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Century Communities, Inc. - Quarter Report: 2017 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended September 30, 2017



or





 

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 of other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
identification No.)



 

8390 East Crescent Parkway, Suite 650
Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

 

(Zip code)



(Registrant’s telephone number, including area code): (303) 770-8300

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      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

 

 

 



 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 



 

 

 

Non-accelerated filer

 

   (Do not check if a smaller reporting company)

 

Smaller reporting company

 



 

 

 

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      No  

On October  25,  2017, 27,573,183 shares of common stock, par value 0.01 per share, were outstanding.   

 


 

Table of Contents

 

 

CENTURY COMMUNITIES, INC.

FORM 10-Q

For the three and nine months ended September 30, 2017



Index



 



Page No.

PART I

Item 1. Unaudited Condensed Consolidated Financial Statements

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2017 and 2016

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2017 and 2016 

5

Notes to Unaudited Condensed Consolidated Financial Statements – September 30, 2017

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

Item 4. Controls and Procedures

38

PART II

Item 1. Legal Proceedings

39

Item 1A. Risk Factors

39

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

Signatures

42



 





2 

 


 

Table of Contents

 

 

PART I

ITEM 1.     FINANCIAL STATEMENTS.





Century Communities, Inc.

Unaudited Condensed Consolidated Balance Sheets

As of September 30, 2017 and December 31, 2016

(in thousands, except share amounts)







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,522 

 

$

29,450 

Cash held in escrow

 

 

42,262 

 

 

20,044 

Accounts receivable

 

 

20,810 

 

 

5,729 

Inventories

 

 

1,352,989 

 

 

857,885 

Mortgage loans held for sale

 

 

30,071 

 

 

 —

Prepaid expenses and other assets

 

 

62,362 

 

 

40,457 

Property and equipment, net

 

 

13,658 

 

 

11,412 

Investment in unconsolidated subsidiaries

 

 

20,677 

 

 

18,275 

Deferred tax asset, net

 

 

6,403 

 

 

 —

Amortizable intangible assets, net

 

 

1,889 

 

 

2,911 

Goodwill

 

 

21,365 

 

 

21,365 

Total assets

 

$

1,631,008 

 

$

1,007,528 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

16,810 

 

$

15,708 

Accrued expenses and other liabilities

 

 

157,705 

 

 

62,314 

Deferred tax liability, net

 

 

 —

 

 

1,782 

Senior notes payable

 

 

776,016 

 

 

259,088 

Revolving line of credit

 

 

 —

 

 

195,000 

Mortgage repurchase facility

 

 

27,465 

 

 

 —

Total liabilities

 

 

977,996 

 

 

533,892 

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, 27,259,199 and 21,620,544 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

273 

 

 

216 

Additional paid-in capital

 

 

501,786 

 

 

355,567 

Retained earnings

 

 

150,953 

 

 

117,853 

Total stockholders' equity

 

 

653,012 

 

 

473,636 

Total liabilities and stockholders' equity

 

$

1,631,008 

 

$

1,007,528 

See Notes to Unaudited Condensed Consolidated Financial Statements





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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2017 and 2016

(in thousands, except share and per share amounts)













 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

374,935 

 

$

248,075 

 

$

888,942 

 

$

686,335 

Land sales and other revenues

 

 

1,826 

 

 

5,338 

 

 

6,216 

 

 

10,816 



 

 

376,761 

 

 

253,413 

 

 

895,158 

 

 

697,151 

Financial services revenue

 

 

2,955 

 

 

 —

 

 

4,697 

 

 

 —

Total revenues

 

 

379,716 

 

 

253,413 

 

 

899,855 

 

 

697,151 

Homebuilding Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

(311,365)

 

 

(197,650)

 

 

(727,577)

 

 

(549,886)

Cost of land sales and other revenues

 

 

(2,104)

 

 

(5,420)

 

 

(4,994)

 

 

(9,433)



 

 

(313,469)

 

 

(203,070)

 

 

(732,571)

 

 

(559,319)

Financial services costs

 

 

(2,450)

 

 

 —

 

 

(4,648)

 

 

 —

Selling, general, and administrative

 

 

(46,165)

 

 

(30,944)

 

 

(113,597)

 

 

(87,512)

Acquisition expense

 

 

(7,205)

 

 

(53)

 

 

(8,645)

 

 

(466)

Equity in income of unconsolidated subsidiaries

 

 

3,716 

 

 

 —

 

 

7,648 

 

 

 —

Other income

 

 

1,013 

 

 

385 

 

 

2,274 

 

 

1,403 

Income before income tax expense

 

 

15,156 

 

 

19,731 

 

 

50,316 

 

 

51,257 

Income tax expense

 

 

(5,686)

 

 

(6,389)

 

 

(17,216)

 

 

(16,790)

Net income

 

$

9,470 

 

$

13,342 

 

$

33,100 

 

$

34,467 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37 

 

$

0.63 

 

$

1.42 

 

$

1.63 

Diluted

 

$

0.37 

 

$

0.63 

 

$

1.41 

 

$

1.62 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

25,445,552 

 

 

20,673,521 

 

 

23,038,390 

 

 

20,643,682 

Diluted

 

 

25,726,137 

 

 

20,822,066 

 

 

23,275,320 

 

 

20,731,930 



See Notes to Unaudited Condensed Consolidated Financial Statements





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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2017 and 2016

(in thousands)











 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2017

 

2016

Operating activities

 

 

 

 

 

 

Net income

 

$

33,100 

 

$

34,467 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,073 

 

 

4,215 

Stock-based compensation expense

 

 

6,521 

 

 

5,058 

Deferred income taxes

 

 

(2,766)

 

 

(3,807)

Distribution of income from unconsolidated subsidiaries

 

 

5,246 

 

 

 —

Equity in income of unconsolidated subsidiaries

 

 

(7,648)

 

 

 —

(Gain) loss on disposition of assets

 

 

202 

 

 

(468)

Changes in assets and liabilities:

 

 

 

 

 

 

Cash held in escrow

 

 

(22,218)

 

 

(15,932)

Accounts receivable

 

 

(7,493)

 

 

389 

Inventories

 

 

(95,065)

 

 

(85,560)

Prepaid expenses and other assets

 

 

(16,637)

 

 

(11,189)

Accounts payable

 

 

(8,026)

 

 

7,172 

Accrued expenses and other liabilities

 

 

9,027 

 

 

4,255 

Mortgage loans held for sale

 

 

(30,071)

 

 

 —

Net cash used in operating activities

 

 

(130,755)

 

 

(61,400)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,867)

 

 

(6,375)

Business combination net of acquired cash

 

 

(77,457)

 

 

 —

Proceeds from sale of assets

 

 

52 

 

 

1,302 

Proceeds from sale of South Carolina operations

 

 

17,074 

 

 

 —

Proceeds from secured note receivable

 

 

76 

 

 

73 

Net cash used in investing activities

 

 

(66,122)

 

 

(5,000)

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

75,000 

 

 

145,000 

Payments on revolving credit facilities

 

 

(270,000)

 

 

(90,000)

Proceeds from issuance of senior notes

 

 

523,000 

 

 

 —

Proceeds from issuance of insurance premium notes

 

 

 —

 

 

11,612 

Principal payments on notes payable

 

 

(4,735)

 

 

(7,582)

Repayment of debt assumed in business combination

 

 

(151,919)

 

 

 —

Debt issuance costs

 

 

(3,731)

 

 

(1,156)

Net proceeds from mortgage credit facility

 

 

27,465 

 

 

 —

Net proceeds from issuances of common stock

 

 

35,010 

 

 

 —

Repurchases of common stock upon vesting of restricted stock awards

 

 

(4,141)

 

 

(1,014)

Repurchases of common stock under our stock repurchase program

 

 

 —

 

 

(2,393)

Net cash provided by financing activities

 

 

225,949 

 

 

54,467 

Net decrease in cash and cash equivalents

 

$

29,072 

 

$

(11,933)

Cash and cash equivalents

 

 

 

 

 

 

Beginning of period

 

 

29,450 

 

 

29,287 

End of period

 

$

58,522 

 

$

17,354 

Supplemental cash flow disclosure

 

 

 

 

 

 

Cash paid for income taxes

 

$

21,657 

 

$

20,557 



See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2017



1. Basis of Presentation

Century Communities, Inc. (which we refer to as “we,” “CCS,” or the “Company”) is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of California, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, Utah, and Washington.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.  Our homebuilding operations are organized into the following four reportable segments based on the geographic regions in which we operate: West, Mountain, Texas and Southeast.   Additionally, our indirect wholly-owned subsidiaries Inspire Home Loans Inc. and Parkway Title, LLC, which provide mortgage and title services to our home buyers, respectively, have been identified as our Financial Services operating segment.

On August 4, 2017, we acquired UCP, Inc. (which we refer to as “UCP”). UCP is a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, with operations in the States of California, Washington, North Carolina, South Carolina and Tennessee.  The merger was unanimously approved by the board of directors of both the Company and UCP and was also approved by UCP stockholders on August 1, 2017.  In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock.  Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash.  Our operating results presented herein include the operations of UCP from the period beginning on August 4, 2017 through September 30, 2017.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2016, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that was filed with the SEC on February 15, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities for which the Company is deemed to be the primary beneficiary.  We do not have any variable interest entities in which we are deemed the primary beneficiary.  All intercompany accounts and transactions have been eliminated.

Mortgage Loans Held for Sale

 

We use best efforts commitments with various investors to mitigate the risk associated with mortgage loans held for sale.  Best efforts commitments which fix the forward sales price that will be realized in the secondary market are used to eliminate our interest rate and price risks.  These best effort commitments are considered derivative instruments under ASC 815, “Derivatives and Hedging,” however, we do not have any derivative instruments designated as hedging instruments as of September 30, 2017. Substantially all of the loans originated by us and their related servicing rights are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. In accordance with ASC 825, “Financial Instruments” we use the fair value option to record residential mortgage loans available-for-sale at the price they are committed to be sold under the best efforts commitments. 



Expected gains and losses from the sale of our loans held for sale are included in the measurement of written loan commitments that are accounted for at fair value through Financial Services revenues at the time of commitment.  As of September 30, 2017, mortgage loans available-for-sale had an aggregate fair value of $30.1 million and an aggregate outstanding principal balance of $28.7 million. The net gain resulting from changes in fair value of the best efforts commitments and mortgage loans held in inventory totaled $0.8 million and $1.4 million for the three and nine months ended September 30, 2017, respectively.  Realized net gains from the sale of mortgages during the three and nine months ended September 30, 2017 were $0.5 million and $0.6 million, respectively, and have been included in Financial Services revenues. 

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results could differ from those estimates.

Reclassification

Certain items on the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2016 have been reclassified to conform to our current presentation.  We have included “Golf course and other revenue” with “Land sales and other revenues” we have included “Cost of golf course and other revenue” with “Cost of land sales and other revenues” and we have combined “Interest income,” “Interest expense,” and “Gain on disposition of assets” into “Other income (expense)” in our current presentation.  We have also adjusted prior period segment information to conform to the current period presentation, see detail in “2. Reporting Segments.

Recently Issued Accounting Standards

In August 2015, the Financial Accounting Standards Board (which we refer to as “FASB”) issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” ASU 2015-14 defers the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and will be effective for the Company beginning on January 1, 2018, including interim reporting periods within that period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. We plan to adopt ASU 2015-14 on January 1, 2018 under the modified retrospective approach.   We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements and disclosures, and have been involved in industry specific discussions on the treatment of certain items. We  have evaluated our home sales contracts in each of our regions and have determined that there will not be a material impact on the amount or timing in recording home sales revenues as a result of adopting ASU 2015-14.   We are continuing to evaluate the accounting treatment of other aspects of our business that may be affected by our adoption of ASU 2015-14.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).”  ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.  ASU 2016-02 is effective for the Company beginning January 1, 2019 and interim periods within the annual periods.  We are currently evaluating the impact ASU 2016-02 will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”  ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for the Company beginning January 1, 2017 and interim periods within the annual periods.  We have adopted this standard and as a result have realized excess tax benefits of $1.1 million, which is included as a reduction to “Income tax expense” in our Condensed Consolidated Statements of Operations. Our calculation of earnings per share was also modified to reflect a change to exclude excess tax benefits from assumed proceeds in our computation of diluted shares outstanding under the treasury method.  We have elected to continue to estimate forfeitures in recognizing the expense for our equity awards.  Employee taxes paid by withholding shares on vesting of stock compensation are classified as a financing activity in our Condensed Consolidated Statements of Cash Flows. 



In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 consists of eight provisions that provide guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017.  We do not believe that ASU 2016-15 will have a material effect on our consolidated financial statements.



In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value.  It eliminates Step 2 of the current two-step goodwill impairment test.  ASU 2017-04 is effective for annual reporting periods in fiscal years beginning after December 15, 2019 and early adoption is permitted.    We elected to early adopt ASU 2017-04 for the reporting period beginning January 1, 2017.  Our adoption of ASU 2017-04 has not had a material effect on our condensed consolidated financial statements. 



2. Reporting Segments

Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 10 states, which are aggreated into four regions, each of which is managed by one of our regional presidents.   Each of our homebuilding divisions is considered an operating segment, but has been aggregated into reportable segments defined by our

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regional structure as each region has similar economic characteristics and housing products.  After our acquisition of UCP, Inc. management was reorganized to report to regional managers, who in turn report directly to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company.  The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability, at the regional level. Accordingly, we have broken our homebuilding operations into the following reportable segments based on the geographic markets in which we operate:

·

West (Southern California, Central Valley, Bay Area and Washington)

·

Mountain (Colorado, Nevada and Utah)

·

Texas (Houston, San Antonio and Austin)

·

Southeast (Georgia, North Carolina and Tennessee)

We have also identified our Financial Services operations, which provide mortgage and title services to our homebuyers as a fifth reportable segment.  Our Corporate operations are a nonoperating segment, as it serves to support our homebuilding operations through functions, such as our executive, finance, treasury, human resources, and accounting departments.  We have adjusted prior period segment information to conform to the current period presentation.

