LGI Homes Inc (LGIH) 2014 Q2 法說會逐字稿

Good morning, and welcome to the LGI Homes 2014 Second Quarter 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, Charlotte. Good morning and welcome to the LGI Homes conference call discussing our results for the second quarter of 2014.

Today's conference call will contain forward-looking statements that include, among other things, statements regarding LGI's business strategy, outlook, plans 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 a discussion of the risks, uncertainties and other factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

These forward-looking statements are not guarantees of future performance. You should consider these forward-looking statements in light of the related risks and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this conference call.

The pro forma financial information discussed on this call gives effect to the acquisitions completed on our November 13, 2013 of certain joint venture interests that we did not previously own prior to our IPO. Please refer to the unaudited pro forma statements of operations included in today's release and our previously filed 10-K.

Additionally, certain non-GAAP 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 measured prepare in accordance with GAAP are included in the earnings press release that we issued this morning and in our quarterly report on Form 10-Q for the second quarter of 2014 that will be filed with the SEC later today. This filing will be accessible on the SEC's website and in the investor section at 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 pleased to share our results. On the call this morning I will summarize the highlights from the second quarter and year-to-date.

Then Charles will 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 the remainder of 2014 and then we will open the call for questions.

Our second quarter results contributed to a very solid first-half of the year. We set an all-time record for home closings during a single month, with 243 homes closed in June. This resulted in record-setting 662 homes closed during the second quarter, finishing the first six months of the year with a total of 1,147 homes closed, which is approximately a 73% increase over the first six months of 2013. In addition we celebrated our 7,000 home closing.

During the second quarter home sales revenue increased approximately 77%, to $106.4 million compared to the second quarter of 2013. The increase in home sales revenues is primarily due to the increase in the number of homes closed in active selling communities as well as an increase in the average home sales price.

For the quarter our average sales price reached a new high, coming in at $160,744. This represents a 9.7% over the second quarter of the previous year. This increase is a result of a shift in product mix and increased pricing to offset rising construction costs.

We ended the quarter with 31 active selling communities, representing year-over-year growth of approximately 72% from 18 active selling communities in 2013. Since the first quarter of 2014 we added three new communities, one each in our Albuquerque, Atlanta and Tampa markets.

Community absorption rates were above expectations for the quarter at 7.4 per month. Throughout the quarter we saw success across all of our divisions, particularly our Texas division, which averaged approximately nine closings per community per month.

This division increased home closings 31% to 465 closings from 355 closings in the second quarter of 2013. While Texas made up approximately 70% of our closings for the quarter, we are continuing to see strong closing growth outside of Texas.

We have increased our out-of-state closings to 197 during this quarter from 56 during the second quarter of 2013. While we continue to expand and execute our growth strategy, we feel that Texas will continue to be our leading division. This division continues to perform well compared to other divisions and has helped us deliver strong results.

We believe that the Texas economy will remain one of the best economies in the foreseeable future and that it will be a leader in job growth and housing demand. Specifically in Texas we have seen the strongest performance from the Houston market. Our top six communities and closings for this quarter were all located in this market. Although our business continues to be strongly centered on our Classic series, our traditional entry level product, this quarter we have further diversified our product lines in both price point and location.

During the remainder of this year we plan to introduce our Hall of Fame series, increase the number of communities offering our Great Lakes series and launch our home building operations in both the Denver and Charlotte markets. We plan to drive future growth by continuing our successful operations, gaining market share within our existing markets, geographically expanding to new markets and adding higher price points.

All of our offices nationwide are seeing stable demand as we continuously track the number of incoming leads into our communities. We continue to see a positive response to our Great Lakes series product, which ranges in price from 160s to the 220s. Our Presidential Glen community in Austin, Texas, was the first community where we offered this product line with its higher end finishes.

We mentioned on our last call that we are off to a great start in this community with 19 closings in the first quarter and we are pleased to report that the second quarter was even stronger with 23 closings. These 23 closings had an average sales price of approximately $170,000. The homes in the Great Lakes series include features such as a steeper roof edge, exterior shown accents and an upgraded landscape package.

