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 September 30, 20172022
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, 27,573,18321, 2022, 31,772,335 shares of common stock, par value 0.01$0.01 per share, of the registrant were outstanding.
CENTURY COMMUNITIES, INC.
FORM 10-Q
For the threeThree and nine months endedNine Months Ended September 30, 20172022
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Century Communities, Inc.
Unaudited Condensed Consolidated Balance Sheets
As of September 30, 20172022 and December 31, 20162021
(in thousands, except share and per share amounts)
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| September 30, |
| December 31, | September 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2022 | 2021 | ||||||
Assets |
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| (unaudited) | (audited) | ||||
Cash and cash equivalents |
| $ | 58,522 |
| $ | 29,450 | $ | 98,203 | $ | 316,310 | ||
Cash held in escrow |
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| 42,262 |
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| 20,044 | 83,952 | 52,297 | ||||
Accounts receivable |
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| 20,810 |
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| 5,729 | 41,955 | 41,932 | ||||
Inventories |
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| 1,352,989 |
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| 857,885 | 3,107,734 | 2,456,614 | ||||
Mortgage loans held for sale |
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| 30,071 |
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| — | 194,123 | 353,063 | ||||
Prepaid expenses and other assets |
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| 62,362 |
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| 40,457 | 259,379 | 200,087 | ||||
Property and equipment, net |
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| 13,658 |
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| 11,412 | 30,450 | 24,939 | ||||
Investment in unconsolidated subsidiaries |
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| 20,677 |
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| 18,275 | ||||||
Deferred tax asset, net |
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| 6,403 |
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| — | ||||||
Amortizable intangible assets, net |
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| 1,889 |
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| 2,911 | ||||||
Deferred tax assets, net | 33,873 | 21,239 | ||||||||||
Goodwill |
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| 21,365 |
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| 21,365 | 30,395 | 30,395 | ||||
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 | $ | 3,880,064 | $ | 3,496,876 | ||
Liabilities and stockholders' equity |
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Liabilities: |
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Accounts payable |
| $ | 16,810 |
| $ | 15,708 | $ | 94,054 | $ | 84,679 | ||
Accrued expenses and other liabilities |
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| 157,705 |
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| 62,314 | 337,415 | 316,877 | ||||
Deferred tax liability, net |
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| — |
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| 1,782 | ||||||
Senior notes payable |
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| 776,016 |
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| 259,088 | ||||||
Notes payable | 1,016,548 | 998,936 | ||||||||||
Revolving line of credit |
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| — |
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| 195,000 | 165,000 | — | ||||
Mortgage repurchase facility |
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| 27,465 |
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| — | ||||||
Mortgage repurchase facilities | 195,047 | 331,876 | ||||||||||
Total liabilities |
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| 977,996 |
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| 533,892 | 1,808,064 | 1,732,368 | ||||
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 |
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| 273 |
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| 216 | ||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 31,772,335 and 33,760,940 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 318 | 338 | ||||||||||
Additional paid-in capital |
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| 501,786 |
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| 355,567 | 579,697 | 697,845 | ||||
Retained earnings |
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| 150,953 |
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| 117,853 | 1,491,985 | 1,066,325 | ||||
Total stockholders' equity |
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| 653,012 |
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| 473,636 | 2,072,000 | 1,764,508 | ||||
Total liabilities and stockholders' equity |
| $ | 1,631,008 |
| $ | 1,007,528 | $ | 3,880,064 | $ | 3,496,876 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 20172022 and 20162021
(in thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Revenues | ||||||||||||
Homebuilding revenues | ||||||||||||
Home sales revenues | $ | 1,118,588 | $ | 917,337 | $ | 3,241,537 | $ | 2,881,404 | ||||
Land sales and other revenues | 2,432 | 11,594 | 12,872 | 35,522 | ||||||||
Total homebuilding revenues | 1,121,020 | 928,931 | 3,254,409 | 2,916,926 | ||||||||
Financial services revenues | 23,271 | 29,101 | 72,373 | 92,586 | ||||||||
Total revenues | 1,144,291 | 958,032 | 3,326,782 | 3,009,512 | ||||||||
Homebuilding cost of revenues | ||||||||||||
Cost of home sales revenues | (841,665) | (682,012) | (2,365,633) | (2,203,187) | ||||||||
Cost of land sales and other revenues | (292) | (6,977) | (9,151) | (23,996) | ||||||||
Total homebuilding cost of revenues | (841,957) | (688,989) | (2,374,784) | (2,227,183) | ||||||||
Financial services costs | (13,922) | (17,666) | (43,262) | (54,135) | ||||||||
Selling, general and administrative | (110,687) | (90,154) | (321,484) | (281,961) | ||||||||
Loss on debt extinguishment | — | (14,458) | — | (14,458) | ||||||||
Inventory impairment and other | — | — | — | (41) | ||||||||
Other income (expense) | (5,651) | (1,004) | (12,754) | (2,790) | ||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | ||||||||
Income tax expense | (27,601) | (31,784) | (128,861) | (95,406) | ||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | ||||
Earnings per share: | ||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | ||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | ||||||||
Diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 |
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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 Flows
For the Nine Months Ended September 30, 20172022 and 20162021
(in thousands)thousands)
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| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||
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| 2017 |
| 2016 | 2022 | 2021 | ||||||
Operating activities |
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Net income |
| $ | 33,100 |
| $ | 34,467 | $ | 445,637 | $ | 333,538 | ||
Adjustments to reconcile net income to net cash used in operating activities: |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Depreciation and amortization |
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| 5,073 |
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| 4,215 | 8,207 | 8,324 | ||||
Stock-based compensation expense |
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| 6,521 |
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| 5,058 | 14,950 | 10,760 | ||||
Fair value of mortgage loans held for sale and other | 12,174 | 3,529 | ||||||||||
Loss on debt extinguishment | — | 14,458 | ||||||||||
Inventory impairment and other | — | 41 | ||||||||||
Deferred income taxes |
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| (2,766) |
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| (3,807) | (12,634) | (10,336) | ||||
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) | ||||||
Loss on disposition of assets | 1,504 | 1,267 | ||||||||||
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) | (31,655) | (6,034) | ||||
Accounts receivable |
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| (7,493) |
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| 389 | (14,499) | (12,353) | ||||
Inventories |
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| (95,065) |
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| (85,560) | (597,539) | (267,282) | ||||
Mortgage loans held for sale | 142,283 | 53,132 | ||||||||||
Prepaid expenses and other assets |
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| (16,637) |
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| (11,189) | (25,740) | (68,622) | ||||
Accounts payable |
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| (8,026) |
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| 7,172 | 10,605 | (5,385) | ||||
Accrued expenses and other liabilities |
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| 9,027 |
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| 4,255 | (20,400) | 27,743 | ||||
Mortgage loans held for sale |
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| (30,071) |
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| — | ||||||
Net cash used in operating activities |
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| (130,755) |
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| (61,400) | ||||||
Net cash (used in) provided by operating activities | (67,107) | 82,780 | ||||||||||
Investing activities |
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Purchases of property and equipment |
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| (5,867) |
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| (6,375) | (15,395) | (6,763) | ||||
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 |
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| 76 |
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| 73 | ||||||
Expenditures related to development of rental properties | (18,082) | — | ||||||||||
Other investing activities | (3,853) | 2,434 | ||||||||||
Net cash used in investing activities |
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| (66,122) |
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| (5,000) | (37,330) | (4,329) | ||||
Financing activities |
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Borrowings under revolving credit facilities |
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| 75,000 |
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| 145,000 | 968,000 | — | ||||
Payments on revolving credit facilities |
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| (270,000) |
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| (90,000) | (803,000) | — | ||||
Proceeds from issuance of senior notes |
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| 523,000 |
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| — | ||||||
Proceeds from issuance of insurance premium notes |
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| — |
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| 11,612 | ||||||
Principal payments on notes payable |
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| (4,735) |
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| (7,582) | ||||||
Repayment of debt assumed in business combination |
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| (151,919) |
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| — | ||||||
Proceeds from issuance of senior notes due 2029 | — | 500,000 | ||||||||||
Extinguishment of senior notes due 2025 | — | (411,752) | ||||||||||
Proceeds from issuance of insurance premium notes and other | 25,070 | 19,580 | ||||||||||
Principal payments on insurance premium notes and other | (11,627) | (9,683) | ||||||||||
Debt issuance costs |
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| (3,731) |
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| (1,156) | — | (6,155) | ||||
Net proceeds from mortgage credit facility |
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| 27,465 |
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| — | ||||||
Net proceeds from issuances of common stock |
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| 35,010 |
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| — | ||||||
Repurchases of common stock upon vesting of restricted stock awards |
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| (4,141) |
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| (1,014) | ||||||
Repurchases of common stock under our stock repurchase program |
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| — |
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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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Net payments for mortgage repurchase facilities | (136,829) | (47,451) | ||||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (12,735) | (13,726) | ||||||||||
Repurchases of common stock under stock repurchase program | (120,646) | — | ||||||||||
Dividend payments | (19,680) | (10,127) | ||||||||||
Other financing activities | 2,941 | (133) | ||||||||||
Net cash (used in) provided by financing activities | (108,506) | 20,553 | ||||||||||
Net (decrease) increase | $ | (212,943) | $ | 99,004 | ||||||||
Cash and cash equivalents and Restricted cash | ||||||||||||
Beginning of period |
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| 29,450 |
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| 29,287 | 322,241 | 398,081 | ||||
End of period |
| $ | 58,522 |
| $ | 17,354 | $ | 109,298 | $ | 497,085 | ||
Supplemental cash flow disclosure |
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Cash paid for income taxes |
| $ | 21,657 |
| $ | 20,557 | $ | 151,079 | $ | 116,182 | ||
Cash and cash equivalents and Restricted cash | ||||||||||||
Cash and cash equivalents | $ | 98,203 | $ | 491,879 | ||||||||
Restricted cash (Note 5) | 11,095 | 5,206 | ||||||||||
Cash and cash equivalents and Restricted cash | $ | 109,298 | $ | 497,085 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2022 and 2021
(in thousands)
For the Three Months Ended September 30, 2022 and 2021
Common Stock | ||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | ||||||||||
Balance at June 30, 2022 | 32,273 | $ | 323 | $ | 596,727 | $ | 1,354,114 | $ | 1,951,164 | |||||
Vesting of stock-based compensation awards | — | — | — | — | — | |||||||||
Withholding of common stock upon vesting of stock-based compensation awards | — | — | — | — | — | |||||||||
Repurchases of common stock | (501) | (5) | (22,336) | — | (22,341) | |||||||||
Stock-based compensation expense | — | — | 5,159 | — | 5,159 | |||||||||
Cash dividends declared and dividend equivalents | — | — | 147 | (6,602) | (6,455) | |||||||||
Net income | — | — | — | 144,473 | 144,473 | |||||||||
Balance at September 30, 2022 | 31,772 | $ | 318 | $ | 579,697 | $ | 1,491,985 | $ | 2,072,000 | |||||
Balance at June 30, 2021 | 33,761 | $ | 338 | $ | 690,707 | $ | 797,613 | $ | 1,488,658 | |||||
Stock-based compensation expense | ��� | — | 3,548 | — | 3,548 | |||||||||
Cash dividends declared and dividend equivalents | — | — | 54 | (5,117) | (5,063) | |||||||||
Other | — | — | (103) | — | (103) | |||||||||
Net income | — | — | — | 113,977 | 113,977 | |||||||||
Balance at September 30, 2021 | 33,761 | $ | 338 | $ | 694,206 | $ | 906,473 | $ | 1,601,017 |
For the Nine Months Ended September 30, 2022 and 2021
Common Stock | ||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total Stockholders' Equity | ||||||||||
Balance at December 31, 2021 | 33,761 | $ | 338 | $ | 697,845 | $ | 1,066,325 | $ | 1,764,508 | |||||
Vesting of stock-based compensation awards | 516 | 5 | (5) | — | — | |||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (200) | (2) | (12,733) | — | (12,735) | |||||||||
Repurchases of common stock | (2,305) | (23) | (120,623) | — | (120,646) | |||||||||
Stock-based compensation expense | — | — | 14,950 | — | 14,950 | |||||||||
Cash dividends declared and dividend equivalents | — | — | 297 | (19,977) | (19,680) | |||||||||
Other | — | — | (34) | — | (34) | |||||||||
Net income | — | — | — | 445,637 | 445,637 | |||||||||
Balance at September 30, 2022 | 31,772 | $ | 318 | $ | 579,697 | $ | 1,491,985 | $ | 2,072,000 | |||||
Balance at December 31, 2020 | 33,351 | $ | 334 | $ | 697,200 | $ | 583,171 | $ | 1,280,705 | |||||
Vesting of stock-based compensation awards | 675 | 7 | (7) | — | — | |||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (265) | (3) | (13,723) | — | (13,726) | |||||||||
Stock-based compensation expense | — | — | 10,760 | — | 10,760 | |||||||||
Cash dividends declared and dividend equivalents | — | — | 109 | (10,236) | (10,127) | |||||||||
Other | — | — | (133) | — | (133) | |||||||||
Net income | — | — | — | 333,538 | 333,538 | |||||||||
Balance at September 30, 2021 | 33,761 | $ | 338 | $ | 694,206 | $ | 906,473 | $ | 1,601,017 |
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 20172022
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 fourfive reportable segments based on the geographic regions in which we operate:segments: West, Mountain, Texas, Southeast, and Southeast. Additionally, ourCentury Complete. 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”). UCPAdditionally, our wholly owned subsidiary, Century Living, LLC, is a homebuilder and land developer with expertiseengaged in residential land acquisition,the development, and entitlement, as well as home design, construction and sales, with operationsmanagement of multi-family rental properties, primarily 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 connectionColorado, with the merger, each shareintent to dispose of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32properties shortly after achieving stabilized rental operations. Century Living, LLC is included 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.Corporate segment.
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, 2016,2021, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162021 that was filed with the SEC on February 15, 2017.3, 2022.
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 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 Issued Accounting Standards
In August 2015, the Financial Accounting Standards Board (which we refer to as “FASB”) issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” ASU 2015-14 defers the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and will be effective for the Company beginning 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 2015-14 on January 1, 2018 under the modified retrospective approach. We are currently evaluating the potential impact of adopting this guidance on our 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.
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.four geographic regions offers 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, butsegment. 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 been aggregated into reportable segments defined byoperations 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 five 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 (Florida, Georgia, North Carolina, South Carolina, and Tennessee)
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
Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado, with the intent to conform to the current period presentation.dispose of properties shortly after achieving stabilized rental operations. Century Living, LLC is included in our Corporate segment.
