Q3 2021 Century Communities Inc Earnings Call
Greetings welcome to century communities third quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference call is being recorded I will now turn the conference over to Hunter Wells, 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 third quarter ended September 30th 2021 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 expectation.
<unk> 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 certain of these risks and uncertainties can be found under the heading risk factors in the company's most recently filed annual report on Form 10-K as supplement.
By our other SEC filings, our SEC filings are available at Www Dot FCC dot Gov and on our website at www dot country communities Dotcom.
Company undertakes no duty to update any forward looking statements that are made during 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.
The call today are Dalfen, Satkin, Chairman and co Chief Executive Officer, Rob Francesca <unk> co Chief Executive Officer, and President and David Messenger, Chief Financial Officer. Following todays prepared remarks, we will open the lineup for questions with that I will turn the call over to Dale.
Thank you Hunter and welcome everyone to our quarterly conference call.
We are now more than three fourths through the year and are pleased to report a continuation of the strong homebuilding dynamics that we experienced earlier in the year, enabling us to achieve record setting performance.
Excluding charges related to debt extinguishment pretax income for the third quarter was $160 million net income was $125 million and diluted earnings per share was $3.63 All company Records.
On a GAAP basis pretax income increased to 125% to $146 million.
Net income increased to 129% to $114 million or $3.31 per diluted share driving our return on equity to 31%.
Our 10th sequential quarter of improved Roe.
And nearly double the 16% at the end of the 2023rd quarter.
Our home sales revenues were $917 million.
41% increase on a year on year basis.
This topline growth was the result of 2322 total home deliveries propelled by double digit increases within our west region and century complete line.
Home sales gross margins were 25, 7%.
And the 820 basis point increase in the fifth quarter in a row of sequential improvement.
Excluding interest homebuilding gross margins were 27, 2% compared to 20% in the prior year quarter.
We achieved an X and SG&A ratio of nine 8% the.
The result of our increased scale and the diversity of our geographic footprint, coupled with our success in managing and mitigating increased operational costs.
This is our third quarter in a row of single digit SG&A ratio.
Yes.
Excluding charges related to debt extinguishment, our pretax income margin improved to 16, 7%, reflecting the seventh quarter of sequential improvement and an increase of 850 basis points over the same period in the prior year.
Our impressive results were achieved while maintaining a strong balance sheet with $1 $3 billion of liquidity.
Our conservative net homebuilding debt to net capital ratio of 23, 1%.
And increasing stockholders' equity to over one $6 billion, a 35% year over year increase.
We ended three Q with a company record backlog of 4866 homes valued at over $1.9 billion.
Consistent with our expectations net new home contracts decreased to 2742 compared to 3204 contracts in the prior year.
This anticipated decrease as previously communicated on our second quarter earnings call.
It was due to a reduction in the number of homes available for sale.
Resulting from robust sales earlier in the year, causing communities to sell out much earlier than expected.
Additionally, we released homes for sale later in the construction process than typical.
In order to ensure all current input costs were captured.
We have opened in excess of 125, new communities year to date.
And expect to open over 40 in Q4.
While we have experienced delays in land development activities for both our self developed communities as well as those being developed for us by third parties.
We expect our open and actively selling communities to be above 200 by the year end with incremental improvement each successive quarter thereafter.
We remain committed to a land light acquisition strategy as reflected by our percentage of controlled lots increasing to 67%.
Compared to 56% last year.
This is the seventh consecutive quarter, we've increased our overall percentage of controlled lots at our highest percent since going public in 2014.
Our focus on a land light model frees up capital Derisk, the business and provides us increased flexibility to quickly adapt to changing market conditions.
This strategy is further reflected in our inventory composition.
Where the percentage of inventory dollars invested in land has decreased to approximately 40%.
Compared to 44% in the third quarter of last year.
As we have increased our investment in homes under construction by 27% to meet the continued broad based demand we are experiencing.
While only increasing our investment in owned land by 5% during the same period.
We are extremely pleased with our third quarter results as well as our year to date performance.
Looking ahead, we remain confident that tight supply his.
Historically low interest rates and favorable demographic trends will continue to support new home demand.
Net income for the first nine months of 2021 has already exceeded the entirety of 2020 by over 60% and we are on track to more than double the prior year by the end of the fourth quarter.
Our substantial land portfolio positions us strongly for ongoing organic growth as we expand beyond and more deeply into our over 40 high growth markets.
With that I'll turn the call over to Rob to discuss our business in greater detail.
