LGI Homes Inc (LGIH) 2018 Q4 法說會逐字稿

Hello, and welcome to the LGI Homes 2018 Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

And now I would like to introduce your host for today's call, Rachel Eaton, Chief Marketing Officer. You may begin.

Thank you. Welcome to the LGI Homes conference call discussing our results for the fourth quarter and full year 2018. Today's conference call will contain forward-looking statements that include, among other things, statements regarding LGI's business strategy, outlook, plans, objectives and guidance for 2019. All such statements reflect current expectations. However, they do involve assumptions, estimates and other risks and uncertainties that could cause our expectations to prove to be incorrect. You should review our filings with the SEC, including our risk factors and cautionary statement about forward-looking statements section for a discussion of the risks, uncertainties and other factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

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

Additionally, adjusted gross margin, a non-GAAP financial measure, will be discussed on this call. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of adjusted gross margin to gross margin, the most comparable measure prepared in accordance with GAAP, is included in the earnings press release that we issued this morning and in our annual report on Form 10-K for the fiscal year ended December 31, 2018, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investors section of our website at lgihomes.com.

Joining me today are Eric Lipar, LGI Homes's Chief Executive Officer; and Charles Merdian, the company's Chief Financial Officer. With that, I'll now turn the call over to Eric.

Thank you, Rachel, and welcome to everyone on this call. We appreciate your continued interest in LGI Homes. During today's call, I will share some highlights from 2018, then Charles will follow-up to discuss our financial results in more detail. After he is done, we'll conclude with comments on what we are seeing this quarter and our expectations for 2019 before we open the call for questions.

At the start of 2018, we provided guidance, announcing our expectations to do the following: first, was to deliver more than 6,000 home closings; second, was to have 85 to 90 active communities by year-end; and finally, to deliver basic earnings per share to our investors in the range of $6 to $7, all while maintaining our gross margin at or near industry-leading levels between 24% and 26% and adjusted gross margin between 25.5% and 27.5%.

Today, I am pleased to announce that for 2018, we met or exceeded this guidance in all areas. As a result, this not only marks our fifth full year as a public company, but highlights our fifth consecutive year of delivering strong results to the market, reaching or exceeding our guidance in every metric. Our fourth quarter provided an impressive finish to 2018, with a record-breaking 1,852 homes closed, highlighted by our best month in LGI history with 884 homes closed in the month of December, bringing us to a record-breaking total of 6,512 homes closed for the year.

In 2018, we also achieved significant growth in home sales revenue, generating $1.5 billion and ending the year with 88 active communities. These strong results enabled us to deliver basic earnings per share of $6.89, increasing basic EPS more than 31% over the prior year.

When we went public in 2013, we had one primary objective, which was to fuel our growth by replicating our business model across the country. And since then, we have done just that. Since our initial public offering, we have grown substantially by expanding our operations from 9 markets across 4 states to experiencing closings in 26 markets across 16 states in just 5 years.

As we have continued to grow, we have maintained the LGI culture, demonstrating that our unique operating model is sustainable. We believe our employees are our most vital asset and continue to make the difference. It is through the dedication and outstanding performance of our employees that we are able to leverage our systems and processes to deliver exceptional customer service to all 29,000 homebuyers over the last 15 years and deliver what was another strong year of results for 2018.

So to all of our LGI employees, we appreciate and thank you for your commitments, loyalty, and hard work, which have produced another year of record-setting closings.

Before I turn the call over to Charles, I want to share additional highlights from the previous quarter and provide an update on the new market expansion we had during 2018 as well as provide an update on the Wynn Homes acquisition.

For the fourth quarter of 2018, we averaged 7.2 closings per community, per month. On a closing per community per month basis, all of our regions across the country featured strong absorptions. We closed an average of 9.2 homes in our Central Division, 7.1 in the Southeast, 5.8 in the West, 5.7 in Florida, and 5.0 in the Northwest Division. For the full year 2018, we averaged 6.7 closings per community per month company-wide, equally in the prior year average and the highest level we have ever experienced as a public company. 2018 once again demonstrated our ability to maintain or increase our absorption rates as we continued to expand into new markets.