The following table summarizes total revenue and income before income tax expense by operating segment (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended September 30,

 

 

Nine Months Ended September 30,



2017

 

2016

 

 

2017

 

2016

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

West

$

73,684 

 

$

 —

 

 

$

73,684 

 

$

 —

Mountain

 

157,224 

 

 

141,043 

 

 

 

443,526 

 

 

353,649 

Texas

 

36,757 

 

 

30,036 

 

 

 

111,997 

 

 

106,179 

Southeast

 

109,096 

 

 

82,334 

 

 

 

265,951 

 

 

237,323 

Financial Services

 

2,955 

 

 

 —

 

 

 

4,697 

 

 

 —

Corporate

 

 —

 

 

 —

 

 

 

 —

 

 

 —

Total revenue

$

379,716 

 

$

253,413 

 

 

$

899,855 

 

$

697,151 



 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

West

$

5,259 

 

$

 —

 

 

$

5,259 

 

$

 —

Mountain

 

19,101 

 

 

18,995 

 

 

 

56,137 

 

 

47,234 

Texas

 

2,166 

 

 

(288)

 

 

 

6,407 

 

 

2,138 

Southeast

 

6,001 

 

 

7,848 

 

 

 

16,609 

 

 

21,827 

Financial Services

 

505 

 

 

 —

 

 

 

(192)

 

 

 —

Corporate

 

(17,876)

 

 

(6,824)

 

 

 

(33,904)

 

 

(19,942)

Total income before income tax expense

$

15,156 

 

$

19,731 

 

 

$

50,316 

 

$

51,257 



The following table summarizes total assets by operating segment (in thousands):



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

West

 

$

302,816 

 

$

 —

Mountain

 

 

571,124 

 

 

541,657 

Texas

 

 

186,840 

 

 

138,392 

Southeast

 

 

394,918 

 

 

262,448 

Financial Services

 

 

38,010 

 

 

 —

Corporate

 

 

137,300 

 

 

65,031 

Total assets

 

$

1,631,008 

 

$

1,007,528 

Corporate assets include certain cash and cash equivalents, our investment in unconsolidated subsidiaries, prepaid insurance, and deferred financing costs on our revolving line of credit.

3. Business Combinations

On August 4, 2017, we acquired UCP, Inc.  UCP is a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, with operations in the States of California, Washington, North Carolina, South Carolina and Tennessee.  The merger was unanimously approved by the board of directors of both the Company

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and UCP and was also approved by UCP stockholders on August 1, 2017.  In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock.  No fractional shares were issued in connection with the merger, and UCP stockholders received cash in lieu of any fractional shares.  Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash.    Outstanding UCP restricted stock units were also converted into an aggregate of 0.2 million of Century Communities restricted stock units pursuant to the merger. We determined that the total fair value of these awards was $6.2 million, of which $1.1 million was attributable to services performed by UCP employees prior to the merger and, as such, was included as consideration.  During the three and nine months ended September 30, 2017, we incurred $7.2 million and $8.6 million, respectively, in acquisition related expenses, presented as “Acquisition expense” on the Unaudited Condensed Consolidated Statement of Operations. Total consideration of $206.6 million inclusive of cash acquired of $20.2 million for this merger is summarized as follows (in thousands, except per share amount):





 

 

 

UCP Shares (including noncontrolling interest) as of August 4, 2017

 

 

18,085 

Cash paid per share

 

$

5.32 

Cash consideration

 

$

96,213 

UCP Shares (including noncontrolling interest) as of August 4, 2017

 

 

18,085 

Exchange ratio

 

 

0.2309 

Number of CCS shares issued

 

 

4,176 

Closing price of Century Communities Stock on August 4, 2017

 

$

25.80 

Consideration attributable to common stock

 

$

107,737 

Cash paid for fractional shares

 

$

1,508 

Total replacement award value

 

$

1,149 

Total consideration in cash and equity

 

$

206,607 



The acquired assets consisted of approximately 4,199 owned lots within 43 total communities in California, Washington, North Carolina, South Carolina and Tennessee. The 4,199 lots included 346 homes in backlog and 59 model homes.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination.



The following table summarizes the initial estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 





 

 

Cash and cash equivalents

$

20,264 

Accounts receivable

 

7,671 

Inventories

 

400,011 

Prepaid expenses and other assets

 

6,988 

Property and equipment, net

 

717 

Deferred tax asset, net

 

5,419 

Total assets

$

441,070 



 

 

Accounts payable

$

10,712 

Accrued expenses and other liabilities

 

70,832 

Notes payable and revolving loan agreement

 

152,919 

Total liabilities

 

234,463 

Purchase price/Net equity

$

206,607 



Acquired inventories consist of both acquired land and work in process inventories.  We determined the estimate of fair value for acquired land inventory with the assistance of a third-party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community, as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling

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efforts.  The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 3% to 20% based upon the stage of production of the individual lot.  The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.



On August 17, 2017, we sold BMCH South Carolina, LLC, a subsidiary of UCP, Inc. that was recently acquired as part of our acquisition of UCP, Inc., to a third party for approximately $17.1 million.  Accordingly, the estimated fair value of the acquired assets of BMCH South Carolina, LLC was determined to be equal to the disposal price given the proximity of the two transactions. 

We determined that UCP’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. 

UCP’s results of operations, which include homebuilding revenues of $77.6 million and net income of $5.6 million, are included in the accompanying consolidated statements of operations for the period from August 4, 2017 through September 30, 2017. Net income includes adjustments for inventory and acquisition expenses.

Unaudited pro forma income before tax expense for the three and nine months ended September 30, 2017 and 2016 gives effect to including the results of the acquisition of UCP as of January 1, 2017 and 2016, respectively.  Unaudited pro forma income before tax expense adjusts the operating results of UCP to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented and excludes acquisition expense incurred related to the transaction (in thousands, except share and per share information):









 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,



2017

 

2016

 

2017

 

2016

Revenues

$

416,223 

 

$

347,153 

 

$

1,142,371 

 

$

941,953 



 

 

 

 

 

 

 

 

 

 

 

Income before tax expense

$

24,604 

 

$

22,303 

 

$

69,950 

 

$

55,052 

Tax expense

 

(10,731)

 

 

(6,270)

 

 

(23,878)

 

 

(16,476)

Net income

$

13,873 

 

$

16,033 

 

$

46,072 

 

$

38,576 

Less: Undistributed earnings allocated to participating securities

 

(72)

 

 

(242)

 

 

(352)

 

 

(734)

Numerator for basic and diluted pro forma EPS

$

13,801 

 

$

15,791 

 

$

45,720 

 

$

37,842 



 

 

 

 

 

 

 

 

 

 

 

Pro forma weighted average shares-basic

 

27,034,192 

 

 

24,849,375 

 

 

26,342,362 

 

 

24,819,536 

Pro forma weighted average shares-diluted

 

27,314,776 

 

 

24,997,920 

 

 

26,579,292 

 

 

24,907,783 



 

 

 

 

 

 

 

 

 

 

 

Pro forma basic EPS

$

0.51 

 

$

0.64 

 

$

1.74 

 

$

1.52 

Pro forma diluted EPS

$

0.51 

 

$

0.63 

 

$

1.72 

 

$

1.52 







4. Inventories

Inventories included the following (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Homes under construction

 

$

897,402 

 

$

455,454 

Land and land development

 

 

415,375 

 

 

373,496 

Capitalized interest

 

 

40,212 

 

 

28,935 

Total inventories

 

$

1,352,989 

 

$

857,885 

 

 



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5. Prepaid Expenses and Other Assets

Prepaid expenses and other assets included the following (in thousands):







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Prepaid insurance

 

$

8,327 

 

$

12,236 

Lot option and escrow deposits

 

 

26,873 

 

 

12,320 

Performance deposits

 

 

5,732 

 

 

1,544 

Deferred financing costs revolving line of credit, net

 

 

2,030 

 

 

2,637 

Restricted cash

 

 

6,850 

 

 

1,505 

Secured note receivable

 

 

2,772 

 

 

2,850 

Golf course, net

 

 

5,294 

 

 

5,857 

Other

 

 

4,484 

 

 

1,508 

Total prepaid expenses and other assets

 

$

62,362 

 

$

40,457 

 

6. Investment in Unconsolidated Subsidiaries

On November 1, 2016, we acquired a 50% ownership of WJH LLC (which we refer to as “WJH”), which is the successor to Wade Jurney Homes, Inc. and Wade Jurney of Florida, Inc., for $15.0 million, of which $1.0 million is held by the Company for potential indemnification claims for a period of 18 months following the closing.  WJH primarily targets first-time homebuyers in the Southeastern United States.  As a result of the transaction, we own 50% of WJH and Wade Jurney Jr., an individual, owns the other 50% interest.  Each party contributed an additional $3.0 million in capital to WJH upon its formation and we incurred $0.1 million in related acquisition costs.  The Company and Wade Jurney Jr. share responsibility for all of WJH’s strategic decisions, with Wade Jurney Jr. continuing to manage the day-to-day operations under the existing operating model.  Our investment in WJH is treated as an unconsolidated investment under the equity method of accounting. 

As of September 30, 2017, our investment in WJH was $20.7 million and we recognized $3.7 million and $7.6 million of equity in income of unconsolidated subsidiaries during the three and nine months ended September 30, 2017, respectively.  During the three and nine months ended September 30, 2017, we received operating distributions from WJH of $1.4 million and $5.2 million, respectively.

7. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Earnest money deposits

 

$

15,086 

 

$

7,304 

Warranty reserve

 

 

8,850 

 

 

2,479 

Accrued compensation costs

 

 

13,949 

 

 

12,603 

Land development and home construction accruals

 

 

66,119 

 

 

31,486 

Liability for product financing arrangement

 

 

21,893 

 

 

 —

Accrued interest

 

 

14,936 

 

 

3,039 

Income taxes payable

 

 

 —

 

 

783 

Other

 

 

16,872 

 

 

4,620 

Total accrued expenses and other liabilities

 

$

157,705 

 

$

62,314 



 



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8. Warranties



Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.9 million and $1.2 million during the three and nine months ended September 30, 2017, respectively, which is included as a reduction to cost of homes sales revenues on our consolidated statement of operations.

The following table summarizes the changes in our warranty accrual (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

Beginning balance

 

$

3,057 

 

$

2,754 

 

$

2,479 

 

$

2,622 

Warranty reserve assumed in business combination

 

 

6,202 

 

 

 —

 

 

6,202 

 

 

 —

Warranty expense provisions

 

 

1,245 

 

 

686 

 

 

2,827 

 

 

2,078 

Payments

 

 

(710)

 

 

(554)

 

 

(1,458)

 

 

(1,194)

Warranty adjustment

 

 

(944)

 

 

(291)

 

 

(1,200)

 

 

(911)

Ending balance

 

$

8,850 

 

$

2,595 

 

$

8,850 

 

$

2,595 

 



9. Notes Payable and Revolving Line of Credit







6.875% senior notes

In May 2014, we completed a private offering of $200.0 million in aggregate principal amount of senior unsecured notes due 2022 (which we refer to as the “Initial Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended (which we refer to as the “Securities Act”).  The Initial Senior Notes were issued under the Indenture, dated as of May 5, 2014, among the Company, our subsidiary guarantors party thereto, and U.S Bank National Association, as trustee (which we refer to as the “May 2014 Indenture,” as it may be supplemented or amended from time to time).  The Initial Senior Notes were issued at a price equal to 99.239% of their principal amount, and we received net proceeds of approximately $193.3 million.  In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “Initial Exchange Notes”), for all of the Initial Senior Notes.  The terms of the Initial Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Initial Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the Initial Senior Notes do not apply to the Initial Exchange Notes. 

In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “April 2015 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act.  The April 2015 Senior Notes were issued at a price equal to 98.26% of their principal amount, and we received net proceeds of approximately $58.5 million.  The April 2015 Senior Notes were additional notes issued under the May 2014 Indenture pursuant to which the Initial Exchange Notes were issued.  In October 2015, we completed an offer to exchange $60.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “October 2015 Exchange Notes”), for all of the April 2015 Senior Notes.  The terms of the October 2015 Exchange Notes are identical in all material respects to the April 2015 Senior Notes, except that the October 2015 Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the April 2015 Senior Notes do not apply to the October 2015 Exchange Notes. 

In January 2017, we completed a private offering of an additional $125 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “January 2017 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act.  The January 2017 Senior Notes were issued at a price equal to 102.00% of their principal amount, and we received net proceeds of approximately $125.4 million.  The January 2017 Senior Notes were additional notes issued under the May 2014 Indenture pursuant to which the Initial Exchange Notes and the October 2015 Exchange Notes were issued.  In April 2017, we completed an offer to exchange $125.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “April 2017 Exchange Notes”), for all of the January 2017 Senior Notes.  The terms of the April 2017 Exchange Notes are identical in all material respects to the January 2017 Senior Notes, except that the April 2017 Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that were applicable to the January 2017 Senior Notes do not apply to the April 2017 Exchange Notes.

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The Initial Exchange Notes, October 2015 Exchange Notes, and April 2017 Exchange Notes (which we refer to collectively, as the “Existing 6.875% Notes”) will be treated as a single series of notes under the May 2014 Indenture, and will vote as a single class of notes for all matters submitted to a vote of holders under the May 2014 Indenture. 

