William Lyon Homes (NYSE:WLH) Q2 2016 Earnings Conference Call August 5, 2016 1:00 PM ET
Larry Clark - Investor Relations
William Lyon - Executive Chairman and Chairman of the Board
Matthew Zaist - Chief Executive Officer and President
Colin Severn - Senior Vice President and Chief Financial Officer
Alan Ratner - Zelman & Associates
Will Randow - Citigroup Global Markets Inc.
Neal BasuMullick - JPMorgan Chase & Co.
Michael Dahl - Credit Suisse
Susan Berliner - JPMorgan
Alex Barron - Housing Research Center
Good day, ladies and gentlemen, and welcome to the Second Quarter 2016 William Lyon Homes Earnings Conference Call. My name is Melisa, and I will be your operator today. At this time, all participants are in a listen-only mode. This call is being recorded and will be available for replay through August 11, 2016, starting this afternoon, approximately one hour after the completion of this call.
Now, I would like to turn the call over to Mrs. Larry Clark, Investor Relations. Please go ahead Mr. Clark.
Thank you, Melisa. Good morning, and thank you for joining us today to discuss William Lyon Homes’ financial results for the three months ended June 30, 2016. By now, you should have received a copy of today’s press release. If not, it’s available on the company’s website at lyonhomes.com. The press release also includes a reconciliation of non-GAAP financial measures used therein. In addition, we are including an accompanying slide presentation that you can refer to during the call. You can access these slides in the Investor Relations section of the website.
Before we continue, please take a moment to read the company’s notice regarding forward-looking statements which is on Slide 1 in the presentation and included in the press release. As explained in the notice, this conference call contains forward-looking statements, including statements concerning future financial and operational performance. Actual results may differ materially from those projected in the forward-looking statements and the company does not undertake any obligation to update them. For additional information regarding factors that could cause actual results to differ materially from those contained in the forward-looking statements, please see the company’s SEC filings.
With us today from management are Bill H. Lyon, Executive Chairman and Chairman of the Board; Matt Zaist, President and Chief Executive Officer; and Colin Severn, Senior Vice President and Chief Financial Officer.
Now I’d like to turn the call over to Bill Lyon.
Thank you, Larry. Welcome ladies and gentlemen and thank you for taking the time to join us today. I am pleased to report another strong quarter results for William Lyon Homes, during which we recorded year-over-year improvement in a number of our key operational and financial metrics.
We delivered 663 homes during the second quarter, which is up 20% year-over-year and 22% sequentially, generating $325 million of home sales revenue, which is up 31% for the second quarter of 2015 and represents our 16 consecutive quarter of year-over-year growth in home sales revenue.
Our pre-tax net income for the second quarter was $22.6 million and our after-tax net income was $14.6 million or $0.38 per diluted share, up 19% over the second quarter of 2015. We continue to experience healthy demand dynamics in our core Western markets, driven by positive demographics, employment growth against the continued backdrop of limited new home supply.
Spring selling season as a whole was healthy, and we achieved an average monthly absorption rate of more sales per community during the second quarter, resulting in net new home orders of 871, up 26% sequentially over the first quarter of 2016. The company opened 18 new home communities during the second quarter and ended the quarter selling out of 79 communities, having made significant progress on our community count growth plans for the year.
Based on our healthy sales base for the quarter and increase community count, we ended the period with the backlog of $575.5 million, a highest dollar value since the first quarter of 2016 and up 22% over the prior year period. Units in backlog were 1,093, up 13% from the June 30, 2015. The combination of our progress through the first-half of the year combined with our healthy backlog gives us the confidence that 2016 will be another successful year growth for William Lyon Homes.
With that, I will turn the call over to Matt Zaist, to discuss our quarter results. Matt?
Thanks, Bill. Driving the strong results, we achieved during the second quarter to round out a successful first-half of 2016, set us the foundation for us to achieve our financial and operational growth plans for the balance of the year. Bill mentioned quarters and sales base for Q2 were healthy. We experienced the sold spring selling season.
We achieved an average monthly absorption rate of four sales per community during the second quarter, increased from 3.3 per community in the first quarter, resulting in net new home orders of 871, up 3% year-over-year and 26% over the first quarter 2016.
