Annual Statements Open main menu

Century Communities, Inc. - Quarter Report: 2018 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, 2018



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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      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

 

  

 

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 26, 2018, 30,758,852 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, 2018



Index



 



Page No.

PART I

Item 1. Unaudited Condensed Consolidated Financial Statements

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2018 and 2017

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2018 and 2017

5

Notes to Unaudited Condensed Consolidated Financial Statements – September 30, 2018

6

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

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

40

Item 4. Controls and Procedures

40

PART II

Item 1. Legal Proceedings

41

Item 1A. Risk Factors

41

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

41

Item 3. Defaults Upon Senior Securities

41

Item 4. Mine Safety Disclosures

41

Item 5. Other Information

41

Item 6. Exhibits

42

Signatures

43



 





2 

 


 

Table of Contents

PART I

ITEM 1.     FINANCIAL STATEMENTS.





Century Communities, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 2018 and December 31, 2017

(in thousands, except share amounts)







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

Assets

 

(Unaudited)

 

 

 

Cash and cash equivalents

 

$

15,927 

 

$

88,832 

Cash held in escrow

 

 

31,906 

 

 

37,723 

Accounts receivable

 

 

28,015 

 

 

12,999 

Inventories

 

 

1,834,897 

 

 

1,390,354 

Mortgage loans held for sale

 

 

62,440 

 

 

52,327 

Prepaid expenses and other assets

 

 

100,245 

 

 

60,812 

Property and equipment, net

 

 

32,827 

 

 

27,911 

Investment in unconsolidated subsidiaries

 

 

 —

 

 

28,208 

Deferred tax assets, net

 

 

10,412 

 

 

5,555 

Amortizable intangible assets, net

 

 

5,205 

 

 

2,938 

Goodwill

 

 

30,620 

 

 

27,363 

Total assets

 

$

2,152,494 

 

$

1,735,022 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

40,614 

 

$

24,831 

Accrued expenses and other liabilities

 

 

190,305 

 

 

150,356 

Notes payable

 

 

787,455 

 

 

776,283 

Revolving line of credit

 

 

236,000 

 

 

 —

Mortgage repurchase facilities

 

 

57,327 

 

 

48,319 

Total liabilities

 

 

1,311,701 

 

 

999,789 

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, 30,758,852 and 29,502,624 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

308 

 

 

295 

Additional paid-in capital

 

 

602,659 

 

 

566,790 

Retained earnings

 

 

237,826 

 

 

168,148 

Total stockholders' equity

 

 

840,793 

 

 

735,233 

Total liabilities and stockholders' equity

 

$

2,152,494 

 

$

1,735,022 

See Notes to Unaudited Condensed Consolidated Financial Statements





3 

 


 

Table of Contents

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Nine Months ended September 30, 2018 and 2017

(in thousands, except share and per share amounts)













 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

Nine months ended September 30,



 

2018

 

2017

 

2018

 

2017

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

552,876 

 

$

374,935 

 

$

1,469,871 

 

$

888,942 

Land sales and other revenues

 

 

1,131 

 

 

1,826 

 

 

4,304 

 

 

6,216 



 

 

554,007 

 

 

376,761 

 

 

1,474,175 

 

 

895,158 

Financial services revenue

 

 

7,722 

 

 

2,955 

 

 

21,292 

 

 

4,697 

Total revenues

 

 

561,729 

 

 

379,716 

 

 

1,495,467 

 

 

899,855 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

(460,144)

 

 

(311,365)

 

 

(1,206,924)

 

 

(727,577)

Cost of land sales and other revenues

 

 

(1,093)

 

 

(2,104)

 

 

(3,010)

 

 

(4,994)



 

 

(461,237)

 

 

(313,469)

 

 

(1,209,934)

 

 

(732,571)

Financial services costs

 

 

(6,056)

 

 

(2,450)

 

 

(15,836)

 

 

(4,648)

Selling, general and administrative

 

 

(70,975)

 

 

(46,165)

 

 

(191,130)

 

 

(113,597)

Acquisition expense

 

 

(58)

 

 

(7,205)

 

 

(395)

 

 

(8,645)

Equity in income of unconsolidated subsidiaries

 

 

 —

 

 

3,716 

 

 

14,849 

 

 

7,648 

Other income (expense)

 

 

(545)

 

 

1,013 

 

 

(553)

 

 

2,274 

Income before income tax expense

 

 

22,858 

 

 

15,156 

 

 

92,468 

 

 

50,316 

Income tax expense

 

 

(5,810)

 

 

(5,686)

 

 

(22,207)

 

 

(17,216)

Net income

 

$

17,048 

 

$

9,470 

 

$

70,261 

 

$

33,100 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56 

 

$

0.37 

 

$

2.35 

 

$

1.42 

Diluted

 

$

0.56 

 

$

0.37 

 

$

2.33 

 

$

1.41 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,232,376 

 

 

25,445,552 

 

 

29,885,858 

 

 

23,038,390 

Diluted

 

 

30,554,881 

 

 

25,726,137 

 

 

30,189,058 

 

 

23,275,320 



See Notes to Unaudited Condensed Consolidated Financial Statements





4 

 


 

Table of Contents

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months ended September 30, 2018 and 2017

(in thousands)











 

 

 

 

 

 



 

Nine months ended September 30,



 

2018

 

2017

Operating activities

 

 

 

 

 

 

Net income

 

$

70,261 

 

$

33,100 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

8,803 

 

 

5,073 

Stock-based compensation expense

 

 

10,135 

 

 

6,521 

Deferred income taxes

 

 

(804)

 

 

(2,766)

Distribution of income from unconsolidated subsidiaries

 

 

7,432 

 

 

5,246 

Equity in income of unconsolidated subsidiaries

 

 

(14,849)

 

 

(7,648)

(Gain) loss on disposition of assets

 

 

1,399 

 

 

202 

Changes in assets and liabilities:

 

 

 

 

 

 

Cash held in escrow

 

 

6,077 

 

 

(22,218)

Accounts receivable

 

 

(13,324)

 

 

(7,493)

Inventories

 

 

(243,355)

 

 

(95,065)

Prepaid expenses and other assets

 

 

(32,640)

 

 

(11,291)

Accounts payable

 

 

3,267 

 

 

(8,026)

Accrued expenses and other liabilities

 

 

(9,285)

 

 

9,027 

Mortgage loans held for sale

 

 

(10,114)

 

 

(30,071)

Net cash used in operating activities

 

 

(216,997)

 

 

(125,409)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(11,893)

 

 

(5,867)

Business combinations, net of acquired cash

 

 

(28,036)

 

 

(77,457)

Proceeds from sale of South Carolina operations

 

 

 —

 

 

17,074 

Other investing activities

 

 

272 

 

 

128 

Net cash used in investing activities

 

 

(39,657)

 

 

(66,122)

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

520,000 

 

 

75,000 

Payments on revolving credit facilities

 

 

(284,000)

 

 

(270,000)

Proceeds from issuance of senior notes

 

 

 —

 

 

523,000 

Proceeds from insurance notes payable

 

 

11,838 

 

 

 —

Extinguishments of debt assumed in business combination

 

 

(94,231)

 

 

(151,919)

Principal payments on notes payable

 

 

(2,173)

 

 

(4,735)

Debt issuance costs

 

 

(3,521)

 

 

(3,731)

Net proceeds from mortgage repurchase facilities

 

 

9,008 

 

 

27,465 

Net proceeds from issuances of common stock

 

 

31,230 

 

 

35,010 

Repurchases of common stock upon vesting of stock based compensation

 

 

(5,483)

 

 

(4,141)

Net cash provided by (used in) financing activities

 

 

182,668 

 

 

225,949 

Net increase (decrease)

 

$

(73,986)

 

$

34,418 

Cash and cash equivalents and Restricted cash

 

 

 

 

 

 

Beginning of period

 

 

93,713 

 

 

30,954 

End of period

 

$

19,727 

 

$

65,372 

Supplemental cash flow disclosure

 

 

 

 

 

 

Cash paid for income taxes

 

$

39,326 

 

$

21,657 

Cash and cash equivalents and Restricted cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,927 

 

$

58,522 

Restricted cash (Note 6)

 

 

3,800 

 

 

6,850 

Cash and cash equivalents and Restricted cash

 

$

19,727 

 

$

65,372 

See Notes to Unaudited Condensed Consolidated Financial Statements

5 

 


 

Table of Contents

Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2018



1. Basis of Presentation



Century Communities, Inc. (which we refer to as “we,” “our,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Nevada, North Carolina, Ohio, 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.  We build and sell homes under our Century Communities and Wade Jurney Homes brands.  Our Century Communities brand targets a wide range of buyer profiles including: first time, first time move up, and active adult homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections.  Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios, and provides no option or upgrade selections.  Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Wade Jurney Homes.   Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title and insurance services, respectively, to our home buyers have been identified as our Financial Services segment.

On August 4, 2017, we acquired UCP, Inc. (which we refer to as “UCP”) which was a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, and with operations in the States of California, Washington, North Carolina, South Carolina, and Tennessee.  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 and $100.2 million in cash was paid in connection with the merger for total consideration of $209.0 million.  On October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes, LLC and affiliates (which we refer to as “Sundquist Homes”), a homebuilder with operations in the greater Seattle, Washington area, for approximately $50.2 million.   On June 14, 2018, we acquired the remaining 50% ownership interest in WJH, LLC (which we refer to as “WJH” or “Wade Jurney Homes”) for $37.5 million. WJH specializes in providing single family homes for first time buyers.  On the acquisition date, WJH had operations in Alabama, Florida, Georgia, North Carolina and South Carolina.

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 our 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, 2017, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 that was filed with the SEC on March 1, 2018.

Principles of Consolidation

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

All numbers related to lots and communities disclosed in the notes to the consolidated financial statements are unaudited.

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.

Recently Issued Accounting Standards

The Financial Accounting Standards Board (which we refer to as “FASB”) has issued “Leases (Topic 842),” which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.  Topic

6 

 


 

Table of Contents

842 is effective for the Company beginning January 1, 2019 and interim periods within the annual periods.  We are currently evaluating the impact Topic 842 will have on our consolidated financial statements.  We plan to adopt Topic 842 under a modified retrospective approach on January 1, 2019.

Recently Adopted Accounting Standards

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. In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows – Restricted Cash.”  ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.  We adopted ASU 2016-15 and 2016-18 on January 1, 2018.  Upon adoption of 2016-18, we have included restricted cash in the beginning and ending balances on our Statements of Cash Flows to present the changes during the period in total cash, cash equivalents and restricted cash.  Distributions from investments in unconsolidated subsidiaries are classified based on the nature of the activity of the investee that generated the distribution on our Statements of Cash Flows.  In accordance with ASU 2016-18, our prior year Statements of Cash Flows have also been retrospectively adjusted.

Revenue Recognition

On January 1, 2018, we adopted “Revenue from Contracts with Customers (ASC 606),” which we refer to as “ASC 606.”  ASC 606 requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted ASC 606 as of January 1, 2018 using the modified retrospective approach to contracts which were not completed as of January 1, 2018.     



While the adoption of ASC 606 did not result in a material impact to our consolidated financial statements, it did impact the following:



·

Certain immaterial costs incurred related to our model homes, which were previously capitalized to inventory, are now expensed as incurred.

·

Forfeited customer earnest money deposits, which were previously presented in other income within our Consolidated Statements of Operations, are presented as other revenue. During the three and nine months ended September 30, 2018, we recognized $0.5 million and $0.9 million of forfeited deposits, respectively.

·

Land sales to third parties which do not meet the definition of a customer in ASC 606 are classified as other income in our Consolidated Statements of Operations.  During the three and nine months ended September 30, 2018, we recorded $0.8 million and $7.7 million from the disposition of land to third parties which were not considered customers, respectively.  The related cost of these land dispositions during the same periods totaled $0.6 million and $7.8 million, respectively. 

·

Deferral of an allocated amount of revenue and costs associated with unsatisfied performance obligations, primarily the installation of landscaping, at the time of home delivery.  We deferred $0.1 million and $1.8 million in revenue and $0.1 million and $1.7 million in costs related to unsatisfied performance obligations on homes that we delivered during the three and nine months ended September 30, 2018, respectively. 

·

Reclassification of certain costs related to our model homes from inventory to property and equipment on our Consolidated Balance Sheets. Upon adoption, we reclassified $2.3 million from inventories to property and equipment.

Under the modified retrospective approach, we have recorded an opening adjustment to decrease retained earnings by $0.6 million, related to model homes costs that were previously capitalized to inventory, but would have been expensed as incurred under ASC 606.  This amount is included as a non-cash adjustment on our Condensed Consolidated Statements of Cash Flows.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. 

Effective January 1, 2018, the following accounting policies have been modified to reflect the adoption of ASC 606.

