The New Home Company Inc.
Q3 2017 Earnings Call Transcript

Published: 28 Oct 2017

[Operator:]

Greetings and welcome to The New Home Company’s Third Quarter 2017 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Drew Mackintosh, Investor Relations, The New Home Company. Thank you. You may begin.

[Drew Mackintosh:]

Good morning. Welcome to The New Home Company’s earnings conference call. Earlier today, the company released its financial results for the third quarter of 2017. 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 uncertainty. 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 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. The New Home Company delivered another quarter of solid operating results in the third quarter highlighted by year-over-year delivery growth of 20%, homebuilding gross margin expansion of 80 basis points and earnings per share of $0.21. Order activity was considerably stronger this quarter in the third quarter of 2016 as evidenced by the 47% improvement in our sales pace. The initial signs of our transition to more affordably priced communities can be seen in our backlog, with number of homes grew 41% as compared to last year, while the value of our backlog grew 14%. This transition will really take hold in the fourth quarter as we plan to open 5 new communities, 4 in Southern California and 1 in Northern California with the anticipated pricing below $750,000. It’s important to emphasize that we take the same approach these communities as we do for our communities, which means working closely with landowners, developers and architects to create unique living spaces in well located areas that cater to the local homebuyers want and need. We are not officially opened for sale yet, it does an initial interest surrounding these more affordably priced communities have been extremely positive. We believe that these new home offerings gives us a more diverse product portfolio that caters to a larger pool of buyers and creates a more stable and consistent company, which is in the best interest of our shareholders over the long-term. With that, here is some color on the current state of our operations. California continues to be a great place to build homes. Thanks to the ongoing housing supply deficit, our strong local economy and our continued job growth. The land market remains as competitive as ever, but we have been successful in sourcing deals and meet our underwriting criteria and give us good visibility into 2018 and beyond. In Southern California, we are in the process of completing the remaining homes at Coral Crest and Coral Canyon, which should flow through our income statement in the fourth quarter and potentially the first quarter of 2018. These two communities were homeruns for our company and are great examples of the ongoing demand for high-end luxury product in Southern California. We experienced particularly good order activity during the quarter for our homes in the master plan communities within Orange County. Trevi and the Orchard Hills master plan and Amethyst at Great Park, both generated a sales price in excess of the company average. Our success at Amethyst, which features new homes starting in the high 600s bodes well for the similarly priced homes we plan to rollout in the fourth quarter. In Northern California, the Bay Area continues to exhibit strong demand for new housing, particularly for well-located communities priced at or below $1 million. A perfect example of this is our new Ellison Park community, which recently started pre-selling in Milpitas. These modern multi-storey townhomes are located in the heart of Silicon Valley and are centrally located near the major high-tech employment centers in the region. With the strong initial success in buyer demand, we expect to raise prices to maximize the value of each home. The Sacramento housing market is also doing well, though the market is much deeper at price points below $600,000. Both of our product offerings at our Cannery master plan contributed nicely to the bottom line in the quarter. We have sold out of our more affordably priced Heirloom townhome collection, and as of end of the quarter, had another 23 homes to Salvage to sell at Sage, where our average price point in backlog is about $1 million. Pre-selling activity has begun in our new Gala community in Davis, with base prices in the Cannery starting in the 500s and the interest list is growing steadily. Finally, in Arizona, we continued our expansion in Phoenix as we made our first wholly-owned land purchase within the Silverleaf master plan at Scottsdale. Icon at Silverleaf will feature luxury condominiums, which we will begin selling in the first half of 2018 and they anticipate first deliveries in the latter half of the year. We are also under contract to 3 additionally wholly-owned communities, all of which are anticipated to open in 2018. We are excited to bring quality innovation and design to the Phoenix submarket and grow our wholly-owned operation there. In summary, I feel good about the health of the markets in which we build and are positioning within those markets. With that, let me turn the call over to John who will provide more detail about our results in the quarter and our outlook for the rest of 2017.

