SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File NumberNumber: 001-36491
Century Communities, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 68-0521411 | |
(State | (I.R.S. Employer | |
8390 East Crescent Parkway, Suite 650 | 80111 | |
(Address of principal executive offices) | (Zip |
(Registrant’s telephone number, including area code): (303) 770-8300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common stock, par value $0.01 per share | CCS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer | o | Smaller reporting company | o | |||
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x
On October 25, 2017, 27,573,183July 23, 2021, 33,760,940 shares of common stock, par value 0.01$0.01 per share, were outstanding.
CENTURY COMMUNITIES, INC.
FORM 10-Q
For the threeThree and nine months ended SeptemberSix Months Ended June 30, 20172021
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Century Communities, Inc.
Unaudited Condensed Consolidated Balance Sheets
As of SeptemberJune 30, 20172021 and December 31, 20162020
(in thousands, except share amounts)
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| September 30, |
| December 31, | ||
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| 2017 |
| 2016 | ||
Assets |
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Cash and cash equivalents |
| $ | 58,522 |
| $ | 29,450 |
Cash held in escrow |
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| 42,262 |
|
| 20,044 |
Accounts receivable |
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| 20,810 |
|
| 5,729 |
Inventories |
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| 1,352,989 |
|
| 857,885 |
Mortgage loans held for sale |
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| 30,071 |
|
| — |
Prepaid expenses and other assets |
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| 62,362 |
|
| 40,457 |
Property and equipment, net |
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| 13,658 |
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| 11,412 |
Investment in unconsolidated subsidiaries |
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| 20,677 |
|
| 18,275 |
Deferred tax asset, net |
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| 6,403 |
|
| — |
Amortizable intangible assets, net |
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| 1,889 |
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| 2,911 |
Goodwill |
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| 21,365 |
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| 21,365 |
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 |
Liabilities and stockholders' equity |
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Liabilities: |
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Accounts payable |
| $ | 16,810 |
| $ | 15,708 |
Accrued expenses and other liabilities |
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| 157,705 |
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| 62,314 |
Deferred tax liability, net |
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| — |
|
| 1,782 |
Senior notes payable |
|
| 776,016 |
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| 259,088 |
Revolving line of credit |
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| — |
|
| 195,000 |
Mortgage repurchase facility |
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| 27,465 |
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| — |
Total liabilities |
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| 977,996 |
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| 533,892 |
Stockholders' equity: |
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Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding |
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| — |
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| — |
Common stock, $0.01 par value, 100,000,000 shares authorized, 27,259,199 and 21,620,544 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
|
| 273 |
|
| 216 |
Additional paid-in capital |
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| 501,786 |
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| 355,567 |
Retained earnings |
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| 150,953 |
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| 117,853 |
Total stockholders' equity |
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| 653,012 |
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| 473,636 |
Total liabilities and stockholders' equity |
| $ | 1,631,008 |
| $ | 1,007,528 |
See Notes to Unaudited Condensed Consolidated Financial Statements
3
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2017and 2016
(in thousands, except share and per share amounts)
June 30, | December 31, | |||||
2021 | 2020 | |||||
Assets | (unaudited) | (audited) | ||||
Cash and cash equivalents | $ | 419,416 | $ | 394,001 | ||
Cash held in escrow | 37,640 | 23,149 | ||||
Accounts receivable | 30,286 | 21,781 | ||||
Inventories | 1,948,769 | 1,929,664 | ||||
Mortgage loans held for sale | 235,712 | 282,639 | ||||
Prepaid expenses and other assets | 147,284 | 122,630 | ||||
Property and equipment, net | 26,359 | 28,384 | ||||
Deferred tax assets, net | 18,392 | 12,450 | ||||
Goodwill | 30,395 | 30,395 | ||||
Total assets | $ | 2,894,253 | $ | 2,845,093 | ||
Liabilities and stockholders' equity | ||||||
Liabilities: | ||||||
Accounts payable | $ | 80,609 | $ | 107,712 | ||
Accrued expenses and other liabilities | 263,956 | 302,751 | ||||
Notes payable | 901,254 | 894,875 | ||||
Revolving line of credit | — | — | ||||
Mortgage repurchase facilities | 159,776 | 259,050 | ||||
Total liabilities | 1,405,595 | 1,564,388 | ||||
Stockholders' equity: | ||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, NaN outstanding | — | — | ||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 33,760,940 and 33,350,633 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | 338 | 334 | ||||
Additional paid-in capital | 690,707 | 697,200 | ||||
Retained earnings | 797,613 | 583,171 | ||||
Total stockholders' equity | 1,488,658 | 1,280,705 | ||||
Total liabilities and stockholders' equity | $ | 2,894,253 | $ | 2,845,093 |
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenues |
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Homebuilding revenues |
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Home sales revenues |
| $ | 374,935 |
| $ | 248,075 |
| $ | 888,942 |
| $ | 686,335 |
Land sales and other revenues |
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| 1,826 |
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| 5,338 |
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| 6,216 |
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| 10,816 |
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| 376,761 |
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| 253,413 |
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| 895,158 |
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| 697,151 |
Financial services revenue |
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| 2,955 |
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| — |
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| 4,697 |
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| — |
Total revenues |
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| 379,716 |
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| 253,413 |
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| 899,855 |
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| 697,151 |
Homebuilding Cost of Revenues |
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Cost of home sales revenues |
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| (311,365) |
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| (197,650) |
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| (727,577) |
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| (549,886) |
Cost of land sales and other revenues |
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| (2,104) |
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| (5,420) |
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| (4,994) |
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| (9,433) |
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| (313,469) |
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| (203,070) |
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| (732,571) |
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| (559,319) |
Financial services costs |
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| (2,450) |
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| — |
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| (4,648) |
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| — |
Selling, general, and administrative |
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| (46,165) |
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| (30,944) |
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| (113,597) |
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| (87,512) |
Acquisition expense |
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| (7,205) |
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| (53) |
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| (8,645) |
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| (466) |
Equity in income of unconsolidated subsidiaries |
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| 3,716 |
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| — |
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| 7,648 |
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| — |
Other income |
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| 1,013 |
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| 385 |
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| 2,274 |
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| 1,403 |
Income before income tax expense |
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| 15,156 |
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| 19,731 |
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| 50,316 |
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| 51,257 |
Income tax expense |
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| (5,686) |
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| (6,389) |
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| (17,216) |
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| (16,790) |
Net income |
| $ | 9,470 |
| $ | 13,342 |
| $ | 33,100 |
| $ | 34,467 |
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Earnings per share: |
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Basic |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.42 |
| $ | 1.63 |
Diluted |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.41 |
| $ | 1.62 |
Weighted average common shares outstanding: |
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Basic |
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| 25,445,552 |
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| 20,673,521 |
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| 23,038,390 |
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| 20,643,682 |
Diluted |
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| 25,726,137 |
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| 20,822,066 |
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| 23,275,320 |
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| 20,731,930 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Cash FlowsOperations
For the NineThree and Six Months Ended SeptemberJune 30, 20172021 and 20162020
(in thousands,) except share and per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Revenues | ||||||||||||
Homebuilding revenues | ||||||||||||
Home sales revenues | $ | 1,004,789 | $ | 747,415 | $ | 1,964,068 | $ | 1,320,125 | ||||
Land sales and other revenues | 8,258 | 3,307 | 23,928 | 23,411 | ||||||||
Total homebuilding revenues | 1,013,047 | 750,722 | 1,987,996 | 1,343,536 | ||||||||
Financial services revenues | 29,865 | 25,722 | 63,485 | 35,517 | ||||||||
Total revenues | 1,042,912 | 776,444 | 2,051,481 | 1,379,053 | ||||||||
Homebuilding cost of revenues | ||||||||||||
Cost of home sales revenues | (764,668) | (620,655) | (1,521,175) | (1,091,181) | ||||||||
Cost of land sales and other revenues | (7,000) | (2,384) | (17,020) | (16,551) | ||||||||
Total homebuilding cost of revenues | (771,668) | (623,039) | (1,538,195) | (1,107,732) | ||||||||
Financial services costs | (18,168) | (12,744) | (36,469) | (22,330) | ||||||||
Selling, general and administrative | (99,656) | (86,706) | (191,807) | (160,325) | ||||||||
Inventory impairment and other | (41) | (910) | (41) | (1,691) | ||||||||
Other income (expense) | (1,245) | (2,942) | (1,786) | (2,784) | ||||||||
Income before income tax expense | 152,134 | 50,103 | 283,183 | 84,191 | ||||||||
Income tax expense | (34,224) | (11,653) | (63,621) | (19,615) | ||||||||
Net income | $ | 117,910 | $ | 38,450 | $ | 219,562 | $ | 64,576 | ||||
Earnings per share: | ||||||||||||
Basic | $ | 3.49 | $ | 1.15 | $ | 6.52 | $ | 1.94 | ||||
Diluted | $ | 3.47 | $ | 1.15 | $ | 6.47 | $ | 1.93 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 33,738,586 | 33,340,184 | 33,651,727 | 33,274,056 | ||||||||
Diluted | 33,956,638 | 33,461,694 | 33,920,939 | 33,469,069 |
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| Nine Months Ended September 30, | ||||
|
| 2017 |
| 2016 | ||
Operating activities |
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Net income |
| $ | 33,100 |
| $ | 34,467 |
Adjustments to reconcile net income to net cash used in operating activities: |
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Depreciation and amortization |
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| 5,073 |
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| 4,215 |
Stock-based compensation expense |
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| 6,521 |
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| 5,058 |
Deferred income taxes |
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| (2,766) |
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| (3,807) |
Distribution of income from unconsolidated subsidiaries |
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| 5,246 |
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| — |
Equity in income of unconsolidated subsidiaries |
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| (7,648) |
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| — |
(Gain) loss on disposition of assets |
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| 202 |
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| (468) |
Changes in assets and liabilities: |
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Cash held in escrow |
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| (22,218) |
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| (15,932) |
Accounts receivable |
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| (7,493) |
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| 389 |
Inventories |
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| (95,065) |
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| (85,560) |
Prepaid expenses and other assets |
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| (16,637) |
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| (11,189) |
Accounts payable |
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| (8,026) |
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| 7,172 |
Accrued expenses and other liabilities |
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| 9,027 |
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| 4,255 |
Mortgage loans held for sale |
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| (30,071) |
|
| — |
Net cash used in operating activities |
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| (130,755) |
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| (61,400) |
Investing activities |
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Purchases of property and equipment |
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| (5,867) |
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| (6,375) |
Business combination net of acquired cash |
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| (77,457) |
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| — |
Proceeds from sale of assets |
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| 52 |
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| 1,302 |
Proceeds from sale of South Carolina operations |
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| 17,074 |
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| — |
Proceeds from secured note receivable |
|
| 76 |
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| 73 |
Net cash used in investing activities |
|
| (66,122) |
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| (5,000) |
Financing activities |
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Borrowings under revolving credit facilities |
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| 75,000 |
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| 145,000 |
Payments on revolving credit facilities |
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| (270,000) |
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| (90,000) |
Proceeds from issuance of senior notes |
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| 523,000 |
|
| — |
Proceeds from issuance of insurance premium notes |
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| — |
|
| 11,612 |
Principal payments on notes payable |
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| (4,735) |
|
| (7,582) |
Repayment of debt assumed in business combination |
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| (151,919) |
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| — |
Debt issuance costs |
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| (3,731) |
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| (1,156) |
Net proceeds from mortgage credit facility |
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| 27,465 |
|
| — |
Net proceeds from issuances of common stock |
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| 35,010 |
|
| — |
Repurchases of common stock upon vesting of restricted stock awards |
|
| (4,141) |
|
| (1,014) |
Repurchases of common stock under our stock repurchase program |
|
| — |
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| (2,393) |
Net cash provided by financing activities |
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| 225,949 |
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| 54,467 |
Net decrease in cash and cash equivalents |
| $ | 29,072 |
| $ | (11,933) |
Cash and cash equivalents |
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Beginning of period |
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| 29,450 |
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| 29,287 |
End of period |
| $ | 58,522 |
| $ | 17,354 |
Supplemental cash flow disclosure |
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Cash paid for income taxes |
| $ | 21,657 |
| $ | 20,557 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2021 and 2020
(in thousands)
Six Months Ended June 30, | ||||||
2021 | 2020 | |||||
Operating activities | ||||||
Net income | $ | 219,562 | $ | 64,576 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | 5,655 | 6,842 | ||||
Stock-based compensation expense | 7,212 | 8,588 | ||||
Fair value of mortgage loans held for sale and other | 3,359 | (6,175) | ||||
Inventory impairment and other | 41 | 1,691 | ||||
Deferred income taxes | (5,942) | (1,322) | ||||
Loss on disposition of assets | 804 | 914 | ||||
Changes in assets and liabilities: | ||||||
Cash held in escrow | (14,491) | (11,311) | ||||
Accounts receivable | (8,505) | 4,592 | ||||
Inventories | (56,779) | 138,049 | ||||
Mortgage loans held for sale | 42,659 | (30,990) | ||||
Prepaid expenses and other assets | (25,694) | 13,229 | ||||
Accounts payable | (27,103) | (35,158) | ||||
Accrued expenses and other liabilities | 2,643 | 20,259 | ||||
Net cash provided by operating activities | 143,421 | 173,784 | ||||
Investing activities | ||||||
Purchases of property and equipment | (4,405) | (4,913) | ||||
Other investing activities | 54 | 62 | ||||
Net cash used in investing activities | (4,351) | (4,851) | ||||
Financing activities | ||||||
Borrowings under revolving credit facilities | — | 678,000 | ||||
Payments on revolving credit facilities | — | (746,700) | ||||
Proceeds from issuance of insurance premium notes and other | 9,477 | 4,542 | ||||
Principal payments on insurance notes payable | (3,854) | (4,220) | ||||
Net proceeds (payments) on mortgage repurchase facilities | (99,274) | 23,374 | ||||
Withholding of common stock upon vesting of restricted stock units | (13,726) | (5,145) | ||||
Dividend payments | (5,065) | — | ||||
Other | (34) | (345) | ||||
Net cash used in financing activities | (112,476) | (50,494) | ||||
Net increase | $ | 26,594 | $ | 118,439 | ||
Cash and cash equivalents and Restricted cash | ||||||
Beginning of period | 398,081 | 58,521 | ||||
End of period | $ | 424,675 | $ | 176,960 | ||
Supplemental cash flow disclosure | ||||||
Cash paid for income taxes | $ | 78,909 | $ | 410 | ||
Cash and cash equivalents and Restricted cash | ||||||
Cash and cash equivalents | $ | 419,416 | $ | 173,521 | ||
Restricted cash (Note 5) | 5,259 | 3,439 | ||||
Cash and cash equivalents and Restricted cash | $ | 424,675 | $ | 176,960 |
See Notes to Unaudited Condensed Consolidated Financial Statements
September
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 20172021 and 2020
(in thousands)
For the Three Months Ended June 30, 2021 and 2020
Common Stock | ||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | ||||||||||
Balance at March 31, 2021 | 33,708 | $ | 337 | $ | 688,009 | $ | 684,823 | $ | 1,373,169 | |||||
Vesting of restricted stock units | 74 | 1 | (1) | — | — | |||||||||
Withholding of common stock upon vesting of restricted stock units | (21) | — | (1,549) | — | (1,549) | |||||||||
Stock-based compensation expense | — | — | 4,193 | — | 4,193 | |||||||||
Cash dividends declared | — | — | 55 | (5,120) | (5,065) | |||||||||
Net income | — | — | — | 117,910 | 117,910 | |||||||||
Balance at June 30, 2021 | 33,761 | $ | 338 | $ | 690,707 | $ | 797,613 | $ | 1,488,658 | |||||
Balance at March 31, 2020 | 33,319 | $ | 333 | $ | 681,060 | $ | 403,140 | $ | 1,084,533 | |||||
Vesting of restricted stock units | 42 | 1 | (1) | — | — | |||||||||
Withholding of common stock upon vesting of restricted stock units | (10) | — | (168) | — | (168) | |||||||||
Stock-based compensation expense | — | — | 6,903 | — | 6,903 | |||||||||
Other | — | — | (230) | — | (230) | |||||||||
Net income | — | — | — | 38,450 | 38,450 | |||||||||
Balance at June 30, 2020 | 33,351 | $ | 334 | $ | 687,564 | $ | 441,590 | $ | 1,129,488 |
For the Six Months Ended June 30, 2021 and 2020
Common Stock | ||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | ||||||||||
Balance at December 31, 2020 | 33,351 | $ | 334 | $ | 697,200 | $ | 583,171 | $ | 1,280,705 | |||||
Vesting of restricted stock units | 675 | 7 | (7) | — | — | |||||||||
Withholding of common stock upon vesting of restricted stock units | (265) | (3) | (13,723) | — | (13,726) | |||||||||
Stock-based compensation expense | — | — | 7,212 | — | 7,212 | |||||||||
Cash dividends declared | — | — | 55 | (5,120) | (5,065) | |||||||||
Other | — | — | (30) | — | (30) | |||||||||
Net income | — | — | — | 219,562 | 219,562 | |||||||||
Balance at June 30, 2021 | 33,761 | $ | 338 | $ | 690,707 | $ | 797,613 | $ | 1,488,658 | |||||
Balance at December 31, 2019 | 33,067 | $ | 331 | $ | 684,354 | $ | 377,014 | $ | 1,061,699 | |||||
Vesting of restricted stock units | 454 | 5 | (5) | — | — | |||||||||
Withholding of common stock upon vesting of restricted stock units | (170) | (2) | (5,143) | — | (5,145) | |||||||||
Stock-based compensation expense | — | — | 8,588 | — | 8,588 | |||||||||
Other | — | — | (230) | — | (230) | |||||||||
Net income | — | — | — | 64,576 | 64,576 | |||||||||
Balance at June 30, 2020 | 33,351 | $ | 334 | $ | 687,564 | $ | 441,590 | $ | 1,129,488 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2021
1. Basis of Presentation
Century Communities, Inc. (which we refer to as “we,” “CCS,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of California, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, Utah, and Washington.17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade opportunities. Our homebuilding operations are organized into the following four5 reportable segments based on the geographic regions in which we operate:segments: West, Mountain, Texas, Southeast, and Southeast.Century Complete. Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, and Parkway Title,IHL Home Insurance Agency, LLC, which provide mortgage, title, and titleinsurance services, respectively, primarily to our home buyers, respectively,homebuyers, have been identified as our Financial Services operating segment.
On August 4, 2017, we acquired UCP, Inc. (which we refer to as “UCP”). UCP is a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, with operations in the States of California, Washington, North Carolina, South Carolina and Tennessee. The merger was unanimously approved by the board of directors of both the Company and UCP and was also approved by UCP stockholders on August 1, 2017. In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock. Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash. Our operating results presented herein include the operations of UCP from the period beginning on August 4, 2017 through September 30, 2017.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of itsour financial position and results of operations.operations for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016,2020, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 that was filed with the SEC on February 15, 2017.5, 2021.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities for which the Company is deemed to be the primary beneficiary. We currently do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated.
Mortgage Loans Held for Sale
We use best efforts commitments with various investors to mitigate the risk associated with mortgage loans held for sale. Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate our interest rate and price risks. These best effort commitments are considered derivative instruments under ASC 815, “Derivatives and Hedging,” however, we do not have any derivative instruments designated as hedging instruments as of September 30, 2017. Substantially all of the loans originated by us and their related servicing rights are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. In accordance with ASC 825, “Financial Instruments” we use the fair value option to record residential mortgage loans available-for-sale at the price they are committed to be sold under the best efforts commitments.
Expected gains and losses from the sale of our loans held for sale are included in the measurement of written loan commitments that are accounted for at fair value through Financial Services revenues at the time of commitment. As of September 30, 2017, mortgage loans available-for-sale had an aggregate fair value of $30.1 million and an aggregate outstanding principal balance of $28.7 million. The net gain resulting from changes in fair value of the best efforts commitments and mortgage loans held in inventory totaled $0.8 million and $1.4 million for the three and nine months ended September 30, 2017, respectively. Realized net gains from the sale of mortgages during the three and nine months ended September 30, 2017 were $0.5 million and $0.6 million, respectively, and have been included in Financial Services revenues.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
Reclassification
Certain items on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2016 have been reclassified to conform to our current presentation. We have included “Golf course and other revenue” with “Land sales and other revenues”; we have included “Cost of golf course and other revenue” with “Cost of land sales and other revenues”; and we have combined “Interest income,” “Interest expense,” and “Gain on disposition of assets” into “Other income (expense)” in our current presentation. We have also adjusted prior period segment information to conform to the current period presentation, see detail in “2. Reporting Segments.”
Recently IssuedAdopted Accounting Standards
Income Taxes
In August 2015,December 2019, the Financial Accounting Standards Board (which we refer to as “FASB”(“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2015-14, “Revenue from Contracts with Customers (Topic 606)2019-12”).” ASU 2015-14 defers The standard simplifies the effective dateaccounting for income taxes, eliminates certain exceptions, and clarifies certain aspects of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and will be effective for the Company beginningASC 740 to promote consistency among reporting entities. We adopted this standard on January 1, 2018, including interim reporting periods within that period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. We plan to adopt ASU 2015-142021 with no material effect on January 1, 2018 under the modified retrospective approach. We are currently evaluating the potential impact of adopting this guidance on ourcondensed consolidated financial statements and disclosures, and have been involved in industry specific discussions on the treatment of certain items. We have evaluated our home sales contracts in each of our regions and have determined that there will not be a material impact on the amount or timing in recording home sales revenues as a result of adopting ASU 2015-14. We are continuing to evaluate the accounting treatment of other aspects of our business that may be affected by our adoption of ASU 2015-14.related disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for the Company beginning January 1, 2019 and interim periods within the annual periods. We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company beginning January 1, 2017 and interim periods within the annual periods. We have adopted this standard and as a result have realized excess tax benefits of $1.1 million, which is included as a reduction to “Income tax expense” in our Condensed Consolidated Statements of Operations. Our calculation of earnings per share was also modified to reflect a change to exclude excess tax benefits from assumed proceeds in our computation of diluted shares outstanding under the treasury method. We have elected to continue to estimate forfeitures in recognizing the expense for our equity awards. Employee taxes paid by withholding shares on vesting of stock compensation are classified as a financing activity in our Condensed Consolidated Statements of Cash Flows.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 consists of eight provisions that provide guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. We do not believe that ASU 2016-15 will have a material effect on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value. It eliminates Step 2 of the current two-step goodwill impairment test. ASU 2017-04 is effective for annual reporting periods in fiscal years beginning after December 15, 2019 and early adoption is permitted. We elected to early adopt ASU 2017-04 for the reporting period beginning January 1, 2017. Our adoption of ASU 2017-04 has not had a material effect on our condensed consolidated financial statements.
