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PulteGroup (NYSE:PHM)

Q4 2010 Earnings Call

February 04, 2011 8:30 am ET

Executives

James Zeumer - Vice President of Investor Relations

Roger Cregg - Chief Financial Officer and Executive Vice President

Michael Schweninger - Principal Accounting Officer, Vice President and Controller

Richard Dugas - Chairman, Chief Executive Officer, President and Member of Finance Committee

Analysts

Carl Reichardt - Wells Fargo Securities, LLC

Daniel Oppenheim - Crédit Suisse AG

Stephen East - Ticonderoga Securities LLC

Nishu Sood - Deutsche Bank AG

David Goldberg - UBS Investment Bank

Michael Rehaut - JP Morgan Chase & Co

Josh Levin - Citigroup Inc

Michael Smith - Oppenheimer

Michael Widner - Stifel, Nicolaus & Co., Inc.

Joshua Pollard - Goldman Sachs Group Inc.

Ivy Lynne Zelman

Jonathan Ellis - BofA Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 PulteGroup, Inc. Earnings Conference Call. My name is Caitlin, and I will be your operator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today, to Mr. Jim Zeumer. You may proceed.

James Zeumer

Thank you, Caitlin. Good morning. This is Jim Zeumer, Vice President of Investor Relations. On behalf of the entire PulteGroup team, I want to thank everyone for participating in today's call. With me to discuss PulteGroup's fourth quarter and full year results are Richard Dugas, Chairman, President and CEO; Roger Cregg, Executive Vice President and CFO; Mike Schweninger, Vice President and Controller.

Before we begin, copies of this morning's press release and the presentation slides that accompanies today's call have been posted on our corporate website at pultegroupinc.com. Further, an audio replay of today's call will also be available on the site later today. Also please note that any non-GAAP financial measures discussed on this call are reconciled to the U.S. GAAP equivalent as part of the press release and as an appendix to the call's presentation slide deck.

Finally, today's presentation may include forward-looking statements about PulteGroup's future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

With that said, now let me turn the call over to Richard Dugas.

Richard Dugas

Thanks, Jim, and good morning, everyone. At 375,000 new home sales, it was thought that 2009 would mark the bottom of the housing cycle, but 2010 saw sales decline another 15%. High unemployment, weak consumer confidence and an oversupply of existing homes selling at distressed prices conspired to keep a lid on demand and pressure on new home construction throughout much of the year.

The good news is that the U.S. economy is providing clearer signs of recovery and is now beginning to put people back to work. Among some of the recent and for us, local examples, are Ford's announced plans to hire 7,000 people and GM's decision to add 750 employees at an area plant. The numbers are modest, but the outlook is more encouraging than it has been in the recent past.

In response to a better outlook for jobs, consumer sentiment continues to drift higher. We have talked about how we believe housing's struggle is more about demand than supply. Having the 90-plus percent of people who are employed growing more confident is critical to getting them back into our models and ultimately to buying homes. In fact, we are hearing encouraging comments coming from a number of our markets about buyer activity in January. We need a lot more than four weeks in January to determine how the selling season and the year will ultimately develop. Still, getting off to a strong start would be very positive sign, especially given the absence of any government stimulus this year.

The combination of more jobs, better consumer confidence and relatively stable demand is improving outlooks, as recent industry reports are forecasting new home sales in 2011 could be up 10% to 20%. We appreciate that these are just forecasts and that coming off the current low volumes, the percentages would not translate into big unit volume gains but it's still an improvement from recent expectations.

PulteGroup's fourth quarter results and, in fact, our entire year, reflect the challenges and opportunities being seen in the surrounding economy and industry. For the fourth quarter, closings in revenues showed sequential gains from Q3, climbing 14% and 13%, respectively. At 16.6%, our gross margins, excluding interest costs and charges taken in the quarter, were essentially unchanged from Q3 and up 240 basis points from the previous year. Adjusting for charges and benefits realized in the quarter, SG&A in the period was down approximately $40 million from last year. As discussed on our previous call, we recently restructured our organization to further reduce overhead spending. Cost reduction initiatives implemented throughout 2010 helped to reduce SG&A and will drive material benefits into 2011 as well.

In the end, adjusted for charges, our underlying Homebuilding business operated around the breakeven mark for the quarter as we have done for much of the year. During the turmoil of the past several years, having a breakeven Homebuilding business would have been acceptable or even good. With the broader economy getting stronger and the industry showing small signs of recovery, breakeven isn't good enough. As a company, we have to do better and have implemented a number of changes to improve the key financial drivers of our business.

Our gross margins need to expand further. At roughly 16.5%, adjusted margins are certainly up from this time last year, but we still lag the industry. Part of the margin difference is tied to our long-term land strategy and as such, should adjust itself in time. Our decision to retain critical land positions will benefit us greatly in the future, but right now, embedded margins are lower than those associated with distressed land deals, builders have been purchasing over the past 12 to 15 months.

In 2011, closings from recently acquired distressed land transactions are expected to climb to 15% or even higher as we continue to acquire lots and open communities during the year. As part of the 130 communities scheduled to open in 2011, these new selling efforts have gross margins that average about 300 basis points higher than our legacy positions. We expect closings delivered from these new communities to support further margin gains in the coming year.

Having completed 100 land deals over the past 12 months, these transactions have provided an opportunistic transition strategy, but they are small and are growing increasingly scarce in the market and when they are gone, they are gone. With a large supply of finished as well as entitled lots, we clearly will be advantaged later in the housing cycle, given our access to a large supply of lots with lower embedded costs. Beyond long-term land opportunities, we have more immediate initiatives in process to enhance margins in 2011 and beyond.

For the fourth quarter, excluding impairment and interest costs, our reported gross margins by brand were approximately 16% for Centex, 17% for Pulte and 18% for Del Webb. They are all up dramatically from just 18 months ago and we see opportunities to improve these numbers in 2011 through ongoing initiatives focused on reducing construction costs. Achieving better results means doing some things better, but it also means doing some things differently, even unwinding certain decisions made previously.

When our volumes were approaching 50,000 houses a year, national building plans, standardized specifications and centralized purchasing of most product lines was advantageous. At current volumes, it is making sense for us to push more of these activities down to the local market. As part of our Q3 restructuring, we have given greater control back to our field operations to drive local house construction costs lower. We also implemented actions to wind down our plant-based operations in Phoenix where low volumes had turned plant deficiencies into a margin drag of a couple of hundred basis points for the division. While having to change course on previous strategies is frustrating, it is the right action to drive meaningful change and capture more significant savings.

