Lennar Corp (LEN) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Lennar Corporation first quarter earnings release conference call.

At this time, all the participant lines are in a listen-only mode.

Later there will be an opportunity for questions.

Instructions will be given at that time.

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As a reminder, today's call is being recorded and the information that Lennar Corporation is going to discuss will include forward-looking statements.

As is always the case with regard to forward-looking statements, Lennar's actual results may differ materially from those that are projected in the forward-looking statements.

There are discussions in Lennar's annual report on Form 10(K), in the quarterly reports on Form 10(Q) which have been filed with the Securities and Exchange Commission, of factors that could cause actual results to differ materially from those projected in the forward-looking statements.

The company urges to you look at them.

I would now like to turn the call over to your host, Mr. Stuart Miller, President and Chief Executive Officer.

Please go ahead, sir.

Yes, good morning everyone, and welcome to Lennar's first quarter conference call.

This morning I'm joined by Bruce Gross, our Chief Financial Officer, Diane Bessette, our Controller and Vice President and Marshal Lane, our Vice President as well.

I'm going to give a few comments to begin and then we're going to turn over to Bruce to give some additional financial color.

And then we're going to look forward to any questions that you might have.

So let's go ahead and begin.

First of all, let me say we are very pleased to bring you our first quarter results, which again, represent another record quarter of results for our company.

As you can see from our press release, a 16% increase in revenues translated to a 31% increase in net earnings and brought our earnings per share to 84 cents a share, or up 24%.

Margins continued to strengthen, up some 70 basis points, while our sales pace and our backlog grew at a 30% clip.

And while we continue to grow earnings and earnings per share, we also remain focused on our balance sheet first approach, bringing our net debt-to-total cap to 23.1% from 36.2%, and our debt-to-total cap to 38.1%, from 43.9% last year.

Not only are we growing our earnings on a current basis, but we are also very well-positioned to use our very strong balance sheet to remain growth-focused in the future.

As we look ahead, we're very encouraged as we look at the very strong market trends that we're currently experiencing.

We've seen very strong traffic in sales over the first quarter, and these trends, it seems, have been continuing into the second quarter as well.

The strong market is affording us the opportunity to continue to use pricing power to keep margins expanding, while we are -- while we are able to slow our sales in order to match sales pace with our construction cycle.

A number of things I would like to point out relative to the market place and relative to the industry as we look ahead.

First of all, relative to fundamentals within the industry, you know, we have seen our sales and backlog grow some 30% in the first quarter year-over-year.

This is deeply -- these results are deeply entrenched in fundamentals driving the industry today.

Demand and demographics still point to the fact that home building will continue to remain strong, not only in the short term, but in the long term.

Indications are that over the next ten years, we're likely to see strong household growth driving demand for the housing industry.

Of course, interest rates continue to be an important factor in keeping the housing market affordable.

Interest rates, contrary to where we were thinking six and three months ago, have drifted downward and this continues to support strength in the home building market.

Jobs have continued to be a -- an important story in a recovering economy that seems to not be recovering quite as many jobs.

But I think it's important for us to remember that unemployment remains at historic lows at below 6%.

And, in fact, in the most current recession, we didn't see a strong runup in unemployment, and therefore, we don't expect to see recovery come in jobs quite as quickly.

Of course, the supply of land continues to remain constrained throughout most of the major metropolitan areas and that limited source of land is going to continue to drive pricing power within the industry and continue to keep inventory at historically low rates, especially as we -- as we remain in a very strong market.

Another point that I would like to point out is margin.

Margins continue to be driven in an upward direction by a combination of factors.

Pricing power and strong demand are, of course, the first point that I would make, and we continue to see that limited supply, strong demand, are keeping pricing power within the home building industry.

Additionally, even while material costs have been going up and in some instances, especially as it relates to lumber going up significantly, we have seen that volume discounts and size within the largest home builders are creating offsets for the home builders to those cost increases and enabling us to continue to drive margins through cost reductions while we continue to improve quality within the industry.

Another element is the issue of growth.

Growth within the industry, growth within the largest home builders and with Lennar in particular.

As we have noted before, Lennar's growth strategy remains very diversified and continues to work very much in our favor.

It's with a combination of organic growth, within markets in which we already exist and inquisitive growth, both into new markets, and as well as with larger home builders, a consolidation trend is continuing within the industry.

We expect that this trend will continue to pick up steam, because we are finding that size is translating directly into capital cost reductions, margin growth through cost reductions in the production costs of our -- of our homes, and the ability of the home builders, the largest home builders to access the most valuable asset of all, and that is land assets.

Geographically, we are seeing strength across the country.

The coastal regions of the country continue to remain the hottest, especially California.

It's the short land supply in combination with low interest rates and strong demand.

Additionally, for the markets that have been a little bit weaker, namely Texas and Colorado, those markets have seen some recovery as we've gone through the first quarter and entered the second.

And we expect to see continued strength across the country as we go forward.

As it relates to Lennar's earnings in particular, a couple of highlights that I would like to make start with financial services.

We've noted a decline in our financial services business in the first quarter, and that decline is concurrent with the pullback in the refi business that we witnessed in the fourth and first quarter -- fourth quarter of '03 and first quarter of '04.

Our financial services group remains extremely well-positioned to take advantage of market opportunities as they exist, and did an extraordinary job of picking up incremental earnings during a refi boom in 2002/2003.

The pullback that we've seen in earnings is simply -- is directly related to the pullback that we saw in the refi market in the fourth and first quarters that have gone by and with the refi market coming back, we can expect to see our financial services group bouncing right back as well.

We've seen additional sales also in our relief from the land portion of our balance sheet, land and joint ventures.

This is going to continue to be an important part of our business as we grow forward.

As we access land positions and strategic markets, we use our size to find strategic opportunities to make larger land acquisitions and as is consistent with our Lennar process, we have consistently pared down our land position in order to properly manage our balance sheet as we grow forward.

So with that said, let me turn over to Bruce who will give a little bit more color to our financial position.

Thank you, Stuart and good morning.

I'm also proud to report record results again in our first quarter, as we target another record year of results in 2004.

Our success is largely driven by our business process called the Lennar process, which focuses on three areas.

Growing earnings, high returns on capital, as our balance sheet grows stronger.

As we evaluate the score card for the Lennar process, it was another strong quarter with earnings growth up 31%, return on net capital at 22.5% for the trailing four quarters, while our balance sheet improved down to a 23% net debt-to-total capital.