2. Reporting Segments
Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 10 states, which are aggreated into four regions, each of which17 states. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand is managed by onegeographic location, and each of our regional presidents.4 geographic regions targets a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Each of our homebuilding divisionsfour geographic regions is considered ana separate operating segment, but has been aggregated into reportable segments defined by oursegment. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the
internet, and generally provides no option or upgrade selections. Our Century Complete brand currently has operations in 11 states and is managed separately from our four geographic regions. Accordingly, it is considered a separate operating segment.
regional structure as each region has similar economic characteristicsThe management of our four Century Communities geographic regions and housing products. After our acquisition of UCP, Inc. management was reorganized to report to regional managers, who in turn report directlyCentury Complete reports to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company. The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability at the regional level.and to allocate resources. Accordingly, we have brokenpresented our homebuilding operations intoas the following 5 reportable segments based on the geographic markets in which we operate:segments:
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West (California and Washington)
Mountain (Arizona, Colorado, Nevada, and Utah)
Texas
Southeast (Georgia, North Carolina, South Carolina, Tennessee, and Florida)
Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, and Texas)
We have also identified our Financial Services operations, which provide mortgage, title, and titleinsurance services to our homebuyers, as a fifthsixth reportable segment. Our Corporate operations are a nonoperatingnon-operating segment, as it servesthey serve to support our homebuilding, and to a lesser extent our financial services operations, through functions, such as our executive, finance, treasury, human resources, accounting and accountinglegal departments. We have adjusted prior period segment information to conform to the current period presentation.
The following table summarizes total revenue and income before income tax expense by operating segment (in thousands)thousands):
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, | ||||||||
| 2017 |
| 2016 |
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| 2017 |
| 2016 | ||||
Revenue: |
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West | $ | 73,684 |
| $ | — |
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| $ | 73,684 |
| $ | — |
Mountain |
| 157,224 |
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| 141,043 |
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| 443,526 |
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| 353,649 |
Texas |
| 36,757 |
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| 30,036 |
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| 111,997 |
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| 106,179 |
Southeast |
| 109,096 |
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| 82,334 |
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| 265,951 |
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| 237,323 |
Financial Services |
| 2,955 |
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| — |
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| 4,697 |
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| — |
Corporate |
| — |
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| — |
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| — |
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| — |
Total revenue | $ | 379,716 |
| $ | 253,413 |
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| $ | 899,855 |
| $ | 697,151 |
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Income (loss) before income tax expense: |
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West | $ | 5,259 |
| $ | — |
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| $ | 5,259 |
| $ | — |
Mountain |
| 19,101 |
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| 18,995 |
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| 56,137 |
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| 47,234 |
Texas |
| 2,166 |
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| (288) |
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| 6,407 |
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| 2,138 |
Southeast |
| 6,001 |
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| 7,848 |
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| 16,609 |
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| 21,827 |
Financial Services |
| 505 |
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| — |
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| (192) |
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| — |
Corporate |
| (17,876) |
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| (6,824) |
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| (33,904) |
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| (19,942) |
Total income before income tax expense | $ | 15,156 |
| $ | 19,731 |
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| $ | 50,316 |
| $ | 51,257 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Revenue: | ||||||||||||
West | $ | 237,367 | $ | 166,125 | $ | 423,193 | $ | 298,012 | ||||
Mountain | 295,001 | 177,569 | 600,314 | 348,721 | ||||||||
Texas | 132,789 | 98,678 | 220,524 | 158,842 | ||||||||
Southeast | 168,519 | 174,626 | 388,925 | 306,128 | ||||||||
Century Complete | 179,371 | 133,724 | 355,040 | 231,833 | ||||||||
Financial Services | 29,865 | 25,722 | 63,485 | 35,517 | ||||||||
Corporate | — | — | — | — | ||||||||
Total revenue | $ | 1,042,912 | $ | 776,444 | $ | 2,051,481 | $ | 1,379,053 | ||||
Income (loss) before income tax expense: | ||||||||||||
West | $ | 40,903 | $ | 13,747 | $ | 68,364 | $ | 29,089 | ||||
Mountain | 55,814 | 20,616 | 107,794 | 39,094 | ||||||||
Texas | 19,139 | 9,610 | 27,670 | 15,108 | ||||||||
Southeast | 26,096 | 12,020 | 49,536 | 20,329 | ||||||||
Century Complete | 23,089 | 8,548 | 44,819 | 9,333 | ||||||||
Financial Services | 11,697 | 12,978 | 27,016 | 13,187 | ||||||||
Corporate | (24,604) | (27,416) | (42,016) | (41,949) | ||||||||
Total income before income tax expense | $ | 152,134 | $ | 50,103 | $ | 283,183 | $ | 84,191 |
The following table summarizes total assets by operating segment (in thousands):
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| September 30, |
| December 31, | June 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2021 | 2020 | ||||||
West |
| $ | 302,816 |
| $ | — | $ | 611,192 | $ | 536,907 | ||
Mountain |
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| 571,124 |
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| 541,657 | 803,816 | 778,198 | ||||
Texas |
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| 186,840 |
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| 138,392 | 238,221 | 207,746 | ||||
Southeast |
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| 394,918 |
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| 262,448 | 279,101 | 329,930 | ||||
Century Complete | 284,838 | 218,604 | ||||||||||
Financial Services |
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| 38,010 |
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| — | 333,109 | 421,153 | ||||
Corporate |
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| 137,300 |
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| 65,031 | 343,976 | 352,555 | ||||
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 | $ | 2,894,253 | $ | 2,845,093 |
Corporate assets primarily include certain cash and cash equivalents, our investment in unconsolidated subsidiaries,certain property and equipment, prepaid insurance, and deferred financing costs on our revolving line of credit.
3. Business CombinationsInventories
On August 4, 2017, we acquired UCP, Inc. UCP is a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, with operations in the States of California, Washington, North Carolina, South Carolina and Tennessee. The merger was unanimously approved by the board of directors of both the Company
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and UCP and was also approved by UCP stockholders on August 1, 2017. In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock. No fractional shares were issued in connection with the merger, and UCP stockholders received cash in lieu of any fractional shares. Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash. Outstanding UCP restricted stock units were also converted into an aggregate of 0.2 million of Century Communities restricted stock units pursuant to the merger. We determined that the total fair value of these awards was $6.2 million, of which $1.1 million was attributable to services performed by UCP employees prior to the merger and, as such, was included as consideration. During the three and nine months ended September 30, 2017, we incurred $7.2 million and $8.6 million, respectively, in acquisition related expenses, presented as “Acquisition expense” on the Unaudited Condensed Consolidated Statement of Operations. Total consideration of $206.6 million inclusive of cash acquired of $20.2 million for this merger is summarized as follows (in thousands, except per share amount):
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The acquired assets consisted of approximately 4,199 owned lots within 43 total communities in California, Washington, North Carolina, South Carolina and Tennessee. The 4,199 lots included 346 homes in backlog and 59 model homes. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination.
The following table summarizes the initial estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):
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Acquired inventories consist of both acquired land and work in process inventories. We determined the estimate of fair value for acquired land inventory with the assistance of a third-party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community, as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling
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efforts. The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences. We estimated a market participant would require a gross margin ranging from 3% to 20% based upon the stage of production of the individual lot. The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.
On August 17, 2017, we sold BMCH South Carolina, LLC, a subsidiary of UCP, Inc. that was recently acquired as part of our acquisition of UCP, Inc., to a third party for approximately $17.1 million. Accordingly, the estimated fair value of the acquired assets of BMCH South Carolina, LLC was determined to be equal to the disposal price given the proximity of the two transactions.
We determined that UCP’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.
UCP’s results of operations, which include homebuilding revenues of $77.6 million and net income of $5.6 million, are included in the accompanying consolidated statements of operations for the period from August 4, 2017 through September 30, 2017. Net income includes adjustments for inventory and acquisition expenses.
Unaudited pro forma income before tax expense for the three and nine months ended September 30, 2017 and 2016 gives effect to including the results of the acquisition of UCP as of January 1, 2017 and 2016, respectively. Unaudited pro forma income before tax expense adjusts the operating results of UCP to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented and excludes acquisition expense incurred related to the transaction (in thousands, except share and per share information):
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Revenues | $ | 416,223 |
| $ | 347,153 |
| $ | 1,142,371 |
| $ | 941,953 |
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Income before tax expense | $ | 24,604 |
| $ | 22,303 |
| $ | 69,950 |
| $ | 55,052 |
Tax expense |
| (10,731) |
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| (6,270) |
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| (23,878) |
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| (16,476) |
Net income | $ | 13,873 |
| $ | 16,033 |
| $ | 46,072 |
| $ | 38,576 |
Less: Undistributed earnings allocated to participating securities |
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| (242) |
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| (352) |
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| (734) |
Numerator for basic and diluted pro forma EPS | $ | 13,801 |
| $ | 15,791 |
| $ | 45,720 |
| $ | 37,842 |
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Pro forma weighted average shares-basic |
| 27,034,192 |
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| 24,849,375 |
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| 26,342,362 |
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| 24,819,536 |
Pro forma weighted average shares-diluted |
| 27,314,776 |
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| 24,997,920 |
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| 26,579,292 |
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| 24,907,783 |
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Pro forma basic EPS | $ | 0.51 |
| $ | 0.64 |
| $ | 1.74 |
| $ | 1.52 |
Pro forma diluted EPS | $ | 0.51 |
| $ | 0.63 |
| $ | 1.72 |
| $ | 1.52 |
4. Inventories
Inventories included the following (in thousands):
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| September 30, |
| December 31, | June 30, | December 31, | |||||||
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| 2016 | 2021 | 2020 | |||||||
Homes under construction |
| $ | 897,402 |
| $ | 455,454 | $ | 1,156,881 | $ | 1,040,584 | |||
Land and land development |
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| 415,375 |
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| 373,496 | 737,727 | 828,242 | |||||
Capitalized interest |
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| 40,212 |
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| 28,935 | 54,161 | 60,838 | |||||
Total inventories |
| $ | 1,352,989 |
| $ | 857,885 | $ | 1,948,769 | $ | 1,929,664 |
4. Financial Services
Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans Inc. (which we refer to as “Inspire”). Inspire is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells
substantially all of the loans it originates either as loans with servicing rights released, or with servicing rights retained, in the secondary mortgage market within a short period of time after origination, generally within 30 days. Inspire primarily finances these loans using its mortgage repurchase facilities. Mortgage loans in process for which interest rates were locked by borrowers, or interest rate lock commitments, totaled approximately $148.7 million and $172.3 million at June 30, 2021 and December 31, 2020, respectively, and carried a weighted average interest rate of approximately 3.2% and 2.8%, respectively. As of June 30, 2021 and December 31, 2020, Inspire had mortgage loans held for sale with an aggregate fair value of $235.7 million and $282.6 million, respectively, and an aggregate outstanding principal balance of $226.9 million and $269.6 million, respectively. Our net gains on the sale of mortgage loans were $23.9 million and $16.1 million for the three months ended June 30, 2021 and 2020, respectively, and were $46.8 million and $27.6 million for the six months ended June 30, 2021 and 2020, respectively, and are included in the financial services revenue on the condensed consolidated statements of operations. Interest rate risks related to these obligations are typically mitigated by the preselling of loans to investors or through our program to economically hedge interest rates.
Mortgage loans in process for which interest rates were committed to borrowers, mortgage loans held-for-sale, including the rights to service the mortgage loans, as well as the derivative instrument used to economically hedge our interest rate risk, which are typically forward commitments on mortgage backed securities, are carried at fair value and changes in fair value are reflected in financial services revenue on the condensed consolidated statements of operations. Management believes carrying loans held-for-sale and the derivative instruments used to economically hedge them at fair value improves financial reporting by more accurately reflecting the underlying transaction. Refer to Note 11 – Fair Value Disclosures for further information regarding our derivative instruments.
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets included the following (in thousands):
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| September 30, |
| December 31, | June 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2021 | 2020 | ||||||
Prepaid insurance |
| $ | 8,327 |
| $ | 12,236 | $ | 22,060 | $ | 18,699 | ||
Lot option and escrow deposits |
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| 26,873 |
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| 12,320 | 52,749 | 39,985 | ||||
Performance deposits |
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| 5,732 |
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| 1,544 | 10,104 | 9,372 | ||||
Deferred financing costs revolving line of credit, net |
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| 2,030 |
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| 2,637 | ||||||
Deferred financing costs on revolving line of credit, net | 5,727 | 3,206 | ||||||||||
Restricted cash |
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| 6,850 |
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| 1,505 | 5,259 | 4,080 | ||||
Secured note receivable |
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| 2,772 |
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| 2,850 | 2,380 | 2,434 | ||||
Golf course, net |
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| 5,294 |
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| 5,857 | ||||||
Other |
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| 4,484 |
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| 1,508 | ||||||
Right of use assets | 14,012 | 16,175 | ||||||||||
Other assets and prepaid expenses | 8,327 | 8,082 | ||||||||||
Mortgage loans held for investment | 10,823 | 8,727 | ||||||||||
Derivative assets and mortgage servicing rights | 15,843 | 11,870 | ||||||||||
Total prepaid expenses and other assets |
| $ | 62,362 |
| $ | 40,457 | $ | 147,284 | $ | 122,630 |
6. Investment in Unconsolidated Subsidiaries
On November 1, 2016, we acquired a 50% ownership(1)Restricted cash consists of WJH LLC (which we refer to as “WJH”), which is the successor to Wade Jurney Homes, Inc. and Wade Jurney of Florida, Inc.,earnest money deposits for $15.0 million, of which $1.0 million ishome sale contracts held by the Company for potential indemnification claims for a period of 18 months following the closing. WJH primarily targets first-time homebuyers in the Southeastern United States. As a result of the transaction, we own 50% of WJHthird parties as required by various jurisdictions, and Wade Jurney Jr., an individual, owns the other 50% interest. Each party contributed an additional $3.0 million in capital to WJH upon its formation and we incurred $0.1 million in related acquisition costs. The Company and Wade Jurney Jr. share responsibility for all of WJH’s strategic decisions,certain pledge balances associated with Wade Jurney Jr. continuing to manage the day-to-day operations under the existing operating model. Our investment in WJH is treated as an unconsolidated investment under the equity method of accounting. our mortgage repurchase facilities.
As of September 30, 2017, our investment in WJH was $20.7 million and we recognized $3.7 million and $7.6 million of equity in income of unconsolidated subsidiaries during the three and nine months ended September 30, 2017, respectively. During the three and nine months ended September 30, 2017, we received operating distributions from WJH of $1.4 million and $5.2 million, respectively.
7.
6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities included the following (in thousands):
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| ||||||
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| ||||||
|
| September 30, |
| December 31, | June 30, | December 31, | ||||||
|
| 2017 |
| 2016 | 2021 | 2020 | ||||||
Earnest money deposits |
| $ | 15,086 |
| $ | 7,304 | $ | 42,114 | $ | 30,578 | ||
Warranty reserve |
|
| 8,850 |
|
| 2,479 | 13,862 | 13,824 | ||||
Accrued compensation costs |
|
| 13,949 |
|
| 12,603 | 51,842 | 60,692 | ||||
Land development and home construction accruals |
|
| 66,119 |
|
| 31,486 | 81,381 | 80,088 | ||||
Liability for product financing arrangement |
|
| 21,893 |
|
| — | ||||||
Liability for product financing arrangements | 19,808 | 62,084 | ||||||||||
Accrued interest |
|
| 14,936 |
|
| 3,039 | 13,649 | 13,649 | ||||
Lease liabilities - operating leases | 14,551 | 16,801 | ||||||||||
Income taxes payable |
|
| — |
|
| 783 | — | 3,118 | ||||
Other |
|
| 16,872 |
|
| 4,620 | ||||||
Derivative liabilities | 758 | 3,807 | ||||||||||
Other accrued liabilities | 25,991 | 18,110 | ||||||||||
Total accrued expenses and other liabilities |
| $ | 157,705 |
| $ | 62,314 | $ | 263,956 | $ | 302,751 |
7. Warranties
8. Warranties
Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the condensed consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internala model that incorporates historical payment trends and adjust the amounts recorded, if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.9$0.4 million and $1.2$0.2 million during the three and nine months ended SeptemberJune 30, 2017,2021 and 2020, respectively, which isand we reduced our warranty reserve by $2.2 million and $1.3 million during the six months ended June 30, 2021 and 2020, respectively. These adjustments are included as a reduction toin cost of homeshome sales revenues on our condensed consolidated statementstatements of operations.
The following table summarizes the changes Changes in our warranty accrual for the three and six months ended June 30, 2021 and 2020 are detailed in the table below (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Beginning balance | $ | 13,480 | $ | 9,727 | $ | 13,824 | $ | 9,731 | ||||
Warranty expense provisions | 2,382 | 2,274 | 4,680 | 4,051 | ||||||||
Payments | (1,605) | (612) | (2,444) | (1,301) | ||||||||
Warranty adjustment | (395) | (168) | (2,198) | (1,260) | ||||||||
Ending balance | $ | 13,862 | $ | 11,221 | $ | 13,862 | $ | 11,221 |
8. Debt
Our outstanding debt obligations included the following as of June 30, 2021 and December 31, 2020 (in thousands):
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|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
Beginning balance |
| $ | 3,057 |
| $ | 2,754 |
| $ | 2,479 |
| $ | 2,622 |
Warranty reserve assumed in business combination |
|
| 6,202 |
|
| — |
|
| 6,202 |
|
| — |
Warranty expense provisions |
|
| 1,245 |
|
| 686 |
|
| 2,827 |
|
| 2,078 |
Payments |
|
| (710) |
|
| (554) |
|
| (1,458) |
|
| (1,194) |
Warranty adjustment |
|
| (944) |
|
| (291) |
|
| (1,200) |
|
| (911) |
Ending balance |
| $ | 8,850 |
| $ | 2,595 |
| $ | 8,850 |
| $ | 2,595 |
June 30, | December 31, | |||||
2021 | 2020 | |||||
6.750% senior notes, due May 2027(1) | $ | 495,176 | $ | 494,768 | ||
5.875% senior notes, due July 2025(1) | 397,170 | 396,821 | ||||
Other financing obligations | 8,908 | 3,286 | ||||
Notes payable | 901,254 | 894,875 | ||||
Revolving line of credit | — | — | ||||
Mortgage repurchase facilities | 159,776 | 259,050 | ||||
Total debt | $ | 1,061,030 | $ | 1,153,925 |
(1)The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest expense over the respective terms of the senior notes.
9. Notes Payable and
Revolving Line of Credit
6.875% senior notes
In May 2014,On June 5, 2018, we completed a private offeringentered into an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of $200.0 million in aggregate principal amount of senior unsecured notes due 2022our subsidiaries (which we refer to as the “Initial Senior Notes”) in reliance on Rule 144A“Amended and Regulation S under the Securities Act of 1933, as amended (which we refer to as the “Securities Act”Restated Credit Agreement”). The Initial Senior Notes were issued under the Indenture, dated as of May 5, 2014, among the Company, our subsidiary guarantors party thereto, and U.S Bank National Association, as trustee (which we refer to as the “May 2014 Indenture,” as it may be supplemented or amended from time to time). The Initial Senior Notes were issued at, which provided us with a price equal to 99.239% of their principal amount, and we received net proceeds of approximately $193.3 million. In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “Initial Exchange Notes”), for all of the Initial Senior Notes. The terms of the Initial Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Initial Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the Initial Senior Notes do not apply to the Initial Exchange Notes.
In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “April 2015 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act. The April 2015 Senior Notes were issued at a price equal to 98.26% of their principal amount, and we received net proceeds of approximately $58.5 million. The April 2015 Senior Notes were additional notes issued under the May 2014 Indenture pursuant to which the Initial Exchange Notes were issued. In October 2015, we completed an offer to exchange $60.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “October 2015 Exchange Notes”), for all of the April 2015 Senior Notes. The terms of the October 2015 Exchange Notes are identical in all material respects to the April 2015 Senior Notes, except that the October 2015 Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the April 2015 Senior Notes do not apply to the October 2015 Exchange Notes.
In January 2017, we completed a private offering of an additional $125 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “January 2017 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act. The January 2017 Senior Notes were issued at a price equal to 102.00% of their principal amount, and we received net proceeds of approximately $125.4 million. The January 2017 Senior Notes were additional notes issued under the May 2014 Indenture pursuant to which the Initial Exchange Notes and the October 2015 Exchange Notes were issued. In April 2017, we completed an offer to exchange $125.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “April 2017 Exchange Notes”), for all of the January 2017 Senior Notes. The terms of the April 2017 Exchange Notes are identical in all material respects to the January 2017 Senior Notes, except that the April 2017 Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the January 2017 Senior Notes do not apply to the April 2017 Exchange Notes.
12
The Initial Exchange Notes, October 2015 Exchange Notes, and April 2017 Exchange Notes (which we refer to collectively, as the “Existing 6.875% Notes”) will be treated as a single series of notes under the May 2014 Indenture, and will vote as a single class of notes for all matters submitted to a vote of holders under the May 2014 Indenture.
The Existing 6.875% Notes are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The Existing 6.875% Notes contain certain restrictive covenants on issuing future secured debt and other transactions. The aggregate principal balance of the Existing 6.875% Notes is due May 2022, with interest only payments due semi-annually in May and November of each year.
As of September 30, 2017, the aggregate amount outstanding on the Existing 6.875% Notes was $378.9 million.
5.875% senior notes
In May 2017, we completed a private offering of $400 million in aggregate principal amount of our 5.875% Senior Notes due 2025 (which we refer to as the “May 2017 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act. The May 2017 Senior Notes were issued under the Indenture, dated as of May 12, 2017, among the Company, our subsidiary guarantors party thereto, and U.S Bank National Association, as trustee (which we refer to as the “May 2017 Indenture,” as it may be supplemented or amended from time to time). The May 2017 Senior Notes were issued at a price equal to 100.00% of their principal amount, and we received net proceeds of approximately $395.5 million.
As of September 30, 2017, we had $394.9 million outstanding on the May 2017 Senior Notes.
Other financing obligations
As of September 30, 2017, we had four insurance premium notes with an outstanding balance totaling $2.3 million. Two of these notes mature in December 2017 and the other two mature in February 2018. These insurance premium notes bear interest at a rate of 3.88%, 3.98%, 6.23%, and 6.23%, respectively. During the nine months ended September 30, 2017, we repaid one insurance premium note with an outstanding balance of $0.1 million. As of December 31, 2016, we had an aggregate of $6.0 million of outstanding insurance premium notes.
Revolvingrevolving line of credit of up to $640.0 million, and unless terminated earlier, was scheduled to mature on April 30, 2023.
On OctoberMay 21, 2014,2021, we entered into a credit agreementSecond Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which, as modified as described below, we refer to as the “Credit Agreement”).thereto. The Second A&R Credit Agreement, providedwhich amended and restated the Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (the “Credit Facility”) of up to $120$800 million, (which, as modified as described below, we refer to as the “Revolvingand unless terminated earlier, will mature on April 30, 2026. The Credit Facility”).
Facility includes a $250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, we werethe Company is entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80$200 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. TheOur obligations under the RevolvingSecond A&R Credit Facility wereAgreement are guaranteed by certain of our subsidiaries.
