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UCP, Inc. (NYSE:UCP)

Q4 2013 Earnings Conference Call

March 13, 2014 12:00 PM ET

Executives

Rodny Nacier - IR

Dustin Bogue - President and CEO

Will La Herran - CFO

James Fletcher - COO

Analysts

Will Randall - Citigroup

Brendan Lynch - Sidoti & Company

Alex Barron - Housing Research Center

Alan Ratner - Zelman & Associates

Rob Hanson - Deutsche Bank

Operator

Greetings and welcome to the UCP Fourth Quarter and Full Year 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Rodny Nacier, Investor Relations. Thank you, you may begin.

Rodny Nacier

Good afternoon and welcome to UCP's fourth quarter and year-end 2013 earnings call. Earlier today the Company released its financial results for the quarter. The related press release and SEC filings are available in the Investor Relations section of the Company's website at www.unioncommunityllc.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call constitute forward-looking statements and may not be based on historical information. The forward-looking statements are based on management's current expectations and beliefs and they are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in forward-looking statements.

I refer you to the Company’s filings made with the SEC for more detailed discussions of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The Company undertakes no duty to update any forward-looking statements that are made during the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. The Company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of certain non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov.

Hosting the call today is Dustin Bogue, UCP's President and Chief Executive Officer; William La Herran, the Company's Chief Financial Officer; and James Fletcher, the Company's Chief Operating Officer.

With that, I will now turn the call over to Dustin.

Dustin Bogue

Thank you for attending our call. Today I will provide a brief summary of our fourth quarter and full year highlights, a few data points that I believe may be of interest to our shareholders as well as some insight into the coming quarter. Will is then going to provide additional detail on our financial results. Afterward, we will be happy to take your questions.

During 2013 we made significant progress in the growth of our homebuilding operations, while positioning our Company to continue expanding into attractive housing markets. For the full year, we grew our homebuilding revenue to 72.5 million, up from 14.1 million a year ago representing a 416% year-over-year growth, albeit from a very low base from 2012. For the fourth quarter of 2013 we more than doubled homebuilding revenue to 25.9 million from 9.7 million a year ago. From a quarter-over-quarter perspective, our fourth quarter revenue from homebuilding grew 4.5 million, up from 21.4 million in the third quarter of 2013.

For the full year we had 205 net new orders, up from 61 a year ago, largely a result of our expanding community count. In the fourth quarter we had orders of 40 as compared to 34 in the same quarter of 2012, and 44 in the third quarter of 2013. As a growing Company our long-term trajectory is highly favorable. However, given current size of growing base, quarterly trends may be dynamic as it is consistent with most companies of our size and growth plan.

Said bluntly, our growth is not likely to be directly linear, for example, the broader macroeconomic conditions in the back half of last year, most definitely resulted in our orders sequentially declining in the quarter. Now, January and February orders are continuing to increase as a result of macro stability or at least the lack of negative news, a concerted marketing and advertising effort on our part and a few instances some increased incentives.

Our cancellation rates improved sequentially to 15% in the fourth quarter from 21% last quarter. Almost all of our cancellations remained high to buyer’s ability to qualify which currently is limited by among other things, revised FHA lending limits. Our home financing process is considerably more streamlined and efficient than it has been in the past. Our lending partners are able to close loans with qualified buyers quite rapidly, in some cases less than 21 days. UCP is a focused regional builder and our strategy is to operate and invest in some of the fundamentally strongest markets in the nation.

Regardless of interest rates, politics, and seasonality, we’re confident that housing will continue its sustained long-term recovery especially in our core markets where the fundamental dynamics for housing remain quiet positive. For example, all of our markets remain supply constrained with between one month and four months supply of inventory, compared to the national average of five month supply as of December 2013.

In addition, the majority of our markets are continuing to create jobs and grow households. Currently the jobs to permit ratios in our markets are at an average of three jobs created for every permit issued, versus the national average of approximately 1.2 jobs created for every permit. In Monterey we are seeing job to permit ratios hover around seven jobs to every permit. Our market research also provides us guidance for our land acquisition strategies leading to growth opportunities for our Company. We pursue a disciplined and focused land strategy that has allowed us to grow our community count significantly over the past year to nine at the end of 2013, compared to four at the end of 2012. During the same time, we increased our new home deliveries to 196 from 41. This continued expansion in our community count will help us keep growing at a pace that exceeds local market recovery rates.

