Q1 2020 Earnings Call
M.D.C. you holdings, 2021st quarter Conference calls.
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After todays presentation will be opportunity to ask questions.
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I'd like to turn the conference over to Mr., Derek Kemmerly Directory Director FCC reporting. Please go ahead.
Thank you good morning, ladies and gentlemen, and welcome to NBC Holdings, 2021st quarter earnings Conference call.
On the call with me today, I have Larry Mizel, Chairman and Chief Executive Officer, and Bob Martin Chief Financial Officer.
At this time all participants are in listen only mode. After finishing our prepared remarks, we'll conduct a question and answer session at which time, we request that participants limit themselves to one question and one follow up question.
Please note that this conference is being recorded it will be available for replay.
For information on how to access the replay please visit our website that NBC Olympics dot com.
Before turning the call over to Larry It should be noted that certain statements made during this conference call, including those related to Mdcs business financial condition results of operation cash flows strategies and prospects and responses to questions may contain forward looking statements within the meaning of the private Securities Litigation reform.
<unk> 1995.
These statements involve known and unknown risks uncertainties and other factors that may cause the company's actual results.
Formats, where 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 first quarter 2020 form 10-Q, which is expected to be filed with the FCC today.
It should also be noted that that's easy regulation G requires that certain information the company the use of non-GAAP financial measure measures.
Any information required by regulation G is posted on our website with our webcast slides.
And now I will turn the call over to Mr., Michael for his opening remarks.
Good morning, everyone.
Thank you for joining us today as we review our results for the first quarter 2020.
Discuss the current state of our operations and outlined steps, we're taking to mitigate the impact to the cobot 19 pandemic on or business.
First and foremost I'd like to emphasize that M. D. C is taking the situation seriously.
And we are using the CDC guidelines to predict or protect our employees subcontractors and customers.
We have adjusted our business practices to do or worked or provide healthy work environment.
An effort to come pads.
Combat the spread of the virus.
These are trying times for everyone and I have been very impressed on how our company has been able to adjust to this new reality in such a short amounted to <unk>.
As evidenced by the results aboard first quarter 2020.
Yep DC was poised to build on the strong momentum we generated 2019.
Thanks to continued favorable economic backdrop elevated consumer confidence and low levels of existing inventory.
Demand for homes was exceptionally strong in the period, leading up to the escalation of the virus spread.
As buyers responded positively to our home offerings, particularly at the more affordable price points.
This order momentum begin did deteriorate at the end of the corridor.
As it became evident that we had a nationwide be do you take unprecedented actions to deal with its pandemic.
Well the pandemic, it's caused a slowdown.
That is unlike any other in our industry has faced.
Many of the steps, we're taking do adjusted this new reality.
Well the same once we have take you through out the downturns in the past it ultimately thrive.
We have one of the most experienced management teams the industry.
Hey, distinction that provides our company with the knowledge in history perspective.
Yeah, the gate challenging times such as this.
Although it is unclear what the full impact did the pandemic will be on our economy.
I am confident.
We have the right people and strategy in place.
To respond to the challenges we're facing.
What did the keys to weathering any storm with how Youre. It's how you are prepared going into one.
And M.D.C. as always put an m. sets as well being prepared for the unexpected.
We consistently maintained what are the strongest balance sheets in the industry.
And we believe this strength will be a considerable assets.
The.
During this time certainty.
We ended the first quarter.
Debt to capital ratio, it's 37% <unk> net debt to capital that was 25%.
Total availability of liquidity at the ended the first orders stood at $1.4 billion.
Including 452 million of cash and investments and 959 million available under our 1 billion dollar line of credit.
With low leverage ample liquidity.
Senior notes coming due not coming due went to 2024.
They see remains one of the most financially sound and well capitalized companies in the homebuilding industry.
Do you see.
First quarter earnings call.
Points out the very exceptional point.
M.D.C. as well because they should.
From an operational standpoint.
You deal with those that slowdown.
Yes.
Business model that it'd be hears do a build to order strategy limits.
The speculative home production.
Well, we acknowledge the building up new home inventory in anticipation of demand.
Can improve asked that turns in good times.
But he can also lead to just stress sales at depressed margins.
Especially in bad times.
We believe the more prudent strategy is they have like <unk> in place before building the home and that's the opportunity to personalize. The home is the track to buyers. We also believe that a buyer who has been engaged in the home building process.
