Century Communities, Inc.

Greetings. Welcome to Century Communities Third Quarter 2024 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 touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I will now turn the conference over to Tyler Lanton, Senior Vice President of Investor Relations for Century Communities. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Century Communities earnings conference call for the third quarter of 2024. 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 have caused 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-A as supplemented by our latest 10-Q and 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 Francescan, Chairman and Co-Chief Executive Officer, Rob Francescan, Co-Chief Executive Officer and President, and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up a line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler. Good afternoon, everyone. We're very pleased with our results in the third quarter of 2024, which positions us well for the balance of the year 2025 and beyond. Our community count increased 21% year over year and 15% sequentially to a new company record of 305 communities. Deliveries of 2,834 homes were a third quarter record and increased 25% versus the prior year quarter, and by 8% quarter over quarter, while our home sales revenues of $1.1 billion posted gains of 29% and 10%, respectively. Our adjusted home building gross margin of 23.6% was roughly in line with second quarter 2024 levels of 24%, while our SG&A as a percentage of home sales revenues declined by 100 basis points year-over-year and 50 basis points sequentially as we continue to leverage our fixed costs. Turning to sales, our third quarter net new contracts of 2,563 increased by 19% year-over-year. We saw growth in all of our regions during the quarter, with the West increasing by 36%, Texas by 20%, and Century Complete by 17% versus the prior year quarter. Within the quarter, our orders increased sequentially in both August and September, while our orders so far in October have moderated from September levels as buyers adjust to the recent increase in mortgage rates. Looking out to the fourth quarter, If typical seasonality holds, we would expect our per community order activity to remain consistent on a sequential basis. Our average sales price was $394,000 in the quarter and remains among the lowest of the publicly traded home builders. Given this price point and our focus on more affordable entry-level homes, we think century is well positioned to benefit from any future declines in mortgage rates as lower rates should allow a greater number of people to both qualify for and feel comfortable purchasing a new home additionally nearly a hundred percent of our homes were built on a spec basis in the third quarter and this approach along with our captive mortgage subsidiary allows us to maintain an appropriate supply of quick move-in homes and provide our homebuyers with certainty of financing at below market interest rates through buy-downs. In the third quarter, 93% of our deliveries were priced below FHA limits, and over 60% of the mortgages closed by our captive mortgage company, Inspire Home Loans, were FHA, USDA, or VA loans, that typically carry interest rates and down payment requirements that are below those of conventional mortgages and help make homes more affordable. The FICO scores of our homebuyers remained healthy and consistent with levels from the first half 2024 and full year 2023. Before turning the call over to Rob, I want to briefly talk about our growth outlook. At the end of July, this year with the acquisition of Anglia Homes, which strengthened our position to a top five home builder in the Houston market. Similar to our acquisition of Landmark Homes back in January, this deal was consistent with our strategy of deepening our share in existing markets in a land-light manner while also increasing our go-forward access to capital-efficient finish lots. While we will provide more detailed guidance for our 2025 deliveries with our fourth quarter 2024 earnings, given the growth in our lot count and community count so far this year through both acquisitions and organic growth, starting in 2025, we think we are well positioned to drive delivery growth of 10% or more on an annual basis over the next couple years. We expect this growth to come from increasing our share within our existing markets and to drive improved margins and returns as we leverage the investments we have made at both the corporate level and throughout our markets at the local level. I'll now turn the call over to Rob to discuss our operations and land position in more detail. Thank you, Dale, and good afternoon, everyone. To start, I wanted to provide some further details on the growth that we have seen in our lot and community count that, as Dale mentioned, positions us well for future growth. On the land front, we ended the third quarter with over 80,000 owned and controlled lots, a 17% year-over-year increase. Our controlled lots increased by 16% on a year-over-year basis and accounted for 55% of our total lots at the end of the third quarter. Texas, the Southeast, and Century Complete accounted for 73% of our total lot count, the highest percentage in our company's history and reflective of our strategy to grow our presence in these attractive markets that are benefiting from relative affordability, strong employment, and population growth. Additionally, the strength of our relationships with third-party land developers across the Southeast, Texas, and in all of Century Complete's markets further supports our land-light strategy that is focused on acquiring finished lots. We are also encouraged by the growth in our home starts and community count so far this year, which will support future growth in our deliveries in the quarters ahead. In the third quarter, we started 3,141 homes, up 29% from the 2,434 homes we started in the prior year quarter. Year to date, through the end of the third quarter, we started 9,824 homes, an increase of 25% versus the first three quarters of 2023. We ended the third quarter with a community count of 305, the highest level in our company's history, and up 21% on a year-over-year basis and 15% sequentially. Similar to our lot count, Texas, the Southeast, and Century Complete accounted for 75% of our total community count, up from 69% in the year-ago period. On a sequential basis in the third quarter, we added 39 communities with Anglia contributing 26 communities. Given the growth in our community