Q4 2020 MDC Holdings Inc Earnings Call

Good afternoon and welcome.

M D C holdings, 2024th quarter Conference call.

All participants will be in listen only mode. If you need assistance. Please signal conference specialist by pressing the star key followed the Isaac Ro of today's presentation or the opportunity to ask questions. Please felt that this event is being recorded.

I don't like the turn the conference over the Mr. Thorough of Kimberly director of SEC reporting.

Al.

Thank you good morning, ladies and gentlemen, and welcome to MDC Holdings, 2024th quarter earnings Conference call.

On the call with me today I have <unk>.

Larry Mizel executive Chairman.

David Banbridge, Chief Executive Officer, Bob Martin Chief Financial Officer, and Stacy was the Chief Accounting Officer.

At this time all participants are in a listen only mode. After finishing our prepared remarks, we will conduct the 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 and will be available for replay.

For information on how to access the replay please visit our website at MDC Holdings Dot com.

Before turning the call over to Larry and David.

It should be noted that certain statements made during this conference call, including those related to Mdc's 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 Act of 1995.

These statements involve known and unknown risks uncertainties and other factors that may cause the company's actual results performance or achievements to be materially different from the results performance or achievements expressed or implied by the forward looking statements.

These and other factors that could impact the company's actual performance are set forth in the company's 2020 form 10-K, which is expected to be filed with the SEC today.

It should also be noted that SEC regulation G requires that certain information accompany the use of non-GAAP financial measures any.

Any information required by regulation G is posted on our website with our webcast slides and new.

Now I will turn the call over to Mr. Mizel for his opening remarks.

Good morning, and thank you for joining us today as we go over our results for the fourth quarter and the full year 2020.

Discuss the current new home market dynamics and provide some insight into the outlook for company.

M D C delivered strong results in the fourth quarter of 2020 highlighted by fully diluted earnings per share of $2 19 stamps.

Representing a 54 per cent increase over the fourth quarter of 2019 home sales revenues increased 10% year over year and home sales gross margin expanded 350 basis points to 22%.

We continue to experience robust demand across our homebuilding operations.

The dollar value of our net new orders increased 92 per cent for the quarter one of the sales pace of four seven the homes per community per month.

The strong order activity resulted in backlog value.

3.26 billion, our largest year end backlog ever.

The size and quality of our backlog.

Gives us great visibility into 'twenty 'twenty, one and allows them the entered the new year and the position of strength.

Adding to our communities position of strength.

Is the current financial condition.

December we successfully increased the size of the bar unsecured revolving credit facility.

From 1 billion the 1.2 billion.

Shortly thereafter, we issued 350 million of senior notes due in 'twenty 31.

A coupon of 2.5% well.

Well what was great ever achieved by the non investment grade companies, where the 10 year issuance the.

These two transactions greatly increased our liquidity position and improved our cost of capital putting us in a great position to grow our presence and our.

The two markets.

Cancellate expand in the new ones.

Now I'll turn the call over to our President and Chief Executive Officer, David Manthey.

For additional comments about our operating results and the strategic focus day.

Is it.

Thanks, Larry with respect to new markets I'm pleased to announce the the MDC has made the strategic decision to establish a presence in Boise Idaho.

The exhibits many of the characteristics, we look for in a new market such as a diverse and growing local economy.

Rising income levels and a strong population of buyers. We recently signed our first lot deal in the market and expect to deliver our first home by the end of 'twenty 'twenty One boy.

Boise presents a great opportunity for our company and we are actively seeking similar expansion opportunities in other parts of the country.

With respect to our existing operations, we continue to build on our local market presence. Thanks to the success of our focus on more affordable product and our build of order model.

Our goal has been to design innovative programs that allow for personalization with an eye towards better affordability.

And the response has been tremendous several of our operation of places like California, Florida, and the Pacific Northwest have reached.

Volume levels that allow for better economics of scale.

Has translated into better margin contributions from those areas.

While our established positions in places like the mountain West continue to generate strong margins and returns for our company.