Earnings per share increased 24% in the first quarter, from 68 cents to 84 cents per share.

One thing I would like to point out is the first quarter of the prior year received the benefit and the earnings per share calculation as our contingent convertible security due 2021 did not meet the test to be included in the diluted share account.

This reduced the number of diluted shares in the prior year by approximately 9 million shares.

I'd like to start with the drivers behind our 31% increase in earnings.

Home building operating earnings are driven by two separate disciplines within our company.

First are the home building results from approximately 65 home building divisions and second are the results from our 20 land divisions.

The separation within our company maintains a discipline which maximizes returns and profits from both home building and land.

Beginning with home building earnings, revenue from the sale of homes increased 15%, and that was driven by a 15% increase in wholly owned deliveries during the quarter.

The increase in deliveries was strongest in Florida, with Texas and California also seeing large increases.

The average sales price during the quarter increased slightly to $256,000, from $255,000 in the prior period, and the regions break out as follows: The east region had an average sales price this year's first quarter of $242,000.

The central region $192,000, and the west region $320,000.

Gross margins increased 70 basis points in the first quarter, to 22.5%.

We noted that gross margin percent improvement was in all three regions compared to the prior year.

So we're seeing consistent strength in gross margins.

The highest gross margin percent of the company continues to be in the most supply-constrained markets in the country.

For us, that's New Jersey, Maryland, Virginia, Florida, Minnesota, California, and Nevada.

In the past year, Stuart mentioned we have seen significant material increases in both lumber and steel prices.

In past cycles, if we experienced these kinds of material cost increases of this magnitude, it would have been significantly more impactful on our business.

However, we're continuing to use our market share gains to reduce costs while we focus on quality, as well as pricing power to offset these material increases.

Turning to our land division results, land sale gross profit totals $35.6 million in the first quarter.

We noted strains primarily from our land sales in California and also from Florida, Texas and Arizona.

Selling, general and administrative expenses from these land divisions, which is not subtracted from land sale gross profit increased from $12.8 million, to $18.7 million during the quarter.

We currently purchased in excess of $2 billion of land per year.

And we continue to employ our strategy of owning and controlling land parcels with the intention of paring down the land assets on a regular basis.

Our home site count owned and controlled increased during the quarter to $217,000 from $174,000 in the prior year's quarter.

The home sites are 40% owned and 60% controlled, which position us very well for the future.

During this quarter, since we closed on the Newhall acquisition in a joint venture, we did add approximately half of the 20,000 home sites that we control to this total and these are the home sites we intend to us in our home building operations while the remainder we intend to sell to third parties on a recurring basis.

Turning to joint ventures.

Our earnings from unconsolidated joint ventures actually declined during the quarter from $8.6 million to $5.3 million.

However, there was $6 million of profit from a matured joint venture interest which was sold during the quarter and it's included in management fees and other income.

We delivered approximately 200 homes from joint ventures during the quarter, the first quarter of this fiscal year.

Although the timing of land sales and joint venture activity varies from quarter to quarter, it continues to be a strong and growing recurring component of our business.

Selling, general and administrative expenses, as a percent of home sale revenue was 12.2%, compared to 12.1% in the prior year.

However, SG&A, as a percent of total home building revenue, which includes land revenue, declined to 11.6%, compared with 11.9% in the prior year.

Turning to financial services, as Stuart mentioned, pretax earnings declined this quarter to $23 million from $34 million in the prior year.

All of this decline was attributable to the reduction in refinance activity, as we previously projected in prior quarters.

Our mortgage pretax decreased from $26.7 million to $21.3 million, and in our mortgage operations, there are two components: Universal American Mortgage, which is primarily Lennar home buyers increased from $19.5 million to $21 million, while Eagle Mortgage, which focuses on non-Lennar customers and had a higher percentage of refi activity decreased from $7.2 million to $300,000 during the quarter.

Title pretax also decreased from $7.4 million to $700,000.

This first quarter is typically the slowest quarter for title operations and the additional overhead required to complete transactions from the prior period impacted this quarter but we're optimistic that we will continue to generate additional profits as the year continues and get back on track.

Cable, alarm and insurance provided the additional $1 million of pretax and financial services.

Mortgage origination volume for all of our mortgage activities decreased from $1.5 billion to $1.4 billion during the quarter and our mortgage capture rate was approximately 70% for both periods.

Fixed rate loans were approximately 72% of the loan originations in the first quarter and we continue to grow our alarm and cable subscriber accounts and our personal insurance line brokerage business.

Turning to the balance sheet.

It continues to get stronger as our company grows.

Cash balance at the end of the first quarter was $546 million.

There were no outstanding borrowings on our revolver at quarter end, and our credit ratios continue to improve.

Our interest coverage ratio for the trailing four quarters improved to 11.1 times from 8.5 times in the prior year.

Our debt to EBITDA is 1.1 compared to 1.4 in the prior year.

Cap interest as a percent of inventory decreased from 4.1% to 3.2%.

Last week, we issued $250 million of five-year senior floating notes with the user proceeds targeted to refinance our term loan B securities.

The interest rate on these notes are LIBOR plus 75 which is 100 basis points less than our term loan B current interest rate.

We continue to position our capital structure with diversified low-cost financing.

We also added close to a billion dollars to shareholders equity this quarter and the return on beginning equity for the trailing four quarters is 33.6%.

We indicated previously that new orders are up 30% in the first quarter.

The largest increases were in Florida, Nevada, Arizona, and California.

The average community count during the quarter was 755 which is a 10% increase over the prior year, and the ending community count was 767.

Our backlog dollar value increased 30% as well to $4.5 billion and the average sales price in the backlog was up 7% to $286,000.

That breaks out by region as follows: $258,000 in the east; $234,000 in the central; and $343,000 in the west.

The largest increase in backlog was noted in the east and west regions, which were up 34% and 39%, respectively.

Our tax rate remained at 37.75% during the quarter.

And our share count we repurchased 1.2 million shares during the quarter, which is 2.4 million after our stock split, to offset stock option grants that were issued to our management team for 2004.

Now, I would like to update our goals for 2004.

We are optimistic with our position to exceed expectations again in 2004.

Although we increased our 2004 earnings per share goals a couple of months ago in December, from $5 to $5.25 for 2004, we are once again raising our goals to $5.30 per share.

This confidence is based upon our strong backlog dollar value, which gives us confidence that we will be able to achieve our goal of 37,000 deliveries in 2004.

