Century Communities - Earnings Call - Q4 2020

Transcript

Speaker 0

Greetings and welcome to the Century Communities Fourth Quarter and Full Year twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Hunter Wells, Vice President, Investor Relations.

Speaker 1

Good afternoon. Thank you for joining us today for Century Communities' earnings conference call for the fourth quarter and full year ended 12/31/2020. 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. 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 ks as supplemented by our other SEC filings.

Our SEC filings are available at www.sec.gov and on our website at www.centurycommunities.com. The 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.

Hosting the call today are Dale Franceskin, Chairman and Co Chief Executive Officer Rob Franceskin, Co Chief Executive Officer and David Messenger, Chief Financial Officer. Following today's prepared remarks, we will open up the line for questions. With that, I will turn the call over to Dale.

Speaker 2

Thank you, Hunter, and good afternoon, everyone. We are pleased to report that in 2020, we achieved multiple milestones, including our eighteenth consecutive year of profitability, dollars 3,200,000,000.0 in total revenues, a 25% increase 10,822 net new contracts, a 38% increase and 9,453 home deliveries, an 18% increase. These results again demonstrate our ability to achieve consistent double digit revenue and delivery growth, reflecting the power of our business model and the appeal of our geographically diverse footprint as we deliver new homes across the country's most active housing markets. In the fourth quarter, we generated record home sales revenues of nearly $950,000,000 a 22% increase, while increasing home deliveries by 14% to a company record 2,826 homes. During the quarter, we also increased our net new contracts by 45% to a fourth quarter record of 2,566 homes.

Our sales pace accelerated through the 2020 and into the beginning of twenty twenty one, with net new contracts for December increasing 54% and January increasing 77%, reflecting not only the resiliency of demand, but our ongoing sales momentum into 2021. We also made significant progress in growing our backlog, ending the year with 3,439 sold homes with a value of nearly $1,300,000,000 More importantly, we drove significant profitability expansion, achieving our highest pretax income for both the fourth quarter and full year, and more than twice the prior year periods. Net income for the quarter and year also increased 7282% respectively, to $92,000,000 and $2.00 $6,000,000 Our cash flows continued to increase in the fourth quarter, as reflected by an 87% increase in EBITDA to a company record $145,000,000 Our net homebuilding debt to net capital ratio also improved to 27.2, down 1,800 basis points from 45.2% in the fourth quarter last year, and a five seventy basis point sequential improvement compared to 32.9% at the end of the third quarter. We also achieved gross margin and SG and A leverage expansion. Adjusted homebuilding gross margin percentage increased sequentially 300 basis points to 23%, primarily due to improved home price appreciation across our markets, as well as a reduced reliance on incentives.

SG and A as a percent of home sales declined 80 basis points to 10.1%, the lowest in our history. This was down from 10.9% in the fourth quarter of last year, and a sequential improvement of 120 basis points from the third quarter. In 2021, we expect to see continued margin and leverage improvement as we realize further operational efficiencies across our organization. Since going public in 2014, we've successfully expanded and diversified our footprint, primarily through acquisitions, while transforming our competitive positioning to become one of the largest homebuilders in the country. We've invested deeply into our platform to advance, synergize, and better position Century to thrive, not only in the current environment, but future housing cycles as well.

Over the last two years, our focus on completing the integration of our past acquisitions, improving the visibility into all aspects of our business, and generating efficiencies from our growing scale and national platform have resulted in increased returns on equity. We believe that over the course of the next few years, we can further improve upon this achievement. In early twenty twenty, we took prudent actions to strengthen our balance sheet by reducing expenditures, increasing liquidity, and accelerating asset turns in order to provide us with maximum flexibility to manage our organization and capitalize on opportunities as they arise. We are better situated than ever before to expand our scale and scope, accelerate growth, and generate expanded profitability. Before the full effects of the pandemic were felt last year, housing demand was solid and picking up pace.

At that time, there were already multiple demand drivers and industry tailwinds at play. We believe these trends are real and have considerable staying power. The primary factor is and continues to be record low interest rates. In January, the Federal Reserve reiterated its expectation to maintain low rates, while the Mortgage Bankers Association recently echoed a similar conviction. Recently, US mortgage rates even hit a thirty year low of 2.65%, compared to three point six four one year ago.