Over the last 5 years, most of our growth has been organic, but key acquisitions like Oakmont and Wynn allowed us to see immediate results. The Wynn acquisition expanded our presence in the Raleigh market, while also giving us an entry into the Wilmington market. As a result of this transaction, we acquired approximately 200 homes under construction and 4,000 owned and controlled lots, of which 85% are in the Raleigh-Durham market. We are pleased with the results so far, closing 101 homes in 2018, which was in line with our guidance and expectations.

Another significant highlight of 2018 was the first home closings in 5 new states for LGI. With the addition of Alabama, California, Nevada, Oklahoma and Oregon, we continue to expand our presence nationwide. This expansion included a tremendous start in California with our first community opening in the Sacramento market, and in June, closing 74 homes for the year, averaging more than 10 closings per month, and also a tremendous start in the Las Vegas market, with our first community closing 24 homes in our first quarter of operations.

Lastly, we would like to congratulate our teams in the DFW and Houston markets. DFW and Houston both reached new heights, closing more than 1,000 homes in each of these markets in 2018. This is the first time in company history that an LGI market has reached this milestone and deserves recognition as a truly notable achievement.

Now for more detailed financial results, I will turn the call over to our Chief Financial Officer, Charles Merdian.

Thanks, Eric. Home sales revenues for the quarter were $425.2 million based on 1,852 homes closed, which represents a 5% increase over the fourth quarter of 2017. Home sales revenues for the year totaled $1.5 billion, a 19.6% increase over the prior year. Our average sales price was $229,568 for the fourth quarter, a 4.5% year-over-year increase and a 3.4% decrease from the third quarter.

During the fourth quarter, our central divisions, which includes Texas, Oklahoma and Minnesota, closed 865 homes, a 9% increase over the 792 homes closed during the fourth quarter of 2017 at an average sales price of approximately $211,000. The 865 closings represented approximately 47% of overall closings for the quarter.

Our Southeast Division closed 445 homes this quarter at an average sales price of approximately $207,000 across 21 communities. Average communities were up 4 over the prior year quarter primarily due to the Wynn acquisition. Absorptions increased to 7.1 in closings per community per month, up from 5.2 in the fourth quarter of 2017.

Also during the fourth quarter, we closed 228 wholesale units, 12.3% of overall closings in 13 of our markets, generating $49 million in revenue at an average price of approximately $213,000. And this past year, we closed a total of 466 wholesale units, generating $110 million in revenues in our communities, compared to 201 units and $41 million in revenue in the prior year.

For the quarter, wholesale units impacted our overall gross margins by approximately 120 basis points, and for the year, by 80 basis points. We believe that our wholesale business is accretive to the overall business as operating margins are similar. Our expectation is that wholesale will be approximately 5% of our overall business in 2019.

For the year, we closed 118 homes in our Terrata communities, representing less than 2% of our overall closings. And as mentioned on prior calls, we expect closings from our Terrata communities to be a limited part of our overall business, continuing into 2019.

Gross margin was 24.4% this quarter, similar to the same quarter last year. Our adjusted gross margin was 26.2% this quarter compared to 25.8% for the fourth quarter of 2017, a 40 basis point increase. And for the year, gross margin was 25.3% compared to 25.5% for the full year of 2017 and adjusted gross margin was 27% compared to 26.9% last year.

Adjusted gross margin excludes for the fourth quarter approximately $7.2 million of capitalized interest charged to cost of sales during the quarter, representing 170 basis points. And we expect this will remain in this range for the upcoming year. Additionally, approximately $560,000 of purchase accounting adjustments related to the Wynn acquisition is excluded for the quarter.

Combined selling, general, and administrative expenses for the fourth quarter were 11.3% of revenues and 12% for the full year, similar to 2017. And as a percentage of revenues, we believe that for the full year 2019, we will continue to achieve operating leverage in our existing markets, offset by initial operating costs in new markets. Overall, we expect SG&A as a percentage of revenue to be similar in 2019 compared to both 2018 and 2017. SG&A will vary quarter-to-quarter based on home sales revenue, and we typically expect the first quarter to have the highest SG&A ratio as our first quarter generally results in the lowest closings on a per community basis during the year.

Selling expenses were $29.3 million or 6.9% of home sales revenue compared to $28.6 million or 7.1% of home sales revenue for the fourth quarter of '17, a 20 basis point improvement. General and administrative expenses were 4.4% of home sales revenue compared to 3.8% of home sales revenue for the fourth quarter of '17, a 60 basis point increase, primarily due to expenses related to the Wynn acquisition and additional overhead related to our geographic expansion.

