UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022March 31, 2023
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-36491
Century Communities, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 68-0521411 | |
(State or other jurisdiction of | (I.R.S. Employer | |
8390 East Crescent Parkway, Suite 650 | 80111 | |
(Address of principal executive offices) | (Zip Code) | |
(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 every Interactive Data File required to be submitted 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 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 | x | Accelerated filer | o | |||
Non-accelerated filer | o | Smaller reporting company | o | |||
Emerging growth company | ¨ |
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 OctoberApril 21, 2022, 31,772,3352023, 32,025,879 shares of common stock, par value $0.01 per share, of the registrant were outstanding.
CENTURY COMMUNITIES, INC.
FORM 10-Q
For the Three and Nine Months Ended September 30, 2022March 31, 2023
Index
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Century Communities, Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2022March 31, 2023 and December 31, 20212022
(in thousands, except share and per share amounts)
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Assets | (unaudited) | (audited) | (unaudited) | (audited) | ||||||||
Cash and cash equivalents | $ | 98,203 | $ | 316,310 | $ | 405,722 | $ | 296,724 | ||||
Cash held in escrow | 83,952 | 52,297 | 12,691 | 56,569 | ||||||||
Accounts receivable | 41,955 | 41,932 | 52,787 | 52,797 | ||||||||
Inventories | 3,107,734 | 2,456,614 | 2,741,187 | 2,830,645 | ||||||||
Mortgage loans held for sale | 194,123 | 353,063 | 155,732 | 203,558 | ||||||||
Prepaid expenses and other assets | 259,379 | 200,087 | 260,505 | 250,535 | ||||||||
Property and equipment, net | 30,450 | 24,939 | 33,019 | 31,688 | ||||||||
Deferred tax assets, net | 33,873 | 21,239 | 20,939 | 20,856 | ||||||||
Goodwill | 30,395 | 30,395 | 30,395 | 30,395 | ||||||||
Total assets | $ | 3,880,064 | $ | 3,496,876 | $ | 3,712,977 | $ | 3,773,767 | ||||
Liabilities and stockholders' equity | ||||||||||||
Liabilities: | ||||||||||||
Accounts payable | $ | 94,054 | $ | 84,679 | $ | 106,525 | $ | 106,926 | ||||
Accrued expenses and other liabilities | 337,415 | 316,877 | 258,412 | 299,588 | ||||||||
Notes payable | 1,016,548 | 998,936 | 1,026,615 | 1,019,412 | ||||||||
Revolving line of credit | 165,000 | — | — | — | ||||||||
Mortgage repurchase facilities | 195,047 | 331,876 | 149,784 | 197,626 | ||||||||
Total liabilities | 1,808,064 | 1,732,368 | 1,541,336 | 1,623,552 | ||||||||
Stockholders' equity: | ||||||||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding | — | — | — | — | ||||||||
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 | ||||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 32,025,785 and 31,772,791 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | 320 | 318 | ||||||||||
Additional paid-in capital | 579,697 | 697,845 | 580,489 | 584,803 | ||||||||
Retained earnings | 1,491,985 | 1,066,325 | 1,590,832 | 1,565,094 | ||||||||
Total stockholders' equity | 2,072,000 | 1,764,508 | 2,171,641 | 2,150,215 | ||||||||
Total liabilities and stockholders' equity | $ | 3,880,064 | $ | 3,496,876 | $ | 3,712,977 | $ | 3,773,767 | ||||
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,March 31, 2023 and 2022 and 2021
(in thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | ||||||||||||
Revenues | |||||||||||||||||
Homebuilding revenues | |||||||||||||||||
Home sales revenues | $ | 1,118,588 | $ | 917,337 | $ | 3,241,537 | $ | 2,881,404 | $ | 735,600 | $ | 988,415 | |||||
Land sales and other revenues | 2,432 | 11,594 | 12,872 | 35,522 | 1,535 | 1,630 | |||||||||||
Total homebuilding revenues | 1,121,020 | 928,931 | 3,254,409 | 2,916,926 | 737,135 | 990,045 | |||||||||||
Financial services revenues | 23,271 | 29,101 | 72,373 | 92,586 | 15,855 | 26,305 | |||||||||||
Total revenues | 1,144,291 | 958,032 | 3,326,782 | 3,009,512 | 752,990 | 1,016,350 | |||||||||||
Homebuilding cost of revenues | |||||||||||||||||
Cost of home sales revenues | (841,665) | (682,012) | (2,365,633) | (2,203,187) | (601,385) | (709,073) | |||||||||||
Cost of land sales and other revenues | (292) | (6,977) | (9,151) | (23,996) | — | (846) | |||||||||||
Total homebuilding cost of revenues | (841,957) | (688,989) | (2,374,784) | (2,227,183) | (601,385) | (709,919) | |||||||||||
Financial services costs | (13,922) | (17,666) | (43,262) | (54,135) | (10,781) | (15,154) | |||||||||||
Selling, general and administrative | (110,687) | (90,154) | (321,484) | (281,961) | (98,313) | (101,639) | |||||||||||
Loss on debt extinguishment | — | (14,458) | — | (14,458) | |||||||||||||
Inventory impairment and other | — | — | — | (41) | |||||||||||||
Other income (expense) | (5,651) | (1,004) | (12,754) | (2,790) | 1,498 | (862) | |||||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | 44,009 | 188,776 | |||||||||||
Income tax expense | (27,601) | (31,784) | (128,861) | (95,406) | (10,698) | (46,280) | |||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | |||||
Earnings per share: | |||||||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | $ | 1.04 | $ | 4.25 | |||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | $ | 1.04 | $ | 4.20 | |||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | 31,914,414 | 33,530,610 | |||||||||||
Diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | 32,117,082 | 33,942,234 | |||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30,March 31, 2023 and 2022 and 2021
(in thousands)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Operating activities | ||||||||||||
Net income | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 8,207 | 8,324 | 3,292 | 2,606 | ||||||||
Stock-based compensation expense | 14,950 | 10,760 | 5,360 | 4,064 | ||||||||
Fair value of mortgage loans held for sale and other | 12,174 | 3,529 | 205 | 4,443 | ||||||||
Loss on debt extinguishment | — | 14,458 | ||||||||||
Inventory impairment and other | — | 41 | ||||||||||
Abandonment of lot option contracts | 638 | 875 | ||||||||||
Deferred income taxes | (12,634) | (10,336) | (83) | (33) | ||||||||
Loss on disposition of assets | 1,504 | 1,267 | 198 | 384 | ||||||||
Changes in assets and liabilities: | ||||||||||||
Cash held in escrow | (31,655) | (6,034) | 43,878 | 7,085 | ||||||||
Accounts receivable | (14,499) | (12,353) | 10 | (4,106) | ||||||||
Inventories | (597,539) | (267,282) | 90,152 | (222,863) | ||||||||
Mortgage loans held for sale | 142,283 | 53,132 | 48,241 | 144,361 | ||||||||
Prepaid expenses and other assets | (25,740) | (68,622) | 8,247 | (28,959) | ||||||||
Accounts payable | 10,605 | (5,385) | (401) | 6,841 | ||||||||
Accrued expenses and other liabilities | (20,400) | 27,743 | (41,714) | 52,239 | ||||||||
Net cash (used in) provided by operating activities | (67,107) | 82,780 | ||||||||||
Net cash provided by operating activities | 191,334 | 109,433 | ||||||||||
Investing activities | ||||||||||||
Purchases of property and equipment | (15,395) | (6,763) | (4,820) | (5,841) | ||||||||
Expenditures related to development of rental properties | (18,082) | — | (16,268) | — | ||||||||
Other investing activities | (3,853) | 2,434 | 152 | 750 | ||||||||
Net cash used in investing activities | (37,330) | (4,329) | (20,936) | (5,091) | ||||||||
Financing activities | ||||||||||||
Borrowings under revolving credit facilities | 968,000 | — | — | 141,500 | ||||||||
Payments on revolving credit facilities | (803,000) | — | — | (141,500) | ||||||||
Proceeds from issuance of senior notes due 2029 | — | 500,000 | ||||||||||
Extinguishment of senior notes due 2025 | — | (411,752) | ||||||||||
Borrowing under construction loan agreements | 7,137 | — | ||||||||||
Proceeds from issuance of insurance premium notes and other | 25,070 | 19,580 | 3,032 | 16,863 | ||||||||
Principal payments on insurance premium notes and other | (11,627) | (9,683) | (3,364) | (5,235) | ||||||||
Debt issuance costs | — | (6,155) | ||||||||||
Net payments for mortgage repurchase facilities | (136,829) | (47,451) | (47,842) | (138,848) | ||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (12,735) | (13,726) | (9,880) | (12,138) | ||||||||
Repurchases of common stock under stock repurchase program | (120,646) | — | — | (62,377) | ||||||||
Dividend payments | (19,680) | (10,127) | (7,365) | (6,657) | ||||||||
Other financing activities | 2,941 | (133) | — | (34) | ||||||||
Net cash (used in) provided by financing activities | (108,506) | 20,553 | ||||||||||
Net (decrease) increase | $ | (212,943) | $ | 99,004 | ||||||||
Net cash used in financing activities | (58,282) | (208,426) | ||||||||||
Net increase (decrease) | $ | 112,116 | $ | (104,084) | ||||||||
Cash and cash equivalents and Restricted cash | ||||||||||||
Beginning of period | 322,241 | 398,081 | 308,492 | 322,241 | ||||||||
End of period | $ | 109,298 | $ | 497,085 | $ | 420,608 | $ | 218,157 | ||||
Supplemental cash flow disclosure | ||||||||||||
Cash paid for income taxes | $ | 151,079 | $ | 116,182 | ||||||||
Cash paid (refunds) for income taxes | $ | — | $ | (893) | ||||||||
Cash and cash equivalents and Restricted cash | ||||||||||||
Cash and cash equivalents | $ | 98,203 | $ | 491,879 | $ | 405,722 | $ | 209,046 | ||||
Restricted cash (Note 5) | 11,095 | 5,206 | 14,886 | 9,111 | ||||||||
Cash and cash equivalents and Restricted cash | $ | 109,298 | $ | 497,085 | $ | 420,608 | $ | 218,157 | ||||
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,March 31, 2023 and 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, 2022 | 31,773 | $ | 318 | $ | 584,803 | $ | 1,565,094 | $ | 2,150,215 | |||||||||||||||||||
Vesting of stock-based compensation awards | 412 | 4 | (4) | — | — | |||||||||||||||||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (159) | (2) | (9,878) | — | (9,880) | |||||||||||||||||||||||
Stock-based compensation expense | — | — | 5,360 | — | 5,360 | |||||||||||||||||||||||
Cash dividends declared and dividend equivalents | — | — | 208 | (7,573) | (7,365) | |||||||||||||||||||||||
Net income | — | — | — | 33,311 | 33,311 | |||||||||||||||||||||||
Balance at March 31, 2023 | 32,026 | $ | 320 | $ | 580,489 | $ | 1,590,832 | $ | 2,171,641 | |||||||||||||||||||
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 | 33,761 | $ | 338 | $ | 697,845 | $ | 1,066,325 | $ | 1,764,508 | ||||||||||
Vesting of stock-based compensation awards | 516 | 5 | (5) | — | — | 480 | 5 | (5) | — | — | ||||||||||||||||||
Withholding of common stock upon vesting of stock-based compensation awards | (200) | (2) | (12,733) | — | (12,735) | (190) | (3) | (12,135) | — | (12,138) | ||||||||||||||||||
Repurchases of common stock | (2,305) | (23) | (120,623) | — | (120,646) | (1,013) | (10) | (62,367) | — | (62,377) | ||||||||||||||||||
Stock-based compensation expense | — | — | 14,950 | — | 14,950 | — | — | 4,064 | — | 4,064 | ||||||||||||||||||
Cash dividends declared and dividend equivalents | — | — | 297 | (19,977) | (19,680) | — | — | 79 | (6,736) | (6,657) | ||||||||||||||||||
Other | — | — | (34) | — | (34) | — | — | (34) | — | (34) | ||||||||||||||||||
Net income | — | — | — | 445,637 | 445,637 | — | — | — | 142,496 | 142,496 | ||||||||||||||||||
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 | |||||||||||||||||||
Balance at March 31, 2022 | 33,038 | $ | 330 | $ | 627,447 | $ | 1,202,085 | $ | 1,829,862 | |||||||||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
Century Communities, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2022March 31, 2023
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 1718 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 five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, primarily to our 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.Colorado. Century Living, LLC is included in our 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”) 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 our financial position and results of 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, 2021,2022, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 that was filed with the SEC on February 3, 2022.2, 2023.
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.
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.
2. Reporting Segments
Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 1718 states. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand is managed by geographic location, and each of our 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 four geographic regions is considered a separate operating segment. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade selections. Our Century Complete brand currently has operations in 11 states and is managed separately from our four geographic regions. Accordingly, it is considered a separate operating segment.
The management of our four Century Communities geographic regions and Century 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 and to allocate resources. Accordingly, we have presented our homebuilding operations as the following five reportable segments:
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, Louisiana, Michigan, North Carolina, Ohio, South Carolina,Carolina)
Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and Texas)are now managed under our Texas segment. Accordingly, we have presented segment information under this new basis as of and for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022 and for the three months ended March 31, 2022.
We have identified our Financial Services operations, which provide mortgage, title, and insurance services to our homebuyers, as a sixth reportable segment. Our Corporate operations are a non-operating segment, as theyour Corporate operations 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 legal departments.
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.Colorado. Century Living, LLC is included in our Corporate segment.