Home Sales Revenues - Under ASC 606, revenues from home sales and the related profit are recorded when our performance obligations are satisfied, which generally occurs when the respective homes are closed and title has passed to our homebuyers.  We generally satisfy our performance obligations in less than one year from the contract date.  Proceeds from home closings that are held for our benefit in escrow, are presented as “Cash held in escrow” on our Consolidated Balance Sheets.  Cash held for our benefit in escrow is typically held by the escrow agent for less than a few days.  When it is determined that the earnings process is not complete and we have remaining obligations, the related revenue and costs are deferred for recognition in future periods until those performance obligations have been

7 

 


 

Table of Contents

satisfied.  Prior to satisfying our performance obligations, we typically receive deposits from customers related to sold but undelivered homes.  These deposits are classified as earnest money deposits and are included in Accrued expenses and other liabilities on our Consolidated Balance Sheets.  Earnest money deposits totaled $19.0 million and $14.1 million at September 30, 2018 and December 31, 2017, respectively. 

Home and Sales Facilities – Costs related to our model homes and sales facilities are treated in one of three ways depending on their nature.  Costs directly attributable to the home including upgrades that are permanent and sold with the home are capitalized to inventory and included in cost of home sales revenues when the unit is closed to the home buyer.  Marketing related costs, such as non-permanent signage, brochures and marketing materials as well as the cost to convert the model into a salable unit are expensed as incurred.  Costs to furnish the model home sites, permanent signage, and construction of sales facilities are capitalized to property and equipment and depreciated over the estimated life of the community based on the number of lots in the community which typically range from 2 to 3 years. 



2. Reporting Segments

Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 15 states.  We build and sell homes under our Century Communities and Wade Jurney Homes brands.  Our Century Communities brand is managed by geographic location, and each of our four geographic regions targets a wide range of buyer profiles including: first time, first time move up, and active adult homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections.  Each of our four geographic regions is considered a separate operating segment.  Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios, and provides no option or upgrade selections.  Our Wade Jurney Homes brand currently has operations in eight states and is managed separately from our four geographic regions, accordingly, it is considered a separate operating segment.

The management of each of our four geographic regions and Wade Jurney Homes reports to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company.  The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability and to allocate resources. Accordingly, we have presented our homebuilding operations as the following five reportable segments:

·

West (California and Washington)

·

Mountain (Colorado, Nevada and Utah)

·

Texas

·

Southeast (Georgia, North Carolina, South Carolina and Tennessee)

·

Wade Jurney Homes (Alabama, Arizona, Georgia, Indiana, North Carolina, Ohio, South Carolina, and Florida)

We have also identified our Financial Services operations, which provide mortgage, title, and insurance services to our homebuyers, as a sixth reportable segment.  Our Corporate operations are a non-operating segment, as it serves to support our homebuilding operations through functions, such as our executive, finance, treasury, human resources, and accounting departments. 

8 

 


 

Table of Contents

The following table summarizes total revenue and income before income tax expense by operating segment, where adjustments for purchase price accounting are included in the relative segment (in thousands):





 

 

 

 

 

 

 

 

 

 

 



Three months ended September 30,

 

Nine months ended September 30,



2018

 

2017

 

2018

 

2017

Revenue:

 

 

 

 

 

 

 

 

 

 

 

West

$

105,949 

 

$

73,684 

 

$

354,087 

 

$

73,684 

Mountain

 

162,912 

 

 

157,224 

 

 

488,928 

 

 

443,526 

Texas

 

56,220 

 

 

36,757 

 

 

157,793 

 

 

111,997 

Southeast

 

141,458 

 

 

109,096 

 

 

360,653 

 

 

265,951 

Wade Jurney Homes

 

87,468 

 

 

 —

 

 

112,714 

 

 

 —

Financial Services

 

7,722 

 

 

2,955 

 

 

21,292 

 

 

4,697 

Corporate

 

 —

 

 

 —

 

 

 —

 

 

 —

Total revenue

$

561,729 

 

$

379,716 

 

$

1,495,467 

 

$

899,855 



 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income tax expense:

 

 

 

 

 

 

 

 

 

 

 

West

$

7,478 

 

$

5,259 

 

$

29,494 

 

$

5,259 

Mountain

 

18,753 

 

 

19,101 

 

 

61,995 

 

 

56,137 

Texas

 

3,539 

 

 

2,166 

 

 

10,319 

 

 

6,407 

Southeast

 

10,401 

 

 

6,001 

 

 

24,106 

 

 

16,609 

Wade Jurney Homes

 

451 

 

 

 —

 

 

265 

 

 

 —

Financial Services

 

1,666 

 

 

505 

 

 

5,456 

 

 

(192)

Corporate

 

(19,430)

 

 

(17,876)

 

 

(39,167)

 

 

(33,904)

Total income before income tax expense

$

22,858 

 

$

15,156 

 

$

92,468 

 

$

50,316 



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



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

West

 

$

479,280 

 

$

394,215 

Mountain

 

 

639,811 

 

 

571,880 

Texas

 

 

216,851 

 

 

192,078 

Southeast

 

 

468,144 

 

 

401,618 

Wade Jurney Homes

 

 

178,511 

 

 

Financial Services

 

 

89,238 

 

 

63,137 

Corporate

 

 

80,659 

 

 

112,094 

Total assets

 

$

2,152,494 

 

$

1,735,022 

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

3. Business Combinations

UCP, Inc.

On August 4, 2017, we acquired UCP, Inc., which was a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, and 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.  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 $100.2 million was paid in cash in connection with the merger.  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.  We incurred approximately $9.6 million in acquisition related expenses.  Total consideration of $209.0 million, inclusive of cash acquired of $20.3 million for this merger, is summarized as follows (in thousands, except per share amount):



9 

 


 

Table of Contents

 

 

 

 

UCP shares (including noncontrolling interest) as of August 3, 2017

 

 

18,085 

Cash paid per share

 

$

5.32 

Cash consideration

 

$

96,213 

Cash consideration pertaining to stockholder exercising appraisal rights

 

$

3,937 

Total cash consideration

 

$

100,150 



 

 

 

UCP shares (including noncontrolling interest) as of August 3, 2017

 

 

18,085 

Exchange ratio

 

 

0.2309 

Number of CCS shares issued

 

 

4,176 

Closing price of CCS common stock on August 3, 2017

 

$

25.80 

Consideration attributable to common stock

 

$

107,737 

Total replacement award value

 

$

1,149 

Total equity consideration

 

$

108,886 



 

 

 

Total consideration in cash and equity

 

$

209,036 



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 fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 





 

 

Cash and cash equivalents

$

20,264 

Accounts receivable

 

7,897 

Inventories

 

390,234 

Prepaid expenses and other assets

 

6,988 

Property and equipment, net

 

717 

Deferred tax asset, net

 

11,984 

Goodwill

 

5,713 

Total assets

$

443,797 



 

 

Accounts payable

$

10,712 

Accrued expenses and other liabilities

 

71,130 

Notes payable

 

152,919 

Total liabilities

 

234,761 

Purchase price/Net equity

$

209,036 



During the nine months ended September 30, 2018, we recognized $1.5 million of expense related to refinements in our estimated fair value of inventories, which occurred during the period.  This measurement period adjustment is included in “Cost of home sales revenues” on our Consolidated Statements of Operations.

Acquired inventories consist of both acquired land and work in process inventories.  We determined the 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 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 6% to 20% based upon the stage of production of the individual lot.  Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed.  We have allocated all Goodwill to the West operating segment.  Goodwill of $5.4 million will be deductible for tax purposes.



On August 17, 2017, we sold BMCH South Carolina, LLC, a subsidiary of UCP that was 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. 

10 

 


 

Table of Contents

Sundquist Homes 

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 the greater Seattle, Washington area, for approximately $50.2 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 the fair value of the assets acquired and liabilities assumed as of the acquisition date of Sundquist Homes (in thousands):  





 

 

Accounts receivable

$

11 

Inventories

 

55,077 

Prepaid expenses and other assets

 

1,050 

Property and equipment, net

 

142 

Total assets

$

56,280 



 

 

Accounts payable

$

3,646 

Accrued expenses and other liabilities

 

2,431 

Total liabilities

 

6,077 

Purchase price/Net equity

$

50,203 

Acquired inventories consist of both acquired land and work in process inventories.  We determined the 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 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 6% to 20% based upon the stage of production of the individual lot.  Goodwill of $4.8 million will be deductible for tax purposes in connection with this acquisition. 

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

WJH, LLC - Wade Jurney Homes

On June 14, 2018, we acquired the remaining 50% ownership interest in WJH for $37.5 million, whereby WJH became a 100% owned subsidiary of the Company.  We initially acquired a 50% ownership interest in WJH in November 2016 as part of a joint venture, which was accounted for under the equity method of accounting.  Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios, and provides no option or upgrade selections.  The acquired assets primarily include homes under construction that are in various stages of completion and are geographically dispersed.  We determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.  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. We incurred $0.2 million in acquisition costs which are reflected in acquisition expenses in our Consolidated Statements of Operations.



Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings.  As such, we valued our previously held equity interest in WJH at $35.6 million, which is inclusive of an estimated discount for lack of control of $1.9 million, and recognized a gain of $7.2 million during the nine months ended September 30, 2018.  The gain is included in “Equity in income of unconsolidated subsidiaries” on our Consolidated Statements of Operations.



The following table outlines the total consideration transferred, inclusive of cash acquired and the fair value of our previously held equity interest (in thousands):







 

 

 

Cash consideration transferred for 50% ownership interest

 

$

37,500 

Previously held equity interest acquisition date fair value

 

 

35,625 

Net assets acquired

 

$

73,125 

11 

 


 

Table of Contents



The following table summarizes our preliminary estimates of the assets acquired and liabilities assumed as of the acquisition date (in thousands):  





 

 

Cash and cash equivalents

$

9,464 

Cash held in escrow

 

260 

Accounts receivable

 

1,042 

Inventories

 

156,828 

Prepaid expenses and other assets

 

7,710 

Amortizable intangible assets

 

3,375 

Goodwill

 

3,542 



$

182,221 



 

 

Accounts payable

$

12,516 

Accrued expenses and other liabilities

 

2,349 

Senior notes and revolving line of credit

 

94,231 

Total liabilities

 

109,096 

Net assets acquired

$

73,125 

Acquired inventories consist primarily of work in process inventories. 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 efforts.  The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences.   Amortizable intangible assets include acquired trade names and a non-compete agreement, which were estimated to have fair values of $3.0 million and $0.4 million, respectively, and are amortized over 10 years and 2 years, respectively.  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).

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

From the acquisition date, WJH’s results of operations, which include homebuilding revenues of $87.5 million and $112.7 million, respectively, and income before tax inclusive of purchase price accounting, of $0.5 million and $0.3 million, respectively, are included in our accompanying Consolidated Statement of Operations for the three and nine months ended September 30, 2018.



Unaudited Pro Forma Financial Information

Unaudited pro forma revenues and income before tax expense for the nine months ended September 30, 2018 gives effect to including the results of the acquisition of WJH as of January 1, 2018.  Unaudited pro forma income before tax expense adjusts the operating results of WJH 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 transactions (in thousands, except share and per share information):

12 

 


 

Table of Contents





 

 



Nine months ended

September 30,



2018

Total revenues

$

1,645,858 



 

 

Income before tax expense

$

87,092 

Tax expense

 

(21,773)

Net income

$

65,319 

Less: Undistributed earnings allocated to participating securities

 

(54)

Numerator for basic and diluted pro forma EPS

$

65,265 



 

 

Pro forma weighted average shares-basic

 

29,885,858 

Pro forma weighted average shares-diluted

 

30,189,058 



 

 

Pro forma basic EPS

$

2.18 

Pro forma diluted EPS

$

2.16 

Unaudited pro forma revenues and income before tax expense for the nine months ended September 30, 2017 give effect to including the results of the acquisitions of UCP, Sundquist Homes, and WJH as of January 1, 2017.  Unaudited pro forma income before tax expense adjusts the operating results of UCP, Sundquist Homes, and WJH 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 transactions.  Pro forma basic and diluted earnings per share (which we refer to as “Pro forma EPS”) gives effect to the issuance of approximately 4.2 million shares of our common stock as consideration for the acquisition of UCP as though the acquisition had occurred on January 1, 2017 (in thousands, except share and per share information):









 

 

 

 

 



Three months ended September 30,

 

Nine months ended September 30,



2017

 

2017

Total revenues

$

507,008 

 

$

1,373,689 



 

 

 

 

 

Income before tax expense

$

30,107 

 

$

91,445 

Tax expense

 

(9,390)

 

 

(23,496)

Net income

$

20,717 

 

$

67,949 

Less: Undistributed earnings allocated to participating securities

 

(108)

 

 

(520)

Numerator for basic and diluted pro forma earnings per share

$

20,609 

 

$

67,429 



 

 

 

 

 

Pro forma weighted average shares-basic

 

27,034,192 

 

 

26,342,362 

Pro forma weighted average shares-diluted

 

27,314,777 

 

 

26,579,292 



 

 

 

 

 

Pro forma basic earnings per share

$

0.76 

 

$

2.56 

Pro forma diluted earnings per share

$

0.75 

 

$

2.54 













4. Inventories

Inventories included the following (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

Homes under construction

 

$

1,158,072 

 

$

869,554 

Land and land development

 

 

625,253 

 

 

479,038 

Capitalized interest

 

 

51,572 

 

 

41,762 

Total inventories

 

$

1,834,897 

 

$

1,390,354 

  



13 

 


 

Table of Contents

5. Financial Services

 

Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans, Inc. (which we refer to as “Inspire”).  Inspire, is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates and their related servicing rights in the secondary mortgage market within a short period of time after origination, generally within 30 days.  Inspire primarily finances these loans under its mortgage repurchase facilities.  Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $30.5 million and $10.0 million at September 30, 2018 and December 31, 2017, respectively, and carried a weighted average interest rate of approximately 4.8%, and 4.2%, respectively.  As of September 30, 2018, Inspire had mortgage loans held for sale with an aggregate fair value of $62.4 million and an aggregate outstanding principal balance of $60.0 million. Interest rate risks related to these obligations are mitigated by the preselling of loans to investors or through our interest rate hedging program.



