The New Home Company Inc.
Q4 2017 Earnings Call Transcript

Published: 14 Feb 2018

[Operator:]

Greetings and welcome to The New Home Company's Fourth Quarter and Full Year 2017 Results 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. It is now my pleasure to turn this conference over to Drew Mackintosh, Investor Relations. Thank you. You may begin.

[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 fourth quarter and full year 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. Also on the call is Leonard Miller, Chief Operating 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 ended 2017 on a strong note recording significant year-over-year increases to new home deliveries and orders in the fourth quarter, while generating solid improvement in our home building gross margin. We once again met our quarterly projections for the whole wholly owned business which is small fee considering regenerated 50% of the full year's home sales revenue during the quarter. Looking back, 2017 was a very positive year for The New Home Company. The initial phases of our transition to more affordable price product began in earnest this quarter with the opening of several new communities and the initial results have been very promising as evidenced by the 94% increase to our year-end backlog units. We planned to open eight new communities during the first half of the year, six of which will open in the first quarter ahead of the spring selling season. While this product transition will result in significantly lower average selling prices in 2018 as compared to 2017. We still expect to post a year-over-year increase in home sale revenue. Thanks to the optic and unit. In addition, our increasingly diverse product portfolio lessons are dependence on N1 project enhances our visibility and should produce better and more consistent results overtime. And I would like to emphasis that our team is very experience in successfully developing more affordable homes throughout our carrier. In short, I am convinced this is the best pass forward for The New Home Company. As we are heading the 2018, I am very optimistic about the fundamental drivers of our business. The markets in which we build in California and Arizona continue to be characterized by healthy demand and well levels of new and existing home inventory. Prices have risen substantially in many markets particularly in California. These increases have been driven by job growth, improving local economies and increased consumer confidence. The demand that we see for new homes in our markets is real and current trend suggest that this demand will continue. I am also optimistic about New Home Company is positioning within our markets. We continue to operate in some of the most locations in master plan communities in the country. We are continue to access to employment centers, good schools and wide enhancing amenities. Comments around our shift to lower price product, The New Home Company has also broadened its appeal to a number of byer segment with communities specifically designed for both active adults. We believe that this targeted approach will create new opportunities for our company and drive future growth. Well, it's too early to tell what impact in new Tax Laws will have in our business. My general sense is that it will be a net positive. Incomes are expected to rise for an overwhelming maturity of house hold as a result of lower tax rate even in California and the anticipated increase in economic activity as a result of the lower corporate tax rate should out way negative effects associated with the new deduction limits for mortgage and state incoming property tax. Overall, it appears that job growth will continue and unemployment remains at record lows. In summary, we have a lot of positive momentum going for us since we enter the new year both as an industry and as a company. And I am excited for what the future holds. With that I'd like to turn the call over to John, who will go into more detail of our results and give some preliminary guidance for 2018.

[John Stephens:]