That's the selection the synergies than their homes is more invested in the process.
Therefore is less likely to cancel.
Excluding models.
Approximately 90% abort work in process inventory balance.
End of March was so and that the remaining at that Sac remains true even now as we through the end.
April.
Another way, we have limited or downside risk.
It's through our land management strategy.
Which targets approximately a three year land supply.
We feel that this level of land inventory gives us an appropriate runway of lots.
Grow our presence in our markets, while limiting our exposure when conditions deteriorate.
We have additional flexibility with respect to our lot inventory, thanks to our use of option agreements to control William.
Not only is this a more capital efficient way to manage our capital.
It also gives them the ability an opportunity to renegotiate the terms to the agreements with selling conditions, taking turns for the worse.
In summary.
The housing industry and the broader economy are currently facing an uncertain future.
Brought about by global pandemic.
And though there is still many unknowns on how this will ultimately play out.
We believe.
D C is well prepared for what ever comes next to our seasoned leadership team.
So its financial condition in our risk adverse operation dad strategy.
We run our business to be successful through the entire homebuilding cycle and we've still been mindset has made us better equipped to adversely handle all such issues.
Yes, the also allowed us to pay and industry, leading dividend to our shareholders, which translate to a 4.6% yield.
Predicated on Yesterdays closing.
And with that.
Like did turn it over to Bob Martin.
I'll handle additional financial details in conditions and the state of our operations Bob.
Thank you Larry.
I'll keep my comments on first quarter information relatively brief this morning, so that I can focus more time on current market conditions, including the selected information for April that was published in our release this morning.
During the first quarter, our homebuilding pretax income increased by 21% to $49.7 million driven by 8% growth in home sale revenues, the $697.1 million and a 100 basis point expansion in Homesale gross margins to 19.9%.
Our mortgage company was also successful during the quarter with 65% increase in pre tax earnings to $8.2 million.
However, the success of our homebuilding in mortgage operations was offset by unrealized losses on equity securities of $13.9 billion due to the severe impact of cobot 19 on the stock market.
Whereas in the prior year when unrealized gain on equity securities a $4.6 million.
As a reminder, these equity securities for part of the investment portfolio held by our insurance companies and the holding period of these investments is intended to align with the longer term nature of the underlying insurance reserves held by these companies. Furthermore, about a third of the unrealized value lost in the first quarter was recovered in April.
As a result of the unrealized losses net income for the first quarter of 2020 decreased to $36.8 million or 56 cents per diluted share versus $40.6 million or 64 cents per diluted share in the first quarter of 2019.
Our tax rate dropped from 27.1% to 24.3% for the 2021st quarter.
The decrease in rate was primarily the result of a windfall non qualifying stock options exercised and labs.
Restricted stock awards during the quarter as well as energy tax credits related to homes closed during the quarter.
These benefits were partially offset by a decrease in the amount of executive compensation that is deductible under internal revenue code section 162 out.
[noise] homes delivered increased 14% year over year to 1547, driven by an increase in the number of homes, we and backlog to start the quarter.
We estimate that we lost approximately 50 deliveries during the first quarter, two delays or cancellations caused by cobot 19.
The increase in units delivered were slightly offset by a 5% decrease in our average selling price to about $451000.
This decrease was inline with our strategic focus on affordability as a percentage of our deliveries from more affordable product collections rose to 56% for the first quarter of 2020 versus 49%, but the same period a year ago.
Called the 19 has created numerous challenges to the process of finishing and closing our homes, but many of those challenges were addressed by using technology to supplement were placed in person processes as needed.
For most of our markets residential construction activity is deemed and essential services. So construction activity has continued with proprietary measures in place even during a shelter in place orders.
Within our footprint the most severe restrictions we encountered we're in Washington State, which deemed residential construction has not essential in late March. However in late April the governor ease those restrictions, which has a lot or construction activities to resume with strict safety measures in place.
Despite the ongoing challenges related to covert 19, we still saw deliveries increased by 11% year over year in April.
As previously mentioned, our gross margin for home sales improved by 100 basis points year over year to 19.9%.
This increase was due to a lower percentage of spec home deliveries in the first quarter of 2020, which typically have lower gross margin that are built to order deliveries gross margin for both our spec and build to order deliveries also benefited from price increases implemented during the second half of 2019.
[noise] naturally there is a potential for pressure on gross margin if difficult economic conditions persist and force home price reductions or increased incentive.
