M/I Homes Inc (MHO) 2010 Q1 法說會逐字稿

Good afternoon. My name is Kala, and I'll be your conference operator today. At this time I would like to welcome everyone to the M/I Homes first quarter conference call. (Operator instructions.) Thank you.

Mr. Creek, you may begin your conference.

Thank you very much, and thanks for joining us today. Joining me on the call is Bob Schottenstein, our CEO and President, Tom Mason, our EVP and Corporate Counsel, Paul Rosen, President of our Mortgage Company, Ann Marie Hunker, VP, Corporate Controller, and Kevin Hake, VP, Treasurer.

First to address Regulation, Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant nonpublic items with you directly.

And, as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the Company undertakes no obligation to update any forward-looking statements made during this call.

With that, I'll now turn the call over to Bob.

Thanks, Phil. And good afternoon, everyone.

We are pleased to share with you our first quarter results. We continue to make meaningful progress in a number of key areas as we remain firmly focused on returning to profitability. While we believe 2010 will be somewhat choppy and challenging, conditions today are clearly better than a year ago, and we are very optimistic about our future. I'd like to take a few minutes to highlight a number of our accomplishments during the quarter.

Sales, we sold 15% more homes than last year's first quarter despite an 8% decline in active communities. This marks our [sixth] consecutive quarter positive sales comps. We grew our market share in every one of our markets during 2009, and our first quarter sales results allow us to continue to build on that momentum.

In addition, we improved our sales absorption rate per community from 1.8 sales per month one year ago to 2.4 sales per month for the first quarter, a 33% increase and approaching our internal goal of selling at least 2.5 homes per month per community. Also, we experienced improved per month absorption rates in each of our regions.

Closings, for the quarter we closed 479 homes, a 22% increase over last year's first quarter.

Margins, as stated in our release, our gross operating margins for the quarter were 17.3%, reaching their highest level in more than two years. Our first quarter gross margins improved over the margins for 2009's fourth quarter by 100 basis points. In calendar year 2009 for the year our gross margins equaled 15.3%. Clearly, the increase in margins is an important and vital component as we work to return to profitability.

And while we experienced a loss for the quarter it's worth noting that our loss has been materially reduced from last year's first quarter by more than 60%. And after having achieved an operating profit during last year's fourth quarter our first quarter results still represent our third consecutive quarter of positive EBITDA.

Backlog, as a result of our continued positive sales performance our units in backlog are up 12% year-over-year, and the value of homes in backlog at March 31 equal $247 million compared to $193 million a year ago, a 28% increase. In particular, our average sales price in backlog is $263,000 a home compared to $230,000 a year ago, which is a 14% increase.

SG&A, as a percentage of revenue we continue to make progress in reducing the impact of our SG&A. For the quarter our SG&A percentage equaled 19.7% compared to 22% last year.

New communities, obviously, one of our greatest challenges and one of our greatest areas of opportunity relates to tying up and securing new land deals and the opening of new communities. As we've worked through this cycle we have been both cautious and prudent in our approach to buying new lots and new land.

In a few minutes Phil will be reviewing in detail our land purchases made during the quarter. There are, however, several points that I'd like to make relating to land. Clearly, we have begun seeing an increase in the number of new land opportunities, and we have been successful in securing many of them.

For the year over two-thirds of our planned purchases will be based in our D.C., Charlotte, Raleigh, and Chicago markets. Our minimum threshold for new land deals is a 20% return on investment, and we seek an even greater return in those instances where we are buying land in bulk as opposed to buying finished lots on an option take-down basis.

We feel very good about our new land deals, and we feel even better about the opening of new communities. There's no question that these new communities will play an increasingly important role in our return to profitability. Specifically, we were pleased to open 14 new communities in the first quarter, with the expectation that we will open at least 20 additional communities by yearend.

Finally, before reviewing our various regions, let me just say a word or two about our balance sheet. We ended the quarter with $134 million of cash, zero borrowings outstanding under our credit facility, and equity of $319 million. Our net debt to capital ratio remains one of the lowest in the homebuilding industry, equaling 23% compared to 34% a year ago.