[John Stephens:]

Thank you, Larry and good morning. Overall, the third quarter exceeded our expectations. Our net income for the 2017 third quarter was $4.3 million, or $0.21 per diluted share compared to $5.5 million or $0.27 per diluted share in the prior year period. The year-over-year decrease in our net income was primarily due to an 8% decline in home sales revenues, a 120 basis point increase in selling and marketing expenses, and an approximate $400,000 decrease in both fee building gross margin and joint venture income. These items were partially offset by an 80 basis point improvement and our homebuilding gross margin percentage to 16.3%. Home sale revenues for the quarter, was approximately $115 million compared to $125 million in the prior year period. The year-over-year decrease was primarily due to a 35% decrease in our average selling price to $1.4 million as compared to $2.1 million a year ago. The decrease in our average selling price was due to a product mix shift, which is consistent with our strategy to expand our price points and a higher proportion of deliveries from our Northern California operations, where our ASP was $781,000. Based on the homes in our backlog that are scheduled to deliver in the fourth quarter, we expect our average selling price to increase by approximately 40% to approximately $1.9 million for the 2017 fourth quarter due to a heavy mix of luxury products from our two Crystal Cove communities in Newport Coast, California. As we head into 2018, we expect our full year ASPs to move below $1 million as we increase our overall community count and expand our product and price portfolio as part of our long-term strategy, including closing out our luxury Crystal Cove communities, where prices range from $4 million to $9 million. Our gross margin from home sales for the third quarter was up 80 basis points over the prior year at 16.3%. The improvement in gross margin was primarily due to a change in mix, including the favorable impact of higher margins from our Emerson community in Santa Clara in the Bay Area and our Coral Crest community in Crystal Cove in Newport Coast, California. Excluding interest and cost of sales, our gross margin from home sales for the 2017 third quarter was 18.4% versus 16.5% in the prior year period. For the fourth quarter, we estimate our GAAP gross margin from home sales, including capitalized interest to be in the mid 15% range and about 15% for the full year 2017. Excluding interest and cost of sales and impairments, our gross margin is expected to be in the high 17% range for the fourth quarter in the mid 17% range for the full year 2017. Our SG&A rate as a percent of home sales revenue for the second quarter was 11.6% as compared to 10% in the prior year period. The 150 basis point higher SG&A rate was primarily due to higher selling and marketing costs driven by the planned opening of new communities, higher co-broker commissions and model operating costs and to a lesser extent reduced operating leverage from a negligible decrease in home sale revenues. We expect to see strong operating leverage in the fourth quarter as we expect to deliver about 50% of our full year home sales revenue in the fourth quarter. As a result of this strong anticipated fourth quarter operating leverage, we expect our SG&A rate to be in the low 8% range for the fourth quarter, in the low 10% range for the full year. Our share of joint venture income for the 2017 third quarter was approximately $100,000 compared to about $500,000 in the prior year period. The year-over-year decrease in JV income for the quarter was largely influenced by lower gross margins from home sales in our Sacramento communities as compared to our higher margin Orchard Park community in San Jose in 2015. Net new orders for the third quarter were up 27% over the prior year. Our multi-sales absorption rate was up 47% over the prior year at 2.5 sales per community versus 1.7 per community in the 2016 third quarter. Absorption rates for the quarter were up in both Southern and Northern California, with Northern California leading the way with a 71% increase in monthly absorption rate, at 2.9 sales per community, while Southern California turned in a solid 22% increase in monthly absorption pace at 2.2 sales per community. We ended the quarter with a backlog value of $331 million, which was up 14% over last year. Our fee building revenue for the quarter was $43 million as compared to $53 million a year ago. The third quarter fee revenue was higher than our previous guidance and estimates. However, the year-over-year decline was due to decreased construction activity, including fewer starts. Our fee building gross margin for the quarter was $1.5 million or 3.5% compared to $1.9 million or 3.7% in the prior year period. The lower year-over-year fee building gross margin percentage was due to a reduction in fee revenues and JV management fees. As of September 30, 2017, we owned or controlled approximately 5,800 lots which included about 2,200 lots from our wholly-owned business, 2,800 lots through joint ventures and approximately 800 fee building lots. And of the 2,200 lots owned or controlled through our wholly owned operations, over 60% were controlled through option contracts. Moving to our balance sheet, we ended the quarter with $62 million in cash, $479 million in real estate inventories and $318 million in debt. We had no borrowings outstanding under our $200 million unsecured revolving credit facility as of the end of the 2017 third quarter and had a gross debt to capital ratio of 55.7% and a net debt to capital ratio of 50.3%. Now, I would like to update you on our fourth quarter and full year guidance. For the fourth quarter, we are estimating home sales revenues of between $260 million and $280 million, fee building revenue of between $20 million and $30 million, and income from joint ventures of between $1 million and $1.5 million. For the full year 2017, we are anticipating the following

