Q2 2023 MDC Holdings Inc Earnings Call
[music].
Hello, and welcome to the M. D. C Holdings 2023 second quarter earnings call should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your Touchtone phone I would like now to turn the conference over to Derrick Kimberly Vice President and Chief Accounting Officer at M. D. C. Please go ahead.
Thank you good morning, ladies and gentlemen, and welcome to MDC Holdings 2023 second quarter earnings Conference call.
On the call with me today I have Larry Mizel, our executive Chairman, David <unk>, Chief Executive Officer, and Bob Martin Chief Financial Officer.
At this time all participants are in a listen only mode. After finishing our prepared remarks, we will conduct a question and answer session at which time, 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.
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 995.
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 second quarter 2023 Form 10-Q, which is expected to be filed with the SEC today.
It should also be noted that SEC regulation G requires that certain information company to use of non-GAAP financial measures.
Any information required by regulation G is posted on our website with our webcast slides.
And now I will turn the call over to Mr. Michael for his opening remarks.
Thank you for joining us today as we go over our results for the second quarter of 2023 and provide some insight into the current market conditions and the outlook for our company.
And do you see we reported net income of $93 million or $1 24 per diluted share for the second quarter of 2023, driven by delivering total of over 2000 homes, resulting in our home sales revenues of 1.1.
Billion dollars order activity improved on a sequential and a year over year basis. We generated 2100 67 net new orders on the sales pace of 3.1 homes per community per month.
We also ended the quarter with over one 8 billion in cash and marketable securities, giving us the necessary liquidity to reinvest in our business and increase our industry, leading quarterly dividend by 10% to 55 cents per share.
Market conditions remained favorable during the second quarter as the combination of low existing home supply and a resilient economy resulted in healthy traffic trends at our communities buyers of adjusted just a higher mortgage rate environment and they have.
Come to realize that the new home market provides much more in the way of quality construction customization and functionality as compared to existing home market.
The consistently strong traffic patterns during the quarter allowed us to scale back on many of the incentives we implemented earlier in the year and we have begun to raise prices in communities where demand has been the strongest.
Another positive development during the quarter was a noticeable improvement in building conditions for.
For the first time in several quarters, we achieved a sequential improvement in the average construction build times of those homes that closed in the quarter. So.
Supply chain conditions and material availability has improved considerably since the pandemic as we're now projecting a construction build time of under 180 days on the homes that we are starting today.
A more streamlined and dependable supply chain will have a significant impact in our industry and should lead to better inventory turns and improve capital efficiency for our company.
In light of the improvements we have seen in both demand and building conditions, we have become more active in the landmark it in the second quarter. We approved the purchase of over 1300 lots, which go a long way towards giving us the land pipeline necessary to achieve our growth objectives.
Yes.
Well the landmark it remains competitive we believe that our size scale and access to capital provides us with a significant edge over smaller private builders, who rely on project financing from local lenders.
We believe that public builders will continue to gain market share from smaller builders as well as the existing home market and M. D. C is intent on benefiting from this trend.
With solid momentum on the waterfront and improves so why chain and a healthy balance sheet M. D. C is well positioned to take advantage of the positive housing fundamentals as we see in our markets.
The increase in mortgage rates has compelled current homeowners to stay put in their existing homes, creating a real opportunity for our homebuilders to fills a void.
In addition, there was a need for new housing in this country after years of under building following the great recession.
As a result, we are very optimistic about the outlook of our industry and M. D C. In particular.
Now I'd like to turn the call over to David who will provide more detail on our operational performance this quarter David.
Thank you Larry MDC delivered strong results in the second quarter of 2023, thanks to a healthy demand environment.
More favorable supply chain conditions and solid execution by our homebuilding change.
Order activity was fairly consistent throughout the quarter.
With April being our strongest month from a gross order perspective.
Followed by a slight slowdown in may and a rebound in orders for June .
Orders trend show for and show I have been typical for this time of the year and in line with our expectations.
Each of our homebuilding segment.
<unk> and their sales base on both a sequential and year over year basis during the quarter.
With the worst thing that outperforming both the east and the mountains segments.
We also experienced strong sales results in our newer markets, including Boise Albuquerque in Nashville.
Our gross margins from home sales in the quarter was 16 point for it.
Excluding impairments our gross margins from home sales was.
Consistent with the first quarter of 2023 at 17.6.
As Larry mentioned, we saw a market wide pricing improved as the quarter progressed.
Wowing us to curtail our incentive activity and raise prices in many instances.
