Q4 2019 Earnings Call
[music].
That's a question during this session if you're willing to press star one on your telephone if you're quite unafraid to assistance. Please press star zero. Thank you Mr. Steele Creek. Please go ahead.
Thank you appreciate you turning into the call today, joining me in Columbus, Ohio, with Bob Schottenstein, Our CEO and President Tom Mason, Dvp, Derek Klutch, our president or mortgage company and the re hunker VP corporate controller and Kevin Hayes Senior VP first to address regulation fair disclosure.
Surgery encourage you to ask any questions regarding issues that you consider material. During this call because we are prohibited from discussing significant nonpublic items with your directly and ask to forward looking statements what to remind everyone that the cautionary language about forward looking statements contained in todays press release.
Also applies to any comments made during this call also be advised that the company undertakes no obligation to update any forward looking statements made during this call also during this call we disclose certain non-GAAP financial measures a presentation of the most directly comparable financial measure.
Calculated in accordance with gap and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today that is available on our website now I'll turn the call over to Bob Thanks, Bill and good afternoon, and thank you all for joining our call today.
2019 was a very strong year for EMI homes highlighted by record revenue record new contracts record homes delivered and record pre tax income.
For the year, we sold 6773 homes, an increase of 16% over 2018 and during the fourth quarter, we sold 1677 homes, a fourth quarter record and 43% better than a year ago.
Our community Count during 2019 increase on average about 6% so with our sales up 16%, we experienced nearly 10% better sales pace per community per month.
And we're very pleased with the sale results of our most affordably priced smart series product.
Our smart series continues to represent a greater percentage of our overall sales mix as well as a greater percentage of our overall community mix.
At the end of 2019 are smart series houses were being offered in just over 25% of our communities that compares to roughly 10% a year ago and comprised that even slightly higher than 25% of total sales.
We continue to achieve both good pace and good margins in our smart series communities and expect that segment of our business to continue to grow in a very good way.
Our revenues for 2019 increased 9% to $2.5 billion and homes delivered increased also 9% to 6296 homes.
We ended 2019 with the highest yearend sales backlog in company history with an average sales value of $1.1 billion, that's 18% better than a year ago.
And we continue to improve our profitability pre tax income aided by improved operating leverage.
Increased 18% for the year to $166 million and net income grew by 19% to $128 million.
More specifically in terms of our operating leverage and improve profitability. We achieved a 20 basis point to improvement in our SG of the expense ratio compared to 2018.
And our 2019 full year gross margins also improved by 20 basis points compared to 2018.
In my financial our financial services segment also recorded another strong year with a record number of loans originated as well as record revenue.
As a company, we have achieved steady and consistent growth over the past 10 years with new contracts growing at an impressive 11% compound annual growth rates since 2010.
Revenues during that period have grown by 17% and EBITDA over that same 10 year period has grown at a very strong 28% compounded annual rate.
And with our improved returns our return on equity in 2019 reached 14%.
From a balance sheet standpoint, we are in the best shave we've ever been.
We approved our homebuilding debt to capital rate 38%.
We increased our net worth to just over $1 billion and its expense successfully extended our debt and our debt maturity and improved our borrowing rate by redeeming $300 million a six in three quarters senior notes that were due in 2021, replacing yet.
With a 400 million dollar offering of eight year notes with a rate of 4.95%.
Now I'd like to provide a little bit more detail about our various markets first beginning with the southern region, which is comprised of our three Florida.
For Texas and to North Carolina markets.
In the southern region, we had 1178 deliveries during the fourth quarter and 3814 deliveries for the year, that's 10% better the last year and 61% of the total of the company for the year.
New contracts in the southern region increased by 35% during the fourth quarter and 15% for the full year.
The dollar value of our sales backlog in the southern region at the end of 2019 was up 16% in our controlled lot position in the southern region increased 22% year over year.
We had a 129 active communities in the southern region at year end, that's 8% better than a year ago.
