M/I Homes Inc (MHO) 2010 Q4 法說會逐字稿

Good afternoon, my name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes year end conference call. All lines have been placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. Mr. Creek, you may begin your conference.

Thank you very much and thank you for joining us. Joining me on the call today is Bob Schottenstein, our CEO and President; Tom Mason, EVP; Paul Rosen, President of our Mortgage Company; Ann Marie Hunker, our Vice Corporate Controller; and Kevin Hake, our Treasurer.

First to address regulation and fair disclosure. We encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant, non-public items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also, be advised that the Company undertakes no obligation to update any forward-looking statements made during this call.

With that, I'll now turn the call over to Bob.

Thanks, Phil. Good afternoon everyone and thank you for joining our call to review our year end results. We reported a pre-tax loss from operations for the fourth quarter of 2010, which brought the total pre-tax loss from operations for the full year to $7.7 million. This represents a significant improvement from the operating loss of $19.3 million in 2009. But, largely as a result of a slowdown in sales and closings, that impacted housing across all of our markets during the latter part of the year, we did not achieve our goal that we had set at the start of the year which was to return to profitability.

Despite reporting loss for the year, we achieved a number of goals and did make substantial progress on a number of fronts. We have taken a number of positive steps to position our company for profitability and improve market position in 2011 and subsequent years. And, we are cautiously optimistic that housing markets will begin to recover slowly and modestly in 2011. Most everyone is well aware of what we experienced in housing conditions across the country during 2010. A year in which new home sales gave us somewhat of a head fake as result of the federal tax credit for home buyers. Specifically, during the first four months of 2010, when the tax credit was in full bloom, we experienced new home sales across our markets at an increased pace that were starting to show signs of stabilization and even improvement.

However, the pace of sales in each of our markets began to decline significantly, beginning in May, following the expiration of the tax credit. And, consistent with national data, remained at depressed levels through the balance of the year. In the range of roughly $275,000 to $300,000 annual single family new home sales. The latest data which we have access to shows that for the full year of 2010, there was approximately 321,000 new homes sold across the United States. A 14% decline from 2009, which, up until 2010 was the previous lowest year on record.

So, after a good early start to 2010 we, and most every other builder, largely bumped along the bottom for the balance of the year. In the face of these conditions, we are pleased that we were able to close more homes in 2010 than in 2009, approximately a 1% increase in closings. Particularly pleased with that result given the macro conditions I just discussed and the national 14% decline in new home sales.

Demand for new homes in each of our markets continued to be sluggish from May through the balance of the year as a result of the continued economic uncertainty, a lack of meaningful job growth, low levels of consumer confidence, an excess supply of both new and existing homes available for sale, and the continued overhang brought about by the foreclosure situation that currently grips the country. These conditions combined with tight consumer and mortgage credit have also created challenges for potential new home buyers in selling their existing homes, which would thus free them up to purchase a new home that they desire.

However, we believe that each of these factors has started to show some improvement over the past few months. Particularly, and perhaps most importantly, private-sector job growth. Which is what leads us to have some reason for cautious optimism as we enter 2011.

Despite slightly improving macro data and upward trends over the past few months, the fourth quarter is generally a slower period of sales for us from a seasonal standpoint and for our markets in general. Housing conditions during our final quarter continued to be challenging. And while we have some optimism, as I mentioned, will really not have a clear view of sales activities and performance in 2011 until we are well into the spring selling season which typically does not start until after the Super Bowl. Despite the challenging conditions, we sold 460 homes in the fourth quarter, representing a 3% increase in new contracts over last year's fourth quarter. We expect the sales comps to compare very favorably with most other builders for the December ending quarter.

Our volume sales and closings in 2010 suggests that we continue to gain market share in 2010, and this is and has been one of the most important strategic goals for the past several years. As it positions us better while markets remain weak, but also situates us for greater success in cost leverage as our markets begin to recover and show signs of improvement. In 2010, we either maintained or improved our market condition in every one of our markets, with the exception of our newly opened Houston market. Speaking of Houston we expanded our market footprint by entering the market in 2010. We have a strong and growing team in placeand are very confident that Houston will make a meaningful contribution in our performance over the next several years.

We had considerable success in 2010 in reducing expenses Company wide. As our SG&A expenses declined by $4 million in the fourth quarter when compared to the prior year. Over the past several years we have also made great strides in lowering our construction costs, which has helped us to maintain sales and margins even with competitive pressures on sales prices. However, rising costs for lumber and other materials are starting to put some pressures on margins from the cost side as we enter 2011.

