Century Communities, Inc. — Q3 2021 Form 10-Q
Business context and period: Homebuilder and related mortgage, title and insurance provider operating in 17 states. This filing covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless stated otherwise.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $958.0 million | $794.4 million | $3,009.5 million | $2,173.4 million |
| Income before tax | $145.8 million | $64.9 million | $428.9 million | $149.1 million |
| Net income | $114.0 million | $49.8 million | $333.5 million | $114.3 million |
| Diluted EPS | $3.31 | $1.48 | $9.69 | $3.41 |
| Homebuilding gross margin | 25.7% | 17.5% | 23.5% | 17.3% |
| Cash provided by operations | Not presented for the quarter | $82.8 million | $315.8 million |
- Revenue rose 20.6% in Q3 and 38.5% year to date. Home sales revenue increased, with higher average selling prices and more deliveries over the nine-month period. Q3 financial-services revenue declined to $29.1 million from $32.0 million; nine-month revenue increased to $92.6 million from $67.5 million.
- Reported Q3 earnings include a $14.5 million loss on extinguishment of debt. Adjusted diluted EPS, a non-GAAP measure, was $3.63 for Q3 and $10.02 year to date.
- At September 30, cash and cash equivalents were $491.9 million, cash held in escrow was $29.2 million, and total assets were $3.21 billion. Inventory was $2.16 billion, up from $1.93 billion at year-end 2020.
- Total debt was $1.214 billion, including $1.002 billion of homebuilding notes payable and $211.6 million outstanding under mortgage repurchase facilities. The $800 million revolving credit facility was undrawn; the company reported covenant compliance. Net homebuilding debt to net capital was 23.1%, compared with 27.2% at year-end 2020.
- Nine-month operating cash flow fell to $82.8 million from $315.8 million, principally because of increased investment in homebuilding inventory, despite substantially higher net income. Ending cash, cash equivalents and restricted cash totaled $497.1 million.
Material changes and operating trends
- Deliveries for the nine months increased 19.1% to 7,890, while average selling price increased 16.3% to $365,200. Q3 net new home contracts declined 14.4% to 2,742; the nine-month total rose 12.9% to 9,317.
- Backlog increased 31.5% to 4,866 homes, with a stated sales value of $1.923 billion, up 46.8%. Selling communities fell to 186 from 214 a year earlier; management attributed lower Q3 contracts partly to fewer communities and self-imposed sales limits.
- Owned and controlled lots increased 51.2% from December 31, 2020, to 75,537. The company said it expanded land acquisition and development to support future growth.
- Homebuilding gross margin improved as stronger pricing and higher revenue on a partially fixed-cost base more than offset cost pressures; the company also cited lower interest included in cost of sales. SG&A increased in dollars but declined as a share of home sales revenue, to 9.8% from 11.3% in Q3.
- By segment, Mountain generated the largest nine-month revenue and pretax income; Century Complete recorded especially strong growth in deliveries, selling prices and pretax income. Financial Services Q3 pretax income declined to $11.4 million from $17.5 million, while its nine-month pretax income increased to $38.5 million from $30.7 million.
Outlook, risks and unusual items
- Management described housing demand and market conditions as strong through the first nine months of 2021 and said it believed liquidity supported operations, land investment and potential capital deployment. The filing provides no quantified earnings or delivery guidance.
- Management reported ongoing materials shortages, delays and labor and materials cost pressures. It said price increases had so far supported margins, but warned these pressures could weigh on future margins.
- The company cited uncertainty around COVID-19 and its effects on employment, consumer confidence, mortgage availability and rates, housing demand and supply chains. Other disclosed risks include land availability and cost, construction delays, inflation, regulation, warranty and construction claims, and debt refinancing and interest-rate exposure.
- In August, the company issued $500 million of 3.875% senior notes due 2029 and used part of the proceeds to redeem $400 million of 5.875% notes due 2025 at a premium. The redemption produced the $14.5 million extinguishment loss; management said the transactions extended maturities and lowered the weighted average rate on senior notes by approximately 105 basis points.
- Land purchase and option contracts covered 50,542 lots with an approximate $2.2 billion purchase price; associated non-refundable option deposits were $42.8 million. Letters of credit and performance bonds totaled $484.9 million. Management did not expect ordinary-course legal proceedings to have a material adverse effect.
- The company initiated a quarterly dividend in 2021 and declared two dividends of $0.15 per share during the nine-month period. Future dividends remain at the board’s discretion.
Key facts for investors to verify
- The filing reports Q3 deliveries as 2,332 in its narrative but 2,322 in its operating-results table; verify the correct figure. The table’s segment totals also sum to 2,322.
- Assess whether inventory and lot-pipeline growth can translate into deliveries and cash generation, particularly given the decline in nine-month operating cash flow.
- Track Q3 contract trends, community openings, backlog conversion and Southeast performance, where backlog and contracts declined year over year.
- Monitor whether labor, material and construction delays erode margins, and distinguish GAAP results from management’s non-GAAP adjusted measures.
- Review debt maturities, covenant restrictions, mortgage repurchase-facility exposure, and the funding needs of land commitments and development obligations.