The New Home Company Inc.
Q3 2018 Earnings Call Transcript

Published: 25 Oct 2018

[Operator:]

Greetings and welcome to The New Home Company's Third Quarter 2018 Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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 Drew Mackintosh with Investor Relations. Please go ahead, Drew.

[Drew Mackintosh:]

Good morning and welcome to The New Home Company's earnings conference call. Earlier today, the company released its financial results for the third quarter of 2018. Documents detailing these results are available in the Investor Relations section of the company's website at nwhm.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the company's filings made with the SEC, including in its most recent Annual Report on Form 10-K and in its Quarterly Reports on Form 10-Q. The company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures may be discussed on this conference call. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through The New Home Company's website and in its filings with the SEC. Hosting the call today is Larry Webb, Chief Executive Officer; Leonard Miller, Chief Operating Officer; and John Stephens, Chief Financial Officer. With that, I will now turn the call over to Larry.

[Larry Webb:]

Thanks, Drew and good morning to everyone joining us on the call today. This morning, I would like to break from our normal earnings call procedure and address the recent weakness in our stock and provide some high level thoughts on the company and the state of the housing market. Leonard will then give some additional color on current market conditions and John will provide more detail on the numbers. As of yesterday's close, shares of the New Home Company were trading at $6.94 per share on 20 million shares outstanding for an equity market capitalization of 142 million. This compares to a full backlog at the end of the third quarter of 311 million or roughly two times our market capitalization. Our stock is currently trading at 0.6 times book value, a valuation that we believe represents a very positive long term opportunity for the investment community. This assessment by the equity markets is at odds with our outlook for the company and the bond market where our senior notes currently trade above par. We realize that we are a company in transition and that our path to better profitability and more consistent earnings has been a slow process, but I believe that there is significant value embedded in our company, which is being underappreciated. That is why we have been actively buying back our stock, purchasing over 400,000 shares in the third quarter and nearly 625,000 shares or 3% of our shares outstanding, since we received authorization from our board in May. We have an additional 9.2 million remaining under our current repurchase authorization, which we equate to over 1.3 million shares or in excess of 6% of the shares outstanding at yesterday's closing price. While we continue to see attractive land deals in our market, we're actively weighing potential land investments against further share repurchases, given the value we see in our existing land holdings, relative to today's stock price. In the near term, however, we expect our results to remain choppy as both homebuyers and builders adjust to the new reality of higher home prices and rising mortgage rates. Longer term, we continue to have confidence in our strategy and the progress we've made, transitioning our company into a more affordable priced product. With that, I’d like to turn it over to Leonard to give more detail about the current trends in our markets.

[Leonard Miller:]

Thanks, Larry. In general, I would characterize the overall housing dynamic in our markets as mixed, with strong local economies and limited home inventory being tailwinds for new home construction and weakening whole affordability and softer agent buyer demand being headwinds for our business. In Southern California, we continue to see solid order trends and our more affordably priced communities, both in the Inland Empire and closer to the coast. Our Seville community in the Inland Empire was a standout during the quarter with an order pace and gross margin significantly higher than the company average. This bodes well for our company, as we have several new communities at more affordable price points, scheduled to open in the coming quarters. In addition, we have the right of first refusal on over 400 lots coming out of the well located, Bedford master plan at Corona which we dealt with through one of our joint ventures. Bedford can potentially provide New Home with a great runway of lots for years to come. We continue to see softer demand trends at the higher end of the market, especially if some of the Irvine master plans or where pricing is at the top end of a particular submarket. Fortunately, our exposure is limited in the Irvine submarket as we're close selling out all the remaining wholly-owned projects in the area. We do feel that there are still opportunities at the high end of the market, provided that you have the right product in the right location. A good example of this is our Sky Ranch project in Covenant Hills neighborhood of Ladera Ranch, which sold 3.3 homes per month in the quarter at an average sales price of approximately $2 million before we opened our models. Turning to Northern California, price and location were again the main drivers of our success in the market, as buyers continue to weigh affordability against other factors. Our Ellison Park community in Milpitas continues to perform well, with a sales pace of 5 points per month, at prices just north of $1 million. Further Inland, we also saw good order trends at our Tidewater community in the River Island’s master plan in Ladera, which offers more affordably priced homes in the $500,000 range. Sales were a bit slow in the Sacramento market, though we believe this is a function of a few communities being closed to close out with limited selection of remaining lots as well as one community, where merchandise model homes were not yet open. In Arizona, we experienced very solid order momentum at our Belmont Community in Gilbert, which offers homes starting in the $700,000 range. We will continue to move down the price spectrum in the coming quarters with several new communities coming online at base prices starting between 275,000 and 400,000. We believe these new communities will give us much needed scale in the market and increase our exposure to a deeper pool of buyers. Now, I’d like to turn it over to John for more detail on the numbers.