Thank you Dale with another successful quarter behind US we look forward to continuing this positive momentum and are excited for the opportunities ahead of us.
Our business is based on a land light investment thesis that emphasizes controlling a large number of future lots, while limiting one lots to ones, we will need for construction over the near term.
Our total land portfolio has continued to expand.
During the third quarter, we sourced nearly 10000 net new lots ending with more than 75000 owned and controlled lots the highest in our history.
With more than two thirds held off balance sheet.
We have achieved this growth in every region, where we build while maintaining conservative underwriting hurdles.
This extensive land pipeline is what will fuel our future growth.
Between our century communities and century complete brands, we have delivered 7890 homes year to date, an increase of 19% with an average sales price of 365000, a 16% year over year increase.
Our century communities brand has continued to perform benefiting from national broad based demand for our entry level priced homes across highly desirable in rapidly growing markets throughout our four regions led by our west region, which increased deliveries and backlog by 29% and 23 person.
<unk> respectively.
In the first nine months of 2021 home deliveries for a century communities brand have increased by 19% to 5319 homes compared to 4444 homes in the same period of last year at an average selling price of approximately 442.
Dollars.
Yeah.
Our century complete brand, which is 100% entry level focus will also be a material driver to our organic growth in 2022 and beyond.
By acquiring only finished lots century complete is highly scalable requires less capital investment in new markets and yields quicker asset turns and higher returns on investment.
In the third quarter homes in backlog for century complete doubled to 1925, while net new contracts for century complete as a percentage of total company contracts improved to 39% compared to 32% in the prior year.
With century complete is limited investment in local infrastructure. It has been able to organically expand into new markets, including Jacksonville, Gainesville, and the pan handle in Florida.
Louisville, Kentucky College station in Dallas, Fort Worth, Texas, as well as northwest, Indiana over the last year and we expect deliveries from all of these markets in 2022.
During the first nine months of 2021, we have delivered 2000 and 571 homes in our century complete brand with an ASP of $207000.
To achieve this affordable price point century complete homes are typically built outside the most expensive areas are busy metropolitan environments, but with easy access to employment transportation and retail corridors.
And many of these markets and with century complete operates there is limited competition from other large public builders presenting an ample opportunity for us to expand share across hundreds of smaller sized markets on the periphery of large metro areas, where the competitors do not have our level of financial purchase.
<unk> personnel and system resources.
Century complete does not offer options and the vast majority of deliveries come from our 15, most popular plans, creating a streamlined efficient build process that allows us to provide new affordable homes to our buyers.
100% of our century complete homes are priced below FHA limits are.
Our typical century complete homeowner has an impressive healthy financial profile with an average FICO score of 712 based on our loan originations.
We like all homebuilders have experienced significant increases in our direct construction costs this year.
Year to date the cost to construct our average home has increased approximately 12% with the largest increase coming from lumber, which is now well off its peak levels.
In response, we have aggressively raised the sales prices of our homes, while being mindful of potential affordability concerns.
While we continue to raise sales prices where possible the pace of such sales price increases has moderated.
Given our company wide preference for spec home construction during the third quarter only 7% of our new contracts represented pre sale homes.
The spec build model enables us to price the home later in the construction process and helps maximize the profitability potential of the home as evidenced by the nearly 26% gross margin achieved in the quarter.
This spec focus also allows our trade partners to be more efficient and helps lessen some of the construction delays associated with today's industry wide supply change challenges.
While we are still experiencing increased cycle times in many of our communities of up to three to five weeks compared to a year ago.
We've leveraged our national agreements and relationships to develop and execute solutions involving shortages of appliances plumbing trusses windows paint and other materials.
We've also reduced and optimized the number of skus in our homes, enabling us to simplify and bulk order key materials.
Many of these solutions and adjustments being employed today will lead to lasting changes in our processes that will continue to benefit us long after the current supply challenges are behind us.
I'll now turn the call over to Dave to discuss our financial results in more detail.
Thank you Rob during the third quarter net income increased to 129% to $114 million or $3 31 per diluted share.
Compared to net income of $49 $8 million or $1 48 per diluted share in the prior year quarter.
Excluding charges related to debt extinguishment net income increased 152% to $125 3 million or $3 63 per diluted share the highest in our company history.
During the quarter, our diluted shares increased to $34 5 million as a result of certain compensation plans, achieving their hurdle rates, given our robust financial and operational results.
Third quarter pre tax income was $145 $8 million, an increase of 125%.
