John Kolstoe - VP, Finance Dale Francescon - Co-CEO and Chairman Robert J. Francescon - Co-CEO and Director David L. Messenger - CFO.

Jay McCanless - Sterne Agee William Long - JP Morgan Nishu Sood - Deutsche Bank Patrick Kealey - FBR Alex Barron - Housing Research Center Will Randall - Citigroup.

Greetings and welcome to the Century Communities Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, John Kolstoe, VP of Finance.

Thank you. You may now begin..

Good afternoon. We would like to thank you for joining us today for Century Communities Fourth Quarter and Full Year 2015 Earnings Conference Call.

After the market closed today, we distributed a press release detailing our fourth quarter and year-end financial results, which can be found in the Investor Relations section of our Web-site at www.centurycommunities.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management's current expectations and beliefs 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.

The Company undertakes no duty to update any forward-looking statements that are made during the course of this call. 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. Management will be available after the call should you have any questions that did not get answered.

Hosting the call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer, and David Messenger, Chief Financial Officer. With that, I'll turn the call over to Dale..

Thank you, John. Today on the call, I will review our operating highlights. Rob will then discuss our homebuilding markets. Afterwards, Dave will follow up with further details on our financial results, balance sheet and 2016 outlook. Following our prepared remarks, we will open the lines for questions.

During 2015, we dedicated our efforts to improving our position in each of our markets in Colorado, Georgia, Nevada and Texas. Leading up to 2015, we have grown our business rapidly into a top 25 USs homebuilder.

We capitalized on that expanded scale throughout the year to support our localized strategies with enhanced product mix, operational enhancements and a stronger capital base that all contributed to our ability to drive additional demand and traffic as we opened a record number of 41 new communities throughout your.

We delivered on our full-year targets and significantly grew our home sale revenue by 106% to $725.4 million and home deliveries by 130% to 2,401 homes. We sustained improvement across our operations to achieve our 13th consecutive year of profitability with our net income roughly doubling to $40 million or $1.88 per share.

We are extremely pleased with the hard work and commitment from the entire Century team which continues to build on our track record of ongoing success that we have enjoyed since our inception in 2002.

Each market operated in accordance with our expectations throughout the year and we closed out 2015 on a strong note highlighting the benefits of our diverse multimarket business strategy. During the fourth quarter, both our pre-tax income and net income significantly improved year-over-year.

Our pre-tax income was $20.4 million, an 85% increase versus the same period last year, and our net income was up over 80% to $13.2 million or $0.62 per share, reflecting 40% higher home deliveries to 645 homes and home sales revenue up 53% to $204.5 million.

Our ASP in the fourth quarter was up 9% year-over-year with prices up in all of our markets, helped by mix and core price appreciation on our expanded product offerings. We expect prices to remain largely stable with some normal quarter to quarter fluctuations as a result of regional and product mix.

This top line progress was enhanced by a 100 basis point improvement in our adjusted gross margin percentage, coupled with 110 basis points of SG&A leverage on our scalable platform, demonstrating the strength of our expansion strategy and our operating approach.

We continue to carefully balance our focus on growth while maintaining a sharp eye on margins and costs in order to maximize our profits. We are pleased with our performance for the fourth quarter and full year 2015.

Our growth trajectory is supported by a strong pipeline of communities, a deep land portfolio and ample capital resources to further grow our base of activity in a disciplined manner. With the 1.15 million housing starts in 2015 still hovering near the four prior historical troughs, we continue to believe U.S. housing remains in a growth phase.

Beyond the improving macro demand, the long-term opportunity for our multimarket growth strategy is immense. With our efficient scalable platform, we remain committed to putting our capital to work in order to further diversify our footprint and generate attractive returns.

As we have shown in 2015, we have a solid foundation as we build our Company into a premier homebuilder in our new and existing markets. As we move forward in 2016, we expect to further increase our deliveries, enhance our profitability and invest wisely in our business.

I now would like to turn the call over to Rob to discuss our markets in greater detail..

Thank you, Dale, and good afternoon everyone. During 2015, our main objective was to complete the integration of our previous acquisitions and strengthen our positions in our current markets in order to deliver a full year of exceptional growth in home deliveries and profitability.

