Q3 2020 New Home Company Inc Earnings Call
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Greetings and welcome to the New home company third quarter 2020, <unk> results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host drew Mackintosh Investor Relations for the New home company. Thank you you may begin good morning, welcome to the New home Company earnings Conference call really today. The company released its financial results for the third quarter of 2020.
Documents detailing these results are available on the Investor Relations section of the company's website in W. H M Dot com.
Before the call begins I would like to remind everyone that certain certain statements made in the course of this call which are not historical facts are forward looking statements that involve risks and uncertainties.
Discussions such risks uncertainties and other important factors that could cause actual operating results differ materially from those in the forward looking statements are.
Jay detailed in the company's filings made with the FTC, including its most recent annual report on form 10-K, and its quarterly reports on form 10-Q.
The company undertakes no duty to update these forward looking statements that are made during the course of course of this call.
Additionally, non-GAAP financial measures may be discussed on this conference call.
Reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.
Can be accessed through the new home company web site and in its filings with the FCC.
Hosting the call today is Larry Webb Executive Chairman, Leonard Miller, President and Chief Executive Officer, and John Stephens, Chief Financial Officer.
I will now turn the call over to Larry.
Thanks drew and good morning, everyone joining us on the call today as we go over our results for the third quarter 2020, providing.
Providing update of our strategic outlook.
Give some additional color on our operations.
The new home company made significant progress on a series of strategic in Michigan and generating a profit in the third quarter of 2020.
We experienced healthy expansion to our homebuilding gross margin.
Continuing to emphasize overhead cost containment, thanks to several operational improvements in a very strong housing rebound.
We generated 251 net new orders in the quarter, representing 802% increase as compared to last year.
Mainly as a result of a 75% improvement in your sales pace, which came in at 3.5 homes per community per month.
Order activity improved as the quarter progressed, and we interesting demand trends stay above normal seasonal levels since the quarter end.
The new home market is benefiting from several positive factors, including record low interest rates scarcity of existing home inventory and a noticeable shift in attitudes towards home ownership.
Some of this shift can be attributed to the on going pandemic, which has made many Americans rethink how and where they were given all the waste the virus is impacting our wives.
But equally important factor driving the move to home ownership has been the emergence of the millennial age cohort as a buyer demographic.
This sizeable age group was slower to enter the housing market relative to earlier generations due to a number of factors.
Well, we are now seeing millennials make up an increasingly large share the buyer population.
This demographic shift was occurring well before the pandemic started.
We believe it will be a driving force for our industry well after the pandemic.
While the positive fundamental backdrop for our industry has been a nice tailwind for our business. We believe our strong order activity. This quarter was also the result of our expansion to more affordable price points.
Over the last few years, we have been transitioning much of our portfolio away from high ASP communities into the more affordable segment of the market.
The goal was to take a premium brand experience that is centered around industry, leading customer service.
Best in class quality and innovative design.
And make it more accessible through efficient floor plans and higher density projects.
This focus has served us well in recent quarters and dovetails nicely with the millennial demographic trends I just mentioned.
Order activity in our newly opened affordable communities has outpaced our legacy higher price communities by a wide margin.
And we are seeing better prices and margin trends at these lower price communities as well.
This pricing power has been a key ingredient in making headway with one of our main initiatives for the year.
Gross margin expansion.
Over the past several quarters, our margins had been depressed you weren't focused on generating cash shoring up the balance sheet and.
Turning through higher priced legacy communities.
Now that we are in a much better position from both a financial and product standpoint.
We have an opportunity to show real improvement on the gross margin front.
We posted a 320 basis point year over year increase to our homebuilding gross margin in the third quarter.
Excluding impairments in the prior year and.
And we feel we can push margins higher over time through steady price increases better product mix and cost containment.
While this margin progression will fluctuate depending on the mix of closings. We believe in the long term trajectory is headed into right direction.
With a healthy demand outlook, a great product profile rising margins and a much improved balance sheet.
The new home company is in a great position to end the year on a strong note and carry that momentum into the new year.
With that I'd like to turn the call over to Weiner, who will provide more detail I know operations.
Thanks, Larry and good morning, everyone joining us on the call today.
We experienced a widespread acceleration in demand in the third quarter, driven by low mortgage rates limited existing homes supply a desire from buyers to move to less densely populated areas and the surge in millennial buyers that Larry mentioned.
The demand was broad base, both from a price point and geographic standpoint.