Additionally, there exists a severe housing shortage across The US at all price points. This trend continues to intensify. Across the majority of Century's markets, the estimated months of supply decreased on average by approximately 30% from the third quarter to the fourth, reflecting an average supply of one point two months, and well below the national average of two point three months. In terms of demographics, The US population of millennials represents a key home buying group that is expected to grow incrementally over the next decade. An increasing number of baby boomers are also entering retirement, taking advantage of recent gains in home price appreciation, and either downsizing or refinancing their homes, both of which provide additional investable dollars to help grow the overall economy.

Looking ahead to 2021, we are emboldened by these supported tailwinds which will not only propel incremental housing demand, but help spur expanded home price depreciation. We continue to raise prices across all of Century's markets throughout the fourth quarter and into January. We believe low mortgage rates, increased personal savings, and improved buyer credit profiles will allow us to increase price while maintaining affordability for buyers. Across our entire product portfolio, we are strongly positioned within the attractive affordable new home category, with nearly 80% of our twenty twenty deliveries qualifying for FHA loans. The FHA recently increased their floor and ceiling loan limits by approximately 7%, helping expand our pool of potential buyers, support our strategy to attract first time and move up homebuyers, and drive accelerated growth for Century Complete.

Over the past several years, we have built a strong foundation to solidly propel Century to even greater success. Our goal is to deliver our customers high quality, beautiful homes at affordable prices, while creating long term shareholder value. Our national footprint, robust systems, and talented employee base competitively position us to grow our presence in existing markets as well as future ones. We were recently named one of Fortune's 100 fastest growing company and one of America's most trusted homebuilders, outperforming nearly all of our peers. For this honor, as well as our success, we thank our exceptional team of 1,400 employees that share our drive, our passion, and our customer first philosophy.

I'll now turn the call over to Rob to discuss our business in more detail.

Speaker 3

Thank you, Dale, and good afternoon, everyone. Given the strength in market condition and to support our future growth expectations, we have devoted considerable energy to expanding our land pipeline and more deeply penetrating local markets. We expect significant future growth to come from our existing markets, and we are heavily focused on growing our local market share. As part of executing on this growth plan, we grew our year over year land holdings by 26%, ending the year with nearly 50,000 owned and controlled lots. In the fourth quarter alone, we added nearly 8,000 gross lots and over 5,000 lots net of home closings.

In keeping with our land light operating strategy, our mix of controlled lots versus owned improved to 58% compared to 52% at the end of twenty nineteen. We continue to be disciplined in our land and lot acquisition strategy and still do not include home price appreciation into our underwriting assumptions. Last month, we announced our organic expansion into the Phoenix Metro Area with our Century Communities brand. Previously, only our Century Complete brand had a presence in Phoenix. Near term, we plan to break ground across multiple planned communities consisting of over 1,700 home sites, which will be dedicated to our legacy brand.

This extension further diversifies Century's offerings in this attractive, high potential market where new home demand is at an all time high. In 2020, Phoenix was a top 10 U. S. City for inbound growth. We're excited to fully enter the Phoenix Metro Area and expect to begin delivering homes under the Century Communities brand in the third quarter of twenty twenty one.

Arizona will now be the fifth state in addition to Texas, Georgia, North Carolina, and South Carolina, where both our brands have a presence. Because this two brand strategy enables Century to have a bigger presence within a market, we can more efficiently buy land as a single large deal can provide lots for both our Century Communities and Century Complete brands. Additionally, given we already have personnel in place with local market expertise, we have immediate access to land opportunities and can rapidly scale and turn our invested capital more quickly. Across our footprint, we see additional opportunities for organic expansion by adding a second brand to help further our growth within existing markets. Another aspect of our operating strategy is the preference for building move in ready over built to order homes.

In the fourth quarter, 83% of our total deliveries were built on spec. We see several advantages in building spec homes, particularly in a high demand environment such as what we are experiencing today. The construction process is typically faster, more efficient, and less prone to closing delays. Typically we can also obtain better trade pricing due to this even flow approach. And the timeframe between sale and delivery can be materially shortened, allowing us to more appropriately price the house and maximize our margin potential.