The Existing 6.875% Notes are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The Existing 6.875% Notes contain certain restrictive covenants on issuing future secured debt and other transactions.  The aggregate principal balance of the Existing 6.875% Notes is due May 2022, with interest only payments due semi-annually in May and November of each year.

As of September 30, 2017, the aggregate amount outstanding on the Existing 6.875% Notes was $378.9 million.

5.875% senior notes

In May 2017, we completed a private offering of $400 million in aggregate principal amount of our 5.875% Senior Notes due 2025 (which we refer to as the “May 2017 Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act.  The May 2017 Senior Notes were issued under the Indenture, dated as of May 12, 2017, among the Company, our subsidiary guarantors party thereto, and U.S Bank National Association, as trustee (which we refer to as the “May 2017 Indenture,” as it may be supplemented or amended from time to time).  The May 2017 Senior Notes were issued at a price equal to 100.00% of their principal amount, and we received net proceeds of approximately $395.5 million.

As of September 30, 2017, we had $394.9 million outstanding on the May 2017 Senior Notes.

Other financing obligations

As of September 30, 2017, we had four insurance premium notes with an outstanding balance totaling $2.3 million.  Two of these notes mature in December 2017 and the other two mature in February 2018.  These insurance premium notes bear interest at a rate of 3.88%,  3.98%,  6.23%, and 6.23%, respectively.  During the nine months ended September 30, 2017, we repaid one insurance premium note with an outstanding balance of $0.1 million.   As of December 31, 2016, we had an aggregate of $6.0 million of outstanding insurance premium notes.

Revolving line of credit 

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which, as modified as described below, we refer to as the “Credit Agreement”). The Credit Agreement provided us with a revolving line of credit of up to $120 million (which, as modified as described below, we refer to as the “Revolving Credit Facility”).  

Under the terms of the Credit Agreement, we were entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility were guaranteed by certain of our subsidiaries.

On July 31, 2015, we entered into a First Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which modified the Credit Agreement.  The First Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $120 million to $200 million, (ii) extended the maturity date of the Revolving Credit Facility from October 21, 2017 to October 21, 2018, (iii) admitted Bank of America, N.A. as a new lender under the Revolving Credit Facility, and ( iv) increased the amount of the increase in the size of the Revolving Credit Facility that we had the option to request, from time to time, from an amount not exceeding $80 million to an amount not exceeding $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.  

On December 22, 2015, we entered into a Second Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement.  The Second Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $200 million to $300 million, and (ii) admitted Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association as new lenders under the Revolving Credit Facility.

On August 19, 2016, we entered into a Third Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement.  The Third Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $300 million to $380 million through our exercise of $80 million of the accordion feature of the Credit Agreement, (ii) admitted Citibank, N.A. and Flagstar Bank, FSB as new

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lenders under the Revolving Credit Facility, (iii) increased certain lenders’ respective commitments to the Revolving Credit Facility, and (iv) extended the term of the Revolving Credit Facility by one year to mature on October 21, 2019.

On February 24, 2017, we entered into a Commitment Increase Agreement with Texas Capital Bank, National Association, as Administrative Agent, Flagstar Bank, FSB (which we refer to as “Flagstar”), and our subsidiary guarantors party thereto. The Commitment Increase Agreement supplements the Credit Agreement, and (i) increased the Revolving Credit Facility from $380 million to $400 million through our exercise of the remaining $20 million of the accordion feature of the Credit Agreement, and (ii) increased Flagstar’s commitment to the Credit Facility.

Unless terminated earlier, the principal amount under the Revolving Credit Facility, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on October 21, 2019, the maturity date of the Revolving Credit Facility. Borrowings under the Revolving Credit Facility bear interest at a floating rate equal to the London Interbank Offered Rate plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum. The “applicable margins” described above are determined by a schedule based on our leverage ratio, as defined in the Credit Agreement. The Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility.



The 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. The Credit Agreement also requires us to maintain (i) a leverage ratio of not more than 1.75 to 1.0 as of the last day of any fiscal quarter, based upon our and our subsidiaries’ (on a consolidated basis) ratio of debt to tangible net worth, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon our and our subsidiaries’ (on a consolidated basis) ratio of EBITDA to cash interest expense, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests by us and the guarantors of the Revolving Credit Facility, plus 50% of the amount of our and our subsidiaries’ consolidated net income, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by us and our subsidiaries to our tangible net worth.  As of September 30, 2017, we were in compliance with all covenants under the Credit Agreement.

As of September 30, 2017, we did not have any amounts outstanding under the Credit Agreement.

Mortgage Repurchase Facility – Financial Services

On April 10, 2017, Inspire Home Loans Inc. (which we refer to as “Inspire”), an indirect wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement (which we refer to as the “Master Repurchase Agreement”) with Branch Banking and Trust Company, as the buyer thereunder (which we refer to as the “Buyer”). The Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $25 million (which we refer to as the “Repurchase Facility”). The primary purpose of the Repurchase Facility is to provide financing and liquidity to Inspire by facilitating purchase transactions in which Inspire transfers eligible loans to the Buyer, and the Buyer transfers funds, subject to a simultaneous agreement by the Seller to repurchase from the Buyer such eligible loans (i) upon written notice to the Buyer by Inspire, (ii) on a prescribed date in the future, (iii) upon the occurrence of prescribed events, or (iv) on the Termination Date (as defined below). The purchase transactions are based on and subject to the terms and conditions set forth in the Master Repurchase Agreement. The maximum aggregate amount of the Buyer’s commitment to fund purchase transactions under the Repurchase Facility is $25 million (which we refer to as the “Commitment”), subject to certain sublimits. The Repurchase Facility and the Buyer’s Commitment thereunder expires on the earlier of (i) April 9, 2018, and (ii) the date when the Buyer’s Commitment is terminated pursuant to the Master Repurchase Agreement or by operation of law (which we refer to as the “Termination Date”).



On September 15, 2017, Inspire entered into a second Master Repurchase Facility (which we refer to as the “Second Master Repurchase Agreement”) with J.P. Morgan Chase Bank, N.A. as the buyer thereunder.   The Second Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $35 million (which we refer to as the “Second Repurchase Facility”).  The purpose of the Second Repurchase Facility is similar to the purpose outlined above for the Repurchase Facility.  Amounts outstanding under the Repurchase Facility and Second Repurchase Facility are not guaranteed by us or any of our subsidiaries.  Each of the Master Repurchase Agreement and Second Master Repurchase Agreement contains various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.  As of September 30, 2017, we were in compliance with all covenants under each of the Repurchase Facility and Second Repurchase Facility.

As of September 30, 2017, there was an aggregate $27.5 million outstanding under both the Master Repurchase Agreement and Second Master Repurchase Agreement, and such outstanding amount was collateralized by the mortgage loans held for sale.



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10. Interest

Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed.  As our qualifying assets exceeded our outstanding debt during the three and nine months ended September 30, 2017 and 2016, we capitalized all interest costs incurred during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.

Our interest costs are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

Interest capitalized beginning of period

 

$

35,668 

 

 

26,577 

 

$

28,935 

 

 

21,533 

Interest capitalized during period

 

 

13,338 

 

 

6,743 

 

 

31,902 

 

 

19,772 

Less: capitalized interest in cost of sales

 

 

(8,794)

 

 

(5,192)

 

 

(20,625)

 

 

(13,177)

Interest capitalized end of period

 

$

40,212 

 

 

28,128 

 

$

40,212 

 

 

28,128 

















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 2017 estimated annual effective tax rate of 36.3% is driven by our blended federal and state statutory rate of 37.8%, which is partially offset by net estimated benefits of 1.5% primarily from additional deductions for tax related to domestic production activities which benefited our rate by 3.2%.  This benefit was partially offset by non-deductible acquisition costs associated with our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%.  Our estimated annual rate of 36.3% was also benefited by discrete items for excess tax benefits related to share based awards that vested during the nine months ended September 30, 2017, resulting in a total tax rate of 34.2%.



For the three months ended September 30, 2017 and 2016, we recorded income tax expense of $5.7 million and $6.4 million, respectively.  For the nine months ended September 30, 2017 and 2016, we recorded income tax expense of $17.2 million and $16.8 million, respectively.



12. Fair Value Disclosures

Accounting Standards Codification Topic 820, Fair Value Measurement, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

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 measurement date.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

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The following table presents carrying values and estimated fair values of financial instruments (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

September 30, 2017

 

December 31, 2016



 

Hierarchy 

 

Carrying 

 

Fair Value

 

Carrying 

 

Fair Value

Secured notes receivable(1)

 

Level 2

 

$

2,772 

 

$

2,766 

 

$

2,850 

 

$

2,828 

Mortgage loans held for sale(2)

 

Level 2

 

$

30,071 

 

$

30,071 

 

$

 —

 

$

 —



 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.875% senior notes(3)

 

Level 2

 

$

378,901 

 

$

398,512 

 

$

253,089 

 

$

260,090 

5.875 % senior notes (3)

 

Level 2

 

$

394,851 

 

$

395,850 

 

$

 —

 

$

 —

Revolving line of credit(4)

 

Level 2

 

$

 —

 

$

 —

 

$

195,000 

 

$

195,000 

Insurance premium notes(4)

 

Level 2

 

$

2,264 

 

$

2,264 

 

$

5,999 

 

$

5,999 

Mortgage repurchase facilities(4)

 

Level 2

 

$

27,465 

 

$

27,465 

 

$

 —

 

$

 —

(1)

Estimated fair value of the secured notes received was based on cash flow models discounted at market interest rates that considered the underlying risks of the note.

(2)

The mortgage loans held for sale are carried at fair value as of September 30, 2017, which was based on quoted market prices for those committed mortgage loans.

(3)

Estimated fair value of the senior notes as of September 30, 2017 and December 31, 2016 incorporated recent trading activity in inactive markets.

(4)

Carrying amount approximates fair value due to short-term nature and interest rate terms.

The carrying amount of cash and cash equivalents approximates fair value. Non-financial assets and liabilities include items such as inventory and long-lived assets that are measured at fair value when acquired and resulting from impairment, if deemed necessary.



13. Stock-Based Compensation

During the three months ended September 30, 2017, we granted 0.2 million shares of restricted stock units with a weighted average grant date fair value of $20.36 per share, which vest over a two or five year period from the grant date. These awards were issued in connection with our acquisition of UCP Inc., to UCP employees as replacement awards for the restricted stock units they held with UCP prior to the acquisition.  During the nine months ended September 30, 2017, we granted 0.5 million shares of restricted stock units with a weighted average grant date fair value of $21.64 per share, which vest over a one to five year period from the grant date. 

A summary of our outstanding awards of restricted common stock and restricted stock units are as follows (in thousands, except years):





 

 

 

 

 

 

 

 

 



 

 

As of September 30, 2017



 

Restricted Stock Awards

 

Restricted Stock Units

 

Total

Unvested awards/units

 

 

139 

 

 

732 

 

 

871 

Unrecognized compensation cost

 

$

909 

 

$

9,323 

 

$

10,232 

Period to recognize compensation cost

 

 

0.4 years

 

 

2.1 years

 

 

1.9 years (average)

During the three months ended September 30, 2017 and 2016, we recognized stock-based compensation of $2.6 million and $1.6 million, respectively. During the nine months ended September 30, 2017 and 2016, we recognized stock-based compensation of $6.5 million and $5.1 million, respectively. Stock-based compensation expense is included in selling, general, and administrative on our consolidated statements of operations.

14. Stockholders’ Equity

Our authorized capital stock consists of 100.0 million shares of common stock, par value $0.01 per share, and 50.0 million shares of preferred stock, par value $0.01 per share. As of September 30, 2017 and December 31, 2016, there were 27.3 million and 21.6 million shares of common stock issued and outstanding, respectively, inclusive of the restricted common stock issued.

We issued 29.2 thousand and 0.2 million shares of common stock related to the vesting of restricted stock awards during the three and nine months ended September 30, 2017, respectively, under our First Amended & Restated 2013 Long-Term Incentive Plan.  At our 2017 annual meeting of stockholders held on May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term Incentive Plan.  We had reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, of which approximately 0.6 million shares rolled over into the 2017 Incentive Plan when

16 

 


 

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it became effective.  As of September 30, 2017, approximately 1.2 million shares remain available for issuance under the 2017 Incentive Plan.  We also issued 4.2 million shares of our common stock in connection with our acquisition of UCP Inc., as discussed in Note 3.

On November 7, 2016, we entered into a Distribution Agreement (which we refer to as the “Distribution Agreement”) with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Citigroup Global Markets Inc. (which we refer to collectively as the “Sales Agents”), relating to our common stock.  Under the Distribution Agreement, we are authorized to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through any of our Sales Agents in “at the market” offerings.    On August 9, 2017, we entered into a second Distribution Agreement (which we refer to as the “Second Distribution Agreement”) with the Sales Agents, pursuant to which we may offer and sell from time to time up to $100.0 million in “at the market” offerings. During the three and nine months ended September 30, 2017, we sold and issued an aggregate of 0.4 million and 1.4 million shares of our common stock under the Distribution Agreement and Second Distribution Agreement, respectively, which provided net proceeds of $10.0 million and $34.6 million, respectively, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $0.2 million and $0.7 million, respectively.