Which allowed us to push pricing at nearly all of our communities during the quarter.
Traffic conversion rates are at all time highs as buyers feel a sense of urgency to move forward with a purchase decision given the lack of available supply and low interest rates.
As a result, our homes in backlog increased to 329.
Which represented a 59% year over year improvement and the quarter.
Looking ahead, we expect order activity to remain above normal seasonal trends in the near term, but our focus has shifted slightly given the size of our backlog and our desire to increase margins.
We want to make sure our sales don't get too far out in front of our starts while also maximizing the profit from each new home sale.
To that end, we have delayed some sales releases in an effort to align our sales with construction starts and implement additional price increases.
While this may moderate our sales pace from the levels. We have experienced recently, we believe this is a prudent way to manage your backlog and improve our margins.
In terms of cost lumber recently hit an all time high driven by diminished capacities tariffs on certainty of cobin on workers in the mills and the rapid increase in sales and starts.
Fortunately, we have started to see lumber pricing come down from its highs and hope this trend continues.
Outside of lumber our material costs have remained relatively flat.
With respect to our markets, Arizona continues to be the standout performer for us averaging 4.1 sales per community per month.
This strong absorption was driven by seven new communities Weve recently opened over the past five months, which has also generated gross margins meaningfully higher than the company average.
Our mirror opposed to many master plan consisting of three product segments opened the last week of September and sold 18 homes during the quarter, while our mosaic. Many master plan continues to experience solid sales as well.
We will deliver our first homes from our affordably priced communities in Arizona in the fourth quarter and we expect these communities to contribute significantly to the company's profit in 2021.
Arizona still remains our most challenged market when it comes to labor and sub trade availability.
And we have seen a lengthening of our cycle times by a few weeks as a result.
We are working hard to overcome these issues and believe Arizona will be a key contributor to our company's success moving forward.
The market dynamics in California, as a whole feel the best that they've been during the current housing cycle order.
Order pace has continued to run at high levels and we are seeing cycle time stay relatively consistent.
In southern California, our communities averaged a sales pace of 3.1 per month during the quarter demand was particularly strong in the core areas of the inland Empire, where we can offer our premium brand experience at lower price points.
Weve targeted this region as a key component of our expansion into more affordable product and we anticipate opening five affordably priced communities within the inland Empire over the next 18 months.
In Northern California, our communities averaged 3.6 sales per month for the quarter with strength across the board.
Affordability remains an issue for most buyers in the core Bay area and we've limited our exposure to this market as we have nearly closed out at our remaining community in milpitas.
We continue to see a migration from the bay area into the more affordable areas in and around Sacramento.
Our four communities and Vacaville Calif have benefited significantly from this migration as our monthly sales absorption pace was 4.4 homes per community during the 2023rd quarter.
As we continue to make changes to improve our profitability. We believe there is potential in our fee building business and are currently sourcing new opportunities.
During the third quarter, we started construction on the model complex at Atlas our fee building community for five point at the Great Park in Irvine and expect to open for sales in early 2021.
This arrangement is different than most of the traditional fee building arrangements. We've had in the past as the new home company will also brand market and sell these homes. We're currently in discussions with other land owners to build for sale housing and single family rental housing on a fee basis.
These future opportunities will help partially offset a near term reduction in fee building revenues, resulting from Irvine pacifics decision to manage their construction of their homebuilding operations on their own and phase out our fee building arrangement with them.
As a result, we expect our fee building revenues to decline over the next year and then increase in 2022 as new opportunities start generating fee revenue and profits.
We are excited for these new opportunities and believe they can generate meaningful income in the future using nominal capital.
In summary, we continue to benefit from extremely strong housing fundamentals in all of our markets and our recently opened communities have been well received we are working hard to take advantage of the demand strength, we are seeing with targeted price increases in an effort to improve our profitability.
We made good strides on this front in the third quarter and expect to make further progress in the future.
Now I'd like to turn it over to John for more detail on our financial results this quarter.
Thank you Leonard and good morning.
For the 2023rd quarter, we generated pre tax income of $1.5 million compared to $4.8 million pre tax loss in the year ago period.
The 2019 third quarter included a total of 3.6 million of inventory impairment charges and a $1.5 million loss.
On Atlanta sales in.
In the prior year third quarter.
Net income for the quarter was $1.2 million or six cents per diluted shares compared to a net loss of 4.6 million or 23 cents per diluted share in the prior year period.
