Q4 2019 Earnings Call

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Dead dead dead good day and welcome to MDC Holdings 2019 fourth-quarter conference call all participants will a listen-only mode should you need assistance, please signal the conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question.

You may press star then.

One on your touchtone phone to withdraw your question, please press * then two, please note. This event is being recorded. I would now like to turn the conference over to Derek Kimberly director of SEC reporting, please go ahead.

Thank you. Good morning. Ladies and gentlemen, and welcome to MDC holding 2019 fourth-quarter earnings conference call on the call with me today. I have Larry Meisel bought a Jeep executive officer and Bob Martin Chief Financial Officer at this time. All participants are in a listen-only mode after finishing. Our prepared remarks. We will conduct a question-and-answer session at which time request that participants limit themselves to one question and one follow-up question. Please note that this conference is being recorded and will be available for Replay for information on how to access the replay, please visit our website at MDC Holdings.

Before turning the call over to Larry. It should be noted that certain statements made during this conference call including those related to NBC's Business Financial condition results of operation tips strategies and Prospects and responses to questions may contain forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 these statements well known and unknown risks uncertainties and other factors that may cause the company's actual results performance or achievements to be materially different from the results performance or achievements expressed or implied by the forward-looking statements these and other factors that could impact the company's actual performance are set forth in the company's 2019, Okay, which is expected to be filed with the SEC today. It should also be noted that SEC regulation G requires that certain information a company to use of non-GAAP financial measures.

any information required are

Relation Jean is posted on our website with our webcast slides and now I will turn the call over to mister model for his opening.

Good morning, and thank you for joining us today as we go over or results for the fourth quarter and full-year of 2019 wage update you on current market conditions and provide some insight into our strategy moving forward MDC end of the year on a strong note generating fully diluted earnings per share of a dollar forty two, four the fourth quarter representing a 61% increase over the prior year. Net new orders in the quarter increased 49% per year over year as demand remained elevated to what is typically a less active selling season. We have seen this momentum carry into the new year and believe that home Shoppers are

showing a notice of

Who interest in starting the home-buying process now rather than waiting until spring this obviously bodes well for our industry as a whole in for company.

We continue to see the strongest demand for a home priced at or below the median level in our markets, which is where we have been positioning or company for several years.

The demand drivers of our business remain favorable as we head into the new year December March the 6th straight month of your birth year declines in existing home Inventory in the United States and one and the one point four million homes for sale was dead Lowe's inventory figure since the National Association of Realtors began tracking this data in nineteen ninety nine this equates to a three month supply of Homes at the current sales rate, which is well below the typical six-month Supply with the lack of existing-home. Supply should help reinforce the demand for our new homes as we enter 2020.

the host of the

Mystic economy strong employment and optimism for the future continues to be reflected in the elevated consumer confidence readings to the end of the year.

The consumers are also increasingly confident in the housing market according to Fannie Mae home purchase sentiment index which roam considerably on a year-over-year basis in December and remains near all-time highs.

Lot of approvals in the fourth quarter reached their highest level in over a decade reflecting our optimism regarding the housing market in our confidence in our operating strategy. The bulk of these approvals were for more affordable communities as we believe the demand for outlets for the Millennials empty-nesters. And first time buyers of all ages will remain favorable for some time to come while I realize that investors are more focused on what's going to happen rather than what's already happened. I think it's important to emphasize how far we've come in the last five years.

since

2015 we have seen a 59% increase in home deliveries a 270 basis points Improvement in Gross margins and 880 basis point increase in return on equity and over two hundred percent growth in pre-tax income. We also improved our sg&a leverage and reduced our cycle time over that.

We accomplish this while maintaining one of those strongest balance sheets in the industry and delivering the highest dividend page, you know among or public Home Building trading peers traded peers. We're proud of these accomplishments based on our Outlets or the industry. We believe that we can continue to grow our operations in a profitable Manner and deliver further improvements to our cost structure home and return on Capital. Well trajectory will not always follow in a lineal path.

we've

We the outlook for MDC is positive and presenting a compelling opportunity for investors with a long-term approach with that wage. I'd like to turn it over to Bob who provide more details at our results from the quarter and the full year.

Thanks, Larry. I'm good morning everyone as predicted on our last call during the fourth quarter. We began to see a significant benefit from the recent surge in our orders and backlog as home sale revenues increased by 25% to more than 1 billion dollars and that income increased by 69% to ninety two point six million dollars or $1.42 per diluted share off.