Thank you, Larry and good morning. We fenced the fourth quarter on a strong note with core earnings of our expectations. Our net income for the 2017 fourth quarter was $10.5 million or $0.50 per diluted share compared to $13.8 million or $0.66 per diluted share in the prior year period. The 2017 fourth quarter included a $32 million or $0.15 per diluted share non-cash tax charge resulting from revaluing our differed tax asset related to the passage of the Tax Cuts and Jobs Act in December. Excluding the differed tax asset charge, our fourth quarter net income would have been $13.7 million or $0.65 per diluted share nearly flat with the prior year. The slight year-over-year decrease in net income was primarily due to a $3 million reduction and joint venture income, a 50 basis points increase in selling and marketing expenses as a percentage of home sales revenue and a $1.7 million decrease in fee building gross margin. These declines were largely offset by a 7% increase in home sales revenue and 140 basis point improvement in our home sales gross margin to 15.8%. Home sales revenue for the fourth quarter was approximately $280 million compared to $262 million in the prior year period. A year-over-year increase was largely due to a 17% increase in deliveries which was partially offset by 8% decline in average selling price to $2 million as compared to $2.2 million a year ago. The decrease in our average selling price was due to a product mix shift and a slightly higher proportion of deliveries from our Northern California operations, where our ASP was $697,000. As we head into 2018, we expect our full year ASPs to range between $975,000 to $1 million as we increase our overall community count and expand our product portfolio to offer more affordably priced homes as part of our long term strategy. Based on the homes and our backlog scheduled to close to deliver in the first quarter of 2018, we expect our average selling price to be approximately $910,000 to $950,000 for the 2018 first quarter. Our gross margin from home sales for the fourth quarter 15.8% was up 140 basis points over the prior year. The improvement in our gross margin was primarily due to a product mix shift including a favorable impact from our two higher margin coastal communities at Crystal Cove and Newport Coast combined with lower inventory in 2017 as compared to the prior year period. The 2017 fourth quarter included $900,000 in inventory impairments versus $3.5 million impairments for the 2016 fourth quarter. The 2017 fourth quarter also included an $800,000 benefit from a warranty reserve adjustment. Excluding interest in costs sales and impairments, our gross margin from home sales for the 2017 fourth quarter was 18.0% versus 16.2% in prior year period, a 180 basis point increase. Our SG&A rate as a percentage of home sales revenue for the fourth quarter was 8.4% as compared to 7.9% in the prior period. The 50 basis point increase in rate was primarily due to increased selling and marketing costs attributable to higher calculate selling and marketing expenses from our two luxury communities in Newport Coast California coupled with increased marketing and model operating cost related to new community openings. For the full year 2018, we expect our SG&A rate to be similar to our full year 2017 run rate in the mid-10% range. We expect higher SG&A rates earlier in the year and expect them to improve sequentially with each quarter thereafter as our revenues increase. For Q1, we expect our SG&A rate to be in the high 15% to low 16% range. Our share of joint venture income for the 2017 fourth quarter was $260,000 compared to $3.3 million in the prior year period. A year-over-year decrease in JV income was primarily attributable to a 47% decrease in joint venture home sales revenue due to a 54% decrease in deliveries, lower gross margins from home sales and to a lesser extent a reduction in joint venture land sales. The lower gross margin from JV home sales was influenced by mix shift to more Sacramento communities in 2017 as compared to higher margin deliveries from a large Tennessee community in 2016. Net new orders for the 2017 fourth quarter were up 55% over the prior year. Our multi-sales absorption rate was up 44% over the prior year quarter at 2.3 sales per community versus 1.6 per community in the 2016 fourth quarter. Absorption rates were up 45% in Northern California and 38% in Southern California. The number of homes in backlog at the end of the year increased 94% over the prior year and our any backlog value totaled $163 million. However strong price in backlog at the end of 2017 was $1.1 million as compared to $2.4 million a year ago. The decline in backlog ASPs consistent with our strategy to the expand our product portfolio to more affordably priced product combined with the close out of two luxury communities at Crystal Cove and Newport Coast. Our fee building revenue for the quarter was $44 million as compared to $61 million a year ago. The fourth quarter fee revenue was higher than our previous guidance, 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 million as compared to $2.7 million in the prior year period. The lower year-over-year fee building gross margin percentage was due to a reduction in fee revenues and lower joint venture measure fees resulting from lower JV home and land sales activity. As of December 31, 2017, we owned or controlled over 6300 lots which included nearly 2,800 lots for a wholly owned business, approximately 2600 lots through joint ventures and about 900 fee building lots. And of the 2,800 lots controls through our wholly owned business, 66% were controlled through auction contract. With respect to our cash flows and balance sheet, we ended the year solidly by generating approximately $70 million of cash flows from operating activities during the quarter and ended the year with $124 million in cash, $415 million in real estate inventories and $319 million in debt. We had no borrowings outstanding under our $200 million unsecured revolving credit facility as of the end of the year and had a gross debt-to-cap ratio of 54.7% and a net debt-to-capital ratio of 42.4%. Now I'd like to update you on a full year and first quarter guidance. For the full year 2018, we are anticipating the following. Home sales revenue are between $600 million and $660 million. Much like the last few years, our home sales revenue will be very back end loaded with approximately 65% of our revenues expected to be generated in the second half of the year with approximately 40% to deliver in the fourth quarter. While we expect a shorter time from sale to delivery in 2018 with our more affordably priced product, we have 9 new communities yet to open from which we anticipate generating deliveries in 2018 which causes the backend loading. We are estimating fee building revenue of between $110 million and $140 million. In addition, we expect our full year fee building gross margin to be about 2.5%. The lower anticipated fee gross margin percentage is primarily due to lower joint venture management fees as well as a slightly lower building fee from Irvine community. Gross margins from home sales are expected to range between 14.5% and 15%. Given our current delivery nix and expect a new community openings, we expect our gross margins to be lower in the first half of the year and improve in the second half as new communities come online. We are projecting full year joint venture income of about $2 million. We are currently estimated that our lender federal state affective income tax rate to be approximately 28% to 29% excluding the impact of any potential discrete items. We plan to open 11 new wholly owned communities during 2018, 6 of which are currently estimated to have a base pricing starting half or below $730,000. Based on this activity in our projected community closeouts, we expect to end the year with 20 wholly owned communities which would represent an 18% increase from where we ended 2017. With respect to our joint ventures, we expect to end the year with five effectively selling communities. For the first quarter of 2018, we are estimating home sales revenues of between $70 million and $80 million and fee building revenue of between $30 million and $40 million. We expect our gross margin from home sales for the first quarter to be in the range of 12% to 12.5%. I want to emphasize that these short term low margins are a mix issue including some lower margin closeout communities and not a long term trend. Our new communities are projected to have margins north than what we produced in the fourth quarter. For joint venture income, we're estimating about $500,000 for the first quarter. We except in the first quarter with 21 wholly owned communities and 7 joint venture communities. I'll now turn the call back to Larry for his concluding remarks.

