CENTURY COMMUNITIES, INC.
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," the negative of such terms and other comparable terminology and the
use of future dates. You can also identify forward-looking statements by
discussions of strategy, plans or intentions. Actual results and the timing of
events may differ materially from those contained in these forward-looking
statements due to a number of factors.
The forward-looking statements included in this Form 10-Q reflect our current
views about future events and are subject to numerous known and unknown risks,
uncertainties, assumptions and changes in circumstances that may cause our
actual results to differ
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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:
?the impact of the COVID-19 pandemic on our business operations, operating results and financial condition, as well as the general economy and housing market in particular;
?economic changes, either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;
?shortages of or increased prices for labor, land or raw materials, including lumber, used in housing construction;
?a downturn in the homebuilding industry, including a reduction in demand or a decline in real estate values or market conditions resulting in an adverse impact on our business, operating results and financial conditions, including an impairment of our assets;
?changes in assumptions used to make industry forecasts, population growth rates, or trends affecting housing demand or prices;
?continued volatility and uncertainty in the credit markets and broader financial markets;
?our future operating results and financial condition;
?our business operations;
?changes in our business and investment strategy;
?availability and price of land to acquire, and our ability to acquire such land on favorable terms or at all;
?availability, terms and deployment of capital;
?availability or cost of mortgage financing or an increase in the number of foreclosures in the market;
?delays in land development or home construction resulting from adverse weather conditions or other events outside our control;
?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 impact and cost of compliance with evolving environmental, health and safety and other laws and regulations and third-party challenges to required permits and other approvals and potential legal liability in connection therewith;
?the degree and nature of our competition;
?our leverage, debt service obligations and exposure to changes in interest rates;
?our ability to continue to fund and succeed in our mortgage lending business and the additional risks involved in that business;
?availability of qualified personnel and contractors and our ability to retain key personnel and contractor relationships;
?taxation and tax policy changes, tax rate changes, new tax laws, new or revised tax law interpretations or guidance; and
?changes in
Forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us. Forward-looking statements are not guarantees of future events or of our performance. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these events and factors are described above and in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and in "Part I, Item 1A. Risk Factors" in our Annual Report on Form 10-K, and other risks and uncertainties detailed in this report, including "Part II, Item 1A. Risk Factors", and our other reports and filings with theSEC . If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.
As used in this Form 10-Q, references to "we," "us," "our," "Century" or the
"Company" refer to
The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . We use certain non-GAAP financial measures that we believe are important for purposes of comparison to prior periods. This information is also used by our management to measure the profitability of our ongoing operations and analyze our business performance and trends. Some of the numbers included herein have been rounded for the convenience of presentation.
Overview
Century is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under ourCentury Communities and Century Complete brands. Our Century Communities brand targets 17
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a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet and generally provides no option or upgrade opportunities. Our homebuilding operations are organized into the following five reportable segments: West, Mountain,Texas , Southeast, and Century Complete. Additionally, our indirect wholly-owned subsidiaries,Inspire Home Loans Inc. ,Parkway Title, LLC , andIHL Home Insurance Agency, LLC , which provide mortgage, title, and insurance services, respectively, primarily to our homebuyers have been identified as our Financial Services segment. While we offer homes that appeal to a broad range of entry-level, move-up, and lifestyle homebuyers, our offerings are heavily weighted towards providing affordable housing options in each of our homebuyer segments. Additionally, we prefer building move-in-ready homes over built-to-order homes, which we believe allows for a faster construction process, advantageous pricing with subcontractors, and shortened time period from home sale to home delivery, thus allowing us to more appropriately price the homes and deploy our capital.
Impact of COVID-19 Pandemic
The outbreak of the novel coronavirus, (COVID-19), which was declared a pandemic
by the
The homebuilding industry started to experience slowing sales trends in mid-March through April of 2020 at the outset of the widespread uncertainty concerning the pandemic. However, home sales sharply rebounded in May and June of 2020, aided by historically low interest rates, lack of supply, and renewed desire from customers to move out of urban areas and/or apartments and into new homes in suburban areas, which desire was likely accelerated by the COVID-19 pandemic. These positive trends and market dynamics continued throughout the remainder of 2020 and throughout the first half of 2021. While these positive trends and market dynamics continued throughout the first half of 2021, we recognize that long term macro-economic effects of the pandemic that could ultimately impact the homebuilding industry have yet to be known. There is still uncertainty regarding the extent and duration of the COVID-19 pandemic and future increases in COVID-19 positive cases could result in altering of the "re-opening" plans of numerous state and local municipalities, which may include government restrictions, such as "stay-at-home" or "shelter-in-place" directives, quarantines, travel advisories and social distancing measures. Despite overall strong demand and sales of our homes during the first and second quarters of 2021, continued future demand is uncertain as economic conditions are uncertain, in particular with respect to unemployment levels, and the extent