Q2 2019 Earnings Call
Today's call is being recorded and a replay will be available on the company's website later today at Www Dot LG I hope.
Dot com.
We get allocated an hour for prepared remarks and QNX.
If anyone should require operator assistance. During this call. Please press Star then zero at this time I will turn the call over to Rachel Eaton, Chief Marketing Officer, and LG I hope to see you may begin.
All such statements reflect current expectations. However, they do involve assumptions estimates and other risks and uncertainties that could cause our expectations to prove to be incorrect.
You should review our filings with the FTC, including our risk factors and cautionary statement about forward looking statement section for a discussion of the risks uncertainties and other factors that could cause our actual results to differ materially from those anticipated any forward looking statement.
These forward looking statements are not guarantees of future performance you should consider these forward looking statements in light of the related risks and you should not.
Place undue reliance on these forward looking statements, which speak only as of the date of this call.
Additionally, adjusted gross margin and non-GAAP financial measures will be discussed on this conference call.
The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
A reconciliation of adjusted gross margin to gross margin. The most comparable measure prepared in accordance with GAAP is included in the earnings press release that we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June Thirtyth 2019 that we expect to file with the FTC later today.
Its filing will be accessible on the Fccs website and in the investors section of our website at LG I homes dotcom.
Joining me today are Eric LIBOR, LG, I homes, Chief Executive Officer, and Charles Merdian, The company's Chief Financial Officer.
During today's call, we will summarize highlights from the second quarter and first six months of 2019, then discuss our financial results in more detail. Following that we will conclude with comments and open the call for questions.
Now I'll turn the call over to Eric.
Thank you Rachel and welcome everyone. This call. We appreciate your continued interest in L. Jonny Jones.
Throughout our history as we have continued to grow we have maintained the L.J. culture, demonstrating that our unique operating model is sustainable.
Since our last call we are proud to announce that our commitment to our processes consistency in results has earned us a place at the 10th largest residential builder in America.
This could not have been accomplished without the hard work and dedication that were outstanding employees.
This is a significant milestone for LG guy.
And we thank all of our employees for their commitment and loyalty as we continue our path to becoming a top five.
National builder.
For the second quarter of 2019.
We delivered strong results producing record setting closings revenue average homesale price and community count.
This past quarter, we closed 944 homes generating approximately 462.
Million dollars in home sales revenue.
Which represented a 10% increase over the second quarter.
2018.
The second quarter, we averaged seven closings per community per month company wide.
Absorption for the quarter was highlighted by our performance in the Sacramento, Jacksonville and Houston markets.
Sacramental averaged 13 closings per community per month.
Followed by Jacksonville at 10.7 in Houston at 10.4 closings per community per month.
Company wide, we ended the second quarter with 93 active communities in 17 states roughly an 18% increase over the 79 active communities that we had at the end of Q2 last year.
Breaking it down let's first look at highlights from our Central Division operations.
Comprise the results from the Houston, San Antonio Dallas, Fort Worth Austin, Oklahoma City, and Minneapolis markets, our central operations generated 888 closings in the second quarter.
Which represented approximately 46% of our total closings.
Our absorption rate for the Central Division was the strongest across all divisions, averaging 8.9 closings per community per month.
Oh, the 54% of closings that took place outside the Central Division a highlight of the second quarter was an increase in closings in our southeast Division.
This quarter, we closed 360 homes in this division compared to 298 homes closed in the second quarter of last year.
Our Southeast Division also had an increase in community count of seven communities, primarily in Raleigh, with four new communities, resulting from our acquisition of when homes.
August 2nd marked our one year anniversary of the wind homes acquisition, which we believe has been very accretive to our business.
Our West Division close to 148 homes compared to 168 in the second quarter last year.
Primarily driven by the increase of three new active communities, which include the addition of the Sacramento and Las Vegas markets.
In our wholesale business, we call. It 82 homes this quarter with three different investment groups generating $18.4 million in revenues.
Throughout the second quarter, we continue to see demand for affordable homes, coupled with community count expansion and a positive response from buyers to lower interest rates.
Second quarter net orders were 2248, a 38% increase over the second quarter of last year.
On our prior call we introduced our complete home package. This 2019 initiative to make our product more consistent on a national basis includes the most desired new home features providing greater value to our homebuyers and affordable price.
Customers have responded well to this initiative initiative evidenced by our 38% increase in orders.
During the second quarter approximately half of our closings included the complete home packages.