[John Stephens:]

Thank you, Leonard and good morning. During the 2018 third quarter, we generated net income of $2.5 million or $0.12 per diluted share compared to net income of 4.3 million or $0.21 per diluted share in the prior year period. The year-over-year decrease in net income was primarily due to a 170 basis point increase in our selling and marketing expense ratio related to the ramp up in new communities and 150 basis point lower gross margins limited to higher interest costs. These items were partially offset by a moderate increase in home sales revenue, a 50 basis point decrease in our general and administrative expense ratio and a lower effective tax rate. Home sales revenue for the third quarter was up 5% to approximately $120 million. The year-over-year increase was driven primarily by a 55% increase in deliveries, which was partially offset by a 32% lower average selling price of homes delivered. The change in average selling price was most pronounced in Southern California where our ASP was down 53% to 963,000 as compared to $2 million a year ago. The decrease in Southern California was largely due to a mix shift with deliveries at four communities priced below 700,000 in the 2018 third quarter, as compared to none in the 2017 period. Based on the homes in our backlog, we expect our fourth quarter and full year average selling price to be approximately $1 million. Our gross margin from home sales for the third quarter was 14.8% as compared to 16.3% in the prior year period. The 150 basis point decline in gross margin was primarily due to an increase in interest and cost of sales and to a lesser extent a product mix shift. The prior year third quarter included a large share of revenues from luxury products in Newport Coast, California, which closed out in 2017. On a sequential basis, we saw a 220 basis point improvement in our GAAP gross margin from the 2018 second quarter due to a mix shift, including increased deliveries from our successful Bay Area community in Milpitas. Excluding interest and cost of sales, our gross margin from home sales for the 2018 third quarter was 18.4%, consistent with the prior year period. We expect our fourth quarter gross margin to be between 14.4% and 14.8% and for the full year, we are anticipating between 13.8% and 14%. The decline in full year gross margin guidance from the previous quarter is primarily due to some expected margin pressure with slower anticipated absorption rates coupled with a decrease in projected home sales revenue in the fourth quarter at certain higher margin communities. Our SG&A rate, as a percentage of home sales revenue, for the third quarter was 12.8% versus 11.6% in the prior year period. The 120 basis point increase was primarily due to higher selling and marketing costs related to advertising for recently open communities, increased master marketing fees, higher co-broker commissions and higher sales personnel costs associated with increased community count. These items were partially offset by a lower G&A rate, resulting from slightly higher revenues and lower compensation related costs. For the fourth quarter, we expect our SG&A rate to be in the low 9% range and for the full year, to be in the high 11% range. The higher anticipated SG&A rate for the full year is the result of lower home sales revenue associated with lower sales absorption rates and previously expected as well as construction delays at a few projects. Our share of joint venture income for the 2018 third quarter was 34,000 compared to approximately 100,000 in the prior year period. The reduction in JV income primarily resulted from lower home building gross margins and a mix shift in deliveries. Net new orders for the 2018 third quarter were up 63% year-over-year, which was driven by an 82% increase in average community count. Our monthly sales absorption rate for the third quarter was 2.2 per community compared to 2.5 per community in the prior year. The decline it absorption rate was largely due to strong initial order activity from a Bay Area community that opened in September 2017, coupled with slower absorptions in the 2018 third quarter from two higher priced communities in Southern California and one in Arizona. We ended the third quarter with 20 active communities, which represented a 67% increase over the 2017 third quarter and we expect to end 2018 with 18 active communities. The number of homes in backlog at the end of the quarter was up 70% over the prior year period and represented a backlog value of $311 million. The average home price in backlog at the end of the 2018 third quarter was down 45% to just over $1 million compared to $1.8 million in the year ago period. The lower ASP and backlog was largely due to the mix shift in Southern California to more affordably priced product. Our fee building revenue for the third quarter was $39 million as compared to 43 million a year ago. The slight decrease in revenue was primarily the result of the timing of construction start and the mix of units under construction in the 2018 period as compared to the prior year period. Our fee building gross margin for the quarter was $1.1 million or 2.8% versus 1.5 million or 3.5% in the prior year period. The lower fee building margin resulted from a decrease in revenues and a lower fee building arrangement. We expect our fee building gross margin for the fourth quarter to remain around 2.8%. Our effective tax rate was 27.8% for the 2018 third quarter as compare to 38.1% in the 2017 third quarter. The lower effective tax rate was due to the new tax law change that went into effect at the beginning of 2018. We are projecting our full year tax rate to be between 28% and 29%, including discrete items. As of September 30, 2018, we owned or controlled approximately 6000 lots, which included 2900 lots for our wholly-owned business, over 2100 lots through joint ventures and approximately 1000 fee building lots. Of the 2900 lots controlled through our wholly-owned business, nearly 50% were controlled through option contracts. With respect to our balance sheet, we ended the quarter with $44 million in cash, 562 million in real estate inventories and 382 million in debt, including 62 million outstanding under our $200 million revolving credit facility. During the quarter, we spent approximately 84 million on land and expect to spend approximately 220 million for the full year in 2018. Also, during the quarter, we repurchased approximately 418,000 shares of stock at an average price of $8.80 per share and an aggregate total of $3.7 million. We ended the quarter with a debt to capital ratio of 59.7% and a net debt to capital ratio of 56.6%. We expect our fourth quarter leverage to decline slightly, as we anticipate generating positive cash flow during the fourth quarter. Now, I’d like to provide you with some additional color regarding the 2018 fourth quarter. We’re estimating home sales revenue of between $215 million and $255 million. Fee building revenue of between $30 million and $40 million. Joint venture income of 300,000. I'll now turn the call back to Larry for his concluding remarks.

