LGI Homes Inc (LGIH) 2013 Q4 法說會逐字稿

Good morning, and welcome to the LGI Homes fourth quarter and year end 2013 earnings 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&A.  (Operator Instructions).

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.  Good morning, and welcome to the LGI Homes conference call discussing our fourth quarter and full year results for 2013.

Today's conference call will contain forward-looking statements that include, among other things, statements regarding LGI's business strategy, outlook, plan, and objective.

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, for 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 risk and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this conference call.  Additionally, certain non-gap financial measures 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.

Reconciliations of these Non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are included in the earnings press release that we issued this morning, and in our annual report on form 10-K for 2013, that will be filed with the SEC later today.  This filing will be accessible on the SEC's website or in the investor section of our website at www.lgihomes.com.

Joining me today are Eric Lipar, LGI Homes' chief executive officer, and chairman of the board, Charles Merdian, the company's chief financial officer, secretary, and treasurer, and Meg Britton, the company's chief administrative officer.  With that, I will now turn the call over to Eric.

Thank you Rachel, and good morning everyone.

We appreciate you joining us today and are very pleased to share our fourth quarter and full year results for 2013.  On the call this morning, I'll summarize the highlights from the fourth quarter and the full year, then Charles will follow up to discuss our financial results in more detail.  After he is done, I will conclude with comments on what we are seeing this quarter, and our expectations for 2014, before we open the call for questions.

As we look back on 2013, there is no doubt we had an exciting and successful year.  I'd like to start the call today by emphasizing some of the key accomplishments that shaped our success.

First, as all of you are aware, in November, we launched one of the year's most successful IPOs with our stock price increasing 17 percent on the first day of trading.  Our stock ended 2013 up 61.7 percent, which ranked as the top-performing home builder's stock for the year.

Our fourth quarter results provided a solid finish to 2013.  We set an all-time record for closings during a single month with 2014 homes closed in December.  This resulted in a record setting 505 homes closed during the fourth quarter, finishing 2013 with 1,617 homes closed for the year.  This surpassed a previous record of 1,062 homes closed in 2012 by 52.3 percent.

These record-setting results for the fourth quarter and full year demonstrated our abilities to successfully execute on our growth plan and continue our trend of strong results and profitability since our inception in 2003.

Home sales revenues on a pro forma basis for the fourth quarter increased 74.2 percent to $77 million, finishing out the year with home sales revenues of $241 million, a 68 percent increase over 2012.

For the quarter, average home sales price reached a new high, coming above $152,000.  This represented an increase of more than 10 percent over the previous year.  We attribute the success to an improved pricing environment, and our ability to realize its immediate impact to our inventory of move-in ready homes.

In 2013, we recognized demand for higher-priced homes for our target consumer, the first-time home buyer.  In response to this demand, we introduced a new product line called the Great Lakes Series at select communities during the fourth quarter.  This new series of homes ranges in price from $160,000s to the $220,000s and features stone and brick elevations, along with higher end interior finishes.  The response to the new product line has been very positive.

Other key accomplishments for the year surrounded the successful expansion of LGI Homes into new markets.  In 2013, we expanded our Florida division by entering into the Orlando market, and we entered the Atlanta, Georgia market with the formation of our southeast division.  We also expanded in our southwest divison with the acquisition of land in Tuscon, Arizona and Albuquerque, New Mexico.

We ended the quarter with 25 active selling communities, averaging approximately seven home closings per community per month.  Furthermore, we ended the quarter with a portfolio of approximately 15,000 lots that we owner-control, which consist of both finished lots and raw land.  Each of our markets continue to experience strong momentum and housing demand drivers, including nationally leading, population, and employment growth trends, general housing affordability, and desirable lifestyle characteristics.

I am very pleased to say that we wrapped up 2013 well-exceeding our expectations.  I want to take a moment to recognize that this would not have been accomplished without the hard work and dedication of our entire team here at LGI Homes.  With that, I'd like to turn the call over to Charles for a more in-depth review of our financial results.

Thanks Eric, and good morning.

During the fourth quarter, we completed our initial public offering and acquired all of our joint venture partners' equity interests in the LGI-GTIS joint ventures.  For accounting purposes, our historical results prior to the IPO present the combined assets, liabilities, and results of operation of our predecessor and our interest in the LGI-GTIS joint ventures using the equity method.  Our share of the joint ventures net earnings are reported as income from unconsolidated joint ventures.

