Century Communities, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Century Communities develops, builds, markets, and sells single-family homes in 17 states under Century Communities and Wade Jurney Homes brands. It also provides mortgage, title, and insurance services.
Financial and operating performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $590.4 million | $561.7 million | $1,743.4 million | $1,495.5 million |
| Income before tax | $34.8 million | $22.9 million | $78.7 million | $92.5 million |
| Net income | $27.0 million | $17.0 million | $59.6 million | $70.3 million |
| Diluted EPS | $0.87 | $0.56 | $1.95 | $2.33 |
| Homes delivered | 1,891 | 1,746 | 5,521 | 4,071 |
| Average delivered home price | $303,500 | $316,700 | $309,000 | $361,100 |
Q3 revenue rose 5.1% and net income rose 58.5% year over year; nine-month revenue rose 16.6%, while net income declined 15.1%. Nine-month results included a $10.8 million loss on extinguishing senior notes. The prior-year period included $14.8 million of equity income from an unconsolidated subsidiary and a $7.2 million gain on the previously held WJH interest; WJH was fully acquired in June 2018, so year-over-year comparisons also reflect its inclusion for a longer period in 2019.
Homebuilding gross margin was 18.1% in Q3 versus 16.8% and 17.5% for the first nine months versus 17.9%. Adjusted margin excluding interest and purchase-accounting effects was 20.6% and 20.0%, respectively, compared with 21.2% and 22.1%. Management cited geographic mix, cost pressure, and higher incentives as factors in the nine-month adjusted margin decline. Adjusted EBITDA was $52.7 million for Q3, up 4.8%, and $142.5 million for nine months, down 12.6%.
Cash flow, debt, and liquidity
Operating activities used $149.0 million in cash in the first nine months, compared with $217.0 million used in 2018. Inventory increased to $2.09 billion from $1.85 billion at year-end, principally reflecting investment in land development and home construction. Cash and cash equivalents were $38.5 million; cash plus restricted cash was $41.6 million.
Total debt was $1.25 billion at September 30, 2019, versus $1.09 billion at December 31, 2018. Homebuilding debt-to-capital was 55.3%, and net homebuilding debt-to-net-capital was 53.8%, up from 53.5% and 52.0%, respectively. The company issued $500 million of 6.750% senior notes due 2027 and extinguished $385 million principal amount of 6.875% notes due 2022, recording the $10.8 million extinguishment loss. Its $640 million revolving facility had $278.8 million drawn and matures in April 2022; the company reported compliance with its covenants. Financial-services mortgage repurchase facilities had $77.8 million outstanding against $140 million of uncommitted capacity.
Operating trends, outlook, and risks
Net new home contracts rose 35.0% in Q3 and 37.2% for nine months, with management attributing much of the increase to WJH. At September 30, backlog was 2,746 homes, valued at $854.9 million, down 8.1% and 8.2%, respectively, year over year. Selling communities numbered 129. Owned and controlled lots totaled 39,315. Management gave no specific earnings or operating guidance in the supplied filing text; it said it expected to fund foreseeable needs with cash, operating cash flow, revolving-credit availability, and, as needed, debt or equity markets.
Management identified risks including housing and economic downturns, mortgage-rate volatility and affordability, land and construction-cost inflation, labor and material availability, development delays, financing access, leverage and interest-rate exposure, regulation, and construction-defect and warranty claims. Outstanding land purchase and option contracts covered 19,567 lots with an approximately $726.1 million purchase price and $42.3 million of non-refundable option deposits; management anticipated performing on 50%–60% during the next 12 months. Letters of credit and performance bonds totaled $347.6 million. Management said ordinary-course litigation was not expected to materially affect the company. Risk factors were reported as unchanged from the 2018 Form 10-K.
Most important facts for investors to verify
- Whether contract growth converts into deliveries and replenishes the reduced backlog.
- Whether homebuilding margins stabilize amid incentives, cost pressure, and changing geographic and product mix.
- Inventory investment, negative operating cash flow, and the company’s ability to fund land and construction needs.
- Debt levels, refinancing costs, revolving-facility covenant compliance, and access to uncommitted mortgage funding.
- Performance and funding obligations under land contracts, options, letters of credit, and performance bonds.
- The impact of WJH acquisition-period differences and other unusual items when assessing comparisons with 2018.