PulteGroup's Management Presents at the Bank of America Merrill Lynch 2013 U.S. Basic Materials Conference (Transcript)

| About: PulteGroup, Inc. (PHM)

Start Time: 08:45

End Time: 09:22

PulteGroup, Inc. (NYSE:PHM)

Company Conference Presentation

December 10, 2013, 08:45 AM ET


James P. Zeumer - VP, IR and Corporate Communications


Michael Roxland - Bank of America Merrill Lynch

Michael Roxland - Bank of America Merrill Lynch

Good morning. I'm Michael Roxland, holding analyst at BofA Merrill. We're pleased to have with us today Jim Zeumer, Head of Investor Relations for PulteGroup.

With that, I will turn it over to Jim.

James P. Zeumer

Thanks, Mike. Good morning, everyone. I appreciate your time this morning to hear a little bit about the Pulte story and sort of our views on the market. For people in the room today as well as for those who maybe listening on the webcast, we ask that you take a couple of seconds to just briefly look at the forward-looking statement and understand that some of the comments I make today maybe forward-looking and for any of those that may reference a non-GAAP financial number would encourage you to take a look at our website and particularly our press releases which will draw you to the closest GAAP equivalent.

Really wanted to just take a couple of minutes today to talk about our view of the evolving recovery in the U.S. housing market and then take a few more minutes to take a slightly deeper dive into PulteGroup in terms of what we are – our business profile, and more specifically to talk about how we are viewing the business today and our particular focus on improving our long-term returns on invested capital as well as some of the work that we do and what we call our value creation strategy. So with that, let's get going.

A lot of the first couple of data points of slides with data are all things that you've seen before. I mean after an extended period of overbuilding we've now gone to multiple years of under building relative to spend our time on U.S. housing demand, and as a consequence we find ourselves in sort of an undersupplied marketplace both for new and in certainly [ph] many markets you see the real limitation of existing housing stock as well.

As a consequence what we've seen is that the bottoming in 2011 at roughly 300,000 new home sales. We've seen a recovery over the last couple of years, the most recent SAAR data showing us on track for roughly 440,000 to 450,000 new home sales. We saw a nice recovery or at least a start of a recovery off of the 2011 bottom. We're still operating at what many people would consider roughly half of the expectations of what would be considered normal new home sales in the United States. Conditions have improved in a lot of the things that you've heard said over this year as well as parts of last; favorable demographics, pent-up demand, generally low inventory and historically low interest rates although they've moved up the bottom.

Would suggest that following Slide 7 here in terms of the data slide, in a quick one page summarizes our view of the housing recovery to-date. After a period of very low sales in the United States, pent-up housing demand you have lots of people living in (indiscernible) as they call it. So whether it's Millennials living at home, it's Millennials sharing apartments, the entry level buyers who are unable to get into a new home because of limited mortgage availability. But if you put that against a – so the number of household formation again at periods of time have been running low relative to historical numbers.

We've got what we think has been probably the biggest driver of the U.S. housing recovery to-date which has really been a drawdown in supply. If you go back not very far, you can go back into 2009, 2010 where you saw months of inventory on the ground in certain of the markets, you might have had 10, 12, 15 months. I think Phoenix peaked to close to 17 or 18 months of supply on the ground. And then what you saw was professional investors. Those were attempting to build businesses around single-family rentals who very quickly drew down a lot of that housing stock.

With that the elimination of distressed sales, the foreclosures, the short sales gave some opportunity for the marketplace to get a little bit of lift particularly on the pricing side, created a sense of urgency, allowed new buyers to come in which created another sense of urgency. And now what you have is a situation where limited supply and particularly limited supply on new land that is in the entitlement process and that's available to build on being in short supply. You've got rapid price appreciation and meaningful price appreciation. You go and look in some of the markets in the last couple of years you'll see price appreciation in the 10%, 15%, 20%, 30% range.

So as prices have started to rise, you brought in more buyers who are anxious to get in again before things got even further. So again, we've been a big believer that the housing recovery so far has been more refluxed [ph] in the supply and that the next leg up will really require a driver more from the broader economy in terms of more jobs, better paying jobs, overall improvement and consumer confidence.

With that as backed up, wanted to just shift gears a little bit now and talk about Pulte specifically. We are one of the nation's largest homebuilders with one of the broadest footprints across United States. We operate in roughly 50 markets currently and operate with a unique brand portfolio in terms of our approach to the market which enables us to more effectively deliver products to first-time buyers as well as move-up buyers and we are by far the largest builder and active adult which I'll touch on a little bit more in a couple of slides.

