MDC Holdings Inc (MDC) 2010 Q1 法說會逐字稿

Good morning. We are ready to begin the MDC Holdings Incorporated first quarter 2010 earnings call. I will now turn the call over to Bob Martin, Vice President of Finance and Business Development. Sir, you may begin your call.

Thank you. Good morning, ladies and gentlemen, and welcome to MDC Holdings 2010 first quarter earnings conference call. On the call with me today I have Larry Mizel, Chairman and Chief Executive Officer, and Chris Anderson, Senior Vice President and Chief Financial Officer. At this time, participants are in a listen only mode. After finishing our prepared remarks we will conduct a question and answer session, at which time we request that participants limit themselves to one question and one follow-up question. Please note that this conference is being recorded and will be available for replay. For information about how to access the replay please visit our website at mdcholdings.com.

Before turning call over to Larry, it should be noted that certain statements made during this conference call including those related to MDC's business, financial condition, results of operation, cash flows, strategies and prospects and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from the resulting, performance or achievements expressed or implied by the forward-looking statements. These and other factors that could impact the Company's actual performance are set forth in the Company's 2010 first quarter Form 10-Q, which was filed with the SEC earlier this morning. It should also be noted that is SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures. Any information required by Regulation G will be posted on our website. And now I will turn the call over to Mr Mizel for opening remarks.

Good morning. To start 2010, the overall tone of our industry and the economy as a whole has improved from a year ago. We've remained cautious due to the impending expiration of the federal home buyers tax credit and the continued depressed economic conditions. However, during the first quarter of 2010, our home orders increased year-over-year for the fourth consecutive quarter. As a result, we ended the quarter with 1,234 homes in our backlog, which was nearly double that of a year ago. In addition, we believe that we are well positioned to take advantage of a potential increase in demand resulting from the pending expiration of the tax credit in the second quarter.

In prior quarters, we have described our efforts to develop new and more affordable product to meet the demand of our customers. We are pleased to report that our new plans continue to be well received and generated nearly 40% of our home orders in the first quarter. Going forward, we will continue to evaluate our product offering to confirm that we are selling homes that reflect the preferences of our consumers and are efficient for us to build. We continue to focus on the acquisition of land assets during the first quarter. We contracted to purchase more than 2,200 lots in 39 new communities. In addition, we invested more than $100 million in land acquisitions or development activities across our markets. These land investments allowed us to increase our lot supply year-over-year for the first time since March of 2006.

We ended the quarter with $1.78 billion in cash and investments, an increase of 14% since the end of 2009. Contributing to this increase were our issuance of $250 million of 10 year senior notes at [5.6%] interest rate and our receipt of a $142 million tax refund. We believe that this increase in our cash and investments balance reflects our continuing commitment to maintain a solid investment grade balance sheet. In addition, it positions us for the long term, providing us with ample liquidity to fuel the growth of our business in the future. Now I'd like to turn the call over to Chris Anderson for more specific financial highlights.

Thank you, Larry, and good morning, everyone. We appreciate you joining us on the call today. In the first quarter we received 931 net home orders, a 38% improvement over the same period last year. Only two markets had an order decline, Maryland and California, due primarily to a lower number of active communities. It was encouraging though in those divisions -- the subdivisions in those markets had significant improvement and absorptions. Overall for the Company, active communities declined 25% year-over-year as of March 31, with only Florida showing an increase. Most of the 120 new subdivisions we acquired over the past nine months are not yet considered active, so you should see most of those come on line over the next few quarters. The pace of our average monthly net orders per active subdivision improved to 2.4 for the first quarter, as compared with 1.2 in the same quarter a year ago with improvements in almost every market. Sequentially, our pace also improved from the 1.6 pace we saw in the fourth quarter, which is a normal trend for the first quarter. Our gross orders were up about 35% for the quarter and our cancellation rate of 22% was a little less than the 23% in the first quarter of 2009. The rate also decreased if you look at the cancellations as a percentage of beginning backlog to 32%, as compared with 39% a year ago.

