Century Communities, Inc.

Hello and welcome to the Century Community's fourth quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw from the question queue, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Senior Vice President of Investor Relations, Tyler Langton. Please go ahead.

Good afternoon. Thank you for joining us today for Century Community's earnings conference call for the fourth quarter and full year of 2022. Before the call begins, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. Certain of these risks and uncertainties can be found under the heading Risk Factors in the Company's Latest 10-K, as supplemented by our other SEC filings. We undertake no duty to update our forward-looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Franceskin, Chairman and Co-Chief Executive Officer, Rob Franceskin, Co-Chief Executive Officer and President, and David Messinger, Chief Financial Officer. Following today's prepared remarks, we'll open the lineup for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. During the fourth quarter, we focused our sales efforts and incentives towards available homes with near-term deliveries to monetize these homes, even though they carried lower margins due to inflated direct construction costs given their start dates earlier in the year. The goals behind this strategy included increasing our cash position, reducing leverage metrics, and positioning us to start new and lower-cost homes. As a result of the efforts, we generated $382 million of operating cash flow during the fourth quarter and reduced our net debt to net capital ratio down to 23.5%, the lowest year-end level in our history as a public company. Our solid results this quarter also included $102 million in pre-tax income, net income of $79 million, diluted earnings per share of $2.47, and EBITDA of $121 million. In the fourth quarter, we delivered 2,903 homes, the second highest level of closings in our history, and only 12 homes off our record level of homes delivered in the fourth quarter of 2021. While supply chain pressures weighed on the pace at which we could deliver homes throughout most of 2022, these disruptions improved as the year progressed, helping us to achieve this strong level of closings in the fourth quarter. Revenues from home sales were $1.2 billion the highest quarterly level in our history, while our average sales price increased by less than 1% on a year-over-year basis to $397,000, consistent with our goal of building affordable homes. Most new contracts in the fourth quarter totaled 2,008 homes, and net new contracts were 1,258 due to an elevated cancellation rate mortgage rate volatility, and overall economic uncertainty keeping many potential homebuyers on the sidelines. Our quarter end backlog consisted of 1,810 sold homes valued at $671 million. While we expect home sales will continue to be pressured in the near term as buyers adjust to higher mortgage rates and uncertainty in the economy, we also believe that underlying demographics remain favorable. Additionally, we think buyers are beginning to return to the market now that rates are stabilizing at levels below recent highs. An indication of this is that both our net and gross new contracts in November and December were well above October levels, leading us to believe that the decline in mortgage rates that started in November led to an improvement in sales. During January, we have experienced further improvement in homebuyer activity. Similar to the past several quarters, homebuyers are continuing to look for homes that are closer to completion in order to lock in their interest rates. Consistent with our strategy, we intend to continue concentrating our sales efforts on homes with more near-term completions and are not focused at this point on building up a significant sold backlog of later term deliveries. Incentives on closed homes in the fourth quarter increased to about 900 basis points of average sales price from roughly 300 basis points in the third quarter. A significant amount of these incentives were in the form of forward commitments and rate buy-downs that drove traffic and sales, especially when mortgage rates went above 7%. While we will continue to move inventory by finding the market clearing price on a community-by-community basis, we expect the average level of incentives that we're offering to moderate a bit, especially with the recent retrenchment in interest rates. In the fourth quarter, we generated adjusted gross margins of 20%, with higher incentives being the largest driver of this expected decline compared to last quarter. These incentives applied not only to new sales with near-term closings, but also to many backlog homes that had been sold earlier in the year. Consistent with our strategy of prioritizing the sale of complete and completing inventory, We expect our margins in the first quarter of 2023 will be consistent with those of the fourth quarter of 2022, as the homes delivering will be burdened with similar elevated construction costs given their start dates earlier last year and higher incentives than historical norms. Many of our planned starts in the second half of last year were postponed due to increased incentives and elevated input costs that had become commonplace in our industry. Our corporate, regional, and divisional purchasing teams rose to the challenge and have made great strides in reducing costs across the board. As a result, we began starting homes at a greater pace in November and December, which has accelerated into this year. Due to the improvement in direct construction costs, reduced incentives, and shorter cycle times, these homes are expected to carry a higher margin profile as they begin to close. As a result, beginning in the second quarter of 2023, we expect home building gross margins to trend positively on a sequential basis through the balance of the year as they return to more normalized levels. Before turning the call over to Rob, I wanted to briefly recap our record-setting performance for the full year 2022. During the year, which was not only the company's 20th anniversary, but the 20th consecutive year of profitability, we delivered 10,594 homes, the second highest level in our history. Gross margins and adjusted gross margins for the year averaged 25% and 26%, respectively, both company records. Net income increased 5% year over year to a company record $525 million, and earnings per diluted share increased 10% to $15.92 per share, also a company record. Finally, Our book value per share at year end increased to a record level of $67.67, with our total stockholders' equity increasing to $2.2 billion, the highest in our history. We believe we have the right strategy to navigate the current headwinds in the housing market and one that positions us well as conditions normalize. Buyers are currently looking for affordably priced homes with near-term completions, and we intend to meet this demand. We will find the market clearing price for our homes nearing completion, knowing that it may weigh on margins in the near term. We are also confident that we will be able to redeploy capital and start new homes from our current lot supply that will earn both better margins and higher returns going forward. due to lower direct costs, improved cycle times, and reduced levels of incentives. In closing, on behalf of the entire senior management team, I want to thank our employees across our national footprint. Our achievements this year would not have been possible without their hard work and dedication, and we greatly appreciate their commitment to both Century and our valued customers. I'll now turn the call over to Rob to discuss our business and plans going forward in more detail.