15Earnings Per Share

We use the two-class method of calculating earnings per share (which we refer to as “EPS”) as our non-vested restricted stock awards have non-forfeitable rights to dividends and, accordingly, represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.  We use the treasury stock method to calculate the dilutive effect of our restricted stock units as the restricted stock units 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, 2017 and 2016 (in thousands, except share and per share information):



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,470 

 

$

13,342 

 

$

33,100 

 

$

34,467 

Less: Undistributed earnings allocated to participating securities

 

 

(52)

 

 

(241)

 

 

(289)

 

 

(785)

Net income allocable to common stockholders

 

$

9,418 

 

$

13,101 

 

$

32,811 

 

$

33,682 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

25,445,552 

 

 

20,673,521 

 

 

23,038,390 

 

 

20,643,682 

Dilutive effect of restricted stock units

 

 

280,585 

 

 

148,545 

 

 

236,930 

 

 

88,248 

Weighted average common shares outstanding - diluted

 

 

25,726,137 

 

 

20,822,066 

 

 

23,275,320 

 

 

20,731,930 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37 

 

$

0.63 

 

$

1.42 

 

$

1.63 

Diluted

 

$

0.37 

 

$

0.63 

 

$

1.41 

 

$

1.62 



We did not have any common unit equivalents to exclude from diluted earnings per share during the three and nine months ended September 30, 2017.













16. Commitments and Contingencies

Letters of Credit and Performance Bonds

In the normal course of business, the Company posts letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of September 30, 2017 and December 31, 2016,  we had $70.1 million and $70.1 million, respectively, in letters of credit and performance bonds issued and outstanding.

Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of our management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative on our consolidated statements of operations for our estimated loss.

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We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flow.





17. Supplemental Guarantor Information

The Existing 6.875% Notes and the May 2017 Senior Notes are our unsecured senior obligations, and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to as “Guarantors”).

Each of the May 2014 Indenture governing the Existing 6.875% Notes, and the May 2017 Indenture governing the May 2017 Senior Notes, provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective Indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective Indentures) or is made in compliance with applicable provisions of the applicable Indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable Indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective Indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable Indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the respective Indentures), in accordance with the applicable Indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable Indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable Indenture.

As the guarantees were made in connection with the February 2015 exchange offer for the Initial Exchange Notes, the October 2015 exchange offer for the October 2015 Exchange Notes, the April 2017 exchange offer for the April 2017 Exchange Notes, and the issuance of the May 2017 Senior Notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

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We have determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information is presented below:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Balance Sheet



 

As of September 30, 2017  (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,881 

 

$

16,278 

 

$

6,363 

 

$

 —

 

$

58,522 

Cash held in escrow

 

 

 —

 

 

41,740 

 

 

522 

 

 

 —

 

 

42,262 

Accounts receivable

 

 

11,306 

 

 

9,312 

 

 

192 

 

 

 —

 

 

20,810 

Investment in consolidated  subsidiaries

 

 

1,382,958 

 

 

 —

 

 

 —

 

 

(1,382,958)

 

 

 —

Inventories

 

 

 —

 

 

1,352,989 

 

 

 —

 

 

 —

 

 

1,352,989 

Mortgage loans held for sale

 

 

 —

 

 

 —

 

 

30,071 

 

 

 —

 

 

30,071 

Prepaid expenses and other assets

 

 

2,859 

 

 

59,129 

 

 

374 

 

 

 —

 

 

62,362 

Deferred tax asset, net

 

 

6,403 

 

 

 —

 

 

 —

 

 

 —

 

 

6,403 

Property and equipment, net

 

 

2,409 

 

 

10,760 

 

 

489 

 

 

 —

 

 

13,658 

Investment in unconsolidated subsidiaries

 

 

20,677 

 

 

 —

 

 

 —

 

 

 

 

 

20,677 

Amortizable intangible assets, net

 

 

 —

 

 

1,889 

 

 

 —

 

 

 —

 

 

1,889 

Goodwill

 

 

 —

 

 

21,365 

 

 

 —

 

 

 —

 

 

21,365 

Total assets

 

$

1,462,493 

 

$

1,513,462 

 

$

38,011 

 

$

(1,382,958)

 

$

1,631,008 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

(17)

 

$

16,707 

 

$

120 

 

$

 —

 

$

16,810 

Accrued expenses and other liabilities

 

 

35,746 

 

 

121,251 

 

 

708 

 

 

 —

 

 

157,705 

Notes payable

 

 

773,752 

 

 

2,264 

 

 

 —

 

 

 —

 

 

776,016 

Revolving line of credit

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Mortgage repurchase facility

 

 

 —

 

 

 —

 

 

27,465 

 

 

 —

 

 

27,465 

Total liabilities

 

 

809,481 

 

 

140,222 

 

 

28,293 

 

 

 —

 

 

977,996 

Stockholders’ equity:

 

 

653,012 

 

 

1,373,240 

 

 

9,718 

 

 

(1,382,958)

 

 

653,012 

Total liabilities and stockholders’ equity

 

$

1,462,493 

 

$

1,513,462 

 

$

38,011 

 

$

(1,382,958)

 

$

1,631,008 



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Supplemental Condensed Consolidated Balance Sheet



 

As of December 31, 2016  (in thousands)



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,637 

 

$

8,646 

 

$

6,167 

 

$

 —

 

$

29,450 

Cash held in escrow

 

 

 —

 

 

20,044 

 

 

 —

 

 

 —

 

 

20,044 

Accounts receivable

 

 

2,980 

 

 

2,749 

 

 

 —

 

 

 —

 

 

5,729 

Investment in consolidated subsidiaries

 

 

884,665 

 

 

 —

 

 

 —

 

 

(884,665)

 

 

 —

Inventories

 

 

 —

 

 

857,885 

 

 

 —

 

 

 —

 

 

857,885 

Prepaid expenses and other assets

 

 

14,628 

 

 

25,662 

 

 

167 

 

 

 —

 

 

40,457 

Property and equipment, net

 

 

1,166 

 

 

10,224 

 

 

22 

 

 

 —

 

 

11,412 

Investment in unconsolidated subsidiaries

 

 

18,275 

 

 

 —

 

 

 

 

 

 

 

 

18,275 

Amortizable intangible assets, net

 

 

 —

 

 

2,911 

 

 

 —

 

 

 —

 

 

2,911 

Goodwill

 

 

 —

 

 

21,365 

 

 

 —

 

 

 —

 

 

21,365 

Total assets

 

$

936,351 

 

$

949,486 

 

$

6,356 

 

$

(884,665)

 

$

1,007,528 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

257 

 

$

15,575 

 

$

(124)

 

$

 —

 

$

15,708 

Accrued expenses and other liabilities

 

 

12,587 

 

 

49,697 

 

 

30 

 

 

 —

 

 

62,314 

Deferred tax liability

 

 

1,782 

 

 

 —

 

 

 —

 

 

 —

 

 

1,782 

Senior and other notes payable

 

 

253,089 

 

 

5,999 

 

 

 —

 

 

 —

 

 

259,088 

Revolving line of credit

 

 

195,000 

 

 

 

 

 

 

 

 

195,000 

Total liabilities

 

 

462,715 

 

 

71,271 

 

 

(94)

 

 

 —

 

 

533,892 

Stockholders’ equity:

 

 

473,636 

 

 

878,215 

 

 

6,450 

 

 

(884,665)

 

 

473,636 

Total liabilities and stockholders’ equity

 

$

936,351 

 

$

949,486 

 

$

6,356 

 

$

(884,665)

 

$

1,007,528 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Operations



For the Three Months Ended September 30, 2017 (in thousands)



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

374,935 

 

$

 —

 

$

 —

 

$

374,935 

Land sales and other  revenues

 

 

 —

 

 

1,826 

 

 

 —

 

 

 —

 

 

1,826 



 

 

 —

 

 

376,761 

 

 

 —

 

 

 —

 

 

376,761 

Financial services revenue

 

 

 —

 

 

 —

 

 

2,955 

 

 

 —

 

 

2,955 

Total revenues

 

 

 —

 

 

376,761 

 

 

2,955 

 

 

 —

 

 

379,716 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(311,365)

 

 

 —

 

 

 —

 

 

(311,365)

Cost of land sales and other revenues

 

 

 —

 

 

(2,104)

 

 

 —

 

 

 —

 

 

(2,104)



 

 

 —

 

 

(313,469)

 

 

 —

 

 

 —

 

 

(313,469)

Financial services costs

 

 

 —

 

 

 —

 

 

(2,450)

 

 

 —

 

 

(2,450)

Selling, general and administrative

 

 

(13,342)

 

 

(32,823)

 

 

 —

 

 

 —

 

 

(46,165)

Acquisition expense

 

 

(7,205)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,205)

Equity in earnings from consolidated subsidiaries

 

 

20,470 

 

 

 —

 

 

 —

 

 

(20,470)

 

 

 —

Equity in income of unconsolidated subsidiaries

 

 

3,716 

 

 

 —

 

 

 —

 

 

 —

 

 

3,716 

Other income (expense)

 

 

495 

 

 

518 

 

 

 —

 

 

 —

 

 

1,013 

Income before income tax expense

 

 

4,134 

 

 

30,987 

 

 

505 

 

 

(20,470)

 

 

15,156 

Income tax expense

 

 

5,336 

 

 

(10,845)

 

 

(177)

 

 

 —

 

 

(5,686)

Net income

 

$

9,470 

 

$

20,142 

 

$

328 

 

$

(20,470)

 

$

9,470 

20 

 


 

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Supplemental Condensed Consolidated Statement of Operations



For the Three Months Ended September 30, 2016 (in thousands)  



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

248,075 

 

$

 —

 

$

 —

 

$

248,075 

Land sales and other  revenues

 

 

 —

 

 

5,338 

 

 

 —

 

 

 —

 

 

5,338 



 

 

 —

 

 

253,413 

 

 

 —

 

 

 —

 

 

253,413 

Financial services revenue

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total revenues

 

 

 —

 

 

253,413 

 

 

 —

 

 

 —

 

 

253,413 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(197,650)

 

 

 —

 

 

 —

 

 

(197,650)

Cost of land sales and other revenues

 

 

 —

 

 

(5,420)

 

 

 —

 

 

 —

 

 

(5,420)



 

 

 —

 

 

(203,070)

 

 

 —

 

 

 —

 

 

(203,070)

Financial services costs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Selling, general and administrative

 

 

(6,846)

 

 

(24,098)

 

 

 —

 

 

 —

 

 

(30,944)

Acquisition expense

 

 

(53)

 

 

 —

 

 

 —

 

 

 —

 

 

(53)

Equity in earnings from consolidated subsidiaries

 

 

17,303 

 

 

 —

 

 

 —

 

 

(17,303)

 

 

 —

Other income (expense)

 

 

10 

 

 

375 

 

 

 —

 

 

 —

 

 

385 

Income before income tax expense

 

 

10,414 

 

 

26,620 

 

 

 —

 

 

(17,303)

 

 

19,731 

Income tax expense

 

 

2,928 

 

 

(9,317)

 

 

 —

 

 

 —

 

 

(6,389)

Net income

 

$

13,342 

 

$

17,303 

 

$

 —

 

$

(17,303)

 

$

13,342 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Operations



For the Nine Months Ended September 30, 2017 (in thousands)  



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

888,942 

 

$

 —

 

$

 —

 

$

888,942 

Land sales and other  revenues

 

 

 —

 

 

6,216 

 

 

 —

 

 

 —

 

 

6,216 



 

 

 —

 

 

895,158 

 

 

 —

 

 

 —

 

 

895,158 

Financial services revenue

 

 

 —

 

 

 —

 

 

4,697 

 

 

 —

 

 

4,697 

Total revenues

 

 

 —

 

 

895,158 

 

 

4,697 

 

 

 —

 

 

899,855 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(727,577)

 

 

 —

 

 

 —

 

 

(727,577)

Cost of land sales and other revenues

 

 

 —

 

 

(4,994)

 

 

 —

 

 

 —

 

 

(4,994)



 

 

 —

 

 

(732,571)

 

 

 —

 

 

 —

 

 

(732,571)

Financial services costs

 

 

 —

 

 

 —

 

 

(4,648)

 

 

 —

 

 

(4,648)

Selling, general and administrative

 

 

(30,876)

 

 

(82,721)

 

 

 —

 

 

 —

 

 

(113,597)

Acquisition expense

 

 

(8,645)

 

 

 —

 

 

 —

 

 

 —

 

 

(8,645)

Equity in earnings from consolidated subsidiaries

 

 

52,869 

 

 

 —

 

 

 —

 

 

(52,869)

 

 

 —

Equity in income of unconsolidated subsidiaries

 

 

7,648 

 

 

 —

 

 

 —

 

 

 —

 

 

7,648 

Other income (expense)

 

 

852 

 

 

1,386 

 

 

36 

 

 

 —

 

 

2,274 

Income before income tax expense

 

 

21,848 

 

 

81,252 

 

 

85 

 

 

(52,869)

 

 

50,316 

Income tax expense

 

 

11,252 

 

 

(28,438)

 

 

(30)

 

 

 —

 

 

(17,216)

Net income

 

$

33,100 

 

$

52,814 

 

$

55 

 

$

(52,869)

 

$

33,100 



21 

 


 

Table of Contents

 

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Operations



For the Nine Months Ended September 30, 2016 (in thousands)  



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

686,335 

 

$

 —

 

$

 —

 

$

686,335 

Land sales and other revenues

 

 

 —

 

 

10,816 

 

 

 —

 

 

 —

 

 

10,816 



 

 

 —

 

 

697,151 

 

 

 —

 

 

 —

 

 

697,151 

Financial services revenue

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total revenues

 

 

 —

 

 

697,151 

 

 

 —

 

 

 —

 

 

697,151 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(549,886)

 

 

 —

 

 

 —

 

 

(549,886)

Cost of land sales and other revenues

 

 

 —

 

 

(9,433)

 

 

 —

 

 

 —

 

 

(9,433)



 

 

 —

 

 

(559,319)

