Century Communities Inc (CCS) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Century Communities Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Scott Dixon. Thank you, you may begin.

Good afternoon, we would like to thank you for joining us today for Century Communities Third Quarter 2017 Earnings Conference Call.

After the market closed today, we distributed a press release detailing our third quarter financial results. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in the forward-looking statements. The company undertakes no duty to update any forward-looking statements that are made during this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Management will be available after the call should you have any questions that did not get answered. Hosting the call today are Dale Francescon, Chairman and Co-Chief Executive Officer; Rob Francescon, Co-Chief Executive Officer; and David Messenger, Chief Financial Officer.

With that, I will turn the call over to Dale.

Thank you, Scott.

Today on the call, I will review our homebuilding highlights and business updates. Rob will then discuss our homebuilding markets. Afterwards, Dave will follow up with further details on our financial results, balance sheet and 2017 outlook. Following our prepared remarks, we will open the lines for questions.

We are very pleased with our third quarter 2017 results which achieved record levels of revenues, delivery, backlog and adjusted net income among other metrics. This strong pace of activity during the quarter was generated from continued performance in our legacy markets, coupled with solid contribution from a partial quarter of results in new markets acquired through the UCP merger, particularly in the west.

Our strong operational performance during the quarter led to net income of $9.5 million, excluding the impact of one-time charges related to the UCP transaction. Our adjusted net income was $18.8 million, an increase of 40% from the prior year's quarter. We believe this adjusted net income number provides a better comparison of our financial results from period to period.

We experienced double-digit home price gains for the fifth straight quarter. Combined with a 37% increase in home deliveries, we increased our home sale revenue to a record $375 million, an increase of 51% from the prior year quarter. This progress is a result of our multiyear execution on our business strategy which includes a diverse national homebuilding platform built primarily through acquisition of other homebuilders; a focus on locating our operations in attractive markets with sound fundamentals; and a commitment to maintaining a strong balance sheet to allow us to acquire land and roll out new communities in new and existing markets in order to continue our positive momentum.

In August, we were excited to complete our merger with UCP which solidified Century's position as the 16th largest public homebuilder in the U.S. and builds on our track record as one of the fastest-growing U.S. homebuilders. We continue to expect this transaction to be accretive to our 2018 earnings per share due to economies of scale, operational efficiencies and cost synergies that we expect to begin realizing in 2018.

With UCP's well-located lots, particularly in the high-growth markets of California and Washington, coupled with Century's strong capital base and tenured homebuilding experience, we believe we can improve the historical velocity and margin profile generated from these land positions. The integration of our 2 businesses is progressing according to plan, and we are already operating under one Century Communities brand in all markets.

We are pleased with the continued expansion of our financial services group which provides mortgage and title services to our homebuyers. We began this operation in the fourth quarter of last year, and it has now delivered its second straight quarter of profitable growth. While we are still in the early stages of this effort, we view this business as an attractive driver of incremental profits and enhanced returns on equity.

Our joint venture partnership with Wade Jurney homes has provided us with significant additional exposure to first-time buyers through a high-returning asset-light model. Since the inception of the joint venture in November, 2016, our share of income from the venture has totaled nearly $8 million, clearly a great return on our investment of $18 million.

We were very pleased to be recently recognized by Fortune Magazine as the 26th fastest growing company in the United States on a list that included the likes of Amazon and Facebook. Our #1 rank in annual revenue growth, along with double-digit growth in earnings per share and strong stock returns over the past 3 years, allowed us to earn our inaugural position on this list of 100 companies.

In addition to this honor, the third quarter 2017 was momentous for Century Communities in many ways. Expanding our geographic reach into 10 states as a result of the consummation of our transaction with UCP was very constructive in moving forward our goal of growing the company, both organically and through acquisitions, into one of the largest and most profitable U.S. homebuilders. Our issuance of $120 million in equity, between our UCP and ATM transactions, allows us further ability to put our balance sheet to work with additional investments in our homebuilding operations and other avenues that provide attractive returns. Achieving record levels in revenues, deliveries, backlog and adjusted net income puts us in even a better position to advance our long-term growth strategy and further expand our returns on equity.

As we look forward into the fourth quarter, 2018 and beyond, we're very excited about our prospects for enhanced growth and profitability in this positive homebuilding environment.