Our California, Nevada and Colorado divisions are posted higher year-over-year absorption rates. Our Arizona, Washington and Oregon divisions continued to experience the highest rates of sales in the company, combining for an average monthly absorption rate of 5.0 sales per community for the quarter. The highlighted of the second quarter from a sales perspective was an exceptional June, with absorption rates of 4.2 orders per community, resulting in $325 net new home owners.
Heading into the third quarter, we experienced the normal seasonal trends from spring into summary with a more moderated sales pace during July and 2.8 sales per community, resulting a $225 net new homes orders for the month, compared to 217 in July of last year.
Across all of our market, we continue to see increased demand from the entry-level buyer, segment that we believe is an underserved portion of the market, and one that we have focused on last year. Entry-level buyers made up approximately 42% of our homes closed during the second quarter. This buyer segment represented 39% of our Q2 backlog as compared to approximately 32% in the year ago period. Additionally, this represented the fasted absorbing product segment for us during the second quarter and year-to-date.
Our backlog conversion rate for the quarter was 75%, which was slightly higher than our expectations. We continue to implement our modified spec start strategy, starting homes earlier given the longer year-over-year cycle time, also enabling us to sell and close more homes during any given quarter. For the second quarter, we sold and closed 20% more specs than the year ago comparable period.
Our average sales price for homes closed during the quarter was approximately $490,000, up 9% year-over-year, with the increase in ASP primarily reflecting changes in geographic and product mix. $490,000 ASP figure for the quarter was at the low end of our anticipated range, influenced by the continued strong performance of our Arizona division, which delivered more homes that we had anticipated at the from what was ASP within the company, coupled with a timing of closing within one of our southern California project. ASPs of home build backlog at the end of the second quarter was $526,500, up 8% from one year ago, 7% higher than the ASP of homes closed during the second quarter of 2016.
During the second quarter, we continue to make progress on our community count growth plans. We had average community count of 72 communities for the quarter, up 7% year-over-year and up 4% sequentially from the 69 average communities during Q1 2016. We opened 18 new communities in the second quarter, sold out of the 6, and ended the quarter with 79 active communities.
Following up on our new master-planned communities highlighted on last quarter’s conference call, we successfully opened for sale, our River Terrace development to Oregon and our day source development and our Bayshores development in the Bay Area of Northern California.
Since our initial sales offerings beginning mid quarter, the master-planned developments combined for 77 net sales in Q2. As mentioned last quarter, we believe that these two developments will play a major role in the future growth of these divisions in the overall profitability of the company in the coming year.
We are encouraged by our success thus far on the sales front, and look forward to the impact these communities will have on the company in 2017 and beyond, as we realize the benefits of full-year run rates of both sales and closings.
For a discussion on our financial results, I’ll turn the call over to Colin.
Thank you, Matt. Total consolidated revenue for the second quarter of 2016 was $325.7 million and home building revenue was $325.1 million as compared to $247.7 million in a year ago period, an increase of 31%. The increase in home sales revenue was primarily due to a 20% increase in the number of homes delivered combined with the 9% increase in ASP as discussed earlier.
Our home building gross margin percentage on a GAAP basis for the second quarter was 17.4%, compared to 17.7% in the first quarter and 19.2% in the year ago period. The modest sequential decline in gross margin was driven primarily by the actual mix of closings between divisions.
Our Adjusted home building gross margin percentage, which excludes interest and net purchase accounting adjustments included in cost of sales was 24% during the second quarter as compared to 26% in the year ago period, and 24.7% in the first quarter.
Turning to SG&A expense for the quarter, our sales and marketing expenses was 5.6% of homebuilding revenue, compared to 6% in the year-ago quarter. The improvement was primarily driven by higher homebuilding revenue and leverage on our advertising costs, offset by slightly higher outside broker commissions.
We improved our G&A percentage by approximately 30 basis points to 5.1%, down from 5.4% in last year’s second quarter, as we continue to benefit from positive operating leverage resulting from our larger operating platform. These combined for a total SG&A expense of 10.7% for the quarter, compared to 11.4% in the second quarter of 2015, an improvement of 70 basis points. Year-to-date, we’ve achieved SG&A improvement of 100 basis points year-over-year from 12.5% in the first-half of 2015, compared to 11.5% in the first-half of 2016.