[Larry Webb:]

Thank you, John. In summary, I am very pleased with our performance this quarter and the direction in which our company is heading. We are well-positioned for a strong fourth quarter and close out to the year. In addition, our strategic decision to focus on more affordably priced home offerings will give our company exposure to a deeper pool of buyers, diversify our product portfolio and should allow us to turn our inventory quickly. The current management team has years of experience building homes at a number of price points and our relationships run deep with land sellers who view us as homebuilding partners of choice. These competitive advantages have served us well at the high end of the market and I am confident that they will allow us to be successful across all product types. Finally, I want to thank all of our team members returning in another great quarter. We have a bright future ahead of us at the New Home Company and I appreciate each of your efforts. I have always believed people are our most important asset and our continued success underscores this fully. That concludes our prepared remarks. And now, I would like to open the call up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Alan Ratner with Zelman Associates. Please proceed with your question.

[Alan Ratner:]

Hi, Larry. Hi, John. Good afternoon. Nice quarter. My question is on the margin really strong results this quarter versus the guidance and I am just curious if you can give a little bit more color there on what contributed to that upside relative to expectations, I think it was probably about 200 basis points above what would you guys have guided for. So, I was hoping you can get some color there? Thank you.

[Larry Webb:]

Well, Alan, thank you. This is something that’s very, very important to all of us and John and Leonard Miller, our COO have been spending a lot of time and energy doing all the little things to improve. And so I will turn it over to John, because this is one of his most proud accomplishments.

[John Stephens:]

Hey, Alan. Yes, I think in terms of what drove the margin this quarter we saw higher margins at a couple of communities in particular in Santa Clara. We had a community that’s closing out that’s done much better than we anticipated as well as in the New Port Coast we saw some nice pickup there at our Coral Crest community. In addition, we just continued as Larry said just continue to focus in our margins and where there is opportunities to sort of tighten up on the cost side and tighten outside the business as well as look at where we can sort of – where we are getting strong demand and increased pricing a little bit. So, that was the primary thrust of it, also there was a little bit of an impact in terms of what we delivered during the quarter, some of the homes that were scheduled to deliver in Q3, a handful or so pushed into Q4, so we saw little bit of a benefit from that. So, all those things together drove the balance. And as you might have noticed or heard is we did increase sort of the guidance for the fourth quarter and then the full year. So, we are anticipating about 15% for the full year, which was up about 50 basis points from where we talked about last quarter.

[Alan Ratner:]

Great. That’s very helpful, guys. I appreciate that and congrats on the progress there. So I guess the follow-up there, you are set to open a lot of new communities over the next couple of quarters. And I think one of the challenges that investors have right now in modeling your company is you are really in a hyper growth mode and I think early on a lot of your communities were in the large master plans, the profit-sharing type deal where the margins were structurally lower. You are starting to see some nice lift here as it shifts a bit more towards your self-developed communities. So, can you give us any indication just I know you are not going to give formal guidance here, but is the 15% to 16% margin that you are generating today, do you feel like that’s fairly representative of where the new communities that you are opening were underwritten or are those – do those look much different from an underwriting perspective from a gross margin perspective? Thank you.

[Larry Webb:]

Well, in terms of what we underwrote them. We actually underwrote most of them a little bit higher than that. There are still some master plan communities we will continue to open in the next several quarters, but there has been a shift and like for example we are going to be entering our first couple of communities in Rancho Mission Viejo. We really haven’t delivered any homes there yet and that structuring and profit participation arrangement is a little bit different than the Irvine company deals. So, we would expect a little higher margin than what we have generated, but we keep blending everything we have on the Irvine ranch and our other deals probably in that 15% range in the near-term, but I think over time as we burn off some of those higher pop-up participation communities, we expect our margin in the outer years to migrate north from there.