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

Thank you, Dale, and good afternoon, everyone. Our continued confidence in the homebuilding industry is reinforced by low rates, tight supply, strong demand and expanding household formations. We are benefiting from our strategic decision to position ourselves in some of the best housing markets in the nation.

Our third quarter operating performance was record-breaking, with significant growth in deliveries and home sales revenues as well as the number and value of homes sold in backlog. We experienced considerable operating momentum and price gains as we capitalized on favorable demand trends in our markets.

Third quarter net new contracts grew 46% to 914 homes, with organic growth accounting for more than half of that growth led by our Mountain and Southeast regions. This was made possible by our absorption pace improving by 28% which was encouraging. We ended the quarter with homes and backlog up 68% to a record 1,664 homes, representing a backlog dollar value up 81% from the prior year to $689.3 million. This significant increase in backlog homes and value positions us well for a continuation of strong results and earnings.

We continue to expand land inventory in our markets including the recent start-ups in Utah and Charlotte, where we are now building, selling and closing homes as we continue to scale these operations. We ended the quarter with land inventory of 31,996 lots in some of the most robust U.S. housing markets. We have demonstrated our ability to deploy capital at attractive returns, and we see many opportunities to replicate that success in both new and legacy markets. At quarter end, approximately 55% of our land was controlled rather than owned, compared to less than a third as recently as 2015. We expect to continue sourcing additional land parcels with a similar weighting towards controlled land to accelerate our scale while preserving our financial flexibility.

Looking at our market portfolio, overall new residential activity continues to perform well. Beginning with this third quarter 2017, we began reporting our homebuilding metrics in 4 U.S. regions, consisting of West, Mountain, Texas and Southeast. I will walk through my comments today in accordance with our new region structure.

Starting with our Mountain region, we experienced significant growth with contracts up 40% year-over-year. This improvement reflected solid demand in Colorado and Nevada along with more meaningful production out of our Utah operation. Each of our markets in the Mountain region is benefiting from job growth, limited new home inventory and low resale supply of less than 3 months, supporting both good demand and some price appreciation.

In Texas, we increased our lot positions by 75% year-over-year. We are experiencing an increase in demand as we continue our pivot to lower price points as highlighted by net sales up 64%, home sales revenues up 41% and backlog up 54% year-over-year.

Overall, we are encouraged by these strong trends. In Houston, the impact of Hurricane Harvey on that market was tragic. However, we were fortunate to emerge with limited damage to our communities. We have already seen a resurgence of demand in our communities as prospective buyers look to a fresh start.

Looking at the Southeast, while we have had some delays from Hurricane Irma in Atlanta, the opening of several communities in Atlanta, along with the addition of UCP's operations in Tennessee and the Carolinas, allowed us to produce favorable results across all metrics, including a 35% increase in backlog units and a 46% increase in the backlog value. In Tennessee and the Carolinas, we are on track to ramp up community openings in coming quarters to capture the robust pace of home buying activity in these exceptionally strong areas.

Higher construction costs are increasingly prevalent in certain parts of the Southeast as well as nationally. So we are managing costs carefully to continue delivering homes at attractive margins.

In August, consistent with our business strategy of focusing our homebuilding activities in top performing metropolitan areas, we sold the operation in Myrtle Beach, South Carolina that we acquired in the UCP transaction and exited that market.

Looking at the West, we are firmly situated to take advantage of positive economic employment and population trends through a combination of well-located communities and attractive product offerings across a diverse buyer segment. In Seattle, which is benefiting from record low inventory, we recently increased our position and capital investments with the acquisition of the assets of Sundquist Homes.

Sundquist Homes has a 40-plus year tradition of delivering quality homes. The Seattle homebuilding climate is one of the strongest in the U.S. And according to the most recent Case-Shiller Home Price Index is ranked as the fastest appreciating major market at 13% year-over-year.

We are now even better positioned to drive a significant operating efficiencies due to our augmented scale which, on a combined basis, puts us in the top 10 for homebuilders in this robust market.

In California, we have also begun to strengthen our land positions by acquiring additional lots since entering that market. All of our California markets, which include the Bay Area, Central California and Southern California, are experiencing positive traffic, sales and price appreciation trends with strong economic backdrops that give us additional confidence in our new West region.