Given this backlog position, we're able to maximize pricing power by slowing our sales pace to match our construction pace.

During the first quarter, we did have some weather impacting starts in construction activity, primarily in the mid-Atlantic area, which did shift some deliveries until later in the year.

Having said that, however, our company focuses on all aspects of the business to meet or exceed our originally stated goals.

Although material costs have been increasing, we expect to continue to use pricing power and cost reduction in our building process to see margin improvement throughout this year.

The second quarter in the prior year was also benefited by 9 million fewer diluted shares as a result of our contingent convertible security.

Although our second quarter deliveries will exceed the prior year's second quarter deliveries by a couple of hundred homes, we are still focused on our original goal stated in our December conference call of $1.08 to $1.13 earnings per share for the second quarter of this year.

While delivery shifted later in the year, our land divisions plan to have the largest profits in the second quarter of this year.

So it's a little more front-loaded this year, and additionally, financial services expects to have a stronger quarter in the second quarter of this year, based on their existing mortgage pipeline, a strengthening title and refinance environment, as well as creating value with some of our maturing cable and alarm subscribers in financial services.

We are maintaining with our original third quarter goal of $1.35 to $1.38, while our fourth quarter provides opportunity for upside to our earnings goals based on current pricing power and additional delivery shifted into that quarter.

Our fourth quarter goal is to exceed $2.00 per share.

Lennar remained a balance sheet first, growth focused company positioned to achieve outstanding results on a consistent basis.

With that, I would like to open it up for questions.

And ladies and gentlemen, if you would like to ask a question, please press the star one on your touch-tone phone.

You will hear a tone indicating you have been placed in queue.

To remove yourself from the queue, please press the pound key and we ask if you are using a speakerphone to please pick up your handset before pressing any numbers.

Once again, if you have a question, please press star one and we ask if you could please limit yourself to one question and one follow-up.

First, we'll go to Stephen Kim with Smith Barney.

Please go ahead.

Morning Steve.

Hello.

How are you?

Good.

Good morning.

Great.

Yea, good morning.

I wanted to ask you a question sort of queuing off your opening comments about, you know, the benefits of growth -- the benefits of size, I should say, and costs.

I guess I was hoping you might be able to give some specific anecdotal examples of what -- of some of these new-found economies that you may have may be benefiting from or believe are pretty close, but maybe even more importantly, I was trying to figure out whether or not you have -- if you are comfortable in giving us an idea of how much some of the work you are doing to try to extract some of these additional efficiencies are costing you currently.

And whether or not, you know, you are expensing some of these items where they would show up, and how much they would be.

Wow that's a lot of questions in the first question.

I thought it was actually a two-point question. [ LAUGHTER ]

Okay.

Well, you know, I think that all of the buildersare are experimenting, all the large builders are experimenting with how to translate new-found volume into bottom line profitability.

Experimentation, research and development is expensive.

We are tending to expense all of that on a current basis.

It's additional people costs in some instances, it's trial and error and failure in other instances.

In terms of tangible, you know what can we point to as tangible elements, you know, we, of course have the first element which has been a proven success, but that's across the board and that is, you know, the national contracts programs have certainly contributed to bottom line in a very tangible way over the past couple of years.

And I think that we, as all of the builders continue to work the national contracts angle as an opportunity to directly turn our volume into bottom line.

Some of the less obvious areas are some of the experiments with vertical integration.

We don't happen to be experimenting along those lines but others are.

Some of the -- some of the questions of manufacturing components or manufacturing entire shells.

We are working with that kind of program, particularly out in California.

We happen to be doing homes on a steel stud program, using a component part program.

But all of these initiatives, I think over the next years, are going to lead us down paths that -- that really remake the industry, remake the quality prospects for the industry and drive margin independent of pricing power.

On a more current basis, what we're seeing is that some of the initiatives that are starting to pay off a little bit are maybe acting as a counter balance to the material cost increases, which have been rather substantial over the past -- over the past few quarters.

Are you doing anything with labor, for example?

Are we doing anything with labor?

I think that what we're trying to do is work with labor on more of a regional basis, and -- and, you know, I think that there are some initiatives relative to vertical integration in the industry that we are not -- that we are not trying right now, which have more to do with labor.

On a regional basis, we are working with larger subcontractors to have more consistent production and maybe reap some benefit of cost reduction, but I can't say that we've made any material stride in that regard.

Mm-hmm.

Okay.

Labor, Steve, is probably toughest to address in a very -- in a very strong market.

I think those advances are going to happen if and when there is a market pullback, not in the heat of the market when labor is in short supply.

Right.

You didn't really sort of talk about the cost of some of these things currently, just sort of said you are expensing some of these initiatives.

I mean, is it meaningful?

Is it substantial?

Is it, you know, up a lot year-over-year or that kind of thing?

Well, most of these -- most of the initiatives and programs are being driven and managed on either a regional or a local basis.

So we don't separate them out as a corporate phenomenon, and measure them quarter by quarter, as an independent cost structure.

It's more embedded in the cost of each division.

So I -- I don't think that we have a good answer for that question.

Okay.

Great.

Thanks.

Sure.

And next on the line is Ivy Zelman with First Boston.

Please go ahead.

Good morning, everybody.

Good morning, Ivy.

Unfortunately, I've got lots of questions but I guess I'm limited to one so realizing that it's a series within the same topic, if you can help me understand on the financing side --

Ivy you get a follow-up also.

Oh, okay.

Well, this is all sort of part of one.

It will be quick and it's just quantitative.

You said your fixed rate mortgages accounted for 72% of your underwriting?

That's correct.

Okay.

Where was that a year ago?

72% a year ago, was approximately 83%, Ivy.

Okay.

And given the increase in non-fixed mortgages, have you seen any increase in interest-only loans?

Increase in interest-only loans?

As a percent of your non-fixed product?

Yeah, that's not really something, you know, that I have a tracking comparison but I could certainly follow-up.

I don't think you're going to see a significant change there, though.

Okay, but you are doing interest-only?

I -- I would think that's a very small percent because when -- you're looking at our program, I think a couple of things are noteworthy.

One, if you look at loan-to-value, we're continuing overall for the company to see that our average loan amount is still close to that 80% loan-to-value as an average for the company.

Does that include second mortgages or is that just the first mortgage?

No, this is just for Lennar home buyers first mortgages.

No, but I know.

Would it incorporate those that are taking a second mortgage, doing a combined ltv?

Your 80% ltv, does it include second mortgages?

No, it would not.

It would not.