Across our two brands, we have a high concentration in the attractive entry level segment, with approximately 80% of our total deliveries representing entry level buyers. Additionally, of the 9,453 homes we delivered over the past twelve months, 88% of those were sold at less than 500,000 Even with this focus on delivering homes at the lower price points within a particular market, we sell to many move up homebuyers and view this as an opportunity to further expand our business. Given the increasing number of millennial and other buyers, we expect this trend to further drive new home demand at all price points. Over the past year, we have all witnessed a move to a more virtual world. In keeping with this trend, we've continued to evaluate new opportunities and implement new tools to improve the customer experience for our homebuyers.

Not only did Century's total Web traffic increase 60% compared to the prior year, but our team has embraced this as an opportunity to demonstrate the meaningful potential of online homebuying. We recently launched a new Web site to better highlight and further simplify our online home buying process. A key component of this redesign was to improve the functionality of the mobile experience of our site, as many prospective buyers now begin their home purchase journey from their smartphone. Our new mobile friendly site brings our two brands under one domain, allowing homebuyers to search for either brand in prime locations throughout The United States. We've also made it easier to get pre qualified in minutes for a loan, or to secure a home online with a click of a Buy Now button.

We believe our investments into digital tools and capabilities, mobile friendly applications, and a more simplified online experience will be reflected in our ongoing success in 2021 and beyond. Our history of strong, profitable, and consistent performance is compelling evidence that our business model, operating strategy, strategic investments, and efficiency initiatives are working. Looking ahead, we expect market conditions to remain favorable into the spring selling season and throughout the balance of the year, enabling us to further grow our business, strengthen our competitive positioning, and in turn, drive increased returns and long term growth for our shareholders. I will now turn the call over to Dave to discuss our financial results in more detail.

Speaker 4

Thank you, Rob. During the fourth quarter of twenty twenty, net income increased 72% to a record $91,800,000 or $2.72 per diluted share compared to $53,400,000 and $1.63 in the prior year quarter. Full year net income increased 82% to $206,200,000 with earnings per diluted share rising to $6.13 compared with $113,000,000 and $3.62 in the prior year. Fourth quarter pretax income was $121,200,000 an increase of 125% and a fourth quarter record, while pretax income for the full year increased 104% to $270,200,000 the highest in the company's history. Home sales revenues for the fourth quarter increased to $946,800,000 an increase of 22% compared to $775,700,000 in the prior year quarter.

Total revenues increased 25 to a record $987,800,000 This improvement in revenues propelled by a 14% increase in deliveries to a record of 2,826 homes. In the fourth quarter, net new contracts across our divisions were up 45 to 2,566 homes, a fourth quarter record with our Mountain Region outpacing all other divisions and demonstrating the substantial broad based demand we are currently witnessing. We improved our year end backlog 66% to 3,439 homes valued at $1,300,000,000 In the past, within our Century Complete brand, while some homes would be built on lots within communities similar to our legacy brand, a number of homes would also be built outside of communities on scattered lots. However, as the brand has matured, entered new markets, and expanded its land pipeline, we've significantly reduced our reliance on scattered lots and increasingly build the majority of homes in traditional subdivisions or in pods clustered together which function more like a traditional community. As such, beginning this quarter, we'll provide a community count number for the Century Complete brand.

In 2020, our total community count was 198 communities, of which 102 communities were part of the Century Complete brand. This was down from two twelve communities in the prior year. This decrease was an expected consequence of us selling through more communities than we opened as we aggressively worked to meet accelerated demand as well as our pause on land acquisition and development for a period of time in the beginning of the second quarter given the uncertainty we were experiencing at the time. Our team has been intently focused on building our land pipeline and in the coming year plan to open a variety of communities across all of our markets. Looking ahead, we expect to end 2021 with total community count increasing potentially as high as 10%.

Adjusted homebuilding gross margin percentage was 23% compared to 21% in the prior year quarter. On a sequential basis, adjusted homebuilding gross margin percentage improved 300 basis points from the previous third quarter. Homebuilding gross margin improved 20.8% compared to 18.2% for the same period last year and 17.5% in the third quarter of twenty twenty. We expect to continue to see year over year improvement as a result of our division's increasing price and reducing reliance on incentives in order to offset material and labor cost increases. In fact, beginning in June, we experienced incremental margin improvement on newly sold homes in each month throughout the balance of the year, a trend which has continued into January.