to which and how long COVID-19 and related government directives, actions, and economic relief efforts will impact theU.S. economy, unemployment levels, financial markets, credit and mortgage markets, consumer confidence, interest rates, availability of mortgage loans to homebuyers, and other factors, including those described elsewhere in this report. A decrease in demand for our homes would adversely affect our operating results in future periods, as well as have a direct effect on the origination volume of and revenues from our Financial Services segment. In addition, because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventories in the future. Driven by the continued strong demand for our homes throughout the first and second quarters of 2021, we ended the second quarter of 2021 with no amounts outstanding under our revolving line of credit,$419.4 million of cash and cash equivalents,$37.6 million of cash held in escrow, and a net homebuilding debt to net capital ratio of 23.0%. Additionally, we increased our land acquisition and development activities during the first six months of 2021 to bolster our lot pipeline and support future community growth, which resulted in 65,610 lots owned and controlled atJune 30, 2021 , a 88.4% increase as compared toJune 30, 2020 and a 31.3% increase as compared toDecember 31, 2020 . Although the trajectory and strength of our markets have continued to remain strong and allowed us to pass on increased costs through price increases and increase our margins, we continued to experience materials and labor supply cost pressures during the first six months of 2021 that could negatively impact our margins in future periods. While the impact of the COVID-19 pandemic will continue to evolve and at any given time recovery could be slowed or reversed by a number of factors, we believe we are well positioned from a cash and liquidity standpoint not only to operate in an uncertain environment, but also to continue to grow with the market and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of debt refinancing and/or strategic opportunities as they arise. Results of Operations During the three and six months endedJune 30, 2021 , we delivered 2,771 and 5,568 homes, respectively, with an average sales price of$362.6 thousand and$352.7 thousand , respectively. These deliveries represent increases of 11.7% and 28.2%, respectively, as compared to the three and six months endedJune 30, 2020 and represent a 20.3% and 16.1% increase in average sales price as compared to the three and six months endedJune 30, 2020 . During the three and six months endedJune 30, 2021 , we generated approximately$1.0 billion and$2.0 billion in home sales revenues, respectively, approximately$152.1 million and$283.2 million in income before income tax expense, respectively, and approximately$117.9 million and$219.6 million in net income, respectively, in each case representing substantial increases over the prior year periods. 18
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For the three and six months endedJune 30, 2021 , our new home contracts, net of cancelations, totaled 3,120 and 6,575, respectively, a 17.1% and 30.1% increase over the same respective periods in 2020. As ofJune 30, 2021 , we had a backlog of 4,446 homes, a 60.0% increase as compared toJune 30, 2020 , representing approximately$1,762.5 million in sales value, an 83.1% increase as compared toJune 30, 2020 . ? 19
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The following table summarizes our results of operations for the three and six
months ended
(in thousands, except per
share amounts) Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Consolidated Statements of
Operations:
Revenue
Home sales revenues $ 1,004,789 $ 747,415 $ 1,964,068 $ 1,320,125
Land sales and other revenues 8,258 3,307 23,928 23,411
1,013,047 750,722 1,987,996 1,343,536
Financial services revenues 29,865 25,722 63,485 35,517
Total revenues 1,042,912 776,444 2,051,481 1,379,053
Homebuilding cost of revenues
Cost of home sales revenues (764,668) (620,655) (1,521,175) (1,091,181)
Cost of land sales and other
revenues (7,000) (2,384) (17,020) (16,551)
(771,668) (623,039) (1,538,195) (1,107,732)
Financial services costs (18,168) (12,744) (36,469) (22,330)
Selling, general, and
administrative (99,656) (86,706) (191,807) (160,325)
Inventory impairment and other (41) (910) (41) (1,691)
Other income (expense) (1,245) (2,942) (1,786) (2,784)
Income before income tax
expense 152,134 50,103 283,183 84,191
Income tax expense (34,224) (11,653) (63,621) (19,615)
Net income $ 117,910 $ 38,450 $ 219,562 $ 64,576
Earnings per share:
Basic $ 3.49 $ 1.15 $ 6.52 $ 1.94
Diluted $ 3.47 $ 1.15 $ 6.47 $ 1.93
Adjusted diluted earnings per
share(1) $ 3.47 $ 1.21 $ 6.47 $ 2.00
Other Operating Information
(dollars in thousands):
Number of homes delivered 2,771 2,480 5,568 4,344
Average sales price of homes
delivered $ 362.6 $ 301.4 $ 352.7 $ 303.9
Homebuilding gross margin
percentage(2) 23.9 % 16.9 % 22.5 % 17.2 %
Adjusted homebuilding gross
margin excluding interest and
inventory impairment and other
(1) 25.7 % 19.5 % 24.4 % 19.8 %
Backlog at end of period,
number of homes 4,446 2,778 4,446 2,778
Backlog at end of period,
aggregate sales value $ 1,762,465 $ 962,751 $ 1,762,465 $ 962,751
Average sales price of homes
in backlog $ 396.4 $ 346.6 $ 396.4 $ 346.6
Net new home contracts 3,120 2,664 6,575 5,052
Selling communities at period
end(3) 184 223 184 223
Average selling communities(3) 179 231 187 226
Total owned and controlled lot
inventory 65,610 34,832 65,610 34,832
Adjusted EBITDA(1) $ 173,258 $ 74,034 $ 325,379 $ 125,840
Adjusted income before income
tax expense(1) $ 152,175 $ 52,597 $ 283,224 $ 87,466
Adjusted net income(1) $ 117,987 $ 40,343 $ 219,594 $ 67,088
Net homebuilding debt to net
capital (1) 23.0 % 37.5 % 23.0 % 37.5 %
(1) This is a non-GAAP financial measure and should not be used as a substitute
for the Company's operating results prepared in accordance with GAAP. See the
reconciliations to the most comparable GAAP measure and other information under
"Non-GAAP Financial Measures." An analysis of any non-GAAP financial measure
should be used in conjunction with results presented in accordance with GAAP.
(2) Homebuilding gross margin percentage is inclusive of a $0.9 million and $1.7
million inventory impairment for the three and six months ended June 30, 2020 ,
respectively, which is included within inventory impairment and other on our
condensed consolidated financial statements. We recognized nominal inventory
impairment for the three and six months ended June 30, 2021 .
(3) The selling communities as of June 30, 2020 has been adjusted from prior
year presentations to reflect 101 selling communities in our Century Complete
segment, which business was acquired in 2018, and for which the number of
selling communities was previously not disclosed.
?