So if you were to do combined mortgages inclusive of your ltv ratios, what would that number be?

At the closing, as our customers are putting down a first mortgage, this is the only number that we're able to track.

That's what they are coming to the table with at closing.

But they are doing combined mortgages in many cases, correct?

Not through us.

Do you think anecdotally that they are?

No.

Okay.

Maybe after -- after the fact, whether there is an additional mortgage put in place, which is, you know, we're not sure.

Okay.

And with your arm product, what is your most popular ARM product in your 28% of ARMs roughly?

We would have to get back.

Yeah, that varies.

I would have to get back to you on that, Ivy.

Okay.

And then on the same theme, you know you mentioned that your mortgage company, obviously it was refinancing the dropoff in refinancing but given the increase in ARMs which are lower margin products, correct me if I'm wrong on that, but wouldn't that have had an impact, mixed issues on the profitable decline?

That's correct.

The variable rate mortgages do have a lower profitability, so there was a lower profitability per loan.

Okay.

And the spike that you've seen year-over-year in ARMs, any reason for that?

Do you think people are more savvy?

Or is it also because of affordability is becoming more constrained so ARM products are more a need basis or is it all savvy and sophistication?

Interesting question.

I think that we'd have to do a psychological study there to give you an honest answer.

I -- I -- you know, you listen to Alan Greenspan, he's certainly advocating, you know, moving to a variable rate mortgage, as a matter of sophistication and saving money, and whether the market is actually following that trend or is ahead of that trend, I -- I'm just not sure.

Right, but given the price appreciation in places like Southern California where clearly it's getting tougher and tougher for people to purchase homes, I mean, do you -- would you guess, Stuart, that it's more needs-based there?

You know, you're -- your question is very clearly are we stretching the limits of affordability and are we running up to the top end of where prices go?

And the answer to the question is a little bit speculative.

Because I think as we look ahead, we're looking at a recovering economy and wage increases and things like that.

I don't know that we've got big job growth, but I don't know that we need it.

And so, you know, I'm just not -- I'm not sure how to read all of these tea leaves at this point.

But from -- from the demand that we're seeing, in most of these major metropolitan areas, particularly out in California, if we're stretching the limits of affordability, it hasn't reflected in a reduction in traffic.

Now, do I get another question or is that it?

Well, that was four but we'll give you one more.

One more?

Okay.

You know, you gave community count, and it said year-end you were at -- the first quarter end, Bruce, 767 or year-end?

First quarter/year-end actual community count was 767 but the average during the quarter was 755.

So the end of the first quarter 767?

Right.

Do you guys give us any regional breakdowns on how much community count will grow or did grow in east, central, west?

We haven't given that breakdown by region, Ivy.

Is it something you're willing to do or no?

No, I mean, we're happy to share where growth is as far as the deliveries are coming.

But the community count as they open and close is still somewhat of a misleading number for -- we think for people to focus on as community -- time in a community opening and sometimes a community count can be higher because that market is a little bit slower and it takes longer to get out of those communities.

I guess the reason I'm asking is because is there certain cities in metropolitan markets where you have reached such a significant position that it really is the goal of the company just to sustain your high level of activity in those markets where you already have a very large position and do you see certain metro markets where it's difficult to actually sell growth and if so, maybe pointing anecdotally to those that would be in that category?

No.

I think that -- I think that we're still a reasonably small market share, even in our largest markets and maybe Houston would fall into that category for us.

But for most of the builders even in their largest markets, I think where the -- where they might have the largest market share, I think there's plenty of room to grow in the largest markets maybe where 10% or 20% of the total market, but I think that there's still room for us to grow in every market in which we're currently located.

Great.

Thanks, guys.

Okay.

Thank you.

And next we'll go to the line of Margaret Whelan with UBS.

Please go ahead.

Top of the morning!

Good morning, Margaret.

A couple of things.

Just to follow up on Ivy's question.

I know with Fannie and Freddy that about 80% of their variable rate products roll into a hybrid after between three and five years.

Do you know if that's the same in your case?

I'm sorry, Margaret, can you repeat the question?

Yeah, I know there's concern in the market about the percent of ARMs that are increasing as a percentage of the total mortgage market but if you talk to Fannie and Freddy, what they say is about 80% of the variable rate products they are selling is actually a hybrid, so it eventually rolls into a fixed rate.

That's correct.

There is the three-1, 5-1, 7-1, 10-1 products that are out there and, a lot of people are certainly taking advantage of those new programs and those roll into a fixed rate program -- I'm sorry, they are fixed for that period, and then they roll into a variable program after that period of time.

So a 10-1 is fixed for that ten-year period and then rolls into a variable after that program, and we sell those mortgages consistent with the percentages you are hearing from Fannie and Freddy.

Okay.

So it is the lion share.

Yes.

Right.

And now moving on to the earnings guidance.

You are painting such a good picture of demand and then the guidance is pretty light, and can you give us a little color in terms of deliveries?

And then also [inaudible] finance and land sales, please.

Well, you know, as far as deliveries go, we're still right on track with the 37,000 net we're targeting and, you know, we're just suggesting a little bit of a shifting due to the weather, to the second half of the year.

As far as financial services, we laid out in our fourth quarter conference call that based on the drop in the refinance activity, we would see a slight drop in financial services profit in 2004, and we continue to say that.

We had laid out for 2004 that we would be at approximately $147 million or so of pretax profits.

Mm-hmm.

And, you know, we think that's still reasonable.

Okay.

Margins we still expect to see the margin improvement that we laid out.

So deliveries are on track, margin improvement is on track, financial services is right where we thought it would be, and land sales we indicated would be at least at the level of last year, or better.

And we continue to think that's the case as well.

Okay.

So basically nothing has changed, and so the guidance, I still think is very low.

And will you talk about the balance sheet for a minute?

I guess that high quality problem that you have is that you are about to implode with cash and -- and what are the -- what are you looking at in terms of the level of priority on uses of cash from here, whether it's share repos or I guess the dividend or acquisitions, what the pipeline like there?

All of -- all of the usual suspects are still open and available to us.

We bought back a little bit of stock earlier in the first quarter.

What was it, like 1 million shares or something?

Well, it was presplit a million.

A million two, presplit.

Right.

But, you know, we're still a very enthusiastic about the consolidation trend and there's a combination of things that remain very attractive to us.

First of all, from a land perspective, Bruce mentioned earlier that we're buying about $2 billion of land a year, and land is in short supply and difficult to -- to find, to acquire, to manage.

