Century Communities, Inc.

Greetings. Welcome to Century Community's fourth quarter and full year 2024 earnings conference call. All participants will be in a 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 a touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Tyler Lington, 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 fourth quarter and full year 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 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, a 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 Franceskin, Executive Chairman, Rob Franceskin, Chief Executive Officer and President, and Scott Dixon, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I'll turn the call over to Dale.

Thank you, Tyler, and good afternoon, everyone. We are pleased with our fourth quarter and full year 2024 results and believe that Century is well positioned to drive continued growth and improved returns in 2025 and beyond. Our full year 2024 deliveries increased 15% year-over-year, to a record 11,007 homes and our community count increased 28% year over year to a company record 322 communities. Fourth quarter deliveries of 3,198 homes and home sales revenues of $1.2 billion were both quarterly records. Even with the volatility in mortgage rates that we saw this year, and our continued use of elevated levels of incentives to drive sales, we increased our full-year 2024 adjusted gross margin by 80 basis points to 23.3%. We also reduced our SG&A as a percentage of home sales revenues by 40 basis points through leveraging our fixed costs and expect this metric to see further year-over-year improvement in 2025. For the full year, our adjusted net income increased by 36% year-over-year, with our fourth quarter adjusted net income up 18%. While we are clearly focused on growth, both organic and through the two acquisitions we completed and fully integrated in 2024, We also continue to return capital to our shareholders by repurchasing over 3% of our shares that were outstanding at the beginning of 2024 and increasing our quarterly dividend by 13%. Our fourth quarter net new contracts of 2,467 increased by 5% year-over-year and eased by 4% sequentially which compares to an average sequential decline in the fourth quarter of 6% from 2019 through 2023. For the full year, our net new contracts increased 21% year-over-year to 10,676 homes. Within the quarter, our orders were the highest in November, potentially benefiting from the decline in mortgage rates over much of that month. and at roughly equal levels in both October and December. So far through January, our order activity has been in line with typical seasonal pace with improvement over the course of the month, but below the very strong rate we saw in January 2024. Our average sales price was approximately $390,000 for both the fourth quarter and full year 2024, and remains among the lowest of the publicly traded home builders. While housing affordability has been impacted by the recent mortgage rate volatility, we firmly believe that there is strong underlying demand for new homes underpinned by solid demographic trends. Additionally, we continue to take steps to address the impacts that elevated mortgage rates are having on affordability and believe our actions are helping us maintain an appropriate sales pace in the current environment. We built nearly 100% of our homes on a spec basis in the fourth quarter and for the full year. This business model, along with our captive mortgage subsidiary, allows us to reduce costs, maintain an appropriate supply of quick move-in homes that entry-level buyers are seeking, and provide our homebuyers with certainty of financing at the low market interest rates through buy-downs and other rate incentives. In the fourth quarter, 92% of our deliveries were priced below FHA limits, and over 60% of the mortgages closed by our captive mortgage company, Inspire Home Loans, were for 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 remain healthy and consistent with levels from the first three quarters of 2024 and full year 2023. Before turning the call over to Rob, I want to briefly discuss the recent steps our Board of Directors took as part of our ongoing succession planning process. Effective January 1st, I have moved to the Executive Chairman role from Co-Chief Executive Officer, while Rob has become Century's sole Chief Executive Officer. As part of this transition, we do not anticipate any immediate changes to either of our day-to-day responsibilities, but it is my plan to devote a higher percentage of time to corporate and strategic initiatives. In closing, I want to thank all of our team members for their hard work and dedication that drove significant improvements in our business in 2024 and the position Century for continued success in 2025 and beyond. 