Q2 2020 Lennar Corp Earnings Call
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Welcome to lend our second quarter earnings conference call. At this time, all participants are in a listen only mode. After the presentation. We will conduct a question answer session. Today's conference is being recorded if you have any objections you may disconnect. At this time I would now like to turn the call over to Alex Lincoln for the reading of the forward looking statement.
Thank you and good morning, Today's conference call May include forward looking statements, including statements regarding when our business financial condition results of operation cash flows strategies and prospects are forward looking statements represent only when our estimates on the data. This conference call and are not intended to give any assurance as to actual acute.
As a result, because forward looking statements relate matters that have not yet occurred. These statements are inherently subject to risks and uncertainties.
Many factors could affect future results any coughlin, our actual activities or results could differ materially from the activities and results anticipated in forward looking statements.
These factors include those described in this mornings press release, and our I think the filings, including those under the caption risk factors contained the Menards annual report on form 10-K, most recently filed with the FCC.
Please note that when our assumes no obligation to update any forward looking statements.
I would now like to introduce your host Mr. Stuart Miller Executive Chairman, Sir you may begin.
Very good good morning, everyone and thank you.
This morning, you're in Miami once again with a scaled down crew Diane Bessette, our Chief Financial Officer, Dave Collins, our controller boost growth CEO of will nor financial services and of course, Alex. So you just heard from Rick Beckwitt, or Chief Executive officers in Colorado, and Jon Jaffe in California, Our President and.
There are in line with US this morning worldwide and we are all appropriately socially space.
And as much as we have a lot of information that we're going to try to cover in our opening remarks, we're going to return to our traditional format I'll give an overview of John and Rick will give operational insight and Graham will give financial information highlights and some limited guidance and then we will attempt to answer as many of your questions as possible.
But as you consider framing your questions first of all please limit to one question one follow up and remember that the national landscape continues to evolve and the economy is still trying to reopen and normalized in the current environment. There are still more guesses than there are clear answers, we will give you the guidance.
That weekend, but remember that we are all still trying to learn together as things unfold.
So let me begin.
On March 27, a customer in Pennsylvania name Susan per niece wrote us and most important and impactful letter she said Vince Pennsylvania's Governor Wolves decision to shutdown new construction, we're set to be homeless on April twentyth we.
Level Lennar home that was expected to be delivered on that day.
In hidden meadows in Pennsylvania, there is a pending agreement for the sale of my current home on that day as well.
She went on to say that this is all of as I'm underemployed because of the shutdowns and as I'm, losing half my usual income.
I'm asking you to please appeal governor Wolf's decision on behalf of our family of six to US the delivery of our new home is life sustaining it is shelter for us and is imperative to our health and protection from Covance 19.
This was the first of many letters to follow the detailed the dash hopes and expectations of when our customers that fell victim to the interruptions caused by covert dining team and the economic shutdowns that caught many off guard.
The letter from MS per nice detailed for us that homebuilding was in fact and essential service at this critical time and that shelter for families was life sustaining and critically important to the wellbeing of our communities.
This was a very big an important change in our world and in the world of our customers where families lived and how families lived was essential having the space to quote unquote stay at home was essential.
The safety and security of the family home in a welcome community was essential and the timing the rental term at an end, where the oldest homes sold to someone else or leaving room mates or temporary quarters or the arrival in or transfer to a new city the timing to.
Move in to the home being built was essential.
To protect our business, we had already been making the case that homebuilding companies should be able to continue to build but with Susan produces please for help and many others that follows it was now essential.
The federal government, most states and most municipalities across the country ultimately to me at deemed housing and essential service and enabled homebuilders to continue building selling and delivering homes to our customers and.
To our customers as an essential service, we kept our doors open and serve communities across the country.
Our second quarter started with great concern as the economy was shuttering and unemployment was starting to rise.
The story of Miss for niece, and the designation of homebuilding as an essential service teams to shed light on how mark the overall market conditions evolved to what we are experiencing right now.
While the economy is still trying to reboot after shutdown the homebuilding industry only sold from mid March through April and began its reboot earlier than most.
Homes had to be completed and delivered so people could stay at home in the shelter that they were expecting otherwise they would be.
They would be homeless keeping in step with this necessity, we focused on completing and delivering homes in backlog.
But alongside those who needed their homes delivered many more began to reconsider the essential and aspirational nature of shelter and desire to or needed to purchase and move.
Yesterday's notion of a mobile society had its mobility taken away.
People reconsidered.
The all but certain migration to large congested cities as the preferred lifestyle over suburban was reversed and people reconsidered preference for transient high rise shared amenity rentals.
Over stable owned single family homes with a yard was reverse people reconsidered.
Second homes became a vital refuge and home offices with Soundproofing in separation became the newest amenity. The market was quickly reconsidering its needs wishes and wants and the homebuilders have seen this narrative unfold in real time.
When our second quarter numbers are strong and indicate a strong recovery to date.
We ended the quarter with $517 million of net earnings were $1.65 per share compared to 422 million and $1.30 per share last year up 20%, 27% over last year.
Our closings were flat over last year, but would have been would've been higher except for certain stalled markets and the initial shock from the shutdown.
Our margins were up but mostly represented sales that had taken place in the months before the shutdown, but what is more impressive is that our backlog margins are even higher as sales has strengthened and momentum has built and time has passed and our S. Gionee is impressively lower.
And reflects the many cost reducing initiatives that we have delighted in prior calls.
We are mindful, however that one or two months in a row does not yet define a sustainable trend.
Although the market currently feels very strong we're in the early stages, we know that low interest rates and short supply are driving demand and pricing power. We also know the changing customer preferences are driving strong demand for new homes.
Still we're giving guidance today with some elements of caution.
We know we are currently picking up demand that was postponed from the stalled selling season, and we don't know yet how high unemployment and an economy still wrestling to open will moderate this recovery in the future.
Additionally, there has been disruption when the economy shutdown, we reacted and slowed land purchases land development and starts as sales started to recover we restarted land development and starts accordingly, we will have somewhat fewer deliveries in the third and fourth quarters because of the.
Mid March to April Sol.
Nevertheless, we expect to other metrics and company initiatives to continue to be very strong through the end of the year.
This quarter showcased our company coming together to consider people first in all circumstances, while at the same time operationally, we re engineered our business for the current environment, while we improved earnings cash flows and returns.
Hard work and hard decisions to find new paths forward technology, and tenacity paved the pave the path to new ways to construct our business.
We've adjusted and change the way, we manage our business as a management team we've learned to operate from outside the office, while using technology to stay connected like never before.
Although we have managed from a distance through daily video meetings. Our company leaders stayed close to operations across all 38 of our divisions and guided with consistent messaging and a very steady leadership Pam.