We experienced solid increases in both closings and sales in all four of our Texas markets in 2019, as well as in Charlotte and are making significant progress in growing our relatively new operation in Sarasota, Florida, where we now have 10 communities opened in cell.
All of this will lead to substantial increased all of this led I should say to substantial increases in both sales and closings for the fourth quarter and full year.
Orlando and Tampa also grew their unit volumes in 2019, and as we stated in previous calls continued to be two of our strongest markets and operations.
Finally, let me note that during 2019 as reported earlier, we decided not to invest further in the DC market. We have substantially sold out in close that operation as of the end of 2019, we have merely a handful of homes remaining to close in 2020.
Next moving to the northern region, which is comprised of our six Midwest markets.
In the Northern region, we delivered 743 homes in the fourth quarter and 2482 for the year.
Thats, a 7% increase from last year, and 39% of companywide total for the year.
New contracts in the northern region were up 58% during the fourth quarter and 17% for the year.
Our sales backlog in the northern region was up 21% from the started the year, one dollar value and our controlled lot position increased by 8% year over year.
We ended the year with 96 active communities in the Northern region, that's an increase of 7% over a year ago.
Overall, our markets in the northern region continued to perform at a high level Columbus is one of our strongest markets Cincinnati is performing very well and we achieved significant growth in very solid financial performance in Minneapolis, We also experienced significant increases in.
Closing and sales in Indianapolis and are on track to achieve higher volumes. This year in our relatively new Detroit operation.
And we're pleased with the progress we expect to make in Chicago This year.
Before turning the call over the Phil Let me conclude with just a few points first 2019 was a very year for our company.
We ended 2019 with a record backlog our balance sheet is as strong as it's ever been we're excited about our position and our communities in all 15 of our markets.
We continue to experienced strong performance out of our growing smart series.
And housing conditions are good and we are optimistic about the spring selling season.
In sum EMI homes is very well positioned for a very strong 2020.
With that I'll turn it over to Phil Thanks, Bob New contracts for 2019 increased 16% to an all time record of 6773 and for the fourth quarter, our new contracts were up 38% in October up 38% in November and up 56% in December for a total.
43% improvement compared to last year's fourth quarter, and our traffic for the quarter was up 19% as to our buyer profile about 49% our fourth quarter sales were the first time buyers. This compares to 46% in 2019 third quarter and 44% of our fourth quarter.
Our sales were inventory homes compared to 47% in the third quarter.
Our community Count was to 25 at the end of 2019 up 8% versus 2018 year end. The breakdown by region is 96 in the northern and 129 in the southern during the quarter. We opened 22, new communities, while closing 18 and for the year, We opened 80 new.
Communities and closed 64 and for the year, our average community count was up 6% for 2020. Our current estimate is that our average community count will be up about 5% from 2019.
We delivered 1921 homes in the fourth quarter, delivering 66% of our backlog compared to 64% a year ago and are more efficient smart series. This aiding our backlog conversion rate.
Revenue increased 3% in the fourth quarter of 2019, reaching a fourth quarter record 742 million.
This was primarily result of the record increased in the number of homes delivered.
And our average closing price for the fourth quarter was 377000, a 2% decrease when compared to last year's fourth quarter average closing price of 383000.
Our backlog average sale price is 396000 down 3% from a year ago, and our backlog average sale price of our Smart series is 300 in 2000.
We recorded 5 million of impairment charges in 2019 fourth quarter compared to 5.8 million in 2018 fourth quarter that 2019 charge was primarily for higher price slots in Chicago and Charlotte.
Our adjusted gross margin for the fourth quarter was 19.9%. This was 100 basis points higher than last year's comparable adjusted gross margin.
And for the full year 2019, our adjusted gross margin was 19.8 versus 2018 19.9.
And our construction cost had minimal change during the fourth quarter.