The following table summarizes total revenue and income (loss) before income tax expense by operating segment (in thousands)thousands):
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| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue: |
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West | $ | 73,684 |
| $ | — |
| $ | 73,684 |
| $ | — | $ | 255,413 | $ | 268,279 | $ | 811,961 | $ | 691,472 | |||||
Mountain |
| 157,224 |
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| 141,043 |
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| 443,526 |
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| 353,649 | 288,620 | 263,587 | 852,981 | 863,901 | |||||||||
Texas |
| 36,757 |
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| 30,036 |
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| 111,997 |
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| 106,179 | 115,857 | 87,250 | 363,297 | 307,774 | |||||||||
Southeast |
| 109,096 |
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| 82,334 |
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| 265,951 |
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| 237,323 | 196,787 | 131,297 | 526,944 | 520,221 | |||||||||
Century Complete | 264,343 | 178,518 | 699,226 | 533,558 | ||||||||||||||||||||
Financial Services |
| 2,955 |
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| — |
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| 4,697 |
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| — | 23,271 | 29,101 | 72,373 | 92,586 | |||||||||
Corporate |
| — |
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| — |
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| — |
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| — | — | — | — | — | |||||||||
Total revenue | $ | 379,716 |
| $ | 253,413 |
| $ | 899,855 |
| $ | 697,151 | $ | 1,144,291 | $ | 958,032 | $ | 3,326,782 | $ | 3,009,512 | |||||
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Income (loss) before income tax expense: |
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West | $ | 5,259 |
| $ | — |
| $ | 5,259 |
| $ | — | $ | 51,036 | $ | 60,915 | $ | 200,213 | $ | 129,279 | |||||
Mountain |
| 19,101 |
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| 18,995 |
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| 56,137 |
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| 47,234 | 51,058 | 50,561 | 159,559 | 158,355 | |||||||||
Texas |
| 2,166 |
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| (288) |
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| 6,407 |
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| 2,138 | 17,084 | 11,884 | 62,978 | 39,554 | |||||||||
Southeast |
| 6,001 |
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| 7,848 |
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| 16,609 |
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| 21,827 | 38,400 | 20,004 | 108,053 | 69,540 | |||||||||
Century Complete | 36,939 | 24,838 | 101,769 | 69,657 | ||||||||||||||||||||
Financial Services |
| 505 |
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| — |
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| (192) |
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| — | 9,349 | 11,435 | 29,111 | 38,451 | |||||||||
Corporate |
| (17,876) |
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| (6,824) |
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| (33,904) |
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| (19,942) | (31,792) | (33,876) | (87,185) | (75,892) | |||||||||
Total income before income tax expense | $ | 15,156 |
| $ | 19,731 |
| $ | 50,316 |
| $ | 51,257 | $ | 172,074 | $ | 145,761 | $ | 574,498 | $ | 428,944 |
The following table summarizes total assets by operating segment (in thousands):
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| September 30, |
| December 31, | September 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2022 | 2021 | ||||||
West |
| $ | 302,816 |
| $ | — | $ | 785,994 | $ | 668,830 | ||
Mountain |
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| 571,124 |
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| 541,657 | 1,135,788 | 1,008,481 | ||||
Texas |
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| 186,840 |
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| 138,392 | 499,751 | 322,302 | ||||
Southeast |
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| 394,918 |
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| 262,448 | 451,104 | 360,644 | ||||
Century Complete | 510,290 | 371,096 | ||||||||||
Financial Services |
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| 38,010 |
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| — | 357,431 | 533,159 | ||||
Corporate |
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| 137,300 |
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| 65,031 | 139,706 | 232,364 | ||||
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 | $ | 3,880,064 | $ | 3,496,876 |
Corporate assets primarily include certain cash and cash equivalents, our investment in unconsolidated subsidiaries,certain property and equipment, costs associated with development of multi-family rental properties, prepaid insurance, and deferred financing costs on our revolving line of credit.
3. Business CombinationsInventories
On August 4, 2017,
Inventories included the following (in thousands):
September 30, | December 31, | |||||
2022 | 2021 | |||||
Homes under construction | $ | 1,597,083 | $ | 1,188,270 | ||
Land and land development | 1,449,972 | 1,214,965 | ||||
Capitalized interest | 60,679 | 53,379 | ||||
Total inventories | $ | 3,107,734 | $ | 2,456,614 |
4. Financial Services
Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans Inc. (which we acquired UCP, Inc. UCPrefer to as “Inspire”). Inspire is a homebuilderfull-service mortgage lender and land developerprimarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates either as loans with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales,servicing rights released, or with operationsservicing rights retained, in the Statessecondary mortgage market within a short period of California, Washington, North Carolina, South Carolinatime 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 $139.8 million and Tennessee. The merger was unanimously approved by the board$164.3 million at September 30, 2022 and December 31, 2021, respectively, and carried a weighted average interest rate of directorsapproximately 5.3% and 3.3%, respectively. As of both the Company
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September 30, 2022 and UCP and was also approved by UCP stockholders on August 1, 2017. In connectionDecember 31, 2021, Inspire had mortgage loans held for sale 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$194.1 million and $8.6$353.1 million, respectively, in acquisition related expenses, presented as “Acquisition expense”and an aggregate outstanding principal balance of $199.7 million and $342.0 million, respectively. Net losses 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 $77.6mortgage loans were $3.6 million and net income of $5.6$1.4 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, 20172022, respectively, and 2016 gives effectnet gains on the sale of mortgage loans were $21.7 million and $64.2 million for the three and nine months ended September 30, 2021, respectively, and are included in 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 interest rate hedging program.
Mortgage loans held for sale, including the results ofrights to service the acquisition of UCPmortgage loans, mortgage loans in process for which interest rates were committed to the borrowers (referred to as of January 1, 2017“interest rate lock commitments”), as well as the derivative instruments used to economically hedge our interest rate risk, which are typically forward commitments on mortgage-backed securities 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 assuminginterest rate lock commitments, are carried at fair value. Management believes carrying loans held for sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value adjustments had been applied as of the beginningloans and the derivative instruments used to economically hedge them. Gains and losses from the changes in fair value are reflected in financial services revenue on the condensed consolidated statements of operations. Losses from the period presentedchange in fair value for mortgage loans held for sale were $8.1 million and excludes acquisition expense incurred related$1.8 million for the three months ended September 30, 2022 and 2021, respectively, and were $16.7 million and $6.1 million for the nine months ended September 30, 2022 and 2021, respectively. Refer to the transaction (in thousands, except share and per share information):Note 12 – Fair Value Disclosures for further information regarding our derivative instruments.
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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, | ||
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| 2017 |
| 2016 | ||
Homes under construction |
| $ | 897,402 |
| $ | 455,454 |
Land and land development |
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| 415,375 |
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| 373,496 |
Capitalized interest |
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| 40,212 |
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| 28,935 |
Total inventories |
| $ | 1,352,989 |
| $ | 857,885 |
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5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets included the following (in thousands):
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| September 30, |
| December 31, | September 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2022 | 2021 | ||||||
Prepaid insurance |
| $ | 8,327 |
| $ | 12,236 | $ | 37,384 | $ | 37,814 | ||
Lot option and escrow deposits |
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| 26,873 |
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| 12,320 | 61,070 | 61,649 | ||||
Performance deposits |
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| 5,732 |
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| 1,544 | 12,974 | 11,196 | ||||
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 | 4,246 | 5,135 | ||||||||||
Restricted cash |
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| 6,850 |
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| 1,505 | 11,095 | 5,931 | ||||
Secured note receivable |
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| 2,772 |
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| 2,850 | ||||||
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 | 15,541 | 16,939 | ||||||||||
Mortgage loans held for investment at fair value | 16,285 | 10,631 | ||||||||||
Mortgage loans held for investment at amortized cost | 6,726 | 2,825 | ||||||||||
Derivative assets and mortgage servicing rights | 29,731 | 19,645 | ||||||||||
Other assets and prepaid expenses | 64,327 | 28,322 | ||||||||||
Total prepaid expenses and other assets |
| $ | 62,362 |
| $ | 40,457 | $ | 259,379 | $ | 200,087 |
6. Investment in Unconsolidated Subsidiaries
On November 1, 2016, we acquired a 50% ownership(1)Restricted cash consists of WJH LLC (which we referrestricted cash related to as “WJH”), which is the successor to Wade Jurney Homes, Inc. and Wade Jurney of Florida, Inc.,land development, 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 periodthird parties as required by various jurisdictions, and certain pledge balances associated with 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.
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6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities included the following (in thousands):
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| September 30, |
| December 31, | September 30, | December 31, | ||||||
|
| 2017 |
| 2016 | 2022 | 2021 | ||||||
Earnest money deposits |
| $ | 15,086 |
| $ | 7,304 | $ | 43,865 | $ | 56,811 | ||
Warranty reserve |
|
| 8,850 |
|
| 2,479 | 15,336 | 13,343 | ||||
Self-insurance reserve | 13,864 | 5,103 | ||||||||||
Accrued compensation costs |
|
| 13,949 |
|
| 12,603 | 72,057 | 81,604 | ||||
Land development and home construction accruals |
|
| 66,119 |
|
| 31,486 | 143,486 | 88,155 | ||||
Liability for product financing arrangement |
|
| 21,893 |
|
| — | ||||||
Accrued interest |
|
| 14,936 |
|
| 3,039 | 15,114 | 9,653 | ||||
Lease liabilities - operating leases | 16,181 | 17,359 | ||||||||||
Income taxes payable |
|
| — |
|
| 783 | — | 1,684 | ||||
Other |
|
| 16,872 |
|
| 4,620 | ||||||
Derivative liabilities | — | 359 | ||||||||||
Other accrued liabilities | 17,512 | 42,806 | ||||||||||
Total accrued expenses and other liabilities |
| $ | 157,705 |
| $ | 62,314 | $ | 337,415 | $ | 316,877 |
117. 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$0.1 million and $1.2$2.5 million during the three months ended September 30, 2022 and 2021 and we reduced our warranty reserve by $0.6 million and $4.7 million during the nine months ended September 30, 2022 and 2021, respectively. These adjustments are included in cost of home sales revenues on our condensed consolidated statements of operations. Changes in our warranty accrual for the three and nine months ended September 30, 2022 and 2021 are detailed in the table below (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Beginning balance | $ | 14,127 | $ | 13,862 | $ | 13,343 | $ | 13,824 | ||||
Warranty expense provisions | 3,498 | 2,459 | 7,645 | 7,139 | ||||||||
Payments | (2,179) | (1,494) | (5,046) | (3,938) | ||||||||
Warranty adjustment | (110) | (2,512) | (606) | (4,710) | ||||||||
Ending balance | $ | 15,336 | $ | 12,315 | $ | 15,336 | $ | 12,315 |
8. Self-Insurance Reserve
We maintain general liability insurance coverage, including coverage for certain construction defects. These insurance policies protect us against a portion of the risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. Prior to the year ended December 31, 2021, we generally maintained construction defect policies with lower self-insurance limits. In circumstances where we have elected to retain a higher portion of the overall risk for construction defect claims in return for a lower initial premium, we reserve for the estimated costs that we will incur that are above our coverage limits or that are not covered by our insurance policies. The reserve is recorded on an undiscounted basis at the time revenue is recognized for each home closing. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based on third party actuarial analyses that are primarily based on industry data and partially on our historical claims, which include estimates of claims incurred but not yet reported. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. Our self-insurance liability is presented on a gross basis without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimates of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable. Based on our third-party actuarial analysis, we increased our self-insurance reserve by $0.9 million during the three and nine months ended September
30, 2017, respectively, which is2022 and recorded no change to our reserve during the three and nine months ended September 30, 2021, 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 accrualself-insurance reserve for incurred but not reported construction defect claims for the three and nine months ended September 30, 2022 and 2021 are detailed in the table below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Beginning balance |
| $ | 3,057 |
| $ | 2,754 |
| $ | 2,479 |
| $ | 2,622 | $ | 10,153 | $ | — | $ | 5,103 | $ | — | ||||
Warranty reserve assumed in business combination |
|
| 6,202 |
|
| — |
|
| 6,202 |
|
| — | ||||||||||||
Warranty expense provisions |
|
| 1,245 |
|
| 686 |
|
| 2,827 |
|
| 2,078 | ||||||||||||
Self-insurance expense provisions | 2,861 | 2,289 | 7,911 | 2,289 | ||||||||||||||||||||
Payments |
|
| (710) |
|
| (554) |
|
| (1,458) |
|
| (1,194) | — | — | — | — | ||||||||
Warranty adjustment |
|
| (944) |
|
| (291) |
|
| (1,200) |
|
| (911) | ||||||||||||
Self-insurance adjustment | 850 | — | 850 | — | ||||||||||||||||||||
Ending balance |
| $ | 8,850 |
| $ | 2,595 |
| $ | 8,850 |
| $ | 2,595 | $ | 13,864 | $ | 2,289 | $ | 13,864 | $ | 2,289 |
9. Debt
9. Notes Payable
Our outstanding debt obligations included the following as of September 30, 2022 and Revolving LineDecember 31, 2021 (in thousands):
September 30, | December 31, | |||||
2022 | 2021 | |||||
3.875% senior notes, due August 2029(1) | $ | 494,691 | $ | 494,117 | ||
6.750% senior notes, due May 2027(1) | 496,190 | 495,581 | ||||
Other financing obligations(2) | 25,667 | 9,238 | ||||
Notes payable | 1,016,548 | 998,936 | ||||
Revolving line of credit | 165,000 | — | ||||
Mortgage repurchase facilities | 195,047 | 331,876 | ||||
Total debt | $ | 1,376,595 | $ | 1,330,812 |
(1)The carrying value of Credit
6.875% 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.
In May 2014,(2)As of September 30, 2022, other financing obligations included $22.7 million related to insurance premium notes and certain secured borrowings, as well as $3.0 million outstanding under the Construction Loan Agreements. As of December 31, 2021, other financing obligations included $9.2 million related to insurance premium notes and certain secured borrowings.
Construction Loan Agreements
On August 9, 2022 and March 17, 2022, certain wholly owned subsidiaries of Century Living, LLC entered into construction loan agreements with PNC Bank, National Association and U.S. Bank National Association, a national banking association, d/b/a Housing Capital Company (which we completed a private offering of $200.0 million in aggregate principal amount of senior unsecured notes due 2022collectively refer to as “the Lenders”), respectively. The construction loan agreements (which we refer to as the “Initial Senior Notes”“Construction Loan Agreements”), collectively provide that we may borrow up to $128.0 million from the Lenders for purposes of construction of multi-family projects in reliance on Rule 144A and Regulation SColorado, with advances made by the Lenders upon the satisfaction of certain conditions. Borrowings under the Securities ActConstruction Loan Agreements bear interest at floating interest rates per annum equal to the Secured Overnight Financing Rate and the Bloomberg Short-term Bank Yield Index, plus an applicable margin. The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates through August 9, 2026, with the option to extend the maturity dates for a period of 1933,12 months if certain conditions are satisfied. The Construction Loan Agreements contain customary affirmative and negative covenants (including covenants related to construction completion, and limitations on the use of loan proceeds, transfers of land, equipment, and improvements), as amendedwell as customary events of default.
As of September 30, 2022, $3.0 million was outstanding under the Construction Loan Agreements, with borrowings bearing a weighted average interest rate of 4.423%, and we were in compliance with all covenants thereunder.
Revolving Line of Credit
On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (which we refer to as the “Securities Act”“Second A&R 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 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.
Revolving line of credit
On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party theretothereto. The Second A&R Credit Agreement, which amended and restated our prior Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (which as modified as described below, we refer to as the “Credit Agreement”Facility”). The Credit Agreement provided us with a revolving line of credit of up to $120$800.0 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 ratio of not more than 1.75 to 1.0 as of the last day of any fiscal quarter, based upon ourbase rate plus an applicable margin between 1.05% 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. 1.65% per annum.
As of September 30, 2017,2022 and December 31, 2021, $165.0 million and no amounts were outstanding under the Credit Facility, respectively, and we were in compliance with all covenants under the Second A&R Credit Agreement.
As of September 30, 2017, we did not have any amounts outstanding under the Credit Agreement.
Mortgage Repurchase FacilityFacilities – Financial Services
On April 10, 2017,
Inspire Home Loans Inc. (which we referis a party 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”)mortgage warehouse facilities with Branch BankingComerica Bank, J.P. Morgan, 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 millionWells Fargo (which we refer to as the “Repurchase Facility”Facilities”). 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 agreement by the Seller to repurchase from the Buyer such eligible 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 buyer thereunder. The Second Master Repurchase Agreement providesprovide Inspire with a revolving mortgage loanuncommitted repurchase facilityfacilities of up to $35$275.0 million (which we refer to as of September 30, 2022, secured by the “Secondmortgage loans financed thereunder. The Repurchase Facility”). The purposeFacilities have varying short term maturity dates through August 15, 2023 and bear a weighted average interest rate of the Second Repurchase Facility is similar to the purpose outlined above for the Repurchase Facility. 4.208%.
Amounts outstanding under the Repurchase Facility and Second Repurchase FacilityFacilities 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 September 30, 2017,2022, and December 31, 2021, we had $195.0 million and $331.9 million outstanding under the Repurchase Facilities, respectively, and were in compliance with all covenants under each ofthereunder.