Our tax rate dropped from 21% to 17.5% for the 2019 fourth-quarter. The decrease in rate was mostly the result of 45 L energy efficient tax credits, which were extended to cover the 2018-2019 and 2020 tax years during December of 2019.

during the

Quarter, we recorded an estimate for the benefit we expect to receive from these credits of six point five million dollars related to qualifying 2018 and 2019 home closings off our increase home sale revenues were the results of a 31% year-over-year increase in the number of homes delivered by a 25% increase in the number of homes. We have a backlog to start the quarter as well as an increase in backlog conversion rates do to improve cycle times.

Our backlog conversion rate was 52% exceeding the estimate of 50% for the fourth quarter that we discussed in our previous call and higher than the 49% achieved a year ago about the increasing units delivered was slightly offset by a 4% decrease in average selling price to about $450,000.

This decrease was in line with our strategic focus at 62% of our closings came from product lines. We characterize as more affordable offerings as compared with 49% a year ago about geographic mix also contributed to the decrease average selling price as we saw an increase in the percentage of fourth-quarter closings coming from our Phoenix Orlando markets, which both have average selling prices. Well below the Compaq average

this is the

Build a strong order activity throughout 2019 and a higher backlog conversion level than forecasted for the quarter in these markets looking forward to the first quarter of 2026. We were targeting home closings between 1550 and 1650 units which would result in a backlog conversion rate roughly in the 41% off 3% range compared to the 46% backlog conversion rate. We achieved in the first quarter of 2019. The pencil for a lower conversion rate is primarily a result in sales activity. We experienced during the fourth quarter as these homes are in our quarter in backlog, but most are unlikely to close in the first quarter.

Additionally, we believe that our average selling price should remain above $450,000 for the first quarter of 2020 based on an assumption that are mix of closing should remain relatively consistent with the fourth quarter.

Turn this light seven. You can see that our gross margin from home sales improved by 40 basis points year-over-year to 18.5% This increase was driven by nine point seven million dollar offer a reduction in inventory impairments partially offset by lower margins in our California markets and a shift in mix to our Phoenix and Orlando markets which add queue for closing down below the company average with that said we have seen improving margins in these markets due to increased market demand, especially for a more affordable homes Phoenix in particular has benefited from this mix shift and as a result ended 2018 with an average gross margin of homes and backlog that exceeded the company average.

Relative to Q3 our gross margin decreased by 3 basis points similar to our year of your performance. The decrease can be attributed to lower margins are California markets and the ship and mix to our Phoenix Market.

For the first quarter of 2020. We estimate that our gross margin for home closings should reach between 18.8% and 19.2% excluding impairments and warranty adjustments off the expected increase from Q4 to q1 is a result of strong or activity during the second half of 2019, which allowed us to increase pricing in the majority of our communities.

At the end of 2018 the estimated average gross margin of our homes and backlog was modestly higher than at the end of 2018, which is an encouraging sign for 20 20 has always thought that the gross margin level. We actually realize in the future periods could be impacted by cost increases cancellations price or incentives changes impairments Reserve adjustments and other factors.

With the 25% increase in our home sale revenues are operating leverage improved significantly year-over-year specifically sg&a, as a percent of home sales revenues decline a hundred and ten basis points to 9.8% our total dollar SCA expense for the 2018 fourth quarter was up eleven point seven million dollars from the 2018 Ford, This increase was primarily due to variable components of our sg&a expense such as a 6.8 million dollar increase in our commission expense our marketing expense incurred by 4.1 million dollars, which was largely due to the amortization of deferred marketing costs and master marketing fees both of which are driven driven at least in part by higher home closing.

Looking forward to the first quarter of 2020. We currently estimate our general and administrative expense to be roughly $46 million dollars, which would be about even with the occult. We just recognized in the fourth quarter. However, our actual results for the first quarter could differ from this estimate for a variety of reasons such as changes in the amount and timing of areas of rules wage.

The dollar value of our net orders increased 51% year-over-year to $685 million dollars different by a 49% increase in unit headquarters in a two-page increase in average selling price. The the man for our more affordable product lines remain strong during the fourth quarter of 2018 accounting for 61% of our net new orders compared to 54% a year ago. This increase was largely attributable to the continued success of our Seasons collection, which accounted for 46% of our net new orders in the 2018 fourth quarter compared with 36% a year ago. Our monthly absorption rate of 2.8 was a 28% increase from the 2018 fourth quarter and was our highest fourth quarter since 2005 the Improvement occurred both in more affordable and traditional product categories in the largest you our viewer percentage increases were in Phoenix, Seattle, Colorado and vote.

northern and southern, California

Or fourth quarter networkers further benefited from a 16% year-over-year increase in average active subdivisions as Larry alluded to earlier our sales activity to this point in January has exceeded our expectations. We anticipate significant year-over-year growth for January similar to what we saw during the back half of 2019. Once the month is complete wage.