Now I’d like to provide you some of our annual regional performance metrics. In the Central Valley region, which is principally the Fresno and Clovis marketplace, we experienced significant operational growth. Of our 196 closings in 2013, 118 closings, or 60% of the companywide closings came from the Central Valley market. We’ve generated an average of 4.4 closings per month per community during the year. We maintain a strong market position in this region and a very strong pipeline, which will allow us to continue to strategically expand into various submarkets.

Monterey performed well in 2013 despite the fact that we were in a pre-sales mode at East Garrison that is to say that our models were not open and we had limited spec inventory available to close before December. The Monterey market contributed 47 closings which represents almost 24% of our total closings. We average 3.9 sales per month per community. Additionally, we had our grand opening at East Garrison and Monterey County region March 1, 2014. I am proud to say the opening was a success and we saw over 350 groups or around 1,000 people at the event.

In the Bay Area region, with very little activity as we were closing out some of our smaller communities from 2012. Nonetheless, we had 31 closings which represented almost 16% of our total closings and we averaged 2.1 closings per community per month. Today the Washington region has contributed revenue from land sales led by our local operating team. As of March 8th, this is going to change because we opened two communities at The Preserve in Tumwater master-planning community. Again this grand opening was met with healthy acceptance from the market where we had over 200 groups and based on the prequalification process we expect to see a healthy sales base of this community.

In the fourth quarter we improved our already strong land and lot position while maintaining our discipline. At the end of the quarter our lot position was 5,380 versus 4,853 at the end of 2012. As a management team, we remain disciplined and dedicated to identifying and acquiring properties, while not sacrificing our underwriting standards, which means the number of controlled lots may vary even widely at times. As an example, our lot position decreased from the third quarter to the fourth quarter 2013. This sequential decrease was largely a result of the reduction in our controlled lots as we choose not to proceed with the purchase or purchases as a result of our feasibility.

As we have stated previously, we typically engage a land seller with a purchase agreement that contains a contingency period to verify our underwriting assumptions and investigate the property. If we believe the risk reward balance is outlined then we will have the option to terminate the agreement with a very minimal amount of money at risk, if any. One property located in Northern Central Valley consisted of over 550 units and after considerable due diligence we determined it was subject to unacceptable risk for UCP, so we terminated the agreement.

As we move into the spring selling season, we have made an adjustment to our spec home practices. Historically, we have taken a conservative approach to spec inventory. Essentially, we’ve done a good job providing just enough inventory to meet demand. In the fourth quarter of 2013, we increased our spec home construction with the specific intent of shortening our sales cycle and providing homes to the buyer pool in time for the spring sales season. As of 12/31, the total number of homes under construction was 133, of which 24 were sold, 19 were models, and 90 were true spec homes in various stages of completion, only 12 of our completed homes remaining unsold across our nine communities. The increase in our units under construction compares the 44 at the end of fourth quarter of 2012 and 106 at the end of the third quarter of 2013.

In closing, our operating strategy remains the same, to grow community count in our existing markets, identifying new markets with strong demographics and growth fundamentals, attractive best local talent in those markets and source land opportunity to exceed our underwriting criteria. Then initiate homebuilding operations. Further, our expanding purchasing leverage as a result of our growing operations, our land pipeline and our largely unlevered balance sheet, will allow us to continue to grow our homebuilding revenue and community count into the future.

Now I’d like to turn it over to Will to provide some more information on the year’s performance.

Will La Herran

Thank you, Dustin. During 2013, we set the stage to accomplish our long-term operating and financial goals. For the full year, total revenue, including homebuilding and land development, was up 60% to 92.7 million as compared to 58.1 million in 2012. For the fourth quarter of 2013, our total revenue was 29.6 million compared to 29.9 million in the fourth quarter last year. As a reminder, our year-over-year total revenue comparisons show the deliberate shift in our monetization strategy. In 2012, our business objectives included significant land sales as we began ramping up our homebuilding operations.

In contrast, our 2013 efforts have been much more focused on our growing homebuilding revenue platform and that’s where we continue to focus our efforts to drive our growth. For the full year 2013, our homebuilding revenue increased four times to 72.5 million from 14.1 million in 2012. In the fourth quarter of 2013, our homebuilding revenue increased 166% to 25.9 million from 9.7 million as compared to the same period last year. In the fourth quarter, the growth in homebuilding revenue on a year-over-year basis was driven by an increase in home deliveries with a partial offset from the lower ASP. The number of homes delivered increased to 65 during this quarter as compared to 24 homes during the same period last year.

