Q4 2023 Century Communities Inc Earnings Call

Greetings.

Welcome to century communities fourth quarter and full year 'twenty twenty-three 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'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this conference call is being recorded.

I will now turn the conference over to Tyler Langton 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 2023.

I'll begin 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 whole minute 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.

Presentation of this information is not enough.

It has to be considered in isolation or.

Financial information presented in accordance with GAAP.

Hosting the call today are Jeff.

Chairman and co Chief Executive Officer, Robert <unk>, Chief Executive Officer, President and Dave Messenger, Chief Financial Officer.

Following today's prepared remarks, we'll open the lineup for questions with that I'll turn the call over to Bill.

Thank you Tyler and good afternoon, everyone.

I'd like to begin by saying that we're pleased not only with our results, but also with the meaningful improvement that we've seen in the housing market in general and our business in particular.

Oh orders and deliveries exceeded our expectations in the fourth quarter.

In 'twenty two 'twenty three was our 20 <unk> consecutive year of profitability.

We are optimistic about our outlook for 2024.

Both the progress century made over the course of 2023.

Underlying strength of the housing market.

In the fourth quarter, our deliveries of 3157 homes were a quarterly record and increased by 9% versus the prior year period.

On a quarter over quarter basis, our deliveries increased by 39%.

And grew sequentially for the third quarter in a row as we continued to benefit from improved cycle times and our increased level of home starts which began in the first quarter of 2023.

On the back of these higher deliveries, our fourth quarter revenues were $1 $2 billion.

36% sequential increase in our highest level since the fourth quarter of 2021.

Diluted earnings per share of $2.83 increased for the fourth sequential quarter and represented an improvement of 15% over a year ago levels.

For the full year 2023, we delivered 9568 homes and generated home sales revenues of $3 $6 billion exceeding the upper end of our guidance for both deliveries and home sales revenues our book value per share increased by 11.

On a year over year basis to $75.12 a company record and.

And we ended the year with 22, 4% net leverage the lowest year end level in our history as a public company.

Our fourth quarter net new contracts increased 86% to 2340 homes compared to the fourth quarter 2022.

On a sequential basis, our net orders in the fourth quarter increased by 9%.

This level of sales activity was much stronger than we were anticipating as our fourth quarter net orders have experienced an average 10% sequential decline in each of the last four years.

January has continued to see strength with our sales more than 30% ahead of the prior year as January.

Yes.

Regardless of the market served the century communities and century complete brands target building and selling affordable homes with more than 90% of our fourth quarter deliveries priced below FHA limits.

In addition to that affordability, both brands built nearly 100% of their homes on a spec basis, which allows for direct cost control available.

Availability of quick move ins and buyers certainty of financing.

Our focus on affordability positions us well for future growth and continued success as we can target the widest range of potential homebuyers.

Our average sales price of $376000 is among the lowest of the publicly traded homebuilders while century complete average sales price came in at $258000 This quarter.

Additionally, through our century complete business, we have developed an expertise in entering and operating in secondary markets, where there is less competition from the public homebuilders and where we believe we can take share from smaller private builders.

Or more capital constrained and have higher development and construction costs.

As a reminder, our century complete business only acquire as finished lots and typically on a just in time basis.

Last week, we announced the strategic acquisition of the assets of landmark homes in Tennessee.

We'll grow with centuries already sizable presence in the greater Nashville market through the addition of six active landmark homes communities.

Importantly, this transaction provides us with a pipeline of controlled lots that will be delivered to us in the future as land development is completed.

And furthers our goal of increasing market share throughout and beyond our 18th state geographic footprint through the opportunistic acquisition of other homebuilders to augment the organic expansion of our land portfolio.

In closing I want to thank all of our team members for their hard work and dedication.

Significant improvements in our business in 2023.

And they're positioned century for continued success in 2024 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.

As expected incentives on closed homes increased to roughly 800 basis points in the fourth quarter 2023 up from over 600 basis points in the third quarter.

These higher costs were primarily due to the increased cost of mortgage rate buy downs in the quarter.

Interest rate buy downs continued to be the most important incentive for our customers given their ability to significantly lower monthly payments a key focus for our entry level buyers.

With the recent decline in interest rates, we've been able to pull back on our level of incentives on new orders in December and in January.

2023 star teams shortened cycle times control direct construction cost and grow our land pipeline in community count.

During the fourth quarter, our cycle times further improved putting us in a position that we can now typically start and complete homes in a normal four to five months timeframe.

We also had continued success in controlling our costs in the fourth quarter on a sequential basis, we saw a further 1% reduction in our direct construction costs on the homes, we started <unk>.

Even with the continued strength in the housing market.

On the land front, we ended the fourth quarter with approximately 74000 owned and controlled lots an 8% sequential improvement.

39% year over year increase.

The higher lot count this year was driven entirely by an increase in our controlled lots, which accounted for 59% of our total lots in the fourth quarter.

With our number of owned lots remaining relatively static for the eight consecutive quarter.

Additionally, at year end, Texas, and the southeast accounted for roughly 50% of our total lot count up from 43% at year end 2022, and reflective of our strategy to grow our presence in these attractive markets that are benefiting from relative affordability and strong employment.

And population growth.

Combined with century complete these more affordable markets comprised nearly 75% of our owned and controlled lot land supply.

We ended 2023 with a community count of 251, the second highest level in our company's history, and an increase of 21% versus year ago levels with every region, we operate in experiencing growth.