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Results of Operations by Segment
(dollars in thousands)
Average Sales Price of Income before Income Tax
New Homes Delivered Homes Delivered Home Sales Revenues Expense
Three Months Ended Three Months Ended Three Months Ended June
June 30, June 30, Three Months Ended June 30, 30,
2021 2020 2021 2020 2021 2020 2021 2020
West 385 313 $ 616.5 $ 530.6 $ 237,359 $ 166,089 $ 40,903 $ 13,747
Mountain 611 417 $ 473.1 $ 418.6 289,058 174,559 55,814 20,616
Texas 477 400 $ 273.9 $ 246.4 130,641 98,558 19,139 9,610
Southeast 429 515 $ 392.7 $ 338.8 168,453 174,492 26,096 12,020
Century
Complete 869 835 $ 206.3 $ 160.1 179,278 133,717 23,089 8,548
Financial
Services - - $ - $ - - - 11,697 12,978
Corporate - - $ - $ - - - (24,604) (27,416)
Total 2,771 2,480 $ 362.6 $ 301.4 $
1,004,789
Average Sales Price of Income before Income Tax
New Homes Delivered Homes Delivered Home Sales Revenues Expense
Six Months Ended June Six Months Ended June Six Months Ended June
30, 30, Six Months Ended June 30, 30,
2021 2020 2021 2020 2021 2020 2021 2020
West 704 546 $ 601.1 $ 536.0 $ 423,149 $ 292,651 $ 68,364 $ 29,089
Mountain 1,296 813 $ 446.9 $ 407.2 579,123 331,091 107,794 39,094
Texas 805 644 $ 271.3 $ 246.4 218,380 158,697 27,670 15,108
Southeast 997 883 $ 389.7 $ 346.4 388,534 305,894 49,536 20,329
Century
Complete 1,766 1,458 $ 201.0 $ 159.0 354,882 231,792 44,819 9,333
Financial
Services - - $ - $ - - - 27,016 13,187
Corporate - - $ - $ - - - (42,016) (41,949)
Total 5,568 4,344 $ 352.7 $ 303.9 $ 1,964,068 $ 1,320,125 $ 283,183 $ 84,191
West
During the three and six months ended June 30, 2021 , our West segment generated
income before income tax expense of $40.9 million and $68.4 million ,
respectively, a 197.5% and 135.0% increase, respectively, over the respective
prior year period. These increases were driven by increases in home sales
revenue of $71.3 million and $130.5 million , respectively, and increases of 896
basis points and 622 basis points, respectively, in the percentage of income
before income tax expense to home sales revenues, as a result of (1) increased
revenues on a partially fixed cost base and (2) increased gross margins on home
sales. The increases in revenue during the three and six months ended June 30,
2021 were generated by both increases in the number of homes delivered of 23.0%
and 28.9%, respectively, as well as increases of 16.2% and 12.1%, respectively,
in the average sales price per home. During the three and six months ended June
30, 2021 , the increases in the number of homes delivered were driven by
increases in our monthly absorption rate of 73.2% and 64.2%, respectively, and
increases in the average sales price were driven by both the mix of deliveries
within individual communities, as well as increased pricing power as a result of
strong market dynamics.
Mountain
During the three and six months ended June 30, 2021 , our Mountain segment
generated income before income tax expense of $55.8 million and $107.8 million ,
respectively, a 170.7% and 175.7% increase, respectively, over the respective
prior year period. These increases were driven by increases in home sales
revenue of $114.5 million and $248.0 million , respectively, and increases of 750
basis points and 681 basis points, respectively, in the percentage of income
before income tax expense to home sales revenues, as a result of (1) increased
revenues on a partially fixed cost base and (2) increased gross margins on home
sales. The increases in revenue during the three and six months ended June 30,
2021 were generated by both increases in the number of homes delivered of 46.5%
and 59.4%, respectively, as well as increases of 13.0% and 9.7%, respectively,
in the average sales price per home. During the three and six months ended June
30, 2021 , the increases in the number of homes delivered were driven by
increases in our monthly absorption rate of 81.0% and 102.1%, respectively, and
increases in the average sales price were driven by both the mix of deliveries
within individual communities, as well as increased pricing power as a result of
strong market dynamics.
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During the three and six months endedJune 30, 2021 , ourTexas segment generated income before income tax expense of$19.1 million and$27.7 million , respectively, a 99.2% and 83.1% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of$32.1 million and$59.7 million , respectively, and increases of 490 basis points and 315 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of (1) increased revenues on a partially fixed cost base and (2) increased gross margins on home sales. The increases in revenue during the three and six months endedJune 30, 2021 were generated by both increases in the number of homes delivered of 19.3% and 25.0%, respectively, as well as increases of 11.2% and 10.1%, respectively, in the average sales price per home. During the three and six months endedJune 30, 2021 , the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 53.2% and 91.2%, respectively, and increases in the average sales price were driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics. Southeast During the three months endedJune 30, 2021 , our Southeast segment generated income before income tax expense of$26.1 million , a 117.1% increase over the prior year period, driven by an increase of 860 basis points in the percentage of income before income tax expense to home sales revenues. Home sales revenues decreased during the three months endedJune 30, 2021 , generated by a decrease in the number of homes delivered of 16.7%, partially offset by an increase of 15.9% in the average sales price per home. During the three months endedJune 30, 2021 , the decrease in the number of homes delivered was driven by a decrease in our monthly absorption rate of 6.4%. The increase in the average sales price was driven by both the mix of deliveries within individual communities, as well as increased pricing power as a result of strong market dynamics. During the six months endedJune 30, 2021 , our Southeast segment generated income before income tax expense of$49.5 million , a 143.7% increase, respectively, over the prior year period. The increase was driven by the increase in home sales revenue of$82.6 million , and an increase of 610 basis points in the percentage of income before income tax expense to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increase in revenue during the six months endedJune 30, 2021 was generated by both an increase in the number of homes delivered of 12.9% as well as an increase of 12.5% in the average sales price per home. During the six months endedJune 30, 2021 , the increase in the number of homes delivered was driven by an increase in our monthly absorption rate of 28.9% and the increase in the average sales price was driven by both the mix of deliveries within individual communities between years, as well as increased pricing power as a result of strong market dynamics.
Century Complete
During the three and six months endedJune 30, 2021 , our Century Complete segment generated income before income tax expense of$23.1 million and$44.8 million , respectively, a 170.1% and 380.2% increase, respectively, over the respective prior year period. These increases were driven by increases in home sales revenue of$45.6 million and$123.1 million , respectively, and increases of 649 basis points and 860 basis points, respectively, in the percentage of income before income tax expense to home sales revenues, as a result of increased revenues on a partially fixed cost base. The increases in revenue during the three and six months endedJune 30, 2021 were generated by both increases in the number of homes delivered of 4.1% and 21.1%, respectively, as well as increases of 28.9% and 26.4%, respectively, in the average sales price per home. During the three and six months endedJune 30, 2021 , the increases in the number of homes delivered were driven by increases in our monthly absorption rate of 50.0% and 178.6%, respectively, and increases in the average sales price were driven by both the mix of deliveries within markets between years, as well as increased pricing power as a result of strong market dynamics.