We continue to be committed to entering markets with attractive long-term fundamentals, strengthening our current market positions and supporting our growth initiatives with a prudently leveraged balance sheet. We are focused on balancing these growth objectives in a disciplined manner.

During the past year, we increased our land position and improved the quality of our backlog to close out the year on a firm footing. This was accomplished on strong momentum in our pace of activity, allowing us to grow our net new contracts to 2,356 homes for 2015, representing growth of 126% compared to the prior year.

A significant portion of the growth reflects a full year of operations following the successful expansion of our business into new markets the past two years. For the fourth quarter, we had net new contracts of 455 homes, up 25% compared to the prior year quarter, with stable to improving demand throughout our markets.

As I highlighted, the overall trend in our markets was positive and we are positioned to benefit from the sustained upward move as housing demand continues to recover.

Looking specifically at our individual markets, our demand trends do vary from quarter to quarter as expected but the long-term dynamics remained positive and consistent with our objective to situate our homebuilding operations in markets with positive long-term fundamentals.

Atlanta, which comprises our Southeast operations, continues to represent an increasing percentage of our land inventory and we are experiencing steady price and mix benefits as we grow our base of first-time homebuyers and invest in additional move up categories.

We are broadening our customer base through both higher priced single-family homes as well as townhome product offerings and are able to continue sourcing attractive land parcels to further expand our market presence. Core demand in Atlanta remained strong for our product. The new home supply is tight and affordability is high.

Those three factors combined provide for a healthy homebuilding environment. In fact, the National Association of REALTORS named Atlanta as one of the top 10 housing markets to watch in 2016. We have been strongly positioned in this dynamic market as the second-largest builder, based on 2014 closings, and expect to be ranked number two again in 2015.

In Colorado, our operations are doing very well with home deliveries up 18% on a highly favorable mix of deliveries compared to the year ago quarter. Overall market fundamentals remain stable and Colorado continues to be one of the best housing markets in the country with very limited new home supply, most recently having one month of inventory.

With firmly established roots in this market, we are able to benefit through our scale and expertise to buy land at attractive prices. In Las Vegas, conditions remain positive with single-family permits continuing to trend upward with limited inventory in the marketplace.

Tourist activity continues to climb in Vegas, breaking an all-time record in 2015. With tourism as a significant economic driver in this market, job growth and housing demand are advancing at a steady pace. Our new communities and product offerings performed well in 2015 with stable to increasing prices in backlog.

We have an additional six communities slated to open in 2016 from our existing pipeline of communities, featuring new product at various price points. In our overall Texas markets, we experienced stable demand trends excluding Houston.

In Central Texas, which comprises San Antonio and Austin, our activity picked up in late 2015, but overall activity for the year was somewhat mixed with healthy employment growth offset by severe weather and increasing supply earlier in the year.

Our 30% year-over-year increase in average selling price to $461,500 reflects favorable mix with core prices largely stable to increasing sequentially during 2015. In Houston, we remain committed to the longer-term opportunity, but near-term we continue to monitor our capital investment as market dynamics remain cloudy.

Houston represents less than 4% of both our total backlog and lot holdings going into 2016. We continue to broaden our presence within our core markets by sourcing additional land parcels that meet our disciplined underwriting requirements. In the fourth quarter, we acquired 977 lots for $32.6 million with the majority of the lots being finished.

We ended the quarter with an inventory of 13,160 owned and controlled lots, which provides us with a visible pipeline of organic growth for many years to come.

Beyond our existing footprint, we continue to review potential acquisitions of homebuilders in target markets, which share a number of favorable attributes including job growth, increasing household formations, limited housing supply and positive home price outlooks.

That said, we have demonstrated that we are willing to be patient and adhere to our disciplined underwriting standards and strict controls to maximize our returns. In summary, we are benefiting from diverse pockets of strength across our expanded footprint by geography, product and price point.