As a connected management team, our homebuilding and financial services team utilized our significant investments and especially our head start in technology to incorporate social distancing, while enhancing our customers experiences as well as our operations and efficiency the for the current.
Environment and for the future as well.
We focused on and reconfigured every facet of our business to adapt to the change environment.
We have been changing.
We have changed and we have adjusted the plane while it was still flying let me give you some detail on that.
As part of our met rapid migration toward technologies that enable communication and collaboration Diane Bessette, Jeff Mccall have accelerated our push to modernize our reporting structures, both for internal and external reporting.
Data is being collected more effectively into a common data model and that data is being turned into real time information that is being standardized and consumed across the platform, creating efficiencies and cost reductions.
Standardize reports are being discussed at daily management meetings as our management team is learning together, how to use and get the most out of our enhanced technology.
Note that our earnings call is taking place just 12 business days after the end of the quarter.
We are using technology technology to better roll up revenues and access our cash that's better and faster than we used to be but Diane it is not as fast as efficient as we are going to be.
Starting tomorrow, we are back to work looking forward enhancing systems and building efficiencies rather than still working on reporting last quarter a week later.
We also change our home selling process, while Rick will give additional color on current market conditions and our results shortly.
In marketing and sales, we advanced and enhanced our digital marketing platform to enable engagement with our customers any way they choose.
Although our leonhardt dotcom website customer.
I'm, sorry through our Lenore Dotcom web site customers now have the choice to deal with us in one of four ways number one working traditionally by visiting a welcome home center and interacting with one of our professional new home consultants.
Number three interacting digitally and viewing product on their computer at home using three dimmit three dimensional pictorial tours of models that are complete or soon a mozee three dimensional tour of homes that are designed but not yet built for modeled.
Or number for they can take a do it yourself self guided tour of our existing models all alone and on their own.
We were we re wired every one of our model homes across the country over a two week period to enable our customers to get a code to exit access digital entry at our models on their own for self guided tour no contact no risks and all alone they can interact with with our digital.
Early or through phone or face to face or or face time review product visit models sign a contract and send a deposit all digitally.
Our digital experience is getting better and better and we'll continue improve to improve quickly now that we have our associates and our customers accustomed to these tools.
Customers are finding new ways to purchase and we're finding new ways to jointly engage with our customers as our digital experience is constantly refined and improve more of our customers will choose and enjoy a more independent and frictionless experience as they engage with Lenore in fact, just look.
Being at self guided tours for the first two weeks of June over May we have seen an increase of 20% in self guided tours alone.
As an example of our digital engagement take a look at our when our dot com today, we're seeing more and more that our customers want to find a home with a home office not just of re purpose bedroom, but they want an office that's at home, but feel separate and quiet it's apart from the Barking dogs.
Doug and the daily activities of the household but it is at home.
Weve redesigned our nexgen home product home within a home concept that we are now offering as a home office within the home, it's part of the home, but separate it's attached but insulated for soundproofing.
We don't have a model yet to show, but we have a modeling three dimensional designed to explore mods. He is one of our portfolio investment companies that we believe as best of breed in creating three dimensional renderings that look and feel real when we don't have the real thing to show.
We are working with margin to improve our ability to demonstrate the dreams that we have not yet been able to build we are we can and we will ramp up our digital abilities and help our customers dream with us as we create the home of their future.
Applying for mortgage and a closing of home has never been easier Atlanta are also.
We have accelerated our digital platform to accommodate customers desires to close on their new home, but to close without health risk or social contact.
Our mortgage application and application than approval process has never been easier or more digital.
With our blend enabled application another portfolio company and many detailed digital improvements designed in house in loan officer engagement and loan processing, our customer experience is improving every quarter.
The forms or simpler the information has entered once and the updates to information or automated our customers are happier our associates are more effective and our costs are coming down.
In title and escrow, we're now closing homes with little or no contact as well with an increased focus on the health and safety of both our associates and our customers.
We have increased the number of digital closings with digital document signing.
And where possible digital Motorization, we're also implementing a virtual new home orientation process. So our homebuyers can walk in view their completed home via based on.
We can even give keys to the front door digitally with a code for self access while we leave the sanitize keys in the kitchen.
Where we must physically notarized documents, which is still required in some states. We created an express drive through closing program all paperwork assigned digitally before arrival and our customers can finalize closing their home with a no digitization from their car in just 15 minutes.
But no our financial services, just keeps getting better with faster more frictionless sift more friction lift service for our customers easier engagement for our associates and more profitability for the company.
This quarter Lss contributed 100 contributed $151 million so the company.
While $61 million of that related to a deferred profit attributable to the deconsolidation to deconsolidating the sale of our retail title business over a year ago, approximately $90 million of the contribution is attributable to efficient operations and market conditions. The.
This is a record quarter for Lss as they continue to lead the way for the company on innovation and enhanced customer experience.
We're also building homes differently and John will give some more color here as well.
Construction is finally turning digital.
As we have turned our sites to using technology to centrally schedule construction at the division level.
Over the past month, we've been rolling out a technology oriented scheduling program to create efficiencies across our production platform. This will enhance and even flow execution give gator greater predictability to our trade partners relative to scheduling and logistics and it will ultimately reduce construct.
And costs as well.
The need for effective and efficient communication over the past months has enabled us to advance the education and rewiring of our fail field operation as we and our trade partners struggled to keep job sites open and jobs filled.
Most of our construction sites have been have continued to be active and fully functional to date and we have not yet seen a significant impact on our trades or our supply chain.
We're very focused on the health and safety of our trades and have established clear protocols with this in mind, we have been in constant communication with our trade partners to help them implement their own safety standards and understand the steps. We're taking we have begun using face time and other technologies to facilitate inspections and we see.
Suspended all non emergency customer care to protect associate our associates customers and trade partners and use a de why a DIY why do it yourself model to help customers help themselves where possible.
Although its awkward and difficult to talk about operational and financial results and successes in the wake of a quarter that has been defined by health fears economic shutdown job loss personal struggles and social and justice.
We are proud to say that we have managed with a steady hand, with a constructive and measured leadership and with focus on how we can be a constructive force at a difficult time.
On reflection I can say with conviction that we have done well, while we have also done good.
While the second quarter has been a quarter of tremendous success Berliner sadly as the quarter ended and health crisis began to subside.
Social Justice became a dominant and critical concern both nationally and Atlanta.
Our leadership team and our associates locked arms across the company and stood tall to lead NAND and enhance and expand our already central focus on inclusion and diversity across the country.
Like many across the country, we focused on the senseless, killing of George Floyd as a call to action to be better than mess and to commit to be an ever better version of ourselves.