In addition, during the second quarter we began the construction on our first community featuring our Hall of Fame series homes which we expect to have an average price point of approximately $350,000.

The first project is located in San Antonio and the homes will be finished in the third quarter with sales starting before the end of the year. We believe that the plan for our move up product aligns with our expectation to grow our business by increasing the number of price points offered in some of our existing markets.

We see opportunities to develop properties with multiple product lines and price points in the same communities and to deliver move-in ready homes at a higher price point. Given our past success in the entry level market, we believe that our unique marketing approach, personalized customer service and structured sales process will produce exceptional results across price points.

Furthermore we ended the quarter with an extensive portfolio of finished lots, land under development and raw land that represents approximately 20,000 owned and controlled lots of which 9,800 were owned. This is a 17% increase in owned and controlled lots over the previous quarter.

With that I would like to turn the call over to Charles for a more in-depth review of our financial results.

Thanks, Eric. For the quarter we reported $13.9 million in net income before taxes which was a 75.6% increase over the same quarter in the prior year. Also for the quarter we had earnings of $9 million or $0.43 per diluted share.

As Eric mentioned, home sales revenues for the quarter were $106.4 million, an increase of approximately 77% from the second quarter of 2013. And while approximately 70% of our revenues this quarter came from our Texas operation, our revenues from outside the state of Texas have also increased and were $32.3 million this quarter, up from $8.4 million in the second quarter of last year.

Adjusted gross margin of 27.9% was 40 basis points higher over the first quarter of this year. Adjusted gross margin excludes approximately $900,000 of cost of sales related to the step-up adjustment for real-estate inventory acquired in the GTIS acquisitions that were closed during the quarter. Selling expenses were $9.2 million or 8.6% of home sales revenue this quarter compared to 8.8% in the same quarter in the prior year and 9.7% in the first quarter of this year.

General and administrative expenses were $5.3 million in the second quarter of this year or 5% of home sales revenue. This was 120 basis points lower than the same quarter in the prior year and 170 basis points lower than the first quarter of 2014. The decreases in selling and general administrative expenses as a percentage of home sales revenue were primarily due to the operating leverage realized in the quarter as we grew the top line.

Income taxes totaled $4.9 million, representing an effective tax rate of approximately 35%. Net orders for the second quarter totaled 584 and ending backlog was 246 units.

Turning to our balance sheet, we had $42.9 million of cash, $220.6 million in real estate inventory and total assets of $304.1 million. Our outstanding debt was $93.9 million, an increase of approximately $45 million over the previous quarter. And our equity at June 30th was $179 million resulting in a debt-to-capital ratio of approximately 34%.

In April we had entered into an agreement with a syndicate of lenders to provide a $135 million senior secured credit facility that could be increased up to $200 million. And in July we increased the amount available under the credit facility by $40 million to $175 million. And at this point I would like to turn it back over to Eric.

Thanks, Charles. In summary we had another solid quarter and expect the momentum to continue throughout the rest of 2014. We believe there are several opportunities to grow our market share. Given our familiarity with Texas, Arizona, New Mexico, Florida and Georgia and the favorable demographic and economic trends that are forecast in these markets, we expect to continue to see high growth in these areas.

We also believe that we'll grow our business by increasing the product offerings within our communities and delivering homes in a number of price points in our existing markets. In all of our markets we are seeing the supply of finished lots dwindle.

As a result we are acquiring more parcels of raw land that we will design, engineer and develop. As mentioned earlier in the call, our average sales price in the second quarter increased approximately 10% over the second quarter of 2013 which we believe is reflective of our shift in product mix and increasing lot costs. We expect these trends will continue.

We are forecasting absorptions per community at our entry level communities to remain strong and stable but we are forecasting slightly lower absorption paces in our more expensive product types. We intend to expand into new markets where we identify opportunities to build homes and develop communities that meet our profit and return objectives.

We recently closed on our first land acquisition in the Denver, Colorado, market where we purchased 59 finished lots on the North side of Denver. We are expecting to start construction this quarter with sales starting before the end of the year. In addition we will continue to analyze other potential markets as we continue our efforts to expand into new geographies.