We're finding the ability to buy larger pieces of ground that are strategically located in significant markets.

Newhall an is excellent example of what we are looking for and what we're finding.

Strategic position, where we can oversee a very important position within a marketplace, and have opportunities both for our company and opportunities to sell as we pare down and manage the balance sheet side of our business.

So, you know, first and foremost, just through organic growth, we're finding opportunities not only to grow our home building business but also to become more of a participant in the land program that is really governing this industry.

On the acquisition side, on the acquisition front, we feel very comfortable with the acquisition side of consolidation within the industry.

And we're going to continue to be a participant in looking for on trades and into new geographic markets through acquisitions of smaller companies.

That kind of a program has worked extremely well for our company over the past couple of years and we're going to continue to grow it forward.

We're also using acquisitions as an opportunity to replace land positions which is more in the nature of organic growth and we expect to continue to be able to find those kinds of opportunities in the markets in which we currently operate.

Additionally, we're using acquisitions to grow the opposite side of our dual marketing strategy, either EI or Design Studio.

Mm-hmm.

And then finally, we always remain prepared for strategic combinations, opportunities to grow with larger builders, finding unique fits and unique moments in time to lunge forward and do the next strategic deal.

Okay.

That's the kitchen sink.

What are you going to do this year?

I can't wait to figure it out.

You know, Margaret, we are -- we are working on multiple avenues every day.

Mm-hmm.

And any of those avenues, all of those avenues, they -- the deals take time to mature.

They go through a gestation period.

Some of them fall out of bed before they are actually done and some of them become tomorrow's news.

The fact is that on any given day, we're working on a number of deals which fall into each of those categories.

The Newhall deal which we closed in the first quarter was a deal that we worked on for months and months and we went through a couple of negotiation opportunities.

But at the end of the day we end up with a wonderful opportunity in a strategic location that not only affords us the ability to grow our home building divisions in that market place, but also through paring down to generate some substantial land profits for the company going forward as well.

I heard in terms of Newhall, you're speaking one of the larger competitors who might do an active adult build on the Newhall land.

Would that happen this year, do you think?

I think that went one question beyond your follow-up. [ LAUGHTER ]

All right, I will follow-up with you offline.

Thank you, guys.

Okay.

Okay, bye, Margaret.

Next question'll go to Carl Reichart with Wachovia Securities.

Good morning, guys.

I have one question on margins and a follow-up on share repurchase.

You mentioned Texas and Colorado looking like they are getting somewhat better.

I'm assuming you are referring to traffic and sales rates per communities -- per community.

When do you start seeing some margin improvement off of those weaker margins that we likely saw in those markets last year?

When does that start rolling through?

In other words, are you getting some pricing power in those markets now relative to what you saw, say last year or a few quarters ago?

Yea, good question, Carl.

We're not quite getting the pricing power that we would like to see in those markets yet, but -- but we're likely to start to see less discounting as a first wave and we'll probably see that start to reflect maybe in the fourth quarter of this year.

That's just a normal lag, you make some sales that take some time to build them.

Okay.

And then just -- okay.

I will try to not follow-up with the shares.

But the issues -- let me ask it this way, if -- are you getting -- is the traffic coming to you, do you sense because -- you mentioned job growth, Stuart.

Is there relocation traffic coming to some of these markets in Texas and Colorado, in other words folks who are relocating jobwise to those markets?

Or -- I'm trying to get a handle on what is creating the surge.

Are you talking about the slower markets?

Yeah, no Texas and Colorado specifically.

I mean, it's a reasonable portion of your business.

It's been weak for a while.

It ought to help contribute and offset what pricing weakness someday we might see in some of the coastal markets.

I'm just trying to get a handle on that.

I -- just anecdotally, I have not -- I have not heard that we're starting to see a resurgence of relocation traffic.

I think it is just fundamental growth within those markets.

I think you have to remember that one of the things we're witnessing in markets like Texas and Colorado is where we had a slowdown, we did not suffer as markets have in past recessionary pullbacks.

We did not suffer from a large inventory overhang.

So there isn't an overhang to be absorbed over a period of time.

So as -- as the market tends to just go through a -- an even subtle recovery, the demand picks up pretty quickly for new home production.

Okay.

Similar to California, right?

No inventory pricing power can only go one way?

Or so far, at least.

Well, yeah.

Okay.

Just on share repurchases, can -- I mean you covered the options this quarter.

Can we expect more in that regard?

Are you looking more seriously there?

We've talked about the earnings yield versus investing your capital in -- in the kinds of risk-adjusted returns that you can get in the land market or the home building business.

How do you view that relationship right now relative to, say, a year ago?

You know, once again, you know, I think I want to make very clear that we are a balance sheet first growth focused company.

We're focused on having a -- a very, very strong liquid balance sheet that positions us to be able to take advantage of opportunities as they present themselves.

You know, I -- I would say that reflecting back to some -- to an answer I gave just a minute ago, we are extremely enthusiastic about the growth prospects that exist for our company and for the larger home builders in general.

And I think that we continue to want to remain positioned to be able to not only be well-positioned from a balance sheet standpoint, well-positioned as an investment grade company with the rating agencies, but we -- we very much want to be positioned to be able to strike at opportunities as they present themselves, because we think that's really the charge of the company relative to the investor community, is to find ways to strategically grow the business and grow it in a fundamentally strong manner.

You have answered the question.

Thank you, Stuart.

Thanks, guys.

And next we'll go to the line of Jim Wilson with JMP Securities.

Please go ahead.

Thanks.

There's been too many questions already, so I will just make it one.

Looking at the -- rather the growth opportunity, what I would like to look at is just incremental use of cash that has occurred in just the last three to six months because it looks like, you know, relative to prior years, considering where your balance was at November 30th, that you put a lot of cash to work, just since that time in the last three months, and obviously part of it went to Newhall, but could you outline a little bit where, just incremental cash investment has gone simply in the last three to six months including how much went to Newhall?

Well, I think you want to remember that every year, as we begin the new year, we begin the production cycle anew and so you have a normal kind of cash flow curve that we go through.

So a portion of it has just gone into construction progress, normal production.

We did put out approximately $200 in cash for Newhall and we continue to be a strategic land buyer and, I think, Jim, that you will consistently see, you know, cash use for strong land positions as we grow forward.

And maybe, one other way, given what you have done or seen so far, would you think that your community count growth for '04 would be, you know, higher than this 10% run rate by the time we get through the year?