Our home sales revenue for the third quarter was $117.4 million compared to $118.8 million in the prior year period.
The slight decrease compared to the prior year was attributable to a 22% decrease in average selling price to $748000, resulting from our continued expansion into lower price points.
Which was partially offset by a 27% increase in deliveries.
We estimate 2024th quarter home sales revenue to be between 115 and $125 million.
Our average selling price for the fourth quarter to be approximately $720000.
Our gross margin for the 2023rd quarter was 14.2% versus 9.5% in the prior year period and exceeded the top end of our previously issued guidance.
The 2019 third quarter gross margin, excluding impairments of $1.7 million was 11%.
320 basis point improvement in gross margin excluding the prior year impairments was primarily due to a product mix shift to more affordable product, which generally have higher gross margins and to a lesser extent fewer deliveries from lower margin move up condominium communities.
Prior to the 2019 third quarter.
These positive factors were partially offset by a 60 basis point increase in capitalized interest included in cost of sales due to the mix of homes delivered during the quarter.
Excluding interest in cost of sales and impairments our adjusted gross margin from home sales was 20% as compared to 16.2% in the year ago period.
For the 2024th quarter, we estimate our gross margin to be between 13.8 and 14.2%.
Our SGN a rate as a percentage of home sales revenue for the third quarter was 12.3% versus 11.1% in the year ago period.
The higher SGN a rate in 2020 was primarily the result of higher commissions and incentive compensation and professional fees.
And to a lesser extent, a $300000 reduction in Jena expenses allocated to fee building cost of sales.
For the 2024th quarter, we estimate our SGN a rate to be between 12.4 and 12.8%.
The higher projected SGN a rate relative to Q3 is partially the result of a lower anticipated allocation of gionee expenses to the fee business due to lower anticipated fee revenue in Q4 due to the Irvine Pacific wind down.
We opened four new communities in Arizona during the quarter and ended the quarter with 25 active communities, which was a 14% increase compared to the prior year third quarter.
We have one new community that opened in October and expect to sell out of approximately three communities before the end of the year.
Fee building revenue for the 2023rd quarter was $13.4 million compared to $22.3 million in the prior year period.
We are building gross margin for the 2023rd quarter was 268000 compared to 647000 in the prior year period.
The reduction in fee building gross margin was primarily due to lower fee building activity in Irvine, California.
For the 2024th quarter, we estimate our fee building revenue to be between five and $8 million.
We continue to wind down our joint ventures during the quarter, we finalized the sale of our interest in the Bedford land development joint venture and delivered the final homes at our Mckinley village homebuilding joint venture in Sacramento, California.
Of the company's three remaining active joint ventures, we have seven homes remaining to deliver at the mountain Shadows homebuilding joint venture in Arizona.
Three home sites to sell at our Davis land development joint venture in Northern California and.
And we continue to actively pursue an exit from the Russel Ranch land development joint venture and Folsom, California.
During the third quarter, we generated $40 million in operating cash flow and reduced our net debt to capital ratio to 45.1%.
A 980 basis point improvement compared to the year ago period.
And the lowest level since December 2017.
We ended the quarter with a $126 million and caching cash equivalents and had no borrowings outstanding under our $60 million revolving credit facility.
We also repurchased $5.2 million and principal of our senior notes due 2022 at a discount.
We further strengthened our balance sheet by extending our debt maturity profile subsequent to the quarter end.
In October we issued $250 million of new 7.25% senior notes due October 2025.
To refinance our existing senior notes due April 2022.
In connection with this refinance we estimate a onetime pretax charge of approximately $8 million to be recorded in the fourth quarter.
We also entered into a new $60 million senior unsecured revolving credit facility on October Thirtyth.
It has a maturity date of April Thirtyth 2023.
I wanted to half year extension from the previous bank credit facility.
The extension of these debt maturities will allow us to make long term investments as we replenish our land portfolio and position the company for long term success.
Lastly, we spent $14 million on land and land deposits during the quarter, we plan on increasing our land spend in the near future, but remain focused on maintaining a proper balance between building liquidity managing leverage and rebuilding our land pipeline.
I'll now turn the call back to Larry for his concluding remarks.
Thanks, John we.
We've been working hard as a company to make progress on a number of fronts. This year.
And our results for the third quarter demonstrate that we have made significant headway.
We improved our profitability by expanding our gross margins and further diversified our operations by continuing to close out legacy high priced communities and open more affordable faster selling communities.