Along with purchasing, we are also undoing a process change from Q1 of last year that created a pending category for sign ups. Implementing the program increased administrative issues for the field, while providing minimal benefits to our customers and our operations. This change enhanced reported Q4 sign ups by about 200 units.

Continuing to improve our bottom line results goes beyond just expanding gross margins and in fourth quarter, we took a restructuring charge of approximately $33 million related to the previously announced actions to resize our operations to better match today's low-volume environment. As detailed last quarter, we consolidated operating areas and divisions and reduced corporate staff. In conjunction with other cost-savings initiatives implemented in 2010, we expect these actions will help lower full year 2011 SG&A costs on an adjusted basis by $100 million when compared with 2010. Further, we took the necessary steps in 2010 so we can begin realizing the benefits right from the start of 2011.

I want to recognize and thank our operating teams for the steady progress we've made in the fourth quarter and over the course of 2010. We recognized that work remains to be done and we have implemented a number of critical actions needed to begin improving our results immediately.

Now let me turn the call over to Roger for a review of our Q4 results. Roger?

Roger Cregg

Thank you, Richard, and good morning, everyone. Revenues for the quarter from Home Settlements from the Homebuilding operations decreased approximately 28% from the prior-year quarter to approximately $1.2 billion. Decreased revenues reflect lower unit closings that were below prior year by approximately 29%. The average sales price increase approximately 2% versus the prior-year quarter to an average of $262,000. This increase is attributed to the geographical and product mix of homes closed during the current quarter.

In the fourth quarter, land sales generated approximately $2 million in total revenues, which is a decrease of approximately $88 million versus the previous year's quarter. The sales in the quarter mainly reflect the sales of lots and land parcels to developers and other builders.

Homebuilding gross profits from Home Settlements for the quarter, including Homebuilding interest expense, was approximately $56 million versus $26 million in the prior-year quarter. For those with access to the webcast slides, I refer you to Slide #6, the adjusted margin analysis, which outlines our gross margins.

Homebuilding gross margins from Home Settlements, as a percentage of revenues, was 4.9% compared to 1.6% in the fourth quarter of 2009. Adjusting the current quarter's gross margins for land and community valuation charges, interest expense and the acquisition accounting write-up for the Centex work in process resulted in a conversion of 16.6% compared to an adjusted margin of 16.7% for the third quarter of 2010. Around a sequential basis, a decrease of approximately 10 basis points on an adjusted basis.

This decrease is mainly attributed to the geographical and product mix of homes closed during the quarter. On a comparative basis versus the previous year's fourth quarter conversion of 14.2%, the adjusted increase is approximately 240 basis points. The improved margins, on an adjusted basis versus the previous year's quarter, are a direct result of lower sales incentives, house cost improvements and a relatively stable market price in most markets.

Homebuilding interest expense increased for the quarter to approximately $67 million versus approximately $41 million in the prior year. Included in the interest expense of $67 million is an additional $14 million of expense related to the land and community valuation adjustments taken in the current quarter and $11 million in the same period last year.

Also included in gross margins for the quarter was a charge related to land and community valuation adjustments in the amount of approximately $68 million. Consistent with prior quarters, we have reviewed all communities for impairment indicators. Based on this review in the fourth quarter, we identified and tested 92 communities for potential impairment and valuation adjustments. The recorded valuation adjustments on 73 communities for the quarter of which 23 communities or 32% have been previously impaired.

Additionally, the larger impairments for the quarter came from 15 specific projects and represented approximately $53 million or 77% of the total $68 million in impairments. These are mainly concentrated in the Carolinas, North Florida, Illinois, St. Louis and Las Vegas markets. Some of the reasons for the impairments this quarter were due to project repositionings where density impacted lot costing and pace of sales, where it was determined that a change in pricing would benefit in certain competitive submarkets, thus pressuring margins resulting in further write-downs.

The total net loss from land sales posted for the quarter was approximately $35 million. The loss is mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition and land sold in the amount of approximately $38 million, which is included in the land cost of sales. The loss was partially offset by a sale of lots and parcels to land developers and other builders in the quarter for a gain of approximately $3 million.

Homebuilding SG&A expenses, as a percent of home sales for the quarter, was approximately 12.2% or $141 million, a decrease of approximately $47 million or 25% versus the prior-year quarter. As you may recall, the third quarter 2010, we recorded an estimated expense to insurance reserves as a result of experiencing greater-than-anticipated frequency of newly reported claims and an increase in case-specific reserves related to known claims for homes closed in prior periods. The recorded reserves included an actuarial assessment of incurred but not reported claims.

During the fourth quarter, we reversed approximately $10 million of insurance reserves primarily attributable to general liability reserves that was directly related to the estimated valuation adjustments to the incurred but not reported reserves in the third quarter of 2010.

Upon further detailed analysis in the fourth quarter, we determined there were no significant developments that warranted changes in the reserve levels in the fourth quarter. In addition, the fourth quarter includes approximately $11 million for employee severance and related costs associated with organizational changes and operational realignments implemented during the quarter. On a comparative basis versus the prior-year quarter, SG&A, on an adjusted basis, excluding severance and merger-related costs and the insurance reserve adjustment, posted an improvement of approximately of $40 million or 22% versus the same period last year.

In the Homebuilding other income and expense category for the quarter, the expense of approximately $30 million includes write-offs of deposits and pre-acquisition costs resulting from the decision not to pursue certain land acquisitions in the amount of approximately $2 million and an expense of approximately $19 million associated with overhead expense reductions for lease exit and related costs.

Goodwill is subject to an annual impairment test in the fourth quarter of each year or when events or changes in circumstances indicate the carrying value amount may not be recoverable. We performed an event-driven assessment during the third quarter 2010, which resulted in a goodwill impairment charge of approximately $655 million. During the fourth quarter, we performed the annual test of recoverability of goodwill as of October 31, 2010, which determined that no additional impairments existed.

The Homebuilding pretax loss for the quarter of approximately $148 million is inclusive of charges related to the insurance reserve reversal, valuation adjustments and land inventory and investments land held for sale, severance and related charges and the Centex WIP and process adjustment for a total of approximately $142 million. The pretax income for Pulte's financial services operations for the fourth quarter was approximately $5 million.