Our 2019 full year pretax income was impacted by 600000 of acquisition related charges from our Detroit acquisition in March of 18, compared with 6.8 million in 2018.
Our fourth quarter SGN, a expenses were 11.7% of revenue up from 11.1% and last year's fourth quarter. This increase was primarily due to increased compensation costs associated with our strong earnings costs from opening a significant number of new communities. We opened 20.
The two new communities in 2019 fourth quarter versus 13, new communities in 2018 fourth quarter and increased cost related to upgrades in our information technology systems for the year, our SGN expense ratio was 12.1% a 20 basis point improve.
Movement compared to 2018 and improving our operating efficiencies continues to be a major area of focus.
Interest expense decreased 500000 for the quarter compared to the same period last year, an increased 900000 for 2019.
The increase for the year is due to higher weighted average outstanding borrowings in 2019 interest incurred for the quarter was 12.5 million compared to 13.1 million a year ago.
We had 21.6 million in capitalized interest on our balance sheet. This is about 1% of our total assets.
Our effective tax rate was 19% in 2019 fourth quarter compared to 27% and last year's fourth quarter and our annual effective rate in 2019 was 23% compared to 24% in 2018, our fourth quarter and annual tax rate benefited from.
The extension of the energy tax credit in December of 19, and we expect 2020, <unk> effective tax rate to be around 24%.
Our earnings per diluted share for the quarter increased 19% to $1.57 per share an increased 15% for the year to $4.63, excluding the impact of acquisition related cost and impairment charges and during the first quarter of 2019, we repurchased 5 million of our outstanding shares.
There's we did not repurchase any shares during the remainder of 2019 now Derek Klutch will address our mortgage company results.
Thanks, Bill our mortgage and title operations achieved a number of fourth quarter Records in 2019.
Including record pretax income of $6.4 million up $1.1 million over 2018.
Record revenue of $15.8 million, which was up 20% over last year and record closings.
For the year pre tax income was $23.7 million and revenue was $55.3 million. Another all time record.
We saw some improvement in pricing margins, particularly in the second half of the year.
Loan to value on our first mortgages for the fourth quarter was 82% in 2019, a modest increase from 2018 fourth quarter of 81%.
76% of the loans closed in the quarter were conventional and 20, 424% or FHA or me as compared to 79% and 21% respectively for 2018 same period.
Our average mortgage amount increased to $303000 in 2019 fourth quarter compared to $300000 in 2018.
The number of loans originated increased 13% from 1242 to 1398 and the volume of loans sold increased by 23%.
For the quarter the average borrower credit score on mortgages originated by my financial was 744, a slight decline from 746 last quarter.
Our mortgage operation captured about 84% of our business in the fourth quarter, a significant increase from 80% in 2018 fourth quarter.
At December 31st we had a total of $137 million outstanding under our two EMI financial mortgage warehouse credit facility, which expire in June in October of this year.
Facilities are typical 364 day mortgage warehouse lines that we extend annually.
Due to our typical high volume of fourth quarter closings. We include a seasonal increase in our warehousing facility, which provide temporary availability of $225 million through January 2020, after which time total availability returns to $190 million now I'll turn the call back over to.
Phil Thanks, Derek we continued to manage our balance sheet carefully focusing on investing in new communities. While also managing our capital structure total home building inventory at 12, 30, 119 was 1.8 billion an increase of 95 million above 12, 30, 118 levels, primarily due to higher community count and more.
Finished lots are unsold land investment at 12, 30, 119 is 835 million compared to 782 million a year ago. At December 31, we had 344 million of raw land and land under development and 491 million of finished unsold lots we owned.
6220, unsold finished lots with an average cost of 79000 per lot. In this average lot cost is 20% of our 396000 backlog average sale price. Our goal is to maintain about a one year supply of owned finished lots and the market breakdown of our hearing.
$35 million unsold land is $385 million in the north and $450 million in the sale.