We started the third quarter with 174 homes closed in July of 2014, up from 154 homes closed in the same period of 2013. This brings us to a total of 1,321 closings for the year, a 61.9% increase over the first seven months of last year.

Although our July closings did not exceed our record breaking month in June, we believe we're on track to hit our projected closings of 2,300 for the year. At the end of July 2014 we had 33 active selling communities compared to 18 active selling communities as of July 2013. We expect to open at least four new communities by year-end, giving us a total of 37 active communities.

Our strategy is to remain focused not only on our absorption rate but also on margins. As previously mentioned, adjusted gross margin as a percentage of home sales revenues for the second quarter of 2014 increased to 27.9% from 27.5% for the first quarter of 2014. This is the result of our ability to raise prices to offset increased construction costs. We believe that through the quality of our homes, our unique sales process and the superior customer experience we will be able to maintain similar gross margins in the future.

We believe our industry-leading closings per community in combination with strong operating margins will continue to drive profitability. Last quarter we forecasted expected earnings per share to be between $1.22 and $1.30 per share. Based on our strong second quarter and assumptions that home sales prices, construction costs, overall absorption rates and mortgage availability will be consistent with recent experience we are increasing our expectations for earnings per share from $1.22 to $1.30 to $1.30 to $1.38.

In conclusion, we are extremely optimistic on the remainder of 2014. We expect the demand for home ownership to remain strong and in combination with our LGI process we can capitalize on these favorable conditions.

Now Charles and I will be happy to take any questions that you may have.

(Operator Instructions). Our first question comes from the line of Michael Rehaut from JPMorgan. Your line is now open.

Congrats on the quarter and the continued success.

Thanks, Michael. I appreciate it.

The first question I had was on the growth outlook. I guess not just for this year but starting to think about next year. You are obviously coming off of very strong growth rates. The projected year-end number on a year-over-year basis would moderate closer to around 50%. So I guess really I am going to put two questions into this.

As you think about going into 2015, how much growth is going to come from the core entry level focus that you have versus the Great Lakes and the Hall of Fame? Is it still going to predominantly be driven by your core bread and butter product?

And how should we think about growth rates over the next, in 2015 and 2016? You've obviously done incredibly well in 2012 and 2013 and into 2014, but there looks to be a little bit of moderation. How to think about the next couple of years?

Great question, Mike. How I phrase that is certainly our focus will remain to be in our core, what we call Classic series, our entry level product and continue to grow that product in all of our markets, especially the out-of-state markets.

We look at certain sub markets of every area that we're in and want to be in every corridor and we got most of those corridors filled up in Texas, but certainly in all the other markets, lots of room to grow in that product type.

And as we mentioned during our statements, what we're seeing is as we're getting into more development and costs continue to increase, we see there is a necessity to raise prices. And when we get into higher price points, giving the consumer a few more of the nicer fit and finishes along with our Great Lakes series seems to make a lot of sense.

So I think growth will continue. We're not ready to give guidance as far as numbers go for 2015 but you certainly can see that we're adding a lot of communities. The communities that we recently added and plan on adding in the fourth quarter obviously aren't going to impact closings too much in 2014.

They will be really driving 2015. So we expect the average price to continue to increase because of the mix and product and increasing costs, absorption of our entry-level product remaining very similar. And then once you get in the $200,000 plus price range, Michael, a little bit less absorption pace but we don't expect margins to be any less, both in a gross standpoint or operating margin.

That's helpful, Eric. I appreciate it. And I guess just a clarification before I ask my second question.

When you talk about Great Lakes and Hall of Fame and you also mention in same breath development, I believe, if I can interpret that. I mean is it fair to say -- and because you also talked about expanding into new markets and there is still tremendous opportunity in the first time.

But is it fair to say that, particularly as you look at more development and perhaps taking on bigger land parcels from the development end, that the Great Lakes and Hall of Fame is going to be more of an outgrowth of just selective, opportunistic diversification of a bigger land parcel where you can kind of segment it, a little bit better and more efficiently?

And that those communities would be more, from an opportunistic land utilization standpoint, given that particularly in some of your newer markets again I would expect that the primary, primary focus would just be doing your Classic series and your entry-level.