 

 

 —

 

 

 —

 

 

(559,319)

Financial services costs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Selling, general and administrative

 

 

(18,323)

 

 

(69,189)

 

 

 —

 

 

 —

 

 

(87,512)

Equity in earnings from consolidated subsidiaries

 

 

45,514 

 

 

 —

 

 

 —

 

 

(45,514)

 

 

 —

Acquisition expense

 

 

(466)

 

 

 —

 

 

 —

 

 

 —

 

 

(466)

Other income (expense)

 

 

24 

 

 

1,379 

 

 

 —

 

 

 —

 

 

1,403 

Income before income tax expense

 

 

26,749 

 

 

70,022 

 

 

 —

 

 

(45,514)

 

 

51,257 

Income tax expense

 

 

7,718 

 

 

(24,508)

 

 

 —

 

 

 —

 

 

(16,790)

Net income

 

$

34,467 

 

$

45,514 

 

$

 —

 

$

(45,514)

 

$

34,467 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Cash Flows



 

For the Nine Months Ended September 30, 2017 (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Net cash provided by/(used in) operating activities

 

$

(8,164)

 

$

(92,577)

 

$

(30,014)

 

$

 —

 

$

(130,755)

Net cash used in investing activities

 

$

(434,617)

 

$

(63,905)

 

$

(467)

 

$

432,867 

 

$

(66,122)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

$

75,000 

 

$

 —

 

$

 —

 

$

 —

 

$

75,000 

Payments on revolving credit facilities

 

 

(270,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(270,000)

Proceeds from issuance of senior notes

 

 

523,000 

 

 

 —

 

 

 —

 

 

 —

 

 

523,000 

Repyment of debt assumed in business combination

 

 

 —

 

 

(151,919)

 

 

 —

 

 

 —

 

 

(151,919)

Principal payments on notes payable

 

 

 —

 

 

(4,735)

 

 

 —

 

 

 —

 

 

(4,735)

Debt issuance costs

 

 

(3,731)

 

 

 —

 

 

 —

 

 

 —

 

 

(3,731)

Repurchases of common stock upon vesting of restricted stock awards

 

 

(4,141)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,141)

Payments from (and advances to) parent/subsidiary

 

 

108,887 

 

 

320,768 

 

 

3,212 

 

 

(432,867)

 

 

 —

Net proceeds from mortgage credit facility

 

 

 —

 

 

 —

 

 

27,465 

 

 

 —

 

 

27,465 

Net proceeds from issuances of common stock

 

 

35,010 

 

 

 —

 

 

 —

 

 

 —

 

 

35,010 

Net cash provided by financing activities

 

$

464,025 

 

$

164,114 

 

$

30,677 

 

$

(432,867)

 

$

225,949 

Net decrease in cash and cash equivalents

 

$

21,244 

 

$

7,632 

 

$

196 

 

$

 —

 

$

29,072 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

$

14,637 

 

$

8,646 

 

$

6,167 

 

$

 —

 

$

29,450 

End of period

 

$

35,881 

 

$

16,278 

 

$

6,363 

 

$

 —

 

$

58,522 

22 

 


 

Table of Contents

 

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Cash Flows



 

For the Nine Months Ended September 30, 2016 (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Net cash provided by/(used in) operating activities

 

$

(17,969)

 

$

(43,431)

 

$

 —

 

$

 —

 

$

(61,400)

Net cash used in investing activities

 

$

(42,791)

 

$

(4,685)

 

$

 —

 

$

42,476 

 

$

(5,000)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

$

145,000 

 

$

 —

 

$

 —

 

$

 —

 

$

145,000 

Payments on revolving credit facilities

 

 

(90,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(90,000)

Proceeds from insurance notes payable

 

 

 —

 

 

11,612 

 

 

 —

 

 

 —

 

 

11,612 

Principal payments on notes payable

 

 

 —

 

 

(7,582)

 

 

 —

 

 

 —

 

 

(7,582)

Debt issuance costs

 

 

(1,156)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,156)

Repurchases of common stock under our stock repurchase program

 

 

(2,393)

 

 

 —

 

 

 —

 

 

 —

 

 

(2,393)

Repurchases of common stock upon vesting of restricted stock awards

 

 

(1,014)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,014)

Payments from (and advances to) parent/subsidiary

 

 

 —

 

 

42,476 

 

 

 —

 

 

(42,476)

 

 

 —

Net cash provided by financing activities

 

$

50,437 

 

$

46,506 

 

$

 —

 

$

(42,476)

 

$

54,467 

Net decrease in cash and cash equivalents

 

$

(10,323)

 

$

(1,610)

 

$

 —

 

$

 —

 

$

(11,933)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

$

22,002 

 

$

7,285 

 

$

 —

 

$

 

 

$

29,287 

End of period

 

$

11,679 

 

$

5,675 

 

$

 —

 

$

 —

 

$

17,354 



















 

18. Subsequent Events



On October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes and affiliates, a homebuilder with operations in greater Seattle, Washington for approximately $51.5 million in cash. The acquired assets include owned and controlled land, homes under construction and model homes.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination.



The following table summarizes our preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the acquisition date:





 

 

Inventories

$

57,277 

Prepaid expenses and other assets

 

1,050 

Property and equipment, net

 

142 

Total assets

$

58,469 



 

 

Accounts payable

$

4,716 

Accrued expenses and other liabilities

 

2,253 

Total liabilities

 

6,969 

Purchase price/Net equity

$

51,500 

The purchase price accounting reflected above is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities.

23 

 


 

Table of Contents

 

 



ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws.  Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  These statements are only predictions.  We caution that forward-looking statements are not guarantees.  Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements.  Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.  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:

·

economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;

·

a downturn in the homebuilding industry, including a decline in real estate values or market conditions resulting in impairment of our assets;

·

changes in assumptions used to make industry forecasts;

·

continued volatility and uncertainty in the credit markets and broader financial markets;

·

our future operating results and financial condition;

·

our business operations;

·

changes in our business and investment strategy;

·

availability of land to acquire, and our ability to acquire such land on favorable terms or at all;

·

availability, terms and deployment of capital;

·

availability of mortgage financing or an increase in the number of foreclosures in the market;

·

shortages of or increased prices for labor, land or raw materials used in housing construction;

·

delays in land development or home construction resulting from adverse weather conditions or other events outside our control;

·

impact of construction defect, product liability, and/or home warranty claims, including the adequacy of accruals and the applicability and sufficiency of our insurance coverage;

·

changes in, or the failure or inability to comply with, governmental laws and regulations;

·

the timing of receipt of regulatory approvals and the opening of projects;

·

the degree and nature of our competition;

·

our leverage and debt service obligations;

·

our ability to successfully integrate the acquired businesses and realize projected cost savings and other benefits from our merger transaction with UCP, Inc.;

·

availability of qualified personnel and our ability to retain our key personnel; and

·

changes in GAAP.





The 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 in “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II, Item 1A.  Risk Factors” in this Form 10-Q, and other risks and uncertainties detailed in this 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” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.

24 

 


 

Table of Contents

 

 

Overview

We are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in California, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, Utah, and Washington.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.  Our homebuilding operations are organized into the following four reportable segments based on the geographic regions in which we operate: West, Mountain, Texas and the Southeast.   Additionally, our indirect wholly-owned subsidiaries Inspire Home Loans Inc. and Parkway Title, LLC, which provide mortgage and title services to our home buyers, respectively, have been identified as our Financial Services operating segment.

On August 4, 2017, we acquired UCP, Inc.  UCP is a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, with operations in the States of California, Washington, North Carolina, South Carolina and Tennessee.  The merger was unanimously approved by the board of directors of both the Company and UCP, and was also approved by UCP stockholders on August 1, 2017.  In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock. Approximately 4.2 million shares of our common stock were issued in connection with the merger and $97.7 million was paid in cash.  Outstanding UCP restricted stock units were also converted into an aggregate of 0.2 million of Century Communities restricted stock units pursuant to the merger. We determined that the total fair value of these awards was $6.2 million, of which $1.1 million was attributable to services performed by UCP employees prior to the merger and, as such, was included as consideration.  Because the closing of the merger occurred during the quarter ended September 30, 2017, the discussion included under “Results of Operations” below includes results of UCP only for the period from August 4, 2017 through September 30, 2017.  We have adjusted prior period consolidated and segment information, where applicable, to conform to the current period presentation. 

 



Results of Operations

During the three months ended September 30, 2017, we delivered 968 homes, with an average sales price of $387.3 thousand. During the same period, we generated approximately $374.9 million in home sales revenues, approximately $15.2 million in income before income tax expense, and approximately $9.5 million in net income.

During the nine months ended September 30, 2017, we delivered 2,329 homes, with an average sales price of $381.7 thousand. During the same period, we generated approximately $888.9 million in home sales revenues, approximately $50.3 million in income before income tax expense, and approximately $33.1 million in net income.

For the three and nine months ended September 30, 2017, our new home contracts, net of cancelations, totaled 914 and 2,892, respectively, a 45.5% and 26.2% increase over the same periods in 2016, respectively. As of September 30, 2017, we had a backlog of 1,664 sold but unclosed homes, a 67.7% increase as compared to September 30, 2016, representing approximately $689.3 million in sales value, an 81.0% increase as compared to September 30, 2016.    

25 

 


 

Table of Contents

 

 

The following table summarizes our results of operation for the three and nine months ended September 30, 2017 and 2016.    









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except per share amounts)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,



 

2017

 

2016

 

2017

 

2016



 

(unaudited)

 

 

 

 

 

 

 

 

Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

374,935 

 

 

$

248,075 

 

 

$

888,942 

 

 

$

686,335 

 

Land sales revenues

 

 

1,826 

 

 

 

5,338 

 

 

 

6,216 

 

 

 

10,816 

 



 

 

376,761 

 

 

 

253,413 

 

 

 

895,158 

 

 

 

697,151 

 

Financial services revenue

 

 

2,955 

 

 

 

 —

 

 

 

4,697 

 

 

 

 —

 

Total revenues

 

 

379,716 

 

 

 

253,413 

 

 

 

899,855 

 

 

 

697,151 

 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

(311,365)

 

 

 

(197,650)

 

 

 

(727,577)

 

 

 

(549,886)

 

Cost of land sales and other revenues

 

 

(2,104)

 

 

 

(5,420)

 

 

 

(4,994)

 

 

 

(9,433)

 



 

 

(313,469)

 

 

 

(203,070)

 

 

 

(732,571)

 

 

 

(559,319)

 

Financial services costs

 

 

(2,450)

 

 

 

 —

 

 

 

(4,648)

 

 

 

 —

 

Selling, general, and administrative

 

 

(46,165)

 

 

 

(30,944)

 

 

 

(113,597)

 

 

 

(87,512)

 

Acquisition expense

 

 

(7,205)

 

 

 

(53)

 

 

 

(8,645)

 

 

 

(466)

 

Equity in income of unconsolidated subsidiaries

 

 

3,716 

 

 

 

 —

 

 

 

7,648 

 

 

 

 —

 

Other income (expense)

 

 

1,013 

 

 

 

385 

 

 

 

2,274 

 

 

 

1,403 

 

Income before income tax expense

 

 

15,156 

 

 

 

19,731 

 

 

 

50,316 

 

 

 

51,257 

 

Income tax expense

 

 

(5,686)

 

 

 

(6,389)

 

 

 

(17,216)

 

 

 

(16,790)

 

Net income

 

$

9,470 

 

 

$

13,342 

 

 

$

33,100 

 

 

$

34,467 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37 

 

 

$

0.63 

 

 

$

1.42 

 

 

$

1.63 

 

Diluted

 

$

0.37 

 

 

$

0.63 

 

 

$

1.41 

 

 

$

1.62 

 

Adjusted diluted earnings per share(1)

 

$

0.73 

 

 

$

0.63 

 

 

$

1.87 

 

 

$

1.65 

 

Other Operating Information (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of homes delivered

 

 

968 

 

 

 

706 

 

 

 

2,329 

 

 

 

2,013 

 

Average sales price of homes delivered

 

$

387.3 

 

 

$

351.4 

 

 

$

381.7 

 

 

$

341.0 

 

Homebuilding gross margin percentage

 

 

17.0 

%

 

 

20.3 

%

 

 

18.2 

%

 

 

19.9 

%

Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory (1)

 

 

21.0 

%

 

 

22.5 

%

 

 

21.2 

%

 

 

21.8 

%

Cancellation rate

 

 

24 

%

 

 

22 

%

 

 

19 

%

 

 

19 

%

Backlog at end of period, number of homes

 

 

1,664 

 

 

 

992 

 

 

 

1,664 

 

 

 

992 

 

Backlog at end of period, aggregate sales value

 

$

689,338 

 

 

$

380,926 

 

 

$

689,338 

 

 

$

380,926 

 

Average sales price of homes in backlog

 

$

414.3 

 

 

$

384.0 

 

 

$

414.3 

 

 

$

384.0 

 

Net new home contracts

 

 

914 

 

 

 

628 

 

 

 

2,892 

 

 

 

2,291 

 

Selling communities at period end

 

 

107 

 

 

 

87 

 

 

 

107 

 

 

 

87 

 

Average selling communities

 

 

102 

 

 

 

90 

 

 

 

92 

 

 

 

91 

 

Total owned and controlled lot inventory

 

 

31,996 

 

 

 

17,203 

 

 

 

31,996 

 

 

 

17,203 

 

Adjusted EBITDA(1)

 

$

32,451 

 

 

$

26,441 

 

 

$

83,233 

 

 

$

68,971 

 

Net debt to net capital(1)

 

 

51.8 

%

 

 

47.6 

%

 

 

51.8 

%

 

 

47.6 

%

(1) Non-GAAP financial measure.