Lots owned and controlled as of 12, 30, 119 totaled 33300 lots, 44% of which were owned and 56% under contract, we own 14700 lots of which 47% or in the north and 53% in the south.
Based on 2019 sales, we currently own a 2.2 year supply of lots and control of 4.9 year supply a year ago, we own 14000 lots and controlled a total of 28700 lots during 2019 fourth quarter.
We spent 73 million on land purchases and 83 million on land development for a total of 156 million and about 31% of the purchase amount was raw land.
For 2019, we spent 600 million on land purchases and land development and about 44% of the purchase amount was raw land. Our current estimate for 2020 land purchase and development spending is 652 700 million.
At the ended the quarter, we had 668 completed inventory homes and 1459 total inventory homes and of the total inventory 622 were in the northern region and they 37 or in the southern region and at December 30, 118, we had 591 completed inventory homes.
And 1443 total inventory homes for comparison, we had 3.0 finished specs per community at 12, 30 119 versus 2.8 at 12 30 118.
Our financial condition continues to be strong with a record 1 billion in equity at year end equal to a book value of 35 per share and our homebuilding debt to cap ratio declined to 38% at year end from 44% a year ago. It.
In 2019, we generated 240 million of EBITDA up 14% over last year and generated $66 million of cash from operating activities.
Interest incurred was 49 million in 2019 compared to 47 million last year.
And in January of 2020, we issued 400 million a 4.95% eight year senior notes and redeemed our 300 million, 6.75% senior notes due 2021 at par and at 12 30 119, there was 66 million outstanding under our five and.
Hundred million unsecured revolving credit facility.
This completes our presentation went out in the call for any questions or comments.
Sure.
Question.
Pardon the number one on all fronts.
Next question. Please proceed.
Please standby.
Thank you and your Boston.
Once again that is targets.
Thank you.
Your first question comes from the line of Thomas.
Selman.
Okay.
Hey, guys really shine results congrats on the quarter.
Ministering finished the year I guess, just first on the volume side of the equation.
Think about the go forward sales per community as you talked about is really shine on absolute basis.
I think the fourth quarter is probably the highest level we've seen in our model, but is there room for absorptions go higher with the tailwind from affordable communities going forward or do you think we're at a little bit of a wall from on an absolute pace perspective right now.
Then can you just talk about the difference in absorptions for the entry level product first traditional cans and how wide that spread us.
I hope there's room for absorptions to go up but I will say, even if they stay right where they are I.
I think we can perform at a high level and improved profitability.
Clearly the pace is a little bit better in our smart series communities.
I think I don't know that I have an exact number to give you.
In fact, I guess I should say I know that I don't have an exact number to give you but the other side of it is is that an average could be a little bit misleading because some of them. We have some smart communities that are running four or 567 sales a month.
And then we might have some that are running two to two and a half so.
They're not all of the they're not all home runs and I know you probably understand that but on average we.
We clearly have better face and.
And we and I think that.
Our smart series will continue to represent a greater percentage of overall business.
Last year at this time, we thought it might be around 2020, 5%, it's actually higher than that now I think it could still creep up.
To north of 30, 35%.
So over the next 12 to 18 months and if if conditions as they are now remain a pretty much the same that should improve our pace and we're also excited about continuing our community count growth I mean is challenging for all of us with sales as strong as a van but as we've said we were.
Both to open 80 communities last year, we did close out 64 with average communities up about 6%.
But again, we are looking to continue to increase that community count on average by 5%. This year. So we're very excited about that.
Yeah, absolutely no looks like you guys.
So in the lot pipeline tick up too so that should.
Support that moving forward and then just just to go back really quick.
If we think about pricing power, Bob you've talked about the business from profitability perspective being in a tight range. It's today's environment any different when you think about the consumer is there an ability to raise prices area. How do you think about that and you know marrying that with the comment of cost being relatively flat right now how would you frame kind of.
The price cost dynamic understanding there there's both.
