Century Communities, Inc. (CCS) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the Century Communities Fourth Quarter and Full Year 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. John Kolstoe, Vice President of Finance. Thank you Mr. Kolstoe, you may now begin.

Good afternoon. We would like to thank you for joining us today for Century Communities fourth quarter and full year 2014 earnings conference call. After the market closed today, we distributed a press release detailing our fourth quarter and yearend financial results, which can be found in the Investor Relations section of our website at www.centurycommunities.com. 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 the course of 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 is 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'll turn the call over to Dale.

Thank you, John. Today on the call I'll review our operating highlights. Rob will then discuss our homebuilding markets and recent acquisition activity. Afterwards, Dave will follow up with further details on our financial results, balance sheet and 2015 outlook. After our prepared remarks, we will open the lines for questions. 2014 was truly a milestone year for Century Communities. Not only did we successfully accomplish our initial public offering and access to long-term bond market, but we were able to increase our net income to $20 million, grow our closing more than threefold to 1,046 homes and expand into three very attractive new markets through acquisitions. We went from building in two markets to five and ended the year with our business firmly positioned for continued expansion as we increased our inventory of owned and controlled lots by 37% year-over-year and our backlog of sold homes by 248% to 772 homes in our key regional markets. We believe our success reflects the benefits of our experienced management team, attractive geographical footprint and accretive acquisitions. For the full year 2014, our total revenues increased 112% to $362 million and we achieved our 12 consecutive year of profitability as our net income increased 61% to $20 million or $1.03 per share. Our business momentum picked up in the fourth quarter following some softening of home buyer activity in the third quarter and we have seen a continuation of this trend into 2015. We expect some housing work at volatility to persist from quarter-to-quarter, but the longer term outlook for our business is highly favorable as we can combine the benefits of our expanding footprint with the continued growth and improvement in the overall housing market. In the fourth quarter, we increased our total revenues 121% to $141 million and recorded net income of $7 million or $0.34 per share, compared to revenue of $64 million and net income of $3 million or $0.18 per share in the same period a year ago, largely as a result of steps we have taken to grow our business accretively and into regional markets with attractive long-term fundamentals. As we have communicated to you in the past, we remain committed to building Century Communities into a premier home builder in the United States and we continue to grow our platforms strategically into new markets with favorable demographics in which we can effectively leverage our land development acumen and capital strength. During 2014, we successfully completed three home builder acquisitions which expanded the company's presence into Las Vegas, Houston and Atlanta and provided established platforms for growth in each of these highly strategic markets. Our current markets have varying levels of ASP, but our strategy of acquiring well located and attractive priced land is consistent. This diversity of market, product and price point provides us the opportunity to quickly and profitably adjust to changes in demand from different home buyer demographics. Our expansion into new markets has allowed us to further widen our product offerings and appeal to the entry level market which is continuing to improve. Looking across our broader portfolio, we are very optimistic on the long-term prospects for our business based on the fundamental, countless for growing housing demand evident in our markets. We remain firmly committed to our company strategy and as previously announced, in November our Board of Directors authorized a 2 million share repurchase program. This has already provided us the opportunity to capture a higher share of the value embedded in our company. As of December 31, 2014, the company had repurchased 608,000 shares under current program. Turning now to our fourth quarter highlights. During the fourth quarter of 2014, our home sales revenues grew to $134 million from $64 million in the fourth quarter of 2013, largely as a result of a 240% increase in closings to 462% versus 136% a year ago. While our revenue in closings had a solid move upward, our average selling price was lower compared to a year ago, largely as a result of regional and product mix across our footprint. We made tremendous progress on managing our SG&A which as a percentage of home sales improved to a 11.8% in the fourth quarter of 2014 compared to 16.3% in the prior year quarter. In the fourth quarter, we executed 365 net new contracts compared to 81 net new contracts in the prior year quarter, which represented an increase of 351%. This growth was held by an increase in our average open communities to 73 compared to 24 in the prior year quarter. We ended the quarter with 772 homes in backlog with a dollar value of $246 million compared to 222 homes with a dollar value of $103 million in the same period a year ago. In summary, we are pleased with another quarter of solid execution in performance across our key metrics to close out 2014. Our team extensive homebuilding and leadership experience, which is been gained over many cycles and multiple years. Our ability to source exceptional land positions on attractive terms, manage our cost and deploy capital opportunistically provide a constructive framework to continue enhancing the company's operations. With our existing platforms, supported by improving housing markets, our team is well positioned to continue executing our profitable growth strategies into 2015 and beyond. I now would like to turn the call over Rob, to discuss our markets and recent acquisition activity.