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Results of Operations by Operating Segment

(dollars in thousands)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

New Homes Delivered

 

Average Sales Price of Homes Delivered

 

Home Sales Revenues

 

Income before Income Tax



 

Three Months Ended September 30,

 

Three Months Ended September 30,

 

Three Months Ended September 30,

 

Three Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

West

 

 

151 

 

 

 —

 

$

488.0 

 

$

 —

 

$

73,684 

 

$

 —

 

$

5,259 

 

$

 —

Mountain

 

 

375 

 

 

344 

 

$

417.3 

 

$

408.0 

 

 

156,482 

 

 

140,356 

 

 

19,101 

 

 

18,995 

Texas

 

 

90 

 

 

64 

 

$

397.5 

 

$

396.6 

 

 

35,772 

 

 

25,385 

 

 

2,166 

 

 

(288)

Southeast

 

 

352 

 

 

298 

 

$

309.7 

 

$

276.3 

 

 

108,997 

 

 

82,334 

 

 

6,001 

 

 

7,848 

Financial Services

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

505 

 

 

 —

Corporate

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

(17,876)

 

 

(6,824)

Total

 

 

968 

 

 

706 

 

$

387.3 

 

$

351.4 

 

$

374,935 

 

$

248,075 

 

$

15,156 

 

$

19,731 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

New Homes Delivered

 

Average Sales Price of Homes Delivered

 

Home Sales Revenues

 

Income before Income Tax



 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

West

 

 

151 

 

 

 —

 

$

488.0 

 

$

 —

 

$

73,684 

 

$

 —

 

$

5,259 

 

$

 —

Mountain

 

 

1,046 

 

 

854 

 

$

421.1 

 

$

410.7 

 

 

440,451 

 

 

350,742 

 

 

56,137 

 

 

47,234 

Texas

 

 

266 

 

 

252 

 

$

409.6 

 

$

390.0 

 

 

108,955 

 

 

98,270 

 

 

6,407 

 

 

2,138 

Southeast

 

 

866 

 

 

907 

 

$

307.0 

 

$

261.7 

 

 

265,852 

 

 

237,323 

 

 

16,609 

 

 

21,827 

Financial Services

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

(192)

 

 

 —

Corporate

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

(33,904)

 

 

(19,942)

Total

 

 

2,329 

 

 

2,013 

 

$

381.7 

 

$

341.0 

 

$

888,942 

 

$

686,335 

 

$

50,316 

 

$

51,257 



West

In our West segment, for the three and nine months ended September 30, 2017, our income before income tax increased by $5.3 million in both periods, to $5.3 million.  We acquired the entirety of our operations in the West operating segment in conjunction with our acquisition of UCP, Inc. as discussed above.  During the period from August 4, 2017 through September 30, 2017, we delivered 151 new homes with an average price of $488.0 thousand and generated $73.7 million in home sales revenues in the West. 

  

Mountain

In our Mountain segment, for the three and nine months ended September 30, 2017, our income before income tax increased by $0.1 million and $8.9 million, respectively, to $19.1 million and $56.1 million, respectively, as compared to $19.0 million and $47.2 million, for the same periods in 2016, respectively.  This increase is related to an increase in the number of homes delivered and an increase in the average selling price of those homes during the periods, year over year.  



Texas

In our Texas segment, for the three and nine months ended September 30, 2017, our income before income tax increased by $2.5 million and $4.3 million, respectively, to $2.2 million and $6.4 million, respectively, as compared to $(0.3) million and $2.1 million, for the same periods in 2016, respectively.  This increase is related to an increase in the number of homes delivered and an increase in the average selling price of those homes during the periods, year over year.  

  

Southeast

In our Southeast segment, for the three and nine months ended September 30, 2017, our income before income tax decreased by $1.8 million and $5.2 million, respectively, to $6.0 million and $16.6 million, respectively, as compared to $7.8 million and $21.8 million, for the same periods in 2016, respectively.  The number of homes delivered, home sales revenue and average selling price all increased in our Southeast segment year over year.  However, as we have recently started operations in North Carolina and Tennessee, our selling,

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general and administrative expenses have increased in those states when operations commenced, and as such we have net loss in those states driving the income before income tax to decrease year over year for our Southeast segment.

  

Financial Services

Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc. and Parkway Title, LLC, which provide mortgage and title services to our home buyers, respectively, have been identified as our Financial Services operating segment.  We began providing mortgage services to our customers during the second quarter of 2017.  Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days.  During the three and nine months ended September 30, 2017, we originated and closed 157 loans and 228 loans, respectively, with total principal of $51.0 million and $73.7 million, respectively.  As of September 30, 2017, we have 43 loans in backlog with total principal of $13.6 million.



Corporate

During the three and nine months ended September 30, 2017, our Corporate segment generated losses of $17.9 million and $33.9 million, respectively, as compared to losses of $6.8 million and $19.9 million, for the same periods in 2016, respectively.  The increase in expenses during the three months ended September 30, 2017 was primarily attributed to the following: (1) an increase in acquisition expenses of $7.2 million, and (2) an increase of $4.9 million in our compensation related expenses, including non-cash expenses for share based payments and an increase in the  number of employees after our acquisition of UCP, Inc., partially offset by net decreases in other selling and general administrative expenses and an increase in equity in income from unconsolidated subsidiaries.  The increase in expenses during the nine months ended September 30, 2017 was primarily attributed to the following: (1) an increase in acquisition expenses of $8.2 million, (2)  an increase of $8.0 million in our compensation related expenses, including non-cash expenses for share based payments and an increase in the  number of employees after our acquisition of UCP, Inc., (3) an increase of $2.1 million in information technology related expenses, and (4) an increase of $0.9 million in legal costs, partially offset by an increase in equity in income from unconsolidated subsidiaries. 



Homebuilding Gross Margin

Homebuilding gross margin represents home sales revenues less cost of home sales revenues. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three and nine months ended September 30, 2017 to 17.0% and 18.2%, respectively,  as compared to 20.3% and 19.9%, for the same periods in 2016, respectively.  The decrease is primarily driven by higher interest expense in cost of sales as a result of higher average debt balances outstanding in 2017 as compared to 2016, and as a result of the increased costs recognized for home sales related to purchase accounting. 

   



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In the following table, we calculate our homebuilding gross margin adjusting for interest in cost of sales, and purchase price accounting for acquired work in process inventory.





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,



 

2017

 

% 

 

2016

 

% 



 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

374,935 

 

100.0 

%

 

$

248,075 

 

100.0 

%

Cost of home sales revenues

 

 

(311,365)

 

(83.0)

%

 

 

(197,650)

 

(79.7)

%

Gross margin from home sales

 

 

63,570 

 

17.0 

%

 

 

50,425 

 

20.3 

%

Add: Interest in cost of home sales revenues

 

 

8,794 

 

2.3 

%

 

 

5,192 

 

2.1 

%

Adjusted homebuilding gross margin excluding interest

 

 

72,364 

 

19.3 

%

 

 

55,617 

 

22.4 

%

Add: Purchase price accounting for acquired work in process inventory(1)

 

 

6,214 

 

1.7 

%

 

 

100 

 

0.0 

%

Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory

 

$

78,578 

 

21.0 

%

 

$

55,717 

 

22.5 

%



 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

Nine Months Ended September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

% 

 

2016

 

% 



 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

888,942 

 

100.0 

%

 

$

686,335 

 

100.0 

%

Cost of home sales revenues

 

 

(727,577)

 

(81.8)

%

 

 

(549,886)

 

(80.1)

%

Gross margin from home sales

 

 

161,365 

 

18.2 

%

 

 

136,449 

 

19.9 

%

Add: Interest in cost of home sales revenues

 

 

20,625 

 

2.3 

%

 

 

13,177 

 

1.9 

%

Adjusted homebuilding gross margin excluding interest

 

 

181,990 

 

20.5 

%

 

 

149,626 

 

21.8 

%

Add: Purchase price accounting for acquired work in process inventory(1)

 

 

6,331 

 

0.7 

%

 

 

318 

 

0.0 

%

Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory

 

$

188,321 

 

21.2 

%

 

$

149,944 

 

21.8 

%

(1)Non-GAAP financial measure.

 For the three and nine months ended September 30, 2017, excluding interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 21.0% and 21.2%, respectively, as compared to 22.5% and 21.8%, for the same periods in 2016, respectively.  We believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on 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 



 

2017

 

2016

 

Amount 

 

% 

Selling, general and administrative

 

$

(46,165)

 

 

$

(30,944)

 

 

$

(15,221)

 

 

49.2 

%

As a percentage of homes sales revenue

 

 

(12.3)

%

 

 

(12.5)

%

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,

 

Increase 



 

2017

 

2016

 

Amount 

 

% 

Selling, general and administrative

 

$

(113,597)

 

 

$

(87,512)

 

 

$

(26,085)

 

 

29.8 

%

As a percentage of homes sales revenue

 

 

(12.8)

%

 

 

(12.8)

%

 

 

 

 

 

 

 

Our selling, general and administrative costs increased $15.2 million for the three months ended September 30, 2017 as compared to the same period in 2016. The increase was primarily attributable to the following: (1) an increase of $3.4 million in commission expense resulting from a 51% increase in home sales revenues, (2) an increase of $8.1 million in our compensation-related expenses, including incentive compensation associated with our acquisition of UCP, Inc. (3) an increase of $1.6 million in advertising expenses, and (4) a net increase of $2.0 million related to individually insignificant changes in other corporate expenses, including rent, information technology, insurance and legal

Our selling, general and administrative costs increased $26.1 million for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase was primarily attributable to the following: (1) an increase of $5.7 million in commission expense

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resulting from a 30% increase in home sales revenues, (2) an increase of $13.5 million in our compensation-related expenses, including incentive compensation associated with our acquisition of UCP, Inc. (3) an increase of $1.6 million in advertising expenses, (4) an increase of $1.0 million in information technology related costs, (5) an increase of $1.3 million in rent, insurance and office related costs, (6) an increase of $0.5 million in legal costs and (7) a net increase of $2.4 million related to individually insignificant changes in other corporate expenses. 

Other Income (Expense)

For the three and nine months ended September 30, 2017, other income (expense) increased to $1.0 million and $2.3 million, respectively, from $0.4 million and $1.4 million, for the same periods in 2016, respectively.  The increases were related to increases in interest and other income partially offset by decreases in gain (loss) on disposition of assets.

Equity in Income from Unconsolidated Subsidiaries



As of September 30, 2017, our investment in WJH was $20.7 million and we recognized $3.7 million and $7.6 million of equity in income of unconsolidated subsidiaries during the three and nine months ended September 30, 2017, respectively.  During the three and nine months ended September 30, 2017, we received operating distributions from WJH of $1.4 million and $5.2 million, respectively.



Income Tax Expense

Our 2017 estimated annual effective tax rate of 36.3% is driven by our blended federal and state statutory rate of 37.8%, which is partially offset by net estimated benefits of 1.5% primarily from additional deductions for tax related to domestic production activities which benefited our rate by 3.2%.  This benefit was partially offset by non-deductible acquisition costs associated with our acquisition of UCP, Inc., along with other items which increased our rate by 1.7%.  Our estimated annual rate of 36.3% was also benefited by discrete items for excess tax benefits related to share based awards that vested during the nine months ended September 30, 2017, resulting in a total tax rate of 34.2%.  For the three months ended September 30, 2017 and 2016, we recorded income tax expense of $5.7 million and $6.4 million, respectively.  For the nine months ended September 30, 2017 and 2016, we recorded income tax expense of $17.2 million and $16.8 million, respectively





Segment Assets





 

 

 

 

 

 

 

 

 

 

 

 



 

September 30,

 

December 31,

 

 

Increase (Decrease)



 

2017

 

2016

 

 

Amount

 

Change

West

 

$

302,816 

 

$

 —

 

$

302,816 

 

NM

 

Mountain

 

 

571,124 

 

 

541,657 

 

 

29,467 

 

5.4 

%

Texas

 

 

186,840 

 

 

138,392 

 

 

48,448 

 

35.0 

%

Southeast

 

 

394,918 

 

 

262,448 

 

 

132,470 

 

50.5 

%

Financial Services

 

 

38,010 

 

 

 —

 

 

38,010 

 

NM

 

Corporate

 

 

137,300 

 

 

65,031 

 

 

72,269 

 

111.1 

%

Total assets

 

$

1,631,008 

 

$

1,007,528 

 

$

623,480 

 

61.9 

%









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lots owned and

 

September 30, 2017

 

December 31, 2016

 

% Change

 

controlled

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

3,542 

 

2,630 

 

6,172 

 

 —

 

 —

 

 —

 

NM

 

 

NM

 

 

NM

 

Mountain

 

4,291 

 

5,068 

 

9,359 

 

4,354 

 

2,959 

 

7,313 

 

(1.4)

%

 

71.3 

%

 

28.0 

%

Texas

 

2,223 

 

4,795 

 

7,018 

 

1,356 

 

3,420 

 

4,776 

 

63.9 

%

 

40.2 

%

 

46.9 

%

Southeast

 

4,790 

 

4,657 

 

9,447 

 

2,953 

 

3,254 

 

6,207 

 

62.2 

%

 

43.1 

%

 

52.2 

%

Total

 

14,846 

 

17,150 

 

31,996 

 

8,663 

 

9,633 

 

18,296 

 

71.4 

%

 

78.0 

%

 

74.9 

%

NM – Not Meaningful

Of our total lots owned and controlled as of September 30, 2017, 46.4% were owned and 53.6% were controlled, as compared to 47.3% owned and 52.7% controlled as of December 31, 2016.