Century complete accounted for over 40% of our total community count and 37% of total deliveries in 2023, while the south Eastern Texas combined accounted for close to 30% of our total community count and over 30% of total deliveries for the year.

In summary, our year end 2023 community count of 251, and total owned and controlled lots of nearly 74000 gives us confidence that 'twenty 'twenty four will be a growth year for us.

I'll now turn the call over to Dave to discuss our financial results in more detail.

Thank you Rob.

During the fourth quarter of 2023 pre tax income was $126 $1 million and net income was $91 3 million or $2 83 per diluted share a 15% year over year increase EBITDA for the quarter was $145 2, million% to 20% increase over a year ago.

<unk>.

Revenues for the fourth quarter or $1 $2 billion up 36% sequentially and 2% versus the prior year's quarter.

Our record fourth quarter deliveries of 3157 homes increased 39% on a sequential basis and by 9% versus prior year levels.

For the first quarter 'twenty 'twenty four we expect our deliveries to see their typical seasonal decline.

As a reminder, the first quarter typically represents the low point for our deliveries during the year with first quarter deliveries, having accounted for a little over 20% of our full year deliveries on average over the past five years.

Our average sale price of $376000 in the fourth quarter decreased by 2% on a sequential basis, mainly due to higher levels of incentives and backs our century complete accounted for 39% of fourth quarter deliveries versus 36% in the third quarter 2023.

At quarter end, our backlog of sold homes was 1070 <unk> valued at $401 million with an average price of $375000. This is the direct result of intentionally selling homes later in the construction process.

In the fourth quarter adjusted homebuilding gross margin percentage was 23% compared to 19, 8% in the fourth quarter 2022.

Homebuilding gross margin was 21, 6% compared to 17, 6% in the prior year quarter.

As expected our gross margins decreased sequentially in the fourth quarter, primarily due to higher levels of incentives.

Looking out to 2020 four we expect to be able to reduce our levels of incentives versus fourth quarter 2023 levels.

Okay.

SG&A as a percent of home sales revenue was 11, 1% in the fourth quarter compared to nine 5% in the prior year.

The largest driver of this year over year increase was more normalized commission rates on home sales.

For the full year of 2023, our SG&A was 12, 4% versus nine 8% in the prior year being impacted by higher Commission rates lower home sales revenues due to decreased homes closed at a lower ASP.

And a significant number of new communities that we opened in 2023.

For 'twenty 'twenty four we expect our SG&A as a percent of home sales revenues to decline on a year over year basis, as we look to grow our deliveries and keep our fixed levels of G&A relatively constant.

In the fourth quarter, our tax rate was 27, 6% compared to 22, 4% in the prior year quarter and 26, 1% for the full year 2023.

The increase in our annual effective rate in 2023 as compared to 2022 was primarily driven by a reduced number of homes qualifying for 45 L credits.

We expect our full year tax rate for 24 to be similar to the full year 2023 levels.

Our net homebuilding debt to net capital ratio decreased to 22, 4% compared to 23.5% in the prior year quarter and represented the lowest year end level in our history as a public company.

Our homebuilding debt to capital ratio decreased to 29, 9% at quarter end compared to 32% at the end of the same period last year.

Okay.

During the quarter, we maintained our quarterly cash dividend at <unk> 23 per share and ended the quarter with $2 $4 billion in stockholders' equity $1 1 billion and total liquidity of $328 million in cash.

At 12, 31, we had no borrowings outstanding on our $800 million unsecured revolving credit facility that does not mature until April 2026.

Additionally, we have no senior debt maturities until June of 'twenty, 'twenty, seven providing us ample flexibility with our leverage management.

Homebuyers are exhibiting strong demand for affordable new homes, our cycle times have returned to historical levels and further growth in our community count as anticipated Accordingly, we expect our full year 2024 deliveries to be in the range of 10000 to 11000 homes.

Home sales revenues to be in the range of three eight to $4 $2 billion.

With that I'll open the line for questions operator.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question is from Carl Reichardt with B T. I G. Please go ahead. Thanks, good afternoon gentlemen.

Good afternoon, Hi, David just got to my question at the very end on community Count I have to say the growth by 'twenty three was super strong. So can you talk a little bit how you how you plan to lay it out in 'twenty four I am assuming it's slower is there a cadence to the community count that you expect to be front end or back end loaded in terms of new stores and if you can give us a sense of the <unk>.

It would be helpful.

Yeah, I think that you know and as we've been talking we want to do see 2023 as.

Significant amount of growth, we invested a lot of capital in the land to get to that 250 of them and what that would be our new plants or what kind of a new jumping off point.

For the company going forward, we do expect to be growing community count it would be probably you've seen more of that growth come online you in third quarter as we're getting finishing getting squeezed out of the ground in the first half of this year and start looking for sales in that third quarter timeframe right.

Right now we don't have a guidance range out there, but we do expect to see community count at a slower pace than 25% year per year, but we do have land and as I said, we want to get into production and increase that growth going forward.

Okay. Thanks, Dave and then also just on the rapidity of this that you turn your backlog this quarter recognizing business improved and you had inventory ready to go. So as you look and you are in cycle times, if normalized to so when you talked about we're trying to sell homes later, our construction process like on average between taking the order and closing the house what what's your.

Timeframe and can you tell me what percentage of homes in the fourth quarter, you, both saw orders and delivery within that quarter.

Yes.

I'm, sorry could you repeat the last part of that question I forgot the first part in terms of how fast her work.