As we continue to grow, we will be prudent with our capital and focus on high return investments to bring our platform and capital strength [together] [ph]. Into 2016, the market dynamics affecting our Colorado, Georgia, Nevada and Texas operations are encouraging and we expect these markets to continue to contribute favorably to our results.

To that end, we are well-positioned to deliver another consecutive year of profitability as we continue to execute on our strong pipeline of new community openings, pursue select land purchases and capitalize on additional value enhancing opportunities.

I will now turn the call over to Dave who will provide greater detail on our financial results for the fourth quarter..

Thank you, Rob. During the fourth quarter, three key factors drove improvement in our expanded profitability, the significant increase in closings, a 100 basis point improvement in adjusted homebuilding gross margin and strong leverage on our platform driving an SG&A improvement of 110 basis points.

These fourth quarter results build on the positive momentum we experienced throughout the year to deliver earnings of $0.62 per share in the quarter compared to $0.34 per share in the prior year quarter. For the fourth quarter, our pre-tax income was $20.4 million, an increase of 85% year-over-year.

Our net income improved to $13.2 million, representing an increase of 83% compared to $7.2 million in the same quarter last year.

For the full year, our pre-tax income was $60.3 million, an increase of 95% year-over-year, and our net income was $39.9 million or $1.88 per share compared to $20 million or $1.03 per share, largely reflecting higher home deliveries and favorable G&A leverage.

Adjusted EBITDA for the fourth quarter was $24.8 million, up 53% compared to $16.2 million in the fourth quarter of 2014. Adjusted EBITDA for the full year was $77.8 million, up 90% compared to $41 million in 2014. Home sales revenues for the fourth quarter were $204.5 million, an increase of 53% compared to $134 million in the prior year quarter.

This improvement in revenues was mainly driven by a 40% growth in home deliveries to 645. For the full year, we grew home sales revenues by 106% to $725.4 million and home deliveries by 130% to 2,401 homes, primarily attributable to the expansion of our platform over the past year.

The growth in our fourth quarter home deliveries was further bolstered by the average sales price on the homes we delivered increasing to $317,083 compared to $290,236 during the prior year quarter, mainly the result of favorable regional and product mix from new communities as well as base price appreciation.

Gross margin percentage on homes closed in the fourth quarter was 20.4%, compared to 18% in the fourth quarter of 2014. Excluding capitalized interest and purchase accounting impacts from cost of sales, our adjusted gross margin percentage in the quarter increased to 22% versus 21% in the prior year quarter.

Our gross margin was higher in the second half of 2015 compared to the first half and consistent with our plan to improve margin sequentially in the second half of the year through a combination of product mix, active cost management and price increases.

SG&A as a percentage of revenue was 10.7% in the fourth quarter, an improvement from 11.8% in the prior year quarter as our higher home sales revenues and the successful integration of our regional platforms more than offset the higher personnel costs and additional investments to support a higher number of communities.

For the full year, SG&A improvement was equally pronounced with more than doubling of home sales revenue and home deliveries driving 120 basis points of margin improvement to 12.1%.

Turning now to our balance sheet and liquidity, in December we successfully amended and expanded our unsecured credit facility to $300 million with a $100 million accordion feature. This additional capital further affords us the flexibility to move quickly as we pursue growth and investment opportunities.

We believe our balance sheet and capital resources firmly position us to continue investing in attractive land parcels, targeted acquisitions and other value enhancing opportunities. Starting in 2016, we are changing the way we define a selling community.

Historically, we have defined a selling community as any community that has had one sale to start and more than five homes remaining to close. After reviewing our peer set, we will now define a selling community as any community that has had one sale to start and more than five homes remaining to sell.

We believe this is a more common definition within the industry. Accordingly, we have posted a supplemental schedule to our Web-site showing our community count for the last eight quarters under the old method and our new method. In closing, we are pleased with our fourth quarter and full year results.

We exited the year with a larger and more efficient platform along with a strong balance sheet to accomplish our goals in 2016. To that end, we remain confident about the prospects for continued growth in our overall business during 2016.

Most of our housing markets continue to be supported by improving fundamentals including job gains, new household formations and strengthening regional economies.