During the three months ended September 30, 2022 and 2021, we incurred interest expense on the Repurchase FacilityFacilities of $0.6 million and Second Repurchase Facility.
As$0.4 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations. During the nine months ended September 30, 2017, there was an aggregate $27.52022 and 2021, we incurred interest expense on the Repurchase Facilities of $1.4 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.$1.8 million, respectively.
14
10. Interest on Senior Notes and Revolving Line of Credit
Interest on our senior notes and Revolving Line of Credit 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 nine months ended September 30, 20172022 and 2016,2021, we capitalized all interest costs incurred on these facilities during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.periods.
Our interest costs arewere as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Interest capitalized beginning of period |
| $ | 35,668 |
|
| 26,577 |
| $ | 28,935 |
|
| 21,533 | $ | 57,124 | $ | 54,161 | $ | 53,379 | $ | 60,838 | ||||
Interest capitalized during period |
|
| 13,338 |
|
| 6,743 |
|
| 31,902 |
|
| 19,772 | 17,281 | 15,204 | 46,645 | 45,310 | ||||||||
Less: capitalized interest in cost of sales |
|
| (8,794) |
|
| (5,192) |
|
| (20,625) |
|
| (13,177) | (13,726) | (14,636) | (39,345) | (51,419) | ||||||||
Interest capitalized end of period |
| $ | 40,212 |
|
| 28,128 |
| $ | 40,212 |
|
| 28,128 | $ | 60,679 | $ | 54,729 | $ | 60,679 | $ | 54,729 |
11. 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 20172022 estimated annual effective tax rate, before discrete items, of 36.3%23.6% is driven by our blended federal and state statutory rate of 37.8%24.8%, 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 home credits for the current year home deliveries, which benefited our rate by 3.2%. This benefit was partially offset by non-deductible acquisition costs associated with our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%. Our estimated annual rate of 36.3% was also benefited by discrete items for excess tax benefits related to share based awards that vested during the nine months ended September 30, 2017, resultingcombined resulted in a totalnet decrease of 1.2%.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The IRA extended the energy efficient home credit which provides a tax rate of 34.2%.
Forcredit for each home delivered that met the energy saving and certification requirements for homes delivered from January 1, 2022 (retroactively) through December 31, 2022, as well as modifies and increases the tax credit starting in 2023 through 2032. Previously, the federal tax credit expired for homes delivered after December 31, 2021. During the three months ended September 30, 2017 and 2016, we recorded income2022, our effective tax expenserate was benefited by a $13.6 million benefit as a result of $5.7 million and $6.4 million, respectively. the retroactive extension of the energy efficient home credit.
For the nine months ended September 30, 2017 2022, our estimated annual rate of 23.6% was impacted by discrete items which had a net impact of decreasing our rate by 1.2%, including federal energy home tax credits claimed and 2016,the impact of excess tax benefits for vested stock-based compensation.
For the three months ended September 30, 2022 and 2021, we recorded income tax expense of $17.2$27.6 million and $16.8$31.8 million, respectively.For the nine months ended September 30, 2022 and 2021, we recorded income tax expense of $128.9 million and $95.4 million, respectively.
12. 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 and uncommitted mortgage loans.
Derivative assets and liabilities – Derivative assets are interest rate lock commitments and derivative liabilities are associated with forward commitments and investor commitments on loans. 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 cost to service.
Mortgage loans held for investment at fair value – The fair value of mortgage loans held for investment at fair value 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 September 30, 2022 and December 31, 2021, respectively (in thousands):
September 30, | December 31, | |||||||||
Balance Sheet Classification | Hierarchy | 2022 | 2021 | |||||||
Mortgage loans held for sale | Mortgage loans held for sale | Level 2 | $ | 194,123 | $ | 353,063 | ||||
Mortgage loans held for investment at fair value (1) | Prepaid expenses and other assets | Level 3 | $ | 16,285 | $ | 10,631 | ||||
Derivative assets | Prepaid expenses and other assets | Level 2 | $ | 7,937 | $ | 5,944 | ||||
Mortgage servicing rights (2) | Prepaid expenses and other assets | Level 3 | $ | 21,794 | $ | 13,701 | ||||
Derivative liabilities | Accrued expenses and other liabilities | Level 2 | $ | — | $ | 359 |
15
(1)The unobservable inputs used in the valuation of the mortgage loans held for investment at fair value include, among other items, the value of underlying collateral, from markets where there is little observable trading activity.
(2)The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service, which were 7.6%, 10.0%, and $0.086 per year per loan, respectively as of September 30, 2022, and 8.5%, 9.9%, and $0.085 per year per loan, respectively, as of December 31, 2021. 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 presents carrying valuesrepresents the reconciliation of the beginning and estimatedending balance for the Level 3 recurring fair valuesvalue measurements, with gains and losses from the changes in fair value reflected in financial services revenue on the condensed consolidated statements of financial instrumentsoperations (in thousands):
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| September 30, 2017 |
| December 31, 2016 | ||||||||
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| 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 |
| $ | — |
| $ | — |
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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 |
| $ | — |
| $ | — |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
Mortgage servicing rights | 2022 | 2021 | 2022 | 2021 | |||||||
Beginning of period | $ | 20,196 | $ | 10,298 | $ | 13,701 | $ | 4,115 | |||
Originations | 1,232 | 1,604 | 6,605 | 7,986 | |||||||
Settlements | (166) | (258) | (701) | (527) | |||||||
Changes in fair value | 532 | 27 | 2,189 | 97 | |||||||
End of period | $ | 21,794 | $ | 11,671 | $ | 21,794 | $ | 11,671 | |||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
Mortgage loans held-for-investment at fair value | 2022 | 2021 | 2022 | 2021 | |||||||
Beginning of period | $ | 14,509 | $ | 10,823 | $ | 10,631 | $ | 8,727 | |||
Transfers from loans held for sale | 1,904 | 973 | 7,046 | 4,354 | |||||||
Settlements | — | (129) | (1,121) | (1,309) | |||||||
Reduction in unpaid principal balance | (89) | (54) | (213) | (159) | |||||||
Changes in fair value | (39) | — | (58) | — | |||||||
End of period | $ | 16,285 | $ | 11,613 | $ | 16,285 | $ | 11,613 |
For the financial assets and liabilities that the Company does not reflect at fair value, the following present both their respective carrying value and fair value at September 30, 2022 and December 31, 2021, respectively (in thousands).
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September 30, 2022 | December 31, 2021 | |||||||||||||
Hierarchy | Carrying | Fair Value | Carrying | Fair Value | ||||||||||
Cash and cash equivalents | Level 1 | $ | 98,203 | $ | 98,203 | $ | 316,310 | $ | 316,310 | |||||
3.875% senior notes (1)(2) | Level 2 | $ | 494,691 | $ | 380,000 | $ | 494,117 | $ | 504,375 | |||||
6.750% senior notes (1)(2) | Level 2 | $ | 496,190 | $ | 466,250 | $ | 495,581 | $ | 526,875 | |||||
Revolving line of credit(3) | Level 2 | $ | 165,000 | $ | 165,000 | $ | — | $ | — | |||||
Other financing obligations(3)(4) | Level 3 | $ | 25,667 | $ | 25,667 | $ | 9,238 | $ | 9,238 | |||||
Mortgage repurchase facilities(3) | Level 2 | $ | 195,047 | $ | 195,047 | $ | 331,876 | $ | 331,876 |
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| (1)Estimated fair value of the senior notes is based on recent trading activity in inactive markets. (2)Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of September 30, 2022, these amounts totaled $5.3 million and $3.8 million for the 3.875% senior notes and 6.750% senior notes, respectively. As of December 31, 2021, these amounts totaled $5.9 million and $4.4 million for the 3.875% senior notes and 6.750% senior notes, respectively. (3)Carrying amount |
The carrying amount of cash and cash equivalents approximates fair value. value due to short-term nature and interest rate terms.
(4)Other financing obligations included $22.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40% to 3.99%, and $3.0 million related to outstanding borrowings on the Construction Loan Agreements that bore a weighted average interest rate of 4.423% during the period ended September 30, 2022. Other financing obligations included $9.2 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.99% to 3.24% during the period ended December 31, 2021.
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.No impairment charges were recorded in the three and nine months ended September 30, 2022. No impairment charges were recorded in the three months ended September 30, 2021, and nominal impairment charges were recorded in the nine months ended September 30, 2021. When impairment charges are recognized, the estimated fair value of communities are 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.
13. Stock-Based Compensation
During the nine months ended September 30, 2022 and 2021, we granted performance share units (which we refer to as “PSUs”) covering up to 0.5 million and 0.2 million shares of common stock, respectively, assuming maximum level of performance, with a grant date fair value of $55.43 and $58.28 per share, respectively, that are subject to both service and performance vesting conditions. The quantity of shares that will ultimately vest for the PSUs ranges from 0% to up to 250% of a targeted number of shares for each participant and will be determined based on an achievement of a three year adjusted pre-tax income performance goal. During the nine months ended September 30, 2022 and 2021, we issued 0.3 million and 0.3 million shares of common stock, respectively, upon the vesting and settlement of PSUs that were granted in previous periods. Approximately 0.9 million shares will vest from 2022 to 2024 if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met.
During the nine months ended September 30, 2022 and 2021, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million and 0.2 million shares of common stock, respectively, with a grant date fair value of $63.26 and $53.40 per share, respectively, that primarily vest over a three year period. During the nine months ended September 30, 2022, we granted 11.0 thousand shares of common stock on an unrestricted basis (which we refer to as “stock awards”) with a grant date fair value of $54.46 per share to our non-employee directors.
A summary of our outstanding PSUs, assuming the current estimated level of performance achievement, and RSUs are as follows (in thousands, except years):
As of September 30, 2022 | |||
Unvested units | 988 | ||
Unrecognized compensation cost | $ | 25,116 | |
Weighted-average period to recognize compensation cost | 1.59 |
During the three months ended September 30, 2017,2022 and 2021, we granted 0.2recognized stock-based compensation expense of $5.2 million shares of restricted stock units with a weighted average grant date fair value of $20.36 per share, which vest over a two or five 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. and $3.5 million, respectively. During the nine months ended September 30, 2017, we granted 0.5 million shares of restricted stock units with a weighted average grant date fair value of $21.64 per share, which vest over a one to five year period from the grant date.
A summary of our outstanding awards of restricted common stock2022 and restricted stock units are as follows (in thousands, except years):
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| 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) |
During the three months ended September 30, 2017 and 2016,2021, we recognized stock-based compensation expense of $2.6$15.0 million and $1.6$10.8 million, respectively. During the nine months ended September 30, 2017 and 2016, we recognized stock-based compensation of $6.5 million and $5.1 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations.
14. 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 September 30, 20172022 and December 31, 2016,2021, there were 27.331.8 million and 21.633.8 million shares of common stock issued and outstanding, respectively, inclusive of the restricted common stock issued.
We issued 29.2 thousand and 0.2 millionno shares of commonpreferred stock related tooutstanding.
On May 4, 2022, 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 on May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2022 Omnibus Incentive Plan (which we refer to as the “2022 Incentive Plan”), which replaced the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term. Under the 2022 Incentive Plan. We had reserved a totalPlan, 3.1 million shares of 1.8 millioncommon stock are available for issuance to eligible participants, plus 51.2 thousand 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. As of September 30, 2017, approximately 1.2 million shares remainthat remained available for issuance under the 2017 Incentive Plan. We alsoPlan and any shares subject to awards outstanding under the 2017 Incentive Plan that are subsequently forfeited, cancelled, expire or otherwise terminate without the issuance of such shares. During the nine months ended September 30, 2022 and 2021, we issued 4.20.5 million and 0.7 million shares of common stock, respectively, related to the vesting and settlement of RSUs, PSUs, and stock awards. As of September 30, 2022, approximately 3.1 million shares of common stock remained available for issuance under the 2022 Incentive Plan.
The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock in connection with our acquisitionduring the nine months ended September 30, 2022 and 2021, respectively (in thousands, except per share information):
Nine months ended September 30, 2022 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
February 16, 2022 | March 2, 2022 | March 16, 2022 | $ | 0.20 | $ | 6,657 | ||||
May 18, 2022 | June 1, 2022 | June 15, 2022 | $ | 0.20 | $ | 6,568 | ||||
August 17, 2022 | August 31, 2022 | September 14, 2022 | $ | 0.20 | $ | 6,455 | ||||
Nine months ended September 30, 2021 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
May 19, 2021 | June 2, 2021 | June 16, 2021 | $ | $0.15 | $ | 5,064 | ||||
August 18, 2021 | September 1, 2021 | September 15, 2021 | $ | $0.15 | $ | 5,063 |
Under the 2022 Incentive Plan and the previous 2017 Incentive Plan, at the discretion of UCP Inc.,the Compensation Committee of the Board of Directors, RSUs and PSUs granted under the plan have the right to earn dividend equivalents, which entitles the holders of such RSUs and PSUs to additional RSUs and PSUs equal to the same dividend value per share as discussed in Note 3.holders of common stock. Dividend equivalents are subject to the same vesting and other terms and conditions as the underlying RSUs and PSUs.
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 referwhich superseded and replaced a prior similar distribution agreement, and was amended in July 2021 to asacknowledge our filing of a new registration statement on Form S-3 registering the “Second Distribution Agreement”) with the Sales Agents, pursuant to which we may offerissuance and sell from time to time up to $100.0 million in “at the market” offerings. During the three and nine months ended September 30, 2017, we sold and issued an aggregatesale of 0.4 million and 1.4 million shares of our common stock under the Distribution Agreement and Secondreplace Citigroup Global Markets Inc. with Wells Fargo Securities, LLC as a sales agent, had all $100.0 million available for sale as of September 30, 2022. We did not sell or issue any shares of our common stock during the three and nine months ended September 30, 2022 and 2021, respectively. The Distribution Agreement respectively,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.
On November 6, 2018, we authorized a stock repurchase program, under which provided net proceedswe may repurchase up to 4.5 million shares of $10.0our outstanding common stock. During the three and nine months ended September 30, 2022, an aggregate of 0.5 million and $34.62.3 million shares, respectively, were repurchased for a total purchase price of approximately $22.3 million and $120.6 million, respectively, and a weighted average price of $44.58 and $52.32 per share, respectively. During the three and nine months ended September 30, 2021, we did not repurchase any shares of common stock. The maximum number of shares available to be repurchased under the stock repurchase program as of September 30, 2022 was 1,508,169 shares.
During the nine months ended September 30, 2022 and 2021, shares of common stock at a total cost of $12.7 million and $13.7 million, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with such sales, paid total commissionsthe vesting of outstanding stock-based compensation awards. Shares surrendered by the participants in accordance with the applicable award agreements and fees to the Sales Agentsplan are deemed repurchased and retired by us but are not part of $0.2 million and $0.7 million, respectively.our publicly announced share repurchase programs.
15. 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 nine months ended September 30, 20172022 and 20162021 (in thousands, except share and per share information):
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| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||
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| September 30, |
| September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
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| 2017 |
| 2016 |
| 2017 |
| 2016 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Numerator |
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| ||||||||||||
Net income |
| $ | 9,470 |
| $ | 13,342 |
| $ | 33,100 |
| $ | 34,467 | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | ||||
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 |
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Weighted average common shares outstanding - basic |
|
| 25,445,552 |
|
| 20,673,521 |
| 23,038,390 |
| 20,643,682 | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | ||||||||||
Dilutive effect of restricted stock units |
|
| 280,585 |
|
| 148,545 |
|
| 236,930 |
|
| 88,248 | 373,746 | 710,104 | 391,117 | 731,632 | ||||||||
Weighted average common shares outstanding - diluted |
|
| 25,726,137 |
|
| 20,822,066 |
|
| 23,275,320 |
|
| 20,731,930 | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | ||||||||
Earnings per share: |
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| ||||||||||||
Basic |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.42 |
| $ | 1.63 | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | ||||
Diluted |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.41 |
| $ | 1.62 | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 |
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 0.5 million and 0.2 million common stock unit equivalents to exclude from diluted earnings per share during the three months ended September 30, 2022 and 2021, respectively, and we excluded 0.5 million and 0.2 million common stock unit equivalents from diluted earnings per share during the nine months ended September 30, 2017.2022 and 2021, respectively, related to the PSUs for which performance conditions remained unsatisfied.
