Good afternoon. My name is Darren, and I'll be your conference operator today. I would like to welcome everyone to the KB Home 2017 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the company's opening remarks we will open the lines for questions. Today's conference call is being recorded and will be available for replay at the company's Web site kbhomes.com through April 23. Now I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Jill, you may begin.

Thank you, Darren. Good afternoon, everyone, and thank you for joining us today to review our first quarter results. With me are Jeff Mezger, Chairman, President, and Chief Executive Officer; Jeff Kaminski, Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Corporate Treasurer. Before we begin, let me note that during this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results and the company does not undertake any obligation to update them. Due to a number of factors outside of the company's control, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, a reconciliation of the non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release and/or on the Investor Relations page of our Web site at kbhome.com. And with that, I will turn the call over to Jeff Mezger.

Thanks, Jill. Good afternoon, everyone. We're off to a solid start in 2017, with healthy results from the first quarter as we sustain the trends from 2016, and once again delivered double-digit revenue and pre-tax income growth, and steady expansion of our operating income margin. We ended the year with a backlog of $1.5 billion, which we converted into a 21% increase in housing revenues to over $800 million in the first quarter. We grew deliveries by 14%, with increases across all four of our operating regions, led in particular by strength in the West Coast. Our results for the quarter in deliveries, revenue, and net orders show what is possible through the effective execution of our core KB2020 strategy, which includes increasing the scale of our business within our existing geographic footprint. This strategy has many associated benefits, one of which is the opportunity to leverage our SG&A. We continue to drive healthy leverage from our expanding revenue base, producing a 160 basis point improvement in our SG&A ratio to 11.5%. This is the lowest first quarter SG&A ratio in our history, and illustrates the power of our growing scale. This SG&A improvement more than offset the gross margin decline in the first quarter resulting in an increase in our operating margin. While we achieved our gross margin projection for the quarter, we recognize we have more work to do and we have many initiatives in place on both the revenue and cost side. Based on our backlog and current margin trends, we do expect sequential gross margin improvement each quarter over the balance of the year, with a crossover to a positive year-over-year comparison in the fourth quarter. As Jeff will share, based on our solid first quarter results and a robust backlog entering the second quarter, we…

Thank you and good afternoon everyone. Since our financial results for the quarter are relatively straightforward with most metrics ahead of expectations, I will keep my comments on our first quarter performance relatively brief. As per usual practice, I will also provide our outlook for future quarters and the full year. In the first quarter, our housing revenues grew 21% from year ago to $811 million, reflecting a 14% increase in homes delivered, and a 6% rise in our overall average selling price. All four of our Homebuilding regions generated double-digit year-over-year increases in the housing revenues ranging from 12% in the Southeast to 25% in the West Coast. The significant growth in housing revenues was largely driven by the 19% higher backlog value we had at the start of 2017, as compared to the prior year in combination with solid operational execution during the current quarter. We ended the first quarter with a backlog value of $1.8 billion, which increased 25% from the year earlier period and marked our highest first quarter level since 2007. We believe our backlog values strongly support both our second quarter and full year housing revenue expectations. We currently anticipate second quarter housing revenues in a range of $880 million to $940 million. For the full year, we expect an increase in housing revenues as compared to our prior guidance, to the range of $4 billion to $4.3 billion. Over the past five years, our second half revenues on average have comprised approximately 60% of our full year housing revenues, with approximately one-third of our revenues generated in the fourth quarter. The current year revenue cadence is expected to approximate our typical seasonal pattern. In the first quarter, our overall average selling price of homes delivered increased to approximately $365,000, reflecting increases in all…

At this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Alan Ratner of Zelman & Associates. Please proceed with your question.

Hi guys, good afternoon and congrats on a really strong quarter. Jeff, in the spirit of no good job or no good deed goes unpunished here, I wanted to ask about California and some of the headwinds that are going on there given the strength you're seeing in your business today. The first is, of course, California has had a very wet spring so far. And as your order growth clearly demonstrates it hasn't impacted the demand side of the equation. I'm curious as you see the year unfolding there, what impact if any you think that rain might have either on your future community, openings or probably more specifically, deliveries in the back half of the year. And second question related to California, just on AB 199. Curious to get your thoughts there as well in terms of what likelihood you see of that passing, and if it does what impacts that could have on your business out there? Thanks, and sorry for more negative questions on a very good quarter, but was just hoping to get you guys to clarify that because it is such a big part of your business. Thank you.