Total assets increased by $623.5 million, or 61.9%, to $1.6 billion at September 30, 2017. The increase is related to the increase in assets from our acquisition of UCP, Inc., from increased cash balances from our debt offerings completed during 2017, as well as the increased investments in most of our operating segments. 

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Other Homebuilding Operating Data







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

Net new home contracts

 

September 30,

 

Increase

 

September 30,

 

Increase



 

2017

 

2016

 

Amount

 

% Change

 

2017

 

2016

 

Amount

 

% Change

West

 

114 

 

 —

 

114 

 

NM

 

 

114 

 

 —

 

114 

 

NM

 

Mountain

 

373 

 

266 

 

107 

 

40.2 

%

 

1,290 

 

984 

 

306 

 

31.1 

%

Texas

 

133 

 

81 

 

52 

 

64.2 

%

 

360 

 

271 

 

89 

 

32.8 

%

Southeast

 

294 

 

281 

 

13 

 

4.6 

%

 

1,128 

 

1,036 

 

92 

 

8.9 

%

Total

 

914 

 

628 

 

286 

 

45.5 

%

 

2,892 

 

2,291 

 

601 

 

26.2 

%

NM – Not Meaningful



Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2017 increased by 286 homes, or 45.5%, to 914, compared to 628 for the same period in 2016.  Net new home contracts for the nine months ended September 30, 2017 increased by 601 homes, or 26.2%, to 2,892, compared to 2,291 for the same period in 2016.  The increase in our net new home contracts was driven by our acquisition of UCP, Inc. as well as overall positive market conditions in the markets in which we operate.

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, 2017 and 2016 by segment are included in the table below:



 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Increase



 

2017

 

2016

 

Amount

 

% Change

West

 

5.2 

 

 -

 

5.2 

 

NM

 

Mountain

 

3.8 

 

2.3 

 

1.5 

 

65.2 

%

Texas

 

1.8 

 

1.1 

 

0.7 

 

63.6 

%

Southeast

 

2.6 

 

3.2 

 

(0.6)

 

(18.8)

%

Total

 

3.2 

 

2.3 

 

0.9 

 

39.1 

%



 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,

 

Increase



 

2017

 

2016

 

Amount

 

% Change

West

 

5.2 

 

-

 

5.2 

 

NM

 

Mountain

 

4.3 

 

4.1 

 

0.2 

 

4.9 

%

Texas

 

1.8 

 

1.7 

 

0.1 

 

5.9 

%

Southeast

 

3.6 

 

3.9 

 

(0.3)

 

(7.7)

%

Total

 

3.5 

 

3.6 

 

(0.1)

 

(2.8)

%

NM – Not Meaningful

Our absorption rate increased by 39.1% to 3.2 per month and decreased by 2.8% to 3.5 per month, during the three and nine months ended September 30, 2017, respectively, as compared to 2.3 per month and 3.6 per month for the same periods in 2016, respectively.  The increase in absorption rate is attributable to the strong homebuilding environment as a result of positive economic trends across our markets.    







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Selling communities at period end

 

As of September 30,

 

 

Increase/(Decrease)



 

2017

 

2016

 

 

Amount

 

% Change



 

 

 

 

 

 

 

 

 

 

West

 

10 

 

 —

 

 

10 

 

NM

 

Mountain

 

33 

 

35 

 

 

(2)

 

(5.7)

%

Texas

 

24 

 

23 

 

 

 

4.3 

%

Southeast

 

40 

 

29 

 

 

11 

 

37.9 

%

Total

 

107 

 

87 

 

 

20 

 

23.0 

%

NM – Not Meaningful

Our selling communities increased to 107 communities at September 30, 2017 as compared to 87 communities at September 30, 2016.  The increase is attributable to our acquisition of UCP, Inc.    

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As of September 30,

Backlog

 

2017

 

2016

 

% Change

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price



 

 

 

 

 

 

West

 

290 

 

$

161,013 

 

$

555.2 

 

 —

 

$

 —

 

$

 —

 

NM

 

 

NM

 

 

NM

 

Mountain

 

573 

 

 

247,876 

 

 

432.6 

 

421 

 

 

183,605 

 

 

436.1 

 

36.1 

%

 

35.0 

%

 

(0.8)

%

Texas

 

245 

 

 

101,125 

 

 

412.8 

 

159 

 

 

74,098 

 

 

466.0 

 

54.1 

%

 

36.5 

%

 

(11.4)

%

Southeast

 

556 

 

 

179,324 

 

 

322.5 

 

412 

 

 

123,224 

 

 

299.1 

 

35.0 

%

 

45.5 

%

 

7.8 

%

Total / Weighted Average

 

1,664 

 

$

689,338 

 

$

414.3 

 

992 

 

$

380,927 

 

$

384.0 

 

67.7 

%

 

81.0 

%

 

7.9 

%

NM – Not Meaningful

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home.  At September 30, 2017, we had 1,664 homes in backlog with a total value of $689.4 million, which represents an increase of 67.7% and 81.0%, respectively, as compared to September 30, 2016The increase in backlog and backlog value is primarily attributable to our acquisition of UCP, Inc. as well as the increase in the demand for new homes in the communities in which we have historically operated.  The increase in average sales price of homes in backlog is driven by increases in most of our markets as a result of pricing strength due to positive market trends as well as product mix towards higher priced communities. 



Supplemental Pro Forma Information



To aid readers with 2017 over 2016 comparability for the entire merged business, we are also including limited supplemental pro forma information below.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

(dollars in thousands)

 

2017

 

2016



 

Pro Forma Home sales revenues

 

Pro Forma Net new home contracts

 

Pro Forma Deliveries

 

Pro Forma Average sales price

 

Pro Forma Home sales revenues

 

Pro Forma Net new home contracts

 

Pro Forma Deliveries

 

Pro Forma Average sales price

West

 

$

106,547 

 

150 

 

201 

 

$

530.1 

 

$

79,500 

 

161 

 

155 

 

$

512.9 

Mountain

 

 

156,482 

 

373 

 

375 

 

$

417.3 

 

 

140,356 

 

266 

 

344 

 

$

408.0 

Texas

 

 

35,772 

 

133 

 

90 

 

$

397.5 

 

 

25,385 

 

81 

 

64 

 

$

396.6 

Southeast

 

 

115,596 

 

309 

 

370 

 

$

312.4 

 

 

92,674 

 

367 

 

342 

 

$

271.0 

Total

 

$

414,397 

 

965 

 

1,036 

 

$

400.0 

 

$

337,915 

 

875 

 

905 

 -

$

373.4 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2017

 

2016



 

Pro Forma Home sales revenues

 

Pro Forma Net new home contracts

 

Pro Forma Deliveries

 

Pro Forma Average sales price

 

Pro Forma Home sales revenues

 

Pro Forma Net new home contracts

 

Pro Forma Deliveries

 

Pro Forma Average sales price

West

 

$

279,315 

 

587 

 

560 

 

$

498.8 

 

$

204,273 

 

502 

 

413 

 

$

494.6 

Mountain

 

 

440,451 

 

1403 

 

1046 

 

$

421.1 

 

 

350,742 

 

984 

 

854 

 

$

410.7 

Texas

 

 

108,955 

 

360 

 

266 

 

$

409.6 

 

 

98,270 

 

271 

 

252 

 

$

390.0 

Southeast

 

 

306,938 

 

1128 

 

1010 

 

$

303.9 

 

 

272,530 

 

1235 

 

1057 

 

$

257.8 

Total

 

$

1,135,659 

 

3,478 

 

2,882 

 

$

394.1 

 

$

925,815 

 

2,992 

 

2,576 

 

$

359.4 



Critical Accounting Policies

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 15, 2017, in the section entitled “Management’s Discussion and Analysis of Financial Condition

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and Results of Operations—Significant Accounting Policies.”  We have had no significant changes in our critical accounting policies from those described therein, other than those related to our Mortgage loans held for sale, as discussed in “Note 1. Basis of Presentation.”

Liquidity and Capital Resources

Overview

Our principal uses of capital for the three and nine months ended September 30, 2017 were the acquisition of UCP, Inc., land purchases, land development, home construction, and the payment of routine liabilities. We used funds generated by operations, bond offerings, and available borrowings under our Credit Agreement to meet our short-term working capital requirements.

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 statement of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities. As we continue to expand our business, we expect that cash outlays for land purchases and land development to grow our lot inventory could exceed our cash generated by operations. 

Covenant Compliance

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which, as modified as described below, we refer to as the “Credit Agreement”). The Credit Agreement provides the Company with a revolving line of credit (which, as modified as described below, we refer to as the “Revolving Credit Facility”) of up to $120 million. Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by certain of our subsidiaries.

On July 31, 2015, we entered into a First Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which modified the Credit Agreement.  The First Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $120 million to $200 million, (ii) extended the maturity date of the Revolving Credit Facility from October 21, 2017 to October 21, 2018, (iii) admitted Bank of America, N.A. as a new lender under the Revolving Credit Facility, and (iv) increased the amount of the increase in the size of the Revolving Credit Facility that we had the option to request, from time to time, from an amount not exceeding $80 million to an amount not exceeding $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.  

On December 22, 2015, we entered into a Second Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement.  The Second Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $200 million to $300 million, and (ii) admitted Compass Bank, an Alabama Banking Corporation, and U.S. Bank National Association as new lenders under the Revolving Credit Facility.

On August 19, 2016, we entered into a Third Modification Agreement with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and our subsidiary guarantors party thereto, which further modified the Credit Agreement.  The Third Modification Agreement, among other things, (i) increased the Revolving Credit Facility from $300 million to $380 million, (ii) admitted Citibank, N.A. and Flagstar Bank, FSB as new lenders under the Revolving Credit Facility, (iii) increased certain lenders’ respective commitments to the Revolving Credit Facility, and (iv) extended the term of the Revolving Credit Facility by one year to mature in October 2019.

On February 24, 2017, we entered into a Commitment Increase Agreement with Texas Capital Bank, National Association, as Administrative Agent, Flagstar Bank, FSB (which we refer to as “Flagstar”), and our subsidiary guarantors party thereto. The Commitment Increase Agreement supplements the Credit Agreement, and (i) increased the Credit Facility from $380 million to $400

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million through our exercise of the remaining $20 million of the accordion feature of the Credit Agreement, and (ii) increased Flagstar’s commitment to the Credit Facility.

The Credit Agreement contains customary affirmative and negative covenants (including limitations on the Company’s ability to grant liens, incur additional debt, pay dividends, redeem its common stock, make certain investments, and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. The Credit Agreement also requires the Company to maintain (i) a leverage ratio of not more than 1.75 to 1.0 as of the last day of any fiscal quarter, based upon the ratio of debt to tangible net worth of the Company and its subsidiaries on a consolidated basis, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon the ratio of EBITDA to cash interest expense of the Company and its subsidiaries on a consolidated basis, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests of the Company and the guarantors of the Revolving Credit Facility, plus 50% of the amount of consolidated net income of the Company and its subsidiaries, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by the Company and its subsidiaries on a consolidated basis to the Company’s tangible net worth.

As of September 30, 2017, we were in compliance with all covenants under the Credit Agreement.

ATM Program

On November 7, 2016, we entered into a Distribution Agreement (which we refer to as the “Distribution Agreement”) with J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Citigroup Global Markets Inc. (which we refer to collectively as the “Sales Agents”), relating to our common stock.  Under the Distribution Agreement, we are authorized to offer and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through any of our Sales Agents in “at the market” offerings.    On August 9, 2017, we entered into a second Distribution Agreement (which we refer to as the “Second Distribution Agreement”) with the Sales Agents, pursuant to which we may offer and sell from time to time up to $100.0 million in “at the market” offerings. During the three months ended September 30, 2017, we sold and issued an aggregate of 0.4 million shares of our common stock under the Distribution Agreement, which provided net proceeds of $8.9 million, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $0.2 million.  During the three months ended September 30, 2017, we sold and issued an aggregate of 47.4 thousand shares of our common stock under the Second Distribution Agreement, which provided net proceeds of $1.1 million, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $23.5 thousand.

Mortgage Repurchase Facility – Financial Services

On April 10, 2017, Inspire Home Loans Inc. (which we refer to as “Inspire”), an indirect wholly-owned subsidiary of the Company, entered into a Master Repurchase Agreement (which we refer to as the “Master Repurchase Agreement”) with Branch Banking and Trust Company, as the buyer thereunder (which we refer to as the “Buyer”). The Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $25 million (which we refer to as the “Repurchase Facility”). The primary purpose of the Repurchase Facility is to provide financing and liquidity to Inspire by facilitating purchase transactions in which Inspire transfers eligible loans to the Buyer, against the transfer of funds by the Buyer, subject to a simultaneous agreement by the Seller to repurchase from the Buyer such eligible loans (i) upon written notice to the Buyer by Inspire, (ii) on a prescribed date in the future, (iii) upon the occurrence of prescribed events, or (iv) on the Termination Date (as defined below). The purchase transactions are based on and subject to the terms and conditions set forth in the Master Repurchase Agreement. The maximum aggregate amount of the Buyer’s commitment to fund purchase transactions under the Repurchase Facility is $25 million (which we refer to as the “Commitment”), subject to certain sublimits. The Repurchase Facility and the Buyer’s Commitment thereunder expires on the earlier of (i) April 9, 2018, and (ii) the date when the Buyer’s Commitment is terminated pursuant to the Master Repurchase Agreement or by operation of law (which we refer to as the “Termination Date”).