16. 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 September 30, 20172022 and December 31, 2016,2021, we had $70.1$565.8 million and $70.1$492.5 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 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:
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| Supplemental Condensed Consolidated Balance Sheet | |||||||||||||
|
| As of September 30, 2017 (in thousands) | |||||||||||||
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|
|
| Guarantor |
| Non Guarantor |
| Elimination |
| Consolidated | ||||
|
| CCS |
| Subsidiaries |
| Subsidiaries |
| Entries |
| CCS | |||||
Assets |
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|
|
|
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|
|
|
|
|
|
|
|
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 |
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|
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|
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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 |
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|
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:
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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,” “outlook,” 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:forward-looking and subject to risks and uncertainties including among others:
economic changes, either nationally or in the markets in which we operate, including increased interest rates and inflation, and decreased employment levels; shortages of or increased prices for labor, land or raw materials, including lumber, used in housing construction and resource shortages; 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 condition, 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; the impact of the COVID-19 pandemic and measures taken in response to the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular; 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; delays in completion of projects, land development or home construction, or reduced consumer demand for housing resulting from significant weather conditions and natural disasters in the geographic areas where we operate 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 municipal, utility and other regulatory approvals and the opening of projects and construction and completion of our homes; 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 and our ability to refinance our debt when needed or on favorable terms; 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; our ability to pay dividends in the future; |
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The forward-lookingtaxation 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, 2021. 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 offers 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. Additionally, ourCentury Complete. 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. Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado, with the intent to dispose of properties shortly after achieving stabilized rental operations. Century Living, LLC is included in our Corporate 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. Of the 7,691 homes delivered during the first nine months of 2022, approximately 76% of our deliveries were made to entry-level homebuyers that were below the Federal Housing Administration-insured mortgage limits and approximately 96% of homes delivered were built as move-in ready homes.
In recent months, the Federal Reserve’s ongoing raising of the federal funds interest rate to mitigate inflation has now considerably impacted the U.S. housing market. Beginning in the second quarter of 2022 and continuing through the third quarter of 2022, we experienced a moderation of sales pace across our markets, resulting in a third quarter decrease of 51.9% in our net new home contracts as compared to the prior year period. In addition, we experienced an increase in cancellation rates to a combined 35%, with a 31% cancellation rate for Century Communities and a 41% cancellation rate for Century Complete, primarily driven by the increases in mortgage rates. This decrease in our sales pace was consistent with third quarter 2022 trends seen in the overall housing market, as increases in interest rates on mortgages, rising inflation, and macro-economic uncertainty caused demand for home sales to decrease from the historically strong market conditions experienced since the second quarter of 2020. Further, this uncertainty has led a majority
of our recent homebuyers to seek homes with near-term completion schedules, allowing them to lock interest rates closer to a home closing. In response to the interest rate volatility and to maintain sales momentum, we have increased incentive offerings across our communities, including discounts on option and upgrades and financing incentives, which we expect will result in downward pressure to our homebuilding margins during the first half of 2023. We have also taken steps to reduce our fixed costs in light of decreased demand for our homes compared to prior periods.
We anticipate the homebuilding markets in each of our operating segment.segments will continue to be tied to both the macro-economic environment and the local economy. We believe future demand for our homes is uncertain as future economic and market conditions are uncertain, in particular with respect to inflation; the impact of recent and anticipated future increases to the federal funds interest rate by the Federal Reserve; the extent to which and how long government monetary directives, actions, and economic relief efforts will impact the U.S. economy, financial markets, credit and mortgage markets; consumer confidence; interest rates; availability and cost of mortgage loans to homebuyers; wage growth; household formations; levels of new and existing homes for sale; prevailing home and rental prices; availability and cost of land, labor and construction materials; demographic trends; housing demand; and other factors, including those described elsewhere in this Form 10-Q. Specifically, the recent rise in interest rates increases the costs of owning a home and adversely affects the purchasing power of our customers. Increased interest rates also could decrease homebuyer confidence and hinder not only demand for our homes, but also our ability to realize our backlog. A decrease in demand for our homes or an increase in cancellations due to increased interest rates or otherwise would adversely affect our operating results in future periods, including our net sales, home deliveries, gross margin, origination volume of and revenues from our Financial Services segment, and net income. As a result, our past performance may not be indicative of our future results.
On August 4, 2017,
Despite the future macro-economic uncertainty, especially in relation to the recent higher interest rate environment, we acquired UCP, Inc. UCP isbelieve we are well-positioned to benefit from the ongoing shortage of both new and resale homes available for purchase in our key markets and the favorable demographics that support the need for new housing. We believe our operations are well-positioned to withstand volatility in future market conditions as a homebuilderresult of our product offerings which both span the home buying segment and focus on affordable price points, and our current and future inventories of attractive land positions. We have continued to focus on maintaining an appropriate balance of home and land developer with expertiseinventories in residential land acquisition, development and entitlement,relation to anticipated future demand, 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. 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 mergerprudent leverage, and, 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,a result, we believe we are well positioned to conformcontinue to the current period presentation.execute on our strategy in order to optimize stockholder returns.
Results of Operations
During the three months ended September 30, 2017, we delivered 968 homes, with an average sales price of $387.3 thousand. During the same period, we generated approximately $374.9 million in home sales revenues, approximately $15.2 million in income before income tax expense, and approximately $9.5 million in net income.
During the nine months ended September 30, 2017, we delivered 2,329 homes, with an average sales price of $381.7 thousand. During the same period, we generated approximately $888.9 million in home sales revenues, approximately $50.3 million in income before income tax expense, and approximately $33.1 million in net income.
For the three and nine months ended September 30, 2017,2022, we generated $172.1 million and $574.5 million in income before income tax expense, respectively, and net income of $144.5 million, or $4.44 per diluted share, and $445.6 million, or $13.41 per diluted share, respectively, representing substantial increases as compared to the respective prior year periods, and resulting in a 33.2% return on equity on an annualized basis for the trailing twelve months. During the first nine months of 2022, we paid cash dividends to our new home contracts, netstockholders of cancelations, totaled 914$0.20 per share, and 2,892,we also returned capital to our stockholders via share repurchases of 2.3 million shares for $120.6 million or a weighted average price of $52.32 per share.
Our results for the third quarter of 2022 are reflective of the strength of our markets during previous quarters when the homes were contracted for which allowed us to pass on higher costs through higher selling prices and thereby positively affecting our margins during the third quarter of 2022. While we continued to experience labor and raw material shortages and municipal and utility delays in many of our markets, the severity of the shortages and delays began to moderate in the second quarter of 2022 and continued through the third quarter of 2022, resulting in improvements to our construction cycle times.
During the three and nine months ended September 30, 2022, we generated homebuilding revenues of $1.1 billion and $3.3 billion, respectively, a 45.5%representing increases of 20.7% and 26.2% increase11.6% over the same periods in 2016,respective prior year period. During the three and nine months ended September 30, 2022, we delivered 2,630 and 7,691 homes, respectively, with an average sales price of $425.3 thousand and $421.5 thousand, respectively.The number of homes delivered during the three and nine months ended September 30, 2022 represent an increase of 13.3% and a decrease of 2.5%, respectively, as compared to the respective prior year period, and were primarily driven by the timing of new community openings. Average sales price increased 7.6% and 15.4% during the three and nine months ended September 30, 2022 as compared to the respective prior year period. As of September 30, 2017,2022, we had a backlog of 1,664 sold but unclosed3,455 homes, a 67.7% increase29.0% decrease as compared to September 30, 2016,2021, representing approximately $689.3 million$1.4 billion in sales value, an 81.0% increasea 28.3% decrease as compared to September 30, 2016. 2021.
During third quarter of 2022, Hurricane Ian had a modest impact on our total deliveries, primarily affecting our Century Complete segment, and we expect additional impacts in the fourth quarter of 2022 in those affected regions due to disruptions to the supply chain, municipalities and labor availability.
During the three and nine months ended September 30, 2022, we generated financial services revenue of $23.3 million and $72.4 million, respectively, representing decreases of 20.0% and 21.8% over the respective prior year period, driven by a reduced number of mortgages originated, as well as reduced gain on sale margins on loans sold to third parties.
We ended the third quarter of 2022 with $165.0 million outstanding under our revolving line of credit, $98.2 million of cash and cash equivalents, $84.0 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 32.5%. Additionally, we have continued to strategically manage our lot pipeline, while selectively reducing our land acquisition and development activities by terminating certain contracts in our markets that did not meet our investment criteria, resulting in 62,788 lots owned and controlled at September 30, 2022, a 16.9% decrease as compared to September 30, 2021 and a 21.4% decrease as compared to December 31, 2021.
During the nine months ended September 30, 2022, our Century Living operations commenced construction on two multi-family projects in Colorado. First, a 425-unit multi-family project was commenced in Lone Tree, Colorado, which we anticipate will be available for leasing in 2024, and second, a 227-unit multi-family project was commenced in Highlands Ranch, Colorado, which we anticipate will be available for leasing in the second half of 2023.
The following table summarizes our results of operationoperations for the three and nine months ended September 30, 20172022 and 2016. 2021.
(in thousands, except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||
Consolidated Statements of Operations: | |||||||||||||||||
Revenue | |||||||||||||||||
Home sales revenues | $ | 1,118,588 | $ | 917,337 | $ | 3,241,537 | $ | 2,881,404 | |||||||||
Land sales and other revenues | 2,432 | 11,594 | 12,872 | 35,522 | |||||||||||||
Total homebuilding revenues | 1,121,020 | 928,931 | 3,254,409 | 2,916,926 | |||||||||||||
Financial services revenues | 23,271 | 29,101 | 72,373 | 92,586 | |||||||||||||
Total revenues | 1,144,291 | 958,032 | 3,326,782 | 3,009,512 | |||||||||||||
Homebuilding cost of revenues | |||||||||||||||||
Cost of home sales revenues | (841,665) | (682,012) | (2,365,633) | (2,203,187) | |||||||||||||
Cost of land sales and other revenues | (292) | (6,977) | (9,151) | (23,996) | |||||||||||||
(841,957) | (688,989) | (2,374,784) | (2,227,183) | ||||||||||||||
Financial services costs | (13,922) | (17,666) | (43,262) | (54,135) | |||||||||||||
Selling, general, and administrative | (110,687) | (90,154) | (321,484) | (281,961) | |||||||||||||
Loss on debt extinguishment | — | (14,458) | — | (14,458) | |||||||||||||
Inventory impairment and other | — | — | — | (41) | |||||||||||||
Other income (expense) | (5,651) | (1,004) | (12,754) | (2,790) | |||||||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | |||||||||||||
Income tax expense | (27,601) | (31,784) | (128,861) | (95,406) | |||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | |||||||||
Earnings per share: | |||||||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | |||||||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | |||||||||
Adjusted diluted earnings per share(1) | $ | 4.44 | $ | 3.63 | $ | 13.41 | $ | 10.02 | |||||||||
Other Operating Information (dollars in thousands): | |||||||||||||||||
Number of homes delivered | 2,630 | 2,322 | 7,691 | 7,890 | |||||||||||||
Average sales price of homes delivered | $ | 425.3 | $ | 395.1 | $ | 421.5 | $ | 365.2 | |||||||||
Homebuilding gross margin percentage(2) | 24.8 | % | 25.7 | % | 27.0 | % | 23.5 | % | |||||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) | 26.0 | % | 27.2 | % | 28.2 | % | 25.3 | % | |||||||||
Backlog at end of period, number of homes | 3,455 | 4,866 | 3,455 | 4,866 | |||||||||||||
Backlog at end of period, aggregate sales value | $ | 1,379,380 | $ | 1,922,784 | $ | 1,379,380 | $ | 1,922,784 | |||||||||
Average sales price of homes in backlog | $ | 399.2 | $ | 395.1 | $ | 399.2 | $ | 395.1 | |||||||||
Net new home contracts | 1,318 | 2,742 | 6,495 | 9,317 | |||||||||||||
Selling communities at period end | 217 | 186 | 217 | 186 | |||||||||||||
Average selling communities | 213 | 185 | 204 | 186 | |||||||||||||
Total owned and controlled lot inventory | 62,778 | 75,537 | 62,778 | 75,537 | |||||||||||||
Adjusted EBITDA(1) | $ | 188,653 | $ | 177,376 | $ | 622,036 | $ | 502,755 | |||||||||
Adjusted income before income tax expense(1) | $ | 172,074 | $ | 160,219 | $ | 574,498 | $ | 443,443 | |||||||||
Adjusted net income(1) | $ | 144,473 | $ | 125,282 | $ | 445,637 | $ | 344,812 | |||||||||
Net homebuilding debt to net capital (1) | 32.5 | % | 23.1 | % | 32.5 | % | 23.1 | % |
(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 | ||||||||
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| (unaudited) |
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| ||||||
Consolidated Statements of Operations: |
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Revenue |
|
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|
|
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|
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 |
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Cost of home sales revenues |
|
| (311,365) |
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|
| (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 |
|
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): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 for the nine months ended September 30, 2021 includes inventory impairment, which is included within inventory impairment and other on our condensed consolidated financial measure.
26
Results of Operations by Operating Segment
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| New Homes Delivered |
| Average Sales Price of Homes Delivered |
| Home Sales Revenues |
| Income before Income Tax | ||||||||||||||||
|
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| Three Months Ended September 30, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
West |
|
| 151 |
|
| — |
| $ | 488.0 |
| $ | — |
| $ | 73,684 |
| $ | — |
| $ | 5,259 |
| $ | — |
Mountain |
|
| 375 |
|
| 344 |
| $ | 417.3 |
| $ | 408.0 |
|
| 156,482 |
|
| 140,356 |
|
| 19,101 |
|
| 18,995 |
Texas |
|
| 90 |
|
| 64 |
| $ | 397.5 |
| $ | 396.6 |
|
| 35,772 |
|
| 25,385 |
|
| 2,166 |
|
| (288) |
Southeast |
|
| 352 |
|
| 298 |
| $ | 309.7 |
| $ | 276.3 |
|
| 108,997 |
|
| 82,334 |
|
| 6,001 |
|
| 7,848 |
Financial Services |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| 505 |
|
| — |
Corporate |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| (17,876) |
|
| (6,824) |
Total |
|
| 968 |
|
| 706 |
| $ | 387.3 |
| $ | 351.4 |
| $ | 374,935 |
| $ | 248,075 |
| $ | 15,156 |
| $ | 19,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| New Homes Delivered |
| Average Sales Price of Homes Delivered |
| Home Sales Revenues |
| Income before Income Tax | ||||||||||||||||
|
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||||||
West |
|
| 151 |
|
| — |
| $ | 488.0 |
| $ | — |
| $ | 73,684 |
| $ | — |
| $ | 5,259 |
| $ | — |
Mountain |
|
| 1,046 |
|
| 854 |
| $ | 421.1 |
| $ | 410.7 |
|
| 440,451 |
|
| 350,742 |
|
| 56,137 |
|
| 47,234 |
Texas |
|
| 266 |
|
| 252 |
| $ | 409.6 |
| $ | 390.0 |
|
| 108,955 |
|
| 98,270 |
|
| 6,407 |
|
| 2,138 |
Southeast |
|
| 866 |
|
| 907 |
| $ | 307.0 |
| $ | 261.7 |
|
| 265,852 |
|
| 237,323 |
|
| 16,609 |
|
| 21,827 |
Financial Services |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| (192) |
|
| — |
Corporate |
|
| — |
|
| — |
| $ | — |
| $ | — |
|
| — |
|
| — |
|
| (33,904) |
|
| (19,942) |
Total |
|
| 2,329 |
|
| 2,013 |
| $ | 381.7 |
| $ | 341.0 |
| $ | 888,942 |
| $ | 686,335 |
| $ | 50,316 |
| $ | 51,257 |
West
In our West segment,statements. No inventory impairments were recognized for the three and nine months ended September 30, 2017,2022 and for the three months ended September 30, 2021.