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. Before turning to our operations, I wanted to add on to Dale's remarks about our succession planning here at Century. We are incredibly proud of both the national platform that we have built at Century over the past 10 plus years since going public, as well as the team that we have assembled to lead it. We view succession planning at both the corporate level and throughout our regions and divisions as an ongoing process to ensure that we always have a deep bench of leaders with the skills and experience needed to drive our future success. For the full year 2024, we started 11,789 homes, a 20% year-over-year increase, consistent with our 21% year-over-year increase in net orders. In the fourth quarter, we managed our starts down to 1,965 homes, given the number of homes started earlier in the year to maintain an appropriate level of spec home inventory. We continue to be encouraged by the growth in our community count. We ended the fourth quarter with a community count of 322, the highest level in our company's history, and up 28% on a year-over-year basis and 6% sequentially. We also continue to believe that our geographically balanced land portfolio that stretches across 17 states and over 45 markets provides us with greater opportunities for growth across our national footprint and mitigates risk from regional downturns. As an example, while there has been some concern recently about rising inventories in Florida and Texas, These two regions combined only accounted for 31% of our full-year 2024 deliveries. While it is still early and also recognizing the 28% growth in our community count in 2024, we currently expect our year-end 2025 community count to further increase in the mid to high single-digit percentage range, which will support our plans to grow our deliveries annually by 10% or more over the next couple of years. Turning to costs, we had continued success in controlling our costs in the fourth quarter with our direct construction costs on the homes we started roughly flat on a sequential basis. For the full year 2024, our direct construction costs declined by 2% on a year-over-year basis. Our finished lot costs in the fourth quarter increased by roughly 2% on a sequential basis. During the fourth quarter, our cycle times modestly improved on a sequential basis and are averaging approximately four months. As expected, our incentives on closed homes increased in the fourth quarter to roughly 800 basis points, up from approximately 700 basis points in the third quarter. As we discussed on our third quarter earnings call, our incentives on new orders in the third quarter increased as mortgage rates moved higher and the higher incentives on these sales flowed through to our deliveries in the fourth quarter. Our incentives on new orders in the fourth quarter increased to approximately 900 basis points as we looked to maintain our sales pace as mortgage rates remained elevated in the seasonally slower months of the fourth quarter. We expect mortgage rates and their impact on our incentive levels to be the largest driver of any changes to our gross margins in the near term, given our success in controlling direct construction and finished lot costs. Returning to land, we ended the fourth quarter with over 80,000 owned and controlled lots. Century Complete's total lot count increased by 20% versus the prior year period and accounted for 25% of our total lot count. As a reminder, Century Complete only acquires finished lots, and the growth in its lot count in 2024 demonstrates the team's continued success in sourcing capital-efficient finished lots in attractive locations throughout the Southeast, Florida, Midwest, and Arizona. Additionally, at the end of the fourth quarter, our consolidated controlled lots accounted for 56% of our total lot count. While Scott will provide more details about our guidance for 2025 in his remarks, I wanted to briefly talk about our growth outlook for 2025 and beyond. We expect our full-year 2025 deliveries to increase by approximately 10% on a year-over-year basis at the midpoint of our guidance, and barring any changes to the home building environment, have the ability to grow our deliveries at least another 10% in 2026 as well. This growth in 2025 is based on increases in our lot count and community count and does not assume any meaningful changes from our full year 2024 absorption pace of 3.2 times our current mortgage rates. Additionally, as we have discussed in the past, we expect this delivery growth to come from increasing our share primarily within our existing markets and to benefit margins and returns as we leverage the investments we have made at both the corporate level and throughout our markets at the local level. As Dale mentioned, we achieved a number of records in 2024, including community count, deliveries, and book value per share, and are excited by the potential we have to set new records in the years ahead. I'll now turn the call over to Scott to discuss our financial results in more detail. Thank you, Rob. Thank you. In the fourth quarter of 2024, pre-tax income was $135.2 million and net income was $102.7 million, or $3.20 per diluted share, a 13% year-over-year increase. Adjusted net income was $112 million, or $3.49 per diluted share, an 18% year-over-year increase. EBITDA for the quarter was $160.2 million, and adjusted EBITDA was $172.6 million, respective increases of 10% and 17% over year-ago levels. Home sales revenue for the fourth quarter was $1.2 billion, a quarterly record for the company, and up 5% versus the prior year quarter on both higher deliveries and average sales price. Our fourth quarter average sales price was $389,800, increased by 4% on a year-over-year basis. Our deliveries of 3,198 homes in the fourth quarter were a quarterly record for the company, and our four-year 2024 deliveries increased 15% on a year-over-year basis