Yeah, I think, Jim, that you're going to see a higher rate, and obviously, you've got to, again, be careful with community count because if we're selling at a faster pace, sometimes you're closing communities faster.

I think you are seeing a little bit of a higher pace than 10%.

Additionally, we -- the stock buyback number was over $100 million repurchased in the first quarter.

So Newhall in stock buyback was over $300 million of invested cash in the first quarter and you are seeing us get focused on building out our backlog and focusing on growth in terms of adding to that community count throughout the year.

Great.

That's what I thought.

All right, thanks a lot.

And we'll go to the line of Greg Hibbert of A.G. Edwards.

Good morning, gentlemen.

I want to go back, Stuart, to some of your opening comments on the increase in margins.

You defined that increase part coming from pricing power and the rest from scale economy.

I wondered if you could sort of, perhaps, give us just a very ballpark split of how much that of your margin increase has come from each of those two sources.

Well, the margin improvement year-over-year, for starters is we had approximately 60 basis points improvement due to lower interest costs, loan term costs of sale year-over-year and then there was somewhat of an offset that we haven't itemized out, rising material costs offset by improvement in process and pricing power.

We haven't itemized out those components, but they all netted out to a net increase of another 10 basis points.

I think also, Greg, you've got to understand that these improvements are rolled up by the corporate -- on a corporate level, but these improvements are -- whether it's pricing power or whether it's construction costs offsets, are happening, really, at a local level.

Except for your national purchasing programs, pricing power is a very local phenomenon.

Reduction in construction costs is either regional or local, and the component parts are rolling up to something that translates into an overall margin, but to break it out at a corporate level, we just haven't done it.

I was just trying to get some sense of, you know, what is really happening to pricing power down at the individual, you know, project level on average, is there any sense, when you look through where your average price is now, by division, what that price compares to, how it compares to the pro forma that you originally put together when you decided to go ahead with that project?

Once again, you're looking at very, very localized numbers, and it's a community by community question.

Comparing average sales price to average sales price year-over-year, community mix has a lot to do with that determination.

And when you look at your original projections, versus where you ended up, your original projections are often a low ballpark figure on an average basis and not necessarily the specific product with its pieces in place determined for that location.

So some of these concepts that work for other manufacturing industries, where you're, you know, developing a widget and that widget is the same widget from year to year, really don't hold -- don't have good comparative value within the home building world.

Okay.

I was just trying to get, you know, if you had just some sort of general sense of how much it was, whether it was -- that amount was accelerating, holding constant or decelerating.

And I guess the other way to ask the question or, you know, you talked about raising prices to slow down your sales velocity.

Any sense that you can give, just how much you are slowing it down or alternatively, you know, what your sales might otherwise be?

Yeah, good -- that's a good question.

We are looking right now -- recognizing that land is a scarce commodity, we are -- we are focused -- we're really focused on pricing every single day.

And we're looking right now at very strong traffic trends in most of our markets, and we're making sure that we are maximizing profitability and the use of each parcel of ground, and we expect that we will slow down sales a little bit as we go into the second quarter.

As it stands right now, the sales pace towards the beginning of the second quarter, just the few weeks that have passed, have been very consistent with and maybe even a little bit better than what we saw in the first quarter.

So, you know, we don't want to get out too far ahead of production.

We don't want to be selling homes that we won't be delivering for a year, especially not knowing what's going to happen with material costs and things like that.

So we would expect that we'll pull back a little bit on sales pace.

What that will actually translate into, we're going to have to wait and see a little bit, but the point that I would make is that we're going to protect and grow margin and pull back a little bit on sales pace so that we don't get too far ahead of ourselves.

Looking at our backlog and looking at where we expect to be for year-end I think we're in a very comfortable position.

Okay, let me ask you about your dual marketing approach.

You look at the 30% increase you had in orders year-over-year in the first quarter, can you have any sense of how much of that growth came because you had gone to dual concept opening up a, you know, a design studio in a market where you only previously been is everything is included or visa versa?

We haven't broke than out, Greg.

We said that we have dual marketing in about half of our markets and we're focused on increasing that to hopefully all of our markets over the next year or two.

But we haven't broken those out in any more detail.

Any chance you will so we can measure the efficacy of that effort, versus cannibalization?

You know, it's -- it's just -- it's not something that we have broken out and, you know, it -- it's not likely something that I think we would break out at this point, because it's just -- it's not apples-to-apple comparison, so we didn't think it would be meaningful to do that.

Oh, okay.

Well, thank you very much.

Good quarter.

Thank you.

And we'll go to the line of Tim Jones with Wasserman & Associates.

Please go ahead.

Good morning, Tim.

Good morning, boys!

Morning.

First of all, I'm -- you know, with the demise of Captain Kangaroo and Mr. Rogers, I guess it's sad that people cannot count to two.

First of all, I have two questions.

I will give you the easy one first, which is Newhall, the second one that was why I think your land -- your stock is down 4%, is the land profits.

On Newhall, have you given any guidance on this year and next year, how much Newhall will contribute and if Newhall doesn't contribute this year, is it because you are assigning the excess causes to inventories?

We -- we have indicated, Tim, that we expect that it will be basically flat, in terms of profitability in that joint venture this year, and next year.

So therefore our 50% will -- will not be impactful.

I can understand it this year why -- why would it be next year?

Are you cutting back the land that Newhall is selling to others?

Well, there are overhead costs associated with the program as well, and based on the original projections that we laid out in our conference call last summer, what's going to be happening the next year, Tim, is that we're going to be taking down options in Lennar and start home construction in our program and we expect those deliveries within our program, though to start at the very beginning of 2006.

You are going to use the land yourself, rather than sell it?

Well, we'll be doing both.

But you will be doing a lot more of your own, right?

That's why you made the acquisition?

Yes.

And initially we'll be taking down some of those remaining on site, the ranch, but we're focused on both and based on the original projections, that, you know, that's what we have laid out.

I will go through that with you later on.

The tricky one is the land profits, okay?

Your pretax profits were up $53 million.

Your land profits were up $31 million, over half the increase.

First of all, you implied that your land profits would be flat for the year, and up for the second quarter.

That implies that you are going to have very little in the second half.

Yeah, I think that's fair, Tim and I -- I think, you know, as I said flat to up for land profits for the year.

And with land profits, you know, if you throw in joint ventures and management fees that whole bucket, there's, you know, there's some upside opportunity there.

Are those land profits not included from LNR?