Results of Operations by Segment
(dollars in thousands)
New Homes Delivered | Average Sales Price of Homes Delivered | Home Sales Revenues | Income before Income Tax Expense | |||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
West | 378 | 409 | $ | 674.3 | $ | 655.8 | $ | 254,885 | $ | 268,219 | $ | 51,036 | $ | 60,915 | ||||||||||
Mountain | 494 | 509 | 582.4 | 500.6 | 287,723 | 254,794 | 51,058 | 50,561 | ||||||||||||||||
Texas | 314 | 274 | 368.5 | 313.1 | 115,699 | 85,778 | 17,084 | 11,884 | ||||||||||||||||
Southeast | 423 | 325 | 464.0 | 403.8 | 196,286 | 131,228 | 38,400 | 20,004 | ||||||||||||||||
Century Complete | 1,021 | 805 | 258.6 | 220.3 | 263,995 | 177,318 | 36,939 | 24,838 | ||||||||||||||||
Financial Services | — | — | — | — | — | — | 9,349 | 11,435 | ||||||||||||||||
Corporate | — | — | — | — | — | — | (31,792) | (33,876) | ||||||||||||||||
Total | 2,630 | 2,322 | $ | 425.3 | $ | 395.1 | $ | 1,118,588 | $ | 917,337 | $ | 172,074 | $ | 145,761 | ||||||||||
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, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
West | 1,200 | 1,113 | $ | 676.1 | $ | 621.2 | $ | 811,284 | $ | 691,369 | $ | 200,213 | $ | 129,279 | ||||||||||
Mountain | 1,466 | 1,805 | 575.4 | 462.0 | 843,592 | 833,916 | 159,559 | 158,355 | ||||||||||||||||
Texas | 1,043 | 1,079 | 347.5 | 281.9 | 362,485 | 304,158 | 62,978 | 39,554 | ||||||||||||||||
Southeast | 1,193 | 1,322 | 441.0 | 393.2 | 526,135 | 519,762 | 108,053 | 69,540 | ||||||||||||||||
Century Complete | 2,789 | 2,571 | 250.3 | 207.0 | 698,041 | 532,199 | 101,769 | 69,657 | ||||||||||||||||
Financial Services | — | — | — | — | — | — | 29,111 | 38,451 | ||||||||||||||||
Corporate | — | — | — | — | — | — | (87,185) | (75,892) | ||||||||||||||||
Total | 7,691 | 7,890 | $ | 421.5 | $ | 365.2 | $ | 3,241,537 | $ | 2,881,404 | $ | 574,498 | $ | 428,944 |
West
During the three months ended September 30, 2022, our West segment generated income before income tax increasedexpense of $51.0 million, a 16.2% decrease over the respective prior year period. This decrease was primarily 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 milliona decrease in home sales revenuesrevenue of $13.3 million, primarily due to a decrease of 7.6% in the West.
Mountain
In our Mountain segment, fornumber of homes delivered, partially offset by an increase of 2.8% in the three andaverage sales price per home. During the nine months ended September 30, 2017,2022, our West segment generated income before income tax increasedexpense of $200.2 million, a 54.9% increase over the respective prior year period. This increase was primarily driven by $0.1an increase in home sales revenue of $119.9 million and $8.9 million, respectively,an increase of 598 basis points in the percentage of income before income tax expense to $19.1 millionhome sales revenues, as a result of (1) increased revenue on a partially fixed cost base and $56.1 million, respectively, as compared to $19.0 million and $47.2 million, for(2) increased gross margins on home sales. The revenue increase during the same periods in 2016, respectively. Thisnine months ended September 30, 2022 was primarily driven by an increase is related to an increaseof 7.8% in the number of homes delivered and an increase of 8.8% in the average sellingsales price per home. For both the three- and nine- month comparisons, the changes in the number of those homes duringdelivered were driven by the periods, yeartiming of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities and home price appreciation over year. each respective period.
TexasMountain
In our Texas segment, for
During the three and nine months ended September 30, 2017,2022, our Mountain segment generated income before income tax increased by $2.5expense of $51.1 million and $4.3$159.6 million, respectively, to $2.2remaining relatively flat over the respective prior year period. Home sales revenue increased during the three and nine months ended September 30, 2022 by $32.9 million and $6.4$9.7 million, respectively, as compared to $(0.3)primarily generated by increases of 16.3% and 24.5% in the average sales price per home, respectively, partially offset by decreases of 2.9% and 18.8%, respectively, in the number of homes delivered. For both the three- and nine-month comparisons, the decreases in the number of homes delivered were driven by timing of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities and home price appreciation over each respective period.
Texas
During the three and nine months ended September 30, 2022, our Texas segment generated income before income tax expense of $17.1 million and $2.1$63.0 million, forrespectively, a 43.8% and 59.2% increase, respectively, over the same periodsrespective prior year period. During the three months ended September 30, 2022, the increase was driven by an increase in 2016, respectively. Thishome sales revenue of $30.0 million, primarily generated by an increase is related to an increaseof 14.6% in the number of homes delivered and an increase of 17.7% in the average sellingsales price of those homes duringper home. During the periods, year over year.
Southeast
In our Southeast segment, for the three and nine months ended September 30, 2017, our2022, the increase in income before income tax decreasedexpense was driven by $1.8an increase in home sales revenue of $58.3 million and $5.2 million, respectively,an increase of 437 basis points in the percentage of income before income tax expense to $6.0 millionhome sales revenues, as a result of (1) increased revenue on a partially fixed cost base and $16.6 million, respectively, as compared to $7.8 million(2) increased gross margins on home sales. The revenue increase during the nine months ended September 30, 2022 was primarily generated by an increase of 23.3% in the average sales price per home, partially offset by a 3.3% decrease in the number of homes delivered. For both the three- and $21.8 million, fornine- month comparisons, the same periodschange in 2016, respectively. Thethe number of homes delivered were driven by the timing of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities and home sales revenue and average selling price all increased in our Southeast segment yearappreciation over year. However, as we have recently started operations in North Carolina and Tennessee, our selling,each respective period.
27
Table of ContentsSoutheast
general and administrative expenses have increased in those states when operations commenced, and as such we have net loss in those states driving the income before income tax to decrease year over year 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 providing mortgage services to our customers during the second quarter of 2017. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. During the three and nine months ended September 30, 2017, we originated and closed 157 loans and 228 loans, respectively, with total principal2022, our Southeast segment generated income before income tax expense of $51.0$38.4 million and $73.7$108.1 million, respectively. As ofrespectively, a 92.0% and 55.4% increase, respectively, over the respective prior year period. During the three months ended September 30, 2017, we have 43 loans2022, the increase was driven by an increase in backlog with total principalhome sales revenue of $13.6 million.$65.1 million and an increase of 432 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margins on home sales. The revenue increase during the three months ended September 30, 2022 was primarily generated by an increase of 30.2% in the number of homes delivered and an increase of 14.9% in the average sales price per home. During the nine months ended September 30, 2022, the increase in income before income tax expense was driven by an increase in home sales revenue of $6.4 million and an increase of 716 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on a partially fixed cost base and (2) increased gross margins on home sales. The revenue increase during the nine months ended September 30, 2022 was primarily generated by an increase of 12.2% in the average sales price per home, partially offset by a 9.8% decrease in the number of homes delivered. For both the three- and nine- month comparisons, the change in the number of homes delivered were driven by the timing of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities and home price appreciation over each respective period.
CorporateCentury Complete
During the three and nine months ended September 30, 2017,2022, our Century Complete segment generated income before income tax expense of $36.9 million and $101.8 million, respectively, a 48.7% and 46.1% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of $86.7 million and $165.8 million, respectively. The revenue increases during the three and nine months ended September 30, 2022 were primarily generated by increases of 26.8% and 8.5%, respectively, in the number of homes delivered, as well as increases of 17.4% and 20.9%, respectively, in the average sales price per home. For both the three- and nine- month comparisons, the increases in the number of homes delivered were driven by the timing of new community openings, and the average sales price increases were driven by the mix of deliveries within individual communities and home price appreciation over each respective period.
Financial Services
Our Financial Services segment originates mortgages for primarily our homebuyers, and as such, performance typically correlates to the number of homes delivered. Our Financial Services segment generated income before income tax of $9.3 million for the three months ended September 30, 2022, a 18.2% decrease over the prior year period. This decrease was primarily the result of a $5.8 million decrease in financial services revenue during the three months ended September 30, 2022 compared to the prior year period, due to (1) a 23.6% decrease to 1,375 in the number of mortgages originated during the three months ended September 30, 2022, and (2) reduced gain on sale margins on loans sold to third parties period over period. Our Financial Services segment generated income before income tax of $29.1 million for the nine months ended September 30, 2022, a 24.3% decrease over the prior year period. This decrease was primarily the result of a $20.2 million decrease in financial services revenue during the nine months ended September 30, 2022 compared to the prior year period, due to (1) a 30.1% decrease to 4,360 in the number of mortgages originated during the nine months ended September 30, 2022, due in part to a decrease in originations related to refinancing, and (2) reduced gain on sale margins on loans sold to third parties period over period. During the three and nine months ended September 30, 2022, the capture rate of Century homebuyers has decreased to 66% and 71%, respectively, primarily driven by the impact of market uncertainty on the financial services competitive environment.
The following table presents selected operational data for our Financial Services segment in relation to our loan origination activities (dollars in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Total originations: | |||||||||||||||
Number of loans | 1,375 | 1,799 | 4,360 | 6,238 | |||||||||||
Principal | $ | 496,071 | $ | 600,238 | $ | 1,576,773 | $ | 1,971,472 | |||||||
Capture rate of Century homebuyers | 66 | % | 71 | % | 71 | % | 74 | % | |||||||
Century Communities | 70 | % | 78 | % | 76 | % | 80 | % | |||||||
Century Complete | 57 | % | 58 | % | 59 | % | 61 | % | |||||||
Average FICO score | 728 | 736 | 731 | 737 | |||||||||||
Century Communities | 736 | 748 | 739 | 741 | |||||||||||
Century Complete | 709 | 713 | 711 | 711 | |||||||||||
Loans sold to third parties: | |||||||||||||||
Number of loans sold | 1,383 | 1,867 | 4,759 | 6,476 | |||||||||||
Principal | $ | 507,784 | $ | 608,504 | $ | 1,707,851 | $ | 2,016,120 |
Corporate
During the three and nine months ended September 30, 2022, our Corporate segment generated losses of $17.9$31.8 million and $33.9$87.2 million, respectively, as compared to losses of $6.8$33.9 million and $19.9$75.9 million, respectively, for the same periodsrespective period in 2016, respectively. 2021. The increasedecrease in expensesnet loss for the three-month comparison is primarily attributed to a $14.5 million loss on debt extinguishment during the three months ended September 30, 2017 was2021 related to the redemption of our 5.75% senior notes due 2025, partially offset by higher corporate costs to support our homebuilding operations during the three months ended September 30, 2022. The increase in loss for the nine-month comparison is primarily attributed to the following: (1) an increase in acquisition expenses of $7.2 million,higher compensation costs and (2) an increase of $4.9 million inother corporate costs to support 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.,homebuilding operations, 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 expensesthe loss on debt extinguishment during the nine months ended September 30, 2017 was primarily attributed 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 increase 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. 2021.
Homebuilding Gross Margin
(dollars in thousands)
Homebuilding gross margin represents home sales revenues less cost of home sales revenues.revenues and inventory impairment and other. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three andmonths ended September 30, 2022 to 24.8% as compared to 25.7% for the same period in 2021, primarily driven by higher incentives during the quarter. Our homebuilding gross margin percentage increased during the nine months ended September 30, 20172022 to 17.0% and 18.2%, respectively, 27.0% as compared to 20.3% and 19.9%,23.5% for the same periodsperiod in 2016, respectively. The decrease is primarily2021. This increase was driven by higher(1) our ability to increase sales price in excess of an increase in our labor and direct costs period over period, (2) benefits from our increased scale driving building efficiencies and streamlined production processes, and (3) the realization of less interest expense in cost of sales as a result of higher average debt balances outstanding in 2017 as compared to 2016, and as a result of the increased costs recognized for home sales related to purchase accounting. revenue over the prior 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 September 30, | ||||||||||||
2022 | % | 2021 | % | |||||||||
Home sales revenues | $ | 1,118,588 | 100.0 | % | $ | 917,337 | 100.0 | % | ||||
Cost of home sales revenues | (841,665) | (75.2) | % | (682,012) | (74.3) | % | ||||||
Inventory impairment and other | — | — | % | — | — | % | ||||||
Gross margin from home sales | 276,923 | 24.8 | % | 235,325 | 25.7 | % | ||||||
Add: Inventory impairment and other | — | — | % | — | — | % | ||||||
Add: Interest in cost of home sales revenues | 13,726 | 1.2 | % | 14,636 | 1.6 | % | ||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) | $ | 290,649 | 26.0 | % | $ | 249,961 | 27.2 | % | ||||
Nine Months Ended September 30, | ||||||||||||
2022 | % | 2021 | % | |||||||||
Home sales revenues | $ | 3,241,537 | 100.0 | % | $ | 2,881,404 | 100.0 | % | ||||
Cost of home sales revenues | (2,365,633) | (73.0) | % | (2,203,187) | (76.5) | % | ||||||
Inventory impairment and other | — | — | % | (41) | (0.0) | % | ||||||
Gross margin from home sales | 875,904 | 27.0 | % | 678,176 | 23.5 | % | ||||||
Add: Inventory impairment and other | — | — | % | 41 | 0.0 | % | ||||||
Add: Interest in cost of home sales revenues | 39,345 | 1.2 | % | 51,419 | 1.8 | % | ||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) | $ | 915,249 | 28.2 | % | $ | 729,636 | 25.3 | % |
(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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| % | ||||
|
|
|
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|
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 nine months ended September 30, 2017,2022, 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%26.0% and 21.2%28.2%, respectively, as compared to 22.5%27.2% and 21.8%25.3%, respectively, for the same periods in 2016, respectively.2021. 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) |
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|
| Three Months Ended September 30, |
| Increase | Three Months Ended September 30, | Increase | ||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % | 2022 | 2021 | Amount | % | ||||||||||||||||||
Selling, general and administrative |
| $ | (46,165) |
|
| $ | (30,944) |
|
| $ | (15,221) |
|
| 49.2 | % | $ | 110,687 | $ | 90,154 | $ | 20,533 | 22.8 | % | |||||||
As a percentage of homes sales revenue |
| (12.3) | % |
|
| (12.5) | % |
|
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|
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| ||||||||||||||||
As a percentage of home sales revenue | 9.9 | % | 9.8 | % | ||||||||||||||||||||||||||
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|
| Nine Months Ended September 30, |
| Increase | Nine Months Ended September 30, | Increase | ||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % | 2022 | 2021 | Amount | % | ||||||||||||||||||
Selling, general and administrative |
| $ | (113,597) |
|
| $ | (87,512) |
|
| $ | (26,085) |
|
| 29.8 | % | $ | 321,484 | $ | 281,961 | $ | 39,523 | 14.0 | % | |||||||
As a percentage of homes sales revenue |
| (12.8) | % |
|
| (12.8) | % |
|
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| ||||||||||||||||
As a percentage of home sales revenue | 9.9 | % | 9.8 | % |
Our selling, general and administrative costsexpense increased $15.2$20.5 million for the three months ended September 30, 2017 as compared to the same period in 2016. The increase was primarily attributable to the following: (1) an increase of $3.4and $39.5 million, 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, and (4) a net increase of $2.0 million 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 millionrespectively, for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase was primarily attributable to the following: (1) an increase of $5.7 million in commission expense
29
resulting from a 30% increase 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) increased2022 as compared to $1.0the same respective periods in 2021. These increases were primarily attributable to increases of $6.4 million and $2.3$23.8 million, respectively, from $0.4 millionin salaries and $1.4 million, forwages expense as compared to the same periodsrespective period in 2016, respectively. The increases were related2021 due to increased headcount, increased base pay due to market conditions, and increased incentive based compensation accruals, as well as increases in interest and other income partially offset by decreasesexpenses in gain (loss) on disposition of assets.