Again, broad geographic presence; we operate in most of the major metro markets. Before I jump off this slide I want to just point out this color code is there for a reason. One of the things that we've spent a lot of time on and I'll chat more a little bit – I'll spend a little bit more in a second is this idea of trying to be more operationally efficient, more of the manufacturing mindset as we talk about it internally. Within these color coded zones, our goal is to deliver what we call commonly managed product. The idea being that for those buyers, the first-time buyers, the move-up buyers, the active adult buyers you'll see comparable product.

So for example if you go to Dallas, Austin, Houston or San Antonio today and go into one of our Del Webb communities, you will see the same product, right, of opportunity, the option and upgrade it to personal as if your own needs, but again this idea trying to drive greater volume. And the way we're doing that is within what we call our products and purchasing zones. Again, I'll just add a little bit more of that just shortly.

As I touched on, Pulte operates and serves all of the primary buyer groups and we do it through a unique position of a brand strategy. Centex, we're serving the entry-level buyer. Pulte Homes, we're serving the move-up buyer. And Del Webb, we're serving the active adult principally over 55 boomers – the retiring boomers, if you will. The percentages, the 26% of deliveries through the first nine months were Centex, 46% for Pulte Homes. If we had been in this room talking a couple of years ago, you would have seen those numbers almost reversed where better than 40% of our business was first time.

I think the trend that you've seen with a meaningful shift in business away from first time into more of that move-up market is consistent with the overall industry with a real struggle for first-time buyers in particular if you get a mortgage today in very tight lending environment. And generally what you see in a normal housing environment where first-time buyers would make up 40% to 45% of the buyers, today the numbers are running less than 30% from some of the recent numbers that I've seen.

And again the first-time buyers is generally struggling to get into the marketplace principally around putting a down payment together, but more broadly right now their ability to secure mortgage expectations over the near term just given some of the regulations and specifically qualified mortgage which comes on line in 2014. We think those types of conditions are going to continue at least for the foreseeable future. As a consequence we continue to emphasize our investments and the market opportunity at least over the near term for us is going to be more heavily weighted towards that move-up buyer.

The other part of our business which is certainly unique in our industry we are by far the biggest builder of active adult communities. Through our Del Webb brand many of you may be familiar with that. Again it is geared to that over 55 buyer, somebody just moving initially into retirement. And for those of you who have not been in a Del Webb community, the best way to describe these things is basically a Disney cruise ship that don't move. It is all about lifestyle in these communities. If you think of a traditional community maybe it's a 100, 150 homes.

Del Webb communities on the small end, probably close to a 1,000 and on the larger Del Webb communities you can be looking at 5,000 and 6,000 units and the build-out over multiple years. Again, it is very much a lifestyle play as opposed to certainly a high quality and a lot of optionality with the home but a lot of this is for the consumer. They are really looking at a new lifestyle for them for that next stage life.

This buyer, again new plan demographics is one of the largest in terms of the baby boomers, also one of the most affluent. As a consequence almost 40% of these buyers buy for cash. So again, a little bit of inflation in terms of – everybody gets concerned when mortgage rates start to move a little bit higher. This buyer is a little bit more inflated from that.

So as I touched on in terms of Pulte, that was our business profile and now in terms of what we really have been going in for the last three years and this whole idea of what we call value creation, and specifically over time to drive greater returns, greater shareholder value. And really it's been focused on a handful of just key strategies or initiatives, if you will. And it's really to drive earnings growth and much better significantly higher for PulteGroup returns on invested capital by improving just the fundamentals of our business, principally expand homebuilding and gross margins, drive greater overhead leverage, increase inventory returns and more effectively and efficiently allocate capital.

We have been talking about this now for probably the past three years. We have done a pretty deep dive at the end of 2010, so as you're so well into the idea of housing downturn, that's it. How can we run this business a little bit better, how can we do things that can drive greater shareholder value, how can we more consistently post better returns and really that's what we've been marching against and all the activities inside this company have been driving against for the last three years.

Again to the four key points, touching on our first one; actions to drive significantly expanding gross margins. In our most recent quarter, we reported gross margins of about 20.9% again up almost 300 basis points over the prior year. And really it's been a handful of key initiatives and activities for us that have really started to have an impact on the results that we can deliver.