[Larry Webb:]

Thank you, John. In conclusion, I'm extremely pleased with our performance in 2017 and very optimistic about our company's prospects as we head into 2018 and beyond. The fundamental backdrop of our industry remains positive. Demand in our markets is healthy and we have some great new home offerings to meet that demand. While there may be some short term volatility with our quarterly results as we transform our product portfolio and get new communities up and running. This transition should result in shorter building cycles, better cost controls, increased absorptions and higher margins overtime. I am confident that we have the right strategy in place to become a stronger, more diversified homebuilder that still got a long haul. As always, I'd like to thank all of our team members here at The New Home Company for another great year. I'm proud of the company we've built and the culture we've created. We've come a long way since our humble beginnings in 2009 and I'm very confident that this team can take the company to new heights in the future. That concludes my prepared remarks. And now, I would be happy to take your questions.

[Operator:]

At this time will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Alan Ratner with Zelman Associates. Please proceed with your question.

[Alan Ratner:]

Hi, guys. Good morning. Thanks for taking my questions and congrats on a busy year. So I had a couple of modeling related questions or I guess related for the guidance. First on the gross margin. Your margins have been trending positively here for the last year or two and I think that the message that you kind of conveyed early on was that as the business evolved and as some of the land deals that you've been self-developing begin to flow through the P&L, you should see your margins kind of gravitate a little bit closer to maybe industry averages because early on obviously you were very reliant on the profit participation master plan. So with the 2018 guidance, it looks like that might be kind of a little bit of a step backward guiding for some margin compression. And John you did make that comment toward the end of your remarks that the newer communities are going to have margins above what you delivered in the fourth quarter. So I was hoping you can maybe just give a little bit more color on the puts and takes on the gross margin and give us a little bit of an indication you maybe as these communities get up and running what exactly is the right level to think about for the where you're underwriting them and where you think you could maybe be running or heading into 2019 as they start to contribute to leverage? Thanks.

[John Stephens:]

Yeah. Hey, Alan, good morning, this is John. You're right. The gross margin trend is going to kind of increase sequentially is move throughout the year. We are transitioning out of some older product Alan and into the newer communities, we are expecting higher margins on our newer communities. As you know getting some of these communities open, sometimes does take a little bit more time. So I think there's been a maybe a little slippage there in terms of getting them open and we are expecting much better margins on the newer communities. So as we move through the year, we expect them to improve and north of where we ended the fourth quarter but it's just as we talked about in our prepared remarks we have a wider new communities offering this year a lot of new communities, eight of them in the first half of the year. So getting those opens and getting those deliveries is going to be real key to success. And we do expect our margins to improve as we move throughout the year and just a little bit of a timing issue as we get there.