We also strengthened our balance sheet by generating strong cash flow from operations.
Reducing our net leverage and extending our debt maturity profile. These.
These achievements have put us on more stable footing and gives us a clear path to better results in the future.
I want to thank all of our team members for how they perform during these difficult times.
Handling the significant increase in business, we've experienced would be challenging not during normal times, let alone in the middle of a pandemic.
And Im really appreciative of your efforts.
That concludes our prepared remarks, and now we'd be happy to take your questions.
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Our first question comes from the line of Alan Ratner with Zelman Associates. Please proceed with your question.
Hey, guys. Good morning, Congrats on all the progress during the quarter and the strong results.
First first question maybe.
Maybe start off on the pricing side.
Larry Lenard so.
Sounds like you guys have had some success pushing price in the quarter and obviously the longer term margin goal is certainly I think looking a lot stronger now given the pricing environment, but I'm curious if you could maybe just talk a little bit and quantify maybe the level of price increases you guys have pushed through in the last couple of months.
And.
Curious if I, if you've seen any pushback to any of those price increases at this point I guess here in early November assuming some of this price increases have been more recent.
Leonard wondering thanks, Alex.
You can't get liner.
Thanks, Larry.
Thanks, Alan and good morning, Yes, I would say across the quarter. We've continued to push pricing at all of our communities. We literally raised prices at 100% of our communities and on average.
The average price increase was a little over 4%.
You know, there's kind of age qualified community second home communities at the lower end and then at the higher end are really some of our suburban.
Communities, we've continued to price it pushes prices all through the quarter it right.
Really we haven't seen the resistance yet as of today.
And and continue to look for every opportunity we can to grow margins.
That's great to hear.
Second question.
You mentioned and this is a similar message we've heard from other builders just about the need to kind of slow things down a little bit not get backlogs too far extended and I think that makes a lot of sense. Although for you guys here in a little bit of a different situation in that you're growing off of and admittedly fairly small.
Small level of activity. So I was a little bit surprised that you wouldn't be in a position where you could kind of let things run a bit hotter here and I'm curious if you could talk a little bit maybe rank order the constraints that you're seeing that would prevent you from from letting that go go hotter for a longer period of time in terms of your absorption rate is it is a land issue I know you.
Our lot count has been trending quite a bit lower in more recent quarters or is it more difficulty sourcing labor or perhaps.
Scale benefit to some of the larger builders have is that.
Working as a disadvantage to you guys and trying to get labor in this tight environment right now.
Yes, it's harder to get what I, probably the latter of that too is driving it more or less Alan it like in a perfect world you'd sell one home per week and start four homes per month.
And really Thats, what our trade partners are set up for and we've kind of prepare them for that they've made the commitment to deliver that so.
We just want to make sure again that are sold in and started backlog doesn't get too far out fraud, especially in an environment of rising prices, we know that future land prices land is going to cost more in the future and so really it's the capacity of our trade partners. So we continue to measure that we've.
We've got a little bit lighter on sales releases for that reason and we think thats the best course of action.
And if I could add.
I really didn't think it.
Varies by market and also by.
Newer housing program or older housing program. So it isn't just a one size fits all Leonard John worked pretty carefully at triangle.
Analyze where we have opportunities and where.
And where there's more challenges and in some cases.
Our goal is to build out of older projects and get through it but in other cases, we're not going to be able to start at a house for two or three months.
It doesn't make any sense that put it up for sale in a market that continues to be strong in and so.
I actually think we're being very logical.
And were attempting.
To maximize the profits and if you look at the communities. We have opened in the last 12 months.
The significant increase in both absorption and margin.
And yes, we're hoping that we're going to be able to keep that the absorption steady and that.
The margins are improving there is no reason why we shouldn't be able to.
Great I appreciate that extra color, there, Larry and if I could just sneak in one more here.
You kind of brought up the land market a little bit.
What are you seeing right now now that the debt refinancings behind you guys. You, obviously have a little bit more runway and visibility from the balance sheet perspective, So I would imagine you're kind of stepping on the gas a little bit here on the land side of things and at the same time I would imagine your competitors are as well given how strong selling environment has been so what's the availability.
Some of those quicker turn deals that you could kind of put pen to paper two and potentially get on the ground here over the next 12 or 18 months.
Well, it's all you're doing.
Go ahead Larry.
Well, let me just start Leonard and then jump through.
Landing the markets. We're in has always been challenging always.
And.