The quarter also includes severance and lease exit costs of approximately $2 million. The increase of approximately $42 million versus the previous year's quarter is primarily attributed to no repurchase loss adjustments in the current quarter versus a charge of $37 million in the prior-year quarter and a $4 million expense for severance and lease exit costs last year.

Total mortgage principal origination dollars were $600 million, a decrease of 34% when compared to the same period last year. The decrease is primarily related to the decrease in unit closing volumes.

Total agency originations were $552 million, non-agency originations were approximately $4 million and brokered or non-funded loans were approximately $44 million. Additionally, within the funded agency originations, FHA loans were approximately 32% of the loans funded from the financing line in the quarter compared to approximately 37% in the third quarter of 2010.

Pulte mortgage's capture rate for the quarter current quarter was approximately 81% and the average FICO score for the quarter was 754. As mentioned, there was no adjustment recorded in the current quarter related to mortgage repurchase exposure. We have included a trend slide as part of the webcast, Slide #11, that depicts the gross put-backs from the fourth quarter which continues to remain at a low level.

In the Other Non-operating category, pretax loss for the fourth quarter of approximately $47 million includes corporate expenses of approximately $10 million including a $3 million write-off of unamortized fees associated with the change in our credit facility, partially offset by net interest income of $1 million resulting from our invested cash balances, and approximately $39 million reflecting the write-off of unamortized discounts, premiums and transaction fees associated with the debt retirement in the quarter.

For the fourth quarter, the company's pretax loss was approximately $190 million. The pretax loss for the quarter is inclusive of $186 million in charges related to the insurance reserve reversal, valuation adjustments and land inventory adjustments, land held for sale, severance and lease exit and related costs and the loss on debt retirement and the acquisition accounting write-up for the Centex work in process inventory.

The net loss for the fourth quarter was approximately $165 million or a loss of $0.44 per share as compared to a net loss of approximately $117 million or a loss of $0.31 per share for the same period last year. The current quarter reflects the benefit from income taxes of approximately $25 million, primarily due to the favorable resolution of certain federal and state income tax matters versus an $800 million benefit for the same period last year. The number of shares used in the EPS calculation was approximately 379.1 million diluted shares for the fourth quarter of 2010. The total shares outstanding at December 31, 2010, were approximately 382 million shares.

On the balance sheet for the quarter, we ended with a cash balance of approximately $1.5 million,(sic) a decrease of approximately $1.2 billion from the third quarter 2010. The use of cash in the fourth quarter was mainly attributed to the retirement of $898 million of senior notes. Additionally, we voluntarily repurchased at a discount prior to maturity, certain community development district obligations with an aggregate principal balance of $124 million and we used $75 million to finance Pulte mortgage's lending operations rather than use third-party financing sources.

House and land inventory ended the quarter at approximately $4.8 billion. During the fourth quarter, our investments in land were for new community purchases, enrolling lot option takedowns of approximately $180 million and land development spending of approximately $181 million. In addition, house inventory decreased by approximately $96 million from the third quarter 2010. With approximately $1.5 billion in cash to end the fourth quarter, we had no outstanding balance drawn on the revolving credit facility.

During the fourth quarter, we voluntarily amended our credit agreement to reduce the borrowing capacity under the credit facility from $750 million to $250 million as a result of lower working capital needs. It also reduced the required level of cash and equivalents to be maintained in certain liquidity accounts. The company's gross debt-to-total capitalization ratio was approximately 61.4% and on a net basis, 47.4%.

At December 31, 2010, our debt-to-tangible capital ratio as defined in the credit facility, was 57.5% compared with the requirement not to exceed 60%. While our tangible net worth as defined in the credit facility had a cushion of $436 million. Accordingly, we were in compliance with all the covenants under the credit facility. However, the tangible capital ratio adjusts to 57.5% as of March 31 and June 30, 2011, and steps down to 55% as of the end of each quarter following. Accordingly, based on current market conditions, we may need to take necessary steps to avoid violating the debt-to-tangible capital ratio.

These steps could include negotiating changes to the credit facilities covenants or arranging a new credit facility, terminating the credit facility and using our cash to collateralize required letters of credit or replacing the credit facility with a separate letter of credit agreement. We believe that a combination of these potential steps will allow us to avoid any violation of covenants under the credit facility.

Interest incurred amounted to approximately $61 million in the quarter compared to $69 million for the same period last year. PulteGroup shareholder equity for the fourth quarter was approximately $2.1 billion. We repurchased no shares during the quarter and the company has approximately $102 million remaining on the current authorization. Looking ahead into 2011, while we are not giving specific earnings guidance at this time, I wanted to highlight several areas of our focus and efforts from cost management that are anticipated to be reflected in gross margins and SG&A.

Our expectation for gross margins from what we know today, exclusive of any impact from capitalized interest amortized or merger-related work-in-process amortization, are to improve year-over-year and increase sequentially throughout the year as a result of our initiatives to reduce house costs and the addition of new communities coming online with higher-than-average gross margins. We expect the first quarter to start-off slightly below the fourth quarter of 2010 conversion as a result of the mix of closings in the first quarter and then move higher throughout the remaining quarters in 2011.

By way of further explanation, my margin comments reference our operational expectations and exclude the impact of capitalized interest. In fact, our capitalized interest expense will increase in 2011 due to the accounting methodology and the addition of the debt assumed in a Centex acquisition.

In summary, overall margins will be slightly lower in 2011 as compared to 2010. Nevertheless, we are pleased with the operational progress we are making and the expectation for margin growth excluding interest.

As for Homebuilding and Other Non-operating SG&A, we anticipate the reduction of approximately the $100 million we have highlighted and expect the run rate to be on average approximately $125 million per quarter, starting the first quarter slightly higher and working down as we move into the year.

With that, I'll now turn the call back over to Richard. Richard?

Richard Dugas

Thanks, Roger. Before opening the call for questions, I will finish our prepared remarks with some additional comments on PulteGroup's fourth quarter performance and expectations for the year ahead.

Sign ups for Q4 totaled 3,044 homes, which is down 19% from last year. Appreciating the normal seasonal demand slowdown we expect for a fourth quarter, monthly sign ups were consistent with recent trends and reasonable, given overall economic conditions. Fourth quarter sign ups were generated on 11% fewer communities relative to last year. The year-over-year change in community count was consistent with our expectations and comments we provided at the outset of 2010.