Sure. Okay, well, thanks for the recognition, Alan, and they are good questions that we're dealing with. First off on the weather, let me say a few things. For starters, in California we have a very, very seasoned team, they've been in the place a long time, and know how to deal with that rare thing called rain that we get occasionally out here in California. My analogy would be it's a speed bump; it's not a major hit to the business. In fact, with the raise in revenue that we just guided to is already assumed in our projections. So whatever it delayed it already delayed and we've taken into consideration on our guidance. It delayed a few grand openings about a month because we couldn't get landscaping in, and couldn't get energized, and those type of things. So we had some openings actually pushed from January into February, February into March, may have rolled sales of a month to two months, and may have rolled deliveries a month to two months. But all that is factored in and we think we have our arms around it. And we've already taken that hit, so we're moving forward. AB 199, it's a classic California political hot potato. Our industry has come out very strongly in opposition to it, as have a lot of other industries and organization in the state. It's bouncing around on the assembly floor, don't know if it'll pass. We're certainly working to make sure it doesn't pass. And however that plays out in the political arena we'll deal with it at that time. It's a pretty onerous threat relative to the cost of goods, but we're going to fight, and hopefully it doesn't get pushed through. Just like many other things that we've had to deal with over the years out here in the state.

Great. Thanks a lot, and good luck guys.

Thanks.

Our next question comes from Nishu Sood of Deutsche Bank. Please proceed with your question.

Thanks. So obviously an increase in the revenue guidance and that's obviously encouraging and reflects the good demand and the performance in California. Only a 10 basis point increase, I believe, between the two margin components. You mentioned, obviously, that as we progress through the year that a better leverage should benefit both the gross margins and SG&A. Shouldn't the increase in revenues have resulted in a little bit bigger tick up to margins, especially with California performing so strong, and the Southeast dimming as a contributor since that's, I think, where your lower margins were?

Right, I can respond to that a bit. On the revenue side, as we put our guidance together, and as we did for last quarter, our ranges kind of contemplate the range of revenue. So our revenue range last quarter was $3.8 billion to $4.2 billion, and both our gross margin and our SG&A ranges took that into consideration as we went forward. Right now what we did was we lifted the bottom end, or the worst case, I'll call it, both of those metrics. And I think I'd say we're incrementally more positive obviously due to the strength of the first quarter and what we're seeing happen on the guidance that we did put out last quarter. So we adjusted the ranges a bit. We're still very optimistic, in fact, more optimistic about the year -- at this point of the year as opposed to when we did our first quarter call or our call during the first quarter, excuse me. But right now we have a lot of ground to cover. I mean, the spring selling season is still early. The early indications are very favorable. We'd like to see a few more weeks and a couple of more months of sales on that, and will bubble up at the end of the second quarter, and let you know how we feel about the rest of the year at that point.

Got it, that makes sense. So just drilling into the SG&A a little bit more. I think now this is your second quarter in a row of record low SG&A. Certainly makes a lot of sense with the community density concept that you've been pushing through in your operations. So given that we're at record lows here, how do you think about the potential for further decreases? I mean, you're already kind of in uncharted territory. Is there some metric on community density that you think about relative to absorptions perhaps. Are we reaching a limit maybe in terms of how many more efficiencies you can squeeze out of it? How much further, I guess, bottom line can we go here?