One of the strengths of our organization has been that we have land relationships that go back over 30 years.
Whether with master developers are within individual.
And there is tougher with now, but where we are continuing to find opportunities.
And.
There is no reason why.
We won't be able to grow.
Grow the business over the next two to three years.
One thing you you have to be aware of and our investors I hope. They all understand is that weighing California is your strongest marketplace.
It takes a couple of years to from when you buy a piece of ground to one year closing houses and we've been planning that and we understand that that's the situation we're in but.
Don't lose track that if anything when the market is particularly tough or difficult because of.
A lot of competition.
Relationships matter more than ever.
And that's one thing that we have and we always have and we always will.
And with with that Leonard please.
Keep going.
Yes, I think you hit most of the points Larry I would say Alan we're certainly back in the market and we are kind of book ending this we're looking for opportunities that we can basically get control of that we can open up model home within 12 to 18 months and then were because of somewhat limited capital were look.
For opportunities to fill our 23 24 pipeline in those the profile those deals would look quite differently.
Lancome.
The market is complete has really competitive right now as you would expect we have had some success tying up some interesting opportunities and I would say, Arizona is the most competitive land environment today, and so thats, probably our biggest challenge is to identify assets that make sense Theres theres position.
It's available, but we want to make sure they make sense and that we can deliver on those returns I'd add one other thing to your prior question real quick.
When you talked about kind of sales pace in running at a little bit harder I will say, even with the steps that we've taken and we just closed the month of our.
October October was a really strong month, even with those measures. Its the third strong strongest sales month in the company's history.
Whereas sales were up 65% on than we averaged average absorption of 3.5, and that's even counting close out communities, where we have 234 homes left to sell the kind of weights that down a little bit. So again, it's still an extremely strong market and we're kind of really excited about the future and what it can do.
I mean for the company.
Great. Thanks, a lot guys and sounds promising and good luck.
Thanks, Thanks, Thank you.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line.
With housing Research Center. Please proceed with your question.
Good morning, guys great job.
Thanks, Alex Thanks Derek.
Oh.
I was curious.
Mentioned years, starting to do some fee work for five point do you have any sense of timing you can share with those when those first.
Delivery your revenue well I guess with one probably you get the book earnings right.
Production happens so can you kind of give us an idea of how to model.
Sure. This is good morning, Alex This is lennar gas so I'm sure you're aware, it's a slightly different fee structure them say, what we've done with your buy and company in the past and so in this case, we take on.
All of the normal builder responsibilities in the community will be branded under the new home name, we sell a market to homes construct them and then take the back in service as well so.
The community will open during the first quarter and open for sale. So thats. When we will go to sell and then within the next two to three months, we should see first closing so the way the fee structure works is we get a portion of the fee through the life of the project and then we get it back in.
Portion of the fee at the close of the home. So even today, we'd be recognized very small amount of fee, but the significant fee would start coming in probably the end of Q1. Early Q2. We're also really excited I think it was noted in the release that over the last six months, we have been approached on several.
All different fronts from it for some pretty exciting fee opportunities, including single family rental business, where we're talking to folks in Arizona.
And we have a really exciting opportunity here in California to build up to 13 1400 home. So we think it can drive a significant part of our business help us grow earnings while not having to put any form of significant capital into the business.
Okay, Great and then on the joint venture side.
Hey, I noticed there is very few lots left.
Basically winding down or will you will that stay alive I guess in future years.
Hey, Alex This is John Stephens, Yeah, we are sort of winding down the joint venture business. We've got like I said on the call only a few lots left in our Davis Cannery project in Northern California, We have about I think seven homes left to deliver out of our mountain Shadows community.
And then really the remaining lots are at or Fulsome ranch deal up in Northern California called Russel Ranch and we're in the process of exiting that.
Partnership right now and I would say in the near term, we really don't have any plans to enter into the into any new joint ventures at this time, but it's possible if the right opportunity came along that we would entertain that but for now.
That part of the business because really winding down.
Okay, Great and then on the if I could ask one more on the new debt that you guys just raised.
Is the plan to pay off the 2022 short term or.
Closer so yes, it's already done some of that yet.
Yes, we effectuated that last week, we closed on the new bonds I believe it was on the 20 Eightth of October and all the the previous 22 notes have been extinguished.
And so thats done and then we use some of the cat some of our cash on hand.
To pay off the balance because we raised $250 million in new notes and we had about roughly 292 million of.
Principal and the old notes so.