Turning correct. Yeah. This is my last one was if you look at your delivery volume in fourth quarter, what percentage of those deliveries did you have ordered and closed in that same quarter and the fourth quarter.

Well you can see that from the from my our backlog conversion rate, we had a significant amount that got sold and closed during the quarter I believe we turned out backlog not quite a 170 per se, it's like 167%.

In the fourth quarter. So obviously there was a significant amount of homes that were sold and closed during that period.

And given the.

The amount of time that we have between selling and clothing, it's typically about a quarter.

Give it a few months that we're able to sell and close a home and you know just depending on where it is in the process. Obviously quick move in homes. These days have had.

Operator: Greetings. Welcome to Century Community's 4th Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode.

I've been in fashion, and so people have been able to find those on our website and been able to sell and close homes in the fourth quarter.

Operator: 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 the star key, then 1 on your telephone keypad.

So a quarter turn is kind of what youre back to that normal rate after having well flush through inventory. This quarter. Okay. And then last question sorry to add one more just on the acquisition I think we've asked before and maybe all of you guys can talk about what the environment looks like for private company acquisitions, we started to see a few crop up in a number of builders now have things loosened up.

Operator: To ask your question, please press star then 2. Please note, this conference call is being recorded. I will now turn the conference over to Tyler Langton, Senior Vice President of Investor Relations for Century Communities. Thank you. Good afternoon.

Are there particular places that you're that you were especially interested in beyond the Tennessee.

Yeah call, we definitely what we have seen more M&A offerings, and we expect that that's going to continue you know part of it is when you look at the private builders. The the capital constraints are starting to become impactful to them Oh.

Tyler J. Langton: Thank you for joining us today for Century Communities, Ernie's conference call for the fourth quarter and full year 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 latest 10-Q and other SEC files. We undertake no duty to update our forward-looking statements.

Well as you just look at it in many cases the.

The people, who founded the business, we're starting to age a bit.

And they'd like to be able to liquidate their holdings.

For example in the situation that.

We found ourselves sitting in Nashville, where we found a great company that had been in business for 30 years and they've now become our land development source as we go forward, we have an ongoing relationship with them. He was one of their expertise and they wanted to exit the homebuilding business, but.

Dale Francescon: Additionally, certain non-GAAP financial measures will be discussed on this conference call. However, the company's presentation of this information is not intended to be considered in isolation or to substitute for the financial information presented in accordance with GAAP. Hosting the call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer and President, and Dave Messenger, Chief Financial Officer. Following today's prepared remarks, we will open the line up for questions. With that, I'll turn the call over to Dale.

They keep their hand.

In land and land development and so we have an ongoing relationship with them there and so from our standpoint, we find that to be a very valuable thing that we can create those ongoing relationships.

In terms of markets.

We really look at M&A at this point is really opportunistic abilities to enhance our organic portfolio of land.

Dale Francescon: Thank you, Tyler, and good afternoon, everyone. I'd like to begin by saying that we are pleased not only with our results but also with the meaningful improvement that we have seen in the housing market in general and in our business in particular. Our orders and deliveries exceeded our expectations in the fourth quarter, and 2023 was our 21st consecutive year of profitability. We are optimistic about our outlook for 2024, given both the progress Century made over the course of 2023 and the underlying strength of the housing market. In the fourth quarter, our deliveries of 3,157 homes were a quarterly record and increased by 9% versus the prior year period.

In terms of voids in our markets the only ones that we really have like a higher presence within Florida.

Were there throughout Florida, and our century complete brand.

But our communities brand, we're only in Jacksonville.

Florida, our experience has been very positive and we'd like to expand our presence there in M&A would be one way to do that.

I appreciate the answers guys. Thanks, so much.

Welcome. Thank you.

The next question is from Jay Mccanless with Wedbush Securities. Please go ahead.

Hey, good afternoon, everyone great.

Great quarter so.

Good news on January being up 30% I guess win win in 23 did you guys start to see the turn just wondering when the comps are going to get harder from it from a year over year perspective.

Dale Francescon: On a quarter-over-quarter basis, our deliveries increased by 39% and grew sequentially for the third quarter in a row as we continued to benefit from improved cycle times and our increased level of home starts, which began in the first quarter of 2023. On the back of these higher deliveries, our fourth-quarter revenues were $1.2 billion, a 36% sequential increase, and our highest level since the fourth quarter of 2021. Diluted earnings per share of $2.83 increased for the fourth sequential quarter and represented an improvement of 15 percent over year-ago levels.

I think I think we probably started seeing it turn a midway.

The second quarter.

If you if you're thinking of it.

'twenty three as we started out the year with relatively high interest rates and we saw.

So some interest rate relief as we got into kind of March and April we started seeing a pickup in sales and then it really kind of bounced around so I think comps based on any given month, maybe hard or light just given where we were and where interest rates were at that given time of last year.

Okay.

Okay. Thanks for that and then I guess the other question is.

Dale Francescon: For the full year 2023, we delivered 9,568 homes and generated home sales revenues of $3.6 billion, exceeding the upper end of our guidance for both deliveries and home sales revenue. Our book value per share increased by 11% on a year-over-year basis to $75.12, a company record, and we ended the year with 22.4% net leverage. The lowest year-end level in our history as a public company. Our fourth quarter net new contracts increased 86% to 2,340 homes compared to the fourth quarter of 2022. On a sequential basis, our net orders in the fourth quarter increased by 9 percent.

If you're bringing incentives down.