Equity in Income from Unconsolidated Subsidiaries
As of September 30, 2017,numerous areas to support 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 duringhomebuilding operations. The increase for the three and nine months ended September 30, 2017, respectively.2022 was partially offset by a decrease in internal and external commission expense of $3.8 million. During the three and nine months ended September 30, 2017, we received operating distributions from WJH2022, our selling, general, and administrative expense increased each by 10 basis points, respectively, as a percentage of $1.4 million and $5.2 million, respectively.home sales revenue as compared to the same respective period in 2021.
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 20172022 estimated annual effective tax rate, before discrete items, of 36.3%23.6% is driven by our blended federal and state statutory rate of 37.8%24.8%, 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 executive compensation and estimated federal energy home credits for the current year home deliveries, which combined resulted in a net decrease of 1.2%.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The IRA extended the energy efficient home credit which provides a tax related to domestic production activities which benefitedcredit for each home delivered that met the energy saving and certification requirements for homes delivered from January 1, 2022 (retroactively) through December 31, 2022, as well as modifies and increases the tax credit starting in 2023 through 2032. Previously, the federal tax credit expired for homes delivered after December 31, 2021. During the three months ended September 30, 2022, our effective tax rate by 3.2%. This benefit was partially offset by non-deductible acquisition costs associated with our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%. Our estimated annual rate of 36.3% was also benefited by discrete items for excess tax benefits related to share based awards that vested duringa $13.6 million benefit as a result of the retroactive extension energy efficient home credit.
For the nine months ended September 30, 2017, resulting in a total tax2022, our estimated annual rate of 34.2%. 23.6% was impacted by discrete items which had a net impact of decreasing our rate by 1.2%, including federal energy home tax credits claimed and the impact of excess tax benefits for vested stock-based compensation.
For the three months ended September 30, 20172022 and 2016,2021, we recorded income tax expense of $5.7$27.6 million and $6.4$31.8 million, respectively. For the nine months ended September 30, 20172022 and 2016,2021, we recorded income tax expense of $17.2$128.9 million and $16.8$95.4 million, respectivelyrespectively.
Segment Assets
(dollars in thousands)
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| ||||||||||||
|
| September 30, |
| December 31, |
|
| Increase (Decrease) | September 30, | December 31 | Increase (Decrease) | ||||||||||||||
|
| 2017 |
| 2016 |
|
| Amount |
| Change | 2022 | 2021 | Amount | Change | |||||||||||
West |
| $ | 302,816 |
| $ | — |
| $ | 302,816 |
| NM |
| $ | 785,994 | $ | 668,830 | $ | 117,164 | 17.5 | % | ||||
Mountain |
|
| 571,124 |
|
| 541,657 |
|
| 29,467 |
| 5.4 | % | 1,135,788 | 1,008,481 | 127,307 | 12.6 | % | |||||||
Texas |
|
| 186,840 |
|
| 138,392 |
|
| 48,448 |
| 35.0 | % | 499,751 | 322,302 | 177,449 | 55.1 | % | |||||||
Southeast |
|
| 394,918 |
|
| 262,448 |
|
| 132,470 |
| 50.5 | % | 451,104 | 360,644 | 90,460 | 25.1 | % | |||||||
Century Complete | 510,290 | 371,096 | 139,194 | 37.5 | % | |||||||||||||||||||
Financial Services |
|
| 38,010 |
|
| — |
|
| 38,010 |
| NM |
| 357,431 | 533,159 | (175,728) | (33.0) | % | |||||||
Corporate |
|
| 137,300 |
|
| 65,031 |
|
| 72,269 |
| 111.1 | % | 139,706 | 232,364 | (92,658) | (39.9) | % | |||||||
Total assets |
| $ | 1,631,008 |
| $ | 1,007,528 |
| $ | 623,480 |
| 61.9 | % | $ | 3,880,064 | $ | 3,496,876 | $ | 383,188 | 11.0 | % |
Total assets increased to $3.9 billion as of September 30, 2022 as compared to December 31, 2021, primarily as a result of an increase in investment in homebuilding inventory, partially offset by a decrease in Financial Services assets primarily related to a decrease in mortgage loans held for sale period over period. The decrease in our Corporate assets was driven by a decrease in our cash and cash equivalents, partially offset by increases related to Century Living.
Lots owned and controlled
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Lots owned and |
| September 30, 2017 |
| December 31, 2016 |
| % Change |
| |||||||||||||||||||||||||||||||||||
controlled |
| Owned |
| Controlled |
| Total |
| Owned |
| Controlled |
| Total |
| Owned |
| Controlled |
| Total | ||||||||||||||||||||||||
September 30, 2022 | December 31, 2021 | % Change | ||||||||||||||||||||||||||||||||||||||||
Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | ||||||||||||||||||||||||||||||||||
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West |
| 3,542 |
| 2,630 |
| 6,172 |
| — |
| — |
| — |
| NM |
|
| NM |
|
| NM |
| 4,824 | 1,325 | 6,149 | 4,440 | 4,877 | 9,317 | 8.6 | % | (72.8) | % | (34.0) | % | |||||||||
Mountain |
| 4,291 |
| 5,068 |
| 9,359 |
| 4,354 |
| 2,959 |
| 7,313 |
| (1.4) | % |
| 71.3 | % |
| 28.0 | % | 11,312 | 2,374 | 13,686 | 11,860 | 8,039 | 19,899 | (4.6) | % | (70.5) | % | (31.2) | % | |||||||||
Texas |
| 2,223 |
| 4,795 |
| 7,018 |
| 1,356 |
| 3,420 |
| 4,776 |
| 63.9 | % |
| 40.2 | % |
| 46.9 | % | 7,382 | 4,158 | 11,540 | 5,340 | 8,159 | 13,499 | 38.2 | % | (49.0) | % | (14.5) | % | |||||||||
Southeast |
| 4,790 |
| 4,657 |
| 9,447 |
| 2,953 |
| 3,254 |
| 6,207 |
| 62.2 | % |
| 43.1 | % |
| 52.2 | % | 5,981 | 7,683 | 13,664 | 5,928 | 14,195 | 20,123 | 0.9 | % | (45.9) | % | (32.1) | % | |||||||||
Century Complete | 4,978 | 12,761 | 17,739 | 5,287 | 11,734 | 17,021 | (5.8) | % | 8.8 | % | 4.2 | % | ||||||||||||||||||||||||||||||
Total |
| 14,846 |
| 17,150 |
| 31,996 |
| 8,663 |
| 9,633 |
| 18,296 |
| 71.4 | % |
| 78.0 | % |
| 74.9 | % | 34,477 | 28,301 | 62,778 | 32,855 | 47,004 | 79,859 | 4.9 | % | (39.8) | % | (21.4) | % |
NM – Not Meaningful
Of our total lots owned and controlled as of September 30, 2017, 46.4%2022, 54.9% were owned and 53.6%45.1% were controlled, as compared to 47.3%41.1% owned and 52.7%58.9% controlled as of December 31, 2016.2021. The decrease in the number of controlled lots was driven by the termination of certain contracts in our markets that did not meet our investment criteria.
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
Net new home contracts
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| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
Net new home contracts |
| September 30, |
| Increase |
| September 30, |
| Increase | ||||||||||||||||||||||||||||
September 30, | Increase (Decrease) | September 30, | Increase (Decrease) | |||||||||||||||||||||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change |
| 2017 |
| 2016 |
| Amount |
| % Change | 2022 | 2021 | Amount | % Change | 2022 | 2021 | Amount | % Change | ||||||||||||
West |
| 114 |
| — |
| 114 |
| NM |
|
| 114 |
| — |
| 114 |
| NM |
| 219 | 395 | (176) | (44.6) | % | 884 | 1,286 | (402) | (31.3) | % | ||||||||
Mountain |
| 373 |
| 266 |
| 107 |
| 40.2 | % |
| 1,290 |
| 984 |
| 306 |
| 31.1 | % | 183 | 489 | (306) | (62.6) | % | 1,247 | 2,053 | (806) | (39.3) | % | ||||||||
Texas |
| 133 |
| 81 |
| 52 |
| 64.2 | % |
| 360 |
| 271 |
| 89 |
| 32.8 | % | 181 | 392 | (211) | (53.8) | % | 867 | 1,309 | (442) | (33.8) | % | ||||||||
Southeast |
| 294 |
| 281 |
| 13 |
| 4.6 | % |
| 1,128 |
| 1,036 |
| 92 |
| 8.9 | % | 240 | 387 | (147) | (38.0) | % | 1,064 | 1,151 | (87) | (7.6) | % | ||||||||
Century Complete | 495 | 1,079 | (584) | (54.1) | % | 2,433 | 3,518 | (1,085) | (30.8) | % | ||||||||||||||||||||||||||
Total |
| 914 |
| 628 |
| 286 |
| 45.5 | % |
| 2,892 |
| 2,291 |
| 601 |
| 26.2 | % | 1,318 | 2,742 | (1,424) | (51.9) | % | 6,495 | 9,317 | (2,822) | (30.3) | % |
NM – Not Meaningful
Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2017 increased2022 decreased by 2861,424 homes, or 45.5%51.9%, to 914,1,318, as compared to 6282,742 for the same period in 2016. 2021. Net new home contracts for the nine months ended September 30, 2017 increased2022 decreased by 6012,822 homes, or 26.2%30.3%, to 2,892,6,495, as compared to 2,2919,317 for the same period in 2016. The2021. Beginning in the second quarter of 2022 and continuing through the third quarter of 2022, we experienced a moderation of home sales pace across our markets as compared to prior periods. These decreases were primarily driven by the impact on demand for new homes from increasing interest rates, rising inflation, and macro-economic uncertainty, and to some extent, an increase in our net new home contracts was driven by our acquisitioncancellations primarily due to interest rate increases.
Monthly absorption rate
Our overall monthly “absorption rate” (the rate at which home orders are contracted, net of cancelations) for the three and nine months ended September 30, 20172022 and 20162021 by segment are included in the tabletables below:
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|
| Three Months Ended September 30, |
| Increase | Three Months Ended September 30, | Increase (Decrease) | ||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change | 2022 | 2021 | Amount | % Change | ||||||
West |
| 5.2 |
| - |
| 5.2 |
| NM |
| 3.3 | 7.3 | (4.0) | (54.8) | % | ||||
Mountain |
| 3.8 |
| 2.3 |
| 1.5 |
| 65.2 | % | 1.9 | 6.0 | (4.1) | (68.3) | % | ||||
Texas |
| 1.8 |
| 1.1 |
| 0.7 |
| 63.6 | % | 2.5 | 8.7 | (6.2) | (71.3) | % | ||||
Southeast |
| 2.6 |
| 3.2 |
| (0.6) |
| (18.8) | % | 3.2 | 6.8 | (3.6) | (52.9) | % | ||||
Century Complete | 1.4 | 3.4 | (2.0) | (58.8) | % | |||||||||||||
Total |
| 3.2 |
| 2.3 |
| 0.9 |
| 39.1 | % | 2.0 | 4.9 | (2.9) | (59.2) | % | ||||
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|
| Nine Months Ended September 30, |
| Increase | Nine Months Ended September 30, | Increase (Decrease) | ||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change | 2022 | 2021 | Amount | % Change | ||||||
West |
| 5.2 |
| - |
| 5.2 |
| NM |
| 4.5 | 7.9 | (3.4) | (43.0) | % | ||||
Mountain |
| 4.3 |
| 4.1 |
| 0.2 |
| 4.9 | % | 4.3 | 8.4 | (4.1) | (48.8) | % | ||||
Texas |
| 1.8 |
| 1.7 |
| 0.1 |
| 5.9 | % | 4.0 | 9.7 | (5.7) | (58.8) | % | ||||
Southeast |
| 3.6 |
| 3.9 |
| (0.3) |
| (7.7) | % | 4.7 | 6.7 | (2.0) | (29.9) | % | ||||
Century Complete | 2.4 | 3.7 | (1.3) | (35.1) | % | |||||||||||||
Total |
| 3.5 |
| 3.6 |
| (0.1) |
| (2.8) | % | 3.3 | 5.6 | (2.3) | (41.1) | % |
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 nine months ended September 30, 2017,2022, our absorption rates decreased by 59.2% and 41.1%, respectively, to 2.0 and 3.3 per month, respectively, as compared to 2.3 per month and 3.6 per month for the same respective periods in 2016, respectively. The2021. Beginning in the second quarter of 2022 and continuing through the third quarter of 2022, we experienced a moderation of sales pace across our markets compared to prior periods, as well as an increase in absorptioncancellation rates to a combined 35%, with a 31% cancellation rate is attributablefor Century Communities and a 41% cancellation rate for Century Complete, primarily driven by the increases in mortgage rates. The third quarter 2022 decrease in sales pace was consistent with trends seen in the overall housing market, as interest rate increases on mortgages, rising inflation, and macro-economic uncertainty caused demand to decrease from the historically strong homebuilding environment as a resultmarket conditions experienced since the second quarter of positive economic trends across our markets. 2020.
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Selling communities at period end |
| As of September 30, |
| Increase/(Decrease) | As of September 30, | Increase/(Decrease) | ||||||||||||||
|
| 2017 |
| 2016 |
| Amount |
| % Change | 2022 | 2021 | Amount | % Change | ||||||||
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| |||||||||||
West |
| 10 |
| — |
| 10 |
| NM |
| 22 | 18 | 4 | 22.2 | % | ||||||
Mountain |
| 33 |
| 35 |
| (2) |
| (5.7) | % | 32 | 27 | 5 | 18.5 | % | ||||||
Texas |
| 24 |
| 23 |
| 1 |
| 4.3 | % | 24 | 15 | 9 | 60.0 | % | ||||||
Southeast |
| 40 |
| 29 |
| 11 |
| 37.9 | % | 25 | 19 | 6 | 31.6 | % | ||||||
Century Complete | 114 | 107 | 7 | 6.5 | % | |||||||||||||||
Total |
| 107 |
| 87 |
| 20 |
| 23.0 | % | 217 | 186 | 31 | 16.7 | % |
NM – Not Meaningful
Our selling communities increased to 107217 communities at September 30, 20172022 as compared to 87 communities186 at September 30, 2016. The2021. This increase is attributable to our acquisitionwas a result of UCP, Inc. new community openings during the past year.
Backlog
(dollars in thousands)
As of September 30, | |||||||||||||||||||||||||
2022 | 2021 | % Change | |||||||||||||||||||||||
Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | |||||||||||||||||
West | 208 | $ | 172,071 | $ | 827.3 | 659 | $ | 436,812 | $ | 662.8 | (68.4) | % | (60.6) | % | 24.8 | % | |||||||||
Mountain | 826 | 447,827 | 542.2 | 1,037 | 556,192 | 536.3 | (20.3) | % | (19.5) | % | 1.1 | % | |||||||||||||
Texas | 210 | 73,482 | 349.9 | 615 | 217,362 | 353.4 | (65.9) | % | (66.2) | % | (1.0) | % | |||||||||||||
Southeast | 584 | 246,764 | 422.5 | 630 | 257,902 | 409.4 | (7.3) | % | (4.3) | % | 3.2 | % | |||||||||||||
Century Complete | 1,627 | 439,236 | 270.0 | 1,925 | 454,516 | 236.1 | (15.5) | % | (3.4) | % | 14.4 | % | |||||||||||||
Total / Weighted Average | 3,455 | $ | 1,379,380 | $ | 399.2 | 4,866 | $ | 1,922,784 | $ | 395.1 | (29.0) | % | (28.3) | % | 1.0 | % |
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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 |
|
| 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 September 30, 2017,2022, we had 1,6643,455 homes in backlog with a total value of $689.4 million,$1.4 billion, which represents an increasedecreases of 67.7%29.0% and 81.0%28.3%, respectively, as compared to 4,866 homes in backlog with a total value of $1.9 billion at September 30, 2016.2021. The increasedecrease in backlog and backlogdollar value is primarily attributable to our acquisition of UCP, Inc. as well as the decrease in backlog units, partially offset by a 1.0% increase in the demand for new homes 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 6.750% senior notes due 2027 (which we collectively refer to as our “2027 Notes”) and our 3.875% senior notes due 2029 (which we collectively refer to as our “2029 Notes” and together with the 2027 Notes, the “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”). In addition, our former 5.875% senior notes due 2025 (which we collectively refer to as our “2025 Notes”), which were extinguished during the third quarter of 2021, were our unsecured senior obligations and were fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the 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 September 30, 2022, Century Communities, Inc. had outstanding $1.0 billion 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 strength duethe 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 positive market trendsbe 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. The indenture governing our former 2025 Notes contained a similar provision.