At 786, our year-end community count was roughly flat with the third quarter. We ended the year with 147,000 lots under control, of which, roughly 31% are developed. Included in this position are 1,300 lots we recently acquired just outside of Dallas as well as 850 lots we acquired late in 2010 in Seattle, Washington. Seattle is one of the more land-constrained cities in the nation, so these new communities provide a great advantage in the local market.

We continue to look at new land deals, but at least for now, the distressed deals in better locations have gotten picked over. These transactions provided a short-term transition opportunity but we always pointed out that they could not support a long-term business. Relative to just a few quarters ago, we are seeing deals where the terms are tougher, the returns are thinner or the quality of the underlying assets may be challenged. As an example, in locations further out from job centers that offer risk, we are not interested in taking. Given the strength of our land pipeline, we can be more patient with our investments and not chase deals that have higher prices or outlying markets.

As I discussed, we're beginning to open newer communities, which in addition to any margin lift, will help to offset any remaining wind down of Centex communities that had a limited lot supply at the time of merger. While we continue to emphasize increased absorption pace in existing committees over store count growth, the opening of approximately 130 new communities in 2011 will be beneficial, although we expect year-over-year community count will be lower.

Among these openings is our newest Del Webb community, which began taking contracts last weekend. Sweetgrass by Del Webb located outside Houston, Texas will be a fully amenitized lifestyle community containing approximately 1,300 homes at build out. Traffic and sales activity has been very strong. We wrote approximately 50 contracts in just the first week of VIP tours and that's without having opened sales to walk-in traffic yet. We expect this community to be an excellent performer in 2011 and beyond.

We were also hearing favorable comments about improving traffic at other Del Webb communities, so we believe this buyer segment is starting to recover. This is a group that got very cautious late in 2008 when the stock market melted down. Given the stock market's recovery over the past year, it would make sense that these buyers are getting a little more confident. Now we'll have to see if Sweetgrass and our other Del Webb communities can build on this momentum.

In conclusion, we expect the industry will continue to face headwinds, but improving prospects for the economy, jobs and consumer confidence provide reasons for optimism. In closing out 2010, I would say that we made a lot of progress in advancing our operations. We will build on the gains realized last year as we work to further expand margins, reduce overhead costs, strengthen our market positions and restore PulteGroup to profitability. I want to thank our shareholders for their continued support and thank our employees for their energy and sustained commitment to our customers and the company.

Now let me turn the call back to Jim Zeumer. Jim?

James Zeumer

Thank you, Richard. At this time, we'll be prepared to open the call for questions. So that we can speak with as many participants as possible during the time allowed, we ask that you limit yourselves to one question and one follow-up. Operator, if you'll explain the process, we'll get started.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Josh Levin of Citi.

Josh Levin - Citigroup Inc

I wondered, Roger, I wasn't clear on your comments on gross margins. So just to think about '11 versus '10, if you have gross margin the way you report it, which excludes interest expense, and then if you -- I guess a lot of people think it was with interest expense, so you're saying that if you embed interest expense, margins will be down year-over-year, is that correct?

Roger Cregg

Yes, that is correct.

Josh Levin - Citigroup Inc

But it will be sequential or will it be up quarter-over-quarter. And if you actually do it without interest expense, how does that compare year-over-year?

Roger Cregg

Well, what I said was, sequentially in 2011, the gross without interest and without the WIP adjustments, we still have the WIP adjustment going through because of the models from Centex that still exist, we would see margins expanding going out through next year.

Josh Levin - Citigroup Inc

And then what are you assuming about raw material costs and margins for '11 versus '10?

Richard Dugas

Well, we built some increases into our margins, so we have some expectation of some volatility there. But we're not looking for any dramatic spikes that could be brought on by some of the unrest in the Mid East or something like that. So we do have some of that in there as well. Offset by some of the things that Richard had talked about in our initiatives to drive the margins higher.

Operator

Your next question comes from the line of Michael Rehaut of JPMorgan.

Michael Rehaut - JP Morgan Chase & Co

First question, I was wondering if you could expand a little bit on the comment in the press release regarding January looking encouraging? And if I can kind of, on this topic of orders, also, ask you to expand a little bit on the decision to reverse classification of the orders that benefited your December quarter by 200. Does that bring you closer to methodology that's used in the industry? And if you could give a little bit of background on that.

Richard Dugas

Okay, Mike, I'll comment on January and then perhaps Roger can talk a little bit about the orders. January was a good month for us. We were very pleased with the trends we saw. We built sequentially every single week, as you might expect. We did do better than our own internal plans for January in terms of overall sign ups. And we were particularly encouraged by the strength of our Del Webb communities. As mentioned, we had the one opening, which far exceeded normal expectations. And frankly, we're seeing some strength in some of the other destination locations as it appears, Snowbirds, if you will, are starting to show up again in Arizona, Florida, places like that. So we did say that one month does not make a quarter, and we don't know what the rest of the quarter will bring, but we like what we see so far. Then Roger, maybe you could comment on the orders?

Roger Cregg

Yes, Mike, on the process change, we found that the process change that we put in place wasn't benefiting our customers and it was actually creating an additional administrative burden in the company. So this probably brings us back to more core with what others are doing as we're actually holding them off from a sign up or counting them as an order at a point until we clear them through our mortgage process. So that was the basic change and the reason, again, was it wind up to be more of an administrative burden.

Michael Rehaut - JP Morgan Chase & Co

And I guess just a follow-up on that, as you had said that you expect community count still to be lower year-over-year in fiscal '11 and obviously, in the first quarter, you're still facing a tough comp. I would assume though that despite improvements sequentially and some encouraging results that January orders would still be down, maybe even 10% to 20% year-over-year. Is that safe to say? And also, if you could just give the can rate for the quarter?

Richard Dugas

Mike, this is Richard. In terms of January, we're not commenting on our comp versus last year. I will tell you, as I mentioned, we beat our own internal estimates. But we're not going to provide specifics on how it compared to last year. Mike, you want to handle the other piece?

Michael Schweninger

Our cancellation rate for the fourth quarter was 21.3%.

Operator

Your next question comes from the line of Mike Widner of Stifel, Nicolaus.

Michael Widner - Stifel, Nicolaus & Co., Inc.