While our loans, while our Renre charitable foundation gave generously, notably in honor of our fallen associate Pete Anderson for homelessness, our Chief Human Resources Officer, Andrew Davis led focused discussion and engagement to map strategies to improve.
This work and work continues.
As we look ahead, we remain proud of Lennars continued and consistent commitment to do well and too good to good as we lead with the people first focus.
With a strong balance sheet and a strong social and moral commitment. We're confident that we will emerge from today's distress, even better and stronger than before.
Accordingly, while the somewhat unpredictable environment in our country will evolve over time, we believe that we will be very well position through hard work focused leadership and innovative technologies to offset future headwinds and drive our business to new Heights.
Oh and by the way remember Susan per needs to I mentioned and quoted in the beginning.
While Governor will was one of the very few who did not lift restrictions on homebuilding during the stay at home quarter, we were able with the assistance from the borough or municipality to complete missed per nieces home. She in our family of six moved into their home on April 29, she and her family were able.
To delay the closing of their home once we gave them an updated completion date.
Today, she and her family.
Our part of the Lenore family and we are proud that we were able to assist and with affection and depreciation for the winners Susi associates, who answered hopefully she central regards to them and everyone listening today.
We're very proud of the quick actions that we've taken to carefully manage our business through these difficult times I would like to personally thank all in our associates across our platform for their commitment.
For their trust and for their dedication during this very difficult times.
I also want to thank our trade partners, who have worked collaboratively with us to ensure not only a safe and healthy home, but the quality and affordable homes.
And finally I want to thank Miss per nice.
And all of our customers for understanding that we are working hard for them to adjust to learn and to evolve. So that we can safely deliver the home of their dreams.
So with that let me turn over to Rick.
Thanks, Stuart we entered our second quarter with the strong housing market and solid economic fundamentals.
This combined with low mortgage rates.
Limited supply of homes gave us continued sales momentum and pricing power.
All of this change in the second half of March through April as a nation dealt with the impacts Koby 19.
While residential construction was designated in essential service in most of our markets the severe and immediate shutdown of economic activity across the country began to negatively impact our business.
As a result of the pandemic our sales orders declined significantly in late March and continued at a reduced rates through April.
Despite a strong start in March new orders for the month were down 10% from the prior year.
April marked a low point during the second quarter with quarters decreasing 29% from the prior year and our cancellation rate, peaking at 23%.
Notwithstanding this slowdown our team did an excellent job selling homes.
Pointman self guided tours are virtual tours, we also focused on controlling sales prices and managing backlog expectations, which benefited our gross margins in the second quarter and will benefit our gross margins in the back half of the year.
In May we saw an influx of new home buyers wanting to take advantage of extremely low mortgage rates and moved out of apartments in densely populated areas and homes. They were sharing the friends and family hearing and Dan.
We also heard increased conviction from people wanting to buy a new station clean home versus an existing.
In may our new orders increased each week sequentially and were up 7% over the prior year.
Our cancellation rate in May also dropped from 18% dropped to 18% from the 23% high in April.
More importantly, our increase in sales was generally achieved while raising prices and reducing incentives throughout the month of may.
We rarely comment on sales activity outside of the quarter, we are reporting.
However, given these fluid market dynamics I will give you some insight on June.
For the first two weeks of June.
Our new orders were up 20% over the same period last year, we believe that part of this increase was the recapture of sales activity lost during this year's spring selling season, and there will be a reversion to typical seasonality as we move through the rest of our fiscal year.
Recognizing the risks around high unemployment rates and the current trends towards a recurrence and cobot cases, we have not projected that this level of activity will continue in the next two quarters. However, should this pace extend longer we plan to carefully match sales with measured and consistent.
Price increases to further enhance our gross margins.
We also know that our sales activity in the next two quarters will be somewhat constrained by reduced community openings as we slowed development activity to conserve cash in the second quarter and many municipalities shut down their offices and did not issue permits and approvals to start development and sales currently our can.
Unity counts is down 6% year over year.
I'd now like to give you a little color on our markets Cross country. It really fall into three categories, one markets not really impacted by the end down.
Two markets that were impacted by have recovered or where the recovery is well underway and three markets that were impacted but where the recovery is still lagging.
Notwithstanding these categories in all of our markets. We saw a sequential increase in sales activity from April to May and continued strength during the first two weeks in June.
During our second quarter, we had eight markets that had little to no impact from the pandemic.
These included Jacksonville Coastal Carolina, Indianapolis, Marilyn Nashville, Dallas, San Antonio in Utah.
Most of these markets had stay at home organization in place, we picked up considerable market share through better execution as many other builders in these markets shutdown their operations.
Many of these markets also benefited from low cobot 19 infection rates the business activity was less impact.
In addition, each of these markets been it is benefited from low inventory levels and while traffic was down conversion rates were extremely high as buyers were highly motivated to purchase a safe new home.
In Dallas and San Antonio two of our larger markets. We continue to benefit from our moved down the price curve and by having quick move at home.
Category to includes 18 markets that were impacted by the end damage but.
But have either recovered or are well underway to the recovery.
Started in the east.
These markets include.
New Jersey, North Carolina, Southeast and southwest, Florida, Tampa, Orlando, Chicago, Minneapolis, Minnesota, Houston, and Austin, Colorado, Arizona, The inland Empire, San Diego Central Valley, California, Sacramento Reno in the Pacific Northwest.
While we continue to sell homes and offered limited as incentives in each of these markets municipality shutdowns and lower consumer confidence caused a significant decline in both traffic and sales from mid March through April however across the board. All these markets started to recover beginning the last week of April.
And have continued to improve through may into June.
In our largest Florida markets demand in May in the first part of June rebounded strongly.
Southeast, Florida, Tampa saw increased demand from renters and customers wanting to move from densely populated areas. It purchase detached single family homes.
South West, Florida, which is a big second home active adult market.
Increased demand from customers fleeing the coded impacted areas in the northeast to the more say south Florida market.
Raleigh, Charlotte Atlanta were hit hard initially however, all of these markets down staff as business activity resumed in may in each of these markets. We benefited from the return of the cultural buyer to one of the safety of a new coated free home.
Markets also experienced increased demand from buyers looking to relocate from the northeast.
The Houston market has been the biggest products well hit hard between mid March in mid April our sales bounce back in May and June as demand for entry level product outpaced the fall in oil price.
While bothwell unemployment is still high.
Due to reduced oil and gas investment, we're extremely well positioned with almost 50% of our communities price below $300000. The activity in Houston reflects the incredible diversification as happen in the Houston economy away from oil and gas.
Austin was the slowest markets in Texas to recover.
This was in large part due to its stricter shutdown ordinance imposed by the city.
Our staff sales started to recover in May and increase in the first part in June.
The Austin economy is strong with over 7200 technology companies spring job growth in demand.