I guess, what what's more impactful right now the volume that you're generating or the incentives coming down just trying to think about what first quarter gross margin would look like relative to what you put up in the fourth quarter.

And I think I think you know, while we don't have guidance out there on margins, we're obviously thinking that.

And the incentives were getting pulled back.

We think there is some stability to that gross margin line and you know heading into the year I don't think you're going to see.

We're not anticipating it falling like it did from Q4 to Q3.

Okay.

Okay, Great. That's all I have I'll get back in queue. Thank you.

Great. Thanks.

The next question is from Alex Rygiel with B Riley FBR. Please go ahead.

Thanks, Great quarter, gentlemen, how should we think about.

Dale Francescon: This level of sales activity was much stronger than we were anticipating as our fourth quarter net orders experienced an average 10% sequential decline in each of the last four years. January has continued to see strength, with our sales more than 30 percent ahead of the prior year's January. Regardless of the market served, the Century Communities and Century Complete brands target building and selling affordable homes, with more than 90% of our fourth quarter deliveries priced below FHA limits. In addition to that affordability, both brands build nearly 100% of their homes on a spec basis, which allows for direct cost control.

Century complete growth in 2024 versus the base business.

Our our century complete business has.

For quite some time it was roughly a third of our overall volume.

We moved it up to 35, 36%, we're now at just under 40%.

It's it's the type of thing that because we only buy finished lots.

And we're typically buying them just in time.

Some of our constraints.

On growing that business is impacted by some of our land development partners and the timing in which they were able to complete and deliver lots to us.

But as we as we look at it right now we're just under 40% of our overall business in terms of units on century complete as we have said we are ideally we'd like to see it get to 50%, but as the community side continues to grow that becomes harder to make century complete 50%, but we're very happy.

Dale Francescon: Availability of quick move-ins and buyer certainty of financing. Our focus on affordability positions us well for future growth and continued success as we can target the widest range of potential homebuyers. Our average sales price of $376,000 is among the lowest of the publicly traded homebuilders, while Century Complete's average sales price came in at $258,000 this quarter.

With it at the point that it currently is.

And then.

Is there a magical rate right now that's really getting your.

Yeah.

Homebuyers active.

Yeah.

Dale Francescon: Additionally, through our Century Complete business, we have developed an expertise in entering and operating in secondary markets where there is less competition from public home builders and where we believe we can take share from smaller private builders that are more capital constrained and have higher development and construction costs. As a reminder, our Century Complete business only acquires finished lots and typically on a just-in-time basis. Last week, we announced the strategic acquisition of the assets of Landmark Homes of Tennessee, which will grow Century's already sizable presence in the greater Nashville market through the addition of six active Landmark Homes communities. Additionally, this transaction provides us with a pipeline of controlled lots that will be delivered to us in the future as land development is completed and furthers our goal of increasing market share throughout and beyond our 18-state geographic footprint through the opportunistic acquisition of 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 2023 and that positioned Century for continued success in 2024 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.

I haven't I don't know if there's a magical right I know I think we've talked about that in the past I would say right now as buyers have seen rate. The overall rates come down they are exhibiting more confidence and we're seeing that demand come out to our marketplace and so while there may be individual buy downs that occur.

You know how to closing table like the wood, which always occurs.

I think that.

Today, we're just seeing.

The fact that the macro economy and the macro interest rate levels have been coming down buyers are more.

Encouraged about going out and buying that house. So I don't know that I would say, there's definitely a magic rate out there at the moment.

Helpful. Thank you.

The next question is from Jesse Lederman with Zelman and Associates. Please go ahead.

Hi, Thanks for taking my question and congrats on a really strong end to the year.

Thanks Jesse.

My first question is just a follow up on the century complete brand can you remind us if there is any gross margin or return differential between that the century complete product in the communities brand.

Yeah.

In terms of gross margin because were only buying finished lots. So we really have had no land profit built into the margins the margins tend to be structurally a bit lower.

On the flip side, because we're not carrying land and developing land.

The returns are significantly higher.

Okay.

Got it yeah that makes sense.

And then just a quick follow up on that are you seeing any I mean, you talked about maybe a constraint there in terms of your developer and you're kind of at the mercy of their developers can you talk about maybe what they're seeing.

Robert J. Francescon: As expected, incentives on closed homes increased to roughly 800 basis points in the fourth quarter of 2023, up from over 600 basis points in the third quarter. These higher costs were primarily due to the increased cost of mortgage rate buydowns in the quarter. Interest rate buydowns continue to be the most important incentive for our customers, given their ability to significantly lower monthly payments, a key focus for our entry-level buyers. With the recent decline in interest rates, we've been able to pull back on our level of incentives on new orders in December and in January. 2023 saw our team shorten cycle times, control direct construction costs, and grow our land pipeline and community count. During the fourth quarter, our cycle times further improved, putting us in a position that we can now typically start on complete homes in a normal four to five month time frame. We also had continued success in controlling our costs in the fourth quarter.

You're seeing from them in terms of their ability to get financing and are.

Continuing the development process.

Yeah.

Obviously financing is tightened up in the last 12 months on that or more.

But when we look at it the stronger developers had been able to figure out workarounds, whether they can get financing or figure out other ways to fund their projects as well as our structure, sometimes on our option lots on how we'll do things. So we've been able to navigate that but clearly as a general statement. It is tighter.

Our financing front for the land development communities and so we're continuing to source good partners in that.

Daily and we're getting through that fine, but it has tightened up.