Gross margins in backlog are currently higher than we experienced in the second quarter, giving us confidence in our margin projections for the balance of the year.
We ended the quarter with 2155 unsold homes under construction.
A significant increase from the prior year period.
This increased level of spec inventory as part of a broader strategy switch from our company in response to the changes we've seen in the marketplace.
Most buyers today, when a shorter time between sale and move in and associated with a builder order home.
These buyers are also willing to forego some personalization to get in their home quicker.
From our perspective, we found a shorter sale to close time reduces cancellation and helps with our inventory charge.
To be clear, we have not moved away from leveraging our home Gallery design studios, nor have we abandon our build to order business.
Our goal is to have a mix of to be built.
And spec homes available in all of our communities.
With spec homes.
Furnished with some of the more popular amenities options upgrades curated by our professional design teams.
We believe that this shift will allow us to deliver homes in a more timely manner to our customers while still getting the gross margin benefits typically associated with our home gallery offerings.
Overall, we feel good about the new home market in our company's positioning heading into the back half of the year.
Buyers remain engaged and motivated to own a home despite higher interest rates.
While job creation and economic growth in most of our markets continue to be favorable we have designed our communities and homes to cater to the first time homebuyer and have adjusted our business practices to deliver homes to these buyers more efficiently in the past.
In short I believe we have the right product in the right place with the right strategy to be successful in today's market.
With that I'd like to turn it over to Bob who will provide more detail on a Friday and show results this quarter.
Thanks, David and good morning, everyone.
During the second quarter, we generated net income of $93 $5 million or $1.24 per diluted share representing a 51% decrease from the second quarter of 2022 pre.
Pre tax income from our homebuilding operations for the quarter was $92 1 million, which represented a 62% decrease from the second quarter of 2022.
This was partly due to 24% decrease in home sale revenues as a result of lower closing volume.
The pretax decrease was also caused by lower gross margin from home sales largely due to increased incentives and higher construction costs incurred on those homes that closed during the period as well as $13 $5 million of inventory impairments recognized during the period.
Our financial services pre tax income increased during the second quarter of 2000 $23 million to $21 million. The increase was due to lower compensation costs, driven by lower head count and increase in capture rate and the allocation of revenue from our homebuilding business associated with our financing incentives.
Both our homebuilding and financial services pretax income benefited from increased interest income during the quarter on a consolidated basis, we recognized $20 $1 million of interest income during the second quarter compared with only $708000 in the prior year quarter.
Our tax rate decreased from 26, 8% to 17, 3% for the 2023 second quarter.
The decrease was primarily due to a windfall on equity awards that were exercised or vested during the quarter and to a lesser extent energy tax credits.
That did not benefit the 2022 second quarter as they had not yet been extended into 2022 as of the prior year quarter.
As a result, we now expect our effective tax rate for the full year to be roughly 23%.
This estimate does not include any additional discrete items or any potential changes in tax rates or policies.
We delivered 2009 homes during the quarter, which represented a 21% decrease year over year. However, we exceeded our previously estimated range for the quarter of 600 to 1700 closings.
Closings for the quarter benefited from our continued execution of our spec strategy as well as improvements in our construction cycle times, we expect our cycle times to continue to improve in the second half of the year based on the projected cycle times of our homes under construction.
As a result, we currently anticipate deliveries for the 2023 third quarter of between 18, and 50 and 2000 homes.
The average selling price of homes delivered during the quarter decreased 4% year over year to $549000. This was in line with our previously stated guidance for the quarter and consistent with the first quarter of 2023.
We expect the average selling price of homes delivered in the 2023 third quarter to be approximately $555000.
Gross margin from home sales for the quarter was 16, 4% compared to 26, 8% in the prior year quarter.
Excluding inventory impairments gross margin from home sales for the quarter was 17, 6%.
This decrease was largely driven by an increase in incentives as two thirds of our closings during the quarter were spectrum's the majority of which were contacted by the original homebuyer.
Current quarter home closings were also burdened with higher construction costs as compared to the prior year.
As we continue to pivot our operations to prioritize and increased number of spec homes. We have recently introduced our curated by the home Gallery collection. These.
These homes include finished details selected by members of our professional design team specific to home plans and geography.
Our curated collection allows us to capitalize on our design expertise given our experience with build to order homes to deliver thoughtfully designed homes to quit moving buyers.
As we see more of our curated spec inventory work its way into our closing population and we move further away from the period of peak construction costs, we should see gross margin improve from recent levels.
