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Section 1: 10-Q (10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

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

For the quarterly period ended June 30, 2019

or

o

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

Commission File Number 001-36491

Century Communities, Inc.

(Exact name of registrant as specified in its charter)

Delaware

68-0521411

(State or other jurisdiction of
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): (303770-8300

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

CCS

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

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

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

Large Accelerated Filer

x

Accelerated Filer

o

Non-accelerated Filer

o  

Smaller Reporting Company

o

Emerging Growth Company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

On July 25, 2019, 30,438,505 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 Six Months Ended June 30, 2019

Index

Page No.

PART I

Item 1. Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

5

Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2019 and 2018

6

Notes to the Unaudited Condensed Consolidated Financial Statements

7

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

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

Item 4. Controls and Procedures

38

PART II

Item 1. Legal Proceedings

39

Item 1A. Risk Factors

39

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

39

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

Signatures

42

2


Table of Contents

PART I

ITEM 1.     FINANCIAL STATEMENTS.

Century Communities, Inc.

Condensed Consolidated Balance Sheets

As of June 30, 2019 and December 31, 2018

(in thousands, except share amounts)

June 30,

December 31,

2019

2018

Assets

(unaudited)

Cash and cash equivalents

$

31,704

$

32,902

Cash held in escrow

25,838

24,344

Accounts receivable

15,999

13,464

Inventories

2,009,769

1,848,243

Mortgage loans held for sale

122,085

114,074

Prepaid expenses and other assets

123,343

138,717

Property and equipment, net

33,469

33,258

Deferred tax assets, net

13,335

13,763

Amortizable intangible assets, net

4,436

5,095

Goodwill

30,395

30,395

Total assets

$

2,410,373

$

2,254,255

Liabilities and stockholders' equity

Liabilities:

Accounts payable

$

97,043

$

89,907

Accrued expenses and other liabilities

212,750

213,157

Notes payable

890,606

784,777

Revolving line of credit

212,000

202,500

Mortgage repurchase facilities

100,745

104,555

Total liabilities

1,513,144

1,394,896

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, 30,438,505 and 30,154,791 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

304

302

Additional paid-in capital

600,293

595,037

Retained earnings

296,632

264,020

Total stockholders' equity

897,229

859,359

Total liabilities and stockholders' equity

$

2,410,373

$

2,254,255

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 Six Months Ended June 30, 2019 and 2018

(in thousands, except share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Revenues

Homebuilding revenues

Home sales revenues

$

608,636

$

522,164

$

1,131,938

$

916,995

Land sales and other revenues

1,399

1,714

2,754

3,174

610,035

523,878

1,134,692

920,169

Financial services revenue

9,915

8,014

18,315

13,571

Total revenues

619,950

531,892

1,153,007

933,740

Homebuilding cost of revenues

Cost of home sales revenues

(503,928)

(427,197)

(937,685)

(746,780)

Cost of land sales and other revenues

(877)

(1,040)

(1,491)

(1,917)

(504,805)

(428,237)

(939,176)

(748,697)

Financial services costs

(7,747)

(5,385)

(14,576)

(9,781)

Selling, general and administrative

(75,217)

(63,634)

(144,153)

(120,156)

Loss on debt extinguishment

(10,832)

(10,832)

Acquisition expense

(165)

(338)

Equity in income of unconsolidated subsidiaries

11,681

14,849

Other income (expense)

(519)

350

(443)

(8)

Income before income tax expense

20,830

46,502

43,827

69,609

Income tax expense

(5,335)

(13,309)

(11,215)

(16,397)

Net income

$

15,495

$

33,193

$

32,612

$

53,212

Earnings per share:

Basic

$

0.51

$

1.11

$

1.08

$

1.79

Diluted

$

0.51

$

1.10

$

1.07

$

1.77

Weighted average common shares outstanding:

Basic

30,341,628

29,901,791

30,272,818

29,709,728

Diluted

30,568,848

30,170,689

30,506,945

30,003,276

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2019 and 2018

(in thousands)

Six Months Ended June 30,

2019

2018

Operating activities

Net income

$

32,612 

$

53,212 

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

Depreciation and amortization

6,196 

5,512 

Stock-based compensation expense

7,468 

6,323 

Loss on debt extinguishment

10,832 

Deferred income taxes

428 

(989)

Distributions from unconsolidated subsidiaries

7,432 

Equity in income of unconsolidated subsidiaries

(14,849)

(Gain) loss on disposition of assets

526 

230 

Changes in assets and liabilities:

Cash held in escrow

(1,495)

(5,897)

Accounts receivable

(2,535)

(6,199)

Inventories

(121,734)

(124,863)

Prepaid expenses and other assets

(5,041)

(2,404)

Accounts payable

7,137 

22,260 

Accrued expenses and other liabilities

(18,428)

(15,634)

Mortgage loans held for sale

(8,965)

(5,026)

Net cash provided by (used in) operating activities

(92,999)

(80,892)

Investing activities

Purchases of property and equipment

(6,274)

(7,534)

Business combinations net of acquired cash

(28,036)

Other investing activities

59 

322 

Net cash provided by (used in) investing activities

(6,215)

(35,248)

Financing activities

Borrowings under revolving credit facilities

767,600 

305,000 

Payments on revolving credit facilities

(758,100)

(175,000)