Well, if your question is, as we take down --

No, the land profit that you report, the $35 million of land profits, and the $94 million of sales, did that include any LNR or not?

Usually LNR is shriveled up in joint venture.

Yeah there's zero in there.

And lastly, the margin was 38%, which has to imply probably two or three things.

One, that you are selling complete divisions or commercial land because it compares to 14%.

If you are selling a portion of your land, you would have a much lower margin because every builder allocates a lot of cost to the remaining lots so that the lot costs are less.

That's just done throughout the industry.

Can you talk about the 38% margin which is historically pretty high?

Yeah.

The margins in the states that we mentioned, Florida, even Texas, Arizona and California, the margins from the home site sales in each of those markets were, you know, 30% approximately or higher.

So you're seeing strength.

We have no basis, we're creating value within our land division, and we're seeing that as we sell home sites to third parties.

But by no means are we selling whole divisions or anything like that.

There might be some commercial components in some of it.

And Tim, you know, we've have had discussions on land many times in the past.

But, you know, we've said for a long time, that you're going to see land sales as a recurring component of the Lennar program.

It's been something that's been part of what we've done for a long time but in today's constrained land market, we have a strategic advantage in the way we approach the market place and in the expertise embedded in our company and the way that we handle land.

And the land profits that you are seeing, the land sales that you are seeing are parcels that are across the country, so it comes from a variety of different market places.

Most of these land deals are put in place, three, six, nine months before they actually, you know, are put on the books, meaning before they actually close.

And, you know, the one tricky part of the land component is that land deals have a tendency to either close or get postponed, you know, timing is a little bit more of an issue.

You can -- you can find that they get accelerated because of a sellers or a purchaser's desire or they get postponed because a deal falls out of bed the but we're going to continue to see land as a significant part of what we do in our business as we -- as we go forward.

Would you say it would be -- and I understand all of that, and that all of this is -- obviously you have to close it when the buyer wants to buy it.

Right.

But would you say that you were trying to keep it somewhere around land profits, somewhere around 10% of pretax?

Or would they go higher?

Hmm?

I mean -- obviously this quarter was a lot higher and -- but -- but this is an anomaly, I believe.

Yeah, for the whole fiscal year, Tim, you know, land sales --

Not the sales, the profits.

Yeah, land sale profits, you know, I think you're right, for the land sale component --

About 10%?

Give or take, but it is -- it is going to vary.

And most of our land sale profits this year is going to be in the first half of the year.

That's what I wanted to know.

Thank you.

Okay.

And next we'll go to the line of Myron Kaplan with Kaplan, Nathan and Company.

Please go ahead.

Good morning, Myron.

Good quarter but you can see the stocks going down more than 5%, so I think the question is: Is it -- if one of the major initiatives is this increased sale of land as part of the large scale projects that you own and develop, doesn't this really inject the kind of a speculative factor into the -- into the earnings and the earnings growth because of the theory that -- since the market expects some type of inevitable retrenchment when rates rise and at that point you will be able to have large offerings of land and the question is: Who would buy them because all of a sudden the industry is going to -- according to this model, is going to come to a shattering halt..

Well, if the industry has come to a shattering halt, then probably home sales are probably going to be a little slower and the financial side is going to be a little slower.

You know, I think as we draw -- as we draw analysis about various possibilities as the market unfolds, there are a variety of ways to look at what might come around the corner and what might -- what might that pullback or recovery look like.

We think that given the shortage of land that's out there, we think that being well-positioned in the land -- in the land part of our business and actually being a supplier of some land to others, on a -- on a -- on a -- you know, fairly small scale, is a prudent thing to do, and it's an important part of our business model going forward.

And I don't think it breeds a lot of speculation in terms of our numbers.

I think that as the home building market remains strong and we think it will for a long time to come, we think that the land component will remain healthy and strong and a driver.

As there is a pullback within home building there will probably be a concurrent pullback within land.

And that's where our balance sheet comes into play and we use the strength of our balance sheet to position ourselves for the next big recovery.

So -- but you would say even though you're kind of assuming the role of a land banker, in this case, that that doesn't -- doesn't -- it shouldn't inject a worrisome element in, let's say, the hard -- the concrete nature of the earnings numbers?

No, I don't think that I used the word "land banker" because we're not pulling a lot of land on to our balance sheet.

As you might have noted, our balance sheet is becoming cleaner and cleaner.

We're using -- we're using a lot of option opportunities and other programs to be able to control land as opposed to actually owning it.

But we are -- we are finding that strategically some of the best ways to end up with land positions is maybe to buy the larger piece but ultimately we pare down and that pare down strategy has worked well for us for decades now.

So, you know, this is not -- this is not representative of a change in direction for the company, and we're certainly not becoming a land banker, but the land component that we have done particularly well continues to be a component of what will drive earnings.

And, no, I don't think it's going to add anything more speculative to the way that our earnings will be derived going forward.

And if I could just add, Margaret -- Myron, the numbers that we laid out at the start of the year, everything is on track for 2004, and we increased guidance today.

The variability of land sales from quarter to quarter within a fiscal year is something that we've always indicated.

It's something, you know, that from quarter to quarter within a year can move around a little bit.

But everything else is right on target with our model that we laid out for this year, and we have been growing the land joint venture component on a consistent basis over many years.

We're up to 20 land divisions.

We're well-positioned and as a percentage of the total overall company, we're not changing the model that we have laid out.

Right.

You have been saying that the land sales will stay within a modest portion of the overall income.

That's correct.

For a year, that's correct.

For a year, even though it may be a preponderant part of the increase in the first quarter?

Right.

Because we can see that this is costing the stockholders as as diminutiion in value of over half a billion today because of the markets.

Would you say it- I don't know what you want to say, it's discomfort with the increase having come from this source.

Right.

All right, thanks.

Okay.

Thank you, Myron.

Next we'll go to the line of Steve Fockens with Lehman Brothers.

Please go ahead.

Hi, guys.

Just two quick clarifications.

Did you say that closings in the second quarter would be up just very modestly over the second quarter of last year?

That's correct, Steve.

Deliveries in the second quarter, we expect to be up about a couple of hundred homes compared to deliveries in the second quarter of last year.

And is that some of the impact of weather delays that may have happened this quarter, continuing into next quarter?

Or what is the prime driver of that again?

It was mainly weather delays in the first quarter.

As we expranded over the last year or two, primarily in the mid-Atlantic area, Baltimore, Carolinas and the like, they got hit pretty hard with weather in the first quarter.

Mm-hmm.