Mortgage loans held-for-sale, including the rights to service the mortgage loans, as well as the derivative instrument used to economically hedge our interest rate risk, which are typically forward commitments on mortgage backed securities, are carried at fair value and changes in fair value are reflected in Financial Services Revenue on the consolidated statement of operations. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions.



6. Prepaid Expenses and Other Assets

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







 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

Prepaid insurance

 

$

21,238 

 

$

6,549 

Lot option and escrow deposits

 

 

53,213 

 

 

35,700 

Performance deposits

 

 

4,177 

 

 

3,295 

Deferred financing costs revolving line of credit, net

 

 

4,440 

 

 

1,795 

Restricted cash

 

 

3,800 

 

 

4,881 

Secured notes receivable

 

 

4,885 

 

 

2,753 

Other

 

 

8,492 

 

 

5,839 

Total prepaid expenses and other assets

 

$

100,245 

 

$

60,812 

 

Restricted cash is comprised of customer deposits held in escrow pursuant to certain state laws and pledge accounts related to our mortgage repurchase facilities. 

 

7. Accrued Expenses and Other Liabilities

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





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

Earnest money deposits

 

$

18,988 

 

$

14,077 

Warranty reserve

 

 

10,272 

 

 

8,531 

Accrued compensation costs

 

 

25,892 

 

 

22,129 

Land development and home construction accruals

 

 

96,763 

 

 

61,918 

Liability for product financing arrangement

 

 

13,326 

 

 

19,751 

Accrued interest

 

 

16,060 

 

 

14,435 

Income taxes payable

 

 

 —

 

 

851 

Other

 

 

9,004 

 

 

8,664 

Total accrued expenses and other liabilities

 

$

190,305 

 

$

150,356 



 



14 

 


 

Table of Contents

8. Warranties



Generally, we provide each homeowner with product warranties covering workmanship and materials for one year from the time of closing, and warranties covering structural systems for eight to 10 years from the time of closing.    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 our 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 $0.6 million and $0.8 million during the three and nine months ended September 30, 2018, respectively, which is included as a reduction to cost of homes sales revenues on our Consolidated Statements of Operations.

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





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2018

 

2017

 

2018

 

2017

Beginning balance

 

$

10,269 

 

$

3,057 

 

$

8,531 

 

$

2,479 

Warranty reserve assumed in business combination

 

 

 —

 

 

6,202 

 

 

397 

 

 

6,202 

Warranty expense provisions

 

 

1,568 

 

 

1,245 

 

 

4,789 

 

 

2,827 

Payments

 

 

(968)

 

 

(710)

 

 

(2,688)

 

 

(1,458)

Warranty adjustment

 

 

(597)

 

 

(944)

 

 

(757)

 

 

(1,200)

Ending balance

 

$

10,272 

 

$

8,850 

 

$

10,272 

 

$

8,850 

 



9. Debt



Our outstanding debt obligations included the following as of September 30, 2018 and December 31, 2017 (in thousands):  











 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

6.875% senior notes, due May 2022(1)

 

$

380,224 

 

$

379,238 

5.875% senior notes, due July 2025(1)

 

 

395,238 

 

 

394,725 

3.278% insurance premium notes, due June 2019

 

 

9,673 

 

 

 —

Other financing obligations

 

 

2,320 

 

 

2,320 

Notes payable

 

 

787,455 

 

 

776,283 

Revolving line of credit, due April 2022

 

 

236,000 

 

 

 —

Mortgage repurchase facilities

 

 

57,327 

 

 

48,319 

Total debt

 

$

1,080,782 

 

$

824,602 

 (1)    The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

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.  On June 5, 2018, we entered into an Amended and Restated Credit Agreement which amended and restated the Credit Agreement.  The Amended and Restated Credit Agreement provides us with a revolving line of credit of up to $540.0 million, and unless terminated earlier, will mature on April 30, 2022.  Under the terms of the Amended and Restated Credit Agreement, we may request a twelve-month extension of the maturity date and are entitled to request an increase in the size of the credit facility by an amount not exceeding $100.0 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 Amended and Restated Credit Agreement, subject to the approval of the Administrative Agent. Our obligations under the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries. The Amended and Restated 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.  These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly.  Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.  On June 28, 2018, we entered into a Joinder Agreement which increased the credit facility to $590.0 million by exercising $50.0 million of the $100.0 million accordion feature and added a new lender.  As of September 30, 2018, we had $236.0 million outstanding under the credit facility, leaving $354.0 million in availability and were in compliance with all covenants.

15 

 


 

Table of Contents

Mortgage Repurchase Facilities – Financial Services

On May 4, 2018, Inspire entered into a Mortgage Warehouse Line of Credit, with Comerica Bank, upon the expiration of our first Master Repurchase Agreement.  The Mortgage Warehouse Line of Credit (which we refer to as the “Third Master Repurchase Agreement”) provides Inspire with an uncommitted Mortgage Warehouse Line of Credit of up to $40 million, secured by the mortgage loans financed thereunder.  Our existing Second Master Repurchase Agreements provided Inspire with revolving mortgage loan repurchase facilities of up to $35 million, providing Inspire a total potential lending capacity of up to $75 million. Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.  As of September 30, 2018, we had $57.3 million outstanding under the Repurchase Facilities and were in compliance with all covenants under the agreements.   During the three and nine months ended September 30, 2018 and 2017, we incurred interest expense on our Repurchase Facilities $0.4 million and $0.8 million, respectively, and $0.1 million and $0.1 million, respectively, which are included in “Financial services costs” on our Consolidated Statements of Operations.



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, 2018 and 2017, we capitalized all interest costs incurred during these periods, except for interest incurred on our Repurchase Facilities.  

Our interest costs are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2018

 

2017

 

2018

 

2017

Interest capitalized beginning of period

 

$

47,797 

 

$

35,668 

 

$

41,762 

 

$

28,935 

Interest capitalized during period

 

 

16,109 

 

 

13,338 

 

 

43,387 

 

 

31,902 

Less: capitalized interest in cost of sales

 

 

(12,334)

 

 

(8,794)

 

 

(33,577)

 

 

(20,625)

Interest capitalized end of period

 

$

51,572 

 

$

40,212 

 

$

51,572 

 

$

40,212 















11. Income Taxes



On December 22, 2017, the Tax Cuts and Jobs Act (which we refer to as the “TCJA”) was signed into law.  The TCJA significantly reforms the Internal Revenue Code of 1986, as amended.  The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate, commencing in 2018, from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income, elimination of net operating loss carrybacks, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits including the deduction for domestic production activities.

Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) which addresses the application of ASC Topic 740 to the TCJA.  SAB 118 outlines that if the accounting for the effects of the TCJA is incomplete, but a reasonable estimate can be made, then provisional amount should be reflected in the financial statements. 

Our accounting for the impacts of the TCJA related to current and deferred taxes, and in particular our deferred taxes related to our acquisition of UCP and Sundquist Homes was incomplete when we issued our consolidated financial statements for the year ended December 31, 2017.  During the three and nine months ended September 30, 2018, we continued to refine our accounting for the TCJA, including refining certain calculations associated with UCP’s distributive share of its investment in UCP, LLC at the acquisition date of August 4, 2017 in accordance with I.R.C. §704(c).  These refinements resulted in measurement period adjustments increasing our income tax provision for the three months ended September 30, 2018 by $0.5 million and benefiting our income tax provision for the nine months ended September 30, 2018 by $1.2 million.  

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 2018 estimated annual effective tax rate of 26.6% is driven by our blended federal and state statutory rate of 24.9%, and certain other permanent differences between GAAP and tax which increased our rate by 1.7%

For the three months ended September 30, 2018, our estimated annual rate of 26.6% was impacted by discrete items which had a net impact of benefiting our rate by 1.2%,  including federal energy credits for homes delivered in 2017. 

16 

 


 

Table of Contents

For the nine months ended September 30, 2018 our estimated annual rate of 26.6% was impacted by discrete items which had a net impact of decreasing our rate by 2.6%.  The discrete items recognized during the nine months ended September 30, 2018 included federal energy credits for homes delivered in 2017 which benefited our rate by 1.7%, excess tax benefits for vested stock-based compensation which benefited our rate by 1.7%, and measurement period adjustments under SAB 118 described above, which benefited our rate by 1.3%.  These items were partially offset by a discrete item for deferred taxes related to our step acquisition of WJH, and certain return to provision items, which increased our rate by 2.1%.



For the three and nine months ended September 30, 2018, we recorded income tax expense of $5.8 million and $22.2 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 the 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.

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Hierarchy 

 

Carrying 

 

Fair Value

 

Carrying 

 

Fair Value

Secured notes receivable(1)

 

Level 2

 

$

4,885 

 

$

4,885 

 

$

2,753 

 

$

2,727 

Mortgage loans held for sale(2)

 

Level 2

 

$

62,440 

 

$

62,440 

 

$

52,327 

 

$

52,327 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.875% senior notes(3)

 

Level 2

 

$

380,224 

 

$

385,528 

 

$

379,238 

 

$

397,044 

5.875% senior notes (3)

 

Level 2

 

$

395,238 

 

$

368,238 

 

$

394,725 

 

$

400,225 

3.278% insurance premium notes(4)

 

Level 2

 

$

9,673 

 

$

9,673 

 

$

 —

 

$

 —

Revolving line of credit(4)

 

Level 3

 

$

236,000 

 

$

236,000 

 

$

 —

 

$

 —

Other financing obligation(4)

 

Level 2

 

$

2,320 

 

$

2,320 

 

$

2,320 

 

$

2,320 

Mortgage repurchase facilities(4)

 

Level 2

 

$

57,327 

 

$

57,327 

 

$

48,319 

 

$

48,319 



(1)

Estimated fair value of the secured notes receivable 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, which was based on quoted market prices for those committed mortgage loans.

(3)

Estimated fair value of the senior notes 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 are measured at fair value when acquired in a business combination.  Long-lived assets determined to be impaired are measured at fair value.

13. Stock-Based Compensation

During the nine months ended September 30, 2018, we granted performance share units (which we refer to as “PSUs”) covering up to 0.3 million shares of common stock, assuming maximum level of performance, with a grant date fair value of $28.10 per share that are subject to both service and performance vesting conditions.  The quantity of shares that will vest under the PSUs range from 0% to 250% of a targeted number of shares for each participant and will be determined based on an achievement of a three-year pre-tax income performance goal.   During the nine months ended September 30, 2018, we also granted restricted stock units (which we refer to as “RSUs”) covering 0.3 million shares of common stock with a grant date fair value of $30.43 per share that vest over a one to three-year period.  As of September 30, 2018, we had no remaining unvested restricted stock awards (which we refer to as “RSAs”) outstanding. 

17 

 


 

Table of Contents

A summary of our outstanding RSUs and PSUs, assuming maximum level of performance, are as follows (in thousands, except years):





 

 

 



 

As of September 30, 2018

Unvested awards/units

 

 

863 

Unrecognized compensation cost

 

$

13,241 

Period to recognize compensation cost

 

 

1.7 years

During the three months ended September 30, 2018 and 2017, we recognized stock-based compensation expense of $3.8 million and $2.6 million, respectively. During the nine months ended September 30, 2018 and 2017, we recognized stock-based compensation expense of $10.1 million and $6.5 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, 2018 and December 31, 2017, there were 30.8 million and 29.4 million shares of common stock issued and outstanding, respectively, inclusive of the RSAs then outstanding.

We issued 39.6 thousand and 0.3 million shares of common stock related to the vesting of RSUs during the three and nine months ended September 30, 2018, respectivelyAs of September 30, 2018, approximately 1.0 million shares remained available for issuance under the Century Communities, Inc. 2017 Omnibus Incentive Plan.