While we don't see our markets retreating in the near-term, we are cognizant of the dislocation in the capital markets and the fact that it may spill over to our local economies and impact our results.

As a result, we are introducing our full year 2016 outlook for deliveries to be 2,500 to 3,000 and home sales revenues to be in the range of $800 million to $950 million.

We expect to continue cycling through communities from our pipeline of new community openings, which should result in an active selling community count between 80 to 85 communities at year-end, which is effectively flat with 2015, under the new definition of a selling community.

While we are not providing guidance on a quarterly basis, we expect our net income trends to be seasonally similar to 2015. Our first quarter will experience our lowest closings and net income. We expect each to grow quarterly as the year progresses, we close and open new communities and leverage our SG&A.

We believe our strong balance sheet and ample liquidity will lead to another profitable year of growth.

Operator, can you please open the lines to Q&A?.

[Operator Instructions] Our first question comes from Jay McCanless from Sterne Agee..

Wanted to ask first, could you tell us a little bit about January and February and what kind of trends you've seen maybe both on an order pace then also on geographic trends?.

This is Dale. What we've seen so far this year is pretty consistent with where 2015 started out. In fact, it's starting out a bit better than that in both our traffic and our conversion numbers. And that's pretty consistent across all of our markets..

It's good to hear.

And then secondly, with the community count under the new definition looking basically flattish year-over-year, can you talk about how many new communities you guys plan to open in 2016?.

We are in February. [It's early to] [ph] give an exact number. We do have a series of communities we're looking to open up here in the second and third quarters, but as we know from years past, land development can always take longer or shorter than we had before.

Last year we opened 41 during the year, but as we get into the second and third quarter, we'll give you a better number based on where our land development community openings are..

Got it.

And then finally, could you talk about what the cancellation trends were in fourth quarter and what you're seeing from incentive trends both in the fourth quarter and then in the January and February?.

The cancellations were up a bit in the fourth quarter, which is really not representative of anything other than just individual circumstances accumulating. In terms of incentives, we are really not seeing pressure to provide incentives in any of the markets. The one exception of that might be Houston to a certain extent.

But we have such a small presence there. We only have 271 owned lots in Houston and that's really by my design. But when we exclude Houston and look at the other markets, we've not really seen pressures to provide incentives..

Okay, sounds great. Thanks..

Our next question comes from Michael Rehaut from JP Morgan..

It's actually Will Long on for Mike. My question is with regards to gross margins. Dave, you pointed to the fourth quarter gross margin up 100 basis points on an adjusted basis driven by mix, cost management and price increases. I was just wondering if you could kind of break out in terms of order of magnitude what was the biggest driver.

And also just looking into 2016, how you guys are thinking about margins in terms of the improvement versus 2015?.

To tackle the first part, I think it's spread equally between price increase and cost management, what we've been able to do in our markets. Looking into 2016, I would say that as we look at our backlog, the gross margin in our backlog is not too dissimilar than the gross margin excluding cap interest that we had for the year of 21.5%.

So I would expect that backlog closes somewhere in that area, and then as we get out further into the year and we start selling and closing new homes, we'll try to provide you some updated guidance on gross margin at that time..

Great.

And with regards to the outlook for closings growth, can you just talk about each different region, how you guys are thinking about the growth rates within each of the regions that you operate in for 2016?.

This is Dave again. We're looking at a very solid range of 2,500 to 3,000 closings for the year. We do expect to see growth in all of our markets. As we look at the local economies today, we see positive attributes happening in each of our five markets and expect to see growth in each of those markets accordingly..

Okay, great. Thanks guys..

Our next question comes from Nishu Sood from Deutsche Bank..

I wanted to ask first about Atlanta. You folks were early in moving into Atlanta when it was still underrepresented from a public builder perspective. It's grown very popular since then, so obviously a very important market to you folks.

How do you see the crowding in with the other public builders, how do you think that would affect the dynamics locally and would that change your outlook in terms of investment or what your product strategy might be?.

Nishu, it's Dale. As you addressed, we were in there earlier than some of the other people and we have a large position, and being the second-largest builder in the fourth largest permit market gives us a pretty good visibility into what's going on there. We remain very bullish on Atlanta.