Resulting from a change in the regional mix of our closings, the average selling price of homes during the fourth quarter decreased to approximately $398,000 as compared to approximately $406,000 during the same period last year. Specifically in Q4, 2012, 63% of our home revenue was derived from our South San Francisco Bay area market and the ASP of these homes was approximately $473,000.

In Q4 2013, approximately 71% of our home revenue came from our Central Valley market and the ASP for these homes was approximately $317,000. These shifts in regional mix when they occur are the largest determinant of our overall ASP. Our ASP of backlog was 39% higher at the end of 2013 compared to 2012 which was favorable. However, we would continue to expect that the timing of deliveries and regional mix to influence year-over-year and quarter-over-quarter comparisons to reported ASP. To breakdown the backlog data a bit further, approximately 55% of our Q4 backlog came from our four open Central Valley projects, 32% came from our two South San Francisco Bay area projects and 13% from our three communities at our East Garrison development. Our land sales for the full year were 20.2 million compared to 44.1 million last year.

During the fourth quarter our land sales was 3.7 million compared to 20.1 million in the same period last year. The year-over-year comparisons in land revenue was a function of two things. First, our focus on monetizing our assets through our homebuilding operations and second, we did see a moderation of demand for land in the second half of 2013. This moderation was correlated to the market conditions we experienced in the second half of 2013 that Dustin described earlier. While we are focused on growing our homebuilding operations, we do expect to continue to sell land opportunistically and it has been our experience that land demand can fluctuate significantly from period-to-period. For example, shortly after the New Year, there appeared to be a significant pickup in the demand for land.

Our adjusted homebuilding gross margin for the full year was 22.3% compared to 30.9% in 2012. For the fourth quarter on an adjusted basis, our homebuilding gross margin was 20.6% compared to 31.6% for the same period last year. Our gross margin performance for the full year and fourth quarter were generally in line with our expectations and were attributable to the fact that during the prior year we only had a few communities delivering homes and those communities have particularly strong gross margins. Additionally, the relative age of each community impacts our homebuilding gross margins in that we typically get better gross margins as the community ages. Factors such as introductory pricing, value engineering and community appreciation typically come into play during the course of any given project. In an environment where community count is more than doubling on a period-over-period basis, these factors will influence our results.

The adjusted gross margin for land development increased to 33.2% for the full year compared to 28.4% in 2012. For the fourth quarter, the adjusted gross margin for land development increased to 35.5% compared to 27.1% in the same period last year. In Q4, we sold 115 finished lots in our Central Valley market. Sales and marketing expenses for the quarter were 1.9 million as compared to approximately 1.5 million in the fourth quarter of 2012 due to our higher community count. As a percentage of total revenue, sales and marketing expense increased to 6.4% as compared to 5.2% last year primarily as the result of additional sales and marketing headcount to support increased selling communities and additional transaction in advertising cost.

However, our sales and marketing expenses are primarily related to our homebuilding operations and as a percent of total homebuilding revenue, sales and marketing declined to 7.3% in Q4 compared to 15.8% in the same period last year. G&A expenses for the quarter were 6.1 million compared to 3 million during the same period last year, the increase in G&A expense was primarily attributable to the increase in headcounts to support our near-term growth plans, expenses related to operating as a public company and 1.2 million of stock-based compensation as communicated in our IPO prospectus.

We’re continuing to monitor our total operating expenses very closely as we look to realize operating leverage across our home building platform. UCP’s net operating loss for the fourth quarter was approximately 2 million, compared to net income of 3.7 million in the same period last year. The fourth quarter 2013 loss included approximately 118,000 of losses attributable to non-controlling interest. For the full year, our net operating loss was 4.3 million compared to net income of 3 million last year. In 2013 net loss included 2.3 million of losses attributable to our non-controlling interest.

We entered 2014 with a strong balance sheet to support our growth initiatives and investments. We ended the fourth quarter with 87.5 million in cash and only 31 million of debt. It’s our attempt to remain well capitalized as we grow our Company. Now related to our outlook we’d like to reiterate that we are a high growth Company and we plan to double our revenue in 2014 by utilizing our unique homebuilding and land development platforms. As mentioned earlier, we expect the growth rate to fluctuate from quarter-to-quarter as we continue to expand our footprint, but our strategy, market dynamics associated with our submarkets in our existing land portfolio all support our growth objectives for the full year 2014 and beyond.