Consumer side and and decide that yes.
Well just to be consistent weve. So we think it's a 20% to 21% business.
Today.
And I think we're more optimistic about margins being better than the not I think we have a little bit of pricing power not a lot and it's very it's market dependent and location dependent but.
I think our margins I know, there's sometimes mix in the quarter of fourth quarter, we tend to see a lot more specs closing in on average spec margins tend to be a little lower than to be belts.
But I think that our gross margins have been trending up and.
You know a I don't think theyre going to get any worse I think I think that.
We give guidance on this but I would expect them to be.
The lease where they are now if not better for the year.
Sounds great. Thanks, guys.
Thanks.
Your next question comes from your line is Alex Barron from housing Research Center.
Hi.
Yes. Thanks.
I guess on the margin.
Mike are you guys.
And we thought the margins might be a little better this quarter and.
They were a little bit lower so what was that mainly what you just said that it was more spec that closed.
Yes, Alex it was up.
It was mix for sure we did pose a few more specs like Bob said, how many if you look at our margins in 2019, they were kind of flat. The first half the second quarter went up over 20% the fourth quarter was a little below so there was a major major swaying, but no nothing really unusual.
Okay, and then I was wondering if you guys to comment on.
Yeah, I think I heard you say December was up 50 something percent.
How is January and what are your overall expectations about.
How sustainable consoles piece of our forecast for the year.
Yeah as far as one through the numbers again October was up 38% November was up 38% and December was up 56%. We don't really make any specific comments about the January up yes, then I'll add to that other than to say that we're optimistic about.
You know this selling season is underway I think it even though I in my in my view is started earlier this year.
Than normal.
These to be some sort of believes that it would start after the Super Bowl.
You know housing Didnt pay any attention to the Super Bowl this year and started earlier and.
You know I think is we're at a favorable rate environment and I think consumer confidence is certainly in a good spot and this long is you know rates stay this roughly four or below four level, which I think it's reasonable to assume.
They will for some time I think housing has got a little bit of room to run and I think we do too I.
I mean, we had at the end of the year, 8% more stores going into the year. We also opened as we said you know 80 communities last year with 22 of them being in the fourth quarter. So we're excited about hitting the ground running so yes. We are excited about the spring selling season.
And if I could ask one Laurent is there any.
Change in the outlook for markets you know there any markets that you are thinking of entering and I think you've has had indicated you were going to.
Changed your DC exposure any changes there.
We closed our DC operation, we announced that about a year ago, we executed that.
By this flawlessly as I think we could have.
It's never easy to close up a market for all the obvious reasons, but it was somewhat.
Seamless.
And painless.
At least from a financial standpoint and.
Basically we have nothing but just a small handful of lots left either seller close in DC as far as further expansion going forward. It's something we always look at we have nothing to report, but it is something we continue to look at and watch and monitor we believe we have the capital both human and financial.
Joel to further expand our geographic footprint. If if there was this transaction that we thought which was sensible and of the best interest of the company.
But but also having said that as we said you know in the past Alex We think we're really positioned well to continue to have strong growth for the next few years in our existing markets job. One has been trying to grow our existing market. We've entered a number of new mom.
Markets. The last few years. So if we can find something that makes sense, we want to be all about that but we should do not have any type of need to do that.
Okay, great well good job I'll get back in queue. Thanks. Thanks.
Your next question comes from the line of Arthur Winston from pilot Advisors. Your line is nothing.
Hi, Thank you for a great quarter could you explain a little more detailed how you managed to increase the inventory and the same time. It seems to me decreased the debt if I'm looking at the balance sheet appropriately <unk>, maybe I'm not doing it right, but that's what it seems like to me.
Yes.
Well as far as.
They invest in the side of it as we talked about.
We did spend $600 million of on land.
Phil very good about our owned and controlled land position.
We also had record closings in the fourth quarter and the year, so with a record closings and the higher income level, we've talked about for the year, we generated about $70 million of cash from operations.
