Q3 2024 Century Communities Inc Earnings Call
Greetings and welcome to century communities third quarter 2024 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
Yeah.
Speaker Change: I will now turn the conference over to Tyler Linton Senior Vice President of Investor Relations for community.
Speaker Change: Century communities. Thank you you may begin.
Tyler Linton: Good afternoon. Thank you for joining us today for century communities earnings conference call for the third quarter 2024.
Tyler Linton: Before the call begins I would like to remind everyone that certain statements made during this call may constitute forward looking statements.
Tyler Linton: 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 phone.
Tyler Linton: Certain of these risks and uncertainties can be found under the heading risk factors.
Tyler Linton: Okay, that's supplemented by our latest 10-Q and other SEC filings.
We undertake no duty to update any forward looking statements. Additionally, certain non-GAAP financial measures will be discussed on this conference call.
Tyler Linton: Our next presentation of this information is not intended to be considered in isolation or as a substitute.
Tyler Linton: Information presented in accordance with GAAP.
Tyler Linton: Hosting the call today are delfin.
Tyler Linton: Chairman and co Chief Executive Officer, Robert Tuscan Co Chief Executive Officer, President and Scott Dixon Chief Financial Officer.
Speaker Change: On todays prepared remarks, well open up the line for questions with that I'll turn the call over to Dale.
Dale: Thank you Tyler good afternoon, everyone.
Dale: We're very pleased with our results in the third quarter, 2024, which positions us well for the balance of the year 2025 and beyond.
Dale: Our community count increased 21% year over year, and 15% sequentially to a new company record of 305 communities.
Dale: Deliveries of 2834 homes were a third quarter record and increased 25% versus the prior year quarter and by 8% quarter over quarter, while our home sales revenues of $1 $1 billion posted gains of 29% and 10.
Dale: Our scent respectively.
Dale: Our adjusted homebuilding gross margin of 23, 6% was roughly in line with second quarter 2024 levels of 24%.
While our SG&A as a percentage of home sales revenues declined by 100 basis points year over year, and 50 basis points sequentially as we continue to leverage our fixed costs.
Dale: Turning to sales our third quarter net new contracts of 2563 increased by 19% year over year.
Dale: We saw growth in all of our regions during the quarter with the west increasing by 36%.
Dale: Texas by 20% and century complete by 17% versus the prior year quarter.
Dale: Within the quarter, our orders increased sequentially in both August and September while our orders so far in October have moderated from September levels as buyers adjust to the recent increase in mortgage rates.
Dale: Looking out to the fourth quarter.
Dale: Typical seasonality holds we would expect our per community order activity to remain consistent on a sequential basis.
Dale: Our average sales price was $394000 in the quarter and remains among the lowest of the publicly traded homebuilders.
Dale: Given this price point and our focus on more affordable entry level homes. We think century is well positioned to benefit from any future declines in mortgage rates is lower rates should allow a greater number of people to both qualify for and feel comfortable purchasing a new home.
Additionally, nearly 100% of our homes were built on a spec basis in the third quarter.
Dale: And this approach along with our captive mortgage subsidiary allows us to maintain an appropriate supply quick move in homes and provide our homebuyers with certainty of financing at the low market interest rates through buy downs.
Dale: In the third quarter, 93% of our deliveries were priced below FHA limits and over 60% of the mortgages close by our captive mortgage company inspire home loans were FHA U S. T. A R V a loans they typically carry interest rates and down.
Dale: Payment requirements that are below those of conventional mortgages and help make homes more affordable.
Dale: The FICO scores of our homebuyers remained healthy and consistent with levels from the first half 'twenty 'twenty four and full year 2023.
Dale: Before turning the call over to Rob I want to briefly talk about our growth outlook.
Dale: At the end of July we completed our second homebuilder acquisition. This year with the acquisition of Anglia homes, which strengthened our position to a top five homebuilder in the Houston market.
Dale: Similar to our acquisition of landmark homes back in January.
