Executive Summary / Key Takeaways

• Century Communities is a national homebuilder strategically focused on the affordable housing market through its Century Communities and Century Complete brands, leveraging a land-light model and integrated financial services.
• Despite experiencing a slower spring selling season in Q1 2025 due to macro headwinds, resulting in reduced full-year guidance (10,400-11,000 deliveries, $4.0-$4.2B revenue), the company maintains a long-term target of 10%+ annual delivery growth supported by its expanded community count and lot pipeline.
• Operational strengths, including a preference for spec building (nearly 100% of deliveries), efficient four-month cycle times, and a leading online sales platform, provide competitive advantages in cost control, speed-to-market, and buyer certainty, particularly for entry-level buyers.
• Management is proactively responding to the current environment with increased incentives to drive pace and implementing cost savings initiatives, including workforce reductions, expected to benefit results in the latter half of 2025.
• The company's strong balance sheet, ample liquidity ($787.5M as of Q1 2025, plus increased revolver capacity), consistent dividend growth, and opportunistic share repurchases (at a discount to book value) underscore a commitment to shareholder returns while funding future growth.

Building the Affordable Dream: Century Communities' Strategic Foundation

Century Communities, Inc. (NYSE:CCS) operates as a prominent national homebuilder with a clear strategic focus on the affordable housing market. Through its distinct Century Communities and Century Complete brands, the company targets a wide spectrum of buyers, from entry-level to move-up, emphasizing value and accessibility. The Century Communities brand offers personalization options, while Century Complete streamlines the process for entry-level buyers primarily through online and retail studio sales with limited selections. This dual-brand approach allows CCS to address diverse market segments while maintaining a core focus on affordability.

The U.S. homebuilding industry is inherently cyclical and highly sensitive to macroeconomic shifts, including interest rates, inflation, and consumer confidence. Despite these dynamics, a persistent underlying demand for affordable new homes, supported by favorable demographic trends, provides a fundamental tailwind for builders like CCS. The company has strategically positioned itself across 17 states and over 45 markets, a significant expansion from its footprint of two states and five markets at its IPO over a decade ago. This growth has been fueled by both organic expansion and targeted acquisitions, such as Landmark Homes in Nashville and Anglia Homes in Houston during 2024, aimed at deepening market share in existing attractive regions.

A key operational differentiator for Century Communities is its strong preference for building move-in-ready, or spec, homes, which constituted approximately 99% of deliveries in Q1 2025. This model facilitates a faster construction process, enabling cycle times averaging around four months. It also allows for advantageous pricing with subcontractors and shortens the period from sale to delivery, providing greater financing certainty for homebuyers and enhancing capital efficiency for the company. Complementing this is the company's integrated Financial Services segment, primarily Inspire Home Loans, which offers mortgage, title, and escrow services. This captive lending capability is particularly crucial for their target demographic, enabling the offering of interest rate buydowns and other incentives that directly address affordability constraints and provide a competitive edge against the resale market.

Century Communities employs a land-light strategy, relying significantly on traditional option agreements with individual landowners and third-party developers. This approach requires lower upfront deposits and transfers a greater degree of risk compared to outright land ownership and extensive self-development. As of March 31, 2025, controlled lots represented 54.6% of the company's 79,014 total lots, with deposits on 43,117 controlled lots totaling a manageable $71 million. This strategy allows the company to be more agile in managing its land pipeline in response to market conditions.

In the competitive landscape, Century Communities operates alongside larger national builders like D.R. Horton (DHI), Lennar (LEN), and PulteGroup (PHM), as well as regional and private builders. While larger peers may benefit from greater scale economies, CCS differentiates through its focused affordability strategy, efficient spec building model, and integrated services. The company believes it can continue to gain market share, particularly from private builders who face greater challenges in accessing capital and competing on price and incentives in the current environment. The ability to offer rate buydowns through Inspire Home Loans provides a distinct advantage when competing against the existing home market, where such financing incentives are less common.

Performance in a Challenging Market

Century Communities' recent financial performance reflects the impact of the prevailing market headwinds. For the three months ended March 31, 2025, total revenues decreased by 4.8% year-over-year to $903.2 million, driven by a 3.1% decline in home deliveries to 2,284 and a 1.1% decrease in the average sales price of homes delivered to $386.9 thousand. This slowdown in demand led to a weaker absorption rate of 2.8 per month in the first quarter, trending lower in April 2025.

Profitability was also impacted, with net income falling by 38.8% year-over-year to $39.4 million, resulting in diluted earnings per share of $1.26, down from $2.00 in the prior year period. The homebuilding gross margin percentage decreased to 19.9% from 21.3% year-over-year, primarily due to higher incentives offered to stimulate sales in a slower market. Adjusted homebuilding gross margin, excluding interest and inventory impairment, also eased to 21.6% from 22.8%. Selling, general, and administrative expenses increased as a percentage of home sales revenue to 13.7% from 12.4%, reflecting decreased revenue on a partially fixed cost base and the inclusion of $1.5 million in restructuring costs associated with recent cost-saving initiatives.

The Financial Services segment experienced a significant decline in profitability, with income before tax expense decreasing by 76.0% year-over-year to $2.4 million. This was primarily attributed to lower margins on originated mortgages in a more competitive market and a decrease in the fair value of the mortgage servicing portfolio. The Century Living segment, now focused on asset disposition, contributed $1.4 million in pre-tax income.