So that's what led to the strengthening of the balance sheet.
Yes, Kevin I, just add I mean, we generated most of that cash we generated was from earnings.
Without us paying a dividend.
We were able to answer your question as we were grew inventory and less than what our earnings allowed us to grow.
On that.
Excellent.
Would it be fair to say that on an apples to apples basis. The the <unk> the cost of the inventory were the units in inventory isn't much higher than it was a year ago apples to apples.
Per unit.
No not unit per unit efficient a lot more volume in if you look how much closings were up the fourth quarter and the year. There was more unit volume close as opposed to the cost of the units because our average sale price actually come down a little bit.
Now that's I mean my question is are you having to pay up very much the by the the raw land and the completed last is it going up appreciably or is it just going up a little.
I think our average dependent finished lot cost is roughly equivalent to what it was a year ago, it's probably within the thousand bucks or too I don't have around variety that it was like 80, a year ago inside every call. It's like 79 right now.
Look the land markets are competitive their time.
The good sites are becoming less expensive.
I think we've just been able to manage through it so far but you know if housing continues to to run the way. It is I think we'll see a little bit of inflation on the land side.
Good.
Oh art when you look at the land cost we talked about the average sale price and backlog of the smart cities have been threeo too I.
I mean, the land price per smart series lot is less than our more higher priced stuff. So that also enters into the equation as far as keeping that land price up pretty flat I think one other thing and it's sort of maybe slightly related to your question.
In our is.
We have a very strongly positioned lease we believe that we do and we control just under.
Just under a five year supply the great thing about or land position is that.
Quite a bit less than half of it has on our books.
When you compare us to other builders, you'll typically see at least 50, if not 60 or so percent of their own land is already acquired which you to sort of means there is no turning back and.
Look we don't we don't want to turn back or walk away from any deals, but we've got a lot more under contract that we control rather than already own which I think it's just a safety net.
Terrific. Thank you very much. Thank you. Thanks.
[noise] operator are there any more questions.
Hello can.
Because anybody Harris.
Operator.
[noise] operator.
Your next question comes from the line of Jay Mccanless from Wedbush.
Okay.
Hi, Jay I guess can you hear me.
Yeah, we've been hearing on our Oh, we lost everybody.
No we're still here.
So I want to ask two or three questions on SGN a the first one is there any tailwinds filled the we might see dollar wise for spending all may have done on DC in 19 that isn't going to repeat and 20.
Not really as far as they see you know we're down to a a couple people. So those costs are pretty much past us.
Hey, I'm sure you heard the explanation that we did you have for assay in Asia I think he was asking if we expensed a lot of stuff last year that we want to expense this year.
No, it's really pretty relative of course, Magellan and as far as.
You know eschewing expenses can be a little lumpy. It sometimes you know bonuses and those type of things you tend to you know book more as the earnings are made and that's part of the reason also.
Also another thing and SGN a is.
Opening a lot of new communities.
You know the way we treat those new communities is that a pretty significant amount of those dollars are expensed as we open up those new sales centers.
So as we.
Construct those sales centers as we put furniture in their technology brochures, you now have broker functions and those type things you know when you get into opening new communities. It's not unusual to spend 25 to 50 Grand per sales center and those things are.
As fast and there was a lot of new communities opened in the fourth quarter. So those are a couple of the reasons. It was a little bit higher in the fourth quarter Jay.
And that and that actually leads into my next question. When we think about the growth in community Count. This year is is it going to be pretty even or youre going to have a waiting of of one quarter to quarter is getting more the openings.
If you look at 2019, it was kind of what a 42, the first half and 38 the second.
So it was about 50% the first half 2nd% the second half looks to us like it'll be pretty similar to that again this year.
But again looking for like a 5% you know average.
Growth during the year.