We ended the quarter with an estimated sales value for our homes and backlog of 1.75 billion dollars, which was up 22% year-over-year on the strength of our new or activity in the second half of the year the average selling price and backlog was down about 5% year-over-year during my decreases in most markets in line with our more affordable home Focus off as I mentioned earlier the estimated average gross margin of our homes and backlog at the end of 2018 was mostly higher than at the end of 2018, which is an encouraging sign for 2020.

Actress I'll do an account was $185 to end the 2019 fourth-quarter up 11% from 166 A year ago in line with the expectation. We set at the beginning of the year long as I've mentioned during the past couple of calls. We don't see much opportunity for an increase in our active subdivision count for the first half of 2020 relative to where we ended 2018 month. However, we are optimistic about the potential for growth in the second half of 2020 based on land that we already control. Our goal is to drive are ending active Community higher wage a third consecutive year in 2020, but at this time the magnitude of a potential increase is uncertain

The number of lots we approved this quarter increased by over 200% year-over-year this acceleration of activity reflects our confidence in market conditions in our focus on continuing to grow our business. Whereas during the fourth quarter of last year, the direction of our business was less certain on the strength of these lot approvals the total number of lots. We controlled at the end of the year was 18% higher than a year ago and at its highest level in more than a decade.

For the 2018 fourth-quarter, we acquired 3292 lots for roughly two hundred thirty-five million dollars and we spent an additional $180 million reps development costs approximately 35% of the Lots acquired in the fourth quarter were finished Lots net Home Building. Deputy Capital was 21.5% at Thursday the 4th quarter demonstrating our firm commitment to maintaining a strong balance sheet furthermore our liquidity to end. The 2018 fourth-quarter was at one point five billion dollars providing us with significant resources to fund the continued growth and to start 2020. We've improved the balance sheet even more with a three hundred million dollar issuance of 10,000 in your notes at a rate of 3.85% the lowest for senior notes in our history.

Earlier on the call. Larry mentioned the significant progress MDC is made across a variety of metrics over the past five years. Notably 2019 was the third highest net income a year on record for MVC that performance put us in a position to reward our shareholders through a 10% increase in our dividend declared just a few days ago and the Outlook is right off the year with higher backlog value higher backlog gross margin and higher active Community count all pointing to the potential for increased top and bottom-line results in 2020.

with that

I'll turn the call back to the operator for our question-and-answer session.

We will now begin the question-and-answer session to ask you a question. You may press * then 1 on your touchtone phone. If you're using speakerphone, please pick up your handset before pressing the keys to withdraw your question, please press * then two first speaker is from Stephen King from evercore, please go ahead.

Hey guys, Steve Kim evercore good quarter first. Just a housekeeping Bob the the tax credit that you saw I think took six point five million dollars. Just want to clarify that with six point five million that you registered for 2019 and 6.5 for 2018. And what are you looking for jobs in 2020, I guess an aggregate the impact on the income tax line was six point five million dollars and that accounts for both 2018 a 2019 and I guess the impact on on twenty-twenty will really be would really depend on on what closing is come through and and where they come through.

right, but probably

Something in the three to four million range is pretty reasonable. I assume.

Yeah, all else equal that that would be reasonable. Can you talk about the gross margins and in particular? I'm curious as to what sort of caused you to miss what your expectation was that you gave just a few months ago. And then you flip side of that is if God obviously looks pretty good. Maybe you can help us by sharing with us how the components of gross margin are kind of looking if there's anything worth talking about in terms of track either picking up or moderating within materials or labor or lamp. Yeah and to be clear about what we talked about in the last call is the backlog gross profit margin, um being higher than the closings that we just had recognized in Q3 wage.

and that continues today and

The differential is even greater the backlog gross profit. Margin at the end of the year. I was relative to where we ended Q4. So we did take a further step this quarter page saying, um, definitively that we think it's going to go up to that 18.8 to 19.2 range for q1 based upon what we we see right now, I think as as far as the reasoning for it, you know, when you look at what has happened with with our closings, first of all, we've had a significant wage increase your your in in our closings 31% and 25% increase in our revenues. So a great thing because we got a hundred and ten basis points of extra operating leverage so happens that a big part of that that increase is occurring in markets like Phoenix in Orlando where we've been a little bit smaller in the past few years, especially. Yep.