With that review I’ll now pass the call back to Dustin for closing remarks.

Dustin Bogue

Thank you. In conclusion, our plan for 2014 is straight forward. We plan to double our revenue and community count. We will continue to leverage the past investments we have made and look to expand appropriately in order to continue improving our operating results in the quarters and years to come.

With that I thank you and we’re ready to open the call to questions, operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time we’ll be conducting a question-and-answer session. (Operator Instructions) Also in the interest of time, the management team asks that you limit yourself to two to three questions and then re -queue for further questions. (Operator Instructions) Our first question is coming from the line of Mr. Will Randall with Citi. Your line is now open. You may proceed with your question.

Will Randall - Citigroup

Hi. Good morning in the West Coast and thanks for taking my question.

Dustin Bogue

Hi, there. Thanks Will.

Will Randall - Citigroup

In terms of you guys are talking about doubling community count and revenue and I realize there will be fluctuations. But given your backlog ASPs around of north of 400. How should we think about that and kind of the order pace we’ve seen in the first quarter so far?

Dustin Bogue

Yes relative to the ASP, as we have talked in the past that’s very much of a mix question. So I think our goal is to stabilize the ASP throughout the year. But as we -- you might see fluctuations as we open a lower price community given that as you go from 9 to 18 even one community has an impact on the mix. What was the other question?

Will Randall - Citigroup

Sorry, the order pace, what have you been seeing kind of in your books so far year-to-date?

Dustin Bogue

Yes, I am sorry about that. Really we saw a drop off pretty significantly in the fourth quarter picked back up as we discussed prior in November and December. And we’ve seen a trend pretty consistent through January and February of orders that we’ve expected. I mean we’re probably a little bit behind in the first quarter but it’s not that significant. And as going forward I think the openings of communities are really helping, we’re seeing significant traffic and orders coming out of East Garrison and we think we’ll the same thing coming out of the Tumwater site.

Will Randall - Citigroup

And just one last one on East Garrison, it looks beautiful in terms of the models you are putting up, it sounds like a lot of interest. Are you seeing a lot of order -- conversion of orders there, what’s driving the growth?

Dustin Bogue

Yes.

Will Randall - Citigroup

Sorry.

Dustin Bogue

Yes we are, what’s nice is we’re seeing it throughout the product mix, and we’re just transparently were about eight for the first couple of weeks in March. So we think will be some place between eight and 15 by the end of the month.

Will Randall - Citigroup

Thanks guys and good luck.

Dustin Bogue

I appreciate it. Thank you.

Will La Herran

Thank you.

Operator

Thank you. Our next question is coming from the line of Mr. Brendan Lynch with Sidoti. Your line is now open. You may proceed with your question.

Brendan Lynch - Sidoti & Company

Thanks, good morning Dustin, good morning Will.

Will La Herran

Good morning.

Dustin Bogue

Hi Brendan.

Brendan Lynch - Sidoti & Company

My question is regarding your absorption pace. And what rate you are targeting as you are opening these new communities, it looks like you had a pretty strong pace in the Center Valley and Monterey and just wanted to get your thoughts on whether you could maintain that pace over the next couple of quarters?

Dustin Bogue

Yes, I think we typically target somewhere in the neighborhood is three per month in our underwriting and then of course as we get to sales we’ll tend to kind of set sales goals that are higher than that. And as we move forward, I think we’ll be pretty cautious about getting too far ahead of ourselves on projections and try to maintain that three moving through the year. As you can see in the Central Valley, we’ve done better than that and what we’re finding right now is that specifically in that Fresno and Clovis market the move up buyer is really coming out and we’re seeing a healthy sales base in our move up communities and slightly moderated sales base in the first time and sort of more affluent first time buyer but it’s probably in the neighborhood of 30 points off -- 0.3 a month something like that.

Brendan Lynch - Sidoti & Company

Okay. Very good, that’s helpful. My other question is on your G&A spending. It looks like you had picked up quite a bit as you mentioned you’re hiring a lot of people as you’re opening these new communities. Can you just talk about the you’re hiring going forward and the leverage that you expect to get out of that G&A spending over the next couple of quarters?