Yes. I would agree with that. I mean certainly the products over $250,000 is not going to be a big part of our business, but opportunistic would be a great way to describe it. Very small percentage of our closings, as I've said before, in 2015 will be over $250,000.

But just that average sales price continues to increase, Michael. Just to maintain the margins we're at, with costs going up. The days of having a $130,000, $140,000 in our entry-level house just aren't going to be there anymore.

And that base entry-level house is going to the point, even in Texas, where it's $160,000, $170,000. Which is still a great value compared to rent but I can see that's going to be our kind of base pricing on our Classic series houses.

Okay. And just the second question, just on the gross margin, you said that you expect on a pre-interest, pre-purchase accounting to remain similar going forward, which looks like it's in the high 27s. The first quarter is 27.5%, this quarter 27.9%.

So maybe, Charles, can you just give us an update in terms of expectations for the amount of purchase accounting you expect on a quarterly basis in the back half? And also the interest amortization, would that kick up slightly? I mean you had about $400,000 in 2Q, would that go up maybe a tiny bit in 3Q and 4Q? Just how to think about that?

Sure. At the end of the quarter we ended up with about $1.9 million remaining in the step up on the balance sheet. So we're looking similar to what we communicated last quarter, that that should pace out at about $0.5 million a quarter, over the next couple of quarters, and then it will tail off a little bit into 2015.

And you are right on the interest piece. So you can see from our balance sheet that we've increased our debt balance, up to approximately $93 million. So my expectation would be that over time the purchase accounting adjustment and the interest, really kind of take its place, so that there is 100 basis points to 125 basis points there of interest over the near-term.

Okay, but just translating that into dollars, you were at about $400,000 -- going up a little bit, like $500,000, $600,000 per quarter in the back half is -- does that make sense from given your recent transactions in the debt markets?

Yes, I'd say that sounds fair for the third quarter and then the fourth quarter maybe slightly higher than that.

Great. Thank you. Congrats.

You bet.

Thank you. Our next question will be coming from the line of Nishu Sood from Deutsche Bank. Your line is now open.

Thanks. I wanted to ask about the guidance. You mentioned closings, 2,300, which I think is the same number you had mentioned the last time you gave guidance. Also gross margins staying at the levels that they're currently at. So what exactly then is the driver of the increase in the guidance range? I mean you have done -- you have reached your SG&A goal of 14% you'd mentioned a little bit earlier, which is great to see. So what is the driver for the increase in guidance?

Yes, Nishu, this is Charles. So a good portion of the driver is the positive quarter. So we had a successful quarter in the second quarter. So that's contributing to the actual results, which allows us to push up. And then, as Eric mentioned, maintaining gross margins and then holding steady at the 2,300 for our guidance gets us comfortable in our earnings per share guidance range.

Got it. Okay. Your expectations for -- your previous expectations that were incorporated for guidance, for margins, gross margins, were a little bit lower then, I take it?

They should have been very consistent. Should have been consistent.

Okay. So the closings number, the 2,300 for the year, it implies a similar number of closing in the back half of the year, from the first half of the year. Eric, you referenced this a little bit, the July pace of closings had dropped off a little bit, but it sounds like, given that you are expecting closings pace to be similar in the back half of the year to the first half of the year, that we should view the July drop off as just monthly volatility. Is that the correct way to think about it? So you will have a pickup back towards more towards the closings absorptions pace of the 7-ish range as we move forward in the year?

Yes, well I would think of it, Nishu, as we closed 1,321 through July. We're guiding to at least 2,300 closing for the year. So roughly averaging about 200 a month, and 200 month on average -- there will be month-to-month volatility -- but 200 a month on average through the rest of the year to be a nice, solid, conservative estimate, feels about right to us.

Got it. And just finally on the Hall of Fame series, as you are getting closer to going live with that in the San Antonio, much higher price point, 300s versus the 100s range on the Classic. Any changes you are making to the model, let's say on the options or the sales process, or how you are communicating with the customers, fliers and the like? Any changes in that as you are getting closer to launch date or is it going to be very, very similar to the marketing approach that we've come to know?

Yes, the marketing approach will be different in that product types. Obviously we won't be sending direct mailers to people in rental apartments, but certainly spending more money on advertising than the traditional builder. We do expect more of those sales to come as a result of referrals from realtors.