[Alan Ratner:]

Great. Thanks a lot. Good luck.

[Larry Webb:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question.

[Jason Marcus:]

Good morning. It’s Jason in for Mike. I guess to start off just wanted to get an update on what you are seeing from a pricing and incentive standpoint. And as you look throughout the quarter, I think last quarter you said that you raised prices in 60% of your communities, I wanted to see if that changed at all. And then if you could also comment on the traffic patterns that you are seeing across different price points you have across your footprint? That would also be helpful.

[Larry Webb:]

Well, let me deal with traffic and then I will turn margins over to John in price increases. Our business is still – and this recovery in particular is still extremely local, but we have seen across the board, I wouldn’t say in increased traffic, but we have seen a more focused traffic. And then our lower priced homes, the majority of which were still in the process of opening, we have seen some initial demand that’s much higher than we have previously. We will be able to report on that in our next call, but I would be – I am very, very optimistic about the sales results we are going to see. So, I guess traffic is not necessarily up, but it’s more focused and initial response on these newer projects from our social media is very positive. And John, you want to talk about prices?

[John Stephens:]

Yes. Hey, Jason, in terms of the margin or the increase in pricing, it’s pretty similar to what we experienced in Q2 about 60% of our communities we saw price increases probably in the range of 1% or so on average on a sequential basis obviously some more than that, others saw less, but it’s a similar pattern that we have seen in the Q3.

[Jason Marcus:]

Okay, great. And then on the SG&A front, so appreciate the guidance that you gave for 4Q in the low 8% range, but as you look forward into 2018 based on your expectations for community count growth and maybe some of the incremental cost. Do you still think you might be able to get some leverage into ‘18 from ‘17?

[John Stephens:]

I think we can get some leverage. I still think we are probably going to be in the double-digit range, but maybe its 20 bps or something like that. Our ASP is coming down as I mentioned below $1 million as if we are currently anticipating. So, we are going to have more – lot more deliveries and higher revenues that the leverage will come down slightly, but we probably won’t breach through the single-digit mark at this point.

[Jason Marcus:]

Okay, great. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Ken Ling with Citi. Please proceed with your question.

[Ken Ling:]

Thank you and congrats on the progress.

[Larry Webb:]

Thank you.

[Ken Ling:]

I guess my question is around Arizona, mainly Phoenix, maybe you can share a little bit more detail about how the developments are tracking to your original plan and what could affect the pacing of openings in the future communities?

[Larry Webb:]

Sure, Kim. This is Larry. I would say that we made a decision to do a de novo in Phoenix as opposed to making acquisition. And that process has taken us a little bit longer than I think we initially anticipated. That’s the bad news. The good news is we have an extremely experienced management team led by led by Pat Moroney, who had run Standard Pacific for 12 years. And we are now laying the foundation feels solid for us for second half of ‘18 moving forward. As John mentioned in his report, and as we’ve been discussing, we just bought our second project in our first wholly owned, but we have 3 or 4 really solid projects in due diligence that we believe will be locked up by the end of fourth quarter. And it’s our feeling that second half of ‘18 we’ll be getting deliveries from 2 projects. But by ‘19, we’ll be having somewhere in the area of 4 to 6 communities up and operating. And the majority of those will be in the inner Phoenix market. And actually all of them right now are planned to be in the inner Phoenix market, the Scottsdales, the Paradise Valley, the Gilberts, the Chandlers and those kind of areas and the heart of those houses will be first move up and a little different than our initial joint venture project, which is a boutique condominium project. So overall, we are quite optimistic about Phoenix. It’s taken us a little longer to get going than we thought, but I think we were cautious and that will prove to be very good for the company in the long run.

[John Stephens:]

Yes. Just to add a little more detail on that to Larry’s points, our projection is for new wholly owned communities in Arizona next year, a couple opening in the first half and a couple on the second half.