We are currently expecting gross margin from home sales for the 2023 third quarter of between 18% and 19% assuming no impairments or warranty adjustments.
Our total dollar SG&A expense for the 2023 second quarter was $106 $7 million, which represented a decrease of $27 $1 million from the prior year quarter.
This decrease was primarily driven by decreased general and administrative expenses due to a decrease in head count as well as decreased stock based and deferred compensation expenses. We also saw a decrease in commissions expense as a result of the decrease in home closings and a decrease in selling and marketing expenses due to the improve.
<unk> demand environment.
While our SG&A expense as a percentage of home sale revenues increased slightly compared to the prior year quarter due to the decrease in home sale revenues, our cost savings initiatives implemented over the past year have allowed us to keep our SG&A rate below 10%.
We currently estimate that our general and administrative expenses for the third quarter of 2023 will be between 55 and.
And $60 million, depending on the timing of equity awards during the quarter.
The dollar value of our net orders increased 37% year over year to $1 to $1 billion driven by an increase in gross orders in cancellation activity that has returned to more normal levels.
Gross orders for the second quarter of 2023, where 2000 and 717, which is a 21% increase from the second quarter of 2022.
Approximately two thirds of our gross orders during the current quarter were for spec homes.
Our cancellation rate for the second quarter of 2023 was 20% of gross orders. This compares to more elevated levels in recent quarters as we worked through our backlog of build to order homes.
The average sales price of gross orders decreased 10% year over year to $552000 due to decreases in base pricing during the second half of 2022 on a sequential basis. The average sales price of gross orders increased 2% from the first quarter of this year as a result of increases in base pricing and reduced incentives.
Our active subdivision count was at 232 to end the quarter up 12% from 270 a year ago.
Looking at the graph on the right. The number of soon to be active communities continues to exceed the number of students be inactive communities at June 32023.
This indicates that our active subdivision count is likely to continue increasing in the near term.
During the second quarter, we acquired 565 lots, resulting in total land acquisition spend of $77 million and incurred $80 million of land development costs.
As already mentioned, we have become more active in the land market in light of improving industry conditions. During the second quarter. We approved 1314 lots for acquisition and 22 communities across each of our homebuilding segments.
We ended the quarter with over 22000 lots controlled and then an additional 4248 lots that are at various stages of due diligence.
It should be noted that these lots still require approval by our asset management committee prior to being reflected within our control blackout.
We ended the quarter with over $1 8 billion of cash and short term investments total liquidity of over $2 9 billion and no senior note maturities until January 2030.
Our debt to capital ratio at the end of the quarter was 31, 7% and our cash and short term investments continue to exceed our homebuilding debt as of quarter end.
We continued to putting our capital to work during the second quarter as we started 2828 homes in an effort to increase our inventory of spec homes. As a result, we ended the quarter with 2155 spec homes. However, our inventory of completed spec homes remains low.
With less than one completed specs per active community.
Even with our investments into work in process inventory during the quarter. We continued to generate strong cash flow from operations with inflows of $226 million in the second quarter of 2023, compared with $53 million in the second quarter of 2022.
In summary, we continue to successfully execute on our strategic decision to build more spec inventory our pivot to spec homes came at an ideal time as existing home inventory levels have decreased to record lows.
Causing the demand for quick move in homes to increase even further.
We ended the quarter with $9 three spec homes per active community and the majority of these homes have been curated by our professional design teams.
In addition, we believe we have now seen the worst of our construction cycle times make their way through home closings. We're now projecting our construction build time of under 180 days on homes that were starting today, which represents a significant improvement from where we have been in recent periods. The cycle time improvements coupled with our spectrum.
Strategy should provide us with sufficient inventory for 2023 full year deliveries of at least 8000 homes.
That concludes our prepared remarks, I will now turn the call back over to the operator to start our Q&A session.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw.
Weston. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Michael Rehaut of J P. Morgan.
Go ahead.
Hi, everyone. Thank you for taking my questions congrats on the quarter.
I just wanted to ask if maybe you could expand on some of the puts and takes on maybe the back half gross margins, maybe you're expecting.
I I would presume maybe more of a sequential increase in four Q3, Q anything you can give us there.
Sure.
Sure I'll start with the guidance of 18% to 19% in the third quarter just to reiterate that then beyond that I do think we have the potential for upside.
In Q4, we haven't quantified it.
But based upon at least the activity.
Pricing wise incentive wise that we saw in Q2.