Thank you, Dale. And good afternoon, everyone. We continue to build our company into a premier homebuilder in new existing markets. During 2014, we significantly expanded and diversified our geographical footprint across attractive markets within Las Vegas, Nevada, Houston, Texas and Atlanta, Georgia. We achieved this through three successful homebuilder acquisitions which added combined 54 communities and 4480 owned and controlled lots to our inventory. In November 2014, we acquired Peachtree Communities in Atlanta, Georgia for approximately $57 million, including the true-up amount under the asset purchase agreement. This strategic acquisition of the number two homebuilder in Atlanta expanded our footprint beyond our core Southwest routes into the growing Southeast market and added a proven operating platform with a seasoned management team to allow us to hit the ground running. Peachtree added 36 communities and 2120 lots for buying as a sizeable operation to initiate our Southeast expansion within the robust [ph] Atlanta market, an area that remains in the midst of a solid economic and housing market expansion. Our expansion in the Southeast highlights the scalability of our platform from a corporate level. Our acquisition call is to expand the company's operations into attractive markets, with strong economic fundamentals and generate additional operating leverage on our platform. We have proven track record of accretive acquisitions as a result of our disciplined underwriting standards and strict controls to maximize our returns and we expect M&A activity to continue to drive a portion of our accretive growth moving forward, as we look to expand within and beyond our current markets. We continue to review select homebuilders in our target markets which share a number of favorable attributes, including job growth, increasing household formations, limited housing supply, and favorable home price outlooks. In addition to homebuilder acquisitions, we continue to source attractive land parcels across all of our markets. In the fourth quarter, we acquired 910 lots for $35 million to end the year with a 11,463 owned and controlled lots, across a well balanced land portfolio in some of the strongest housing markets in the country. At year end, we owned and controlled 3,879 lots in our established Colorado markets, 2,284 lots in the Central Texas, 901 lots in Houston, 1,978 lots in Las Vegas, and 2,421 lots in our newly added Atlanta market, providing a scalable foothold in the Southeast. All of our land positions are very well located and provide an extensive pipeline of lots to meet our projected closings through 2017. I'd now like to provide color on our Texas markets, given the recent volatility in energy prices and the potential flow-through to regional economies within the state. Our Texas operations are centered around the Greater Austin and San Antonio markets and to a lesser extent the Houston market. At year end, Houston accounted for only 3% of our consolidated assets. The local economies in our primary Texas markets are generally diverse and at the present time the recent volatility in oil has not had a meaningful impact on our operations. However, we continue to diligently monitor the activity within each of our Texas markets and are prepared to tailor our local strategies accordingly. Outside of these local concerns, 2015 has started with strong momentum, as traffic and new homes sales were up on a year-over-year basis and the supply of well located lots remain below historic averages in all of our markets. Interest rates have hovered back in a record low levels for the past six months and there are significant macro factors supporting an improved demand environment, including continue gains in employment and wage growth, higher affordability, lower gas prices encouraging consumers and recent easing of lending standards. We are continuing to see increased homebuyer interest in each of our markets, including the entry level price points. In aggregate, we think these factor provide upside to the housing fundamentals into 2015 and we remain well positioned to capture a rising share of incremental demand in our markets. I will now turn the call over to Dave, who will provide greater detail on our financial results.