As Larry mentioned, the smaller more affordable homes that we started selling earlier this year continued to have a definite impact on our results, that represented almost 40% of our gross home orders during the quarter with individual markets reaching almost 70%. Finally, the average price of the net home orders decreased approximately 2% year-over-year to roughly $277,000. If you look at just the average price of gross home orders you'll see a similar trend with a year-over-year decline of about 3%. Given the strength of our sales during the quarter, we saw our backlog increase to 1,234 homes at the end of the quarter. This is an increase of 96% from the same time last year and almost 50% from December 31 of 2009. Our average price in backlog is down 1% year-over-year from $312,000 at March 31, 2009 to $309,000 at March 31, 2010.

Turning to our income statement, total revenue for the first quarter decreased 16% year-over-year to $147 million, primarily due to a 10% decline in home closings and a 6% decline in average selling price. However, the decline in revenue is more than offset by a sizeable increase in our gross margin percent and a decline in our impairments, which allowed us to narrow our loss from operations by $20 million. We have further detail on the drivers behind the decrease in loss from operations for you on upcoming slides.

Moving down to the other expense line item, we have a charge of nearly $6 million for both periods. This is mostly the interest expense we couldn't capitalize during the quarter. Net of interest income we earned on our cash. We break this line out separately in part because it gives you a sense of what the cost is to maintain the option value of our liquidity. Overall, our pre-tax loss for the first quarter was $21 million, better than the $41 million loss during the same period last year. Net income is roughly the same as pre-tax because for both periods, the income tax benefit you might expect to see here was almost completely offset by an increase in our deferred tax valuation allowance. The net loss translates to $0.45 per share, which is better than our $0.88 loss per share from a year ago.

Moving on to the next slide, we closed 523 homes during the quarter, which was down 10% from the 580 closings we had during the same quarter last year. The decline was partially due to a change in the composition of our work in process inventory. As we mentioned to you before, during 2009 we focused on reducing our supply of finished home inventory and we implemented a strategy to stop the construction of unsold homes at the drywall stage, there by allowing the eventual buyer to personalize the home. Because of our success in implementing the strategy, our inventory have both sold and speculative inventory consisted of a much lower level of finished home at the beginning of the 2010 first quarter than at the beginning of the 2009 first quarter. As a result, we had fewer homes available to close in the first quarter of 2010 versus a year ago. In addition, in our Arizona market, the year-over-year decline in beginning backlog contributed to the decline in closings. We did increase closings in three markets, Colorado, Utah and Nevada where the year-over-year increase and beginning backlog for the first quarter exceeded the average for the Company as a whole. The average selling price of our closings decreased 6% year-over-year to roughly $270,000, consistent with our strategy of selling more affordable homes to meet consumer demand.

Moving on to gross margin, this slide shows our trend for the first quarter of 2009 to the first quarter of 2010. Looking at our margins as reported, the graph on the upper left, 22.4% in the first quarter of 2010 is 700 basis points higher than the 15.4% we experienced in the first quarter of 2009 and 360 basis points higher than the 18.8% in the fourth quarter of 2009. However these percentages include two items that have been somewhat volatile over the last five quarters, interest and cost of sales and warranty adjustments. If you remove these two items, the graph on the lower left, adjusted gross margin of 21.9% for the first quarter of 2010 is still significantly improved compared with the first quarter of 2009 and the fourth quarter of 2009 by 390 basis points and 160 basis points respectively. The year-over-year improvement in the adjusted gross margin was largely driven by a decline in hard costs partially offset by an increase in land costs relative to revenue. The increase in gross margin, despite the increase in land costs, points to the success we've achieved in improving our product and processes, building and selling the right product in a more efficient manner. We believe the improvement over the past year is closely related to our efforts to reduce our exposure to finished speculative inventory.

In the first quarter of 2009, homes sold as finished specs accounted for almost 60% of home closing. For the fourth quarter of 2009 and first quarter of 2010 this percentage dropped to less than 15% as our adjusted gross margin jumped to more than 20%. This analysis gives us comfort that we're on the right track with regard to our current inventory policy.

Turning now to selling expenses, we're down by about 20% year-over-year. The reduction in marketing expenses is related largely to the reduction of both active subdivisions and model homes. Over the past year, our model home count declined 23%, consistent with our 25% decline in active subdivisions. As a result, we've experienced a decrease in costs related to operating, staffing and advertising these model homes and communities. In addition, our commissions expense decreased in the first quarter versus a year ago, due to the overall decline in home sales revenue for the Company.