Overall, we are encouraged by the homebuilding momentum in our markets. We believe our positions in these attractive regions of the country will continue to drive meaningful growth in new contracts, home deliveries and earnings from our expanded geographic footprint. We intend to continue strengthening our presence in vibrant markets in order to continue growing revenue, profitability and returns on equity. I will now turn the call over to Dave who will provide greater detail on our financial results for the third quarter.

Thank you, Rob.

During the third quarter of 2017, we dramatically expanded our business, completed a number of attractive investments and ended the quarter with a strong balance sheet.

Net income for the quarter was $9.5 million, while adjusted net income, excluding the one-time UCP-related charges of $7.2 million in acquisition expenses and $6.2 million in purchase price accounting, was $18.8 million or $0.73 per share compared to $13.4 million or $0.63 per share in the prior year quarter.

Adjusted EBITDA grew 23% to $32.5 million compared to $26.4 million in the prior year quarter attributable to revenue growth.

Home sales revenues for the third quarter were a record $374.9 million, an increase of 51% compared to $248.1 million in the prior year quarter. This improvement in revenues was mainly driven by a 37% increase in home deliveries to a company high of 968 compared to 706 homes in the prior year quarter.

We recorded higher prices in all of our regions to produce an average selling price of 10% to $387,300 in the third quarter of 2017, reflecting favorable product mix and core price momentum.

Our adjusted homebuilding gross margin percentage, excluding capitalized interest and purchase accounting impacts from cost of sales in the quarter, was 21%. This represented another quarter of stable margin performance.

Our on adjusted gross margin percentage on homes closed in the third quarter was 17% compared to 20.3% in the prior year quarter, driven by increases in our financing, acquisition, purchase price accounting and material costs. As a reminder, during the third quarter and for the next several quarters, we will continue to see purchase price accounting impacts that generate gross margins in the 8% to 12% range on UCP deliveries from homes under construction prior to the acquisition. We expect nearly all of that inventory to roll through the system over the next 2 quarters.

Excluding this one-time impact, we continue to project a stable margin profile for our portfolio as we begin to monetize the UCP portfolio and enhance national purchasing synergies and other cost-savings initiatives made possible by our larger scale.

Regarding our material pricing, we are experiencing increases in a variety of categories, including lumber, dry wall and concrete. Despite these increasing inputs, we have continued to deliver a stable adjusted gross margin percentage.

SG&A as a percent of homebuilding revenues declined to 12.3% for this quarter compared to 12.5% from the prior year quarter. This was a result of home sales revenue increasing 51% over the prior year which more than offset investments in personnel to support our growth, ramp-up of new divisions and UCP transition-related costs. We expect to continue to leverage our platform as our 3 startup operations, Utah, Charlotte and Financial Services, continue to grow and the integration of the UCP operations is completed.

Now turning to our balance sheet and liquidity. As of September 30, 2017, we had total long-term debt of $776 million with total liquidity of $501 million, including $101 million of cash and the full availability of our $400 million revolver. Our net debt to capital ratio stood at 51.8% at quarter end.

During the quarter, we issued approximately 400,000 shares under our ATM for $10 million or $24.67 per share. We also issued approximately 4.2 million shares of Century common stock in connection with the UCP transaction resulting in a broadening of Century's investor base and an improvement in share liquidity and a total increase of our stockholders' equity of $120 million to $653 million.

Moving to our outlook for 2017. The expanded scale of our business across an even more diverse footprint provides us with additional stability on our result and enhanced visibility into our business moving forward. Based on our current market outlook, we continue to expect our full year deliveries to be in the range of 3,500 to 3,800 homes and home sales revenues to be in the range of $1.3 billion to $1.5 billion. We now expect to have 115 to 125 selling communities at year end.

We are extremely pleased with our operating and financial progress to date which has provided us with an exceptional platform to benefit from the exciting prospects for our business in years to come.

Furthermore, we look forward to realizing meaningful synergies from national purchasing advantages and better SG&A efficiency, especially as we move into 2018. We have a very strong pipeline of backlog homes to achieve our strategic growth objectives while improving our earnings per share and return metrics.

Operator, please open the lines for questions.

(Operator Instructions) Our first question is from Michael Rehaut from JPMorgan.