Now, I'll briefly review our regions. First, the Midwest Region. Housing markets continued to be challenging throughout the Midwest, however, we continued to see some positive trends. In the Midwest our new contracts were up approximately 25%, and we continued to gain market share in each of our Midwest markets. We're also excited about having opened seven new communities in this region during the quarter, many of them in our relatively new Chicago market. Homes delivered for the quarter were up 50% compared to last year.

Florida, general market conditions continued to be challenging in both Tampa and Orlando. Our new contracts despite this were up 25% for the quarter. At quarter's end we owned nearly 1,600 lots in the Florida Region versus 1,800 lots a year ago.

The Mid-Atlantic Region, new contracts were down approximately 10% and homes delivered for this region were up 5% for the quarter when compared to 2009's first quarter. On the other hand, our March 31 backlog increased nearly 15% from the prior year, with our average sale price increasing approximately 25%.

Our operation in Raleigh continues to improve. First quarter gross margins on new communities exceeded our gross margin goal of 20%, and we opened two new communities in Raleigh during the quarter. Though Charlotte has been challenging we continue to see improvement there, as well, as sales for the quarter were higher than anticipated. And there's no question that that the D.C. market is showing signs of market stabilization, particularly in select submarkets. There's no question, however, that this market is extremely competitive, especially in the land area. But we expect to see continued growth for M/I Homes in D.C. as our market share in the entire Mid-Atlantic Region continues to increase.

Finally, as we recently announced, we are entering the Houston, Texas market. Houston has been one of the strongest housing markets in the country, and one that we have believed for some time that we could successfully compete in. We've hired an excellent person to lead our operation there, and we expect to open at least one and probably two communities in Houston in the latter part of this year. Over time, we expect Houston to play a very important part in M/I Homes' future success.

With that, I'll turn it over to Phil.

Thanks, Bob.

New contracts for the first quarter increased 15% to 765, with a net absorption rate of 2.4 sales per community per month for the quarter versus 1.8 a year ago. Our cancellation rate for the first quarter dropped to 18% from 20% in the previous year.

Our traffic for the quarter increased 8%. Our sales were up 22% in January, and traffic was up 31%. Sales were up 2% in February and traffic was up 5%. And sales were up 21% in March, while traffic was down 6%.

Our active communities decreased 8% from 119 last year to 109, but were up from yearend's 101. And to break-down by region, it's 66 in the Midwest, 22 in Florida, and 21 in the Mid-Atlantic. During the quarter we opened 14 new communities, while closing six, for a net increase of eight. And our current estimate is to end this year with about 110 communities, up about 10% over '09's yearend.

Homes delivered in '10's first quarter were 479, up 22% when compared to '09's 394, and we delivered 74% of our backlog this quarter compared to 70% in '09. And our backlog of 936 homes is 12% higher than a year ago, plus our backlog average sale price of $263,000 is 15% higher.

To date we have recorded a total of $12.8 million in drywall related charges for homes that we delivered in our Florida operations. And our first quarter results include expense of $600,000 related to this issue.

Turning to impairments, in the first quarter we recorded pretax charges of $3 million related to land that we intend to build homes on, with about 55% of the impairments in Florida and 45% in the Mid-Atlantic Region, and approximately $12 million of previous impairment reversed into housing gross margins in the first quarter of 2010.

Our gross margins exclusive of the impact of impairments and drywall charges were 17% for the quarter compared to 13% in 2009 same period, and 16% in '09's fourth quarter. And, as Bob mentioned, we are very focused on our gross margins.

G&A expenses for the quarter were $13 million, increasing 7% from last year's expenses, primarily due to our increased volume. Our first quarter revenue was up 24%.

Selling expenses for the quarter increased $1.5 million from a year ago. Overall, our SG&A expense increased $2 million. However, as a percent of revenue decreased to 19.7% in the first quarter of 2010 compared to 22% in last year's first quarter. Historically, our expense percentages have been higher in the first quarter due to the seasonality of homes being delivered.

Interest expense decreased $1.1 million for the first quarter compared to the same period last year. Interest expense was 1.8% of revenue for the quarter. Interest incurred was $3.7 million for the quarter.

We had $4.9 million of adjusted pretax loss from operations for the quarter compared to a $12 million loss during the first quarter of '09. We generated positive EBITDA in the quarter, and this is our third consecutive quarter of positive EBITDA.