However, today, we have not widely adjusted prices were incentives and therefore, a backlog margins have not changed significantly since the start of the year.
Additionally to protect gross margin.
We are negotiating with our subcontractors for reductions to labor and material costs, given a more uncertain demand environment.
Our total dollar Sta expense for the 2021st quarter was up $7 million from the 2019 first quarter.
The increase is mostly due to higher general administrative and marketing expense due to increased compensation related expenses driven by higher average headcount during the quarter.
Marketing expenses were also impacted by increased sales office expense and product advertising due to increase in average active subdivisions.
Our general and administrative expense for the first quarter of 2020 includes approximately $800000 severance expense since mid March approximately 140 positions across the company and its subsidiaries have been eliminated given the uncertainties presented by covert 19.
These reductions have amounted to about 8% of our total workforce.
The dollar labor net orders increased 28% year over year to nearly $1.1 billion driven by 23% increase in unit orders and 5% increase in average selling price.
Our monthly absorption rate of 4.3% with 60% increase from the 2019 first quarter.
The improvement occurred both in more affordable and traditional product categories and the largest your percentage increases were in Phoenix, Seattle, Utah, Nevada, and both northern and Southern California.
Our first quarter net orders further benefited from a 6% year over year increase in active average active subdivisions.
The increase in average selling price for net orders was driven by shifting mix to southern California, which is one of our highest priced markets.
The average selling price also benefited from price increases implemented over the past nine months.
Our next slide we provided some detailed information on the monthly cadence of sales and cancellations.
Including for April.
As long as noted earlier, we experienced a significant decline in traffic in order activity. During the second half of March and continuing into April because of Coven 19.
As a result, the strong year over year increases we saw in January February fade into a 53% year over year decreased for net orders in April.
As you can see on the table a large further decrease for net orders was due to elevated cancellations. We estimate that approximately 100 of 305 cancellations accepted in April we are directly related to the impact of cobot 19.
Geographically largest year over year decreases in net order activity for April occurred in Washington, Nevada, Northern California, and Florida.
For gross orders year over year decrease for April was only 27%.
Oh this though this was still significant decrease we thought encouraging to see so many buyers writing contracts during such a turbulent time.
Also as many of our peers have already noted order activity in the back half of April showed improvement relative to earlier in the month.
Additionally, the level of gross order activity was encouraging given that we have not widely used additional incentives or price decreases to drive sales activity.
Our patients in this area stems from several factors.
First the overall level of new and existing home inventories low in our markets across the country second given our build to order model.
We have a very low amount of unsold speculative inventory on our books less than 400 units in any stage of construction at the end of March.
Finally, even after a lackluster month of sales a in April we had 4487 homes in backlog, which was 18% higher that the end of April a year ago.
With the impact of Cobot 19, becoming increasingly apparent in March we approved only 2087 lots for purchase during the first quarter 2020, which was a significant drop from the 4756 lots we approved in the fourth quarter 2019.
However, total land spend for the quarter still was up almost 35% year over year to $225 million I would expect are ready to spend a decrease in Q2 based on steps we've taken to reduce cash outflows. During this time of uncertainty.
Typically we have worked with our land sellers to extend the closing date for many of the land purchases that were planned in the coming months.
Additionally for lots we own.
We have adjusted were delayed planned development activities decreased cash expenditures in the short term.
Our lots applies to end the quarter was 19% higher than at the same point in 2019, and 31% of lot supply was controlled by option.
To sum up I first want to make it clear that safety will continue to be a top priority as we continue into the second quarter, even as we see some loosening of shelter in place restrictions.
It is hard to take an optimistic view when covert 19 pandemic continues to cause pain and uncertainty for so many people across the world.
However, we are encouraged that low housing supply in interest rates continue to attract customers to our industry.
Take pride in our strong balance sheet and strategic market positioning which have been developed overtime based on the experiences of our most senior leaders allows to reward our shareholders over the long term.
That concludes my prepared remarks, and we'll now open up the line for questions.
Well I'll begin the question answer session.
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Using the speakerphone, please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
This time, we'll pause momentarily to assemble roster.
First question comes from John Lovallo Bank of America. Please go ahead.
Hey, guys I. Thank you for taking my questions and I hope everyone is a is doing well. The first question is it sounds like you guys had been very disciplined on the pricing front, but have you seen.