Income from our unconsolidated mortgage joint venture has more than doubled during the quarter to $1.2 million from 500,000 in the previous year, due to operations being fully deployed and meaningful capture rates in all our markets. Our provision for income taxes was approximately $7.5 million during the quarter, or an effective tax rate of approximately 33.3%.
We continue to believe that our effective tax rate for the full-year will be approximately 34% to 35%. Pre-tax income for the quarter was $22.6 million and net income available to common stockholders was $14.6 million, or $0.38 per diluted share based on 38.4 million fully diluted shares.
Our adjusted EBITDA for the quarter was $48.5 million, up 25% from the year-ago period. Land acquisition spending for the second quarter was approximately $70.6 million, and horizontal land spend was approximately $39.6 million. or a total of $110.2 million.
Now turning to our balance sheet. We ended the quarter with $1.8 billion in real estate inventories, $2.1 million in total assets, total equity of $727 million and cash of $40 million.
As of the end of the second quarter, our outstanding borrowings under our revolver were $59 million, down from $65 million as of year-end 2015. In addition, and as we previously announced, on July 1, we amended our revolving credit facility to, among other things, increase the maximum borrowing capacity of $130 million to $145 million and retained the accordion feature for up to the maximum amount of $200 million. The amendment also extended the maturity of the facility into 2019, which was previously scheduled for August 2017.
Total liquidity as of June 30, after giving effect for amended revolving credit facility was approximately $118 million. As of June 30, 2016, our total debt to book capitalization was 61.6%, down from 62.2% at December 31, 2015, and our net debt to net book capitalization was 60.8%, down from 61.1% at December 31, 2015. We continue to be focused on reducing our leverage and improving our balance sheet in 2016, making progress towards our longer-term goals.
Now, I’ll turn it back to Matt.
Thanks, Colin. We are proud of our performance in the first-half of the year in efforts of our entire team. Before turning it over to the group for questions, I’d like to spend a bit of time going into our expectations for the balance of this year and heading into next year.
As mentioned, driven by our healthy sales base, we ended the second quarter of 2016 backlog of 1,093 units, and an associated value of $575.5 million. For the third quarter, we’re currently expecting a backlog conversion rate in the range of 60% to 64%.
In terms of ASPs, as we’ve previously discussed, we anticipate that our ASP for any given quarter will be heavily influenced by geographic and product mix. In the third quarter, we expect ASPs for homes closed in the quarter to be in the range of $495,000 to $505,000.
In addition, we currently anticipate a somewhat higher amount of minority interest allocation in the back-half of the year compared to the first six months, based on anticipated increase in closings from our homebuilding joint ventures.
Looking ahead to the anticipated gross margins for the third quarter, we are currently forecasting the near-term margin compression of approximately of 50 to 80 basis points in Q3 from our GAAP gross margins in Q2. This expectation is stemming from an anticipated budgetary charge of approximately $3.5 million, $4 million certain previously unknown costs affecting two sold out communities in the Bay Area.
The most significant portion of which is associated with replacing infrastructure installed prior to our ownership of these properties further and amplified by the challenging labor market in the Bay Area. Excluding these unforeseen cost issues, we would have been expecting to be sequential improvement in our GAAP gross margins from Q2 to Q3.
We anticipate that the bulk of the impact from these costs will be felt in the third quarter and we expect to see GAAP margins trajectory improved into the end of the year. As it relates to the full-year, we currently expect 2016 results to include deliveries of 2,700 to 2,850 units home sales revenue of $1.350 billion to $1.475 billion, and pre-tax net income before minority interest of $105 million to $120 million.
We anticipate community count for the balance of this year to range on a month-by-month basis between 78 and 82 new home communities. Our operating teams are focused on opening approximately 28 new home communities over the next 12 months. Factoring in anticipated closeouts, we expect community count growth that would represent new homes communities by midyear 2017 in the high 80s to low 90s range.
We remain focused on continuing our growing exposures to the entry-level buyer. This component of our business will be almost exclusively spec-driven, which will be balanced for the major order approach on our move-up homes. This balanced approach coupled with full-year run rates in some of our starting new home community openings should give us a great opportunity to meet our 2017 objectives of meaningful top line growth, coupled with increasing our operating margins year-over-year to drive increased profitability, while meeting our goal continue deleveraging of our balance sheet.
