Earnings Call: Q1 2019

May 7, 2019

Welcome to the LGI Homes Second Quarter twenty nineteen Conference Call. Today's call is being recorded and a replay will be available on the company's website later today at www.lgihomes.com. We have allocated an hour for prepared remarks and Q and A. At this time, I will turn the call over to Rachel Eaton, Chief Marketing Officer at LGI Homes. Ms. Eaton, you may begin. Thank you. Welcome to the LGI Homes conference call discussing our results for the second quarter of twenty nineteen and the six months ended June 3039. Today's conference call will contain forward looking statements that include, among other things, statements regarding LGI's business strategy, outlook, plans, objectives and confirmation of 2019 guidance. All such statements reflect current expectations. However, they do involve assumptions, estimates and other risks and uncertainties that could cause our expectations to prove to be incorrect. You should review our filings with the SEC, including our Risk Factors and Cautionary Statement About Forward Looking Statements section for a discussion of the risks, uncertainties and other factors that could cause our actual results to differ materially from those anticipated in these forward looking statements. These forward looking statements are not guarantees of future performance. You should consider these forward looking statements in light of the related risks and you should not place undue reliance on these forward looking statements, which speak only as of the date of this call. Additionally, adjusted gross margin, a non GAAP financial measure, will be discussed on this conference call. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of adjusted gross margin to gross margin, the most comparable measure prepared in accordance with GAAP, is included in the earnings press release that we issued this morning and in our quarterly report on Form 10 Q for the quarter ended June 3039, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investors section of our website at lghomes.com. Joining me today are Eric Lieber, LGI Homes' Chief Executive Officer and Charles Mertian, the company's Chief Financial Officer. During today's call, we will summarize highlights from the second quarter and first six months of twenty nineteen, then discuss our financial results in more detail. Following that, we will conclude with comments and open the call for questions. Now, I'll turn the call over to Eric. Thank you, Rachel, and welcome to everyone on this call. We appreciate your continued interest in LGI Homes. Throughout our history, as we have continued to grow, we have maintained the LGI culture, demonstrating that our unique operating model is sustainable. Since our last call, we are proud to announce that our commitment to our processes, consistency and results has earned us a place as the tenth largest residential builder in America. This could not have been accomplished without the hard work and dedication of our outstanding employees. This is a significant milestone for LGI and we thank all of our employees for your commitment and loyalty as we continue our path to becoming a top five national builder. For the second quarter of twenty nineteen, we delivered strong results producing record setting closings, revenue, average home sales price and community count. This past quarter, we closed nineteen forty four homes, generating approximately $462,000,000 in home sales revenue, which represented a 10% increase over the second quarter of twenty eighteen. For the second quarter, we averaged seven closings per community per month companywide. Absorption for the quarter was highlighted by our performance in the Sacramento, Jacksonville and Houston markets. Sacramento averaged 13 closings per community per month, followed by Jacksonville at 10.7 and Houston at 10.4 closings per community per month. Companywide, we ended the second quarter with 93 active communities in 17 states, roughly an 18% increase over the 79 active communities that we had at the end of Q2 last year. Breaking it down, let's first look at highlights from our Central Division operations. Comprised of results from the Houston, San Antonio, DallasFort Worth, Austin, Oklahoma City and Minneapolis markets, our Central operations generated eight eighty eight closings in the second quarter, which represented approximately 46% of our total closings. Our absorption rate for the Central Division was the strongest across all divisions, averaging 8.9 closings per community per month. Of the 54% of closings that took place outside the Central Division, a highlight of the second quarter was an increase in closings in our Southeast Division. This quarter, we closed three sixty homes in this division compared to two ninety eight homes closed in the second quarter of last year. Our Southeast Division also had an increase in community count of seven communities, primarily in Raleigh, with four new communities resulting from our acquisition of Wynn Homes. August two marked our one year anniversary of the Wynn Homes acquisition, which we believe has been very accretive to our business. Our West Division closed two forty eight homes compared to 168 in the second quarter last year, primarily driven by the increase of three new active communities, which includes the addition of the Sacramento and Las Vegas markets. In our wholesale business, we closed 82 homes this quarter with three different investment groups generating $18,400,000 in revenues. Throughout the second quarter, we continued to see demand for affordable homes coupled with community count expansion and a positive response from buyers to lower interest rates. Second