[Larry Webb:]

And Alan, this is Larry. Clearly our margin improvement and improving our returns are our primary focus. The reason we've transitioned the company over the last really two years in getting into more affordable price ranges and even with that affordability member, we're still I would assume the highest average price publicly held homebuilder in the industry. But we felt that the long term they this is a really intelligent smart logical approach to growing our business at right away. And as we bring on these new communities, we will see more positive results. The other thing that you'll see is heading into, we will not be in the situation that we have been overtime which is very backend loaded. We're looking at - if we look at a business plan then look 2108 and 2019 together, 2018 is still a reloaded program which we've done in the past but 2019 becomes a lot more consistent and that's our overall goal as we grow the business.

[John Stephens:]

I think the other thing too Alan the interest in cost of sales will be higher in 2018, probably about 20 basis higher than we maybe we're anticipating a quarter or two ago, just what the volumes gain the full run versus where we were a year ago.

[Alan Ratner:]

Got it. Okay. And thanks for the details. It's helpful. And then Larry, you kind of brought up the focus on margins and returns. If I look at your return on equity, I'd say one of the headwinds you've been facing is really that joint venture line as the business has been shrinking in terms of number of active communities, your equity and JVs has actually been moving higher, that's up about 10% year-over-year you've got 56 million of equity tied up in JVs over 20% of your total equity. So with fairly modest profitability expectations next year, maybe just give us an update on what's going on there. I mean at some point should there be a quick hire in terms of JV profitability or are you looking at ways to maybe monetize that at minimal profitability but find a way to unlock some of that investment on the cash side because right now it is a pretty significant drag on your returns.

[Larry Webb:]

It is and it's an area the John really is focused on every single day. We recognize that as we - when we grew that company as a private company Alan, JVs where the way we could lever our sure do equity position in the great land positions. Our focus from the day we went public was to win with a number of JVs and to focus much more on wholly owned and that's what we're doing. But where we are today is we have a mix in our JVs of handful poor sale projects and a couple larger land deals. And those larger land deals will while there today not showing incredible returns will be a focus and an opportunity for us to have a long term supply of land in really strong market. We're grand opening a 1,600 lot master plan in Corona mid-year that we're going to also be a builder and we're very positive about that. And in the City of Folsom we are in the process of doing master plan development and grading on a brand new master plan that will hit in 2019. So kind of big picture we want to focus on getting out for sale JV business and continue to be on a limited basis at least in the land side, so we can get a supply a lot as you move forward. And I know John has other things to add to that.

[John Stephens:]

Yeah. Alan and Larry is right. The bigger portion of the investment in the JV is right now is on the land side, so we're not necessarily generating income through that JV line on it but it is going to provide a lot supply as we move forward over the next several years. Our more anticipating the investment probably others in that range for the balance of this year and then our plan is that that come start coming down ratcheting down in 2019 and beyond. So again as we start taking lots out of those JVs that's sort of the plan. In terms of the income generated out of those communities that the bigger one this year are in 2018 will be the Mountain Shadows property and Phoenix and will be winding down a couple of the other joint ventures the one is Sacramento and we have one up in LA in the Calabasas area. But again like Larry said our focus will be really converting that investment into our wholly-owned business. It's going to take about another year or two years before we sort of bring that down to a lower level but that's where we set today.

[Alan Ratner:]

Got it. All right. Thanks for that detail. Good luck, guys.

[John Stephens:]

No problem. Thanks.

[Operator:]

Our next question comes from Michael Rehaut with JPMorgan. Please proceed with your question.

[Unidentified Analyst:]

Hi, this is [indiscernible] for Mike Rehaut. I just wanted to kind of looking out two or three years maybe 2019 when things becomes little more consistent. What type of community count, what sort of number should we be thinking about and what kind of ASPs could come?