With that, I’d like to conclude the prepared remarks portion of our call and open it up for questions.
Thank you. [Operator Instructions] And our first question comes from the line of Alan Ratner with Zelman & Associates. Your line is now open.
Hey, guys, good afternoon. Congrats on a good quarter and thanks for all of that great detailed guidance, Matt, it’s very helpful.
Thank you, Alan.
First question on the Bayshores and River Terrace, it sounds like things are up to a good start there, you mentioned the 77 sales. I’m just curious now that you have the sales in the bank,. I’m not sure if you have any deliveries actually. But are you able to give us any indication of how the margins are looking on that project, given when you underwrote deals several years ago?
Yes, Alan, we certainly don’t have any closings that we’ve booked. We have book sales. We really kind of open to sales in both of those communities kind of concurrent with starting production. But based on revenues that we’re seeing in those projects, I would simply comment that they’re both as you would expect considerably higher than company average. And as we get closer to delivery of those units, we’ll give you more color. But, yes, I think we’re excited about the prospects of both of those communities as well as some future openings in the back-half of this year and next year.
Perfect. I appreciate that. And then, just your comments on the entry-level, you’re up – you’re right around 40% of your business today. You mentioned you’re looking to ramp that over the next few years and it’s going to be exclusively spec-driven. So is that any different from your business model today catering to entry-level buyers? And if so how do you see that playing out as just more townhome product, which is why that’s going to be more spec, or is that something that you’re seeing on the ground from consumers that they especially desire?
Good question. I think there’s a couple of points, I would make on it. I think when you talk about the California markets, in particular, but also as we look to, excuse me, Colorado, Nevada, we’re looking to introduce townhome products in both of those markets next year to drive product at price points significantly below new home medians. Even in markets, such as, Phoenix, which has historically been a pick your lot, pick your product or plan-type market, we’ve really seen that entry-level buyer and, in particular, the first-time buyer within that segment looking for a shorter escrow period.
So we’ve seen our spec deliveries in Phoenix as an example increase almost 200% year-over-year. So we really do think that that’s the right strategy for that buyer. They’re looking for more limited options, selection process and they candidly a shorter escrow period overall.
And just kind of add on to that real quickly, then we’ve heard from some other builders that it’s been challenging to keep a supply of spec on the ground, just given some of the labor shortages in markets, and Phoenix is one that’s usually mentioned. So how have you found your ability to actually keep your production pace ahead of your sales pace to make sure that you don’t run low on specs, given this strong demand?
Yes, and certainly I think we would certainly concur that that’s a market that we’ve seen as labor pressures on both the cost side as well as on a cycle time side. This really kind of goes back almost a year ago when you think about kind of the dynamics that we all saw in the third quarter that created some volatility and closings.
We really made the decisions to start more houses earlier and really be focused on month by month basis on starts within each of our communities, especially that have entry-level exposure to make sure that we’ve got product available, it’s not always going to be even though I don’t particularly care for that that terminology given that there are seasonal trends, but we do want to keep product on the ground at any given point of time.
Great, thanks a lot and good luck.
Okay, thanks Alan.
Thank you. And our next question comes from the line of Will Randow with Citigroup. Your line is now open.
Hey, good morning guys and congrats on a progress.
In terms of the sales pace, you mentioned in July, it was a little bit north of where you were at July 2015, I think you were at 3.0. What type of sales pace do you feel comfortable with for the quarter? I imagine it’s closer to probably 3 flat. But love to get your thoughts on that considering, as Alan mentioned, the Bayshores and River Terrace openings?
Yes, look I think those are certainly two communities, Will, that we could drive some volume out of – I think we want to make sure we sync it up with where our kind of expectations are for deliveries and balance out, not get too far out – ahead of ourselves. But as we look at last year from an absorption standpoint, we really saw July and August of last year being fairly consistent in that three-month range with September backing off of it more really hard to kind of peg exactly where we would see orders.
So I want to be careful I think we would just kind of point people go back to some of the seasonal trends that we saw last year relatively to absorption rates that that’s the hardest to predict. I think it’s a little easier to kind of give you the sense of where we see community count going for the balance of the year, which we did. So that’s probably just the safest thing for us to kind of point you to at this point.