On July 31, 2015, we entered into a First Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which modified the Credit Agreement. The First Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $120 million to $200 million, (ii) extended the maturity date of the Revolving Credit Facility from October 21, 2017 to October 21, 2018, (iii) admitted Bank of America, N.A. as a new lender under the Revolving Credit Facility, and ( iv) increased the amount of the increase in the size of the Revolving Credit Facility that we had the option to request, from time to time, from an amount not exceeding $80 million to an amount not exceeding $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.
On December 22, 2015, we entered into a Second Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement. The Second Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $200 million to $300 million, and (ii) admitted Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association as new lenders under the Revolving Credit Facility.
On August 19, 2016, we entered into a Third Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement. The Third Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $300 million to $380 million through our exercise of $80 million of the accordion feature of the Credit Agreement, (ii) admitted Citibank, N.A. and Flagstar Bank, FSB as new
13
lenders under the Revolving Credit Facility, (iii) increased certain lenders’ respective commitments to the Revolving Credit Facility, and (iv) extended the term of the Revolving Credit Facility by one year to mature on October 21, 2019.
On February 24, 2017, we entered into a Commitment Increase Agreement with Texas Capital Bank, National Association, as Administrative Agent, Flagstar Bank, FSB (which we refer to as “Flagstar”), and our subsidiary guarantors party thereto. The Commitment Increase Agreement supplements the Credit Agreement, and (i) increased the Revolving Credit Facility from $380 million to $400 million through our exercise of the remaining $20 million of the accordion feature of the Credit Agreement, and (ii) increased Flagstar’s commitment to the Credit Facility.
Unless terminated earlier, the principal amount under the Revolving Credit Facility, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on October 21, 2019, the maturity date of the Revolving Credit Facility. Borrowings under the Revolving Credit Facility bear interest at a floating rate equal to the London Interbank Offered Rate plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum. The “applicable margins” described above are determined by a schedule based on our leverage ratio, as defined in the Credit Agreement. The Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility.
TheA&R Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. TheBorrowings under the Second A&R Credit Agreement also requires usbear interest at a floating rate equal to maintain (i)the adjusted Eurodollar Rate plus an applicable margin between 2.05% and 2.65% per annum, and if made available in the Administrative Agent’s discretion, a leverage ratiobase rate plus an applicable margin between 1.05% and 1.65% per annum.
As of not more than 1.75 to 1.0 as ofJune 30, 2021 and December 31, 2020, 0 amounts were outstanding under the last day of any fiscal quarter, based upon our and our subsidiaries’ (on a consolidated basis) ratio of debt to tangible net worth, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon our and our subsidiaries’ (on a consolidated basis) ratio of EBITDA to cash interest expense, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests by us and the guarantors of the Revolving Credit Facility, plus 50% of the amount of our and our subsidiaries’ consolidated net income, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by us and our subsidiaries to our tangible net worth. As of September 30, 2017, we were in compliance with all covenants under the Credit Agreement.covenants.
Mortgage Repurchase FacilityFacilities – Financial Services
On April 10, 2017,May 4, 2018, September 14, 2018, and August 1, 2019, Inspire Home Loans Inc. (which we refer to as “Inspire”), an indirect wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreementmortgage warehouse facilities, with Comerica Bank, J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the “Master Repurchase Agreement”“repurchase facilities”) with Branch Banking and Trust Company, as the buyer thereunder (which we refer to as the “Buyer”). The Master Repurchase Agreement provides, which were increased in 2020, provide Inspire with a revolving mortgage loanuncommitted repurchase facilityfacilities of up to $25$350 million (which we refer to as the “Repurchase Facility”). The primary purpose of the Repurchase Facility is to provide financing and liquidity to Inspire by facilitating purchase transactions in which Inspire transfers eligible loans to the Buyer, and the Buyer transfers funds, subject to a simultaneous agreementJune 30, 2021, secured by the Seller to repurchase from the Buyer such eligiblemortgage loans (i) upon written notice to the Buyer by Inspire, (ii) on a prescribed date in the future, (iii) upon the occurrence of prescribed events, or (iv) on the Termination Date (as defined below). The purchase transactions are based on and subject to the terms and conditions set forth in the Master Repurchase Agreement. The maximum aggregate amount of the Buyer’s commitment to fund purchase transactions under the Repurchase Facility is $25 million (which we refer to as the “Commitment”), subject to certain sublimits. The Repurchase Facility and the Buyer’s Commitment thereunder expires on the earlier of (i) April 9, 2018, and (ii) the date when the Buyer’s Commitment is terminated pursuant to the Master Repurchase Agreement or by operation of law (which we refer to as the “Termination Date”).
On September 15, 2017, Inspire entered into a second Master Repurchase Facility (which we refer to as the “Second Master Repurchase Agreement”) with J.P. Morgan Chase Bank, N.A. as the buyerfinanced thereunder. The Second Master Repurchase Agreement provides Inspire withrepurchase facilities have varying short term maturity dates through June 21, 2022 and bear a revolving mortgage loan repurchase facilityweighted average interest rate of up to $35 million (which we refer to as the “Second Repurchase Facility”)2.38%. The purpose of the Second Repurchase Facility is similar to the purpose outlined above for the Repurchase Facility.
Amounts outstanding under the Repurchase Facility and Second Repurchase Facilityrepurchase facilities are not guaranteed by us or any of our subsidiaries. Each ofsubsidiaries and the Master Repurchase Agreement and Second Master Repurchase Agreement containsagreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of SeptemberJune 30, 2017,2021 and December 31, 2020, we had $159.8 million and $259.1 million outstanding under these repurchase facilities, respectively, and were in compliance with all covenants under eachthereunder.
During the three months ended June 30, 2021 and 2020, we incurred interest expense on the repurchase facilities of $0.6 million and $0.5 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations. During the Repurchase Facilitysix months ended June 30, 2021 and Second Repurchase Facility.2020, we incurred interest expense on the repurchase facilities of $1.4 million and $1.3 million, respectively.
As of September 30, 2017, there was an aggregate $27.5 million outstanding under both the Master Repurchase Agreement and Second Master Repurchase Agreement, and such outstanding amount was collateralized by the mortgage loans held for sale.
9. Interest
14
10. Interest
Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed. As our qualifying assets exceeded our outstanding debt during the three and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we capitalized all interest costs incurred during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.mortgage repurchase facilities.
Our interest costs are as follows (in thousands):
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| ||||||||||||
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Interest capitalized beginning of period |
| $ | 35,668 |
|
| 26,577 |
| $ | 28,935 |
|
| 21,533 | $ | 57,509 | $ | 70,837 | $ | 60,838 | $ | 67,069 | ||||
Interest capitalized during period |
|
| 13,338 |
|
| 6,743 |
|
| 31,902 |
|
| 19,772 | 15,058 | 18,168 | 30,106 | 35,621 | ||||||||
Less: capitalized interest in cost of sales |
|
| (8,794) |
|
| (5,192) |
|
| (20,625) |
|
| (13,177) | (18,406) | (18,694) | (36,783) | (32,379) | ||||||||
Interest capitalized end of period |
| $ | 40,212 |
|
| 28,128 |
| $ | 40,212 |
|
| 28,128 | $ | 54,161 | $ | 70,311 | $ | 54,161 | $ | 70,311 |
11.10. Income Taxes
At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 20172021 estimated annual effective tax rate, before discrete items, of 36.3%23.5% is driven by our blended federal and state statutory rate of 37.8%24.7%, which is partially offset by net estimated benefits of 1.5% primarily from additionaland certain permanent differences between GAAP and tax, including disallowed deductions for tax related to domestic production activitiesexecutive compensation and estimated federal energy credits for current year home deliveries, which benefiteddecreased our rate by 3.2%1.2%. This benefit was partially offset by non-deductible acquisition costs associated with
For the six months ended June 30, 2021, our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%. Our estimated annual rate of 36.3%23.5% was also benefitedimpacted by discrete items for which had a net impact of decreasing our rate by 1.0%, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits related to share based awards thatfor vested during the nine months ended September 30, 2017, resulting in a total tax rate of 34.2%.stock-based compensation.
For the three months ended SeptemberJune 30, 20172021 and 2016,2020, we recorded income tax expense of $5.7$34.2 million and $6.4$11.7 million, respectively. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we recorded income tax expense of $17.2$63.6 million and $16.8$19.6 million, respectively.
12.
11. Fair Value Disclosures
Accounting Standards Codification Topic 820,
Fair Value Measurement, definesvalue measurements are used for the Company’s mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis. We also utilize fair value asmeasurements on a non-recurring basis for inventories, and intangible assets when events and circumstances indicate that the price that would be received for selling an asset or paidcarrying value is not recoverable. The fair value hierarchy and its application to transfer a liability in an orderly transaction between market participants at measurement date and requiresthe Company’s assets and liabilities carried at fair value to be classified and disclosed in the following three categories:is as follows:
Level 1 —– Quoted prices for identical instruments in active markets.
Level 2 —– Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at the measurement date.
Mortgage loans held for sale – Fair value is based on quoted market prices for committed mortgage loans.
Derivative assets and liabilities – Derivative assets and liabilities are related to our financial services segment and fair value is based on market prices for similar instruments.
Level 3 —– Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at the measurement date.
Mortgage servicing rights - The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates.
Mortgage loans held for investment – The fair value of mortgage loans held for investment is calculated based on Level 3 analysis which incorporates information including the value of underlying collateral, from markets where there is little observable trading activity.
The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020, respectively:
June 30, | December 31, | |||||||||
Balance Sheet Classification | Hierarchy | 2021 | 2020 | |||||||
Mortgage loans held for sale | Mortgage loans held for sale | Level 2 | $ | 235,712 | $ | 282,639 | ||||
Mortgage loans held for investment | Prepaid expenses and other assets | Level 3 | $ | 10,823 | $ | 8,727 | ||||
Derivative assets | Prepaid expenses and other assets | Level 2 | $ | 5,545 | $ | 7,755 | ||||
Mortgage servicing rights (1) | Prepaid expenses and other assets | Level 3 | $ | 10,298 | $ | 4,115 | ||||
Derivative liabilities | Accrued expenses and other liabilities | Level 2 | $ | 758 | $ | 3,807 |
15
Table(1)The unobservable inputs used in the valuation of Contentsthe mortgage servicing rights include mortgage prepayment rates, discount rates and delinquency rates, which were 9.0%, 9.8%, and 0.3%, respectively as of June 30, 2021, and 10.4%, 9.8%, and 0.6%, respectively, as of December 31, 2020. The high and low end of the range of unobservable inputs used in the valuation did not result in a significant change to the fair value measurement.
The following table presentsrepresents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
Mortgage servicing rights: | 2021 | 2020 | 2021 | 2020 | |||||||
Beginning of period | $ | 8,249 | $ | — | $ | 4,115 | $ | — | |||
Originations | 2,500 | — | 6,382 | — | |||||||
Disposals/settlements | (143) | — | (270) | — | |||||||
Changes in fair value | (308) | — | 71 | — | |||||||
End of period | $ | 10,298 | $ | — | $ | 10,298 | $ | — | |||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
Mortgage loans held-for-investment | 2021 | 2020 | 2021 | 2020 | |||||||
Beginning of period | $ | 10,078 | $ | 6,387 | $ | 8,727 | $ | 3,385 | |||
Originations | 1,981 | 1,209 | 3,381 | 4,646 | |||||||
Disposals/settlements | (1,180) | (754) | (1,180) | (1,173) | |||||||
Reduction in unpaid principal balance | (56) | (29) | (105) | (45) | |||||||
Changes in fair value | — | — | — | — | |||||||
End of period | $ | 10,823 | $ | 6,813 | $ | 10,823 | $ | 6,813 |
For the financial assets and liabilities that the Company does not reflect at fair value, the following present both their respective carrying valuesvalue and estimated fair valuesvalue at June 30, 2021 and December 31, 2020, respectively.
June 30, 2021 | December 31, 2020 | |||||||||||||
Hierarchy | Carrying | Fair Value | Carrying | Fair Value | ||||||||||
Cash and cash equivalents | Level 1 | $ | 419,416 | $ | 419,416 | $ | 394,001 | $ | 394,001 | |||||
Secured notes receivable (1) | Level 2 | $ | 2,380 | $ | 2,380 | $ | 2,434 | $ | 2,448 | |||||
5.875% senior notes (2)(3) | Level 2 | $ | 397,170 | $ | 412,500 | $ | 396,821 | $ | 417,500 | |||||
6.750% senior notes (2)(3) | Level 2 | $ | 495,176 | $ | 530,000 | $ | 494,768 | $ | 533,750 | |||||
Revolving line of credit(4) | Level 2 | $ | — | $ | — | $ | — | $ | — | |||||
Other financing obligations(4)(5) | Level 3 | $ | 8,908 | $ | 8,908 | $ | 3,286 | $ | 3,286 | |||||
Mortgage repurchase facilities(4) | Level 2 | $ | 159,776 | $ | 159,776 | $ | 259,050 | $ | 259,050 |
(1)During the second quarter of financial instruments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||||||||
|
| Hierarchy |
| Carrying |
| Fair Value |
| Carrying |
| Fair Value | ||||
Secured notes receivable(1) |
| Level 2 |
| $ | 2,772 |
| $ | 2,766 |
| $ | 2,850 |
| $ | 2,828 |
Mortgage loans held for sale(2) |
| Level 2 |
| $ | 30,071 |
| $ | 30,071 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.875% senior notes(3) |
| Level 2 |
| $ | 378,901 |
| $ | 398,512 |
| $ | 253,089 |
| $ | 260,090 |
5.875 % senior notes (3) |
| Level 2 |
| $ | 394,851 |
| $ | 395,850 |
| $ | — |
| $ | — |
Revolving line of credit(4) |
| Level 2 |
| $ | — |
| $ | — |
| $ | 195,000 |
| $ | 195,000 |
Insurance premium notes(4) |
| Level 2 |
| $ | 2,264 |
| $ | 2,264 |
| $ | 5,999 |
| $ | 5,999 |
Mortgage repurchase facilities(4) |
| Level 2 |
| $ | 27,465 |
| $ | 27,465 |
| $ | — |
| $ | — |
|
|
|
|
|
|
| 2021, the maturity of the secured note receivable was extended by two months to July of 2021, and the secured note receivable was paid in full in July 2021. Carrying amount |
The carrying amount of cash and cash equivalents approximates fair value. value due to short-term nature.
(2)Estimated fair value of the senior notes is based on recent trading activity in inactive markets.
(3)Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of June 30, 2021, these amounts totaled $4.8 million and $2.8 million for the 6.750% senior notes and 5.875% senior notes, respectively. As of December 31, 2020, these amounts totaled $5.2 million and $3.2 million for the 6.750% senior notes and 5.875% senior notes, respectively.
(4)Carrying amount approximates fair value due to short-term nature and interest rate terms.
(5)Insurance premium notes included in other financing obligations bore interest rates ranging from 3.200% 3.240% during the periods ended June 30, 2021 and December 31, 2020.
Non-financial assets and liabilities include items such as inventory and long-lived assetsproperty and equipment that are measured at fair value when acquired and resulting from impairment,as a result of impairments, if deemed necessary.
13. Stock-Based Compensation
Nominal impairment charges were recorded in the three and six months ended June 30, 2021. During the three and six months ended SeptemberJune 30, 2017,2020, we recognized impairment charges of $0.9 million and $1.7 million, respectively. The estimated fair value of the communities were determined through a discounted cash flow approach utilizing Level 3 inputs. Changes in our cash flow projections in future periods related to these communities may change our conclusions on the recoverability of inventory in the future.
12. Stock-Based Compensation
During the six months ended June 30, 2021, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million shares of restrictedcommon stock, unitsrespectively, with a weighted average grant date fair value of $20.36 per share, which$53.43, that primarily vest over a two or fivethree year period from the grant date. These awards were issued in connection with our acquisition of UCP Inc., to UCP employees as replacement awards for the restricted stock units they held with UCP prior to the acquisition. period. During the ninesix months ended SeptemberJune 30, 2017,2021, we also granted 0.5performance share units (which we refer to as “PSUs”) covering up to 0.2 million shares of restrictedcommon stock, unitsassuming maximum level of performance, with a weighted average grant date fair value of $21.64$58.28 per share, whichshare.
Granted PSUs are subject to both service and performance vesting conditions. The quantity of shares that will ultimately vest overfor the PSUs ranges from 0% to 250% of a one to fivetargeted number of shares for each participant and will be determined based on an achievement of a three year period frompre-tax income performance goal. Approximately 0.8 million shares will vest if the grant date. defined maximum performance targets are met, and 0 shares will vest if the defined minimum performance targets are not met.
A summary of our outstanding awardsRSUs and PSUs, assuming current estimated level of restricted common stock and restricted stock unitsperformance achievement, are as follows (in thousands, except years):
|
|
|
|
|
|
|
|
|
|
|
|
| As of September 30, 2017 | ||||||
|
| Restricted Stock Awards |
| Restricted Stock Units |
| Total | |||
Unvested awards/units |
|
| 139 |
|
| 732 |
|
| 871 |
Unrecognized compensation cost |
| $ | 909 |
| $ | 9,323 |
| $ | 10,232 |
Period to recognize compensation cost |
|
| 0.4 years |
|
| 2.1 years |
|
| 1.9 years (average) |
As of June 30, 2021 | |||
Unvested units | 1,123 | ||
Unrecognized compensation cost | $ | 24,071 | |
Weighted-average period to recognize compensation cost | 2.0 years |
During the three months ended SeptemberJune 30, 20172021 and 2016,2020, we recognized stock-based compensation expense of $2.6$4.2 million and $1.6$6.9 million, respectively. During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we recognized stock-based compensation expense of $6.5$7.2 million and $5.1$8.6 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations.
During the three months ended June 30, 2020, we updated our recognition of stock-based compensation expense associated with previously granted PSU awards to reflect probable financial results as they relate to the performance goals of the awards. Accordingly, our estimate of the number of shares which will ultimately vest under our PSU awards increased by 0.2 million, and we recorded a cumulative catch-up adjustment to increase stock-based compensation expense of $2.9 million ($2.2 million net of tax), or $0.07 per share (basic and diluted) for the three months ended June 30, 2020.
13. Stockholders’ Equity
Our authorized capital stock consists of 100.0 million shares of common stock, par value $0.01 per share, and 50.0 million shares of preferred stock, par value $0.01 per share. As of SeptemberJune 30, 20172021, and December 31, 2016,2020 there were 27.333.8 million and 21.633.4 million shares of common stock issued and outstanding, respectively, inclusive of the restricted common stock issued.
We issued 29.2 thousand and 0.2 million0 shares of commonpreferred stock related to the vesting of restricted stock awards during the three and nine months ended September 30, 2017, respectively, under our First Amended & Restated 2013 Long-Term Incentive Plan. At our 2017 annual meeting of stockholders held onoutstanding.
On May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term Incentive Plan. We had reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, of which approximately 0.6 million shares rolled over into the 2017 Incentive Plan when
16
it became effective. AsOn May 8, 2019, our stockholders approved the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “Amended 2017 Incentive Plan”), which increased the number of September 30, 2017, approximately 1.2 million shares remain availableof our common stock authorized for issuance under the 2017 Incentive Plan.Plan by an additional 1.631 million shares. We also issued 4.20.7 million and 0.5 million shares of our common stock in connection with our acquisitionrelated to the vesting of UCP Inc., as discussed in Note 3.RSUs during the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, approximately 0.7 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan.
On November 7, 2016,27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”) with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Citigroup Global Markets Inc. (which, as sales agents pursuant to which we refer to collectively as the “Sales Agents”), relating to our common stock. Under the Distribution Agreement, we are authorized tomay offer and sell shares of our common stock having an aggregate offering price of up to $50.0$100.0 million from time to time through any of our Sales Agentsthe sales agents party thereto in “at“at-the-market” offerings, in accordance with the market” offerings. On August 9, 2017, we entered into a secondterms and conditions set forth in the Distribution Agreement. This Distribution Agreement, (which we refer to as the “Second Distribution Agreement”) with the Sales Agents, pursuant to which we may offersuperseded and sell from time to time up toreplaced a prior similar distribution agreement, had all $100.0 million in “at the market” offerings. During the three and nine months ended Septemberavailable for sale as of June 30, 2017, we sold and issued an aggregate of 0.4 million and 1.4 million2021. We did 0t sell or issue any shares of our common stock during the three and six months ended June 30, 2021 and 2020, respectively. The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement. Sales cannot be made under the Distribution Agreement unless and Second Distribution Agreement, respectively,until we file a prospectus supplement to our recently filed shelf registration statement that was filed on July 1, 2021, which provided net proceedsprospectus supplement we intend to file in the near future.
On November 6, 2018, we authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of $10.0our outstanding common stock. During the three and six months ended June 30, 2021 and 2020, we did not repurchase any shares of common stock. The maximum number of shares available to be purchased under the stock repurchase program as of June 30, 2021 was 3,812,939 shares.
On May 19, 2021, our Board of Directors announced the approval of the initiation of a quarterly cash dividend. Additionally, on May 19, 2021, our Board of Directors declared our first quarterly cash dividend of $0.15 per share and totaling $5.1 million, and $34.6 million, respectively, and, in connection with such sales,which was paid total commissions and feeson June 16, 2021 to the Sales Agentsstockholders of $0.2 million and $0.7 million, respectively.record of our common stock as of June 2, 2021.
15.14. Earnings Per Share
We use the two-class method of calculating earnings per share (which we refer to as “EPS”) as our non-vested restricted stock awards have non-forfeitable rights to dividends and, accordingly, represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.
We use the treasury stock method to calculate the dilutive effect ofearnings per share as our restricted stock units as the restricted stock unitscurrently issued non-vested RSUs and PSUs do not have participating rights.
The following table sets forth the computation of basic and diluted EPS for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 (in thousands, except share and per share information):
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income |
| $ | 9,470 |
| $ | 13,342 |
| $ | 33,100 |
| $ | 34,467 | $ | 117,910 | $ | 38,450 | $ | 219,562 | $ | 64,576 | ||||
Less: Undistributed earnings allocated to participating securities |
|
| (52) |
|
| (241) |
|
| (289) |
|
| (785) | ||||||||||||
Net income allocable to common stockholders |
| $ | 9,418 |
| $ | 13,101 |
| $ | 32,811 |
| $ | 33,682 | ||||||||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average common shares outstanding - basic |
|
| 25,445,552 |
|
| 20,673,521 |
| 23,038,390 |
| 20,643,682 | 33,738,586 | 33,340,184 | 33,651,727 | 33,274,056 | ||||||||||
Dilutive effect of restricted stock units |
|
| 280,585 |
|
| 148,545 |
|
| 236,930 |
|
| 88,248 | 218,052 | 121,510 | 269,212 | 195,013 | ||||||||
Weighted average common shares outstanding - diluted |
|
| 25,726,137 |
|
| 20,822,066 |
|
| 23,275,320 |
|
| 20,731,930 | 33,956,638 | 33,461,694 | 33,920,939 | 33,469,069 | ||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.42 |
| $ | 1.63 | $ | 3.49 | $ | 1.15 | $ | 6.52 | $ | 1.94 | ||||
Diluted |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.41 |
| $ | 1.62 | $ | 3.47 | $ | 1.15 | $ | 6.47 | $ | 1.93 |
Stock-based awards are excluded from the calculation of diluted EPS in the event they are subject to unsatisfied performance conditions or are antidilutive. We did not have anyexcluded 0.8 million common stock unit equivalents to exclude from diluted earnings per share during each of the three and ninesix months ended SeptemberJune 30, 2017.2021 and 2020 related to the PSUs for which performance conditions remained unsatisfied.