[John Stephens:]

In what year, 2019? Yeah I think we set our community count we're expecting in around 20th end of this year, obviously 2019 will further up, but we do expect to see growth in our community count as we move out in the 2019 because we are putting a lot of money investments in our wholly owned business. But probably to see 20% to 25% growth, I would say 2019 is probably a reasonable expectation. We'll give you guys more information as we move through the year and sort of procure more and more land opportunities.

[Larry Webb:]

As we set here today, 2019 appears very - yeah, 2018 appears very, very positive. John who always to be the conservative one and my job is to be the optimistic visionary in this group, okay. But when I work at 2019, I think our average sales price will come down a little bit more will probably be in the $900,000-$950,000 price range. But we control our own 90% of the deliveries we're planning time so it's a pretty down baked in solid plan andwill be showing higher margins than we're showing today. And we believe 2019 is going to be a better year for The New Home Company.

[Unidentified Analyst:]

Great. Maybe just one more on pricing trend. In the last two quarters, you guys are able to raise prices in that 50% of your communities, just wondering what you saw this quarter?

[John Stephens:]

Pretty consistent, it's probably smidge of probably about two thirds of our communities where we saw price increases. I say our average during the quarter is across those 66% sort of range would be about 1.5% on average. And part of the - so that's the positive. I think the other thing that you probably I know you guys are following very closely with other builders is there continue to be some cops pressure on the materials and labor side, so we're seeing that as well. But the increases we've been able to obtain on the pricing side have generally offset those cost increases.

[Unidentified Analyst:]

Okay. Thanks.

[Operator:]

Our next question is from Will Randow with Citigroup. Please proceed with your question.

[Will Randow:]

Hey, good morning and congratulations on the progress.

[John Stephens:]

Thank you.

[Larry Webb:]

Thanks Will.

[Will Randow:]

I guess in terms of the gross margin profile as we see the ASPs dipping closer to at least wholly-owned a typical California builder, I was wondering how you feel about gross margins not only in 2018 but kind of going into 2019. Do you expect some sort of inflection upward and what do you think capitalized interests goes? And sort of make this long drawn out, but can you talk about the cycle time on when those lots going balance sheet to when you actually close out because that probably has something to do with a slightly lower gross margin profile?

[John Stephens:]

Yeah, in terms of gross margin in the outer years, based on our current indications of our new communities well, we would expect them to be better. But again we have a lot of communities to open. So in terms of us pinpointing sort of a 2019 gross margin at this point is probably a little premature. But we - again our expectation is that they will be better than what on the new communities than what we delivered last year in 2017. In terms of interest and cost of sales in 2017 around about that 2.0% for the whole year and we probably we will see an increase there and we're excepting probably about 3.7%. As you move out into 2019 maybe it moves up to 10 basis points or so but again that's our current expectation.

[Larry Webb:]

Will, this is Larry. Along the lines of when these lots will be delivery, I think it's something that we focused on quite heavily and puts new home company in a very strong position is that while we own or control slightly over 600,000 lots, a 65% of those lots are on options. That allows us to adapt I think in to any changing market conditions. And in a perfect world it lets us take down lots just in time. So in such situation will even be able to be building homes those lots before we take down the land. As I said before, we know our focuses on improving their returns and improving our margins. Then the reality is we will be doing that and 2019 will show it will be more reflective of bottom line result there.

[Will Randow:]

So at the end of the day perhaps your returns on equity or given your take down structures are actually better than a number of other builders once you kind of scale on SG&A side, is that fair?

[Larry Webb:]

Well, I would - the answer is, I hope so that's our goal. And for sure we don't need a compare shows that really anybody else but we know that the key to the business and it's something we focused on every single day.

[Will Randow:]

And then just SG&A, obviously from HQ perspective, you're skilled to be a much larger organization but as you ramp communities with today's guide for 2018, do you think you could scale up more incremental communities in 2019, will holding kind of the fixed portion of SG&A?