Moving to Colorado, Colorado's on the road to recovery and while not fully recovered local economies strong in diverse with limited new home inventory and low resale listings in may our traffic increase in sales rebounded from April lows June has seen a more significant increase.
Both sales and pricing power.
The Phoenix market entered the pandemic as one of the strongest markets in the country and while impact it has bounced back strongly our sales our sales steadily improved through may and we're really strong in the first part of June we continue to benefit from a broad product offering many lower priced communities.
Pacific Northwest has recovered nicely in spite of the state shutdown in Washington temporarily shutting down construction, we continue to sell enclosed.
Demand has improved significantly in May and has continued into July.
In California, the inland Empire strongest market.
While the market took a hit in April it came back strong in both May and June inland Empire has always been the affordable alternative to the more coastal areas.
With low mortgage rates buyers at slot back to the market. Most of these had been renters or frontline workers, citing the pandemic.
Category three includes four markets that were significantly impacted by the pandemic and where the recoveries lagging the rest of the U.S. These markets include area Orange County, Orange County, California, Las Vegas in Orlando.
The Bay area market was one of the first markets impacted by closing 19, and with aggressive government shutdowns the market just shutdown.
Consumer confidence lost.
Demand significantly slowed.
While lower pricing, while the lower price single family market has recovered the higher density higher priced cash markets still needs to gaining some traction.
Orange County, California was one of the weakest markets going into the endowment and is still lagging the other markets on the way out.
Combination of reduced demand from Chinese buyers and government shutdowns really show the market while sales more than doubled sequentially from April to may the market still needs to stabilize further.
Las Vegas was really impacted by a closed down and the casinos in a huge decline in tourism.
Unemployment peak at 30%.
Most of this is for load and temporary job loss, the casinos, which just reopened need to rebuild their businesses before things get back to normal. This. Despite this we've seen a rebound in both traffic and sales in May and the first part of June.
We are lando starting to come back with the shutdown of.
International travel reduced domestic flights and the closure of theme parks. The local economy really slowed down sales declined sharply in April but we saw a bounce back in May and June with the recent and planned reopening of the theme parks were optimistic that this will this market will pickup in demand very quickly.
I Hope this gives you a sense of how we're positioned in our local markets. While we have a few markets that are lagging most have rebounded from a macro standpoint. The market is strong with limited inventory pent up demand aided by low mortgage rates in this environment. We've been very focused on focus on balancing patient price and why.
We've increased our sales pace per community, we've been vigilant in raising prices lowering incentives and reducing our brokerage Stan.
With low mortgage rates the impact of our price increases has had a minimal impact on affordability initiate give us a decent runway through improved gross margins in them in the coming quarters and now like to turn it over to John.
Thank you Rick today ill start with a discussion of our land and balance sheet strategies, beginning with a look at the actions. We took during the second quarter responds to the colder 19 pandemic as Stuart mentioned, we paused or land purchases land development activity and home stores, we used our daily management goals to quickly implement this strategy.
Cross all offices were able to follow all of the wind acquisition, but we want to and due to the strength of relationships with our land sellers, we didn't walk away from any deposits or lose any deals where we did with the quality sales for 60 to 90 days in order to give us time to understand the impact of the pandemic and the associated government.
Well.
At the same time, we also photo land development spend this was done on the community by community basis by determining in real time to market demand for each community and the economic larger associated with stopping and restarted.
We're also looked at our plants stores again evaluating each communities market demand, if that particular home with and backlog and is in the mortgage does if it was sold or the home with unsold. We both about 4100 starts in the quarter or 27% of what was plan.
Given this pause in land spend and fewer stores, our second quarter results for our landed cost positions were temporarily altered by the actions. We took we ended the quarter with 3.9 years of land owned compared to 4.5 years in Q2, 2019, and with an increase percentage of home sites option of 32% up from two.
35% last year.
The combination of slowing programs under the quarter strong closings and executing our strategy of building strategic relationships to option home sites resulted in significant cash flow generation as we ended the quarter $1.4 billion focus on the balance sheet zero borrowings our revolver.
Additionally, we repaid $300 million of senior notes and ended the quarter with total debt to capitalization of 31.2% versus 38.3% for prior year.
Despite the daily intensity it took to manage through the challenges of the pandemic, we still maintain or focus on becoming a landlord company and are on track to be migrating both our supply of land owned down to three years from the current 3.9 years and to control, 50% of our home sites two options as compared to the current 32%.
At the end of fiscal 2021, we continue to work on and develop additional strategic relationships that are designed to facilitate originators goals.
Just as effectively as we pause as we saw markets recover we recommend wind acquisition land development in home starts. We're confident we will have the home sites necessary to start and deliver the homes. We are projecting in regards.
Now I'll turn to our direct construction costs and the value of our builder towards program with our trade partners.
Simply put our approach has been to understand what drives efficiencies from our trade partners perspective that we can work openly with them to lower cost without hurting their margins, but let me be clear. This work is anything but simple it's beyond the rolling up a horse leaves to do the hard work required as about building trust is all about our trayport.
Theres trusting that we will change the way we manage our business for their benefit we will do what we say we're going to do the six commitment from them into us and it takes time.
Once this trust trust is established that allows us to work together with our trade partners to remove cost on the supply chain. A. Good example, this is our intense focus on even flow production.
Using technology or field of conducted in real time, with our office and in churn or office with our trade partners. This connectivity enabled construction to be on schedule and for scheduled to be reliable. The predictability. This provides our trade partners allows them to eliminate overtime, which can save as much as $500 for home.
This focus produce the fifth straight quarter, where direct construction costs as a percentage of revenues fell.
In Q2 costs were 44.5% of revenues busy and 200 basis point improvement sequentially and year over year, respectively.
This 200 basis point improvement in cost of the percentage of revenue resulted from the combination of pricing power and lower cost with the driver of our gross margin improvement of 150 basis points, which more than offset the increase cost Atlanta disease.
And our second quarter or cost per square foot was down 130 basis points sequentially and 240 basis points year over year.
The cumulative effect of our strategic trade partner collaborations on removing costs on the supply chain ongoing value engineer anywhere shops, which are now than virtually and our strong purchasing organization led by Paul doesn't count doors as well as to continue was as less continuously lower costs, which we believe will be sustainable given the volume from our trades.
Partners and our builder of choice model.
I would like to highlight that these cost efficiencies have been achieved in an environment of increased labor costs due to the labor shortage combined at the same time with the shifts in product the smaller lower priced homes.
The math of smaller square footage and lower average sales price normally increases both cost as a percentage of revenues and cost per square foot. However, their focus of working collaboratively with our trade partners to remove costs from the supply chain, we've accomplished low and both of these cost metrics.