quarter net orders were 2,248, a 38% increase over the second quarter of last year. On our prior call, we introduced our complete home package. This twenty nineteen initiative to make our product more consistent on a national basis includes the most desired new home features, providing greater value to our homebuyers at an affordable price. Customers have responded well to this initiative evidenced by our 38% increase in orders. During the second quarter, approximately half of our closings included the complete home packages. We expect that the majority of our third quarter and substantially all of our fourth quarter closings will be the complete home package. With that, I'd like to turn the call over to Charles Merdan, our Chief Financial Officer, for a more in-depth review of our financial results. Thanks, Eric. As mentioned earlier, home sales revenue for the quarter were $461,800,000 based on nineteen forty four homes closed, a 10% increase over the second quarter of twenty eighteen. Sales prices realized from homes closed during the second quarter range from the $140,000 s to over $500,000 and averaged $237,567 a 2.7% year over year increase. This increase in the average sales price per home was primarily due to changes in product mix, higher price points in certain new markets, such as the addition of Sacramento and Las Vegas, and to a lesser extent, increases in sales prices in existing communities. In the second quarter by segment, approximate average sales prices were $214,000 in the Central, Dollars 3 Hundred And 60 9 Thousand in the Northwest, Dollars 2 Hundred And 16 Thousand in the Southeast, Dollars 2 Hundred And 6 Thousand in Florida and 270,000 in the West, which was up from $222,000 for the second quarter of twenty eighteen. Gross margin as a percentage of sales was 24.1% this quarter compared to 26.1% for the same quarter last year, a decrease of 200 basis points. During the quarter, we closed 78 homes generating approximately $19,400,000 in revenues related to assets acquired in the Wynn acquisition. So included in gross margin is $956,000 related to purchase accounting impacting our overall gross margins by 21 basis points compared to the prior year. In addition, as mentioned on our last call, our investment in geographic and community count expansion has impacted gross margins as we have incurred additional construction overhead compared to the prior year. Sequentially, gross margins were up 100 basis points compared to the first quarter of this year and as the increase in closings per community had a favorable impact on construction overhead. Our adjusted gross margin was 26.3% this quarter compared to 27.7% for the second quarter of twenty eighteen, a 140 basis point decrease. Adjusted gross margin excludes approximately $9,000,000 of capitalized interest charged to cost of sales during the quarter, representing 195 basis points or or approximately 38 basis points higher than the same quarter last year, primarily due to an overall increase in the average cost of debt with the issuance of $300,000,000 in senior notes in 2018. We currently expect our gross margin to remain similar in the third and fourth quarters ending the year within our previously stated full year guidance. Combined selling, general and administrative expenses for the second quarter were 11.4% of home sales revenue compared to 11.3% in the prior year. Selling expenses for the quarter were $33,900,000 or 7.3% of home sales revenue compared to twenty nine point three million dollars or 7% of home sales revenue for the second quarter of twenty eighteen, a 30 basis point increase. General and administrative expenses were $19,000,000 or 4.1% of home sales revenue compared to $18,300,000 or 4.4 for the second quarter of twenty eighteen, also a 30 sorry, a 30 basis point decrease. Decrease in general administrative expenses as a percentage of home sales revenue reflects the higher revenues generated due to higher closings and higher average sales prices. We believe SG and A will continue to vary quarter to quarter based on home sales revenue and expected upfront costs related to increases in new communities over the next several quarters, and we would expect the third and fourth quarters overall to be similar as a percentage of revenue compared to the second quarter. Other income this quarter reflects a gain from the sale of a commercial track of approximately $1,700,000 Pre tax income for the quarter was $60,500,000 or 13.1% of home sales revenue. For the second quarter, our effective tax rate of 23.9% is in line with expectations, and we would expect that the effective tax rate will continue to range between 23.524.5% for the remainder of the year. We generated net income in the quarter of forty six point one million dollars or 10% of home sales revenue, which represents earnings per share of $2.01 per basic share and $1.82 per diluted share. We ended the second quarter with a portfolio of 54,191 owned and controlled lots. And as of June 30, '30 thousand '9 hundred and '70 '6 dollars or 57% were owned. Of this amount, 7,640 were finished vacant lots, 19,489 were either raw or under development and 3,847 were either completed homes, information centers or homes in process. Weighted shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes. And in the second quarter of twenty nineteen, our average stock price was approximately $69 resulting in approximately 2,200,000.0 share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter. Our convertible notes mature later this year and it's our expectation that we will settle the principal in cash and the premium stock consistent with the diluted EPS calculation. Gross orders for