And then once the marketing gets them to the sales person or gets them to our community, then the process that we use in that product price point will be very similar to what we use in our entry-level price point.

Certainly not as much talk on credit and qualifications at that price point, but the process itself of educating the customer and taking them through a structured sales process, so they have a great experience and we can answer all their questions with a professionally trained sales person, that process is going to remain exactly the same.

As far as the house, certainly it's got a lot more upgrades and a lot nicer fit and finishes when you are in that type of price range. We will also be offering different packages to the customer. So we will have four or five different floor plans, couple of different elevations of each floor plan, two or three different interior color packages.

So the customers will have more choices but we're not going to the level of a true option builder with design centers, et cetera. And we plan on still building most of the houses in advance of sales, at least to build up an inventory, because we think there is a market to have some existing product on the ground, especially in this particular location in San Antonio.

Okay, great. Thanks for the details.

You are welcome.

Thank you. (Operator Instructions). Our next question comes from the line of Mike Roxland from Bank of America. Your line is now open.

Thanks for taking my questions and congrats on a very good quarter and solid first-half.

Thank you.

Just following from the prior questions at around guidance, and wondering your SG&A percentage was down significantly in aggregate to about 13.5%, 14%. That's within the 14% normalized range you have been targeting on top of the fact that it's come earlier then you were expecting.

So was there anything in the quarter that aided SG&A? And should we expect SG&A to be maintained at these -- as a percent of sales, to be maintained at these level or to increase, particularly as you do more marketing around the Hall of Fame series?

Yes, Mike, this is Charles. Really the driver for SG&A in this quarter was the increase in the top-line. So I think we are still comfortable with our target range of 14% for SG&A as we move into the back half of the year. So really the absolute dollars in G&A we will see relatively consistent or increase over the next couple of quarters, but what we were able to see in the second quarter was that the increase in the top line translated to the bottom line given the fixed cost nature of the majority of the selling expenses in the G&A.

Charles, I appreciate the color. I mean given the strong improvement in SG&A and also better gross margins, why wouldn't then we see a larger increase in your EPS guidance? I mean are there other factors that you want us to be mindful of that serve as offsets to that?

I mean so your increase is around $0.08, your total guidance, but if SG&A is now at a better level than you had been expecting and there has been no change to your gross margin outlook or change to your deliveries, why wouldn't we see a better or a more pronounced increase in your EPS guidance?

Yes sure, good question. So in the back half of the year, as Eric mentioned, we are moving into Denver, also moving into Charlotte. So those are coming in to play. We also talked earlier about the impact of interest flowing through the P&L.

So we expect to see that happen in the back half of the year, and then just general growth in the G&A line, just as we continue to build the infrastructure to support the growth that we are planning for the back half of the year.

Got you. Just last question on this, and I appreciate all the color. I mean should we see gross margins then compress a little bit, particularly given the costs associated with the moves into the new areas? And at the same point see your G&A move higher because you are building out your infrastructure?

Yes, so on gross margins we still expect them to be in our normalized range. So on an adjusted basis they will be in the normalized range. As the purchase accounting tends to start to roll off in the back half of the quarter, back half of the year, we will see the interest impact take its place. So we will see that there, and then just the general increase in G&A in terms of absolute dollars as we move to the back half of the year.

Got you, appreciate all the color. Last question and I'll turn it over. Just on housekeeping question, what were the orders and backlog for 2Q?

Orders, net orders for 2Q were 584, backlog was 246 units.

Great. I appreciate all the color and good luck in the second-half.

Yes, great. Thanks, Mike.

Thank you. Our next question comes from the line of Brendan Lynch from Sidoti. Your line is now open.

Guys, thanks for taking my questions.

Thanks.

You entered the South Carolina market and now Colorado as well. What do you see as the opportunity going forward? Are you looking at other new markets to enter or the opportunity is more just to penetrate the existing markets that you currently have?

Brendan, this is Eric. I appreciate the call. I think we have got plenty of room to run in our existing markets. Certainly just getting started, as far as closings go in the Atlanta market. Haven't had any closings yet in the Denver and Charlotte market. We like both those markets a lot and we have now closed on our first land acquisition in both those markets.