Well, the way I like to look at it -- well, there's a couple of things; I'll comment on it. First of all, the first quarter beat [ph] versus our expectation, I think street expectation; about 20 basis points of that beat came from the leverage. So we came in at $811 million of housing revenues, midpoint of our range was up $790 million on revenues for the first quarter, so about 20 basis points came from that. The other 30 basis points was just basically from net other good news on expenses during the quarter, and very good cost containment. It amounts to totally about $2.5 million, so it wasn't a dramatic shift there, but we were quite pleased with the 11.5% in the first quarter. When we look to the future we're really looking to keep doing what we've been doing. We've been having a tremendous amount of success driving down SG&A. It starts with cost containment. We're not looking to cut expenses at this point because we do have a growing business. We're looking to efficiently run the business and cost contain, number one. Number two, our revenue growth has come from a very efficient source which is higher pays from current open communities, and we've also been growing right inline with our strategy of growing our scale in our existing markets. Both of those two factors are really giving us what I call efficient growth. And that efficient growth has allowed us to continue to work down the SG&A. As we often guide on SG&A, when we look at it incrementally quarter-to-quarter, when you look at top line revenues we generally say around 5%, sometimes we say 5% to 6% of incremental revenue should drop to SG&A expense. And that matters as long as 5% or 6% is lower than your current SG&A, we should be able to continue to leverage higher volumes with more SG&A efficiency. We did guide to more efficiency as we go through the remainder of the year, and we do see SG&A sequentially improving in every quarter this year. And we think we're going to have a pretty nice year on SG&A and leverage on that side. So, so far so good, and I think 2017 is going to spell some good things for us on the efficiency side.

Nishu, if I could add to that, what we shared at our investor conference and we're talking about here is continue to grow our scale in our served markets. And if -- yes, we've tilted more to California, and as well as we're doing in California, we like the business. It's still less than half of what we did in our peak year in the state. You have the management team in place today that did twice the volume we once did. So the additional growth, the opportunity in the state is still significant. And if we add communities, you add a superintendent, or you add the cost of a model park, you don't necessarily add to the senior team. Now, while I'm sharing that for California, you have the same situation in Arizona, Nevada, Texas, Florida, where we intend to continue to grow the top line through taking share and getting back to the scale we were not -- so that there's -- we're not guiding to whatever our target is three, four years down the road, but there's a lot of benefit still that we can capture.

Got it, thanks.

Our next question comes from Michael Rehaut of JP Morgan. Please proceed with your question.

Hi, afternoon. This is [indiscernible] in for Mike. So I guess starting with reactivated communities, you have a bit more visibility this quarter so what do you expect in terms of contribution from reactivated communities versus total deliveries, and has that increased a bit maybe with Chase exceeding KB average or what do you think?

Yes, on the reactivated communities, as I mentioned, it's right now about 18% of our total community count. In general those communities carry lower ASPs than what we call our core community. So as far as a percent of revenue goes we anticipate seeing somewhere in the low double digits to maybe as high as 15% of revenue coming off those communities. But basically I'd say the best way to describe it right now is we're expecting to see relative consistency in those metrics as we travel through 2017. We're not expecting to see a big uptick or a large fall-off in either the revenue percentage or in the percent of communities. So the impact it's having on the gross margins should remain relatively constant. As we've talked about in the past, it's about a four percentage point of negative impact on an absolutely basis. And quarter-over-quarter, year-over-year there's a little bit more back-and-forth on that depending on now the two quarters lined up. And this particular quarter is about 30 basis points of headwind as far the comparison goes year-over-year, because it did take up a bit. What we saw in the back half of last year was the absorption improvement coming from underperforming communities, and not just the reactivated communities -- there are closed communities as well, and that did drive a little higher revenue this quarter coming from it. Like I said, I think it'll remain relatively constant as we move forward.

Okay, that makes sense. And I guess as a follow-up, just looking at the improvement in cancellation rate, despite the moving mortgage rates. Is that a relationship that you're seeing or what is it that you're really doing right, I guess, maybe is it attracting higher quality buyers or --?

Right, on the cancellation rate it's pretty much like the comments we made last quarter. I think there's three things working for us in that side. One is improving market conditions, low inventory, people wanting to buy homes. We're seeing the market conditions helping on that side where people -- and you're also seeing price movements where I think people are less inclined to want to back out of a deal that's already been signed. I do believe we are seeing higher quality buyers come to the table, and more able to get, and gain, and hold mortgage approval as they run through the process. And then finally, again, as we talked about last quarter, we have made process improvements on that side, particularly on the upfront recording a gross, that's also helping the rate. So it's a combination of three factors.

Okay. Okay, that's all for me. Thanks.

The next question comes from Stephen Kim of Evercore ISI. Please proceed with your question.

Thanks very much guys. Wanted to follow-up on the build times, good news about holding them steady, but I wanted to ask whether or not you thought seasonality played a role at all in that, and how that informs your outlook for build times and labor constraints. And I guess what I mean is that there's generally a little bit of a lull after your fiscal year end in the winter months. And was curious as to whether or not you thought that this was a period of time where it was a little easier to maybe get caught up on labor. But that as we got into the busier times of the year that this may be something that reemerges as an issue. So could you just talk about it in the context of seasonality?