Over the past several years we've also made significant progress, and we believe our sales reflect the fact that we've made this progress in the repositioning of our product offering to target first-time home buyers in value focused move-up buyers. Primarily through the design and expanded introduction of our Eco-Series product. These energy-efficient homes have been that with considerable success throughout most of our markets. This has enhanced our sales as market demand has shifted increasingly towards a more affordable products, as well as more efficient floor plans. We believe our product is very well positioned to meet consumer demand and preferences as we enter the very beginning of the 2011 spring selling season.

When we started 2010, as I stated at the outset of this call, our goal was to return to profitability for the year. But at the same time, we were also concerned that it was likely to be another tough year in the housing market. So, we continue to focus on maintaining a strong balance sheet, operating with an eye towards defense, so as to maintain ample capital and ample liquidity.

Finally, we continue to remain highly focused on quality and customer satisfaction. Our Company was founded on principles of customer service and we believe it is mission critical for us to be successful throughout all of our operations. Our customer satisfaction scores, as measured by an independent party, improved in each of our markets in 2010 and are at or near their highest levels ever.

We also achieved the highest J.D. Power rankings in both customer satisfaction and new home quality in the DC market, where we are ranked number one in both categories. In Tampa, we were ranked number one in new home quality by J.D. Power, placing second there in customer satisfaction and in Orlando we were ranked third out of all builders. These are the highest scores we have ever achieved in the various markets where J.D. Power services buyers each year.

As we manage through the current weak market conditions, we have continued to focus on our core business strategies, reinvest cautiously in the replenishment of our land while maintaining controls on expenses, and continuing to operate with relatively low leverage and strong liquidity. Although we remain cautiously optimistic about the immediate future, we believe that we are on a path to achieving profitability and that we have positioned our company to capitalize on opportunities in the eventual recovery of the housing market. Which we expect to begin in 2011, albeit at a modest pace. The timing and degree of market improvement remain uncertain and in the face of that we will continue to manage accordingly.

I'd now like to briefly review our various regions before turning this back over to Phil to discuss our financial results. First, our Midwest region. Sales in our Midwest housing markets continue to be challenging. Our new contracts were down 14% in the fourth quarter compared with 2010 and they declined 9% for the year. This is a result of declines in Columbus and Cincinnati, partially offset by a very positive doubling of our sales in Chicago.

We have grown our investment and grown our community count in Chicago while we have continued to reduce our investment in the number of open communities we have in our Columbus market. This very intentional strategic goal in Columbus is two faced. One, to maintain our number one market position but to do so with a reduced volume and less dollars invested market wide. We did achieve nearly a 35% market share in new home sales in the Columbus market in 2010 based on closings. Indianapolis has held fairly steady in terms of investment while sales have remained slow and we have seen declining demand in the Cincinnati market where the economy remains somewhat stalled.

Our gross market margins in Chicago are among the highest in the Company. We are continuing to focus on steps to reduce costs and to reduce our investment and improve our margins in Columbus, Cincinnati and Indianapolis. In Chicago, though margins -- though demand remains soft, excuse me, our communities are very well located and were mostly acquired in the last two years at would now appear to be extremely attractive prices. We opened 19 new communities in the Midwest communities during the year putting six in Chicago while we closed out 17 older communities. We ended the year with 61 committee's in the Midwest, a slight 3% increase for the year.

Our Florida region. In general market conditions and demands for new homes continue to be challenging in both Tampa and Orlando. However, our new contracts in this region were up about 66% in the fourth quarter, when compared to the same period of 2009. It should be noted that this increase is largely the result of a very slow sales period a year ago. For the full year, which would give one a better read, our contracts in Florida were up about 14%. Gross margins in Tampa and Orlando improved from the prior-year but continue to be under pressure and are below our targets due to older Legacy communities. We have opened five new communities in Florida during the year while closing out seven older communities, resulting in a decline of about 10% in our active communities in Florida for the year.

The mid-Atlantic region. Washington, DC continues to be one of the strongest housing markets in the nation. And the same holds true for us. The unemployment rate is among the lowest in demand for housing, it is a steady, though still not what could be described as robust.

Charlotte experienced a softening of demand as the year progressed, and both Charlotte and Raleigh suffered from a shrinking pool of qualified buyers as minimum thresholds in the mortgage market tightened. Sales in our Charlotte market jumped more than 50% in the fourth quarter due to the opening of a number of new communities that we are very excited about. Our gross margins in Charlotte have been pressured by slowing demands, while margins in Raleigh have held up fairly well. And, with the exception of Chicago, our DC margins are among the highest in the Company.