Thank you, Rob. Before I make my comments regarding our successful 2014, I'd like to point out our enhanced disclosures. As we grown significantly and transformed the company into a regional homebuilder, we thought it was important to provide additional details for our individual markets and have provided them overall detail for the net home contracts, homes delivered and ASP, selling communities, backlogs and our lot inventory. In addition to the detailed financials and operating metrics at the end of our press release, we have also provided a supplemental schedule on our website that details similar information for each of the previous five quarters. We believe that investors and analysts will find this information useful. In our first release, we have also provided a series of reconciliations to further clarify our gross margin, EBITDA and EPS calculations. Now let's discuss our 2014 results. In the fourth quarter, we continue to improve our revenues and profitability compared to a year ago. Our fourth quarter 2014 results, include the impact of acquired operations in Las Vegas, Houston and Atlanta with no year-over-year comparison available for the prior year quarter. Our full year 2014 comparisons are also impacted by our Central Texas operations which we acquired in September of 2013. We are focused on improving our bottom-lines and for the fourth quarter, our net income improved to $7.2 million, an increase of 136% from $3 million in the same quarter of last year, reflecting higher gross margin dollars and favorable SG&A leverage. On a full year basis, our net income improved to $20 million in 2014, up 61% from $12.4 million in the prior year. This net income improvement has led to a 163% increase in our adjusted EBITDA for the fourth quarter, and 100% increase for the full year. Home sales revenue for the fourth quarter was $134.1 million, an increase of a 111% compared to $63.6 million in the prior year quarter. This improvement revenues was driven by a 240% increase in home closings to 462%, mainly attributable to the addition of closings from new markets. This improvement was partly offset by the average sales price on the homes we closed in the quarter which was $290,236, compared to $467,875 from the prior year quarter, mainly the result of a mix of closings from lower price communities in some of our newer markets. But comparison, the average sales price in our yearend backlog $319,076. For the full year, we increased our home sales revenue 106% to $351.8 million compared to a $171.1 million in the prior year, driven 133% increase in home closings to 1046 compared to 448 during that same time period. Gross margins on homes closed in the fourth quarter was 18% compared to 23.7% in the previous year’s quarter, largely as a result of a shift in regional and product mix, 221 basis points impact from purchase accounting adjustments related to our acquisition activity. When excluding capitalized interest, and purchase accounting impacts from cost to sales, our gross margin in the quarter was 21% versus 25% in the prior year quarter. On our expanding base of activity, we effectively leveraged our cost base to deliver SG&A as a percentage of home sales of 11.8% in the fourth quarter, compared to 13.7% in the third quarter and 16.3% in the prior year quarter. This improvement was primarily the result of higher home sales revenue, which more than offset an increase in personnel costs and additional investments to support a higher number of communities, and public company cost. Our net new contracts in the fourth quarter of this year totaled 365, an increase of 351% from 81 in the prior year quarter, to end the year with a consolidated backlog 772 homes. This increase in backlog, represented 248% year-over-year increase over our backlog of 222 homes at the end of 2013. In our established Colorado and Central Texas markets, our unit backlog increased 39% during that same time period. On a total dollar basis, we ended 2014 with a backlog dollar value of $246.3 million, up 139% from $103.3 million at the end of 2013. Turning now to our balance sheet and liquidity. We ended the quarter with $33.5 million in cash and cash equivalents. We had total inventories of $556.3 million and total assets of $676 million. Our total liabilities were $310.8 million, including total debt of $229.6 million. As discussed on our Q3 call, we entered into a new three year, $120 million senior unsecured credit facility which provides an attractive source of capital to pursue targeted growth opportunities, including the cost of handling of our recently completed acquisition of Peachtree Communities for a total purchase price of $57 million. As of December 31, 2014 our total liquidity was $133.5 million, including $100 million of availability on our credit facility prior to the exercise of accordion feature and the company's ratio of net debt to capital was 34.9%. We believe our balance sheet and capital resources strongly position us to continue investing in attractive land, pursuing targeted acquisitions, and executing other accretive transactions, including share repurchases. With regard to our share repurchase program, during the fourth quarter we repurchased 608,000 shares for an aggregate purchase price of $9,728,000 million. Now, I would like to provide some color on our outlook for 2015. We are confident that our growth can and will continue into 2015, supported by improving fundamentals in our markets. Our results in 2015 will benefit from growth in our legacy markets, as well as the full year of operations in each of newly acquired Las Vegas, Houston, and Atlanta markets. For the full year 2015, we expect home delivery to be in a range of 2000 to 2500 homes and home sales revenue to be in a range of $650 million to $800 million. This excludes the impact of future acquisitions, and indicates our doubling of deliveries and home sales revenues at the mid points of the respected ranges compared to 2014 volumes. For the year, we anticipate opening 20 to 30 new communities, but also closing out roughly the same amount. At the end of 2015, we expect our active selling community count to be in the range of 80 to 90 communities. We are extremely pleased with the investments we've made to grow our platform and enhance our profitability. For the full year 2015, we expect our operating margin to increase, compared to the full year 2014, largely as a result of topline growth as well as our continued efforts to further drive down our SG&A as a percent of home sales. On a quarterly basis, we expect our third and fourth quarters to be our best ones as is consistent with our historical trends. We anticipate our 2015 gross margin percentage to be similar to our Q4 gross margins excluding adjustments for purchase price accounting, largely based on our expected mix of homes by product and region. I would also like to note that we’ll continue recognizing purchase price accounting adjustments as a percentage of home sales revenues in the first half of 2015 resulting from our recent acquisitions. In closing, we’re excited by our growth prospects for 2015 as we look forward to a full year of operations from our acquisitions and another successful year of profitability and improvement across our business. We are now happy to take some of your questions. Operator, can you please open the lines up to Q&A.