With respect to labor shortage I want to know the homebuilding industry through the leading dollars of America is initiating a program to attract those who have been displaced by the pandemic. The program will offer training for positions with the trades presents the opportunity for an easy or the labor construed. Accordingly. This occurs the cost of labor should use as well.
As all these efforts take costs out of the supply chain.
Are critical for us to be able to build homes that consumers can afford.
With respect to the impact of the pin debit what happened throughout the quarter demonstrated the strength of our trade partner relationships. There are four areas, where this working relationship was evident first is the work we did that help our trade partners navigate the care ducts.
I can say provision for paycheck protection program loan that have the potential keeping many of our trade partners and their associated with low. Unfortunately, the language in the legislation was very confusing nobody really knew what to do so in order to adoption led by our vice president effects by social casino, along with a helpful dealer partners at the Lloyd.
We quickly put together an overview of the act for the benefit of trade partners and on Sunday March 29, just wanted a half days after the acquisition into law, we hope to conference call with over 5000 over trade partners in attendance. We spent the day walking them through the answering their questions.
And that was our commitment to the safety of our associates customers and trade partners. Our news reports our warranty work as it was not space to be 70 workers into our homes. We then repositioned our customer care associates to be coated 19 usage officers on all of our job sites working with our Chief Medical Officer Dr. Cosco, we produced.
The guidelines and checklist to ensure everyone safety. While construction continued this was critical if we were to ensure the treatment of housing is essential in fact, we surveyed our trades is on the statistically the country that constructive in coated making virus at a much lower rates in the general population.
We provided this information to various state and local agencies as they evaluate the issue of allowing home construction to continue.
Through these efforts in more recent filled our commitment to keep our associates customers and trade partner sales, while continuing to deliver homes to eagerly awaiting families.
Thirdly, we closed we close we work closely with our trade partners to help us where they could to temporarily reduce costs to make sure. We can continue to sell homes as a pandemic local economy. When is the shutdown mode. Our trade partner stepped up allowing us to aggressively buy don't interest rates, which hosts jonesboro sales.
Finally, with the help of our trade partners in the focus work that we're national purchasing team. We navigated the various endemic related supply chain disruptions berth in China, and then in Mexico for each manufacturer would classify the risk level regularly monitor their current inventories develop MBS and plan fees and provided only community.
Level forecasting give detailed view of our news the primary disruptions curtain Mexican factories impacting covenants door hardware appliances and interiors. We successfully managed through all these disruptions toward any delays as of today, although manufacturers are open and with improving capacity.
I want to take this opportunity to personally thank all of our trade partners and I want to our team for working so effectively through this crisis together, we're able to navigate this unprecedented time and deliver homes, we central homes for families across America.
I'd like to turn it over to Diane.
Thank you John and good morning to everyone I'd like to spend just a few minutes.
From our second quarter.
For many decades, we have operated with a balance sheet first philosophy and a strong focus on liquidity and so for today, that's where I'd like to start.
As noted with our latest laser focused on generating cash and preserving cash we ended the quarter with 1.4 billion of cash and no borrowings outstanding on our 2.45 billion revolving credit facility, thereby providing total liquidity of 3.85 billion.
At quarter end, our homebuilding debt to total capital ratio was 31.2% versus 38.3% in the prior year. This is the lowest debt to total capital ratios since Q1 2007.
As we look at the balance of the year, we have a very manageable level of debt maturities with only 300 million due in November after having repaid 300 million in may in the last two years, we have repaid 2.5 billion a senior notes from cash flow generated from operations.
Our stockholders equity increased to 17 billion and our book value per share, let's 50 to 98.
And so with those balance sheet highlights let me briefly review our operating performance.
Rick and Jon provided most of the details so here's a quick summary of the highlights.
The new orders, we ended the quarter down 10% on sales pace was 3.5 for the quarter compared to 3.7 in the prior year, our cancellation rate was 19% compared to 15% in the prior year.
For the quarter deliveries were relatively flat year over year as remain intensely focused on cash generation gross margin was 21.6% as John mentioned, primarily as a result of our focus on construction costs and our SDMA with 8.3% as a result of creating efficient platform and the 8.3.
Person is the lowest second quarter SDMA percentage, we've ever achieved.
And our financial services team also executed at high levels I believe it mortgage operating earnings increased to 81 million compared to 43 million in the prior year during the quarter, we sold our legacy servicing portfolio for a gain of $5 million and eliminated potential future liabilities.
Additionally, mortgage earnings primarily benefited from a higher capture rate, 82% versus 75% last year.
Lower percentage of cash volumes during the quarter.
Higher percentage of locks on deliveries that will occur occur in Q3, as a result of record low interest rate and a continued decrease in loan origination costs.
Title operating earnings were 17 million compared to 15 million in the prior year title earnings increased due to an increase in profit per close quarter, which was driven by cost reductions.
Element commercial had an operating loss of $6 million compared to operating earnings of 6 million in the prior year, primarily as a result of the coded 19 effect on the capital market. However, during the quarter. We were pleased to be part of one securitization, though at a lower than normal margins, but still.
Positive.
Additionally, during the quarter, we Deconsolidated state title the process required us to perform a fair market value analysis of our interest which resulted in a 61 million down again.
And two other final item in the category of land sale, we recorded a $23 million write off of costs related to the Concord Naval Bank located northeast the San Francisco since we are not moving forward with this development.
And the category of blend our other we recorded a 25 million dollar charge, which was our share of the valuation adjustment related to the reality of legacy Fund. This adjustment was primarily a result of the disruption in the capital markets as a result of the covert 19 environment.
So with that quick summary, let me provide you with detailed guidance for Q3 and high level guidance for our core operations in Q4.
Since starting with Q3 and homebuilding, we expect new orders between 12000 813000, we expect to deliver between 13000 213400 homes.
Our average sales price should be in the range of 380 to 385000 as we continue to move down the price growth. We expect to continue to maintain our gross margins in the range of 21.5 to 21.75 and our teenage should be in the range of 8.3% to eight point.
5%.
And for the combined homebuilding joint ventures land sales and other categories. We express up we expect a loss of approximately 20 to 30 million due to the current delay on land sales activities.
Turning to our ancillary businesses.
We believe our financial services earnings will be approximately $70 million based on more normalized metrics in the third quarter.
Our multifamily segment, we expect how long of approximately $5 million and certainly not other category, we expect to be about breakeven.
We expect corporate DNA to be about $90 million during the quarter, we expect our tax rate to be approximately 23.1%.
In the average share count should be approximately 309 million shares this guidance should produce EPS range of $1.46 to $1.59.