Any easing and kind of pricing from some of your competitors in any of your markets does any of the discipline across the industry began to erode.
I think that.
Were you had circumstances that some of the builders that have.
Speculative inventory.
It probably become a.
A more inclined.
To have price adjustments because of the carrying.
So many specs.
As Bob mentioned, our entire kept you from a foundations to completion only has 400 specs and I think.
Please open the amount of specs a bubble that's too.
That went through his.
<unk> a reasonable amount so it's a matter of the how did you run your business and MDC always runs its business on a.
A strong backlog as we commented 90% aboard with.
As all pre sold so the markets are specific.
And the.
We compete so by delivering a.
A.
He superior product on a competitive bases.
And we have dot follow that.
Got it Okay. That's helpful. And then you know in terms of I think Bob you May have mentioned that by the numbers right here about 105 of the cancellations were more directly related to coated can you just help us understand I mean is that because if you have insight and this is that because a job losses.
Mortgage contingency any help there would be it would be appreciated.
Yeah, I think we scrubbed, our backlog I'm pretty hard just to make sure that we understood where each of our buyers are at as we always do and I think a lot of it was just due to the job loss I think yet some that that were just more nervous in this environment given the uncertainty so those kind of things.
That were were floating through.
Okay. Thanks, guys.
Thank you. Our next question comes from Alan Ratner of Zelman and Associates. Please go ahead.
Hey, guys. Good afternoon had glad to hear your here both doing well.
Your first question just on that a glass topic on cancellations can you talk a little bit about what's going on in the mortgage market in terms of or any of those cancellations occurred maybe not necessarily buy direct job loss, but because your buyers you couldn't qualify for the loan any longer given tightening.
Yeah. The loan program doesn't exist maybe there their FICO score was below and overlay cut off and more broadly what you've been seeing in terms of the trends if credit tightening over the last couple of weeks.
I think what we've done we've looked at each one individually.
And we all know there was some credit tightening.
Both fund raising FICO scores and jumbos.
As you saw our average sales prices.
In most markets are Oh.
And then conforming nature.
And the job laws.
The fallout was both by employment.
And I would say not so much underwriting we are.
Conservative in our mortgage operation so our backlog with quality buyers is the.
Sure absolutely.
Vetted and.
We have done go back again.
Well there was any conditions.
Selling their home or other unique circumstances that normally would.
Have a lower risk weve taken them out of backlog.
Oh, we continued to dialogue people.
But we don't want to be under construction on something we believe as a unreasonable risk of closing we have been able to successfully.
Close or backlog.
Using a remote.
Activities technologies, they say and Alan it's a it's working out just fine.
We're maintaining that backlog quality and as Bob said, it's a large backlog.
And.
We're managing it as you would expect is on a very conservative, but aggressive bases as far as a getting the job done.
That's very helpful. Larry. Thank you. So just I'm interpreting what you said it sounds like a good chunk of these cancellations were on homes that you either haven't started construction on yet or perhaps they were early enough in the construction process.
You know, where you felt comfortable kind of scrubbing that backlog and making sure you didn't put additional dollars into the ground is that a fair characterization.
I would say you it's reasonable characterization we.
We're not interested and a building homes that don't have they are a real commitment will do the commitment is from our own mortgage company or from others.
Where we had outside loan commitments in writing from others in our mortgage company.
Oh, we value weight, we have than we are and we will the quality of those commitments and the information that they had.
When they issued a the letters so we're doing you might say double scrub.
Relying on someone else not so much relying on ourselves of course, and so therefore, we're going through it in a.
Copper way that makes it balance getting that backlog.
Maintaining that 90% or that was so that's it with.
That's helpful. Thanks, a lot a good luck in stay safe.
Thank you.
Thank you. Our next question comes from Stephen Kim Evercore ISI. Please go ahead.
Thanks, very much guys <unk>.
First question I guess to talk a little bit about the end markets.
I guess, particularly in April B, what I'd be interested and I guess you could talk about the cancellations, but also just the gross order activity.
On your across your portfolio seasons versus some of the more move up product.
Did you see any change that was worth calling out between those various.
<unk>.
I think that would you see.
Is probably the affordable as defined in each market is different.
ER has got more attention and is a deeper broader market.
Every as you know every market, there's a little different every product and subdivision.
As you know Steven the we are focused on affordable product.
And we have a broad range of affordable product and we've been able to bring it into almost every market we're building in.