the quarter were 2,748 and the cancellation rate was 18.2%. Ending backlog for the second quarter was sixteen forty eight homes compared to eleven eighty four last year, a 39% increase and consistent with the increase in net orders and active community count growth. As of June 30, we had approximately $38,000,000 in cash, $1,300,000,000 of real estate inventory and total assets of $1,500,000,000 Also at the June, we had $675,000,000 in total debt outstanding under our revolving credit facility convertible notes and senior notes. Our available borrowing capacity, which takes into account settling the principal balance of the outstanding convertible notes, was approximately $167,000,000 Our gross debt to capitalization was approximately 48% and net debt to capitalization was approximately 46%. As previously reported, on May 6, we entered into our Fourth Amendment and Restated Credit Agreement, which provides for a $550,000,000 revolving credit facility, which can be increased at the request of the company by up to $100,000,000 subject to the terms and conditions of the credit agreement. At this point, I'd like to turn the call back over to Eric. Thanks, Sheryl. Let me provide some guidance and thoughts on what we are seeing thus far in the third quarter and looking ahead into the remainder of the year. The third quarter is off to a great start with six seventy two closings in July, up 25% from the five thirty eight closings in July of last year. These six seventy two closings came from 101 active communities, resulting in a very solid absorption base, averaging 6.7 closings per community per month. The first seven months have put us on track to hit all of our key metrics. Throughout the remainder of 2019, we will continue to grow community count, ending the year between one hundred and five and one hundred and fifteen active selling communities and are confident in our ability to meet our goal of 6,900 to 7,800 homes closed for the year. In addition, we believe our average sales price for the year will continue to increase, ending 2019 with an overall average sales price between $235,000 and $245,000 We maintained our gross margin guidance for the year in the range of 23.525.5%. We expect adjusted gross margin, which excludes the effects of interest and purchase accounting, will continue to be in line with previous expectations, ending the year between 25.527.5%. Given our reaffirmed guidance for home closings, average sales price, gross margins and active community count, we continue to believe our full year basic earnings per share will be between $7 and $8 per share. Now we'll be happy to take your questions. Thank Our first question is going to come from Michael Rehaut from JPMorgan. Your line is now open. Thanks. Good afternoon, everyone, and congrats on the results. Thank you. Thank you. The first question I had was on the gross margins for the back half. I believe you expect them to be similar to the second quarter for 3Q and 4Q, a little different than, I think your expectations a quarter ago, where I believe you're expecting improvement throughout the rest of the year. 2Q gross margins did come in a little bit better than what we were looking for. I think you had maybe guided to slight improvement. It was a little more than that. But I was wondering if there's just a little bit of a movement within mix between the quarters, if 2Q took a little bit out of 3Q from a, again, a mix standpoint or if there's any type of change in the environment from a pricing or competitive standpoint that is causing this little bit of change in terms of the back half outlook? Thanks for the question, Mike. This is Charles. I can start and Eric can add, but I think you're absolutely right is that the second quarter gross margins showing 100 basis point improvement was a little bit stronger than what we originally had guided to on the last call. I think that has certainly helped from the standpoint of giving us a little bit more consistency or expected consistency for the remainder of the year. And then we also in definition of similar to us means that 50 basis points on either side of that number is typically what we would guide to. So there is some variability as we open new communities and open new markets depending on how those communities come in. And then I'll address the part in terms about cost and cost basis. We're seeing just very similar cost structure overall in terms of the net cost to build. And so that's always a variable as well as we're looking out into the future, but we don't necessarily see dramatic increases in costs, but that is always out there for us in terms of both labor and materials. I think our assumption has always been that the cost of labor and materials will always be up. So there's a little bit of that factored in there as well. And then I'll let Eric address kind of pricing and where we are in the markets related to that. Yes. I think, Mike, great question on gross margin. I agree with everything Charles said. And Our goal, as usual, in the back half of the year is really to increase prices to offset costs. Very positive start to Complete Home and Complete Home Plus, really excited about that. And there is some component to gross margin that's driven by additional volume. And right now, we're real optimistic on volume for the rest of the year. But consistent gross margins, we think, would be a positive for the rest of the year. No, that's great. I appreciate it. I guess, just maybe zeroing in on the back half of my question, one element of the question, just a follow-up. If you could just kind of talk to the pricing environment. And obviously, when you look at the gross margin difference between