We believe we are in a great position to build our of our success from 2020, thanks to our focus on more affordable product.

Our improving local market scale and strong geographic presentation.

In terms of broader macro economic factors that affect our industry. We continue to see an extremely positive landscape as we enter the new year ex.

<unk> home supply remains of historic low as do mortgage rates also.

While new home demand continues to run at high levels.

Thanks to our strong demographic tailwind and a height.

The xyrem ownership bought around the pandemic, we believe demand will remain in place after the threat from the virus subsides due to the sheer size of buy.

<unk> population and the structural shifts that occurred as a result of the pandemic, which place a greater emphasis on now and where we live.

Now I'd like to turn it back to Larry.

Thank you David.

In summary, the fourth quarter of 2020 capped the remarkable year for companies.

The Navy and a 54% increase in our annual net income as compared to 2019.

We responded to the challenges brought about by the pandemic with heightened safety protocols modified sales techniques and obey the operational procedures all of which contributed to the strong rebound.

We experienced in the back half of the year.

These changes to our business practice required the coordinated efforts of all of our team members.

And I could not be more proud.

But how they performed.

2020 provided could be a challenging year for our country and the economy.

But I'm optimistic about the direction of both in the new year.

The housing industry has emerged as one of the few bright spots in our economy.

And M D C years, 'twenty, 'twenty, one and the position of strength.

Thanks to our sizeable backlog.

Our strong margin profile and our considerable liquid they should.

Build the order of business model and more affordable product focus.

Moving to the ideally situated for the current market conditions and I believe this will be true going forward.

On behalf of the company I would like the extend my sincere gratitude to our employees and subcontractors from making 2020 and the incredibly successful year in <unk>.

Spike of the immense challenges we face.

I would like to think of board of directors for their leadership and support.

With that I'd like to turn the call over to Bob.

More detail on our results and our outlook.

Thanks, Larry and good morning, everyone.

We ended 2020 with another strong quarter as pre tax income from our homebuilding operations increased $48 9 million or 52% from the prior year quarter to $142 $3 million.

As Larry mentioned this increase was driven mostly by higher gross margins.

To a lesser extent, our homebuilding profits also benefited from improved home sale revenues, which increased by 10% to $1 one 8 billion.

Our financial services pretax income increased $10 2 million or 54% to $29 million. The increase was driven by our mortgage business, which continues to benefit from the increased volume generated by our homebuilding operations.

Our mortgage business has further benefited from year over year improvement in capture rate and profit margin on loans originated.

As a result overall net income increased 59% to $147 5 million.

Or $2 19 per diluted share for the fourth quarter of 2020.

Our tax rate decreased from 17, 5% to 13, 9% for the 2024th quarter.

The decrease in rate was primarily due to a larger benefit from federal energy efficient home tax credits in the 2024th quarter due to an increase in the estimated amount of energy tax credits to be received.

For 2021, I would roughly estimate an effective tax rate of 24% ex.

Excluding any discrete items and not accounting for any potential changes in tax rates or policy.

Turning to slide six.

Homes delivered increased 7% year over year to 2564, driven by an increase from the number of homes, we had in backlog to start of the quarter.

Backlog conversion for the quarter were significantly lower than the fourth quarter of 2019 as the result of the considerable year over year increase in net orders during the back half of 2020, most of which remain in backlog as of year end.

The average selling price of homes delivered during the quarter increased 2% to about $461000 and 61% of the units. We closed were a part of our more affordable collections.

We are anticipating of home deliveries for the first quarter of 2021 to reach between 2000 202400 units.

The corresponding backlog conversion will be lower than the first quarter of 2020 as a result of the strong year over year increase in orders during the 2024th quarter and.

Two of degree construction delays, we are experiencing in certain markets as a result of the pandemic.

We expect the average selling price for 2021 first quarter deliveries to be between $470000 and $480000.

Gross margin from home sales improved by 350 basis points year over year to 22%, which is our best gross margin in over a decade.

