Clear Channel Outdoor Holdings, Inc. Q1 FY2024 earnings call

• Welcomed Scott Dixon, Interim Chief Financial Officer, who has played a key role in the company's growth.
• Strong Q1 results: deliveries up 23%, revenues up 26%, adjusted diluted earnings per share up 114%.
• Strong demand for affordable new homes with low resale inventories; net new contracts up 42% year-over-year.
• Absorptions improved, with monthly average 3.8 in Q1 2024. Reduced incentives as buyers adjust to higher interest rates.
• Focus on affordability with over 90% of deliveries below FHA limits; average sales price among lowest of publicly traded homebuilders.
• Controlled costs with 2% sequential reduction in direct construction costs. Cycle times remained in 4-5 month frame.
• Land position: ~75,000 owned and controlled lots, a 46% year-over-year increase; Texas and Southeast account for ~50% of total lots.
• Community count at 253, highest in history, up 8% year-over-year; Century Complete accounted for over 40% of community count.
• Financial results: Pretax income $84.3 million, net income $64.3 million, EBITDA $123 million, adjusted EBITDA $109.6 million; SG&A as % of home sales revenue 12.4% in Q1, down from 13.4% prior year; tax rate expected 25% for full year 2024.

In the first quarter of 2024, Century Communities delivered 2,358 homes, a 23% increase versus the prior year period and the second highest level of first quarter deliveries in the company's history. Revenues were $949 million, up 26% year-over-year. Adjusted diluted earnings per share were $2.22, a 114% increase. Net new contracts were 2,866 homes, up 42% year-over-year and 22% versus the fourth quarter of 2023. Monthly absorption rates averaged 3.8 in Q1 2024 versus 2.9 in Q1 2023 and 3.1 in Q4 2023. Net orders increased across all segments, with the Southeast and Mountain regions posting gains of 86% and 84% respectively. More than 90% of deliveries were priced below FHA limits, and the average sales price was $391,000. Deliveries in Q1 generally matched starts, with nearly 100% of homes built on a spec basis. Backlog at quarter end was 1,590 units valued at $667 million with an average price of $420,000.

• Maintaining full year 2024 guidance: deliveries in range of 10,000 to 11,000 homes and home sales revenue in range of $3.8 billion to $4.2 billion, due to uncertainty around interest rates.

• Forward-looking statements subject to risks and uncertainties outlined in SEC filings.
• Noncore investment impairment of $7.7 million in the first quarter related to an investment in Diamond Age, a 3D printing start-up.

Q: I'm a little confused on the guide. I mean if you grow deliveries just a little sequentially, you're at the bottom end of the guide by the end of the year. So -- and you've got business in April already trending. It sounds like fairly well. And clearly, your backlog conversion rate is extremely high. So help me understand again why you're not raising at least the low end of the guide, unless you're expecting -- I don't give catastrophic interest rates, but certainly much higher from [ here ] rates.

A: Carl, it's strictly a function of trying to be conservative, not knowing where rates are going to go. As we started out the year, we expected to see significant rate cuts during the year. Now that seems to be somewhat in question. So when we just look at the future, I mean, what we're seeing right now is pretty positive, but it's hard to anticipate what's going to happen as the year unfolds. And so that's the reason for not changing guidance.

Q: Very nice quarter again. As you look into the second quarter, does it appear that incentives could again decline sequentially?

A: Yes. Alex, very good question. I think we are optimistic as we got into the first quarter in terms of the rate environment that as we said in our prepared remarks, that we had a little bit of additional pricing power on the incentive line item. Certainly, with some of the volatility in rates over the last few weeks, I don't know that there's significant additional optimism on our standpoint in terms of being able to reduce the amount of mortgage incentives that we're looking at into Q2. Certainly, the rest of the year plays itself out is something that we'll be evaluating.

Q: Congrats on the strong quarter. First one is on backlog conversion. So given the high backlog conversion, you presumably sell and deliver a high percentage of your homes in the same quarter. That said, your percentage of Century Complete deliveries fell sequentially to 33% from 39%. So the question is, is that just timing? Or is that somewhat of a testament to demand for that Century Complete home or maybe qualification issues, affordability issues, et cetera?