On November 7, 2016, we entered into a Distribution Agreement (which we refer to as the “First 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 First Distribution Agreement, we were 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 the 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, which superseded and replaced the First Distribution Agreement,  pursuant to which we were authorized to offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the Sales Agents in at-the-market offerings.  On July 3, 2018, we entered into a third Distribution Agreement (which we refer to as the “Third Distribution Agreement”) with J.P. Morgan Securities LLC, Citigroup Global Markets Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as its sales agents (which we refer to as the “New Sales Agents”), which superseded and replaced the Second Distribution Agreement, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the New Sales Agents in at-the-market offerings.   During the three and nine months ended September 30, 2018, we sold and issued an aggregate of 0.6 million and 1.1 million shares of our common stock under the Second and Third Distribution Agreements, which provided proceeds net of commissions of $17.1 million and $31.7 million, respectively, and, in connection with such sales, paid total commissions and fees to the Sales Agents of $0.3 million and $0.6 million, respectively.  During the three and nine months ended September 30, 2017, we sold and issued an aggregate of 0.4 million and 1.4 million, respectively, shares of our common stock under the First and Second Distribution Agreements, 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.



15.  Earnings Per Share

We use the two-class method of calculating EPS as our non-vested RSAs 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 RSUs and PSUs as these awards do not have participating rights.

18 

 


 

Table of Contents

The following table sets forth the computation of basic and diluted EPS for the three and nine months ended September 30, 2018 and 2017 (in thousands, except share and per share information):



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Nine months ended



 

September 30,

 

September 30,



 

2018

 

2017

 

2018

 

2017

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

17,048 

 

$

9,470 

 

$

70,261 

 

$

33,100 

Less: Undistributed earnings allocated to participating securities

 

 

 —

 

 

(52)

 

 

(58)

 

 

(289)

Net income allocable to common stockholders

 

$

17,048 

 

$

9,418 

 

$

70,203 

 

$

32,811 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

30,232,376 

 

 

25,445,552 

 

 

29,885,858 

 

 

23,038,390 

Dilutive effect of restricted stock units

 

 

322,505 

 

 

280,585 

 

 

303,200 

 

 

236,930 

Weighted average common shares outstanding - diluted

 

 

30,554,881 

 

 

25,726,137 

 

 

30,189,058 

 

 

23,275,320 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56 

 

$

0.37 

 

$

2.35 

 

$

1.42 

Diluted

 

$

0.56 

 

$

0.37 

 

$

2.33 

 

$

1.41 



Stock-based awards are excluded from the calculation of diluted EPS in the event they are subject to unsatisfied performance conditions or are antidilutive.  We excluded 0.3 million common unit equivalents from diluted earnings per share during the three and nine months ended September 30, 2018 related to the PSU’s granted during the periods.  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, we post letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of September 30, 2018 and December 31, 2017, we had $296.9 million and $158.6 million, respectively, in letters of credit and performance bonds issued and outstanding.

Litigation

We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of our management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and 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.

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





17. Supplemental Guarantor Information

Our 6.875% senior notes due 2022 and 5.875% senior notes due 2025 (which we collectively refer to as our “Senior Notes”) are our unsecured senior obligations and are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our direct and indirect wholly-owned operating subsidiaries (which we refer to collectively as “Guarantors”).

Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the respective indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor’s obligations

19 

 


 

Table of Contents

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 exchange offers effected in February 2015, October 2015 and April 2017 and the issuance of the 5.875% senior notes due 2025, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively. 

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Balance Sheet



 

As of September 30, 2018  (in thousands)  



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

8,922 

 

$

23,585 

 

$

(16,580)

 

$

15,927 

Cash held in escrow

 

 

 —

 

 

31,906 

 

 

 —

 

 

 —

 

 

31,906 

Accounts receivable

 

 

15,672 

 

 

12,271 

 

 

72 

 

 

 —

 

 

28,015 

Investment in consolidated  subsidiaries

 

 

1,860,196 

 

 

 —

 

 

 —

 

 

(1,860,196)

 

 

 —

Inventories

 

 

 —

 

 

1,834,897 

 

 

 —

 

 

 —

 

 

1,834,897 

Mortgage loans held for sale

 

 

 —

 

 

 —

 

 

62,440 

 

 

 —

 

 

62,440 

Prepaid expenses and other assets

 

 

6,835 

 

 

91,457 

 

 

1,953 

 

 

 —

 

 

100,245 

Deferred tax assets, net

 

 

10,412 

 

 

 —

 

 

 —

 

 

 —

 

 

10,412 

Property and equipment, net

 

 

13,153 

 

 

18,982 

 

 

692 

 

 

 —

 

 

32,827 

Amortizable intangible assets, net

 

 

 —

 

 

5,205 

 

 

 —

 

 

 —

 

 

5,205 

Goodwill

 

 

 —

 

 

30,620 

 

 

 —

 

 

 —

 

 

30,620 

Total assets

 

$

1,906,268 

 

$

2,034,260 

 

$

88,742 

 

$

(1,876,776)

 

$

2,152,494 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,084 

 

$

39,704 

 

$

406 

 

$

(16,580)

 

$

40,614 

Accrued expenses and other liabilities

 

 

31,215 

 

 

156,939 

 

 

2,151 

 

 

 —

 

 

190,305 

Notes payable

 

 

775,462 

 

 

11,993 

 

 

 —

 

 

 —

 

 

787,455 

Revolving line of credit

 

 

236,000 

 

 

 —

 

 

 —

 

 

 —

 

 

236,000 

Mortgage repurchase facilities

 

 

 —

 

 

 —

 

 

57,327 

 

 

 —

 

 

57,327 

Total liabilities

 

 

1,059,761 

 

 

208,636 

 

 

59,884 

 

 

(16,580)

 

 

1,311,701 

Stockholders’ equity:

 

 

846,507 

 

 

1,825,624 

 

 

28,858 

 

 

(1,860,196)

 

 

840,793 

Total liabilities and stockholders’ equity

 

$

1,906,268 

 

$

2,034,260 

 

$

88,742 

 

$

(1,876,776)

 

$

2,152,494 



20 

 


 

Table of Contents









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Balance Sheet



 

As of December 31, 2017  (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,234 

 

$

23,399 

 

$

9,199 

 

$

 —

 

$

88,832 

Cash held in escrow

 

 

 —

 

 

37,088 

 

 

635 

 

 

 —

 

 

37,723 

Accounts receivable

 

 

3,124 

 

 

9,944 

 

 

(69)

 

 

 —

 

 

12,999 

Investment in consolidated  subsidiaries

 

 

1,434,619 

 

 

 —

 

 

 —

 

 

(1,434,619)

 

 

 —

Inventories

 

 

 —

 

 

1,390,354 

 

 

 —

 

 

 —

 

 

1,390,354 

Mortgage loans held for sale

 

 

 —

 

 

 —

 

 

52,327 

 

 

 —

 

 

52,327 

Prepaid expenses and other assets

 

 

3,028 

 

 

57,273 

 

 

511 

 

 

 —

 

 

60,812 

Deferred tax assets, net

 

 

5,555 

 

 

 —

 

 

 —

 

 

 —

 

 

5,555 

Property and equipment, net

 

 

11,694 

 

 

15,683 

 

 

534 

 

 

 —

 

 

27,911 

Investment in unconsolidated subsidiaries

 

 

28,208 

 

 

 —

 

 

 —

 

 

 

 

 

28,208 

Amortizable intangible assets, net

 

 

 —

 

 

2,938 

 

 

 —

 

 

 —

 

 

2,938 

Goodwill

 

 

 —

 

 

27,363 

 

 

 —

 

 

 —

 

 

27,363 

Total assets

 

$

1,542,462 

 

$

1,564,042 

 

$

63,137 

 

$

(1,434,619)

 

$

1,735,022 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,452 

 

$

23,057 

 

$

322 

 

$

 —

 

$

24,831 

Accrued expenses and other liabilities

 

 

31,814 

 

 

117,070 

 

 

1,472 

 

 

 —

 

 

150,356 

Notes payable

 

 

773,963 

 

 

2,320 

 

 

 —

 

 

 —

 

 

776,283 

Revolving line of credit

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Mortgage repurchase facilities

 

 

 —

 

 

 —

 

 

48,319 

 

 

 —

 

 

48,319 

Total liabilities

 

 

807,229 

 

 

142,447 

 

 

50,113 

 

 

 —

 

 

999,789 

Stockholders’ equity:

 

 

735,233 

 

 

1,421,595 

 

 

13,024 

 

 

(1,434,619)

 

 

735,233 

Total liabilities and stockholders’ equity

 

$

1,542,462 

 

$

1,564,042 

 

$

63,137 

 

$

(1,434,619)

 

$

1,735,022 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Operations



For the Three Months Ended September 30, 2018 (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

552,876 

 

$

 —

 

$

 —

 

$

552,876 

Land sales and other  revenues

 

 

 —

 

 

1,131 

 

 

 —

 

 

 —

 

 

1,131 



 

 

 —

 

 

554,007 

 

 

 —

 

 

 —

 

 

554,007 

Financial services revenue

 

 

 —

 

 

 —

 

 

7,722 

 

 

 —

 

 

7,722 

Total revenues

 

 

 —

 

 

554,007 

 

 

7,722 

 

 

 —

 

 

561,729 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(460,144)

 

 

 —

 

 

 —

 

 

(460,144)

Cost of land sales and other revenues

 

 

 —

 

 

(1,093)

 

 

 —

 

 

 —

 

 

(1,093)



 

 

 —

 

 

(461,237)

 

 

 —

 

 

 —

 

 

(461,237)

Financial services costs

 

 

 —

 

 

 —

 

 

(6,056)

 

 

 —

 

 

(6,056)

Selling, general and administrative

 

 

(20,187)

 

 

(50,788)

 

 

 —

 

 

 —

 

 

(70,975)

Acquisition expense

 

 

(58)

 

 

 —

 

 

 —

 

 

 —

 

 

(58)

Equity in earnings from consolidated subsidiaries

 

 

32,282 

 

 

 —

 

 

 —

 

 

(32,282)

 

 

 —

Other income (expense)

 

 

61 

 

 

(606)

 

 

 —

 

 

 —

 

 

(545)

Income before income tax expense

 

 

12,098 

 

 

41,376 

 

 

1,666 

 

 

(32,282)

 

 

22,858 

Income tax expense

 

 

4,950 

 

 

(10,344)

 

 

(416)

 

 

 —

 

 

(5,810)

Net income

 

$

17,048 

 

$

31,032 

 

$

1,250 

 

$

(32,282)

 

$

17,048 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21 

 


 



 

Supplemental Condensed Consolidated Statement of Operations



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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

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 of consolidated subsidiaries

 

 

20,470 

 

 

 —

 

 

 —

 

 

(20,470)

 

 

 —

Equity in income from 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 













 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Operations



For the Nine Months Ended September 30, 2018 (in thousands)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homebuilding revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

1,469,871 

 

$

 —

 

$

 —

 

$

1,469,871 

Land sales and other  revenues

 

 

 —

 

 

4,304 

 

 

 —

 

 

 —

 

 

4,304 



 

 

 —

 

 

1,474,175 

 

 

 —

 

 

 —

 

 

1,474,175 

Financial services revenue

 

 

 —

 

 

 —

 

 

21,292 

 

 

 —

 

 

21,292 

Total revenues

 

 

 —

 

 

1,474,175 

 

 

21,292 

 

 

 —

 

 

1,495,467 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

(1,206,924)

 

 

 —

 

 

 —

 

 

(1,206,924)

Cost of land sales and other revenues

 

 

 —

 

 

(3,010)

 

 

 —

 

 

 —

 

 

(3,010)



 

 

 —

 

 

(1,209,934)

 

 

 —

 

 

 —

 

 

(1,209,934)

Financial services costs

 

 

 —

 

 

 —

 

 

(15,836)

 

 

 —

 

 

(15,836)

Selling, general and administrative

 

 

(53,802)

 

 

(137,328)

 

 

 —

 

 

 —

 

 

(191,130)

Acquisition expense

 

 

(395)

 

 

 —

 

 

 —

 

 

 —

 

 

(395)

Equity in earnings from consolidated subsidiaries

 

 

97,688 

 

 

 —

 

 

 —

 

 

(97,688)

 

 

 —

Equity in income of unconsolidated subsidiaries

 

 

14,849 

 

 

 —

 

 

 —

 

 

 —

 

 

14,849 

Other income (expense)

 

 

(194)

 

 

(359)

 

 

 —

 

 

 —

 

 

(553)

Income before income tax expense

 

 

58,146 

 

 

126,554 

 

 

5,456 

 

 

(97,688)

 

 

92,468 

Income tax expense

 

 

12,115 

 

 

(32,904)

 

 

(1,418)

 

 

 —

 

 

(22,207)

Net income

 

$

70,261 

 

$

93,650 

 

$

4,038 

 

$

(97,688)

 

$

70,261 



















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22 

 


 



 