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.
Only the 2027 Notes and the related guarantees are, and the former 2025 Notes and the related guarantees were, registered securities under the Securities Act of 1933, as amended (the “Securities Act”). The offer and sale of the 2029 Notes and the related guarantees were not and will not be registered under the Securities Act or the securities laws of any other jurisdiction and instead were issued in reliance upon an exemption from such registration. Unless they are subsequently registered under the Securities Act, neither the 2029 Notes nor the related guarantees may be offered and sold only in transactions that are exempt from the registration requirements under the Securities Act and the applicable securities laws of any other jurisdiction.
As the guarantees for the 2027 Notes and the guarantees for the former 2025 Notes were made in connection with the issuance of the 2027 Notes and former 2025 Notes and exchange offers effected under the Securities Act in February 2015, October 2015 and April 2017, the Guarantors’ condensed supplemental financial information is presented in this report as if the guarantees existed during the periods presented pursuant to applicable SEC rules and guidance. 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 investors, and accordingly, supplemental financial information is presented below.
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.
Supplemental Pro Forma InformationCentury Communities, Inc. and 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.
Summarized Balance Sheet Data (in thousands) | September 30, 2022 | December 31, 2021 | ||||
Assets | ||||||
Cash and cash equivalents | $ | 3,484 | $ | 180,843 | ||
Cash held in escrow | 83,952 | 52,297 | ||||
Accounts receivable | 32,471 | 39,492 | ||||
Inventories | 3,107,734 | 2,456,614 | ||||
Prepaid expenses and other assets | 200,768 | 160,999 | ||||
Property and equipment, net | 29,957 | 24,220 | ||||
Deferred tax assets, net | 33,873 | 21,239 | ||||
Goodwill | 30,395 | 30,395 | ||||
Total assets | $ | 3,522,634 | $ | 2,966,099 | ||
Liabilities and stockholders’ equity | ||||||
Liabilities: | ||||||
Accounts payable | $ | 92,318 | $ | 82,734 | ||
Accrued expenses and other liabilities | 357,679 | 288,229 | ||||
Notes payable | 1,016,548 | 998,936 | ||||
Revolving line of credit | 165,000 | — | ||||
Total liabilities | 1,631,545 | 1,369,899 | ||||
Stockholders’ equity: | 1,891,089 | 1,596,200 | ||||
Total liabilities and stockholders’ equity | $ | 3,522,634 | $ | 2,966,099 | ||
Summarized Statements of Operations Data (in thousands) | Nine Months Ended | Year Ended | ||||
September 30, 2022 | December 31, 2021 | |||||
Total homebuilding revenues | $ | 3,254,409 | $ | 4,092,576 | ||
Total homebuilding cost of revenues | (2,374,784) | (3,095,363) | ||||
Selling, general and administrative | (321,484) | (389,610) | ||||
Loss on debt extinguishment | — | (14,458) | ||||
Inventory impairment and other | — | (41) | ||||
Other income (expense) | (11,205) | (3,307) | ||||
Income before income tax expense | 546,936 | 589,797 | ||||
Income tax expense | (122,679) | (131,201) | ||||
Net income | $ | 424,257 | $ | 458,596 |
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|
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|
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|
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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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||||||||||||||||
|
| 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 |
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, 2016,2021, filed with the SEC on February 15, 2017,3, 2022, in the section entitled “Management’s Discussion and Analysis of Financial Condition
32
and Results of Operations—SignificantCritical Accounting Policies.” WeDuring the three and nine months ended September 30, 2022, we have had no significant changes inupdated our critical accounting policies to include the following disclosure about our self-insurance accounting policy:
Self-Insurance
We maintain general liability insurance coverage, including coverage for certain construction defects. These insurance policies protect us against a portion of the risk of loss from those described therein,claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. Prior to the year ended December 31, 2021, we generally maintained construction defect policies with lower self-insurance limits. In circumstances where we have elected to retain a higher portion of the overall risk for construction defect claims in return for a lower initial premium, we reserve for the estimated costs that we will incur that are above our coverage limits or that are not covered by our insurance policies. The reserve is recorded on an undiscounted basis at the time revenue is recognized for each home closing. Our self-insurance liability is presented on a gross basis without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other than those relatedparties, if any. Estimates of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable.
As of September 30, 2022, our self-insurance reserve for incurred but not reported construction defect claims was $13.9 million, compared to $5.1 million as of December 31, 2021. The self-insurance reserve estimate requires significant management judgment and assumptions, and is based on a third-party actuarial analysis that relies primarily upon industry data and partially on our historical claims to estimate overall costs. These estimates are subject to uncertainty due to a variety of factors, the most significant being the long period of time between the delivery of a home to a homebuyer and when a construction defect claim may be made, and the ultimate resolution of any such construction defect claim. Though state regulations vary, construction defect claims are reported and resolved over a long period of time, which can extend for 10 years or more. As a result, the majority of the estimated self-insurance liability based on the actuarial analysis relates to claims incurred but not yet reported. Assumptions used in developing estimates can fluctuate as a result of unforeseen developments in claims relative to markets in which we operate, inflation rates, regulatory or legal changes, and other factors. While we believe our estimates are reasonable and provide for a certain degree of coverage to account for these variables, actual claims and costs could differ significantly from recorded reserves. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. Historically, adjustments to our Mortgage loans held for sale,estimates have not been material, as discussed in “Note 1. Basis of Presentation.”we increased our self-insurance reserve by $0.9 million during the three and nine months ended September 30, 2022 and recorded no change to our reserve during the three and nine months ended September 30, 2021, respectively.
Liquidity and Capital Resources
Overview
Overview
Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and Credit Facility availability, was $817.2 million as of September 30, 2022, compared to $1.2 billion as of December 31, 2021.
Our principal uses of capital for the three and nine months ended September 30, 20172022 were the acquisition of UCP, Inc.,our land purchases, land development, home construction, share repurchases, and the payment of routine liabilities. We used funds generated by operations, bond offerings,increased our investment in homebuilding inventory during 2022, including an increase of $408.8 million in homes under construction and available borrowings under our Credit Agreement$235.0 million in land and land development, which resulted in 34,477 lots owned at September 30, 2022, a 4.9% increase as compared to meet our short-term working capital requirements.December 31, 2021.
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 not recognized in our statementconsolidated statements 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 acquiringcontinue to acquire and developingdevelop lots in our markets to maintain and growwhen they meet our lot supply and active selling communities. As we continue to expand our business, we expect that cash outlays for land purchases and land development to grow our lot inventory could exceed our cash generated by operations.
Covenant Compliance
On October 21, 2014, we entered into a 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”). The Credit Agreement provides the Company with a revolving line of credit (which, as modified as described below, we refer to as the “Revolving Credit Facility”) of up to $120 million. Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 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. The obligations under the Revolving Credit Facility 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
33
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.
The Credit Agreement contains customary affirmative and negative covenants (including limitations on the Company’s ability to grant liens, incur additional debt, pay dividends, redeem its common stock, make certain investments, and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. The Credit Agreement also requires the Company to maintain (i) a leverage ratio of not more than 1.75 to 1.0 as of 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 Credit Agreement.
ATM Program
On November 7, 2016, we entered into a Distribution Agreement (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 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 price 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.current investment criteria, During the three months ended September 30, 2017,2022, we soldreduced our land acquisition and issued an aggregatedevelopment activities by terminating certain contracts in our markets that did not meet our investment criteria, resulting in a charge of 0.4$4.4 million sharesrecorded as other expense included in our condensed consolidated statements of operations.
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 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 September 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 provideongoing financing and liquidity to Inspire by facilitating purchase transactions in which Inspire transfers eligible loans to the Buyer, against the transfer of funds by the Buyer, subject to a simultaneous agreement by the Seller to repurchase from the Buyer such eligible 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 onstrategy and subject to the termsmarket conditions.
Short-term Liquidity and conditions set forth in the Master Repurchase Agreement. The maximum aggregate amountCapital Resources
We use funds generated by operations, available borrowings under our Credit Facility, and proceeds from issuances of the Buyer’s commitmentdebt or equity, including our current at-the-market facility, to fund purchase transactionsour short term working capital obligations and fund our purchases of land, as well as land development, home construction activities, general corporate purposes, and other cash needs.
Our Financial Services operations use funds generated from operations and availability under the Repurchase Facility is $25 million (which we referour mortgage repurchase facilities 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 buyer 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 Facility are not guaranteed by us or any of our subsidiaries. Each of the Master Repurchase Agreement and Second Master Repurchase Agreement contains various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of September 30, 2017, we were in compliance with all covenants under each of the Master Repurchase Agreement and the Second Repurchase Agreement.
As of September 30, 2017, there was an aggregate of $27.5 million outstanding under the Master Repurchase Agreement 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 Agreement and the Second Master Repurchase Agreement was collateralized by $30.1 millionfinance its operations, including originations of mortgage loans heldto our homebuyers.
Our Century Living operations use excess cash from our operations as well as project specific secured financing under construction loan agreements to fund development of multi-family projects.
We believe that we will be able to fund our current liquidity needs for sale.at least the next twelve months 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 based on the macro-economy, and market conditions at the time. In a higher interest rate environment, we may incur additional interest expense on borrowings that bear floating interest rates, such as our revolving line of credit. We believe we are well positioned from a cash and liquidity standpoint to operate in an uncertain environment, and to pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of strategic opportunities as they arise.
34Long-term Liquidity and Capital Resources
TableBeyond the next twelve months, we believe that our principal uses of Contentscapital will be land and inventory purchases and other expenditures, as well as principal and interest payments on our long-term debt obligations. We believe that we will be able to fund our long-term liquidity needs with 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 favorable terms, especially in light of rising interest rates. In a higher interest rate environment, we may incur additional interest expense on borrowings that bear floating interest rates, such as our revolving line of credit. To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance debt, or dispose of certain assets to fund our operating activities and capital needs.
Material Cash Requirements
Cash Flows—Nine Months Ended September 30, 2017 Compared
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the Nine Months Ended September 30, 2016
future. These obligations impact our short-term and long-term liquidity and capital resource needs. For the three and nine months ended September 30, 2017 and 2016,2022, there were no material changes to the comparison of cash flows is as follows:
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As of September 30, 2017, our cash balanceAnnual Report on Form 10-K for the fiscal year ended December 31, 2021 that was $58.5 million. filed with the SEC on February 3, 2022.
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. Purchase and option contracts for the purchase of land enable us to defer acquiring portions of properties owned by third parties until we have determined whether to exercise our option, which may serve to reduce our financial risks associated with long-term land holdings. 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 September 30, 2017,2022, we had outstanding purchase contracts and option contracts for 17,15028,301 lots, totaling $754.1approximately $1.2 billion, and we had $61.1 million and had $11.2of deposits for land contracts, of which $33.1 million ofwere non-refundable cash deposits pertaining to land contracts. WhileFor contracts for which cash deposits were non-refundable, and subject to the terms of the outstanding contracts continuing to meet our investment criteria, we currently anticipate performing on the majority of our purchase and option contracts during the next twenty-four months. 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 performingand dependent on 60% to 70% of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contacts occurring in future periods.
market conditions. 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.
Outstanding Debt Obligations and Debt Service Requirements
Our outstanding debt obligations included the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, | December 31, | |||||
2022 | 2021 | |||||
3.875% senior notes, due August 2029(1) | $ | 494,691 | $ | 494,117 | ||
6.750% senior notes, due May 2027(1) | 496,190 | 495,581 | ||||
Other financing obligations(2) | 25,667 | 9,238 | ||||
Notes payable | 1,016,548 | 998,936 | ||||
Revolving line of credit | 165,000 | — | ||||
Mortgage repurchase facilities | 195,047 | 331,876 | ||||
Total debt | $ | 1,376,595 | $ | 1,330,812 |
(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.
(2)As of September 30, 2022, other financing obligations included $22.7 million related to insurance premium notes and certain secured borrowings, as well as $3.0 million outstanding under the construction loan agreements, as described below. As of December 31, 2021, other financing obligations included $9.2 million related to insurance premium notes and certain secured borrowings.
A summary of our debt obligations is included in Note 9 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 3, 2022 and in Note 9 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.
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 September 30, 2017,2022 and December 31, 2016,2021, we had $70.1$565.8 million and $70.1$492.5 million, respectively, in letters of credit and
35
performance and other bonds issued and outstanding. We anticipate thatAlthough significant development and construction activities have been completed related to the obligations secured byimprovements at these performance bonds andsites, the letters of credit and performance and other bonds are not generally released until all development and construction activities are completed.
Construction Loan Agreements
On August 9, 2022 and March 17, 2022, certain wholly owned subsidiaries of Century Living, LLC entered into construction loan agreements with PNC Bank, National Association and U.S. Bank National Association, a national banking association, d/b/a Housing Capital Company (which we collectively refer to as “the Lenders”), respectively. The construction loan agreements (which we refer to as the “Construction Loan Agreements”), collectively provide that we may borrow up to $128.0 million from the Lenders for purposes of construction of multi-family projects in Colorado, with advances made by the Lenders upon the satisfaction of certain conditions. Borrowings under the Construction Loan Agreements bear interest at floating interest rates per annum equal to the Secured Overnight Financing Rate and the Bloomberg Short-term Bank Yield Index, plus an applicable margin. The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates through August 9, 2026, with the option to extend the maturity dates for a period of 12 months if certain conditions are satisfied. The Construction Loan Agreements contain customary affirmative and negative covenants (including covenants related to construction completion, and limitations on the use of loan proceeds, transfers of land, equipment, and improvements), as well as customary events of default.
As of September 30, 2022, $3.0 million was outstanding under the Construction Loan Agreements, with borrowings bearing a weighted average interest rate of 4.423%, and we were in compliance with all covenants thereunder.
Revolving Line of Credit
On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (which we refer to as the “Second A&R Credit Agreement”) with, Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders party thereto. The Second A&R Credit Agreement, which amended and restated the Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (which we refer to as the “Credit Facility”) of up to $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, the Company is entitled to request an increase in the size of the Credit Facility by an amount not exceeding $200 million. Our obligations under the Second A&R Credit Agreement are guaranteed by certain of our subsidiaries. The Second A&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. Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to 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 base rate plus an applicable margin between 1.05% and 1.65% per annum.
As of September 30, 2022, we had $165.0 million outstanding under the Credit Facility and were in compliance with all covenants under the Second A&R Credit Agreement.
Mortgage Repurchase Facilities – Financial Services
Inspire is party to mortgage warehouse facilities with Comerica Bank, J.P. Morgan, and Wells Fargo (which we refer to as the “Repurchase Facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $275.0 million as of September 30, 2022, secured by the mortgage loans financed thereunder. The Repurchase Facilities have varying short term maturity dates through August 15, 2023 and bear a weighted average interest rate of 4.208%.
Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of September 30, 2022, we had $195.0 million outstanding under these Repurchase Facilities and were in compliance with all covenants thereunder.