I was interested -- for the first question, I really applaud the decision to exit a smaller market like the Myrtle Beach market, where you decided that it wasn't enough scale or profit or whatnot, that it just didn't fit the business model. I'm curious, obviously, you're expanding in a couple of new markets, and your broader strategic focus is continuing -- is to in part continue to grow and expand to a large degree. But again, I love the balance of exiting that smaller market you deemed not a good piece. I'm thinking about Texas, where a couple of years ago, when you went in through a couple of small acquisitions, you started to get a decent amount of growth in the State of Texas this quarter, which is encouraging. I'm curious, when you look about your different markets in Texas, if any of them could maybe seem similar to a Myrtle Beach, where you're just not at the point of necessary scale and you think that, perhaps, your investment dollars could be better -- could better serve the company in markets where you have a much bigger presence.

Mike, this is Dale. And when we look at Texas, we're in 3 major markets, Houston, Austin and San Antonio, and we're committed to each of those markets. And when we look at the size of those markets, we think that it fits our investment criteria very well. Myrtle Beach was just never going to get any scale. And when we looked at it, it just really didn't fit our overall strategic business plan which is to concentrate on major markets in the United States that we believe were going to have outsized performance over a period of time. In fact, in Texas, one of the things that we've done over the last year is we had a what we consider to be a Central Texas region that included both San Antonio and Austin. We split those into 2 markets, and we actually have division Presidents in both markets. And we're investing and growing all 3 of our markets in Texas, and we view that as an area that we have a tremendous opportunity because we do have a small scale, yet there's a lot of demand in all of our markets.

Understood. That's helpful. I guess shifting gears a little bit, and this might be more of a question for Dave. As I look at the gross margin, you obviously had the impact roughly in line with what we were looking for in terms of purchase accounting on 3Q. Right now, in terms of our model, we're looking for a greater impact in 4Q, I think, as you get a full quarter impact of the purchase accounting closer to like the 18% range before interest. I was wondering directionally if that's right. And then, looking forward into 2018, there was a reiteration on a view of cost synergies and increased efficiencies from UCP. Wanted to ask around the potential for getting that gross margin back to prior corporate averages or even above that. And what I mean by that is something in the low 21s for 2018.

Mike, this is Dave. So I think there's a couple of things on here. So the first one being kind of what are we seeing for purchase price accounting impacts in the fourth quarter. I think, as I said in my prepared remarks, the acquired inventory from UCP. In the first half of this, in the first quarter being the third quarter, we saw 6% to 10% margins. Now we think it will 8% to 12% depending on the number of homes that end up ultimately closed in the fourth quarter will determine what the significant -- the total magnitude of those dollars are. You're right, we are going to have 3 full months versus 2. So it's possible that those dollars for the purchase price accounting impact do increase compared to the third quarter. And looking at 2018, kind of around the synergies, I think that as we're starting to get into this transaction, we're now 3 months into the merger with UCP, as we've been going through their operations, our operations, historically, we had a synergy range $5 million to $8 million. Now, I would say we're probably looking at a synergy number in excess of $10 million. So I think we were seeing some definite positive benefits of this transaction for both sides.

That's great. Good to hear. And just 1 last one, if I could. On the SG&A side, obviously investing a lot today in the different startup operations which, more or less, is largely resulting in only a modest amount of leverage. Would we -- should we expect that to kick in a little bit more forcefully in 2018? In other words, have the investments largely occurred and, therefore, next year, you'd be in a position more to leverage revenue growth in a more typical fashion? Or would we expect more investment?

I would say that absent other initiatives the company undertakes, if you're to look at -- take today's operations fast forward into 2018, we have been carrying up the hill 3 startup operations between Utah, Charlotte and the Financial Services group. Those 3 have really been going through a lot of their maturity this year and coming up to speed. You look at Utah starting to deliver homes. Charlotte, now with the merger of the UCP division, delivering homes. And you look at Financial Services that we've been very pleased that when you look at their run rate, we started that fourth quarter of last year. 9 months into their existence, they were able to start delivering profits, and they've done that for 2 quarters in a row now. As that gets rolled out to the rest of the company through the balance of 2017, we think all 3 of those investments start contributing on the revenue line more significantly into 2018, which will allow us to leverage more the SG&A. And then, the other component we have is, obviously, we're still new into the merger of the UCP transaction. So near term, our SG&A runs a little bit higher than we want. But I think that, in 2018, as these investments hit kind of a maturity, more of a run rate style, and then these synergies on top, that you'd see us leverage the platform on a more typical basis.