We experienced improved gross margin from home sales across each of our segments on both built to order and spec home deliveries driven by price increases implemented across nearly all of our communities over the past 12 months.

Home deliveries in the first quarter of 2021 will be negatively impacted by the lumber price increases experienced in the latter half of 2020.

As a result, the gross margin for home sales for the 2021, the first quarter is expected to be approximately 21, 5%.

Assuming no impairments and warranty adjustments.

This would still be 160 basis points higher than the prior year <unk>.

Additionally, we currently expect that gross margin for the remainder of the year will improve from our 21, 5% estimate for Q1.

Our total dollar SG&A expense for the 2024th quarter increased $12 $8 million from the 2019 fourth quarter.

General and administrative expenses increased $7 $1 million due to an increase in stock based compensation expense related to performance based awards consulting fees related to energy tax credits recognized during the quarter and of $2 $2 million charitable contribution approved by our board of.

During the quarter.

The increase in marketing and commission expenses was due to variable selling and marketing expenses that increased in line with the 10% increase in home sale revenues during the period.

Looking forward to the first quarter of 2021, we currently estimate our.

Our general and administrative expense to be approximately $55 million, which is the slight increase from what we just recognized in the fourth quarter.

This increase is primarily due to increased head count as we continue to prepare for growth.

In 2021.

In the fourth quarter alone, we saw a 5% increase in our head count.

As always our actual results for the first quarter may differ from our estimate for a variety of reasons such as changes in the amounts or timing of various accruals.

I will now turn the call over to Stacie will the for a discussion surrounding net new home orders and backlog.

Thanks, Bob and good morning, everyone, let's take a look at slide nine the Dod.

All of our value of our of net orders increased to 92% year over year to 132 billion in unit net orders increased by 72% driven by 67% increase in our monthly absorption rate to $4 seven.

The average selling price of our net orders increased by 12% year over year, driven by price increases implemented over the past 12 months.

Demand was broad based from both the geographical and product perspective during the quarter, we experienced significant year over year increases in our absorption pace in each of our markets as well as simple more affordable and traditional product type.

Our net new orders remained strong through each month of the fourth quarter and were well above the prior year.

In addition, our cancellation rates were also lower than last year.

Sales through January also remains strong and are significantly above the prior year.

However, we do not expect to see the typical seasonal jump in sales when comparing the first quarter of 2021 to the fourth quarter of 2020 due to the unseasonably high orders that occurred in the fourth quarter.

Moving onto the backlog on slide 10, and the result of the strong sales. We just discussed we ended the quarter with an estimated sales value of our homes in backlog of $3. Two 6 billion, which was up 87% year over year and as Larry mentioned with the highest year end backlog.

Dollar value ever.

The average selling price of homes in backlog increased 7% due to price increases implemented over the past 12 months.

The decrease incentives and the shift in mix of the California.

These factors were slightly offset by a shift in mix to our lower price the community consistent with our ongoing strategic focus on our more affordable home plan.

As Bob just previously noted backlog conversion for the first quarter of 2021 will be lower than the first quarter of 2020. This is largely the result of the construction status of our homes in backlog as of year end.

Only 38% of homes in backlog at December 31, 2020 had reached the frame stage of construction compared to 52% of homes in backlog at December 31, 2019.

I will now turn the call back over to Bob to wrap up our prepared remarks for the fourth quarter.

Thanks Stacy.

We ended 2020 with 194 active subdivisions.

Up 5% from 185 at the end of 2019 from.

For 2021, we are currently targeting and active subdivision increase of at least 10% year over year NAV.

Naturally our actual active subdivision count to end 2021 may differ from this target for a variety of reasons such as the timing of community Closeouts and delays opening new communities.

Due to the impact of the pandemic.

We acquired 4976 lots during the quarter of 51% increase from the prior year, reflecting our confidence in market conditions and our focus on continued growth for our company.

We spent $359 million on land acquisition and $124 million on land development during the period, making our total land spend $483 million.

As a result of our recent land acquisitions, our total lot supply to end the year was 8% higher.

