Dale Francescon: Jay, I think a lot of that is just based on where we sit today with homes under construction. We significantly reduced the number of starts in the second half of the year. We started picking them up in November and December. And we’ve continued those into January. So when we look at it, part of it is we just need to build back up. And so in the first half the year, our deliveries will be down, and then they’ll start increasing. And then as we look at that, we’ll have at the end of the year, we’ll have more houses under construction. And by that time, we’ll be at a higher run rate. But as we just look at balancing out the first half and second half the year, that’s where we see that we’ll have the available homes to deliver.
Jay McCanless: So basically just a timing issue, because you got to get communities open, and you got to get more specs up. I guess what were your total homes under construction at year-end and how many of those were spec?
David Messenger: We don’t disclose the number of homes that we have under construction at any given time, but nearly 100% of them are spec. That’s always been our model.
Jay McCanless: And then just
David Messenger: Other than our backlog. Go ahead.
Jay McCanless: I guess the other question, just thinking about price, I mean, it looks like kind of a drift down through the year, I mean with these newer, smaller base prices, I mean are you guys thinking you’ll have a drift somewhere down by like 5% to 10% by year-end? Or is it going to be something smaller than that? And I know that the midpoint of the guidance works out to 380,000. But if you’ve already started to put in some of these lower priced homes and lower price floor plans, just kind of wondering where average prices should end the year up?
Dale Francescon: Well, I think part of it is and it’s hard because of our two brands. And there’s obviously a big pricing disparity between them. And when we look at it last year, our Century Complete brand really grew. And so we think that, that is well set up for the affordability challenges that we saw last year, and obviously as prices have gone up, continue to a certain extent. So there’s — some of that is a higher percentage of Century Complete, as well as we pivoted a number of our plans to smaller plans and subdivisions, and particularly on new communities where we’ve done that to get the overall price point down. So it’s really a combination of those two things.
Operator: The next question comes from Michael Rehaut with JP Morgan.
Michael Rehaut: Wanted to just circle back and make sure thinking about the gross margins correctly. And appreciate the additional color on question around the 400 basis point math. When originally though, when you describe that you’re saying that you could think that you expect second quarter to improve, and eventually, I guess in the back half, the second half of the year, get back to more normalized levels, when you look at normal — I mean I guess the question is, what do you consider normalized gross margin levels? Because just a quick look from 2016 to 2020, you averaged 18.3% including interest amortization — after interest amortization. With the 400 basis point math that’s putting you to like 22.5%. So just want to get a sense of, if indeed, that’s what you’re thinking, again, to get to that 22%, 23% range by year end? Is that’s what you consider the new normal, or if there’s other factors we should consider?
David Messenger: Hey, Mike, it’s Dave. We’ve talked about this on past calls in terms of how margins have been all over the board over the last year or two. They’ve obviously swung in our favor. And now they’re a little bit against us being, probably 18.5 in Q4. As we talked about before, we think there’s been a lot of improvements in our pricing, our scale, our plans, our efficiencies, our cycle times, and such that if we start getting all that back into a good rhythm in Q4, we ought to be building at a more normalized margin, which will be higher than what we had in the past. We are recording something in on 18% and 19% range. And now the new norm is hopefully going to be something in that low 20s range. But I think that’s going to be a result of a lot of the stuff we’ve put in place over the past several years.
Michael Rehaut: That’s helpful. So, something, 21, 22, 23, that type of range is kind of what you’re thinking?
David Messenger: Yes.
Michael Rehaut: Secondly — appreciate that. Secondly, just kind of looking a little closer term on the first quarter. I guess you kind of said that expect gross margins, again, after or inclusive of interest to be similar to 4Q’s 18.24, can you give us any directional guidance on the closings? Obviously, you talked about 7,000 to 8,000 for the full year, you kind of talked to the issue that in the first half of the year, you’ll be working off a very low backlogs and as a result of your strategic approach, has couple of quarters. How should we think about closings in terms of any type of range? Or perhaps first half, second half split? I think that would be pretty helpful just for modeling.
David Messenger: Yes, I think that you’re going to see Q1 be our lowest closing quarter of the year. And then they should grow sequentially as not only do we work through our backlog, when we start bringing online a lot of the homes that we’ve started construction on here in December, January, that we’d expect to start construction on through the balance of Q1 and Q2 that we could still deliver into Q3 and Q4. And so I think, it’s going to be back end weighted to the third and fourth quarters, while we get back to a little bit more of a traditional trend for us where the first quarter is your lowest closing quarter, and then it begins to grow through the course of the year.
Michael Rehaut: One last one, if I could sneak it in, just around, how to think about SG&A? Obviously, you’ve had a lot of success over the years that you’ve grown significantly. This is going to be more challenging year, obviously. Anything in terms of just variable expense or any ways to think about the type of deleveraging that we should be expecting?
David Messenger: Yes. I think next year, deleveraging gets a little bit more difficult just because you’ve got closings of revenue coming down, and we’ve got a fairly large national footprint across 18 different states that we’re managing. We’ve been running about a 65-35 split on a fixed versus variable basis. I think we probably continue that split over the course of full year. And as we’ve been prone to act quickly in the past, whether it’s staffing adjustments, division adjustments, whatever the case is, we will look for any opportunity we have to find that deleveraging opportunity within the SG&A categories, and put more to the bottom-line. But we acknowledge that next year it gets a little more difficult with lower revenue line.
Operator: . The next question comes from Alex Barron with Housing Research Center. Please go ahead.
Alex Barron: Thank you, gentlemen. I wanted to see if you guys could talk about improvement in build times. How much did the build times get extended out to last year and where do you feel they are today and where do you think they’ll be, I don’t know, six months from now?
Dale Francescon: So it’s basically a mixed bag, Alex, looking back over the past 12 months. And depending on the particular market, the particular plan and all, the cycle times vary quite significantly with the supply chain challenges, the labor challenges and all. Going forward though, that’s a real focus to reduce that down. As I mentioned earlier in the prepared remarks, the supply chain is easing. We are seeing more availability of labor and everything else. So all of that are great. As we look at our new templates going forward on homes that we are starting now versus homes that we are started, let’s say, at the peak pricing six months ago, we are looking at a 57 day reduction on cycle times on average. There is variations from that, but on average.
We are also shooting for a maximum as a round number of a six month build time. In some areas, we can do much better than that; other areas, it’s still elongated. But we are getting great traction on getting our cycle times reduced. Where we are going to be at the end of this year? I think it’s going to be back to a more normalized basis on what pre-pandemic cycle times were. It’s going to be closer that type of a scenario. But it’s getting…
