M.D.C. Holdings, Inc.

Good day, ladies and gentlemen, and welcome to MDC Holdings' 2021 Second Quarter Earnings Conference Call. If you require operator assistance, please press star then zero. At this time, for opening remarks, I would like to turn the call to Derek Kimmerle, Director of SEC Reporting.

Thank you. Good morning, ladies and gentlemen, and welcome to MDC Holdings' 2021 Second Quarter Earnings Conference Call. On the call with me today I have Larry Meisel, Executive Chairman, David Mandrich, Chief Executive Officer, and Bob Martin, Chief Financial Officer. At this time, all participants are in a listen-only mode. After finishing our prepared remarks, we will conduct a question-and-answer session, at which time we request that participants limit themselves to one question and one follow-up question. Please note that this conference is being recorded and will be available for replay. For information on how to access the replay, please visit our website at mdcholdings.com. Before turning the call over to Larry and David, it should be noted that certain statements made during this conference call, including those related to MDC's business, financial condition, results of operation, cash flows, strategies and prospects, and responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that may cause the company's actual results, performance, or achievements to be materially different from the results, performance, or achievements expressed or implied by the forward-looking statement. These and other factors that could impact the company's actual performance are set forth in the company's second quarter 2021 Form 10-Q, which is expected to be filed with the SEC today. It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures. Any information required by Regulation G is posted on our website with our webcast slides. And now I will turn the call over to Mr. Meisel for his opening remarks.

Thank you for joining us today. As we go over our results for the second quarter of 2021, provide an update on current market conditions, and share our thoughts on the outlook of our company and the industry as a whole. MDC Holdings reported net income of $154 million for the second quarter of 2021, representing an increase of 83% over the second quarter of last year. Home sales revenues grew 54% year over year, thanks to a 43% increase in deliveries and an 8% rise in our average closing price. We posted another quarter of operating margin expansion driven by further improvement to our home building gross margin and our SG&A leverage. These results are a testament to the continued strength of the housing market as well as to our ability to execute effectively in spite of the operating challenges facing our industry. Net new orders for the quarter rose 14% year over year on a sales pace of 4.8 homes per community per month. Similar to last quarter, our sales efforts were tempered by our objective to maximize pricing and maintain a manageable closing cadence for homes and backlog. We believe this strategy has been effective in generating higher profits for our company, allowing us to close homes at higher prices and at a consistent pace, while staying ahead of cost increases. Demand continues across all of our markets, driven by the strong demographic forces we have highlighted in the past and the lack of available supply in both the new and existing home markets. These two factors have created a supply-demand imbalance that we believe will serve as tailwinds for industry. Equally important to our sales success has been our focus on affordability. and our adherence to a build to order operating model. We are keenly aware of the home price appreciation that occurs across the country and strive to provide housing options that are attainable for the first time home buyers. By value engineering our homes with smaller floor plans and the same high quality construction we were able to offer our customers a compelling value along with an ability to personalize their home with options and upgrades at our home galleries. We believe this operating philosophy has led to higher demand for our homes and improved our gross margin profile. I'll now turn the call over to our President and Chief Executive Officer, David Mandridge, for additional comments on the current market conditions and our strategic focus. David.

Thank you, Larry. Given our favorable outlook for the industry, we have been aggressively ingrowing our presence in our existing markets as well as expanding in new ones. We announced last quarter we entered the Boise market, and this quarter we are pleased to announce our expansion into Nashville. Similar to Boise, Nashville has been a popular destination for both companies and people around the country. Given its relative affordability and overall quality of life, we believe Nashville's growth and need for new housing presents a great opportunity for our company, and we look forward to scaling our operations in this market for years to come. While we remain committed to growing our home building operations in new and existing markets, we are equally focused on improving our return profile. This metric is a key factor in our decision-making process when it comes to underwriting new land deals, allocating capital to our divisions, and setting the appropriate balance between price and pace. In the second quarter of 2021, our return on average equity on a trailing 12-month basis improved 1,170 basis points as compared to the second quarter of last year. A recent expansion of our operating margins and our current backlog should help to drive further improvements to our return profile. Now I'd like to turn it back to Larry for some additional comments.