The following table summarizes total revenue and income (loss) before income tax expense by segment (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Revenue: | ||||||||||||
West | $ | 255,413 | $ | 268,279 | $ | 811,961 | $ | 691,472 | ||||
Mountain | 288,620 | 263,587 | 852,981 | 863,901 | ||||||||
Texas | 115,857 | 87,250 | 363,297 | 307,774 | ||||||||
Southeast | 196,787 | 131,297 | 526,944 | 520,221 | ||||||||
Century Complete | 264,343 | 178,518 | 699,226 | 533,558 | ||||||||
Financial Services | 23,271 | 29,101 | 72,373 | 92,586 | ||||||||
Corporate | — | — | — | — | ||||||||
Total revenue | $ | 1,144,291 | $ | 958,032 | $ | 3,326,782 | $ | 3,009,512 | ||||
Income (loss) before income tax expense: | ||||||||||||
West | $ | 51,036 | $ | 60,915 | $ | 200,213 | $ | 129,279 | ||||
Mountain | 51,058 | 50,561 | 159,559 | 158,355 | ||||||||
Texas | 17,084 | 11,884 | 62,978 | 39,554 | ||||||||
Southeast | 38,400 | 20,004 | 108,053 | 69,540 | ||||||||
Century Complete | 36,939 | 24,838 | 101,769 | 69,657 | ||||||||
Financial Services | 9,349 | 11,435 | 29,111 | 38,451 | ||||||||
Corporate | (31,792) | (33,876) | (87,185) | (75,892) | ||||||||
Total income before income tax expense | $ | 172,074 | $ | 145,761 | $ | 574,498 | $ | 428,944 | ||||
The following table summarizes total assets by segment (in thousands):
September 30, | December 31, | ||||||||||
2022 | 2021 | Three Months Ended March 31, | |||||||||
2023 | 2022 | ||||||||||
Revenue: | |||||||||||
West | $ | 785,994 | $ | 668,830 | $ | 129,081 | $ | 262,710 | |||
Mountain | 1,135,788 | 1,008,481 | 246,275 | 281,360 | |||||||
Texas | 499,751 | 322,302 | 89,532 | 138,563 | |||||||
Southeast | 451,104 | 360,644 | 87,126 | 149,600 | |||||||
Century Complete | 510,290 | 371,096 | 185,121 | 157,812 | |||||||
Financial Services | 357,431 | 533,159 | 15,855 | 26,305 | |||||||
Corporate | 139,706 | 232,364 | — | — | |||||||
Total assets | $ | 3,880,064 | $ | 3,496,876 | |||||||
Total revenue | $ | 752,990 | $ | 1,016,350 | |||||||
Income (loss) before income tax expense: | |||||||||||
West | $ | 7,973 | $ | 71,242 | |||||||
Mountain | 27,808 | 56,999 | |||||||||
Texas | 3,673 | 22,837 | |||||||||
Southeast | 11,966 | 30,865 | |||||||||
Century Complete | 13,950 | 22,425 | |||||||||
Financial Services | 5,074 | 11,151 | |||||||||
Corporate | (26,435) | (26,743) | |||||||||
Total income before income tax expense | $ | 44,009 | $ | 188,776 | |||||||
The following table summarizes total assets by segment (in thousands):
March 31, | December 31, | |||||
2023 | 2022 | |||||
West | $ | 632,820 | $ | 665,827 | ||
Mountain | 1,017,045 | 1,122,892 | ||||
Texas | 506,763 | 508,862 | ||||
Southeast | 420,158 | 415,887 | ||||
Century Complete | 339,254 | 376,131 | ||||
Financial Services | 321,703 | 372,284 | ||||
Corporate | 475,234 | 311,884 | ||||
Total assets | $ | 3,712,977 | $ | 3,773,767 | ||
Corporate assets primarily include certain cash and cash equivalents, 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. Inventories
Inventories included the following (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Homes under construction | $ | 1,597,083 | $ | 1,188,270 | $ | 1,115,524 | $ | 1,213,919 | ||||
Land and land development | 1,449,972 | 1,214,965 | 1,559,679 | 1,554,951 | ||||||||
Capitalized interest | 60,679 | 53,379 | 65,984 | 61,775 | ||||||||
Total inventories | $ | 3,107,734 | $ | 2,456,614 | $ | 2,741,187 | $ | 2,830,645 | ||||
4. Financial Services
Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans Inc. (which we refer to as “Inspire”). Inspire is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates either as loans with servicing rights released, or with servicing rights retained, in the secondary mortgage market within a short period of time after origination, generally within 30 days. Inspire primarily finances these loans using its mortgage repurchase facilities.
Mortgage loans in process for which interest rates were locked by borrowers, or interest rate lock commitments, totaled approximately $139.8 million and $164.3 million at September 30, 2022
As of March 31, 2023 and December 31, 2021, respectively, and carried a weighted average interest rate of approximately 5.3% and 3.3%, respectively. As of September 30, 2022, and December 31, 2021, Inspire had mortgage loans held for sale with an aggregate fair value of $194.1$155.7 million and $353.1$203.6 million, respectively, and an aggregate outstanding principal balance of $199.7$153.8 million and $342.0$202.0 million, respectively. Net losses on the sale of mortgage loans were $3.6 million and $1.4 million for the three and nine months ended September 30, 2022, respectively, and net gains on the sale of mortgage loans were $21.7$1.8 million and $64.2$10.4 million for the three and nine months ended September 30, 2021, respectively,March 31, 2023 and 2022, respectively. The loss from the change in fair value for mortgage loans held for sale was nominal for the three months ended March 31, 2023 and was $9.7 million for the three months ended March 31, 2022. Mortgage loans held for sale and mortgage servicing rights are includedcarried at fair value, with gains and losses from the changes in fair value reflected in financial services revenue on theour 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 rights to service the mortgage loans, mortgage loans in process for which interest rates were committed to the borrowers (referred to as “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 interest rate lock commitments, are carried at fair value. Management believes carrying mortgage loans held for sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them. GainsNet gains and losses from the changessale of mortgage loans held for sale, which are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale, are also included in financial services revenue on our condensed consolidated statements of operations.
Mortgage loans in process for which interest rates were locked by borrowers, or interest rate lock commitments, totaled approximately $98.9 million and $68.1 million at March 31, 2023 and December 31, 2022, respectively, and carried a weighted average interest rate of approximately 5.6% and 6.1%, respectively. Interest rate risks related to these obligations are typically mitigated by the preselling of loans to investors or through our interest rate hedging program. Derivative instruments used to economically hedge our market and interest rate risk are carried at fair value. Derivative instruments typically include interest rate lock commitments and forward commitments on mortgage-backed securities. Changes in fair value of these derivatives as well as any gains or losses upon settlement are reflected in financial services revenue on theour condensed consolidated statements of operations. Losses from the change in fair value for mortgage loans held for sale were $8.1 million and $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 Note 1213 – Fair Value Disclosures for further information regarding our derivative instruments.
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets included the following (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Prepaid insurance | $ | 37,384 | $ | 37,814 | $ | 28,921 | $ | 31,716 | ||||
Lot option and escrow deposits | 61,070 | 61,649 | 42,364 | 48,354 | ||||||||
Performance deposits | 12,974 | 11,196 | 12,835 | 12,626 | ||||||||
Deferred financing costs on revolving line of credit, net | 4,246 | 5,135 | ||||||||||
Restricted cash (1) | 11,095 | 5,931 | 14,886 | 11,768 | ||||||||
Right of use assets | 15,541 | 16,939 | ||||||||||
Multi-family rental properties under construction | 73,475 | 56,615 | ||||||||||
Mortgage loans held for investment at fair value | 16,285 | 10,631 | 20,078 | 18,875 | ||||||||
Mortgage loans held for investment at amortized cost | 6,726 | 2,825 | 6,420 | 6,574 | ||||||||
Derivative assets and mortgage servicing rights | 29,731 | 19,645 | ||||||||||
Mortgage servicing rights | 23,901 | 24,164 | ||||||||||
Derivative assets | 3,082 | 1,958 | ||||||||||
Other assets and prepaid expenses | 64,327 | 28,322 | 34,543 | 37,885 | ||||||||
Total prepaid expenses and other assets | $ | 259,379 | $ | 200,087 | $ | 260,505 | $ | 250,535 | ||||
(1)Restricted cash consists of restricted cash related to land development, earnest money deposits for home sale contracts held by third parties as required by various jurisdictions, and certain pledgecompensating balances associated with our mortgage repurchase facilities.
6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities included the following (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Earnest money deposits | $ | 43,865 | $ | 56,811 | $ | 16,749 | $ | 17,903 | ||||
Warranty reserve | 15,336 | 13,343 | 12,331 | 13,136 | ||||||||
Self-insurance reserve | 13,864 | 5,103 | 19,076 | 16,998 | ||||||||
Accrued compensation costs | 72,057 | 81,604 | 33,107 | 80,415 | ||||||||
Land development and home construction accruals | 143,486 | 88,155 | 130,610 | 128,483 | ||||||||
Accrued interest | 15,114 | 9,653 | 13,753 | 10,670 | ||||||||
Lease liabilities - operating leases | 16,181 | 17,359 | ||||||||||
Income taxes payable | — | 1,684 | 677 | — | ||||||||
Derivative liabilities | — | 359 | 1,692 | 1,526 | ||||||||
Other accrued liabilities | 17,512 | 42,806 | 30,417 | 30,457 | ||||||||
Total accrued expenses and other liabilities | $ | 337,415 | $ | 316,877 | $ | 258,412 | $ | 299,588 | ||||
7. 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 a model that incorporates historical payment trends and adjust the amounts recorded, if necessary. Based on warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.1$0.5 million and $2.5$0.6 million during the three months ended September 30,March 31, 2023 and 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,March 31, 2023 and 2022 and 2021 are detailed in the table below (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||
Beginning balance | $ | 14,127 | $ | 13,862 | $ | 13,343 | $ | 13,824 | $ | 13,136 | $ | 13,343 | ||||||
Warranty expense provisions | 3,498 | 2,459 | 7,645 | 7,139 | 1,829 | 1,902 | ||||||||||||
Payments | (2,179) | (1,494) | (5,046) | (3,938) | (2,176) | (1,185) | ||||||||||||
Warranty adjustment | (110) | (2,512) | (606) | (4,710) | (458) | (557) | ||||||||||||
Ending balance | $ | 15,336 | $ | 12,315 | $ | 15,336 | $ | 12,315 | $ | 12,331 | $ | 13,503 | ||||||
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 duringDuring 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. Theseself-insurance reserve. Any adjustments are included in cost of home sales revenues on our condensed consolidated statements of operations.
Changes in our self-insurance reserve for incurred but not reported construction defect claims for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 are detailed in the table below (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||
Beginning balance | $ | 10,153 | $ | — | $ | 5,103 | $ | — | $ | 16,998 | $ | 5,103 | ||||||
Self-insurance expense provisions | 2,861 | 2,289 | 7,911 | 2,289 | 2,115 | 2,372 | ||||||||||||
Payments | — | — | — | — | (37) | — | ||||||||||||
Self-insurance adjustment | 850 | — | 850 | — | — | — | ||||||||||||
Ending balance | $ | 13,864 | $ | 2,289 | $ | 13,864 | $ | 2,289 | $ | 19,076 | $ | 7,475 | ||||||
9. Debt
Our outstanding debt obligations included the following as of September 30, 2022March 31, 2023 and December 31, 20212022 (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
3.875% senior notes, due August 2029(1) | $ | 494,691 | $ | 494,117 | $ | 495,077 | $ | 494,884 | ||||
6.750% senior notes, due May 2027(1) | 496,190 | 495,581 | 496,598 | 496,394 | ||||||||
Other financing obligations(2) | 25,667 | 9,238 | 34,940 | 28,134 | ||||||||
Notes payable | 1,016,548 | 998,936 | 1,026,615 | 1,019,412 | ||||||||
Revolving line of credit | 165,000 | — | — | — | ||||||||
Mortgage repurchase facilities | 195,047 | 331,876 | 149,784 | 197,626 | ||||||||
Total debt | $ | 1,376,595 | $ | 1,330,812 | $ | 1,176,399 | $ | 1,217,038 | ||||
(1)The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest expense over the respective terms of the senior notes.
(2)As of September 30, 2022,March 31, 2023, other financing obligations included $22.7$20.4 million related to insurance premium notes and certain secured borrowings, as well as $3.0$14.5 million outstanding under the Construction Loan Agreements.construction loan agreements. As of December 31, 2021,2022, other financing obligations included $9.2$20.7 million related to insurance premium notes and certain secured borrowings.borrowings, as well as $7.4 million outstanding under the construction loan agreements.
Construction Loan Agreements
On August 9, 2022 and March 17, 2022,2023, a wholly owned subsidiary of Century Living, LLC entered into a construction loan agreement with UMB Bank, N.A., and certain wholly owned subsidiaries of Century Living, LLC, entered intoare party to construction loan agreements entered into during 2022 with PNC Bank, National Association and U.S. Bank National Association, a national banking association, d/b/a Housing Capital Company (which along with UMB Bank, N.A., we collectively refer to as “the Lenders”lenders”), respectively. The three construction loan agreements (which we refer to as the “Construction Loan Agreements”), collectively provide that we may borrow up to $128.0$187.6 million from the Lenderslenders for purposes of construction of multi-family projects in Colorado, with advances made by the Lenderslenders upon the satisfaction of certain conditions. Borrowings under the Construction Loan Agreementsconstruction loan agreements bear interest at various rates, including a fixed rate, and floating interest rates per annum equal to the Secured Overnight Financing Rate (which we refer to as “SOFR”) 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,March 17, 2028, with certain of the construction loan agreements allowing for the option to extend the maturity dates for a period of 12 months if certain conditions
are satisfied. The Construction Loan Agreementsconstruction 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, $3.0March 31, 2023, $14.5 million was outstanding under the Construction Loan Agreements,construction loan agreements, with borrowings bearing a weighted average interest rate of 4.423%,6.778% during the three months ended March 31, 2023, and we were in compliance with all covenants thereunder.