We expect that the majority of our third quarter and substantially all of our fourth quarter closings will be to complete home package.
With that I'd like to turn the call over to work to Charles Merdian, Our Chief Financial Officer for more in depth review of our financial results.
Thanks, Eric.
As mentioned earlier home sales revenue for the quarter were $461.8 million based on 1944 homes closed a 10% increase over the second quarter of 2018.
Sales prices realized from homes closed during the second quarter ranged from the one forties to over $500000 and average $237567, a 2.7% year over year increase.
This increase in the average sales price per home was primarily due to changes in product mix higher price points in certain new markets such as the addition of Sacramento and Las Vegas and to a lesser extent increases in sales prices in existing communities.
In the second quarter by segment approximate average sales prices were $214000 in central $369000 in the northwest $216000 in the southeast $206000 in Florida and $270000 in the west.
Which was up from $222000 for the second quarter of 2018.
Gross margin as a percentage of sales was 24.1% this quarter compared to 26.1% for the same quarter last year, a decrease of 200 basis points.
During the quarter, we closed 78 homes generating generating approximately $19.4 million in revenues related to assets acquired in the wind acquisition.
Included in gross margin is $956000 related to purchase accounting impacting our overall gross margins by 21 basis points compared to the prior year.
In addition.
As mentioned on our last call our investment in geographic and community Count expansion has impacted gross margins as we have incurred additional construction overhead compared to the prior year.
Sequentially gross margins were up 100 basis points compared to the first quarter of this year.
And as the increase in closings per community had a favorable impact on construction overhead.
Our adjusted gross margin was 26.3% this quarter compared to 27.7% for the second quarter of 2018.
140 basis point decrease.
Adjusted gross margin excludes approximately $9 million of capitalized interest charged to cost of sales during the quarter, representing 195 basis points.
Approximately 38 basis points higher than the same quarter last year, primarily due to an overall increase in the average cost of debt with the issuance of $300 million and senior notes in 2018.
We currently expect our gross margin to remain similar in the third and fourth quarters ending the year within our previously stated full year guidance.
Combined selling general and admin administrative expenses for the second quarter were 11.4% of home sales revenue compared to 11.3% in the prior year.
Selling expenses for the quarter.
Were $33.9 million or 7.3% of home sales revenue compared to $29.3 million or 7% of home sales revenue for the second quarter of 2018, a 30 basis point increase.
General and administrative expenses were $19 million or 4.1% of home sales revenue compared to $18.3 million or 4.4% for the second quarter of 2018 also a 30 or sorry, a 30 basis point decrease.
Decrease in general administrative expenses as a percentage of home sales revenue reflects the higher revenues generated due to higher closings and higher average sales prices.
We believe as you know we will continue to vary quarter to quarter based on home sales revenue and expected upfront costs related increases in new communities over the next several quarters.
We would expect the third and fourth quarters overall to be similar as a percentage of revenue compared to the second quarter.
Other income this quarter reflects a gain from the sale of a commercial track of approximately $1.7 million.
Pre tax income for the quarter was $60.5 million or 13.1% of home sales revenue.
For the second quarter, our effective tax rate of 23.9%. It's in line with expectations and we would expect that the effective tax rate will continue to range between 23.5% and 24.5% for the remainder of the year.
We generated net income in the quarter of $46.1 million or 10% of home sales revenue, which represents earnings per share.
Two dollar and one per basic share and dollar 82 per diluted share.
We ended the second quarter with a portfolio of 54191 owned and controlled lots.
And as of June Thirtyth, 30976, or 57% were owned.
Of this amount.
7640 were finished vacant lots 19489 were either raw or under development.
And 3847 were either completed homes information centers or homes and process.
Weighted shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes.
And then the second quarter of 2019, our average stock price was approximately $69, resulting in approximately 2.2 million share increase in the weighted average shares outstanding for the diluted EPS calculation for the quarter.
Our convertible notes mature later this year and it's our expectation that we will settle the principal in cash and the premium stock consistent with the diluted EPS calculation.
Gross orders for the quarter were 2748, and the cancellation rate was 18.2%.
Ending backlog for the second quarter was 1648 homes compared to 1184 last year.
39% increase in consistent with the increase in net orders and active community count growth.
As of June Thirtyth, we had approximately $38 million in cash $1.3 billion of real estate inventory and total assets of 1.5 billion.