[Operator Instructions] Our first question is from Steve Stelmach of FBR. Please go ahead.

Hi good afternoon.

Good afternoon, Steve.

Good afternoon, Steve.

Congrats on the quarter guys. It's nice to see that excess velocity going out of 2014. Could you just talk a little about acquisitions and just sort of the acquisition environment and how that may have changed in the past couple of quarters since the IPOs? Has it changed based on your appetite for different markets? Have sellers got a little more rationale? Just want to get a flavor of what you're seeing out there and sort of appetite as you go into 2015 particularly given guidance doesn’t include any acquisition activity?

Steve, its Dale. It’s nice to talk to you. In terms of our acquisitions, we’re still looking for additional acquisitions. In terms of pricing acquisitions specific ones tend to be all over the Board and we’ve been very diligent and responsible in the acquisitions that we've completed and we intend to continue doing that. The fact that we haven’t modeled any into 2015 is merely a reflection of we’re trying to be as transparent as possible on our current platform. But as we go forward, we would certainly expect that we continue to in the market for new acquisitions and that’s still our preferred way to access new markets.

Okay. Great, that’s helpful. And then on the Texas commentary that you provided, I understand it’s a very single digit, small to single-digit percentage of your overall assets as Houston but does look like lots owned and controlled up a little bit quarter-over-quarter there. What was sort of the acquisition environment like in Houston and then sort of what are you seeing there that bumped that number up granted it's still a very, very small number?

So Steve, this is Rob, as we look in that market, we’re being very cautious on any new dollar spent into that market. As we look at some of the competitive builders that have been buying in that market, a lot of them had slowed down or stopped their purchases to kind of see how things go and most of the increase on our books or on lots that are controlled not owned.

Got it. Okay, great guys. I’ll hop back in the queue.

Thanks Steve.