That's helpful and one more.

One other thing, though on a positive side, we've seen a flattening of increases in <unk> costs, and so with that where we were seeing ramp it incur.

Robert J. Francescon: On a sequential basis, we saw a further 1% reduction in our direct construction costs on the homes we started, even with the continued strength in the housing market. On the land front, we ended the fourth quarter with approximately 74,000 owned and controlled lots, an 8% sequential improvement and a 39% year-over-year increase. The higher lot count this year was driven entirely by an increase in our controlled lots, which accounted for 59% of our total lots in the fourth quarter, with our number of owned lots remaining relatively static for eight consecutive quarters. Additionally, at year-end, Texas and the Southeast accounted for roughly 50% of our total lot count, up from 43% at year-end 2022, and reflective of our strategy to grow our presence in these attractive markets that are benefiting from relative affordability Combined with CenturyComplete, these more affordable markets comprise nearly 75% of our owned and controlled land supply.

The increases in the past we've seen a flattening now so that's a good thing going forward.

That's great very encouraging.

Generally spec builders have a higher inventory turnover ratio and you're hovering around one times, which is a bit below the peer group and I.

Now that your cycle times are improving and you're on more consistent start cadence since the beginning of the year do you have internal targets that you're striving for in terms of working capital as a percentage of revenue our inventory turnover that.

That you discuss internally to drive the business.

Hi.

Not to try to avoid your question, but yes, we obviously have a variety of internal metrics internal hurdles that we're looking at everything from the time that we are reviewing land deal to when were doing starts for homes in opening new communities, but it's nothing that we've that we've published or put out there right now.

Okay understood. Thanks for all the color.

Okay. Thank you thanks Patrick.

The next question is from Michael Rehaut with J P. Morgan. Please go ahead.

Hi, guys. This is Andrew on for Mike I. Appreciate you taking my question.

David L. Messenger: We ended 2023 with a community count of 251, the second highest level in our company's history, and an increase of 21% versus year-ago levels, with every region we operate in experiencing growth. Century Complete accounted for over 40% of our total community count and 37% of total deliveries in 2023, while the Southeast and Texas combined accounted for close to 30% of our total community count and over 30% of total deliveries for the year. In summary, our year-end 2023 community count of 251 and total owned and controlled lots of nearly 74,000 gives us confidence that 2024 will be a growth year for us. I'll now turn the call over to Dave to discuss our financial results in more detail. Thank you, Rob.

Oh I just yeah, congrats on the quarter as well as far as so maybe obviously.

Obviously with understanding that you're not guiding margins.

Help us think maybe through some of your assumptions or thoughts on.

Construction costs are pricing or the land environment.

Think of gross margins next year.

Or this year rather.

I think it's obviously going to be a combination of all those things are giving you know right now our guidance is our estimating an ASP of around $380000 in the low and high ends and then we are looking to pull back incentives, but we know that some of that is some of those savings will get eaten up by some.

Direct cost increases so while we're still experiencing a positive trend in the fourth quarter.

Joseph later this year, we may see increases.

So yeah.

David L. Messenger: During the fourth quarter of 2023, pre-tax income was $126.1 million, and net income was $91.3 million, or $2.83 per diluted share, a 15% year-over-year increase. EBITDA for the quarter was $145.2 million, a 20% increase over a year ago. Revenues for the fourth quarter were $1.2 billion, up 36% sequentially, and 2% versus the prior year's quarter. Our record fourth-quarter deliveries of 3,157 homes increased 39% on a sequential basis and by 9% versus prior year levels. For the first quarter of 2024, we expect our deliveries to see their typical seasonal decline. As a reminder, the first quarter typically represents the low point for our deliveries during the year, with first quarter deliveries accounting for a little over 20% of our full year deliveries on average over the past five years.

B, how well can we negotiate a direct costs down across our national platform in order to provide some additional margin left.

But thank you for that and then maybe if you can just review your capital allocation priorities going forward.

Yeah, I would say that you know we continue to invest in the business. We've got you know roughly 75000 lots.

<unk> owned and controlled with about 60% of those being off off balance sheet under some form of option and in control of the arrangement and we're looking to continue growing the business as I said earlier with somebody else's quiet with one of the other analyst questions.

We're looking to grow community count. So we think that we'll have plenty of opportunities to be reinvesting those capital that we're generating back into the business and grow organically as well as Dale said you always look there are other parts of the market that we'd like to see M&A opportunities and you know, Florida being one of them. We just execute on the transaction in Tennessee, and so we think there'll be other.

Does that come out for us to utilize this capital to continue to grow the business.

David L. Messenger: Our average sale price of $376,000 in the fourth quarter decreased by 2% on a sequential basis, mainly due to higher levels of incentive and mix as Century Complete accounted for 39% of fourth quarter deliveries versus 36% in the third quarter 2023. At quarter end, our backlog of sold homes was 1,070, valued at $401 million with an average price of $375,000.

Thank you Dave I appreciate that that's all for me.

Right.

Again, if you have a question. Please press Star then one.

The next question is a follow up from Jay Mccanless with Wedbush Securities. Please go ahead.

Hey, Thanks for taking my follow ups, just wanted to get a sense of what percentage of communities. During the fourth quarter, you were able to raise price and what pricing power. It looks like as you start the new year.