this year and a year ago, certainly the more competitive environment, I think, is one of the factors that has driven the year over year decline. But I was wondering if you could talk about from a sequential standpoint, how things have progressed this year, particularly in the second quarter, from the end of the first quarter to the end of the second quarter, how would you kind of characterize the pricing environment, discounts, the competitive backdrop and again, if that's impacted in any way the back half outlook for margins? Yes, Mike, this is Eric. I can start on that. And from a competitive landscape, our pricing is fine. I mean, the demand is real strong, interest rates are lower. So from a sales standpoint, we're in really good shape and don't really haven't seen a big discounting from the competitors or anything like that would negatively impact pricing. But costs are certainly still going up. So increasing in the prices to offset costs, I think it's still the game plan. The competitive landscape, certainly a lot of builders are talking about entry level and getting into the entry level business, first time homebuyers. And we view that demographic and everybody talking about it very positively. But certainly from an acquisition standpoint, more companies and including single family rental companies out looking for land and looking to do more development. And that is more competitive, but I think we're in really good position because we have our 54,000 owned and controlled lots that we feel really good about those future margins on. And from an acquisition standpoint, we don't feel we're in a position to have to stretch nor should we buy a deal that doesn't meet our margin threshold. And also, I think it's important that we talk about we are still in a lot of growth this year over the next couple of quarters of really ramping up a lot of new communities. And we talked about it on the last quarter call and really looking at the difference year over year and all the additional construction staff that we have to to hire and getting these new offices set up and the expenses that we're spending over the next couple of years is pretty significant and we're really going to see the benefit of that in 2020. Great. If I could just ask one last one on that. When you say the benefit in 2020, is that should I be thinking about that obviously, you're talking about some better leverage on the gross margin side, but also from and SG and A, I presume. But should I also be thinking about that in terms of maybe, again, I'll say that the backdrop stays similar that you could even see a better absorption rate as the newer markets mature and you typically see that improvement? Yes. I think it's an offset. I mean, certainly, everything you said is possible. We certainly expect the absorption rates as markets to mature. But again, we've got a lot of new communities coming on that are going to just be in their first couple of quarters of closings in early twenty twenty. I mean, we're ramping up, have a lot of new communities that are opening in construction and sales in the fourth quarter of this year, around 10 new communities. That's going to be a lot of expenses and overhead personnel getting those 10 new communities opened up and probably won't see any closings in 2019, maybe a few in a couple of select communities. So a lot of expense, but in 2020, after spending that expense, we'll have all 10 of those communities fully operational for 2020 as an example of what we're talking about. Great. Thanks so much. You're welcome. Thank you. And our next question is going to come from Jay McCanless from Wedbush. Your line is now open. Hey, good afternoon, everyone. Thanks for taking my questions. Eric, if we could keep talking about that expansion in SG and A, that's one of the reasons that you guys did a great job of beating our estimate this quarter. We had thought there was going to be some additional spend, but you look at the net community count, you guys went up net community count almost 10% and your G and A number didn't really change. So should we expect a step function higher either in 3Q and 4Q as you all deploy that money? I mean, not just for what you're talking about for 4Q, but some of these other initiatives that you talked about? Yes, Jay, this is Charles. I'll start. G and A absolute dollars have been ranging between $18,000,000 and $19,000,000 over the last five quarters. So $19,000,000 being this past quarter being the high mark of that. So we would expect certainly expect the absolute dollars in G and A to continue to increase. Obviously, as we talk about percentage of revenues, that's going to depend on where you feel like the closings and the revenue number is going to come on. But I would say we're going to see continue to see incremental absolute dollars in G and A, more so in the selling component than the general and administrative component. And I think you kind of see that if you look at the last five quarters for us depending on what we need to spend in marketing, the upfront dollar investment in office openings, the geographic distribution of those offices generally tend to determine whether the selling expenses may be a little bit higher or not. So that's kind of we said bracketing around what we did for the second quarter, if 11.4% stays relatively consistent, what you'll see is absolute dollars increase as the revenue line increases. Got it. The next question I had was on absorptions. It looks like you guys had a nice pickup in absorptions in the West versus last year, but the rest of the geographic segments were down versus the prior year. Is that something that concerns you guys or is it a