Century Communities, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing discusses fourth-quarter trends but does not provide a clear standalone Q4 financial-results table; figures below are primarily full-year comparisons with FY 2021.
Business context
Century Communities develops and sells single-family homes in 18 states under the Century Communities and Century Complete brands. Its homebuilding segments are West, Mountain, Texas, Southeast and Century Complete; Financial Services provides mortgage, title and insurance services. Century Living began construction on three Colorado multifamily projects, totaling more than 900 units.
Financial and operating results
- Revenue: Total revenue was $4.506 billion, up 6.9% from $4.216 billion. Homebuilding revenue was $4.410 billion, up 7.8%; Financial Services revenue was $95.4 million, down 22.9%.
- Profit: GAAP net income was $525.1 million, up 5.3%; diluted EPS was $15.92, up 10.0%. Income before tax was $676.9 million, up 5.6%. Adjusted diluted EPS, a non-GAAP measure, was $16.16 versus $14.80.
- Homes and demand: Deliveries were 10,594, down 2.0%, while average selling price rose 11.1% to $414,700. Net new contracts fell 35.5% to 7,753. Year-end backlog declined 61.1% to 1,810 homes, valued at $671.4 million, down 64.1%. Combined cancellations were 24%: 21% for Century Communities and 27% for Century Complete.
- Margins and expenses: Homebuilding gross margin was 24.5%, versus 24.2%; adjusted gross margin excluding interest and inventory impairment was 26.0%, versus 25.9% (both non-GAAP). SG&A rose 10.6% to $430.7 million, or 9.8% of home sales revenue versus 9.7%.
- Cash flow: Operating cash flow was $315.3 million, compared with cash used of $201.2 million in 2021. Investing activities used $54.3 million; financing activities used $274.8 million. Cash and cash equivalents were $296.7 million, and cash held in escrow was $56.6 million at year-end.
- Liquidity and debt: Reported liquidity, including cash, escrow cash and revolving-credit availability, was $1.2 billion. Total debt was $1.217 billion, including $1.020 billion of notes payable and $197.6 million under mortgage repurchase facilities; no borrowings were outstanding on the $800 million revolving credit facility. Net homebuilding debt to net capital was 23.5%, down from 26.3% (non-GAAP). The company reported compliance with applicable debt covenants.
- Other measures: Total assets were $3.774 billion and stockholders’ equity was $2.150 billion. The company repurchased 2.3 million shares for $120.6 million and paid $0.80 per share in dividends.
Material changes and unusual items
- Rising mortgage rates, inflation and economic uncertainty weakened demand from the second quarter onward. The company said FY 2022 earnings largely reflected homes contracted before that slowdown, when higher selling prices helped offset cost increases.
- Inventory impairment was $10.1 million, compared with nominal impairment in 2021. The company tested 58 communities for impairment and recorded charges across 22 communities in Century Complete, Southeast and Texas.
- Terminating land contracts that no longer met investment criteria resulted in an $11.6 million expense, versus $2.9 million in 2021.
- Financial Services income before tax fell 19.6% to $41.2 million, reflecting fewer mortgage originations and lower margins on loans sold; the mortgage capture rate for Century homebuyers fell to 69% from 76%.
- Self-insurance reserves for incurred-but-not-reported construction-defect claims increased to $17.0 million from $5.1 million. Management cited estimates based partly on actuarial analysis and noted uncertainty in ultimate claims and costs.
Outlook, management commentary and risks
Management expects homebuilding margin pressure to continue in the first half of 2023, primarily from elevated construction costs and buyer incentives, and said it has reduced fixed costs, including through a fourth-quarter 2022 staff reduction. The filing provides no specific numerical FY 2023 guidance. Management believes affordability-focused products, land positions and housing supply constraints support its longer-term position, but cautions that demand and results remain uncertain.
Key risks include further demand declines, mortgage-rate and financing changes, cancellations, pricing and incentive pressure, inflation and labor or material shortages, land and inventory impairments, development delays, and the availability or cost of capital. Mortgage warehouse facilities of up to $300 million had $197.6 million outstanding and mature on varying short-term dates through December 2023. Other exposures include construction-defect and warranty claims, environmental and regulatory requirements, and cyber and data-security risks. Ordinary-course legal matters were not expected by management to have a material adverse effect.
The company’s financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2022.
Investor facts to verify
- Whether sales pace, cancellations and backlog stabilized after the sharp FY 2022 deterioration.
- How much 2023 gross margin is affected by incentives, pricing, construction costs and any further inventory impairments.
- Whether cash generation and the reported $1.2 billion liquidity position remain adequate as land and construction spending evolve.
- Renewal and availability of mortgage repurchase facilities, and debt maturities, covenants and refinancing costs.
- Development progress, financing and expected leasing timing for Century Living’s three Colorado projects.
- Changes in construction-defect reserves, warranty claims and the adequacy of insurance coverage.