to have to Colorado and

And Nevada. Um, so the good news is those markets are becoming more relevant to us. We're getting better market share in those markets, which is a great thing for operations overall. I think temporarily because the margins in those markets have been a little bit lower than the country average because they have that a little bit lower in scale of it is caused a little bit of a dip in our margins, but those margins are improving in those markets and as I commented on earlier the backlog gross margin in Phoenix for example is now well in excess of the company average. So um no longer will it be a drag on our margins all else equal as we sit here today? So that's what I would would say on that topic overall. I think it really is is a positive that we're seeing more diversity in, Georgia.

Avenues are coming from and that we're

In the margins in each of those markets accelerate.

Yeah, that's really encouraging. Can you talk a little bit about what you think is the components whether it be you know land within within your your cost of land labor material. Is there anything really to call out there and and on the labor side? Some people have addressed maybe some increasing labor tightness, you know if you can maybe fold that into, Terry.

Yeah, I I don't see a whole lot of that yet. I mean clearly with the the industry doing well in a lot of Builders talking about increased activity. There's the potential for that wage in 2020, but we've not see it come through yet. We have seen various municipalities who have started the year with increased fees or increased requirements for development work. Um, that's driven a little bit higher costs, but not widespread at this point.

Great. Thanks guys.

The next question comes from John lovallo from Bank of America, please. Go ahead. Hey guys. Thank you for taking my questions. The first one on the birth order strength sounds like it was pretty impressive and clearly encouraging. Can you just give us a feel for what the what the monthly comps look like in the first quarter? I mean the February March get a little bit more challenging from that standpoint.

Yeah, let me I'll just give you kind of what January through March of last year looked like am so in 2019. We are 475 in January 2018 was 482 February 6:47 to 6:18. And then March 6th $34 versus $74. So as you went through last year the comparisons did get tougher in that February Mark. We're both increases your year. Whereas January was Europe or decrease in 2018. Gotcha. That's perfect. Okay, and then, you know, maybe just going back to the to the the gross margin in Phoenix in Orlando. I just want to make sure I I understand this so the lower gross margin that the experience in the quarter which was it it was due to some in efficiencies. Maybe do the scale not being you know optimize dead.

Previously, but was there anything else that?

Happened that would have resulted in in those margins in those regions being lower. I mean was there increased discounting their you know earlier on or is it really just a function of of of scale?

I think a lot of it is a function of scale. I think you know in Orlando we are all seasons and you know that fire sometimes requires a little bit of extra month financing incentives. For example, I would think that's that's probably the only thing I would call out in particular, you know to a lesser extent you have that in Phoenix, but but certainly in Orlando. Okay. Thanks God.

The next question comes from Alan Ratner from zelman and Associates, please go ahead. Hey guys. Good afternoon. Thanks for taking my questions Bob. I was hoping to expand a little more on the comments you were you were given on the mix impact on margin and I guess my question is you know is is you look at your nineteen growth obviously, very impressive much stronger than the market was a a perhaps strategy as the year went on where you identify these markets where you perhaps had some sub-optimal scale and perhaps chose, maybe not to be as aggressive on on pushing price or offering incentives in order to to get those markets to to kind of an optimal scale level. Perhaps that would maybe explain the very strong volume, you know, perhaps a little bit of expensive. Margin that other builders are reporting.

yeah, I would I would say there there's

Some truth to that. I don't think it's quite that binary that is just one or the other. We're still looking at individual subdivisions where we have really strong activity and and increasing prices as as appropriate, but I do think there is an importance, um to the local market scale and and I was actually thinking about you a little bit Alan cuz I remember in reports past, um your reports talking about that very thing. So, yeah, I think it's it's something unique to MVC that we have a variety of markets that are a little bit lower on the scale and have that opportunity to improve. In fact in the future as we get more and more of that scale and and certainly you can see that we're getting more and more that Scale based upon our order activity and and our backlog. So I think what you're pointing to is is fair.

Got it. And that's helpful. I appreciate that. And I guess you know just thinking about the future now, you know, you you obviously turn your land book faster than others and and you did a great job of of in Chrome your lot count this quarter. So I'm just curious, you know, as you look at the underwriting assumptions embedded within those recent land purchases, you know, a you know, what is the composition of land look like is it sucks it out, you know, perhaps a little bit more evenly across your markets given the fact that some of these smaller markets have grown and what's the underlying margin assumptions Within These is it in line or better wage? You're currently delivering?