Potential firm progress from that 18% to 19% in Q4.
And what what where are the main buckets. If you could quantify that drove the outperformance in gross margin this quarter.
I think some upside.
That we both sold and closed.
During the quarter as we went through the quarter I guess first of all towards the end of Q1, we did have some base price increases that continued into Q2 and then in Q2, those that we sold and close as the quarter progressed, giving great sales activity, we didn't have to to really give away.
Quite as much as we expected.
Got it.
That's all for me and I'll pass it on thank you.
Thank you.
Our next question comes from Paul.
Chris Slick ski of Wolfe research.
Go ahead.
That's a possibility.
Just to start off.
And following on the prior gross margin question, but what do you think is a normalized gross margin.
Given your operating strategy shift to specs.
The type of margin differential are you seeing right now between the spec and the build to order stuff.
Yes, it's kind of a multi pronged question.
I guess in the quarter were probably more like a 500 basis point differential.
Stack, but it is important to recognize that that was an influence.
Bye.
Specs that are not yet curated variety in other words specs that came from cancellations versus the ones that we designed ourselves.
We are actually seeing that those curated specs are doing a lot better.
Then the ones that resulted from cancellation in fact, theyre not too terribly far off from our dirt.
Margins.
Once we get our designers really involved in what's going into the house. So it's a great fact for us I think that.
Gives us some additional confidence in our.
Our continued progress for margins given that really curated specs not many of those have closed at this point since we just started that program this year.
So.
In underwriting where typically.
Somewhere around 20% give or take gross profit margins.
That will continue to be.
A target for us with our business model.
Okay.
I think you in the past you have alluded to a goal of three absorptions. What you achieved this quarter and then Dave mentioned, a little bit Oh, you know normal seasonality I guess in July .
As you look at the third quarter or are you happy with you know normal seasonality or would you maybe.
Stop the price increases or take a pause on those to try and maintain that three absorption in the third and the fourth quarter.
Yes, I think we're happy with the normal seasonality.
In this market with both supply I think theres certainly a chance that we end up with a little bit better than normal seasonality you can only find it so much the the school schedules that summer vacations all of those things. So we try not to push it.
And its limits.
Okay I appreciate it thank you.
Sure.
Our next question comes from Ken Zenner of Seaport Research Partners go ahead.
Hello, everybody.
Hey, Ken.
Just to clarify I think you talked $55 $60 million on the fixed G&A expenses <unk> is that a fair run rate going forward or should that be kind of tied to what your community count.
Growth will be at or whatever what you know essentially the growth or the change.
A couple of things first of all.
It's a bit influenced by expected timing of equity awards.
So to the extent that we're at the upper end of the range part of it is because of the timing of the equity awards, which hasn't necessarily been firmly determined at this point.
So you kind of start from that 55.
<unk>, excluding the equity awards.
And then from there I think there is some level of tie to the subdivision count.
Growing from there.
We haven't given a firm number on community count through the end of the year, but there would be.
A minor correlation and the increase in community count versus the increase in <unk>.
B.
G&A number.
Okay, but its certainly.
Structurally I should say.
In that range kind of at 50, plus times four because it's fixed as opposed to that roughly $290 million. We were seeing run rate annual all in 'twenty two correct.
Correct.
<unk> that realizing.
Volatile 12 months.
And the variance the industry is seeing from a demand perspective, you highlighted some of the macro concerns obviously.
The level of starts that you're doing in <unk>.
And I think you just said you can't avoid seasonality, but is there something about that.
That taste and starts that you're seeing now that you.
You are trying to hold kind of more from a level realizing <unk> will likely slow down from three Q1, Q probably won't rise as much historically, because you didn't decelerate as much I'm just.
Trying to.
Get an understanding of how your decisions were affected by the last 12 months, where you took down starts to low 600 now you're at 2800.
You know kind of the lessons that you might have.
Our challenge in your experience that that's going to guide.
<unk> your decisions here for production.
Yes, I think clearly the 600 was very defensive in a time of uncertainty and I know you acknowledge that.
Recognize that.
The tier 100 more accurately as is reflective of the shift in our paradigm to be more focused on specs.
Like we said, we're not giving up on build to order, but we do think stacks or going to be the more popular.
Way to go for a period of time, just given that supply is so low so when we're thinking about specs here in the back half.
Certainly we recognize that it may be a bit tougher to start houses in some of our winter markets.