Excluding the loss on debt extinguishment pretax income increased 147% to $160 2 million, a 16, 7% margin more than twice the eight 2% in the prior year quarter.
Our third quarter, EBITDA increased almost 90% to $163 million and year to date, we are more than double the first three quarters of the prior year.
<unk> sales revenues for the third quarter were $917 $3 million.
An increase of 21% compared to $760 2 million in the prior year quarter.
Deliveries increased to 2000, and 322 homes driven by double digit increases in the west region and century complete.
Gross margins as a percent of home sales, including adjusted have increased sequentially each quarter since the second quarter of 2020.
Homebuilding gross margin percentage improved to 25, 7% compared to 17, 5% for the same period last year, an increase of 820 basis points.
Adjusted homebuilding gross margin percentage was 27, 2% compared to 20% in the prior year quarter.
Third quarter margins exceeded our original expectations supported by continued home price appreciation, which we experienced in every region on a year over year basis.
Looking at our backlog margins, we anticipate continued year over year margin improvement in the fourth quarter and for margins in the fourth quarter to end up between our second quarter and third quarter margins as many of those deliveries will be impacted by peak lumber pricing.
SG&A as a percent of home sales revenues.
Improved 150 basis points to nine 8% in the third quarter compared to 11, 3% in the prior year.
This is the third sequential quarter of our SG&A ratio was below 10%.
Our financial services business continues to perform according to our expectations.
During the quarter it generated $29 1 million in revenues compared to $32 million last year and pre tax income was $11 4 million compared to $17 5 million.
Additionally, in the first nine months, we captured 71% of the business versus 66% last year and in the first nine months increased the number of loans funded by approximately 40% on a year over year basis.
The decrease in pretax income compared to the prior year period was a result of three components, one a favorable fair market value adjustment in 2020, as we initiated our mortgage servicing portfolio to selling loans into the secondary markets at normalized margins compared to the 2020 frenzy and three increased investor.
And people and it systems supporting our increased business.
During the quarter, we issued $500 million of three and seven eights bonds. Due in 2029, a portion of the proceeds were used to redeem our $401 five and seven eights bonds that were due in 2025.
The transaction resulted in a reduction of 200 basis points and rate annual cash savings in excess of $4 million and a $14 $5 million one time charge.
Concurrent with this transaction our ratings were upgraded to <unk> stable and double B minus positive.
In the second quarter of next year, our $500 million six and three quarter percent 2027 bonds become callable, we expect to be able to similarly refinance these bonds with a combination of cash and new bonds that will be accretive to our long term earnings.
Our net homebuilding debt to net capital ratio improved to 23, 1% down significantly from 32, 9% in the prior year quarter, and basically flat with the second quarter of this year.
We ended the quarter with approximately $521 million of cash and total liquidity of $1 3 billion.
We currently have no borrowings outstanding on our $800 million.
Dollar revolving credit facility that does not mature until April 2026.
Our tax rate was 21, 8% in the third quarter compared to 23, 3% last year. A result of additional 45 L certificates received during the quarter.
All of these activities culminated in achieving an ROE of 31%, our 10th sequential quarter of improvement and first quarter greater than 30%.
We accomplish this milestone strictly through the implementation of operational efficiencies within our business and believe that our land light spec based model well positions us to continue delivering ROE near the top of the industry.
We are revising our full year revenue guidance to be in the range of $3 $9 billion to $4 1 billion and home deliveries to be in the range of 10750 211500.
Our impressive year to date results have us set up to achieve our full year objectives, and Kenny continued to deliver top line growth profitability expansion and improved operational performance into 2022 and beyond.
With that I'll open the lineup for questions operator.
Thank you at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Our first question comes from the line of Michael Rehaut with J P. Morgan you May proceed with your question.
Hi, This is Maggie on.
On for Mike.
Congrats on the quarter.
First question is on the gross margin performance I mean, obviously.
Really really strong performance there are over 800 beds.
On year.
I was wondering if on a year over year basis, you could talk about how much of that improvement was driven purely by price versus.
Other factors such as maybe any change in mix or increased efficiency our operational changes.
Maggie this is dale on a year over year basis.
Really not a difference from a mixed standpoint, so it's really a function of price increases that have occurred as well as trying to manage the increased costs that we've taken as all other homebuilders have seen.
But it's the vast majority of it relates to price increases that we've been able to take.
Yeah.
Got it thank you.
And second guests.
And I think you mentioned the cycle times are now at about three to five weeks, which is.
I think compare that's only about a week longer.