This deal was consistent with our strategy of deepening our share in existing markets and the land light manner. While also increasing our go forward access to capitalization finished lots.
Dale: While we will provide more detailed guidance for 2025 deliveries with our fourth quarter 2020 for earnings.
Dale: Given the growth in our lot count and community count so far this year through both acquisitions and organic growth.
Dale: Starting in 2025, we think we are well positioned to drive delivery growth of 10% or more on an annual basis over the next couple of years.
We expect this growth to come from increasing our share within our existing markets and to drive improved margins and returns as we leverage the investments we have made at both the corporate level and throughout our markets at the local level.
Speaker Change: 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.
Rob: I wanted to provide some further details on the growth that we have seen in our lot in community count that as Dale mentioned positions us well for future growth.
Rob: On the land front, we ended the third quarter with over 80000 owned and controlled lots a 17% year over year increase.
Rob: Our controlled lots increased by 16% on a year over year basis and accounted for 55% of our total lots at the end of the third quarter.
Rob: Texas, the southeast and century complete accounted for 73% of our total lot count the highest percentage in our company's history and reflective of our strategy to grow our presence in these attractive markets that are benefiting from relative affordability strong employment and population.
Rob: Rose.
Rob: Yeah.
Additionally, the strength of our relationships with third party land developers across the southeast, Texas and in all of century complete markets. Further supports our land light strategy that is focused on acquiring finished lots.
Rob: We are also encouraged by the growth in our home starts and community count So far this year, which will support future growth in our deliveries in the quarters ahead.
Rob: In the third quarter, we started 3141 homes up 29% from the 2000 and 434 homes, we started in the prior year quarter.
Rob: Year to date through the end of the third quarter. We started 9824 homes, an increase of 25% versus the first three quarters of 2023.
Rob: We ended the third quarter with a community count of 305, the highest level in our company's history and up 21% on a year over year basis and 15% sequentially.
Rob: Similar to our lot count, Texas, the southeast and century complete accounted for 75% of our total community count up from 69% in the year ago period.
Rob: On a sequential basis in the third quarter, we added 39 communities with Anglia contributing 26 communities.
Rob: Given the growth in our community count so far this year, we now expect our year end 2020 for community count to be in the range of 300 to 320.
Rob: Which would represent year over year growth of 25% at the midpoint.
Rob: Turning to costs we.
Continued success in controlling our costs in the third quarter with our direct construction costs are homes, we started declining by roughly 1% on a sequential basis.
Rob: We have been able to maintain the stable direct construction costs by both leveraging and expanding our trade and supply base across our national footprint.
Rob: During the third quarter, our cycle times continue to improve by about one week on a sequential basis and remain in the four to five months pre COVID-19 levels.
Rob: Okay.
Rob: As expected our incentives on closed homes increased in the third quarter to an average of 700 basis points up from approximately 600 basis points in the second quarter.
Rob: As we discussed on our second quarter earnings call our incentives on new orders in the second quarter increased as mortgage rates moved higher and higher incentives on these sales flowed through to our deliveries in the third quarter.
Rob: Our incentives on new orders in the third quarter increased to approximately 800 basis points as we look to maintain an appropriate level of sales in the seasonally slower months of the year.
Rob: While Scott will provide more details on growth gross margins in his remarks, we are pleased with our performance on the cost side as our adjusted gross margins in the third quarter were roughly flat on a sequential basis, despite higher incentives in the third quarter.
In closing I want to highlight that century recently earned a spot on newsweek's list of the world's most trustworthy companies 2024.
Rob: Which following news earlier in the year that century had also been voted the highest ranked homebuilder for the second year in a row on Newsweek's list of America's most trustworthy companies 'twenty 'twenty four.
Rob: We could not be more proud of our entire team for building a company culture worthy of this recognition and want to thank all our team members and trade partners that made both of these achievements possible.
Speaker Change: I'll now turn the call over to Scott to discuss our financial results in more detail. Thank.