Pretax income for the quarter was $56.2 million or 13.2% of home sales revenue, a decrease of 40 basis points over the same quarter in '17. For the year, we generated $199.1 million in pretax net income or 13.2% of home sales revenue. Our effective tax rate for the fourth quarter was slightly higher than the previous quarter at approximately 24.1%. And we believe our annual effective tax rate for 2019 will range between 23% and 24%.

We generated net income of $42.7 million or 10% of home sales revenue for the fourth quarter of '18, which represents earnings per share of $1.89 per basic share and $1.72 per diluted share. For the year, we generated net income of $155.3 million or $6.89 basic earnings per share and $6.24 diluted earnings per share.

Weighted shares outstanding for calculating diluted earnings are impacted by our outstanding convertible notes. In the fourth quarter of 2018, our average stock price was $42.23, exceeding the conversion price. And therefore, the convertible notes were determined to be dilutive. This resulted in an approximate 1.6 million share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter.

Our convertible notes will mature in November this year, and therefore, our 2019 basic EPS will be impacted by the conversion. Our intent is to settle the principal in cash and the premium in stock. And once the conversion occurs, we would expect that diluted EPS will only be impacted by stock compensation.

Fourth quarter gross orders were 1,756 and net orders were 1,264. Ending backlog for the year was 624 homes, and the cancellation rate for the fourth quarter was 28%. And for the year, our cancellation rate was 24.2%.

We ended the fourth quarter with a portfolio of approximately 51,400 owned and controlled lots. And as of December 31, approximately 28,600 or roughly 56% were owned. And of this amount, roughly 8,300 were finished vacant lots; 17,400 were either raw or under development; 1,940 were completed homes, including our information centers; and 990 were homes in process.

At December 31, we had approximately $46.6 million in cash, $1.2 billion of real estate inventory, and total assets of $1.4 billion. At year-end, we had approximately $664 million outstanding under our revolving credit facility, senior notes, and convertible notes. And net debt to capitalization was 48.1%.

In November of 2018, we initiated a $50 million share repurchase program. And during the quarter, we purchased 39,000 shares at an average price of $38.58 per share, for a total of $1.5 million. We ended the year with 22.7 million shares outstanding.

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

Thanks, Charles. In summary, we had another impressive quarter and a phenomenal 2018. Let me provide some guidance and thoughts on what we are seeing for the upcoming year.

The first quarter of 2019 is off to a solid start with 269 closings in January. And we expect closings in February 2019 to be similar to last year's February results, which totaled 368 closings. Based on our solid performance to date and assuming a continuation of today's housing market conditions for the remainder of this year, we offer the following guidance. As we previously announced in our January 4 press release, we expect to close between 6,900 and 7,800 homes in 2019. We believe throughout 2019, we will continue to grow our community count primarily by going deeper in our existing markets and end the year between 105 and 115 active selling communities.

In addition to closing and community count guidance for 2019, we believe our average sales price for the year will continue to increase, ending 2019 with an overall average sales price between $235,000 and $245,000. Guidance for gross margin will be in the range of 23.5% and 25.5%. We expect adjusted gross margin, which excludes the effects of interest and purchase accounting, will continue to be strong, ending the year between 25.5% and 27.5%. This is the same adjusted gross margin that we guided to last year, which reflects our optimistic view of 2019. This also reflects our belief in the strength of our model and the ability to produce consistent margins.

Given our home closing guidance, along with an increase in average sales price, consistent gross margins, and conversion of convertible notes, we believe our basic earnings per share for the full year 2019 will be in the range of $7 and $8 per share.

In summary, we are very pleased with our results for the fourth quarter and the full year of 2018. We believe we are poised to take advantage of continued growth opportunities in existing and new markets, and that we are well positioned to continue to grow our revenues, community count and earnings, allowing LGI Homes to achieve our long-term goals and objectives of market-leading returns for our shareholders and continuing towards our goal of becoming a top 5 builder.

Now we'll be happy to take your questions.

(Operator Instructions) Our first question comes from the line of Jay McCanless with Wedbush.