And then the other question I had on SGN a should we if we look at the dollar amount spent in one Q 19, 2019 should we think about adding some to that just for the I.T. upgrade you were talking about.
No I wouldn't necessarily they do that I mean, when you look at our.
Year in 2019 revenue was up almost 10% SGN a expenses were up 8%. If you look today, our head counts up about 4%. So you know obviously there will be some cost increases because we are a larger company.
We have more people, we will still be opening a number of stores.
How are we trying to have at least 10% revenue growth yeah to answer is yes. So it's hard to give any specific guidance you know as we said in our comments, we really are working hard to get operating efficiencies, but Ah you know one of the challenges as we are having you know.
Lower average sale price come through and that impacts it but again, we still hope to get the operating efficiencies. The good thing also if you look you know for the year you know pre tax went from six to six six when you look at the fourth quarter pretax you know the fourth quarter pre tax was six nine versus.
It's one so we are getting you know better returns and so we're making progress, but SG that you've been lumpy now been quarter to quarter.
Got it.
And that was and actually on the price side that was the next thing I was going to ask I mean, we're assuming for 20 that average closing price is an average backlog prices.
Basically in in twinning about the same levels. They did in 19 is that what you guys are seeing and in your community count right now or should we think about it ticking down a person or too.
You know its if you're talking about average sale price Jay.
Yep.
I mean as smart series continues to increase a little bit.
You know we tend to think entity in that two 3% downward range overall Asap, that's hard to predict that's kind of what our thoughts are.
It should slightly moderate down.
It's it's kinda hard to predict day, because as you know we do about 40, 45% facts.
So that's a pretty good moving target but.
You know, we're very focused on margin improvement as Bob said, you know, we're still opening a lot of stores you tend to have pricing power. When you have something a little different a little better product in a better location, but our thoughts our ASP will be down two or 3%.
Okay, that's great.
And then the last question I had on Smart series and on some of your more entry level price communities.
What type of behavior, you seeing from from competitors is there's still a decent amount of discounting and incentives out there people being more aggressive price any any insight you can give there would be helpful.
We've been able to first of all we've had I think really good success in most of our smart series communities. So.
Is there competition you bet, there is and frankly some of the most successful smart series communities.
In our company are in some of the most competitive markets like Houston and San Antonio in terms of affordable offerings by other builders.
We haven't been impacted by a lot of discounting from other builders.
I know some of it goes on in every now and then we do it too, but it's I don't I don't consider that a big issue.
I mean, as we said Jay I mean, our smart series has above company average pace and has above company average margins. So we've been very pleased with that product line.
Yeah, that's great. Thanks, so much for the color.
Thanks, Thanks Jay.
And once again and artists asked the question.
Thanks, Phygen there number one telephones.
Yeah, we follow up question from Alex Barron from housing Research Center.
Yeah, Thanks for taking the follow up.
You know at the beginning of 2019, the year was pretty slow and eventually thank God got better and you guys still managed to get 20 basis points of operating leverage.
Field, given the stronger conditions. This year that maybe you could get on deepwater market soon.
Well when you're looking at the SGN a line, yes that did improved 20 basis points. When you look at the bottom pre tax line for the year. It actually went from was 6.2 to 6.6. So it was a 40 basis points improvement.
Alex we're always focused on you know income increases.
We are continuing to invest more of our business for growth for the next year too. So it's a challenge to always keep all the metrics on the right way, but are we focused on improving our income for sat and our SGN a leverage we share our.
We're also pretty plays that are you know interest incurred as kind of flattened out we think theres a little room on margins. So there's a lot of different moving parts affecting that equation overall, we talked about our strong ROI. We so there's a lot of things we're focusing on.
Right Yeah.
Once again artists ask your question. Please press Star then the number one.
<unk>.
There are no further questions at this time with Suntrust.
Thank you very much look forward to talking to you next quarter [noise].
Ladies and gentlemen that concludes today's conference call. Thank all for joining.
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Oh.
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