Scott Dixon: Thank you Rob in the third quarter of 'twenty 'twenty four pre tax income was $199 million and net income was $83 million or $2 59 per diluted share.
Scott Dixon: Adjusted net income was 87 million or $2 72 per diluted share.
Scott Dixon: EBITDA for the quarter was $132 3 million and adjusted EBITDA was $137 $1 million.
Scott Dixon: Sales revenues for the third quarter were $1 1 billion up 29% versus the prior year quarter on both higher deliveries and average sales price.
Scott Dixon: Our average sales price of 393800 increased by 3% on a year over year basis, and 1% sequentially.
Scott Dixon: Our deliveries of 3834 homes increased by 25% versus the prior year period you.
Scott Dixon: We saw growth across all our regions with the West Mountain, Texas and century complete all posting growth rates of over 20%.
Scott Dixon: At quarter end, our backlog of sold homes. It was 1580 <unk> valued at 671 4 million with an average price of $424900.
Scott Dixon: While the average price of our third quarter backlog was above the average sales price of our third quarter deliveries. This difference is largely due to mix, including the percentage of century complete homes and we continue to expect our average sales price for full year 2024 deliveries to be approximately $390000.
Scott Dixon: In the third quarter adjusted homebuilding gross margin percentage was 23, 6% compared to 24% in the prior quarter.
Scott Dixon: Sequential change was largely driven by a higher level of incentives on closed homes.
Scott Dixon: Homebuilding gross margin was 21, 7% versus 22, 5% in the prior quarter. Additionally.
Scott Dixon: Additionally, purchase price accounting reduced our third quarter 2024, gross margin by 30 basis points versus 10 basis point reduction in the second quarter.
Scott Dixon: We expect purchase price accounting to have a similar impact on our homebuilding gross margins in the fourth quarter with the impact trailing off through the first half of 2025.
Scott Dixon: SG&A as a percent of home sales revenue was 11, 9% in the third quarter compared to 12, 9% in the year ago period, we achieved this reduction by controlling our fixed levels of G&A, while growing both our deliveries and average sales price for 2024, we expect our SG&A as a percent of home sales.
Scott Dixon: Revenue to decline on a year over year basis with further decreases in 2020 time as we continue to leverage the investments we have made at both the corporate level and in our divisions. There should support the delivery growth we expect over the next couple of years.
Scott Dixon: Revenues from financial services were $20 1 million in the third quarter as compared to $23 6 million in the prior year quarter.
Scott Dixon: System with last quarter margins on mortgages originated were impacted by a more competitive market conditions.
Scott Dixon: Additionally, revenues were impacted by a quarterly mark to market adjustment for our servicing portfolio.
Scott Dixon: <unk> also continued to make investments in people and systems to support the growth of the business.
Scott Dixon: In the third quarter, our tax rate was 24, 5% compared to 25, 8% in the prior year quarter.
Scott Dixon: We expect our full year tax rate for 2024 to be in the range of 24, 5% to 25%.
Scott Dixon: Our net homebuilding debt to net capital ratio was 32, 1% compared to second quarter 2024 levels of $28 one.
Scott Dixon: The largest driver of this change was our acquisition of English.
Scott Dixon: And continued growth in our homes under construction, which increased by 12% on a sequential basis and will support a higher level of deliveries in the fourth quarter and throughout 2025.
Scott Dixon: During the quarter, we maintained our quarterly cash dividend of 26 cents per share. We grew our book value per share to a record $81 29 a.
Scott Dixon: A 13% year over year increase and ended the quarter with $2 5 billion in stockholders equity.
At September 30 to support our growth, we had $605 $9 million in total liquidity.
Scott Dixon: Additionally, we had no senior debt maturities until June of 2027, providing us ample flexibility without a beverage manager.
Scott Dixon: Now turning to guidance.
Scott Dixon: Given our progress through the first three quarters of the year, we are increasing our guidance for the full year 2024 deliveries to be in the range of 10900 to 11300 homes in our home sales revenue to be in the range of $4 three to $4 $4 billion.