More specifically and I touched on it a couple of slides earlier is a program that we call common plan management and that is comprehensive process, if you will, with the frontend and the idea of doing a lot more consumer research. We do a 12-step process now that has multiple points of consumer feedback. Some of them you may have seen it probably about a month ago and if not, it's on our website today, a large segment done by CNBC. We've built approximately 15 of those floor plans in a warehouse in Chicago and will speak for a moment in house wrapping really walk consumers through to get their feedback. And say, okay, which plans work, which plans need a little modification and which plans you know what those aren't going to make it to market.

So now you have a plan that is a higher probability of consumer acceptance. You can optimize that plan for material content and easily constructability, so you have a highly favorable product that efficient to build and then you build it as often as you can what we call plan throughput. That not too many years ago we delivered about 15,000 homes in a year and we had 3,000 floor plans with which those deliveries came from. That's roughly a throughput of five. Among the best in the industry you're looking at a number that's probably closer to 70, maybe even 75. So as you continue to drawdown the number of floor plans as you have to build, as you have to maintain, you optimize those floor plans and you have a great opportunity to drive efficiencies in the form of gross margins that you deliver.

In the third quarter of this year we said that approximately 16% of our plans were delivered under that common plan management. Over the next several years we expect to drive that number close to 70% or 75%. It won't be 100% as there's too many markets and too many unique positions particularly when we start looking at some of those closer in or in-field positions and some of them more unique land positions as you might find in California or the Northeast in particular.

As part of our strategy along with common plan management in terms of how we go to market, we've changed our pricing methodology, if you will, where today it's much more about offering a very credible and quality base house and giving the consumer a lot of more opportunity to personalize that home by putting in what they value in the form of options and upgrades and a lot of premiums.

So over the last several years as you can see from this chart, our gross margins have benefitted from all the activities around driving efficiency, around a different pricing strategy and certainly recognize the overall lift that we've gotten from the marketplace in the form of improved housing demand overall. Then the last piece just is I talked on a little bit earlier as we've seen a shift in mix from first time to more move-up, our move-up product has higher ASP as well as an improved gross margin.

When you talk about homebuilding you tend to talk about a couple key pieces. One is the house that you build on it, so that vertical construction piece as we talked about it. The other piece is your strategy overall with regard to land acquisitions and land control. Over the last several years we have really been very focused on how we're putting money into ground, how much money we're putting into the ground. Beginning probably 2011, 2012 we've been very focused on rightsizing our balance sheet. We have been shrinking our overall land portfolio and had been really focused on utilizing our existing land assets as a way to really over time improve inventory turns.

As you see from our graph we have started to now start – put a little bit more capital to put more land when the opportunity presents itself under control as opposed to outright ownership where in the past we probably would have looked at – own every lot that we could; now we'll look for opportunities to control it under an option again with this idea of improving inventory turns, improving returns on invested capital and certainly reducing risk if the market doesn't develop as our expectations would suggest.

In 2012 we invested a little under $1 billion in total land investment. That was heavily weighted to development of our existing lots. In 2014 we've indicated that we've authorized spend up to about $1.6 billion and that's going to be a little bit more evenly weighted between development of existing lots as well as the potential acquisition of new lots across the United States.

We have a very disciplined land acquisition process. We have a 13-point criteria and now a more formal risk weighting process, if you will, where very simple finished lot deal, get into it quickly. We might be out of it in 18 to 24 months. So again a product that we know and a market that we know, so it's plain vanilla if you will as you get in the homebuilding industry and we might have a return threshold on that type of product about 20% to 21%.

As it becomes more complicated, you might be looking at a project that going to require some development, maybe you need to put under option and you're going to have to do some entitlement work. Maybe it's a large Del Webb and you're going to a build out over three, four or five years and it's a new product for you. Then it starts to become a slightly riskier project at least on our scale, you can see the threshold in terms of returns that you're going to be looking for and start pushing to 30% and north. So again a very formal process. Every project comes up to – gets sourced at the local market, comes up to our asset management committee, chief financial office that will sign off on every deal.

So as we have been very disciplined in our management of land, in our ongoing investment, again we are not going to try to push capital into the business if we can't find the deals we've been pretty methodical and pretty thoughtful in terms of how we're approaching it. But again with the opportunity to expand investment as we did in 2013 to look to again increase our investment in 2014 as well.

So the last piece that I want to touch on before I open it up to questions is really okay, if you've got a process around vertical construction, your house construction, how you manage your land piece and then ultimately how do you start managing your capital or for us as we talk about it to be much more balanced in our capital allocation. We ended Q3 with about 1.4 billion of cash on our balance sheet and I think the actions that we've taken to the first nine months of 2013 are really very reflective of what we're trying to do, at least what we're willing to do at this point as a company.