Okay, great I'll get back in the queue good job.
Sure. Thanks.
Thank you. Our next question comes from the line of Jason.
A private Investor. Please proceed with your question.
Thanks for taking my question guys and congratulations on the strong quarter.
My question I, just kind of pertains to the priorities for capital deployment going forward.
You mentioned Titan successfully de leverage the balance sheet and extended our maturities.
And the outlook for the business seems exceptionally strong.
You guys are significantly.
Generating cash flow.
But with your stock trading at half a book value were basically half the tangible book value.
It's hard to really imagine there is a better use of cash right now are partly cash right now than buying back stock so really.
What are your thoughts around potential share repurchases and really how can we focus and think about priorities for capital deployment going forward.
That's a good question Jason. Thank you, yes, we've we've looked at all aspects of use of our capital and we've been very focused as you mentioned.
On really deleveraging the business and refinancing our bonds and pushing out the revolver extension, which was it was a big important thing that we completed on Friday.
So it really puts us in a position now where we can reinvest in the business. Obviously, we did buy quite a few shares and the front half of the year. When we saw that stock price depressed very significantly and I agree with you at trading at half half a multiple of book value.
Isn't where we'd like to be but on the on the other hand, we do need to.
Reinvest in our business, a little bit and we will evaluate really all aspects and where to allocate the capital going forward. We do have a little bit left on our authorization from our board thing was about 1.7 million left authorized currently.
But again, we've been on pause on the land Act side for us for a little bit now and.
We will sort of layer some of that and going forward again, we do need to sort of balance our capital allocation and it's a fair question, but we do need to reinvest in the business too. So we'll continue to evaluate on all fronts moving forward.
John do you also honor.
Address that idea, where we are with leverage where we came from and where you see us moving to the future.
Okay.
Yes, I mean, I think our net debt to cap to come down significantly at 45%, 45.1% at the end of the quarter.
You know, it's down almost 1000 basis points from where we were a year ago.
We will as I mentioned in my prepared remarks, we will have a charge from the refinance of the old bonds, which will come through in Q4.
But moving forward, we're probably running the company with the idea of between 45 and 50% on a net debt to cap basis moving forward.
Any other questions.
Nothing for me, Thank you and congratulations again good luck.
Thank you thanks, Jason.
Thank you. Our next question is a follow up from the line of.
With housing Research Center. Please proceed with your question.
Yes, thanks for taking my follow up.
So I noticed in Arizona, you guys managed to open several communities this quarter.
Just wondering if theres any more in the pipeline going into next year or is this roughly going to be the community count through through next year.
Okay.
Yes, Alex this is Leonard you're right.
For the last five months, we've opened seven communities in three different locations and obviously, we're very excited about the early results were seeing.
Strong absorption and strong margins. So again, we're really excited about our team there on the ground. We have one community slated to open in the first half of next year and.
Yes at this point, we have other things that we're currently working on but that's primarily the one that we can talk about today, yes. It looks like we'll we'll we're at eight communities now the into Q3, I think one of them probably drops off in Q4, and then were probably around that seven community range plus or minus for the year right depending on how.
Quickly we sell through some of these communities that's what we're expecting for the for the bulk of next year, but it may taper a little bit in Q4 of next year until we reload on a few communities we're working on.
Okay great.
And then as far as gross margins.
I think you gave us a range for.
Next year, I mean for next quarter, which is a little bit downward. This quarter is that mainly because of the impact of lumber or is there something else there.
It it really has to do with some of the close out communities. We have on the luxury condominium side were the good news is we're selling through those.
Downside is that the margins are a little bit weaker in those communities and with on a higher average selling price Alex. So I think once those all get disposed of and delivered in Q4, I think our margins.
Look positive moving forward and again I think 13 eight to 14 to we feel pretty good about that but again part of it's going to be what of those higher priced lower margin communities sort of deliver and close out in Q4's is primarily the impact for for the margin.
Okay Awesome. Thanks best of luck for next year.
Thanks, Alex Thanks, Alex.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Webb for any final comments.
Thanks, very much as as all of you can see we have really made significant progress over the last three months.
And when and and of course part of it is because of the improved housing market, but.
A part of it has been in the works for a long time based on our strategic planning.
I wanted to compare command Leonard in John because they've really done a terrific job.
We really believe future is bright for the new home company and we are extremely excited about the next two years as we move forward so with that I want to thank all of you and stay tuned because again there. So theres no light at the end of now thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.