Scott Dixon: In closing demand for affordable new homes remains healthy in the decline in mortgage rates from the highs. This past spring has led to some improvements in affordability.
Scott Dixon: We are successfully managing our costs and cycle times and have seen strong growth in our deliveries and community count So far this year, which position us well for further growth in 2025 and beyond.
Scott Dixon: With that I'll open the line for questions operator.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and he would like to withdraw your question. Please press star and then two.
Our first question comes from Carl Reichardt with <unk> T. I G. Please go ahead. Thanks.
Carl Reichardt: Hey, guys nice to talk to you I appreciate the time and so just one quick question on the increase in option lots. That's about let's see 6100, I think or so additional option lots now relative to last year, our control, but what percentage of those are sort of finished lot option contracts with traditional third party developers, especially.
Speaker Change: <unk> related to a complete versus option on dirt youre going to self developed essentially put on balance sheet or land bank deals.
Speaker Change: It's really a mix of all of the above.
Speaker Change: Carl.
It wouldn't be predominantly in one of those buckets, but it's really a mix of all of the above.
Carl Reichardt: So sort of split evenly and generally speaking that's how I should think about it.
Speaker Change: Yeah.
Carl Reichardt: I think that's a good way to look at it.
Speaker Change: Great and then I had a bigger picture question on the long term 10% growth.
Speaker Change: Concept strategy and goal.
So you're talking about taking market share it and obviously with the store count growth you've got near term, if you're growing stores and absorptions stay the same faster than the market. Then that's a share gain as you think about it who do you think you can take market share from and I think specifically in the markets, where you've got a lot of other public peers do an moe and stuff.
Speaker Change: Rooms pretty small there how what is the strategy for actual share gains in those kinds of markets and do you think there might be especially based on the what kind of mix shifts away from the west towards Texas and the east as you go.
Speaker Change: Well I think the first place it's going to come from is from the private homebuilders are when we look at the markets that were in well.
Speaker Change: We have a lot of public peer competition, there's a lot of private homebuilders and as we've seen the private homebuilders are having challenges competing with the public's both from a standpoint of.
Speaker Change: Vale ability of lending capital just a variety of different constraints that they have.
Speaker Change: Reflected by the fact that we've done two acquisitions this year of private homebuilders, which allowed us to and Nashville, and Houston increase our market share. So I think that's the the primary area that we see that we can pick up additional growth.
And when we look at it.
Speaker Change: You highlighted our community count growth so when we look at that and our increased.
Speaker Change: Land portfolio that we have in terms of our pipeline, that's really where we see our growth coming from.
Speaker Change: And just to clarify does the 10% presume additional acquisitions beyond what you've done or is it all organic as you as you think about that strategically.
It's primarily organic when we look at acquisitions at this point well, we're always looking at different opportunities.
Speaker Change: It's primarily to increase our share within an existing market now with that said, we've we've done nine acquisitions over our history as a public company.
Speaker Change: So where we would look at.
Speaker Change: Opportunities as they come around but we're very happy with our geographic spread as it currently exists. So really our goal is to get deeper in each of our markets and increase the leverage that we get from that.
Speaker Change: Great really appreciate the color. Thanks Thomas.
Speaker Change: Thank you.
Speaker Change: And the next question comes from Ken Zenner with Seaport Research partners. Please go ahead.
Ken Zenner: Afternoon, everybody.
Speaker Change: Good afternoon.
Ken Zenner: Could you repeat what your start number was please.
Speaker Change: There are candidates and it's in the low three thousands.
Speaker Change: For the quarter.
Speaker Change: That number will grab it here.
Speaker Change: Okay.
Speaker Change: Awesome.
Speaker Change: Yeah, Yeah. It was a 31 58 and then through.
Speaker Change: The nine months ending September 30, it was almost 10000 it was 9824.
Speaker Change: Okay, great. Thank you now.