[Larry Webb:]

Thanks, John. In conclusion, I’m pleased with the progress we made in the third quarter, as we further diversified our company by transitioning more of our home offerings to the lower end of the price spectrum. We also grew our unit backlog by 70%, setting the table for a strong quarter of closings and cash generation to end the year. We are by no means pleased with our current level of profitability, but believe that we have chartered a path to better results in the future and are optimistic about what lies ahead for the New Home Company in 2019 and beyond. While our new term results may be negatively impacted by the affordability issues that are currently playing out in our markets, we have confidence in the long term fundamentals of our industry and the embedded value in our company and we plan to continue to show that confidence through the opportunistic repurchase of our shares. In addition, I want to further emphasize that we have an extremely experienced management team at both corporate and divisional levels. Quite simply, we know how to navigate successfully in complex markets. We welcome the challenge. That concludes our prepared remarks and now, we’ll be happy to take your questions.

[Operator:]

[Operator Instructions] Our first question is coming from the line of Alan Ratner with Zelman & Associates.

[Alan Ratner:]

So, Larry, I appreciate your sentiments on the stock. I'm sure it's frustrating to see a trading where it is. I think what the market, and this might be a tough question, and but maybe John can provide some insight or thoughts, I think what the market is kind of looking at right now is they see your current profitability levels, your margins are in the 14%, 15% range and at the same time, you're looking at the dynamics in California today where clearly things have slowed. I think you’re starting to hear from some companies about the need for incentives to maybe jump start some activity and quite frankly, you just don't have a large buffer on the profitability side, at least it would seem to withstand any significant price adjustments. So, I know you guys do an impairment analysis every quarter and up to this point, it's been certainly not a relevant conversation, but John, is there any information you could provide us, just how much buffer there is when you guys do your analysis, because I know your business is a bit unique, you've got the profit sharing deals with the various master plan developers there. So perhaps, there's more buffer than it would seem to imply, just looking at your reported margins? Thank you.

[Larry Webb:]

This is Larry first and I’ll turn it over to John. By the way, I think you set the record for the longest question ever asked a homebuilders. I actually – I really am not frustrated by where our stock is. I think it represents an opportunity. I understand where the investment community is and that we look in the mirror and we went to be the straighter shooters in the industry. Our results have been choppy, but over the last three years, we really have anticipated the move up market slowing and we've been -- had a strategic plan to be building more and more affordable housing and we feel as if that's going to give us a competitive advantage moving into 2019 and beyond. So, one thing I'm very clear about is that the investment community is thoughtful and it has a wide range of different companies to look at. And it's on me, in particular and on our company to perform better and I feel as if, we've laid the foundation, but everyone is waiting to still see the results and it's coming and we believe it's coming enough that we want to continue to buy, and invest in our own company and you'll see that. But overall, I think, you've been fair and so is the investment community. And I’ll turn over the majority of your question to John.