I would say.

The underlying margin assumptions are in line or or better than what we're currently delivering and you know, I think as far as the the dispersion of where those Acquisitions are occurring. Yeah, I think we get activity pretty much everywhere in terms of of the lots that we've approved. I don't think there's any we're we're we're we're really saying hey, let's let's put the brake on we've we've already grown enough. So I think each of the markets the ones that are are smaller for Thursday are receiving some of the capital just as well as our larger markets are

I guess what I was getting without without those like if you look at the markets where you grew outside this year you mentioned Phoenix in Orlando is an example. Those are now a bigger piece of your business compared to say Denver was a year or two ago. So is the current mix of your business more appropriate to think about going forward geographically.

Yes.

And you know as you look at q1, you know some of the assumptions that we played out for you for q1 or based upon a mix similar to Q4 wage did include lower contribution from places like Colorado and higher contribution from places like Phoenix and Orlando.

Okay. Got it. Thanks guys. Good luck.

The next question comes from Michael her house from JP Morgan, please. Go ahead.

Hi guys, this is Maggie on for Mike first. I have a broader question on Gross margins. So you've talked so far about the last couple of quarters and kind of the geographic mix how that's impacted the last couple of quarters, but as you look into the medium and longer-term in the future.

How how are you thinking about the impact of affordable product on margins prior to last couple of quarters you would see and nice improvement over the last couple of years. So I see any additional upside from the expansion of your affordable lines, or do you feel that you've reached kind of a steady-state there where the further margin Improvement would be more market-driven.

Well, I think yeah, if you go back six seven quarters ago, the margin was higher on affordable product. That's really come in quite a bit. It's it's more similar to our traditional product at this point. So the increase of of the percentage of units that we're doing with the affordable product wouldn't necessarily Drive the margin one way or the other and what's more is we're already at 60 to purchase an affordable product and our deliveries in Q4, you know previously. I talked about, you know, it could go a little bit higher than that maybe as much as 70% but there's there's not necessarily a whole lot of room to to go there in terms of how much it represents of our overall mix at least from what we see right now, so I don't see it having a big impact on margin in isolation.

Okay. Thanks. And I think you mentioned that you were able to raise prices in the majority of your communities this quarter is so could you elaborate on that a little bit maybe what percentage of communities or the percentage price increase on average?

Well, it's actually the comment was the majority in the back half of 2019. And we we did raise prices on a about half of our communities in the fourth quarter just the fourth quarter, you know and keep in mind obviously. It's typically lower activity in the fourth quarters. That's not as much the focus to increase pricing. Also keep in mind that in a free we increase prices in Eighty percent of our our communities like we talked about on our last call and then as we started twenty-twenty we focused again on a more price increases as as we anticipated the the spring selling season coming up. So I think you have to look at all those data points together to kind of see how we we took it.

Okay. Thank you.

The next question comes from Paul przybylski from Wells Fargo, please go ahead. Thank you, Bob. You mentioned Phoenix gross margins. Were were now a Tailwind. I'm wondering if you could add any color around where Orlando gross margin stand in relation to the company average and then along that line. I believe you're you're East Lots were up 36% and the quarter was that Orlando or Florida driven versus the Mid-Atlantic.

so on the first question of the

the backlog merchants in Orlando are still below the company average. Of course. Orlando is a much smaller piece of of our Pie as you you look at backlog. It's probably a third of the size of a phoenix. So Phoenix will be more impactful at this point and then I don't think I got the second part of your question. Yeah, you're you're you're East bank account. I think was up 36% Was that mainly in Florida, or was that the Mid-Atlantic Road?

I think it was mostly Florida.

Okay, okay, and then your specs were down fifteen or 15% year-over-year any plans to kind of bring that back up as we head into the spring selling season?

No.

Okay, and then with with rates moderating, have you seen any increased designs understand?

Nothing material. All right, I appreciate it. Thank you.

The next question comes from Jay McCanless from wedbush Securities, please go ahead.

Hey Jay, Leno mute.

All right, we can we can't hear you. J-law. Can you hear me now? Yeah, that's better. Sorry about that. And what are you seeing from? A competitive standpoint in terms of incentives on that move up product for what you guys are doing. And also what your competitors.