to 11,007 homes, also a company record. For the year, we saw growth across all our regions, with the West, Texas, and Southeast all posting growth rates of over 20%. For the first quarter 2025, we expect our deliveries to decline on a sequential basis due to typical seasonality and be similar to first quarter 2024 levels. As a reminder, the first quarter typically represents the low point for our deliveries during the year, with the fourth quarter being the strongest. Starting in the second quarter, 2025, we expect our deliveries to increase on a sequential basis over the remaining quarters of the year, with each quarter up on a year-over-year basis as well. At quarter end, our backlog of sold homes was 850 units valued at $351.2 million, with an average price of $413,100. While the average price of our fourth quarter backlog was above the average sales price for our fourth quarter deliveries, this difference is largely due to mix, including the percentage of century-complete homes. In the fourth quarter, adjusted home building gross margin percentage was 22.9% compared to 23.6% in the prior quarter. The sequential change is primarily driven by a higher level of incentives on closed homes. Home building gross margin was 20.6% versus 21.7% in the prior quarter. Additionally, purchase price accounting reduced our fourth quarter 2024 gross margin by 30 basis points, which was in line with the reduction in the third quarter. We expect purchase price accounting to have a similar impact on our home building gross margins in the first half of 2025. For the first quarter of 2025, we expect our home building gross margin to ease on a sequential basis. Both our direct construction and finished lot costs should be roughly flat quarter over quarter as we continue to successfully manage our costs. However, as Rob detailed in his remarks, our incentives on orders in the fourth quarter of 2024 were approximately 100 basis points higher than in our incentives on deliveries as we focus on maintaining an appropriate sales pace in the seasonally slower fourth quarter. Additionally, our first quarter homebuilding operating margin should see some impact from reduced operating leverage in the quarter that typically represents the low point for our deliveries. SG&A as a percent of home sales revenue was 11.5% in the fourth quarter and 12% for the full year 2024. For 2025, we expect our SG&A as a percent of home sales revenues to decline on a year-over-year basis as we continue to leverage the investments we have made both at 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 $26.2 million in the fourth quarter, and the business contributed $7.9 million in pre-tax income. Other income in the quarter was $13.3 million, with this income predominantly driven by the sale of a project within our Century Living business. As a reminder, Century Living is engaged in the development, construction, and management of multifamily rental properties. Our tax rate was 24% in the fourth quarter and 24.1% for the full year 2024. We expect our full-year tax rate for 2025 to be in the range of 25% to 26%, with the increase primarily driven by a reduced number of homes expected to qualify for 45L credits. Our fourth quarter net home building debt to net capital ratio improved to 27.4%, compared to the third quarter 2024 levels of 32.1%. our home building debt to capital ratio also decreased to 30.3% at quarter end compared to the third quarter levels of 35.8%. During the quarter, we maintained our quarterly cash dividend of 26 cents per share and we purchased approximately 400,000 shares of our common stock for 30.7 million. For the full year 2024, we paid cash dividend totaling $1.04 per share and we purchased over 1 million shares of our common stock, or over 3% of our shares that were outstanding at the beginning of the year, for $83.8 million. Through our dividend and share repurchases, we returned over $115 million to our shareholders in 2024. We grew our book value per share to a record $84.65, a 13% year-over-year increase. and ended the quarter with $2.6 billion in stockholders' equity and $918 million of liquidity. During the fourth quarter, we entered into a new credit agreement, which increased the capacity of our senior unsecured credit facility to $900 million, up from $800 million, and extended the maturity to November 2028 from April of 2026. Additionally, we have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Now turning to guidance. Given the growth in our lot count and community count in 2024, we expect our full year 2025 deliveries to be in the range of 11,700 to 12,400 homes and our home sales revenue to be in the range of 4.5 to 4.8 billion. In closing, we are excited by our outlook for 2025. We expect to grow our deliveries by approximately 10% year-over-year at the midpoint of our guidance. Additionally, as Rob mentioned, we expect our delivery growth to come from increasing our share primarily within our existing markets and to positively affect margins and returns as we leverage the investments we have made at both the corporate level and throughout our markets at the local level. While affordability for new homes has been impacted by the recent mortgage rate volatility, We firmly believe that there is strong underlying demand for affordable new homes. With that, I'll open the line for questions. Operator? Thank you.