delivered homes were flat quarter-over-quarter. - Incentives on closed homes increased to ~1,050 basis points in Q2 2025. - Cycle times improved to ~4 months sequentially. - Ended Q2 with nearly 70,000 owned and controlled lots, and disciplined land underwriting with some lot exits resulting in charges.

Home sales revenues in the second quarter were $976 million, up 10% sequentially on higher deliveries. Revenues from financial services were $23.8 million in the second quarter, and the business generated pretax income of $6.2 million.

• Revised full year 2025 home delivery guidance to 10,000-10,500 homes and home sales revenues to $3.8B-$4B. - Expect incentives to increase by up to another 100 basis points in third quarter closings. - Anticipate homebuilding gross margin to ease by up to 100 basis points in third quarter compared to Q2 due to higher incentives. - SG&A as a percent of home sales revenue expected to be ~13% for full year 2025, with 14% for third quarter.

• Market headwinds including elevated mortgage rates, affordability constraints, economic uncertainty, and lower consumer confidence. - Potential land inflation affecting deliveries partially offset by direct cost reductions. - Impact of Canadian lumber tariffs on costs (uncertain at the time).

Q: How are you thinking about your land investment in the second half of the year versus the first half?

A: Robert J. Francescon said they will reduce land investment, dropped 12,000 lots in Q2, and are redoing underwriting to push things out. Scott Dixon added on the flexibility of their land-light strategy.

Q: Can you talk a little bit about the mortgage products your buyers are using? And are you seeing any buyers use any arms?

A: John Scott Dixon said about 70% are governmental, 30% conventionals, and they've been leaning into ARMs with buyer acceptance picking up.

Q: Just on the 2025 deliveries guidance, maybe just talk to the drivers behind lowering it, what you're seeing in July, as the traffic affordability?

A: Scott Dixon said the revision was driven by backlog and third quarter being a slow period, and discussed market performance across regions like West, Mountain, Texas, Southeast.

Q: You alluded to this in a prior response to a question, but you walked away from, I think 12,000 or so lots, but you did allude to renegotiations that are ongoing and even some price concessions from land sellers. I'm curious, what type of magnitude are you seeing there?

A: Robert J. Francescon said it's more go forward, with structure changes pushing out takes, not huge pricing changes across all markets.

Q: The detail and all the helpful guidance. It's appreciated. First question, you alluded to this in a prior response to a question, but you walked away from, I think 12,000 or so lots, but you did allude to renegotiations that are ongoing and even some price concessions from land sellers. I'm curious, what type of magnitude are you seeing there?

A: John Scott Dixon said all required disclosures including impairment evaluation will be in the 10-Q, and the $7 million impairment was related to a few close-out communities, and significant additional impairments would need significant market deterioration.

Q: This is Andrew Azzi on for Michael Rehaut. Just wanted to kind of appreciate all the color you've given so far. I would love to drill down if possible on I think we talked about July a bit. Would love to get a sense of what happened in April, May to June, and given the volatility with rates, what you were seeing in terms of your sales pace versus your expectations month-to-month?

A: John Scott Dixon said sequential improvement from sales perspective with May better than April, June better than May, end of June strong taking advantage of rate dips, and pause in early July with choppy sales.

Q: If I could squeeze 1 more in on the gross margin. You kind of -- you hit about the 20% on the adjusted side, raising incentives a little bit here. And so are there any offsets that we should think about and you talked about lower costs -- lower direct costs, labor costs coming in, savings coming in, but you had some higher lands. Just trying to get a sense of we touched the bottom here for margins? Or you still got a little bit more pressure here?

A: John Scott Dixon said direct costs have continued opportunity to reduce, but offset by land inflation, and incentives are the largest driver on margin.

Q: Thank you for the time. So orders on a community count more attributable to quarter-end inventory -- excuse me, community growth. So I understand that. But the orders are still down like in the West quite a bit and the mountain specifically. Could you kind of provide details around what that driver was versus the baseline that you guys were -- I don't know. Something less bad than you guys printed, I guess, is what I'm asking. the driver of that?

A: John Scott Dixon said community count growth in Mountain occurred in June, not throughout the period, affecting orders.

Q: I do appreciate that. Do you guys have a comment on what you think -- if I wasn't mistaken, did I hear you correctly saying your units under construct -- well, with your starts at 2,485, is that correct?

A: Robert J. Francescon confirmed starts were 2,485.

Q: And then more or less, what do you guys expect your inventory -- your units under construction, right? So wherever you are now, which you don't disclose, but like starts closing so we can kind of get there. What's the magnitude that you expect that to be down in the fourth quarter year-over-year?

A: John Scott Dixon said it's market and demand dependent on individual markets.

Q: The last question, which I've been asking builders is the census data has inventory for sale, 3 categories, complete, under construction, not started. But do you guys respond to census bureau requests for inventory or sales or any of that type of information? Do you provide them data is what I'm asking?

A: John Scott Dixon said they don't provide specific inventory data from a census on a regular basis.

Q: Yes. I think I heard you say that the build times currently are around 4 months. Is there any room for improvement from that level? Do you feel that's about as efficient as the business gets? And if there is, is there any other initiatives you guys are potentially trying such as vertical integration or acquiring certain trades or anything like that?

A: Robert J. Francescon said cycle times have been improving sequentially, with some homes in low 70-day range, and they haven't been looking at acquiring trades but see potential for further improvement.

Q: As far as incentives, especially as it pertains to finished spec inventory, are you guys primarily just doing rate buy-downs? Or are you also having to do price cuts?

A: John Scott Dixon said it's a mixture of both, with a mix of mortgage rate buy-downs and price cuts for slow-moving communities.