David L. Messenger: This is the direct result of intentionally selling homes later in the construction process in the fourth quarter. Adjusted home building gross margin percentage was 23% compared to 19.8% in the fourth quarter of 2022. Home building gross margin was 21.6% compared to 17.6% in the prior year quarter. As expected, our gross margins decreased sequentially in the fourth quarter, primarily due to higher levels of incentives.

Yeah, Jay it's.

I can't give you a specific number but it really comes down to.

We are adjusting prices in reviewing them on a weekly basis on a subdivision by subdivision level.

I can give you just kind of a general feel that.

Certainly once we saw some interest rate.

David L. Messenger: Looking out to 2024, we expect to be able to reduce our levels of incentives versus fourth-quarter 2023 levels. SG&A as a percent of home sales revenue was 11.1% in the fourth quarter compared to 9.5% in the prior year. The largest driver of this year-over-year increase was more normalized commission rates on home sales. For the full year 2023, our SG&A was 12.4% versus 9.8% in the prior year, being impacted by higher commission rates, lower home sales revenues due to decreased homes closed at a lower ASP, and a significant number of new communities that we opened in 2023. For 2024, we expect our SG&A as a percent of home sales revenues to decline on a year-over-year basis as we look to grow our deliveries and keep our fixed levels of G&A relatively constant. In the fourth quarter, our tax rate was 27.6% compared to 22.4% in the prior year quarter and 26.1% for the full year 2023.

Leif.

We started raising prices, reducing our incentives.

Because most of those.

If you look at it most of our homes have some type of incentive and it most of the increased price is really reflected in reduced incentives.

Although there are there are increased based prices it from a case to case basis, but it's really more incentives and it's and so which is all based on what we see in terms of competition for that particular subdivision level inventory, we have that type of thing but.

But in general on a directional basis, we are seeing that our incentives are going down.

And that's really where our focus is.

Okay. That's great and then the other pharma had what are you seeing from competitors right. Now has some of the frenzy discounting and promotions that were seeing and in the fourth quarter is that lessen somewhat or is it still pretty pretty aggressive and what you're seeing from some of the larger competitors.

David L. Messenger: The increase in our annual effective rate in 2023 as compared to 2022 was primarily driven by a reduced number of homes qualifying for the 45L credit. We expect our full year tax rate for 24 to be similar to the full year 2023 level. Our net home building debt to net capital ratio decreased to 22.4 percent compared to 23.5 percent in the prior year quarter and represented the lowest year-end level in our history as a public company. Our home building debt-to-capital ratio decreased to 29.9% at quarter end, compared to 32% at the end of the same period last year. During the quarter, we maintained our quarterly cash dividend at $0.23 per share and ended the quarter with $2.4 billion in stockholders' equity, $1.1 billion in total liquidity, and $328 million in cash. At 1231, we had no borrowings outstanding on our $800 million unsecured revolving credit facility that does not mature until April 2026.

Well, it's you know.

Notwithstanding the fact that.

So generally inventories are very low everybody is looking to move product and from time to time, one competitor or another.

I'd be discounting homes more than the rest of the market, but in general we're not seeing ramp in discounting going on.

Out in the market and what was there in the fourth quarter seems to have settled down as we've gone into the new year.

Okay, that's great. Thanks Kim.

Thanks Jay.

This concludes our question and answer session. We will now turn the line back over to Dale for some brief closing remarks.

To everyone on the call. Thank you for your time today and your interest in century communities.

So our team members. Thank you for your incredible efforts dedication to century and commitment to our valued homebuyers.

To our investors. We appreciate your continued support and look forward to speaking with you again next quarter and sharing with you our continued progress.

Operator: Additionally, we have no senior debt maturities until June of 2027, providing us ample flexibility with our leverage management. Additionally, homebuyers are exhibiting strong demand for affordable new homes, our cycle times have returned to historical levels, and further growth in our community count is anticipated. Accordingly, we expect our full year 2024 deliveries to be in the range of 10,000 to 11,000 homes and home sales revenues to be in the range of $3.8 to $4.2 billion. With that, I'll open the line for questions. Operator? We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

Yeah.

Yes.

Yeah.

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Operator: To draw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Carl Reichart with BTIG. Please go ahead.

Carl Reichart: Thanks. Good afternoon, gentlemen. Good afternoon, good afternoon.

David L. Messenger: David, you just got to my question at the very end on community count. Obviously, the growth in 23 was super strong. So can you talk a little bit about how you plan to lay it out in 24? I'm assuming it's slower.

Okay.

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David L. Messenger: Is there a cadence to the community count that you expect to be front-end or back-end loaded in terms of new stores? And if you can give us a sense of the growth, it would be helpful. Yeah, I think that, you know, as we've been talking, we wanted to see 2023 as, you know, a significant amount of growth. We've invested a lot of capital in the land to get to that $215 million. We want that to be our new plateau, kind of the new jumping off point for the company going forward. We do expect to be growing the community count. It would probably be, you know, probably you'll see more of that growth come online in the third quarter as we finish getting communities out of the ground in the first half of this year and start looking for sales in that third quarter timeframe. Right now, we don't have a guidance range out there, but we do expect to see community count at a slower pace than 25% year per year. But we do have land and assets that we want to get into production and increase that growth going forward. Okay, Dave.

Yeah.

Yeah.

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David L. Messenger: And then also just on the rapidity with which you turn your backlog this quarter, recognizing that business improved, and you had inventory ready to go. So as you look, and your cycle times have normalized, too, so when you talked about trying to sell homes later in the construction process, like on average between taking the order and closing the house, what's your time frame? And can you tell me what percentage of homes in the fourth quarter you both saw orders and delivery within that quarter? I'm sorry; can you repeat the last part of that question? I've got the first part in terms of how fast we're returning. Correct, yeah.