During the three months ended September 30, 2022 and 2021, we incurred interest expense on the Repurchase Facilities of $0.6 million and $0.4 million, respectively. During the nine months ended September 30, 2022 and 2021, we incurred interest expense on the Repurchase Facilities of $1.4 million and $1.8 million, respectively. Interest expense on the 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 sales 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, and was amended in July 2021 to acknowledge our filing of a new registration statement on Form S-3 registering the issuance and sale of shares of our common stock under the Distribution Agreement and replace Citigroup Global Markets Inc. with Wells Fargo Securities, LLC as a sales agent, had all $100.0 million available for sale as of September 30, 2022. We did not sell or issue any shares of our common stock during the three and nine months ended September 30, 2022 and 2021, 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.
Stock Repurchase Program
On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4.5 million 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 performeddetermined 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, general market and economic conditions, as well as the future 1% excise tax on stock repurchases after December 31, 2022 included in the ordinary courseInflation Reduction Act of business.2022, which was enacted into law on August 16, 2022.
We intend to finance any stock repurchases through available cash and our 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.
During the three and nine months ended September 30, 2022, an aggregate of 0.5 million and 2.3 million shares, respectively, of our common stock were repurchased for a total purchase price of approximately $22.3 million and $120.6 million, respectively, and a weighted average price of $44.58 and $52.32 per share, respectively. During the three and nine months ended September 30, 2021, we did not repurchase any shares of our common stock. The maximum number of shares available to be purchased under the stock repurchase program as of September 30, 2022 was 1,508,169 shares.
Dividends
The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the nine months ended September 30, 2022 and 2021, respectively (in thousands, except per share information):
Nine months ended September 30, 2022 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
February 16, 2022 | March 2, 2022 | March 16, 2022 | $ | 0.20 | $ | 6,657 | ||||
May 18, 2022 | June 1, 2022 | June 15, 2022 | $ | 0.20 | $ | 6,568 | ||||
August 17, 2022 | August 31, 2022 | September 14, 2022 | $ | 0.20 | $ | 6,455 | ||||
Nine months ended September 30, 2021 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
May 19, 2021 | June 2, 2021 | June 16, 2021 | $ | $0.15 | $ | 5,064 | ||||
August 18, 2021 | September 1, 2021 | September 15, 2021 | $ | $0.15 | $ | 5,063 |
The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our Board of Directors and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.
Cash Flows— Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
For the nine months ended September 30, 2022 and 2021, 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 are 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. Net cash used in operating activities was $67.1 million during the nine months ended September 30, 2022 as compared to net cash provided by operating activities of $82.8 million during the same period in 2021. The increase in cash used in operations is primarily a result of increased investment in our homebuilding inventories for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, partially offset by a decrease in originations of mortgage loans held for sale and a $112.1 million increase in net income for nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Net cash used in investing activities increased to $37.3 million during the nine months ended September 30, 2022, compared to $4.3 million used during the same period in 2021. The increase was primarily related to expenditures related to the development, construction, and management of multi-family rental properties by our wholly owned subsidiary, Century Living, and a $8.6 million increase in purchases of property and equipment for the nine months ended September 30, 2022 as compared to the nine months ended September 30,2021.
Net cash used in financing activities was $108.5 million during the nine months ended September 30, 2022, compared to net cash provided by financing activities of $20.6 million during the same period in 2021. The increase in cash used in financing activities was primarily attributable (1) a $120.6 million increase in repurchases of our common stock during the current year period, (2) a $89.4 million increase in net payments on the Repurchase Facilities during the current year period, (3) $88.2 million in net proceeds from the issuance of senior notes due 2029 in the prior year period, partially offset by the simultaneous extinguishment of our former senior notes due 2025 and (4) a $9.6 million increase in dividend payments during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. These increases were offset by $165.0 million net cash inflow from borrowings under our revolving line of credit for the nine months ended September 30, 2022 compared to no revolving line of credit borrowings outstanding for the nine months ended September 30, 2021.
As of September 30, 2022, our cash and cash equivalents and restricted cash balance was $109.3 million, as compared to $322.2 million as of December 31, 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 nine months ended September 30, 20172022 and 2016.2021. 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) depreciation and amortization expense, (v) loss on debt extinguishment, and (v) adjustments resulting from the application of purchase accounting for acquired work in process(vi) inventory related to business combinations. impairment and other. 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.
(dollars in thousands)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
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| 2017 |
| 2016 |
| % Change |
| 2017 |
| 2016 |
| % Change | 2022 | 2021 | % Change | 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||||
Net income |
| $ | 9,470 |
| $ | 13,342 |
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| (29.0) | % |
| $ | 33,100 |
| $ | 34,467 |
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| (4.0) | % | $ | 144,473 | $ | 113,977 | 26.8 | % | $ | 445,637 | $ | 333,538 | 33.6 | % | |||||||||||||||||||||
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 | % | 27,601 | 31,784 | (13.2) | % | 128,861 | 95,406 | 35.1 | % | |||||||||||||||||||||||||
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 | % | 13,726 | 14,636 | (6.2) | % | 39,345 | 51,419 | (23.5) | % | |||||||||||||||||||||||||
Interest expense |
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| 1 |
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| NM |
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| 3 |
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| 4 |
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Interest expense (income) | (2) | (148) | (98.6) | % | (14) | (431) | (96.8) | % | |||||||||||||||||||||||||||||||||||||||||||||
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 | % | 2,855 | 2,669 | 7.0 | % | 8,207 | 8,324 | (1.4) | % | |||||||||||||||||||||||||
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 | % | 188,653 | 162,918 | 15.8 | % | 622,036 | 488,256 | 27.4 | % | |||||||||||||||||||||||||
Purchase price accounting for acquired work in process inventory |
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| 6,214 |
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| 100 |
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| 6,113.8 | % |
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| 6,331 |
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| 318 |
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| 1,890.9 | % | |||||||||||||||||||||||||||||||||
Purchase price accounting for investment in unconsolidated subsidiaries outside basis |
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| 30 |
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| NM |
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| 885 |
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Loss on debt extinguishment | — | 14,458 | (100.0) | % | — | 14,458 | (100.0) | % | |||||||||||||||||||||||||||||||||||||||||||||
Inventory impairment and other | — | — | NM | — | 41 | (100.0) | % | ||||||||||||||||||||||||||||||||||||||||||||||
Adjusted EBITDA |
| $ | 32,451 |
| $ | 26,441 |
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| 22.7 | % |
| $ | 83,233 |
| $ | 68,971 |
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| 20.7 | % | $ | 188,653 | $ | 177,376 | 6.4 | % | $ | 622,036 | $ | 502,755 | 23.7 | % |
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(homebuilding debt less cash and revolving line of credit lesscash equivalents, and cash held in escrow and cash and cash equivalents)escrow) by net capital (net homebuilding debt plus total stockholders’ equity). Homebuilding debt is our total debt minus our outstanding borrowings under our Construction Loan Agreements and our Repurchase Facilities. 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.
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| December 31, | September 30, | December 31, | ||||||
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| 2017 |
| 2016 | 2022 | 2021 | ||||||
Total debt |
| $ | 803,481 |
| $ | 454,088 | ||||||
Notes payable | $ | 1,016,548 | $ | 998,936 | ||||||||
Revolving line of credit | 165,000 | — | ||||||||||
Construction loan agreements | (2,985) | — | ||||||||||
Total homebuilding debt | 1,178,563 | 998,936 | ||||||||||
Total stockholders' equity |
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| 653,012 |
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| 473,636 | 2,072,000 | 1,764,508 | ||||
Total capital |
| $ | 1,456,493 |
| $ | 927,724 | $ | 3,250,563 | $ | 2,763,444 | ||
Debt to capital |
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| 55.2% |
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| 48.9% | ||||||
Homebuilding debt to capital | 36.3% | 36.1% | ||||||||||
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Total debt |
| $ | 803,481 |
| $ | 454,088 | ||||||
Total homebuilding debt | $ | 1,178,563 | $ | 998,936 | ||||||||
Cash and cash equivalents |
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| (58,522) |
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| (29,450) | (98,203) | (316,310) | ||||
Cash held in escrow |
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| (42,262) |
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| (20,044) | (83,952) | (52,297) | ||||
Net debt |
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| 702,697 |
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| 404,594 | ||||||
Net homebuilding debt | 996,408 | 630,329 | ||||||||||
Total stockholders' equity |
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| 653,012 |
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| 473,636 | 2,072,000 | 1,764,508 | ||||
Net capital |
| $ | 1,355,709 |
| $ | 878,230 | $ | 3,068,408 | $ | 2,394,837 | ||
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Net debt to net capital |
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| 51.8% |
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| 46.1% | ||||||
Net homebuilding debt to net capital | 32.5% | 26.3% |
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 (iii) restructuring costs, and (iv) loss on debt extinguishment, 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 excludingdividing Adjusted Net Income by weighted average common shares – diluted.
(in thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Numerator | ||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | ||||
Denominator | ||||||||||||
Weighted average common shares outstanding - basic | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | ||||||||
Dilutive effect of restricted stock units | 373,746 | 710,104 | 391,117 | 731,632 | ||||||||
Weighted average common shares outstanding - diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | ||||||||
Earnings per share: | ||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | ||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | ||||
Adjusted earnings per share | ||||||||||||
Numerator | ||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | ||||
Income tax expense | 27,601 | 31,784 | 128,861 | 95,406 | ||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | ||||||||
Inventory impairment and other | — | — | — | 41 | ||||||||
Loss on debt extinguishment | — | 14,458 | — | 14,458 | ||||||||
Adjusted income before income tax expense | 172,074 | 160,219 | 574,498 | 443,443 | ||||||||
Adjusted income tax expense(1) | (27,601) | (34,937) | (128,861) | (98,631) | ||||||||
Adjusted net income | $ | 144,473 | $ | 125,282 | $ | 445,637 | $ | 344,812 | ||||
Denominator - Diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | ||||||||
Adjusted diluted earnings per share | $ | 4.44 | $ | 3.63 | $ | 13.41 | $ | 10.02 |
(1)The tax rates used in calculating adjusted net income for the effectthree and nine months ended September 30, 2022 were 16.0% and 22.4%, respectively, and for the three and nine months ended September 30, 2021 were 21.8% and 22.2%, respectively, which are reflective of acquisition costs and purchase price accountingthe Company’s GAAP tax rates for acquired work in process from the calculation of reported EPS.applicable periods.
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| Nine Months Ended | ||||||||
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| September 30, |
| September 30, | ||||||||
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| 2016 |
| 2017 |
| 2016 | ||||
Numerator |
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Net income |
| $ | 9,470 |
| $ | 13,342 |
| $ | 33,100 |
| $ | 34,467 |
Less: Undistributed earnings allocated to participating securities |
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| (52) |
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| (241) |
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| (289) |
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| (785) |
Net income allocable to common stockholders |
| $ | 9,418 |
| $ | 13,101 |
| $ | 32,811 |
| $ | 33,682 |
Denominator |
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Weighted average common shares outstanding - basic |
|
| 25,445,552 |
|
| 20,673,521 |
|
| 23,038,390 |
|
| 20,643,682 |
Dilutive effect of restricted stock units |
|
| 280,585 |
|
| 148,545 |
|
| 236,930 |
|
| 88,248 |
Weighted average common shares outstanding - diluted |
|
| 25,726,137 |
|
| 20,822,066 |
|
| 23,275,320 |
|
| 20,731,930 |
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.42 |
| $ | 1.63 |
Diluted |
| $ | 0.37 |
| $ | 0.63 |
| $ | 1.41 |
| $ | 1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
| $ | 15,156 |
| $ | 19,731 |
| $ | 50,316 |
| $ | 51,257 |
Purchase price accounting for acquired work in process inventory |
|
| 6,214 |
|
| 100 |
|
| 6,331 |
|
| 318 |
Acquisition expense |
|
| 7,205 |
|
| 53 |
|
| 8,645 |
|
| 466 |
Adjusted income before income tax expense |
|
| 28,575 |
|
| 19,884 |
|
| 65,292 |
|
| 52,041 |
Income tax expense(1) |
|
| (9,801) |
|
| (6,439) |
|
| (21,350) |
|
| (17,047) |
Adjusted net income |
|
| 18,774 |
|
| 13,445 |
|
| 43,942 |
|
| 34,994 |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted diluted earnings per share |
| $ | 0.73 |
| $ | 0.63 |
| $ | 1.87 |
| $ | 1.65 |
|
|
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 riskrisks associated with our Second A&R Credit Agreement which was entered into on October 21, 2014. Future borrowingsand Construction Loan Agreements.
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 our current policies, we do not usesenior unsecured revolving line of credit.
Borrowings under the Construction Loan Agreements bear interest at floating interest rate per annum equal to the Secured Overnight Financing Rate and the Bloomberg Short-term Bank Yield Index, plus an applicable margin.
For fixed rate debt, such as our senior notes, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. As interest rates increase, the fair value of the debt instrument will decrease.
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 typically use 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 canhave been and may continue to be adversely impacted by inflation, primarily from higher land, financing, labor, material, particularly lumber, and construction costs. In addition, inflation canhas led and could continue to lead to higher mortgage rates, which canhas and could continue to significantly affect the affordability of mortgage financing to homebuyers.homebuyers and lead to weakened demand for our homes, as well as increased cancellations. As inflation remained elevated during the three and nine months ended September 30, 2022, interest rates on 30-year fixed mortgages have risen, coupled with the Federal Reserve raising the federal funds interest rate during the first, second, and third quarters of 2022. While we attemptwere generally able to pass on cost increases from inflationary impacts to customers through increased home prices when weak housing market conditions exist,during the three and nine months ended September 30, 2022, we are often unablemay not be able to continue to offset cost increases with higher home selling prices.prices in the future if weak housing market conditions exist.
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 historically has taken four to eight months to construct a new home, we typically 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, supply chain challenges, and changes in demand for our homes.
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 September 30, 2017,2022, 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 September 30, 20172022 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
There were no changes during the nine months ended September 30, 2017, we completedthird quarter of 2022 in our acquisition of UCP, Inc. and we are in the process of integrating UCP, Inc. into our overall internal control over financial reporting process.(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.
PART II – OTHER INFORMATION
38
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, 20162021 that was filed with the SEC on February 15, 2017.3, 2022, other than the impact of inflation and increased interest rates on housing demand, which has moderated considerably over the past few months, and on our cancellation rates, which have increased over the past few months, and other trends that have materialized this year, as discussed in “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During
The following table summarizes the three months ended September 30, 2017, certainnumber of our employees surrendered approximately 44,220 shares of our common stock ownedthat were purchased by them to satisfy their statutory minimum federal and state tax obligations associated with the vestingCompany during each 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 fiscal months in our third quarter ended September 30, 2017:2022.
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| ||||||||||
|
| 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 | Total number of shares purchased (1) | 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 | — | $ | — | — | 2,008,994 | |||||
August |
|
|
|
|
|
|
|
|
|
| ||||||||||
Purchased 7/1 through 7/31 |
| - |
|
| - |
| N/A |
|
| N/A | ||||||||||
Purchased 8/1 through 8/31 | — | — | — | 2,008,994 | ||||||||||||||||
September |
|
|
|
|
|
|
|
|
|
| ||||||||||
Purchased 9/1 through 9/30 |
| 15,198 |
|
| 24.00 |
| N/A |
|
| N/A | 500,825 | 44.58 | 500,825 | 1,508,169 | ||||||
Total |
| 44,220 |
| $ | 25.25 |
|
|
|
|
| 500,825 | $ | 44.58 |
(1)On November 6, 2018, the Company's Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. Under the terms of the program, 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. This program has no expiration date but may be terminated by the Board of Directors at any time. The Company repurchased 500,825 shares during the period indicated above under this program and 1,508,169 shares remained available to repurchase under this program as of September 30, 2022.
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 (formatted in Inline XBRL 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. | ||||||
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Date: October 26, 2022 | By: | /s/ Dale Francescon | ||||
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| ||||||
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 | ||||||
Assistant Chief | ||||||
(Principal Accounting Officer) |