We had $24 million in capitalized interest on our balance sheet at March 31, '10, compared to $26 million a year ago, and we recorded a noncash after-tax charge of $3 million in the first quarter for evaluation allowance recorded, related to our deferred tax assets. And as of March 31, 2010 our gross deferred tax asset is $120 million, which is fully reserved.

Now, Paul Rosen will address our Mortgage Company results.

Thank you, Phil.

Mortgage and title operations pretax income increased from $1.3 million in 2009's first quarter to $1.7 million in the same period of 2010. The increased income was primarily the result of an 11% increase in loans originated from 346 in 2009 to 385 in 2010, along with favorable servicing release premiums.

Loan to values on our first mortgages for the first quarter was 87% in 2010 compared to 88% in 2009's first quarter. 56% of the loans closed were FHA, VA and 44% were conventional. This compares to 54% and 46%, respectively, for 2009's same period. Over 90% of our communities are eligible for FHA financing.

Overall, our average total mortgage amount was $210,000 in 2010's first quarter compared to $211,000 in 2009. The average borrower credit score on mortgages originated by M/I Financial was 734 in the first quarter of 2010 compared to 732 in 2009's fourth quarter. These scores compare to 718 for the first quarter of 2009 and the fourth quarter of 2008.

Our mortgage operation captured approximately 85% of our business in the first quarter compared to 2009's 90%. March 31st, 2010 M/I Financial had $24.3 million outstanding under the $30 million M/IF credit agreement. Effective April 27th, 2010 M/I Financial signed a new credit agreement with its current lender increasing the facility to $45 million which expires in April of 2011. The terms of this new facility are consistent with the previous one.

Now, I will turn the call back over to Phil.

Thanks, Paul.

As far as the balance sheet summary, we continually focus on our capital structure, cash and liquidity. We ended the quarter with $134 million of cash compared to yearend's $132 million. Our operating cash flow for the quarter included purchasing land of $25 million and land development spend of $6 million. Lots owned and controlled as of March 31, 2010 totaled 9,785 lots, 75% of which were owned, and 25% under contract. The mix of lots owned and controlled are 57% Midwest, 19% Florida, and 24% Mid-Atlantic. With respect to our lots under contract, we have $2.6 million at risk in deposits, letters of credit, and pre-acquisition cost at March 31st.

Total homebuilding inventory at March 31, '10 was $443 million, a decrease of $55 million or 11% below March 31, '09. Our unsold land investment at March 31, '10 is $232 million, which is 7,306 lots compared to $318 million, which was 8,431 lots at March 31, '09. Compared to a year ago raw land and land under development decreased 13% and finished unsold lots decreased 39%.

At March 31, 2010 we had $129 million of raw land and land under development, and $104 million of finished unsold lots. Our unsold finished lots totaled 2,516 lots with an average cost of $41,000 per lot. And this $41,000 average lot cost is 16% of our $263,000 backlog average sale price. And the market break-down of the $232 million of unsold land is $122 million in the Midwest, $39 million in Florida, and $71 million in the Mid-Atlantic Region.

During the 2010 first quarter we purchased approximately 750 lots valued at $25 million, and we spent $6 million in land development. Approximately 59% of the $25 million in land purchases related to land in the Midwest Region with our biggest purchases being in Chicago, 22% of the land spend was in Florida, and 19% in the Mid-Atlantic Region.

We currently estimate that we will spend about $100 million on land this year, plus about $40 million in land development. Our desired financial returns for new communities has not changed. Minimum gross margin of 20%, sales paced goal of 2.5 per month, with a ROI target on a community basis of 20%.

At the end of the quarter we had $48 million invested in specs, 143 specs that were completed, and 305 specs in various stages of construction. This translates into about four specs per community. And of the 448 total specs, 201 are in the Midwest, 145 are in Florida, and 102 are in the Mid-Atlantic. And at March 31, '09 we had 351 specs with an investment of $45 million, and at 12-31-09 we had 545 specs with an investment of $59 million.

And during the quarter we collected $26 million in tax refunds. At March 31, 2010 the Company had no borrowings under its $150 million credit facility. Our borrowing availability at March 31, '10 was $25 million. This availability can be increased by pledging additional assets. The facility maturity date is October 2010. We are currently in the process of obtaining commitments for a new three-year $100 million credit facility, the terms of which we expect to be materially consistent with the terms in our current facility. We expect to close on this facility during the second quarter.