Thank you. The next question is from Michael Rehaut of JPMorgan. Please go ahead.

Thanks, good morning, everyone.

Good afternoon. How are you?

Hi Michael.

Good thanks. I guess the first question, I just wanted to drill down a little bit on the gross margins. For the quarter and I guess your guidance for 2015 that you expected to be similar to the fourth quarter. And I guess around 18% after interest amortization if I have that right. Just want to get a sense I guess, number one, do have the right in terms of the guidance, but more so when you're thinking about gross margins through your acquisitions or what not, certainly relative to the margins you were generating just in Colorado, there’s been a pretty big shift downwards and how do you guys think about there is a certain level of a gross margin that you prefer to generate for, is it really more just to return on asset type of proposition?

Hey Michael this is Dave, I’ll answer the first half of that question and let I'll Dale, take the second half, but in terms of the guidance numbers in the outlook that we're looking at comparing to Q4 of 2014, we’re looking more at the 21% of gross margin; so absent the cap interest and absent the purchase price adjustment not the 18%.

And then Michael, when we look at the five markets that we’re in, Colorado, Central Texas, and Las Vegas, the margins have been pretty consistent and they also have a consistent business model where we develop a large number of our lots that we build on. When we look at Houston and Atlanta they really run a different land model and that land model is based on primarily buying finished lots on typically rolling option basis. So as we look at continuing to bring those operations into the Century pool, particularly in Atlanta and to a lesser extent in Houston depending on how everything plays out in the market, we intent to bring those land development opportunities into the company. We’ve already started in Atlanta. We’ve started building a land development department. And we intend to develop a portion of our lots going forward and we would anticipate that we would have higher margins on those lots as they continue to roll into our closing or start to roll into our closings.

That’s helpful I appreciate that. And then I guess just secondly with the community count guidance 80 to 90 by the end of '15 similar to where you are today, I think excluding some of these acquisitions we had been expecting I think core growth to occur more organically. Has there been any I guess changed to the cadence or expectations in terms of growth by market and maybe, you can kind of just go into what if there’s any differences there versus the original business plan six, 12 months ago?

Michael, its David. I would say the original plan that we went out with the IPO and the cadence of community openings I think it’s probably still roughly close to the same as we look into '15 with where we are today. As so having 80 to 90 open and also closing -- so we’re going to open 20 to 30 next year and close out roughly 20 to 30. We’re pretty comfortable with those numbers and don’t think we’ve changed our cadence materially or too significantly since we've altered our business plan.

I think long when were on the IPO and I think the other guidance that we had is that from the three markets that we’re in at that point that we would have 48 active communities at the end of the year and we ended up with 46. So we’re pretty close to being on track with what those expectations were.

And excluding Atlanta, can you give us a sense of what the other markets are at the end of this year versus what you expect them to next year in terms of community count?

At the end of this year that’s on the fourth or fifth page of the supplement where you kind of broken it down by markets as we get to the 83. But we aren’t providing a breakdown at this point in time of the 80, 90 that will end the year with for 2015 by market.

Okay, all right. Thanks guys.

Thank you.

Thank you.

Thank you. The next question is from Nishu Sood of Deutsche Bank. Please go ahead.

Thanks hi everyone and appreciate all the new detailed disclosures. I wanted to start off on the balance sheet, obviously quite a bit of action with the acquisition and the substantial pace of share repurchases. So your cash balance down to $33 odd million, we’re heading into the spring inventory build. So let’s say that drilled down much of the bulk of the $100 million of credit facility, I know that is beyond that as well, so the accordion feature. But that would be pushing your debt up to -- your net debt to cap up to kind of 45% range. So I guess the multifaceted question, but where are you comfortable, if you have another acquisition, do you have room to do that? The share repurchases were quite aggressive I think 3ish percent of your outstanding in the fourth quarter. So sorry for the multi-part question, but all those things together where do you stand on those and what capacity do you see on your balance sheet?