16.15. Commitments and Contingencies
Letters of Credit and Performance Bonds
In the normal course of business, the Company postswe post letters of credit and performance and other bonds primarily related to our land development performance obligations with local municipalities. As of SeptemberJune 30, 20172021, and December 31, 2016,2020, we had $70.1$464.6 million and $70.1$402.7 million, respectively, in letters of credit and performance and other bonds issued and outstanding.
Litigation
The Company isLegal Proceedings
We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of our management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and the eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative expense on our condensed consolidated statements of operations for our estimated loss.
17Under various insurance policies, we have the ability to recoup costs in excess of applicable self-insured retentions. Estimates of such amounts are recorded in other assets on our condensed consolidated balance sheet when recovery is probable.
We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flow.flows.
17. Supplemental Guarantor Information
The Existing 6.875% Notes and the May 2017 Senior Notes are our unsecured senior obligations, and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to as “Guarantors”).
Each of the May 2014 Indenture governing the Existing 6.875% Notes, and the May 2017 Indenture governing the May 2017 Senior Notes, provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective Indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective Indentures) or is made in compliance with applicable provisions of the applicable Indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable Indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective Indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable Indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the respective Indentures), in accordance with the applicable Indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable Indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable Indenture.
As the guarantees were made in connection with the February 2015 exchange offer for the Initial Exchange Notes, the October 2015 exchange offer for the October 2015 Exchange Notes, the April 2017 exchange offer for the April 2017 Exchange Notes, and the issuance of the May 2017 Senior Notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.
18
We have determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Balance Sheet | |||||||||||||
|
| As of September 30, 2017 (in thousands) | |||||||||||||
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 35,881 |
| $ | 16,278 |
| $ | 6,363 |
| $ | — |
| $ | 58,522 |
Cash held in escrow |
|
| — |
|
| 41,740 |
|
| 522 |
|
| — |
|
| 42,262 |
Accounts receivable |
|
| 11,306 |
|
| 9,312 |
|
| 192 |
|
| — |
|
| 20,810 |
Investment in consolidated subsidiaries |
|
| 1,382,958 |
|
| — |
|
| — |
|
| (1,382,958) |
|
| — |
Inventories |
|
| — |
|
| 1,352,989 |
|
| — |
|
| — |
|
| 1,352,989 |
Mortgage loans held for sale |
|
| — |
|
| — |
|
| 30,071 |
|
| — |
|
| 30,071 |
Prepaid expenses and other assets |
|
| 2,859 |
|
| 59,129 |
|
| 374 |
|
| — |
|
| 62,362 |
Deferred tax asset, net |
|
| 6,403 |
|
| — |
|
| — |
|
| — |
|
| 6,403 |
Property and equipment, net |
|
| 2,409 |
|
| 10,760 |
|
| 489 |
|
| — |
|
| 13,658 |
Investment in unconsolidated subsidiaries |
|
| 20,677 |
|
| — |
|
| — |
|
|
|
|
| 20,677 |
Amortizable intangible assets, net |
|
| — |
|
| 1,889 |
|
| — |
|
| — |
|
| 1,889 |
Goodwill |
|
| — |
|
| 21,365 |
|
| — |
|
| — |
|
| 21,365 |
Total assets |
| $ | 1,462,493 |
| $ | 1,513,462 |
| $ | 38,011 |
| $ | (1,382,958) |
| $ | 1,631,008 |
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | (17) |
| $ | 16,707 |
| $ | 120 |
| $ | — |
| $ | 16,810 |
Accrued expenses and other liabilities |
|
| 35,746 |
|
| 121,251 |
|
| 708 |
|
| — |
|
| 157,705 |
Notes payable |
|
| 773,752 |
|
| 2,264 |
|
| — |
|
| — |
|
| 776,016 |
Revolving line of credit |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Mortgage repurchase facility |
|
| — |
|
| — |
|
| 27,465 |
|
| — |
|
| 27,465 |
Total liabilities |
|
| 809,481 |
|
| 140,222 |
|
| 28,293 |
|
| — |
|
| 977,996 |
Stockholders’ equity: |
|
| 653,012 |
|
| 1,373,240 |
|
| 9,718 |
|
| (1,382,958) |
|
| 653,012 |
Total liabilities and stockholders’ equity |
| $ | 1,462,493 |
| $ | 1,513,462 |
| $ | 38,011 |
| $ | (1,382,958) |
| $ | 1,631,008 |
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Balance Sheet | ||||||||||||||
|
| As of December 31, 2016 (in thousands) | |||||||||||||
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 14,637 |
| $ | 8,646 |
| $ | 6,167 |
| $ | — |
| $ | 29,450 |
Cash held in escrow |
|
| — |
|
| 20,044 |
|
| — |
|
| — |
|
| 20,044 |
Accounts receivable |
|
| 2,980 |
|
| 2,749 |
|
| — |
|
| — |
|
| 5,729 |
Investment in consolidated subsidiaries |
|
| 884,665 |
|
| — |
|
| — |
|
| (884,665) |
|
| — |
Inventories |
|
| — |
|
| 857,885 |
|
| — |
|
| — |
|
| 857,885 |
Prepaid expenses and other assets |
|
| 14,628 |
|
| 25,662 |
|
| 167 |
|
| — |
|
| 40,457 |
Property and equipment, net |
|
| 1,166 |
|
| 10,224 |
|
| 22 |
|
| — |
|
| 11,412 |
Investment in unconsolidated subsidiaries |
|
| 18,275 |
|
| — |
|
|
|
|
|
|
|
| 18,275 |
Amortizable intangible assets, net |
|
| — |
|
| 2,911 |
|
| — |
|
| — |
|
| 2,911 |
Goodwill |
|
| — |
|
| 21,365 |
|
| — |
|
| — |
|
| 21,365 |
Total assets |
| $ | 936,351 |
| $ | 949,486 |
| $ | 6,356 |
| $ | (884,665) |
| $ | 1,007,528 |
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 257 |
| $ | 15,575 |
| $ | (124) |
| $ | — |
| $ | 15,708 |
Accrued expenses and other liabilities |
|
| 12,587 |
|
| 49,697 |
|
| 30 |
|
| — |
|
| 62,314 |
Deferred tax liability |
|
| 1,782 |
|
| — |
|
| — |
|
| — |
|
| 1,782 |
Senior and other notes payable |
|
| 253,089 |
|
| 5,999 |
|
| — |
|
| — |
|
| 259,088 |
Revolving line of credit |
|
| 195,000 |
|
| — |
|
| — |
|
| — |
|
| 195,000 |
Total liabilities |
|
| 462,715 |
|
| 71,271 |
|
| (94) |
|
| — |
|
| 533,892 |
Stockholders’ equity: |
|
| 473,636 |
|
| 878,215 |
|
| 6,450 |
|
| (884,665) |
|
| 473,636 |
Total liabilities and stockholders’ equity |
| $ | 936,351 |
| $ | 949,486 |
| $ | 6,356 |
| $ | (884,665) |
| $ | 1,007,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Operations | |||||||||||||
| For the Three Months Ended September 30, 2017 (in thousands) | ||||||||||||||
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | — |
| $ | 374,935 |
| $ | — |
| $ | — |
| $ | 374,935 |
Land sales and other revenues |
|
| — |
|
| 1,826 |
|
| — |
|
| — |
|
| 1,826 |
|
|
| — |
|
| 376,761 |
|
| — |
|
| — |
|
| 376,761 |
Financial services revenue |
|
| — |
|
| — |
|
| 2,955 |
|
| — |
|
| 2,955 |
Total revenues |
|
| — |
|
| 376,761 |
|
| 2,955 |
|
| — |
|
| 379,716 |
Homebuilding cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of homes sales revenues |
|
| — |
|
| (311,365) |
|
| — |
|
| — |
|
| (311,365) |
Cost of land sales and other revenues |
|
| — |
|
| (2,104) |
|
| — |
|
| — |
|
| (2,104) |
|
|
| — |
|
| (313,469) |
|
| — |
|
| — |
|
| (313,469) |
Financial services costs |
|
| — |
|
| — |
|
| (2,450) |
|
| — |
|
| (2,450) |
Selling, general and administrative |
|
| (13,342) |
|
| (32,823) |
|
| — |
|
| — |
|
| (46,165) |
Acquisition expense |
|
| (7,205) |
|
| — |
|
| — |
|
| — |
|
| (7,205) |
Equity in earnings from consolidated subsidiaries |
|
| 20,470 |
|
| — |
|
| — |
|
| (20,470) |
|
| — |
Equity in income of unconsolidated subsidiaries |
|
| 3,716 |
|
| — |
|
| — |
|
| — |
|
| 3,716 |
Other income (expense) |
|
| 495 |
|
| 518 |
|
| — |
|
| — |
|
| 1,013 |
Income before income tax expense |
|
| 4,134 |
|
| 30,987 |
|
| 505 |
|
| (20,470) |
|
| 15,156 |
Income tax expense |
|
| 5,336 |
|
| (10,845) |
|
| (177) |
| �� | — |
|
| (5,686) |
Net income |
| $ | 9,470 |
| $ | 20,142 |
| $ | 328 |
| $ | (20,470) |
| $ | 9,470 |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Operations | |||||||||||||
| For the Three Months Ended September 30, 2016 (in thousands) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | — |
| $ | 248,075 |
| $ | — |
| $ | — |
| $ | 248,075 |
Land sales and other revenues |
|
| — |
|
| 5,338 |
|
| — |
|
| — |
|
| 5,338 |
|
|
| — |
|
| 253,413 |
|
| — |
|
| — |
|
| 253,413 |
Financial services revenue |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total revenues |
|
| — |
|
| 253,413 |
|
| — |
|
| — |
|
| 253,413 |
Homebuilding cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of homes sales revenues |
|
| — |
|
| (197,650) |
|
| — |
|
| — |
|
| (197,650) |
Cost of land sales and other revenues |
|
| — |
|
| (5,420) |
|
| — |
|
| — |
|
| (5,420) |
|
|
| — |
|
| (203,070) |
|
| — |
|
| — |
|
| (203,070) |
Financial services costs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Selling, general and administrative |
|
| (6,846) |
|
| (24,098) |
|
| — |
|
| — |
|
| (30,944) |
Acquisition expense |
|
| (53) |
|
| — |
|
| — |
|
| — |
|
| (53) |
Equity in earnings from consolidated subsidiaries |
|
| 17,303 |
|
| — |
|
| — |
|
| (17,303) |
|
| — |
Other income (expense) |
|
| 10 |
|
| 375 |
|
| — |
|
| — |
|
| 385 |
Income before income tax expense |
|
| 10,414 |
|
| 26,620 |
|
| — |
|
| (17,303) |
|
| 19,731 |
Income tax expense |
|
| 2,928 |
|
| (9,317) |
|
| — |
|
| — |
|
| (6,389) |
Net income |
| $ | 13,342 |
| $ | 17,303 |
| $ | — |
| $ | (17,303) |
| $ | 13,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Operations | |||||||||||||
| For the Nine Months Ended September 30, 2017 (in thousands) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | — |
| $ | 888,942 |
| $ | — |
| $ | — |
| $ | 888,942 |
Land sales and other revenues |
|
| — |
|
| 6,216 |
|
| — |
|
| — |
|
| 6,216 |
|
|
| — |
|
| 895,158 |
|
| — |
|
| — |
|
| 895,158 |
Financial services revenue |
|
| — |
|
| — |
|
| 4,697 |
|
| — |
|
| 4,697 |
Total revenues |
|
| — |
|
| 895,158 |
|
| 4,697 |
|
| — |
|
| 899,855 |
Homebuilding cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of homes sales revenues |
|
| — |
|
| (727,577) |
|
| — |
|
| — |
|
| (727,577) |
Cost of land sales and other revenues |
|
| — |
|
| (4,994) |
|
| — |
|
| — |
|
| (4,994) |
|
|
| — |
|
| (732,571) |
|
| — |
|
| — |
|
| (732,571) |
Financial services costs |
|
| — |
|
| — |
|
| (4,648) |
|
| — |
|
| (4,648) |
Selling, general and administrative |
|
| (30,876) |
|
| (82,721) |
|
| — |
|
| — |
|
| (113,597) |
Acquisition expense |
|
| (8,645) |
|
| — |
|
| — |
|
| — |
|
| (8,645) |
Equity in earnings from consolidated subsidiaries |
|
| 52,869 |
|
| — |
|
| — |
|
| (52,869) |
|
| — |
Equity in income of unconsolidated subsidiaries |
|
| 7,648 |
|
| — |
|
| — |
|
| — |
|
| 7,648 |
Other income (expense) |
|
| 852 |
|
| 1,386 |
|
| 36 |
|
| — |
|
| 2,274 |
Income before income tax expense |
|
| 21,848 |
|
| 81,252 |
|
| 85 |
|
| (52,869) |
|
| 50,316 |
Income tax expense |
|
| 11,252 |
|
| (28,438) |
|
| (30) |
|
| — |
|
| (17,216) |
Net income |
| $ | 33,100 |
| $ | 52,814 |
| $ | 55 |
| $ | (52,869) |
| $ | 33,100 |
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Operations | |||||||||||||
| For the Nine Months Ended September 30, 2016 (in thousands) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homebuilding revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | — |
| $ | 686,335 |
| $ | — |
| $ | — |
| $ | 686,335 |
Land sales and other revenues |
|
| — |
|
| 10,816 |
|
| — |
|
| — |
|
| 10,816 |
|
|
| — |
|
| 697,151 |
|
| — |
|
| — |
|
| 697,151 |
Financial services revenue |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total revenues |
|
| — |
|
| 697,151 |
|
| — |
|
| — |
|
| 697,151 |
Homebuilding cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of homes sales revenues |
|
| — |
|
| (549,886) |
|
| — |
|
| — |
|
| (549,886) |
Cost of land sales and other revenues |
|
| — |
|
| (9,433) |
|
| — |
|
| — |
|
| (9,433) |
|
|
| — |
|
| (559,319) |
|
| — |
|
| — |
|
| (559,319) |
Financial services costs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Selling, general and administrative |
|
| (18,323) |
|
| (69,189) |
|
| — |
|
| — |
|
| (87,512) |
Equity in earnings from consolidated subsidiaries |
|
| 45,514 |
|
| — |
|
| — |
|
| (45,514) |
|
| — |
Acquisition expense |
|
| (466) |
|
| — |
|
| — |
|
| — |
|
| (466) |
Other income (expense) |
|
| 24 |
|
| 1,379 |
|
| — |
|
| — |
|
| 1,403 |
Income before income tax expense |
|
| 26,749 |
|
| 70,022 |
|
| — |
|
| (45,514) |
|
| 51,257 |
Income tax expense |
|
| 7,718 |
|
| (24,508) |
|
| — |
|
| — |
|
| (16,790) |
Net income |
| $ | 34,467 |
| $ | 45,514 |
| $ | — |
| $ | (45,514) |
| $ | 34,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Cash Flows | |||||||||||||
|
| For the Nine Months Ended September 30, 2017 (in thousands) | |||||||||||||
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Net cash provided by/(used in) operating activities |
| $ | (8,164) |
| $ | (92,577) |
| $ | (30,014) |
| $ | — |
| $ | (130,755) |
Net cash used in investing activities |
| $ | (434,617) |
| $ | (63,905) |
| $ | (467) |
| $ | 432,867 |
| $ | (66,122) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
| $ | 75,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | 75,000 |
Payments on revolving credit facilities |
|
| (270,000) |
|
| — |
|
| — |
|
| — |
|
| (270,000) |
Proceeds from issuance of senior notes |
|
| 523,000 |
|
| — |
|
| — |
|
| — |
|
| 523,000 |
Repyment of debt assumed in business combination |
|
| — |
|
| (151,919) |
|
| — |
|
| — |
|
| (151,919) |
Principal payments on notes payable |
|
| — |
|
| (4,735) |
|
| — |
|
| — |
|
| (4,735) |
Debt issuance costs |
|
| (3,731) |
|
| — |
|
| — |
|
| — |
|
| (3,731) |
Repurchases of common stock upon vesting of restricted stock awards |
|
| (4,141) |
|
| — |
|
| — |
|
| — |
|
| (4,141) |
Payments from (and advances to) parent/subsidiary |
|
| 108,887 |
|
| 320,768 |
|
| 3,212 |
|
| (432,867) |
|
| — |
Net proceeds from mortgage credit facility |
|
| — |
|
| — |
|
| 27,465 |
|
| — |
|
| 27,465 |
Net proceeds from issuances of common stock |
|
| 35,010 |
|
| — |
|
| — |
|
| — |
|
| 35,010 |
Net cash provided by financing activities |
| $ | 464,025 |
| $ | 164,114 |
| $ | 30,677 |
| $ | (432,867) |
| $ | 225,949 |
Net decrease in cash and cash equivalents |
| $ | 21,244 |
| $ | 7,632 |
| $ | 196 |
| $ | — |
| $ | 29,072 |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
| $ | 14,637 |
| $ | 8,646 |
| $ | 6,167 |
| $ | — |
| $ | 29,450 |
End of period |
| $ | 35,881 |
| $ | 16,278 |
| $ | 6,363 |
| $ | — |
| $ | 58,522 |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Condensed Consolidated Statement of Cash Flows | |||||||||||||
|
| For the Nine Months Ended September 30, 2016 (in thousands) | |||||||||||||
|
|
|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Net cash provided by/(used in) operating activities |
| $ | (17,969) |
| $ | (43,431) |
| $ | — |
| $ | — |
| $ | (61,400) |
Net cash used in investing activities |
| $ | (42,791) |
| $ | (4,685) |
| $ | — |
| $ | 42,476 |
| $ | (5,000) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facilities |
| $ | 145,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | 145,000 |
Payments on revolving credit facilities |
|
| (90,000) |
|
| — |
|
| — |
|
| — |
|
| (90,000) |
Proceeds from insurance notes payable |
|
| — |
|
| 11,612 |
|
| — |
|
| — |
|
| 11,612 |
Principal payments on notes payable |
|
| — |
|
| (7,582) |
|
| — |
|
| — |
|
| (7,582) |
Debt issuance costs |
|
| (1,156) |
|
| — |
|
| — |
|
| — |
|
| (1,156) |
Repurchases of common stock under our stock repurchase program |
|
| (2,393) |
|
| — |
|
| — |
|
| — |
|
| (2,393) |
Repurchases of common stock upon vesting of restricted stock awards |
|
| (1,014) |
|
| — |
|
| — |
|
| — |
|
| (1,014) |
Payments from (and advances to) parent/subsidiary |
|
| — |
|
| 42,476 |
|
| — |
|
| (42,476) |
|
| — |
Net cash provided by financing activities |
| $ | 50,437 |
| $ | 46,506 |
| $ | — |
| $ | (42,476) |
| $ | 54,467 |
Net decrease in cash and cash equivalents |
| $ | (10,323) |
| $ | (1,610) |
| $ | — |
| $ | — |
| $ | (11,933) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
| $ | 22,002 |
| $ | 7,285 |
| $ | — |
| $ |
|
| $ | 29,287 |
End of period |
| $ | 11,679 |
| $ | 5,675 |
| $ | — |
| $ | — |
| $ | 17,354 |
18. Subsequent Events
On October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes and affiliates, a homebuilder with operations in greater Seattle, Washington for approximately $51.5 million in cash. The acquired assets include owned and controlled land, homes under construction and model homes. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination.
The following table summarizes our preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the acquisition date:
|
| |
| ||
| ||
|
| |
|
| |
| ||
| ||
|
|
The purchase price accounting reflected above is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.
23
ITEM 2. ��MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or“potential,” the negative of such terms and other comparable terminology.terminology and the use of future dates. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors.
The forward-looking statements included in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ
significantly from those expressed in any forward-looking statement. Statements regarding the following subjects, among others, may be forward-looking:
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|
|
|
|
|
|
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|
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|
forward-looking and subject to risks and uncertainties including among others:
The forward-lookingthe impact of the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular;
economic changes, either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;
shortages of or increased prices for labor, land or raw materials, including lumber, used in housing construction;
a downturn in the homebuilding industry, including a reduction in demand or a decline in real estate values or market conditions resulting in an adverse impact on our business, operating results and financial conditions, including an impairment of our assets;
changes in assumptions used to make industry forecasts, population growth rates, or trends affecting housing demand or prices;
continued volatility and uncertainty in the credit markets and broader financial markets;
our future operating results and financial condition;
our business operations;
changes in our business and investment strategy;
availability and price of land to acquire, and our ability to acquire such land on favorable terms or at all;
availability, terms and deployment of capital;
availability or cost of mortgage financing or an increase in the number of foreclosures in the market;
delays in land development or home construction resulting from adverse weather conditions or other events outside our control;
impact of construction defect, product liability, and/or home warranty claims, including the adequacy of accruals and the applicability and sufficiency of our insurance coverage;
changes in, or the failure or inability to comply with, governmental laws and regulations;
the timing of receipt of regulatory approvals and the opening of projects;
the impact and cost of compliance with evolving environmental, health and safety and other laws and regulations and third-party challenges to required permits and other approvals and potential legal liability in connection therewith;
the degree and nature of our competition;
our leverage, debt service obligations and exposure to changes in interest rates;
our ability to continue to fund and succeed in our mortgage lending business and the additional risks involved in that business;
availability of qualified personnel and contractors and our ability to retain key personnel and contractor relationships;
taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance; and
changes in United States generally accepted accounting principles (which we refer to as “GAAP”).
Forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us. Forward-looking statements are not guarantees of future events or of our performance. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these events and factors are described above and in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II,I, Item 1A. Risk Factors” in thisour Annual Report on Form 10-Q,10-K, and other risks and uncertainties detailed in this report, including “Part II, Item 1A. Risk Factors”, and our other reports and filings with the SEC. If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.
As used in this Form 10-Q, references to “we,” “us,” “our”“our,” “Century” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.
24
TableThe following discussion and analysis of Contentsour financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. We use certain non-GAAP financial measures that we believe are important for purposes of comparison to prior periods. This information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends. Some of the numbers included herein have been rounded for the convenience of presentation.
Overview
Overview
We areCentury is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in California, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, Utah, and Washington.17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand targets
a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet and generally provides no option or upgrade opportunities. Our homebuilding operations are organized into the following fourfive reportable segments based on the geographic regions in which we operate:segments: West, Mountain, Texas, Southeast, and the Southeast.Century Complete. Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, and Parkway Title,IHL Home Insurance Agency, LLC, which provide mortgage, title, and titleinsurance services, respectively, primarily to our home buyers, respectively,homebuyers have been identified as our Financial Services segment.
