Century Communities, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; compared with Q1 2021 unless noted. Century Communities develops and sells homes in 17 states under Century Communities and Century Complete, and provides mortgage, title and insurance services.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $1.016 billion | $1.009 billion; up 0.8% |
| Home sales revenue | $988.4 million | $959.3 million; up 3.0% |
| Income before tax | $188.8 million | $131.0 million; up 44.0% |
| Net income | $142.5 million | $101.7 million; up 40.2% |
| Diluted EPS | $4.20 | $3.00 |
| Homebuilding gross margin | 28.3% | 21.1% |
| Operating cash flow | $109.4 million | $96.1 million |
| Total debt | $1.204 billion | $1.331 billion at Dec. 31, 2021 |
Home deliveries fell 16.1% to 2,348, while average delivered-home selling price rose 22.7% to $421,000. Adjusted homebuilding gross margin, a non-GAAP measure excluding interest and inventory impairment and other, was 29.5%, versus 23.1%. SG&A was $101.6 million, or 10.3% of home sales revenue, compared with 9.6% a year earlier.
Cash and cash equivalents were $209.0 million at quarter-end; cash held in escrow was $45.2 million. The company reported $1.1 billion of liquidity, including cash, escrow cash and Credit Facility availability. Its $800 million revolving credit facility had no borrowings outstanding, and the company reported compliance with its covenants. Net homebuilding debt to net capital was 29.3%, versus 26.3% at year-end. Debt includes $1.010 billion of notes payable and $193.0 million outstanding on mortgage repurchase facilities.
Investing activities used $5.1 million. Financing activities used $208.4 million, including $138.8 million of net payments on mortgage repurchase facilities, $62.4 million of share repurchases and $6.7 million in dividends. Cash, cash equivalents and restricted cash ended the quarter at $218.2 million.
Changes and operating trends
- Higher selling prices and improved gross margins more than offset lower deliveries, supporting the increase in earnings.
- Net new home contracts declined 14.8% to 2,944; management attributed the decline primarily to fewer homes available for sale. Monthly absorption was 5.0 homes per community, down from 6.1.
- Backlog increased 28.1% to 5,247 homes, with a 37.4% increase in value to $2.171 billion. Average backlog selling price rose 7.3% to $413,700.
- Owned and controlled lots rose 48.7% year over year to 85,577. At March 31, 50,766 lots were controlled under purchase and option contracts.
- Financial services revenue declined 21.8% to $26.3 million and segment pretax income fell 27.2% to $11.2 million. Mortgage originations decreased 33.9% to 1,520; management cited fewer home deliveries and reduced loan-sale margins amid rising rates.
- Homebuilding pretax income increased in each reported homebuilding segment. West and Texas recorded particularly strong year-over-year gains; Corporate loss widened to $26.7 million, primarily on higher compensation costs.
Outlook, risks and notable items
Management provided no quantified full-year guidance in the filing. It described demand as strong through Q1 and said it believed housing demographics and demand would remain strong at least in the short term, while acknowledging substantial uncertainty. The company cited higher mortgage rates and inflation, affordability, labor and material shortages and costs, supply-chain disruption, construction delays, municipal and utility delays, and land availability as factors that could pressure future sales, delivery volumes and margins. It said cost increases had generally been passed on through higher prices during the quarter, but warned this may not be possible in weaker markets.
Management expects to fund liquidity needs for at least the next 12 months with cash, operating cash flow and available financing, but cautioned that additional capital may not be available on acceptable terms. Land purchase and option contracts totaled approximately $2.2 billion; $38.4 million of the $67.1 million in related deposits was non-refundable. Mortgage repurchase facilities had $193.0 million outstanding, were uncommitted, and had maturities through August 23, 2022.
Notable items include $9.7 million of fair-value losses on mortgage loans held for sale, compared with $4.9 million in Q1 2021, and net gains on mortgage loan sales of $0.7 million, versus $18.0 million. The estimated annual tax rate was 25.5% before discrete items; management cited expiration of the $2,000-per-qualifying-home Energy Efficient Home Credit at December 31, 2021 as a reason for the higher rate than in 2021. No inventory impairment charges were recorded in either comparison period. Ordinary-course legal claims were not expected by management to have a material adverse effect; no material change to previously reported risk factors was disclosed.
Important facts for investors to verify
- Whether the sizable backlog converts to deliveries and revenue, given lower contracts, fewer homes available for sale and ongoing construction delays.
- Whether higher mortgage rates, affordability constraints and inflation affect demand, cancellations, pricing power and homebuilding margins.
- The execution, funding and risk associated with the $2.2 billion of land purchase and option commitments, including non-refundable deposits.
- Renewal or replacement of the short-term mortgage repurchase facilities and the availability and cost of other financing.
- Whether cash generation can support land investment, dividends and repurchases while maintaining the company’s stated leverage discipline.