Revolving Line of Credit
On May 21,In 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 our prior Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (which we refer to as the “Credit Facility”“revolving line of credit”) of up to $800.0 million, and unless terminated earlier, will mature on April 30, 2026. The Credit Facilityrevolving line of credit 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 Facilityrevolving line of credit by an
amount not exceeding $200$200.0 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 underOn December 21, 2022, we entered into a First Modification Agreement with Texas Capital Bank (formerly known as Texas Capital Bank, National Association), as Administrative Agent, amending the Second A&R Credit Agreement bearpursuant to which, effective January 3, 2023, all existing borrowings using an interest atrate based on a floatingLIBOR reference rate equal tohad the interest rate replaced with one based on an adjusted Eurodollar Rateterm SOFR reference rate, which equals the greater of (i) 0.50% or (ii) the one-month quotation of the secured overnight financing rate administered by the Federal Reserve Bank of New York, 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.0.10%.
As of September 30, 2022March 31, 2023 and December 31, 2021, $165.0 million and2022, no amounts were outstanding under the Credit Facility,revolving line of credit, respectively, and we were in compliance with all covenants under the Second A&R Credit Agreement.
Mortgage Repurchase Facilities – Financial Services
Inspire is a party to mortgage warehouse facilities with Comerica Bank and J.P. Morgan, and formerly Wells Fargo, (since the agreement with Wells Fargo was terminated during the three months ended March 31, 2023) (which facilities we refer to as the “Repurchase Facilities”“repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to $275.0an aggregate of $200.0 million as of September 30, 2022,March 31, 2023, secured by the mortgage loans financed thereunder. The Repurchase Facilitiesrepurchase facilities have varying short term maturity dates through August 15,December 21, 2023 and bear a weighted average interest rate of 4.208%.6.38% during the three months ended March 31, 2023.
Amounts outstanding under the Repurchase Facilitiesrepurchase 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,March 31, 2023 and December 31, 2021,2022, we had $195.0$149.8 million and $331.9$197.6 million outstanding under the Repurchase Facilities,repurchase facilities, respectively, 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, which are included in financial services costs on our condensed consolidated statements of operations. 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.
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,March 31, 2023 and 2022, and 2021, we capitalized all interest costs incurred on these facilities during these periods.
Our interest costs were as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||
Interest capitalized beginning of period | $ | 57,124 | $ | 54,161 | $ | 53,379 | $ | 60,838 | 61,775 | 53,379 | ||||||||
Interest capitalized during period | 17,281 | 15,204 | 46,645 | 45,310 | 14,016 | 14,019 | ||||||||||||
Less: capitalized interest in cost of sales | (13,726) | (14,636) | (39,345) | (51,419) | (9,807) | (12,146) | ||||||||||||
Interest capitalized end of period | $ | 60,679 | $ | 54,729 | $ | 60,679 | $ | 54,729 | 65,984 | 55,252 | ||||||||
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 20222023 estimated annual effective tax rate, before discrete items, of 23.6%25.0% is driven by our blended federal and state statutory rate of 24.8%24.6%, and 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 decreaseincrease of 1.2%0.4%.
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 credit 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 was benefited by a $13.6 million benefit as a result of the retroactive extension of the energy efficient home credit.
For the ninethree months ended September 30, 2022,March 31, 2023, our estimated annual rate of 23.6%25.0% was impactedbenefitted by discrete items which had a net impact of decreasing our rate by 1.2%0.7%, including federal energy home tax credits claimed and the impact of excess tax benefits for vested stock-based compensation.
Our estimated annual rate for the three months ended March 31, 2023 of 25.0% increased by 260 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4%. The increase in our estimated rate is a result of the enactment of the Inflation Reduction Act of 2022 during the third quarter of 2022, which modified the energy efficient home credit beginning with homes closed on or after January 1, 2023 and provided for more stringent energy standards than previous periods.
For the three months ended September 30,March 31, 2023 and 2022, and 2021, we recorded income tax expense of $27.6$10.7 million and $31.8$46.3 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
Fair value 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 measurements on a non-recurring basis for inventories and intangible assets when events and circumstances indicate that the carrying value is not recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities 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 associated with interest rate lock commitments and investor commitments on loans and derivative liabilities are associated with forward commitments and investor commitments on loans.commitments. 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, 2022March 31, 2023 and December 31, 2021,2022, respectively (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||||||||||
Balance Sheet Classification | Hierarchy | 2022 | 2021 | Balance Sheet Classification | Hierarchy | 2023 | 2022 | |||||||||||||
Mortgage loans held for sale | Mortgage loans held for sale | Level 2 | $ | 194,123 | $ | 353,063 | Mortgage loans held for sale | Level 2 | $ | 155,732 | $ | 203,558 | ||||||||
Mortgage loans held for investment at fair value (1) | Prepaid expenses and other assets | Level 3 | $ | 16,285 | $ | 10,631 | Prepaid expenses and other assets | Level 3 | $ | 20,078 | $ | 18,875 | ||||||||
Derivative assets | Prepaid expenses and other assets | Level 2 | $ | 7,937 | $ | 5,944 | Prepaid expenses and other assets | Level 2 | $ | 3,082 | $ | 1,958 | ||||||||
Mortgage servicing rights (2) | Prepaid expenses and other assets | Level 3 | $ | 21,794 | $ | 13,701 | Prepaid expenses and other assets | Level 3 | $ | 23,901 | $ | 24,164 | ||||||||
Derivative liabilities | Accrued expenses and other liabilities | Level 2 | $ | — | $ | 359 | Accrued expenses and other liabilities | Level 2 | $ | 1,692 | $ | 1,526 | ||||||||
(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%8.1%, 10.09.0%, and $0.086$0.073 per year per loan, respectively, as of September 30, 2022,March 31, 2023, and 8.5%7.6%, 9.9%9.0%, and $0.085$0.072 per year per loan, respectively, as of December 31, 2021.2022. 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 represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements, with gains and losses from the changes in fair value reflected in financial services revenue on theour condensed consolidated statements of operations (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
Mortgage servicing rights | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | ||||||||||
Beginning of period | $ | 20,196 | $ | 10,298 | $ | 13,701 | $ | 4,115 | $ | 24,164 | $ | 13,701 | ||||
Originations | 1,232 | 1,604 | 6,605 | 7,986 | 1,045 | 3,406 | ||||||||||
Settlements | (166) | (258) | (701) | (527) | (151) | (305) | ||||||||||
Changes in fair value | 532 | 27 | 2,189 | 97 | (1,157) | 1,248 | ||||||||||
End of period | $ | 21,794 | $ | 11,671 | $ | 21,794 | $ | 11,671 | $ | 23,901 | $ | 18,050 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||
Mortgage loans held-for-investment at fair value | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | ||||||||||
Beginning of period | $ | 14,509 | $ | 10,823 | $ | 10,631 | $ | 8,727 | $ | 18,875 | $ | 10,631 | ||||
Transfers from loans held for sale | 1,904 | 973 | 7,046 | 4,354 | 1,434 | 3,926 | ||||||||||
Settlements | — | (129) | (1,121) | (1,309) | — | (529) | ||||||||||
Reduction in unpaid principal balance | (89) | (54) | (213) | (159) | (104) | (54) | ||||||||||
Changes in fair value | (39) | — | (58) | — | (127) | (19) | ||||||||||
End of period | $ | 16,285 | $ | 11,613 | $ | 16,285 | $ | 11,613 | $ | 20,078 | $ | 13,955 | ||||
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, 2022March 31, 2023 and December 31, 2021,2022, respectively (in thousands).
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
Hierarchy | Carrying | Fair Value | Carrying | Fair Value | Hierarchy | Carrying | Fair Value | Carrying | Fair Value | |||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 98,203 | $ | 98,203 | $ | 316,310 | $ | 316,310 | Level 1 | $ | 405,722 | $ | 405,722 | $ | 296,724 | $ | 296,724 | ||||||||||
3.875% senior notes (1)(2) | Level 2 | $ | 494,691 | $ | 380,000 | $ | 494,117 | $ | 504,375 | Level 2 | $ | 495,077 | $ | 425,000 | $ | 494,884 | $ | 395,000 | ||||||||||
6.750% senior notes (1)(2) | Level 2 | $ | 496,190 | $ | 466,250 | $ | 495,581 | $ | 526,875 | Level 2 | $ | 496,598 | $ | 492,500 | $ | 496,394 | $ | 477,500 | ||||||||||
Revolving line of credit(3) | Level 2 | $ | 165,000 | $ | 165,000 | $ | — | $ | — | Level 2 | $ | — | $ | — | $ | — | $ | — | ||||||||||
Other financing obligations(3)(4) | Level 3 | $ | 25,667 | $ | 25,667 | $ | 9,238 | $ | 9,238 | Level 3 | $ | 34,940 | $ | 34,940 | $ | 28,134 | $ | 28,134 | ||||||||||
Mortgage repurchase facilities(3) | Level 2 | $ | 195,047 | $ | 195,047 | $ | 331,876 | $ | 331,876 | Level 2 | $ | 149,784 | $ | 149,784 | $ | 197,626 | $ | 197,626 | ||||||||||
(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,March 31, 2023, these amounts totaled $5.3$4.9 million and $3.8$3.4 million for the 3.875% senior notes and 6.750% senior notes, respectively. As of December 31, 2021,2022, these amounts totaled $5.9$5.1 million and $4.4$3.6 million for the 3.875% senior notes and 6.750% senior notes, respectively.
(3)Carrying amount approximates fair value due to short-term nature and interest rate terms.
(4)Other financing obligations included $22.7$20.4 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40% to 3.99%6.40%, and $3.0$14.5 million related to outstanding borrowings on the Construction Loan Agreementsconstruction loan agreements that bore a weighted average interest rate of 4.423%6.778% during the period ended September 30, 2022.March 31, 2023. Other financing obligations included $9.2$20.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.99%2.40% to 3.24%5.84%, and $7.4 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 5.634% during the period ended December 31, 2021.2022.
Non-financial assets and liabilities include items such as inventory and property and equipment that are measured at fair value when acquired and as a result of impairments, if deemed necessary. No impairment charges were recorded in the three and nine months ended September 30,March 31, 2023 and 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 ninethree months ended September 30,March 31, 2023 and 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 $62.61 and $64.37 per share, respectively, that primarily vest over a three year period.
During the three months ended March 31, 2023, we did not grant performance share units (which we refer to as “PSUs”). During the three months ended March 31, 2022, we granted 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$55.93 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 ninethree months ended September 30,March 31, 2023 and 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 0.90.6 million shares will vest from 20222024 to 20242025 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 | |||
Unvested units |
| ||
Unrecognized compensation cost | $ |
| |
Weighted-average |
| ||
During the three months ended September 30,March 31, 2023 and 2022, and 2021, we recognized stock-based compensation expense of $5.2$5.4 million and $3.5$4.1 million, respectively.During the nine months ended September 30, 2022 and 2021, we recognized stock-based compensation expense of $15.0 million and $10.8 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations.
14. Stockholders’ Equity
OurThe Company’s 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, 2022March 31, 2023 and December 31, 2021,2022, there were 31.832.0 million and 33.831.8 million shares of common stock issued and outstanding, respectively, and no shares of preferred stock outstanding.
On May 4, 2022, the 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”). Under the 2022 Incentive Plan, 3.1 million shares of common stock are available for issuance to eligible participants, plus 51.2 thousand shares of our common stock that remained available for issuance under the 2017 Incentive Plan 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 ninethree months ended September 30,March 31, 2023 and 2022, and 2021, we issued 0.50.4 million and 0.70.5 million shares of common stock, respectively, related to the vesting and settlement of RSUs PSUs, and stock awards.PSUs. As of September 30, 2022,March 31, 2023, approximately 3.12.9 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 during the ninethree months ended September 30,March 31, 2023 and 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 | ||||
Three Months ended March 31, 2023 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
February 8, 2023 | March 1, 2023 | March 15, 2023 | $ | $0.23 | $ | 7,365 | ||||
Three Months ended March 31, 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 | ||||
Under the 2022 Incentive Plan and the previous 2017 Incentive Plan, at the discretion of 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 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 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
We are party to a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Wells Fargo Securities, LLC, 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.agreement. We did not sell or issue any shares of our common stock during the three months ended March 31, 2023 and 2022, and as of March 31, 2023, all $100.0 million remained available for sale.
On November 6, 2018, weWe authorized a stock repurchase program in 2018, under which we may repurchase up to 4.5 million shares of our outstanding common stock. During the three and nine months ended September 30,March 31, 2023, we did not repurchase any shares of common stock. During the three months ended March 31, 2022, an aggregate of 0.5 million and 2.31.0 million shares respectively,of our common stock were repurchased for a total purchase price of approximately $22.3$62.4 million and $120.6 million, respectively, andat 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. $61.52 per share. The maximum number of shares available to be repurchased under the stock repurchase program as of September 30, 2022March 31, 2023 was 1,508,169 shares.
During the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, shares of common stock at a total cost of $12.7$9.9 million and $13.7$12.1 million, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock-based compensation awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased and retired by us but are not part of our publicly announced share repurchase programs.
15. Earnings Per Share
We use the treasury stock method to calculate earnings per share as our currently 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,March 31, 2023 and 2022 and 2021 (in thousands, except share and per share information):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||
Numerator | ||||||||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | ||||||
Denominator | ||||||||||||||||||
Weighted average common shares outstanding - basic | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | 31,914,414 | 33,530,610 | ||||||||||||
Dilutive effect of restricted stock units | 373,746 | 710,104 | 391,117 | 731,632 | ||||||||||||||
Dilutive effect of stock-based compensation awards | 202,668 | 411,624 | ||||||||||||||||
Weighted average common shares outstanding - diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | 32,117,082 | 33,942,234 | ||||||||||||
Earnings per share: | ||||||||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | $ | 1.04 | $ | 4.25 | ||||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | $ | 1.04 | $ | 4.20 | ||||||
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 excluded 0.5 million and 0.20.6 million common stock unit equivalents from diluted earnings per share during each of the three months ended September 30,March 31, 2023 and 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, 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, 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, 2022March 31, 2023 and December 31, 2021,2022, we had $565.8$570.8 million and $492.5$574.8 million, respectively, in letters of credit and performance and other bonds issued and outstanding.
