Century Communities, Inc. (NYSE:CCS) Q4 2023 Earnings Call Transcript
Century Communities, Inc. (NYSE:CCS) Q4 2023 Earnings Call Transcript January 31, 2024
Century Communities, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings. Welcome to Century Communities' Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this conference call is being recorded. I will now turn the conference over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Thank you. You may begin.
Tyler Langton: Good afternoon. Thank you for joining us today for Century Communities earnings conference call for the fourth quarter and full year 2023. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading Risk Factors in the company's latest 10-K as supplemented by our latest 10-Q and other SEC filings. We undertake no duty to update our forward-looking statements.
Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer and President, and Dave Messenger, Chief Financial Officer. Following today's prepared remarks, we will open the line up for questions. With that, I'll turn the call over to Dale.
Dale Francescon: Thank you, Tyler, and good afternoon everyone. I'd like to begin by saying that we're pleased, not only with our results, but also with the meaningful improvement that we've seen in the housing market in general and our business in particular. Our orders and deliveries exceeded our expectations in the fourth quarter and 2023 was our 21st consecutive year of profitability. We are optimistic about our outlook for 2024, given both the progress Century made over the course of 2023 and the underlying strength of the housing market. In the fourth quarter, our deliveries of 3,157 homes were a quarterly record and increased by 9% versus the prior-year period. On a quarter-over-quarter basis, our deliveries increased by 39% and grew sequentially for the third quarter in a row as we continued to benefit from improved cycle times and our increased level of home starts, which began in the first quarter of 2023.
On the back of these higher deliveries, our fourth quarter revenues were $1.2 billion, a 36% sequential increase and our highest level since the fourth quarter of 2021. Diluted earnings per share of $2.83 increased for the fourth sequential quarter and represented an improvement of 15% over year-ago levels. For the full year 2023, we delivered 9,568 homes and generated home sales revenues of $3.6 billion, exceeding the upper-end of our guidance for both deliveries and home sales revenues. Our book value per share increased by 11% on a year-over-year basis to $75.12, a company record, and we ended the year with 22.4% net leverage, the lowest year-end level in our history as a public company. Our fourth quarter net new contracts increased 86% to 2,340 homes compared to the fourth quarter 2022.
On a sequential basis, our net orders in the fourth quarter increased by 9%. This level of sales activity was much stronger than we were anticipating as our fourth quarter net orders have experienced an average 10% sequential decline in each of the last four years. January has continued to see strength with our sales more than 30% ahead of the prior-year's January. Regardless of the markets served, the Century Communities and Century Complete brands target building and selling affordable homes with more than 90% of our fourth quarter deliveries priced below FHA limits. In addition to that affordability, both brands build nearly 100% of their homes on a spec basis, which allows for direct cost control, availability of quick move-ins, and buyers' certainty of financing.
Our focus on affordability, positions us well for future growth and continued success as we can target the widest range of potential homebuyers. Our average sales price of $376,000 is among the lowest of the publicly traded homebuilders, while Century Complete's average sales price came in at $258,000 this quarter. Additionally, through our Century Complete business, we have developed an expertise in entering and operating in secondary markets where there is less competition from the public homebuilders, and where we believe we can take share from smaller private builders that are more capital-constrained and at higher development and construction cost. As a reminder, our Century Complete business only acquires finished lots and typically on a just-in-time basis.
Last week, we announced the strategic acquisition of the assets of Landmark Homes of Tennessee, which will grow Century's already sizable presence in the Greater Nashville market through the addition of six active Landmark Homes communities. Importantly, this transaction provides us with a pipeline of controlled lots that will be delivered to us in the future as land development is completed and furthers our goal of increasing market share throughout and beyond our 18-state geographic footprint through the opportunistic acquisition of other homebuilders to augment the organic expansion of our land portfolio. In closing, I want to thank all of our team members for their hard work and dedication that drove significant improvements in our business in 2023 and that positions Century for continued success in 2024 and beyond.
I'll now turn the call over to Rob to discuss our operations and land position in more detail.
Rob Francescon: Thank you, Dale, and good afternoon, everyone. As expected, incentives on closed homes increased to roughly 800 basis points in the fourth quarter of 2023, up from over 600 basis points in the third quarter. These higher costs were primarily due to the increased cost of mortgage rate buydowns in the quarter. Interest rate buydowns continue to be the most important incentive for our customers given their ability to significantly lower monthly payments, a key focus for our entry-level buyers. With the recent decline in interest rates, we've been able to pull back on our level of incentives on new orders in December and in January. 2023 saw our team shorten cycle times, control direct construction costs, and grow our land pipeline and community count.