SG and A as a percent of home sales revenues improved 80 basis points to 10.1% in the fourth quarter compared to 10.9% in the prior year. This was a result of our past and continued efforts to contain costs and improve the operating leverage of our company. In the fourth quarter of twenty twenty, our financial services business generated $35,800,000 in revenues compared to $14,500,000 in the fourth quarter of twenty nineteen. The business contributed $17,800,000 in pretax income compared to $4,700,000 in the prior year quarter. Our fourth quarter results were primarily due to a larger number of loan originations and increased spread on loans sold.

The increase in loan originations resulted from both growth in our homebuilding business and a continued increase in our capture rate across the platform. We believe our financial services and homebuilding businesses are well positioned to benefit from the low interest rate environment and demand trends being seen at all price points. In 2020, the strategic action we took to strengthen our balance sheet resulted in an improvement of our net homebuilding debt to net capital ratio of 27.2%, down significantly from 45.2% in the prior year quarter. We improved our cash flows ending the fourth quarter with approximately $417,000,000 of cash and total liquidity of $1,100,000,000 which includes our availability under our undrawn $640,000,000 unsecured revolving credit facility. In the fourth quarter, our tax rate was 24% compared to 1.1% in the same quarter of the prior year and up slightly from 23.3% in the third quarter of twenty twenty.

In the fourth quarter of twenty nineteen, Century's tax rate benefited from the retroactive reinstatement of energy efficient home credit for the full years of 2019, 2018, and 2017. We are very pleased with our strong results for the fourth quarter and full year 2020 and remain encouraged by the strength and health of the housing market. The combination of our recent performance coupled with a favorable demand tailwinds and our proven ability to execute gives us confidence our positive momentum will continue. Accordingly, we are introducing 2021 guidance of deliveries to be in the range of 10,500 to 11,500 homes and home sales revenues to be in the range of $3,300,000,000 to $3,800,000,000 We look forward to delivering another year of exceptional performance as we strengthen our business, scale our organization, accelerate growth and deliver outsized returns to our shareholders. With that, I'll open the line for questions.

Operator?

Speaker 0

Thank you. At this time, we will be conducting a question and answer session. Session. The first question is from Michael Rehaut of JPMorgan. Please go ahead.

Speaker 5

Thanks. Good afternoon, everyone, and congrats on all the results. Very, very encouraging. First, I wanted to just clarify here around demand. You said that we're almost on the sales pace, but now I think you're saying orders order growth was in December up 54%, January up 77%.

So I just wanted to make sure that we understood that correctly, that those are referring to actual order growth and but also that you're indeed also referring to an improved sales pace sequentially as well during those months?

Speaker 2

Yes. Hi, Mike. It's Dale. Yes, you heard the numbers correctly. That was the year over year improvement.

And we did see incremental sales pace in addition to just the year over year improvement. When we look back on it, we really didn't see a slowdown at the end of the year that is pretty typical. And oftentimes, at the very beginning of the year, it takes a while to get going. We didn't experience that either. So we just we sold completely through the holidays, and it just continued on after the New Year.

Speaker 6

Great. That's great to hear.

Speaker 5

I also wanted to shift a little bit towards the gross margins. Obviously, a tremendous result in the fourth quarter, kind of a step function change. I believe, Dave, you had talked about expecting continued improvement in 2021 over 2020. But I was hoping to get a little bit of sense of how we should think about gross margins into the first and second quarters of the year. I believe you had mentioned that in your backlog, every month over the past six months, you're seeing improved margins in your backlog.

So is this 23% kind of the new bar for the company? Is it something that you can kind of hold on to in the first or second quarters? How should we think about it directionally as we head into 'twenty one?

Speaker 6

I think we'll definitely do as much as we can to hold on to it. As we've been pushing, we've been able to increase our ASP across the portfolio. We're also dealing with a lot of the cost factors

Speaker 3

that everybody's reading about in the industry. But as

Speaker 6

we look at our margins, the 20.8% in Q4 on a GAAP basis, 23% on an adjusted basis, I think Q1, Q2 being in that 20 to 21% range on a GAAP basis for margins should be expected.