I was wondering if you could maybe comment a little bit on the SG&A levels and sort of what we might think about as the run rate, going forward. I know there's a couple of one timers in there. But you had indicated last quarter kind of a $110 million annual savings, if I recall it correctly. And just wondering how we should think about that relative to where you guys were in Q4?

Richard Dugas

Mike, this is Richard. Just to highlight a couple of things and I'll turn it to Roger for more specifics. We had a very significant restructuring that we completed in Q4. We had indicated on our Q3 call there'd be charge associated in the Q4 numbers associated with it. And it was -- as a result of us really rethinking from the very ground up, if we were starting a Homebuilding business of this size, what would we design both in the field and at corporate in all areas of the business. That resulted in a very significant step-change in our overall SG&A run rate that we indicated with, on an adjusted basis, excluding, say the, insurance reserve we had in Q3, that type of thing, result in a $100 million annual benefit and I think Roger gave some guidance on his script about our expectations for quarterly run rate. But the point I wanted to make is we will begin seeing those benefits right away this year. So Roger with that...

Roger Cregg

Yes, Mike, again, in my script I talked about, on average, we'd be running, total SG&A, which would include the homebuilder and the corporate roughly about $125 million a quarter. I also indicated that it would be a little bit higher in the first quarter and then trail off into the back-end of 2011.

Michael Widner - Stifel, Nicolaus & Co., Inc.

And so the $125 million that you're indicating though, I guess, my question is sort of what are the assumptions in there in terms of pace of home sales? I mean, you talked about expectations out there being that we're going to see some improvement hopefully off what proves to be a bottom, but clearly, SG&A expenses aren't 100% fixed, so...

Richard Dugas

Yes, Mike, this is Richard. I think I can answer your question. We are not providing any commentary or guidance on our revenue or unit expectations for the year. I will tell you, we believe we plan conservatively and did not anticipate a significant benefit, overall. And we prefer to give kind of the SG&A forecast, if you will, on a stand-alone basis in terms of actual dollars. So I would not expect a number that Roger quoted there to be materially different one way or another based on volume. And remember for us, our commissions are in our cost of goods sales, overall. Some classify that a little bit differently, but just to be clear about that.

Operator

Your next question comes from the line of Jonathan Ellis of Bank of America Merrill Lynch.

Jonathan Ellis - BofA Merrill Lynch

First question is just around land. If I have my numbers correct, I think you spent about $1.1 billion on land and development in 2010. Can you provide any outlook for what your spending plans are for '11? And then the related question is, the community openings that you talked about, the timing of those openings, are they going to be more front-end or back-end loaded or evenly distributed throughout the year?

Roger Cregg

John, this is Roger. Yes, we spent roughly about $1.1 billion in land and development in 2010. We expect to be right around that level, $1.1 billion, $1.2 billion in 2011. So that would be our expectation. And yes, I would say that coming on in 2011, the communities that we bought, some of them are coming on now, so some of them are fully developed lots as well. And so they will be coming on over throughout the year. I wouldn't say it's loaded in one quarter or another specifically, but blended in more weighted probably to the first part of the year.

Jonathan Ellis - BofA Merrill Lynch

And then my second question is maybe I'm misunderstanding, but given that the mix of sales on more recently purchased land is going to be -- or deliveries I should say, on more recently purchased land is going to be increasing in '11, can you help us understand why the amortized interest expense is going to be higher?

Roger Cregg

Again, Jonathan, this is Roger. The way we capitalize the interest basically doesn't come through dollar-for-dollar the first time you capitalize it. We take it out over the average life of our assets. So basically an average life of the community may run three years. And so we would amortize that interest over three years. The convention when we did purchase accounting for the acquisition with Centex, was that we eliminated all of their capitalized interest and then start capitalizing the interest from that point, going forward. While the addition of their debt, more of it was capitalized than expensed and then now when we get into 2011, we're finding more of it as expense. So that's giving rise from year-over-year to see an increase in the overall expense or amortization of the interest, again, which will affect us in 2011.

Operator

Your next question comes from the line of David Goldberg of UBS.

David Goldberg - UBS Investment Bank

First question, if I understood the commentary correctly, Richard, going to more decentralization and putting more power in the hands of the folks in the field, I'm wondering how you think about oversight from a corporate perspective, especially given that you've taken on the COO role lately, given that now you're going to be empowering people in the field more than you have in the past maybe. How do you think about controlling behavior and keeping oversight as you move forward?

Richard Dugas

Yes, David, effectively, what we had done in the better years of the cycle back in the '05, '06 time frame was consolidated a lot here in home office. And one of the things we've learned is that scale is quite local in this business and frankly, with me getting closer to operations, I think we were burdening ourselves internally here with more cost frankly, on say, home design ideas and specification requirements, things like that, that our operators were telling me that could benefit the company if we changed our philosophy there. So took a good hard look in the mirror and said listen, there's a pretty obvious reason that must be explainable for our margin delta versus competition. And we decided to do something about it. And we made a fairly significant shift in philosophy to empower the field more. I have four area Presidents, directly reporting to me that are now part of the senior management team. They're part of all the discussions with Roger and myself and others at the corporate office. I feel very good about oversight. Frankly, I'm traveling a lot more than I was, spending a lot of time in our operations. We're dealing our operational capabilities. So I feel great about oversight. I think our control processes are outstanding. It's just a question of really digging deep into our performance gaps, particularly in margin and doing something about them.

David Goldberg - UBS Investment Bank

And then my second question was on the CDDs that were repurchased. Can we just get some more color? I assume those were unopened communities where you guys were responsible for the payment on the situation, but I'd just like to get an idea of the decision to buy back the CDDs. What kind of went into that? And maybe some more color on it, if possible?

Roger Cregg

Yes, basically, David, this is Roger, we have a lot of them down in the Southeast part of the U.S., mostly in the Florida market. But we took a lot at the communities, a lot of them were Centex legacy communities. And again, usually typically with those bonds, you wind up with additional cost that goes on to the consumer. Once you close the house, the consumer ends up paying a higher fee, if you will, for the bonds. And so as looking at that in the pricing that we had, we elected to take those down so that it would reduce basically the lot costs that we have. So it was looking at the repositioning of a number of communities that we had there as well, what the benefit of this would be, be able to move that product a little bit better and faster than we are today given the burden of the bonds.