Supplemental Condensed Consolidated Statement of Operations



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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

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 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Cash Flows



 

For the Nine Months Ended September 30, 2018 (in thousands)  



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

Net cash provided by/(used in) operating activities

 

$

(71,743)

 

$

(123,418)

 

$

(5,256)

 

$

(16,580)

 

$

(216,997)

Net cash used in investing activities

 

$

(153,607)

 

$

(165,939)

 

$

(159)

 

$

280,048 

 

$

(39,657)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

$

520,000 

 

$

 —

 

$

 —

 

$

 —

 

$

520,000 

Payments on revolving credit facilities

 

 

(284,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(284,000)

Proceeds from insurance notes payable

 

 

 —

 

 

11,838 

 

 

 —

 

 

 —

 

 

11,838 

Extinguishments of debt assumed in business combination

 

 

(94,231)

 

 

 —

 

 

 —

 

 

 —

 

 

(94,231)

Principal payments on notes payable

 

 

(9)

 

 

(2,164)

 

 

 —

 

 

 —

 

 

(2,173)

Debt issuance costs

 

 

(3,521)

 

 

 —

 

 

 —

 

 

 —

 

 

(3,521)

Repurchases of common stock upon vesting of restricted stock awards

 

 

(5,483)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,483)

Payments from (and advances to) parent/subsidiary

 

 

5,130 

 

 

263,120 

 

 

11,798 

 

 

(280,048)

 

 

 —

Net proceeds from mortgage repurchase facilities

 

 

 —

 

 

 —

 

 

9,008 

 

 

 —

 

 

9,008 

Net proceeds from issuances of common stock

 

 

31,230 

 

 

 —

 

 

 —

 

 

 —

 

 

31,230 

Net cash provided by (used in) financing activities

 

$

169,116 

 

$

272,794 

 

$

20,806 

 

$

(280,048)

 

$

182,668 

Net increase (decrease)

 

$

(56,234)

 

$

(16,563)

 

$

15,391 

 

$

(16,580)

 

$

(73,986)

Cash and cash equivalents and Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

$

56,234 

 

$

28,044 

 

$

9,435 

 

$

 —

 

$

93,713 

End of period

 

$

 —

 

$

11,481 

 

$

24,826 

 

$

(16,580)

 

$

19,727 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

8,922 

 

$

23,585 

 

$

(16,580)

 

$

15,927 

Restricted Cash

 

 

 —

 

 

2,559 

 

 

1,241 

 

 

 —

 

 

3,800 

Cash and cash equivalents and Restricted cash

 

$

 —

 

$

11,481 

 

$

24,826 

 

$

(16,580)

 

$

19,727 



23 

 


 

Table of Contents





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Supplemental Condensed Consolidated Statement of Cash Flows



 

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



 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated



 

Century

 

Subsidiaries

 

Subsidiaries

 

Entries

 

Century

Net cash provided by/(used in) operating activities

 

$

(8,164)

 

$

(87,231)

 

$

(30,014)

 

$

 —

 

$

(125,409)

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 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Extinguishments 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)

Repurchase 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 repurchase facility

 

 

 —

 

 

 —

 

 

27,465 

 

 

 —

 

 

27,465 

Net proceeds from issuances of common stock

 

 

35,010 

 

 

 —

 

 

 —

 

 

 —

 

 

35,010 

Net cash provided by (used in) financing activities

 

$

464,025 

 

$

164,114 

 

$

30,677 

 

$

(432,867)

 

$

225,949 

Net increase (decrease)

 

$

21,244 

 

$

12,978 

 

$

196 

 

$

 —

 

$

34,418 

Cash and cash equivalents and Restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

$

14,637 

 

$

10,150 

 

$

6,167 

 

$

 —

 

$

30,954 

End of period

 

$

35,881 

 

$

23,128 

 

$

6,363 

 

$

 —

 

$

65,372 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,881 

 

$

16,278 

 

$

6,363 

 

$

 —

 

$

58,522 

Restricted Cash

 

 

 —

 

 

6,850 

 

 

 —

 

 

 —

 

 

6,850 

Cash and cash equivalents and Restricted cash

 

$

35,881 

 

$

23,128 

 

$

6,363 

 

$

 —

 

$

65,372 















18.  Subsequent Events



On November 6, 2018, we authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock.  Under the terms of the program, the shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws. The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions.



The Company intends to finance any stock repurchases through available cash and its revolving credit facility. Repurchases also may be made under a trading plan under Rule 10b5-1, which would permit shares to be repurchased when the Company might otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. There is no guarantee as to the number of shares that will be repurchased, and the stock repurchase program may be extended, suspended or discontinued at any time without notice at the Company’s discretion.





































 





24 

 


 

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 and subject to risks and uncertainties including among others:

·

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, debt service obligations and exposure to changes in interest rates;

·

our ability to successfully integrate the acquired businesses and realize projected cost savings and other benefits;

·

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

·

taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance, including as a result of the Tax Cuts and Jobs Act; and

·

changes in GAAP.





Forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us.  Forward-looking statements are not guarantees of future events or of our performance.  These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us.  Some of these events and factors are described above and in “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II, 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.

25 

 


 

Table of Contents

Overview

Century is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Nevada, North Carolina, Ohio, 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.  We build and sell homes under our Century Communities and Wade Jurney Homes brands.  Our Century Communities brand, targets a wide range of buyer profiles including: first time, first time move up, and active adult homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections.  Each of our four geographic regions is considered an operating segment.  Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios, and provides no option or upgrade selections.  Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Wade Jurney Homes.   Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title and insurance services, respectively, to our home buyers have been identified as our Financial Services segment.



On August 4, 2017, we acquired UCP, Inc. (which we refer to as “UCP”) which was a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, and with operations in the States of California, Washington, North Carolina, South Carolina, and Tennessee.  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 and $100.2 million in cash was paid in connection with the merger for total consideration of $209.0 million.  Additionally, on October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes, LLC and affiliates (which we refer to as “Sundquist Homes”), a homebuilder with operations in the greater Seattle, Washington area, for approximately $50.2 million.   On June 14, 2018, we acquired the remaining 50% ownership interest in WJH, LLC (which we refer to as “WJH”) for $37.5 million. Wade Jurney Homes specializes in providing single family homes for first time buyers.  On the acquisition date, WJH had operations in Alabama, Florida, Georgia, North Carolina and South Carolina.



Results of Operations

During the three and nine months ended September 30, 2018, we delivered 1,746 and 4,071 homes, respectively, with an average sales price of $316.7 thousand and $361.1 thousand, respectively. During the same periods, we generated approximately $552.9 million and $1,469.9 million in home sales revenues, respectively, approximately $22.9 million and $92.5 million in income before income tax expense, respectively, and approximately $17.0 million and $70.3 million in net income, respectively.

For the three and nine months ended September 30, 2018, our new home contracts, net of cancelations, totaled 1,515 and 4,436, respectively, a 65.8% increase and 53.4% increase over the same respective periods in 2017. As of September 30, 2018, we had a backlog of 2,988 sold but unclosed homes, a 79.6% increase as compared to September 30, 2017, representing approximately $931.0 million in sales value, a 35.1% increase as compared to September 30, 2017. 

26 

 


 

Table of Contents

The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017. 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except per share amounts)

 

Three months ended September 30,

 

 

Nine months ended September 30,



 

2018

 

2017

 

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

552,876 

 

 

$

374,935 

 

 

 

$

1,469,871 

 

$

888,942 

 

Land sales revenues

 

 

1,131 

 

 

 

1,826 

 

 

 

 

4,304 

 

 

6,216 

 



 

 

554,007 

 

 

 

376,761 

 

 

 

 

1,474,175 

 

 

895,158 

 

Financial services revenue

 

 

7,722 

 

 

 

2,955 

 

 

 

 

21,292 

 

 

4,697 

 

Total revenues

 

 

561,729 

 

 

 

379,716 

 

 

 

 

1,495,467 

 

 

899,855 

 

Homebuilding cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

(460,144)

 

 

 

(311,365)

 

 

 

 

(1,206,924)

 

 

(727,577)

 

Cost of land sales and other revenues

 

 

(1,093)

 

 

 

(2,104)

 

 

 

 

(3,010)

 

 

(4,994)

 



 

 

(461,237)

 

 

 

(313,469)

 

 

 

 

(1,209,934)

 

 

(732,571)

 

Financial services costs

 

 

(6,056)

 

 

 

(2,450)

 

 

 

 

(15,836)

 

 

(4,648)

 

Selling, general, and administrative

 

 

(70,975)

 

 

 

(46,165)

 

 

 

 

(191,130)

 

 

(113,597)

 

Acquisition expense

 

 

(58)

 

 

 

(7,205)

 

 

 

 

(395)

 

 

(8,645)

 

Equity in income of unconsolidated subsidiaries

 

 

 —

 

 

 

3,716 

 

 

 

 

14,849 

 

 

7,648 

 

Other income (expense)

 

 

(545)

 

 

 

1,013 

 

 

 

 

(553)

 

 

2,274 

 

Income before income tax expense

 

 

22,858 

 

 

 

15,156 

 

 

 

 

92,468 

 

 

50,316 

 

Income tax expense

 

 

(5,810)

 

 

 

(5,686)

 

 

 

 

(22,207)

 

 

(17,216)

 

Net income

 

$

17,048 

 

 

$

9,470 

 

 

 

$

70,261 

 

$

33,100 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56 

 

 

$

0.37 

 

 

 

$

2.35 

 

$

1.42 

 

Diluted

 

$

0.56 

 

 

$

0.37 

 

 

 

$

2.33 

 

$

1.41 

 

Adjusted diluted earnings per share(1)

 

$

0.86 

 

 

$

0.69 

 

 

 

$

2.83 

 

$

1.83 

 

Other Operating Information (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of homes delivered

 

 

1,746 

 

 

 

968 

 

 

 

 

4,071 

 

 

2,329 

 

Average sales price of homes delivered

 

$

316.7 

 

 

$

387.3 

 

 

 

$

361.1 

 

$

381.7 

 

Homebuilding gross margin percentage

 

 

16.8 

%

 

 

17.0 

%

 

 

 

17.9 

%

 

18.2 

%

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

 

 

21.2 

%

 

 

21.0 

%

 

 

 

22.1 

%

 

21.2 

%

Backlog at end of period, number of homes

 

 

2,988 

 

 

 

1,664 

 

 

 

 

2,988 

 

 

1,664 

 

Backlog at end of period, aggregate sales value

 

$

930,951 

 

 

$

689,338 

 

 

 

$

930,951 

 

$

689,338 

 

Average sales price of homes in backlog

 

$

311.5 

 

 

$

414.3 

 

 

 

$

311.5 

 

$

414.3 

 

Net new home contracts

 

 

1,515 

 

 

 

914 

 

 

 

 

4,436 

 

 

2,892 

 

Selling communities at period end

 

 

125 

 

 

 

107 

 

 

 

 

125 

 

 

107 

 

Average selling communities

 

 

123 

 

 

 

102 

 

 

 

 

120 

 

 

92 

 

Total owned and controlled lot inventory

 

 

38,147 

 

 

 

31,996 

 

 

 

 

38,147 

 

 

31,996 

 

Adjusted income before income tax expense(1)

 

$

34,850 

 

 

$

28,575 

 

 

 

$

114,011 

 

$

65,292 

 

Adjusted net income(1)

 

$

26,137 

 

 

$

17,855 

 

 

 

$

85,508 

 

$

42,952 

 

Net homebuilding debt to net capital(1)

 

 

53.7 

%

 

 

51.8 

%

 

 

 

53.7 

%

 

51.8 

%



(1) This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP.  An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.