Financial Services
Our Financial Services segment originates mortgages for primarily our homebuyers, and as such, performance typically correlates to the number of homes delivered. During the three months endedJune 30, 2021 , income before income tax expense for our Financial Services segment decreased$1.3 million to$11.7 million compared to the same period in 2020. This decrease was primarily the result of a$3.0 million favorable fair value adjustment on mortgage loans held for sale during the second quarter of 2020, and was partially offset by a 59.5% increase in the number of loans sold during the three months endedJune 30, 2021 as compared to the same period in 2020. During the six months endedJune 30, 2021 , income before income tax expense for our Financial Services segment increased$13.8 million to$27.0 million compared to the same period in 2020. The increase was primarily the result of a$28.0 million overall increase in financial services revenue during the six months endedJune 30, 2021 compared to the same period in 2020. The increase in financial services 22
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revenue was directly attributable to an 84.3% increase in the number of loans sold during the six months endedJune 30, 2021 as compared to the same period in 2020. The following table presents selected operational data for our Financial Services segment in relation to our loan origination activities (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Total originations: Number of loans 2,138 1,724 4,439 2,657 Principal$ 661,853 $ 493,534 $ 1,374,144 $ 765,326 Capture rate of Century homebuyers 74 % 59 % 75 % 56 % Century 78 % 70 % 81 % 68 % Century Complete 66 % 34 % 62 % 31 % Average FICO score 737 735 737 735 Loans sold to third parties: Number of loans sold 2,326 1,458 4,605 2,499 Principal$ 725,393 $ 419,557 $ 1,406,550 $ 729,027 Corporate During the three and six months endedJune 30, 2021 , our Corporate segment generated losses of$24.6 million and$42.0 million , respectively, as compared to losses of$27.4 million and$41.9 million , respectively, for the same periods in 2020. The decrease in loss for the three-month comparison is primarily due to the cumulative catch-up adjustment to stock-based compensation expense of$2.9 million that occurred in the prior year period. The increase in loss for the six-month comparison is primarily attributed to higher compensation costs, including estimated bonuses, during the six months endedJune 30, 2021 , partially offset by increased stock-based compensation expense due to the cumulative catch-up adjustment that occurred in the prior year period.
Homebuilding Gross Margin
(dollars in thousands)
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, increased during the three and six months endedJune 30, 2021 to 23.9% and 22.5%, respectively as compared to 16.9% and 17.2%, respectively, for the same periods in 2020. This increase was primarily driven by the positive homebuilding sales environment across our markets, which resulted in our ability to increase sales price in excess of an increase in our labor and direct costs period over period. 23
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In the following table, we calculate our homebuilding gross margin, as adjusted
to exclude inventory impairment and other and interest in cost of home sales
revenues.
Three Months Ended June 30,
2021 % 2020 %
Home sales revenues $ 1,004,789 100.0 % $ 747,415 100.0 %
Cost of home sales revenues (764,668) (76.1) % (620,655) (83.0) %
Inventory impairment and other (41) (0.0) % (910) (0.1) %
Gross margin from home sales 240,080 23.9 % 125,850 16.9 %
Add: Inventory impairment and other 41 0.0 % 910 0.1 %
Add: Interest in cost of home sales
revenues 18,406 1.8 % 18,694 2.5 %
Adjusted homebuilding gross margin
excluding interest and inventory
impairment and other $ 258,527 25.7 % $ 145,454 19.5 %
Six Months Ended June 30,
2021 % 2020 %
Home sales revenues $ 1,964,068 100.0 % $ 1,320,125 100.0 %
Cost of home sales revenues (1,521,175) (77.5) % (1,091,181) (82.7) %
Inventory impairment and other (41) (0.0) % (1,691) (0.1) %
Gross margin from home sales 442,852 22.5 % 227,253 17.2 %
Add: Inventory impairment and other 41 0.0 % 1,691 0.1 %
Add: Interest in cost of home sales
revenues 36,783 1.9 % 32,379 2.5 %
Adjusted homebuilding gross margin
excluding interest and inventory
impairment and other $ 479,676 24.4 % $ 261,323 19.8 %
(1)This non-GAAP financial measure should not be used as a substitute for the Company's operating results in accordance with GAAP. See the reconciliations to the most comparable GAAP measure and other information under "-Non-GAAP Financial Measures." An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. For the three and six months endedJune 30, 2021 , excluding inventory impairment and other, and interest in cost of home sales revenues, our adjusted homebuilding gross margin percentage was 25.7% and 24.4%, respectively, as compared to 19.5% and 19.8%, respectively, for the same periods in 2020. We believe the above information is meaningful as it isolates the impact that inventory impairment, indebtedness and acquisitions (if applicable) have on our homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors. ? 24
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Selling, General and Administrative Expense
(dollars in thousands)
Three Months Ended June 30, Increase
2021 2020 Amount %
Selling, general and administrative $ 99,656 $ 86,706 $ 12,950 14.9 %
As a percentage of home sales revenue 9.9 % 11.6 %
Six Months Ended June 30, Increase
2021 2020 Amount %
Selling, general and administrative $ 191,807 $ 160,325 $ 31,482 19.6 %
As a percentage of home sales revenue 9.8 % 12.1 %
Our selling, general and administrative expense increased $13.0 million and
$31.5 million respectively, for the three and six months ended June 30, 2021 as
compared to the same periods in 2020. These increases were primarily
attributable to the following: (1) increases of $10.0 million and $19.5 million ,
respectively, in salaries and wages, primarily related to increased bonus
expense as compared to the same periods in 2020 and (2) increases of $3.5
million and $15.6 million , respectively, in internal and external commission
expense, which are directly related to the increases in home sales revenues.
These increases were partially offset by decreases in expenses in numerous areas
including advertising and legal expenses. Additionally, during the three and six
months ended June 30, 2021 , our selling, general and administrative expense
decreased 170 basis points and 230 basis points, respectively, as a percentage
of home sales revenue as compared to the same periods ended June 30, 2020 , as a
result of increased revenues on a partially fixed cost base.