Okay. And then just one unrelated follow-up, on gross margins unadjusted, I think if I heard you right kind of the midpoint of what you’re thinking for the third quarter is about 16.7. And excluding the roughly $4 million of unplanned costs, that means your run rate is about 17.5, roughly speaking. Is that kind of what we should expect going forward or should we anticipate capitalized interest to come down as we look through the next 10 month or sorry 12 months or so?
Well I we feel good don’t want necessarily guide that far I have to start historically been our practice, but I’ll turn over to Colin for just some incremental color.
Sure, thanks Will. Mix is always playing a pretty big factor in our outcome and we seen great volume pickup in Phoenix with our heavy mix of entry-level product. So that’s a pretty commoditized market that’s seen significant increases and labor with the minimal pricing power and we’re definitely making more money there than we did a year ago, but margins are a bit lower in some of other divisions.
California, particularly SoCal going to vary based on timing of closings within our master-planned communities, which inherently have more margins, but on great terms that make it a very efficient use of capital for us and in the best master-planned in the country.
And then the other variable for us has been in Washington. It remains a great market. Got a solid pipeline, got appreciation, but right now we’re just seeing contribution declined from that division, related to more of timing from new communities coming online.
Our goal has always been to give you guys short-term outlook, directional guidance and we layout – we think it’s pretty good guidelines for the year for 2016. And from that standpoint it’s hard to give you specific number for Q4, but directionally we would see some lift from the Q3 number that you just mentioned into Q4.
Got it. Thanks again guys and congrats once again.
Thank you. And our next question comes from the line of Michael Rehaut with JPMorgan. Your line is now open.
Hey, it’s Neal on for Mike. So I guess going back to the master-planned community you opened this quarter and then the second upcoming, are you expecting kind of a substantially wider spread to your average gross margin? And then I guess how much could that contribute to this year and into 2017?
Well, I think relative to this year, I think it’s – we’re cautious. As we mentioned, we opened these communities. We had great demand partly also wanted to get a good sense of where we thought price was and could go just for folks reference, Bayshores has got north of 500 homes in it and River Terrace ultimately have build out north of 2,000.
So now we’ve got some data points on sales we’d likely get further along in the construction process and be able to guide whether we think those are going to start to make an impact, at the end of this year whether or not, it’s really discussion for 2017 and beyond.
I think, given the overall size and scale of those communities, we thought it was important highlight as I mentioned, we’ve got number of communities approximately 28 additional to open up over the next 12 months that also will impact kind of our future overall margin mix.
So again I think we try to paint picture for you guys and give you some bookings for this year. I understand everybody is trying to model for next year. I think obviously with community count growing. We would expect to see again some real growth from 2016 into 2017 just again we’ve shied away from trying to give long-term specific gross margin guidance.
We do believe that operating margins will improve year-over-year and that really it’s made up of two components. So we think are equally important to discuss and it’s – there’s the gross margin aspect of it. It is also making sure that you’re efficient in your overall cost structure and leverage of sales marketing and G&A side of your business. So that’s really I think we’re comfortable with relative to our guidance discipline.
Okay. Okay, that’s really helpful. And then I guess going back to the pricing power, you commented on, I mean you definitely outperformed historically in terms of having pricing power offset labor costs. But I guess regionally where are you able to raise versus maybe lowering elsewhere?
Well, I don’t think there’s any specific we would comment on relative to lowering per se and I think as we mentioned, Phoenix for us has been really a market that we’ve gotten great year-over-year increases in volume from both on a closing side and continue to think we’ve got the ability to drive good sales rates in that market. But it is definitely a market that is limited on the ability to push revenue. I would say year-to-date the three markets that probably had the most pricing power I would say probably the Bay Area in Portland and shortly thereafter followed by Seattle.
Okay. Thanks that’s all for me.
Thank you. And our next question comes from the line of Mike Dahl with Credit Suisse. Your line is now open.
Hi, thanks for taking my questions.