Thank you, David. Another key focus for our company is returning capital to our shareholders. Our annualized cash dividend of $1.60 per share equates to an approximate yield of 3% based on recent stock price. This is far and away the highest dividend yield in our industry. This payout is supported by our strong balance sheet with a debt to total capital ratio of 37% and over $700 million of cash on hand at the end of the quarter. We believe in a consistent dividend payout is a prudent use of our capital and rewards long-term shareholders over time. To that end, I am proud of our accomplishments in this area. Our dividend program has been consistently in place for more than 25 years and our quarterly dividend has more than doubled over just the past five years. In summary, the second quarter of 2021 provided further evidence that the housing market remains on solid footing and that MDC Holdings is well positioned to take advantage of the positive industry dynamics. We were able to sustain a strong order momentum in the quarter while successfully implementing price increases. We were able to deliver more homes than we had anticipated despite material shortages and supply chain issues facing our industry. The number of homes in backlog at the end of the quarter was up significantly from the same period last year, putting us in a great position to post solid profitability in the second half of the year. Given our strong results this quarter and record backlog, we're very confident about the future of home building and especially the future of MDC Holdings. With that, I'd like to turn it over to Bob for more in-depth review of the results of this quarter.

Thanks, Larry, and good morning, everyone. During the second quarter, we generated net income of $154.4 million, or $2.11 per diluted share, representing an 83% increase from the second quarter of 2020. Home sale revenues grew 54% year-over-year, to $1.37 billion, while gross margin from home sales improved by 290 basis points from the prior year quarter. The growth in home sale revenues and margin expansion resulted in a 121% increase in pre-tax income from our home building operations to $187.5 million. Financial services pre-tax income decreased to $18 million, primarily due to $5 million of gains on equity securities recognized during the prior year quarter. Our mortgage business also experienced a decrease in pre-tax income year over year due to increased competition in the primary mortgage market, increased compensation-related costs, and a temporary decrease in our capture rate. Our tax rate increased from 24.4% to 24.9% for the 2021 second quarter. The increase in rate was primarily due to an increase in pre-tax income as well as a decrease in the amount of executive compensation that is deductible under the Internal Revenue Code Section 162M. For the remainder of the year, we currently estimate an effective tax rate of approximately 24.5%, excluding any discrete items and not accounting for any potential changes in tax rates or policy. Homes delivered increased 43% year-over-year to 2,722 during the second quarter, driven by an increase in the number of homes we had in backlog to start the quarter. This exceeded our previously communicated range for the second quarter of 2,500 to 2,700 closings, even as cycle times moved up by more than two weeks from the first quarter. While the second quarter continued to present some operational challenges, From a supply chain and labor perspective, we were successful in minimizing the impact of these disruptions on our home construction process. During the second quarter, 25 percent of our home deliveries were in California, marking the first quarter ever that home deliveries in Colorado were surpassed by another state. Each of our California markets had strong results for the quarter, with our Southern California markets showing the most substantial improvement year over year in terms of closings, volume, as well as margin expansion. The average selling price of homes delivered during the quarter increased 8% to about $502,000. The increase was the result of price increases implemented across the majority of our communities over the past 12 months. For the third quarter, we are anticipating home deliveries to reach between 2,500 and 2,700 units, with an average selling price between $510,000 and $520,000. Gross margin from home sales improved by 290 basis points year-over-year to 23.1%. We experienced improved gross margin from home sales across each of our divisions, driven by price increases implemented across nearly all of our communities over the past 12 months, as well as a decrease in the amount of capitalized interest per home included in cost of sales. These improvements have been partially offset by increased building material and labor costs year-over-year. Gross margin from home sales for the 2021 third quarter are expected to increase to approximately 23.5%, assuming no impairments or warranty adjustments. Additionally, we believe the increase in gross margin from home sales is likely for the fourth quarter, based on the gross margin of homes currently in backlog. Our total dollar SG&A expense for the 2021 second quarter increased by $36.5 million from the 2020 second quarter, driven primarily by increased general and administrative and commission expenses. Our SG&A expense as a percentage of home sale revenues decreased 100 basis points year over year to 9.4%. General administrative expenses totaled $62 million during the second quarter due to increases in compensation-related expenses including increased bonus and stock-based compensation accruals due to our strong