Century Communities, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited quarterly results, including fourth-quarter comparisons. Century Communities builds and sells single-family homes in 17 states through its Century Communities and Century Complete brands, and provides mortgage, title, and insurance services.
Financial performance and key metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $4.216 billion | $3.161 billion |
| Home sales revenue | $4.033 billion | $3.027 billion |
| Net income | $498.5 million | $206.2 million |
| Diluted EPS | $14.47 | $6.13 |
| Income before income taxes | $641.1 million | $270.2 million |
| Homebuilding gross margin | 24.2% | 18.4% |
| Net cash from (used in) operating activities | $(201.2) million | $340.6 million |
| Cash and cash equivalents | $316.3 million | $394.0 million |
| Total debt | $1.331 billion | $1.154 billion |
- Home deliveries rose 14.3% to 10,805; average selling price increased 16.6% to $373,300. Net new home contracts increased 11.0% to 12,017.
- Year-end backlog was 4,651 homes, valued at $1.870 billion, up 35.2% in units and 44.5% in value from 2020.
- Selling, general and administrative expense increased 14.0% to $389.6 million, but declined to 9.7% of home sales revenue from 11.3%.
- Financial Services revenue increased 19.8% to $123.7 million; segment pretax income rose 5.5% to $51.2 million. Mortgage capture rate among Century buyers rose to 76% from 64%.
- Cash used in operations reflected a $580.4 million increase in inventory investment, chiefly associated with land and homebuilding growth, despite higher earnings. Cash, cash held in escrow, and undrawn revolving-credit availability together represented reported liquidity of approximately $1.2 billion.
- Net homebuilding debt to net capital was 26.3%, compared with 27.2% in 2020. Stockholders’ equity was $1.765 billion.
Fourth-quarter results
For Q4 2021, home sales revenue was $1.152 billion, home-sales gross margin was $298.7 million, pretax income was $212.2 million, net income was $165.0 million, and diluted EPS was $4.78. In Q4 2020, the corresponding figures were $946.8 million, $197.2 million, $121.2 million, $91.8 million, and $2.72.
Material changes and unusual items
- Annual revenue increased 33.4%, net income increased 141.8%, and diluted EPS increased 136.1% year over year. Management attributed the improvement to higher deliveries and prices, stronger demand, improved gross margins, and operating leverage.
- Homebuilding gross margin expanded 580 basis points. The company said pricing increases more than offset most labor and direct-cost inflation during 2021.
- In August 2021, the company issued $500 million of 3.875% senior notes due 2029 and redeemed $400 million of 5.875% notes due 2025. The transaction extended senior-note maturities by more than four years and reduced the weighted-average senior-note rate by about 105 basis points, while increasing principal by $100 million. The redemption generated a $14.5 million debt-extinguishment loss.
- The company initiated a quarterly dividend in 2021 and paid $0.45 per share for the year. No shares were repurchased during 2021.
- The Federal Energy Efficient Home Credit reduced income tax expense by $16.5 million in 2021, compared with $8.5 million in 2020. The credit was then authorized through December 31, 2021; any future extension was uncertain at filing.
Outlook, risks, and contingencies
Management expected demand to remain strong in the short term, citing favorable housing demographics and limited new and resale-home supply. It also said operations were positioned for growth, supported by about 79,859 owned or controlled lots, and expressed confidence in liquidity for near-term needs. The filing provides no quantified forward guidance for future revenue, earnings, or deliveries.
- Key risks include higher mortgage rates and reduced affordability, inflation, labor and material shortages, supply-chain delays, longer construction times, and the possibility that selling prices may not keep pace with costs.
- Management reported elongated construction cycles and warned that cost pressures or weaker demand could reduce future margins. Approximately 75% of 2021 deliveries were to entry-level buyers, making financing availability and affordability particularly relevant.
- The company had $1.331 billion of debt, including $331.9 million outstanding under mortgage repurchase facilities with maturities through August 2022. The facilities required renewal; the company said it expected to renew or extend them. The $800 million revolving credit facility had no borrowings outstanding and matures in 2026.
- Land purchase and option contracts covered 47,004 lots with an aggregate stated value of approximately $2.0 billion; deposits were $61.6 million, of which $38.1 million were non-refundable. Letters of credit and performance bonds totaled $492.5 million.
- Ordinary-course legal claims, principally construction-related, were not expected by management to have a material adverse effect. Warranty and construction-defect exposure remains subject to estimation, insurance limits, and recovery from subcontractors.
- Other risks include COVID-19 developments, regulatory and environmental constraints, severe weather, mortgage-loan repurchase or indemnity claims, cybersecurity and privacy incidents, and the cyclicality and geographic concentration of homebuilding.
Important facts for investors to verify
- Whether backlog converts to closings at expected prices and cancellation levels, particularly as mortgage rates and affordability change.
- Whether construction-cycle delays, labor availability, and materials costs affect margins or delivery volumes in subsequent periods.
- Renewal terms and continued availability of the mortgage repurchase facilities, and the company’s capacity to service and refinance debt.
- Cash-flow needs as the company develops and acquires land, including obligations and potential deposit forfeitures under land contracts.
- The future availability of the energy-efficient home tax credit and its effect on the effective tax rate.
- The filing reports unqualified audit opinions on the financial statements and internal controls; investors should still review the inventory-impairment estimates and the assumptions used in community-level cash-flow forecasts.