Speaker Change: The.
Speaker Change: Strategy of production there.
Speaker Change: Spec building.
Speaker Change: Running above orders, which obviously.
Hills up your inventory, which your closings come from.
Speaker Change: Is that a level of starts versus orders.
That we've seen in the last few quarters that we should.
Speaker Change: Expect to persist over the next let's say quarter or two could you give us some guidance there.
Speaker Change: Your thoughts as to your.
Speaker Change: Starting above borders.
Scott Dixon: Yeah, Ken this is Scott.
Scott Dixon: I'll take that one I mean generally speaking is as you know Dale alluded to and we discuss from kind of a longer term perspective with what we are looking from a growth.
Scott Dixon: We generally will be starting.
Scott Dixon: Over periods of time in excess of of closings and especially as it is a spec builder will be starting.
In excess of sales from quarter to quarter that that that certainly that cadence.
Scott Dixon: May vary I think the opportunities that we saw.
Scott Dixon: Throughout this year supported us on a community by community level too.
Speaker Change: Are those units in.
Speaker Change: And quite frankly put us in a good position to finish out the year and start 2025 strong.
Speaker Change: Excellent and now.
Speaker Change: I do appreciate your commentary around the incentives.
Speaker Change: Which I think you said were 800 basis points could you and I apologize being new.
Speaker Change: But could you give us the context for that those incentives.
Speaker Change: What it was last quarter relative to that 800, and then the split.
Speaker Change: Inside that is between let's say assume price reductions and mortgage buy downs. Thank you very much.
Speaker Change: Sure absolutely Ken So Q Q2 incentives on orders ran around 700 basis points.
Speaker Change: Q3 incentives on orders route averaged around 800 basis points.
Speaker Change: Both those quarters generally split approximately 50 50 between a true kind of mortgage incentives as well as price incentives.
Speaker Change: That split it's been relatively consistent.
Speaker Change: So that for the last three to four quarters.
Ken Zenner: Thank you.
Speaker Change: Absolutely.
Speaker Change: And the next question comes from Alex Rigel with B Riley FBR. Please go ahead.
Alex Rigel: Quick follow up on the incentives question incentives on orders in the second quarter were up 100 basis points sequentially. Yet you reported adjusted gross margin was only down 40 basis points was driven by lower rates later in the quarter.
How might we think about adjusted gross margins as we model it for the fourth quarter.
Alex Rigel: Yeah.
Alex Rigel: Theres a handful of items that that obviously you're going into.
Alex Rigel: The puts and takes on.
Alex Rigel: On the gross margin side. So generally speaking the reduction on adjusted gross margin that you saw quarter over quarter.
Alex Rigel: The 40 basis points was was really driven by the incentives there there are some other items in there.
Alex Rigel: That offset but none of them are particularly material from and then when we step back and look at it.
Alex Rigel: Larger you know for a little bit more macro perspective.
From where we sit currently on the margin front, we feel very stable from a cost perspective, our <unk> costs are or had been relatively consistent Q4, we anticipate land cost to be fairly flat with Q3.
Alex Rigel: Had some commentaries on the direct side in our in our prepared remarks that we continue to see some incremental.
Alex Rigel: Savings on the direct side, so really the majority of the driver and in the variability in the cost or excuse me on the margin side.
Alex Rigel: Will come from incentives, obviously not necessarily a one to one from a basis point, but those directionally are the main driver.
That's helpful and then.
Speaker Change: I appreciate the.
Speaker Change: Longer term kind of growth view of at least 10% in deliveries.
Speaker Change: Anything notable in the new communities that were opened more recently either in the market. They are in the product that's being sold or maybe the size of the communities themselves.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: We've had a focus as a management team to continue to incrementally increase the number of lots per community.
A little bit more run rate, especially on our century complete side, we do continue to do that but nothing from a.
Speaker Change: A significant driver from the mix of our communities and our product of our communities.