Our next question is from Nishu Sood from Deutsche Bank.

This is actually Tim Daley on for Nishu. So good to see the increase for the community count guidance. I was just hoping you could parse out what exactly gave you the confidence to get that number up. Is it kind of on the UCP legacy side, Century legacy or was it due to the acquisition in Seattle? I think we quickly counted around 4 communities there.

So I think, as we sit here today being November 2, 1/3 of the way end of the quarter, we have a little bit more visibility into where the portfolio is for the next 2 months and what we expect to be opening and what we expect to be closing out. So that gave us the confidence to move that number, move it up a little bit.

All right. And then I guess now that we're through October, in that same kind of train of thought. What -- how would the growth in October perform versus your expectations, both on the legacy and, I guess, on the acquired side as well?

So on a net sales standpoint in October, year-over-year, we're up 50% -- in excess of 50%. Excluding the West on the UCP acquired assets, we're up over 25% on the legacy business. So October is -- turned out to be a really good month from a net sales standpoint. And as we're going into the balance of the fourth quarter, we're optimistic that that's going to hold.

All right. And just quickly to follow on to that, what were the absorption comps, I guess, on that -- or what was the absorption growth on legacy in that basis in October?

Similar to what we have experienced in the third quarter.

All right. Great. And then, I guess my second question is onto Wade Jurney. So the returns have been extremely impressive, much higher than what we had been expecting. I think you initially guided to the second quarter where we were to see some profitability out of it. And so we've been seeing that now at the third quarter, getting a lot too. I'm just curious as to, is this deal outperforming your initial expectations? I guess, what's going right there? And if it's not, how far do you expect this potentially to go and contribute to your bottom line?

Tim, this is Dale, so in -- when we look at the expectations, we were very comfortable with the investment upfront, Wade Jurney homes for last 2 years has been ranked as the fastest growing private homebuilder in the country. And it's continued on that same trajectory. So when we look at it, while we had high expectations, I would say it has exceeded even those high expectations.

Our next question comes from Alex Rygiel from B.Riley.

Could you talk a little bit more about the Sundquist Homes and the acquisition, maybe which paid for it and how many lots you acquired and so on?

Sure. I'd be happy to. So Sundquist is obviously in Seattle, a market that we entered through the UCP transaction. Our division in Seattle is relatively new and relatively small. And one of the focuses that we had in all of our UCP markets is to grow them. As we indicated when we did the transaction with UCP, they were constrained on capital which held back their growth in a number of markets. And that was one of the things that we could bring to the portfolio and to the merged operations. And so in acquiring the assets of Sundquist fit right into that plan to increase it. Even though it's a relatively small transaction in terms of size, it just about doubles the operation that we had previously in Seattle. So when we look at it, we acquired, give or take, 300 lots owned and controlled. And our investment was just over $51 million. When we look at the acquisition, we anticipate that we'll generate less than 1% of the purchase price as goodwill and intangibles. So we purchased WIP owned lots as well as a controlled lot portfolio. The other thing that it did, it has allowed us to leverage additional people we acquired, a number of the people from the Sundquist operation and they're now Century employees. And they bring a depth of experience in the market. This was a homebuilder that had been in business for in excess of 40 years. So as I'm sure you can imagine, they had very deep land contacts. During the negotiation of the transaction, they continue to bring land transactions to us. We've identified another 200 to 300 lots that we're in the process of exploring related to just the Sundquist people, coupled with another 1,000-or-so lots that are own Century people were already working in terms of a land portfolio. So it's a market that we have focused a lot of effort on. We intend to continue growing it, and Sundquist was a nice first step.

That's very helpful. It would appear that the lots owned in Texas increased quite a bit sequentially. Anymore color on that?

Well, so in Texas, we have made a pivot now for a couple of quarters to go into a more entry level price point. And so we've rolled out new product in that market, our Century complete line. And we have kind of a different strategy in that market on how we're going about deals, the type of land we're sourcing and kind of the makeup of that land. And so as a result, we've kind of started that process a couple of quarters ago, had tremendous success at that point. And now, we've continued to add to it. And as Dale spoke earlier, that's why we broke off Boston and San Antonio into 2 separate divisions. We feel that we can get up to scale on all 3 divisions at a relatively quick period of time where we start having a very meaningful bottom line coming out of the Texas region on a go-forward basis. And so it's entry level-driven, is where the focus is in that market. It's efficient product, it's margin-driven as well. We like the margins that are coming off these entry-level projects. And so we see continuing that business strategy in the state of Texas.