Over the year, we've added quite a bit to our lot positions and I think we were in front of a number of the other builders.

And so we find ourselves in a position today where we have a significant lot position, we have a great management team on the ground, and we anticipate that notwithstanding the additional people coming into Atlanta that we're going to be able to continue to grow our business..

Got it. That's helpful.

And then, Dave, you mentioned turmoil in the markets as it might affect – I'm sorry, Rob, you may have been talking about it – how it may affect demand but from the perspective of the ability to finance continued growth and acquisitions and land spend, what is your outlook there? Does that give you pause in terms of the expansion strategy? Are you, were you any way at a natural point where you were going to begin to taper back your aggressiveness in terms of extensions concerning how well the platform is built out? If you could just give us your thoughts on that, that'd be great..

Sure. We're still looking to expand the platform and we've looked at a variety of potential acquisitions over the last 12 months and haven't found the exact one that makes sense for us as we look at it from a balance sheet management standpoint as well as a transaction that really is value-added to the Company.

So, we're still looking for that, Nishu, but we would do it on a prudent basis from managing our balance sheet. And so with that said, with the capital markets being choppy right now, what I would consider a larger transaction, that may be much harder to put together today than it might've been 6 or 12 months ago.

But again, we're still sourcing opportunities that we think could be a benefit to the Company..

And one of the things that we did in that vein is when we increased our line of credit up to $300 million that gave us additional capacity there.

I think it's also important to point out that the negativity that is perceived in the homebuilders in the equity markets really isn't translating into our business and we're not seeing the negativity on the ground in the way our consumers are purchasing our homes or approaching the purchase of homes even from other builders that the market seems to be pricing into it..

Got it. That's great. And then in terms of – obviously, you've had a lot of growth and shift in your portfolio, which makes it a little bit harder to assess some of that top-down metrics that we look at, like turnover ratio. From some of the other builders, their ability to work through their backlogs has been impacted by weather, et cetera.

You folks clearly have a big presence in what was one of the most affected markets last year, Colorado.

So if you could also please give us your updated thoughts on that and how much of an impact that might've been in the fourth quarter, whether you would expect that impact to linger into 2016 and how you've been managing through that?.

Weather last year in a number of our markets was obviously a challenge. We've worked through most of that at this point, but weather is seasonally and it certainly may come back again this year, although last year was pretty extreme in a number of situations. But we're really not anticipating that we're going to have that kind of impact in this year..

Okay. Thanks for the details..

Our next question comes from Patrick Kealey from FBR..

So first question, just when we kind of think of how you guys are thinking about capital going into 2016 and allocating your incremental dollar, can you remind us how much do you guys have outstanding on your outstanding repurchase agreement and how do you view that versus maybe buying land versus acquisitions as your stock price [indiscernible]?.

It's Dave. I'll answer the first part and let Dale wrap it up here. But in terms of the share repurchase, as of today we have 1,392,000 shares on our existing program that we can use..

And in terms of actually buying back more shares, we're continuing evaluating all of the different options that we have to drive shareholder value.

When we look at the stock price today, it looks pretty attractive, but at the same time we see a lot of very attractive opportunities to acquire additional communities and bring on additional communities in our existing as well as potential markets.

So we really in certain ways, notwithstanding where the stock price is, we really have a lot of options and we're exploring all of those..

Okay, great.

And then when I think about land going into 2016 and even maybe longer-term, how should I think about the balance that you guys want to have between owned and option lots? Where you stand today, is that maybe a good idea of where you'd like it to be or is that more of a shift maybe we can expect going forward over the next 12, 24 or 36 months?.

I think if we look out past 12 months, right now as we ended, at 12/31 we had just over 13,000 lots. Of that, approximately just over 4,000 were controlled and almost 9,000 owned. I would see that shifting going out 12 to 18 months where we would have a higher percentage controlled at that point in time..

Okay, that's helpful. Thank you..

Your next question comes from Alex Barron from Housing Research Center..

I believe you mentioned that you expected growth in all of your regions, and I was curious if that also included Houston or if you're seeing or expecting maybe that region to be an exception?.