Also at the end of June we had $675 million in total debt outstanding under our revolving credit facility convertible notes and senior notes.
Our available borrowing capacity, which takes into account settling the principal balance of the outstanding convertible notes was approximately $167 million our gross debt to capitalization was approximately 48% and net debt to capitalization was approximately 46%.
As previously reported on May six we entered into our fourth amended and restated credit agreement, which provides for a $550 million revolving credit facility, which can be increased at the request of the company by up to $100 million subject to the terms and conditions of the credit agreement.
At this point I'd like to turn the call back over to Eric. Thanks, Charles Let me provide some guidance and thoughts on what we're seeing thus far in the third quarter and looking ahead into the remainder of the year. The third quarter is off to a great start was 672 closings in July of 25% from the 538 closings in July of last year.
These 672 closings came from 101 active communities, resulting in a very solid absorption base, averaging 6.7 closings per community per month.
The first seven months and put us on track to hit all of our key metrics.
Throughout the remainder of 2019, we will continue to grow community count ending the year between 105, and 115 active selling communities and are confident in our ability to meet our goal of 60 902 7800 homes closed for the year.
In addition, we believe our average sales price for the year will continued to increase ending 2019 with an overall average sales price between 235002 hundred $45000.
We maintain our gross margin guidance for the year in the range of 23, and a half and 25.5%.
We expect adjusted gross margin, which excludes the effects of interest and purchase accounting will continue to be in line with previous expectations any of the year between 25, and a half and 27.5%.
Given our reaffirmed guidance for home closings average sales price gross margins and active community count. We continue to believe our full year basic earnings per share will be between $7 and $8 per share now we'll be happy to take your questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered.
So from the queue. Please press the pound key and again if you have a question. Please press Star then the one key on your Touchtone telephone.
My first question is going to come from Michael Rehaut from JP Morgan. Your line is now open.
Thanks, Good afternoon, everyone and congrats on the results.
Thank you. Thank you.
First question I had was on.
Gross margins for the back half I believe you expect them to be similar to the second quarter for Threeq and Fourq you a little different than I think your expectations a quarter ago.
We were I believe you're expecting improvement throughout the rest of the year Twoq gross margins did come in a little bit better than what we were looking for I think you would maybe guided to a slight improvement and that was what it was a little more than that but I was wondering if if there's just a little bit of movement within mix between the quarters. If twoq you took a little bit out of Threeq you from a.
Again, a mix standpoint, or you know if there's any type of change in the environment from a pricing or competitive standpoint.
That is causing this a little bit of change in terms of the back half outlook.
No. Thanks for the question Mike. This is Charles I can I can start and Eric can can add but I think you're you're absolutely right is that the second quarter gross margins showing 100 base basis point improvement.
It was a little bit stronger than what we originally had had guided to on the last call.
I think that that has certainly helped.
From the standpoint of.
Giving us a little bit more consistency or expected consistency for the remainder of the year.
And then we also in definition of similar to us means that.
50 basis points on either side of that number.
Is typically what we would guide to so there is some variability as we open new communities and opened new markets depending on.
You know how those communities come in and then I'll address the part terms about cost and cost basis, where we're seeing just very similar cost structure over all.
In terms of the net cost to build and so thats always a variable.
As well as we're looking out into the future, but we don't necessarily see dramatic increases in costs, but that is always.
Out there for us in terms of both labor and materials I think our assumption has always been to the cost of labor and materials will always be up so there's a little bit of that factored in there as well and then I'll, let Eric address kind of pricing and where we are in the markets with related to that.
Yeah, I think Mike Great question on gross margin I agree with everything Charles side, and our goal as usual in the back half of the year is really to increase prices to offset costs.
Very positive start to complete home and complete home plus real excited about that and there is some component of gross margin thats driven by additional volume and right now we're real optimistic on volume for the rest of year, but consistent gross margins, we think would be a positive for the rest of the year.
No that that's great I appreciate it I guess, just you know maybe zeroing in on the back half of my question or one element of the question just a follow up.
If you could just kind of talk to the pricing environment.
And you know obviously when you look at.
You know the the gross margin difference between this year and a year ago.
You know certainly the more competitive environment I think is one of the factors that.
It has driven the year over year decline, but I was wondering if you could talk about you know from a sequential standpoint, you know how things have progressed this year, particularly in the second quarter.
You know.
From one we ended the first quarter to the end of the second quarter, how would you kind of characterize the pricing environment discounts.