Despite the near-term pressures, the Q1 2025 results follow a strong performance in the full year 2024, which saw record deliveries (11,007 homes), community count (322 communities), and book value per share ($84.65). This historical context highlights the company's capability for growth and operational improvement in more favorable conditions.

Financial Health and Capital Deployment

Century Communities maintains a solid financial position to navigate the current market and support its growth objectives. As of March 31, 2025, the company held $100.3 million in cash and cash equivalents, with total liquidity, including cash held in escrow and availability under its revolving line of credit, standing at $787.5 million. Subsequent to the quarter end, the company increased the capacity of its senior unsecured revolving credit facility to $1.0 billion, further enhancing its financial flexibility. The company's debt structure includes $1.12 billion in notes payable and $237 million outstanding under the revolving line of credit, with no senior debt maturities until June 2027. The net homebuilding debt to net capital ratio was 30.1% at quarter-end, within management's comfortable range. The company was in compliance with all debt covenants.

Capital allocation remains focused on reinvesting in the business, managing leverage, and returning value to shareholders. In Q1 2025, the company repurchased 753.3 thousand shares of common stock for $55.6 million at an average price of $73.76, representing a 13% discount to its book value per share of $84.41. This reflects an opportunistic approach to share buybacks when the stock is perceived to be undervalued, alongside a commitment to offsetting dilution from equity awards. The company also continued its practice of returning capital through dividends, increasing the quarterly cash dividend to $0.29 per share in Q1 2025.

Cash flow from operations shifted to a net use of $36.6 million in Q1 2025, compared to a net source of $21.6 million in the prior year period, primarily driven by the decrease in net income and changes in the classification of Century Living activities. Investing cash flow saw a significant decrease in net use, largely due to the absence of business acquisitions present in the prior year. Financing cash flow also saw a decrease in net use, primarily reflecting increased net borrowings under the revolving credit facility, partially offset by higher share repurchases.

Outlook and Strategic Response

In light of the slower start to the year and ongoing market uncertainty, Century Communities has revised its full-year 2025 guidance. The company now expects home deliveries to be in the range of 10,400 to 11,000 homes and home sales revenue between $4.0 billion and $4.2 billion. This guidance assumes an average absorption rate of approximately 2.8 per month for the full year. For the second quarter of 2025, deliveries are projected to be between 2,300 and 2,500 homes, with sequential increases anticipated in the third and fourth quarters.

Despite the reduced near-term outlook, management remains committed to its long-term target of achieving 10% or more annual delivery growth over the next several years. This confidence is underpinned by the company's expanded community count, which is expected to increase in the mid-single-digit percentage range by year-end 2025, and its strategically managed lot pipeline.

The company is actively implementing strategies to navigate the current environment. This includes balancing sales pace and price at the community level, utilizing incentives (such as mortgage rate buydowns) to drive sales, and maintaining disciplined starts and inventory levels. Furthermore, cost savings initiatives, including a workforce reduction implemented in mid-April 2025, are expected to streamline the cost structure and improve SG&A leverage, with the benefits anticipated to be more fully realized in the latter half of the year. The Financial Services segment is expected to maintain a similar margin profile for the remainder of 2025. The full-year tax rate is projected to be between 25% and 26%, primarily due to fewer homes qualifying for energy tax credits.

Risks and Challenges

The investment thesis for Century Communities is subject to several key risks. Macroeconomic conditions, particularly volatility in mortgage interest rates, inflation, and consumer confidence, can significantly impact housing demand and affordability. While the company's focus on affordable housing provides some resilience, a sustained downturn could lead to reduced sales, increased cancellations, and pressure on pricing and margins.

Operational challenges, such as potential supply chain disruptions, labor shortages (including any impacts from immigration reform, though none have been observed to date), and fluctuations in raw material costs (including those influenced by tariffs), could delay construction and increase costs. While the company has historically managed to pass on some cost increases, affordability constraints may limit this ability in the current market.

Competition remains intense across all markets, both from public and private builders, as well as the resale market. The Financial Services segment faces pressure on margins from a competitive lending environment. The company's ability to effectively manage incentives and costs relative to competitors will be crucial.

While the land-light strategy mitigates some risk, the company is still exposed to potential inventory impairments if market conditions deteriorate significantly. The shift in strategy for the Century Living segment to focus on disposition also carries execution risk.

Conclusion

Century Communities is a fundamentally sound homebuilder with a well-defined strategy centered on the growing demand for affordable housing. Its operational model, emphasizing spec building, efficient cycle times, and integrated financial services, provides tangible advantages in cost control, speed, and addressing buyer affordability. While the first quarter of 2025 presented clear headwinds, leading to a reduction in near-term guidance, the company's expanded community count and strategically managed land pipeline position it for potential long-term growth.

Management's proactive response, including targeted incentives and cost-saving measures, demonstrates a commitment to navigating the current challenging environment. The company's strong balance sheet, ample liquidity, consistent dividend growth, and opportunistic share repurchases underscore a focus on shareholder value. Despite the risks associated with macroeconomic volatility and competitive pressures, Century Communities' focus on affordability and operational efficiency provides a compelling foundation. Execution on its growth strategy and the ability to maintain profitability in a dynamic market will be key determinants of its success in unlocking value for investors.