financial performance year-to-date. We currently estimate our general and administrative expenses to remain above $60 million for the third quarter of 2021. Marketing expenses increased $4.2 million as a result of increased deferred selling amortization and master marketing fees resulting from increased closings. However, marketing expenses as a percentage of home sale revenue was down 60 basis points year-over-year as we were able to limit advertising expenses in this high demand environment. Our commission expense as a percentage of home sale revenues decreased 40 basis points year-over-year as we took steps to control these costs during this period of strong demand for new housing. As a result of our improved gross margin from home sales and increased operating leverage, Our home building operating margin, defined as gross margin from home sales minus our SG&A rate, grew by 390 basis points year-over-year to 13.7%. These improvements, coupled with an increased number of home deliveries, resulted in a 30.7% pre-tax return on equity over the trailing 12 months. This represents a year-over-year increase of nearly 1,200 basis points. The dollar value of our net orders increased 40% year-over-year to $1.46 billion, mostly due to a 24% year-over-year increase in the average selling price of our net orders that was driven by price increases across most of our communities. The price increases we have taken to date have more than offset higher costs related to building materials and labor. Additionally, we realized a 14% year-over-year increase in unit net orders. Our monthly absorption rate of 4.8 was 13% higher than a year ago and was our highest second quarter rate since 2005. As Larry mentioned earlier, we have worked to moderate sales activity through pricing. In the second quarter alone, we increased prices in active communities by an average of 8%. Also, we have limited lot releases when home construction can't begin within 60 days of a potential sale. We believe these actions are healthy for our business in that they help our stressed supply chain and labor force keep pace with our construction needs. As we enter the back half of 2021, we are mindful that normal seasonal factors have the potential to impact our absorption rates. Nonetheless, we remain confident in the overall strength of the market for new homes moving forward due to an ongoing combination of low supply and demographic changes that have resulted in an influx of homebuyers looking to purchase their first home. As a result of strong sales over the past 12 months, we ended the quarter with an estimated sales value for our homes in backlog of $4.11 billion, which was up 73% year over year. The average selling price of homes in backlog increased 16% due to price increases implemented over that time. Our backlog quality remains very high and provides us with the opportunity for significant year-over-year increases in both home sale revenues and pre-tax income for the remainder of 2021 and positions us for continued growth as we look forward to 2022. We approved 5,739 lots for acquisition during the quarter. which is the second most in recent history, nearly eclipsing the 5,911 lots approved in the fourth quarter of last year. We closed on 3,686 lots during the second quarter across 66 subdivisions, which is a 282% increase from the prior year quarter and a 72% increase from the second quarter of 2019. Land acquisition and development spend for the quarter totaled $438 million. In comparing our current quarter land acquisition and approval activity to the second quarter of 2020, it should be noted that the pandemic resulted in a significant decrease in activity during the prior year quarter as we paused most land acquisition activity until we had more visibility as to the longer-term impact of the pandemic on our business. As a result of our land acquisition and approval activity, our total lot supply to end the quarter exceeded 34,000 lots, representing a sequential increase of 7% from the first quarter and a 37% increase from the prior year quarter. We believe that this lot supply, combined with continued lot approval and acquisition activity, provides us with a solid platform to meet our growth targets. 2021 is proving to be a challenging year for the startup of new communities as we are facing both delays in municipal approvals and a strain on the available resources to complete development work. Nonetheless, we are still pushing towards a goal of increase in our active subdivision count by about 10% year-over-year by December 31, 2021. In summary, we are pleased with the first half of 2021 and believe the housing backdrop remains favorable as we look forward to executing our business plan for the remainder of the year. We are well positioned to reach the high end of our closings range of between 10,000 and 11,000 units for 2021, with more than 11,000 units already closed or started in backlog as of the end of the second quarter. We are grateful to our employees, subcontractors, board of directors, and many others who have helped us navigate successfully through a variety of challenges as we pursue our goals for 2021. That concludes our prepared remarks. Before opening the line for questions, Please note that Larry, unfortunately, will not be able to join us for the question and answer portion of the call this quarter. With that in mind, I now turn the call back over to the operator.

We will now begin the question and answer session. To ask a question, you may press star then 1. on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. The first question comes from Michael Rehop with J2 Morgan. Please go ahead.