We're starting with such a small base that we actually anticipate to see growth in Houston as well..

Okay.

And then I'm not sure if I missed the comment or not, but did you guys make any comment on assuming a similar mortgage environment and based on what you know about your land prices what you expect for margin trends this year?.

Alex, it's Dave. What we had commented on in terms of margin was that as we look in our backlog and see, call it a gross margin excluding cap interest, roughly 21.5%, which is consistent with where we ended this year for the full year, so we think that that's probably a number that we can continue going forward based on our backlog.

And then as the quarters progress and we start selling and closing new homes, we'll provide you an update further in the year on gross margin numbers..

Okay.

And one last one, Dave, any guidance on tax rate for this year?.

For modeling purposes, I think you could probably use 35% to 36%. We always have deductions that we're looking to utilize and take advantage of, but the timing of those deductions and eventual amount is always difficult to predict. So I would say, for modeling use 35% to 36%..

Okay, great. Thanks so much, guys..

[Operator Instructions] Our next question is a follow-up from Michael Rehaut from JP Morgan..

I just wanted to clarify something with regards to January and February. You said that it was consistent, maybe a little better than how 2015 started out across your markets.

Just from a year-over-year basis in terms of orders, does that mean that it's flattish or is it up a little bit, is that kind of the comment that you were making, I just want to clarify?.

It's actually up a little bit..

Okay, perfect. Thanks..

Our next question comes from Will Randall from Citigroup..

Congratulations on the progress.

In regards to thinking about, and you mentioned that in a few different ways, stock market volatility and the fact that there's a number of smaller builders trading under book, how would you approach M&A versus buying back stock, I know the question was asked a little bit differently, and what things would you be looking at in regards to the right fit in terms of assets that you may acquire?.

This is Dale. It's hard to answer that on a broad basis because every opportunity is going to be different. But at the end of the day, when we look at acquisitions in any vein, the underlying assets are obviously a very important factor. The markets that we would be acquiring are another factor that go into it.

So there are a lot of factors that go into looking at different M&A opportunities. And as I indicated earlier, in terms of buybacks versus acquisitions versus land spend, we've got a lot of different opportunities and we're continuing to explore all of them in an effort to drive shareholder value to the highest point where we can..

I guess on a related follow-up, what type of capacity do you perceive you have in terms of acquisitions? Are we talking small bolt-ons or potentially transformational?.

This is Dave. I think it depends on a lot of things, but if you look at where we are at the end of the year, we were able to successfully increase our line of credit up to $300 million with $100 million accordion and so we have dry powder from that standpoint already on the balance sheet.

And then looking forward, so that would definitely afford us the ability to do bolt-on acquisitions as we saw fit and it would work within our system. Going to a larger transaction that would possibly warrant some sort of capital raise, I think we'd evaluate that at that time given where capital markets are.

You see the high-yield market recovering a little bit this week, they've had three, four days of a good run. I know that doesn't make a trend but you are starting to see some stabilization in that market. So there's a possibility that maybe somewhere down the line that becomes another avenue of capital for us..

And a follow-up if I may, in terms of your pace of price increases in the fourth quarter and January and February this year, can you talk about that as well as your construction cost pressures in terms of on a quantitative basis?.

Sure. Just on a broad level, we look at price increases on a community by community basis. And so even in markets where there may not be as much overall appreciation, we have individual communities that are positioned that we can continue to raise prices. So we're continuing to evaluate that.

And in general, I would say that our prices are on a slightly upward trend. In terms of construction costs, we experienced quite a bit last year in terms of increased construction costs.

Those pressures are still there to a certain extent because there's still a limitation on labor and the markets in terms of new construction are continuing to perform relatively well. So when we look at that, we're not seeing the same kind of pressure, but the pressure remains..

Thanks for that and congrats again..

Thank you. I will now turn the call back over to Dale for closing comments..

Thank you, operator, and thank you again to everyone for joining us today. We look forward to speaking with you again next quarter..

Thank you. This does conclude today's teleconference. You may disconnect your liens at this time. Thank you for your participation..