Moving on to G&A expenses. The $40 million we incurred in the first quarter is slightly more than the $38 million we incurred a year ago and slightly below the $42 million we incurred in Q4. Given the relative stability of this expense recently, I don't have much additional information to share with you at this point. I will say that our key focus with regard to G&A is really to put our Company in the position to leverage it by growing our business. We believe we've made significant progress in this regard through our efforts to improve our processes and product, as well as our land acquisition activity.

Moving on to impairments. We're pleased to error that we didn't have a single impairment during the quarter, compared with the $14 million we recognized in the first quarter of 2009. You can see that in three of our past four quarters we've had little or no impairments, and we don't have any reason to believe that this trend will change in the near term given our low exposure to land inventory.

The next slide shows our unsold home inventory, which has changed dramatically over the past five quarters. After several quarters operating into our new strategy for managing unsold inventory, you can see that the combined number of unsold homes in the foundation and frame categories, which we call unsold homes available for personalization, has increased by nearly 200% over the past year, while we decreased our finished unsold inventory by 84%. Just in the past quarter, we more than doubled our unsold homes inventory in advance of demand related to the expiration of the federal home buyer tax credit.

We're pleased to report on our land acquisition activity that we put over 2,200 lots under control as our asset management committee approved 39 new communities during the first quarter of 2010. Roughly half of the lots we acquired were in bulk transactions and the other half were secured through option contracts. In addition we acquired about 320 lots through option contracts that were already in place at the beginning of the quarter. In total, we spent $88 million on land acquisition during the quarter. So over the last three quarters, since we really started ramping up our land acquisition activities, we've put more than 6,000 lots under control in about 120 new communities and most of those new communities are not yet online, so we're only just starting to see the impact of these transactions in our operating results.

Given our accomplishments during the first quarter, including the increase in our home orders gross margin, homes available for personalization, and land acquisition activity, we're excited about the prospects for the remainder of 2010. We're focused on continuing to make progress in the strategic initiatives that we believe will allow us to progress towards sustained profitability and our ultimate goal of creating long term value for our shareholders. As always, I want to thank our MDC team from across the country for the work they do every day to put our Company at the top of the homebuilding industry. I'd also like to thank everyone on the call for your continued support and interest. And at this time we'll open the line up for any questions you may have.

(Operator Instructions) Your first question comes from Ivy Zelman at Zelman & Associates. Your line is open.

Good afternoon, everybody. Hi. Real quick, we're looking at your closings, they were a little bit -- actually fairly significantly below where we were looking for. Is weather part of that in respect to impacting you more than you would have expected? That would be my first question.

Yes, Ivy, weather was somewhat related, but you'd probably count that more than Mid Atlantic than the rest of the country. I think the bigger thing that impacted us is as we move through all of 2009, we shifted more and more of our sales to dirt sales and drywall specs, but we actually ended up, as you looked at our backlog at the end of 2009, really it was predominantly dirt sales and those are going to take a longer time to close. But we're happy about that because they will actually realize higher margins for us.

Great, and then just a quick second question related to your underwriting criteria on these deals that you're doing. Can you give us an idea of the return margins and when you said you added 120 new communities geographically, can you help us where they maybe more concentrated?

I've worked around Larry long enough, I think we have not disclosed what those underwriting criteria are, but certainly we're not looking to dilute our performance from our operations.

Your next question comes from Nishu Sood at Deutsche Bank. Your line is open.

Thanks, hi, everyone.

Hi, Nishu.

I wanted to maybe follow-up on Ivy's question a little bit. I wanted to get a sense of the strategic overlay in terms of the land acquisitions. Obviously you're telling your land folks, your land teams that bring you deals that meet the return criteria, but 5,000 lots that you put under control in the last two quarters, you're substantially remaking your land portfolio. So what are the general strategic overlays that are determining what you're prioritizing in terms of projects? Is it geographic? Is it product type, and so what are the strategic overlays?

Well, I think first of all we like our footprint and we're going to increase our share in that footprint. Second, we're looking for projects in lots that we can go build and start turning homes into sales and closings immediately. And third is we're looking for things that will be -- help us from a profitability standpoint, improve our position and leverage our platform that we have in those markets.

Got it, okay. And second question, I just wanted to ask, noticed a big shift of your cash of your investment position into a marketable investments in marketable securities, so I just wanted to dig into that a little bit more. What has that shift involved, have you gotten a response back from the SEC on that filing you did at the end of the fourth quarter and how should we gauge the instruments that you're taking on from a risk perspective?