Really from the target consumer that that we're going after them within any of our markets. So I don't know if there's any specific color or items that I would point out.
Speaker Change: Regarding the bad debt.
Speaker Change: The mix or nature of our communities that are being opened period over period.
Speaker Change: And lastly, any notable change in your cancellation rate in the quarter.
Speaker Change: No cancellation rate has continued to be very consistent it's not something that we specifically disclose but it is one of the benefits of our spec homebuilding model, especially with our buyer profile.
Speaker Change: To ensure that they understand the.
Speaker Change: Timing of the home delivery as well as as well as the financing net.
That they're getting from our captive mortgage subsidiary.
Speaker Change: Both of those items have kept our capture rate.
Speaker Change: At very significantly low levels historically.
Speaker Change: Thank you very much nice quarter.
Speaker Change: Absolutely. Thank you.
Speaker Change: The next question comes from Alan Ratner with Zelman and Associates. Please go ahead.
Speaker Change: Hey, guys. Good afternoon. Thanks for the time and then it goes to Allentown.
Speaker Change: Okay.
Speaker Change: Question I think it was valid that mentioned.
Speaker Change: The order pace in October and I, just wanted to clarify I think what I heard was based on where you are at so far if the market kind of follows normal seasonality you would expect.
Absorptions to be I think you said stable or similar.
Speaker Change: <unk> I wasn't sure if you were referring to <unk> versus <unk> or just kind of steady through the remainder of the quarter and then I have a follow following my clarification question to that.
Speaker Change: But if that reference was for the quarter as a whole.
Speaker Change: So in terms of the commentary.
Speaker Change: Yeah.
Speaker Change: Q4 versus Q3, when we when we look at it.
Speaker Change: September was as I said in my prepared remarks of the of the three months in the quarter was the strongest.
Speaker Change: We've seen some seasonality in October coupled with some higher rates that.
Speaker Change: Probably had some impact on that as well, but when we look at the quarter as a whole we expect absorptions to be similar in Q4 to what we experienced over Q3.
Speaker Change: Okay.
Speaker Change: So you know just to put some numbers on this because it's a little tricky when your community count is kind of rising at the rate. It is and I know you had the acquisition mid quarter. So I wanted to I just want to make sure I'm thinking about it. The same way you are so you ended the quarter with over 300 communities, but your average community count for <unk> was closer to 285, if I take point over.
Speaker Change: Point, so that's roughly a three per month sales pace. So is that what your guidance or not guidance, but thats, what youre thinking on the 300 plus can be I think that I think that makes sense I mean, when you look at it the since we count our communities.
Speaker Change: At the end of the quarter and we didn't have anglia for the entirety of the quarter.
Speaker Change: You did a bit of a distortion there so the other thing on the increase related to the angry acquisition.
Speaker Change: We look at it of the 26.
Speaker Change: New communities, we picked up about a third of those are nearing closeouts.
Speaker Change: But even with that we expect that.
Speaker Change: Our.
Q4, ending community count will still be above what we had at the end of Q3.
Speaker Change: Great very helpful. Thank you for the clarification, there and then if I can ask another one just kind of geographic trends, what youre seeing obviously, you're pretty diversified from a geographic standpoint lot going on.
Speaker Change: The storms in the southeast I didn't really hear you bring that up at all in terms of any potential impact there, but any kind of winners and losers worth highlighting across your footprint and any impact from the storms either on orders closings margin et cetera in the fourth quarter.
Speaker Change: So relating to the storms Allen.
Speaker Change: From a closing perspective, we really didn't lose that many closings generally speaking from the storms it probably.
Speaker Change: Slowed down slightly what our sales were towards the end there of the quarter, but again nothing material by any means so all in all you know from our standpoint, it really wasn't a negative effect you know thankfully from a personnel standpoint, all of our employees were safe.
Speaker Change: We didn't have any damage.
Speaker Change: Any material damage to any houses and the way the homes are built now in those areas today. The way. They are raised stop there out of the floodplain. So it's really generally the older homes that are having the issues and how the newer homes are built. So we are it's fair very well so when I look at it that way.