Income Tax Expense
At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 2021 estimated annual effective tax rate, before discrete items, of 23.5% is driven by our blended federal and state statutory rate of 24.7%, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation and estimated federal energy credits for current year home deliveries, which decreased our rate by 1.2%. For the six months endedJune 30, 2021 , our estimated annual rate of 23.5% was impacted by discrete items which had a net impact of decreasing our rate by 1.0%, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits for vested stock-based compensation. For the three months endedJune 30, 2021 and 2020, we recorded income tax expense of$34.2 million and$11.7 million , respectively. For the six months endedJune 30, 2021 and 2020, we recorded income tax expense of$63.6 million and$19.6 million , respectively. 25
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Segment Assets
(dollars in thousands)
June 30, December 31, Increase (Decrease)
2021 2020 Amount Change
West $ 611,192 $ 536,907 $ 74,285 13.8 %
Mountain 803,816 778,198 25,618 3.3 %
Texas 238,221 207,746 30,475 14.7 %
Southeast 279,101 329,930 (50,829) (15.4) %
Century Complete 284,838 218,604 66,234 30.3 %
Financial Services 333,109 421,153 (88,044) (20.9) %
Corporate 343,976 352,555 (8,579) (2.4) %
Total assets $ 2,894,253 $ 2,845,093 $ 49,160 1.7 %
Total assets increased moderately by $49.2 million , or 1.7%, to $2.9 billion at
June 30, 2021 as compared to December 31, 2020 , primarily as a result of the
overall growth of the Company.
Lots owned and controlled
June 30, 2021 December 31, 2020 % Change
Owned Controlled Total Owned Controlled Total Owned Controlled Total
West 3,833 5,532 9,365 3,266 3,392 6,658 17.4 % 63.1 % 40.7 %
Mountain 7,800 8,046 15,846 7,951 5,910 13,861 (1.9) % 36.1 % 14.3 %
Texas 3,468 6,767 10,235 3,035 5,873 8,908 14.3 % 15.2 % 14.9 %
Southeast 2,973 12,567 15,540 3,076 6,389 9,465 (3.3) % 96.7 % 64.2 %
Century Complete 4,487 10,137 14,624 3,473 7,600 11,073 29.2 % 33.4 % 32.1 %
Total 22,561 43,049 65,610 20,801 29,164 49,965 8.5 % 47.6 % 31.3 %
Of our total lots owned and controlled as of June 30, 2021 , 34.4% were owned and
65.6% were controlled, as compared to 41.6% owned and 58.4% controlled as of
December 31, 2020 .
Other Homebuilding Operating Data
Three Months Ended Six Months Ended
Net new home
contracts June 30, Increase (Decrease) June 30, Increase (Decrease)
2021 2020 Amount % Change 2021 2020 Amount % Change
West 497 389 108 27.8 % 891 725 166 22.9 %
Mountain 617 474 143 30.2 % 1,564 1,088 476 43.8 %
Texas 399 391 8 2.0 % 917 724 193 26.7 %
Southeast 288 566 (278) (49.1) % 764 1,082 (318) (29.4) %
Century Complete 1,319 844 475 56.3 % 2,439 1,433 1,006 70.2 %
Total 3,120 2,664 456 17.1 % 6,575 5,052 1,523 30.1 %
Net new home contracts (new home contracts net of cancellations) for the three
months ended June 30, 2021 increased by 456 homes, or 17.1%, to 3,120, compared
to 2,664 for the same period in 2020. Net new home contracts for the six months
ended June 30, 2021 increased by 1,523 homes, or 30.1%, to 6,575, compared to
5,052 for the same period in 2020. These increases were primarily driven by
stronger sales across all of our segments as the homebuilding industry continued
to experience positive trends during the first six months of 2021, partially
offset by a decrease in the Southeast region. The decrease in our Southeast
segment is driven by a 45.0%
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decrease in selling communities at period end as compared to the end of the prior year period.
Our overall monthly "absorption rate" (the rate at which home orders are
contracted, net of cancelations) for the three and six months ended
Three Months Ended June 30, Increase (Decrease)
2021 2020 Amount % Change
West 9.7 5.6 4.1 73.2 %
Mountain 7.6 4.2 3.4 81.0 %
Texas 9.5 6.2 3.3 53.2 %
Southeast 4.4 4.7 (0.3) (6.4) %
Century Complete 4.2 2.8 1.4 50.0 %
Total 5.7 4.0 1.7 42.5 %
Six Months Ended June 30, Increase (Decrease)
2021 2020 Amount % Change
West 8.7 5.3 3.4 64.2 %
Mountain 9.7 4.8 4.9 102.1 %
Texas 10.9 5.7 5.2 91.2 %
Southeast 5.8 4.5 1.3 28.9 %
Century Complete 3.9 1.4 2.5 178.6 %
Total 6.0 2.0 4.0 200.0 %
During the three and six months ended June 30, 2021 , our absorption rates
increased by 42.5% and 200.0%, respectively, to 5.7 and 6.0 per month,
respectively, as compared to the same periods in 2020. These increases were
attributable to continued historically low interest rates and strong demand for
new homes during the current year periods. Furthermore, our absorption rate
during the six months ended June 30, 2020 was negatively impacted by the initial
outbreak of COVID-19.
Selling communities at period end As of June 30, Increase/(Decrease)
2021 2020 Amount % Change
West 17 23 (6) (26.1) %
Mountain 27 38 (11) (28.9) %
Texas 14 21 (7) (33.3) %
Southeast 22 40 (18) (45.0) %
Century Complete 104 101 3 3.0 %
Total 184 223 (39) (17.5) %
Our selling communities decreased to 184 communities at
Century Complete sells primarily from retail studios and online via the
internet, instead of from traditional model homes. While Century Complete has
historically purchased land and constructed homes within traditional communities
similar to our Century Communities brand, we also purchase land and construct a
significant number of homes on scattered lots outside of traditional
communities. As the Century Complete brand has grown, entered new markets and
expanded its land pipeline, we have increasingly operated within traditional
communities, and now rely, to a lesser degree, on scattered lots. Additionally,
we have organized our construction and sales operations for scattered lot
positions within "pods" which are clustered together lot positions, which we
operate more like a traditional community. Accordingly, our selling communities
at period end for the 2020 period have been updated from amounts previously
disclosed to include communities for our Century Complete brand.