[Ken Ling:]

Great. I guess, my second question, I think Larry you mentioned a little bit about social media. Is there any big change in terms of reaching out to customers or marketing strategy as you move down the ASP curve?

[Larry Webb:]

Well, it isn’t necessarily a change. We have always been very marketing and very social media-oriented as a company. Any of you want to look at our website and our approach to reaching out and you’ll see that we’re absolutely at the top of the industry in terms of what we do and our quality. We have a great team here. But I would say that with the more affordable homes, we’re attracting a younger, more, I would say, Internet-oriented kind of buyer, and so the whole social media connection is – continues to be more and more important. I’ve been in marketing for 30 years, and I’ve never seen a more dynamic time to be a home builder than today. And I really would encourage all of you to go and look at what we are doing, because I think we are very, very strong in that area.

[Ken Ling:]

Great. Thanks and good luck.

[Larry Webb:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

[Alex Barron:]

Hi, guys. How are you doing?

[Larry Webb:]

Hi Alex.

[Alex Barron:]

I wanted to ask you, so I was in Southern California a couple of weeks ago and I saw a new project you have where you are doing these – I believe they were active adults kind of buildings like 16-unit buildings. I was curious if that’s the concept that you’re just going to be trying out at that one location or do you plan to maybe roll it out to other locations?

[Larry Webb:]

We have actually – the project you are referring to is in Brea in North Orange County, and it’s – the name of it, it’s called Agave. We’re just finishing our models and we’re probably, really, 30 days away or so from being able to really hit the market strongly. We believe that aging boomers are a terrific opportunity. We’ve actually been building housing programs for them already, but this is the first time we’ve been in the more affordable price ranges. So we, Alex, as you know probably more than anybody, because you tour every project we have, we – from San Juan – or San Jose to Lafayette, we have a project in Calabasas. We had a completed very successful project in Newport Beach called Meridian. All of those were aimed at affluent boomers. This one is the first age-restricted project that we have done, but the other projects really were age-targeted. And yes, we are going to continue to look for those opportunities. We think it’s a growing part of the market and we think it makes a lot of sense.

[Alex Barron:]

Got it. No, it looks like a great concept. So I’m looking forward to seeing the models when they’re done. I was also curious if you could give us more specifics on where the communities that you said are opening in the fourth quarter. What cities are those going to be at?

[John Stephens:]

Hey, Alex, it’s John. We’ve got a couple in the Rancho Mission Viejo master plan, down in South County and Orange County here. We’ve got a couple in our first entrée into San Diego, in the Savida master plan. Those are both scheduled for November. And then, we have one community we are pre-selling out of in Davis called Gala, which is a condominium project. So that’s sort of what we have on slate for the fourth quarter. And then, we’re also looking – looking into next year, we’ve got a pretty busy first couple of quarters in the year. It looks like, based on our current schedule, we have about 9 communities, based on our current schedule, opening in the first two quarters of 2018. And of those, it’s heavily weighted towards Southern California. And then, I already mentioned the Phoenix color earlier. That will be towards second, in terms of our community activity.

[Alex Barron:]

Got it. And as far as Phoenix, when are you guys expecting your first closings there?

[Larry Webb:]

Well, we just had our very first closing on a JV. But for a wholly owned, it’s going to be third and fourth quarter next year.

[Alex Barron:]

Got it, okay. Best of luck. Thanks, Dave.

[Larry Webb:]

Thanks, Alex.

[Operator:]

Thank you. Our next question comes from the line of James McGrath, Private Investor. Please proceed with your question.

[James McGrath:]

Hi, Larry and John. How is it going?

[Larry Webb:]

James, we miss you.

[James McGrath:]

I miss you guys too, but I’m here to recall.

[Larry Webb:]

Thanks.

[James McGrath:]

I wanted to say great performance, not just in the quarter, but just in general. And I had, I guess a capital allocation question. Obviously, you guys are trading at a pretty big discount to the broader market. I’m sure you’re frustrated with the absolute valuation as well, a lot of book value that’s going to deliver in Q4. Like Alan mentioned, you have a lot of earnings growth coming next year. So I was just wondering if you or the board has considered a buyback, which we wouldn’t want to drain liquidity out of the market, but just how you think about that from a capital allocation standpoint versus investing it?