Effective November 13th, we now own all of the equity interests in the joint ventures, and account for them on a consolidated basis.  For the quarter, we reported $9.1 million in net income, which includes $1.4 million in income from the unconsolidated joint ventures for the period prior to the IPO, a $6.4 million gain on the remeasurement of our historical interest in the joint ventures, that was recorded as a result of the acquisition, and a $3.5 million cost of sales expense related to the amortization of the step up adjustment to the GTIS joint venture inventory that was sold by December 31st.

Reported earnings of $7.1 million or 34 cents per share, represent the net income for the period from November 13th to December 31st, and includes the gain on remeasurement, and the expense related to the step-up adjustment.

The following pro forma financial information presented for the fourth quarter and year-ended 2013 and 2012, gives effect the acquisitions of the joint venture interests that we did not previously own.  Please refer to the unaudited pro forma statements of operations included in today's release.

As Eric mentioned, home sales revenue for the quarter was $77 million, an increase of approximately 74 percent from the fourth quarter of 2012.

Adjusted gross margin of 25.9 percent was 100 basis points lower from the prior year fourth quarter.  This primarily reflects the net impact of increased construction costs, slightly higher developed lot costs, investments in our new markets, and the transition between communities within existing markets offset by slightly higher average home sale prices.

Selling expenses were $7.8 million, or 10.2 percent of home sales revenue, which is comparable with the fourth quarter of 2012.

General and administrative expenses were $4.7 million in the fourth quarter, or 6.1 percent of home sale revenues.  This was 100 basis points higher than the fourth quarter of 2012, and was primarily due to the additional costs incurred in connection with the IPO.

Pro forma net income for the quarter was $2.6 million, after elimination of the income from unconsolidated joint ventures and excluding the gain on remeasurement.

Fourth quarter net orders, in total for our predecessor and the LGI-GTIS joint ventures were 517, compared to 271 in 2012, and ending backlog for December 2013 was 190 units.

Moving on to pro forma full year of 2013 results.  Home sales revenue for the year increased 68.1 percent over the prior year to $241 million.  On a pro forma basis, we closed 1,617 homes, compared to 1,062 homes in the prior year.  The average home sales price closed during the year was $149,000, an increase of 10.4 percent.

Gross margin as a percentage of sales was 25.4 percent for 2013.  Compared to 27.3 percent for the prior year.  This includes the $3.5 million or approximately 150 basis points related to the fair value step up adjustment for real estate inventory from the GTIS acquisitions that was sold prior to year end.  This was approximately $500,000 higher than we originally anticipated, due to better than expected closings in December.

Adjusted gross margin which takes into account the effects of capitalized interest and purchase accounting adjustments was 27.3 percent, down 70 basis points from the prior year.

Selling expenses were 9.6 percent, compared to 9.3 percent in the prior year.  The increase in selling expenses was primarily due to new community start up expenses, and a slight increase in outside broker commissions.

General and administrative expenses were 6.3 percent of home sales revenue for the year, compared to 5.1 percent for the prior year.  The increase in general administrative expenses was again, due to expenses incurred in connection with the IPO.  General and administrative expenses for the year were $15.2 million and reflect approximately $250,000 for the amorization of an intangible asset recorded in the GTIS acquisition.

Pro forma operating income for the year was $22.9 million, an increase of $4.4 million, $4.5 million, or 24.5 percent from $18.4 million for the prior year.  Pro forma net income for the year was $21.7 million, an increase of 18.6 percent.

As of December 31st, we had $54.1 million in cash, $142 million in real estate inventory, and total assets of $221 million.  Our outstanding debt on our bank facility was approximately $35 million.  And on January 30th, we amended our facility with Texas Capital Bank to increase the line to $50 million.

And at this point, I would like to turn it back over to Eric.

Thanks Charles.  In summary, we had an exceptional quarter to end a very successful year and continue the momentum into 2014.  Let me provide some guidance and thoughts on what we are seeing this quarter in looking ahead into 2014.

We entered the year with a strong balance sheet and a favorable outlook.  In each of our markets, we are seeing steady traffic and sales on a per community basis, and demand from customers looking for home ownership is high.

We started the first quarter strong, with 119 closings in January, and 156 closings in February.  We anticipate closing approximately 200 homes for the month of March, ending the quarter with approximately 475 closings.

475 closings would results in an increase of 87.7 percent over the 253 closings in the first quarter of 2013.  We will release our margin first quarter 2014 home closings numbers by the end of this week.

