Greetings. Welcome to Century Communities' Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. 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. 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 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 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 for questions. With that, I'll turn the call over to Dale.

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. 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. 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% over year-ago levels. 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 revenues. 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%. 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's January. Regardless of the markets 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, 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 $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. 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 that are more capital-constrained and face 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. 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 18-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 that drove significant improvements in our business in 2023 and that positions 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 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 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 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 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 eighth 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 comprise 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 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 give 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. 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 year-ago levels. 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 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 having accounted for a little over 20% of our full year deliveries on average over the past five years. Our average sale price of $376,000 in the fourth quarter decreased by 2% on a sequential basis, mainly due to higher levels of incentives 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. This is a 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 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. The increase in our annual effective rate in 2023 compared to 2022 was primarily driven by a reduced number of homes qualifying for 45L credits. We expect our full year tax rate for 2024 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. 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 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 2027, 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 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 billion to $4.2 billion. With that, I'll open the line for questions.

We will now begin the question-and-answer session. Our first question is from Carl Reichardt with BTIG. Please go ahead.

Thanks. Good afternoon, gentlemen.

Good afternoon.

Good afternoon. 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 how you plan to lay it out in '24? I'm 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 growth that would be helpful.

Yeah. I think as we've been talking, we wanted to see 2023 as a significant amount of growth. We invested a lot of capital in the land to get to that 250; we wanted that to be our new plateau, kind of the new jumping-off point for the company going forward. We do expect to be growing community count. It would be probably you see more of that growth come online in the third quarter as we're getting finishing, getting communities out on 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 in 25% per year, but we do have land and assets that we want to get into production and increase that growth going forward.

Thanks, Dave. Regarding the quick turnaround of your backlog this quarter, it's clear that business improved and you had inventory prepared. As your cycle times have normalized, can you share the average timeframe between order placement and home closing? Additionally, what percentage of homes in the fourth quarter saw both orders and deliveries within that same quarter? Thank you.

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. 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 in the fourth 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 a 170%, it is 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 amount of time that we have between selling and closing is typically about a quarter. A few months, we were able to sell and close a home just depending on where it is in the process. Obviously, quick move-in homes these days have 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.

Okay. So, quarter-turn is kind of what you're back to that normal rate after having flushed 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? Are there particular places that you're especially interested in beyond Tennessee? Thanks.

Yeah, Carl, we definitely have seen more M&A offerings and we expect that's going to continue. 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. For example, in the situation that we found ourselves in Nashville, where we found a great company that has 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 is one of their expertise, and they wanted to exit the homebuilding business but stay and 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 as really opportunistic abilities to enhance our organic portfolio of land. In terms of voids in our market, the only ones that we really have is like a higher presence within Florida. We're there throughout Florida in our Century Complete brand, but on our Communities brand, we're only in Jacksonville. 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.

You're welcome. Thank you.

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

Hey, good afternoon, everyone. Great quarter.

Thanks, Jay.

So, the good news on January being up 30%. I guess, when in '23 did you guys start to see the turn? Just wondering when the comps are going to get harder from a year-over-year perspective.

I think that we probably started seeing a turn midway 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 on where we were and where interest rates were at that given time of last year.

Okay. Thanks for that. 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 like relative to what you put up in the fourth quarter.

I think while we don't have guidance on margins, we believe that with incentives being reduced, there will be some stability in gross margins. As we enter the year, we do not expect to see a decline similar to what occurred from Q4 to Q3.

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

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

Thanks. A great quarter, gentlemen. How should we think about Century Complete growth in 2024 versus the base business?

Our Century Complete business has been around a while, making up about a third of our overall volume. We have increased that to 35% to 36%, and we are now just under 40%. The growth is somewhat limited because we only purchase finished lots and typically buy them on a just-in-time basis. Some of the challenges to expanding this business stem from our land development partners and their scheduling for lot delivery. Currently, just under 40% of our total business in terms of units is from Century Complete. Ideally, we aim for it to reach 50%. However, as the community side continues to expand, achieving that 50% for Century Complete becomes more challenging. Nonetheless, we are pleased with its current position.