The extension last quarters have.
<unk> been managing well through the challenges and you talked about some of the ways that you are mitigating those but I was wondering if you've seen just as you look at the bottlenecks in the process have you seen any <unk>.
Improvement or worsening in many of those stages.
And what are kind of stages of the building process are you currently seeing the most challenges in.
Maggie this is rob it varies and it varies depending on kind of month by month, what we're seeing where some of the bottlenecks are we have not seen.
As a general statement a loosening of that.
But in terms of specific things like garage doors or one thing now paint windows have been our primary as well and so each month kind of it's a new thing, but we're not seen as a general statement a loosening of this.
Got it thank you.
Our next question comes from the line of Alex Rygiel with B. Riley you May proceed with your question.
Thank you and fantastic quarter gentlemen.
Couple of quick questions here first coming back to the gross margin conversation.
Do you feel like gross margins are now at sort of at a new normal level and understand that nothing is normal in the world.
But given your mix given your strong execution given your pricing discipline.
You feel like gross margins are at a new norm relative to maybe where they were a few years ago.
Hey, Alex this is Dave.
I don't know if we can call it a new normal.
Where nothing is normal like you said, but obviously, we've had very very strong gross margin performance over the past several quarters.
Looking at our backlog that in Q4 is probably going to land somewhere between Q2 and Q3 margins as a result of Q4, we've got probably the highest lumber pricing, we paid you're going to peak lumber pricing rolling through you've got additional supply chain related costs at the same time, we are trying to push ISP to offset some of that.
But I think right now for the next couple of quarters, you probably do have some improved gross margin performance over where we would have been a couple of years ago back in 2019 and 18.
That's helpful and then as it relates to the 40, new communities coming on stream in the fourth quarter.
<unk>.
What's the mix relative to sort of your traditional communities versus the century complete communities and then it looks like I believe your lot.
Inventory increased a lot in the mountain division, maybe touch upon that as well.
Yeah, I'll hit the community New community section ill, let Robb touch on the land side for the more than 40 communities that were looking to open in the fourth quarter.
That's going to be heavily weighted towards our century complete product line.
We had said last quarter that we thought that if we're going to be seeing community count growth. The majority of that is going to be coming out of our century complete brand given that that's where we are taking down our finished lots we're asset light.
Looking at third party developers to be vacant.
Bacon lots that were bringing online. So the majority of that those 40 lot 40 communities are going to be coming out of that line.
So in terms of your question Alex on the land for the Mountain region. I mean, if you really look at all of our regions. They all are up pretty significantly on a year over year basis.
But with that specifically on the mountain as we look at Colorado, We look at Utah, We look at Las Vegas, when we look at Arizona all of those markets. We have continued to increase our controlled lots and purchased lots in those markets.
Yes.
Thank you very much.
Thanks.
Our next question comes from the line of Deepa Raghavan with Wells Fargo you.
You May proceed with your question.
Hey, good afternoon, everyone.
Great quarter I Echo what.
Everyone's safe.
Quick questions two questions from me one is on growth outlook.
You're talking about community count openings getting delayed.
And I think your prior outlook.
For 2022 was somewhere in the low double digit growth vicinity.
Is that still valid at this point in time or do you have an updated guide for us to think about.
In terms of community count growth into next year.
Hey, David This is Dave.
I would say that that outlook on 22 is still valid, but you know we we.
We are dealing with a lot of the same land development delays that everybody else in the industry are dealing with and so we've had some community openings pushed from this year into next year, but as we look at the full year of 'twenty. Two we expect to be growing community count into those ranges and we think it'll happen sequentially as we go throughout the year as Dale said in the prepared remarks.
Okay.
That's good to know.
Any thoughts on pricing I don't know if I heard him.
David correctly did you mentioned, Dave that you did.
They take a pass on pricing, you're not necessarily increasing for the newer inflation.
Inflationary headwinds.
Can you clarify that.
And also I'd say.
In some of my feel check.
I did pick up that some builders have been taking a pass on pricing recently.
And just curious if you have seen that in your markets as well.
Deepa it it really if we go back a few months ago, we were taking price increases in every community that we had in every market.
Every few sales and now it's in a more typical.
Range of raising prices that it's down to the subdivision level and so we're really looking at it in terms of we're getting those price increases still wherever we can.
Just like in a normal market.
We're not raising prices in every subdivision all the time, where another subdivisions we were still raising them.
On a every few number of sales and so that's that's the type of market that we're in today. So we're continuing to raise prices.