Richard Dugas

And David, this is Richard, in talking with our field operators, it was way to help make us more competitive in the day-to-day selling arena. And frankly with our cash balance, we thought it was the appropriate use for our dollars.

Operator

Your next question comes from the line of Dan Oppenheim of Credit Suisse.

Daniel Oppenheim - Crédit Suisse AG

I was just wondering about your thoughts in terms of really just getting back to the margins, where you’re talking about the land deals that have largely been picked over. If we look at the margins, many other builders are seeing the improvement, bringing on new communities where they have been able to find some attractive deals. How do you think sort of just not -- we know the guidance for 2011 but speaking about 2012, 2013, how do you see the margin -- where is your strategy really in terms of raising those margins?

Richard Dugas

Yes, Dan, this is Richard. Our comments have to be taken in context to the kind of the time flow here. So I think other builders probably got into the distressed land business a little bit before we did and given the big base of land we had saw a bigger percentage of their closings coming from distressed deals in 2010. As an example in 2010, the closings from distressed deals that flowed through our P&L were negligible, whereas we said this year, they could be approximately 15% or more in 2011. As we get into 2012, I think you'll still see some of that flowing through because the communities may have a couple of years life. But beyond that, clearly, our strategies from margin improvements are very, very focused on the house cost and design components, which when David asked this question, those are the things that I'm finding being very close to the operations now that I see a lot of upside for us and ability to drive. Obviously we'll have to see what the market does, but it won't be as much about distressed land in the out years because frankly, we think the easy pickings are gone. It doesn't mean we won't see benefits in '11 and '12, we will as we indicated, but as you get into longer time frames, it's going to be more about your core operational prowess, if you will, as opposed to inexpensive land.

Daniel Oppenheim - Crédit Suisse AG

Then I guess wondering about community count, you talked about that being down year-over-year, when you think about the mix of communities, when you -- given the thought that there's some improvement in the Del Webb activity as you think about communities that will come online in the future years, do you think about putting more into the land development dollars for getting some of those communities back on?

Richard Dugas

Yes, Dan, Richard again, I'll give a little commentary here. I think community count is largely overblown in terms of its importance and I'll tell you why. Our Del Webb communities are all fully opened and we have a long runway of lots out in front of us there. So I don't think you're going to see incremental land spend of significance beyond whatever we need for current closings to get those into operation because they already are fully operating. One of the disadvantages of so much focus on community count is one community might not equal another and in fact, our situation is we're closing out a number of communities with just a very few lots left, which frankly, are winding down some of the more picked-over lots. But the ones we're opening are not only higher margin and more embedded strength from that standpoint, but longer lot positions than the few lots that we're closing out. So the communities per se are not always equal. As you look at the Del Webb business particularly, we are seeing strength there. We're excited about that since it's roughly 1/3 of our overall business and we have significant assets there. But those communities are all open. Save the one in Houston where we're putting a lot of new infrastructure dollars in, for the most part our Del Webbs are fully functioning and we've got years and years of runway in front of us there.

Operator

Your next question comes from the line of Ivy Zelman of Zelman & Associates.

Ivy Lynne Zelman

You guys talked about the improvement in Del Webb and overall January trends. Just to get a sense maybe distinguishing between the segments on traffic quality and understanding the consumers, maybe seeing an improvement in their ability to make a down payment or what credit scores looks like? We've been hearing from some other builders that credits continued to be tighter, wondering what the impact with rising rates will be? So really just from understanding of what you're seeing from the underwriting perspective, and maybe I know the Del Webb buyer tends to use, more likely, spending more with cash and maybe some idea of the trends there, if you could, please?

Richard Dugas

Ivy, this is Richard. I'll start, and then Roger can give some commentary as well. A couple of things, first of all, on the Del Webb buyer, that buyer is a very asset-based buyer as opposed to income-based and frankly, they're feeling better about their assets given the pickup in the portfolio losses that they had in '08 and '09 as things have gotten better for them, overall. So we are seeing a pickup there. I would also tell you that we're seeing a little bit better geographic things in areas that we are excited about candidly because we have large investments. We're seeing better things in Arizona. We're seeing, I would say, substantially better things in Florida. And also the D.C. markets. We're also seeing some strength this year in Coastal Carolinas, which had a tough year last year. So when you look at that as it relates to our assets, Texas is having a reasonable January in addition. We like the geographic spread. In terms of credit challenges for the entry-level buyer, Roger you might talk a little bit about that?

Roger Cregg

Yes, Ivy, our score was 754 on average, but when you look at what's going on right now in the lending practices, we're really finding the bankers are being very cautious with the underwriting standards. So those with lower scores are definitely finding a harder time. It's more constrained for them. But those conditions have somewhat existed for a while, so there's nothing really new has changed there. So it's more about documentation. It seems to be taking a little bit longer from the documentation that's necessary today, so they're dotting Is and crossing the Ts. That's really more of the bigger change. And then when you get somebody into an order, we're finding that potentially, 60, 90 days into it, the economy still playing rough on job losses or cutback in a number of hours worked, so that type of thing, that's putting stress on the buyer as well.

Ivy Lynne Zelman

And then secondly, Richard, you commented on the pickings are very slim at this point in terms of distressed opportunities. I guess I pause on that thought given that we know that there's still about $60 billion of non-performing loans that banks are still working through and recognizing. At some point, they're going to have to come to the market. Is it something that would you suggest that they're going to wind up not selling those at distressed prices if the economy is getting better and be more likely just to hold out as sort of looking out in that pipeline being still so significant as opposed to maybe opportunistic deals getting done with the companies like Rialto or Gibraltar that maybe you're just not as focused on in a bulk situation?

Richard Dugas

Yes, Ivy, I think your commentary is right there. There's an enormous amount of land that's still not trading out there. And I do believe it's going higher from here. And for those that are not into, as an example, the Rialto-type transactions, I think pickings are going to be slimmer from here. And it's going to clearly take a combination of rising fundamentals to be able to underwrite deals. We are frankly, not too worried about that given our very long land supply and our desire to drive better turns with the existing land we have. And we've been singing this tune for two or three years that in the early parts of the downturn, or the early parts of recovery, we're going to look disadvantaged because we are not picking up as much of the distressed assets as others. Later in the cycle, we're going to be advantaged. I don't know if we're at that turning point here, but I frankly like our land portfolio and what I see, going forward, because we're not feeling very desperate, if you will, to make deals pencil. I just was trying to point out there that we're trying to be cautious. The last thing we want to do is buy an asset today and impair it. And we've had enough of that fun.