David L. Messenger: The last one was if you look at your delivery volume in the fourth quarter, what percentage of those deliveries did you have ordered and closed in that same quarter? Well, you can see that from our backlog conversion rate, we had a significant amount that got sold and closed during the quarter. I believe we turned our backlog, not quite 170%. It's like 167% in the fourth quarter.

David L. Messenger: So obviously, there was a significant amount of homes that were sold and closed during that period. And given the amount of time that we have between selling and closing, it's typically about a quarter, you know, give, give, you know, a few months that we're able to sell and close a home. And, you know, just depending on where it is in the process. Obviously, quick movement homes these days have been in fashion.

Dale Francescon: And so people have been able to find those on our website and have been able to sell and close homes in the fourth quarter. Okay, so a quarter turn is kind of what you're back to that normal rate after having flushed through your inventory this quarter. Okay.

Dale Francescon: And then last question, sorry to add one more, just on the acquisition, I think we've asked before, and maybe all of you guys can talk about what the environment looks like for private company acquisitions. We have started to see a few crop up in a number of builders now. Have things loosened up? Are there particular places that you're especially interested in beyond Tennessee?

Dale Francescon: Thanks. Yeah, Carl, we definitely have seen more M&A offerings, and we expect that that's going to continue. You know, part of it is when you look at the private builders, the capital constraints are starting to become impactful to them. As well as you just look at it, in many cases, the people who founded the business are starting to age a bit, and they'd like to be able to liquidate their holdings.

Dale Francescon: For example, in the situation that we found ourselves in in Nashville, where we found a great company that had been in business for 30 years, and they've now become our land development source as we go forward. We have an ongoing relationship with them. It was one of their areas of expertise, and they wanted to exit the home building business but stay and keep their hand in land and land development.

Dale Francescon: And so we have an ongoing relationship with them there. From our standpoint, we find that to be a very valuable thing that we can create those ongoing relationships. In terms of markets, you know, we really look at M&A at this point as really opportunistic opportunities to enhance our organic portfolio of land. In terms of voids in our market, the only ones that we really have are like a higher presence within Florida. We're everywhere throughout Florida in our Century Complete brand, but on our Communities brand, we're only in Jacksonville.

Dale Francescon: You know, Florida. Our experience has been very positive, and we'd like to expand our presence there, and M&A would be one way to do that. I appreciate the answers, guys. Thanks so much.

Jay McCandless: Welcome. The next question is from Jay McCandless with Wedbush Securities. Please go ahead. Hey, good afternoon, everyone.

David L. Messenger: So the... Good news on January being at 30%. I guess when you guys started to see the... Just wondering when the comps are going to get harder from a year-over-year perspective. I think, you know, we probably started seeing a turn midway through the second quarter. If you're thinking 23, as we started out the year with relatively high interest rates, we saw some interest rate relief. As we got into kind of March and April, we started seeing a pickup in sales, and then it really kind of bounced around. So I think comps based on any given month may be hard or light, just given where we were, where interest rates were at that given time of last year. Thanks for that.

David L. Messenger: And then I guess the other question, if you're bringing incentives down, I guess what's more impactful right now, the volume that you're generating or the incentives coming down? Just trying to think about what first quarter gross margin would look quite relevant to what you put up. And I think, you know, while we don't have guidance out there on margins, we're obviously thinking that as incentives are getting pulled back, we think there's some stability to that gross margin line. And, you know, heading into the year, I don't think you're going to see, or we're not anticipating it falling like it did from Q4 to Q3. Great. That's all I have. I'll get back in the queue.

Alex Rygiel: Thank you. The next question is from Alex Rygiel with B. Reilly FBR. Please go ahead. Thanks, a great quarter, gentlemen. What should we think about?

Dale Francescon: Century complete growth in 2024 versus the base, You know, our century complete business has, for quite some time, been roughly a third of our volume. We moved it up to 35 36%. We're now just under 40%. It's the type of thing that because we only buy finished lots... We're typically buying them just in time.

Dale Francescon: Some of our constraints on growing that business are impacted by some of our land development partners and the timing in which they're able to complete and deliver lots to us. But as we look at it right now, we're just under 40% of our overall business in terms of units on Century Complete. As we've said, ideally, we'd like to see it get to 50%, but as the community side continues to grow, it will become harder to make Century Complete 50%. But we're very happy with it at the point that it currently is. Amen. Is there a magical rate right now that's really getting closer? Homebuyers Act. I don't know if there's a magical rate.

Dale Francescon: I know that we've talked about that in the past, but I'd say right now, as buyers have seen the overall rates come down, they are exhibiting more confidence, and we're seeing that demand come out in the marketplace. And so while there may be individual buy-downs that occur, you know, at the closing table, which always occurs, I think that today we're just seeing. The fact that the macroeconomy and the macro interest rate levels have been coming down, buyers are more encouraged about going out and buying that house. So I don't know that I would say there's definitely a magic rate out there at the moment.

Alex Rygiel: Well, thank you. The next question is from Jesse Liederman with Zellman & Associates. Please go ahead. Hey, thanks for taking my question and congratulations on the really strong end to the year. Hey, thanks, Tresley. My first question is just a follow-up on the Century Complete brand.