The competitive backdrop and if that's again, if that's impacted any in any way the the back half outlook for for for margins.
Yes, Hi, this is Eric I can start on that and from a competitive landscape.
Our pricing is fine I mean, the demand is real strong interest rates are lower so from a sales standpoint, we're in really good shape and don't really.
I haven't seen a big discounting from the competitors or anything like that would negatively impact pricing thoughts on costs are certainly still going up so increasing in the prices to offset costs I think it's still the game plan.
The competitive landscape certainly a lot of builders are talking about entry level and getting into the entry level business first time homebuyers, we view that demographic and everybody talking about a very positively, but certainly from an acquisition standpoint, more more companies and including single family rental companies out looking for land and looking to do more development and that is more competitive but I think we're in really good position. Because we are we have our 54000 owned and controlled lots that we feel really good about those future margins on and from an acquisition standpoint, we don't feel we're in a position to have to stretch.
Nor should we buy a deal that doesn't meet our margin threshold and also I think it's important that we talk about we are still in a lot of growth. This year over the next couple of quarters of really ramping up a lot of new communities and we talked about it on the last quarter call and really looking at the difference year over year and all the additional construction staff that we have to hire and getting these new offices set it up in the expenses that were spending over the next couple of years is pretty significant and we're really going to see the benefit of that.
In 2020.
Great if I could if that one last one on that when you say the benefit in 2020.
Is that should I be thinking about that obviously, you're talking about some better leverage on the gross margin side, but also from an NFC and they I presume but.
Should I also be thinking about that in terms of maybe you know again I would say that the backdrop stays.
Similar.
That you could even see a better absorption rate as you know the newer markets mature and you typically see that improvement.
Yes, I think it's an offset I mean certainly.
Everything you said is possible and we certainly expect the absorption rates as markets to mature, but again, we've got a lot of new communities coming on that are going to just be in their first couple of quarters of closings in early 2020, I mean, we're ramping up at a lot of new communities that are that are opening and construction in sales in the fourth quarter of this year around 10, new communities, that's going be a lot of expenses and overhead personnel getting those tend to be new communities opened up and probably won't see any community any closings in 2019 may be may be a few win in a couple of slack community. So a lot of expense, but in 2021. After spending that expense will have all 10 of those communities fully operational for 2020 as as an example of what we're talking about.
Great. Thanks, so much.
Youre welcome.
Thank you and our next question is going to come from Jay Mccanless from Wedbush. Your line is now open.
Hey, good afternoon, everyone. Thanks for taking my questions.
Eric if we can keep talking about that that expansion in <unk>.
That's one of the reasons that you guys did a great job of meeting your estimates this quarter. We thought there was going to be some additional spend on but.
You look at the net community Count you guys went out net community count almost 10%.
And your DNA number didn't really change so.
Are we should we expect a step function higher either in Threeq and Fourq as you all deploy that money I mean, not just for what you're talking about for Fourq, but some of these other initiatives that you talked about.
Yes, Jay this is Charles I'll.
Start the <unk>.
Gene a absolute absolute dollars have been ranging between 18 and $19 million over the last five quarters.
So 19 million being this past quarter being being the high Mark of that so we would expect certainly expect the absolute dollars in gionee to continue to increase obviously as we talk about percentage of revenues that is going to depend on where you feel like the the closings and the revenue number is going to come on.
But I would say, we're going to see continue to see incremental absolute dollars and gionee more so in the selling component than the than the general and administrative component I think you kind of see that if you look at the last five quarters for us the depending on what we need to spend in marketing the upfront dollar investment in office openings. The geographic distribution of those offices generally tend to.
Determine whether the.
Selling expenses may be a little bit higher or not so that's kind of we said.
Bracketing around what we did for the second quarter with 11.4% stays relatively consistent what you'll see is a absolute dollars increase as the revenue line increases.
Got it.
The next question I had was on absorptions looks like you guys had a nice pick up in absorptions in the west versus last year.
But the rest of the geographic segments were down versus the prior year.
That's something that concerns you guys or is it a function of just.
GAAP out not gap out, but just timing.
Yes, Jay this there are no no concern a lot lot of noise in the absorptions in each region.
Based on start ups in community selling out and people and training and new communities opening, but when we have a Q2.
Average closings per community at seven we consider that very strong absorption, Texas, Texas led the way, but good strong absorption on some of our newer markets like Sacramento, and Las Vegas, and Jacksonville had a real strong quarter.