And now let me provide a few high level announcements for Q4 for homebuilding in financial services. Our homebuilding, we expect new orders between 12000 and 12250, we expect to deliver between 13 14000 314600 homes, our Q4 volume will be impacted nothing.
And by the slowdown in starts during our second quarter, our average sales price should be in the range of 380000.
We expect gross margins be in the range of 21.75% to 22% interest DNA around 8% in for financial services. We believe we have operating rooms around $60 million.
We hope you find this guidance hopeful and with that let's turn it over to the operator.
Thank you we will now begin the question answer session of today's conference. We ask that you limit. Your question to one question and one follow up question until all the questions have been answered if you would like to ask a question. Please UN mute your phone press star one and record your name clearly when prompted if you would like to withdraw your question you May press star too.
Our first question is from Stephen Kim from Evercore ISI. Your line is open.
Yes, thanks, very much guys some strong results and.
Additional disclosure.
And getting everything to us so quickly in particular.
My first question relates to the margin.
We'll actually you can really good strong margin guidance, but.
I guess, one surprising issue was your orders look in Threeq and Fourq you to be down year over year.
I know you're sort of address it a little bit.
And said that you made some comments about second wave concerns you also talked about lower community counts.
And I guess I'm, just trying to get a sense for how much of the second wave concerns are baked into your outlook.
If you secondly concerns, let's say, we're not to materialize.
Do you actually see order growth remain up double digits such as funding.
Or do you actually think that the supply constraint issues that you've got it and community count shortfall would continue to keep pressure on your order growth and did you would just simply raise price more aggressively.
In the face of that.
So.
Thanks, Steve and first of all let me say I know that we we have to lot of information into our opening remarks.
And so we're going to take Q in April a little bit longer.
But.
Thanks for the question.
Weekday lighted that our sales as we came into June are up over 20%.
And we're not giving exact numbers because we really don't want to get carried away with it but the market is strong.
And just the the discussions with our divisions.
Really across the country.
Is that they're seeing really strong activity toward to tell what portion of that is a push forward or push into the third quarter.
The second quarter traditional selling season.
And what represents a rethinking of where people live and how they want to lower than what the how sticky that's going to be.
So what you're seeing in our guidance is.
A a clear understanding that the market is strong and yes. It can remain strong.
As we go forward Theres a supply constraint interest rates are low and are likely to stay low for a period of time.
The economy is certainly looking for ways to recover and with recovery and reduced unemployment rates there's cause for optimism.
I would think that the housing market and its strength will contribute to job creation absorbing some of the people who might have lost their jobs more permanently.
So there are reasons for optimism and we do think that sales can be stronger we are going to balance between pricing and pace.
As we as we move through the third quarter and into the fourth.
On the other side, we inject some conservatism and our projections.
Or in our guidance.
Because we're still learning we're still looking at how the economy link the economy will actually.
Resolve the the disruption that it's gone through.
How jobs will come back.
They are certainly the cloud of social unrest right now so there are questions out there and moderating factors.
There is upside in our numbers.
Particularly on sales there is also caution and we're trying to weave that balance and be straight as we look at giving guidance for going forward.
And Steve is let's remember that said, we intentionally pullback on about 4100 stores and we're going to managed carefully not to be so into four forward into the future and so were to control the sales pace, even though the market might allow us to sell the faster pace, we're going to make sure that we matched to over.
Production pace.
Yes, I mean, particularly when you have a rising price environment selling too far out front doesn't make a lot of sense. So yes, not conservatism is welcome and understood.
Second question relates to what some of the things you touched on.
There are lot of societal factors that have been changing more rapidly than I think we've ever seen in a lot of those are really positive it seems like for your business.
Homebuilding in general the suburban versus urban living preference. So many things home offices recreation space outdoor living et cetera et cetera.
Interested in your perspective about the drivers to these changes and their permanent or at least there.
Likelihood the likelihood that some of these drivers will last long enough for you to make investments that will pay off over a period of years not months.
I'm thinking right things like the social distancing thing that we've all gotten used to how long you think thats going to derive some changes in the kinds of housing that people want your maybe increased urban safety concerns that you've touched on.
These increased work from home.
Which of these things do you think are going to be temporary which do you think are going to be lasting and give you the opportunity to actually invest to capitalize on them and are you doing that yet making those investments.
So let me just give a quick response in an asterisk to chime in and the second but.
It looks.
There's there's no way in the middle of crisis to figure out what's going to be short term and what is going be long term and we're going to feel our way through this.
There are certain elements that are are.
Clearly going to be with us for very long period of time and that is the migration to technologies.
That we're all learning to use that are enhancing the customer experience that I detailed them in my portion, but relative to the trends of migrating from cities to suburban.
In mobility and that having been put on pause and some of the other questions out there.
How long term, they're going to be we're going to have to wait and see.
Some of the elements like work from home.
Having an office at home, we think that these are going to have some stickiness so request to weigh in on that.
Yes, I agree with Stewart, we're going to have to see how things evolve, but we do have some trends that are really positive.
Going into this we had the millennial population that was going through wanting to move to the suburbs, having babies and things like that on top of this we've seen a mass like from a highly populated areas where people just really don't want to be confined in small spaces. So we are really.
Positioned well and have been investing in opportunities and and contracting for land.
To take advantage of this one of the most interesting dynamics that we that where we're looking at is with a dramatic fall in oil prices people have the ability if they need to commute to commute as much more affordable levels, but many times now since you can work at home you don't need to draw.
Five anymore, so that really opens up.
Vast amount of opportunities for us as we look down the road.
Great. Thanks, very much guys.
Okay next.
Next we have Ivy Zelman from Zelman Associates. Your line is open.
Good morning on I apologize, but I did unfortunately, a kicked off the call. Some mr. much of the opening comments, but first I just want to.
Recognized gradually all of you for navigating such incredibly challenging times, having such a.
Spectacular financial performance really was remarkable so I'm not just.
Saying it to say it but it really is something we should all.
Acknowledge so first and foremost.
It's difficult to ask the questions and I have outlets with not repeating a lot of what you've already commented on but you guys have a very unique perspective, having a multifamily business.
And we hear a lot from the publicly traded reach that they're not seeing flight from the urban core to the suburbs their turnover numbers are actually only up marginally, but still extremely depressed levels. So it's very difficult to triangulate a lot of what we're hearing about with people buying in your quote in the and the press release about.
People, leaving the urban dense areas for space safety, all the things that we've talked about.
And taking advantage of record low mortgage rates and wanting to be in.
In home, where they have the ability to have all those factors today that are socially important.
Living and safety for the families technology. So maybe you can give us some data around some of the things that you've noted.
I promise, we'll start talking a minute when you look at you hear builders, we ask them where is all this demand coming from it's crazy strong it's everything against what we would have expected in a massive unemployment environment. We're in and the answer is will really nothing's changed at the same reasons people been buying is just you know accelerating.