Proceeds from issuance of senior notes due 2027

500,000 

Extinguishment of senior notes due 2022

(391,942)

Extinguishments of debt assumed in business combination

(94,231)

Debt issuance costs

(5,728)

(3,521)

Proceeds from issuance of insurance premium notes and other

9,301 

Principal payments on insurance notes payable

(17,586)

Net proceeds from mortgage repurchase facilities

(3,805)

4,679 

Net proceeds from issuances of common stock

2,663 

14,309 

Repurchases of common stock upon vesting of stock based compensation

(3,434)

(4,788)

Repurchases of common stock under our stock repurchase program

(1,439)

Net cash provided by (used in) financing activities

97,530 

46,448 

Net increase (decrease)

$

(1,684)

$

(69,692)

Cash and cash equivalents and Restricted cash

Beginning of period

36,441 

93,713 

End of period

$

34,757 

$

24,021 

Supplemental cash flow disclosure

Cash paid for income taxes

$

13,111 

$

26,323 

Cash and cash equivalents and Restricted cash

Cash and cash equivalents

$

31,704 

$

19,482 

Restricted cash (Note 6)

3,053 

4,539 

Cash and cash equivalents and Restricted cash

$

34,757 

$

24,021 

See Notes to Unaudited Condensed Consolidated Financial Statements


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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended June 30, 2019 and 2018

(in thousands)

Three Months Ended June 30, 2019 and 2018

Common Stock

Shares

Amount

Additional Paid-In Capital

Retained Earnings

Total Stockholders' Equity

Balance at March 31, 2019

30,304

$

303

$

593,966

$

281,137

$

875,406

Issuance of common stock

100

1

2,662

2,663

Vesting of restricted stock units

35

(268)

(268)

Stock-based compensation expense

3,933

3,933

Net income

15,495

15,495

Balance at June 30, 2019

30,439

$

304

$

600,293

$

296,632

$

897,229

Balance at March 31, 2018

29,790

$

298

$

569,536

$

187,584

$

757,418

Issuance of common stock

320

3

9,284

9,287

Vesting of restricted stock units

9

1

1

Stock-based compensation expense

3,807

3,807

Net income

33,193

33,193

Balance at June 30, 2018

30,119

$

301

$

582,627

$

220,778

$

803,706

Six Months Ended June 30, 2019 and 2018

Common Stock

Shares

Amount

Additional Paid-In Capital

Retained Earnings

Total Stockholders' Equity

Balance at December 31, 2018

30,155

$

302

$

595,037

$

264,020

$

859,359

Issuance of common stock

100

1

2,662

2,663

Repurchase of common stock

(83)

(1)

(1,438)

(1,439)

Vesting of restricted stock units

267

2

(3,436)

(3,434)

Stock-based compensation expense

7,468

7,468

Net income

32,612

32,612

Balance at June 30, 2019

30,439

$

304

$

600,293

$

296,632

$

897,229

Balance at December 31, 2017

29,503

$

295

$

566,790

$

168,148

$

735,233

Adoption of ASC 606

(582)

(582)

Issuance of common stock

776

6

14,302

14,308

Repurchase of common stock

(160)

(4,788)

(4,788)

Stock-based compensation expense

6,323

6,323

Net income

53,212

53,212

Balance at June 30, 2018

30,119

$

301

$

582,627

$

220,778

$

803,706

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2019

1. Basis of Presentation

Century Communities, Inc. (which we refer to as “we,” “CCS,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Iowa, Michigan, 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 and second time move up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Our Wade Jurney Homes brand solely targets first time homebuyers, sells homes through retail studios and the internet, 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 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, 2018, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 that was filed with the SEC on February 13, 2019.

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 currently do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Use of Estimates

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

Recently Adopted Accounting Standards

Leases

The Financial Accounting Standards Board (which we refer to as “FASB”) issued Accounting Standards Codification (ASC) 842, Leases (which we refer to as “ASC 842”) which requires the recognition of lease assets and lease liabilities by lessees for most leases.  ASC 842 is effective for the Company beginning January 1, 2019 and interim periods within the annual period.  We adopted ASC 842 under a modified retrospective approach using the option to apply the transition provisions on the effective date January 1, 2019. The modified retrospective approach allows the Company to carry forward our historical lease classification, and to present historical periods under legacy lease accounting guidance. The Company’s leases primarily consist of leases for office space, and computer and office equipment where we are the lessee.

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ASC 842 includes several practical expedients which we elected upon adoption including to (a) not reassess the lease classification for any expired or existing leases and (b) not reassess whether previously capitalized initial direct costs qualify for capitalization under ASC 842. Additionally, we elected to utilize hindsight when determining the lease term.

The adoption of ASC 842 resulted in the establishment of a right of use asset of $17.7 million and a lease liability of $18.7 million on our condensed consolidated balance sheet as of January 1, 2019. The adoption of ASC 842 did not impact stockholders’ equity.

Recently Issued Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (which we refer to as “ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments. ASU 2016-13 changes the probable threshold for initial recognition of a credit loss in current GAAP to a model that reflects an entity’s current estimate of all expected credit losses. ASU 2016-13 is effective for our interim and annual reporting periods beginning January 1, 2020. We are currently evaluating the impact of ASU 2016-13 on our consolidated financial statements.

2. Reporting Segments