On September 15, 2017, Inspire entered into a second Master Repurchase Facility (which we refer to as the “Second Master Repurchase Agreement”) with J.P. Morgan Chase Bank, N.A. as the buyer thereunder.   The Second Master Repurchase Agreement provides Inspire with a revolving mortgage loan repurchase facility of up to $35 million (which we refer to as the “Second Repurchase Facility”).  The purpose of the Second Repurchase Facility is similar to the purpose outlined above for the Repurchase Facility.  Amounts outstanding under the Repurchase Facility and Second Repurchase Facility are not guaranteed by us or any of our subsidiariesEach of the Master Repurchase Agreement and Second Master Repurchase Agreement contains various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.    As of September 30, 2017, we were in compliance with all covenants under each of the Master Repurchase Agreement and the Second Repurchase Agreement.

As of September 30, 2017, there was an aggregate of $27.5 million outstanding under the Master Repurchase Agreement and Second Master Repurchase Agreement, which is presented as Mortgage Repurchase Facility in our Condensed Consolidated Balance Sheets. The amount outstanding under the Master Repurchase Agreement and the Second Master Repurchase Agreement was collateralized by $30.1 million of mortgage loans held for sale.

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Cash Flows—Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

For the nine months ended September 30, 2017 and 2016, the comparison of cash flows is as follows:

·

Net cash used in operating activities increased to $130.8 million during the nine months ended September 30, 2017 from net cash used of $61.4 million during the same period in 2016. The increase in cash used in operations was primarily a result of a net outflow associated with inventories of $95.1 million during the nine months ended September 30, 2017, compared to a net outflow of $85.6 million during the same period in 2016. The outflow in 2017 was driven by our investment in inventories through the purchase of 8,512 lots, including those acquired through our acquisition of UCP, Inc. during the nine months ended September 30, 2017, as well as 2,811 homes under construction as of September 30, 2017.  These outflows were offset by cash inflows associated with 2,329 home deliveries during the nine months ended September 30, 2017.   We had net cash used in working capital items including cash held in escrow, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and other liabilities, and mortgage loans held for sale of $75.4 million for the nine months ended September 30, 2017, as compared to cash used of $15.3 million for the same period in 2016.     

·

Net cash used in investing activities was $66.1 million during the nine months ended September 30, 2017, compared to $5.0 million used during the same period in 2016. The increase relates to our acquisition of UCP Inc., which resulted in cash outflows, net of cash acquired, totaling $77.5 million, and decreased proceeds from sale of assets, partially offset the sale of our South Carolina operations which generated cash proceeds of $17.1 million, as a decrease in purchases of property and equipment during the nine months ended September 30, 2017 as compared to the same period in 2016.

·

Net cash provided by financing activities was $225.9 million during the nine months ended September 30, 2017, compared to $54.5 million during the same period in 2016. The increase in cash provided by financing activities is primarily attributed to cash proceeds from issuance of senior notes totaling $523.0 million, the net proceeds received from the sale of common stock totaling $35.0 million and net proceeds from our mortgage repurchase facility of $27.5 million, partially offset by an increase in net payments on our Revolving Credit Facility totaling $250.0 million, a decrease in proceeds received from issuance of insurance premium notes totaling $11.6 million, and an increase of debt issuance costs of $2.6 million.

As of September 30, 2017, our cash balance was $58.5 million. 

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of land 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. These contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time, or in bulk at a point in time, at pre-determined prices. We generally have the right at our discretion to terminate our obligations under both purchase contracts and these contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. Our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of September 30, 2017, we had outstanding contracts for 17,150 lots totaling $754.1 million, and had $11.2 million of non-refundable cash deposits pertaining to land contracts. While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 60% to 70% of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contacts occurring in future periods. 

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers and others willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of September 30, 2017, and December 31, 2016, we had $70.1 million and $70.1 million, respectively, in letters of credit and

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performance bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.

Adjusted EBITDA

The following table presents adjusted EBITDA for the three and nine months ended September 30, 2017 and 2016. 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, (iv) depreciation and amortization expense, and (v) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. 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.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 



 

2017

 

2016

 

% Change

 

2017

 

2016

 

% Change

Net income

 

$

9,470 

 

$

13,342 

 

 

(29.0)

%

 

$

33,100 

 

$

34,467 

 

 

(4.0)

%

Income tax expense

 

 

5,686 

 

 

6,389 

 

 

(11.0)

%

 

 

17,216 

 

 

16,790 

 

 

2.5 

%

Interest in cost of home sales revenues

 

 

8,794 

 

 

5,192 

 

 

69.4 

%

 

 

20,625 

 

 

13,177 

 

 

56.5 

%

Interest expense

 

 

 

 

 —

 

 

NM

 

 

 

 

 

 

 

(25.0)

%

Depreciation and amortization expense

 

 

2,256 

 

 

1,418 

 

 

59.1 

%

 

 

5,073 

 

 

4,215 

 

 

20.4 

%

EBITDA

 

 

26,207 

 

 

26,341 

 

 

(0.5)

%

 

 

76,017 

 

 

68,653 

 

 

10.7 

%

Purchase price accounting for acquired work in process inventory

 

 

6,214 

 

 

100 

 

 

6,113.8 

%

 

 

6,331 

 

 

318 

 

 

1,890.9 

%

Purchase price accounting for investment in unconsolidated subsidiaries outside basis

 

 

30 

 

 

 —

 

 

NM

 

 

 

885 

 

 

 —

 

 

NM

 

Adjusted EBITDA

 

$

32,451 

 

$

26,441 

 

 

22.7 

%

 

$

83,233 

 

$

68,971 

 

 

20.7 

%


Net Debt to Net Capital



The following table presents our ratio of net debt to net capital, which is a non-GAAP financial measure.  We calculate this by dividing net debt (notes payable and revolving line of credit less cash held in escrow and cash and cash equivalents) by net capital (net debt plus total stockholders’ equity). The most directly comparable GAAP measure is the ratio of debt to total capital. We believe the ratio of net 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.





 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

Total debt

 

$

803,481 

 

$

454,088 

Total stockholders' equity

 

 

653,012 

 

 

473,636 

Total capital

 

$

1,456,493 

 

$

927,724 

Debt to capital

 

 

55.2% 

 

 

48.9% 



 

 

 

 

 

 

Total debt

 

$

803,481 

 

$

454,088 

Cash and cash equivalents

 

 

(58,522)

 

 

(29,450)

Cash held in escrow

 

 

(42,262)

 

 

(20,044)

Net debt

 

 

702,697 

 

 

404,594 

Total stockholders' equity

 

 

653,012 

 

 

473,636 

Net capital

 

$

1,355,709 

 

$

878,230 



 

 

 

 

 

 

Net debt to net capital

 

 

51.8% 

 

 

46.1% 





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Adjusted Diluted Earnings per Common Share



Adjusted Diluted Earnings per Common Share (which we refer to as “Adjusted Diluted EPS) is a non-GAAP financial measure that we believe is 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. Adjusted Diluted EPS is calculated by excluding the effect of acquisition costs and purchase price accounting for acquired work in process from the calculation of reported EPS.





 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine Months Ended



 

September 30,

 

September 30,



 

2017

 

2016

 

2017

 

2016

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,470 

 

$

13,342 

 

$

33,100 

 

$

34,467 

Less: Undistributed earnings allocated to participating securities

 

 

(52)

 

 

(241)

 

 

(289)

 

 

(785)

Net income allocable to common stockholders

 

$

9,418 

 

$

13,101 

 

$

32,811 

 

$

33,682 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

25,445,552 

 

 

20,673,521 

 

 

23,038,390 

 

 

20,643,682 

Dilutive effect of restricted stock units

 

 

280,585 

 

 

148,545 

 

 

236,930 

 

 

88,248 

Weighted average common shares outstanding - diluted

 

 

25,726,137 

 

 

20,822,066 

 

 

23,275,320 

 

 

20,731,930 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37 

 

$

0.63 

 

$

1.42 

 

$

1.63 

Diluted

 

$

0.37 

 

$

0.63 

 

$

1.41 

 

$

1.62 



 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

$

15,156 

 

$

19,731 

 

$

50,316 

 

$

51,257 

Purchase price accounting for acquired work in process inventory

 

 

6,214 

 

 

100 

 

 

6,331 

 

 

318 

Acquisition expense

 

 

7,205 

 

 

53 

 

 

8,645 

 

 

466 

Adjusted income before income tax expense

 

 

28,575 

 

 

19,884 

 

 

65,292 

 

 

52,041 

Income tax expense(1)

 

 

(9,801)

 

 

(6,439)

 

 

(21,350)

 

 

(17,047)

Adjusted net income

 

 

18,774 

 

 

13,445 

 

 

43,942 

 

 

34,994 

Less: Undistributed earnings allocated to participating securities

 

 

(104)

 

 

(243)

 

 

(384)

 

 

(797)

Adjusted net income allocable to common stockholders

 

$

18,670 

 

$

13,202 

 

$

43,558 

 

$

34,197 



 

 

 

 

 

 

 

 

 

 

 

 

Denominator - Diluted

 

 

25,726,137 

 

 

20,822,066 

 

 

23,275,320 

 

 

20,731,930 



 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.73 

 

$

0.63 

 

$

1.87 

 

$

1.65 



(1)

The tax rate used in calculating adjusted net income was 34.3% and 32.7% for the three and nine months ended September 30, 2017, respectively.  The tax rate used is reflective of our GAAP tax rate for the three and nine months ended September 30, 2017 of 37.5% and 34.2%, respectively, adjusted for certain acquisition costs which are not deductible for tax.



























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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our Credit Agreement, which was entered into on October 21, 2014. Future borrowings under the Credit Agreement bear interest at a floating rate equal to the London Interbank Offered Rate plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum. The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Credit Agreement. The Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.

Inflation

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

ITEM 4.     CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our co-principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”)) as of September 30, 2017, 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, 2017 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or furnish under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 Changes in Internal Control over Financial Reporting

During the nine months ended September 30, 2017, we completed our acquisition of UCP, Inc. and we are in the process of integrating UCP, Inc. into our overall internal control over financial reporting process.





38 

 


 

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PART II



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 to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 that was filed with the SEC on February 15, 2017.



ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended September 30, 2017, certain of our employees surrendered approximately 44,220 shares of our common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our First Amended & Restated 2013 Long-Term Incentive Plan. The following table summarizes the repurchases that occurred during the three months ended September 30, 2017:



 

 

 

 

 

 

 

 

 

 



 

Total number of shares purchased

 

Average price paid per share

 

Total number of shares purchased as part of publicly announced plans or programs

 

Maximum number of shares that may yet be purchased under the plans or programs

July

 

 

 

 

 

 

 

 

 

 

Purchased 7/1 through 7/31

 

29,022 

 

$

25.90 

 

N/A

 

 

N/A

August

 

 

 

 

 

 

 

 

 

 

Purchased 7/1 through 7/31

 

 -

 

 

 -

 

N/A

 

 

N/A

September

 

 

 

 

 

 

 

 

 

 

Purchased 9/1 through 9/30

 

15,198 

 

 

24.00 

 

N/A

 

 

N/A

Total

 

44,220 

 

$

25.25 

 

 

 

 

 





ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

None.



ITEM 4.     MINE SAFETY DISCLOSURES.

Not applicable.



ITEM 5.     OTHER INFORMATION.

None.

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Table of Contents

 

 

ITEM 6.     EXHIBITS.

The following exhibits are either filed herewith or incorporated herein by reference:



 

 

2.1

 

Agreement and Plan of Merger, dated as of April 10, 2017, by and among the Company, Casa Acquisition Corp., and UCP, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 11, 2017)*

3.1

 

Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the initial filing of the Company’s Registration Statement on Form S-1, filed with the SEC on May 5, 2014)

3.2

 

Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the initial filing of the Company’s Registration Statement on Form S-1, filed with the SEC on May 5, 2014)

3.3

 

Amendment to the Bylaws of the Company, adopted and effective on April 10, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 11, 2017)

4.1

 

Indenture (including form of 5.875% Senior Notes Due 2025), dated as of May 12, 2017, among the Company, the Guarantors party thereto, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2017)

10.1

 

Master Repurchase Agreement, dated as of April 10, 2017, by and between Inspire Home Loans Inc. and Branch Banking and Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 13, 2017)

10.2†

 

Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2017)

10.3†

 

Form of Employee Restricted Stock Unit Award Agreement for use with the Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2017)

10.4†

 

Form of Non-Employee Director Restricted Stock Unit Award Agreement for use with the Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2017)

10.5

 

Registration Rights Agreement, dated as of May 12, 2017, by and among the Company, the Guarantors party thereto, and J.P. Morgan Securities LLC, on behalf of the initial purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on May 12, 2017)

31.1

 

Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

31.2

 

Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

31.3

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

32.1

 

Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3

 

Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

XBRL Instance Document

40 

 


 

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document



 



*Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  The Company hereby undertakes to supplementally furnish copies of any of the omitted schedules upon request by the SEC.

Management contract or compensatory plan or arrangement.





41 

 


 

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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.





 

 

 



Century Communities, Inc.



 



 



 

 

 

Date: November 2, 2017

By:

/s/ Dale Francescon

 



 

Dale Francescon

 



 

Chairman of the Board and Co-Chief Executive Officer

(Co-Principal Executive Officer)

 



 

 

 

Date: November 2, 2017

By:

/s/ Robert J. Francescon

 



 

Robert J. Francescon

 



 

Co-Chief Executive Officer and President 

(Co-Principal Executive Officer)

 



 

 

 



 

 

 

Date: November 2, 2017

By:

/s/ David Messenger

 



 

David Messenger

 



 

Chief Financial Officer

(Principal Financial Officer)

 



 

 

 



 

 

 

Date: November 2, 2017

By:

/s/ J. Scott Dixon

 



 

J. Scott Dixon

 



 

Chief Accounting Officer

(Principal Accounting Officer)

 



42