Pushing more renters are converting to homeowners, so maybe trying to triangulate a little bit for us what you're seeing from maybe entry level versus move up our people, leaving New York City in buying move up homes are you seeing maybe some delineation between product category as you mentioned entry level be really Sean.
Ill stop because I can keep going in and show you a too much it wants so [laughter] so are there.
I know that we set the stage with long winded introductions and you've certainly carry that forward. So you next question is going to have to be shorter but.
[laughter] so.
So let me say that.
There is no story there are many stories and many of the stories are playing out.
Just to.
Give you some some data I was talking this morning to our southeast, Florida Division, Carlos consolidate and and Carlos enthusiastically said that 31% of sales most recently have come from.
From the city of Miami to the suburban areas of Miami migrating to the suburban areas.
So we're hearing that kind of empirical data that is just starting to percolate up where we're starting to see that some of these stories are really playing out the migration from rental communities to single family homes or even single family for rent. These are all stories that are just starting to play out we don't have enough.
Data around it we will over time.
But with that said, we don't know we don't know that's the permanent how long lasting it's going to be and we want to moderate with that.
There there are a myriad of stories, and maybe John and Rick will chime in and.
Ill share some of their thoughts fourg or equipment.
Maybe just to that we're seeing more people move of apartment into new homes versus existing homes. So I think it makes sense to me that.
In the multifamily side and not seeing a rapid spike in their crops in their turnover, but it doesn't take many basis points of market shift from existing to new to really impacted demand for us and I think we're definitely seeing that because in all our divisions of sort of noted with southeast, Florida, We're seeing a pickup in sales of people come in during.
Cleo apartments.
And I'd, one other point and you've seen it and how you're tracking that better run and higher class a reads in our multifamily business.
Occupancy really hasn't changed much.
We have people paying rents and really didnt have the big dip in any of that and what we've seen as we've really drilled down because it's coming from the non class a lower quality apartments or people don't want to live there anymore in the higher class a that have good amenities.
Theres people that want to live there, but we're seeing we're seeing a mass exodus from the lower quality.
Non amenitized departments across each of us.
And from the perspective of affordability as builders are right now.
Taking advantage of the strengths are raising prices and mortgage rates of obviously ticked considerably lower compared to last year, but is there a level that concerns you that that favorable affordability for those class b tenants that might be driving the second to this.
What does it due to rents and what is going to do demand if its homebuilders keep pushing price.
Thank you guys I'm done.
I think we're just going to happen monitoring how things change in the economy.
We're seeing a lot of double.
Dual income folks coming to our communities.
You know were four with mortgage rates as low as they are small price changes even incremental within a couple of months really don't move the needle that much.
It's interesting phenomenon right now.
Yes, I think an additional point is we're going to have to see how employment starts to shake out when we think about long term how to how the market is actually going to.
Be receptive to the way to the to the migrations that are out there it seems and it feels that employments can snap back to some extent that stuck in the back of 3.5%.
There are going to be some disruptions out there but at the same time. There are number of people who are finding that they have affordability and remember one of the most difficult things to accumulate as a down payment.
And with people having stayed at home for so long not having restaurants and movie theaters and other activities open the ability to save has actually increased the amount of deposit money available to customers. So all of these things are working together, we'll see how they play out over time, it's part of the reason that weve conserve.
Some of our numbers because we recognize that we're going to have to wait and see on some of these items for next question.
Next we have Truman Patterson from Wells Fargo. Your line is open.
Hi, good morning, everyone and thank you for all the detail really appreciate it.
Let me also fell on a great results.
So following up on Ivys question, you know one of the big questions in the market clearly of how sustainable.
The demand is and whether this rebound is being driven by that pent up demand potentially.
Which could trail off so a couple of questions and I'm, hoping you can give us a little bit of color on.
One what portion of your sales today are being driven by we'll call. It pretty cobot traffic you know from the first half of March and before.
And then the second part you know for sustainability.
Any idea what portion of your entry level purchasers are using government stimulus checks as down payments our family of for centrally just got a 3400 dollar check from the government, which can usually go along the way towards a down payment.
Any idea or any way you can help us with either those questions I'd appreciate it.
John Rick.
I think respect your last question Truman you.
Do you think about.
Application requirements the purchase of home.
No the few but we're seeing buyer homes for the most part or not relying on the government assistant checks.
They are employed.
For some of the purchasing close there that we've got job security. So we're really not seeing that.
Yes, as Stuart said, a moment as we really has been rich. So we really have to wait and see how things unfold with how sustainable.
Some of these trends are and how much of it as a pull pull back from what was missed in second half of margin beginning in April which was in the middle of very strong spring selling season.
How much of these are trends of Noah strengthening of the millennials moving to the suburbs of people working for a better way to have a home office.
All the factors that we know our playing out right now we're going to have to see how sustainable there.
I would just add to that John than say.
Let's remember that what was disrupted by the pandemic was an already very strong housing market.
And we were just entering the selling season in a market that was already revealing itself as being fairly robust.
When we announced our first quarter earnings while it took a backseat to the discussion about what was happening to the broader economy. Our earnings picture was very strong our sales were very strong.
And so it makes sense that would they basically.
Two to three month hiatus or slowdown in the middle that the traffic that was already embedded is somewhat coming forward, but it's it's.
Added to by the number of narratives that are playing out of the same time, deciphering, which is which is a little bit complicated and the other thing I want to highlight and remind people as we have talked for the past years about a production deficit, we have been underproducing homes dwellings from multifamily.
Rental all the way through the single family suburban across the board. The country has been Underproducing homes for a very long time for certainly the past 10 years and that underproduction means we have short supply against strong demand pent up demand stalled demand and this is likely to be with.
As for some period of time, we do not have an overstated inventory to absorb that demand. So we're likely to see.
An undersupply meeting with a strong demand for some period of time.
Okay. Okay. Thank you for that.
If I could just parse the data a little bit further really kind of micro near term trends.
What was the back half of maze year over year growth rate.
And with June trending up over 20%.
Year over year.
Could you maybe discuss the gross order improvement is this to an extent being driven by a massive decline in the cancellation rate.
So the cancellation rate really has come down as I highlighted.
And we also pointed out that through the month of May each week.
Pickup in activity. So last week of May was was stronger than the first week of May and I'm really going back over the last six weeks in each of those weeks, we sold in north of a thousand homes, increasing during that time period that we did see the market to solidify that continued into July.
And.
Markets got a good solid footing right.
Okay. Okay is there any way to parse out the back half amaze growth rate.
And that can rate versus how june's can rate is trending.
We really haven't talked about June can rate, but that has come down.