While we offer homes that appeal to a broad range of entry-level, move-up, and lifestyle homebuyers, our offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments. Additionally, we prefer building move-in-ready homes over built-to-order homes, which we believe allows for a faster construction process, advantageous pricing with subcontractors, and shortened time period from home sale to home delivery, thus allowing us to more appropriately price the homes and deploy our capital.
Impact of COVID-19 Pandemic
The outbreak of the novel coronavirus, (COVID-19), which was declared a pandemic by the World Health Organization on March 11, 2020, created significant volatility, disruption, and uncertainty across the nation and abroad.
The homebuilding industry started to experience slowing sales trends in mid-March through April of 2020 at the outset of the widespread uncertainty concerning the pandemic. However, home sales sharply rebounded in May and June of 2020, aided by historically low interest rates, lack of supply, and renewed desire from customers to move out of urban areas and/or apartments and into new homes in suburban areas, which desire was likely accelerated by the COVID-19 pandemic. These positive trends and market dynamics continued throughout the remainder of 2020 and throughout the first half of 2021.
While these positive trends and market dynamics continued throughout the first half of 2021, we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known. There is still uncertainty regarding the extent and duration of the COVID-19 pandemic and future increases in COVID-19 positive cases could result in altering of the “re-opening” plans of numerous state and local municipalities, which may include government restrictions, such as “stay-at-home” or “shelter-in-place” directives, quarantines, travel advisories and social distancing measures. Despite overall strong demand and sales of our homes during the first and second quarters of 2021, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment levels, and the extent to which and how long COVID-19 and related government directives, actions, and economic relief efforts will impact the U.S. economy, unemployment levels, financial markets, credit and mortgage markets, consumer confidence, interest rates, availability of mortgage loans to homebuyers, and other factors, including those described elsewhere in this report. A decrease in demand for our homes would adversely affect our operating segment.
On August 4, 2017, we acquired UCP, Inc. UCP is a homebuilder and land developer with expertiseresults in residential land acquisition, development and entitlement,future periods, as well as home design, constructionhave a direct effect on the origination volume of and sales, with operationsrevenues from our Financial Services segment. In addition, because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventories in the States of California, Washington, North Carolina, South Carolina and Tennessee. The merger was unanimously approvedfuture.
Driven by the boardcontinued strong demand for our homes throughout the first and second quarters of directors2021, we ended the second quarter of both2021 with no amounts outstanding under our revolving line of credit, $419.4 million of cash and cash equivalents, $37.6 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 23.0%. Additionally, we increased our land acquisition and development activities during the Companyfirst six months of 2021 to bolster our lot pipeline and UCP,support future community growth, which resulted in 65,610 lots owned and wascontrolled at June 30, 2021, a 88.4% increase as compared to June 30, 2020 and a 31.3% increase as compared to December 31, 2020. Although the trajectory and strength of our markets have continued to remain strong and allowed us to pass on increased costs through price increases and increase our margins, we continued to experience materials and labor supply cost pressures during the first six months of 2021 that could negatively impact our margins in future periods. While the impact of the COVID-19 pandemic will continue to evolve and at any given time recovery could be slowed or reversed by a number of factors, we believe we are well positioned from a cash and liquidity standpoint not only to operate in an uncertain environment, but also approved by UCP stockholders on August 1, 2017. In connectionto continue to grow with the merger, each sharemarket and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock. Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash. Outstanding UCP restricted stock units were also converted into an aggregate of 0.2 million of Century Communities restricted stock units pursuant to the merger. We determined that the total fair value of these awards was $6.2 million, of which $1.1 million was attributable to services performed by UCP employees prior to the merger and,debt refinancing and/or strategic opportunities as such, was included as consideration. Because the closing of the merger occurred during the quarter ended September 30, 2017, the discussion included under “Results of Operations” below includes results of UCP only for the period from August 4, 2017 through September 30, 2017. We have adjusted prior period consolidated and segment information, where applicable, to conform to the current period presentation.they arise.
Results of Operations
During the three and six months ended SeptemberJune 30, 2017,2021, we delivered 9682,771 and 5,568 homes, respectively, with an average sales price of $387.3 thousand.$362.6 thousand and $352.7 thousand, respectively. These deliveries represent increases of 11.7% and 28.2%, respectively, as compared to the three and six months ended June 30, 2020 and represent a 20.3% and 16.1% increase in average sales price as compared to the three and six months ended June 30, 2020. During the same period,three and six months ended June 30, 2021, we generated approximately $374.9 million$1.0 billion and $2.0 billion in home sales revenues, respectively, approximately $15.2$152.1 million and $283.2 million in income before income tax expense, respectively, and approximately $9.5$117.9 million and $219.6 million in net income.income, respectively, in each case representing substantial increases over the prior year periods.
For the three and ninesix months ended SeptemberJune 30, 2017,2021, our new home contracts, net of cancelations, totaled 9143,120 and 2,892,6,575, respectively, a 45.5%17.1% and 26.2%30.1% increase over the same respective periods in 2016, respectively.2020. As of SeptemberJune 30, 2017,2021, we had a backlog of 1,664 sold but unclosed4,446 homes, a 67.7%60.0% increase as compared to SeptemberJune 30, 2016,2020, representing approximately $689.3$1,762.5 million in sales value, an 81.0%83.1% increase as compared to SeptemberJune 30, 2016. 2020.
The following table summarizes our results of operationoperations for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016. 2020.
(in thousands, except per share amounts) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||
Consolidated Statements of Operations: | |||||||||||||||||
Revenue | |||||||||||||||||
Home sales revenues | $ | 1,004,789 | $ | 747,415 | $ | 1,964,068 | $ | 1,320,125 | |||||||||
Land sales and other revenues | 8,258 | 3,307 | 23,928 | 23,411 | |||||||||||||
1,013,047 | 750,722 | 1,987,996 | 1,343,536 | ||||||||||||||
Financial services revenues | 29,865 | 25,722 | 63,485 | 35,517 | |||||||||||||
Total revenues | 1,042,912 | 776,444 | 2,051,481 | 1,379,053 | |||||||||||||
Homebuilding cost of revenues | |||||||||||||||||
Cost of home sales revenues | (764,668) | (620,655) | (1,521,175) | (1,091,181) | |||||||||||||
Cost of land sales and other revenues | (7,000) | (2,384) | (17,020) | (16,551) | |||||||||||||
(771,668) | (623,039) | (1,538,195) | (1,107,732) | ||||||||||||||
Financial services costs | (18,168) | (12,744) | (36,469) | (22,330) | |||||||||||||
Selling, general, and administrative | (99,656) | (86,706) | (191,807) | (160,325) | |||||||||||||
Inventory impairment and other | (41) | (910) | (41) | (1,691) | |||||||||||||
Other income (expense) | (1,245) | (2,942) | (1,786) | (2,784) | |||||||||||||
Income before income tax expense | 152,134 | 50,103 | 283,183 | 84,191 | |||||||||||||
Income tax expense | (34,224) | (11,653) | (63,621) | (19,615) | |||||||||||||
Net income | $ | 117,910 | $ | 38,450 | $ | 219,562 | $ | 64,576 | |||||||||
Earnings per share: | |||||||||||||||||
Basic | $ | 3.49 | $ | 1.15 | $ | 6.52 | $ | 1.94 | |||||||||
Diluted | $ | 3.47 | $ | 1.15 | $ | 6.47 | $ | 1.93 | |||||||||
Adjusted diluted earnings per share(1) | $ | 3.47 | $ | 1.21 | $ | 6.47 | $ | 2.00 | |||||||||
Other Operating Information (dollars in thousands): | |||||||||||||||||
Number of homes delivered | 2,771 | 2,480 | 5,568 | 4,344 | |||||||||||||
Average sales price of homes delivered | $ | 362.6 | $ | 301.4 | $ | 352.7 | $ | 303.9 | |||||||||
Homebuilding gross margin percentage(2) | 23.9 | % | 16.9 | % | 22.5 | % | 17.2 | % | |||||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) | 25.7 | % | 19.5 | % | 24.4 | % | 19.8 | % | |||||||||
Backlog at end of period, number of homes | 4,446 | 2,778 | 4,446 | 2,778 | |||||||||||||
Backlog at end of period, aggregate sales value | $ | 1,762,465 | $ | 962,751 | $ | 1,762,465 | $ | 962,751 | |||||||||
Average sales price of homes in backlog | $ | 396.4 | $ | 346.6 | $ | 396.4 | $ | 346.6 | |||||||||
Net new home contracts | 3,120 | 2,664 | 6,575 | 5,052 | |||||||||||||
Selling communities at period end(3) | 184 | 223 | 184 | 223 | |||||||||||||
Average selling communities(3) | 179 | 231 | 187 | 226 | |||||||||||||
Total owned and controlled lot inventory | 65,610 | 34,832 | 65,610 | 34,832 | |||||||||||||
Adjusted EBITDA(1) | $ | 173,258 | $ | 74,034 | $ | 325,379 | $ | 125,840 | |||||||||
Adjusted income before income tax expense(1) | $ | 152,175 | $ | 52,597 | $ | 283,224 | $ | 87,466 | |||||||||
Adjusted net income(1) | $ | 117,987 | $ | 40,343 | $ | 219,594 | $ | 67,088 | |||||||||
Net homebuilding debt to net capital (1) | 23.0 | % | 37.5 | % | 23.0 | % | 37.5 | % |
(1) This is a non-GAAP financial measure and should not be used as a substitute for the Company’s operating results prepared in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and other information under “Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
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|
(in thousands, except per share amounts) |
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
|
| (unaudited) |
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|
|
|
| ||||||
Consolidated Statements of Operations: |
|
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|
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|
|
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|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | 374,935 |
|
| $ | 248,075 |
|
| $ | 888,942 |
|
| $ | 686,335 |
|
Land sales revenues |
|
| 1,826 |
|
|
| 5,338 |
|
|
| 6,216 |
|
|
| 10,816 |
|
|
|
| 376,761 |
|
|
| 253,413 |
|
|
| 895,158 |
|
|
| 697,151 |
|
Financial services revenue |
|
| 2,955 |
|
|
| — |
|
|
| 4,697 |
|
|
| — |
|
Total revenues |
|
| 379,716 |
|
|
| 253,413 |
|
|
| 899,855 |
|
|
| 697,151 |
|
Homebuilding cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of home sales revenues |
|
| (311,365) |
|
|
| (197,650) |
|
|
| (727,577) |
|
|
| (549,886) |
|
Cost of land sales and other revenues |
|
| (2,104) |
|
|
| (5,420) |
|
|
| (4,994) |
|
|
| (9,433) |
|
|
|
| (313,469) |
|
|
| (203,070) |
|
|
| (732,571) |
|
|
| (559,319) |
|
Financial services costs |
|
| (2,450) |
|
|
| — |
|
|
| (4,648) |
|
|
| — |
|
Selling, general, and administrative |
|
| (46,165) |
|
|
| (30,944) |
|
|
| (113,597) |
|
|
| (87,512) |
|
Acquisition expense |
|
| (7,205) |
|
|
| (53) |
|
|
| (8,645) |
|
|
| (466) |
|
Equity in income of unconsolidated subsidiaries |
|
| 3,716 |
|
|
| — |
|
|
| 7,648 |
|
|
| — |
|
Other income (expense) |
|
| 1,013 |
|
|
| 385 |
|
|
| 2,274 |
|
|
| 1,403 |
|
Income before income tax expense |
|
| 15,156 |
|
|
| 19,731 |
|
|
| 50,316 |
|
|
| 51,257 |
|
Income tax expense |
|
| (5,686) |
|
|
| (6,389) |
|
|
| (17,216) |
|
|
| (16,790) |
|
Net income |
| $ | 9,470 |
|
| $ | 13,342 |
|
| $ | 33,100 |
|
| $ | 34,467 |
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Earnings per share: |
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Basic |
| $ | 0.37 |
|
| $ | 0.63 |
|
| $ | 1.42 |
|
| $ | 1.63 |
|
Diluted |
| $ | 0.37 |
|
| $ | 0.63 |
|
| $ | 1.41 |
|
| $ | 1.62 |
|
Adjusted diluted earnings per share(1) |
| $ | 0.73 |
|
| $ | 0.63 |
|
| $ | 1.87 |
|
| $ | 1.65 |
|
Other Operating Information (dollars in thousands): |
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|
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|
|
|
|
|
|
Number of homes delivered |
|
| 968 |
|
|
| 706 |
|
|
| 2,329 |
|
|
| 2,013 |
|
Average sales price of homes delivered |
| $ | 387.3 |
|
| $ | 351.4 |
|
| $ | 381.7 |
|
| $ | 341.0 |
|
Homebuilding gross margin percentage |
|
| 17.0 | % |
|
| 20.3 | % |
|
| 18.2 | % |
|
| 19.9 | % |
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory (1) |
|
| 21.0 | % |
|
| 22.5 | % |
|
| 21.2 | % |
|
| 21.8 | % |
Cancellation rate |
|
| 24 | % |
|
| 22 | % |
|
| 19 | % |
|
| 19 | % |
Backlog at end of period, number of homes |
|
| 1,664 |
|
|
| 992 |
|
|
| 1,664 |
|
|
| 992 |
|
Backlog at end of period, aggregate sales value |
| $ | 689,338 |
|
| $ | 380,926 |
|
| $ | 689,338 |
|
| $ | 380,926 |
|
Average sales price of homes in backlog |
| $ | 414.3 |
|
| $ | 384.0 |
|
| $ | 414.3 |
|
| $ | 384.0 |
|
Net new home contracts |
|
| 914 |
|
|
| 628 |
|
|
| 2,892 |
|
|
| 2,291 |
|
Selling communities at period end |
|
| 107 |
|
|
| 87 |
|
|
| 107 |
|
|
| 87 |
|
Average selling communities |
|
| 102 |
|
|
| 90 |
|
|
| 92 |
|
|
| 91 |
|
Total owned and controlled lot inventory |
|
| 31,996 |
|
|
| 17,203 |
|
|
| 31,996 |
|
|
| 17,203 |
|
Adjusted EBITDA(1) |
| $ | 32,451 |
|
| $ | 26,441 |
|
| $ | 83,233 |
|
| $ | 68,971 |
|
Net debt to net capital(1) |
|
| 51.8 | % |
|
| 47.6 | % |
|
| 51.8 | % |
|
| 47.6 | % |
(1) Non-GAAP(2) Homebuilding gross margin percentage is inclusive of a $0.9 million and $1.7 million inventory impairment for the three and six months ended June 30, 2020, respectively, which is included within inventory impairment and other on our condensed consolidated financial measure.statements. We recognized nominal inventory impairment for the three and six months ended June 30, 2021.
(3) The selling communities as of June 30, 2020 has been adjusted from prior year presentations to reflect 101 selling communities in our Century Complete segment, which business was acquired in 2018, and for which the number of selling communities was previously not disclosed.
Results of Operations by Operating Segment
(dollars in thousands)
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| New Homes Delivered |
| Average Sales Price of Homes Delivered |
| Home Sales Revenues |
| Income before Income Tax | New Homes Delivered | Average Sales Price of Homes Delivered | Home Sales Revenues | Income before Income Tax Expense | ||||||||||||||||||||||||||||||||||||
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| Three Months Ended September 30, |
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| Three Months Ended September 30, | Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
West |
|
| 151 |
|
| — |
| $ | 488.0 |
| $ | — |
| $ | 73,684 |
| $ | — |
| $ | 5,259 |
| $ | — | 385 | 313 | $ | 616.5 | $ | 530.6 | $ | 237,359 | $ | 166,089 | $ | 40,903 | $ | 13,747 | ||||||||||
Mountain |
| 375 |
| 344 |
| $ | 417.3 |
| $ | 408.0 |
| 156,482 |
| 140,356 |
| 19,101 |
| 18,995 | 611 | 417 | $ | 473.1 | $ | 418.6 | 289,058 | 174,559 | 55,814 | 20,616 | ||||||||||||||||||||
Texas |
| 90 |
| 64 |
| $ | 397.5 |
| $ | 396.6 |
| 35,772 |
| 25,385 |
| 2,166 |
| (288) | 477 | 400 | $ | 273.9 | $ | 246.4 | 130,641 | 98,558 | 19,139 | 9,610 | ||||||||||||||||||||
Southeast |
| 352 |
| 298 |
| $ | 309.7 |
| $ | 276.3 |
| 108,997 |
| 82,334 |
| 6,001 |
| 7,848 | 429 | 515 | $ | 392.7 | $ | 338.8 | 168,453 | 174,492 | 26,096 | 12,020 | ||||||||||||||||||||
Century Complete | 869 | 835 | $ | 206.3 | $ | 160.1 | 179,278 | 133,717 | 23,089 | 8,548 | ||||||||||||||||||||||||||||||||||||||
Financial Services |
| — |
| — |
| $ | — |
| $ | — |
| — |
| — |
| 505 |
| — | — | — | $ | — | $ | — | — | — | 11,697 | 12,978 | ||||||||||||||||||||
Corporate |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| (17,876) |
|
| (6,824) | — | — | $ | — | $ | — | — | — | (24,604) | (27,416) | ||||||||||||||
Total |
|
| 968 |
|
| 706 |
| $ | 387.3 |
| $ | 351.4 |
| $ | 374,935 |
| $ | 248,075 |
| $ | 15,156 |
| $ | 19,731 | 2,771 | 2,480 | $ | 362.6 | $ | 301.4 | $ | 1,004,789 | $ | 747,415 | $ | 152,134 | $ | 50,103 | ||||||||||
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| New Homes Delivered |
| Average Sales Price of Homes Delivered |
| Home Sales Revenues |
| Income before Income Tax | New Homes Delivered | Average Sales Price of Homes Delivered | Home Sales Revenues | Income before Income Tax Expense | ||||||||||||||||||||||||||||||||||||
|
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
West |
|
| 151 |
|
| — |
| $ | 488.0 |
| $ | — |
| $ | 73,684 |
| $ | — |
| $ | 5,259 |
| $ | — | 704 | 546 | $ | 601.1 | $ | 536.0 | $ | 423,149 | $ | 292,651 | $ | 68,364 | $ | 29,089 | ||||||||||
Mountain |
| 1,046 |
| 854 |
| $ | 421.1 |
| $ | 410.7 |
| 440,451 |
| 350,742 |
| 56,137 |
| 47,234 | 1,296 | 813 | $ | 446.9 | $ | 407.2 | 579,123 | 331,091 | 107,794 | 39,094 | ||||||||||||||||||||
Texas |
| 266 |
| 252 |
| $ | 409.6 |
| $ | 390.0 |
| 108,955 |
| 98,270 |
| 6,407 |
| 2,138 | 805 | 644 | $ | 271.3 | $ | 246.4 | 218,380 | 158,697 | 27,670 | 15,108 | ||||||||||||||||||||
Southeast |
| 866 |
| 907 |
| $ | 307.0 |
| $ | 261.7 |
| 265,852 |
| 237,323 |
| 16,609 |
| 21,827 | 997 | 883 | $ | 389.7 | $ | 346.4 | 388,534 | 305,894 | 49,536 | 20,329 | ||||||||||||||||||||
Century Complete | 1,766 | 1,458 | $ | 201.0 | $ | 159.0 | 354,882 | 231,792 | 44,819 | 9,333 | ||||||||||||||||||||||||||||||||||||||
Financial Services |
| — |
| — |
| $ | — |
| $ | — |
| — |
| — |
| (192) |
| — | — | — | $ | — | $ | — | — | — | 27,016 | 13,187 | ||||||||||||||||||||
Corporate |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| (33,904) |
|
| (19,942) | — | — | $ | — | $ | — | — | — | (42,016) | (41,949) | ||||||||||||||
Total |
|
| 2,329 |
|
| 2,013 |
| $ | 381.7 |
| $ | 341.0 |
| $ | 888,942 |
| $ | 686,335 |
| $ | 50,316 |
| $ | 51,257 | 5,568 | 4,344 | $ | 352.7 | $ | 303.9 | $ | 1,964,068 | $ | 1,320,125 | $ | 283,183 | $ | 84,191 |
West
In
During the three and six months ended June 30, 2021, our West segment for the three and nine months ended September 30, 2017, ourgenerated income before income tax increasedexpense of $40.9 million and $68.4 million, respectively, a 197.5% and 135.0% increase, respectively, over the respective prior year period. These increases were driven by $5.3 million in both periods, to $5.3 million. We acquired the entirety of our operations in the West operating segment in conjunction with our acquisition of UCP, Inc. as discussed above. During the period from August 4, 2017 through September 30, 2017, we delivered 151 new homes with an average price of $488.0 thousand and generated $73.7 millionincreases in home sales revenuesrevenue of $71.3 million and $130.5 million, respectively, and increases of 896 basis points and 622 basis points, respectively, in the West.
Mountain
In our Mountain segment, for the three and nine months ended September 30, 2017, ourpercentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales. The increases in revenue during the three and six months ended June 30, 2021 were generated by $0.1both increases in the number of homes delivered of 23.0% and 28.9%, respectively, as well as increases of 16.2% and 12.1%, respectively, in the average sales price per home. During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 73.2% and 64.2%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.
Mountain
During the three and six months ended June 30, 2021, our Mountain segment generated income before income tax expense of $55.8 million and $8.9$107.8 million, respectively, a 170.7% and 175.7% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of $114.5 million and $248.0 million, respectively, and increases of 750 basis points and 681 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales. The increases in revenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 46.5% and 59.4%, respectively, as well as increases of 13.0% and 9.7%, respectively, in the average sales price per home. During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 81.0% and 102.1%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.
Texas
During the three and six months ended June 30, 2021, our Texas segment generated income before income tax expense of $19.1 million and $56.1$27.7 million, respectively, as compared to $19.0a 99.2% and 83.1% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of $32.1 million and $47.2$59.7 million, forrespectively, and increases of 490 basis points and 315 basis points, respectively, in the same periodspercentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales. The increases in 2016, respectively. Thisrevenue during the three and six months ended June 30, 2021 were generated by both increases in the number of homes delivered of 19.3% and 25.0%, respectively, as well as increases of 11.2% and 10.1%, respectively, in the average sales price per home. During the three and six months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 53.2% and 91.2%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics.
Southeast
During the three months ended June 30, 2021, our Southeast segment generated income before income tax expense of $26.1 million, a 117.1% increase is relatedover the prior year period, driven by an increase of 860 basis points in the percentage of income before income tax expense to home sales revenues. Home sales revenues decreased during the three months ended June 30, 2021, generated by a decrease in the number of homes delivered of 16.7%, partially offset by an increase of 15.9% in the average sales price per home. During the three months ended June 30, 2021, the decrease in the number of homes delivered was driven by a decrease in our monthly absorption rate of 6.4%. The increase in the average sales price was driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics. During the six months ended June 30, 2021, our Southeast segment generated income before income tax expense of $49.5 million, a 143.7% increase, respectively, over the prior year period. The increase was driven by the increase in home sales revenue of $82.6 million, and an increase of 610 basis points in the percentage of income before income tax expense to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue during the six months ended June 30, 2021 was generated by both an increase in the number of homes delivered andof 12.9% as well as an increase of 12.5% in the average sellingsales price of those homes duringper home. During the periods, year over year.