Will La Herran

I think that’s a good point as well. We do expect to see some operating leverage. And I think that we don’t expect there to be a linear correlation between our revenue growth and G&A obviously. And we’re going to issue our Q or K filing or so in that we would give a little bit more detail as to what’s going on in our G&A and so forth. But we do expect to see leverage here. So as our revenue grows, we don’t expect to see a large increase in our G&A. There are variable components of our G&A that are correlated or connected to opening in communities but by and large the platform is built and it’s built for more units than we’re currently delivering today.

Brendan Lynch - Sidoti & Company

Okay, great. Thanks for the color.

Operator

Thank you. Our next question is coming from the line of Mr. Alex Barron with the Housing Research Center. Your line is now open. You may proceed with your question.

Alex Barron - Housing Research Center

Thanks guys. Can you talk a little bit about maybe some of those details in the G&A. I’m trying to understand like what’s a good run rate, should we assume more of this incentive compensation going forward and I guess what was your headcount this quarter versus a year ago?

Dustin Bogue

Yes, so I think as we move forward, like Will was saying our core operating platform is largely in place. So, we do expect to see leverage and as we double our deliveries we saw 196 this year. So, as you double that, we’ll begin to get leverage out of the corporate infrastructure. What Will was talking about on the ground is largely sales people and the local construction management platform that needs to get put in place for each individual community. As far as incentive compensation goes. We are sticking pretty close to what was in the -- that’s one and I think it’s likely spiked up here in the fourth quarter as a result of that, but among other minor SG&A things that add up. So, I would expect it to trend down throughout the year.

Will La Herran

Yes, our headcount at the year-end was 90 people and I think that as we indicated I don’t think that -- we would expect that to grow in a very significant way over the course of the year. So, we are definitely examining our G&A closely. There are operating costs associated with being a public company and also as a controlled company and those are areas where we think we can leverage and improve.

Alex Barron - Housing Research Center

Got it. Okay, thanks. And what can you comment as far as your strategy on building specs versus build to order, how do you guys kind of see yourselves and how many specs do you guys have at the moment?

Dustin Bogue

I think we talked -- some of those numbers are in the opening comments. At the end of the day 12/31 we have 90 true spec homes across nine communities. So, that’s something in the neighborhood and just straight line average of about 10 per community and those are in various stages of completion. So, I think 12 were actually totally complete across all nine communities. So, we’re still pretty cautious. We’re not going to get far out on completed inventory. But having a good mix of products on the ground definitely allows you to deliver to the buyer as needed.

Alex Barron - Housing Research Center

Right.

Dustin Bogue

So, that’s our strategy.

Will La Herran

Yes. I think we’re at the moment -- there are two things that are that we think about with regard to our specs today versus we’ve got new communities to pretty large new communities, the Preserve at Tumwater up in Washington and East Garrison. Any new community requires a larger spec level than you would get sort of mid project, right to get the thing rolling along. So, that’s definitely a consideration for us today. Secondly, the data for our markets in terms of the housing fundamentals are really strong. So looking towards a low affordability is high, there’s job creation, we have to trust those fundamentals, and so as we, as those fundamentals persist and as we go into the selling season we want to have product to deliver and so I think those two considerations are things that we think about.

Alex Barron - Housing Research Center

Okay. And if I could ask one last one on the gross margin side, is that sequential decline in margins related to some kind of incentives or what’s going on there?

Dustin Bogue

It’s more influenced by the -- in my opinion age of the delivery so if a mature -- we don’t have a large population in communities, we’re a small Company so when mature communities sell out at their peak performance level and those are replaced by new communities, coming online wherein you have introductory pricing, and you have still forward potential for value improvement or valued efficiencies, that has an effect on your gross margin, that’s just going to roll on our gross margin at the moment, we just have a -- it’s a age mix if you will of our communities.

Alex Barron - Housing Research Center

And the answer is obviously it’s fluctuated quite a bit and was just trying to get a sense of what to expect going forward.

Will La Herran

Yes, that -- well I think as a small -- and Dustin talks about this a lot and I think it’s really true, it’s a small Company, we’re subject to a little bit, probably more fluctuations than of a large company offering a multiple U.S. regional geographies.

Alex Barron - Housing Research Center

Right, okay, that explains it. And as far as land sales, are you guys kind of thinking we’ll continue to see sales of similar pace or is that just kind of on an opportunistic basis or is that going to be climbing even further?