I think so in response to one of the prior questions, you mentioned the declining contribution from Washington, Seattle. Just curious, some of the weaker sales over the past couple of quarters clearly it seems to be just some normalization of pace versus what was extremely strong 2015? And as you look forward, how should we – with respect to Washington specifically, how should we be thinking about the ramp in community count, and it’s kind of an ongoing pace there. Is this about where you’d expect it to be based on your current mix of product there?
Yes, look, I think you hit on a good point. I mean, if you talk about Washington a year ago, Q2 the absorption rates were running at almost eight a month. I think, based on average community count for the quarter candidly as well as if you look at year-to-date for Washington, that’s pretty consistent at 4.8, so still very healthy market.
Relative to the client in overall contribution, as I said, we’ve got a great lot supply there. We’ve got candidly a large number of communities that we’re planning on opening, the balance of this year and into next year in that particular division, as good of a market as it is, and we think we’ve got a great operations team up there.
The municipality environment in Seattle is similar in a lot of ways to California, getting final approval on all of your plots and maps as well as improvement plans is just taking longer than it has historically. But I think if you use kind of our year-to-date run rate in Washington, at least, for modeling standpoint next year, I feel more comfortable kind of with the rate of sales that we’ve seen this year as opposed to what we saw last year, which was candidly just smoking last year.
Okay, thanks for that. And then my second question is going back to the margin discussion, I think, if we look at some of the puts and takes around there and where you’re not talking about for the back-half of the year, and I’m excluding the $3.5 million to $4 million, just with the purchase accounting roll-off, it seemed like the prior expectation, or at least, our prior expectation was for a bit better of a ramp there.
And so I’m just – I’d just like to hear a little more about whether the differences, or A, is this consistent with your internal expectations, let’s call it, three or six months ago; or B, to the extent that it has changed, how much of it is just a difference in something like spec mix than you would have previously thought, or really just the regional mix than you would have previously thought versus continued pressures and labor costs or any other pressures you might be seeing?
Mike, that’s a mouthful, man. I think, look, I think relative to how we were looking excluding the one-time issue that we’ve got to kind of deal with here, we were expecting to see what would have been roughly a 30 to 50 basis points of expansion, which candidly was with any kind of our expectation, right. I think we certainly have got mixes that Colin, kind of I think roughly commented on in terms of some of those puts and takes.
But look, I think it’s – it was kind of following what we were expecting to see throughout the year. Look, I think, the hardest thing is, when you’ve got, what I would call candidly some wide vintage of lots and land, the actual turn does move things around, which is why I think it’s really difficult to give long-term guidance on those types of thing. So I think we’ve kind of said what I think we can and are comfortable with at this point in time.
All right, fair enough. I’ll take a breath. Thanks.
All right. Thanks.
Thank you. And our next question comes from the line of Susan Berliner with JPMorgan. Your line is now open.
Hi, good afternoon.
So I guess, I wanted to start more big picture. And I know a lot of your peers have been talking about rising labor costs, and I know you guys touched on it a little bit. I was wondering if you could kind of go around your markets and kind of, I guess, also talk about, give a little bit more color on what you’re seeing in your markets on labor costs, and then just the environment? And also talk about the high-end buyer, because we’ve certainly heard that the high-end buyer is slowing down a bit?
Well, I think in terms of labor, as we’ve discussed in the past, I don’t think it’s meaningfully change. The most challenging labor market in our company has been the Bay Area. I think and that’s been on both a cost basis as well as labor and cycle time related market, it’s also been a good one from a revenue perspective.
Colorado, I would say, I think labor has somewhat stabilized. I think we’re seeing cycle times that year-over-year are pretty consistent. So I think we’ve been able to, I think, plan pretty well around that. Phoenix definitely seeing labor pressure on the cost side.
Our other markets from a homebuilding labor standpoint have been pretty decent, I would say, in the Pacific Northwest, the horizontal traits are definitely getting taxed a bit. I think we’re seeing the cost pressure in those markets. It’s been more on the horizontal side than the vertical side, and we’ve obviously got a lot of lots under construction.
I think relative to second part of your question and if you need to follow up sue on anything I just said that’s fine. But relative to the high-end buyer, look, I think, we see – we’ve seen that buyer make sales over the course of the first-half of the year. And all of our high-end projects, the rates to sales there have been, I would say, somewhat within the range of our expectation. We did open a new higher-end project in Irvine, at the end of the second quarter, which has performed very well on the Irvine Ranch.
