Century Communities, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Century Communities develops and sells single-family homes across 18 states, with homebuilding, financial services, and multifamily rental activities.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $948.5 million | $753.0 million | Up 26.0% |
| Home sales revenue | $922.4 million | $735.6 million | Up 25.4% |
| Financial services revenue | $24.9 million | $15.9 million | Up 57.2% |
| Income before tax | $84.3 million | $44.0 million | Up 91.6% |
| Net income | $64.3 million | $33.3 million | Up 93.1% |
| Diluted EPS | $2.00 | $1.04 | Up $0.96 |
| Homebuilding gross margin | 21.3% | 18.2% | Up 3.1 percentage points |
| Operating cash flow | $21.6 million | $191.3 million | Down $169.7 million |
Deliveries increased 23.3% to 2,358 homes; average delivered price rose 1.7% to $391,200. Net new contracts grew 41.7% to 2,866. Backlog was 1,590 homes valued at $667.2 million, down 17.2% in units and 6.5% in value year over year. Selling, general and administrative expense rose 16.1% to $114.1 million, but declined to 12.4% of home sales revenue from 13.4%.
Cash and cash equivalents were $122.8 million at quarter end, with $84.8 million held in escrow. Total debt was $1.282 billion, including $1.070 billion of notes payable and $212.4 million under mortgage repurchase facilities; the $800 million revolving credit facility was undrawn. Management reported $1.0 billion of liquidity, including cash, escrow cash, and revolver availability. Homebuilding debt-to-capital was 29.4%; net homebuilding debt-to-net-capital was 24.9%, compared with 22.4% at year-end 2023.
Material changes and notable items
- Net income nearly doubled year over year, reflecting higher deliveries and improved homebuilding gross margin. Management attributed prior-year margin pressure to elevated construction costs and incentives.
- Operating cash flow fell to $21.6 million, primarily due to greater land acquisition, development, and home-construction spending; investing cash outflow increased to $64.6 million, including $32.7 million for the Landmark acquisition and higher multifamily development spending.
- Corporate results included a $7.7 million impairment on other investments. The January acquisition of substantially all assets of Landmark Homes of Tennessee cost approximately $33.4 million and added six active Nashville-area communities.
- Century repurchased 186,887 shares for $16.1 million and paid a quarterly dividend of $0.26 per share, up from $0.23 a year earlier.
- Owned and controlled lots totaled 75,089, up 45.5% year over year. Three Colorado multifamily rental projects comprise more than 900 units; the first, with over 200 units, began leasing in 2023, and the company anticipates the remaining projects will be available for leasing during 2024.
Outlook, risks, and contingencies
No quantified earnings or delivery guidance was provided. Management cited strong demand for affordable new homes, a 41.7% increase in net contracts, and a continuing shortage of new and resale homes, while emphasizing uncertainty around interest rates and broader economic and housing conditions. It reported typical construction cycle times of four to five months and continued use of incentives, including price and financing incentives such as mortgage-rate buydowns.
Key risks include mortgage-rate increases and reduced affordability, inflation and higher land, labor, material, and financing costs, changes in housing demand, land availability, construction delays, and exposure to warranty, construction-defect, and insurance claims. The company stated it expects to fund liquidity needs for at least the next twelve months, but cautioned that additional capital may not be available on acceptable terms. It reported compliance with applicable debt covenants and no material change to previously disclosed risk factors. Ordinary-course legal claims were not expected by management to have a material adverse effect. Letters of credit and performance bonds outstanding were $509.0 million.
Important facts for investors to verify
- Whether contract growth converts into deliveries and replenishes the smaller year-over-year backlog, and how cancellations and incentives develop.
- Whether improved gross margins persist as construction costs, sales prices, and incentive levels change.
- Cash conversion and liquidity needs amid elevated inventory, land commitments, and multifamily investment; outstanding purchase and option contracts covered 43,379 lots totaling approximately $2.2 billion.
- Debt service, refinancing and floating-rate exposure, including the 2027 and 2029 senior notes and mortgage repurchase facilities.
- Progress, leasing, and funding requirements for the three multifamily projects, and the results of the Landmark acquisition.
- Potential effects of the $7.7 million investment impairment and the assumptions underlying warranty, self-insurance, and other estimates.