During the first quarter of 2014, we opened our third community in Atlanta, and we are expecting our first closing in Albuquerque later this afternoon.  We expect to end the quarter with 27 active communities, and we expect adjusted gross margins to be in line with historical averages.

In 2014, we will continue to focus on the entry level home buyer, with price points generally between $140,000 and $250,000.  In addition, we plan on taking advantage of opportunities to expand our price points into the $300,000s and $400,000s, with closings starting to occur in this price range in the fourth quarter of 2014, or the first quarter of 2015.

We believe there continues to be a significant opportunity to grow our share of sales in our existing markets, but we also intend to expand into new markets where I identify opportunities to build homes and develop communities that meet our profit and return objectives.

We have started due diligence on the Charlotte, North Carolina, and Denver, Colorado markets, and will consider entry into these markets as we find the right leadership.  In addition, we will continue to analyze other potential markets as we continue our efforts to expand geographically.  Certain of these opportunities may involve the sale of acreage home sites as part of the development.

In conclusion, we believe we will close at least 2,200 homes during 2014 and have 36 active selling communities at the end of the year.  We anticipate the increase in communities will be spread across all of our current divisions.  Now, we will be happy to take any questions that you may have.

Ladies and gentlemen, at this time, if you have a question, please press star, then one, on your touch tone telephone.  You may remove yourself from the queue at any time by pressing the pound key.  Again, to ask a question at this time, please press star, then one on your touch-tone telephone.

And our first question comes from Nishu Sood from Deutsche Bank.  Please go ahead.

Thanks.

Good morning, guys.

The volume trend that you folks have been putting up, the closing, these trends have been terrific.  And you know, so congratulations on the -- on the record year, and it sounds like with the 475 for 1Q, that is continued as well.

I think though that something that has concern -- may be of some concern to investors of a gross margin trend for the fourth quarter, down 150 basis points sequentially, and year over year as well.

So, you gave some indication that you would expect the gross margin to bounce back to being in line with historical averages for 1Q, so a two part question.

I just wanted to get an understanding of the drivers, you know, of whether it's likely to be temporary, or this is the new level for -- for margins, of what you're saying on the fourth quarter.  And we don't have too much history, so maybe if you could be more specific about what is in line for historical averages for 1Q.

Sure.

This is Eric, Nishu, thanks for the question.

I'll have Charles dig into the detail of it, but you know, historical averages of gross margin have been between 26 and 28 percent.  And our adjusted gross margin for this quarter is 25.9, so you know, a slight miss there.  We expect, you know, the first quarter gross margins to be back above 25.9, so be higher than the fourth quarter, and be in that 26 to 28 percent range.

Got it.

And what, you know, is there some seasonality to your gross margins with the fourth quarter being a little bit lower?  Because we certainly saw that last year as well, with some decline in the gross margins, and or in the fourth quarter was there -- and some effect from the slow down in demand we saw across the housing market in general?

Yes.

I think seasonality is not -- not really part of our gross margin story, but Charles can give details on -- on some of the gross margin as far as opening up new communities and capitalized interest that would probably add more color to that.

Yes.  Sure.

So, what we saw in the fourth quarter were a number of communities that were experiencing better than average gross margins that closed out, so that definitely contributed to the decline for this fourth quarter.  We also saw mid-year and into the fall, construction costs accelerating faster than what we are currently seeing, so that seems to have decelerated in the fourth quarter.

And then we have a mixed component going on as well, even within the communities, where there is some variability in the numbers just due to the product mix that -- that has occurred based on the closings.

Got it.  So, just to be clear, there was no extra promotions for incentive activity in the fourth quarter?

Correct.

OK.  Great.  I'll leave it to others.  Thanks.

Our next question comes from Mike Rehaut, from JPMorgan.  Please go ahead.

Hi, thanks.  Good morning, everyone.  And congrats on a successful year, and looking forward to 2014.

Thank you.

My first question, just on the -- on the -- you mentioned the Great Lakes series, and you know, talking later this year, introducing some higher priced product.

How are you guys thinking about ASPs over the next, you know, few quarters?  Obviously, in the back half of the year, you kinda settled out around 152.  For 3Q and 4Q, would you expect, at this point, for there to be more of a modest creep upwards?  Because certainly, 10 percent move for 2013 is -- is not necessarily typical for you guys, or would you -- you know, with some of the product mix, would you expect to continue to see kind of a -- a stronger pace?