27 

 


 

Table of Contents

Results of Operations by Reportable 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,



 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

West

 

 

193 

 

 

151 

 

$

548.6 

 

$

488.0 

 

$

105,880 

 

$

73,684 

 

$

7,478 

 

$

5,259 

Mountain

 

 

377 

 

 

375 

 

$

430.2 

 

$

417.3 

 

 

162,182 

 

 

156,482 

 

 

18,753 

 

 

19,101 

Texas

 

 

177 

 

 

90 

 

$

316.7 

 

$

397.5 

 

 

56,058 

 

 

35,772 

 

 

3,539 

 

 

2,166 

Southeast

 

 

424 

 

 

352 

 

$

333.2 

 

$

309.7 

 

 

141,288 

 

 

108,997 

 

 

10,401 

 

 

6,001 

Wade Jurney Homes

 

 

575 

 

 

 —

 

$

152.1 

 

$

 —

 

 

87,468 

 

 

 —

 

 

451 

 

 

 —

Financial Services

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

1,666 

 

 

505 

Corporate

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

(19,430)

 

 

(17,876)

Total

 

 

1,746 

 

 

968 

 

$

316.7 

 

$

387.3 

 

$

552,876 

 

$

374,935 

 

$

22,858 

 

$

15,156 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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,



 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

 

2018

 

2017

West

 

 

606 

 

 

151 

 

$

584.2 

 

$

488.0 

 

$

354,049 

 

$

73,684 

 

$

29,494 

 

$

5,259 

Mountain

 

 

1,141 

 

 

1,046 

 

$

425.5 

 

$

421.1 

 

 

485,541 

 

 

440,451 

 

 

61,995 

 

 

56,137 

Texas

 

 

491 

 

 

266 

 

$

320.2 

 

$

409.6 

 

 

157,225 

 

 

108,955 

 

 

10,319 

 

 

6,407 

Southeast

 

 

1,093 

 

 

866 

 

$

329.7 

 

$

307.0 

 

 

360,343 

 

 

265,852 

 

 

24,106 

 

 

16,609 

Wade Jurney Homes

 

 

740 

 

 

 —

 

$

152.3 

 

$

 —

 

 

112,713 

 

 

 —

 

 

265 

 

 

 —

Financial Services

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

5,456 

 

 

(192)

Corporate

 

 

 —

 

 

 —

 

$

 —

 

$

 —

 

 

 —

 

 

 —

 

 

(39,167)

 

 

(33,904)

Total

 

 

4,071 

 

 

2,329 

 

$

361.1 

 

$

381.7 

 

$

1,469,871 

 

$

888,942 

 

$

92,468 

 

$

50,316 



West

In our West segment, for the three and nine months ended September 30, 2018, our income before income tax increased by $2.2 million and $24.2 million, respectively, to  $7.5 million and $29.5 million, respectively, including the purchase price adjustment of $1.5 million and $13.6 million, for the three and nine months ended September 30, 2018, respectively.  We acquired the entirety of our operations in the West operating segment in conjunction with our acquisitions of UCP, Inc. and Sundquist Homes in 2017.  During the three and nine months ended September 30, 2018, we delivered 193 and 606 homes, respectively, with an average price of $548.6 thousand and $584.2 thousand, respectively, and generated $105.9 million and $354.0 million,  respectively, in home sales revenues in the West. 

  

Mountain

In our Mountain segment, for the three and nine months ended September 30, 2018, our income before income tax decreased by $0.3 million and increased by $5.9 million, respectively, to $18.8 million and $62.0 million, respectively as compared to $19.1 million and $56.1 million, respectively, for the same periods in 2017.  The nominal change for the three months ended September 30, 2018, as compared to the prior period, was driven by relatively flat home sales revenues, while the $5.9 million increase for the nine months ended September 30, 2018, as compared to the prior period, was driven by a 10.2% increase in the home sales revenue from an increase in deliveries.



Texas

In our Texas segment, for the three and nine months ended September 30, 2018, our income before income tax increased by $1.4 million and $3.9 million, respectively, to $3.5 million and $10.3 million, respectively, as compared to $2.2 million and $6.4 million, respectively, for the same periods in 2017.  These increases were primarily driven by an increase in revenue on a partially fixed cost base as a result of delivering more homes during the current year periods.



Southeast

In our Southeast segment, for the three and nine months ended September 30, 2018, our income before income tax increased by $4.4 million and $7.5 million, respectively, to $10.4 million and $24.1 million, respectively, as compared to $6.0 million and $16.6 million,

28 

 


 

Table of Contents

respectively, for the same periods in 2017.  These increases were due to increases in the number of homes delivered at higher average selling prices during the current year periods primarily as a result of growth in our Atlanta and Charlotte operations.



Wade Jurney Homes

On June 14, 2018, we acquired the remaining 50% ownership interest in WJH for $37.5 million, whereby WJH became a 100% owned and controlled subsidiary of Century.  We initially acquired a 50% ownership in WJH in November 2016, which was accounted for under the equity method of accounting.  During the three months ended September 30, 2018, WJH delivered 575 homes at an average selling price of $152.1 thousand.  Since the date of acquisition, WJH has delivered 740 homes at an average selling price of $152.3 thousand.   The income before income taxes for the three and nine months ended September 30, 2018 was $0.5 million and $0.3 million, respectively, and included purchase price adjustments of $10.1 million and $13.0 million, respectively.



Financial Services

Our indirect wholly-owned subsidiaries, Inspire Home Loans Inc. Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title and insurance services, respectively, to our home buyers have been identified as our Financial Services segment.  We began providing mortgage services to our customers during the second quarter of 2017.  Our home buying customers account for substantially all loan production and 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, 2018, we originated and closed 535 loans and 1,414 loans, respectively, with an aggregate total principal amount of $170.3 million and $447.5 million, respectively.    



Corporate

During the three and nine months ended September 30, 2018, our Corporate segment generated losses of $19.4 million and $39.2 million, respectively, as compared to losses of $17.9 million and $33.9 million, respectively, for the same periods in 2017.  The increase in losses during the three and nine months ended September 30, 2018 was primarily attributable to an increase in our compensation-related expenses, including non-cash expenses for stock-based payments, due to an increase in the number of employees after our acquisitions of UCP, Inc., Sundquist Homes, and WJH, partially offset by an increase in equity in income from unconsolidated subsidiaries, which includes the gain recognized on the acquisition of the remaining ownership interest in WJH. 



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, 2018 to 16.8% and 17.9%, respectively, as compared to 17.0% and 18.2%, respectively, for the same periods in 2017.  The decreases were primarily driven by the increased costs recognized for purchase price accounting for acquired work in process inventory associated with the UCP, Sundquist Homes, and WJH acquisitions.

29 

 


 

Table of Contents

In the following table, we calculate our homebuilding gross margin, as adjusted to exclude interest in cost of home sales revenues, and purchase price accounting for acquired work in process inventory.





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,



 

2018

 

% 

 

2017

 

% 



 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

552,876 

 

100.0 

%

 

$

374,935 

 

100.0 

%

Cost of home sales revenues

 

 

(460,144)

 

(83.2)

%

 

 

(311,365)

 

(83.0)

%

Gross margin from home sales

 

 

92,732 

 

16.8 

%

 

 

63,570 

 

17.0 

%

Add: Interest in cost of home sales revenues

 

 

12,334 

 

2.2 

%

 

 

8,794 

 

2.3 

%

Adjusted homebuilding gross margin excluding interest (1)

 

 

105,066 

 

19.0 

%

 

 

72,364 

 

19.3 

%

Add: Purchase price accounting for acquired work in process inventory

 

 

11,934 

 

2.2 

%

 

 

6,214 

 

1.7 

%

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

 

$

117,000 

 

21.2 

%

 

$

78,578 

 

21.0 

%



 

 

 

 

 

 

 

 

 

 

 

 



 

 



 

Nine months ended September 30,



 

2018

 

% 

 

2017

 

% 



 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

1,469,871 

 

100.0 

%

 

$

888,942 

 

100.0 

%

Cost of home sales revenues

 

 

(1,206,924)

 

(82.1)

%

 

 

(727,577)

 

(81.8)

%

Gross margin from home sales

 

 

262,947 

 

17.9 

%

 

 

161,365 

 

18.2 

%

Add: Interest in cost of home sales revenues

 

 

33,577 

 

2.3 

%

 

 

20,625 

 

2.3 

%

Adjusted homebuilding gross margin excluding interest (1)

 

 

296,524 

 

20.2 

%

 

 

181,990 

 

20.5 

%

Add: Purchase price accounting for acquired work in process inventory

 

 

28,367 

 

1.9 

%

 

 

6,331 

 

0.7 

%

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

 

$

324,891 

 

22.1 

%

 

$

188,321 

 

21.2 

%

(1)

This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP.  An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.



 For the three and nine months ended September 30, 2018, 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 21.2% and 22.1%, respectively, as compared to 21.0% and 21.2%, respectively, for the same periods in 2017.  We believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors. 

Selling, General and Administrative Expense





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 



 

Three months ended September 30,

 

Increase 



 

2018

 

2017

 

Amount 

 

% 

Selling, general and administrative

 

$

(70,975)

 

 

$

(46,165)

 

 

$

(24,810)

 

 

53.7 

%

As a percentage of homes sales revenue

 

 

(12.8)

%

 

 

(12.3)

%

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine months ended September 30,

 

Increase 



 

2018

 

2017

 

Amount 

 

% 

Selling, general and administrative

 

$

(191,130)

 

 

$

(113,597)

 

 

$

(77,533)

 

 

68.3 

%

As a percentage of homes sales revenue

 

 

(13.0)

%

 

 

(12.8)

%

 

 

 

 

 

 

 

Our selling, general and administrative costs increased $24.8 million for the three months ended September 30, 2018 as compared to the same period in 2017. The increase was primarily attributable to the following: (1) an increase of $6.1 million in commission expense resulting from a 47.5% increase in home sales revenues, (2) an increase of $11.3 million in our compensation-related expenses, including incentive compensation associated with higher headcount to support our growth, (3) an increase of $1.5 million in advertising expenses, (4) an increase of $1.6 million in depreciation and amortization expense as a result of our growth, and (5)  a net increase of $4.3 million related to individually insignificant changes in other expenses, including rent and office related expenses, model expenses, information technology and insurance.    

Our selling, general and administrative costs increased $77.5 million for the nine months ended September 30, 2018 as compared to the same period in 2017. The increase was primarily attributable to the following: (1) an increase of $18.3 million in commission expense

30 

 


 

Table of Contents

resulting from a 65.4% increase in home sales revenues, (2) an increase of $37.3 million in our compensation-related expenses, including incentive compensation associated with higher headcount to support our growth, (3) an increase of $4.7 million in advertising expenses, (4) an increase of $4.1 million in depreciation and amortization expense and an increase of $2.2 million in information technology expenses, both as a result of our growth, and (5) a net increase of $10.8 million related to individually insignificant changes in other expenses, including rent and office related expenses, model expenses and insurance. 

Equity in Income from Unconsolidated Subsidiaries



On June 14, 2018, we paid cash to complete the acquisition of the remaining 50% ownership interest in WJH for $37.5 million, whereby WJH became a 100% owned subsidiary of Century.  Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings.  As such, we valued our previously held equity interest in WJH at $35.6 million, inclusive of a discount for lack of control, and recognized a gain of $7.2 million during the three months ended September 30, 2018, included in “Equity in income of unconsolidated subsidiaries” in our Consolidated Statements of Operations.   Prior to the acquisition, during the nine months ended September 30, 2018, we received operating distributions from WJH of $7.4 million



Income Tax Expense



At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period.  Our 2018 estimated annual effective tax rate of 26.6% is driven by our blended federal and state statutory rate of 24.9%, and certain other permanent differences between GAAP and tax which increased our rate by 1.7%. 



For the three months ended September 30, 2018, our estimated annual rate of 26.6% was impacted by discrete items which had a net impact of benefiting our rate by 1.2%, including federal energy credits for homes delivered in 2017. 



For the nine months ended September 30, 2018 our estimated annual rate of 26.6% was impacted by discrete items which had a net impact of decreasing our rate by 2.6%.  The discrete items recognized during the nine months ended September 30, 2018 included federal energy credits for homes delivered in 2017 which benefited our rate by 1.7%, excess tax benefits for vested stock-based compensation which benefited our rate by 1.7%, and measurement period adjustments under SAB 118 described above, which benefited our rate by 1.3%.  These items were partially offset by a discrete item for deferred taxes related to our step acquisition of WJH, and certain return to provision items, which increased our rate by 2.1%.



For the three and nine months ended September 30, 2018, we recorded income tax expense of $5.8 million and $22.2 million, respectively.



31 

 


 

Table of Contents

Segment Assets



(Dollars in thousands)





 

 

 

 

 

 

 

 

 

 

 

 



 

September 30,

 

December 31,

 

 

Increase (Decrease)



 

2018

 

2017

 

 

Amount

 

Change

West

 

$

479,280 

 

$

394,215 

 

$

85,065 

 

21.6 

%

Mountain

 

 

639,811 

 

 

571,880 

 

 

67,931 

 

11.9 

%

Texas

 

 

216,851 

 

 

192,078 

 

 

24,773 

 

12.9 

%

Southeast

 

 

468,144 

 

 

401,618 

 

 

66,526 

 

16.6 

%

Wade Jurney Homes

 

 

178,511 

 

 

 —

 

 

178,511 

 

NM

 

Financial Services

 

 

89,238 

 

 

63,137 

 

 

26,101 

 

41.3 

%

Corporate

 

 

80,659 

 

 

112,094 

 

 

(31,435)

 

(28.0)

%

Total assets

 

$

2,152,494 

 

$

1,735,022 

 

$

417,472 

 

24.1 

%

NM – Not Meaningful









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lots owned and

 

September 30, 2018

 

December 31, 2017

 

% Change

 

controlled

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

West

 

3,611 

 

1,908 

 

5,519 

 

3,742 

 

3,179 

 

6,921 

 

(3.5)

%

 

(40.0)

%

 

(20.3)

%

Mountain

 

5,426 

 

5,479 

 

10,905 

 

4,666 

 

4,856 

 

9,522 

 

16.3 

%

 

12.8 

%

 

14.5 

%

Texas

 

3,883 

 

2,075 

 

5,958 

 

2,517 

 

3,489 

 

6,006 

 

54.3 

%

 

(40.5)

%

 

(0.8)

%

Southeast

 

5,120 

 

4,229 

 

9,349 

 

4,827 

 

3,508 

 

8,335 

 

6.1 

%

 

20.6 

%

 

12.2 

%

Wade Jurney Homes

 

3,088 

 

3,328 

 

6,416 

 

 

 

 

NM

 

 

NM

 

 

NM

 

Total

 

21,128 

 

17,019 

 

38,147 

 

15,752 

 

15,032 

 

30,784 

 

34.1 

%

 

13.2 

%

 

23.9 

%

NM – Not Meaningful

Of our total lots owned and controlled as of September 30, 2018, 55.4% were owned and 44.6% were controlled, as compared to 51.2% owned and 48.8% controlled as of December 31, 2017.