So there'll be some downward pressure there, but we do want to keep up with those specs that were selling and replace those specs and then I guess the final leg of the stool is making sure. We're ready for spring, we have ample inventory ready for spring given that already we're at about 70% of our orders.
Going from sex, we kind of think of it that way what do we need to satiate that.
Level of demand for Q.
Q1.
Orders. So all those things were taken into account, we feel pretty good about the starts environment starting more houses get.
That supply is low and the economy.
Seems to be holding up.
For the moment.
I would think about it.
Good and David.
We haven't met but I was reading an article from that.
I think the 19 seventies, if not perhaps a little earlier when you built a house I think in a day or two if you recall that so I'm sure you guys can that continue to improve on your.
Cycle time.
Thank you have a good memory or youre able to look into the archives.
Yeah.
<unk>.
Right you've been through all of these housing cycles and it was a down housing cycle.
We did build a house.
In a day.
I think we're proud of the fact that we gave all the proceeds to a children's hospital in Colorado, and so yes, I think it's all it's all been kind of our ability to move through different cycles.
Please go ahead.
Okay.
No. Okay, I was going to say that would improve your.
Working capital needs dramatically. The last question I have that I've been asking more builders is realizing you do not have a lot of option land can you talk to.
You're thinking or what you've been seeing out there in terms of what percent of your options are going to be contracted raw or finished and then.
Specifically as it regards to the finished lots have you guys have explored.
That.
Path.
To avoid capital exposure to land. Thank you very much.
I think this latest quarter, we were at about 17%.
Of our total lot supply was options.
So a fairly small percentage just one thing to note is there is.
Sure.
There was 4500 additional lots.
That we are actively doing due diligence on.
That sometimes is reflected in other builders numbers, we don't reflected in our option number until it's actually approved buyer is a national committee, but that is a pretty big number relative.
Two what we have officially under option in our numbers. So just one point there and then as far as.
Finished.
Versus develops I think on a relatively small number of approvals we were 60 40 I.
I believe finished versus developed in this most recent quarter.
Typically what happens as the landmark it heats up is it's harder.
To get the finish slot contracts more velocity come.
Development projects.
So we'll continue to look for the finished lots, but it wouldn't surprise me if you see it flip to more lots than we actually developed versus the loss that we buy finished naturally there is a a.
A possibility something.
Very well about land banking that is.
Im mechanism that's the needs to get this finished lots, but it's not something that we've done before and in this kind of interest rate environment I can only imagine thats going to get even more expensive.
To get those those type of transactions done.
So we're focused on getting finished lots, where we can but.
I can't tell you that it's.
I'm going to be that the majority of what we do in the future.
Thank you.
Sure.
Again, if you have a question. Please press Star then one.
Our next question comes from Jesse Lederman, Ivy Zelman and Associates. Please go ahead.
Hi, congrats on the strong quarter and thanks for taking my questions.
Just hoping you can hoping you can elaborate more on what's embedded within your gross margin guidance for a sequential improvement here in the third quarter and then.
Maybe a bit of improvement in the fourth quarter with regard to construction costs.
Could you briefly talk about about that are you expecting costs.
To improve as well alongside continued cycle time improvements or are they holding flat, but what's kind of embedded within your guidance.
I guess, it's more flat at this point I think lumber costs are continuing to go down.
Yeah.
Our cost of sales and that will probably continue its offset.
To a large degree by a little bit of an increase in land costs coming through the P&L.
So net net.
It's pretty neutral.
Got it and just a quick follow up follow up on that you don't expect any reacceleration in costs. Given you know you and your competitors kind of ramping starts to take advantage of the tight resale market you think.
Maybe because of your size will be insulated from some reacceleration call. You you expect those to hold relatively steady over the next couple of quarters.
Yeah, right now I think it will be steady.
Higher demand.
Higher use of subcontractors there is always that risk that costs could go up.
We don't have the supply chain issues that we did.
12 months ago 18 months ago.
So I think it'll be a bit more team.
At this point, even if we do continue to see great demand and great construction activity come through the system.
That's helpful. Thanks.
My next question is just you talked about your ability to raise price in some of your communities where demand has been strong as Steve highlighted the west region was where you've seen some of the strongest demand are you able to quantify the percentage of communities in which you are able to either pullback on incentives or even pushed price.
And which markets out west had been the strongest then maybe.
Across the other regions if theres any in particular that have been.
Troublesome for you to push price or maybe you're still trying to find the market. If you can elaborate a little bit more on those as well.
So I guess thinking about the percentage.
That we've been able to do.