And this is individual in addition to.
Being able to individualized they pursue the homes yourself you were also able to get a new and now evolving.
More modern look.
On a the products.
As you can see from the disclosure.
Or model homes have increased in the that is new and exciting product.
But.
All so those are the gross in the subdivision count Oh, we continued to move forward and.
And I think during these.
Different times.
A different times.
We will be able to.
Focus on expanding even more the depth of or affordable product offerings.
A continuation of what you've been saying.
Another area of differences, social distancing and I'm curious as to two ways in which you might have seen I play through your business. If you could just comment on that one is on the construction the actual physical construction never units.
Look like there was much of an impact in the one Q, maybe just a 1% impact on the turnover was curious as to whether you expect cycle times to increase.
In Twoq that'd be a kind of a reasonable expectation or not.
And then secondly in terms of the sales, which are happening with a greater virtual content.
That process.
Are you seeing any ability to because of your greater aquas interactions with customers virtually to reduce your co broker Commission.
[noise] [noise] first of all in the construction so I.
We are very proud.
We have implemented a hand washing.
Distances disinfectants mass as requirements that we have on or subdivisions.
And I can say that.
There has been.
Testing by different regulatory groups and some of the builders didn't get the message quick.
And realize that you're going to continue construction.
You need to be in compliance.
And we do have the hand washing stations, the disinfectants and the mask and the do require social distancing.
And Oh.
I don't think it's been a big bet a minute took a little adjustments for the guys in the field.
You get the message.
But since its they want to work and they want to get paid and they follow the rules and a those are the rules when you work on one of our jobs.
Say yields it.
Yeah, a little bit of the judge <unk>, but.
I think it's pretty awesome ours skills.
I would say as others.
<unk> substantially or sales skills.
And is required a the individual salesperson that sales managers.
In the division managers to really really focus.
On how valuable everyday lead is and every person that comes in through or portals.
Those are leads that are extremely valuable and they learned to work of even better.
So I would say would we look back on this period of time, we'd probably improved or skills by some factor.
Big force to to change and the in this case.
In sales I believe it will have a very positive effect.
On a or capture rate.
Vis-a-vis whenever the market might be no, we're not good or lose any of them because we didnt pay attention when lead at a time.
No no specific outlook or what you're seeing on co broker commissions.
Both on the co broker.
We have.
Consistently been in the brokerage community as a co broker participant.
There has been a few builders that have increased.
First of all maybe Didnt do co wallops now, they're doing and we've done consistent pricing and stayed in the relationship with the brokerage community.
And or commissions are consistent with what they've been and we welcome that a brokerage community.
As we always said in all the markets, so or application that issue.
Or experience that issue is consistent with what we think is good business, which is to maintain whether good times your bad times that relationship.
Gotcha, Thanks, very much guys.
Thank you.
Your next question comes from kittens that are of Keybanc. Please go ahead.
Hello, gentlemen.
I just have one question, which is on your focus on backlog for margin preservation understand that as you look forward on.
<unk> costs, so pricing with your vendors you know 'cause, there's obviously more than one step to construction can you walk us through how you envision dialogues around price might work given that.
Environment, we're in right now or.
You know if it continues to be down for example framing.
First is insulation for spray paint and there are three different phases, obviously, the how so have you been able to have discussions or it's actually the trade, saying like it's too early we don't know if there's going to be a bounce back in may as restrictions get out of northern California, Washington, as opposed to what you're seeing in Denver.
Could you give us some thought around how that might desktop discussion might work out. Thank you very much.
The discussion is worked out well.
Oh, we started asking for price adjustment, maybe six weeks ago [noise].
We the continued those efforts.
We are receiving in a current payment cycle.
Many of the concessions that we received.
Oh, we expect to and or being successful in reducing oh costs in many of the areas across the country.
And expect that to continue with the reduction of apartments reduction of commercial.
And the overall reduction or reduction of residential.
Our trade partners.
I understand that when they had the some of them not all of them.
Ed the 40, a of last year of up every month things are getting better.
Oh, the reciprocal is working now maybe every month, we'll get a little slower.
In the trades are adjusting and they're responding [laughter], but getting to the in some cases a meaningful concessions.
And we are using a those concessions.
As applicable in Oh, enhancing or what were working on and Oh.
Ah opportunities the pricing.
The other thing would you didnt mention but I will is the land sale.
Part of it.
Most not all but most of the.