Then at the end of 2020, nearly reaching the 30000 the lot Mark.

We believe that this lot supply combined with continued lot of approval and acquisition activity provides us with a solid platform to meet our growth targets for 2021.

In summary, while 2020 presented many challenges the resilience of the housing market afforded us the opportunity to deliver one of our strongest years ever.

<unk> built order model and focus on affordability continued to prove successful during these unprecedented times.

Looking forward to 2021, we believe it has the potential to be an even stronger year based on the dollar value in gross margin of our current backlog and the ongoing strength of demand.

To that end our current target for home deliveries in 2021 is between 10.

Kind of 11000 units.

From a strategic perspective, we remain focused on continuing to expand our operating margin as.

As well as growing our homebuilding operations in 2021.

As previously mentioned, we are targeting of 10% increase in active subdivisions during the year.

And we are expanding our geographic footprint with the addition of the Boise market.

In anticipation of this growth, we increased our liquidity to roughly $1 7 billion.

At the end of the year and further enhanced our liquidity with our $350 million senior note issuance in January.

Even with the solid balance sheet.

And the strong demand environment risk continues to exist that could impact the execution of our strategic initiatives for 2021 the.

These risks will be closely monitored as we work to grow our company and the safety of our employees subcontractors and customers will remain a top priority.

Last week, we were pleased to announce that our board of directors declared of <unk> 40 per share cash dividend and the special at 8% stock dividend. This demonstrates our continued commitment to rewarding our shareholders for their ongoing support.

That concludes my prepared remarks, we will now open up the line for questions.

I'll begin the question and answer session to ask the question you May Press Star then one on your Touchtone phone.

Are you using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time of pause momentarily to assemble the roster.

Yeah.

First question from Michael Rehaut Jpmorgan. Please go ahead.

Thanks, Good morning, everyone and congrats on the results of everyone's safe and healthy out there.

First question.

Just wanted to drill down a little bit on the the commentary you gave around January order trends and obviously appreciate.

You know some of the color there.

I believe you mentioned that you remain strong although it remains well above prior year. He got the first quarter sales pace Wouldnt show the similar type of seasonal improvement of as in years past, which we.

We see on average it you know going back 10, 20 years is probably around.

65% plus or minus sequential increase the.

Question is based on how January has played out.

And you know ongoing traffic et cetera.

Would you still expect to see some amount of the sales pace of improvement in <unk> versus <unk>.

We're sort of estimating right now for many builders around plus or minus 20%.

The improvement in first quarter sales pace versus fourth quarter, but directionally does that sound reasonable just given on what you've seen so far in January and.

Current trends.

Yes, Mike this is Bob.

Yes, I don't think of modest assumption of an increase is unreasonable.

But we're just one month in and and we've done a lot of increases in prices and theirs.

The two months left to go in the quarter of course, so I don't want to put of predictions out there but I.

I don't think what Youre doing is unreasonable.

Right great. Thank you for that.

I guess secondly, I just wanted to hit around.

The gross margin outlook and appreciating that I believe you said the sequential decline more driven by the increased lumber cost.

At the same time you continue to.

Yeah.

Put forward a lot of pricing.

As of the market continues to allow for that and you know obviously you want to keep your product still affordable.

Just wanted to get a sense of number one of.

You know roughly what you would estimate apples to apples of your prices went up in the fourth quarter.

And to you know to the extent of that continues and you continue to see the benefit of positive price. If there's any potential for the gross margin to improve off of the 21 five in the first quarter as we get further throughout the year.

Yes looking at.

Fourth quarter first of all in terms of the.

The increase in prices and we did have increases in.

Just over 90% of our subdivisions.

On average those increases were about 4% and this is from the start of the quarter to the end of the quarter. This is the price of the houses we're actually selling not the closings.

So that's.

One part of it.

And then for the second part of the question from the 21, 5%.

Yes, we do see some potential for an increase from there through.

Through the remainder of the year.

Great. Thanks, so much.