Stephen, the comp to last year was for the same period. So it's the same seasons in both years, and it held. And we're working diligently, and you've tracked us a long time. When we get to the scale we're at, and now you have a larger pot of built-to-order buyers and you can start talking with your subs about starts six weeks out, eight weeks out. And you're setting up your start pay from a community, they want to stay there because they can manage their materials and their labor with us so there's no spike. We expect to start 10 at a time, and you don't start anymore until you solve those 10 you lose the continuity. And the subs really value continuity. So we've been working hard right now to lay out starts for the next three months around our system, and getting the subs commitments. And we're actually hoping that we can shrink our build times year-over-year going forward because of our scale now and becoming more of a builder of choice in our markets.

And I think just one added comment to seasonality, last year we actually got better with build time as we ran through the year. Our first quarter was actually our highest build time. So we're not overly concerned on that seasonality factor.

Got it, okay. That's helpful. And then I was wondering if you could talk a little bit about the pricing outlook. I mean, I think that's obviously very important in light of the stronger demand that we're seeing out there. I was curious about your margin outlook that you've given in the context of your commentary about the pricing outlook. Was curious as to first of all, whether your margin outlook includes achieving better pricing, which you sort of felt like you might be able to do. Or if that's -- you've left that still on the table to achieve but you haven't built it into your guidance?

In the comments, Stephen, we touched on our backlog of current trends, and that's what's driving our guidance for the year. At the same time I observed we're going to try to take price. And if you look at our sales rates now we're at the level we've kind of set as our optimal for managing our assets. And you want to keep holding that pace now, and it's time to go for price. And if you think about it, our absorptions were up 16% as a company year-over-year, it tells you there is strong demand out there. And if we're going to go try to capture price and if we get it hopefully it brings upside, and in our cycle it would bring upside down the road.

Got it, that's great. Thanks very much guys.

Our next question comes from Mike Dahl of Barclays Bank. Please proceed with your question.

Hi, thanks for taking my questions. Jeff, I just wanted to follow up on those comments around price. And I guess I'm curious, in some of your markets you're still dealing with issues around FHA limits and the need to stay below those, especially when you're talking Inland Empire, Phoenix, Vegas, and then depending on the path of mortgage rates you may still have your buyers facing some headwinds there. So is there any quantification you can provide to give us a sense of how you're thinking about potential magnitude for pricing opportunity?

On simple terms it's as much as we can get. I don't know how we could quantify it on this call. And if you think about the FHA limits, they absolutely are a governor in those markets. And it starts with being a governor with resale before you even get to new homes in a Phoenix or an Inland Empire. And our industry is working with FHA right now on, okay, what can we do about some of these. And hopefully we can get some progress there. But those limits have been in place now for over two years. And we've been managing around it and through it. And in a stronger demand environment, like we have in the inland areas, it's a stronger bio profile to have more money to put down that and have higher income because it's a stronger demand, and that probably in part way our inland areas in California or Arizona were seeing a sales lift and seeing some price lift. This isn't limitless. I get it that there is a point when consumer just can't afford it, but I don't think we are anywhere near that today with the type of demand strength we are seeing.

Okay. You are not seeing in your backlog that your buyers are kind of right at the limit under the guidelines right now?

Well, it's -- no, to answer it directly, it's more -- most of our buyers are struggling with either the down or the credit, it's not the income.

Okay, thanks. And then the second question, and specifically to California, just wondering if you could give us a little more color on where the upside relative to your expectations came from within California, regionally, and then how we should be thinking about ASP going forward and hitting the West region, just given it can vary quite a bit depending on the submarket you are in now?