So I think we're real pleased with absorption in Q2, and think thats going to maintain and Q3 and Q4.
Then on.
Two gross margin questions. The first one how much more impact should should we expect to see from the when home steel.
On purchase accounting.
Well roughly 20 basis points I think.
As a as a.
As a guide I mean, we.
When we acquired when there were 4000 total total lots.
In that acquisition, so we're going to see it for quite some time.
The range of 20 basis points being consistent from.
Quarter over quarter is probably a reasonable assumption.
And then.
On complete home I was wondering.
Was there any type of gross margin drag because I think last quarter, you guys had talked about retrofitting.
Some communities to protect complete home package in and make them more consistent with the newer product that you are putting out there was there any drag from that during the quarter.
No.
Okay, great. Thanks for taking my questions.
You bet.
Thank you and our next question comes from Truman Patterson from Wells Fargo.
Your line is now open.
Hi, Good morning, guys, just and nice quarter first off but just following up on that on that last question going the other way on the complete home rollout is that actually completed nationwide and could you guys just walk us through the economics of that you know maybe what the gross margin differential is that you realized versus your prior finishes or or expect to realize going forward.
Sure. Thanks, Jeremy this is Eric.
Yeah, They complete holding complete home plus packages are rolled out nationwide. In fact every every starred in the company from from April 1st or the start of Q2 forward.
As then complete home starts so were rolled out nationwide like we talked about about half of our closings in the quarter were complete home and we think that percentage is going to increase the where by the fourth quarter.
Almost all of our homes will be that completes home package and we talked about on the last earnings call. You know, there's a cost associated with that we thought the average cost was around $3000 to put the package in place we raise the price four to $5000.
To pass that cost on that the consumer so we're covering the gross margin maybe little little little bit extra so what we're seeing kind as they come through 20 to 30 basis points higher and gross margin for the complete home houses rather than the existing inventory if you will.
But also the complete homes that are selling havent been in inventory very long so theres, they're closing out pretty quickly after starting and we don't have the carrying costs that we have on existing inventory. So.
We've been we've been happy with the complete on gross margin and really see it as once we get through this.
Consistent with our historical gross margins.
Okay. Thanks for that.
Looking at closing and orders fairly large gap in the second quarter, you guys alluded to kind of a lack of inventory could you discuss side is it purely due to new communities in that lack of inventory.
Which we've seen occur before.
Or are there is there anything else driving it any labor issues driving longer construction cycle.
Or possibly the manual underwriting standards of the FHLB change previously.
Delaying any of the closings.
Yeah sure I mean, this is Eric no no no closing delays because a man your underwriting standards I think everybody seen by now that Thats that really has been a non factor in our and our sales and closings and.
As we've grown a lot over the years, we certainly have developments going at all times that are closing out and starting up and we have similar challenges as all the builders do and getting platts recorded and dealing with utilities and getting new communities online, but I think were large enough now and when we got enough spread across the country that that one or two communities won't make a substantial difference like we had a few years ago.
So I think we're in good shape to hit all of our metrics through the end of the year and we won't be talking about inventory shortages in anyway.
Okay. Thanks, guys.
Youre welcome.
Thank you.
And ladies and gentlemen, if you have a question. Please press Star then the one key on your Touchtone telephone again, ladies and gentlemen, if you have a question. Please press Star then the one key on your Touchtone telephone.
Our next question comes from Carl Reichardt from BTG. Your line is now open.
Thanks, Hi, guys.
Most of my questions have been answered, but I'm curious as to the impact of lumber prices on gross margins. This quarter. If you can quantify that Charles.
Yes, no lumber prices.
Have been sequentially have been relatively consistent I mean year over year, we saw some some lumber price improvement, but really nominal for all intents and purposes in terms of.
Changes on lumber prices that would affect the overall margins in any significant way.
Okay, and then you mentioned I think it was Eric mentioned, there's been sort of the hint of some increased competition for.
For lots for entry level housing not only from the builders that from the first time.
Buyer from the single family rental guys. I'm curious are there particular markets, where you're where you're seeing that and then so how are you adjusting your underwriting and what do you think your peers are are are being too aggressive from a price perspective is it I'm just kind of like some quantification of.
How that dynamic is changing.
Given the given the sort of sudden moves we're seeing here from some of your peers.