Hey Nishu it's Dave. So I guess try and answer couple of parts of your question and let me know what I missed. On the share repurchase, let's say, where are we comfortable on the balance sheet? Today we’re less than 35% on our net debt to net capital basis. We’ve been saying for some time that we’re very comfortable going to a 50% mark. Now there was a point in time and a reason if we drew up the revolver and guidance of the 40s, we still have room up on the balance sheet. And if we were to have a transaction that would warrant additional financing whether it be through the debt or equity markets, we bring that to market and have a plan to keep leverage in check whether it be through an additional offering or through retained earnings because of the operation we're buying and the cash flow it's going to generate. In terms of share repurchases, I apologize what was the question about share repurchases?

Oh! Yes sure, well before moving on to that though, my question was if you with the spring inventory build, I imagine that that could absorb a $100 million maybe that’s an overhead estimate, but that alone…

I think that’s a little high -- that’s a little high for this building.

Got it, got it, but still that would push you probably over 40%, but I guess you’re saying that you would be willing to depending on the opportunity and the amount okay. On the share repurchases side, I was just wondering how investors should think about that going forward? I think you laid it out pretty clearly that you initiated that there was an opportunity in the shares, is this the start of share repurchases as an avenue for cash distribution to shareholders or was it opportunistic? How should we expect or how are you thinking about it going forward?

During the third quarter call we put it out there we see it just as other tools or shareholder value. You look at the price that we bought those shares at though there are significant market dislocation in December and there were opportunities for us to acquire 608,000 shares at a share price of $16. When you look at our balance sheet today and that is below tangible and book value. So we felt that that was an attracted use of capital for us at that time. Where we’re trading today may not be such an attractive use, but it’s definitely -- it’s an opportunistic tool for us as we look to deploy capital.

Got it. Got it. No, that’s very helpful. In the new -- in the disclosures on the lot counts, one of the things that was interesting was that even as you've grown significantly or a lot count and diversified and become more of a regional/national builder, the lot counts in your older locations Denver and Central Texas have fallen. But at the same time, you mentioned that you picked up I think 900 plus lots in the fourth quarter across your operations. So I was just wondering how should we -- how should we think about that? Are you bringing your lot supply post IPO in line in those markets? Obviously you had built up quite a land bank in Denver and the operation that you picked up in Jimmy Jacobs look like it had quite a bit of land as well. So how should we understand the context of you continue to grow -- bought 900 lots, but at the same time, Denver and Central Texas are down quite a bit on a year-over-year basis?

They were continuing to grow in all of our markets Nishu. However, we’re looking at a more diversified platform as we go forward and as we’re in multiple markets now for obvious reasons. So that was one of the original goals of raising outside capital through the original 144A and then into the IPO was to be able to be in a position where we could allocate capital among multiple markets depending on the opportunities that we see at a particular point in time.

Got it. And if I could just ask one other kind of housekeeping one, 129 orders for Peachtree in 4Q, I imagine that was just for the half quarter, what was that number for the full quarter?

I don’t have that in front of me, but I can follow up with you on that.

Okay, that would be great. Thank you.

Thank you. The next question is from Jay McCanless from Sterne Agee. Please go ahead.

Good afternoon, everyone. Thanks for taking my questions.

Hi, Jay.

Hi, first topic I wanted to touch on with speculative homes, could you tell me where you ended the year with specs?

This is Dave. We haven’t provided that level of detail in terms of house count.

Okay. And then on, I know you said in the prepared remarks that probably the purchase accounting marks are going to continue for another couple of quarters, could you just give me on a percentage basis, how many of the acquired specs you got in the Peachtree deal, how many of those you've worked through and is it going to be evenly spread between 1Q and 2Q you think on that purchase accounting hit?