And then, is there a magical rate right now that's really getting your home buyers active?

I’m not sure there’s a specific magical rate. We’ve discussed this in the past. Currently, as buyers notice that overall rates are declining, they are gaining more confidence, and we’re seeing an increase in demand in the marketplace. While there might be some individual buy downs that happen at the closing table, which is always the case, we are presently witnessing that as the macro economy and interest rates are dropping, buyers feel more encouraged to go out and purchase a house. Therefore, I wouldn’t say there’s definitely a magic rate available right now.

Helpful. Thank you.

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

Hey, thanks for taking my question and congrats on the really strong end to the year.

Hey, thanks, Jesse.

My first question is just to follow up on the Century Complete brand. Can you remind us if there's any gross margin or return differential between 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.

Got it. Yeah, that makes sense. And then, just a quick follow-up on that. Are you seeing any challenges from your developers? Can you discuss what you're observing from them regarding their ability to announce and continue the development process?

Yeah, obviously, financing is tightened up in the last 12 months 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 structure sometimes on our optioned 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 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...

I guess, one other thing on a 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 forward.

That's great. It's very encouraging. Generally, spec builders have a higher inventory turnover ratio and you're hovering around 1 times, which is 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 published or put out there right now.

Okay. Understood. Thanks for all the color.

Okay. Thank you.

Thanks, Jesse.

The next question is from Michael Rehaut with JPMorgan. Please go ahead.

Hi, this is Andrew Hassen filling in for Mike. Thank you for taking my question. First off, congratulations on the quarter. I would like to understand your perspectives on construction costs, pricing, and the land environment to help us gauge gross margins for this year, even though I know you're not providing specific guidance on margins.

I believe it will be a mix of several factors. Currently, our guidance suggests an average selling price of approximately $380,000 at both the lower and upper ends. We are planning to reduce incentives, but we recognize that some of the savings may be offset by increases in direct costs. Although we are seeing a positive trend in the fourth quarter, we might encounter some increases later this year. Therefore, it will depend on how effectively we can negotiate direct costs down across our national platform to maintain some additional margin.

Thank you for that. And then, maybe if you can just review your capital allocation priorities going forward?

We are continuing to invest in the business, currently owning and controlling about 75,000 lots, with approximately 60% of those being off-balance sheet under various option and control arrangements. We plan to keep growing the business and increasing our community count. We believe there will be many opportunities to reinvest the capital we're generating back into the business for organic growth. Additionally, as mentioned, we are looking at other areas of the market for potential mergers and acquisitions, with Florida being a key target. We just completed a transaction in Tennessee, and we anticipate more opportunities to leverage this capital for ongoing business growth.

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

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

Hey, thanks for taking my follow-ups. I just wanted to get a sense of what percentage of Communities during the fourth quarter you're able to raise price and what pricing power looks like as you start the new year.

I can't provide a specific number, but we are adjusting prices and reviewing them weekly at the subdivision level. Generally, once we saw some relief in interest rates, we began to raise prices and reduce incentives, as most of our homes include some form of incentive. The increase in price is mainly a result of lower incentives, although there are case-by-case increases in base prices. This approach is influenced by the competitive landscape of each subdivision and the inventory we have available. Overall, we are seeing a downward trend in our incentives, and that is where our focus lies.

That's great. And then, the other follow-up I had, what are you seeing from competitors right now? Has some of the frenzied discounting and promotions that we're seeing in the fourth quarter, is that lessened somewhat or is it still pretty aggressive what you're seeing from some of the larger competitors?

Well, despite the fact that inventories are generally very low, everyone is trying to sell product. Occasionally, one competitor may discount homes more than others in the market. However, we’re not observing widespread discounting in the market. What existed in the fourth quarter seems to have stabilized as we entered the new year.

Okay. That's great. Thanks again.

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. 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.