[John Stephens:]

Yeah. You're right in that many of our communities, as you said, are master plans, where we have proper participation and obviously some, you are further in the participation than others. So that would provide a little bit of room, if there was a downtick in pricing and sort of margins. Now not all of our deals are in master plan communities with proper participation. Most of our communities are opening and selling. You always have a project or two that sort of doesn't sort of meet the mark, where you're at a margin. So, you're always sort of evaluating a project or two, what we call, sort of on our watch list. But, I would say, without getting into sort of the sensitivity of where prices would have to go before you start comparing any projects, the list is short right now and we think we've sort of looked at a lot of those and you always have something you're evaluating, but for the most part, most of our communities, they're not that disturbed in terms of the margins. They're closer to the mean. So, not to say we don't have an outlier here or there. But, it's hard to say right now where that stands, but I don't know if that helps you at all. The other thing I wanted to mention was the number of lots we have under option. We have about 50% of our lots that are under option, down from maybe two-thirds where we were a couple of quarters ago. We had about $18 million in option deposits outstanding, with land sellers. We are evaluating certain deals and we're going back and talking to the seller in certain cases that maybe margins are a little tighter than what we originally underwrote or expected in a community or two. So those are sort of ongoing discussions and a couple of spots. But I think the point is, it's not a maximum amount of deposits to believe about that risk at this point, which to me is a real positive.

[Alan Ratner:]

Just to kind of follow up then on the impairment side, so I guess you don't have the sensitivity, but is it the correct way to think about it though, I mean, would it pretty much be if your margins are 14% today and you said, most of your projects are centered around the mean, but if you were to assume prices go down say 5%, I mean that would effectively push most of those deals into a negative cash flow situation. Am I thinking about that the wrong way?

[Larry Webb:]

No, not really. I think, the net margin, you probably have to see more like a 10% erosion sort of in the margin, before you sort of get down because you have never seen in your marketing cost, the dispose of the asset, which is 4% or 5%. Let's go back one second. We may have an outlier or two, but the majority -- vast majority of our communities are in no way in risk of any kind of impairment in the near term and I want to be very clear, and again, part of it is, partially, it's a number of lots we have on option, second is if we are in a lot of master plans where we have -- we have a lot of safety. So there's always a project or two that you look at in good times or bad, but overall, we're in a solid position right now. And the participation is typically 50% to 70%, for example, on our Irvine community and [indiscernible].

[Operator:]

Next question is from the line of Scott Schrier with Citigroup.

[Scott Schrier:]

So understanding your experience allows you to see where the market is and I know that you're somewhat pivoting your strategy, but at your core, you're a luxury builder and I'm curious as you look forward, do you think that that true luxury part of the market that you participate in picks up or do you expect the remainder of the cycle to really just be driven by more of the affordable homes that you're pivoting in to?

[Larry Webb:]

Well, let me make three points and then I’ll turn it over to Leonard or John. First of all, at our core, we are a consumer driven, market focused builder. Prior to New Home Company, most of our leadership team [indiscernible] 3000 homes a year and we did it in all price ranges. The fact that we started off as New Home Company as a luxury builder was the result of a strategic plan we had and it worked and it was very successful. But at our core, we want to be in the strongest, deepest markets, in the best locations wherever we are. And we have been focused and are going to continue to focus on that. Now, so that's one. Number two, our people are making way too many overgeneralizations about California as a whole. Like all markets, our business is submarket by submarket, location by location. Right now, we're seeing, for example, in South Orange County, our Sky Ranch project at $2 million a house, selling incredibly well. We have a slower project that’s priced slightly below that. One mile difference is can make that much of a success versus just mediocrity. So it really is submarket by submarket. I think that there has been an awful lot of overgeneralization in our industry about entry level versus moveout versus luxury. And from my perspective, that overgeneralization can get builders in trouble. So, what our approach has been is to understand our consumers, see where the deepest markets are and provide housing for them. Two years ago, our average sales price was over $2 million. This year, our average sales price will be somewhere about $1 million, maybe a little less. Next year, it'll be lower still and most of the new communities we're bringing on between now and next year will be under $750,000, which in California is not luxury housing.