So my first question, you said February is looking roughly 368 closings. If I assume an 88 community count there, that puts you guys at roughly 6.3 homes per community, which is down again about 13%, 14%. I mean, what -- right now, is it a question of price? Is it the weather that's holding you guys back? What's driving some of these negative comps that we're seeing on the per community basis?

Yes. Jay, this is Eric. I can start with. Not the weather holding us back, for sure. And on your math, we expect the community count to be as high as 88. It was 83 last month, maybe add a community or 2 in February. And I think that's in line with our guidance. The last few years, we have averaged 6.7 closings per community per month, and that's the highest it's been as a public company and really strong absorption paces. And I think what we saw in the fourth quarter was good solid sales equivalent to the year before, but not quite as strong on a per community basis. So it feels like our closing range is more 6 to 7 closings a month, annualized, and that feels about where we are in January and February. So similar results. And then, as we add communities throughout the year and really drive that community count growth this year, we're confident we'll end up between 6,900 and 7,800 closings.

And then, on the gross margin. Good job there. When you think about how many homes you guys turn in a quarter, do you believe that you guys are seeing maybe some of the savings from lumber a little bit faster than some of your competitors? And is that what drove the gross margin? Or was it more volume in 4Q versus just getting some savings on the construction cost?

Jay, this is Charles. I'll start, and then, Eric can add. So I think there's some impact of that in quarters where we do have higher absorptions. We do see some benefit. And certainly, our cycle time is typically shorter, and -- but we have visibility into our pricing about as quick as anybody that we would see because we're building on a spec basis as well. What that allows us to do is help forecast out where our sales prices need to be, which is what we focus on in terms of how we're managing expected gross margins.

And then, the last question I had. Are you guys seeing the land sellers start to take prices down a little bit? And/or are you seeing some competitive -- and not just in 4Q, but even January, February, are you guys seeing some competitive discounting from some of the other builders out there? And how are you guys responding to that?

Yes. Jay, good question. First of all, from the acquisition standpoint, I would say we haven't seen a lot of discounting yet. Maybe some easiness on terms, but certainly, also, being focused on the entry level, there's a lot of builders focused on the entry-level segment right now. So we don't think the market soft enough to have a huge discount from the land sellers yet. But certainly, in a softer market, if that's anyone's projection, then that will be one of the benefits that we would have being an LGI. And what's the second part of your question?

Just what are you seeing from your competitors? Are you seeing more people cutting price to try and drive some volume? And how is that impacting you guys?

Yes. I think it potentially could impact us on appraisals. If the other builders that are in the proximity of our communities certainly cut price, it can impact it through the appraisals and mortgage business. We don't really focus on what the other builders, but certainly, we've been hearing of that potential in a slower market. And that's really down to a market or a community-by-community basis that may have some impact. But other than that, we haven't seen a lot of that.

Our next question comes from the line of Nishu Sood with Deutsche Bank.

First question. On the gross margins, the wholesale business had an 80 basis point drag, I think, on gross margins in 2018. What are we thinking about for 2019? I can imagine that as that outlook becomes more attractive on a relative basis in 2019, should we think about something like 120 basis point drag that you had in 4Q? Or perhaps even something higher? Just trying to understand the drivers of the gross margins.

Sure. This is Charles. So as we've -- since we've introduced wholesale, the percentage of wholesale business this quarter for example being roughly 12% of the business had 120 basis point impact. And for the year, it was roughly right around 7% to 8% of the overall business, which had an 80 basis point impact. So I think we put it out there that we think wholesale is going to be around 5%. So that would be a 50 basis point impact in kind of the general range of what we would expect.

Got it. Got it. Why would wholesale be a smaller part of the business in '19 versus '18? Is it just that you had some communities or phases that were more appropriate for wholesale in 2018, and have sold out? I would think, given the market volatility, wholesale would continue to be an attractive outlet.

It is, Nishu. Certainly, the demand from the wholesale buyers will be there. Last year, it was between 7% and 8%, we said 5%, but certainly it wouldn't surprise us if it was similar numbers to last year. And I also think something that is relevant to this question is we're starting to see more interest from the companies buying from us to do more larger sections, do more communities and certainly, we can be a player in that. But that just gives us a longer lead time. So more of a focus on 2020 closings and beyond and we're talking some of the bigger opportunities that we're looking at.

Got it. Got it. And my other question was about marketing as -- marketing spend. In the past, when there has been volatility in the market, you've had the option, given your model, your sales-driven model of increasing your marketing expense to keep up volume. Your marketing as a percentage of sales was actually down year-over-year. So I'm just wondering how are you able to achieve that. Or is the increase in marketing spend still yet to come? Or is it just more efficient these days with the Internet, and then, perhaps, we won't see as much of an increase?

Yes. I think it's a combination of both. I think our marketing team is doing a great job. We're more efficient than we've ever been. Certainly, growing community count and getting some national scale helps in that. In fact, we had more leads last week then we had in the history of the company. We went over 9,000 leads for the first time. So that gives you an idea how strong the demand is. Now certainly, we have more communities than we've ever had, but just a data point and a great job by our marketing team driving leads to our communities and our salespeople. And then, also, Nishu, that's of the things we talked about in the call. If interest rates continue to go up or we needed to spend more money on marketing, that's one of the triggers that we could pull to keep our absorption paces up. But that just hasn't been the case right now. We're seeing really efficient use of our marketing dollars. Last year, in 2018, we generated over 360,000 leads. So we haven't had to increase that marketing spend yet, but it certainly is something we can do and would do, but we saw demand starting to drop off.

Our next question comes from the line of Michael Rehaut from JPMorgan.

First question I had was on the gross margins. And obviously, you've done a great job over the years of managing that to well above industry average levels. Just wanted to get a sense though as you look at from 2016, you're almost 28%, little bit of slippage in 20 -- over the last year or so. Just trying to get a sense of what in your mind was the bigger driver of that slippage and kind of what frames your thought process around maybe the midpoint being slightly less than 2018. Certainly, nowhere near the level of contraction relative to your peers. But what have kind of been the big pluses and minuses, puts and takes that have been driving that gross margin over the last couple of years, I'm talking about on an adjusted basis and how you see those pluses and minuses, the puts and takes this upcoming year?

Right. Yes. Good question. So in 2016, you're right, we were at 27.8 adjusted gross margin. In 2017 is when we introduced wholesale so that was certainly a function in 2017 where we introduced wholesale, which had an impact on overall gross margins but a similar operating margin. And so I would say from '16 to '17, you had the introduction of wholesale. We also continue to expand outside our Central Divisions and Texas primarily tends to still be our strongest markets in terms of how we can generate gross margins. All of our regions are very similar in gross margins. But Texas generally tends to be the strongest, which means as we expand geographically, we have a slight dilutive effect overall that would have come into play as well. And then in '17, particularly we spent some time on some of our quarterly calls just talking about the rapid rise of inputs, both labor and materials during '17 and our ramp up in production were 2 factors in '17. And then, for 2018, we were just able to kind of stay consistent and come in at 27%, based on just managing the cost and managing sales prices in order to meet our target.

And then as you see 2019, kind of in that similar type of range, midpoint being 26.5%, what do you kind of see as the headwinds year-over-year and tailwinds, if any?

This is Eric. I think when we've given our midpoint of the guidance, and it's really only like 50 basis points higher. I think the headwinds to gross margin this year would be pricing what our competitors are doing. And then there's also a mix component of that. We did tend to do a lot of development in Texas like Charles talked about, so our gross margins are better in Texas than overall. Our growth this year and additive to community count is primarily going to be outside of Texas so just law of large numbers, if you will, will bring that average down. And then, there's the mix component. We price our lots differently if we're buying finished lots compared to developing ourselves to make sure we capture that developer margin as well. So it's going to vary a little bit by 50 to 100 basis points just on the communities and whether we're developing or not. So we put a range on it. It's probably a little bit conservative on our range, but we're comfortable we're going to be in that range.

So just so I understand, the midpoint of the range being a little less than 2018, the primary drivers of that, you would say, would be a little bit of the pricing backdrop being maybe slightly more competitive as well as geographic mix?

Correct.

Our next question comes from the line of Stephen East with Wells Fargo.

Eric, when you look at the tax refunds that are coming back slower and/or smaller, I guess, I'm wondering, do you all see tax refunds drive your business in the spring? And if you typically do, are you seeing any change in what happened, what's happening so far? And then, if you look at interest rates, they moved up into the fall and now they've eased. Did you see those rates affect negatively then and starting to affect positively now as you move through the spring?

Yes. Great question, Stephen. On the tax refund getting back, I'm not sure if we have a good data point to gauge that other than it seems to be really strong demand in the field. So certainly it hasn't been slower. So I think that's a positive in this time of year, customers getting their tax refunds back to use for down payment, pay off debt. I think that's a positive for us. And I think what we saw in the fourth quarter when interest rates spiked, we still saw strong demand, the leads coming in, but I think people, because of that monthly payment increase, started selecting smaller plans and that was one of the things that we all thought might happen and one of the components that drove our average sales price down in the fourth quarter compared to the third quarter. So that's one of the things that we believe we noticed. It's not very clear in the data exactly that people were picking smaller plans, but that's what it suggest to us and probably not a coincidence that when interest rates went up in the quarter, our average sales price went down. And that would be something that we would think could continue to happen if interest rates went up in 2019.

Got you. Okay. And then, historically, you've talked a lot about preservation of margins. So in essence, more price over pace. As you've had a little bit of a slower dynamic and you've got more competitors out there, as you look at '19, does your thought process change anywhere you maybe lean a bit more toward pace than maybe you would have in the past?

No. I think we're going to stay consistent with our business model. We'd like to have both, price versus pace. So we plan on leading the industry again in pace on a closings per community basis and being north of that 6.0 closings per month and not reduce prices. We're not a fan of reducing prices in a community. Generally speaking, we think 2019 costs will continue to go up, so we'll have to raise prices gradually throughout our community to keep our gross margins consistent. But we won't be reducing prices to generate more pace like some of the other builders are talking about.

Got you. Okay. If I can sneak in one more. You did your first national promo in the fourth quarter. Thoughts on how it went and whether you'd do it into '19?

Yes. I think it went great. The feedback that we got, we drove a lot of extra leads to the field. Didn't spend a ton of money like we talked about earlier on the call and just at our size and scale now, we have the ability to do promotions like that to really let the renters out there in the United States know that we have available inventory, and it's a good time to own. And I think that message is going to continue in this 2019. And I'm sure we'll have some national events and really have a focus on sales and marketing as we always do.

Our next question comes from the line of Carl Reichardt with BTIG.

Just wrapping up on a couple of these other questions. So when you look at the slowdown in sales per community over the last few months, is that more a function of traffic or conversion of traffic as you guys look at it?

Yes. It's -- again, it's hard to say it's about slowdown, so we think it's pretty good. It's certainly slower than our historical averages and record-breaking months that we've had in the past, but the leads are strong, so it's more of a function of conversion. I mean one of the things that we're dealing with as a company, certainly, is affordability as everyone has and as our average sales price has continued to rise, it's up $70,000 approximately over 5 years ago. Affordability is something that we have to be mindful of, and not as many customers qualify as they did 5 years ago. Now our absorptions last year did not get impacted by that because I think of all the other positive things in the economy. So I think our range of closing guidance for the year is kind of that historical average of 6.0 on the low end of our range. And at the high end of our range, it's more like the last couple of years. And I think we'll fall somewhere in between.

Okay. And then, as you expanded your number of markets, you're -- and there's I suppose an argument could be made while as you move to new places, you'll need new floor plans, right? And to meet those individual markets. Are you finding you're able to export the floor plans that have been so successful for you in new markets like Texas over time and move them because I would think if you could get some positive leverage on these plans that sell well, that ought to be helpful to gross margin more quickly as you move into new markets.

Yes and no. So not exactly the floor plans necessarily, Carl, but we have seen in our new markets that our traditional 1,400 to 1,600-square-foot, three-bedroom, 2-bath, 2-car garage that's laid out similarly is really the most popular plan and always has been and always will be. So I think when you go to a new market, we do a good job of not overthinking the architecture, and just build a nice quality home in that 1,300 to 1,600-square-foot is always our bestseller on the 45 or 50-foot lot and just get into that market quickly and get into sales and closings.

At this time, I'd like to turn the call back over to Eric Lipar for closing remarks.

Thank you, everyone, for participating on the call and your interest in LGI Homes. We look forward to sharing our achievements for 2019 throughout the year. Have a great day. Thanks, everybody.

Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.