Speaker 5

Great. Thanks very much. Michael. Thanks.

Speaker 0

The next question is from Jack Micenko of SIG. Please go ahead.

Speaker 5

Hi, good afternoon. I wanted to talk a little bit about the community count growth for next year. You talked to a potential up 10. One, how does that look through the year? It looks like you kind of pulled forward some demand later in the year.

Is it going be more back end weighted?

Speaker 4

And then can you continue to leverage the G and A as you

Speaker 5

open these communities sort of based on the cadence through the year?

Speaker 6

Hey, Jack, it's Dave. I would say that as we look at our community count growth, it is going to be more back end weighted towards Q3 and Q4. You look at last year, we took a pretty heavy pause and just brought to a stop all land buying in Century Complete. And so now that lots we have under control there going back to the acquisition cycle, we'll bring those on the later part of this year. On the Century Community side, we've had such great sales pace.

We've been selling through our communities faster than originally expected and dealing with land development just like everyone else. We expect to be bringing more communities online. So I think you probably see community count dip in the first half of the year, but we bring it back being back end weighted in Q3 and Q4. And then in terms of G and A, we've continued to make progress over each of the last several years, doing a bit better every year than the year before. And I would think that as we look at each of the quarters this year and looking at 2021, we would expect to continue seeing improvements out of that G and A line.

Speaker 5

Okay, great. And then on the mix, you're now breaking out the two business lines by community. Is it going to be a comparable sort of fifty-fifty as you see it for 2021 as well? Or is it going to be more replenishment of some of the legacy brands versus Complete?

Speaker 6

Are you referring to the community count?

Speaker 5

Yes, yes, community mix, basically.

Speaker 6

Yes. Okay. So I think it'll depend really on how our land development goes, depending on how much the Centric Communities brand we bring online and how much we continue to sell through. But we've been saying that we expect the Century Complete brand to be growing. So you're probably going to be a

Speaker 4

little bit more weighted towards Century Complete than you would be Century Communities.

Speaker 5

Okay. Okay. Just one more for me, if I could. Eighty percent first time buyer, I think you said 80% would have qualified price point for FHA, if I heard that right in the prepared. You done a stress test about affordability?

Things are great. Everybody's pushing price. They're getting it. But that 4Q, 3Q twenty eighteen kind of sits in the back of your mind. I'm just curious if there's if you've done any sensitivity work around these entry level buyers.

And how much of an updraft could they potentially absorb on rates if the ten year moves higher?

Speaker 6

Yes. I would say that we definitely have all of our divisions and us here at the corporate office looking at what we can be doing on our ASP versus what affordability and the subsequent loans are for the buyers. And we keep that in mind, especially in our Central Complete brand as we're dealing with a lower priced house on a different credit profile for the buyers. We were very cognizant of it. So we ran a variety of stress tests internally and we price our homes against those.

Speaker 5

Okay, thank you.

Speaker 0

The next question is from Allen Ratner from Zelman and Associates. Please go ahead.

Speaker 7

Hey guys, good afternoon. Congrats on the great year and especially the great fourth quarter. Yes, I guess first question, would love to dig in a little bit more on the land underwriting. I know you made the comment about not assuming price appreciation on the land deals. Yet at the same time, I'm looking at your lot count and it's pretty striking that roughly 50% of your lots you've tied up over the last twelve months.

So clearly, there's going to be some mix dynamic as these communities come online. And I'm curious, when you think about gross margin, for example, you're at 23% today. What's the underwriting threshold? I don't know if it's gross margin or returns, but how do you think about gross margin on new land deals that you're tying up? And how does that compare to what you're delivering today?

Speaker 3

So we're looking at similar gross margins. But Alan, it depends on the risk profile of the particular land. You know, if we're buying finished lots on a just in time basis, we would take a lower margin versus a development deal that has additional risk and an elongated timeframe. But as we look at it, we're not only looking at gross margin, we're looking at various other returns that have to meet our internal thresholds. But we're not looking at anything, generally speaking, lower than where we are right now on a margin basis.

Speaker 7

And that's specifically on the fourth quarter level? Just want to be clear because obviously it ramped tremendously through the year. Or are you referring more on a Yes.