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Backlog
(dollars in thousands)
As of June 30,
2021 2020 % Change
Average Average
Sales Sales Average
Homes Dollar Value Price Homes Dollar Value Price Homes Dollar Value Sales Price
West 673 $ 440,008 $ 653.8 381 $ 203,395 $ 533.8 76.6 % 116.3 % 22.5 %
Mountain 1,057 544,365 515.0 648 281,999 435.2 63.1 % 93.0 % 18.3 %
Texas 497 182,080 366.4 355 95,193 268.1 40.0 % 91.3 % 36.7 %
Southeast 568 230,558 405.9 712 262,096 368.1 (20.2) % (12.0) % 10.3 %
Century
Complete 1,651 365,454 221.4 682 120,068 176.1 142.1 % 204.4 % 25.7 %
Total /
Weighted
Average 4,446 $ 1,762,465 $ 396.4 2,778 $ 962,751 $ 346.6 60.0 % 83.1 % 14.4 %
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 June 30, 2021 , we
had 4,446 homes in backlog with a total value of $1,762.5 million , which
represents an increase of 60.0% and 83.1%, respectively, as compared to June 30,
2020 . The increase in backlog dollar value is primarily attributable to the
increase in backlog units and a 14.4% increase in the average sales price of
homes in backlog.
Supplemental Guarantor Information
Our 5.875% senior notes due 2025 and 6.750% senior notes due 2027 (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"). Our subsidiaries associated with our financial services operations (referred to as "Non-Guarantors") do not guarantee the Senior Notes. The guarantees are senior unsecured obligations of the Guarantors that rank equal with all existing and future senior debt of the Guarantors and senior to all subordinated debt of the Guarantors. The guarantees are effectively subordinated to any secured debt of the Guarantors. As ofJune 30, 2021 ,Century Communities, Inc. had outstanding$900.0 million in total principal amount of Senior Notes. Each of the indentures governing our Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a "Restricted Subsidiary" (as defined in the respective indentures), which sale, transfer, exchange or other disposition does not constitute an "Asset Sale" (as defined in the respective indentures) or is made in compliance with applicable provisions of the applicable indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the applicable indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an "Immaterial Subsidiary" (as defined in the respective indentures); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the applicable indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the applicable Indenture, such Guarantor's obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the applicable Indenture; (4) upon the designation of such Guarantor as an "Unrestricted Subsidiary" (as defined in the respective Indentures), in accordance with the applicable indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the applicable indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the applicable indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the applicable indenture. If a guarantor were to become a debtor in a case under the US Bankruptcy Code, a court may decline to enforce its guarantee of the Senior Notes. This may occur when, among other factors, it is found that the guarantor originally received less than fair consideration for the guarantee and the guarantor would be rendered insolvent by enforcement of the guarantee. On the basis of historical financial information, operating history and other factors, we believe that each of the guarantors, after giving effect to the issuance of its guarantee of the Senior Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay 28
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such debts as they mature. The Company cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. As the guarantees were made in connection with exchange offers effected inFebruary 2015 ,October 2015 andApril 2017 and the issuance of the 5.875% senior notes due 2025 and of the 6.750% senior notes due 2027, 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. OnMarch 2, 2020 , theSEC adopted amendments to Rules 3-10 and 3-16 of Regulation S-X, under Rule Release No. 33-10762, Financial Disclosures about Guarantors and Issuers ofGuaranteed Securities andAffiliates Whose Securities Collateralize a Registrant's Securities ("Rule 33-10762"), that reduce and simplify the financial disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities (which we previously included within the notes to our consolidated financial statements in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q). The amendments under Rule 33-10762 were effectiveJanuary 4, 2021 , but voluntary compliance was permitted in advance of the effective date. We adopted the new disclosure requirements permitted under Rule 33-10762, beginning with the three and six month period endedJune 30, 2020 . The following summarized financial information is presented forCentury Communities, Inc. and the Guarantor Subsidiaries on a combined basis after eliminating intercompany transactions and balances amongCentury Communities, Inc. and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from Non-Guarantor Subsidiaries. ? 29
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Century Communities, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet Data (in thousands) June 30, 2021 December 31, 2020
Assets
Cash and cash equivalents $ 362,548 $ 307,167
Cash held in escrow 37,640 23,149
Accounts receivable 25,904 18,742
Inventories 1,948,769 1,929,664
Prepaid expenses and other assets 113,634 94,181
Property and equipment, net 25,503 27,360
Deferred tax assets, net 18,392 12,450
Goodwill 30,395 30,395
Total assets $ 2,562,785 $ 2,443,108
Liabilities and stockholders' equity
Liabilities:
Accounts payable $ 79,018 $ 106,288
Accrued expenses and other liabilities 249,489 267,708 Intercompany loan payable - 17,600 Notes payable 901,253 894,875 Revolving line of credit - - Total liabilities 1,229,760 1,286,471 Stockholders' equity: 1,333,025 1,156,637
Total liabilities and stockholders' equity
Summarized Statement of Operations Data Six Months Ended Year Ended December (in thousands) June 30, 2021 31, 2020 Total homebuilding revenues $ 1,987,996 $ 3,057,884 Total homebuilding cost of revenues (1,538,195)
(2,490,062)
Selling, general and administrative (191,807)
(341,710)
Inventory impairment and other (41)
(2,172)
Other income (expense) (1,872)
(3,014)
Income before income tax expense 256,081 220,926
Income tax expense (57,532) (52,389)
Net income $ 198,549 $ 168,537
?
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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 endedDecember 31, 2020 , filed with theSEC onFebruary 5, 2021 , in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies."
Liquidity and Capital Resources
Overview
Our principal uses of capital for the three and six months endedJune 30, 2021 were our land purchases, land development, home construction, and the payment of routine liabilities. We use funds generated by operations, available borrowings under our revolving line of credit, and proceeds from sales of common stock, including our 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. During the three months endedJune 30, 2021 , we initiated a quarterly cash dividend, which we intend to fund from our funds generated by operations. 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 are 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, our cash outlays for land purchases and land development to grow our lot inventory may exceed our cash generated by operations. In response to the COVID-19 pandemic, we took certain measures to ensure we are positioned with cash flow and liquidity to endure an extended period of lower demand for our homes, should it arise. Specifically commencing in mid-March of 2020, we slowed our land acquisition and development activities and instituted a variety of actions designed to reduce our operating expenses, including a reduction in the size of our workforce through a targeted layoff inApril 2020 . In addition, given the uncertainty surrounding the COVID-19 pandemic, we initially increased our borrowings under our revolving line of credit during the end of the first quarter of 2020 and into the beginning of the second quarter of 2020 as a proactive measure in order to expand our financial flexibility at that time. We repaid these borrowings during the second quarter of 2020 in light of our second quarter 2020 operating results and to decrease our interest expense. As ofJune 30, 2021 , we continued to have no amounts outstanding under our revolving line of credit. We increased our land acquisition and development activities during the first six months of 2021, which resulted in 65,610 lots owned and controlled atJune 30, 2021 , a 31.3% increase as compared toDecember 31, 2020 .