Land sellers are Uh huh.
Sending a sign of performance out they are extending or in some cases pricing.
And.
Since our discipline of acquiring land is very.
Conservative.
Oh, we are never in a position.
That Oh, we have they been full amount of dollars invested that are at risk regardless of what happens so weve spread the risk in our contracting.
And the land.
Developers I think we're being very smart or by extending giving you time than in some cases some price concessions.
They really enhance the relationships and they need the relationship with the large builders because that's the source of cash flow would profit. So I would say purchasing it's worked out well.
And we're continuously working on it and we're on this current pay period of many of the concessions were realizing.
And.
That's kind of how things stand at this point.
On your I appreciate that.
Yeah. It was there any issues with your trade going bankrupt do you know all these cash flow concerns I know, there's a lot of stimulus out there, but have you seen any of contracted going bankrupt due to you know the lack of liquidity. Thank you.
Well first of all we always assumed that they're in trouble, even if they're not so to the maximum extent, we could or can we do we do joint check them. So were person provides a labor in the jury Ole it's meaningful we joint.
Check them and we keep a very very close eye on our trade partners.
And then understand that that's a a traditional risk, but usually the risk doesn't have an exposure greater than 30 days of payment because one thing about the construction industry. No. One shows up for work. If you don't pay him for a little bit a little bit could be a couple of.
He checks so the labor part, we're able to nail quickly and the part that we watch and we document is the materials that are supplied to the suds when they provide labor and at this point.
We haven't found an issue.
That we were not on top of and that's part of just running or business and staying on top of the credit issues or the trade partners.
Thank you.
Our next question comes from Buckhorn Raymond James Please go ahead.
Hey, Thanks, good afternoon.
Earlier, the cancellation question whole lot further, but I just want to.
I understand it if there was a timing differential between when you saw the most cancellations in April were there.
With the fallout in March I mean did see a surge of early cancellations immediately in early April or was it more backend loaded into the ended the month closings.
How do you feel that.
The potential for a similar playing out of that in May have would may differ from what you saw in April.
Bob you want to answer that.
[laughter] sure.
I would talk with the cancellations, it's kind of hard to specify a week by week I think yeah. There is certainly a lot of uncertainty here in the first part of April in the last part of of March and we talked about how our net orders improved on the back half of April.
So that certainly tells you something I think we look at the backlog very hard and try to be conservative with our backlog as Larry noted earlier to try to make sure that we are.
Starting houses.
That don't make sense to start so you know every week or division a management meets a goes through the backlog and really evaluate its a yet based upon kind of what was happening at that time and of course earlier on in April I would say the it certainly was a little bit greater to the extent that.
That continues to get better that we have less uncertainty here going into may and that may help our cancellation circumstance, but there's still quite a bit to be result in may. So we'll wait for the next call a tough to make a reports on what's happening.
<unk>.
Okay. That's helpful. Thank you and maybe just maybe focus more on the gross order trends through the month, but I'm curious if you can give any extra color on how some of the maybe more diversified markets like a denver or maybe a phoenix performed or started to recover relative to the more.
Tourism related markets like Orlando or Vegas for you.
Were there any signs of improvement in <unk> and some of the in.
Orlando or Vegas, or how did those compare and contrast versus some of your other markets.
Yeah, I would say Oh, let's say your question is.
No like <unk> or <unk> point is is you look at Orlando and Las Vegas, you have obviously.
Entertainment tourism.
Business as a key element.
And as you look at Phoenix Denver.
You have a broader based economy.
And I think you'll see from Oh, the builders. So those two cities are having very good tone in the first two cities are you mentioned in Vegas in Orlando.
Needs improvement and improvement will come with the Reengagement of tourism gambling.
His tourism so.
All these items are.
Are yet to be fully.
Discovered.
But every week.
Ah things have continued to have the better tone, just like a stock market you know.
It's a little crazy, but when it's up a you know $3 $334 right now you feel good and a couple of days ago, you did feel so good so but our business has a good tone.
In those markets, except dealing with tourism have.
Continued to feel better every week as discovery of were People's lives of their jobs or did come more transparent so individuals become more comps for them to go through and have the opportunity to buy a home I think.
It's all good no long term mortgages or three in change for 30 years, six Oh Wow.
We.
We see a that is a great opportunity to put people would too.
Affordable product.
A very very competitive full payments that in most cases, most cases or less the new apartments that are big built the open.