[Scott Schrier:]

And then if I think about whether it’s price versus pace or your use of incentives, disperse some of this demand, can you just give a little color on how you're thinking about incentives and what types of incentives or any kind of rates or how you expect them to impact margins?

[Leonard Miller:]

Yeah. This is Leonard. I'll take a shot at this. I mean, I’ll first start with the market. I mean, what we're generally seeing across the board, whether -- with most of our competitors is we're not seeing incentives spiking up other than in the case that you do see maybe 200 basis points when people are really looking to move your end homes, where each of the companies, you may see incentives go from a level of 2.5% to 3% to closer to 5% when they're trying to move inventory and kind of close homes to their year-end. As far as new home is concerned, it’s really community by community. There are certain communities that we continue to absorb at. We think it's a great location where you can’t replace the lots and we're not going to incentivize those lots to try to move those and close those homes. If we found not only over the last three months, but just year-to-date, we've been slightly disappointed with the community and its absorption, obviously, we make an adjustment there to try to find the market and kind of move the inventory and really absorb, because extending the lifecycle of a community really will get where there is your stock cost and by extending the community, really it erodes margin. So we will look at the adjustments, do an analysis, maybe looking at how far if we keep at current pace, what’s the tradeoff in margin versus adjusting the incentive today and making that correction.

[Scott Schrier:]

Last month, when I was out with you guys toward some of the more entry level product in Southern California that you're getting into and I'm just curious with all the noise around the absorption pace and everything, I just want to see if you could talk about some of that more affordable product in Southern California and how you're thinking of it in terms of what you're seeing, whether it's in terms of traffic, interest, absorptions, and just more of that more affordable product in Southern California.

[Larry Webb:]

Well, for us, our second, I mean, our third quarter was pretty solid for our entry and maybe even edge or first mover communities and we were on a par with the last year. We have had a slowing in October, but part of that is seasonality and to date, we remain pretty darn optimistic that we're positioned in the right markets with the right prices. So the homes that you visited through the end of September did quite well and we're -- as far as we're concerned, those master plans were in affordable housing are really still going to be long term successful. And really a part of it and I’m sure all of you have heard this on other calls in the last few weeks. The demographics here are really good. We still have job growth. We still have land constraints. We still have very high consumer confidence. We're sitting at what we hope is a pause in the marketplace, but we're being very vigilant on doing as much research as we can on whether we have weekly basis to try to ascertain where we are in each of our markets and clearly for us, our entry level are fixed rate entry level projects that have opened this year, have been our strongest in terms of sales basis.

[Leonard Miller:]

Yeah. I can add one thing. This is Leonard. Really, when you cover all the markets in California, I think, it's pretty consistent. When you look at the Inland Empire, when you look at Sacramento, you look at the Central Valley and you see the commuter markets in the Greater Bay Area, you're really seeing absorption that I’m seeing week over week in those markets is really just in a seasonal change, maybe slightly deeper than that, not much and then actually go up in price point, a couple of things I things are happening. If you're in San Jose or the core Bay Area, you see prices go up 11% or 18% this year and it certainly feels like that has slowed down, has slowed down pretty dramatically absorbing those price points. And then when you move to Southern California, it does a couple of things going on there. It feels like the resale market is becoming more normalized. So if you have a home to sell, that’s an issue with a little bit more inventory on that side of it and then certainly in Southern California with what we're seeing, with the trends with the Asian buyer, that's had an impact as well.

[Operator:]

Thank you. Our next question is from the line of Alex Barron with Housing Research Center.

[Alex Barron:]

Well, I wanted to just I guess make sure I understood correctly. So it sounds like you're not relying on incentives at the moment too much. Is there a point at which, or what would you need to see or from your competitors or something, where you would feel like maybe that's the right thing to do, because it sounds like everybody else is pushing really hard to try to close some homes before end of the quarter, end of the year and I guess I’m just trying to understand sort of your strategy relative to those guys.

[John Stephens:]

This is John Stephens. We are pushing hard as well to get close to this before year end. But I think, as Leonard indicated earlier, it's really community by community. If we're not seeing absorption rate that we're comfortable with, we will sort of address that and perhaps it could be an incentive versus some sort of adjustment, but in certain communities where we don't need to use the incentives or like Leonard said, there is just a limited supply of lots in a great location, we're not going to sort of be a big hurry to get through that, because you still have the construction issue on the back hand that’s sort of making sure you get out of the homes close. So, but, it's real simple. If we’re selling in a reasonable absorption rate, we’re not going to incentivize much. If we're not sure of the median of our absorption targets, we are going to do some things to try to move the inventory.