A: Yes. Thanks for the question, Jesse. It's a good question. It's something we spent a fair amount of time as a management team looking at as our -- as the quarter really played itself through. So I think -- and we mentioned it a little bit in our prepared remarks. We were a little bit lighter on the Century Complete deliveries as a percentage of our overall platform this quarter. We anticipate that to trend a little bit more towards where we were at from all of last year from a 2023 perspective just from a percentage of the mix. And then from the backlog conversion, it was a pretty high backlog conversion that we've done historically. We did sell and close intra quarter over 50% of our units. A lot of that was obviously a factor of the demand that we experience ourselves within our markets this quarter, as well as coming into the year with units that were further along in the stage of construction.

Q: You've done a great job acquiring lots over the last several quarters. As you know, mostly off balance sheet with your lot count up 45% year-over-year. So turning to just capital allocation priorities, where does share buybacks fit on that capital allocation priority list? I noticed you bought back about $16 million of shares in the first quarter, which was among your highest in a couple of years along with the third quarter last year. So maybe you can talk about the share buybacks a little bit.

A: Yes, absolutely. And larger from a kind of question from just a capital allocation perspective, and our number one priority is obviously putting our capital back into the business. As you've seen us growing our owned and controlled bought positions, we're pretty optimistic about the markets that we're currently in and think that quite frankly, is the best return from our shareholders. Other than that, we certainly have a dividend -- quarterly dividend that's at $0.26 a share. That's up 13% from the previous quarter. So that plays itself into our capital allocations. And then from a buyback perspective, we have over 1 million shares still authorized underneath our Board program. It is something, obviously, you saw us do during the quarter. I think to the extent that we see dislocation within the market compared to our book price, it's something that we will take a look at. But no specific guidance or structured program on the buybacks currently.

Q: Could you talk about what percentage of your closings in the first quarter were customers that used a mortgage rate buydown?

A: Yes. Jay, that's not a specific number that we've disclosed in the past, but it's a substantial majority. It's over 75%.

Q: Congrats on the quarter. It looks like average order prices ticked up nicely sequentially. I just wanted to maybe dial in on how widespread that is and your outlook on the ability to push price in this environment?

A: A lot of that would have been driven just by the mix. As we mentioned earlier, just because of circumstances in terms of production units, the percentage of our Century Complete business, which carries the lowest ASP was down below where we've normally been. As a result, that brought down the number of homes that we closed that had the lower Century Complete ASP. The higher ASP in the Century Communities had a bigger percentage as a result, that affected our overall average sales price.

Q: Just on Century Complete and the mix shift a bit away from it this quarter. As you're looking out in '24 and '25, do you expect the Century Complete mix percentage of communities to begin to increase again? Or should we expect it to be flat from here or fall as a percentage of the overall?

A: I mean, we've been -- if you look at the past few quarters, Century Complete has been like 38%, 39% of our overall closings. I would expect that we get back to those same levels. It was just -- when we look at it, the homes that we had in our Century Complete brand, we're just less this quarter than what we had in our Communities brand.

Q: Can you just talk a little bit about the noncore investment you impaired? What was it? And why did you impair it?

A: Yes, sure. Absolutely. With an investment we had in a start-up company called Diamond Age, which is a 3D printing company. And we went through an exercise an accounting perspective every quarter of taking a look at updated data points and that flush itself through in the charge this quarter.

Q: Congratulations on the quarter. I wanted to ask about incentives. I'm assuming a lot of buyers are using some form of rate buydown or forward commitment. But I was curious if you guys could spell out what percentage of the buyers actually take advantage of something like that.

A: Absolutely, Alex. Obviously, from our buyer pool from really focusing on that first-time home buyer, it's the substantial majority, it's above 75% of our buyers will take advantage of some level of a mortgage incentive.

Q: As you -- as we look at what's happened so far this month, rates up, I don't know, 40, 50 bps versus last quarter. Is your sense that you guys will increase the incentive to kind of keep the sales pace momentum going? Or is that the rate you offer people will go up along with market rates?

A: The rate that we've been offering has trended up as we have seen rates go up so that we're basically keeping a similar spread between market and the rates that we're offering.

Q: And so far, you haven't noticed whether it's affected sales pace much?

A: Yes. So far, we don't -- it has not. Obviously, the month is not over yet, but right now, it has not.