I'll take it up a level in terms of purchase accounting that if you look at that fourth quarter we had roughly $3 million worth of purchase price accounting adjustments. I would expect something similar roll through over the first two quarters and that will really depend on closings. So we’re still in the process of wrapping up those purchase price studies. You have a year from the date of acquisition, but we try to get it knocked down in the first two quarter, three quarters at the most, but I would expect from a modeling perspective, if you use the fourth quarter as a number for the first two quarters of next year that should be pretty good.

Okay. Okay, will do. And then going over to pricing, if I just take the midpoint of the revenues and the closing that you gave in the release got me to I think in ASP somewhere in the 325 range somewhere in there which was a little bit higher than what we had expected for 15. Can you talk -- when you look at the range of revenues you gave and the closings, is there any assumption of pricing power in there for certain markets and could you touch on how many or what percentage of your markets right now you're able to raise price.

Sure. Jay, we don’t -- in terms of our projections, we don’t put in any HPA assumptions. We anticipate and I can talk in a moment about where we’re seeing the most opportunities, but it's not something that we factor in. When you look at our -- the backlog that we had at the end of the year, the ASP in that was right at 319 and a lot of that depends on the mix. But that’s why when we look at it we think 325 is a pretty reasonable number from a modeling standpoint. In terms of pricing power, right now Atlanta has really been a market that we’re continuing to see the ability to raise prices, one of the attractive features in that market is that it's still recovering and so we’re benefiting from that recovery and we’re continually looking at prices and being able to move our prices. With that being said, when we look at it across all of our markets depending on the sub division, we were able to move pricing and we will review it on a continual basis and wherever the market allows it, we will continue to raise prices.

Okay, great. Thank you for taking my questions.

You’re welcome.

[Audio Gap] Brendan Lynch of Sidoti and Company. Please go ahead.

Good afternoon, guys. Thanks for taking my questions.

Hi, Brendan.

I want to talk a little bit about the integration of your acquisitions, what type of changes are you implementing in these new markets? And how autonomously are the acquisitions operating and if you envision any product shifts over the next couple quarters?

It currently depends on the market. When we can look it going back, I guess if we go back to the first acquisition in Central Texas, we have brought more of a production mentality to that operation and so that’s probably been the biggest change. We continue to build the product that was being built, when we acquired the Jimmy Jacobs' operation, but we brought in more of a production home as well. When we look at Las Vegas, but we are nearing opening some new model parts with some new products that we’ve been designing over the past few months but really the positioning in that market has remained the same, but we’re excited to bring on the new product. When we look at Huston, we are continuing to bring on some new product there at a little higher price point, but we're really not changing the focus and then Atlanta is the newest market, but we're really staying with the program that was in place, although we're expanding the offering in that market. So that what was historically an entry level in first move up buyer, we're starting to bring in some higher price point into that market and so that will be the change that occurs in that market. So when we acquire a homebuilder in the market, part of the plan is to look at where we think we can without making wholesale changes, have additive changes and keep in place what was already there but bring something more.

Great, that’s very helpful. And the just looking at your SG&A expense, it was pretty low for the year considering all the integration and acquisition activity, what does the normal rate look like and what can we expect going forward?

This is Dave. I don’t if we've hit a normal rate yet, given that we've done four acquisitions in 15 months and an IPO and become a public company. And so we’re continuing to drive as much leverage out of that SG&A platform as we can and say, running at a 11.8% in the fourth quarter going down quarter-over-quarter and year-over-year. We’re looking to -- we’re always looking to extract more value out of that and I think, once we hit a run rate number it will be a little bit easier to model, but I think right now, we’re always looking to improve that number.

Great, thank you very much.

Yes.

Thank you. [Operator Instructions] And the next question is from Joel Locker of FBN Securities. Please go ahead. Mr. Locker your line is live. Okay, it doesn’t appear that we have any further questions

Okay, well thank you operation and thank you again to everyone for joining us today. We look forward to speaking with you again next quarter.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.