Mike, I can have Jeff try to quantify it for you. For years now, we have been sharing that the coasts are very strong, and the coast remain strong. There are desirable places. There is not a lot of inventory. There is a lot of job growth, and prices have moved a bunch in the last few years. As both prices have lifted, they are pushing more demand inland, because there is only so much an income can qualify for, and I would say like I did in my prepared comments, we saw strength across the state. The coast remain very strong, both North and South. And inland, both North and South, we are seeing an uptick in pace and an uptick in price, because the demand is finally strength, I guess, you would have to summarize that is a normalized recovery is finally occurring and it seem to have legs, because we have dealing with this now for six to nine months, where prices lift on the coast and it pushes more demand inland, whether it's more buildable land and you will get more volume in the inland areas. And as a company, our California ASP can influence our overall ASP quite a bit, but also within the state, as you touched on the mix, a couple of multimillion dollar communities in the Bay area versus 500,000 house in Inland Empire or Sacramento can move your ASP quite a bit even within the state relative to the mix. I don't know if you want to…

Sure. Yes, I will dig more details, yes, in the West Coast. I mean, we don't guide ASP by regions, but I will give you some data. In the quarter, we were up about 5% ASP in the West Coast, but 587,000 versus about 559,000 last year. Orders this quarter, our ASP was up almost a $100,000 relative to last year. So, if you look at our order value and divide it by the orders for the year, it was up quite significantly. So that is a combination, it's obviously not just off price and community year-over-year, 100,000 in price, I don't want to imply that at all, part of that comes from the mix of the business and mix of communities and a very wide range of price points that we have in the state and how that could impact. Our full year guidance range of 385,000 to 395,000 in ASP for the total company is really a result of two things. One, an increasing mix of California that we see coming through in the back half of the year as well as the pretty sharp increase that we have seen in overall California ASP. So, the combination of factors really seemed together to form our guidance range for the full company, and that's what drove it.

Okay, thank you.

Our next question comes from John Lovallo of Bank of America. Please proceed with your question.

Hey, guys. Thank you for taking my call as well. First question is on the order growth throughout the quarter, maybe you can give us a little color on how it progressed on monthly basis, and then maybe how March look to the first few weeks of the quarter?

Okay. Well, I think at our year end call in January, we shared at that time we were up 11%. We are up 11% through the second week of January, so, about halfway through. And for the quarter, we were up 14%. So, incrementally up a little bit year-over-year, but I don't like to get too caught up in the monthly trend, because it depends on when the weeks are and something grand opened here or there and it can move things around. My summary comment would be through the quarter, throughout the quarter our demand was pretty constant at a pretty high rate. So, things are very good, but we don't again typically don't show orders two weeks or three weeks into a quarter. It would be a general comment as the market conditions remain very good right now.

Okay, thank you. And then, what are you guys expecting in terms of lumber inflation for the year?

Well, lumber is one of those categories right now that we have our eyes firmly on. I mean, there is a lot going on in the lumber commodity category, you know, both with the situation of Canada and everything else that we are seeing, what we had typically done is we try to protect our backlog first and foremost with their supplier. So, we try to lock-in our pricing, and our current backlog we are not seeing unanticipated cost increases on that piece of it, but I think overall my comment would be it's a category that we are very watchful of, right now, and we will continue to see where the trends are going. We do lock lumber prices on a forward basis with our suppliers, we don't buy forwards, but we lock prices and try to roll through it. So, we had some mitigating factors there, but it's certainly a concern area for us in the material cost side.

Okay. Thanks, guys.

Our next question comes from Bob Wettenhall of RBC Capital Markets. Please proceed with your question.

Good afternoon, everyone. It's actually Michael Eisen on for Bob today. I just was hoping you guys could give a little more color on the opportunity that activate communities currently represent on the balance sheet, maybe how much of value of these communities continues to be the number of communities that could still be open, and then in turn how much cash had potentially can provide for debt re-financing since you aren't having to buy more land to open communities?

Right. Yes, I think one thing is, I mean, we are still looking to find new land open new communities, because we like to continue the core community growth that we've had in the company; we would like to continue that, obviously at better margins than we are seeing on the side. So, it's not for in our mind a substitute, but it is a nice source of cash for the company. We talked about last October in investor conference that we have our eye set on getting the total level of land held for future development below $150 million by the end of 2019. We believe we're on track to get there if you look at the multiyear trend. We have done a really nice job of reducing that number. We were down about $360 million at the end of the first quarter. And we will continue to activate communities and work down that balance, but that's our current target is to be at or below $150 million, which would take us down to about 4% of our total inventory.

Very helpful, and then, just as one follow-up, if I am looking at some of the regional trends you guys reported, can you touch on what's been going on in the Southeast, maybe if there is differences in community counts there, and what's driving some of the softer demand trends compared to the rest of the portfolio?