Total assets increased by $417.5 million, or 24.1%, to $2.2 billion at September 30, 2018 as a result of our acquisition of WJH and increased investments in all of our other homebuilding segments and financial services.

Other Homebuilding Operating Data



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

Net new home contracts

 

September 30,

 

Increase

 

September 30,

 

Increase



 

2018

 

2017

 

Amount

 

% Change

 

2018

 

2017

 

Amount

 

% Change

West

 

214 

 

114 

 

100 

 

87.7 

%

 

616 

 

114 

 

502 

 

440.4 

%

Mountain

 

308 

 

373 

 

(65)

 

(17.4)

%

 

1,313 

 

1,290 

 

23 

 

1.8 

%

Texas

 

150 

 

133 

 

17 

 

12.8 

%

 

493 

 

360 

 

133 

 

36.9 

%

Southeast

 

422 

 

294 

 

128 

 

43.5 

%

 

1,449 

 

1,128 

 

321 

 

28.5 

%

Wade Jurney Homes

 

421 

 

 —

 

421 

 

NM

 

 

565 

 

 —

 

565 

 

NM

 

Total

 

1,515 

 

914 

 

601 

 

65.8 

%

 

4,436 

 

2,892 

 

1,544 

 

53.4 

%

NM – Not Meaningful



Net new home contracts (new home contracts net of cancellations) for the three months ended September 30, 2018 increased by 601 homes, or 65.8%, to 1,515, compared to 914 for the same period in 2017.  Net new home contracts for the nine months ended September 30, 2018 increased by 1,544 homes, or 53.4%, to 4,436, compared to 2,892 for the same period in 2017. These increases in our net new home contracts were driven by our acquisitions, as well as an increase in our open selling communities.

32 

 


 

Table of Contents

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, 2018 by segment are included in the tables below:



 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Increase/(Decrease)



 

2018

 

2017

 

Amount

 

% Change

West

 

4.2 

 

5.2 

 

(1.0)

 

(19.2)

%

Mountain

 

3.0 

 

3.8 

 

(0.8)

 

(21.1)

%

Texas

 

2.2 

 

1.8 

 

0.4 

 

22.2 

%

Southeast

 

2.8 

 

2.6 

 

0.2 

 

7.7 

%

Wade Jurney Homes

 

N/A

 

N/A

 

N/A

 

N/A

 

Total

 

2.9 

 

3.2 

 

(0.3)

 

(9.4)

%



 

 

 

 

 

 

 

 

 



 

Nine months ended September 30,

 

Increase/(Decrease)



 

2018

 

2017

 

Amount

 

% Change

West

 

4.0 

 

5.2 

 

(1.2)

 

(23.1)

%

Mountain

 

4.3 

 

4.3 

 

 —

 

 —

%

Texas

 

2.4 

 

1.8 

 

0.6 

 

33.3 

%

Southeast

 

3.2 

 

3.6 

 

(0.4)

 

(11.1)

%

Wade Jurney Homes

 

N/A

 

N/A

 

N/A

 

N/A

 

Total

 

3.4 

 

3.5 

 

(0.1)

 

(2.9)

%

N/A – Not Applicable



Our absorption rates decreased by 9.4% and 2.9% to 2.9 per month and 3.4 per month during the three and nine months ended September 30, 2018, respectively, as compared to the same periods the same periods in 2017.   Our absorptions for our Century Communities brand moderated slightly during the three and nine months ended September 30, 2018 as compared to 2017.  The moderation we experienced was consistent with the overall housing market.







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Selling communities at period end

 

As of September 30,

 

 

Increase/(Decrease)



 

2018

 

2017

 

 

Amount

 

% Change



 

 

 

 

 

 

 

 

 

 

West

 

17 

 

10 

 

 

 

70.0 

%

Mountain

 

34 

 

33 

 

 

 

3.0 

%

Texas

 

23 

 

24 

 

 

(1)

 

(4.2)

%

Southeast

 

51 

 

40 

 

 

11 

 

27.5 

%

Wade Jurney Homes

 

N/A

 

N/A

 

 

N/A

 

N/A

 

Total

 

125 

 

107 

 

 

18 

 

16.8 

%

N/A – Not Applicable

Our selling communities increased 16.8% to 125 communities at September 30, 2018 as compared to 107 communities at September 30, 2017.  As WJH does not sell homes by community, but through studios, there is no community or absorptions presented for that segment.

33 

 


 

Table of Contents

Backlog





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of September 30,

 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

% Change

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price



 

 

 

 

 

 

West

 

280 

 

$

153,121 

 

$

546.9 

 

290 

 

$

161,013 

 

$

555.2 

 

(3.4)

%

 

(4.9)

%

 

(1.5)

%

Mountain

 

627 

 

 

283,534 

 

 

452.0 

 

573 

 

 

247,876 

 

 

432.3 

 

9.4 

%

 

14.4 

%

 

4.6 

%

Texas

 

217 

 

 

75,129 

 

 

346.2 

 

245 

 

 

101,125 

 

 

412.8 

 

(11.4)

%

 

(25.7)

%

 

(16.1)

%

Southeast

 

736 

 

 

241,943 

 

 

328.7 

 

556 

 

 

179,324 

 

 

322.5 

 

32.4 

%

 

34.9 

%

 

1.9 

%

Wade Jurney Homes

 

1,128 

 

 

177,224 

 

 

157.1 

 

 —

 

 

 —

 

 

 —

 

NM

 

 

NM

 

 

NM

 

Total / Weighted Average

 

2,988 

 

$

930,951 

 

$

311.5 

 

1,664 

 

$

689,338 

 

$

414.3 

 

79.6 

%

 

35.1 

%

 

(24.8)

%

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, 2018, we had 2,988 homes in backlog with a total value of $931.0 million, which represents an increase of 79.6% and 35.1%, respectively, as compared to September 30, 2017.  The increase in backlog and backlog value is primarily attributable to our acquisition of WJH LLC, as well as the increases in the Southeast and Mountain segments, partially offset by decreases in the West and Texas segments.  The decrease in average sales price of homes in backlog is driven by an increase in homes sold by WJH, which are sold at lower average sales prices



Supplemental Pro Forma Information



As we completed significant acquisitions in 2017 and 2018 that are not included in our results of operations for the nine months ended September 30, 2018 and the three and nine months ended September 30, 2017, and to aid readers with 2018 over 2017 comparability for the entire merged business, we are including limited supplemental pro forma information below for those periodsThe supplemental pro forma information below presents pro forma combined financial and operating data reflecting the UCP, Sundquist Homes and WJH acquisitions as if they had occurred on January 1, 2017.  The selected condensed combined pro forma data combines the historical home sales revenues, net new home contracts, new homes delivered and average sales price of homes delivered of Century, UCP, Sundquist Homes and WJH, giving effect to the UCP, Sundquist Homes and WJH acquisitions as if they had been consummated on January 1, 2017.  The pro forma information is for informational purposes only and supplements our Condensed Consolidated Financial Statements prepared in accordance with US GAAP. We believe that the pro forma information is useful as it provides additional information given the significant impact of these acquisitions, and a reflection of how the combined business performed year over year that is not readily discernible from the actual year over year comparison. The pro forma information below does not purport to reflect the results of operations that would have occurred if the UCP, Sundquist Homes and WJH acquisitions had been consummated on January 1, 2017, nor does the pro forma information purport to represent the results of operations of the Company for any future dates or periods.







 

 

 

 

 

 

 

 

 



 

Three months ended September 30,

 

Nine months ended September 30,



 

2017

 

2018

 

2017

Pro forma home sales revenues

 

$

502,227 

 

$

1,620,262 

 

$

1,362,280 

Pro forma net new home contracts

 

 

1,498 

 

 

5,850 

 

 

5,175 

Pro forma deliveries

 

 

1,553 

 

 

5,064 

 

 

4,109 

Pro forma average sales price

 

$

323.4 

 

$

320.0 

 

$

331.6 



Critical Accounting Policies

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 1, 2018, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies.”  Other than the adoption of ASC 606, as described in Note 1 in the

34 

 


 

Table of Contents

accompanying unaudited consolidated financial statements, there have been no significant changes to our critical accounting policies during the three and nine months ended September 30, 2018.

Liquidity and Capital Resources

Overview

Our principal uses of capital for the three and nine months ended September 30, 2018 were our land purchases, land development, home construction, acquisition of the remaining 50% ownership interest in WJH, including the extinguishment of assumed debt, and the payment of routine liabilities. We use funds generated by operations, available borrowings under our revolving credit facility, and proceeds from sales of common stock, including our current at-the-market facility, to fund our short term working capital obligations and fund our purchases of land, as well as land development and home construction activities. 

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 statements of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are 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 our cash outlays for land purchases and land development to grow our lot inventory will continue to exceed our cash generated by operations. 

Our Financial Services operations uses funds generated from operations, and availability under our mortgage repurchase facilities to finance its operations including originations of mortgage loans to our homebuyers. 

Under our shelf registration statement, which we filed with the SEC in July 2018 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in an aggregate offering amount of up to $869 million, as needed as part of our ongoing financing strategy and subject to market conditions.  

We believe that we will be able to fund our current and foreseeable liquidity needs with our cash on hand, cash generated from operations, and cash expected to be available from our revolving credit facility or through accessing debt or equity capital, as needed.

Revolving Credit Facility 

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.  On June 5, 2018, we entered into an Amended and Restated Credit Agreement which amended and restated the Credit Agreement.  The Amended and Restated Credit Agreement provides us with a revolving line of credit of up to $540.0 million, and unless terminated earlier, will mature on April 30, 2022.  Under the terms of the Amended and Restated Credit Agreement, we may request a twelve-month extension of the maturity date and are entitled to request an increase in the size of the credit facility by an amount not exceeding $100.0 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 Amended and Restated Credit Agreement, subject to the approval of the Administrative Agent. Our obligations under the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries. The Amended and Restated 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.  These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly.  Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum.  On June 28, 2018, we entered into a Joinder Agreement which increased the credit facility to $590.0 million by exercising $50.0 million of the $100.0 million accordion feature and added a new lender.  As of September 30, 2018, we had $236.0 million outstanding under the credit facility, leaving $354.0 million in availability, and were in compliance with all covenants.

At the Market Offerings

On July 3, 2018, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, Citigroup Global Markets Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $100.0 million from time to time through any of the sales agents party thereto in “at-the-market” offerings.  This Distribution Agreement superseded and replaced a prior similar Distribution Agreement, which had $72.7 million available for sale as of September 30, 2018. During the three and nine months ended September 30, 2018, we sold and issued an

35 

 


 

Table of Contents

aggregate of 0.6 million and 1.1 million shares of our common stock under this and the prior Distribution Agreement, which provided us net proceeds of $17.1 million and $31.7 million, respectively, and, in connection with such sales, paid total commissions and fees to the sales agents of $0.3 million and $0.6 million,  respectively.  The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement.



Mortgage Repurchase Facility and Mortgage Warehouse Line of Credit – Financial Services 

On May 4, 2018, Inspire Home Loans Inc. (which we refer to as “Inspire”), an indirect wholly-owned subsidiary of the Company, entered into a Mortgage Warehouse Line of Credit, with Comerica Bank, upon the expiration of our first Master Repurchase Agreement.  The Mortgage Warehouse Line of Credit (which we refer to as the “Third Master Repurchase Agreement”) provides Inspire with an uncommitted Mortgage Warehouse Line of Credit of up to $40 million, secured by the mortgage loans financed thereunder. Our existing Second Master Repurchase Agreements provided Inspire with revolving mortgage loan repurchase facilities of up to $35 million, providing Inspire a total potential lending capacity of up to $75 million. Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type.  As of September 30, 2018, we had $57.3 million outstanding under the Repurchase Facilities and were in compliance with all covenants under the agreements.

Letters of Credit and Performance Bonds

In the normal course of business, we post letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of September 30, 2018 and December 31, 2017, we had $296.9 million and $158.6 million, respectively, in letters of credit and performance bonds issued and outstanding.  Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and performance bonds are not generally released until all development and construction activities are completed.