Something in.
From a price increase standpoint.
We have a stat that we put out.
About 70% of our communities, we increased pricing on average two 2%.
On the incentive side, we're probably doing about 150 basis points better relative to what we're doing in our queue.
Q1.
So relative to sales price of 150 basis points less.
I have to imagine.
Yes.
The vast majority of the communities that had some level of improvement whether it's price or.
Incentives.
So.
Really a great.
Environment for us too.
Pare back on the incentives and increased price in Q2 in terms of markets that stood out we saw great activity I think just about everywhere.
Phoenix, we had a little bit more inventory, they really accelerated quite a bit.
From a sales standpoint, so that was a really good one for us in the west, but we saw good activity.
In all of our markets, David anything to add to that no.
I agree with Bob I think that.
What we're seeing is really kind of a broad range of recovery. We're also seeing that.
I think the consumers this year are more accustomed to what I'd call market rate mortgages. So they.
I think plus the.
Under supply.
Ria shale houses so I think overall I think our markets are pretty good across the board.
Thank you I appreciate the insight.
Our next question comes from Stephen Kim of Evercore go on it.
Yes.
Yeah.
Great. Thanks, guys.
About the overall level of specs that you had in the quarter. I think you ended at like little over nine per community. It was like in the high sixes in <unk> and like three last year, but I understand the strategy, but I guess I'm wondering where is this level of <unk>.
<unk> per community are likely to go do you sort of feel like at nine youre pretty much where you need to be or is this number going to continue to rise.
I think we're close Steve.
We are.
We've talked a lot about 10 per community.
Internally, but thats just a general guideline.
I think we've done a lot of good work. It was 2000 and that's I think we started in.
In Q2, so we've done a lot of work already I imagine will probably slow a little bit higher.
In the back half of the year in preparation for spring and we want to make sure that not only do we have spec inventory available, but that a good part of that spec inventory is really in the latter stages of construction.
So that it really can sell and close in Q1.
Right and that kind of leads to my my my follow up here. The I'm wondering if you felt like the level of specs in to Q was optimized already it sounds like it really it wasn't quite you know when you think about like what happened over the course of the quarter and I know, what you're probably could've taken more orders if you would have.
Had more specs entering the quarter than you did.
And I'm thinking about what this how this can inform our thinking for or orders for the next few quarters when.
Because it sounds like you are pretty much getting to the point now where you're specced situation will be optimized. So is that a fair way of thinking about it that absorptions and orders in to Q did not really yet reflect sort of an optimized spec.
Assortment.
I think theres, some truth that I think.
It's a limited data set but we have seen a correlation between our ability to generate orders.
And the number of specs that we have beyond the brain stage in fact.
You alluded to it somewhere with June orders were in May.
And I think that was part of the story.
Yeah, that's great and then you talked about the margins I think a couple of quarters ago. I think you would guesstimate it may be that margins on specs for like 100 basis points or something lower than bto today, you're talking about how the curated could be pretty similar to be T OS.
I just wanted to make sure that Oh, I got that right and then.
With respect to these curated specs I'm curious as to what would hold those from actually generating a higher margin than <unk>. During this period, where retail inventory is so low.
And our customers it would seem might be inclined to pay a premium for the convenience of being able to move in relatively quickly has have you explored that is there a theoretical reason why our margin on a curated spec could not actually be a bit higher.
Yeah, I don't know that there is a reason why it could not as you describe if the supply demand dynamics are there. It's certainly a possibility in this market because we've just started the curated spec program they've tended to get sold a little bit earlier in there.
Their lifecycle, but as we get more of that are.
Advanced.
And in their age meaning closer to the finished points.
You might have something there Steve the ability to really.
To generate some great margins off those units.
Okay.
Alright, that's great I'll follow up later on that lastly for me is then the amount of owned lots.
I think you talked a little bit about the options and the refunds with refundable deposits, but I'm curious about the actual level of owned lots where do you see you know, we're just sort of the optimal level for you guys.
Kind of like two and a half years worth or something like that.
Yes, I would say two to three I would say it tends.
Tends to be closer to I guess, if youre just talking about.
Owned piece.
Maybe it's closer to the two and a half mark.
Okay.
Perfect. That's great. Thanks, very much guys.
Sure thing.
This concludes our question and answer session I would like to turn the conference back over to Bob Martin for any closing remarks.
We appreciate everyone joining us for the call today look forward to speaking with you again following the release of our.
<unk> third quarter earnings.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
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