With respect to our $200 million of six-and-seven-eighths percent senior notes that mature in March of 2012, our goal is to provide for their refinancing in advance of maturity dates. We continue to monitor the capital markets and review refinancing alternatives, including the estimated issuance costs of new debt and the estimated cost of redeeming our senior notes. And we weigh those factors in determining when to refinance the notes, being mindful of the maturity date as it approaches.

That completes our formal presentation. We'll now open the call for any questions or comments.

(Operator instructions.)

Your first question comes from Josh Levin with Citi.

Hey, good afternoon, everybody.

Hi, Josh.

Hey, so the tax credit is expiring soon, how much do you think demand will be affected by the expiration of the tax credit?

Josh, we actually figured that out, but we can't share it. No, that's a great question, and I think that you or someone has asked that on every builder's call now for the last couple of weeks, and it seems to get asked of us constantly.

I don't think there's any question it's going to have some impact. I don't think it's going to be severe. There may have to be a little bit more promoting done by builders during this sort of transition period, but we're prepared for it, we're prepared for it from a marketing standpoint, we're prepared for it from a standpoint that we've materially reduced our spec inventory. We've begun to increasingly sell a lot more new builds anyway, and we've never been a large spec builder in any event, but I only note that for historical reference.

But I mean I think it'll have a slight impact, there's no question. It has helped a little bit, it hasn't helped nearly as much in this period as it did when it was offered for the first time, you know, last year. It never did quite gain the traction that it got the first time.

But I think the other thing is it might be a little bit difficult to gauge it accurately, also, because we're entering, beginning to enter what is naturally a slightly slower sales period anyway during the summer.

Let me ask just one follow-up, for the new builds, over the past few weeks, March, early April, for the new builds which cannot be completed by the June 30th deadline, and the buyer knows there's no way they can be delivered by the June 30th deadline, have you seen a material downtick in new orders for those, for the new builds, that just won't qualify?

No, no. And it's a great question, but we haven't. So that would have to be my answer.

Thank you very much.

Thank you, Josh.

Your next question comes from Alan Ratner with Zelman & Associates.

Good afternoon, guys.

Hey, Alan.

Bob, I was wondering if you might be able to comment a little bit on what you're seeing on the commodities side? we've seen some major increases on lumber and in talking to some other builders I know a lot of companies are kind of locked into whether it's 60 or 90-day type contracts, so they might not have seen the full impact on the gross margin side. So I was just curious kind of what you're seeing from a commodity cost inflation and whether you expect that to be kind of material headwind in the next few quarters?

No, I don't think it's a material headwind. It -- we will have some impact from it. I don't have the exact number here handy. Phil, you may have that information? There's no question it's going up. The fact that lumber anyway is, and it will have a slight impact like for like on our margins, even though we've been very successful over the past 18 to 24 months in reducing the costs of our bricks and sticks. But the fact is that -- and we also have some price protection, so the full impact of the increase will not translate dollar for dollar down.

Phil, I don't know if you want to provide a little bit more color on that?

No, I think that --

We had some -- I've got some fairly specific information, I just don't have it here right at my hands.

I mean we're very focused on margins. You know, Bob talked about margins moving up 100 basis points in the first quarter versus the fourth. There's definitely been fairly significant lumber increases, asphalt, some other issues. There's also been some areas where we've been able to get some decreases. It doesn't appear to be a significant issue for the second quarter. The impact after that we're working very hard to minimize, but there have definitely been a couple of issues there.

Okay. Great. I appreciate that.

I would not -- I just want to restate, I would not characterize it as material, but and then, as Phil said also, there's probably been two or three areas in the last six months where we've been successful in materially renegotiating and, or switching out our national supplier with -- relative to some of our key components. And so some of this stuff tends to net out just being -- but, you know, it's -- look, I think part of the reason that lumber is going up is in response to what is believed to be a slowly but surely improving housing market.

Right. No, that's a good segway, and if I can kind of sneak a follow-in on that? In prior periods where we've seen similar commodity cost increases it's usually been a supply driven as demand has increased. Is this something when you think about your markets right now, are you seeing any minimal pricing power that might allow you to pass some of those rising costs along to a consumer or do you still think the market is tenuous enough where you wouldn't risk trying to interrupt that flow?