Our higher-end projects in South County have been making sales. But it’s definitely been a slower pace, especially when you compare it to kind of the overall company average.
Great. And then I wanted to turn to, I guess, some land spend and then the balance sheet. Land spend seemed like it picked up a lot this quarter versus what you’ve been doing. Are you guys still targeting, I guess, to your land spend in total to be down a little bit from last year?
Hey, Susan, it’s Colin. Yes, we’re just – the timing of this quarter was just kind of the way things shook out with each contract, but still in that $275 million to $280 million range for the year. And then from a horizontal standpoint just in case you need it about $85 to $95 million for full-year.
That’s a subset of.
That’s a subset of, right
And, Colin, I guess, the land notes payable on the balance sheet this quarter, I’m assuming that was obviously associated with some land. Any details on that?
Yes. So it’s Matt. That’s – that was a seller financing provided by one of the master plan developers here in Orange County. So the terms of the deal is, we put down a percentage down. They take back a non-pay seller note that amortizes through the closings of units. So we would expect to see that start to amortize starting in the fourth quarter of this year and amortize through the first-half of next year.
Okay, great. Thank you very much.
You bet, Susan.
Thank you. [Operator Instructions] Our next question comes from the line of Alex Barron with Housing Research Center. Your line is now open.
Hey, guys, good morning and good job.
I wanted to ask about the order number that you gave for July. If I calculated correctly, it’s up 4% versus last year. I guess, I’m curious about, given the opening of these master plans, are you guys kind of holding back sales, because maybe you saw too much demand at the open, or is it – or do you think that’s indicative of what the whole – the rest of the quarter is going to look like?
Well, I would say this. I think, we did sell through some of our initial releases at those two master plans what we’ve talked about, and we’ll have periodic releases throughout the balance of this year. If you really look at July, though I would say, it really was a month kind of two halves. The first two weeks of July were really pretty slow, I think two things that was extremely hot out in the West, as well as 4th of July holiday. If I look at July, I think something like 60% July sales came in the last two weeks, the last two weeks of July were both consistently very good.
So again, I think it’s hard to give a full read for a quarter. I think, we try to provide you guys with monthly data just you could kind of compare absorption rates year-over-year and model as best you guys see fit.
But we were, I think, not surprised that the first-half was a little slow. July, I think we thought that the last two weeks were very solid. Last year, we did see a tick-up in terms of overall sales activity, especially on a weekly basis in August compared to July, but then it did back off a little bit in September. So that’s kind of why we’ve got that information out there for you guys to model.
Okay, thanks. And then as it pertains to gross margins, so it sounds like, excluding the – this infrastructure charge, your margin would have been sequentially flat to higher, correct?
Okay. And then as it pertains to these master plans that you guys just opened in Oregon and then Northern California, I think, if I heard you correct, the last quarter your cost bases on the Northern California was pretty low. So, I would assume your margins there would be higher than average. Is that also the case in Oregon or not necessarily?
Yes, look, I think the – they’re both above the company average, I think the Northern California gross margin profile is probably a little bit better. That said, we’ve got a much longer runway on the Oregon piece. I think, challenge with Northern California, as we documented before, that’s probably the tightest labor market with the longest cycle times, Alex. So while we open that up back-half of June, we are just starting units. So I don’t want to give any sort of expectation on exact timing of those deliveries relative to year-end versus Q1 of next year.
Okay. And can you tell me again the size of these two communities, like how many total lots you guys have in each?
Yes, I know that we gave that specific way last quarter. We’ve got Bayshores north of 500, Alex and River Terrace at full buildout is going to be quite around or slightly above 2,000 units. We’ve got those numbers and I can follow-up with you specifically.
Okay, perfect. Thanks a lot and good luck.
All right. Thanks, Alex. I appreciate it.
Thank you. And I’m showing no further questions. Thank you. I would now like to turn the call back over to Matt Zaist for closing remarks.
Ladies and gentlemen, thank you for joining us on our call today. We look forward to talking with you in the near future. Thank you.
Ladies and gentlemen thank you for participating in today’s conference. This conclude today’s program. You may all disconnect. Everyone have a great day.
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