Speaker 3

Think that again, Alan, it really depends on mix, on what's So coming through the as an example, if we have a lot of finished lots coming through the pipeline, then it would be a lower margin. Generally speaking. I'm saying more on a consolidated if everything was kind of coming through on the same amounts.

Speaker 7

Got it. Okay. That's helpful. And then on the closing growth guidance, obviously, I don't think anybody is expecting you to keep up the growth rates you've been running at, especially as you get up against some tougher comparisons. But admittedly, I would have thought it might have been a touch stronger than that based on where your backlog is and certainly based on where January started off.

So is that a function of the comps getting tougher in the back half of the year? Or are you getting to a point maybe where you're having to intentionally slow the sales pace to keep the production machine running efficiently and not gap out even more on communities?

Speaker 6

Alan, it's Dave. I think it's a combination of

Speaker 3

a couple of things. When you look

Speaker 6

at our backlog conversion rates, I'm expecting some of those will get compressed over the next couple of quarters as we're dealing with elongated cycle times, different supply chain issues. So I think that that's going to be one component. And then it's going to be a matter of when we bring some of those communities online in Q3 and Q4, like I spoke about earlier. And so I think a combination of those will really depend on how much we can grow our closings.

Speaker 5

Okay. Great. And Dave, did I

Speaker 4

miss it? Did you give a first quarter closing guidance number by any chance?

Speaker 6

No, I didn't. Any

Speaker 7

chance you can hold your hand a bit on that one, just given the range that we're dealing with

Speaker 6

I think that as you're looking at prior years, look at last year to my point about backlog conversion coming down, if you start with a conversion rate from last year and adjust it accordingly for what we're seeing in the industry and supply chain and cycle times taking longer and bring that down a little bit, that's probably going get you in a decent range.

Speaker 7

Okay. That's helpful. Thanks guys. Good luck.

Speaker 0

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

Speaker 5

Thank you. Great quarter and great year, gentlemen.

Speaker 2

Alex. Thanks Alex.

Speaker 5

Can you expand upon your comment about the potential to expand into the move up markets? Some more color around that please.

Speaker 2

Yes, happy to. It's always been a component of our business, and we're in no way suggesting that we're moving away from our entry level focus, but we see opportunity to continue to add move up product to the mix. As we've said, when we look at what we've been delivering, it's about 80% focused on the entry level buyer, which means 20% or so is move up. And so but those are opportunities we continue to look for. And when we look at our heavy concentration on entry level, adding some additional move up is just incremental business for us.

Speaker 5

And do you have have you started to shift your lot inventory already for that plan? No. And I wouldn't really call it

Speaker 2

a shift. It's really more opportunistic. We just look at it. We're open to those kind of opportunities. And we're not limiting ourselves to strictly doing entry level product, nor have we ever done so.

Speaker 5

And so for a while there we were expecting average selling prices to sort of drift down as the Century Complete product category got larger as a percentage of total. Should we maybe alter that view and start to think that maybe average selling prices are going to drift higher over the coming years?

Speaker 2

Yes. No, I wouldn't expect that. I think what you're seeing happen this quarter, for example, is really a reflection of the pause that we took on land acquisition and starts on Century Complete. We took it on the entire business, but it really impacts the Century Complete business because of we do not release a house for sale until it has already started. So we ended up with a gap there.

And so, no, I think that's just really more a matter of circumstances. We would still expect that our average ASP will come down.

Speaker 5

And one last question. One of the elephants in the room has always been sort of the leverage that you've carried on the balance sheet. You've worked that down below 30%. Congratulations on that. What's your new sort of normal operating range for leverage on your balance sheet?

Speaker 6

Well, I think right now, we're demonstrating that we've been able to make some very significant strides in bringing that down from north of 45% and in 2019, north of 50% to now today, we're at 27.2%. And I think that you'll continue to see us operate somewhere in this range that we've got cash on the balance sheet and undrawn revolver and we've got the ability to fund the growth and expansion plans we have from free cash flow and our balance sheet. And so leverage will just tick up and around, you know, as we continue to fund our business.

Speaker 5

That's great. Thank you.

Speaker 0

The next question is from Alex Barron from Housing Research Center. Please go ahead.

