MDC Holdings Inc (MDC) 2020 Q4 法說會逐字稿

Good afternoon, and welcome to M.D.C. Holdings 2020 Fourth Quarter Conference Call. (Operator Instructions)

Please note that this event is being recorded. Now I'd like to turn the conference over to Mr. Derek Kimmerle, Director of SEC Reporting.

Thank you. Good morning, ladies and gentlemen, and welcome to M.D.C. Holdings 2020 Fourth Quarter Earnings Conference Call.

On the call with me today, I have Larry Mizel, Executive Chairman; David Mandarich, Chief Executive Officer; Bob Martin, Chief Financial Officer; and Staci Woolsey, Chief Accounting Officer.

(Operator Instructions)

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 mdcholdings.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 M.D.C'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 information required by Regulation G is posted on our website with our webcast slides.

And 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 our company.

MDC delivered strong results in the fourth quarter of 2020, highlighted by fully diluted earnings per share of $2.19, representing a 54% 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, as the dollar value of our net new orders increased 92% for the quarter on the sales pace of 4.7 homes per community, per month. The strong order activity resulted in backlog value of $3.26 billion, our largest year-end backlog ever. The size and quality of our backlog gives us great visibility into 2021 and allows us to enter the new year in a position of strength.

Adding to our community's position of strength is our current financial condition. In December, we successfully increased the size of our unsecured revolving credit facility from $1 billion to $1.2 billion. Shortly thereafter, we issued $350 million of senior notes due in 2031 with a coupon of 2.5%. The lowest rate ever achieved by a non-investment-grade company for a 10-year issuance. These 2 transactions greatly increased our liquidity position and improved our cost of capital, putting us in a great position to grow our presence in our existing markets and potentially expand into new ones.

I will now turn the call over to our President and Chief Executive Officer, David Mandarich, for additional comments about our operating results and the strategic focus. David?

Thanks, Larry. With respect to new markets, I'm pleased to announce that MDC has made the strategic decision to establish a presence in Boise, Idaho. Boise 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 2021. 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-to-order model. Our goal has been to design innovative homes that allow for personalization with an eye towards better affordability, and the response has been tremendous.

Several of our operations in places like California, Florida and the Pacific Northwest have reached volume levels that allow for better economics of scale, which has translated into better margin contributions for 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 on 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. Existing home supply remains at historic low as do mortgage rates also, while new home demand continues to run at high levels, thanks to a strong demographic tailwinds and a heightened designer from home ownership, but around the pandemic.

We believe demand will remain in place after the threat from the virus subsides due to the sheer size of buying population and the structural shift that occurred as a result of the pandemic, which plays 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 a remarkable year for our company, culminating in 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 innovative 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 requires the coordinated efforts of all of our team members, and I could not be more proud of how they performed.

2020 provided to be a challenging year for our country and 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 MDC enters 2021 in a position of strength, thanks to our sizable backlog and our strong margin profile and our considerable liquid position. Our build-to-order business model and more affordable product focus have proven to be ideally situated for the current market conditions, and I believe this will be true going forward.

On behalf of the company, I would like to extend my sincere gratitude to our employees and subcontractors for making 2020 an incredibly successful year in spite of the immense challenges we face. I would like to thank our Board of Directors for their leadership and support.

With that, I'd like to turn the call over to Bob for more detail on our results and our outlook.

Thanks, Larry, and good morning, everyone. We ended 2020 with another strong quarter as pretax 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 $1.18 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 improvements 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 2020 fourth quarter. The decrease in rate was primarily due to a larger benefit from federal energy-efficient home tax credits in the 2020 fourth 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%, excluding any discrete items and not accounting for any potential changes in tax rates or policy.

Turning to Slide 6. Homes delivered increased 7% year-over-year to 2,564, driven by an increase in the number of homes we had in backlog to start the quarter. Backlog conversion for the quarter was significantly lower than the fourth quarter of 2019, as a 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 $461,000 and 61% of the units we closed were a part of our more affordable collections. We are anticipating home deliveries for the first quarter of 2021 to reach between 2,200 and 2,400 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 2020 fourth quarter and to a 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 $470,000 and $480,000.

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 build-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 from home sales for the 2021 first quarter is expected to be approximately 21.5%, assuming no impairments and no warranty adjustments. This would still be 160 basis points higher than the prior year. 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 2020 fourth 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 a $2.2 million charitable contribution approved by our Board of Directors 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 general and administrative expense to be approximately $55 million, which is a slight increase from what we just recognized in the fourth quarter. This increase is primarily due to increased headcount as we continue to prepare for growth in 2021.

In the fourth quarter alone, we saw a 5% increase in our headcount. As always, our actual results for the first quarter may differ from our estimate for a variety of reasons, such as changes in the amount or timing of various accruals.

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

Thanks, Bob, and good morning, everyone. Let's take a look at Slide 9. The dollar value of our net orders increased 92% year-over-year to $1.32 billion and unit net orders increased by 72%, driven by a 67% increase in our monthly absorption rate to 4.7. 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 a 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 on both more affordable and traditional product types.

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 remained 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 on to backlog on Slide 10. As a result of the strong sales we just discussed, we ended the quarter with an estimated sales value for our homes and backlog of $3.26 billion, which was up 87% year-over-year, and as Larry mentioned, was our highest year-end backlog dollar value ever.

The average selling price of homes and backlog increased 7% due to price increases implemented over the past 12 months, decreased incentives and a shift in mix to California. These factors were slightly offset by a shift in mix to our lower-priced communities, consistent with our ongoing strategic focus on our more affordable home plan.

As Bob has 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 and backlog as of year-end. Only 38% of homes and 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, Staci. We ended 2020 with 194 active subdivisions, up 5% from 185 at the end of 2019. For 2021, we are currently targeting an active subdivision increase of at least 10% year-over-year. 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 4,976 lots during the quarter, a 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 than at the end of 2020, nearly reaching the 30,000 lot mark. We believe that this lot supply, combined with continued lot 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. Our build-to-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 and 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 10,000 and 11,000 units.

From a strategic perspective, we remain focused on continuing to expand our operating margin as well as growing our homebuilding operations in 2021. As previously mentioned, we are targeting a 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 enhance that liquidity with our $350 million senior note issuance in January.

Even with a solid balance sheet and a strong demand environment, risks continue to exist that could impact the execution of our strategic initiatives for 2021. 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 a $0.40 per share cash dividend and a special 8% stock dividend. This demonstrates a continued commitment to rewarding our shareholders for their ongoing support.

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

(Operator Instructions)

First question is from Michael Rehaut, JPMorgan.

Congrats on the results. Hope everyone is safe and healthy out there. First question, I just wanted to drill down a little bit on the commentary you gave around January order trends. And obviously, appreciate some of the color there.

I believe you mentioned that you remain strong, remains well above prior year, but that the first quarter sales pace wouldn't show the similar type of seasonal improvement as in years past, which we see, on average, 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 ongoing traffic, et cetera. Would you still expect to see some amount of a sales pace improvement in 1Q versus 4Q? We're sort of estimating right now for many builders around plus or minus a 20% improvement in first quarter sales pace versus fourth quarter. But directionally, does that sound reasonable, just given on what we've seen so far in January and current trends.

Yes, Mike, this is Bob. I don't think a modest assumption of an increase is unreasonable. But we're just 1 month in, and we've done a lot of increases in prices. And there's 2 months left to go in the quarter, of course. So I don't want to put a prediction out there, but I don't think what you're doing is unreasonable.

Right. Great. 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 increase in lumber costs. At the same time, you continue to put forward a lot of pricing as the market continues to allow for that. And obviously, you want to keep your products still affordable.

Just wanted to get a sense, number one, of roughly what you would estimate, apples-to-apples, your prices went up in the fourth quarter; and two, to the extent that, 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 21.5% in the first quarter as we get further throughout the year?

Yes. Looking at fourth quarter, first of all, in terms of the increase in prices 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 the remainder of the year.

Next question is from John Lovallo, Bank of America.

The first one, just on the order ASP at $486,000 the highest spend in some time. And you guys have commented on that being and partly driven by mix. But I guess, the question that I'm driving at is, 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 a concern as prices increase, what you're doing with the consumer. I think the mitigating factor in this case is just that there's so limited supply out there. I think that's really been a strong factor for us. And of course, the impact 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 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 trying 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, higher 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 that individual market, it's not that high relative to other markets.

Got you. Okay. That makes sense. And then the 10% plus community count growth that you guys are forecasting is clearly very impressive, and a lot of your competitors have had problems getting communities open. I know you mentioned some labor challenges or construction delays in your 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?

Well, I think there's 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 municipalities have been stressed, trying to record plats, get things approved. So that is one constraint. It remains to be seen what impact the ongoing situation with the pandemic will have on those professionals who are doing a lot of the approving. Then certainly, the demands on our own personnel and the subcontractors that we have. I think that all factors into it.

The next question is from Stephen Kim of Evercore ISI.

Congratulations on the good results. Yes, I think that we just got some data from the existing home markets. Adjusting prices are up 18% year-over-year. So if anything, I think that you're 12% growth in your order 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 suggests that.

My 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'm -- I don't want to talk about the quarter or even necessarily full year '21. What 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 and attempt to sort of try to catch up with demand is done, and you've rightsized and you've adjusted to the pace of demand?

Last year, for example, you ran -- you were -- I should say, in 2019, you were running at about a 48% backlog turnover rate roughly for the year, kind of you were living in that sort of mid-40s kind of range for the year. And I'm wondering whether or not we think -- you think that we can do that. And 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 be -- just be living with a lower level of backlog turnover?

Yes, Steve, it's a good question. And clearly, we've had quarters now that have dipped into the 30s on backlog conversion for a variety of different factors that we've already mentioned.

That mid-40s to low 50s. I think that's 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 that might be. I don't think that there's necessarily something with our geographic profile right now that's shifted, that would prevent us from getting back there. It's just, I think, a number of uncertainties brought about by the pandemic, and then, of course, demand coming on so strongly in Q3 and Q4. That as a build-to-order builder, we don't convert within one quarter.

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

That's very helpful. The second question I had relates to your build-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 in maybe having a little bit of more space, maybe an extra bedroom or so. Is that a build-to-order strategy would really be able to capture that? And perhaps we're seeing some of that in your average order price because that actually captures, I think, upgrades and options that are done after the initial contract. 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 is for a design studio and how you're positioned to capture and upgrade an option growth cycle effectively?

Steve, this is David. How are you?

Doing well.

Well, 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 build order. And in today's market, the consumers want choice and the personalization we do is just absolutely fantastic. And we also pick up some extra margins. So -- and 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.

Yes, I should add, we do have a National Home Gallery, here, at the home office, at least at National Home Gallery department. That really helps create some consistency and helps them drive their profitability through a variety of different analytics and best practices.

Next question is from Ivy Zelman of Zelman Associates.

Congrats on the strong results. Really impressive with respect to the community count growth, as John pointed out earlier for the quarter and also the forecast going forward. I just would love to get your perspective as you think about the 8% increase in lots, Bob, that you mentioned and thinking about what's happening at the local level in terms of the constraints on municipalities or just the restrictions, that zoning that you face, but you're able to show the growth and we hear a lot of municipalities saying, 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.

Ivy, this is David. And I will tell you that we have not had pushback on affordable product in any of the master plan communities or any cities. And we think that our product has a high design feel and we have found that we've got to be a very preferred builder in a lot of master plan communities around the country, plus all the cities and the municipalities are familiar with our products. So we really haven't had no pushback.

That's great, David. Are you finding that the lots that you're acquiring? And when you think about the an 8% increase to the 30,000 -- nearly 30,000 level. If you had to think about apples-to-apples or any way to quantify the lot inflation and when you're underwriting the lots that you're acquiring, are you underwriting with the current absorptions that you're currently benefiting from the strength of the market with. And what -- are you using current pricing?

Well, Ivy, our business model is to underwrite at today's pricing and today's absorptions. Clearly, we've had land sellers that have increased prices with the robust market. But with the increase in sales price, we feel that our backlog of transactions will meet our metrics that we've set over the last period of time.

So just lastly, David. So you're assuming that the absorption pace that you're currently running out is sustainable, despite it being at such a robust pace and you're comfortable underwriting at those high levels?

We actually are. And one of the things we don't do, Ivy, is we don't put inflation in our model. So we price at today's pricing and today's absorptions.

Next question is from Alex Barrón, Housing Research Center.

Good job in the quarter. I was hoping you could expand on your Boise, Idaho entry. Have you guys already started selling homes? Or you've only acquired land at this point? So I guess it's a 2-part question. When would the first orders start to show up and when would 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 dividend rates?

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 complex this first quarter, and have deliveries this year. But 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 lot of successes getting some land tied up. So we feel pretty good about where we're going on Boise.

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

Okay. Yes. In terms of the stock dividend, yes, I think there's a lot of different positive benefits from doing it that way. Keep in mind, we've already done a couple of cash dividend increases over the last 12 months. So the cash dividend we just declared is up year-over-year. But a stock dividend has the benefit of increased overall volume of trading. So increased stock liquidity, which I think has some benefits and appeal to investors. It gives us a little bit more flexibility for future dividend payments, avoids a current taxable event for shareholders. So a lot of little things, just a slightly different way of approaching it as we just passed the end of our year.

Okay. Great. And if I could ask one other one. Bob, do you have the breakout of what percentage of your orders or closings were entry level this quarter versus a year ago?

Yes. I think it was 61% for Q4 orders, I believe, or closings, rather, I apologize. We're in the, what we call the more affordable category.

(Operator Instructions)

Next question is from Buck Horne, Raymond James & Associates.

I wanted to ask a little bit about the mention of construction delays that you're seeing in the markets, just kind of if you can add a little bit more context around how widespread you're seeing these construction delays, if it's more labor related or materials related? What kind of extension in cycle times are we talking about? And how does that affect your outlook for deliveries over the course of the year?

Buck, I'll start with it then turn it over to Bob. But clearly, we're seeing some delays from municipalities on getting permits, getting inspections. And we're seeing a lot of the cities have stretched out their inspection process.

Two is, I think, we've had a really good experience with all of our vendors and subcontractors in certain markets, and it's certainly mixed from market-to-market. But overall, we think, since we started on a strategy a couple of years ago to more affordable that our affordable product has a better cycle time even though it's got a lot of personalization. But overall, I think we feel pretty good about where we're at. But I'll turn it over to Bob.

Yes. And I think we do monitor our start times. So we try to make sure that we can get everything started within roughly 60 days 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 sale to closing, so including the entire permitting and build and inspection process. That was about 7 months. So could it increase a little bit from there? Yes, I think we could increase a little bit from there. I don't think it's a huge number at this point, but we're continuing to watch it.

Okay. That's helpful. Appreciate that. And then just turning to your spec strategy for a second here. You ended the quarter, ended the year with a number of specs, at least as far as I can tell, it's at the lowest levels in company history. I know that you guys deliberately run a build-to-order model and inventory is lean out there. But is the current level of specs intentional? Or is there any benefit to trying to ramp up the amount of product you might have available for quick delivery to help maybe smooth out some of the construction timelines? Is there a thought process around how to manage your specs going into the springtime?

Well, Buck, I'll start by saying that our strategy is not to build any specs. And everything is a build-to-order, and we think our customers want a 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, do you have something to add to that?

No, I think that's right. And I think just given where our backlog is, we've got plenty to do, just building out the backlog. So I think we're comfortable not doing more specs at this point.

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

All right. I'd 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.