Whenever we can we're doing it but the the price increases the frequency of them is not at the same rate that it was going back a few months ago.
Got it that's that's pretty similar to what they've been taken out from the rest of <unk>.
Well.
So.
My question.
Oh My God. It's just just when you think the buzzers cancer prices any more to the upside 31% is pretty robust.
Can you talk to some of the drivers to those and particularly I'm looking for sustainable dry Westwood thing.
Or if you don't think that 31% as like a pretty sustainable.
Annabelle.
The longer term outlook, what would be a more sustainable ROA for us to think about for for your mix going forward.
Hey, David This is Dave.
We're pleased with a 31% ROE this quarter and think that that'll be near the top of the industry is everyone's reporting and we think that as we look into 'twenty. Two you look at Q4 looks good going into 2022 with a strong <unk> pipeline.
Nearly 75000 lots of them will start to work through in 'twenty. Two we expect a strong demand backdrop. We're seeing demographics are positive we expect to be growing community count next year with all of the with all of that being said, we expect to be delivering.
The ROE next year.
Near the top of the industry again.
So we think that a lot of it's coming from our operations and and how we've got our balance sheet.
Structure it in the markets that we're in today.
Alright, that's.
I'll I'll I'll.
Talk to you guys offline. Thanks, so much for the color and Wade quite a leap.
Thank you.
Our next question comes from the line of Jay Mccanless with Wedbush You May proceed with your question.
Hey, good afternoon.
The first question I had could you talk about where you think the SG&A percentage is going to end up for <unk>, especially with the ramp youre talking about.
The community count moving into next year.
Well, if we're going to we're going to keep keep trying to managing that SG&A.
As long as we can we've had three successful quarters being sub 10% and I would expect that we continue to hang out somewhere in this range you know that very high single digits, maybe maybe we trip over 10% a little bit, but I think there were high single digits going forward.
And then.
It was.
Crescive commentary around being able to source land and some of these further out locales what type of pressure or competition are you seeing for land deals and those further out regions from from the single family for.
Operator, so we've heard or are trying to ramp up and put some money to work.
So we're desk J, we're definitely seeing competition from the four rent operators.
Some of the prices and some of the terms that they're doing.
Are out there in our opinion in.
In terms of some of the locations. If you look at our century complete business, where we're only buying finished lots the bigger challenge is getting the developers in the areas that are confident to put those finished lots on the ground for us on a just in time basis, and so that's where a lot of the effort is but for those particular air.
As we've been very fortunate with our team and as you see we've grown the century complete up to 15, just over 15000 lots.
That feels really good.
We're really doing that across the board is such a century complete but across all of our divisions. Our teams have worked very hard to get us in the right positions.
That's great.
And then the other question I had.
It looks like in terms of monthly.
Average closings per community decelerated from from five even in the second quarter down to about 4.2 in the third quarter.
Is the goal to get that back up closer to five as we think ahead to next year or mid fours pace kind of what you think is a comfortable run rate for for monthly average closings for the business.
Hey, Jade it's Dave.
From a closing perspective by community by month.
We're always going to look to close more of if at all possible, so where that number shakes out whether it's for two or five probably end up somewhere in between there going forward, but right now, we're obviously constrained by <unk>.
Supply chain challenges and everybody else says so that that helps bring that number down this last quarter. So I would expect that probably.
It stays in that lower range for another quarter or two but we are definitely look to push closings whenever possible to to monetize Atlanta that inventory.
Got it okay, great. Thanks for taking my questions.
Thanks Jay.
Our next question comes from the line of Alex Barron with housing Research Center. He May proceed with your question.
Hey, gentlemen, congratulations on the quarter.
Thanks Al I wanted to first.
Given your improvement in margins balance sheet returns.
How you guys are thinking about.
Potential share buybacks here.
Yeah, we have a share buyback program in place.
We have about $3 8 million shares remaining on it we've utilized it in the past we haven't for the past couple of years, but we have done it opportunistically previously.
Something that we'll look at going forward you know we have a strong balance sheet today, we've got solid results.
Incredible ROE right now and we will continue to look at that as an option for future investments.
Okay great.
And then in terms of the margins I mean, I think I heard you say that.
It's been largely a function of your spec strategy combined with the pricing increases so given where we sit right now.
Sure.
Lumber costs are the peak lumber costs that go into the year next quarter. So would it be reasonable to expect your margins to continue to.
The improvement in your view, given where lumber has been since the summer.