And just want to be very careful to not get it too many micro statistics associated with the business. The trend line was consistent throughout the month, increasing week to week and continuing into Jen.
Okay. Thank you all.
Next question and we will probably covered at that point.
Two more questions. Okay go ahead.
Thank you. Our next question is from re how from Jpmorgan. Your line is open.
Great. Thanks, very much guys and I appreciate all the detail and the thoughtfulness.
In your remarks.
The first thing I just wanted to circle back for a first question on the.
Order guidance and you kind of talked about Stewart that.
There is an element of conservatism here, which is understandable.
As well as.
Concern not concerned, but either a trajectory around community count being impacted by through the land spend and other constraints out there hoping to get a sense for.
What you're thinking about in particular with regards to community count.
I'm trying to decouple those drivers.
And get a sense for.
Now you're thinking of.
The community count trajectory it ended the quarter it while 45.
Are there could be by year end.
And you know.
And.
From that is there kind of.
A margin of error that your injecting.
Conservative standpoint, any kind of taking a 10% haircut, let's say.
If there's any type of.
Quantification of what that conservatism might be.
Before I, let Rick answer that question.
Let me just say that community count we have all learned together as one of the most difficult numbers to project.
It moves around a lot and in the context of the environments that we've been working in with.
In this appeal of the offices shutting down being less available getting the fewer permits to have them.
The four land development it becomes even more difficult so I'll, let Rick take it from there.
So I'll take that question that we really don't know the great answer too.
Which is.
We expect our community count is dipped slightly in Q3.
Stabilize in Q4, and we're optimistic as we enter Q2 thousand 21 through the balance of 2021 that we'll see probably at a 5% increase in community count in 2020.
Yes, just really cannot underestimate the difficulty it has been getting communities added a ground as towns and municipalities reopen up and do permitting.
Okay.
I appreciate that and I assume you mean indicate dipped slightly from from Q levels.
The the second question I had was also just kind of circling back to the.
Various initiatives that you've had in place for quite some time around efficiency.
Measures both on the construction side and on the DNA and recognizing that.
There are.
Probably dozens of initiatives on both of those line items.
Maybe a little hard to quantify.
But I was hoping for any type of.
Thought around.
What what this means over the next couple of years from a margin benefit standpoint, both on the the growth side with the various construction.
You know initiatives that you've done.
As well as the DNA.
Cost reducing efforts.
Theres any way to kind of speak about this or.
Some type of guidance that that maybe not formal guidance widgets directional guidance.
We should think about.
All else equal obviously.
What this means for for those metrics, the gross side and DSG Nay side.
So.
Well, Mike we we have.
Delighted that our focus has been on all ranges of technology across our platform because there is a direct translation to bringing the cost side of our world down it's everything from construction costs to labor costs too.
Internal efficiencies and the way that we internally transmit we report our numbers and all the way through to our customer experience and the way that we interact with our customers.
Part of our initiative is designed to make sure that we're able to produce affordable housing. So it's not going to all flow through to margin, it's going to help us keep our home prices affordable as we go forward.
And so that's not a direct relationship to our margin.
Because some of these initiatives are.
I was going to flow through to the benefit of our customers.
But with that said, we think that our margins will improve you're already seeing some of that improvement injected going forward.
Some of that to rise from.
Things like pricing power some of it derives.
From things like reduced incentives overdues.
Realtor cooperation.
But it's it's all parts of our business.
Our bringing bringing our cost structure down.
With that said end to directly answer your question.
We look over the next couple of years said.
Yes.
The 100 basis points, maybe a couple of hundred basis points that flow through.
These are our objectives as we think about it.
It's more of an internal number than part of our guidance right now, but you're definitely seeing improvement in the way that our cost structure is configured.
Great. Thank you.
You're welcome.
Last question.
Thank you and my last question is from Mike Dahl from RBC capital markets. Your line is open.
Hi, Thanks for squeezing man stored actually just a couple of follow ups on on some of the internal initiatives I guess, specifically at first on the.
On the virtual sales shifted.
In addition to an enhanced customer experience.
Sounds like some nice financial benefits, but.
Within within those comments around the margin can you can you help us understand what percentage or or or any metrics around what portion of your.
Sales for us has effectively shifted to.
More of the virtual do hobby coordinators versus.
In community salespeople.
The shift today has been fairly mild people are still learning to profitably use and engage.
[music].
The digital technologies and that learning curve.
It takes it takes some time to implement end to perfect.
But as we perfect that we're going to see a greater number of both our customers enjoying the digital engagement and the autonomy as well as our new home consultants and what we call our internet new from consultants are is season.
Really being able to work with those tools and be far more effective and efficient.
This is the migration that is going to take place over the next quarters of years and I think will be better equipped to answer as we develop additional experience, but I will say that.
The way I think about this is we've had probably a year or two of change management.
Yet incorporated over just the past three months as Weve re educated or educated.
Our new home consultants and our customer base that these tools exist under the belt.
Quite beneficial to a better experience.
And our does that I agree with store, but.
Really a 100% of our new home consultants and Internet, so consultants or using our virtual schools today, it's really a question of them become experts at it really comfortable with it we launched a series of training programs that we take our associates or the how to sell virtually and and is rapidly accelerating but it is change management.
Well continue to improve.
Okay. Thanks for that and then.
Follow up for me is then.
And other internal.
Initial question just around build cycles, you talked about some of the centralized scheduling and I was wondering if you could just quantify clearly there is some moving pieces, what some of the shutdowns, but maybe.
At the at the trough of the issues in March or April how much at your build cycle widened out.
And then.
Do you have any sort of metric you're tracking against with what some of these initiatives and in terms of how many days you think you can shave off the to build cycle by some of these with some of these efficiency and digital.
Tools.
We are seeing is a steady decline as we look year over year sequentially quarter, they decline in or build cycle time.
And so we've seen.
No as an example.
This quarter compared to a year ago.
About a 15 day decline in or cycle time, so all elements of efficiency from.
For the coordination with our trade didn't flow focus.
No the benefits of Everything's included in today's World I.
I think just our total over towards program.
As attractive trade to us, making sure that we have the trade.
Power that we need on the jobs, we need them.
And we're there to facilitate things flowing more smoothly for them. So I think thats another trend I expect to see continue for us as a continued contraction.
Rick you want to weigh in on that.
Going down.
[laughter] going down guys. They looked at I think with put that succinct answer.
Well ended there I want to thank everybody for joining lesson for enduring.
Some rather long and windy opening remarks, I know it starts with me but.
We felt that we wanted to share more information at what can be a confusing time and look forward to reporting in a more convinced way our third quarter is a few months from now.
Thank you for joining.
Thank you all for participating in today's conference you may disconnect your lines and enjoy the rest of your day.
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