Land acquisition as I had indicated in 2013 has been increased through the first nine months. We've invested about $918 million with an authorization of 1.4 billion for 2013. We retired about $461 million in debt and that's consistent with a trend that you've seen over the last several years where we reduced our debt outstanding by over $3 billion. Again with this idea of trying to drive more flexibility or acquire – achieve more flexibility and a stronger balance sheet. As a consequence our debt to cap at the end of the third quarter I think was around 31% and on a net basis adjusting for the cash on hand, it was down around 12% or 13%. So certainly a very strong, very flexible, very accommodating balance sheet that will enable us to consider increasing investment or any other use of capital that we may want to evaluate.

We in Q2 had increased funding for a share repurchase program. We increased the buyback 250 million to roughly 350 million. We utilized about 83 million of that capital in the third quarter to buy back shares. We also at this point have reinstated earlier this year a dividend, our highest dividend level at $0.05 a quarter. At this point through nine months had $38 million worth of declared dividends and had just last week declared our dividend payment for January of 2014.

So again in the past where Pulte would have been much more about can we drive every dollar back into the business, can we build as being a land pipeline as we possibly can. As a consequence when the business turned down that land asset became a pretty meaningful driver and a recognition of a significant risk potential there, but now trying to be more balanced in our use of capital, to be willing to take on certainly more land assets but are there more ways that we can say we don't have to own them outright where there may be more opportunities to do option deals.

Now I would tell you that option deals are tougher to get these days in terms of land and everybody really – you've gone through all the finish lines you've gone through now in many markets where there's less opportunity and there's so much competition further [ph] as a consequence (indiscernible) are really looking for cash deals. But we're certainly where we can and it's more of a mindset at this point in time be willing to consider options as opposed to just outright purchases.

So with that, let me just finish up here. To summarize, the PulteGroup and our strategies are very much focused on return on invested capital over the cycle. In the past when we had been much more focused on just top line growth, we have had a pretty deep dive in 2010 that said we were a top quartile in terms of growth that we had consistently delivered over the prior 20 years but in terms of what we had generated for shareholders, we were kind of middle of the pack and those companies had generated better returns over the course of the cycle, been better for shareholders and that's really what we've been driving against for the last three years and continue to drive against going forward as we talk about internally – inside the company, we use it for a statement. We just say stay the course in terms of the things that we're focused on, return on invested capital, gross margin expansion, SG&A, overhead leverage, inventory turns and again more balanced and efficient allocation of capital.

Land strategy; really focused on utilizing our existing land assets and now with an increase in authorization for spend in 2014, we're starting to expand our portfolio a little bit again where we can achieve appropriate returns. We're not going to try to force it into a business. Unique market position in terms of our brand strategy and going to market, serving all the primary buyer groups but through a distinct brand portfolio, improving Centex for first-time buyers, Pulte Homes through move-up buyers and Del Webb through active adult buyers.

Our balance sheet that gives us a lot of flexibility and I would tell you this. This has been harder for us in terms of remaining disciplined enough to really pay down the debt, to put ourselves in the position of tremendous financial flexibility with a very low debt to cap and a very strong cash position and with a leadership team that is pretty experienced in most of our – with Richard Dugas, our CEO who has got close to 20 years in the business and most of our field operators as well have extensive experience measuring in the 20 to 25 years.

So with that, I very much appreciate your time and attention this morning and if anybody's got questions I think based on the clock we have a few minutes, I'd be happy to answer them as best I can.

Question-and-Answer Session

Michael Roxland - Bank of America Merrill Lynch

Jim, you mentioned in terms of common plan as with 16% closings in 3Q (indiscernible) floor plans in 3Q your targeted 70% to 75%. Can you talk about how that rolls down say 2014 and 2015 and potential margin uplift relative to your (indiscernible) and what we should be expecting?