Roger Cregg

In addition to that, some of the other transactions out there where the FDIC was selling some of those portfolios, there are a lot of mortgage products in there and it's not necessarily just all land. So there's still a fair amount of those that are still being marketed, but not a lot of transactions taking place.

Operator

Your next question comes from the line of Nishu Sood of Deutsche Bank.

Nishu Sood - Deutsche Bank AG

I wanted to revisit the topic of 2011 versus 2010. If I look at the underlying drivers of what's going to get you back to profitability, interest expense, as you mentioned, is going to be higher. But generally, the rest of them look fairly favorable. So obviously, with the restructuring, your SG&A has fallen, the gross profits, as you mentioned, are going to rise. So really, it seems to come down to what are charges going to look like and volumes. And I know you're not making any statements about what you expect volumes to be. So my question was if you think about it in those terms, what's it's going to take to get you back to profitability? So what does that path look like? Maybe what are the sensitivities?

Richard Dugas

Nishu, I think you've described it reasonably accurately. I mean, costs are going to be down, margins x interest are going to be up. I frankly think it's going to take execution on our business plan. I'm not going to give you specific guidance there. Clearly, we're going to be more challenged in the early parts of the year as we help to build a backlog versus where we're headed later in the year, overall. But I believe that our business is on track for a recovery this year. The charges are clearly going to have an impact on that if we continue to have them. It's our sincere hope that we don't and we like the way the year's starting out. So that would point to good things relative to land that we've previously looked at, not being impaired in the future. I think we are hopefully beginnings of a ninth inning of that game as opposed to maybe the seventh or eighth before. But I think you've characterized it correctly. Our underlying fundamentals are looking positive, but we're not going to get specific about profitability here.

Nishu Sood - Deutsche Bank AG

Second question, you folks are more sensitive to the conforming lending market than some of your peers obviously are more first-time buyer oriented. So some of the folks have already mentioned tightening in mortgage lending, obviously, a lot of that is happening on the conforming side. Today as well, there was some talk about lowering the limit of what conforming is going to be from a 730 down to about 640 or so. I just wanted to get your sense on that side of the market, that kind of mid-jumbo, what sort of effect you would anticipate that might have, as well as some of the other general tightening on the conforming side?

Roger Cregg

Yes, Nishu, this is Roger. I guess, we'll have to see how that comes about. But certainly, again, if you look at our scores, it's going to depend on the score for the consumer as well, and how well they're financed from that standpoint. So I don't have any specific comments about the changes at this point.

Richard Dugas

Nishu, I'll just add one other thing. Remember that as Del Webb, as part of our business, 50-percent-plus or minus those buyers pay cash, so one of the benefits of an improving stock market and an improving business in Del Webb is they're less exposed to the lending environment than others. So that's something that we look at positively.

Operator

Your next question comes from the line of Joshua Pollard of Goldman Sachs.

Joshua Pollard - Goldman Sachs Group Inc.

First one is on orders. You said that the change in methodology for orders helped the fourth quarter by about 200 units. Could you give us a sense, on a quarterly basis, how much it would have helped you in the first through third quarters, such that we can properly calibrate the type of growth we should expect underlying versus sort of more tactical for 2011?

Roger Cregg

Yes, Joshua, this is Roger. No, we can't. Basically, we're just trying to compare, so that when you look at it comparatively, for the current quarter, what it was against the last quarter, but it really only happened when you start it and when you change it. So when we changed it the first time, at the beginning of the year, and then we changed it again at the end of the year, these are the only two points. It's not every single quarter that should be affected.

Joshua Pollard - Goldman Sachs Group Inc.

So can you outline by quarter what the effect should be? Should it have a negative effect when we're looking at your comps in the first quarter and a positive effect when we're looking at your fourth quarter? Could you outline that?

Michael Schweninger

This is Mike. If you recall at the end of the first quarter of 2010, we disclosed the impact of implementing the policy and it was approximately 450 units. So when you're moving forward into 2011, you would have to consider that when you look at your comps for the first quarter, but we don't anticipate any impact beyond first quarter.

Joshua Pollard - Goldman Sachs Group Inc.

And then can you outline in dollar terms the amount you're hoping to cut out of your gross costs in 2011? You've talked about it getting better sequentially throughout the year. But again, that's going to be a function of the sales environment. Could you talk about maybe what you're trying to cut on either on a per-house basis or on a grand total in millions of dollars in 2011 from your cost of goods sold?

Richard Dugas

Josh, this is Richard. We talked about sequential improvements from Q1 through Q4 as we go through the year and that's what we're looking at. Frankly, our margin gap versus where we want to be is still substantial. So we're not quantifying how much. We're getting there, but we like what we're seeing. As I was responding to someone earlier, as we get closer and closer to what the operations are telling us, we have opportunity to change. But we're not going to specify the specific amount of improvement projected.

Operator

Your next question comes from the line of Carl Reichardt of Wells Fargo Securities.

Carl Reichardt - Wells Fargo Securities, LLC

A couple of quick follow-ups on which you talked about a lot today. What percentage of your current lot count is Webb-related and also of your assets, Roger, if you have it?

Roger Cregg

Yes, we don't have it broken down like that, Carl.

Carl Reichardt - Wells Fargo Securities, LLC

Do you have a rough idea of what it might be on a percentage basis though? Since effectively you can't move much Webb product over...

Roger Cregg

We could probably get that and get back to you. I had indicated it in kind of my comments I think about 1/3, but we could kind of refine that for you and call you back.

Richard Dugas

From a community count perspective and that's a very difficult one to look at because the Del Webb communities have a significant higher lot count per community. But we have 152 communities of our 786 that are Del Webb-related, but we'll work on the lot count for you.

Carl Reichardt - Wells Fargo Securities, LLC

And then you mentioned, Richard, I think the spread in gross margin currently between Webb and Centex, Pulte, 16, 17, 18. If you go back to the peak in the market just forgetting Centex, what kind of spread did you see? And given the long land position that Webb has, I assume you'd feel like you needed higher margins to get more equivalent returns on a long land position. So can you give me a sense of do you expect that over time if things break right the trajectory of gross margins of Webb will exceed what you’d see in the remainder of the business?