Speaker Change: It really wasn't that big of a.
Speaker Change: The impact to us.
Speaker Change: Great good to hear thanks, a lot.
Speaker Change: The next question comes from Jay Mccanless with Wedbush Securities. Please go ahead.
Speaker Change: Hey, Thanks for taking my questions I guess, the first one could you guys disclosed.
Speaker Change: Either on a unit basis or a dollar per dollar basis, what <unk> contributed for closings or closing revenue and <unk>.
Speaker Change: Sorry, Jay was that specific to Anglia.
Speaker Change: Yes, England.
Speaker Change: They injected either closings or closing revenue for the quarter.
Speaker Change: Yeah. They were they were relatively small impacts.
Speaker Change: Delivery perspective less than 3%.
Speaker Change: Again, the timing of the time of the acquisition of Anglia.
Speaker Change: And us working through transition.
Speaker Change: Got you know system conversions and full integration will be done by the end of this month so for the quarter itself. It was a relatively minor.
Speaker Change: Driver on the closing fronts.
Speaker Change: And then Scott you were talking about some of the puts and takes on gross margin what type of impact if any should be.
Speaker Change: We expect from purchase accounting and <unk> with the Anglia deal.
Scott Dixon: Yeah, Great question, because there will be there there will be.
Scott Dixon: A drag is as we move move forward in Q4 as well as into early 2025. So Q Q3 itself was 30 basis points.
Scott Dixon: I would expect that to be 30 to 50 basis points potential.
Scott Dixon: Potentially in Q4.
Scott Dixon: And maybe the same in Q1, and then starting to trail itself off in Q2 of next year as we work through all of those units.
Speaker Change: Right. That's helpful. Thank you.
Speaker Change: And then the other question I had just maybe I'll also one more question on the Anglia could you maybe talk about what type of annual closings they'd had in 'twenty three or 'twenty two.
Give us a sense of what the run rates that this could be.
Speaker Change: Yes, I mean, there when you look at them.
Speaker Change: There.
Speaker Change: They were in business for quite some time.
Speaker Change: And in the Houston market is a is a private builder consistently they were doing between four and 500 closings a year.
Speaker Change: Interesting there their business model was focused on.
Speaker Change: <unk> finished lots they didn't develop their own lots.
Speaker Change: And they were primarily either buying them from developers on a standalone basis or in master planned communities that was part of the appeal from our standpoint is we we got a fairly robust pipeline of additional lots.
Speaker Change: And then the.
The controlled lots are ones that are coming to us and our finished nature. So.
From our standpoint, it allowed us to get deeper in Houston, which is a market that that we like a long term basis and to be able to pick up a pipeline of.
Speaker Change: Of finished lots.
Speaker Change: And not have to do development on an ongoing basis is something that we looked at as a very positive addition to our operation there.
Speaker Change: And sorry, I did have one more question. So the net debt to cap is moved from call. It 29% at year end 'twenty three over 38% now.
Speaker Change: Is this the Max we should expect near term or.
Speaker Change: Maybe talk to us about.
Speaker Change: Where the upper bound is on that and should we see that start to work down over time as you move through some of these assets by landmark in English that you've acquired.
Scott Dixon: Yes, Jay this is Scott.
Scott Dixon: Uh huh.
Scott Dixon: Really consistent kind of thought process from our perspective on on the leverage we've you know we've all.
Scott Dixon: We said in that.
Scott Dixon: 30% to 35% range is something that that we would be comfortable doing.
But that we likely would end up working it down I think you'll see I think you'll see as we monetize makes session Anglia.
Scott Dixon: And some of the other investments that we have done during the quarter from a weight perspective.
Scott Dixon: But as we finish the cash cycle.
Scott Dixon: From a homebuilding perspective that that net debt to cap likely comes down by year end.
Speaker Change: Okay, great. Thanks, everyone.