I don't have a whole lot of color for January at this point, but I do think the trends were were positive in in the fourth quarter, you know the from an incentive standpoint. I'm not sure of the exact details on that either but I think we're we're seeing the ability to have that that move up product. The incentives may be be pretty moderate and see those incentives decrease just as incentives another product decreased over the past year. Keep in mind, you know, when we talk about product. Um, we've we've moved away from some of the really big product when you talk about 4,000 square-foot plus product information. It's like Phoenix, we're not doing as much of that anymore. So it's it's a little bit of a different segment of the move upmarket as well. I'm certainly not focused on on more that luxury birth.

more focused on

On the middle that segment.

And I had a two-part question on.

You know, I understand that you guys aren't willing to give what you think. The commune account would be at the end of the year. It's not a function of faster Closeouts. Now, you're worried about selling these some of these faster off. But then also when we think about that Community down at the end of the year is is the community count still going to be producing somewhere between sixty to seventy percent of units as what you guys would consider affordable or if they're going to be asked you back towards more of the the first and second move up type of product.

Yeah, I think for for Community, kind of short-term Outlook, you know, we see I think the sometimes we give out a number that that is the number of students need an active versus soon to be active. So we've got about three more soon to be inactive versus soon to be active. So that's kind of what tells us short-term. There's there's not going to be a whole lot of movement.

A longer-term. Um, we have roughly a hundred and fifty communities that are are no activity started yet. And that was a hundred and fifteen a year ago. So we got a 30% increase in those communities that are are longer-term going to come online. So that's what gives us optimism for for the second half of the year in terms of the way to split in mix. I don't see a whole lot of difference there at this point. I think you are right depending upon what selling and how fast it sells that can influence the the whole equation. So that's that's part of the reason for the caution.

You need some of these closed out, but the mix in terms of that entry level versus move up product should be fairly similar to what we're seeing right now, correct?

The next question comes from Buckhorn from Raymond James, please go ahead on the strong results. And I just wanted to talk maybe about your specs strategy going into the spring given the visibility of demand you have earlier in the year right now and obviously the accelerated land spend and you've got the the higher the success of the seasons and the absorption rate. Would it make sense to toggle up your spec home starts into the springtime or how do you think about potentially putting some more starts in the ground ahead of the spring selling season?

Yeah, I think right now we've got we've got plenty of units and backlog that we need to start in fact, you know to start the year. The percentage of of houses that are are started in our backlog is a little bit lower than a year ago. So I think that provides plenty of work for our subcontractors and I think to the extent that we we try to employ a spec the spec strategy on top of that, um, it might only serve to uh to diminish, um what we're getting for for those who are already in backlog. So I think we're going to stick with our strategy and really focusing on whether or not we can improve our cycle times for those virus and backlog and and increase our our backlog conversion rate.

Okay, that's helpful and certainly.

With these successive and having the the backlog sarthi or so much higher is we think about any sort of incentive plans or stock for 2020. Should we think about that in terms of in the sg&a outlook for the coming year is anything that would be significantly higher year-over-year?

I think for the the entire year, there's nothing that leads me to believe that right. Now. I know that the compensation committee has not finalized those plans for 4:20 a.m. So that's that's an asterik to that statement. Okay. Thanks think one last one is just do you have any thoughts on the effective tax rate for twenty $20 with the tax credits extended?

Well, you know, I think without the tax credits, you know, you might be kind of in that 25 to 26% type of of rain without discrete items. We consider those tax credits to be a discreet item and kind of going back to see Kim's question earlier, you know, that that three to four million of of gross impact over the course of the entire year is probably the the best estimate on that you can use at this point. All right. Thanks.

Again, if you have a question, please press * then 1 the next question comes from Alex Barron from housing Research Center, please go ahead.

Yeah, yeah. Hey Bob. Wanted to ask you gave us kind of a range for expected average prices quarter, you know, is it reasonable to expect wage would be the high for the year and it would Trend lower as your max continues to move towards more affordable homes, you know with in fourth quarter with already 62 per month as affordable and having already seen some mix shift to to Phoenix in Orlando, you know, it might move down slightly, but we don't see it moving too far below 450

Got it, and it's okay. So you said entry level where affordable is now 62% Okay. I think that's all I got for now. Thank you. Thank you.

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

The slurry like to thank everyone for joining or fourth quarter earnings call on behalf of our management team. I'd like to thank our board or employees or subcontractors and all of our other stakeholders who made mdc's success possible in 2019. We look forward to speaking with everyone again following the release of our first quarter 2020 earnings. Have a great day everyone.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.

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