[Larry Webb:]

Yeah. Let me jump in that first and then my SG&A controller can jump in. We absolutely think are - we looked at expanding in first of all in all new existing markets we are in. And we believe that we can do that without adding a lot of people. In addition, we see in our initial continued expansion in to Inland Empire and again our existing team in Southern California is we believe the best in the business. Operationally, they are terrific. And so we think we have a lot of growth opportunities in the Inland Empire that does not mean a jump in G&A. We're looking at expansion in other markets but our primary focus right now in the markets we're in the Inland Empire.

[John Stephens:]

Yeah Will, we would expect with revenue increases and leverage overtime that our SG&A would have an opportunity to give our leverage there. But again at this point for 2018, we're expecting sort of flat. If we get the higher end of the range, we'll see if we can do a better than that.

[Will Randow:]

Sounds good. Thanks guys and good luck.

[Larry Webb:]

Thank you.

[John Stephens:]

Thank you.

[Operator:]

Our next question is from Alex Barron with Housing Research Center. Please proceed with your question.

[Alex Barron:]

Yeah.

[Larry Webb:]

Hi, Alex. This is Larry.

[Alex Barron:]

Hi, Larry.

[Larry Webb:]

Well, how to pronounce your last name.

[Alex Barron:]

Well, it depends on if you say in English or Spanish, but it's okay.

[Larry Webb:]

Okay. All right. Well we know how to pronounce it, right.

[Alex Barron:]

Yeah. So I've seen recently in Northern California, I haven't been to Southern recently but I was curious whether you guys are seeing any differences in the level of demand in Northern versus Southern and also whether you've gotten any sense that the interest rate at this level have impacted demand or not yet?

[Leonard Miller:]

This is Leonard Miller, the COO. I'll take that one if you want. We've definitely seen a spread early in the year, we find it in Northern California the sales even kicked off first week of January were typically in Southern California it seems to be four to six weeks later. I will say in the South bay, our project, absorption is very high for both us and our competitors, the market seems very, very strong and the sales adopt to a great start. Southern California, we're seeing a lot more traction on the last couple weeks, we feel really get about that market as well.

[Alex Barron:]

Yeah. I did go to your multi-project and seems like the demand is pretty phenomenal there?

[John Stephens:]

It's been very strong and wondered what prices gone up with that projects since we opened.

[Leonard Miller:]

Plus 10% range but even in the last quarter we've seen approximately 6% left in pricing. So there is a ton of demand with little supply. The key really the sub-contractors keeping up with your building times and so we slow down to make sure that we don't get out, too far out from sales in relationship to delivery.

[Larry Webb:]

For the investment community, to the listeners on the call Alex around sees more homes in any human in America.

[Alex Barron:]

I appreciate that, Larry. That's probably true. And then John, I guess on the - just go back to the gross margin. So basically the reason that gross margins look like they would be in the 12% range, they're really more like in the 18% right if we backed out the interest I guess that you guys are running through the cost of goods sold?

[John Stephens:]

Well, again that 12% to 12.5% again for the first quarter is a GAAP number. So if you add another 350 to 370 of interest, you're probably 16% before interest cost. And I would say the first quarter, our margins are generally lower. I mean - it's a very little revenue quarter for us. If you go back and look at the last couple years, you are going to see a very similar trend. So it's that coupled with the fact that we're closing out some older communities. Again as we move forward, we would expect to be less reliant on as we expand or community count less reliant on some of the Irvine, company communities which have higher profit participation and some of the communities are sort of closing out in the first quarter as well. So that's part of it as well.

[Alex Barron:]

Okay. Great. Congrats and best wishes for the year.

[John Stephens:]

Thank you very much.

[Operator:]

[Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session. At this time, I would like turn the call back to Larry Webb for concluding remarks.

[Larry Webb:]

Thank you. And I appreciate everyone's questions and I would like to summarize by saying that 2017 was a very, very solid year for The New Home Company. 2018 will be the second leg of our transformation into more affordably priced product. We believe that this move is not just smart, but it's a great business approach and it's something that we have done before and we're going to excel that. And we look at the second half of 2018 and 2019 in a very positive passion. And we very much appreciate all of your support and your confidence. And with that, I'd say thank you.

[Operator:]

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