[Larry Webb:]

I also think it's fair to say that, most of my career was spent as a private builder. And I believe that this is a long term business. It has to be evaluated properly in both good times and in turbulent times. And we're looking at everything in our organization and one -- as we are in right now uncertain times and the one thing I'm clear about is that people make the difference in this industry and we have and I said it once in the opening remarks, but we have an extremely experienced divisional and corporate team and we are highly focused on navigating these waters and it is more than just cutting prices at some project to make three or four extra deliveries for the end of a year. We are really focusing on being well positioned, being properly leveraged, being well conservatively capitalized, so we can be successful in good times and in turbulent times.

[Alex Barron:]

No. I hear you and I think that’s fair. And I guess, given in the past, I feel like with the type of products that you guys have focused on in your location, that hasn't been necessary and obviously the type of people who buy your homes, probably that’s not the main driver of why they choose to buy from you guys versus somebody else, because you're not a commodity. But, if you did reach the point where I guess at some points, you felt like you needed to increase absorption rates, do you think -- what would you think would be most effective, like helping them buy down rate or is it more on your design center, so I don't think it's probably prices for you guys, I'm just trying to understand what are sort of the tools that you feel like would be most effective.

[Larry Webb:]

Well, it seems to me that the first, it varies from community to community. In some cases, it literally could be a design center incentive to our people, I put more in their house in person wise at more. In other cases, if affordability and rising mortgage rates was an issue, you can get creative in some type of buydowns for rates, we have not seen that in the industry very much of. And I guess what the heart of your question is really answered by the following. If a project slows down, what is the specific reason it’s slowing down? Is it an overall market malaise and if that's the case, lowering your prices in most cases will not help. If it's something different, then it has to be dealt with differently. It could be just people want you to put landscaping in, because it's something that would have come out of pocket and it would be a quick incentive for them. But really, at the core is every community and any community that has a sales pace, we have to understand for any of those, what the -- why’s that happening. And it isn’t a one size fits all. And so that puts a tremendous burden, but also opportunity on our sales staff, our marketing people, on Leonard as COO and on our Division Presidents to be more thoughtful in just a one size, let’s cut prices here, because in my experience, that has not been the right thing to do.

[Alex Barron:]

Okay. Now just to confirm, most of your homes are still where the buyer gets an ability to have an input in the options, is that right you guys aren't going too much in the direction of outright spec building and everything.

[Larry Webb:]

Yeah. That's correct. I mean with our lowered priced homes, we probably increase our spec building in a phase or two, but we're still a builder that offers people probably, I would say, more choices than most home builders. And by the way, that's one of the reasons why our cancellation rate is still on the -- one of the lowest in the industry.

[Alex Barron:]

Okay. Now switching gears to the share buybacks, as you guys allocate capital. So obviously, your stock is significantly below book value. So mathematically, it makes them to do it. I'm just thinking strategically, do you feel like that's something you will continue to pursue, if the stock stays at somewhere in this range where it’s been at recently.

[John Stephens:]

Absolutely. I think at these values, we think it's a good investment. We do have a limitation, if the board authorization, we have board over 9 million left in that authorization. But we will -- that will be part of our capital allocation going forward.

[Alex Barron:]

9 million, John.

[John Stephens:]

Yeah. That’s what’s left, a little over 9 million in the current authorization.

[Operator:]

Thank you. Ladies and gentlemen, we’ve reached the end of the question-and-answer session and I’d like to turn the call back to Larry Webb for closing remarks.

[Larry Webb:]

Thank you. I appreciate all of you taking the time to listen today and I welcome in your questions and your comments. I'd like you to leave with a couple of key points. One is, we recognize that these are uncertain times, but we really believe and it seems to me that every major economist, I've spoken to, believes the same thing that the economic indicators are still extremely strong for our industry. That coupled with a under building or an underserved marketplace and high consumer confidence to me says a little long run, we're still in a strong position. But secondly and maybe more importantly, I want everyone to understand that the New Home Company is energized by this challenge. And we will succeed because of our energy and our focus and we are working at this, as we look at everything we do, which is how do we get better every single day. I'm proud of our people and I'm proud of the way we're attacking these issues and I really believe that an investment in our company is the right thing for people to do. Thank you.

[Operator:]

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