Century Communities, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Century Communities develops and sells single-family homes in 18 states through its Century Communities and Century Complete brands, provides mortgage, title and insurance services, and is developing multifamily rental properties in Colorado.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $889.4 million | $1,144.3 million | $2,486.6 million | $3,326.8 million |
| Income before tax | $112.0 million | $172.1 million | $224.8 million | $574.5 million |
| Net income | $83.2 million | $144.5 million | $167.9 million | $445.6 million |
| Diluted EPS | $2.58 | $4.44 | $5.21 | $13.41 |
| Homebuilding gross margin | 24.6% | 24.8% | 21.0% | 27.0% |
| Adjusted homebuilding gross margin, excluding interest and impairment | 25.8% | 26.0% | 22.3% | 28.2% |
Q3 home deliveries fell 13.9% to 2,264, and average selling price declined 10.2% to $382,100. For the nine months, deliveries fell 16.6% to 6,411 and average selling price decreased 10.5% to $377,300. Management attributed lower deliveries mainly to fewer homes available following reduced starts in the second half of 2022; lower prices reflected delivery mix and community-level pricing.
Operating cash flow was positive $33.0 million for the first nine months, compared with $67.1 million used in the prior-year period. Investing activities used $74.6 million, including $59.8 million for multifamily development; financing activities used $56.8 million. Cash and cash equivalents were $193.1 million at September 30, down from $296.7 million at year-end 2022; cash held in escrow was $52.5 million. Management reported total liquidity of approximately $1.0 billion, including cash, escrow and revolving credit availability.
Total debt was $1.213 billion, compared with $1.217 billion at year-end 2022. No revolving-credit borrowings were outstanding; $162.1 million was outstanding under mortgage repurchase facilities. Homebuilding debt to capital was 30.8%, while net homebuilding debt to net capital was 25.3%, versus 23.5% at year-end. Stockholders’ equity was $2.293 billion.
Material changes and operating trends
- Q3 net new home contracts increased 63.1% year over year to 2,149, while nine-month contracts were nearly unchanged at 6,488. Q3 cancellation rate was 16.2%; the nine-month rate was 15.8%.
- Backlog declined 45.4% to 1,887 homes, with aggregate value down 48.7% to $707.2 million year over year. The company said backlog reflected fewer units and a later-in-construction sales strategy; average backlog price was down 6.1%.
- Selling communities increased to 252 from 217. Owned and controlled lots totaled 68,570, up 29.1% from year-end; the controlled share rose to 55.9% from 39.5%.
- Financial Services revenue was up 1.6% in Q3 to $23.6 million but down 11.9% for the nine months to $63.8 million. Nine-month mortgage originations fell 17.1%; lower loan-sale margins and fewer originations were partly offset by lower pipeline fair-value markdowns and increased discount-point revenue.
- SG&A was 12.9% of home sales revenue in Q3 and 13.0% for the nine months, versus 9.9% in both comparable 2022 periods, mainly because revenue declined against a partly fixed cost base.
Outlook, risks and notable items
Management said demand strengthened in Q3 as buyers adjusted to higher mortgage rates, cancellations improved from late 2022, construction cycle times improved, and incentives were reduced. It said lower direct construction costs on new starts and reduced incentives supported sequential improvement in homebuilding gross margin during Q3. The filing gives no specific numerical earnings or delivery guidance.
Management described future demand as uncertain, particularly because of inflation, interest rates, mortgage availability and affordability, consumer confidence, land, labor and material costs, and broader economic conditions. It believes its affordable product mix, land positions and liquidity support resilience, but cautioned that demand declines or higher cancellations could reduce sales, deliveries, margins and earnings. Other disclosed risks include construction delays, weather and natural disasters, warranty and construction-defect claims, leverage and refinancing, and financial-market or banking disruptions. The company said it was in compliance with applicable debt covenants and expects current resources to meet liquidity needs for at least the next 12 months, while noting future external capital may not be available on acceptable terms.
A $7.4 million Q3 stock-compensation catch-up expense ($5.5 million after tax; $0.17 per share) reflected a higher estimated vesting outcome for performance share awards. No inventory impairment was recorded. The first of three Colorado multifamily projects, comprising more than 200 units, became available for leasing in Q3; remaining projects are expected to be available during 2024. Ordinary-course legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether contract growth continues and backlog converts to deliveries amid elevated mortgage rates; track cancellations, absorption and backlog value.
- Whether gross margins recover as lower-cost starts progress through delivery, and whether incentives or construction costs rise again.
- Cash deployment and leverage, including land commitments for 38,333 lots totaling approximately $1.8 billion and $513.9 million of letters of credit and performance bonds.
- Execution, leasing and financing progress for the three Colorado multifamily projects; $119.2 million was recorded as multifamily properties under construction.
- Near-term refinancing and renewal exposure, including the mortgage warehouse facility maturity through January 19, 2024, and the senior notes due 2027 and 2029.
- Impact of the higher PSU vesting estimate and related stock-based compensation expense on future reported results.