Texas
In our Texas segment, for the three and ninesix months ended SeptemberJune 30, 2017, our income before income tax increased by $2.5 million and $4.3 million, respectively, to $2.2 million and $6.4 million, respectively, as compared to $(0.3) million and $2.1 million, for2021, the same periods in 2016, respectively. This increase is related to an increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 28.9% and anthe increase in the average sellingsales price was driven by both the mix of those homes during the periods, year over year. deliveries within individual communities between years, as well as increased pricing power as a result of strong market dynamics.
SoutheastCentury Complete
In our Southeast segment, for
During the three and ninesix months ended SeptemberJune 30, 2017,2021, our Century Complete segment generated income before income tax decreased by $1.8expense of $23.1 million and $5.2$44.8 million, respectively, to $6.0a 170.1% and 380.2% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of $45.6 million and $16.6$123.1 million, respectively, and increases of 649 basis points and 860 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as compared to $7.8 milliona result of increased revenues on a partially fixed cost base. The increases in revenue during the three and $21.8 million, forsix months ended June 30, 2021 were generated by both increases in the same periods in 2016, respectively. The number of homes delivered homeof 4.1% and 21.1%, respectively, as well as increases of 28.9% and 26.4%, respectively, in the average sales revenueprice per home. During the three and average selling price all increasedsix months ended June 30, 2021, the increases in the number of homes delivered were driven by increases in our Southeastmonthly absorption rate of 50.0% and 178.6%, respectively, and increases in the average sales price were driven by both the mix of deliveries within markets between years, as well as increased pricing power as a result of strong market dynamics.
Financial Services
Our Financial Services segment year over year. However, as we have recently started operations in North Carolina and Tennessee,originates mortgages for primarily our selling,
27
general and administrative expenses have increased in those states when operations commenced,homebuyers, and as such, we have net loss in those states drivingperformance typically correlates to the number of homes delivered. During the three months ended June 30, 2021, income before income tax to decrease year over yearexpense for our Southeast segment.
Financial Services
Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc. and Parkway Title, LLC, which provide mortgage and title services to our home buyers, respectively, have been identified as our Financial Services operating segment. We began providingsegment decreased $1.3 million to $11.7 million compared to the same period in 2020. This decrease was primarily the result of a $3.0 million favorable fair value adjustment on mortgage services to our customersloans held for sale during the second quarter of 2017. Substantially all of the loans we originate are sold2020, and was partially offset by a 59.5% increase in the secondary market withinnumber of loans sold during the three months ended June 30, 2021 as compared to the same period in 2020. During the six months ended June 30, 2021, income before income tax expense for our Financial Services segment increased $13.8 million to $27.0 million compared to the same period in 2020. The increase was primarily the result of a short$28.0 million overall increase in financial services revenue during the six months ended June 30, 2021 compared to the same period in 2020. The increase in financial services
revenue was directly attributable to an 84.3% increase in the number of loans sold during the six months ended June 30, 2021 as compared to the same period in 2020.
The following table presents selected operational data for our Financial Services segment in relation to our loan origination generally within 30 days. activities (dollars in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||
Total originations: | |||||||||||||||
Number of loans | 2,138 | 1,724 | 4,439 | 2,657 | |||||||||||
Principal | $ | 661,853 | $ | 493,534 | $ | 1,374,144 | $ | 765,326 | |||||||
Capture rate of Century homebuyers | 74 | % | 59 | % | 75 | % | 56 | % | |||||||
Century | 78 | % | 70 | % | 81 | % | 68 | % | |||||||
Century Complete | 66 | % | 34 | % | 62 | % | 31 | % | |||||||
Average FICO score | 737 | 735 | 737 | 735 | |||||||||||
Loans sold to third parties: | |||||||||||||||
Number of loans sold | 2,326 | 1,458 | 4,605 | 2,499 | |||||||||||
Principal | $ | 725,393 | $ | 419,557 | $ | 1,406,550 | $ | 729,027 |
Corporate
During the three and ninesix months ended SeptemberJune 30, 2017, we originated and closed 157 loans and 228 loans, respectively, with total principal of $51.0 million and $73.7 million, respectively. As of September 30, 2017, we have 43 loans in backlog with total principal of $13.6 million.
Corporate
During the three and nine months ended September 30, 2017,2021, our Corporate segment generated losses of $17.9$24.6 million and $33.9$42.0 million, respectively, as compared to losses of $6.8$27.4 million and $19.9$41.9 million, respectively, for the same periods in 2016, respectively.2020. The decrease in loss for the three-month comparison is primarily due to the cumulative catch-up adjustment to stock-based compensation expense of $2.9 million that occurred in the prior year period. The increase in expenses duringloss for the three months ended September 30, 2017 wassix-month comparison is primarily attributed to higher compensation costs, including estimated bonuses, during the following: (1) an increase in acquisition expenses of $7.2 million, and (2) an increase of $4.9 million in our compensation related expenses, including non-cash expenses for share based payments and an increase in the number of employees after our acquisition of UCP, Inc.,six months ended June 30, 2021, partially offset by net decreases in other selling and general administrative expenses and an increase in equity in income from unconsolidated subsidiaries. The increase in expenses during the nine months ended September 30, 2017 was primarily attributedincreased stock-based compensation expense due to the following: (1) an increase in acquisition expenses of $8.2 million, (2) an increase of $8.0 million in our compensation related expenses, including non-cash expenses for share based payments and an increasecumulative catch-up adjustment that occurred in the number of employees after our acquisition of UCP, Inc., (3) an increase of $2.1 million in information technology related expenses, and (4) an increase of $0.9 million in legal costs, partially offset by an increase in equity in income from unconsolidated subsidiaries. prior year period.
Homebuilding Gross Margin
(dollars in thousands)
Homebuilding gross margin represents home sales revenues less cost of home sales revenues. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreasedincreased during the three and ninesix months ended SeptemberJune 30, 20172021 to 17.0%23.9% and 18.2%22.5%, respectively, as compared to 20.3%16.9% and 19.9%17.2%, respectively, for the same periods in 2016, respectively. The decrease is2020. This increase was primarily driven by higher interest expensethe positive homebuilding sales environment across our markets, which resulted in costour ability to increase sales price in excess of sales as a result of higher average debt balances outstandingan increase in 2017 as compared to 2016,our labor and as a result of the increaseddirect costs recognized for home sales related to purchase accounting. period over period.
In the following table, we calculate our homebuilding gross margin, adjusting foras adjusted to exclude inventory impairment and other and interest in cost of home sales revenues.
Three Months Ended June 30, | ||||||||||||
2021 | % | 2020 | % | |||||||||
Home sales revenues | $ | 1,004,789 | 100.0 | % | $ | 747,415 | 100.0 | % | ||||
Cost of home sales revenues | (764,668) | (76.1) | % | (620,655) | (83.0) | % | ||||||
Inventory impairment and other | (41) | (0.0) | % | (910) | (0.1) | % | ||||||
Gross margin from home sales | 240,080 | 23.9 | % | 125,850 | 16.9 | % | ||||||
Add: Inventory impairment and other | 41 | 0.0 | % | 910 | 0.1 | % | ||||||
Add: Interest in cost of home sales revenues | 18,406 | 1.8 | % | 18,694 | 2.5 | % | ||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other | $ | 258,527 | 25.7 | % | $ | 145,454 | 19.5 | % | ||||
Six Months Ended June 30, | ||||||||||||
2021 | % | 2020 | % | |||||||||
Home sales revenues | $ | 1,964,068 | 100.0 | % | $ | 1,320,125 | 100.0 | % | ||||
Cost of home sales revenues | (1,521,175) | (77.5) | % | (1,091,181) | (82.7) | % | ||||||
Inventory impairment and other | (41) | (0.0) | % | (1,691) | (0.1) | % | ||||||
Gross margin from home sales | 442,852 | 22.5 | % | 227,253 | 17.2 | % | ||||||
Add: Inventory impairment and other | 41 | 0.0 | % | 1,691 | 0.1 | % | ||||||
Add: Interest in cost of home sales revenues | 36,783 | 1.9 | % | 32,379 | 2.5 | % | ||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other | $ | 479,676 | 24.4 | % | $ | 261,323 | 19.8 | % |
(1)This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and purchase price accounting for acquired workother information under “—Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in process inventory.conjunction with results presented in accordance with GAAP.
|
|
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|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, | ||||||||||
|
| 2017 |
| % |
| 2016 |
| % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | 374,935 |
| 100.0 | % |
| $ | 248,075 |
| 100.0 | % |
Cost of home sales revenues |
|
| (311,365) |
| (83.0) | % |
|
| (197,650) |
| (79.7) | % |
Gross margin from home sales |
|
| 63,570 |
| 17.0 | % |
|
| 50,425 |
| 20.3 | % |
Add: Interest in cost of home sales revenues |
|
| 8,794 |
| 2.3 | % |
|
| 5,192 |
| 2.1 | % |
Adjusted homebuilding gross margin excluding interest |
|
| 72,364 |
| 19.3 | % |
|
| 55,617 |
| 22.4 | % |
Add: Purchase price accounting for acquired work in process inventory(1) |
|
| 6,214 |
| 1.7 | % |
|
| 100 |
| 0.0 | % |
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory |
| $ | 78,578 |
| 21.0 | % |
| $ | 55,717 |
| 22.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Nine Months Ended September 30, | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| % |
| 2016 |
| % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Home sales revenues |
| $ | 888,942 |
| 100.0 | % |
| $ | 686,335 |
| 100.0 | % |
Cost of home sales revenues |
|
| (727,577) |
| (81.8) | % |
|
| (549,886) |
| (80.1) | % |
Gross margin from home sales |
|
| 161,365 |
| 18.2 | % |
|
| 136,449 |
| 19.9 | % |
Add: Interest in cost of home sales revenues |
|
| 20,625 |
| 2.3 | % |
|
| 13,177 |
| 1.9 | % |
Adjusted homebuilding gross margin excluding interest |
|
| 181,990 |
| 20.5 | % |
|
| 149,626 |
| 21.8 | % |
Add: Purchase price accounting for acquired work in process inventory(1) |
|
| 6,331 |
| 0.7 | % |
|
| 318 |
| 0.0 | % |
Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory |
| $ | 188,321 |
| 21.2 | % |
| $ | 149,944 |
| 21.8 | % |
(1)Non-GAAP financial measure.
For the three and ninesix months ended SeptemberJune 30, 2017,2021, excluding inventory impairment and other, and interest in cost of home sales revenues, and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 21.0%25.7% and 21.2%24.4%, respectively, as compared to 22.5%19.5% and 21.8%19.8%, respectively, for the same periods in 2016, respectively.2020. We believe the above information is meaningful as it isolates the impact that inventory impairment, indebtedness and acquisitions (if applicable) have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors.
Selling, General and Administrative Expense
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|
| |||||||||||||||||
(dollars in thousands) |
|
|
|
|
| |||||||||||||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Increase | ||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % | 2021 | 2020 | Amount | % | ||||||||||||||||||
Selling, general and administrative |
| $ | (46,165) |
|
| $ | (30,944) |
|
| $ | (15,221) |
|
| 49.2 | % | $ | 99,656 | $ | 86,706 | $ | 12,950 | 14.9 | % | |||||||
As a percentage of homes sales revenue |
| (12.3) | % |
|
| (12.5) | % |
|
|
|
|
|
|
| ||||||||||||||||
As a percentage of home sales revenue | 9.9 | % | 11.6 | % | ||||||||||||||||||||||||||
|
|
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|
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|
|
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|
|
|
|
| ||||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Increase | ||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % | 2021 | 2020 | Amount | % | ||||||||||||||||||
Selling, general and administrative |
| $ | (113,597) |
|
| $ | (87,512) |
|
| $ | (26,085) |
|
| 29.8 | % | $ | 191,807 | $ | 160,325 | $ | 31,482 | 19.6 | % | |||||||
As a percentage of homes sales revenue |
| (12.8) | % |
|
| (12.8) | % |
|
|
|
|
|
|
| ||||||||||||||||
As a percentage of home sales revenue | 9.8 | % | 12.1 | % |
Our selling, general and administrative costsexpense increased $15.2$13.0 million and $31.5 million respectively, for the three and six months ended SeptemberJune 30, 20172021 as compared to the same periodperiods in 2016. The increase was2020. These increases were primarily attributable to the following: (1) an increaseincreases of $3.4$10.0 million and $19.5 million, respectively, in commission expense resulting from a 51% increase in home sales revenues, (2) an increase of $8.1 million in our compensation-related expenses, including incentive compensation associated with our acquisition of UCP, Inc. (3) an increase of $1.6 million in advertising expenses,salaries and (4) a net increase of $2.0 millionwages, primarily related to individually insignificant changes in other corporate expenses, including rent, information technology, insurance and legal.
Our selling, general and administrative costs increased $26.1 million for the nine months ended September 30, 2017bonus expense as compared to the same periodperiods in 2016. The increase was primarily attributable2020 and (2) increases of $3.5 million and $15.6 million, respectively, in internal and external commission expense, which are directly related to the following: (1) an increase of $5.7 million in commission expense
29
resulting from a 30% increaseincreases in home sales revenues, (2) an increase of $13.5 million in our compensation-related expenses, including incentive compensation associated with our acquisition of UCP, Inc. (3) an increase of $1.6 million in advertising expenses, (4) an increase of $1.0 million in information technology related costs, (5) an increase of $1.3 million in rent, insurance and office related costs, (6) an increase of $0.5 million in legal costs and (7) a net increase of $2.4 million related to individually insignificant changes in other corporate expenses.
Other Income (Expense)
For the three and nine months ended September 30, 2017, other income (expense) increased to $1.0 million and $2.3 million, respectively, from $0.4 million and $1.4 million, for the same periods in 2016, respectively. Therevenues. These increases were related to increases in interest and other income partially offset by decreases in gain (loss) on disposition of assets.
Equityexpenses in Income from Unconsolidated Subsidiaries
As of September 30, 2017, our investment in WJH was $20.7 millionnumerous areas including advertising and we recognized $3.7 million and $7.6 million of equity in income of unconsolidated subsidiarieslegal expenses. Additionally, during the three and ninesix months ended SeptemberJune 30, 2017, respectively. During2021, our selling, general and administrative expense decreased 170 basis points and 230 basis points, respectively, as a percentage of home sales revenue as compared to the three and nine monthssame periods ended SeptemberJune 30, 2017, we received operating distributions from WJH2020, as a result of $1.4 million and $5.2 million, respectively.increased revenues on a partially fixed cost base.
Income Tax Expense
At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 20172021 estimated annual effective tax rate, before discrete items, of 36.3%23.5% is driven by our blended federal and state statutory rate of 37.8%24.7%, which is partially offset by net estimated benefits of 1.5% primarily from additionaland certain permanent differences between GAAP and tax, including disallowed deductions for tax related to domestic production activitiesexecutive compensation and estimated federal energy credits for current year home deliveries, which benefiteddecreased our rate by 3.2%1.2%. This benefit was partially offset by non-deductible acquisition costs associated with
For the six months ended June 30, 2021, our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%. Our estimated annual rate of 36.3%23.5% was also benefitedimpacted by discrete items for which had a net impact of decreasing our rate by 1.0%, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits related to share based awards thatfor vested during the nine months ended September 30, 2017, resulting in a total tax rate of 34.2%. stock-based compensation.
For the three months ended SeptemberJune 30, 20172021 and 2016,2020, we recorded income tax expense of $5.7$34.2 million and $6.4$11.7 million, respectively. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we recorded income tax expense of $17.2$63.6 million and $16.8$19.6 million, respectivelyrespectively.
Segment Assets
(dollars in thousands)
|
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| ||||||||||||
|
| September 30, |
| December 31, |
|
| Increase (Decrease) | June 30, | December 31, | Increase (Decrease) | ||||||||||||||
|
| 2017 |
| 2016 |
|
| Amount |
| Change | 2021 | 2020 | Amount | Change | |||||||||||
West |
| $ | 302,816 |
| $ | — |
| $ | 302,816 |
| NM |
| $ | 611,192 | $ | 536,907 | $ | 74,285 | 13.8 | % | ||||
Mountain |
|
| 571,124 |
|
| 541,657 |
|
| 29,467 |
| 5.4 | % | 803,816 | 778,198 | 25,618 | 3.3 | % | |||||||
Texas |
|
| 186,840 |
|
| 138,392 |
|
| 48,448 |
| 35.0 | % | 238,221 | 207,746 | 30,475 | 14.7 | % | |||||||
Southeast |
|
| 394,918 |
|
| 262,448 |
|
| 132,470 |
| 50.5 | % | 279,101 | 329,930 | (50,829) | (15.4) | % | |||||||
Century Complete | 284,838 | 218,604 | 66,234 | 30.3 | % | |||||||||||||||||||
Financial Services |
|
| 38,010 |
|
| — |
|
| 38,010 |
| NM |
| 333,109 | 421,153 | (88,044) | (20.9) | % | |||||||
Corporate |
|
| 137,300 |
|
| 65,031 |
|
| 72,269 |
| 111.1 | % | 343,976 | 352,555 | (8,579) | (2.4) | % | |||||||
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 |
| $ | 623,480 |
| 61.9 | % | $ | 2,894,253 | $ | 2,845,093 | $ | 49,160 | 1.7 | % |
Total assets increased moderately by $49.2 million, or 1.7%, to $2.9 billion at June 30, 2021 as compared to December 31, 2020, primarily as a result of the overall growth of the Company.
Lots owned and controlled
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Lots owned and |
| September 30, 2017 |
| December 31, 2016 |
| % Change |
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controlled |
| Owned |
| Controlled |
| Total |
| Owned |
| Controlled |
| Total |
| Owned |
| Controlled |
| Total | ||||||||||||||||||||||||
June 30, 2021 | December 31, 2020 | % Change | ||||||||||||||||||||||||||||||||||||||||
Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | ||||||||||||||||||||||||||||||||||
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West |
| 3,542 |
| 2,630 |
| 6,172 |
| — |
| — |
| — |
| NM |
|
| NM |
|
| NM |
| 3,833 | 5,532 | 9,365 | 3,266 | 3,392 | 6,658 | 17.4 | % | 63.1 | % | 40.7 | % | |||||||||
Mountain |
| 4,291 |
| 5,068 |
| 9,359 |
| 4,354 |
| 2,959 |
| 7,313 |
| (1.4) | % |
| 71.3 | % |
| 28.0 | % | 7,800 | 8,046 | 15,846 | 7,951 | 5,910 | 13,861 | (1.9) | % | 36.1 | % | 14.3 | % | |||||||||
Texas |
| 2,223 |
| 4,795 |
| 7,018 |
| 1,356 |
| 3,420 |
| 4,776 |
| 63.9 | % |
| 40.2 | % |
| 46.9 | % | 3,468 | 6,767 | 10,235 | 3,035 | 5,873 | 8,908 | 14.3 | % | 15.2 | % | 14.9 | % | |||||||||
Southeast |
| 4,790 |
| 4,657 |
| 9,447 |
| 2,953 |
| 3,254 |
| 6,207 |
| 62.2 | % |
| 43.1 | % |
| 52.2 | % | 2,973 | 12,567 | 15,540 | 3,076 | 6,389 | 9,465 | (3.3) | % | 96.7 | % | 64.2 | % | |||||||||
Century Complete | 4,487 | 10,137 | 14,624 | 3,473 | 7,600 | 11,073 | 29.2 | % | 33.4 | % | 32.1 | % | ||||||||||||||||||||||||||||||
Total |
| 14,846 |
| 17,150 |
| 31,996 |
| 8,663 |
| 9,633 |
| 18,296 |
| 71.4 | % |
| 78.0 | % |
| 74.9 | % | 22,561 | 43,049 | 65,610 | 20,801 | 29,164 | 49,965 | 8.5 | % | 47.6 | % | 31.3 | % |
NM – Not Meaningful
Of our total lots owned and controlled as of SeptemberJune 30, 2017, 46.4%2021, 34.4% were owned and 53.6%65.6% were controlled, as compared to 47.3%41.6% owned and 52.7%58.4% controlled as of December 31, 2016.2020.
Total assets increased by $623.5 million, or 61.9%, to $1.6 billion at September 30, 2017. The increase is related to the increase in assets from our acquisition of UCP, Inc., from increased cash balances from our debt offerings completed during 2017, as well as the increased investments in most of our operating segments.
30
Other Homebuilding Operating Data
Three Months Ended | Six Months Ended | |||||||||||||||||
Net new home contracts | June 30, | Increase (Decrease) | June 30, | Increase (Decrease) | ||||||||||||||
2021 | 2020 | Amount | % Change | 2021 | 2020 | Amount | % Change | |||||||||||
West | 497 | 389 | 108 | 27.8 | % | 891 | 725 | 166 | 22.9 | % | ||||||||
Mountain | 617 | 474 | 143 | 30.2 | % | 1,564 | 1,088 | 476 | 43.8 | % | ||||||||
Texas | 399 | 391 | 8 | 2.0 | % | 917 | 724 | 193 | 26.7 | % | ||||||||
Southeast | 288 | 566 | (278) | (49.1) | % | 764 | 1,082 | (318) | (29.4) | % | ||||||||
Century Complete | 1,319 | 844 | 475 | 56.3 | % | 2,439 | 1,433 | 1,006 | 70.2 | % | ||||||||
Total | 3,120 | 2,664 | 456 | 17.1 | % | 6,575 | 5,052 | 1,523 | 30.1 | % |
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| Three Months Ended |
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| Nine Months Ended |
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Net new home contracts |
| September 30, |
| Increase |
| September 30, |
| Increase | ||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change |
| 2017 |
| 2016 |
| Amount |
| % Change | ||
West |
| 114 |
| — |
| 114 |
| NM |
|
| 114 |
| — |
| 114 |
| NM |
|
Mountain |
| 373 |
| 266 |
| 107 |
| 40.2 | % |
| 1,290 |
| 984 |
| 306 |
| 31.1 | % |
Texas |
| 133 |
| 81 |
| 52 |
| 64.2 | % |
| 360 |
| 271 |
| 89 |
| 32.8 | % |
Southeast |
| 294 |
| 281 |
| 13 |
| 4.6 | % |
| 1,128 |
| 1,036 |
| 92 |
| 8.9 | % |
Total |
| 914 |
| 628 |
| 286 |
| 45.5 | % |
| 2,892 |
| 2,291 |
| 601 |
| 26.2 | % |
NM – Not Meaningful
Net new home contracts (new home contracts net of cancellations) for the three months ended SeptemberJune 30, 20172021 increased by 286456 homes, or 45.5%17.1%, to 914,3,120, compared to 6282,664 for the same period in 2016.2020. Net new home contracts for the ninesix months ended SeptemberJune 30, 20172021 increased by 6011,523 homes, or 26.2%30.1%, to 2,892,6,575, compared to 2,2915,052 for the same period in 2016.2020. These increases were primarily driven by stronger sales across all of our segments as the homebuilding industry continued to experience positive trends during the first six months of 2021, partially offset by a decrease in the Southeast region. The increasedecrease in our net new home contracts wasSoutheast segment is driven by our acquisitiona 45.0%
decrease in selling communities at period end as well as overall positive market conditions incompared to the markets in which we operate.end of the prior year period.
Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and ninesix months ended SeptemberJune 30, 2017 and 20162021 by segment are included in the table below:
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| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Increase (Decrease) | ||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change | 2021 | 2020 | Amount | % Change | ||||||
West |
| 5.2 |
| - |
| 5.2 |
| NM |
| 9.7 | 5.6 | 4.1 | 73.2 | % | ||||
Mountain |
| 3.8 |
| 2.3 |
| 1.5 |
| 65.2 | % | 7.6 | 4.2 | 3.4 | 81.0 | % | ||||
Texas |
| 1.8 |
| 1.1 |
| 0.7 |
| 63.6 | % | 9.5 | 6.2 | 3.3 | 53.2 | % | ||||
Southeast |
| 2.6 |
| 3.2 |
| (0.6) |
| (18.8) | % | 4.4 | 4.7 | (0.3) | (6.4) | % | ||||
Century Complete | 4.2 | 2.8 | 1.4 | 50.0 | % | |||||||||||||
Total |
| 3.2 |
| 2.3 |
| 0.9 |
| 39.1 | % | 5.7 | 4.0 | 1.7 | 42.5 | % | ||||
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|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Increase (Decrease) | ||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change | 2021 | 2020 | Amount | % Change | ||||||
West |
| 5.2 |
| - |
| 5.2 |
| NM |
| 8.7 | 5.3 | 3.4 | 64.2 | % | ||||
Mountain |
| 4.3 |
| 4.1 |
| 0.2 |
| 4.9 | % | 9.7 | 4.8 | 4.9 | 102.1 | % | ||||
Texas |
| 1.8 |
| 1.7 |
| 0.1 |
| 5.9 | % | 10.9 | 5.7 | 5.2 | 91.2 | % | ||||
Southeast |
| 3.6 |
| 3.9 |
| (0.3) |
| (7.7) | % | 5.8 | 4.5 | 1.3 | 28.9 | % | ||||
Century Complete | 3.9 | 1.4 | 2.5 | 178.6 | % | |||||||||||||
Total |
| 3.5 |
| 3.6 |
| (0.1) |
| (2.8) | % | 6.0 | 2.0 | 4.0 | 200.0 | % |
NM – Not Meaningful
Our absorption rate increased by 39.1% to 3.2 per month and decreased by 2.8% to 3.5 per month, duringDuring the three and ninesix months ended SeptemberJune 30, 2017,2021, our absorption rates increased by 42.5% and 200.0%, respectively, to 5.7 and 6.0 per month, respectively, as compared to 2.3 per month and 3.6 per month for the same periods in 2016, respectively. The increase in2020. These increases were attributable to continued historically low interest rates and strong demand for new homes during the current year periods. Furthermore, our absorption rate is attributableduring the six months ended June 30, 2020 was negatively impacted by the initial outbreak of COVID-19.
Selling communities at period end | As of June 30, | Increase/(Decrease) | ||||||||
2021 | 2020 | Amount | % Change | |||||||
West | 17 | 23 | (6) | (26.1) | % | |||||
Mountain | 27 | 38 | (11) | (28.9) | % | |||||
Texas | 14 | 21 | (7) | (33.3) | % | |||||
Southeast | 22 | 40 | (18) | (45.0) | % | |||||
Century Complete | 104 | 101 | 3 | 3.0 | % | |||||
Total | 184 | 223 | (39) | (17.5) | % |
Our selling communities decreased to the strong homebuilding environment184 communities at June 30, 2021 as compared to 223 at June 30, 2020. This decrease was a result of positive economic trends acrossthe strong sales environment, which outpaced new community openings.
Century Complete sells primarily from retail studios and online via the internet, instead of from traditional model homes. While Century Complete has historically purchased land and constructed homes within traditional communities similar to our markets.
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Selling communities at period end |
| As of September 30, |
|
| Increase/(Decrease) | |||||
|
| 2017 |
| 2016 |
|
| Amount |
| % Change | |
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West |
| 10 |
| — |
|
| 10 |
| NM |
|
Mountain |
| 33 |
| 35 |
|
| (2) |
| (5.7) | % |
Texas |
| 24 |
| 23 |
|
| 1 |
| 4.3 | % |
Southeast |
| 40 |
| 29 |
|
| 11 |
| 37.9 | % |
Total |
| 107 |
| 87 |
|
| 20 |
| 23.0 | % |
NM – Not Meaningful
OurCentury Communities brand, we also purchase land and construct a significant number of homes on scattered lots outside of traditional communities. As the Century Complete brand has grown, entered new markets and expanded its land pipeline, we have increasingly operated within traditional communities, and now rely, to a lesser degree, on scattered lots. Additionally, we have organized our construction and sales operations for scattered lot positions within “pods” which are clustered together lot positions, which we operate more like a traditional community. Accordingly, our selling communities increasedat period end for the 2020 period have been updated from amounts previously disclosed to 107include communities at September 30, 2017 as compared to 87 communities at September 30, 2016. The increase is attributable tofor our acquisition of UCP, Inc. Century Complete brand.
Backlog
(dollars in thousands)
As of June 30, | |||||||||||||||||||||||||
2021 | 2020 | % Change | |||||||||||||||||||||||
Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | |||||||||||||||||
West | 673 | $ | 440,008 | $ | 653.8 | 381 | $ | 203,395 | $ | 533.8 | 76.6 | % | 116.3 | % | 22.5 | % | |||||||||
Mountain | 1,057 | 544,365 | 515.0 | 648 | 281,999 | 435.2 | 63.1 | % | 93.0 | % | 18.3 | % | |||||||||||||
Texas | 497 | 182,080 | 366.4 | 355 | 95,193 | 268.1 | 40.0 | % | 91.3 | % | 36.7 | % | |||||||||||||
Southeast | 568 | 230,558 | 405.9 | 712 | 262,096 | 368.1 | (20.2) | % | (12.0) | % | 10.3 | % | |||||||||||||
Century Complete | 1,651 | 365,454 | 221.4 | 682 | 120,068 | 176.1 | 142.1 | % | 204.4 | % | 25.7 | % | |||||||||||||
Total / Weighted Average | 4,446 | $ | 1,762,465 | $ | 396.4 | 2,778 | $ | 962,751 | $ | 346.6 | 60.0 | % | 83.1 | % | 14.4 | % |
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| As of September 30, | |||||||||||||||||||||||
Backlog |
| 2017 |
| 2016 |
| % Change |
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| Homes |
| Dollar Value |
| Average Sales Price |
| Homes |
| Dollar Value |
| Average Sales Price |
| Homes |
| Dollar Value |
| Average Sales Price | |||||||
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West |
| 290 |
| $ | 161,013 |
| $ | 555.2 |
| — |
| $ | — |
| $ | — |
| NM |
|
| NM |
|
| NM |
|
Mountain |
| 573 |
|
| 247,876 |
|
| 432.6 |
| 421 |
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| 183,605 |
|
| 436.1 |
| 36.1 | % |
| 35.0 | % |
| (0.8) | % |
Texas |
| 245 |
|
| 101,125 |
|
| 412.8 |
| 159 |
|
| 74,098 |
|
| 466.0 |
| 54.1 | % |
| 36.5 | % |
| (11.4) | % |
Southeast |
| 556 |
|
| 179,324 |
|
| 322.5 |
| 412 |
|
| 123,224 |
|
| 299.1 |
| 35.0 | % |
| 45.5 | % |
| 7.8 | % |
Total / Weighted Average |
| 1,664 |
| $ | 689,338 |
| $ | 414.3 |
| 992 |
| $ | 380,927 |
| $ | 384.0 |
| 67.7 | % |
| 81.0 | % |
| 7.9 | % |
NM – Not Meaningful
Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home. At SeptemberJune 30, 2017,2021, we had 1,6644,446 homes in backlog with a total value of $689.4$1,762.5 million, which represents an increase of 67.7%60.0% and 81.0%83.1%, respectively, as compared to SeptemberJune 30, 2016.2020. The increase in backlog and backlogdollar value is primarily attributable to our acquisition of UCP, Inc. as well as the increase in the demand for new homesbacklog units and a 14.4% increase in the communities in which we have historically operated. The increase in average sales price of homes in backlog is drivenbacklog.
Supplemental Guarantor Information
Our 5.875% senior notes due 2025 and 6.750% senior notes due 2027 (which we collectively refer to as our “Senior Notes”) are our unsecured senior obligations and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by increases in mostsubstantially all of our marketsdirect and indirect wholly-owned operating subsidiaries (which we refer to collectively as “Guarantors”). Our subsidiaries associated with our financial services operations (referred to as “Non-Guarantors”) do not guarantee the Senior Notes. The guarantees are senior unsecured obligations of the Guarantors that rank equal with all existing and future senior debt of the Guarantors and senior to all subordinated debt of the Guarantors. The guarantees are effectively subordinated to any secured debt of the Guarantors. As of June 30, 2021, Century Communities, Inc. had outstanding $900.0 million in total principal amount of Senior Notes.
Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a resultGuarantor in compliance with applicable provisions of pricing strengththe applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the respective Indentures), in accordance with the applicable indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable indenture.
If a guarantor were to become a debtor in a case under the US Bankruptcy Code, a court may decline to enforce its guarantee of the Senior Notes. This may occur when, among other factors, it is found that the guarantor originally received less than fair consideration for the guarantee and the guarantor would be rendered insolvent by enforcement of the guarantee. On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the Senior Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay
such debts as they mature. The Company cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
As the guarantees were made in connection with exchange offers effected in February 2015, October 2015 and April 2017 and the issuance of the 5.875% senior notes due 2025 and of the 6.750% senior notes due 2027, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively. We have determined that separate, full financial statements of the Guarantors would not be material to positive market trendsinvestors, and accordingly, supplemental financial information is presented below.
On March 2, 2020, the SEC adopted amendments to Rules 3-10 and 3-16 of Regulation S-X, under Rule Release No. 33-10762, Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities (“Rule 33-10762”), that reduce and simplify the financial disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities (which we previously included within the notes to our consolidated financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q). The amendments under Rule 33-10762 were effective January 4, 2021, but voluntary compliance was permitted in advance of the effective date. We adopted the new disclosure requirements permitted under Rule 33-10762, beginning with the three and six month period ended June 30, 2020.
The following summarized financial information is presented for Century Communities, Inc. and the Guarantor Subsidiaries on a combined basis after eliminating intercompany transactions and balances among Century Communities, Inc. and the Guarantor Subsidiaries, as well as product mix towards higher priced communities. their investment in, and equity in earnings from Non-Guarantor Subsidiaries.
To aid readers with 2017 over 2016 comparability for the entire merged business, we are also including limited supplemental pro forma information below.
Century Communities, Inc. and Guarantor Subsidiaries
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| Three Months Ended September 30, | ||||||||||||||||||
(dollars in thousands) |
| 2017 |
| 2016 | ||||||||||||||||
|
| Pro Forma Home sales revenues |
| Pro Forma Net new home contracts |
| Pro Forma Deliveries |
| Pro Forma Average sales price |
| Pro Forma Home sales revenues |
| Pro Forma Net new home contracts |
| Pro Forma Deliveries |
| Pro Forma Average sales price | ||||
West |
| $ | 106,547 |
| 150 |
| 201 |
| $ | 530.1 |
| $ | 79,500 |
| 161 |
| 155 |
| $ | 512.9 |
Mountain |
|
| 156,482 |
| 373 |
| 375 |
| $ | 417.3 |
|
| 140,356 |
| 266 |
| 344 |
| $ | 408.0 |
Texas |
|
| 35,772 |
| 133 |
| 90 |
| $ | 397.5 |
|
| 25,385 |
| 81 |
| 64 |
| $ | 396.6 |
Southeast |
|
| 115,596 |
| 309 |
| 370 |
| $ | 312.4 |
|
| 92,674 |
| 367 |
| 342 |
| $ | 271.0 |
Total |
| $ | 414,397 |
| 965 |
| 1,036 |
| $ | 400.0 |
| $ | 337,915 |
| 875 |
| 905 | - | $ | 373.4 |
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| Nine Months Ended September 30, | ||||||||||||||||||
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| 2017 |
| 2016 | ||||||||||||||||
|
| Pro Forma Home sales revenues |
| Pro Forma Net new home contracts |
| Pro Forma Deliveries |
| Pro Forma Average sales price |
| Pro Forma Home sales revenues |
| Pro Forma Net new home contracts |
| Pro Forma Deliveries |
| Pro Forma Average sales price | ||||
West |
| $ | 279,315 |
| 587 |
| 560 |
| $ | 498.8 |
| $ | 204,273 |
| 502 |
| 413 |
| $ | 494.6 |
Mountain |
|
| 440,451 |
| 1403 |
| 1046 |
| $ | 421.1 |
|
| 350,742 |
| 984 |
| 854 |
| $ | 410.7 |
Texas |
|
| 108,955 |
| 360 |
| 266 |
| $ | 409.6 |
|
| 98,270 |
| 271 |
| 252 |
| $ | 390.0 |
Southeast |
|
| 306,938 |
| 1128 |
| 1010 |
| $ | 303.9 |
|
| 272,530 |
| 1235 |
| 1057 |
| $ | 257.8 |
Total |
| $ | 1,135,659 |
| 3,478 |
| 2,882 |
| $ | 394.1 |
| $ | 925,815 |
| 2,992 |
| 2,576 |
| $ | 359.4 |
Summarized Balance Sheet Data (in thousands) | June 30, 2021 | December 31, 2020 | ||||
Assets | ||||||
Cash and cash equivalents | $ | 362,548 | $ | 307,167 | ||
Cash held in escrow | 37,640 | 23,149 | ||||
Accounts receivable | 25,904 | 18,742 | ||||
Inventories | 1,948,769 | 1,929,664 | ||||
Prepaid expenses and other assets | 113,634 | 94,181 | ||||
Property and equipment, net | 25,503 | 27,360 | ||||
Deferred tax assets, net | 18,392 | 12,450 | ||||
Goodwill | 30,395 | 30,395 | ||||
Total assets | $ | 2,562,785 | $ | 2,443,108 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities: | ||||||
Accounts payable | $ | 79,018 | $ | 106,288 | ||
Accrued expenses and other liabilities | 249,489 | 267,708 | ||||
Intercompany loan payable | — | 17,600 | ||||
Notes payable | 901,253 | 894,875 | ||||
Revolving line of credit | — | — | ||||
Total liabilities | 1,229,760 | 1,286,471 | ||||
Stockholders’ equity: | 1,333,025 | 1,156,637 | ||||
Total liabilities and stockholders’ equity | $ | 2,562,785 | $ | 2,443,108 |
Summarized Statement of Operations Data (in thousands) | Six Months Ended June 30, 2021 | Year Ended December 31, 2020 | ||||
Total homebuilding revenues | $ | 1,987,996 | $ | 3,057,884 | ||
Total homebuilding cost of revenues | (1,538,195) | (2,490,062) | ||||
Selling, general and administrative | (191,807) | (341,710) | ||||
Inventory impairment and other | (41) | (2,172) | ||||
Other income (expense) | (1,872) | (3,014) | ||||
Income before income tax expense | 256,081 | 220,926 | ||||
Income tax expense | (57,532) | (52,389) | ||||
Net income | $ | 198,549 | $ | 168,537 |
Critical Accounting Policies
Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, filed with the SEC on February 15, 2017,5, 2021, in the section entitled “Management’s Discussion and Analysis of Financial Condition
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and Results of Operations—SignificantCritical Accounting Policies.” We have had no significant changes in our critical accounting policies from those described therein, other than those related to our Mortgage loans held for sale, as discussed in “Note 1. Basis of Presentation.”
Liquidity and Capital Resources
Overview
Overview
Our principal uses of capital for the three and ninesix months ended SeptemberJune 30, 20172021 were the acquisition of UCP, Inc.,our land purchases, land development, home construction, and the payment of routine liabilities. We useduse funds generated by operations, bond offerings, and available borrowings under our Credit Agreementrevolving line of credit, and proceeds from sales of common stock, including our at-the-market facility, to meetfund our short-termshort term working capital requirements.obligations and fund our purchases of land, as well as land development and home construction activities. During the three months ended June 30, 2021, we initiated a quarterly cash dividend, which we intend to fund from our funds generated by operations.
Cash flows for each of our communities depend on the stage in the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statementstatements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities. As we continue to expand our business, we expect thatour cash outlays for land purchases and land development to grow our lot inventory couldmay exceed our cash generated by operations.
Covenant Compliance
In response to the COVID-19 pandemic, we took certain measures to ensure we are positioned with cash flow and liquidity to endure an extended period of lower demand for our homes, should it arise. Specifically commencing in mid-March of 2020, we slowed our land acquisition and development activities and instituted a variety of actions designed to reduce our operating expenses, including a reduction in the size of our workforce through a targeted layoff in April 2020. In addition, given the uncertainty surrounding the COVID-19 pandemic, we initially increased our borrowings under our revolving line of credit during the end of the first quarter of 2020 and into the beginning of the second quarter of 2020 as a proactive measure in order to expand our financial flexibility at that time. We repaid these borrowings during the second quarter of 2020 in light of our second quarter 2020 operating results and to decrease our interest expense. As of June 30, 2021, we continued to have no amounts outstanding under our revolving line of credit.
We increased our land acquisition and development activities during the first six months of 2021, which resulted in 65,610 lots owned and controlled at June 30, 2021, a 31.3% increase as compared to December 31, 2020.
Our Financial Services operations use funds generated from operations and availability under our mortgage repurchase facilities to finance operations including originations of mortgage loans to our homebuyers.
Under our shelf registration statement, which we filed with the SEC on July 1, 2021 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in registered transactions from time to time and as needed as part of our ongoing financing strategy and subject to market conditions.
We believe that we will be able to fund our current and foreseeable liquidity needs with our cash on hand, cash generated from operations, and cash expected to be available from our revolving line of credit or through accessing debt or equity capital, as needed or appropriate, although no assurance can be provided that such additional debt or equity capital will be available or on acceptable terms, especially in light of the current COVID-19 pandemic, its impact on the macro-economy, and market conditions at the time. While the impact of the COVID-19 pandemic will continue to evolve, we believe we are well positioned from a cash and liquidity standpoint to not only operate in an uncertain environment, but also continue to grow with the market, pay down debt and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of debt refinancing and/or strategic opportunities as they arise.
Revolving Line of Credit
On OctoberJune 5, 2018, we entered into an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of our subsidiaries (which we refer to as the “Amended and
Restated Credit Agreement”), which provided us with a revolving line of credit of up to $640.0 million, and unless terminated earlier, was scheduled to mature on April 30, 2023.
On May 21, 2014,2021, we entered into a credit agreementSecond Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with, Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which, as modified as described below, we refer to as the “Credit Agreement”).thereto. The Second A&R Credit Agreement, which amended and restated the Amended and Restated Credit Agreement,provides the Companyus with a senior unsecured revolving line of credit (which, as modified as described below, we refer to as the “Revolving Credit(the “Credit Facility”) of up to $120 million.$800 million, and unless terminated earlier, will mature on April 30, 2026. The Credit Facility includes a $250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, we arethe Company is entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80$200 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. TheOur obligations under the RevolvingSecond A&R Credit FacilityAgreement are guaranteed by certain of our subsidiaries.
On July 31, 2015, we entered into a First Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which modified the Credit Agreement. The First Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $120 million to $200 million, (ii) extended the maturity date of the Revolving Credit Facility from October 21, 2017 to October 21, 2018, (iii) admitted Bank of America, N.A. as a new lender under the Revolving Credit Facility, and (iv) increased the amount of the increase in the size of the Revolving Credit Facility that we had the option to request, from time to time, from an amount not exceeding $80 million to an amount not exceeding $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.
On December 22, 2015, we entered into a Second Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement. The Second Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $200 million to $300 million, and (ii) admitted Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association as new lenders under the Revolving Credit Facility.
On August 19, 2016, we entered into a Third Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement. The Third Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $300 million to $380 million, (ii) admitted Citibank, N.A. and Flagstar Bank, FSB as new lenders under the Revolving Credit Facility, (iii) increased certain lenders’ respective commitments to the Revolving Credit Facility, and (iv) extended the term of the Revolving Credit Facility by one year to mature in October 2019.
On February 24, 2017, we entered into a Commitment Increase Agreement with Texas Capital Bank, National Association, as Administrative Agent, Flagstar Bank, FSB (which we refer to as “Flagstar”), and our subsidiary guarantors party thereto. The Commitment Increase Agreement supplements the Credit Agreement, and (i) increased the Credit Facility from $380 million to $400
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million through our exercise of the remaining $20 million of the accordion feature of the Credit Agreement, and (ii) increased Flagstar’s commitment to the Credit Facility.
TheA&R Credit Agreement contains customary affirmative and negative covenants (including limitations on the Company’sour ability to grant liens, incur additional debt, pay dividends, redeem itsour common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. TheBorrowings under the Second A&R Credit Agreement also requiresbear interest at a floating rate equal to the Company to maintain (i)adjusted Eurodollar Rate plus an applicable margin between 2.05% and 2.65% per annum, and if made available in the Administrative Agent’s discretion, a leverage ratiobase rate plus an applicable margin between 1.05% and 1.65% per annum
As of not more than 1.75 to 1.0 as ofJune 30, 2021, we had no amounts outstanding under the last day of any fiscal quarter, based upon the ratio of debt to tangible net worth of the Company and its subsidiaries on a consolidated basis, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon the ratio of EBITDA to cash interest expense of the Company and its subsidiaries on a consolidated basis, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests of the Company and the guarantors of the Revolving Credit Facility plus 50% of the amount of consolidated net income of the Company and its subsidiaries, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by the Company and its subsidiaries on a consolidated basis to the Company’s tangible net worth.
As of September 30, 2017, we were in compliance with all covenants under the Second A&R Credit Agreement.
ATM Program
Mortgage Repurchase Facilities – Financial Services
On November 7, 2016, weMay 4, 2018, September 14, 2018, and August 1, 2019, Inspire entered into a Distribution Agreementmortgage warehouse facilities, with Comerica Bank, J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the “Distribution Agreement”“repurchase facilities”), which were increased during 2020, provide Inspire with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Citigroup Global Markets Inc. (which we refer to collectively as the “Sales Agents”), relating to our common stock. Under the Distribution Agreement, we are authorized to offer and sell shares of our common stock having an aggregate offering priceuncommitted repurchase facilities of up to $50.0 million from time to time through any of our Sales Agents in “at the market” offerings. On August 9, 2017, we entered into a second Distribution Agreement (which we refer to as the “Second Distribution Agreement”) with the Sales Agents, pursuant to which we may offer and sell from time to time up to $100.0 million in “at the market” offerings. During the three months ended September 30, 2017, we sold and issued an aggregate of 0.4$350 million sharesas of our common stock under the Distribution Agreement, which provided net proceeds of $8.9 million, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $0.2 million. During the three months ended SeptemberJune 30, 2017, we sold and issued an aggregate of 47.4 thousand shares of our common stock under the Second Distribution Agreement, which provided net proceeds of $1.1 million, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $23.5 thousand.