And that delayed some starts to get into the ground and some construction activity and have pushed off those deliveries into the second half of the year.

Okay.

And then the second, just clarification, Bruce, did you say that you got a 60 basis point increase year-over-year in gross margin from lower interest rates, is that the sole piece or the bulk of what drove the overall 70 basis point or did that 50 basis point increase in interest get offset in other items and therefore the bulk of the margin increase year-over-year came from overall cost savings or pricing?

How shall we think about that?

Well, there's different components that go into that equation, Steve.

You did have material price increases in lumber and steel hitting us in the first quarter.

We had cost reductions in other areas.

So net/net it was a positive ten basis points net of material cost increases, net against process and cost reductions in other areas from purchasing and the like.

And then interest was the lion's share beyond that to get to a 70 basis point reduction.

The good news going toward is we look at cap interest as a percent of inventory, we do expect continued savings for many quarters to come in that interest component and gross margin.

In addition to other efforts in the company to reduce costs, as we're improving quality of our product.

Let me follow up on that then.

Is it fair to say that margin improvement then this year is driven largely by lower interest costs and, you know, perhaps would investors be concerned that that is something that's not sustainable over time?

Well, I think one of the things you have to factor that, when you look at lumber, for example, you've seen structural panels go up well over 100%.

Framing composite lumber is up about 35%, steel is up considerably.

So what we're -- what you're seeing ability to offset very significant increases in materials.

So I think that's a very strong positive to be able to offset significant material increases in our program and still see margins improving.

Well, let me put it another way.

Over time, if hopefully some of these commodity and input costs start to moderate, even if your benefit from lower interest costs moderate the continued cost savings per a -- approach to building a home becomes a bigger percentage of the margin improvement over time?

Is that the fair way to think about it?

I think you are going to continue to see improvement in the margin as -- through purchasing and cost improvement processes, as well as interest.

I think we're going to continue to see interest savings over the next couple of years based on our lower leverage and lower borrowing costs.

So I think it's going to be a combination, Steve.

Okay.

Fair enough.

Thank you, guys.

Thank you.

And next we'll go to the line of Michael Rehaut with J.P. Morgan.

Please go ahead.

Hi, it's John Barlow on behalf of Mike.

I just had one quick question regarding your ASP.

On your last conference call, you mentioned that you had a mixed shift in Texas focusing more on the first-time buyer and then in California you had a mix shift towards the central -- central region and inland empire is that largely responsible for your flat ASP and are there any other mix shifts either geographic or product?

Yeah, I think you could look at the geographic and product mix shifts as really the reason why average sale prices were up only a thousand.

If you look at our backlog, though, as you've seen, our average sales price in backlog is up 7%, and we don't expect our average sales price will get that high this year because backlog average sales prices are always slightly higher than actuals.

But it's -- it's also the product mix shift.

In our backlog, we have a very strong component from -- from some very strong markets such as California, Florida, and other markets, Nevada, Arizona, that are seeing some very strong average sales price increases as well.

Okay.

Thank you.

And we'll go to the line of Sam Kernan with Franklin Resources.

Please go ahead.

Yeah, hi there.

Just a quick question for you here.

I guess instead of kind of making a mountain out of a mole hill here, some of the questions have been focused on financial services and land sales, which I think are pretty ancillary to Lennar.

I want to focus on just your main business of home building and guidance, and specifically your orders are pretty robust here but I don't think your guidance is so much.

Your backlog and orders are up about 30%, but your EPS guidance is up just less than 20%.

I just find it curious, you know, especially when we continue to see purchasing power increase and we also see average selling prices rise.

So, if you could address that, that would be great and then I have a follow-up.

Sure.

Well, you know, look, you're looking at strong sales, strong backlogs and in terms of when those -- when the sales that we're seeing right now, especially in the first quarter, when they start to deliver, it's probably not going to be until the fourth quarter, maybe the first quarter of next year.

I think that we're managing our guidance very carefully to make sure that we're giving good guidance that we can perform upon.

Now there are a couple of things that are happening within the industry that we all have to be cognizant of, and that is that bringing new communities online is becoming more and more difficult and more and more difficult through time.

And we want to make sure that even though we're selling at a rapid pace, with strong pricing power and very strong margins, that those deliveries are actually going to fall in the quarters that we are expecting that they are going to fall.

I think that some of the shifting that you are seeing, aside from just weather in the first and second quarters this year, has been in part about bringing new communities online.

It's very easy to see a little bit of slippage between quarters, just in terms of -- in terms of delivering the homes that have already been sold.

So there is a little bit of conservatism that we're injecting into our numbers, as we talk about where we're headed for the year.

Are there -- is there upside to those numbers as we get late in the year?

Possibly.

But for right now, we're giving numbers that we feel comfortable with.

Increasing guidance, but doing it modestly.

Okay.

Yeah, it sounds like pretty conservative guidance and I applaud you for that.

My follow-up -- I'm sorry?

Okay.

I get feedback on this line.

My follow-up is just if you do -- and I don't know that you do plan to slow down your sales pace going forward -- will you raise prices?

Yeah, that's -- that's the primary way that we do reduce sales pace is through price increases and maybe opening fewer phases on a slower basis which ultimately means that we'll sell later phases, maybe farther down the road, at higher prices.

The answer is yes.

Okay.

Thank you.

Thank you.

And we'll go to the line of Margaret Whelan with UBS.

Please go ahead.

Good morning, guys, this is Will.

Just two quick questions.

One is how much did you spend on stock repurchases?

Approximately $110 million, Will.

And just looking at your cash balance between the fourth quarter and the first quarter, there seems to be I -- I can't seem to account for about $400 million.

Maybe it's in the share of community openings but you have about, I guess $200 million related to LNR -- I mean to Newhall and have you $120 from stock repurchases.

There's about $400 that I was just curious, you know where that difference is coming from.

Well, you know, you're not always comparing apples to apples because we're in the buildup period right now.

We have a strong backlog and we are building out that backlog and you're seeing investment in inventory for future growth.

And all of those components we -- we've grown from 32,000 deliveries last year to 37,000 this year.

And we are investing in inventory to make sure that we achieve those deliveries this year.

Okay.

Thanks for the clarification.

You're welcome.

And no further questions.

I will turn it back over to Mr. Miller.

Please go ahead.

Great.

Once again we'd like to thank everyone for joining us on our first quarter.

We look forward to reporting the remainder of the year.

Have a good day.

And ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation, and you may now disconnect.