So the millennials are now have an opportunity to have a little space in the back yard.
And I think it's all good a workout.
As good as it could invited the circumstances it just talk.
Thanks, guys really appreciate the color.
Thank you Sir our next question comes from Michael Rehaut of JP Morgan. Please go ahead.
Hi, Thanks, This is actually Maggie on for Mike.
First just a question on the.
In finance I know that you earlier said earlier, you said that [noise].
You haven't really adjusted incentive levels. Yeah. I was wondering if you could talk a little bit about what she would have to see in the market for you to go out and start adjusting those incentive levels.
I think we look at it.
I would almost a year almost every day, but you know we have.
A quick communications between.
The sales offices in the home office.
And we're able to see gross traffic daily net traffic daily and though we were able to see gross profit margins.
Daily as they are in her at the beginning of the sales process, So maybe or where are the just specifically as we believe is necessary.
And at this point.
Oh, we.
I'm not found that necessary to have they are substantial adjustments.
At this time.
And remember word spring selling season, two so you've got the emotional and psychological recovery He's got spring selling season.
Lifetime his door low interest rates for a new mortgage. So if you were going to buy one maybe this is a good time to buy a home.
Okay. Thank you and then following up on an earlier question on your affordable versus traditional project product and I apologize if I missed this base.
Can you talk about any differences that you saw during April in terms of the cancellation rates between the two products or even kind of the pace of improvement.
Or anything like any kind of improvement that you saw in the back half of April.
Was it pretty.
Steady across the board for all of your product though.
Did you see it more so in.
Certain pieces of your business.
I think that Oh, the general answer we saw it kind of across the board a you know in those individual markets that are more tourism.
Centric the learning, though Las Vegas.
I think a lot of these people are going to get redeployed.
We were in a market that everyone. The wanted to job could get a job.
And of course, you know, we're looking at 30 million people and employed in the country.
But.
It's things reopened so I would say it kinda was broad.
But ah.
You will see.
They are probably more groups of people expect.
As the economy Reengages.
For everybody in every industry or.
I'm hopeful that takes place I'm confident it's going to take place for in DC, because we're at the right place right time.
It's the right product and great financing.
So we expect to participate in.
And that which is going to take place.
Okay. Thank you.
You're welcome.
Got to be able to question. Please press Star then one.
Our next question comes from Truman Patterson Wells Fargo. Please go ahead.
Hi, This is Trevor Allison on for Chairman. Thank you for taking my question. My first question is on option lots. We saw a nice increase there was that driven by a delay and purchasing land given the demand or others that done intentionally prior to that mid barge demand slowly.
[music].
There was done intentionally is.
They continued push.
That we have for [noise] optionality.
And the usually the best way to returns we believe the.
Inventory term comes from option lots, if you structure the transaction properly.
Which is a reasonable deposit and enough time line in order to absorb through the product so.
We would always prefer to option land.
And hopefully finished lots or.
Platted lot so the closer you could.
A a parcel in our case, we don't speculate blend we only buy lots. So our business objective is to push hard on optioning finish lots first and then whatever level that you're able to achieve that.
In order to improve your returns on all levels.
Okay. Thank you and then my follow up at around land strategy, Bob I know you said.
Thought that land spend might come down a little bit into Q I'm, assuming you're probably thing a little less competition. There than you were previously and so this would you consider maybe becoming more aggressive on your land spend.
Standpoint that perhaps a pricing a little more.
You are getting a little better pricing now than what you were just a couple of months ago.
[noise] you know I think it's always a always tempting to step and but I think what are our strategy as we have to deal with what uncertainty exists right. Now. So I don't think it's it's an automatic that though that we jump in at this time I think right now we're focused on.
So making sure that we are in a position to to generate cash and then we wouldn't move forward with acquisitions you know at such time as we start to to see a little bit more clarity.
In the market you know at this point I don't really think that a lot of sellers out there our wholesale saying that that they're going to take price concessions. You know, it's more about I'm really just pushing out the transactions for for a period of time.
Okay got it thank you goodbye.
This concludes our question and answer session.
I like to turn the conference back over to Mr., Bob Martin Chief Financial Officer. Please go ahead.
I'd like to thank you all for participating on our call.
Thoughts are with everyone as we continue to navigate through the Covance 19 pandemic and we look forward to talking again after our next earnings announcement.
[noise]. Thank all of you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.