Mortgage Repurchase Facility – Financial Services
On April 10, 2017, Inspire Home Loans Inc. (which we refer to as “Inspire”), an indirect wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement (which we refer to as the “Master Repurchase Agreement”) with Branch Banking and Trust Company, as the buyer thereunder (which we refer to as the “Buyer”). The Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $25 million (which we refer to as the “Repurchase Facility”). The primary purpose of the Repurchase Facility is to provide financing and liquidity to Inspire by facilitating purchase transactions in which Inspire transfers eligible loans to the Buyer, against the transfer of funds2021, secured by the Buyer, subject to a simultaneous agreement by the Seller to repurchase from the Buyer such eligiblemortgage loans (i) upon written notice to the Buyer by Inspire, (ii) on a prescribed date in the future, (iii) upon the occurrence of prescribed events, or (iv) on the Termination Date (as defined below). The purchase transactions are based on and subject to the terms and conditions set forth in the Master Repurchase Agreement. The maximum aggregate amount of the Buyer’s commitment to fund purchase transactions under the Repurchase Facility is $25 million (which we refer to as the “Commitment”), subject to certain sublimits. The Repurchase Facility and the Buyer’s Commitment thereunder expires on the earlier of (i) April 9, 2018, and (ii) the date when the Buyer’s Commitment is terminated pursuant to the Master Repurchase Agreement or by operation of law (which we refer to as the “Termination Date”).
On September 15, 2017, Inspire entered into a second Master Repurchase Facility (which we refer to as the “Second Master Repurchase Agreement”) with J.P. Morgan Chase Bank, N.A. as the buyerfinanced thereunder. The Second Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $35 million (which we refer to as the “Second Repurchase Facility”). The purpose of the Second Repurchase Facility is similar to the purpose outlined above for the Repurchase Facility. Amounts outstanding under the Repurchase Facility and Second Repurchase Facilityrepurchase facilities are not guaranteed by us or any of our subsidiaries. Each ofsubsidiaries and the Master Repurchase Agreement and Second Master Repurchase Agreement containsagreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of SeptemberJune 30, 2017,2021, we had $159.8 million outstanding under these repurchase facilities and were in compliance with all covenants under eachthereunder.
During the three and six months ended June 30, 2021, we incurred interest expense on the repurchase facilities of $0.6 million and $1.4 million, respectively. During the same periods in 2020, we incurred interest expense on the repurchase facilities of $0.5 million and $1.3 million, respectively. Interest expense on mortgage repurchase facilities is included in financial services costs on our condensed consolidated statements of operations.
At-the-Market Offerings
On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the Master Repurchasesales agents party thereto in “at-the-market” offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, had all $100 million available for sale as of June 30, 2021. We did not sell or issue any shares of our common stock during the Second Repurchase Agreement.three and six months ended June 30, 2021 and 2020, respectively. The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement. Sales cannot be made under the Distribution Agreement unless and until we file a prospectus supplement to our recently filed shelf registration statement that was filed on July 1, 2021, which prospectus supplement we intend to file in the near future.
Letters of Credit and Performance Bonds
In the normal course of business, we post letters of credit and performance and other bonds primarily related to our land development performance obligations with local municipalities. As of SeptemberJune 30, 2017, there was an aggregate2021, and December 31, 2020, we had $464.6 million and $402.7 million, respectively, in letters of $27.5 million outstanding undercredit and performance and other bonds issued and outstanding. Although significant development and construction activities have been completed related to the Master Repurchase Agreementimprovements at these sites, the letters of credit and Second Master Repurchase Agreement, which is presented as Mortgage Repurchase Facility in our Condensed Consolidated Balance Sheets. The amount outstanding under the Master Repurchase Agreementperformance and the Second Master Repurchase Agreement was collateralized by $30.1 million of mortgage loans held for sale.other bonds are not generally released until all development and construction activities are completed.
Debt
Our outstanding debt obligations included the following as of June 30, 2021 and December 31, 2020 (in thousands):
June 30, | December 31, | |||||
2021 | 2020 | |||||
6.750% senior notes, due May 2027(1) | $ | 495,176 | $ | 494,768 | ||
5.875% senior notes, due July 2025(1) | 397,170 | 396,821 | ||||
Other financing obligations | 8,908 | 3,286 | ||||
Notes payable | 901,254 | 894,875 | ||||
Revolving line of credit | — | — | ||||
Mortgage repurchase facilities | 159,776 | 259,050 | ||||
Total debt | $ | 1,061,030 | $ | 1,153,925 |
(1)The carrying value of the senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.
A summary of our debt obligations is included in Note 10 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 5, 2021 and in Note 8 to our condensed consolidated financial statements in this Form 10-Q. We may from time to time seek to refinance or increase our outstanding debt or retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may or may not be material during any particular reporting period.
Stock Repurchase Program
On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws. The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions.
We intend to finance any stock repurchases through available cash and our revolving credit facility. Repurchases also may be made under a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased when we otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time without notice at our discretion. All shares of common stock repurchased under the program will be cancelled and returned to the status of authorized but unissued shares of common stock.
No shares were repurchased during the three and six months ended June 30, 2021 and 2020, respectively.The maximum number of shares available to be purchased under the stock repurchase program as of June 30, 2021 is 3,812,939.
Dividends
On May 19, 2021, our Board of Directors announced the initiation of a quarterly cash dividend. Additionally on May 19, 2021, our Board of Directors declared our first quarterly cash dividend of $0.15 per share and totaling $5.1 million, which was paid on June 16, 2021 to stockholders of record of our common stock as of June 2, 2021.
Cash Flows—Nine Six Months Ended SeptemberJune 30, 20172021 Compared to the NineSix Months Ended SeptemberJune 30, 20162020
For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the comparison of cash flows is as follows:
Our primary sources of cash flows from operations are from the sale of single-family attached and detached homes and mortgages. Our primary uses of cash flows from operations is the acquisition of land and expenditures associated with the construction of our single-family attached and detached homes and the origination of mortgages held for sale. During the six months ended June 30, 2021 and 2020, we generated $143.4 million and $173.8 million in cash from operations, respectively. The decrease in cash provided by operations is primarily a result of increased investment in our homebuilding |
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inventories for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, partially offset by a $155.0 million increase in net income during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Net cash used in investing activities decreased to $4.4 million during the six months ended June 30, 2021, compared to $4.9 million used during the same period in 2020. The decrease was primarily related to less purchases of property and equipment.
Net cash used in financing activities increased to $112.5 million during the six months ended June 30, 2021, compared to $50.5 million used during the same period in 2020. The increase was primarily attributable to a $122.6 million increase in net payments on our mortgage repurchase facilities, partially offset by a $68.7 million decrease in net payments under our revolving line of credit.
As of SeptemberJune 30, 2017,2021, our cash and cash equivalents and restricted cash balance was $58.5$424.7 million.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of landproperties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and others as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. TheseOption contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time or in bulk at a point in time, at pre-determined prices. We generally have the right at our discretion to terminate our obligations under both purchase contracts and these contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. Our obligations with respect to thepurchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of SeptemberJune 30, 2017,2021, we had outstanding purchase contracts and option contracts for 17,15043,049 lots totaling $754.1 million,with a total purchase price of approximately $1.7 billion and had $11.2$35.2 million of non-refundable cash deposits pertaining to land option contracts. While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 60% to 70%the substantial majority of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contactscontracts occurring in future periods.
Our utilization of land option contracts is dependent on, among other things, the availability of land sellers and others willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
We post letters of credit and performance and other bonds primarily related to our land development performance obligations, with local municipalities. As of SeptemberJune 30, 2017,2021, and December 31, 2016,2020, we had $70.1$464.6 million and $70.1$402.7 million, respectively, in letters of credit and
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performance and other bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.
Contractual Obligations
For the three and six months ended June 30, 2021, there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that was filed with the SEC on February 5, 2021.
Non-GAAP Financial Measures
In this Form 10-Q, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net homebuilding debt to net capital, and adjusted net earnings per diluted common shares. These non-GAAP financial measures are presented to provide investors additional information to facilitate the comparison of our past and present operations. We believe these non-GAAP financial measures provide useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP. These measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures. Accordingly, we qualify our use of non-GAAP financial information in a statement when non-GAAP financial information is presented.
EBITDA and Adjusted EBITDA
The following table presents adjustedEBITDA and Adjusted EBITDA for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define adjustedAdjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense, (iv) loss on debt extinguishment, (v) inventory impairment and other, (vi) depreciation and amortization expense, and (v)(vii) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe adjustedAdjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of adjustedAdjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our adjustedAdjusted EBITDA is limited as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.GAAP.
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
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| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | 2021 | 2020 | % Change | 2021 | 2020 | % Change | |||||||||||||||||||||||||||||||||||
Net income |
| $ | 9,470 |
| $ | 13,342 |
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| (29.0) | % |
| $ | 33,100 |
| $ | 34,467 |
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| (4.0) | % | $ | 117,910 | $ | 38,450 | 206.7 | % | $ | 219,562 | $ | 64,576 | 240.0 | % | |||||||||||||||||||||
Income tax expense |
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| 5,686 |
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| 6,389 |
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| (11.0) | % |
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| 17,216 |
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| 16,790 |
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| 2.5 | % | 34,224 | 11,653 | 193.7 | % | 63,621 | 19,615 | 224.3 | % | |||||||||||||||||||||||||
Interest in cost of home sales revenues |
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| 8,794 |
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| 5,192 |
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| 69.4 | % |
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| 20,625 |
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| 13,177 |
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| 56.5 | % | 18,406 | 18,694 | (1.5) | % | 36,783 | 32,379 | 13.6 | % | |||||||||||||||||||||||||
Interest expense |
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| 1 |
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| — |
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| NM |
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| 3 |
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| 4 |
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Interest expense (income) | (172) | (684) | (74.9) | % | (283) | (847) | (66.6) | % | |||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization expense |
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| 2,256 |
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| 1,418 |
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| 59.1 | % |
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| 5,073 |
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| 4,215 |
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| 20.4 | % | 2,849 | 3,427 | (16.9) | % | 5,655 | 6,842 | (17.3) | % | |||||||||||||||||||||||||
EBITDA |
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| 26,207 |
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| 26,341 |
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| (0.5) | % |
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| 76,017 |
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| 68,653 |
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| 10.7 | % | 173,217 | 71,540 | 142.1 | % | 325,338 | 122,565 | 165.4 | % | |||||||||||||||||||||||||
Purchase price accounting for acquired work in process inventory |
|
| 6,214 |
|
| 100 |
|
| 6,113.8 | % |
|
| 6,331 |
|
| 318 |
|
| 1,890.9 | % | |||||||||||||||||||||||||||||||||
Purchase price accounting for investment in unconsolidated subsidiaries outside basis |
|
| 30 |
|
| — |
|
| NM |
|
|
| 885 |
|
| — |
|
| NM |
| |||||||||||||||||||||||||||||||||
Inventory impairment and other | 41 | 910 | (95.5) | % | 41 | 1,691 | (97.6) | % | |||||||||||||||||||||||||||||||||||||||||||||
Restructuring costs | — | 1,584 | NM | — | 1,584 | NM | |||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA |
| $ | 32,451 |
| $ | 26,441 |
|
| 22.7 | % |
| $ | 83,233 |
| $ | 68,971 |
|
| 20.7 | % | $ | 173,258 | $ | 74,034 | 134.0 | % | $ | 325,379 | $ | 125,840 | 158.6 | % |
NM – Not Meaningful
Net Homebuilding Debt to Net Capital
The following table presents our ratio of net homebuilding debt to net capital, which is a non-GAAP financial measure. We calculate this by dividing net homebuilding debt (notes payable and borrowings under our revolving line of credit less cash and cash equivalents and cash held in escrow and cash and cash equivalents)escrow) by net capital (net homebuilding debt plus total stockholders’ equity). The most directly comparable GAAP measure is the ratio of debt to total capital. We believe the ratio of net homebuilding debt to net capital is a relevant and useful financial measure to investors in understanding the leverage employed in our operations and as an indicator of our ability to obtain external financing.financing.
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, | June 30, | December 31, | ||||||
|
| 2017 |
| 2016 | 2021 | 2020 | ||||||
Total debt |
| $ | 803,481 |
| $ | 454,088 | ||||||
Total homebuilding debt | $ | 901,254 | $ | 894,875 | ||||||||
Total stockholders' equity |
|
| 653,012 |
|
| 473,636 | 1,488,658 | 1,280,705 | ||||
Total capital |
| $ | 1,456,493 |
| $ | 927,724 | $ | 2,389,912 | $ | 2,175,580 | ||
Debt to capital |
|
| 55.2% |
|
| 48.9% | ||||||
Homebuilding debt to capital | 37.7% | 41.1% | ||||||||||
|
|
|
|
|
|
| ||||||
Total debt |
| $ | 803,481 |
| $ | 454,088 | ||||||
Total homebuilding debt | $ | 901,254 | $ | 894,875 | ||||||||
Cash and cash equivalents |
|
| (58,522) |
|
| (29,450) | (419,416) | (394,001) | ||||
Cash held in escrow |
|
| (42,262) |
|
| (20,044) | (37,640) | (23,149) | ||||
Net debt |
|
| 702,697 |
|
| 404,594 | ||||||
Net homebuilding debt | 444,198 | 477,725 | ||||||||||
Total stockholders' equity |
|
| 653,012 |
|
| 473,636 | 1,488,658 | 1,280,705 | ||||
Net capital |
| $ | 1,355,709 |
| $ | 878,230 | $ | 1,932,856 | $ | 1,758,430 | ||
|
|
|
|
|
|
| ||||||
Net debt to net capital |
|
| 51.8% |
|
| 46.1% | ||||||
Net homebuilding debt to net capital | 23.0% | 27.2% |
Adjusted Net Income and Adjusted Diluted Earnings per Common Share
Adjusted Net Income and Adjusted Diluted Earnings per Common Share (which we refer to as “Adjusted Diluted EPS”) is aare non-GAAP financial measuremeasures that we believe isare useful to management, investors and other users of our financial information in evaluating our operating results and understanding our operating trends without the effect of certain non-recurring items. We believe excluding certain non-recurring items provides more comparable assessment of our financial results from period to period. We define Adjusted Net Income as consolidated net income before (i) income tax expense, (ii) inventory impairment and other and (iii) restructuring costs, less adjusted income tax expense, calculated using the Company’s estimated annual effective tax rate after discrete items for the applicable period. Adjusted Diluted EPS is calculated by excluding the effect of acquisitionloss on inventory impairment and other and restructuring costs and purchase price accounting for acquired work in process from the calculation of reported EPS.EPS.
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|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income |
| $ | 9,470 |
| $ | 13,342 |
| $ | 33,100 |
| $ | 34,467 | $ | 117,910 | $ | 38,450 | $ | 219,562 | $ | 64,576 | ||||
Less: Undistributed earnings allocated to participating securities |
|
| (52) |
|
| (241) |
|
| (289) |
|
| (785) | ||||||||||||
Net income allocable to common stockholders |
| $ | 9,418 |
| $ | 13,101 |
| $ | 32,811 |
| $ | 33,682 | ||||||||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average common shares outstanding - basic |
|
| 25,445,552 |
|
| 20,673,521 |
|
| 23,038,390 |
|
| 20,643,682 | 33,738,586 | 33,340,184 | 33,651,727 | 33,274,056 | ||||||||
Dilutive effect of restricted stock units |
|
| 280,585 |
|
| 148,545 |
|
| 236,930 |
|
| 88,248 | 218,052 | 121,510 | 269,212 | 195,013 | ||||||||
Weighted average common shares outstanding - diluted |
|
| 25,726,137 |
|
| 20,822,066 |
|
| 23,275,320 |
|
| 20,731,930 | 33,956,638 | 33,461,694 | 33,920,939 | 33,469,069 | ||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.42 |
| $ | 1.63 | $ | 3.49 | $ | 1.15 | $ | 6.52 | $ | 1.94 | ||||
Diluted |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.41 |
| $ | 1.62 | $ | 3.47 | $ | 1.15 | $ | 6.47 | $ | 1.93 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Adjusted Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Adjusted earnings per share | ||||||||||||||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Income before income tax expense |
| $ | 15,156 |
| $ | 19,731 |
| $ | 50,316 |
| $ | 51,257 | $ | 152,134 | $ | 50,103 | $ | 283,183 | $ | 84,191 | ||||
Purchase price accounting for acquired work in process inventory |
|
| 6,214 |
|
| 100 |
|
| 6,331 |
|
| 318 | ||||||||||||
Acquisition expense |
|
| 7,205 |
|
| 53 |
|
| 8,645 |
|
| 466 | ||||||||||||
Inventory impairment and other | 41 | 910 | 41 | 1,691 | ||||||||||||||||||||
Restructuring costs | — | 1,584 | — | 1,584 | ||||||||||||||||||||
Adjusted income before income tax expense |
|
| 28,575 |
|
| 19,884 |
|
| 65,292 |
|
| 52,041 | 152,175 | 52,597 | 283,224 | 87,466 | ||||||||
Income tax expense(1) |
|
| (9,801) |
|
| (6,439) |
|
| (21,350) |
|
| (17,047) | ||||||||||||
Adjusted income tax expense(1) | (34,188) | (12,254) | (63,630) | (20,378) | ||||||||||||||||||||
Adjusted net income |
|
| 18,774 |
|
| 13,445 |
|
| 43,942 |
|
| 34,994 | $ | 117,987 | 40,343 | $ | 219,594 | 67,088 | ||||||
Less: Undistributed earnings allocated to participating securities |
|
| (104) |
|
| (243) |
|
| (384) |
|
| (797) | ||||||||||||
Adjusted net income allocable to common stockholders |
| $ | 18,670 |
| $ | 13,202 |
| $ | 43,558 |
| $ | 34,197 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Denominator - Diluted |
|
| 25,726,137 |
|
| 20,822,066 |
|
| 23,275,320 |
|
| 20,731,930 | 33,956,638 | 33,461,694 | 33,920,939 | 33,469,069 | ||||||||
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|
|
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|
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|
|
|
|
|
|
| ||||||||||||
Adjusted diluted earnings per share |
| $ | 0.73 |
| $ | 0.63 |
| $ | 1.87 |
| $ | 1.65 | $ | 3.47 | $ | 1.21 | $ | 6.47 | $ | 2.00 |
|
|
(1)The tax rate used in calculating adjusted net income for the three and six months ended June 30, 2021 was 22.5% which is reflective of the Company’s estimated annual effective tax rate after discrete items for the applicable period. For the three and six months ended June 30, 2020, the tax rate utilized was our estimated annual effective tax rate after discrete items of 23.3%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rates
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with ourSecond A&R Credit Agreement which was entered into on October 21, 2014. Future borrowings. Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to the London Interbank Offeredadjusted Eurodollar Rate plus an applicable margin between 2.75%2.05% and 3.25%2.65% per annum, or,and if made available in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75%1.05% and 2.25%1.65% per annum. The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Second A&R Credit Agreement. The Second A&R Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility. Under
For fixed rate debt, such as our current policies,senior notes, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows.
Our Financial Services business utilizes mortgage-backed securities, forward commitments, option contracts and investor commitments to protect the value of rate-locked commitments and loans held-for-sale from fluctuations in mortgage-related interest rates. To mitigate interest risk associated with loans held-for-sale, we do nottypically use interest rate derivative financial instruments to managehedge our exposure to changes inrisk from the time a borrower locks a loan until the time the loan is securitized. We also typically hedge our interest rates.rate exposure through entering into interest rate swap futures.
Inflation
Inflation
Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material, particularly lumber, and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to eight months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding industry and the COVID-19 pandemic.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our co-principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”)) as of SeptemberJune 30, 2017,2021, the end of the period covered by this Form 10-Q. Based on this evaluation, our co-principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 20172021 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or furnishsubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
During the nine monthsfinancial statement close for the quarter ended SeptemberJune 30, 2017, we completed our acquisition of UCP, Inc.2021, certain accounting and we are infinance employees worked remotely due to the process of integrating UCP, Inc. into our overallCOVID-19 pandemic. All internal control over financial reporting process.continued as in the past, but with certain necessary documentation changes in light of the remote working environment for certain personnel. There were no changes during the second quarter of 2021 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business. In the opinion of our management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.
There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 that was filed with the SEC on February 15, 2017.5, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended September 30, 2017, certain of our employees surrendered approximately 44,220 shares of our common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our First Amended & Restated 2013 Long-Term Incentive Plan. The following table summarizes the repurchases that occurred during the three months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
| Total number of shares purchased |
| Average price paid per share |
| Total number of shares purchased as part of publicly announced plans or programs |
| Maximum number of shares that may yet be purchased under the plans or programs | ||
July |
|
|
|
|
|
|
|
|
|
|
Purchased 7/1 through 7/31 |
| 29,022 |
| $ | 25.90 |
| N/A |
|
| N/A |
August |
|
|
|
|
|
|
|
|
|
|
Purchased 7/1 through 7/31 |
| - |
|
| - |
| N/A |
|
| N/A |
September |
|
|
|
|
|
|
|
|
|
|
Purchased 9/1 through 9/30 |
| 15,198 |
|
| 24.00 |
| N/A |
|
| N/A |
Total |
| 44,220 |
| $ | 25.25 |
|
|
|
|
|
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
None.
Not applicable.
The following exhibits are either filed herewith or incorporated herein by reference:
Item No. | Description | ||
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| |||
3.2 | |||
| |||
| |||
| |||
| |||
| |||
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| |||
| |||
31.2 | |||
31.3 | |||
32.1 | |||
32.2 | |||
32.3 | |||
101.INS | Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document) |
40
101.SCH | Inline XBRL Taxonomy Extension Schema Document (filed herewith) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | |
101.DEF | Inline XBRL Taxonomy Definition Linkbase Document (filed herewith) | |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document (filed herewith) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
*Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any of the omitted schedules upon request by the SEC.
†Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Qreport to be signed on its behalf by the undersigned thereunto duly authorized.
Century Communities, Inc. | |||||
Date: | By: | /s/ Dale Francescon | |||
Dale Francescon | |||||
Chairman of the Board and Co-Chief Executive Officer (Co-Principal Executive Officer) | |||||
Date: | By: | /s/ Robert J. Francescon | |||
Robert J. Francescon | |||||
Co-Chief Executive Officer and President (Co-Principal Executive Officer) | |||||
Date: | By: | /s/ David Messenger | |||
David Messenger | |||||
Chief Financial Officer (Principal Financial Officer) | |||||
Date: | By: | /s/ J. Scott Dixon | |||
J. Scott Dixon | |||||
Chief Accounting Officer (Principal Accounting Officer) |