Yes, I think from the market standpoint, Carl it it's the traditional markets that all of us really like and the single family or other operators like those markets as well.
Phoenix is a popular market, Florida is a popular market with Essex asset in the northwest.
Selling homes, the single family rental operators, so for US no change in our underwriting criteria, we're not going to sacrifice margins or how we underwrite a deal. If there is more competitive pressure on a certain deal or multiple bids on a certain deal thats more of a sellers market and the price might get that up and we potentially have to pass on that deal and that's that's somewhat of the market that we're in right now like I said, we're in good shape.
On our owned and controlled lots and do not think it's a good idea stretched to buy deals.
So we'll see how it plays out.
Right now I have classified as a seller's market as far as the entry level land and lots that are available.
Hey, Thanks I appreciate it.
Got it.
Thank you.
And our next question comes from Alex Barron from housing Research Center.
Your line is now open.
Yes, thank you and good double in the quarter.
Thank you. Thank you I want to.
I wanted to ask about the community count plans to get to 115, whether it's by year end or maybe sometime into next year.
Does that yeah.
Mainly include existing.
Footprint or is that possibly include new markets that you guys are looking to get into.
Alex This is Eric So our plan is to have the end of the year by the end of December average community count between a 105 and 115 and we feel really good about that.
It's primarily in existing markets going deeper in existing markets. A couple newer markets that I could point out that we plan on opening by the end of the year is Columbia South Carolina.
Which would be a new market for us and we'll manage that Charlotte and then also Riverside, California, So getting into the southern part of California that will be another opening as well and then I believe every other community will be an existing market.
Got it.
And then I guess, you know as others have pointed out there's been.
More builders moving into I guess, the kind of markets and in parts of markets that you guys operate in price points, but.
Do you feel that that is going to potentially lower the sales pace or do you feel like there's enough demand for.
For everybody the.
To go around and for you guys to maintain your sales pace.
Yes, I know it will we will maintain our sales base I mean, I think over the years, there's been other other builders come and go as far as their focus on entry level and at various times more or less competition. We've been we've been proud of the fact that we've been able to maintain our sales sales pace as we have grown community down and as we have expanded outside of Houston and as we've expanded outside its access so the competition will have any impact on our sales base.
And as it comes and as it relates to pricing are you guys.
Kind of focused on trying to raise prices or just trying to maximize the sales pace.
Not necessarily pushing the prices how are you guys thinking about that dynamic.
Yes, we think about it as far as we want to maintain its consistent gross margins, we want to make sure. We hit our guidance that were telling all our investors for the year and really for the last.
678 years, we've been in a rising cost environment and we think the costs are going to continue to rise whether it's the price of land the cost of development the cost of materials the cost of labor and our plan is to raise prices enough to offset those cost and maintain a consistent gross margin.
Got it okay, well best of luck. Thank you.
All right. Thank you. Thank you.
Thank you.
And our next question is a follow up from Jay Mccanless from Wedbush.
Your line is now open.
Hi, guys. Thanks for taking my follow up.
I wanted to ask Charles lumber question, maybe a little different way.
Two quarters ago, I asked you guys with the the amount of specs you all do it as short as your cycle time is relative to some other builders.
If you were seeing maybe the gross margin savings from lumber a little faster than some other builders were and on their call. You said that yes, you're we're seeing some benefit but I'm I'm wondering now as lumber prices, maybe trying to put in a bottom or you guys worried about lumber prices moving up and maybe working against you, especially as you're building out of the community count and moving into some of these newer markets.
Yeah, Jason Great follow up so I mean, I think that answers really part of the commentary around just gross margins in general and then tying into what Eric said about pricing is that we're updating prices.
On a monthly basis in all of our communities. So we have good visibility I think the implementation of the complete home package has now standardized standardize that a little bit better we were pretty good at it even before complete home, but I think we have.
Better information that allows us to look at.
Pricing in general not just with lumber, but with.
All the way from from permitting fees and on labor and all the other categories.
So I think the movement in lumber, although it may go.
The other direction and be more expensive, we think that we can adjust accordingly, particularly in pricing.
To compensate for that along with any of the other changes that are happening as we build our budgets for each individual house.
Okay. That's great. Thanks, Thanks again.
You bet.
Thank you and now I would like to turn the call back over to Eric Lipar for further remarks.
Thanks, everyone for participating on today's call and for your continued interest in L. J homes have a great afternoon.
Ladies and gentlemen, thank you participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.