And lastly, the tax bill introduced in Washington today, and it seemed to create a lot of chatter on the Street, could you, as best you can, sort of address your initial high level thoughts on the impact to homebuyers that, that could have?

Sure. I mean, needless to say, the details out are fairly minimal. And in all of these types of bills, it will probably change quite a bit before it's actually enacted into law, assuming it ever is. But based on the information that's been out, we have looked at our business and tried to get an idea of what we think the impact would be on Century. Obviously, lowering the tax rate would be a positive when we look at the impact of the adjustment of the mortgage deduction. At $500,000 loan amount, if you assume a 20% down payment, that translates to a $625,000 sales price. If you look at our ASP in the third quarter, it was $387,000, so obviously significantly below that. And when we also went back and looked at our backlog, and we have a small percentage of our homes that have an ASP of in excess of $625,000. So when we look at it, we see that there's certain things that are probably may not -- may be somewhat of a negative impact, but we think, all in all, with the change in the corporate tax rate would more than offset any impact there, coupled with the fact that we have very small exposure to high-end homes.

Our next question is from Jay McCanless from Wedbush Securities.

First question I had, on deliveries in the quarter, was there any delay because of the hurricanes either in Texas or Georgia that moved some closings from 3Q to 4Q?

So we had some slight delays in both markets. Atlanta where -- the hurricane, obviously didn't hit Atlanta. We lost some crews out of Atlanta that went down to Florida, mostly power crew-related, which delayed some closings. And then, obviously, Houston had some delays as well that I think most of the builders have reported. With that said, those aren't lost sales, those are just a timing difference, and those will move into the fourth quarter.

And then on the Sundquist transaction, should we expect any SG&A hit from that this quarter? And also what is that going to initially add to backlog, et cetera, from what you all acquired?

As I said earlier today, it was a relatively small transaction. We anticipate that between now and the end of the year, we'll deliver about 20 houses or so out of the Sundquist portfolio. And it is -- while it's meaningful for our operation in Seattle, it's not really meaningful for the overall company.

In Q4.

In Q4, that's right sorry.

Going forward, we like it.

Yes, definitely. The next question I have was all the new markets that you guys have entered into, now you've got more Seattle closings in the mix, what -- as you think about your plan for next year, where do you think ASPs look like? I mean is it a 400-ish number -- low 400-ish number, mid-400s? How -- with what you're opening, do you feel like the ASP is going to start shaking out for '18?

Well, we're not ready to be providing guidance for '18. But kind of as we're looking at where the portfolio is today, we're closing homes in the quarter at $387,000, our backlog's $414,000. And we'd expect our ASP to be relatively consistent with what we saw in the third quarter as we move forward.

Our next question is from Alex Barrón from Housing Research Center.

I wanted to ask, I guess, about Wade Jurney and also what are the plans there in terms of expanding that to other markets. And would you expect the growth rate to be pretty significant there? Because I think I read somewhere that they recorded as saying they thought they could grow like 50% next year. But just kind of curious if that's a realistic number?

So I think you have met Wade before, Alex. But Wade is a true entrepreneur, has high growth expectations. And the business -- not only are we growing in his legacy markets and, specifically, Atlanta is growing now, which was a new market at the beginning of this year. He's really growing that. Florida, as well is growing. And then new markets, we are going into new markets. And so Phoenix is going to be one that we are going into here in the fourth quarter.

Okay, great. And also, I guess along the lines of the recently announced merger between (inaudible), I'm wondering what your thoughts are on being open to something like that for yourselves or do you plan on just growing the way you are at this point?

Alex, we've been pretty transparent in the sense that we are focused on growing Century into a much larger homebuilder and one that is even more profitable than we have been today. With that being said, we've always been open to transactions that maximize shareholder value. So when we look at that, we view ourselves as we're stewards of capital. And we're going to do what's right for the business. Right now, what appears to us to be right for the business is continue to grow it, make it a more valuable company. And what that translates into in the future will just depend on the future.

This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

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

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