Debt

Our outstanding debt obligations included the following as of September 30, 2018 and December 31, 2017 (in thousands):  







 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

6.875% senior notes, due May 2022(1)

 

$

380,224 

 

$

379,238 

5.875% senior notes, due July 2025(1)

 

 

395,238 

 

 

394,725 

3.278% insurance premium notes, due June 2019

 

 

9,673 

 

 

 —

Other financing obligations

 

 

2,320 

 

 

2,320 

Notes payable

 

 

787,455 

 

 

776,283 

Revolving line of credit, due April 2022

 

 

236,000 

 

 

 —

Mortgage repurchase facilities

 

 

57,327 

 

 

48,319 

Total debt

 

$

1,080,782 

 

$

824,602 

 (1)    The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

A summary of our debt obligations is included in Note 11 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 1, 2018. 



Stock Repurchase Program

On November 6, 2018, our Board of Directors authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock.  The shares may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws. The actual manner, timing, amount and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of our common stock, trading volume, other capital management objectives and opportunities, applicable legal requirements, and general market and economic conditions.



We intend to finance any stock repurchases through available cash and our revolving credit facility. Repurchases also may be made under a trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased when we otherwise may be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. There

36 

 


 

Table of Contents

is no guarantee as to the number of shares that will be repurchased, and the stock repurchase program may be extended, suspended or discontinued at any time without notice at our discretion.





Cash Flows—Nine months ended September 30, 2018 Compared to the Nine months ended September 30, 2017

For the three and nine months ended September 30, 2018 and 2017, the comparison of cash flows is as follows:

·

Net cash used in operating activities increased to $217.0 million during the nine months ended September 30, 2018 from net cash used of $125.4 million during the same period in 2017. This increase in cash used in operations was primarily a result of a net outflow associated with inventories of $243.4 million during the nine months ended September 30, 2018, compared to a net outflow of $95.1 million during the same period in 2017. The outflow in 2018 was driven by our investment in inventories through the purchase of 9,447 lots during the nine months ended September 30, 2018, as well as 5,645 homes under construction as of September 30, 2018.  These outflows were offset by cash inflows associated with 4,071 home deliveries during the nine months ended September 30, 2018.   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 $56.0 million for the nine months ended September 30, 2018, as compared to $70.1 million for the same period in 2017.     

·

Net cash used in investing activities was $39.7 million during the nine months ended September 30, 2018, compared to $66.1 million used during the same period in 2017. This decrease was primarily related to the decrease in business combinations during 2018 as compared to 2017, partially offset by an increase in cash used for purchases of property and equipment in other investing activities. 

·

Net cash provided by financing activities was $182.7 million during the nine months ended September 30, 2018, compared to $225.9 million during the same period in 2017. This decrease was primarily attributable to net proceeds received from the issuance of senior notes in 2017 and our mortgage repurchase facilities, partially offset by an increase in net draws on our revolving credit facility and proceeds from insurance notes payable and decreases in debt extinguishments assumed in business combinations.

As of September 30, 2018, our cash and cash equivalents and restricted cash balance was $19.7 million. 

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. Our obligations with respect to purchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of September 30, 2018, we had outstanding purchase contracts and option contracts for 17,019 lots totaling $760.4 million and had $45.0 million of non-refundable cash deposits pertaining to land option contracts. While our performance, including the timing and amount of purchase, if any, under these outstanding purchase and option contracts is subject to change, we currently anticipate performing on 50% to 60% of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contacts occurring in future periods, if at all

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

Adjusted EBITDA

The following table presents adjusted EBITDA for the three and nine months ended September 30, 2018 and 2017. 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 and purchase price accounting for investment in unconsolidated subsidiaries, and (vi) acquisition expense. We believe adjusted EBITDA provides an indicator of general economic performance that is not affected by

37 

 


 

Table of Contents

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,

 



 

2018

 

2017

 

% Change

 

2018

 

2017

 

% Change

Net income

 

$

17,048 

 

$

9,470 

 

 

80.0 

%

 

$

70,261 

 

$

33,100 

 

 

112.3 

%

Income tax expense

 

 

5,810 

 

 

5,686 

 

 

2.2 

%

 

 

22,207 

 

 

17,216 

 

 

29.0 

%

Interest in cost of home sales revenues

 

 

12,334 

 

 

8,794 

 

 

40.3 

%

 

 

33,577 

 

 

20,625 

 

 

62.8 

%

Interest expense (income)

 

 

(205)

 

 

(778)

 

 

(73.7)

%

 

 

(579)

 

 

(1,323)

 

 

(56.2)

%

Depreciation and amortization expense

 

 

3,291 

 

 

2,256 

 

 

45.9 

%

 

 

8,803 

 

 

5,073 

 

 

73.5 

%

EBITDA

 

 

38,278 

 

 

25,428 

 

 

50.5 

%

 

 

134,269 

 

 

74,691 

 

 

79.8 

%

Purchase price accounting for acquired work in process inventory

 

 

11,934 

 

 

6,214 

 

 

92.1 

%

 

 

28,367 

 

 

6,331 

 

 

348.1 

%

Purchase price accounting for investment in unconsolidated subsidiaries outside basis

 

 

 —

 

 

30 

 

 

(100.0)

%

 

 

60 

 

 

885 

 

 

(93.2)

%

Acquisition expense

 

 

58 

 

 

7,205 

 

 

(99.2)

%

 

 

395 

 

 

8,645 

 

 

(95.4)

%

Adjusted EBITDA

 

$

50,270 

 

$

38,877 

 

 

29.3 

%

 

$

163,091 

 

$

90,552 

 

 

80.1 

%


Net Homebuilding Debt to Net Capital



The following table presents our ratio of net homebuilding debt to net capital, which is a non-GAAP financial measure.  We calculate this by dividing net  homebuilding debt (senior notes payable and revolving line of credit less cash and cash equivalents and cash held in escrow) by net capital (net homebuilding debt plus total stockholders’ equity). The most directly comparable GAAP measure is the ratio of debt to total capital. We believe the ratio of net homebuilding debt to net capital is a relevant and useful financial measure to investors in understanding the leverage employed in our operations and as an indicator of our ability to obtain external financing.





 

 

 

 

 

 



 

September 30,

 

December 31,



 

2018

 

2017

Total homebuilding debt

 

$

1,023,455 

 

$

776,283 

Total stockholders' equity

 

 

840,793 

 

 

735,233 

Total capital

 

$

1,864,248 

 

$

1,511,516 

Debt to capital

 

 

54.9% 

 

 

51.4% 



 

 

 

 

 

 

Total homebuilding debt

 

$

1,023,455 

 

$

776,283 

Cash and cash equivalents

 

 

(15,927)

 

 

(88,832)

Cash held in escrow

 

 

(31,906)

 

 

(37,723)

Net homebuilding debt

 

 

975,622 

 

 

649,728 

Total stockholders' equity

 

 

840,793 

 

 

735,233 

Net capital

 

$

1,816,415 

 

$

1,384,961 



 

 

 

 

 

 

Net homebuilding debt to net capital

 

 

53.7% 

 

 

46.9% 













Adjusted Diluted Earnings per Share



Adjusted diluted earnings per 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

38 

 


 

Table of Contents

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 earnings per share.





 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Nine months ended



 

September 30,

 

September 30,



 

2018

 

2017

 

2018

 

2017

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

17,048 

 

$

9,470 

 

$

70,261 

 

$

33,100 

Less: Undistributed earnings allocated to participating securities

 

 

 —

 

 

(52)

 

 

(58)

 

 

(289)

Net income allocable to common stockholders

 

$

17,048 

 

$

9,418 

 

$

70,203 

 

$

32,811 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

30,232,376 

 

 

25,445,552 

 

 

29,885,858 

 

 

23,038,390 

Dilutive effect of restricted stock units

 

 

322,505 

 

 

280,585 

 

 

303,200 

 

 

236,930 

Weighted average common shares outstanding - diluted

 

 

30,554,881 

 

 

25,726,137 

 

 

30,189,058 

 

 

23,275,320 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56 

 

$

0.37 

 

$

2.35 

 

$

1.42 

Diluted

 

$

0.56 

 

$

0.37 

 

$

2.33 

 

$

1.41 



 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

$

22,858 

 

$

15,156 

 

$

92,468 

 

$

50,316 

Purchase price accounting for acquired work in process inventory

 

 

11,934 

 

 

6,214 

 

 

28,367 

 

 

6,331 

Gain on previously held interest in WJH

 

 

 -

 

 

 -

 

 

(7,219)

 

 

 -

Acquisition expense

 

 

58 

 

 

7,205 

 

 

395 

 

 

8,645 

Adjusted income before income tax expense

 

 

34,850 

 

 

28,575 

 

 

114,011 

 

 

65,292 

Adjusted income tax expense(1)

 

 

(8,713)

 

 

(10,720)

 

 

(28,503)

 

 

(22,340)

Adjusted net income

 

 

26,137 

 

 

17,855 

 

 

85,508 

 

 

42,952 

Less: Adjusted undistributed earnings allocated to participating securities

 

 

 —

 

 

(99)

 

 

(71)

 

 

(375)

Adjusted net income allocable to common stockholders

 

$

26,137 

 

$

17,756 

 

$

85,437 

 

$

42,577 

   

 

 

 

 

 

 

 

 

 

 

 

 

Denominator - Diluted

 

 

30,554,881 

 

 

25,726,137 

 

 

30,189,058 

 

 

23,275,320 



 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per share

 

$

0.86 

 

$

0.69 

 

$

2.83 

 

$

1.83 



(1)

For the three and nine months ended September 30, 2018, the tax rate used in adjusted net income was 25%.  This rate is inclusive of our estimated annual rate of 26.6% offset by the estimated annual benefit associated with federal energy credits related to homes delivered.  For the three and nine months ended September 30, 2017, our GAAP tax rate was utilized.









39 

 


 

Table of Contents

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 Amended and Restated Credit Agreement.  Borrowing under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60% and 3.10% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60% and 2.10% per annum. 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 September 30, 2018, 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, 2018 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

There were no changes during the third quarter of 2018 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.







40 

 


 

Table of Contents

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, 2017 that was filed with the SEC on March 1, 2018, other than the new risk factor below.

While we believe our recent acquisition of the remaining 50% ownership interest in WJH will produce several benefits, it involves risk and we may be unable to realize the anticipated benefits of this acquisition.

In June 2018, we acquired the remaining 50% ownership interest in WJH. While we believe the acquisition of WJH will produce many benefits, such as expanding our investment into a proven and profitable operation, enhancing our geographic and product diversification through additional exposure to new markets and first-time buyers, driving additional growth avenues for ancillary revenue streams, including our mortgage and title operations and improving access to capital to accelerate WJH’s expansion efforts into additional markets, these benefits may not come to fruition or materialize to the extent we anticipate. In addition, we still need to integrate the business to some extent which can be challenging and involves risk.  These issues could adversely affect our business and financial results.

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

None.



ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

None.



ITEM 4.     MINE SAFETY DISCLOSURES.

Not applicable.



ITEM 5.     OTHER INFORMATION.



None.

41 

 


 

Table of Contents

ITEM 6.     EXHIBITS.

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





















 

 



 

 

Item No.

 

Description

3.1

 

Certificate of Incorporation of Century Communities, Inc., 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 (File No. 333-195678))

3.2

 

Bylaws of Century Communities, Inc. (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 (File No. 333-195678))

3.3

 

Amendment to the Bylaws of Century Communities, Inc., 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 (File No. 001-36491))

10.1

 

Distribution Agreement, dated July 3, 2018, among the Century Communities, Inc. and J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2018 (File No. 001-36491))

31.1

 

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

31.2

 

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

31.3

 

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

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 (furnished herewith)

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 (furnished herewith)

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 (furnished herewith)

101.INS

 

XBRL Instance Document (filed herewith)

101.SCH

 

XBRL Taxonomy Extension Schema Document (filed herewith)

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

101.DEF

 

XBRL Taxonomy Definition Linkbase Document (filed herewith)

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document (filed herewith)

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)



42 

 


 

Table of Contents

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 6, 2018

By:

/s/ Dale Francescon

 



 

Dale Francescon

 



 

Chairman of the Board and Co-Chief Executive Officer

(Co-Principal Executive Officer)

 



 

 

 

Date: November 6, 2018

By:

/s/ Robert J. Francescon

 



 

Robert J. Francescon

 



 

Co-Chief Executive Officer and President 

(Co-Principal Executive Officer)

 



 

 

 



 

 

 

Date: November 6, 2018

By:

/s/ David Messenger

 



 

David Messenger

 



 

Chief Financial Officer

(Principal Financial Officer)

 



 

 

 



 

 

 

Date: November 6, 2018

By:

/s/  J. Scott Dixon

 



 

J. Scott Dixon

 



 

Chief Accounting Officer

(Principal Accounting Officer)

 



43