count so far this year, we now expect our year-end 2024 community count to be in the range of 310 to 320, which would represent year-over-year growth of 25% at the midpoint. Turning to costs. We had continued success in controlling our costs in the third quarter with our direct construction costs on homes we started declining by roughly 1% on a sequential basis. We have been able to maintain these stable direct construction costs by both leveraging and expanding our trade and supply base across our national footprint. During the third quarter, our cycle times continue to improve by about one week on a sequential basis and remain in the four to five months pre-COVID levels. As expected, our incentives on closed homes increased in the third quarter to an average of 700 basis points, up from approximately 600 basis points in the second quarter. As we discussed on our second quarter earnings call, our incentives on new orders in the second quarter increased as mortgage rates moved higher and the higher incentives on these sales flowed through to our deliveries in the third quarter. Our incentives on new orders in the third quarter increased to approximately 800 basis points as we look to maintain an appropriate level of sales in the seasonally slower months of the year. While Scott will provide more details on gross margins in his remarks, we are pleased with our performance on the cost side as our adjusted gross margins in the third quarter were roughly flat on a sequential basis despite higher incentives in the third quarter. In closing, I want to highlight that Century recently earned a spot on Newsweek's list of the world's most trustworthy companies 2024. which following news earlier in the year that Century had also been voted the highest ranked home builder for the second year in a row on Newsweek's list of America's most trustworthy companies 2024. We could not be more proud of our entire team for building a company culture worthy of this recognition and want to thank all our team members and trade partners that made both these achievements possible. I'll now turn the call over to Scott to discuss our financial results in more detail. Thank you, Rob. In the third quarter of 2024, pre-tax income was $109.9 million and net income was $83 million, or $2.59 per diluted share. Adjusted net income was $87 million, or $2.72 per diluted share. EBITDA for the quarter was $132.3 million, and adjusted EBITDA was $137.1 million. Home sales revenues for the third quarter were $1.1 billion, up 29% versus the prior year quarter on both higher deliveries and average sales price. Our average sales price of $393,800 increased by 3% on a year-over-year basis and 1% sequentially. Our deliveries of 2,834 homes increased by 25% versus the prior year period. We saw growth across all our regions with the West, Mountain, Texas, and Century Complete all posting growth rates of over 20%. At quarter end, our backlog of sold homes was 1,580, valued at $671.4 million, with an average price of $424,900. While the average price of our third quarter backlog was above the average sales price of our third quarter deliveries, this difference was largely due to mix, including the percentage of century-complete homes. And we continue to expect our average sales price for third-year 2024 deliveries to be approximately $390,000. In the third quarter, adjusted home building gross margin percentage was 23.6%, compared to 24% in the prior quarter. The sequential change was largely driven by a higher level of incentives on closed homes. Home building gross margin was 21.7% versus 22.5% in the prior quarter. Additionally, purchase price accounting reduced our third quarter 2024 gross margin by 30 basis points versus 10 basis point reduction in the second quarter. We expect purchase price accounting to have a similar impact on our home building gross margins in the fourth quarter with the impact trailing off through the first half of 2025. SG&A is a percent of home sales revenue with 11.9% in the third quarter compared to 12.9% in the year-ago period. We achieved this reduction by controlling our fixed levels of G&A while growing both our deliveries and average sales price. For 2024, we expect our SG&A as a percent of home sales revenue to decline on a year-over-year basis, with further decreases in 2025 as we continue to leverage the investments we have made at both the corporate level and in our divisions that should support the delivery growth we expect over the next couple of years. Revenues from financial services were $20.1 million in the third quarter as compared to $23.6 million in the prior year quarter. Consistent with last quarter, margins on mortgages originated were impacted by a more competitive market. Additionally, revenues were impacted by a quarterly mark-to-market adjustment for our servicing portfolio. We also continue to make investments in people and systems to support the growth of the business. In the third quarter, our tax rate was 24.5% compared to 25.8% in the prior year quarter. We expect our full year tax rate for 2024 to be in the range of 24.5% to 25%. Our net home building debt to net capital ratio was 32.1% compared to second quarter 2024 levels of 28.1. The largest driver of this change was our acquisition of Anglia Homes and continued growth in our homes under construction, which increased by 12% on a sequential basis and will support a higher level of deliveries in the fourth quarter and throughout 2025. During the quarter, we maintained our quarterly cash dividend of $0.26 per share. We grew our book value per share to a record $81.29, a 13% year-over-year increase, and ended the quarter with $2.5 billion in stockholders' equity. At September 30, to support our growth, we had $605.9 million in total liquidity. Additionally, we have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Now turning to guidance. Given our progress to the first three quarters of the year, we are increasing our guidance so the full year 2024 deliveries to be in the range of 10,900 to 11,300 homes and our home sales revenue to be in the range of $4.3 to $4.4 billion. In closing, demand for affordable new homes remains healthy, and the decline in mortgage rates from the highs this past spring has led to some improvements in affordability. We are successfully managing our costs in cycle times and have seen strong growth in our deliveries and community count so far this year, which position us well for further growth in 2025 and beyond. With that, I'll open the line for questions. Operator?