Dustin Bogue

Yes, let’s go and make this the last question if you don’t mind but that’s a good one. Land is, it’s definitely opportunistic. We have a plan we march toward that plan. What we saw and Will commented last call that in the fourth quarter as you might expect with some of the turbulence that was occurring, around the state we saw traffic slow and sales slow. And so consequently you’re going to see a demand on land lean. As we move into the first quarter it feels like everyone is seeing a more robust traffic and sales volume so consequently that land demand has picked back up again.

Operator

Thank you. Our next question is coming from the line of Mr. Alan Ratner with Zelman & Associates. Your line is now open. You may proceed with your question.

Alan Ratner - Zelman & Associates

Hi guys, thanks for taking my question. Dustin, just on the incentive front, I was hoping you could just give a little more granularity about what you’re doing on that front and I think you did mention in some cases you have increased the incentives and in that vein just on the new communities you are opening, East Garrison and Tumwater obviously in focus here, how have the introductory prices on this communities looked versus what you were initially expecting say back in that last summer when you filed your prospectus?

Dustin Bogue

Great questions, first on the incentive front, it is submarket-by-submarket, but I’ll be specific for you, you look in the Fresno, Clovis markets we operate in. We definitely increased our incentives in the neighborhood of up to maybe $5,000 of additional incentives in the first time buyer and moved in sort of more affluent first time buyer market. Whereas you get to the move up product and we’ve actually seen some increases in price, additional option buying it’s going the opposite direction. And I’ll tell you, there’s an opinion but one of my opinions is that through the last several years especially on the FHA financing front, buyers are conditioned that the first time level for a certain incentive and so they are looking for right out of the shoe, sometimes that’s their first question. When you move over to the coast it’s less so. We definitely have a moderated incentive base down there and as far as new community openings they’re pretty close to what we projected, if it’s varying for introductory pricing it’s probably in the neighborhood of 1 percentage point or so or possibly 2.

Alan Ratner - Zelman & Associates

Got it, and on the incentive front you mentioned throughout ’13 your goal was really to build up a backlog and maybe even if that meant leaving some margin on the table but just curious those incentives you mentioned in the Central Valley. Do you view yourselves as kind of the price leaders in that market or are you reacting to other builders in terms of what you’re seeing in incentives?

Dustin Bogue

Yes, I mean we track our competition pretty closely, so we’re right in the pack on the -- again in that sort of first time more affluent first time buyer market, and I don’t think we’re high, I don’t think we’re low, and by the way it ebbs and flows, with if one of our competitors decides they need to get sales who knows what they do, we tend to stick pretty close to what we offer. And then again as you move to the move up buyer, it’s, we’re more or less, in most cases we’re one of the upward price leaders of that marketplace.

Alan Ratner - Zelman & Associates

Okay, thanks a lot, guys, good luck.

Dustin Bogue

Thank you.

Operator

Thank you. Our next question is coming from the line of Nishu Sood with Deutsche Bank. Your line is now open. You may proceed with your question.

Rob Hanson - Deutsche Bank

Thanks, it’s Rob Hanson on for Nishu, so just wanted to ask you about your land buying in the future here, you have plenty of land on the books here, you’ve got plenty of dry powder too and obviously enough time too, so where are you targeting for your future land buys in terms of using a lot of the cash on your balance sheet?

Dustin Bogue

Yes, and great question thanks, as you know, two things, one, we talked last quarter about starting our Southern California operations so we’re definitely focused on building a pipeline of land and ultimately deliveries coming out of this locale which again is sort of LA Ventura current marketplace. And we’ll see some level of delivery this year out of that marketplace and then again in the Seattle, Puget Sound market we have got a pretty decent land pipeline up there but we’re still looking to deepen it and especially in certain submarkets, but we’ve done a lot of analysis in both those markets and have a pretty targeted approach.

Rob Hanson - Deutsche Bank

Okay and then how many communities are you expecting to open this year, on a gross basis?

Dustin Bogue

Well, we talked about doubling our community count this year.

Rob Hanson - Deutsche Bank

Okay, got it, alright then, that’s all I’ve got for now.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Dustin Bogue

Thank you again for attending. This was a hallmark year for us as we came off the IPO and focused on growing our homebuilding platform. It’s year one and we’re moving now into year two with a very diligent and deliberate approach and we’re excited about what’s to come. As I said in my opening remarks it’s unlikely that it’ll be totally linear our growth pattern, but we do have a very specific plan that we’re executing and not being bigger than the markets, we know we’ll get there so we’re moving in that direction. Thanks again.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you very much for your participation.

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