Legal Proceedings
We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction 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 on our condensed consolidated statements of operations for our estimated loss.
Under 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 flows.
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,” “outlook,” the negative of such terms and other comparable 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 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 the resulting impact on the accessibility of mortgage loans to homebuyers, persistent 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;markets and the impact on such markets and our ability to access them in the event of a threatened or actual U.S. sovereign default;
the impact of the COVID-19 pandemic and measures taken in response to the COVID-19 pandemic on our future 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 operateoperate;
the 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;
and
taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance; and
changes in United States generally accepted accounting principles (which we refer to as “GAAP”).guidance.
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 I, Item 1A. Risk Factors” in our Annual Report on Form 10-K, and other risks and uncertainties detailed in
this report, including “Part II, Item 1A. Risk Factors”,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,” “Century” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.
The following discussion and analysis of our 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, 2021.2022. 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.
OverviewBusiness
Century is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 1718 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 five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, primarily to our 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. During the quarter ended March 31, 2023, our Century Living operations were engaged in construction on three multi-family projects in Colorado, with the intent to dispose of properties shortly after achieving stabilized rental operations. which commenced in 2022. 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 7,6911,912 homes delivered during the first nine monthsquarter of 2022,2023, approximately 76%89% of our deliveries were made to entry-level homebuyers that were below the Federal Housing Administration-insured mortgage limits and approximately 96%98% of homes delivered were built as move-in ready homes.
In recent months,Overview
Despite experiencing challenging market conditions as compared to the prior year period, we generated solid results during the first quarter of 2023 and believe that we are well positioned to operate in this more normalized higher interest rate environment. The Federal Reserve’s ongoing raising of the federal funds interest rate increases to mitigate inflation has now considerably impacted the U.S. housing market. Beginning in the second quarter of 2022 and continuing through the thirdfirst quarter of 2022,2023, we experienced a moderation ofdecline in sales pace across our markets, resulting in a third quarter decrease of 51.9%31.3% in our net new home contracts for the three months ended March 31, 2023 as compared to the prior year period. In addition, we experienced an increasesame period 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.2022. This decrease in our sales pace was consistent with third quarter 2022 trends seen in the overall housing market, as increases inincreased mortgage 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, thisEven with these challenges, we are encouraged by trends in demand, as during the first quarter of 2023, we experienced cancellation rates of a combined 18%, with a 16% cancellation rate for Century Communities and a 20% cancellation rate for Century Complete, which represents a significant reduction from cancellation rates we experienced in the latter half of 2022.
We continue to focus our strategy on more near-term completions, as economic uncertainty has led a majority of our recent homebuyers to seek homes with near-term completion schedules, allowing them to lock in interest rates closer to a home closing. Further, in response
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 interestsignificant mortgage rate volatilityincreases experienced in the latter half of 2022, and to maintain sales momentum, we have increased incentive offerings across our communities, including discounts on optionoptions and upgrades and financing incentives, which we expect will resultresulted in downward pressure to our homebuilding gross margin during the first quarter of 2023. We expect we will continue to experience downward pressure to our homebuilding gross margins during the first half of 2023.2023 compared to the prior year period, impacted by elevated construction costs during the first and second quarters of 2022 when the homes were started, as well as incentives. We have also taken steps to reduce our fixed costs in light of the overall market, including a reduction in staff during the first quarter of 2023.
During the first quarter of 2023, our direct construction costs on our starts decreased demand for our homesby approximately 11% as compared to prior periods.the high point of our direct construction costs during the second quarter of 2022. Further, the severity of the labor and raw material shortages and municipal and utility delays have continued to moderate for completed homes that were started in the second half of 2022, and we expect cycle times to continue to decline in future quarters.
We anticipate the homebuilding markets in each of our operating 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; interest rates; availability and cost of mortgage loans to homebuyers; financial markets, credit and mortgage markets; 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.
Despite the future macro-economic uncertainty, especially in relation to the recent higher interest rate environment, we believe 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 affordable housing. We believe our operations are well-positioned to withstand volatility in future market conditions as a result 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 inventories in relation to anticipated future demand, as well as prudent leverage, and, as a result, we believe we are well positioned to continue to execute on our strategy in order to optimize stockholder returns.
Results of Operations
During the three and nine months ended September 30, 2022,March 31, 2023, we generated $172.1 million and $574.5$44.0 million in income before income tax expense, respectively,as compared to $188.8 million in the prior year period, and net income of $144.5$33.3 million, or $4.44$1.04 per diluted share, and $445.6 million, or $13.41 per diluted share, respectively, representing substantial increases as compared to $142.5 million, or $4.20 per share, in the respective prior year periods, and resulting in a 33.2% return on equity on an annualized basis for the trailing twelve months. period. During the three months ended March 31, 2023, we generated total revenues of $753.0 million and home sales revenues of $735.6 million, as compared to $1.0 billion and $988.4 million, respectively, in the prior year period. During the three months ended March 31, 2023, we delivered 1,912 homes with an average sales price of $384.7 thousand, as compared to 2,348 homes delivered with an average sales price of $421.0 in the prior year period.
We ended the first ninequarter of 2023 with no amounts outstanding under our revolving line of credit, $405.7 million of cash and cash equivalents, $12.7 million of cash held in escrow, a homebuilding debt to capital ratio of 31.8%, and a net homebuilding debt to net capital ratio of 21.5%. During the three months of 2022,ended March 31, 2023, we paid quarterly cash dividends to our stockholders of $0.23 per share, a 15% increase from the previous quarterly dividend of $0.20 per share, and 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, representing increases of 20.7% and 11.6% over the 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, 2022, we had a backlog of 3,455 homes, a 29.0% decrease as compared to September 30, 2021, representing approximately $1.4 billion in sales value, a 28.3% decrease as compared to September 30, 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,March 31, 2023, we generated financial services revenue of $23.3$15.9 million, and $72.4 million, respectively, representing decreasesa decrease of 20.0% and 21.8% over39.7% as compared to the respective prior year period, driven by a reduced number of mortgages originated, as well as reduced 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, ourOur Century Living operations commencedare engaged in construction on twothree multi-family projects in Colorado. First, a 425-unit multi-family project wasColorado, which commenced in Lone Tree, Colorado,2022, comprising over 900 units, 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 leasingbeginning in the second half of 2023.2023 and into 2024.
The following table summarizes our results of operations for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.
(in thousands, except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | Amount | % | ||||||||||||||||||||||||||
Consolidated Statements of Operations: | |||||||||||||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||||
Home sales revenues | $ | 1,118,588 | $ | 917,337 | $ | 3,241,537 | $ | 2,881,404 | $ | 735,600 | $ | 988,415 | $ | (252,815) | (25.6) | % | |||||||||||||||||
Land sales and other revenues | 2,432 | 11,594 | 12,872 | 35,522 | 1,535 | 1,630 | (95) | (5.8) | % | ||||||||||||||||||||||||
Total homebuilding revenues | 1,121,020 | 928,931 | 3,254,409 | 2,916,926 | 737,135 | 990,045 | (252,910) | (25.5) | % | ||||||||||||||||||||||||
Financial services revenues | 23,271 | 29,101 | 72,373 | 92,586 | 15,855 | 26,305 | (10,450) | (39.7) | % | ||||||||||||||||||||||||
Total revenues | 1,144,291 | 958,032 | 3,326,782 | 3,009,512 | 752,990 | 1,016,350 | (263,360) | (25.9) | % | ||||||||||||||||||||||||
Homebuilding cost of revenues | |||||||||||||||||||||||||||||||||
Cost of home sales revenues | (841,665) | (682,012) | (2,365,633) | (2,203,187) | (601,385) | (709,073) | 107,688 | (15.2) | % | ||||||||||||||||||||||||
Cost of land sales and other revenues | (292) | (6,977) | (9,151) | (23,996) | — | (846) | 846 | (100.0) | % | ||||||||||||||||||||||||
(841,957) | (688,989) | (2,374,784) | (2,227,183) | (601,385) | (709,919) | 108,534 | (15.3) | % | |||||||||||||||||||||||||
Financial services costs | (13,922) | (17,666) | (43,262) | (54,135) | (10,781) | (15,154) | 4,373 | (28.9) | % | ||||||||||||||||||||||||
Selling, general, and administrative | (110,687) | (90,154) | (321,484) | (281,961) | (98,313) | (101,639) | 3,326 | (3.3) | % | ||||||||||||||||||||||||
Loss on debt extinguishment | — | (14,458) | — | (14,458) | |||||||||||||||||||||||||||||
Inventory impairment and other | — | — | — | (41) | |||||||||||||||||||||||||||||
Other income (expense) | (5,651) | (1,004) | (12,754) | (2,790) | 1,498 | (862) | 2,360 | (273.8) | % | ||||||||||||||||||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | 44,009 | 188,776 | (144,767) | (76.7) | % | ||||||||||||||||||||||||
Income tax expense | (27,601) | (31,784) | (128,861) | (95,406) | (10,698) | (46,280) | 35,582 | (76.9) | % | ||||||||||||||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | $ | (109,185) | (76.6) | % | |||||||||||||||||
Earnings per share: | |||||||||||||||||||||||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | $ | 1.04 | $ | 4.25 | $ | (3.21) | (75.5) | % | |||||||||||||||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | $ | 1.04 | $ | 4.20 | $ | (3.16) | (75.2) | % | |||||||||||||||||
Adjusted diluted earnings per share(1) | $ | 4.44 | $ | 3.63 | $ | 13.41 | $ | 10.02 | $ | 1.04 | $ | 4.20 | $ | (3.16) | (75.2) | % | |||||||||||||||||
Other Operating Information (dollars in thousands): | |||||||||||||||||||||||||||||||||
Number of homes delivered | 2,630 | 2,322 | 7,691 | 7,890 | 1,912 | 2,348 | (436) | (18.6) | % | ||||||||||||||||||||||||
Average sales price of homes delivered | $ | 425.3 | $ | 395.1 | $ | 421.5 | $ | 365.2 | $ | 384.7 | $ | 421.0 | $ | (36.3) | (8.6) | % | |||||||||||||||||
Homebuilding gross margin percentage(2) | 24.8 | % | 25.7 | % | 27.0 | % | 23.5 | % | 18.2 | % | 28.3 | % | (10.1) | % | (35.7) | % | |||||||||||||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment and other (1) | 26.0 | % | 27.2 | % | 28.2 | % | 25.3 | % | |||||||||||||||||||||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment (1) | 19.6 | % | 29.5 | % | (9.9) | % | (33.6) | % | |||||||||||||||||||||||||
Backlog at end of period, number of homes | 3,455 | 4,866 | 3,455 | 4,866 | 1,920 | 5,247 | (3,327) | (63.4) | % | ||||||||||||||||||||||||
Backlog at end of period, aggregate sales value | $ | 1,379,380 | $ | 1,922,784 | $ | 1,379,380 | $ | 1,922,784 | $ | 713,612 | $ | 2,170,865 | $ | (1,457,253) | (67.1) | % | |||||||||||||||||
Average sales price of homes in backlog | $ | 399.2 | $ | 395.1 | $ | 399.2 | $ | 395.1 | $ | 371.7 | $ | 413.7 | $ | (42.0) | (10.2) | % | |||||||||||||||||
Net new home contracts | 1,318 | 2,742 | 6,495 | 9,317 | 2,022 | 2,944 | (922) | (31.3) | % | ||||||||||||||||||||||||
Selling communities at period end | 217 | 186 | 217 | 186 | 234 | 197 | 37 | 18.8 | % | ||||||||||||||||||||||||
Average selling communities | 213 | 185 | 204 | 186 | 223 | 198 | 25 | 12.6 | % | ||||||||||||||||||||||||
Total owned and controlled lot inventory | 62,778 | 75,537 | 62,778 | 75,537 | 51,614 | 85,577 | (33,963) | (39.7) | % | ||||||||||||||||||||||||
Adjusted EBITDA(1) | $ | 188,653 | $ | 177,376 | $ | 622,036 | $ | 502,755 | $ | 54,744 | $ | 203,663 | $ | (148,919) | (73.1) | % | |||||||||||||||||
Adjusted income before income tax expense(1) | $ | 172,074 | $ | 160,219 | $ | 574,498 | $ | 443,443 | $ | 44,009 | $ | 188,776 | $ | (144,767) | (76.7) | % | |||||||||||||||||
Adjusted net income(1) | $ | 144,473 | $ | 125,282 | $ | 445,637 | $ | 344,812 | $ | 33,311 | $ | 142,496 | $ | (109,185) | (76.6) | % | |||||||||||||||||
Net homebuilding debt to net capital (1) | 32.5 | % | 23.1 | % | 32.5 | % | 23.1 | % | 21.5 | % | 29.3 | % | (7.8) | % | (26.6) | % | |||||||||||||||||
(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.
(2) Homebuilding gross margin percentage for the nine months ended September 30, 2021 includes inventoryis inclusive of impairment which is included within inventorycharges, if applicable. No impairment and other on our condensed consolidated financial statements. No inventory impairmentscharges were recognizedrecorded for the three and nine months ended September 30, 2022March 31, 2023 and for the three months ended September 30, 2021.2022.
Results of Operations by Segment
Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment. Accordingly, we have presented segment information under this new basis for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments for the three months ended March 31, 2022.