Mike, I touched on that in my prepared comments. Our absorptions per community in the Southeast were actually up a little bit. The number gets blurred, because we shutdown our DC business, and we have been repositioning some of the cities, where we have been working through actually a lot of reactivations, and getting through that before we invest in a lot of new growth. So, our community count is down a little. Our sales pace per community actually was up; the markets over there are performing well, and demand is growing just like we were seeing in other states.

Our next question comes from Mark Weintraub of Buckingham Research. Please proceed with your question.

Okay, thank you. And you have really actually covered a lot of it, so maybe I just will use it to make sure I understood and clarify it, so it sound like on the ASPs, because you did show a nice increase, and a partial mix and partial including the higher pricing from California, you were also talking about just a better environment. Does that mean if that kind of continues you might see higher push up in ASPs in some other regions and California too, is that one potential source of upside that we should be contemplating?

Yes. I mean, look, in our first quarter, California wasn't even the largest uptick in ASP based on deliveries. We are almost at 6% raising the ASP in our central region and almost 6% in Southeast region, and California is up about 5%. So, we are seeing it kind of across the business. And so, it's -- there is been a lot of discussion about California, but the rest of the business is also operating quite well and quite effectively. The difference is, you know, in California because there is such a large difference in the base ASP in the West Coast region relative to other region, particularly Southeast region. If you get a mix shift between those two regions, it really pushes up the total company. And that is the thing that has a very larger upside impact on us, but I would say, across the business we're seeing rising ASPs and in many cases it's due to community mix as much as it is due to our market increases, but that's kind of where we are at on the one.

Okay. And then I guess on the flipside, it seems cost is sort of the other way, where -- on the building material side, et cetera, I guess I was just trying to really get a better sense, you noted that you built-in, you locked-in on where most of your backlog would be. Now, would that have been at prices that are currently, would that essentially have prices that are lower than where lumber, for instance, frankly, wallboard and structural panels gone up a fair bit too. Would that -- so, are the prices that's sort of rolling through from where they were six months ago, or would they be where they are now, and would be -- so that if prices were to stay where they are, is there some inflation you are going to have to deal with, or is it already in the types of results you are reporting?

You know, like, what we try to do is we try to lock the backlog once our home starts. So, once it's sold and we get it started, we would try to lock the cost at that point. In some cases, we were successful quite frankly, in some cases we see continued cost pressure even after start, which we really prefer not to see and prefer not to see that behavior from our supply base, but it does happen particularly in tight labor market. So we do believe there will be continued cost inflation during the year, because it's another indication of a strong market, and as long as we get some incremental price we think we can offset it, but certainly part of any incremental price that we do see will go towards offsetting potential upward pressure on cost, and you know, that's something that we have been dealing with and probably expect to deal with at least through the end of 2017.

Okay, thank you.

Our next question comes from Jade Rahmani of KBW. Please proceed with your question.

Thanks very much. I wonder if you could comment on potential tax reform, just looking for a big picture thought with respect to your DTA, you know, my sense is you may have been hesitant to either issue a lot of capital or enter into a strategic transaction because of change in control. I was just wondering if a lower corporate tax rate can change that calculus. Would it improve your strategic flexibility?

Yes, we never had any issues strategically with contemplating anything to do with equity or M&A or anything else relating to DTA. I mean, we have always been mindful of it. We haven't issued equity in several years now, and it hasn't really been part of the factor. I think our capital strategy has been pretty clearly laid out, where we are looking at de-lever the balance sheet, not take on additional capital, continue our dividend, and used capital for growth of the business. So that's really where we're targeted, and I would say potential changes in tax policy have little if any -- will have very little if any impact on that strategy.

Thanks. And then as a follow-up, can you just give your thoughts maybe on potential mergers and acquisitions? We've seen an uptick in the homebuilding space, and is there something you know, management would be interested in?

Well, over the years we've been an acquirer; no, significant acquirer many years ago. Right now we would look at it as a growth opportunity in our served markets. So, our stated goal is to really rebuild our scale in the cities in which we operate, and if an opportunity came along that would bolster our lot count and our business, we would look at it, we are not looking to do anything with anybody to go into new markets, serve different bio products, we like our business model and we will stay focused on that for now.

Thanks very much.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines.