Century Communities, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Century Communities develops, builds, and sells homes in 17 states through its Century Communities and Century Complete brands, and provides mortgage, title, and insurance services. The company rebranded Wade Jurney Homes as Century Complete in February 2020.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $602.6 million | $533.1 million |
| Home sales revenue | $572.7 million | $523.3 million |
| Income before tax | $34.1 million | $23.0 million |
| Net income | $26.1 million | $17.1 million |
| Diluted EPS | $0.78 | $0.56 |
| Operating cash flow | $(12.4) million | $(59.4) million |
- Revenue rose 13.0%; net income increased 52.6%. Deliveries increased 12.1% to 1,864, while average delivered home price declined 2.4% to $307,200.
- Homebuilding gross margin was 17.7%, up from 17.1%. Adjusted homebuilding gross margin, a non-GAAP measure excluding interest, impairment, and acquisition accounting effects, was 20.2% versus 19.8%.
- SG&A increased 6.8% to $73.6 million, but declined as a share of home sales revenue to 12.9% from 13.2%.
- Net new home contracts rose 28.5% to 2,388. Backlog increased 9.2% to 2,594 homes, with a value of $861.1 million, up 19.9%.
- Adjusted EBITDA, a non-GAAP measure, was $51.8 million, up 28.2%. Century Complete income before tax fell to $0.8 million from $4.0 million, including a $0.8 million inventory impairment.
Liquidity, cash flow, and debt
- Cash and cash equivalents were $451.0 million at March 31, 2020, compared with $55.4 million at year-end; cash and restricted cash totaled $453.5 million. The increase primarily reflected additional revolver borrowing.
- Operating activities used $12.4 million; investing activities used $2.6 million; financing activities provided $410.0 million. The operating cash outflow included investment in inventory and working-capital movements.
- Total debt was $1.555 billion, versus $1.139 billion at December 31, 2019. This included $899.2 million of notes payable, $521.9 million drawn on the revolving facility, and $133.8 million under mortgage repurchase facilities.
- The $640 million revolving credit facility had $118.1 million available at quarter-end and matures in April 2023. The company reported compliance with its covenants. Net homebuilding debt to net capital was 46.6%, compared with 45.2% at December 31, 2019.
- Letters of credit and performance bonds outstanding were $343.7 million. Land purchase and option contracts covered 14,979 lots with an aggregate purchase price of approximately $647 million; related nonrefundable option deposits were $36.1 million.
Material changes, outlook, and risks
- Q1 results were not materially adversely affected by COVID-19, but the company said the pandemic began negatively affecting operations and demand in April. Management could not reasonably estimate the impact’s magnitude or duration and provided no quantified earnings or revenue guidance.
- Management warned that weaker demand, higher unemployment, reduced consumer confidence or credit availability, cancellations, and sales incentives could reduce deliveries, prices, revenue, and margins. Lower homebuilding activity could also reduce mortgage and other Financial Services revenue.
- To conserve liquidity, the company reduced or halted starts on unsold homes, continued starts on qualifying presold homes, terminated or extended some land transactions, slowed or stopped land development, and reduced expenses. It also reported targeted workforce layoffs in April.
- The company increased revolver borrowing as a precaution amid pandemic uncertainty. It stated that cash, operating cash generation, and expected revolver or capital-market access should fund foreseeable needs, while cautioning that additional financing might not be available on acceptable terms.
- Other key exposures include housing-market cyclicality, land and construction cost inflation, labor and materials availability, interest rates, mortgage-loan repurchase exposure, inventory impairments, and compliance with debt covenants. Ordinary-course litigation, primarily construction-defect matters, was not expected by management to have a material adverse effect.
Important facts for investors to verify
- Subsequent-quarter trends in contracts, cancellations, deliveries, backlog, selling prices, and incentives, particularly following the April demand effects described by management.
- Whether cash levels and revolver availability remain adequate as operating cash flow, inventory investment, and homebuilding activity change.
- Debt levels, borrowing costs, covenant compliance, and the availability and terms of financing during the pandemic.
- Potential impairment or abandonment costs for inventory and land options, and the effect of lower demand on Century Complete and Financial Services.
- How the $343.7 million of performance bonds and letters of credit and the $647 million of land purchase and option commitments develop or change.