Sure thing.

Thank you next question is from John Lovallo Bank of America. Please go ahead.

Hey, guys. Thank you for taking my questions.

The first one just on the order ASP.

486000, the heightened spending in some time and that you guys have commented on that being partly driven by mix, but I guess the question that I'm driving average.

There's clearly been a lot of air cover for homebuilders to raise prices.

Are you concerned at all about that we're getting to a point in some markets, where we could start negatively impacting demand.

I think it's always the concern is.

As prices increase what youre doing with the consumer I think the mitigating factor in this case, it's just that they are so limited supply out there I think thats really.

Net.

Strong factor for us and of course, the impact of of the pandemic.

All of those things help as well, but I think there was a lot of consumers even before the pandemic, who were predisposed to to get into the homebuilding or home buying process.

Eventually millennials being one of those groups move down buyers being another one of those groups. So we're always keeping an eye on pricing, we're always try to innovate.

With product to make sure we have more affordable product.

But.

We still feel pretty good about where affordability is.

Right now and I guess, the thing I would add as well as we do see people moving from higher cost areas.

The cost parts of the country, so completely different markets into lower cost areas. So even though the pricing might appear to be.

I guess higher on a relative basis relative to the individual market. It is not that high relative to other markets.

Got you, Okay that makes sense.

And then the 10% plus community count growth that you guys of forecasting is clearly very impressive and a lot of your competitors have had had.

I had problems getting communities open I know you mentioned.

Some labor constraints.

The labor challenges of construction delays and the rest of Europe.

Earlier comments, so I'm just curious I guess, what are the biggest risks or constraints to that community count outlook.

As we move through the year.

Yes.

Well I think there is.

There is a lot of people who are in the market buying subdivisions I think we've already bought a lot of the subdivisions that will be opening during the year.

Or at least we have them under contract.

Certainly the <unk>.

All of these have been stressed.

Trying to record plat get things approved so that is one constraint.

The it remains to be seen what impact the ongoing situation with the pandemic will have on that.

Those professionals, who are doing a lot of the improving in <unk>.

Certainly the the demands on our own personnel.

And the subcontractors that that we have I think that that all factors into it.

Okay. Thanks, a lot guys.

Thank you. The next question is from Stephen Kim of Evercore ISI. Please go ahead.

Thanks, very much guys congratulations on the good results.

Yeah, I think that we just got some data from the existing home market is adjusting prices are up 18% year over year. So if anything I think that youre of 12%.

Growth in your order of price, while really strong really impressive I certainly think that there's perhaps a little more room to go and I think your guidance sort of.

Just that all of my question question relates to the production side, though you gave some really good color about stage of construction and so forth, but I wanted to talk about your backlog turnover rate.

And I don't want to talk about the quarter or even necessarily full year 'twenty one when I'm thinking about is just conceptually.

Where turnover rates in your view are likely to settle out at.

Once the current flurry of activity in attempt to sort of try to catch up with demand is done and you've right sized and you've you've adjusted to the pace of demand.

Last year. For example, you know you ran you or I should say in 2019, you were running at about a 48% backlog turnover rate roughly for the year of kind of you were living in that sort of mid forty's kind of range for the year.

And I'm wondering whether or not we think do you think that we can do that.

And then how quickly you think we could return to that kind of turnover rate or is there something about your business geographic mix or something like that that would prevent you from getting back to that level and we would be just be living with a lower level of backlog turnover.

Yes, Steve it's a good question and clearly we.

Headquarters.

Now that have dipped into the <unk> on backlog conversion.

For a variety of different factors that we have already mentioned.

You know that mid <unk> to low <unk>.

I think thats, a reasonable spot that we could get back to again I think really the issue is what the timing is of that.

I can't tell you when when that might be I don't think that theres necessarily something with our our geographic profile right now thats shifted that would prevent us from getting back there. It's just I think of number of uncertainties brought about by the the pandemic and then of course.

Demand coming on so strongly in Q3 and Q4 that is a build to order builder, we don't convert within one quarter.

