Century Communities, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone fourth-quarter report. Century Communities develops and sells single-family homes across 17 states and also provides mortgage, title, and insurance services. Its homebuilding segments are West, Mountain, Texas, Southeast, and Wade Jurney Homes.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Total revenue | $2.536 billion | $2.147 billion | +18.1% |
| Income before tax | $132.6 million | $128.5 million | +3.2% |
| Net income | $113.0 million | $96.5 million | +17.1% |
| Diluted EPS | $3.62 | $3.17 | +14.2% |
| Homes delivered | 8,000 | 6,099 | +31.2% |
| Average delivered home price | $310,200 | $346,000 | -10.3% |
Home sales revenue was $2.481 billion, up 17.6%; financial-services revenue was $43.3 million, up 36.4%. GAAP homebuilding gross margin was 17.7%, versus 17.5%. Adjusted margin excluding interest, impairments, and acquisition-related purchase accounting was 20.3%, down from 21.6%.
Operating cash flow was negative $68.8 million, compared with negative $195.6 million in 2018. Investing activities used $14.3 million; financing activities provided $105.2 million. Cash and cash equivalents at year-end were $55.4 million. Inventory totaled $1.996 billion.
Total debt was $1.139 billion, versus $1.092 billion a year earlier. Debt included $494.3 million of 6.750% notes due 2027, $396.1 million of 5.875% notes due 2025, $68.7 million drawn on the revolving credit facility, and $174.1 million under mortgage repurchase facilities. The $640 million revolver had $571.3 million available; the facility was extended to April 2023. Net homebuilding debt to net capital improved to 45.2% from 52.0%.
Material changes and operating trends
- Net new home contracts rose 39.0% to 7,861, while year-end backlog fell 5.1% to 2,070 homes, valued at $637.8 million. The company expected a substantial portion of backlog to close in 2020.
- The lower average selling price reflected a greater emphasis on affordable homes. Management cited lower mortgage rates, low unemployment, and limited affordable-home inventory during 2019.
- Wade Jurney Homes contributed 2,811 deliveries in 2019; its 2018 results included only the period after the June acquisition of the remaining ownership interest. The brand was renamed Century Complete on February 6, 2020, with its existing strategy and offerings expected to continue.
- Financial Services income before tax increased to $10.7 million from $8.8 million. The segment originated 3,497 loans totaling $1.0 billion, compared with 2,176 loans totaling $682.8 million in 2018.
Outlook, risks, and unusual items
The filing provides no specific numerical 2020 earnings or revenue guidance. Management said it believed the company was positioned for growth, citing its markets, product range, affordable-home focus, and land inventory, while noting results depend on local and broader economic conditions. Management also highlighted plans to maintain prudent leverage, grow through market expansion and acquisitions, and control costs.
- Income tax expense was $19.6 million, or 14.8% of pretax income, versus $32.1 million, or 25.0%, in 2018. The 2019 rate included a $17.3 million federal energy-efficient-home tax credit benefit; the credit was extended through homes delivered in 2020. Management warned that failure to extend it beyond 2020 would raise future effective tax rates.
- The company recorded a $10.8 million loss on extinguishing its 6.875% notes due 2022, and $4.8 million of inventory impairment and other charges, including a $2.8 million Wade Jurney trade-name impairment related to the rebranding.
- Key risks include housing-demand and mortgage-rate changes, affordability and buyer financing, land and construction cost increases, labor or material shortages, regulatory and environmental delays, inventory impairments, warranty and construction-defect claims, and access to financing. The mortgage repurchase facilities are uncommitted and mature in 2020; the company said it expected renewal or replacement.
- Letters of credit and performance bonds totaled $344.1 million. Land purchase and option contracts covered 20,228 lots with a stated value of $798.2 million; non-refundable option deposits were $43.0 million.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether 2020 deliveries and cash generation convert the sizable backlog into earnings and operating cash flow, given negative operating cash flow in 2019.
- How much of earnings growth depended on the $17.3 million energy-credit benefit, and the status of the credit after 2020.
- Debt service, refinancing needs, and renewal terms for the mortgage repurchase facilities, alongside the company’s leverage and available revolver capacity.
- Whether the shift toward lower-priced homes can sustain margins, particularly as adjusted homebuilding gross margin declined to 20.3%.
- Potential costs from land commitments, construction obligations, warranty claims, and inventory impairment assumptions.