Our Financial Services operations use funds generated from operations and availability under our mortgage repurchase facilities to finance operations including originations of mortgage loans to our homebuyers.
Under our shelf registration statement, which we filed with theSEC onJuly 1, 2021 and was automatically effective upon filing, we have the ability to access the debt and equity capital markets in registered transactions from time to time and as needed as part of our ongoing financing strategy and subject to market conditions. 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 line of credit or through accessing debt or equity capital, as needed or appropriate, although no assurance can be provided that such additional debt or equity capital will be available or on acceptable terms, especially in light of the current COVID-19 pandemic, its impact on the macro-economy, and market conditions at the time. While the impact of the COVID-19 pandemic will continue to evolve, we believe we are well positioned from a cash and liquidity standpoint to not only operate in an uncertain environment, but also continue to grow with the market, pay down debt and pursue other ways to properly deploy capital to enhance returns, which may include taking advantage of debt refinancing and/or strategic opportunities as they arise.
Revolving Line of Credit
On
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Restated Credit Agreement"), which provided us with a revolving line of credit of up to$640.0 million , and unless terminated earlier, was scheduled to mature onApril 30, 2023 . OnMay 21, 2021 , we entered into a Second Amended and Restated Credit Agreement (the "Second A&R Credit Agreement") with,Texas Capital Bank, National Association , as Administrative Agent and L/C Issuer, and the lenders party thereto. The Second A&R Credit Agreement, which amended and restated the Amended and Restated Credit Agreement, provides us with a senior unsecured revolving line of credit (the "Credit Facility") of up to$800 million , and unless terminated earlier, will mature onApril 30, 2026 . The Credit Facility includes a$250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, the Company is entitled to request an increase in the size of the Credit Facility by an amount not exceeding$200 million . Our obligations under the Second A&R Credit Agreement are guaranteed by certain of our subsidiaries. The Second A&R Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.05% and 2.65% per annum, and if made available in the Administrative Agent's discretion, a base rate plus an applicable margin between 1.05% and 1.65% per annum
As of
Mortgage Repurchase Facilities - Financial Services
OnMay 4, 2018 ,September 14, 2018 , andAugust 1, 2019 , Inspire entered into mortgage warehouse facilities, withComerica Bank , J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the "repurchase facilities"), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to an aggregate of$350 million as ofJune 30, 2021 , secured by the mortgage loans financed thereunder. 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 ofJune 30, 2021 , we had$159.8 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder.
During the three and six months ended
At-the-Market Offerings
OnNovember 27, 2019 , we entered into a Distribution Agreement withJ.P. Morgan Securities LLC ,BofA Securities, Inc. ,Citigroup Global Markets Inc. , andFifth Third Securities, Inc. (which we refer to as the "Distribution Agreement"), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to$100.0 million from time to time through any of the sales agents party thereto in "at-the-market" offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, had all$100 million available for sale as ofJune 30, 2021 . We did not sell or issue any shares of our common stock during the three and six months endedJune 30, 2021 and 2020, 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. Sales cannot be made under the Distribution Agreement unless and until we file a prospectus supplement to our recently filed shelf registration statement that was filed onJuly 1, 2021 , which prospectus supplement we intend to file in the near future.
Letters of Credit and Performance Bonds
In the normal course of business, we post letters of credit and performance and other bonds primarily related to our land development performance obligations with local municipalities. As ofJune 30, 2021 , andDecember 31, 2020 , we had$464.6 million and$402.7 million , respectively, in letters of credit and performance and other bonds issued and outstanding. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and performance and other bonds are not generally released until all development and construction activities are completed. 32
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Debt
Our outstanding debt obligations included the following as of
June 30 ,December 31, 2021 2020
6.750% senior notes, due
8,908 3,286
Notes payable 901,254 894,875
Revolving line of credit - -
Mortgage repurchase facilities 159,776 259,050
Total debt $ 1,061,030 $ 1,153,925 (1) The carrying value of the senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.
A summary of our debt obligations is included in Note 10 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theSEC onFebruary 5, 2021 and in Note 8 to our condensed consolidated financial statements in this Form 10-Q. We may from time to time seek to refinance or increase our outstanding debt or retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may or may not be material during any particular reporting period.
Stock Repurchase Program
OnNovember 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. The stock repurchase program has no expiration date and may be extended, suspended or discontinued by our Board of Directors at any time without notice at our discretion. All shares of common stock repurchased under the program will be cancelled and returned to the status of authorized but unissued shares of common stock. No shares were repurchased during the three and six months endedJune 30, 2021 and 2020, respectively. The maximum number of shares available to be purchased under the stock repurchase program as ofJune 30, 2021 is 3,812,939.
Dividends
OnMay 19, 2021 , our Board of Directors announced the initiation of a quarterly cash dividend. Additionally onMay 19, 2021 , our Board of Directors declared our first quarterly cash dividend of$0.15 per share and totaling$5.1 million , which was paid onJune 16, 2021 to stockholders of record of our common stock as ofJune 2, 2021 .
Cash Flows- Six Months Ended
For the six months ended
?Our primary sources of cash flows from operations are from the sale of single-family attached and detached homes and mortgages. Our primary uses of cash flows from operations is the acquisition of land and expenditures associated with the construction of our single-family attached and detached homes and the origination of mortgages held for sale. During the six months endedJune 30, 2021 and 2020, we generated$143.4 million and$173.8 million in cash from operations, respectively. The decrease in cash provided by operations is primarily a result of increased investment in our homebuilding 33
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inventories for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , partially offset by a$155.0 million increase in net income during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . ?Net cash used in investing activities decreased to$4.4 million during the six months endedJune 30, 2021 , compared to$4.9 million used during the same period in 2020. The decrease was primarily related to less purchases of property and equipment. ?Net cash used in financing activities increased to$112.5 million during the six months endedJune 30, 2021 , compared to$50.5 million used during the same period in 2020. The increase was primarily attributable to a$122.6 million increase in net payments on our mortgage repurchase facilities, partially offset by a$68.7 million decrease in net payments under our revolving line of credit.