function of just gap out not gap out, but just timing on communities? Yes. Jay, this is Darren. No concern. A lot of noise in the absorptions in each region based on startups and communities selling out and people and training and new communities opening. But when we have a Q2 average closings per community of seven. We consider that very strong absorption. Texas led the way, but good strong absorption on some of our newer markets like Sacramento and Las Vegas and Jacksonville had a real strong quarter. So I think we're real pleased with absorption in Q2 and think that's going to maintain in Q3 and Q4. And then on I've got two gross margin questions. The first one, how much more impact should we expect to see from the Wynn Homes deal on purchase accounting? Well, it's roughly 20 basis points, I think, as a guide, I mean, we when we acquired Wynn, there were 4,000 total lots in that acquisition. So we're going to see it for quite some time. The range of 20 basis points being consistent from quarter over quarter is probably a reasonable assumption. Okay. And then on Complete Home, I was wondering, did was there any type of gross margin drag? Because I think last quarter you guys had talked about retrofitting some communities to put that complete home package in and make them more consistent with the newer product that you were putting out there. Was there any drag from that during the quarter? No. Okay, great. Thanks for taking my questions. You bet. Thank you. And our next question comes from Truman Patterson from Wells Fargo. Your line is now open. Hi, good morning guys. Just nice quarter first off, but just following up on that last question going the other way. On the complete home rollout, is that actually completed nationwide? And could you guys just walk us through the economics of that? Maybe what the gross margin differential is that you realize versus your prior finishes or expect to realize going forward? Sure. Thanks, Truman. This is Eric. Yes, the Complete Home and Complete Home Plus packages are rolled out nationwide. In fact, every start in the company from April 1 or the start of Q2 forward has been complete home starts. So we're rolled out nationwide. Like we talked about, about half of our closings in the quarter were complete home, and we think that percentage is going to increase to where by the fourth quarter, almost all of our homes will be the complete home package. And we talked about on the last earnings call, there's a cost associated with it. We thought the average cost was around $3,000 to put the package in place. We raised the price $4,000 to $5,000 to pass that cost on to the consumer. So we're covering the gross margin maybe a little bit extra. So what we're seeing kind of as they come through 20 to 30 basis points higher in gross margin for the complete home houses rather than the existing inventory, if you will. But also the complete homes that are selling haven't been in inventory very long. So they're closing out pretty quickly after starting and we don't have the carrying costs that we have on existing inventory. So we've been happy with the complete home gross margin and really see it as once we get through this to be consistent with our historical gross margins. Okay. Thanks for that. Looking at closing in orders, fairly large gap in the second quarter, you guys alluded to kind of a lack of inventory. Could you discuss that? Is it purely due to new communities and that lack of inventory, which we've seen occur before? Or is there anything else driving it, any labor issues driving a longer construction cycle or possibly the manual underwriting standards of the FHA change previously delaying any of the closings? Yes, Truman, this is Eric. No closing delays because of manual underwriting standards. I think everybody's seen by now that that really has been a non factor in our sales and closings. And as we've grown a lot over the years, we certainly have developments kind of at all times that are closing out and starting up and we have similar challenges as all the builders do and getting flats recorded and dealing with utilities and getting new communities online. But I think we're large enough now and when we got enough spread across the country that one or two communities won't make a substantial difference like we had a few years ago. So I think we're in good shape to hit all of our metrics through the end of the year and we won't be talking about inventory shortages in any way. Okay. Thanks guys. You're welcome. Thank Our next question comes from Carol Reichardt from BTIG. Your line is now open. Thanks. Hi guys. Most of my questions have been answered, but I'm curious as to the impact of lumber prices on gross margins this quarter, if you can quantify that, Charles? Yes. No, lumber prices have been sequentially have been relatively consistent. I mean, year over year, we saw some lumber price improvement, but really nominal for all intents and purposes in terms of changes on lumber prices that would affect the overall margins in any significant way. Okay. And then you mentioned I think it was Erica mentioned, there's been sort of the hint of some increased competition for lots for entry level housing, not only from the builders, but from the first time buyer or from the single family rental guys. I'm curious, Eric, are there particular markets where you're seeing that? And then so how are you adjusting your underwriting? And what do you think your peers are being too aggressive from a price perspective? Is it I'm just kind of like some quantification of how that dynamic is changing given the sort of sudden moves we're seeing here from some of your peers? Yes. I think from the