Yes, this is Eric, Mike.

I think, with our additional, you know, new series, our additional price points, and then just costs and you know, development costs increasing higher, I believe everyone's going to see that average sales price continuing to an increase.  You know, we increased 10 percent year over year last year, and I -- I think, you know, somewhere in that range would be a good estimate for 2015.

So, in other words, what you're seeing right now in your backlogs and what you're coming out, I mean another 10 percent would be, you know, in the mid 160s for the full year.  Is that -- is that what you're pointing towards?

Yes, correct.  I mean, two of those -- two to four percent per quarter feels about right.  That would put us at, you know, eight to -- eight to 15 percent for the year, and that's what we're trending in the first quarter.

That's very helpful.

Also, just, you know, a few questions, if I could, around the -- just some modeling questions to -- to help for the full year.

Charles, I was wondering if you could just give us your thoughts around, you know, the interest amortization, it was roughly 400,000 this quarter, if that's going to creep up a little bit, we have a little bit over two modeled for the full year, as well as thoughts around the income tax rate for the full year?

Sure.

So, on the interest expectation, so we're currently utilizing our $50 million facility, so we expect certainly in the first quarter and into the second quarter that we're -- we'll be in that four percent annually cost range, four to five percent.

And then, on the back half of the year, depending on what we do from a liquidity standpoint, if we extend our -- our facility, which we're looking into, then it could increase in the third and the fourth quarter.

And then the second part of your question, Mike?

Yes, on the tax rate.

The tax rate.

So, the -- the predecessor entities were a -- treated as partnerships for tax purposes, so it's a little early for us to probably get a good feel on where the effective tax rate is going to be.  So we've -- we've recorded all of the tax effects of the conversion from a non-taxable entity to a taxable entity.

So, I think it's a little early at this point for me to get a really good feel for where the tax rate's going to settle.

OK.  And -- and, just going back to the -- the interest expense for a second.  So you're talking about four percent on a $50 million revolver, I believe, that's, you know, $2 million, but is that, can you expect to run through the interest amortization line or the interest expense line below operating income.

Yes, we believe that -- that all of our interest will be capitalized and run through cost of sales, so we have qualified assets greater than our debt.

OK.

And just one last one, if I could, the GNA at a little bit over six percent of sales for 2013, you know, now with the IPO running its course and obviously, or having run its course, and some of those extra expenses I mean, I believe, you know, historically that number was maybe closer to a low five percent type number.  Is that something where what you would expect it to return to, and perhaps even in the first quarter of this year?

We do -- we do expect that we'll return to those historical averages.  It may be later in the second quarter and the back half of the year before we get to -- get there.

All right.  Great.  Thanks.

Thank you.

Our next question comes from [Mike Rocksland], of Bank of America-Merrill Lynch.  Please go ahead.

Thanks very much, appreciate the (inaudible) call.

Just a question for you on the higher quality mix you're targeting, Eric.  Is there a particular target, or how should we think about how much of this higher quality mix is going to comprise your sales.  Is there a particular target that you have in mind with a sales basis or a delivery basis?  How should we think about this -- this higher quality product, and the overall percentage of the portfolio it will comprise at some point in time?

Yes, sure Michael.  Great question.

You know, the $250,000 price point, which we really describe as, you know, the first time home buyer or entry level part of the -- part of the segment, you know that's going to be, you know, all of our closings in 2014, you know, all of our material closings, you know, getting into the $300,000s and $400,000s, we see, you know, almost no impact in 2014.  Certainly less than 10 percent of our business in 2015 and going forward.

Got you.  And for the $250,000 price point, I'm sorry, because I missed that.  If there's -- if the $300,000 to $400,000 will comprise less then 10 percent of your business in 2015 with minimal impact in 2014, the price point for let's say, the $250,000, what is that targeted at for 2014?

Yes, we think, you know, we put the price range of $140,000 to $250,000 in all of our markets as really being the first time home buyer and entry level segment.  Obviously, if the market's got better and costs have went up, you know, that -- that price point keeps creeping up, but anything below $250,000 and we've got a lot of communities right now that, you know, have sales prices on certain floor plans above $200,000, and it's really still targeting the first time home buyer and -- and someone that is currently paying rent and moving in to a home.

Got you, OK.  Appreciate it.