Richard Dugas

Yes, Carl. We've been doing that quite a bit of analysis internally and in fact, historically, our Webb margins have always outperformed. And yes, I do think we would expect the trajectory of Webb margins to exceed that of other areas for a couple of reasons. One is on the entry-level sector, there's only so much that buyer can pay you even if they would like to pay you more because of financial limitations. Secondly, we've learned over the years, that the Del Webb buyer because it's a very discretionary purchase for them, they want what they want, is the best way I would say it and they're more willing to pay you for lot premiums and option revenue, things like that than other categories. So yes, we would look for outperformance there to even expand from the current spread we have.

Operator

Your next question comes from the line of Stephen East of Ticonderoga Securities.

Stephen East - Ticonderoga Securities LLC

You all have done, I think, you all are doing a great job on the SG&A side and Del Webb we are hearing the same thing that after the doldrums is coming back, so that those are nice benefits for you. Richard, the real problem I have is really on the gross margin side. And I understand how you feel about your land. It almost -- it's sort of like investors talking their own book, you all are excluding interest, your 400 bps, on average, below the rest of the group on gross margin and then including it probably 600 bps. To me, as you move forward, taking that much cost out of construction doesn't really seem practical to me. It doesn't seem like at this point in the cycle six, five years into the downturn you really have that much opportunity. So it implies to me that you're expecting you're going to get useful pricing over the next several years to get these margins back to where you want it or else it just doesn't seem to work for me. Can you talk a little bit about that?

Richard Dugas

Yes. Stephen, I would tell you a couple of things. First of all, we're not at all satisfied with our margin performance and frankly, as I've gotten closer to the operations after some of our structural changes of last summer, my eyes are significantly more opened to our gaps than they were quite candidly. And we're doing a lot about that internally. I think that's one of the reasons that x interest, we're forecasting margin growth in 2011 in clearly a continued challenged environment. You reference a large gap we have versus the competition. I don't know how much of that we can make up quickly, but I can tell we're not satisfied with where it is. I would not underestimate the degree of house cost improvement we can make because the more that I see internally, I think we've got some embedded costs that frankly need to come out. And we're working aggressively on those. Unfortunately, with roughly four to six months of homes in production at any one time, you can't recognize it one day and see it the next quarter. It takes a little while for it to come through. But ever since the early part of '09, we've been on a sequential improvement trend on margins and we expect that to continue.

Roger Cregg

And Stephen, this is Roger. I just want to add that when you look at gross margins, we all account for things differently on the geography, so if you're really to look at the operating income or the operating margins or the EBIT margins, they're a little bit more representative and we still lag, but quite frankly, that changes a little bit with the movement of how we capitalize costs and SG&A, or how we expense commissions in SG&A versus cost of sales.

Michael Schweninger

Maybe I just will give some context to that. Just to give you an example around differences between homebuilders and where they classify costs. If you think about commissions, those may get handled differently between builders, some may include those in margins, some may include those in SG&A.

Stephen East - Ticonderoga Securities LLC

One other thing on the demand other than Del Webb, we are hearing anecdotally just bits and pieces that the move up market is starting to perform better in certain geographies, given that you all have a good exposure to that as well. Are you seeing that or is that too premature?

Richard Dugas

Stephen, we are seeing an improvement in January in all of the sectors. I think clearly the market's all tied together to some degree. We're seeing a little bit better performance, like I mentioned in Webb. But the entry-level and move up market are beginning to improve versus what we had seen all the way around.

Operator

Your next question comes from the line of Michael Smith of JMP Securities.

Michael Smith - Oppenheimer

Just to follow-up on the gross margin questions. Richard, you mentioned some of the things that you've been seeing where you can see improvement, going forward, on the gross margins. I know you mentioned earlier the decentralization of some of the decision-making as one or some of the operations as one of those things. Can you give some examples of others things you're seeing, where you think you can squeeze out some gross margin improvement, going forward?

Richard Dugas

Yes, I think we've got home design overcomplications in many instances that we've seen. I think some of the base house items that we've added into our homes, as opposed to optioning them have frankly caused us to put some things into some of our homes that some buyers are not willing to pay for, and we're just diluting our margins by offering them as opposed to a lower base offering and then a little bit different option policy, things like that. It's a combination of items. But when you're digging harder for the reasons for your gaps versus the industry, these are the kinds of things that we're finding and that's what I'm doing.

Michael Smith - Oppenheimer

And then just a quick follow-up on that. You mentioned the commissions being in the gross margins as making the apples-to-apples difficult with some of your competition. Can you give -- and I know it's not an exact science, but can you give a range or some kind of idea just so we can help to make it more apples-to-apples, what you think that adds as far as bps go into your gross margins?

Richard Dugas

Well, the problem with answering that question is that everybody is a little different. We saw Centex was different when we acquired them from the way we were doing it. I would just offer the following. On the operating line is where we like to look at it more because we think it’s more reflective of the true bottom line of the business, overall. And I would tell you my personal opinion, we're doing the job on the SG&A side and a credible job there, but still on the gross side, we've got room to go. But to compare and give you a number in terms of us versus the competition is very difficult because frankly, not everyone breaks it out the same way we do and we'd have to analyze every single builder and can't really do that on a call like this, I don't know...

Michael Smith - Oppenheimer

Let me restate that. What I mean is do you have a sense of -- I mean, I'm talking about when you add commissions into your gross margin line, are we talking 50 bps, 200 bps that kind of thing is more what I am getting at. That would just be useful, so I can try to do some work on figuring out.

Roger Cregg

It depends on the builder. It could be a couple of hundred basis points. There's some in there with 300 basis points. There's a way people capitalize some of their land overheads. Again picking it out of SG&A and putting it in cost of sales that would affect the gross margins would be lower, the SG&A would be lower. So again, everybody is a little bit different and it's hard. Some of them have zero and some could be up to, again, 300, 400 basis points, so it's pretty dramatic around the industry.

Richard Dugas

Mike, it's probably not a 50 basis point change. This is more than that just on the commission line, but we'll try to get you more specifics as we can maybe offline.

Operator

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to hand the call back over to Jim for closing remarks.

James Zeumer

Thank you, operator. And we appreciate everybody's time this morning. We'll certainly be available for the remainder of the day with any follow-up questions. And we'll look forward to speaking with you next quarter.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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