Yeah, absolutely I mean, it's going to be demand dependent obviously.

That's very helpful at the <unk>.

Second question I had relates to your built to order business model in fact, it would seem like in this current environment, where there's a tremendous amount of buying power and a lot of interest and maybe having a little bit of a.

More space, maybe an extra bedroom or so as that of build to order strategy would really be able to capture that and perhaps we're seeing some of that in Europe and your average order price because that actually captures I think upgrades and options that are done after the initial contract. So.

So correct me if I'm wrong on that but also I wanted to ask you about your design Studios do you feel that your design studio setup allows you to manage the options and upgrade process better I know this has been an area of focus for you for a very long time do you own your design.

Studios in House do you outsource. It if you can just talk a little bit about what you think the right strategy has four of design studio and how you're positioned to capture an upgrade and option.

Growth cycle effectively.

Hey, Steve This is David how are you.

Doing well thanks.

Steve you've been to our design studios, which we call home Gallery and.

So we've got home galleries in each one of our markets and we really feel good about the.

Of the build to order and in today's market the consumers want choice and the personalization. We do is just absolutely fantastic.

We also pick up some extra margin so.

We feel real good about it we're fully staffed we've got home galleries in every one of our markets. So we feel real good about it.

I should add we do have a national home gallery here at the home office at least the National Home Gallery Department.

That really helps create some <unk>.

Consistency in the helps them.

<unk> their profitability through a variety of different analytics.

And best practices.

Great. Thanks, very much guys.

Okay.

Thank you next question is from Ivy Zelman of Zelman <unk> Associates. Please go ahead.

Good morning, guys and congrats on the strong results.

The impressive with respect to the community count growth as John pointed out earlier for the quarter end and also the forecast going forward I just would love to get your perspective as you think about the 8% increase in lots of Bob that you mentioned in thinking about what's happening.

At the local level in terms of the constraint on municipalities are just you know the restrictions that Sony.

That you face, but you were able to show the growth and you know we hear a lot of municipalities, saying, you know, where we want affordable housing, but just not in our backyard. So are you finding that they're more willing to work with you or are they still requiring you to build larger lots can you kind of help us understand what you're doing on the affordability side and what are the.

Negotiations like with municipalities are they changing and improving and I have a follow up thanks.

Ivy. This is this is David and I will tell you that we have not had pushback on affordable product.

And any of the master planned communities or any cities.

We think that our product has high design feel and we've found that we've got to be of very preferred builder and a lot of masterplan communities around the country plus all of the cities and the municipalities who are familiar with our products. So we really haven't had the no pushback.

That's great David. Thank you for that are you finding that the lots that you're acquiring and we think about the end of.

The 8% increase to the 30000 nearly 30000 level. If you had to think about apples to apples or any way to quantify the the loss inflation.

And when you are underwriting the the lots that you're acquiring are you of underwriting with the current absorptions that you are currently benefiting from the strength of the market with and what you are using current pricing.

Well Ivy our business model is to to underwriters today's today's price even in today's absorptions.

Early we've had land sellers that have increased our revenue increased prices with the robust market.

But with the increase in sales price. So we feel that our backlog of transactions will meet our metrics that we set over the last period of time.

Yeah.

So is that just lastly, David Thank you for that so you're assuming that the absorption pace that you are currently running out of sustainable despite.

Despite it being at such a robust pace and you're comfortable underwriting at those high levels.

We actually are in one of the things we don't do IV as we don't put inflation in our model.

So we price at today's pricing of today's absorptions.

Great. Thanks, Good luck guys.

Thank you next question from Alex Barron Housing Research Center. Please go ahead.

<unk>.

Yes, thanks, guys and good job of in the quarter.

I was hoping you could expand on your Boise, Idaho entry.

Have you guys already started selling homes or use the only of quiet land at this point. So I guess the two part question when will the first orders.

Moving to show up and when with the first closings and then my second question is.

Can you elaborate on the thought process behind doing the stock dividend versus just increasing the the.