During the fourth quarter, our cycle times further improved, putting us in a position that we can now typically start and complete homes in a normal four to five months' timeframe. We also had continued success in controlling our costs in the fourth quarter. On a sequential basis, we saw a further 1% reduction in our direct construction costs on the homes we started even with the continued strength in the housing market. On the land front, we ended the fourth quarter with approximately 74,000 owned and controlled lots, an 8% sequential improvement and 39% year-over-year increase. The higher lot count this year was driven entirely by an increase in our controlled lots, which accounted for 59% of our total lots in the fourth quarter, with our number of owned lots remaining relatively static for the eighth consecutive quarter.
Additionally, at year-end, Texas and the Southeast accounted for roughly 50% of our total lot count, up from 43% at year-end 2022, and reflective of our strategy to grow our presence in these attractive markets that are benefiting from relative affordability and strong employment and population growth. Combined with Century Complete, these more affordable markets comprise nearly 75% of our owned and controlled lot -- land supply. We ended 2023 with a community count of 251, the second highest level in our company's history, and an increase of 21% versus year-ago levels with every region we operate in experiencing growth. Century Complete accounted for over 40% of our total community count and 37% of total deliveries in 2023, while the Southeast and Texas combined accounted for close to 30% of our total community count and over 30% of total deliveries for the year.
In summary, our year-end 2023 community count of 251 and total owned and controlled lots of nearly 74,000 gives us confidence that 2024 will be a growth year for us. I'll now turn the call over to Dave to discuss our financial results in more detail.
Dave Messenger: Thank you, Rob. During the fourth quarter of 2023, pre-tax income was $126.1 million and net income was $91.3 million or $2.83 per diluted share, a 15% year-over-year increase. EBITDA for the quarter was $145.2 million, a 20% increase over year-ago levels. Revenues for the fourth quarter were $1.2 billion, up 36% sequentially and 2% versus the prior-year's quarter. Our record fourth quarter deliveries of 3,157 homes increased 39% on a sequential basis and by 9% versus prior-year levels. For the first quarter 2024, we expect our deliveries to see their typical seasonal decline. As a reminder, the first quarter typically represents the low point for our deliveries during the year with first quarter deliveries having accounted for a little over 20% of our full year deliveries on average over the past five years.
Our average sale price of $376,000 in the fourth quarter decreased by 2% on a sequential basis, mainly due to higher levels of incentives and mix as Century Complete accounted for 39% of fourth quarter deliveries versus 36% in the third quarter 2023. At quarter-end, our backlog of sold homes was 1,070, valued at $401 million, with an average price of $375,000. This is a direct result of intentionally selling homes later in the construction process. In the fourth quarter, adjusted homebuilding gross margin percentage was 23% compared to 19.8% in the fourth quarter 2022. Homebuilding gross margin was 21.6% compared to 17.6% in the prior-year quarter. As expected, our gross margins decreased sequentially in the fourth quarter primarily due to higher levels of incentives.
Looking out to 2024, we expect to be able to reduce our levels of incentives versus fourth quarter 2023 levels. SG&A as a percent of home sales revenue was 11.1% in the fourth quarter compared to 9.5% in the prior year. The largest driver of this year-over-year increase was more normalized commission rates on home sales. For the full year 2023, our SG&A was 12.4% versus 9.8% in the prior year, being impacted by higher commission rates, lower home sales revenues due to decreased homes closed at a lower ASP, and a significant number of new communities that we opened in 2023. For 2024, we expect our SG&A as a percent of home sales revenues to decline on a year-over-year basis as we look to grow our deliveries and keep our fixed levels of G&A relatively constant.
In the fourth quarter, our tax rate was 27.6% compared to 22.4% in the prior-year quarter and 26.1% for the full year 2023. The increase in our annual effective rate in 2023 as compared to 2022 was primarily driven by a reduced number of homes qualifying for 45L credits. We expect our full year tax rate for '24 to be similar to the full year 2023 levels. Our net homebuilding debt-to-net capital ratio decreased to 22.4% compared to 23.5% in the prior-year quarter and represented the lowest year-end level in our history as a public company. Our homebuilding debt-to-capital ratio decreased to 29.9% at quarter-end compared to 32% at the end of the same period last year. During the quarter, we maintained our quarterly cash dividend at $0.23 per share and ended the quarter with $2.4 billion in stockholders' equity, $1.1 billion in total liquidity and $328 million in cash.
At 12/31, we had no borrowings outstanding on our $800 million unsecured revolving credit facility that does not mature until April 2026. Additionally, we have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Homebuyers are exhibiting strong demand for affordable new homes, our cycle times have returned to historical levels and further growth in our community count is anticipated. Accordingly, we expect our full year 2024 deliveries to be in the range of 10,000 to 11,000 homes, and home sales revenues to be in the range of $3.8 billion to $4.2 billion. With that, I'll open the line for questions. Operator?
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