Can you just talk about the -- the cost (inaudible) you saw in the quarter?  What costs were the biggest headwinds?  Could you give a sense of how much they actually increased?  And it sounds like the -- the increase sort of decelerated as you progressed, maybe through the quarter (inaudible), it didn't sound like it did.  So, just to get a little color on what actually occurred in 4Q and what you're seeing currently.

Sure.  So this draws.

We were seeing two to four percent increases in primarily the -- the commodity type items in the fourth quarter, what we're issuing in our -- in our releases for new construction are really more tapered down to the one to two percent rage, so we're -- we're seeing definitely that deceleration.

Those lumber, OSP, and the like, that's really where you're just under the price pressure in 4Q?

Yep.  Concrete as well.

Concrete.  Got you.  Last question.

Can you just give us a sense of what you're seeing in -- in the (inaudible) it seems like the market turned a few months ago and has continued on a weaker trend.  Certainly the border state has, if you look at even, you know, sales or the time to sell a new home.  So I'm wondering if you could give a sense of what you're seeing in the -- the broader Arizona market, specifically in the areas you've participated.

Yes, we're seeing in the markets, Michael, really, we still have consistency among all our markets.  You know, demand for home ownership, through our marketing strategy in our system is extremely high, and it -- in Atlanta and Florida and Arizona.

You know, we -- we have a lot of consistency between markets, and we haven't seen a slowdown as evidence by, you know, our real time closings that we're -- we're reporting.  You know, like I said on the -- on the call, you know, approximately 200 closings in March is a great month for us, and that's a direct reflection on sales that happened in January and February, so we started the year off strong.

Got it.  Well, congrats on the -- on the IPO and good luck in 2014.

Thank you.

Again, ladies and gentlemen, if you have a question at this time, please press star, then one on your touch tone telephone.

And our next question comes from Mike Rehaut of JPMorgan.  Please go ahead.

Thanks.  Just actually, a quick follow-up mark, a modeling question, and obviously you guys understandably, you know focus on closings as a metric, but I think many of us have some models built out with an order line as well.  If you have the orders for 4Q, this past 4Q '13, what that was?

Yes, it was 517, and that includes both LGI and the -- the GTIS joint ventures, was our net orders for the -- for the quarter.

OK.  And so that 517 is, you know, in terms of how you account for it is comparable to the 505 in closings?

That's correct.

All right.  Great, thank you.

So, I guess the way I would look at is we had 190, for example, at the end of the year in back log, and as Eric mentioned, we're looking in the range of 475 closings for the first quarter.

Right.

That backlog conversion rate is -- is in line with what we've seen in the past.

Great.  Thanks Charles.

Yes, you bet.

Our next question comes from Stephen Kim of Barclays.  Please go ahead.

Hey, Charles, Eric, good job.  Congratulations on the quarter.

Thank you.

Thank you.

Yes, a couple of questions for you, sorta broader questions.  The first question, I guess, relates to competition.  You know, thus far, from -- from what we've been able to -- to see, you really haven't had a lot of direct competition, because nobody really seems to do it the way you do, but we've begun to hear that at least one major builder is starting to try to tiptoe around your space, doing some things a little bit differently to try to go up against you, maybe.  And likely, going to go up against you a little bit more.

I was curious, if you could just sort of comment generally about how you're seeing the competition reacting to your success.

Sure.  This is Eric, Stephen, thanks for the question.

You know, I think I generally react to as, you know, since 2003, we've always been producing a lot of volume for our community, so competition is really based on a per-community basis, and certainly as a public company now, we get more exposure to our results and -- and more people are hearing about the LGI story.

But we are very comfortable competing with any builder, you know, at any market in the country, and our system is more than just a certain product, it's actually the people and the whole process that we take a customer through, from the initial interaction with the customer til they get their keys.

So, we believe it's a very successful system and very difficult to replicate, though we certainly welcome any challenges from any of our competitors.

Got it.  And I guess part of that answer is that while you may be seeing some competition in terms of perhaps either price point or the land -- the type of land process that you're in, you're not seeing folks successfully attempting to replicate your system, would that be a fair paraphrasing?

That is correct.  We have not seen that at all.

OK.  And that dovetails with my next question, which essentially is addressing the Great Lakes and maybe even more so the $300,000 to $400,000 product that we're likely to see next year.

There's a -- you know, I've always viewed you guys as being a real powerful category killer, and you know, when you hear $300,000 to $400,000 homes, the first thing that comes into the investor's mind is likely to be, "is there some mission creep here?" and so could you help us sort of reconcile this -- this focus you've had and success you've had in sort of a category killer-type situation, built around this process he just alluded to, with your move into the three-to-four hundred.