Hi, this is Maggie on for Mike. Hi, Maggie. Hey, congrats on the quarter, and thanks for taking my question. First, just wanted to ask about what you've been seeing into July. I think during the prepared remarks, you pointed to the potential to maybe a see some seasonality in the back half of the year but i i'm wondering if you've seen um any seasonality kick in or any slight moderation of demand or if it's remained strong i mean obviously it's remained strong but have you seen it start to slow at all you know maggie um

I think we're pleased with the demand we've seen thus far in July, especially after pushing through significant price increases in the first half of the year to moderate sales. I think it's difficult to predict, given what we've done on pricing and the potential for return to more seasonal patterns, to really predict what's going to happen in the back half of the year. Right now, we're more focused on construction to meet the closing targets we have set and on maximizing our profitability per house.

Got it. Thanks. And second, on gross margins, you guided to a sequential improvement in 3Q and 4Q as your price has been able to more than offset increased costs in as you see probably the highest lumber costs flow through in the back half of this year and you move into 2022 and you maybe start to see those lumber costs kind of pull back and that flows through. Can you talk about the potential to see even maybe further improvement in your gross margins as you get any lift from that?

Yeah, so we commented on Q4, we thought that would be a sequential increase from Q3, in addition to the 23.5% that we pointed to as our estimate for Q3. Then beyond that, I think you're right. I think the highest lumber costs come through in the back half of this year, and then potentially through the P&L, they will potentially start to come down in the first half of next year. So That would be a tailwind for margins.

Got it. Thank you.

The next question comes from Truman Patterson with Wolf Research. Please go ahead.

Hey, good afternoon, everyone. Thanks for taking my questions. David, I just wanted to start off with a big picture question. You've had a nice tenure in the industry and you've seen a few cycles. Demand clearly remains healthy, but I'm just hoping you can help us gauge just how deep you think this buyer pool is versus some of the prior periods. And I'm just hoping you can balance this with whether you think there are any real affordability issues in the market as we move through 2022.

You know, Truman, that's a great question. You know, this is Larry and I's 45th year, and I think when we take a look at where we're at today, I think this is clearly one of the healthiest, if not the healthiest time we've seen. But one of the things we're seeing is really limited inventories on resale houses across the country, limited new home inventory. We're still seeing plenty of demand. So, Truman, I think this is probably one of our better years that we've seen in 45 years. In fact, it could almost be the best one. Bob, do you have anything to comment to that?

No, David, I think you said it well.

Good question, Truman.

Thanks for that. Appreciate it. And then just another question. big picture question here. I don't know if you can relate this to prior cycles or anything. We're just clearly hearing of supply chain challenges across the board. You all mentioned it with construction. We're hearing especially materials, some local muni approval, land development, maybe a little bit of labor. Do you think any of these bottlenecks, you know, begin to improve as we move through 21 and 2022? Just hoping you can help us think through some of the items there.

Well, Truman, clearly it's been a challenge, you know, depending on whether it's lumber or concrete or pipe or land development issues really across the country. But I'll tell you what's so fabulous about our industry is the is us and others in our industry have done a great job problem solving, whether it's using alternative material or additional labor. It's probably slightly more challenging with the municipalities, but we're certainly seeing some of the municipalities try and help us builders get some houses in the ground for our consumers. Another great question.

Perfect. Thank you, guys. Good luck on the upcoming quarter. Thank you.

The next question comes from Deepa Raghavan with Wells Fargo. Please go ahead.

Good afternoon, David and Bob. Thanks for taking my question. Any thoughts on how long you think you can go on with the sales allocation process here? And given that cap that you currently are... the industry, especially self-imposing, and you guys do, how do we think about sales-based near-term versus the 4.8 you did in Q2?

I think, again, it's a tough question to predict what's going to happen. Again, given what we've done on pricing to moderate sales and the potential for a return to more seasonal patterns. I mean, that's typically what we see at this time of year, but we all know it's been a pretty wild ride. So right now, we've got more than enough to work on trying to meet our construction targets and maximizing profitability. So that's really our focus.

Okay. Fair enough. Okay. A question on pricing. Backlog prices increased 16%. Odors pricing up 23%. Pretty healthy. Any thoughts on what you're seeing July so far? You said you're pleased to see July closing is pretty nice so far. But any thoughts on what you're seeing in July so far? Is that pricing still trending at 20% plus in July? And also, you know, are you getting any pushback even from the incremental or the marginal buyer out there? And just curious, any thoughts how long, you know, this healthy pace can continue?

