Century (CCS) Q1 2026 Earnings Call Transcript

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DATE

Wednesday, April 22, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Co-CEO — Dale Francescon
• Co-CEO — Robert Francescon
• Chief Financial Officer — John Dixon

TAKEAWAYS

• Adjusted Gross Margin -- Increased by 140 basis points sequentially to 19.7%, due primarily to lower incentives.
• Community Count -- Ended at 316 communities, up 4% sequentially, with average community count of 309 for the period.
• Home Deliveries -- Delivered 2,013 homes, with a second quarter delivery guidance of 2,200 to 2,400 homes, and expectations for sequential increases in Q3 and Q4.
• Net New Orders -- Totaled 2,379 homes for the quarter; order activity in April was improving both sequentially and year over year.
• Incentives -- Averaged 1,250 basis points per closed home, down 50 basis points sequentially; incentives are expected to remain stable in the following quarter.
• Cancellation Rate -- 12.2% for the quarter, below most 2025 levels, indicating stronger buyer commitment.
• Construction Costs -- Direct costs per home decreased 2% sequentially.
• Cycle Times -- Improved to an average of 114 calendar days, down 15% from the prior year quarter.
• Finished Lot Costs -- Decreased by 1% sequentially, with full-year 2026 average expected to be 2%-3% higher than Q4 2025 levels.
• Inventory Management -- Finished specs were down 16% sequentially and 31% year over year; ended the quarter with less than three finished specs per community.
• Lot Position -- Nearly 60,000 owned and controlled lots, with the total flat sequentially; option lot count is 24,000 secured by $97 million in deposits (less than 4% of equity).
• Pretax and Net Income -- Pretax income was $33 million; net income was $24 million ($0.84 per diluted share); adjusted net income was $26 million ($0.88 per diluted share).
• Home Sales Revenue -- $734 million in home sales revenue, with an average sales price of $365,000 (flat sequentially).
• Margin Details -- GAAP homebuilding gross margin rose to 17.8% from 15.4% sequentially; benefited by 90 basis points from warranty accrual reduction and exceeded estimates in rebate collections, partly offset by purchase price accounting.
• SG&A Expenses -- 15.8% of home sales revenue; expected to decline to roughly 14% for full-year 2026 and 14.5% in Q2, assuming revenue guidance midpoint.
• Financial Services -- Generated $22 million in revenue and $8 million in pretax income; margin percent expected to be consistent with 2025.
• Liquidity and Equity -- Liquidity at $886 million; stockholders' equity at $2.6 billion as of quarter end.
• Debt Ratios -- Net homebuilding debt to net capital was 30.5%; homebuilding debt-to-capital was 32.2%, both consistent with the prior year quarter.
• Land Sales -- $33 million in land sales and other revenue produced $11 million in profit from a single transaction in the Southeast, reflecting opportunistic land management.
• Adjusted Rate Mortgages (ARMs) -- Comprised approximately 30% of originated mortgage volume, rising from 25% in Q4 2025 and less than 5% in Q1 2025.
• Capital Return -- Repurchased 617,000 shares ($40 million), equal to approximately 2% of shares outstanding, at a 27% discount to book value; increased quarterly dividend by 10% to $0.32 per share.
• 2026 Guidance -- Full-year home delivery guidance reduced by 5% to a range of 9,500 to 10,500 homes; full-year home sales revenue expected in the $3.5 billion to $3.8 billion range.
• Land Banking -- Only 11 of 316 communities use a land bank structure, minimizing fixed takedowns and interest costs.
• Land Acquisition/Development Spend -- 2026 planned spend remains in the $1 billion to $1.2 billion range, with flexibility based on market conditions.

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RISKS

• Full-year 2026 home delivery guidance was reduced by 5% due to "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."
• GAAP gross margin benefited by 90 basis points from non-recurring items including a "reduction to our warranty accrual and rebate collections in excess of previous estimates," which may not be repeatable.
• March net order absorption rates declined year over year, marked by management as a period where "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."
• Company expects "incentives needed to generate an acceptable sales pace" to remain a significant driver and headwind for margins in the coming quarter.

SUMMARY

The company reported an increase in both adjusted gross margin and community count, while maintaining flat average home prices and reducing direct construction costs. Management highlighted rising adoption of adjustable-rate mortgages to address affordability and noted improving sequential order trends into April, with April net new orders rising year over year as well as sequentially. Shareholder returns accelerated, with a 10% dividend increase and a buyback executed at a substantial discount to book value. Adjusted gross margin improvement was primarily attributed to lower incentives, but company guidance now reflects reduced expected home deliveries for full year 2026, citing macroeconomic and geopolitical disruptions.

• Financial services revenue and profit were lifted by a fair value adjustment tied to a larger locked loan pipeline and mortgage servicing rights portfolio.
• Direct construction cost savings and reduced cycle times signal operational efficiency improvement, with cycle times shortening to 114 days, down from 134 one year prior.
• Inventory of finished specs per community was deliberately reduced to under three, with management emphasizing this as a strategic response to demand fluctuations.
• Land sale activity in the quarter was tied to an opportunistic Southeast region transaction, with no forward pipeline indicated.
• Regional commentary identified the Southeast as the strongest market, highlighted Nashville, while the Bay Area in the West was cited as the weakest performer.
• Management confirmed that incentives are anticipated to be flat in the coming quarter and closely monitored at the subdivision level for competitiveness.
• ARMs as a share of financing activity rose sharply, reflecting buyer adaptation to the current rate climate and management response to affordability pressures.
• Company’s land option agreements provided flexibility in land spend, with deposits on options representing less than 4% of equity and minimal land banking exposure.
• The company expects full-year SG&A as a percentage of home sales revenue to decline, with anticipated efficiency gains as volumes improve.

INDUSTRY GLOSSARY

• Specs (Finished Spec Inventory): Move-in ready homes constructed without a signed buyer, used to manage inventory and respond rapidly to market demand shifts.
• Land Banking: An arrangement where undeveloped land is held by a third party and released according to a pre-determined schedule, often with higher finance costs and less operational flexibility.
• Option Lot (Option Agreement Lot): A lot secured by a purchase option, enabling the builder to control land without immediate full payment or ownership, often reducing capital risk and providing flexibility.
• ARMs (Adjustable-Rate Mortgages): Mortgages with interest rates that periodically adjust to market benchmarks, initially lowering borrower payments but exposing them to future rate increases.

Full Conference Call Transcript

Dale Francescon: 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.

Robert Francescon: 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.

John Dixon: 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?

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.

Alexander Rygiel: 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?

John Dixon: 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.

Alexander Rygiel: 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?

Robert Francescon: 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.

Operator: Next question comes from Natalie Kulasekere with Zelman & Associates.

Natalie Kulasekere: 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? .

Robert Francescon: 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.

Natalie Kulasekere: 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? .

John Dixon: 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. .

Operator: Your next question comes from Jay McCanless with Citizens.

Jay McCanless: 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? .

Robert Francescon: 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. .

Jay McCanless: 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? .

Robert Francescon: 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. .

Operator: Your next question comes from Michael Rehaut with JPMorgan. .

Michael Rehaut: 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. .

Robert Francescon: 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. .

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

Robert Francescon: Both. .

Michael Rehaut: 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?

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

Robert Francescon: 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. .

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

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