First of all, as you know, every market is different and every submarket in every market is a little different. But I think that we're ever so slowly beginning to see some pricing power, in some markets more than others.

We've seen, I sort of mentioned it in my remarks, in Raleigh for us, certainly in Chicago, and I think in Chicago it's largely due to the uniqueness of our land position there, which is at this point largely consisting of deals that have been designed in distress situations at very good prices, which have allowed us to get very strong margins, and to improve those margins as we've moved down the road. But D.C. and Raleigh and Chicago, and maybe in select submarkets we're getting a little bit of pricing power.

And another thing, also, Alan, I mean we're still focused somewhat on the balance sheet, of course, as far as wanting to keep strong liquidity and so forth. So we are trying to work through our existing communities to generate cash. We have brought our finished lots down to about 2,500, so we do feel pretty good about the new communities we're buying and getting opened, but we're also still mindful of working through the older inventory to generate cash to get our balance sheet strong so we can prepare for more opportunities.

Great. I appreciate that. And one last question and then I'll hop off. Incentives, do you guys have a way of quantifying kind of what current incentives are running maybe as a percentage of gross price? And maybe how that might have compared to a year ago?

I would say the short answer is that they are lower, you know, they can take the form of reduced sale price, increased help on the options, closing expenses, those type things. I mean we're still having to do certain things in certain markets, but in general they have slowed down a little bit. But, as Bob said, as we get into post tax credit and the summer months it's hard to predict what that type of number is going to be.

Okay. Great. Thanks a lot, guys.

Thank you.

(Operator instructions.)

Your next question comes from Alex Barren with Housing Research.

Yes, and good afternoon, guys.

Hey, Alex.

A lot of builders have been talking about their expectation for profitability for this year or in the near term. Can you just elaborate or restate maybe what your expectations are in that terms?

We're really not comfortable doing so. And let me say why. I think we're as focused on returning to profitability as any homebuilder in the United States. Having said that, we believe that the conditions are still pretty fragile, and while conditions, as I've said, are clearly better than they were a year ago we're just not comfortable projecting out given the fact that we haven't seen enough stability within the markets and submarkets that we operate to give us the confidence to make a reasonable projection on earnings guidance.

I would like to think that we're a lot closer to getting back to that day when we do that, because we used to provide guidance on a regular basis, so it's not something that we're opposed to as a matter of course, it's just that we're not comfortable doing it when we don't think we really know.

And I can't really comment why not all, but a few others have selectively chosen to be a little bit more forthcoming with information about the market. But I still feel like at least from our perspective and maybe we're being overly cautious but you have to be who you are, and that's who we are right now. That there's just not enough tangible, sustainable, clear signs that would suggest that things are in a relative straight line basis, heading in enough of a direction for us to be able to say, yes, this is what our guidance is.

I wish I could tell you more. I want to underscore we're not afraid but, and we are focused on profitability and getting back to it quickly. After all, we were profitable in the fourth quarter, and not many were. And we'd like to think we're close, and we believe we are, but we're not providing any guidance.

And just to add on that a little bit, Alex, I mean in the third quarter of last year we lost $1.2 from operations. In the fourth quarter of last year we made $2.9 million from operations. And in the first quarter of this year with the lower deliveries we lost $4.9 million from operations.

So if you look at the last three quarters, we haven't been that far away from it. Obviously, the keys are, you know, if we can get margins up, if we can get a little more volume and get scale, those are the things we're working on every day to try to get back to profitability. But, like Bob says, there's still a lot of shopping that's out there, but we're not that far away.

Right. Yes, no, that's what I was asking, because it seems like you guys are kind of flirting with almost being there. And along those lines can you comment, I remember you guys used to comment in previous calls on kind of your margins and backlog, so can you give us a sense of what those are by market, and what you expect over the rest of the year? And also along those lines how much can you really leverage the SG&A at this point? Is there more room to cut, or is this kind of low as it goes in dollars?

Alex, to address your first point as far as margins, we really haven't given any margin backlog or guidance, for a couple of quarters just due to market conditions. I mean if you look at our margins they were 16% in the third quarter of last year, 16% in the fourth quarter, and 17% in the first quarter. And we're very, very focused on the margins. And obviously we do hope to improve those, but forecasting that is just too difficult to get into. So we really don't want to get into that.