James P. Zeumer

Sure. For focus of the webcast because I know sometimes it can be hard to hear it in terms of thoughts and rollout of common plan management, in the third quarter of this year about 16% of our plans were commonly managed and that's a simple number but it hides what is a tremendous variation across the zones as I have on this slide up on the screen right now, which is Slide 10. We were very methodical and thoughtful in terms of how we wanted to roll this out. So the first zone that got rolled out was Texas and that was in 2011. If you look at Texas they're probably 60%, may be even 70% commonly managed plans at this point. And again the idea being that it will be a plan that is consistent, it's gone through the 12-step ideally and now it's consistent through all the markets in a particular product and purchasing zone. When Texas started out there were probably 450 floor plans in their portfolio and today that number is about 150 and directionally they think they can maybe get it as well as 100 as they continue to work through getting the new 12-step plans through the process. When we first looked at this opportunity and this then goes back now not three years ago, and it's easy when you're doing nothing and you just snap a top line and say, okay, yesterday we weren't doing it, tomorrow we will be. What's the opportunity? And that point in time we looked at it and said it could anywhere from 300 to 500 basis points of opportunity in terms of cost that we could take out of the home in terms of efficiencies that we thought we could roll out. Now roll forward we had not been sitting idly by. In terms of other areas that – so the Northeast for example which was the last zone to get launched in August; in other parts of the country we certainly look for opportunities to take cost out of our building. Maybe you couldn't do a complete refresh of the product but maybe there were some opportunities you could reconfigure windows or you could reconfigure trusses or you could refigure how – we can figure exactly how the home got laid out. But again you're kind of retrofitting it. It wasn't perfect but all I'm saying is that as you look to today we continue to see a differential in margin between those plans that have not gone through the 12-step that we could consider commonly managed. But as you look ahead, those opportunities that when we originally identified as 300 to 500 basis points, it may not be those types of numbers because again we're kind of working on it all the time so the efficiencies that we've been able to squeeze out, the pricing differentials and the more we've been trying to do with regard to more of a base house with an option and upgrade kind of a pricing model in terms of how we go to market. But as we look at it, again it gives us efficiencies that we didn't have before and this will be an itinerary [ph] process. So once you get through it, you can go back. And now we have – the last thing we called the easy button which is as your plans become standardized across geographies, if you go back in and maybe you figure out a way to reconfigure that you can save five 2-by-4s or that you can do something different with your (indiscernible) where you can take out 20 or 30 feet of run or you can figure out a way to configure that your pluming treatments can be more efficient, maybe it's only $200, $250 or $500 worth of savings but now you can very quickly roll it out across all the plans. So it's not $500 worth of savings that you're going to get on five plans but now maybe it's $500 worth of savings that you're going to get on 500 plans that you're going to deliver across an entire zone. So again, as I've said, we're 60% of the way through it. You should start to see that ramp up pretty quickly and then we've indicated we think we can get to 70%, 75% within two to three years, so that ramp up is going to accelerate. And again with all of the zones launched now, we're in a position to kind of roll through it a little bit faster. Some of it will require – if you've got 25 or 30 houses you may not go in and put the new products in. You would simply wait for the next project or the next phase of a larger project.

Michael Roxland - Bank of America Merrill Lynch

Thanks, Jim.

Unidentified Analyst

I was just hoping you could comment maybe on – some comments on the industry about mortgage markets loosening up a little bit and then maybe also from the financing side if your private competitors have better access to capital or what you're seeing there on the competitive side?

James P. Zeumer

Sure. We have heard comments, anecdotal stories about credit availability loosening up a little bit. Our view is not very much and if it is it tends to be more at the higher price points particularly around jumbo mortgages, if you will. With QM Qualified Mortgage Regulation coming down, our expectation is that at least over the near term banks are going to be writing inside that box. Now what you've had our assessment is that where some of the banks had credit overlays that were actually even tighter than the QM box, you may have seen those overlays come off and now they're writing certain parameters of the QM box. You've seen a little bit more competitive pricing, if you will, and some of the banks have seen refinance volume go away and then start to become more aggressive in this marketplace. But generally no, I don't think we've seen a real meaningful turn in terms of credit availability. Was your second question in terms of private…?

Unidentified Analyst


James P. Zeumer

Their access to capital…?

Unidentified Analyst


James P. Zeumer

Yes, a little better. We've started seeing the private builders get a little bit more aggressive in terms of land acquisition and just their fight to get to the table probably starting 18 months ago even. So that's just telling you that yes, capital is coming back. It's not as plentiful as they would like and many small builders are – real small builders are struggling. They're going to be running off to the local bank. They have that personal relationship that they have with the Acme [ph] bank and trust who are still really – and particularly as it relates to brand development pieces because they still view it as speculation. So generally not dramatic changes in either mortgage availability or credit availability for small builders. I'd just add one other point where small builders are really struggling now is probably more on the labor and their ability to get homes built. We're all facing a constrained labor pool but big builders generally are paying a little bit more, but we can get our houses built to small builders. They were doing 5, 10, 15, 50 homes a year are really struggling to keep (indiscernible) on this site.