I think that if youre looking a little further out are your margins into 'twenty to have an opportunity that has some lumber benefits, but I would say that you know as we look into Q4, we're expecting margins probably to be somewhere between Q2, and Q3 margins given the peak pricing that we have looking ahead into 'twenty two without try to provide any earnings.
Numerical guidance you are going to have some benefits of lower lumber pricing thats now off its peak. So youll have some relief there, but we're also going to that we're also experiencing.
Inflation and all the other costs of building a home. So we'll want to see as we get into the January February March sales period, how those costs end up weighing against each other and if we have a net benefit or a net deduct.
Got it and then.
As it pertains to your century.
Complete business.
Now historically it used to be pretty low price point.
But given everything you know cost increases and demand supply imbalances.
Hum.
Are you guys still.
Well to find land that pencils too.
To keep the price point lower or are you finding that.
It's a little bit more difficult these days.
No we are still finding that land Alex and.
Again, we have about 15000 lots in the century complete owned and controlled our average price points around two O seven on closings in Q3, and when you look at that that's still a very affordable price point and we are able to source land that allows us to make margin.
In that line and compete in that line.
Okay, great well best of luck.
Thank you. Thank you thanks.
Yes.
Our next question comes from the line of Alan Ratner with Zelman and Associates. You May proceed with your question.
Hey, guys good afternoon, nice quarter, and thanks pallet detail so far.
First question, David and I apologize if I missed this but you know last quarter, you kind of flag the expectation for orders to be down which was really just a function of the timing of where your your spec inventory was under construction.
As you look forward to the fourth quarter now you've got community count that should inflect positively year over year.
Where do you see your inventory position today does it does it support.
A re acceleration year over year growth in order activity, assuming the demand environment stays where it is today.
Probably not yet I think that that inflection point will probably happen in early where look forward hopefully in early 'twenty, two but right now given our October experience are limited inventory that we have on the ground today timing of new community openings, we're probably tracking to be down about 10% year over year, when compared to Q4 of last year.
That's our orders our community sorry, I just want to clarify.
For orders got it Okay. That's really helpful. I appreciate that new contracts here.
Got it got it okay.
Second question that we heard from another builder they they talked.
Immediately they are probably maybe talking their own book to some extent, but they've said they've seen some some increase in incentives in peripheral relocations, which you guys, obviously build in those locations and you.
You mentioned the normalization of pricing, that's not necessarily the same as incentives but.
A I'm curious are you seeing that at all and in need of the Submarkets you build in any uptick in incentives as more spec inventory starts to slowly build up and be you know going back to the margin question earlier, you know about the sustainability I'm not necessarily looking for a longer term guidance here, but if pricing does normalize to something that we've seen.
More historically low single digit appreciation, let's say.
Why wouldn't margins revert back to that low 20% gross margin over time, I guess, what what's different now if you. If you don't have outsized price depreciation why should margins stay at this 25% plus level.
Thank you.
Well Alan on the first question with regard to incentives.
We're really not seeing that in any of our markets.
And whether it would be in our century complete business or century communities business. So.
That's not something that we're really experiencing today.
In terms of margin profile.
It's really kind of a function of where all of the input costs are and where the available sales prices are going to be and.
Over time.
And this business it always it always changes it goes up and it goes down depending on the circumstances as Dave said right now we're not.
Projecting that we're gonna have a big adjustment with regard to gross margins, but as circumstances change. It's certainly possible I know from our own perspective part of the benefit that we've had with regard to the increase in gross margins is.
We have obviously benefited from the increase in sales prices like a lot of our competitors have but we've also initiated a lot of efficiencies in our operation as we continue to take all of the companies that we've acquired over the years and continue to get more efficient out of them and.
We grow our scale that that gives us additional efficiencies and so that's also impacted our margins from a positive perspective, so even if things settle back down.
From a <unk>.
[laughter] standpoint, we wouldn't expect that our margins would go back down to where they were a number of years ago in our case.
Got it that's really helpful. I appreciate the insights there thanks a lot.
Great. Thanks Alan.
At this time, we have reached the end of the question and answer session.
We will now turn the line back over to Dale for some brief closing remarks.
Yeah.
Thank you all for your time today on behalf of our entire leadership team.
Like to thank all of our employees for their hard work and ongoing dedication to century as well as their commitment to providing exceptional service to our valued homebuyers. We're grateful for all that you do to.
To our shareholders and analysts on the call today. We appreciate your continued support and investment and look forward to speaking to you again next quarter.
Okay.
Okay.
[music].