(dollars in thousands)
New Homes Delivered | Average Sales Price of Homes Delivered | Home Sales Revenues | Income before Income Tax Expense | 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, | Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
West | 378 | 409 | $ | 674.3 | $ | 655.8 | $ | 254,885 | $ | 268,219 | $ | 51,036 | $ | 60,915 | 203 | 396 | $ | 634.9 | $ | 663.5 | $ | 128,894 | $ | 262,732 | $ | 7,973 | $ | 71,242 | ||||||||||||||||||||
Mountain | 494 | 509 | 582.4 | 500.6 | 287,723 | 254,794 | 51,058 | 50,561 | 455 | 514 | 539.8 | 546.0 | 245,594 | 280,655 | 27,808 | 56,999 | ||||||||||||||||||||||||||||||||
Texas | 314 | 274 | 368.5 | 313.1 | 115,699 | 85,778 | 17,084 | 11,884 | 327 | 423 | 273.5 | 326.8 | 89,434 | 138,237 | 3,673 | 22,837 | ||||||||||||||||||||||||||||||||
Southeast | 423 | 325 | 464.0 | 403.8 | 196,286 | 131,228 | 38,400 | 20,004 | 198 | 366 | 439.0 | 408.4 | 86,929 | 149,477 | 11,966 | 30,865 | ||||||||||||||||||||||||||||||||
Century Complete | 1,021 | 805 | 258.6 | 220.3 | 263,995 | 177,318 | 36,939 | 24,838 | 729 | 649 | 253.4 | 242.4 | 184,749 | 157,314 | 13,950 | 22,425 | ||||||||||||||||||||||||||||||||
Financial Services | — | — | — | — | — | — | 9,349 | 11,435 | — | — | — | — | — | — | 5,074 | 11,151 | ||||||||||||||||||||||||||||||||
Corporate | — | — | — | — | — | — | (31,792) | (33,876) | — | — | — | — | — | — | (26,435) | (26,743) | ||||||||||||||||||||||||||||||||
Total | 2,630 | 2,322 | $ | 425.3 | $ | 395.1 | $ | 1,118,588 | $ | 917,337 | $ | 172,074 | $ | 145,761 | 1,912 | 2,348 | $ | 384.7 | $ | 421.0 | $ | 735,600 | $ | 988,415 | $ | 44,009 | $ | 188,776 | ||||||||||||||||||||
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,March 31, 2023, our West segment generated income before income tax expense of $51.0$8.0 million, a 16.2%an 88.8% decrease over the respective prior year period. This decreaseperiod, which was primarily driven by a decrease in home sales revenue of $13.3$133.8 million primarily due toand a decrease of 7.6% in the number of homes delivered, partially offset by an increase of 2.8% in the average sales price per home. During the nine months ended September 30, 2022, our West segment generated income before income tax expense of $200.2 million, a 54.9% increase over the respective prior year period. This increase was primarily driven by an increase in home sales revenue of $119.9 million and an increase of 5982,093 basis points in the percentage of income before income tax expense to home sales revenues, asrevenues. The revenue decrease during the three months ended March 31, 2023 was primarily driven by a 48.7% decrease in the number of homes delivered, and a 4.3% decrease in the average sales price per home. The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 30.2% decrease in monthly absorption rate. The average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities. The decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of (1) increaseddecreased revenue on a partially fixed cost base and (2) increaseddecreased gross margins on home sales. The revenue increase during the nine months ended September 30, 2022 was primarily driven by an increase of 7.8% in the number of homes delivered and an increase of 8.8% in the average sales price per home. For both the three- and nine- month comparisons, the changes 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.
Mountain
During the three and nine months ended September 30, 2022,March 31, 2023, our Mountain segment generated income before income tax expense of $51.1$27.8 million, a 51.2% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $35.1 million and $159.6 million, respectively, remaining relatively flat overa decrease of 899 basis points in the respective prior year period. Homepercentage of income before income tax expense to home sales revenues. The revenue increaseddecrease during the three and nine months ended September 30, 2022March 31, 2023 was primarily driven by $32.9 millionan 11.5% decrease in the number of homes delivered and $9.7 million, respectively, primarily generated by increases of 16.3% and 24.5%a 1.1% decrease 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 decreaseshome. The decrease in the number of homes delivered werewas primarily driven by timingfewer homes available for delivery given a decrease in home starts during the latter half of new community openings,2022, and thea 50.0% decrease in monthly absorption rate. The average sales price increases weredecrease was driven by the mix of deliveries and pricing to market within individual communitiescommunities. The decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.
Texas
During the three months ended March 31, 2023, our Texas segment generated income before income tax expense of $3.7 million, an 83.9% decrease over the prior year period, which was primarily driven by a decrease in home sales revenue of $48.8 million and a decrease of 1,241 basis points in the percentage of income before income tax expense to home sales revenues. The revenue decrease during the three months ended March 31, 2023 was primarily driven by a 22.7% decrease in the number of homes delivered and a 16.3% decrease in the average sales price appreciation over each respective period.per home. The decrease in the number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 37.5% decrease in monthly absorption rate. The average sales price decrease was driven by the mix of deliveries and pricing to market within individual communities. The decrease in the percentage of income before income tax expense to home sales revenue was primarily a result of (1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.
TexasSoutheast
During the three and nine months ended September 30, 2022,March 31, 2023, our TexasSoutheast segment generated income before income tax expense of $17.1$12.0 million, and $63.0 million, respectively, a 43.8% and 59.2% increase, respectively,61.2% decrease over the respective prior year period. During the three months ended September 30, 2022, the increaseperiod, which was primarily driven by an increasea decrease in home sales revenue of $30.0$62.5 million and a decrease of 688 basis points in the percentage of income before income tax expense to home sales revenues. The revenue decrease was primarily generateddriven by an increase of 14.6%a 45.9% decrease in the number of homes delivered, and anpartially offset by a 7.5% increase of 17.7% in the average sales price per home. DuringThe decrease in the nine months ended September 30,number of homes delivered was primarily driven by fewer homes available for delivery given a decrease in home starts during the latter half of 2022, and a 53.2% decrease in monthly absorption rate. The average sales price increase was driven by the increasemix of deliveries within individual communities. The decrease in the percentage of income before income tax expense was driven by an increase into home sales revenue was primarily a result of $58.3(1) decreased revenue on a partially fixed cost base and (2) decreased gross margins on home sales.
Century Complete
During the three months ended March 31, 2023, our Century Complete segment generated income before income tax expense of $14.0 million, and an increasea 37.8% decrease over the prior year period, which was primarily driven by a decrease of 437670 basis points in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenue on aand 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 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 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.
Southeast
During the three and nine months ended September 30, 2022, our Southeast segment generated income before income tax expense of $38.4 million and $108.1 million, respectively, a 92.0% and 55.4% increase, respectively, over the respective prior year period. During the three months ended September 30, 2022, the increase was driven by an increase in home sales revenue of $65.1 million and an increase of 432 basis points$27.4 million. The decrease in the percentage of income before income tax expense to home sales revenues, asrevenue was primarily a result of (1) increased revenue on a partially fixed cost base and (2) increaseddecreased 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 ana 12.3% 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.
Century Complete
During the three and nine months ended September 30, 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,a 4.5% increase in the average sales price per home. For both the three- and nine- month comparisons, the increasesThe increase in the number of homes delivered werewas driven by an increase in selling communities as compared to the timingprior year period, and a larger number of new community openings, andhomes under construction at the beginning of the period as compared to the prior year period. The average sales price increases wereincrease was driven by the mix of deliveries within individual communities and home price appreciation over each respective period.communities.
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$5.1 million for the three months ended September 30, 2022,March 31, 2023, 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%54.5% decrease over the prior year period. This decrease was primarily the result of a $20.2$10.5 million decrease in financial services revenue during the ninethree months ended September 30, 2022March 31, 2023 compared to the prior year period, due toprimarily driven by (1) a 30.1%34.9% decrease to 4,360 in the number of mortgages originated during the ninethree months ended September 30, 2022, due in part to a decrease in originations related to refinancing,March 31, 2023, 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, | Three Months Ended March 31, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | ||||||||||||||||||
Total originations: | |||||||||||||||||||||||
Number of loans | 1,375 | 1,799 | 4,360 | 6,238 | 989 | 1,520 | |||||||||||||||||
Principal | $ | 496,071 | $ | 600,238 | $ | 1,576,773 | $ | 1,971,472 | $ | 343,081 | $ | 552,056 | |||||||||||
Capture rate of Century homebuyers | 66 | % | 71 | % | 71 | % | 74 | % | 66 | % | 77 | % | |||||||||||
Century Communities | 70 | % | 78 | % | 76 | % | 80 | % | 72 | % | 81 | % | |||||||||||
Century Complete | 57 | % | 58 | % | 59 | % | 61 | % | 56 | % | 64 | % | |||||||||||
Average FICO score | 728 | 736 | 731 | 737 | 724 | 732 | |||||||||||||||||
Century Communities | 736 | 748 | 739 | 741 | 729 | 739 | |||||||||||||||||
Century Complete | 709 | 713 | 711 | 711 | 713 | 708 | |||||||||||||||||
Loans sold to third parties: | |||||||||||||||||||||||
Number of loans sold | 1,383 | 1,867 | 4,759 | 6,476 | 1,139 | 1,959 | |||||||||||||||||
Principal | $ | 507,784 | $ | 608,504 | $ | 1,707,851 | $ | 2,016,120 | $ | 389,810 | $ | 692,064 | |||||||||||
Corporate
During the three and nine months ended September 30, 2022,March 31, 2023, our Corporate segment generated lossesa loss of $31.8$26.4 million, and $87.2remaining consistent with a loss of $26.7 million respectively, as compared to losses of $33.9 million and $75.9 million, respectively, for the same respective period in 2021. The decrease in net 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, 2021 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 higher compensation costs and other corporate costs to support our homebuilding operations, partially offset by the loss on debt extinguishment during the nine months ended September 30, 2021.
Homebuilding Gross Margin
(dollars in thousands)
Homebuilding gross margin represents home sales revenues less cost of home sales 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 months 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, 2022 to 27.0% as compared to 23.5% for the same period in 2021. This increase was driven by (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 in cost of home sales revenue over the prior period.
2022.
Homebuilding Gross Margin
(dollars in thousands)
Homebuilding gross margin represents home sales revenues less cost of home sales revenues and inventory impairment. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased to 18.2% for the three months ended March 31, 2023, as compared to 28.3% for the three months ended March 31, 2022. This decrease was driven by deliveries in the first quarter of 2023 that carried both higher incentives and elevated construction costs due to homes commencing construction during high costs periods in 2022, both of which we expect to continue to adversely impact our gross margins through the first half of 2023.
In the following table, we calculate our homebuilding gross margin, as adjusted to exclude inventory impairment, and otherif applicable, 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 | % | ||||
Three Months Ended March 31, | ||||||||||||
2023 | % | 2022 | % | |||||||||
Home sales revenues | $ | 735,600 | 100.0 | % | $ | 988,415 | 100.0 | % | ||||
Cost of home sales revenues | (601,385) | (81.8) | % | (709,073) | (71.7) | % | ||||||
Inventory impairment | — | — | % | — | — | % | ||||||
Homebuilding gross margin | 134,215 | 18.2 | % | 279,342 | 28.3 | % | ||||||
Add: Inventory impairment | — | — | % | — | — | % | ||||||
Add: Interest in cost of home sales revenues | 9,807 | 1.3 | % | 12,146 | 1.2 | % | ||||||
Adjusted homebuilding gross margin excluding interest and inventory impairment (1) | $ | 144,022 | 19.6 | % | $ | 291,488 | 29.5 | % | ||||
(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 other information under “—Non-GAAP“Non-GAAP Financial Measures.” An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
For the three and nine months ended September 30, 2022,March 31, 2023, our adjusted homebuilding gross margin percentage excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 26.0% and 28.2%,19.6% as compared to 27.2% and 25.3%, respectively,29.5% for the same periodsperiod in 2021.2022. We believe the above information is meaningful as it isolates the impact that indebtedness, inventory impairment indebtedness(if applicable), 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
(dollars in thousands) | ||||||||||||||||||||||||||||||
Three Months Ended September 30, | Increase | Three Months Ended March 31, | Increase | |||||||||||||||||||||||||||
2022 | 2021 | Amount | % | 2023 | 2022 | Amount | % | |||||||||||||||||||||||
Selling, general and administrative | $ | 110,687 | $ | 90,154 | $ | 20,533 | 22.8 | % | $ | 98,313 | $ | 101,639 | $ | (3,326) | (3.3) | % | ||||||||||||||
As a percentage of home sales revenue | 9.9 | % | 9.8 | % | 13.4 | % | 10.3 | % | ||||||||||||||||||||||
Nine Months Ended September 30, | Increase | |||||||||||||||||||||||||||||
2022 | 2021 | Amount | % | |||||||||||||||||||||||||||
Selling, general and administrative | $ | 321,484 | $ | 281,961 | $ | 39,523 | 14.0 | % | ||||||||||||||||||||||
As a percentage of home sales revenue | 9.9 | % | 9.8 | % | ||||||||||||||||||||||||||
Our selling, general and administrative expense increased $20.5decreased $3.3 million and $39.5 million, respectively, for the three and nine months ended September 30, 2022March 31, 2023 as compared to the same respective periods in 2021. These increases werethree months ended March 31, 2022. This decrease was primarily attributable to increases of $6.4a $3.0 million decrease in internal and $23.8external commission expense, as well as a $1.7 million respectively,decrease in salaries and wages expense as compared to the same respective period in 2021 due to increaseddecreased headcount, increased base pay due to market conditions, and increased incentive based compensation accruals, as well as increasespartially offset by an increase in expenses in numerous areas to support our homebuilding operations. The increase for the nine months ended September 30, 2022 was partially offset byAs a decrease in internal and external commission expensepercentage of $3.8 million. During the three and nine months ended September 30, 2022,home sales revenue, our selling, general and administrative expense increased each by 10310 basis points respectively, as a percentage of home sales revenueduring the three months ended March 31, 2023 as compared to the same respective period in 2021.three months ended March 31, 2022, driven primarily by decreased revenue on a partially fixed cost base.
