Century Communities, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; fourth-quarter results are noted separately below. Unless stated otherwise, financial amounts are in U.S. dollars.
Business context
Century Communities develops, builds, markets and sells attached and detached homes in Atlanta, Central Texas, Colorado, Houston and Nevada. Growth in 2015 reflected its expanded operations following acquisitions in Atlanta, Houston and Nevada, alongside increased land investment and community openings. The company reported 94 selling communities and 13,160 owned or controlled lots at year-end.
Financial and operating performance
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $734.5 million | $362.4 million |
| Home sales revenue | $725.4 million | $351.8 million |
| Operating income | $59.0 million | $31.1 million |
| Income before tax | $60.3 million | $31.0 million |
| Net income attributable to common stockholders | $39.9 million | $20.0 million |
| Diluted earnings per share | $1.88 | $1.03 |
| Homebuilding gross margin | 20.2% | 21.4% |
| Adjusted homebuilding gross margin, excluding interest and purchase-accounting effects | 21.9% | 23.4% |
| Homes delivered | 2,401 | 1,046 |
| Average delivered home sales price | $302,100 | $336,400 |
| Year-end backlog | 714 homes; $271.1 million | 772 homes; $246.3 million |
| Cancellation rate | 21% | 18% |
| Adjusted EBITDA, a non-GAAP measure | $77.8 million | $41.0 million |
Revenue increased 102.7% and net income increased 99.2% year over year, largely reflecting acquisitions and higher deliveries. The lower average selling price reflected a larger share of deliveries from lower-priced Atlanta, Houston and Nevada operations. Management attributed margin pressure to market mix and higher capitalized interest charged to cost of sales. Adjusted gross margin also declined, even after excluding interest and acquired-inventory accounting effects.
Fourth quarter 2015: Home sales revenue was $204.5 million, gross margin from home sales was $41.8 million, pretax income was $20.4 million, net income was $13.2 million, and diluted EPS was $0.62. These compare with $134.1 million, $24.1 million, $11.0 million, $7.2 million and $0.34, respectively, in fourth quarter 2014.
Cash flow, debt and liquidity
- Operating cash flow was negative $162.7 million, versus negative $129.7 million in 2014. The principal use was a $208.5 million inventory cash outflow, associated with land acquisition, development and homes under construction.
- Investing cash outflow was $4.2 million, substantially below 2014’s $233.7 million, when the company made major acquisitions. Financing provided $162.8 million in 2015.
- Cash and cash equivalents were $29.3 million at year-end, down from $33.5 million. Inventory was $810.1 million, up from $556.3 million; total assets were $917.7 million.
- Balance-sheet notes payable and revolving credit were $390.2 million, compared with $224.2 million in 2014. The filing separately cites $396.3 million of outstanding indebtedness in its risk discussion; the filing text does not clearly reconcile this amount with the balance-sheet carrying value.
- The $300 million revolving credit facility had $135 million drawn and $165 million available at year-end, with a further $100 million accordion option subject to conditions. The facility matures October 21, 2018; borrowings have floating rates. The company reported compliance with its covenants.
- Senior notes carry a 6.875% coupon and mature in 2022. Contractual obligations, including interest on long-term debt and operating leases, totaled $525.5 million; $26.1 million was due within one year.
Outlook, risks and notable items
- The filing provides no specific earnings, delivery or revenue guidance. Management said it expected land-purchase and development cash outlays to exceed cash generated by operations as it expanded lot supply and communities.
- Key risks include housing-market and mortgage-credit conditions, interest-rate increases, geographic concentration, land and inventory valuation, construction labor and material costs, regulatory and entitlement delays, and warranty or construction-defect claims. Most buyers depend on mortgage financing, and purchase contracts may be cancelled if financing or other contingencies are unmet.
- The cancellation rate rose to 21%; backlog units declined 7.5%, although backlog value rose 10.1% as the average backlog price increased. Backlog is contracted but unclosed and is subject to cancellations and closing conditions.
- Cash use for inventory and growing leverage are notable alongside the company’s acquisition-led growth. Land purchase and option contracts covered 4,165 lots totaling $161.3 million, with $2.9 million of nonrefundable option deposits. Letters of credit and performance bonds outstanding were $63.6 million.
- The company sold the Tuscany golf-course operations for $4.0 million, including a $3.0 million secured note, and exercised a $5.9 million put option to sell the Rhodes Ranch golf course, with closing due by June 1, 2016. The Rhodes Ranch assets and liabilities were classified as held for sale.
- Other notable items: a $620,000 reduction in warranty reserve based on favorable payment trends; a $2.4 million reduction in the Grand View earnout liability, recorded as an SG&A reduction; no inventory impairment in 2015; and early adoption of a debt-issuance-cost accounting standard that reduced the reported 2014 assets and liabilities by $5.4 million.
- Management reported that previously identified internal-control material weaknesses had been remediated and concluded that disclosure controls and internal control over financial reporting were effective at year-end. The auditor gave an unqualified opinion on the financial statements but did not audit internal control effectiveness.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect. The filing cautions that actual results may differ materially from forward-looking statements.
Important facts for investors to verify
- Reconcile the $396.3 million indebtedness cited in the risk discussion with the $390.2 million balance-sheet carrying amount and debt principal/maturity disclosures.
- Assess whether land investment, inventory growth and negative operating cash flow can be funded without materially increasing debt or impairing liquidity.
- Track gross-margin trends, cancellation rates, backlog conversion and the effect of product and geographic mix on earnings.
- Review revolving-facility covenant headroom, floating-rate exposure, debt maturities and the terms and conditions of the accordion capacity.
- Monitor land commitments and option deposits, performance-bond obligations, warranty reserves, and completion of the Rhodes Ranch golf-course sale.