As of
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 and others as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. Our obligations with respect to purchase contracts and option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As ofJune 30, 2021 , we had outstanding purchase contracts and option contracts for 43,049 lots with a total purchase price of approximately$1.7 billion and had$35.2 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 the substantial majority of the purchase and option contracts during the next twelve months, with performance on the remaining purchase and option contracts occurring in future periods. 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. We post letters of credit and performance and other bonds primarily related to our land development performance obligations, with local municipalities. As ofJune 30, 2021 , andDecember 31, 2020 , we had$464.6 million and$402.7 million , respectively, in letters of credit and performance and other bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business. Contractual Obligations For the three and six months endedJune 30, 2021 , there were no material changes to the contractual obligations we previously disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 that was filed with theSEC onFebruary 5, 2021 . ? 34
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Non-GAAP Financial Measures
In this Form 10-Q, we use certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA, net homebuilding debt to net capital, and adjusted net earnings per diluted common shares. These non-GAAP financial measures are presented to provide investors additional information to facilitate the comparison of our past and present operations. We believe these non-GAAP financial measures provide useful information to investors because they are used to evaluate our performance on a comparable year-over-year basis. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP. These measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures. Accordingly, we qualify our use of non-GAAP financial information in a statement when non-GAAP financial information is presented.
EBITDA and Adjusted EBITDA
The following table presents EBITDA and Adjusted EBITDA for the three and six months endedJune 30, 2021 and 2020. 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) loss on debt extinguishment, (v) inventory impairment and other, (vi) depreciation and amortization expense, and (vii) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our Adjusted EBITDA is limited as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Three Months EndedJune 30 ,
Six Months Ended
2021 2020 % Change 2021 2020 % Change
Net income $ 117,910 $ 38,450 206.7 % $ 219,562 $ 64,576 240.0 %
Income tax expense 34,224 11,653 193.7 % 63,621 19,615 224.3 %
Interest in cost of home
sales revenues 18,406 18,694 (1.5) % 36,783 32,379 13.6 %
Interest expense (income) (172) (684) (74.9) % (283) (847) (66.6) %
Depreciation and
amortization expense 2,849 3,427 (16.9) % 5,655 6,842 (17.3) %
EBITDA 173,217 71,540 142.1 % 325,338 122,565 165.4 %
Inventory impairment and
other 41 910 (95.5) % 41 1,691 (97.6) %
Restructuring costs - 1,584 NM - 1,584 NM
Adjusted EBITDA $ 173,258 $ 74,034 134.0 % $ 325,379 $ 125,840 158.6 %
NM - Not Meaningful
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Net Homebuilding Debt to
The following table presents our ratio of net homebuilding debt to net capital,
which is a non-GAAP financial measure. We calculate this by dividing net
homebuilding debt (notes payable and borrowings under our 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.
June 30, December 31,
2021 2020
Total homebuilding debt $ 901,254 $ 894,875
Total stockholders' equity 1,488,658 1,280,705
Total capital $ 2,389,912 $ 2,175,580
Homebuilding debt to capital 37.7% 41.1%
Total homebuilding debt $ 901,254 $ 894,875
Cash and cash equivalents (419,416) (394,001)
Cash held in escrow (37,640) (23,149)
Net homebuilding debt 444,198 477,725
Total stockholders' equity 1,488,658 1,280,705
Net capital $ 1,932,856 $ 1,758,430
Net homebuilding debt to net capital 23.0% 27.2%
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Adjusted Net Income and Adjusted Diluted Earnings per Share
Adjusted Net Income and Adjusted Diluted Earnings per Share (which we refer to
as "Adjusted EPS") are non-GAAP financial measures that we believe are useful to
management, investors and other users of our financial information in evaluating
our operating results and understanding our operating trends without the effect
of certain non-recurring items. We believe excluding certain non-recurring items
provides more comparable assessment of our financial results from period to
period. We define Adjusted Net Income as consolidated net income before (i)
income tax expense, (ii) inventory impairment and other and (iii) restructuring
costs, less adjusted income tax expense, calculated using the Company's
estimated annual effective tax rate after discrete items for the applicable
period. Adjusted Diluted EPS is calculated by excluding the effect of loss on
inventory impairment and other and restructuring costs from the calculation of
reported EPS.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Numerator
Net income $ 117,910 $ 38,450 $ 219,562 $ 64,576
Denominator
Weighted average common shares
outstanding - basic 33,738,586 33,340,184 33,651,727 33,274,056
Dilutive effect of restricted stock
units 218,052 121,510 269,212 195,013
Weighted average common shares
outstanding - diluted 33,956,638 33,461,694 33,920,939 33,469,069
Earnings per share:
Basic $ 3.49 $ 1.15 $ 6.52 $ 1.94
Diluted $ 3.47 $ 1.15 $ 6.47 $ 1.93
Adjusted earnings per share
Numerator
Income before income tax expense $ 152,134 $ 50,103 $ 283,183 $ 84,191
Inventory impairment and other 41 910 41 1,691
Restructuring costs - 1,584 - 1,584
Adjusted income before income tax
expense 152,175 52,597 283,224 87,466
Adjusted income tax expense(1) (34,188) (12,254) (63,630) (20,378)
Adjusted net income $ 117,987 40,343 Denominator - Diluted 33,956,638 33,461,694
33,920,939 33,469,069
Adjusted diluted earnings per share $ 3.47
(1)The tax rate used in calculating adjusted net income for the three and six months endedJune 30, 2021 was 22.5% which is reflective of the Company's estimated annual effective tax rate after discrete items for the applicable period. For the three and six months endedJune 30, 2020 , the tax rate utilized was our estimated annual effective tax rate after discrete items of 23.3%. ? 37
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