Income Tax Expense
At the end of each interim period, we are required to estimate our annual effective tax rate for the fiscal year and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 20222023 estimated annual effective tax rate, before discrete items, of 23.6%25.0% is driven by our blended federal and state statutory rate of 24.8%24.6%, and 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 decreaseincrease of 1.2%0.4%.
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 credit 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 was benefited by a $13.6 million benefit as a result of the retroactive extension energy efficient home credit.
For the nine months ended September 30, 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 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 $27.6 million and $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.
For the three months ended March 31, 2023, our estimated annual rate of 25.0% was benefitted by discrete items which had a net impact of decreasing our rate by 0.7%, including excess tax benefits for vested stock-based compensation.
Our estimated annual rate for the three months ended March 31, 2023 of 25.0% increased by 260 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4%. The increase in our estimated rate is a result of the enactment of the Inflation Reduction Act of 2022 during the third quarter of 2022, which modified the energy efficient home credit beginning with homes closed on or after January 1, 2023 and provided for more stringent energy standards than previous periods.
For the three months ended March 31, 2023 and 2022, we recorded income tax expense of $10.7 million and $46.3 million, respectively.
Segment Assets
Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment. Accordingly, we have presented segment information under this new basis as of March 31, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022.
(dollars in thousands)
September 30, | December 31 | Increase (Decrease) | March 31, | December 31 | Increase (Decrease) | |||||||||||||||||||
2022 | 2021 | Amount | Change | 2023 | 2022 | Amount | Change | |||||||||||||||||
West | $ | 785,994 | $ | 668,830 | $ | 117,164 | 17.5 | % | $ | 632,820 | $ | 665,827 | $ | (33,007) | (5.0) | % | ||||||||
Mountain | 1,135,788 | 1,008,481 | 127,307 | 12.6 | % | 1,017,045 | 1,122,892 | (105,847) | (9.4) | % | ||||||||||||||
Texas | 499,751 | 322,302 | 177,449 | 55.1 | % | 506,763 | 508,862 | (2,099) | (0.4) | % | ||||||||||||||
Southeast | 451,104 | 360,644 | 90,460 | 25.1 | % | 420,158 | 415,887 | 4,271 | 1.0 | % | ||||||||||||||
Century Complete | 510,290 | 371,096 | 139,194 | 37.5 | % | 339,254 | 376,131 | (36,877) | (9.8) | % | ||||||||||||||
Financial Services | 357,431 | 533,159 | (175,728) | (33.0) | % | 321,703 | 372,284 | (50,581) | (13.6) | % | ||||||||||||||
Corporate | 139,706 | 232,364 | (92,658) | (39.9) | % | 475,234 | 311,884 | 163,350 | 52.4 | % | ||||||||||||||
Total assets | $ | 3,880,064 | $ | 3,496,876 | $ | 383,188 | 11.0 | % | $ | 3,712,977 | $ | 3,773,767 | $ | (60,790) | (1.6) | % | ||||||||
Total assets increaseddecreased slightly to $3.9$3.7 billion as of September 30, 2022March 31, 2023 as compared to December 31, 2021,2022, primarily as a result of an increasechanges in investment inour inventory balances within our homebuilding inventory, partially offset bysegments related to timing of home and land development construction activities, and a decrease in Financial Services assets primarily related to a decrease in mortgage loans held for sale period over period. The decreaseThese decreases were partially offset by an increase in our Corporate assets, wasprimarily driven by a decreaseincreases in our cash and cash equivalents partially offset byand increases related to Century Living.
Lots owned and controlled
September 30, 2022 | December 31, 2021 | % Change | March 31, 2023 | December 31, 2022 | % Change | |||||||||||||||||||||||||||||||||||||
Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | Owned | Controlled | Total | |||||||||||||||||||||||||
West | 4,824 | 1,325 | 6,149 | 4,440 | 4,877 | 9,317 | 8.6 | % | (72.8) | % | (34.0) | % | 4,279 | 763 | 5,042 | 4,433 | 509 | 4,942 | (3.5) | % | 49.9 | % | 2.0 | % | ||||||||||||||||||
Mountain | 11,312 | 2,374 | 13,686 | 11,860 | 8,039 | 19,899 | (4.6) | % | (70.5) | % | (31.2) | % | 10,314 | 2,325 | 12,639 | 10,845 | 1,566 | 12,411 | (4.9) | % | 48.5 | % | 1.8 | % | ||||||||||||||||||
Texas | 7,382 | 4,158 | 11,540 | 5,340 | 8,159 | 13,499 | 38.2 | % | (49.0) | % | (14.5) | % | 7,578 | 3,217 | 10,795 | 7,432 | 3,876 | 11,308 | 2.0 | % | (17.0) | % | (4.5) | % | ||||||||||||||||||
Southeast | 5,981 | 7,683 | 13,664 | 5,928 | 14,195 | 20,123 | 0.9 | % | (45.9) | % | (32.1) | % | 5,610 | 3,658 | 9,268 | 5,576 | 5,733 | 11,309 | 0.6 | % | (36.2) | % | (18.0) | % | ||||||||||||||||||
Century Complete | 4,978 | 12,761 | 17,739 | 5,287 | 11,734 | 17,021 | (5.8) | % | 8.8 | % | 4.2 | % | 3,585 | 10,285 | 13,870 | 3,826 | 9,323 | 13,149 | (6.3) | % | 10.3 | % | 5.5 | % | ||||||||||||||||||
Total | 34,477 | 28,301 | 62,778 | 32,855 | 47,004 | 79,859 | 4.9 | % | (39.8) | % | (21.4) | % | 31,366 | 20,248 | 51,614 | 32,112 | 21,007 | 53,119 | (2.3) | % | (3.6) | % | (2.8) | % | ||||||||||||||||||
Of our total lots owned and controlled as of September 30, 2022, 54.9%March 31, 2023, 60.8% were owned and 45.1%39.2% were controlled, as compared to 41.1%60.5% owned and 58.9%39.5% controlled as of December 31, 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.2022.
Other Homebuilding Operating Data
Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment. Accordingly, we have presented segment information under this new basis as of and for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments as of and for the three months ended March 31, 2022.
Net new home contracts
Three Months Ended | Nine Months Ended | Three Months Ended | |||||||||||||||||||||||||
September 30, | Increase (Decrease) | September 30, | Increase (Decrease) | March 31, | Increase (Decrease) | ||||||||||||||||||||||
2022 | 2021 | Amount | % Change | 2022 | 2021 | Amount | % Change | 2023 | 2022 | Amount | % Change | ||||||||||||||||
West | 219 | 395 | (176) | (44.6) | % | 884 | 1,286 | (402) | (31.3) | % | 343 | 417 | (74) | (17.7) | % | ||||||||||||
Mountain | 183 | 489 | (306) | (62.6) | % | 1,247 | 2,053 | (806) | (39.3) | % | 333 | 586 | (253) | (43.2) | % | ||||||||||||
Texas | 181 | 392 | (211) | (53.8) | % | 867 | 1,309 | (442) | (33.8) | % | 475 | 496 | (21) | (4.2) | % | ||||||||||||
Southeast | 240 | 387 | (147) | (38.0) | % | 1,064 | 1,151 | (87) | (7.6) | % | 242 | 409 | (167) | (40.8) | % | ||||||||||||
Century Complete | 495 | 1,079 | (584) | (54.1) | % | 2,433 | 3,518 | (1,085) | (30.8) | % | 629 | 1,036 | (407) | (39.3) | % | ||||||||||||
Total | 1,318 | 2,742 | (1,424) | (51.9) | % | 6,495 | 9,317 | (2,822) | (30.3) | % | 2,022 | 2,944 | (922) | (31.3) | % | ||||||||||||
Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2022March 31, 2023 decreased by 1,424922 homes, or 51.9%31.3%, to 1,318,2,022 as compared to 2,7422,944 for the same period in 2021. Net new home contracts for the ninethree months ended September 30, 2022 decreased by 2,822 homes, or 30.3%, to 6,495, as compared to 9,317 for the same period in 2021.March 31, 2022. Beginning in the second quarter of 2022 and continuing through the thirdfirst quarter of 2022,2023, we experienced a moderation ofdecline in home sales pace across our markets as compared to prior year periods. These decreases wereThe decrease in net new home contracts was primarily driven by the reduced number of homes available for sale and the impact on demand for new homes from increasingincreased interest rates, rising inflation, and macro-economic uncertainty, and to some extent, an increase in cancellations primarily due to interest rate increases.uncertainty.
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,March 31, 2023 and 2022 and 2021 by segment are included in the tables below:
Three Months Ended September 30, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||
2022 | 2021 | Amount | % Change | 2023 | 2022 | Amount | % Change | |||||||||||
West | 3.3 | 7.3 | (4.0) | (54.8) | % | 4.4 | 6.3 | (1.9) | (30.2) | % | ||||||||
Mountain | 1.9 | 6.0 | (4.1) | (68.3) | % | 2.8 | 5.6 | (2.8) | (50.0) | % | ||||||||
Texas | 2.5 | 8.7 | (6.2) | (71.3) | % | 4.5 | 7.2 | (2.7) | (37.5) | % | ||||||||
Southeast | 3.2 | 6.8 | (3.6) | (52.9) | % | 2.9 | 6.2 | (3.3) | (53.2) | % | ||||||||
Century Complete | 1.4 | 3.4 | (2.0) | (58.8) | % | 2.0 | 3.6 | (1.6) | (44.4) | % | ||||||||
Total | 2.0 | 4.9 | (2.9) | (59.2) | % | 2.9 | 5.0 | (2.1) | (42.0) | % | ||||||||
Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||||
2022 | 2021 | Amount | % Change | |||||||||||||||
West | 4.5 | 7.9 | (3.4) | (43.0) | % | |||||||||||||
Mountain | 4.3 | 8.4 | (4.1) | (48.8) | % | |||||||||||||
Texas | 4.0 | 9.7 | (5.7) | (58.8) | % | |||||||||||||
Southeast | 4.7 | 6.7 | (2.0) | (29.9) | % | |||||||||||||
Century Complete | 2.4 | 3.7 | (1.3) | (35.1) | % | |||||||||||||
Total | 3.3 | 5.6 | (2.3) | (41.1) | % | |||||||||||||
During the three and nine months ended September 30, 2022,March 31, 2023, our absorption ratesrate decreased by 59.2% and 41.1%, respectively,42.0% to 2.0 and 3.32.9 per month, respectively, as compared to the same respective periodsperiod in 2021. 2022. Beginning in the second quarter of 2022 and continuing through the thirdfirst quarter of 2022,2023, we experienced a moderation ofdecline in sales pace across our markets compared to prior periods, as well as 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.year periods. The third quarter 2022 decrease in sales pace was consistent with trends seen in the overall housing market, as increased mortgage interest rate increases on mortgages, risingrates, inflation, and macro-economic uncertainty caused demand to decrease from the historically strong market conditions experienced since the second quarter of 2020. Even with these challenges, during the three months ended March 31, 2023, we experienced cancellation rates of a combined 18%, with a 16% cancellation rate for Century Communities and a 20% cancellation rate for Century Complete, which represents a significant reduction from cancellation rates we experienced in the latter half of 2022.
Selling communities at period end
Selling communities at period end | As of September 30, | Increase/(Decrease) | ||||||||||||||||||
As of March 31, | Increase/(Decrease) | |||||||||||||||||||
2022 | 2021 | Amount | % Change | 2023 | 2022 | Amount | % Change | |||||||||||||
West | 22 | 18 | 4 | 22.2 | % | 26 | 22 | 4 | 18.2 | % | ||||||||||
Mountain | 32 | 27 | 5 | 18.5 | % | 40 | 35 | 5 | 14.3 | % | ||||||||||
Texas | 24 | 15 | 9 | 60.0 | % | 35 | 23 | 12 | 52.2 | % | ||||||||||
Southeast | 25 | 19 | 6 | 31.6 | % | 28 | 22 | 6 | 27.3 | % | ||||||||||
Century Complete | 114 | 107 | 7 | 6.5 | % | 105 | 95 | 10 | 10.5 | % | ||||||||||
Total | 217 | 186 | 31 | 16.7 | % | 234 | 197 | 37 | 18.8 | % | ||||||||||
Our selling communities increased by 37 communities to 217234 communities at September 30, 2022March 31, 2023 as compared to 186197 at September 30, 2021.March 31, 2022. This increase was a result of new community openings duringsince the past year.end of the prior year period.
Backlog
(dollars in thousands)
As of September 30, | As of March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||
2022 | 2021 | % Change | 2023 | 2022 | % Change | |||||||||||||||||||||||||||||||||||||||||||||
Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | Homes | Dollar Value | Average Sales Price | 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 | % | 220 | $ | 133,249 | $ | 605.7 | 545 | $ | 412,519 | $ | 756.9 | (59.6) | % | (67.7) | % | (20.0) | % | ||||||||||||||||||
Mountain | 826 | 447,827 | 542.2 | 1,037 | 556,192 | 536.3 | (20.3) | % | (19.5) | % | 1.1 | % | 319 | 152,521 | 478.1 | 1,117 | 641,820 | 574.6 | (71.4) | % | (76.2) | % | (16.8) | % | ||||||||||||||||||||||||||
Texas | 210 | 73,482 | 349.9 | 615 | 217,362 | 353.4 | (65.9) | % | (66.2) | % | (1.0) | % | 303 | 95,464 | 315.1 | 564 | 188,648 | 334.5 | (46.3) | % | (49.4) | % | (5.8) | % | ||||||||||||||||||||||||||
Southeast | 584 | 246,764 | 422.5 | 630 | 257,902 | 409.4 | (7.3) | % | (4.3) | % | 3.2 | % | 249 | 110,864 | 445.2 | 756 | 356,413 | 471.4 | (67.1) | % | (68.9) | % | (5.6) | % | ||||||||||||||||||||||||||
Century Complete | 1,627 | 439,236 | 270.0 | 1,925 | 454,516 | 236.1 | (15.5) | % | (3.4) | % | 14.4 | % | 829 | 221,514 | 267.2 | 2,265 | 571,465 | 252.3 | (63.4) | % | (61.2) | % | 5.9 | % | ||||||||||||||||||||||||||
Total / Weighted Average | 3,455 | $ | 1,379,380 | $ | 399.2 | 4,866 | $ | 1,922,784 | $ | 395.1 | (29.0) | % | (28.3) | % | 1.0 | % | 1,920 | $ | 713,612 | $ | 371.7 | 5,247 | $ | 2,170,865 | $ | 413.7 | (63.4) | % | (67.1) | % | (10.2) | % | ||||||||||||||||||
Backlog reflects the number of homes, net of cancellations, 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, 2022,March 31, 2023, we had 3,4551,920 homes in backlog with a total value of $1.4 billion,$713.6 million, which represents decreases of 29.0%63.4% and 28.3%67.1%, respectively, as compared to 4,8665,247 homes in backlog with a total value of $1.9$2.2 billion at September 30, 2021.March 31, 2022. The decrease in backlog dollar value is primarily attributable to the decrease in backlog units, partially offset byand in part due to a 1.0% increase10.2% decrease in the average sales price of homes in backlog.