Thanks.
Speaker Change: And the next question comes from Michael Rehaut with J P. Morgan. Please go ahead.
However on this Andrew on for Mike I appreciate you taking the question.
Speaker Change: I really appreciate those.
Speaker Change: Long term targets you put out.
Speaker Change: I would love to hear any assumptions or thoughts you have towards potential cost increases into next year.
Speaker Change: It's a little it's a little early to fully dial that in.
Speaker Change: For all of next year, especially on our century complete side, we're still able to.
Identify contract for.
Speaker Change: Finished lots that are can be incremental into next year is closing.
Speaker Change: I can tell you that were.
From that the immediate future into Q4, I'm fairly consistent and stable from a loss cost perspective.
Speaker Change: That looks like it will remain in the early Q1, and then generally speaking we would anticipate what I would call normal cost inflation on the land side as we start to get into the back half of 'twenty five.
Speaker Change: Got it I really appreciate that.
Then you know with what do you guys get any warrants at Houston, and just kind of.
The <unk>.
Speaker Change: How people are viewing, Texas, and Florida right now in terms of the uptick in inventory I'm, just curious you've been seeing.
Speaker Change: Seeing any increased competition on your side in your specific markets.
Speaker Change: Well the Texas in General has always been a competitive market. There's there's a lot of public peer competition. That's there one of the advantages that we look at as being being larger in Houston for example.
It's a very large market on its own.
Speaker Change: Having more scale there allows us to leverage some of our fixed costs and so when we when we look at that.
We see it as just being a net positive for us.
Speaker Change: You know, it's just there's a lot of positives about the Texas market.
Speaker Change: It gets competitive from time to time and in today's world, It's it's a bit competitive.
Speaker Change: When we look at Florida, we don't have a tremendous exposure to Florida.
Speaker Change: I think we've got about 10% of our closings are coming out of Florida between our two brands are our century communities brand is in Jacksonville.
Speaker Change: And our century complete is spread throughout the state. So when we look at that there's there are certain areas that we see that are softer than others.
Speaker Change: Look at Jacksonville, where we probably have the largest concentration since we have both century communities and century complete that seems to be holding up fairly well for us.
Speaker Change: Thank you a lot for all that color I'll pass it on.
Speaker Change: Thank you.
Speaker Change: The next question comes from Alex Barron with housing Research Center. Please go ahead.
Yes. Thank you gentlemen, I wanted to focus on an angry homes you know given that it's a.
Alex Barron: Fairly sizable number of communities do they continue to operate their current products.
Speaker Change:
Speaker Change: Strategy et cetera are you guys.
Speaker Change: Like that change you got to make it more like the way you guys operate or is it like a phase.
Speaker Change: Transition if you will what what would we expect there.
Speaker Change: Yeah, it's a phased transition, but we will utilize our product library going forward, but it's a phased transition depending on how much runway is left in a particular community whether it makes sense to go in and change the product now or just wait for new communities.
Okay. So basically it was some sell out the new ones would be more along the lines of the way you guys operate.
Yes, yes.
Speaker Change: Okay, but you know there and that's that's truly just a product thing Alex.
Speaker Change: And the value engineering, we have in our plans and the efficiency, but and consumer acceptance, but when you look at it their business model was very similar to our entry level business model and then buying as Dale mentioned only finished slots you know it just was a really great fit for us.
Speaker Change: Right and in terms of sales pace would you expect the sales pace that it had been running at two could be similar or do you guys have something you would do differently to increase it.
Speaker Change: Well, we always hope to increase sales pace.
Speaker Change: I think for right now.
I think we would just say it would be potentially similar.
Speaker Change: Okay, great well, thank you and best of luck.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Dale for any closing remarks.
Dale: To everyone on the call. Thank you for your time today and interest in century communities. We're very pleased with the solid growth. We've seen this year and excited by our outlook for the balance of the year 2025, and beyond we look forward to speaking with you again at the beginning of next year.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.