Yeah, and again, I mean, you characterized it correct. We're pleased with what we've seen in July. And again, you know, it's not a market. where we're as much focused on sales so much as construction in the back half of the year, given that we've got supply chain challenges and we have a healthy goal out before us. So that's really where our focus is.

Got it. Thanks so much. I'll pass it on.

The next question comes from Ivy Zellman with Zellman & Associates. Please go ahead.

Hey guys, it's actually Alan on for Ivy. Nice quarter. Bob or David, obviously it sounds like maybe your focus is shifting a little bit more to completing the backlog versus growing it like you were over the last several quarters. But we did hear from another management team this morning, they're starting to see anecdotally a little bit of pushback from consumers on the pricing side given the very strong price appreciation that's obviously been underway. And this company expects there to be a little bit of an uptick in incentives later in the year as more supply comes across in the industry. So I'm curious if you guys are seeing that in your business at all and if there's any expectation that perhaps some of the tailwinds that you've seen on margin, obviously lower incentives, lower marketing expenses, lower broker commissions, if any of that, you would expect to reverse course as more supply comes online later in the year.

Yeah, it's a great question. And I guess just to start, maybe one way of answering it is, as we went through second quarter, we did see that June was lower than April and May. And that did have the full impact of price increases that were designed to moderate orders. But that's kind of the key word is having the design of moderating orders. Everything you've described, some of the tailwinds going away, I don't necessarily think that we're at that point yet. I think we feel really good about where demand is right now. So there really isn't a whole lot for us to read in based upon the information that's out there right now.

Got it. That's helpful, Bob.

Second question, you guys are back in expansion mode, moving into a few new markets. We've also seen a big push towards the build-to-rent space amongst a lot of your peers, and I'm curious if that's an area you are interested in, if you're currently selling any homes to build-to-rent or single-family rental operators, and whether that could be an opportunity for you to kind of gain share pretty quickly in some of these newer markets if you were to partner up with some of those operators to start building up your scale.

You know, this is Dave, and I can answer that question. We're not selling to investors, and we're not going to do build-to-rent homes. Right now, we feel really good about what we're doing. We're going to stick to our knitting. We love personalization, and so we're not going to go out and do that. Plus, right now, you heard earlier, all the supply constraints are everywhere so we want to make sure we supply material and labor to our four billion dollars worth of houses and backlog so we get them closed.

Makes a lot of sense. Alright guys, thanks a lot.

The next question comes from Stephen Kim with Evercore ISI. Please go ahead.

Hey guys, congratulations on the good results. Yeah, I just wanted to say that I don't think the key takeaway from the news this morning was that incentives are rising and sales prices are becoming a problem, and I think the stocks are telling us something different. But all that being said, you mentioned that the issue really isn't orders or sales, it's production, and I totally agree. And in that regard, your starts were pretty impressive. I mean, I think, correct me if I'm wrong, but I think you started in excess of 3,600 starts this quarter. and over the last 12 months, I think more than 12,500. So first of all, I just want to check if those numbers are right.

I think that's correct, Steve. We had more than 3,600 for Q2. Yeah.

And so what's interesting is that this is a pretty solid pace. Your starts over the last 12 months are basically in excess of the orders that you've taken over the last 12 months. You start over $3,600. And the reason I'm bringing this up is because you face a really tough order comp in percentage in the third quarter. And I'm not asking you to predict your orders unnecessarily in 3Q. However, I wanted to make sure that there wasn't a reason to think that your starts were going to decelerate markedly in 3Q or 4Q. And I wanted to also then just confirm that it is reasonable to think that your sales pace is going to be aligned with your starts pace generally, with a little bit of flex.

Yeah, I think being billed to order, we really align our starts with sales, generally speaking. So yes, I think that That makes sense.

And any reason to think that the starts are going to slow in the back half of the year, meaningfully?

Yeah, I mean, we're going to line them up with the sales.

And Steve, I'll just say, I think one of the things we want to make sure we communicate is we're still seeing, I mean, the demand is still there. You know, and I think, you know, for the last, I mean, we're seeing demand in every one of our markets, so it really hasn't wound at all. But we're going to stick to our netting, and Bob, you might go through what our policy is when we sell a house and how we start it.