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 substantially all of our direct 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,March 31, 2023, 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 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.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, theThe Guarantors’ condensed supplemental financial information is presented in this report as if the Senior Note 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 their investment in, and equity in earnings from Non-Guarantor Subsidiaries.
Century Communities, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet Data (in thousands) | September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | ||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 3,484 | $ | 180,843 | $ | 303,208 | $ | 191,541 | ||||
Cash held in escrow | 83,952 | 52,297 | 12,691 | 56,569 | ||||||||
Accounts receivable | 32,471 | 39,492 | 46,870 | 46,326 | ||||||||
Inventories | 3,107,734 | 2,456,614 | 2,741,187 | 2,830,645 | ||||||||
Prepaid expenses and other assets | 200,768 | 160,999 | 203,259 | 193,824 | ||||||||
Property and equipment, net | 29,957 | 24,220 | 32,726 | 31,326 | ||||||||
Deferred tax assets, net | 33,873 | 21,239 | 20,939 | 20,856 | ||||||||
Goodwill | 30,395 | 30,395 | 30,395 | 30,395 | ||||||||
Total assets | $ | 3,522,634 | $ | 2,966,099 | $ | 3,391,275 | $ | 3,401,482 | ||||
Liabilities and stockholders’ equity | ||||||||||||
Liabilities: | ||||||||||||
Accounts payable | $ | 92,318 | $ | 82,734 | $ | 105,436 | $ | 105,727 | ||||
Accrued expenses and other liabilities | 357,679 | 288,229 | 281,921 | 310,330 | ||||||||
Notes payable | 1,016,548 | 998,936 | 1,026,615 | 1,019,412 | ||||||||
Revolving line of credit | 165,000 | — | — | — | ||||||||
Total liabilities | 1,631,545 | 1,369,899 | 1,413,972 | 1,435,469 | ||||||||
Stockholders’ equity: | 1,891,089 | 1,596,200 | 1,977,303 | 1,966,013 | ||||||||
Total liabilities and stockholders’ equity | $ | 3,522,634 | $ | 2,966,099 | $ | 3,391,275 | $ | 3,401,482 | ||||
Summarized Statements of Operations Data (in thousands) | Nine Months Ended | Year Ended | Three Months Ended | Year Ended | ||||||||
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||
Total homebuilding revenues | $ | 3,254,409 | $ | 4,092,576 | $ | 737,135 | $ | 4,410,483 | ||||
Total homebuilding cost of revenues | (2,374,784) | (3,095,363) | (601,385) | (3,315,994) | ||||||||
Selling, general and administrative | (321,484) | (389,610) | (98,313) | (430,742) | ||||||||
Loss on debt extinguishment | — | (14,458) | ||||||||||
Inventory impairment and other | — | (41) | ||||||||||
Inventory impairment | — | (10,149) | ||||||||||
Other income (expense) | (11,205) | (3,307) | 1,018 | (15,894) | ||||||||
Income before income tax expense | 546,936 | 589,797 | 38,455 | 637,704 | ||||||||
Income tax expense | (122,679) | (131,201) | (9,348) | (142,986) | ||||||||
Net income | $ | 424,257 | $ | 458,596 | $ | 29,107 | $ | 494,718 | ||||
Critical Accounting Policies
Critical accounting estimates are those that we believe are both significant and 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, 2021,2022, filed with the SEC on February 3, 2022,2, 2023, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies.” During the three and nine months ended September 30, 2022, we have updated 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 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 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.
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 estimates have not been material, as 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
Our liquidity, consisting of our cash and cash equivalents and cash held in escrow and Credit Facilityrevolving line of credit availability, was $817.2 million as of September 30, 2022, compared to $1.2 billion as of March 31, 2023 and December 31, 2021.2022.
Our principal uses of capital for the three and nine months ended September 30, 2022March 31, 2023 were our land purchases, land development, home construction, share repurchases, and the payment of routine liabilities. We increased our investment in homebuilding inventory during 2022, including an increase of $408.8 million in homes under construction and $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 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 consolidated 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 continue to acquire and develop lots in our markets when they meet our current investment criteria, During the three months ended September 30, 2022, we reduced our land acquisition and development activities by terminating certain contracts in our markets that did not meet our investment criteria, resulting in a charge of $4.4 million recorded 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 ongoing financing strategy and subject to market conditions.criteria.
Short-term Liquidity and Capital Resources
We use funds generated by operations, available borrowings under our Credit Facility,revolving line of credit facility, and proceeds from issuances of debt or equity, including our current at-the-market facility, to fund our 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 our mortgage repurchase facilities to finance its operations including originations of mortgage loans to 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 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.arise.
Long-term Liquidity and Capital Resources
Beyond the next twelve months, we believe that our principal uses of capital 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 under our revolving line of credit.credit, repurchase facilities, and construction loan agreements. 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
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. These obligations impact our short-term and long-term liquidity and capital resource needs. For the three and nine months ended September 30, 2022,March 31, 2023, there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 that was filed with the SEC on February 3, 2022.2, 2023.
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 properties 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. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. Our obligations with respect to purchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits.
As of September 30, 2022,March 31, 2023, we had outstanding purchase contracts and option contracts for 28,30120,248 lots totaling approximately $1.2 billion,$897.4 million and we had $61.1$42.4 million of deposits for land contracts, of which $33.1 million$21.8 were non-refundable cash deposits pertaining to land contracts. For 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-four24 months. Our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change and dependent on future market conditions. Our utilization of land option contracts is dependent on, among other things, the availability of land sellers 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
One of our principal liquidity needs is the payment of principal and interest on our outstanding indebtedness. Our outstanding indebtedness is described in detail in Note 9 – Debt in the Notes to the Consolidated Financial Statements. We are required to meet certain covenants, and as of March 31, 2023, we were in compliance with all such covenants and requirements under the agreements governing our revolving line of credit, mortgage repurchase facilities, and construction loan agreements. See Note 9 – Debt in the Notes to the Consolidated Financial Statements for further detail.
Our outstanding debt obligations included the following as of September 30, 2022March 31, 2023 and December 31, 20212022 (in thousands):
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
3.875% senior notes, due August 2029(1) | $ | 494,691 | $ | 494,117 | $ | 495,077 | $ | 494,884 | ||||
6.750% senior notes, due May 2027(1) | 496,190 | 495,581 | 496,598 | 496,394 | ||||||||
Other financing obligations(2) | 25,667 | 9,238 | 34,940 | 28,134 | ||||||||
Notes payable | 1,016,548 | 998,936 | 1,026,615 | 1,019,412 | ||||||||
Revolving line of credit | 165,000 | — | — | — | ||||||||
Mortgage repurchase facilities | 195,047 | 331,876 | 149,784 | 197,626 | ||||||||
Total debt | $ | 1,376,595 | $ | 1,330,812 | $ | 1,176,399 | $ | 1,217,038 | ||||
(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,March 31, 2023, other financing obligations included $22.7$20.4 million related to insurance premium notes and certain secured borrowings, as well as $3.0$14.5 million outstanding under the construction loan agreements, as described below. As of December 31, 2021,2022, other financing obligations included $9.2$20.7 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 forborrowings, as well as $7.4 million outstanding under 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.construction loan agreements.
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, 2022March 31, 2023 and December 31, 2021,2022, we had $565.8$570.8 million and $492.5$574.8 million, respectively, in letters of credit and performance and other bonds issued and outstanding. Although significant development and construction activities have been completed related to the improvements at these sites, 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, 2022,2023, a wholly owned subsidiary of Century Living, LLC entered into a construction loan agreement with UMB Bank, N.A., and certain wholly owned subsidiaries of Century Living, LLC, entered intoare party to construction loan agreements entered into during 2022 with PNC Bank, National Association and U.S. Bank National Association, a national banking association, d/b/a Housing Capital Company (which along with UMB Bank, N.A., we collectively refer to as “the Lenders”lenders”), respectively. The three construction loan agreements (which we refer to as the “Construction Loan Agreements”), collectively provide that we may borrow up to $128.0$187.6 million from the Lenderslenders for purposes of construction of multi-family projects in Colorado, with advances made by the Lenderslenders upon the satisfaction of certain conditions. Borrowings under the Construction Loan Agreementsconstruction loan agreements bear interest at various rates, including a fixed rate, and floating interest rates per annum equal to the Secured Overnight Financing Rate (which we refer to as “SOFR”) 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,March 17, 2028, with certain of the construction loan agreements allowing for the option to extend the maturity dates for a period of 12 months if certain conditions are satisfied. The Construction Loan Agreementsconstruction 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, $3.0March 31, 2023, $14.5 million was outstanding under the Construction Loan Agreements,construction loan agreements, with borrowings bearing a weighted average interest rate of 4.423%,6.778% during the three months ended March 31, 2023, 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”“revolving line of credit”) of up to $800$800.0 million, and unless terminated earlier, will mature on April 30, 2026. The Credit Facilityrevolving line of credit includes a $250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, the Company iswe are entitled to request an increase in the size of the Credit Facilityrevolving line of credit 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 underOn December 21, 2022, we entered into a First Modification Agreement with Texas Capital Bank, as Administrative Agent, amending the Second A&R Credit Agreement bearpursuant to which, effective January 3, 2023, all existing borrowings using an interest atrate based on a floatingLIBOR reference rate equal tohad the interest rate replaced with one based on an adjusted Eurodollar Rateterm SOFR reference rate, which equals the greater of (i) 0.50% or (ii) the one-month quotation of the secured overnight financing rate administered by the Federal Reserve Bank of New York, 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.0.10%.
As of September 30, 2022, we had $165.0 millionMarch 31, 2023, no amounts were outstanding under the Credit Facilityour revolving line of credit 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 and J.P. Morgan, and formerly Wells Fargo (since the agreement with Wells Fargo was terminated during the three months ended March 31, 2023) (which facilities we refer to as the “Repurchase Facilities”“repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $275.0$200.0 million as of September 30, 2022,March 31, 2023, secured by the mortgage loans financed thereunder. The Repurchase Facilitiesrepurchase facilities have varying short term maturity dates through August 15,December 21, 2023 and bear a weighted average interest rate of 4.208%.6.38% during the three months ended March 31, 2023.
Amounts outstanding under the Repurchase Facilitiesrepurchase 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,March 31, 2023 and December 31, 2022, we had $195.0$149.8 million and $197.6 million outstanding under these Repurchase Facilitiesthe repurchase facilities, respectively, and were in compliance with all covenants thereunder.
At-the-Market Offerings
On November 27, 2019, we entered intoWe are party to a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc.,Wells Fargo Securities, LLC 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. We did not sell or issue any shares of our common stock during the three months ended March 31, 2023 and 2022, respectively, and as of March 31, 2023, all $100.0 million remained available for sale.
Stock Repurchase Program
On November 6, 2018, ourOur Board of Directors authorized a stock repurchase program in 2018, 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 determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, general market and economic conditions, as well asapplicable tax effects including the future 1% excise tax on stock repurchases after December 31, 2022 included inrecently instituted under the Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022. and general market and economic conditions.
We intend to finance any stock repurchases through available cash and our Credit Facility.revolving line of credit. 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,March 31, 2023, we did not repurchase any shares of our common stock. During the three months ended March 31, 2022, an aggregate of 0.51.0 million and 2.3 million shares respectively, of our common stock were repurchased for a total purchase price of approximately $22.3$62.4 million and $120.6 million, respectively, andat a weighted average price of $44.58 and $52.32$61.52 per share, respectively. During the three and nine months ended September 30, 2021, we did not repurchase any shares of our common stock.share. The maximum number of shares available to be purchasedrepurchased under the stock repurchase program as of September 30, 2022March 31, 2023 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 ninethree months ended September 30,March 31, 2023 and 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 | ||||
Three Months ended March 31, 2023 | ||||||||||
Cash Dividends Declared and Paid | ||||||||||
Declaration Date | Record Date | Paid Date | Per Share | Amount | ||||||
February 8, 2023 | March 1, 2023 | March 15, 2023 | $ | $0.23 | $ | 7,365 | ||||
Three Months ended March 31, 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 | ||||
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— NineThree Months Ended September 30, 2022March 31, 2023 Compared to the NineThree Months Ended September 30, 2021March 31, 2022
For the ninethree months ended September 30,March 31, 2023 and 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 $82.8was $191.3 million during the same period in 2021.three months ended March 31, 2023 as compared to $109.4 million during the quarter ended March 31, 2022. The increase in cash used inprovided by operations is primarily a result of increased investmenta reduction in our homebuilding inventories foras a result of reduced land acquisition spend and expenditures associated with the nineconstruction of homes during the three months ended September 30, 2022March 31, 2023 as compared to the ninethree months ended September 30, 2021, partiallyMarch 31, 2022. This reduction was offset by (1) a decrease in originationsnet income of $109.2 million and (2) a reduction in our mortgage loans held for sale and a $112.1of $48.2 million increase in net income for nineduring the three months ended September 30, 2022March 31, 2023, as compared to a reduction in mortgage loans held for sale of $144.4 million during the ninethree months ended September 30, 2021.March 31, 2022.
