Century Communities, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Century Communities develops and sells single-family homes across 18 states under the Century Communities and Century Complete brands. Its businesses also include mortgage, title and insurance services, and multifamily rental development.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $753.0 million | $1,016.4 million | Down 25.9% |
| Home sales revenue | $735.6 million | $988.4 million | Down 25.6% |
| Income before tax | $44.0 million | $188.8 million | Down 76.7% |
| Net income | $33.3 million | $142.5 million | Down 76.6% |
| Diluted EPS | $1.04 | $4.20 | Down 75.2% |
| Homebuilding gross margin | 18.2% | 28.3% | Down 10.1 percentage points |
| Operating cash flow | $191.3 million | $109.4 million | Increased |
- Delivered 1,912 homes, down 18.6%; average delivered selling price was $384,700, down 8.6%.
- Net new contracts fell 31.3% to 2,022. Quarter-end backlog was 1,920 homes valued at $713.6 million, down 63.4% in units and 67.1% in value year over year.
- Financial services revenue decreased 39.7% to $15.9 million, reflecting fewer mortgage originations and lower margins on loans sold.
- SG&A was $98.3 million, down 3.3%, but rose to 13.4% of home sales revenue from 10.3% as revenue declined against a partially fixed cost base.
- Cash and cash equivalents were $405.7 million; cash held in escrow was $12.7 million. Total assets were $3.71 billion and stockholders’ equity was $2.17 billion.
- Total debt was $1.18 billion, including $1.03 billion of notes payable and $149.8 million of mortgage repurchase facility borrowings. The $800 million revolving credit facility had no borrowings outstanding. Net homebuilding debt to net capital was 21.5%, versus 23.5% at year-end 2022.
- Operating cash flow benefited primarily from a $90.2 million inventory reduction, alongside lower land acquisition and construction spending. Cash and restricted cash increased by $112.1 million during the quarter.
Material changes and management commentary
- Management attributed weaker results to higher mortgage rates, inflation and economic uncertainty, which reduced sales pace, deliveries and selling prices. Net contracts declined across most segments; Century Complete deliveries increased, but its pretax income also fell.
- Gross margin was pressured by buyer incentives and elevated construction costs on homes started during 2022. Management expected this pressure to continue through the first half of 2023.
- Management reported direct construction costs on new starts were about 11% below their Q2 2022 peak and said labor, materials and municipal/utility delays had moderated for completed homes started in the second half of 2022.
- Q1 cancellation rates were 18% combined: 16% for Century Communities and 20% for Century Complete, a significant reduction from the latter half of 2022. The company emphasized near-term completions and affordability-focused offerings; 89% of deliveries were to entry-level buyers and 98% were move-in-ready homes.
- The company reduced staff during the quarter. It paid a quarterly dividend of $0.23 per share, up from $0.20 a year earlier, and made no share repurchases.
- Century Living was developing three Colorado multifamily projects totaling more than 900 units, with leasing expected to begin in the second half of 2023 and continue into 2024. A new construction loan agreement was entered into in March; $14.5 million was outstanding across construction loans at quarter-end.
Outlook, risks and contingencies
- No specific full-year revenue, earnings or delivery guidance is provided in the filing. Management said it expects liquidity needs for at least the next 12 months to be met through cash, operating cash flow and available financing, while noting access to additional capital is not assured and may not be on acceptable terms.
- Demand and backlog remain exposed to mortgage rates, inflation, employment and consumer confidence, home affordability, and availability and cost of land, labor and materials. Management cautioned that weaker demand or higher cancellations could adversely affect sales, deliveries, margins, financial-services activity and earnings.
- Floating-rate exposure includes the revolving facility, construction loans and mortgage repurchase facilities. The company reported compliance with applicable debt covenants. The mortgage repurchase facilities had $149.8 million outstanding and short-term maturities through December 2023.
- Outstanding land purchase and option contracts covered 20,248 lots with an estimated value of $897.4 million; related deposits were $42.4 million, including $21.8 million non-refundable. Performance and other bonds and letters of credit totaled $570.8 million.
- Ordinary-course construction and other legal claims are disclosed; management does not expect their resolution to materially affect financial condition, results or cash flows. No inventory impairment charges were recorded in the quarter.
- The filing added risks relating to bank failures and financial-market liquidity, alongside geopolitical instability and possible supply-chain or cost impacts. Management reported effective disclosure controls as of March 31, 2023.
Key facts for investors to verify
- Whether sales pace, cancellations and backlog stabilize as mortgage rates and affordability change.
- How long incentives and elevated costs continue to weigh on gross margins, especially against management’s first-half 2023 outlook.
- Whether operating cash generation remains sustainable, given that Q1 cash flow was materially supported by inventory reduction.
- Liquidity and refinancing exposure, including short-term mortgage facility maturities, floating-rate debt and access to the revolving facility or capital markets.
- Execution, funding and leasing progress for the three multifamily projects, and the company’s land-contract obligations and contingent commitments.