Unidentified Analyst

Jim, I have a labor question. How much do you think your labor costs are or what's your forecast for next year in terms of labor?

James P. Zeumer

That it will be higher in all likelihood, again with the expectation that the spring selling season gets off to a strong start. Generally what we've seen – we've talked earlier this year where we said known house costs as we looked at it we're probably going to be up anyway from $3,000 to $3,500, we've seen some pullback in lumber prices over the last several quarters but labor prices have sort of come back and have been an offset to that. So our view generally is that yes, we'll continue to see those types of overall cost increases driven more by labor. There is a recognition in the workforce that those crews and those companies that have survived in the downturn, I mean we've all been very aggressive trying to grab margin wherever we could. I mean they certainly listen to our conference calls and they can see what's going on in the market and they've got pretty robust bill backlogs. They've been very good about keeping their supply, their labor forces very tight. They would much rather have 15 crews a 100% utilized seven days a week rather than make it 19 or 20 crews that maybe they're 90% utilized, so it is pretty entirely controlled. So the expectation that 2014 is a good year, whether there will be some growth and volume over 2013 and just generally that the spring selling season gets off to a strong start, you'd expect that labor costs are going to continue to be an area of potential cost pressure for the builders.

Unidentified Analyst

Hi. You had mentioned the lumber costs have been depressed than labor. Do you expect lumber prices to remain depressed into 2014?

James P. Zeumer

It's a commodity and I think if you follow the paper industry then you're probably closer to what's going to happen with logs than we are. Again, it's a global marketplace for lumber these days. So if there's a recovery in China all of a sudden you've got lots and logs that are going off to China. But again it's a commodity. We buy on a trailing index so we have visibility to it. We don't exposure ourselves to cost risk on homes that are already sold, but again that's going to be much of is there a broader U.S. economic recovery, is there a global recovery? So again my crystal ball, yours is probably better than mine.

Unidentified Analyst

Fair enough. Thank you.

Michael Roxland - Bank of America Merrill Lynch

Anymore questions from the audience? Let me just follow-up with one last one, Jim. Just going back to the commonly managed floor plans, obviously – the question is do you think that the commonly managed floor plans provides you with a competitive advantage first is of the public home builders because I really think that you've become more successful as rolling the commonly floor plan out, you would see other homebuilders kind of copy that approach; probably how do you take that competitive advantage and as we've done much in the past, you're always looking for the next big thing, what's next on your agenda beyond the strategy?

James P. Zeumer

Well, to your first question of can competitors copy it, it's really hard. It's really hard to implement, it's really hard to get that kind of a discipline. And the competition in this industry is fierce, I mean, so we don't kid ourselves and think that the other builders aren't very efficient on how build. But really what we're trying to drive to it's taken us three years to get to 16% commonly managed. And then particularly when you bolt on that frontend piece with regard to a 12-step product development process, it takes a commitment. And this is and again as we talk about internally it's a manufacturing mindset. Ultimately it becomes a grinded out $50 here, $25 there and you save $200 in a lumber package and that's really, really hard work. And then you have to have the discipline to maintain the structure and maintain the approach across your organization. So can competitors follow it? Sure. And this is not trademarkable, it is not a technology, it is just a commitment. There is another builder in the industry that has demonstrated this to a degree even beyond what we're looking at and they've been doing it now for a couple of decades and not everyone's really got close to it. Can builders compete on this strategy? Absolutely, but I'm just going to tell you it's been – it's required a commitment from our leadership team and a relentless discipline and a buy-in from our teams out in the field. In terms of what's the next big thing, I would tell you, Mike, over the next – for the foreseeable future, so let's just say the next couple of years it is as I said before, it is stay the course. We're at 16% commonly managed. We want to get that to 70% or 75%. Once we get there we'll come back and revisit. Maybe there's new opportunities, maybe there's something else we can do, but we really want to focus on driving better returns, improving our fundamental operations and really seeing how much opportunity we can turn into deliverable financial results by continuing to execute against commonly managed plans and just our overall business strategy and better returns over the cycle.

Michael Roxland - Bank of America Merrill Lynch

Any questions, we've got about a minute. If not, okay, Jim, we certainly appreciate your time.

James P. Zeumer

Thank you for your time this morning.

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