The dividend great. Thanks.

Alex This is David and I'll, just add that we are in the process of acquiring land in Boise, we have employees in Boise, we expect.

To get started in our first model of complex. This first quarter and have deliveries this year.

We feel very good about the market.

We think it's strong and we think it's very good for our build to order model and we've had a modest successes against some land tied up so we feel pretty good about where we're going in Boise.

And the second part of the question I'll, let Bob answer.

Okay, Yes.

In terms of the stock dividend, yes, I think theres a lot of different causes of benefits from doing it that way. So keep in mind, we've already done a couple.

Of the cash dividend increases over the last 12 months. So the cash dividend. We just declared is up.

Year over year, but the stock dividend had the benefit of increased overall volume of of trading so increase stock liquidity, which I think has some benefits in the appeal to investors.

It gives us a little bit more flexibility for future dividend payments of.

The current taxable event.

For shareholders. So a lot of little things, just a slightly different way of approaching it as.

As we just passed the end of our year.

Okay, great and if I can ask one other one.

Do you have the breakout of what percentage of your orders of closings were.

Entry level this quarter versus a year ago.

Yes, I think it was <unk> 61 per cent for Q4.

Orders.

I believe.

Our closings rather.

Apologize.

We're in the what we call the the more affordable category.

Got it okay, thanks, and great job.

What kind of fear of a question. Please press Star then one.

Next question is from Buck Horne, Raymond James and Associates. Please go ahead.

Hey, Thanks, Good afternoon, I wanted to ask the little bit about the mention of construction delays that youre seeing in the market just kind of if you can add a little bit more context around how widespread youre seeing the construction delays if it's more.

Labor related or materials related.

What kind of extension and cycle times are we talking about and how does that affect your outlook for deliveries over the course of the year.

But I'll start with it and then turn it over to Bob but clearly we're seeing some delays.

From municipalities on getting permits getting inspections.

And we're seeing that.

A lot of the cities of stretched out there.

Their inspection process.

True as I think we've had really good experience with all of our vendors.

And sub contractors.

And.

Certain markets of it's certainly mix from market the market, but overall.

We think.

We started amount of strategy of couple of years of go into more affordable.

The.

Our affordable product has a better.

Better cycle time.

Even though it's got a lot of personalization program I think we feel pretty good about where we're at.

I'll turn it over to Bob.

Yes, I think we do.

The monitor our start times, so we try to make sure that we can get everything started within.

Roughly 60 days of of when we sell it so we're keeping a close eye on that first and foremost.

And then beyond that our overall cycle times for the fourth quarter on closings.

And this is from.

Sales to closing so including the entire.

Permitting and build an inspection process that was about seven months, so could it increase a little bit from there, yes, I think it could increase a little bit from there I don't think its.

It's a.

A huge number at this point, but we're continuing to watch it.

Okay. That's helpful. I appreciate that.

And then just turning to your spec strategy for the second here.

We ended the quarter ended the year with a number of spec at least as far as I can tell it's at the lowest level of in company history. I know that you guys deliberately run a build to order model and the inventories laying out there but.

As the as the.

Current level of spec the intentional or is there.

Is there any benefit to try to ramp up the non.

The product you might have.

<unk> for quick deliveries to help may be smoothed out some of the the construction timeline is there a <unk>.

<unk> process around how to manage your spec going into the spring time.

Well, the but I'll start by saying that our strategy is not to build any specs.

Everything's a build of order and we think our customers want of personal personalized house now from time to time, you'll have some cans, we're having certainly less cans today than we've had in the past.

But overall our strategy is actually to build those specs Bob you have some bad of that.

No I think Thats right and I think just given where our backlog is.

We've got plenty to do just building up the backlog.

I think we're comfortable not doing more specs at this point.

Okay, great Congrats guys.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Mr. Bob Martin for closing remarks. Please go ahead.

Alright, I would like to thank everyone for joining us on the call today and we look forward to speaking with you again following the release of our first quarter results.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.