Jesse Liederman: Can you remind us if there's any gross margin or return differential between that, the Century Complete product, and the Communities brand? In terms of gross margin, because we're only buying finished lots, so we really have no land profit built into the margins, the margins tend to be structurally a bit lower. On the flip side, because we are not carrying any land and developing land, the returns are significantly higher.

Dale Francescon: Got it. Yeah, that makes sense. And then just a quick follow-up on that. Are you seeing any, I mean, you talked about... I'm going to talk to you about how you're seeing the financial constraints there in terms of your developers. You know, you're kind of at the mercy of your developers. Can you talk about maybe what they're seeing or what you're seeing from them in terms of their ability to get financing and continue the development process? Obviously, financing has tightened up in the last 12 months on that or more, but when we look at it, the stronger developers have been able to figure out workarounds, whether they can get financing or figure out other ways to fund their projects, as well as our structures sometimes on our option lots on how we'll do things. So we've been able to navigate that, but clearly, as a general statement, it is tighter from a financing That's helpful.

Dale Francescon: And one more, if I may, just one other thing on the positive side: we've seen a flattening of increases in LD costs. And so with that, where we were seeing rampant increases in the past, we've seen a flattening now. So that's a good thing going on. That's great! It's very encouraging. Generally, spec builders have a higher inventory turnover ratio, and you're hovering around one time, a bit below the peer group. Now that your cycle times are improving, and you're on more consistent start cadence since the beginning of the year, do you have internal targets that you're striving for in terms of working capital as a percentage of revenue, or inventory turnover that you discuss internally to drive the business? Not to try to avoid your question, but yes, we obviously have a variety of internal metrics, internal hurdles that we're looking at, everything from the time that we are reviewing land deals to when we're doing starts for homes and opening new communities, but it's nothing that we've published or put out there right now.

Dale Francescon: Okay, understood. Thanks for all the calls. Thank you. The next question is from Michael Rehaut with J.P. Morgan. Please go ahead. Hi guys, this is Andrew Ozzie.

Michael Rehaut: I'm from Mike. I appreciate you taking the time to answer my question. I just, yeah, congratulations on the quarter as well. I just wanted to maybe, obviously with the understanding that you're not guiding margins, help us think maybe through some of your assumptions or thoughts on construction costs, pricing, or the land environment to help us think of gross margins next year, or this year rather. Well, I think it's obviously going to be a combination of all those things that, given, you know, right now our guidance is estimating an ASP of around $380,000 on the low and high ends, and then we are looking to pull back incentives, but we know that some of that is, some of those savings will get eaten up by some direct cost increases. So, while we're still experiencing a positive trend in the fourth quarter, you know, later this year we may see increases. So, you know, it will end up being how well we can negotiate direct costs down across our national platform in order to provide some additional margin levels. Thank you for that.

David L. Messenger: And then maybe you can just review your capital allocation priorities going forward. Yeah, I would say that, you know, we continue to invest in the business. We've got, you know, roughly 75,000 lots owned and controlled, with about 60% of those being off balance sheet under some form of option and controlled arrangement. And we're looking to continue growing the business. As I said earlier with somebody else, quite with one of the other analyst questions, we're looking to grow community accounts. So we think that we'll have plenty of opportunities to be reinvesting this capital that we're generating back into the business and growing organically, as Dale said, you know, look, there are other parts of the market that we'd like to see M&A opportunities in, and you know, Florida being one of them. We just executed on the transaction in Tennessee.

David L. Messenger: And so, you know, we think there'll be other opportunities that come up for us to utilize this capital to continue to grow the business. Thank you, Dave. I appreciate that. Again, if you have a question, please press star then 1. The next question is a follow-up from Jay McCandless with Wedbush Securities. Please go ahead.

Jay McCandless: Hey, thanks for taking my follow-ups. Just wanted to get a sense of what percentage of communities during the fourth quarter you're able to raise prices and what pricing power looks like as you start the new year. You know, Jay, I can't give you a specific number, but it really comes down to, you know, we're adjusting prices and reviewing them on a weekly basis at a subdivision by subdivision level. I can give you just kind of a general feel that certainly, once we saw some interest rate relief, we started raising prices, reducing our incentives, because most of the time, when we look at it, most of our homes have some type of Most of the increased price is really reflected in reduced incentives. All of them have increased base prices from a case-to-case basis, but it's really more incentives, which is all based on what we see in terms of competition for that particular subdivision, the level of inventory we have, that type of thing.

David L. Messenger: But in general, on a directional basis, we are seeing that our incentives are going down, and that's really where our focus is. Great, and then the other thought I had was, what are you seeing from competitors right now? Has some of the frenzied discounting and promotions that we're seeing in the fourth quarter lessened somewhat? Or is it still pretty aggressive, what you're seeing from some of the larger retailers? competitors. It's notwithstanding the fact that, generally, inventories are still very low. Everybody is looking to move product, and from time to time, one competitor or another may be discounting homes more than the rest of the market. But, in general, we're not seeing any rampant discounting going on out in the market.

David L. Messenger: And what was there in the fourth quarter seems to have settled down as we've gone into the new year. That's great. Thanks again. This concludes our question and answer session. We will now turn the line back over to Dale for some brief closing remarks. To everyone on the call, thank you for your time today and your interest in Century Community. To our team members, thank you for your incredible efforts, dedication to Century, and commitment to our valued homebuyers. To our investors, we appreciate your continued support and look forward to speaking with you again next quarter and sharing with you our continued progress. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect, and John Dixon. Thank you.