Are you perhaps going to be forsaking or giving up some of the advantages that system provides you?  Or do you -- have you discovered that this system is more flexible than you had previously thought?

Yes, great question, Steve.  We believe, you know, our success in the system works across all price points.  And we actually -- our history before we started building entry-level houses in 2003 is our history as a land developer selling acreage home sites to individuals looking to build custom houses or to builders in general, was dealing with higher-end customers and higher-end price points.

And the reason we got into home building in 2003 is generally we didn't think the home building industry did a great job with the sales process.  So we're very comfortable at the higher price points.  I mean, our niche in the market is not being an expert at the first-time home buyer.  Our niche in the market is having a great system that we're very diligent about using.  And we believe that will work across all price points.

Also, from an acquisition strategy, we're looking at more land opportunities that are larger.  The finished lot opportunities are getting more scarcer.  And when you get into developing projects, we've got numerous opportunities here in Texas that are a few hundred acres and we don't think it's necessarily a great strategy to put, you know, 600, 800, 1,000 $150,000 homes in the same community.

So we believe there's opportunity to have our $150,000 to $250,000 product, but also have an additional product in certain situations and certain locations just to maximize revenue and profitability in certain communities.

Got it.  That is very helpful.  Thanks very much, guys.  And  I wish you all continued success.  Thank you.

Great.  Thank you.

Our next question comes from [Jordan Hamowitz] from Philadelphia Financial.  Please go ahead.

Hey, guys.  Congratulations on a very good quarter.

Almost all my questions have been answered.  I just had a clarification on the Phoenix question asked earlier.  Can you confirm that your Phoenix market was not materially different, let's say materially plus or minus 10 percent more than the other markets and changed this quarter?

Yes, correct.  Jordan, we've had a lot of success in Phoenix and Phoenix was tracking right on budget, and similar to the other projects.  Certainly, some communities across the United States are performing better than others, but we have not seen a drop-off in demand in the Phoenix market.

You know, what we've seen in Phoenix is the market heated up and acquisitions have slowed down because the price of land from the sellers have gotten higher.  So, we have stayed away from acquisitions in Phoenix.  We are very diligent in our acquisitions modeling and we're not going to sacrifice certain margin requirements that we're looking for.

So we have not in the last 12 months put any -- anything under contract that we've closed on in the Phoenix market and we'll continue to be diligent about that.

And the second question is the Mexican home market is starting to heat up dramatically this year for the first time.  The government program down there in front of it has increased the budget by 50 percent.  Is that an area that you may evince interest into, given your low-price focus?

We have not looked into that at all yet, Jordan, so I would say just don't know a lot about that and haven't looked at that.

OK.  Thank you.

You're welcome.  Thank you.

Our next question comes from Brendan Lynch of Sidoti.

Please go ahead.

Good morning, Charles.

Good morning.

Good morning.

I just have a followup question on some of the other points you addressed already.  With your unique sales process, as you're targeting -- or starting to incorporate a higher-end product, will that change your marketing process at all in terms of going after people who are currently renting?  Or how do you just see that evolving over the next couple of years?

Brendan, this is Eric.  I'll answer that question.

You know, our marketing will be similar.  You know, obviously the message will be different, but, you know, one of the things that separates us from the traditional builders in the industry is we're focused on, you know, getting the message out there, dealing directly with the consumers.  I would describe it as the message can be different, but we'll still be focused on spending some advertising dollars to drive leads to our sales people.

And the exciting thing for us, you know, we're certainly performing better than most builders on a closing-per-community basis in the $250,000 and under price range.  And their sales and marketing strategy at the $400,000 price range is the same as the $150,000 price range.  So we believe we can move into that price point and produce phenomenal results relative to our peer group.

Sure.  That makes a lot of sense.  And then just in terms of selling expense.  I believe you said it was about 9 percent to 10 percent for the year.  Do you expect to get better leverage out of that over the next couple of years and your communities expand and you get more deliveries out of each individual community?

Not necessarily.  You know, I -- we may get some, but, you know, the -- the additional price point as far as percentage, I think it's going to remain very similar, but certainly getting some G&A expense like G&A leverage off that percentage, like Charles talked about earlier, would certainly be possible.

OK.  Great.  Thanks for the call.

You're welcome.

All right, thanks for joining us here today.  We look forward to sharing our success as 2014 unfolds.