Net cash used in investing activities increased to $37.3$20.9 million during the ninethree months ended September 30, 2022,March 31, 2023, compared to $4.3$5.1 million used during the same period in 2021.three months ended March 31, 2022. The increase was primarily related to $16.3 million in 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.Living.
Net cash used in financing activities was $108.5decreased to $58.3 million during the ninethree months ended September 30, 2022,March 31, 2023, compared to net cash provided by financing activities of $20.6$208.4 million used during the same period in 2021.three months ended March 31, 2022. The increasedecrease in cash used in financing activities was primarily attributable to (1) a $120.6$91.0 million increase in repurchases of our common stock during the current year period, (2) a $89.4 million increasedecrease in net payments on the Repurchase Facilitiesrepurchase facilities in the first three months of 2023 and (2) $62.4 million of repurchases of common stock during the current year period, (3) $88.2 million in net proceeds from the issuancefirst three months 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, 2022as compared to no revolving linerepurchases of credit borrowings outstandingcommon stock for the ninefirst three months ended September 30, 2021.of 2023.
As of September 30, 2022,March 31, 2023, our cash and cash equivalents and restricted cash balance was $109.3$420.6 million, as compared to $322.2$308.5 million as of December 31, 2021.2022.
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, adjusted net income and adjusted netdiluted earnings per diluted common shares.share. 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 EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define Adjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense (income), (iv) depreciation and amortization expense, (v) loss on debt extinguishment (if applicable), and (vi) inventory impairment and other(if applicable). We believe Adjusted 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 Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our Adjusted 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)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||
Net income | $ | 144,473 | $ | 113,977 | 26.8 | % | $ | 445,637 | $ | 333,538 | 33.6 | % | $ | 33,311 | $ | 142,496 | (76.6) | % | ||||||||||||
Income tax expense | 27,601 | 31,784 | (13.2) | % | 128,861 | 95,406 | 35.1 | % | 10,698 | 46,280 | (76.9) | % | ||||||||||||||||||
Interest in cost of home sales revenues | 13,726 | 14,636 | (6.2) | % | 39,345 | 51,419 | (23.5) | % | 9,807 | 12,146 | (19.3) | % | ||||||||||||||||||
Interest expense (income) | (2) | (148) | (98.6) | % | (14) | (431) | (96.8) | % | (2,364) | 135 | NM | % | ||||||||||||||||||
Depreciation and amortization expense | 2,855 | 2,669 | 7.0 | % | 8,207 | 8,324 | (1.4) | % | 3,292 | 2,606 | 26.3 | % | ||||||||||||||||||
EBITDA | 188,653 | 162,918 | 15.8 | % | 622,036 | 488,256 | 27.4 | % | 54,744 | 203,663 | (73.1) | % | ||||||||||||||||||
Loss on debt extinguishment | — | 14,458 | (100.0) | % | — | 14,458 | (100.0) | % | ||||||||||||||||||||||
Inventory impairment and other | — | — | NM | — | 41 | (100.0) | % | |||||||||||||||||||||||
Inventory impairment | — | — | NM | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | 188,653 | $ | 177,376 | 6.4 | % | $ | 622,036 | $ | 502,755 | 23.7 | % | $ | 54,744 | $ | 203,663 | (73.1) | % | ||||||||||||
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 (homebuilding debt less cash and cash equivalents, and cash held in 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 Agreementsconstruction loan agreements and our Repurchase Facilities.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.
(dollars in thousands)
September 30, | December 31, | March 31, | December 31, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Notes payable | $ | 1,016,548 | $ | 998,936 | $ | 1,026,615 | $ | 1,019,412 | ||||
Revolving line of credit | 165,000 | — | — | — | ||||||||
Construction loan agreements | (2,985) | — | (14,526) | (7,389) | ||||||||
Total homebuilding debt | 1,178,563 | 998,936 | 1,012,089 | 1,012,023 | ||||||||
Total stockholders' equity | 2,072,000 | 1,764,508 | 2,171,641 | 2,150,215 | ||||||||
Total capital | $ | 3,250,563 | $ | 2,763,444 | $ | 3,183,730 | $ | 3,162,238 | ||||
Homebuilding debt to capital | 36.3% | 36.1% | 31.8% | 32.0% | ||||||||
Total homebuilding debt | $ | 1,178,563 | $ | 998,936 | $ | 1,012,089 | $ | 1,012,023 | ||||
Cash and cash equivalents | (98,203) | (316,310) | (405,722) | (296,724) | ||||||||
Cash held in escrow | (83,952) | (52,297) | (12,691) | (56,569) | ||||||||
Net homebuilding debt | 996,408 | 630,329 | 593,676 | 658,730 | ||||||||
Total stockholders' equity | 2,072,000 | 1,764,508 | 2,171,641 | 2,150,215 | ||||||||
Net capital | $ | 3,068,408 | $ | 2,394,837 | $ | 2,765,317 | $ | 2,808,945 | ||||
Net homebuilding debt to net capital | 32.5% | 26.3% | 21.5% | 23.5% | ||||||||
Adjusted Net Income and Adjusted Diluted Earnings per Share
Adjusted Net Incomenet income and Adjustedadjusted Diluted Earningsdiluted earnings per Shareshare (which we refer to as “Adjusted EPS”) are non-GAAP financial measures that we believe are 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 Incomeadjusted net income as consolidated net income before (i) income tax expense, (ii) inventory impairment, and otherif applicable (iii) restructuring costs, if applicable and (iv) loss on debt extinguishment, if applicable, less adjusted income tax expense, calculated using the Company’sour estimated annual effective tax rate after discrete items for the applicable period. Adjusted Diluted EPS is calculated by dividing Adjusted Net Incomeadjusted net income by weighted average common shares – diluted.
(in thousands, except share and per share amounts)information)
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||
Numerator | ||||||||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | ||||||
Denominator | ||||||||||||||||||
Weighted average common shares outstanding - basic | 32,196,589 | 33,760,940 | 32,850,647 | 33,688,531 | 31,914,414 | 33,530,610 | ||||||||||||
Dilutive effect of restricted stock units | 373,746 | 710,104 | 391,117 | 731,632 | ||||||||||||||
Dilutive effect of stock-based compensation awards | 202,668 | 411,624 | ||||||||||||||||
Weighted average common shares outstanding - diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | 32,117,082 | 33,942,234 | ||||||||||||
Earnings per share: | ||||||||||||||||||
Basic | $ | 4.49 | $ | 3.38 | $ | 13.57 | $ | 9.90 | $ | 1.04 | $ | 4.25 | ||||||
Diluted | $ | 4.44 | $ | 3.31 | $ | 13.41 | $ | 9.69 | $ | 1.04 | $ | 4.20 | ||||||
Adjusted earnings per share | ||||||||||||||||||
Numerator | ||||||||||||||||||
Net income | $ | 144,473 | $ | 113,977 | $ | 445,637 | $ | 333,538 | $ | 33,311 | $ | 142,496 | ||||||
Income tax expense | 27,601 | 31,784 | 128,861 | 95,406 | 10,698 | 46,280 | ||||||||||||
Income before income tax expense | 172,074 | 145,761 | 574,498 | 428,944 | 44,009 | 188,776 | ||||||||||||
Inventory impairment and other | — | — | — | 41 | ||||||||||||||
Loss on debt extinguishment | — | 14,458 | — | 14,458 | ||||||||||||||
Inventory impairment | — | — | ||||||||||||||||
Adjusted income before income tax expense | 172,074 | 160,219 | 574,498 | 443,443 | 44,009 | 188,776 | ||||||||||||
Adjusted income tax expense(1) | (27,601) | (34,937) | (128,861) | (98,631) | (10,698) | (46,280) | ||||||||||||
Adjusted net income | $ | 144,473 | $ | 125,282 | $ | 445,637 | $ | 344,812 | $ | 33,311 | $ | 142,496 | ||||||
Denominator - Diluted | 32,570,335 | 34,471,044 | 33,241,764 | 34,420,163 | 32,117,082 | 33,942,234 | ||||||||||||
Adjusted diluted earnings per share | $ | 4.44 | $ | 3.63 | $ | 13.41 | $ | 10.02 | $ | 1.04 | $ | 4.20 | ||||||
(1)The tax rates used in calculating adjusted net income for the three and nine months ended September 30,March 31, 2023 and 2022 were 16.0%24.3% and 22.4%, respectively, and for the three and nine months ended September 30, 2021 were 21.8% and 22.2%24.5%, respectively, which are reflective of the Company’sour GAAP tax rates for the applicable periods.
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 risksrisk associated with our Second A&R Credit Agreement and construction loan agreements.
On December 21, 2022, we entered into a First Modification Agreement and Construction Loan Agreements.with Texas Capital Bank (formerly known as Texas Capital Bank, National Association), as Administrative Agent, amending the Second A&R Credit Agreement. Per the First Modification Agreement, effective January 3, 2023, all existing borrowings using an interest rate based on a LIBOR reference rate had the interest rate replaced with one based on an adjusted term SOFR reference rate, which equals the greater of (i) 0.50% or (ii) the one-month quotation of the secured overnight financing rate administered by the Federal Reserve Bank of New York, plus 0.10%.
Borrowings under the Second A&R Credit Agreementconstruction loan agreements bear interest at various rates, including a floatingfixed 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. 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 senior unsecured revolving line of credit.
Borrowings under the Construction Loan Agreements bear interest at floating interest raterates per annum equal to the Secured Overnight Financing RateSOFR 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 hedge our exposure to risk from the time a borrower locks a loan until the time the loan is securitized. We also typically hedge our interest rate exposure through entering into interest rate swap futures.
Inflation
Our homebuilding operations have 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 has led and could continue to lead to higher mortgage rates, which has and could continue to significantly affect the affordability of mortgage financing to homebuyers and lead to weakened demand for our homes, as well as increased cancellations. As inflationcancellations compared to prior year periods. Inflation remained elevated during the three and nine months ended September 30, 2022, interest rates on 30-year fixed mortgages have risen, coupled withMarch 31, 2023 compared to the prior year period, and the Federal Reserve raisingcontinued to raise the federal funds interest rate during the first second, and third quartersquarter of 2022. While2023, which continued to impact interest rates on 30-year fixed mortgages. Due to higher mortgage rates, we were generallyno longer able to pass on cost increases from inflationary impacts to customers through increased home prices during the three and nine months ended September 30, 2022, we may not be able to continue to offset cost increases with higher home selling prices in the futurefirst quarter of 2023 and if weak housing market conditions exist.continue we will likely continue to be unable to offset cost increases with higher home selling prices in the future.
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 our cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern, especially with respect to sales, to return this year after being obscured by the COVID-driven sales boom that began in 2020 and continued until the interest rate led softening in the second half of 2022, and 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, 2022,March 31, 2023, 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, 2022March 31, 2023 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit 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
There were no changes during the thirdfirst quarter of 20222023 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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.
ITEM 1A. RISK FACTORS.
There have been no material changes toWe hereby disclose the following revised risk factors we previously disclosedfactor described in our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 that was filed with the SEC on February 3, 2022, other than the impact2, 2023.
Global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations.
The global economic slowdown, inflation, and increasedrising interest rates on housing demand,and the prospects for recession, as well as recent and potential future disruptions in access to bank deposits or lending commitments due to bank failure, could materially and adversely affect our liquidity, our business, financial condition and results of operations. The recent closures of Silicon Valley Bank and Signature Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band and Signature Bank would have access to their funds, even those in excess of the standard FDIC insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages. The failure of any bank with which we do business could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. In the event we have a commercial relationship with a bank that has moderated considerably overfailed or is otherwise distressed, we may experience delays or other issues in meeting our financial obligations. If other banks and financial institutions enter receivership or become insolvent in the past few months,future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents and investments may be threatened and could have a material adverse effect on our cancellation rates, whichbusiness and financial condition.
Additionally, our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine. While we do not have increased overany customer or direct supplier relationships in either country, the past few months,current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyber attacks, disruption of energy flows, etc.) and other trends that have materialized this year, as discussedpotential uncertainties could adversely affect our supply chain by causing shortages or increases in “Part I. Item 2. Management’s Discussioncosts for materials necessary to construct homes and/or increases to the price of gasoline and Analysis of Financial Condition and Results of Operations” above.other fuels. In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers, or otherwise adversely impact our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The following table summarizes the number of shares of our common stock that were purchased by the Company during each of the three fiscal months in our third quarter ended September 30, 2022.
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 | — | $ | — | — | 2,008,994 | |||||
August | ||||||||||
Purchased 8/1 through 8/31 | — | — | — | 2,008,994 | ||||||
September | ||||||||||
Purchased 9/1 through 9/30 | 500,825 | 44.58 | 500,825 | 1,508,169 | ||||||
Total | 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.None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS.
The following exhibits are either filed herewith or incorporated herein by reference:
Item No. | Description | |
3.1 | ||
3.2 | ||
22.1 | ||
31.1 | ||
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) | |
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) | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Century Communities, Inc. | |||
Date: | By: | /s/ Dale Francescon | |
Dale Francescon | |||
Chairman of the Board and Co-Chief Executive Officer | |||
(Co-Principal Executive Officer) | |||
Date: | By: | /s/ Robert J. Francescon | |
Robert J. Francescon | |||
Co-Chief Executive Officer and President | |||
(Co-Principal Executive Officer) | |||
Date: | By: | /s/ David Messenger | |
David Messenger | |||
Chief Financial Officer | |||
(Principal Financial Officer) | |||
Date: | By: | /s/ J. Scott Dixon | |
J. Scott Dixon | |||
Assistant Chief Financial Officer | |||
(Principal Accounting Officer) | |||