Speaker 8

Yes, hey guys. Thanks and great job.

Speaker 5

Thanks Alex.

Speaker 8

So I heard you say that you're expanding into Phoenix with the Century Complete brand I'm sorry, the Century brand. I was curious whether you guys have any other expansion plans either in Century Complete or the regular Century brand into new markets?

Speaker 3

Well we've talked for a year or so that we'd like to get the Century brand, the legacy brand in Florida. And so as we talked we have five markets where we paired up both brands right now. And Florida would be a natural. Century Complete is throughout Florida and growing quite substantially we're hoping in the future with new penetration in the North Part Of Florida. And so to have the legacy brand go into Florida would be a nice addition.

And so that would kind of be the first one I think we'd be looking at.

Speaker 8

Okay. That sounds great. I also wanted to ask, I mean it doesn't sound like it, but are you guys doing anything to intentionally try to slow down the business or are you just taking as many orders as people come your way? I guess what I'm getting at is, is there any limitations to your production capacity that would cause you to try to slow down the business at this point?

Speaker 2

No. You know, we've got production challenges like all the other homebuilders do. But no, we've not intentionally metered the production down. It is we really because most of our starts are on a spec basis, we try to put them out on an even flow basis so that we don't create gaps either in terms of inventory or on expectations that we have for our trade partners. But, you know, so far we've been able to manage price and pace, and neither one has really been a hindrance.

Speaker 8

Okay. And would it be possible to know roughly how many homes you guys are starting a month or per quarter?

Speaker 6

As we as I look at it, you know, the back half of twenty twenty, we're doing anywhere from 700,000 to $900,000 a month that we're doing. So somewhere in that range. It varies by month, but just looking around numbers. Right now, I believe we've got more under construction between spec and backlog homes than we did this time last year at twelvethirty one. And so we feel good about what our production capabilities are.

While it may take a little bit longer, we're continuing to bring sales on board and we're continuing to build homes.

Speaker 8

Okay. Well, great. Look forward to your successes here. Thanks.

Speaker 2

Thank you, The

Speaker 0

next question is from Jay McCanless of Wedbush. Please go ahead.

Speaker 6

Hey, good afternoon. Great quarter, everyone.

Speaker 7

Thanks, Yes.

Speaker 2

The cancellation rate, what was it this year versus last year?

Speaker 6

One quick second here. I'll get that to you offline. I'll get that to you after the call.

Speaker 2

Okay. Thanks. And then I guess last quarter, pretty significant increase in lots and it was pretty well dispersed among the regions. The lots that you acquired this quarter, was there any geographic focus or product focus on them? Or was it pretty evenly balanced like we saw in the third quarter?

Speaker 3

It was evenly balanced. And as you pointed out, over year, each region grew from the end of 'nineteen to the end of 'twenty. And it was evenly balanced. You know, obviously primarily, you know, entry level type product, but lots per product of entry level. But it was fairly even.

Speaker 9

Okay. And so that mix of lots that's coming on in 'twenty one is going

Speaker 2

to start to move the ASP probably closer back to what something we saw like at the 2019 or maybe splitting the difference between the end of 'nineteen and 'twenty?

Speaker 3

Well, yes, but there's been price appreciation in the markets too, Jay, as everybody is aware of. And so where the fourth quarter might be a high mark in terms of ASP and seeing that come down, And again, predominantly entry level, I don't think it's going be back at the 2019 numbers though.

Speaker 5

Got it. Okay. Thanks for taking my questions.

Speaker 8

Thanks, Jay.

Speaker 0

We have reached the end of the question and answer session. And now I would like to turn the call back over to Dale Francesca for closing comments.

Speaker 2

Thank you, operator. Our impressive performance is compelling evidence of the power of our business model as well as the strength of our entire team and our ability to overcome the unprecedented challenges of the past year. We would like to thank each and every one of our employees for their continued dedication to Centuri. We couldn't have done it without you. While we have much to be proud of, we're even more excited for what lies ahead.

We are entering 2021 with a great sense of opportunity and, looking into the future, remain confident in our ability to build on our success and achieve our long term growth vision. Thank you for your time today. We appreciate your continued support and investment and look forward to speaking to you again next quarter.

Speaker 0

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.