So the answer is both. Certainly looking at new markets to go into, nothing to announce yet, but we think our sales process will work really in any market of size in the country but really focused on our division leadership.

We think it's doing -- all doing a great job and really expanding within the markets. For example, we have leadership in the Florida, Tampa area, in Phoenix, leading our Southwest division and in Atlanta. And there are still cities within distance of those areas that we can expand into first. So I would answer the question as both, but primarily in our existing markets.

Great. And in terms of the lot growth, you're particularly increasing the lots that you own and control quarter-over-quarter. Do you have any specific number in mind that you are trying to get to by the end of 2014 or 2015 or 2016?

We don't have a specific number in mind, Brendan. We look at them individually on every specific deal that we look at. It has to pass our acquisitions committee and make sure it meets our certain hurdles. I will say that, based over the last three years, we have certainly grown a lot and we are looking out into the future and still expecting good growth over the next few years.

So it is going to take a little bit more lot supply to hit those numbers. So I think with our growth trajectory, we're going to need a little bit heavier owned and controlled lots then maybe some other builders.

And I think your debt to total capital ratio would be a factor in considering acquiring more lots. Can you just remind us what you are comfortable with in terms of debt to total capital?

Yes, sure this is Charles. We are comfortable with 50% debt to cap or slightly higher. That's with our recent amendment to our agreement gets us close to that and we feel like that's sustainable.

Great, thank you very much for the color.

You are welcome, thank you.

Thank you. Our next question comes from the line of Michael Rehaut from JPMorgan. Your line is now open.

Thanks for taking the follow-up. I just wanted to circle back, you have gotten a few questions about guidance on some of the assumptions. And what I had wanted to focus on was just on the closings guidance. Because I believe effectively in the back half of the year, it translates -- with the 2,300 closings for the year, it's about a 20% closings growth rate versus the materially faster closings growth in the first-half. And the July year-over-year, I think was closer to 13%.

And if you look at the stronger growth in the first-half of the year in terms of closings, you basically, more or less matched your community count growth, plus or minus a little bit. And with the community count growth likely in the back half of around 50%, and you are looking at only closings growth of 20%, obviously it points to a decline in projected sales per month I guess.

I just want to make sure what, really what's going there, because certainly you have been on an aggressive community roll-out pace up until now and your sales pace has been able to more or less keep up with that, and so your closings has more or less mirrored your community count growth and it seems like there is a bit of fall-off in the back half. So I'm just trying to get a sense of why that is and I guess July so far has borne that out a little bit, but what's driving that?

Yes, Mike, I'd answer it a couple of different ways. First of all, 662 closings for the second quarter was a phenomenal quarter for us, wiped out virtually all of our existing houses. So we got to build back-up inventory. Certainly expanding a lot, having a lot of growth. Some of our communities that have been selling out are moving into higher price points. So we are more conservative on our assumptions for closings, certainly with all our growth, new people, new managers, new Vice President. So we are conservative on our growth.

Last quarter we raised our guidance from 2,200 to 2,300 and we feel that we want to make sure we hit these numbers when we tell everyone what we are going to do. And 2,300 for now seems very doable and averaging in a couple hundred closings a month for the rest of the year, seems like we should project for now.

Okay, no, I appreciate that. And I guess also on the SG&A, just to make sure I understand there, the -- Charles, when you talked about 14%, is that for the full year and is that -- when you say 14%, is it kind of like in the 14s per se? Because I think to do a 14% even for the full year would also kind of push the EPS guidance, I think, above where you are targeting.

Sure. Yes, no, it's definitely more our target. On the last call we were targeting 14% for the fourth quarter. So we feel comfortable that that's where our target range is. So whether it ends up at 14%, 14.5%, 15%, between the third and fourth quarters will just really depend on where the top line comes in at.

Okay. All right, great. Thank you very much.

Thank you. And at this time I am not showing any further questions. I would now like to turn the call back over to Eric Lipar for any closing remarks.

Thanks, everyone, for joining the call and thanks all to the LGI employees for a great quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Thank you.