As far as you get into, again, back to the comment on profitability. It's just still very, very hard to get into something like that. There's just too many things still going on.

Okay. On a slightly different note, I was looking at your lot position, owned versus finished lots, and I've heard a lot of builders are out there buying more finished lots rather than developing the ones they already have. So I'm kind of wondering what is your strategy? And if it is -- if you're doing something similar of just going out there and buying the finished lots rather than developing, is that just a function that it's faster or is that a function of the cost?

From a macro standpoint our strong preference in every market is to buy finished lots on some type of a, you know, an option take-down basis. And we would prefer to do that in each and every case.

Having said that, it's not possible. And the reason it's not possible are several fold. Number one, in some markets there aren't sellers and, or developers left. And the other side of it is and Chicago would be a classic example, we now have a number of locations in Chicago, and with the exception of one of those communities, each of them represent a deal that we bought in bulk that was in distress, where we paid a percentage against the par value.

So it just, you know, even though our goal, our first, second and third goal is to buy finished lots in a take-down basis in a particular calendar quarter, due to the nature of the deals we're buying and where they might be, you know, we just settled on a deal in Charlotte within the last 48 hours where we took title to a deal that was in the foreclosure process. Obviously, that's one that we would have loved to have bought on a finished lot basis, but we think it's a homerun having bought it in bulk. But we did it through a little bit of a left-handed acquisition of note and mortgage, and now we hold title to it.

So I mean they come in so many different sizes, and they're very deal dependent. I guess job one is to secure premiere locations. Job two is to secure deals that also have a minimum return on investment. As Phil pointed out in his comments during our presentation, that have a minimum ROI of 20% and higher on deals that tend to be bulkier.

So, having said all that, it's one of the most tightly controlled, tightly managed, time consuming parts of the business, buying new lots, buying new locations, opening new locations, but and that -- one size doesn't fit all. There are some overriding principles against which we operate the Company to mitigate the risk, but it sort of shakes out through the system in a lot of different ways, particularly in these unsettled times.

But when you use the term "bulk," does that mean they're undeveloped or partially developed, or what does that mean?

No, no, no, no, no. Well, that could mean they're undeveloped, but everything is entitled. They could be partially developed. There could be phase that's developed and two phases that aren't. But when I talk about bulk I'm talking about taking a large group at once as opposed to on a take-down basis where the take-downs tend to mirror more closely the sales base.

And our terminology, Alex, if we're buying more than what we think is a year's supply we internally call that bulk.

Got it, got it. Okay, thanks. I'll get back into queue.

And for higher return rates on that, because we're taking some market risk and other things.

Okay. Thanks, Bob. Thanks, Phil.

Your next question comes from Joel Locher with FBN Securities.

Hey, Joel.

Hey, guys. How is it going?

Good.

Just, you know, I wanted to -- I guess a little more on the G&A, it was up I guess about $1 million, $900,000 year-over-year. I was expecting it more so to be flat. And I was wondering was there any expenses relating to the Houston market that was just initial costs or anything like that fell through?

Joel, that was very little. We have added a few people. Again, our revenue was up 25% for the quarter.

Right.

But minimal expenses for Houston.

Was there any, you know, I guess stock option expense or anything greater than a year ago?

Nothing significant or anything, Joel.

Nothing significant. All right. And the -- just I guess on the refinancing, everybody, or not everybody but a lot of builders have been taking advantage of the credit markets in the last few weeks, and wondering, I mean are you guys close to maybe doing something or pushing out the maturity date, or I mean how close should we expect anything from the bond side, issuance?

Joel, this is Kevin. As Phil said in his comments, we just continue to look, and analyze possibilities. We're certainly aware of other builders accessing the markets recently and tendering and refinancing.

We've certainly looked at what we expect would be the cost for us to tender, and we'll continue to evaluate the tradeoffs between what would potentially for us be fairly high cost of taking out the current notes versus a pretty attractive rate to issue for us, and we're continuing to evaluate and consider those tradeoffs.

But we still feel that it's two years till maturity. It's our preference, as Phil said, to deal with them in advance of that maturity, but we feel two years is a reasonable amount of time for us to work on it.

Right. All right. Thanks a lot, guys.

(Operator instructions.)

There are no further questions at this time.

Well, thank you very much for joining us, and we look forward to talking to you after the second quarter.

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