market standpoint, Carl, it's the traditional markets that all of us really like and the single family rental operators like those markets as well. Phoenix is a popular market, Florida is a popular market. We've had success in the Northwest selling homes to single family rental operators. So for us, no change in our underwriting criteria. We're not going to sacrifice margins or how we underwrite a deal. If there is more competitive pressure on a certain deal or multiple bids on a certain deal, that's more of a seller's market and the price might get bit up and we potentially have to pass on that deal. And that's somewhat of the market that we're in right now. But like I said, we're in good shape on our own to control plots and do not think it's a good idea to stretch to buy deals. So we'll see how it plays out. But right now, I would classify it as a seller's market as far as the entry level land and lots that are available. Thanks, Eric. Appreciate it. Got it. Thank you. And our next question comes from Alex Barron from Housing Research Center. Your line is now open. Yes. Thank you and good job on the quarter. Thank you. Thank you. I wanted to ask about the community count plans to get to 115, whether it's by year end or maybe sometime into next year. Does that mainly include existing footprint or does that possibly include new markets that you guys are looking to get into? Alex, this is Eric. So our plan is to have the end of the year, by the December, have our community count between 105,000,000 and $115,000,000 and we feel really good about that. It's primarily in existing markets, going deeper in existing markets. A couple newer markets that I could point out that we plan on opening by the end of the year is Columbia, South Carolina, which would be a new market for us. We'll manage that out of Charlotte. And then also Riverside, California, so getting into the Southern Part of California, that will be another opening as well. And then I believe every other community will be an existing market. Got it. And then I guess as others have pointed out, there's been more builders moving into, I guess, the kind of markets and parts of markets that you guys operate and price points. But do you feel that that is going to potentially lower the sales pace? Or do you feel like there's enough demand for everybody to go around and for you guys to maintain your sales pace? Yes. No, we'll maintain our sales pace. I mean, I think over the years, there's been other builders come and go as far as they're focused on entry level and at various times more or less competition. But we've been proud of the fact that we've been able to maintain our sales pace as we have grown community count and as we have expanded outside of Houston and as we've expanded outside of Texas. So the competition won't have any impact on our sales pace. And as it comes and as it relates to pricing, are you guys kind of focused on trying to raise prices or just trying to maximize the sales pace, not necessarily pushing the prices? How are you guys thinking about that dynamic? Yes. We think about it as far as we want to maintain consistent gross margins. We want to make sure we hit our guidance that we're telling all our investors for the year. And really for the last six, seven, eight years, we've been in a rising cost environment. And we think the costs are going to continue to rise, whether it's the price of land, the cost of development, the cost of materials, the cost of labor. And our plan is to raise prices enough to offset those costs and maintain a consistent gross margin. Got it. Okay. Well, best of luck. Thank you. All right. Thank you. Thank you. Thank you. And our next question is a follow-up from Jay McCanless from Wedbush. Your line is now open. Hey, guys. Thanks for taking my follow-up. I wanted to ask Carl's lumber question maybe a little different way. Two quarters ago, I asked you guys with the amount of specs you all do and as short as your cycle time is relative to some other builders, if you were seeing maybe the gross margin savings from lumber a little faster than some other builders were. And on that call, you said that, yes, you all were seeing some benefit. But I'm wondering now as lumber prices maybe trying to put in a bottom, are you guys worried about lumber prices moving up and maybe working against you, especially as you're building out the community count and moving into some of these newer markets? Yes, Jay. So it's a great follow-up. So I mean, I think that answer is really part of the commentary around just gross margins in general. And then tying into what Eric said about pricing is that we're updating prices on a monthly basis in all of our communities. So we have good visibility. I think the implementation of the complete home package has now standardized that a little bit better. We were pretty good at it even before complete home, but I think we have better information that allows us to look at pricing in general, not just with lumber, but with all the way from permitting fees and labor and all the other categories. So I think the movement in lumber, although it may go the other direction and be more expensive, we think that we can adjust the quarter length, particularly in pricing to compensate for that along with any of the other changes that are happening as we build our budgets for each individual house. Okay, that's great. Thanks again. Yes, you bet. Thank you. And now I would like to turn the call back over to Eric Leifer for further remarks. Thanks everyone for participating on today's call and for your continued interest in LGI Homes. Have a great afternoon. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.