Century Communities, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Century Communities develops and sells single-family homes in 18 states through Century Communities and Century Complete, operates a mortgage, title and insurance segment, and is developing multifamily rental properties in Colorado.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $844.2 million | $1,166.1 million | $1,597.2 million | $2,182.5 million |
| Income before tax | $68.7 million | $213.6 million | $112.8 million | $402.4 million |
| Net income | $51.4 million | $158.7 million | $84.8 million | $301.2 million |
| Diluted EPS | $1.60 | $4.78 | $2.63 | $8.97 |
| Homebuilding gross margin | 19.7% | 28.2% | 19.0% | 28.2% |
| Homes delivered | 2,235 | 2,713 | 4,147 | 5,061 |
| Average sales price per delivery | $366,200 | $418,200 | $374,700 | $419,500 |
Q2 revenue decreased 27.6% and net income decreased 67.6% year over year. For the six-month period, revenue fell 26.8% and net income fell 71.9%. Lower deliveries and average selling prices, along with lower homebuilding margins, drove the weaker comparisons. Management attributed margin pressure to elevated construction costs on homes started during 2022 and higher buyer incentives.
Cash flow and liquidity: Operating cash flow was positive $132.8 million for the first half, compared with a $102.9 million outflow in the prior-year period. Investing cash outflow was $48.6 million, including $39.5 million for multifamily rental development; financing cash outflow was $23.4 million. Cash and cash equivalents were $350.5 million at June 30, with $23.2 million held in escrow. Management reported approximately $1.2 billion of liquidity, including revolving-credit availability, and said it expects to meet liquidity needs for at least the next 12 months, subject to capital-market availability and conditions.
Debt: Total debt was $1.222 billion, including $1.031 billion of notes payable and $191.0 million outstanding under mortgage repurchase facilities. No borrowings were outstanding on the $800 million revolving credit facility. Homebuilding debt to capital was 31.2%; net homebuilding debt to net capital was 22.3%, versus 23.5% at year-end 2022. The company reported compliance with applicable debt covenants.
Material changes and operating trends
- Q2 net new home contracts increased 3.8% year over year and 14.6% sequentially; first-half contracts decreased 16.2% year over year.
- Cancellation rates were 14% for Q2 and 16% for the first half. Management said cancellations improved from the second half of 2022 and attributed some benefit to selling homes later in the construction cycle.
- Backlog at quarter-end was 2,002 homes valued at $750.1 million, down 58.0% in units and 62.1% in value year over year.
- Owned and controlled lots totaled 57,775, up 8.8% from December 31, 2022. Approximately 91% of first-half deliveries were to entry-level buyers and 98% were move-in-ready homes.
- Financial services revenue increased 6.5% in Q2 to $24.3 million, but declined 18.3% for the first half to $40.1 million, reflecting fewer mortgage originations and lower loan-sale margins in the six-month comparison.
- Quarterly dividends were $0.23 per share, up from $0.20 a year earlier. First-half share repurchases were $2.0 million, compared with $98.3 million in the prior-year period.
Outlook, risks and unusual items
Management reported improving demand trends in Q2, reduced incentives in some communities, and lower direct construction costs on Q2 starts than at the Q2 2022 peak. It cited a shortage of new and resale homes and favorable housing demographics as potential supports, but did not provide numerical earnings, revenue or delivery guidance. Three Colorado multifamily projects comprising more than 900 units were expected to become available for leasing from the second half of 2023 through the first half of 2024.
Management emphasized uncertainty around mortgage rates, inflation, home affordability, consumer demand, land, labor and materials costs, and the ability to access financing. Other disclosed risks include construction delays, weather and natural disasters, construction-defect and warranty claims, and possible disruption from financial-institution or geopolitical events. The company reported no inventory impairment charges in the periods presented and said ordinary-course legal matters were not expected to have a material adverse effect. It recorded a $3.4 million pretax stock-compensation catch-up adjustment in Q2 related to revised expected performance under previously granted awards. The estimated 2023 annual effective tax rate before discrete items was 25.5%, partly reflecting fewer homes qualifying for energy-efficient home credits.
Key facts for investors to verify
- Whether contract growth and lower cancellation rates continue, and how they translate into deliveries and backlog replenishment.
- Whether homebuilding gross margins recover as incentives, construction costs and cycle times change.
- Whether the $750.1 million backlog and reduced average selling prices affect upcoming revenue and earnings.
- Liquidity and debt-service capacity under higher interest rates, including refinancing and access to the revolving facility and mortgage repurchase facilities.
- Multifamily project completion, lease-up timing and funding needs relative to the stated schedule.
- Potential changes in warranty, self-insurance and construction-claim exposures, and whether the company’s liquidity expectations remain achievable.