Yeah, we abide by a 60-day rule. So if we tell our division managers not to sell if they can't start the house within 60 days, and that's going to be our approach into the foreseeable future.

And, you know, Steve, we build to order. Great question, though. Great analytics.

Yeah, for sure.

We got our numbers down.

Well, you build to order for sure, and I know you're looking to grow your community count. And so I guess I'm kind of curious as to whether your start – it's reasonable to think that your starts will generally grow with your community count. Does basically your production capacity increase – as your community count grows? Maybe that's a better way of asking it.

Yeah, I think it's fair to say that that's the case. You know, when we open up a new subdivision, we're trying to have all the parts in place to make sure that we can support that growth. The superintendents and the sales professionals and people on site having bid out the project able to get starts in the ground. So that same 60-day discipline applies for new subdivisions as well.

Yeah, and Steve, just to add on, and it's having good communications and relations with our suppliers, vendors, and subcontractors, which have done a really good job for us.

Great. And then just lastly on your margin, you mentioned that your peak lumber is probably going to be felt through your P&L in the back half of the year. Just as a benchmarking tool, would you say that lumber in what you're experiencing right now, you know, is roughly a 300 basis point headwind or more to your gross margin?

Yeah. Yeah, I guess it depends what, you know, if you're talking about sales or closings or starts or what have you. I think on probably the sales that we just had in Q2, that definitely could be the case.

You mean revenues? You mean closings, right?

Sales. Orders.

Oh, so orders. Okay, great. Perfect. That actually was what I was hoping for. Okay, thanks, guys. Appreciate it.

The next question comes from Alex Barron with the Housing Research Center. Please go ahead.

Yeah, thanks, guys. You know, I was curious about home prices have gone up quite a bit this year, and I was curious, you know, as far as your outlook for new communities that you'll be opening up, you know, in the back half and next year, Is your outlook that prices are sustainable, or are you guys in some way going to do something to try to make the homes affordable again?

Well, with good demand, as we've described, and low supply, I think we do believe that pricing is sustainable. I think on the same token, we are trying to do what we can to bring price down overall for the company, whether that be talking about new innovations on house plans that maybe can bring the price down a bit, or if it is changing up our footprint a little bit. When we think about Boise and Nashville, one of the allures of those markets is they've they're a little bit more affordable than much of the rest of our footprint. So I think we are tackling affordability in a number of different ways. But we really think this is a great market to support what we've already done in pricing.

And just to add on to that, Alan, it comes down to really mix. You can see in our numbers that we're doing more and more of what we call our affordable footprint, which is seasons, our urban duplexes. So we're adding more of those subdivisions across the country.

Got it. The other question I had was, it seems like most of the builders are shifting towards doing more specs and selling those specs at a later stage. in the construction cycle, it seems you guys have, you know, been fairly disciplined to stick to the bill to order. So I'm curious, you know, how you guys are, how your thought process is changing given all the supply chain constraints of these things are going to be here a little bit longer, you know, whether you guys are going to be moving in that direction as well or what's the benefit of sticking with the bill to order in your view?

Well, I'll just tell you, we're going to stick to the build-the-order model. We start very few houses that are not sold when we start them. But our whole personalization is so important for our customers, for them to pick out everything. So we feel really good about having a contract with the consumer that's got an earnest money deposit where it's their check. And we're not building a bunch of inventory houses without customers.

Okay, that's fair.

Thanks.

Again, if you have a question, please press star, then 1. The next question comes from Jay McCandless with Wedbush. Please go ahead.

Hey, good morning, guys. David, I appreciate the clarity on MDC's intentions with Build for Rent, but I wanted to find out what type of impact has the surge in demand for single-family rentals had on MDC's business. Are you guys fighting for a lot of the same land parcels? Is it tightening up availability on subs? Just a little overview would be great.

You know, I will tell you, Jay, that we're certainly seeing some of the builders that are – are looking for land for Bill Durant to compete with us. And we've seen that business model. But quite frankly, it's not anything that's concerning to us. Also, we have not had any issues with subcontractors or vendors that would compete with that business model.

That's great to hear. That's all I had. Thanks for taking my question.

This concludes our question and answer session. I would like to turn the conference back over to Bob Martin for any closing remarks.

Thanks to everyone for being on the call today. We look forward to speaking with you again following the reporting of our third quarter earnings.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.