You can actually look at our Q, Nishu, to get some more visibility to that. It should be on page five or six in the Q, what we've got for marketable securities.

Your next question comes from Josh Levin at Citi. Your line is open.

Hi, good afternoon, everybody. Larry, you said you're cautious because the tax credit is expiring. How much do you think demand might be affected in the months ahead as the tax credit rolls off?

I would say that predicated on the tone in the economy, I think that the tax credit will have pulled a few sales forward into the quarter, but it's really stimulated the consumer to refocus on new housing and I believe we'll look back and not really be able to distinguish too much that it made a lot of difference. Because I believe the builders will be able to present to the consumer the equivalent of the economic equivalent of the tax credit which will come out of what had been prior incentives that were required to create sales. So as the required incentives are reduced, you're able to include what would be the equivalent of the tax credit. Now, this I believe will be presented by the new home builders as an incentive for the consumer to buy brand new homes, because resales and foreclosures in those other markets really aren't in a position to present it in the same way. So I'm cautious because the tones improved substantially and when we look back in a couple months, it will confirm out what we believe, and I don't like to be too optimistic too early, but things seem to feel good.

Okay, so I guess the follow-up question would be -- so maybe volumes don't drop off so much, but is it possible as the tax credit goes away, but could it be the case that we see gross margin deterioration in the near term?

Well, gross margin has got debits and credits and ins and outs on how it's calculated and I think over the next period of time, we'll try to get the industry will get to a more traditional baseline. We believe that we've done a very good job of execution, which has come through in our gross profit margin and everyone is sensitive that things are changing very, very quickly and on one hand they could change positively -- in a positive way and on the other hand, there's things that happen in the world that could be negative, but I would say in balance, we're very positive.

Your next question comes from Jonathan Ellis at Banc of America. Your line is open.

Thank you. The first question and I appreciate the commentary on first quarter deliveries and the impact from the dirt sales and your backlog, my question is if you look at the homes under construction that have already been sold or under contract, should we assume that the conversion of those homes under construction into actual deliveries, and sales would be similar to the past? Is there any reason to think the construction cycle has been pushed out at all?

Yes, it depends. What you don't see is that mix between how much of that backlog is the dirt and to the extent that it was the dirt sale, as soon as it goes under construction that's going to take a longer time, versus if it was a drywall held spec. So unfortunately, you don't have that, but when I look at our conversion rate, I'm actually pretty happy with what we are able to accomplish in Q1.

Okay, my second question is with respect to the investment in internal systems, can you give us some update on where that stands and potentially how much longer you think that will continue and if possible, some quantification of what the cost is for those system upgrades?

I would say that the effects of the multiple endeavors are going to be transparent in future years. They aren't going to be transparent currently because they are being developed and implemented, and as they say to the best of my information and belief, upon reasonable inquiry, I think things are going okay.

Your next question comes from Dan Oppenheim at Credit Suisse. Your line is open.

Thanks very much. I was wondering if you can talk about the current sales activity in terms of what you're seeing in terms of the pace of sales per community and some of the newly opening communities versus those that have been open longer.

Yes, what we've seen is that these new communities you actually need to start getting some momentum from a construction standpoint, where it starts to feel like a community. So sometimes the start up is a little bit slower than kind of midstream in that subdivision. So if you think about that and think about all of the communities we've added, you have to factor that in on when they will start to have a significant impact.

Okay, great and then wondering also there's been some questions on backlog conversion. Should we assume for the second quarter we'll see a fairly high rate of conversion given the June 30 expiration of the tax credit in terms of closing at that time?

We have not given any forward comments on our expected closings or revenue. Certainly, that is a driver and we're looking to close a number of homes, a larger number of homes in Q2.

Your next question comes from Michael Rehaut at JPMorgan. Your line is open.

Hi, thanks. Good morning, everyone.

Good morning, Michael.

First question, I was wondering if you could give us a little color on community count and specifically, as your community stands right now, what percent were opened in the last six months. And overall, in terms of your total community count, where you see that going by the end of the year.

Well we see it increasing by the end of the year, and as I said last quarter -- I don't know if you asked the question Michael, but just looking at the ins and the outs there is still a number and you can see it in our results for Q1, in spite of the large number of subdivisions we've added. We didn't show an increase in the number of active communities, so we're still experiencing a large number of communities closing out.

Okay, and no way to give us a percentage on the number of communities opened in the last six months, percent of total?

Yes, what we disclosed to you and everybody is we give you an active community number and our definition of an active community is it has to reach at least five sales before we consider it an active community. So I have kind of the numbers of what we've opened, number of communities that have had their first stale. Obviously that's not come through our results yet because they aren't active yet, but it's a growing proportion of our communities and as we go through the year, that number will start coming through and we expect an increase.

Your next question comes from Buck Horne at Raymond James & Associates. Your line is open.

Hello, thank you. Just want to talk a little bit about the spec strategy and just talking about -- it's pretty big increase versus year-end 2009. Is this part of a larger shift in the Company's spec strategy to carry more specs or is it purely something you expect to sell and deliver before June 30 in terms of this ramp up in spec inventory?

I think it's probably a combination of both. We wanted to have inventory available for the June 30, but by moving the business model to drywall hold so we can capture the personalization, this will be an area that we will grow in and it is -- it has proven to be profitable more than the normal gross profit margins we believe by being able to deliver a home to the consumer where they are able to pick out really all of the finishes and the colors. As some in the industry have gone more to like you get what we have, we're trying to stay focused on it's personal and it seems to be -- and we know it is being well received and I think the general tone of what we're doing will show that we're optimistic about where the marketplace is going.

My second question is just regarding the cash balances, and I certainly appreciate the flexibility and liquidity you have and how much you're trying to invest in new land, but about $100 million a quarter kind of run rate in new land investment still leaves quite a bit of cushion on $1.8 billion. Do you think you can accretive deploy some of that excess over the next 12 months in land and homebuilding or would you consider some other alternative uses of that cash, maybe whether it's stock buybacks, dividends, anything else?

I think that we've been consistent over the years that we utilize our capital where we think we will make the greatest return and our business strategy is the utilization of our capital over a period of time, which is certainly shorter than 12 months. So you can assume as we have always done, we've been prudent and also optimistic and we've done a little of everything over the years as the market dictates, and we will continue to do so in the same manner.

Your next question comes from Kenneth Zener of Macquarie. Your line is open.

Afternoon.

Afternoon.

Just want to ask about the impact of inflating input cost and how you're managing that. Are you buying forward contracts in lumber or other products, or are you trying to trap it in the contractor bid?

As we've all seen, lumber has had a nice spike in the last short period of time and to the extent that that will have an effect on a forward basis, that which is under contract and under construction is tied down, we have not in the past speculated on commodities, and I assume in the future we won't do the same either. What we have is a form of purchasing process, however we do know for that which is under construction, we do have the different elements and the costs thereof controlled. If there is inflation of not only a number but in other areas which we expect to see, we will have the challenges of the normal issues. Generally we've seen inflation in our industry with a pick up in demand. In the past, pricing power has been able to more than mitigate an element, or various elements within the component of the home and I would expect that to continue and the recent jump in lumber may continue or may not, but whatever it will be we'll adjust accordingly.

I guess just extending on that a little bit because there's a lot of other just beyond lumber, wall board is one area that looks to have inflation coming, but do you philosophically think you will give up margin or do you think you'll simply prospectively try to build -- I think there's less room for price appreciation than in the past cycles, therefore do you suspect to hold the same margin or in the same range, you'll simply build the smaller house in order to not have the average sales price go up? Or do you expect you'll see inflation on the price side?

I think one of the things everyone has discounted because things have been so difficult these last few years is consumer confidence, as it comes back, is pretty robust. When you look throughout the housing industry that the affordability factor that people can really, at these interest rates and at these costs, can really afford more than what they're spending. So I believe there will be a transition period with higher consumer confidence, you will more likely than not get a degree of pricing power and maybe the net effect will be, not enhancing your margin but being able to maintain it. And this is one of those things that is adjusted predicated on what's happening in the market at the time and this is within our skill set to adjust to what we think will have the best execution.

I don't believe that the new home product that we're delivering and many of the other publics are delivering have adjusted in a reduction of square footage, and I don't see that continuing to contract. You may see that across broader product lines, certainly for us as we mentioned 40% of the transactions were with our new product, you will see that over the balance of this year and going even into next year. We are very focused on designing a home that is appealing to today's taste, designing it in a manner that it's more efficient to build, and we believe that we're creating compelling value for the home buyer and there will be room to move pricing around as the market tightens up. All of us reflect on the past, but as we go deep into the past markets sometimes correct more quickly than everyone expects. It's usually worse than anyone expected and it turns out to be better. And the economy of our country and our industry is in the transition stage and it is only speculative comments that would say we know exactly which way we're going other than the fact you could feel comfortable that whatever market adjustments need to take place we'll do it, because that's what we've done now since -- for more than three decades.

Your next question comes from Joel Locker at FBN Securities. Your line is open.

Hi. On the net orders, do you have a month to month basis just January, February, March for the first quarter?

We don't. We only provide a quarterly break down, Joel.

Okay and just on land prices, I know there wasn't much activity in March -- the March quarter of 2009, but just the activity that there was, what would you say finished lots were up price wise year on year, in your various markets?

I won't comment on where we are specifically, but if we bought it at the end of 2009 we paid less than if we bought it now. So it's a good sign. The availability of finished products and allocations and single family detached, which is what we do, there's generally competition for everything we buy and I consider that a great sign. There's a lot of market discipline when you're competing with others that have a like cost and if we go back in the history of our Company, since we did not speculate in land, we generally had only a builders profit in what we did and not a land and builders profit. So we are focused, and have been focused for many years on how to be highly profitable with the builders profit without land speculation, and we do not intend to be speculating in land. So what we're buying, we believe that these are assets that could be implemented and we will be developing and opening new subdivision in each of these opportunities within a short period of time, and so I would say it's well balanced.

All right, thanks a lot.

Your next question comes from Alex Barron at Housing Research Center. Your line is open.

Yes, thanks. I guess the question that's on everybody's mind and a lot of other builders have been talking about it is, that they are going to be profitable some time in 2010 and I'm just seems to me the only obstacle from you being profitable is your SG&A. So I'm wondering if you can comment on if there's anymore room for you to cut something there, or how soon do you think you're going to reach profitability, if revenues don't go up that materially.

Well I'd say two things, one, there seems to be every indication that revenues are going to go up. Two, the infrastructure, and I probably commented too quickly on it a few minutes ago, on the building of the technology and the product and the processes and the training of what we're doing has a cost, but we are looking for that which enhances on a long term basis the value of the Company. And we believe that what we're doing is we've said to everyone for the last couple of years, we've undertaken a multitude of endeavors and we're pursuing them in what I believe is a very, very aggressive efficient manner and the market will take us to conditions, that as Chris commented in about two words, is that our business goal and objective is to be profitable. And since we expect to maintain and achieve our goals, I would support what Chris said.

Okay. My other question had to do -- I guess you referenced it a little bit, there has been quite a bit of competition for finished lots and a locations and given that I've seen you opening a lot of communities recently, and that you are obviously the winner of these lot positions, how do you make sure that you're not over paying for the lots?

I guess the best way to answer it this is what we do every day and we believe that our ability to execute will be helpful and the judgment that goes into the analysis and the underwriting. Not everybody sees everything exactly the same way, just as you would have three analysts analyzing whether it's equity or debt of any security, you'd have three different views and in our industry, there's a group of people that have the ability to transact and we're very respectful of them. And I believe I have a very, very competitive group of professionals, and I underline professionals, that we have developed over the last short period of time in the enhancement of that group and if you look back on our comments last year, I said okay, we're going to start buying because we see a great opportunity. And we have built that department in every market we're in and we're very optimistic that at a minimum, we will get our share of the business and the definition of our share is open.

Your next question comes from Michael Rehaut from JPMorgan. Your line is open.

Thanks. Just had a follow-up on the gross margin question to the extent, don't know if you'll answer it but I'll give it a shot. Obviously, yourselves included, the margins have improved solidly over 20%. Historically, the industry in mid cycle has seen an 18% to 22% gross margin, which you're hitting right now. Would you expect, given what you're seeing in the land market today and the way demand has begun to stabilize and slowly improve, that over the next year or two, margins can exceed that 18% to 22% range, or given the level of competition for land, you'd expect them to settle more into the range that yourselves and others have already found?

I think that it's hard to speculate on what's going to happen and I won't.

Okay, thanks.

There are no further questions at this time.

We thank you for joining us on the call today and we look forward to speaking with you on our next call following the announcement of our second quarter results in July.

Thanks, everybody.

Thank you. This now concludes today's conference call. You may disconnect.