[John Stephens:]

Hey, James. How are you doing? It’s John Stephens. Yes, we have discussed that, and we analyze everything in terms of where we’re going to put our capital. Obviously, we’re in a growth mode being a small-cap builder and a newly IPO-ed company. We have a lot of money that’s been earmarked and committed for new projects. We’ve talked about all those community openings. And as you might expect, that’s money that’s been committed for a little bit of time here now. So it’s something we will continually look at, but nothing that’s been obviously approved at this time because we would have announced that. So it’s something that we’ll watch, but in the meantime we are putting most of our capital into new communities and new markets.

[James McGrath:]

Alright. Fair enough. Thanks guys. I appreciate it.

[John Stephens:]

Thank you, James.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible] Group. Please proceed with your question.

[Unidentified Analyst:]

Hi, Larry. I hope you miss me too.

[LarryWebb:]

I actually do Martin.

[Unidentified Analyst:]

Okay. And I have a general question for you. You started up – and I can understand the bubble going towards closings. A lot of them occurring at the same time, and many builders seem to close at the end of whatever their fiscal year is. When does this start to even out a little bit, quarter-to-quarter?

[LarryWebb:]

Yes, that is – I am glad you asked that question because it’s – our business is evolving, and where it’s really – it’s going to hit, I do not like this end of the year when everything you make or break your year by the end of the year. We believe by 2019, we are going to be much, much more consistent in our quarterly earning pattern. And the reason for that is this shift to more affordable housing programs that are more consistent in their sales and their deliveries. And these new homes are also, as a rule, going to have shorter construction cycles, so we are going to be able to really see a month-to-month continuity. What – the reason for this first 3 years of fourth quarter bubble is that as a rule, we do very, very little spec building. We open projects the first quarter, very little pre-selling, almost none as a company. We grand open, we sell a lot of houses, and then we start them, and they deliver in the third and fourth quarter. But moving forward, we really believe we can break this cycle. And it’s something that’s been a challenge for us, but come 2019 you are going to see very, very consistent earnings.

[Unidentified Analyst:]

Okay. Well, a follow-up on that – or maybe it’s a question or a statement. It would seem to me, with the labor issues that are going on, that if you could have some continuity that you would have a, maybe an easier time on the production side, being able to schedule people and keep them over longer periods of time.

[LarryWebb:]

That’s our goal. We have already begun to see that in Southern California, where between our wholly owned, our JVs and our fee business with the Irvine Company, we’re one of the largest builders. It’s been more difficult in the Bay Area in particular where almost everything to date has been attached housing that has longer building cycles. But we recognize this. And the other thing we’re working on hard in this labor issue is, we want to have the closest relationships with our trade partners. And one of the ways you do that is you operate your business extremely efficiently with high-quality site managers. Trade partners are like everyone else. They want to be where jobs – where the job is run efficiently and they can make a lot of money. And John has also been working closely to try to increase and improve our pay cycles to these people. So, we feel as if we are making real on the labor front, but it is a challenge and it’s a challenge for every builder.

[Unidentified Analyst:]

Okay, thanks very much, Larry.

[LarryWebb:]

Thank you. For those of you who don’t know on the call, Martin Friedland has been a leader and in my mind a giant in the role of people in your organization, high-quality people and for 30 years, I have known him and respected him and I am very proud that he is one of our investors.

[Operator:]

Thank you. [Operator Instructions] Mr. Webb, it seems there are no other questions. I would like to turn the floor back to you for any final remarks.

[Larry Webb:]

Thank you. I appreciate all of your attention. I know this is a busy time for everyone. But as you can tell New Home Company is making many strides in a positive manner and we are really young company that’s growing and getting our foundation under us. I am extremely optimistic about what the future holds and I see that from my perspective, we are doing the right things, we have laid the correct foundation and we are now beginning to see the positive results. We appreciate your support, and we look forward to our next call. Thank you very much.

[Operator:]

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