Century Communities, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Century Communities develops and sells single-family homes across 17 states, with homebuilding and mortgage, title, and insurance operations.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $1.009 billion | $602.6 million | +67.4% |
| Home sales revenue | $959.3 million | $572.7 million | +67.5% |
| Income before tax | $131.0 million | $34.1 million | +284.4% |
| Net income | $101.7 million | $26.1 million | +289.1% |
| Diluted EPS | $3.00 | $0.78 | +284.6% |
| Homes delivered | 2,797 | 1,864 | +50.1% |
| Average delivered home price | $343,000 | $307,200 | +11.7% |
| Homebuilding gross margin | 21.1% | 17.7% | +3.4 percentage points |
| Operating cash flow | $96.1 million | $(12.4) million | Improved |
Financial services revenue rose 243.2% to $33.6 million, principally alongside higher mortgage activity. SG&A increased 25.2% to $92.2 million, but fell to 9.6% of home sales revenue from 12.9%. Adjusted homebuilding gross margin, a non-GAAP measure excluding interest and inventory impairment, was 23.1% versus 20.2%. Adjusted EBITDA was $152.1 million versus $51.8 million.
Balance sheet, debt, and liquidity
- At March 31, cash and cash equivalents were $502.9 million, cash held in escrow was $54.2 million, and total assets were $3.0 billion.
- Total debt was $1.183 billion, including $897.8 million of notes payable and $285.1 million under mortgage repurchase facilities. No balance was drawn on the $640 million revolving credit facility; the company reported compliance with its covenants.
- Net homebuilding debt to net capital, a non-GAAP leverage measure, was 19.9%, down from 27.2% at December 31, 2020. Homebuilding debt to capital was 39.5%.
- Operating cash flow was $96.1 million; investing activities used $2.9 million and financing activities provided $16.3 million. Cash, cash equivalents, and restricted cash totaled $507.6 million at quarter-end.
Material changes and business trends
- Net new home contracts increased 44.7% to 3,455; backlog grew 57.9% to 4,097 homes, with a stated sales value of $1.580 billion, up 83.4%.
- Owned and controlled lots increased 15.2% from year-end to 57,536. Selling communities declined 17.5% year over year to 188, as strong sales outpaced new community openings.
- All homebuilding segments reported higher pretax income. Mountain segment results included a non-recurring $5.0 million pretax land-sale contribution. Financial Services pretax income rose to $15.3 million from $0.2 million.
- No inventory impairment was recorded in Q1 2021; Q1 2020 included a $0.8 million charge.
Outlook, commentary, and risks
The filing provides no specific numerical earnings or revenue guidance. Management said demand and sales trends remained strong through Q1 2021, supported in part by historically low mortgage rates, and that pricing had allowed the company to pass on cost increases while maintaining or improving margins. It also reported continued labor and materials cost pressure, particularly lumber, and rising land prices, which could weigh on future margins.
Management said COVID-19 had not materially adversely affected full-year 2020 or Q1 2021 results, but its duration and longer-term economic effects remained uncertain. Risks identified include shifts in housing demand, mortgage rates and affordability, inflation and construction-cost increases, labor or material shortages, land availability and pricing, construction delays, leverage and interest-rate exposure, and warranty or construction-defect claims. The company reported $441.2 million in outstanding letters of credit and performance bonds and land purchase and option contracts covering 37,030 lots with an aggregate purchase price of approximately $1.5 billion. Ordinary-course legal matters were not expected by management to have a material adverse effect. The company reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether strong contracts and backlog convert into deliveries and cash generation, and how cancellations or affordability changes affect that conversion.
- Whether home-price increases continue to offset lumber, labor, land, and other construction-cost inflation without eroding margins.
- The sustainability of Q1 earnings growth, including the effect of the $5.0 million non-recurring Mountain segment land-sale gain and higher mortgage-related revenue.
- Liquidity and leverage trends, including mortgage repurchase facility usage, the substantial land commitments, and the completion obligations secured by letters of credit and performance bonds.
- Potential effects of COVID-19, interest-rate changes, seasonal cash-flow patterns, and other housing-market conditions on results after the quarter.