Our market share throughout the mid-Atlantic region has increased. And we expect to continued market growth in DC and Raleigh, while looking to maintain our position and share in Charlotte while digesting the increase in investment in operations, while we've made the Charlotte market over the past year. We opened 17 new communities our mid-Atlantic region during 2010. While we closed out eight older communities, thus ending the year with 30 active committees, a 43% increase for the year. As we continue to shift more of our geographic focus away from the Midwest and towards the mid-Atlantic region.

Finally just a brief word about our newest market, Houston, Texas. We did expand our footprint by opening up in Houston in 2010. As of the end of the year we control lots in four communities, are just now open for sale and have homes under construction. And as I said before, we're very excited about our long-term success in Houston.

And, with that, I'll turn things back over to Phil.

Thanks, Bob. New contracts for the fourth quarter increased 3% to 460 with a net absorption rate of 1.8 sales per community, per month. Contracts were down 14% in the Midwest, up 66% in Florida, and up 8% in the mid-Atlantic. Our cancellation rate for the fourth quarter was 25% compared to 2009's 23%.

Our traffic for the quarter increased 4%, our sales were up 2% in October and traffic was down 24%. Sales were up 8% in November and traffic was up 1%. And our sales were down 3% in December and traffic was down 23%. Our active communities increased 9% from 101 last year to 110. And the breakdown by region is 61 in the Midwest, 19 in Florida, and 30 in the mid-Atlantic.

During the quarter, we opened 70 communities while closing five. For the year, we opened a total of 41 new communities and closed 32. Our current plans are to open in excess of 25 new communities in the first half of 2011 and end the year with about 10% higher community count. And at December 31, about 45% of our communities are new communities and we define new communities as those open since January of 2009.

We delivered 650 homes in 2010's fourth quarter. Down 24% when compared to 2009's 858. And we delivered 90% of our backlog this quarter compared to 81% in 2009. Our backlog of 532 homes is 18% lower than a year ago and our average sale price in backlog of $254,000 is 7% lower. Third-party land sales were $1.3 million to 2010's fourth quarter and this compares to zero third-party land sales in 2009's fourth quarter.

Turning to impairments. In the fourth quarter we were recorded pre-tax charges of $1.3 million. For the 12 months this year, total charges were $13 million. This compares to $55 million for the 12 months ending December 31, 2009.

Our gross margin, exclusive of the impact of impairment, was 16.1% for the quarter. Down about 20 basis points year-over-year for the quarter. And on a sequential basis, our margins declined 200 basis points from the third quarter of 2010. This decline reflects difficult market conditions and the impact of our Legacy communities. And for the full year, our gross margins improved 140 basis points to 16.7%.

G&A expenses were for the quarter were $14 million, increasing 12% from last year's level. Selling expenses for the quarter were $12 million down 15% from a year ago, primarily as a result of volume decreases. And as a percent of revenue, SG&A declined by 150 basis points for the full year to 16.6%.

Our fourth quarter results include a loss of $8.4 million primarily due to the premium paid for the early retirement of $158 million of our $200 million senior notes due in 2012. The retirement was funded by the issuance in November of $200 million of senior notes due 2018. We expect to have adequate cash to pay off the remaining $41 million of senior notes maturing in 2012. And we also have the ability to draw funds under our revolver to pay off those notes.

Interest expense increased $1 million for the fourth quarter. And increased $950,000 for the 12 months of 2010 compared to the same period in 2009. The increase in the fourth quarter was due to incremental net interest incurred of $1.1 million, reflecting the net impact of the refinancing of our senior notes.

We had a $2.4 million pre-tax loss from operations in the fourth quarter, compared to $2.9 million income in the fourth quarter of '09, primarily the result of a 24% decline in deliveries. And, despite 2010 annual deliveries being about equal to last year's deliveries, we reduced our operating loss by more than half. Gross margin improvement and reductions in SG&A drove this improvement.

Exclusive of the loss we incurred on a debt refinancing, we generated our sixth consecutive quarter of positive EBITDA, produced in $6.6 million of EBITDA in the quarter and covering interest 1.6 times for the year with $26.5 million of EBITDA. We have $20 million in capitalized interest on our balance sheet at year-end compared to $24 million a year ago, which is about 3% of our total assets. We reported a non-cash after-tax charge of $5.1 million in the fourth quarter for a valuation allowance related to our deferred tax assets and at December 31, 2010 our gross deferred tax asset is $128 million and it is fully reserved.

Now, Paul Rosen will address our mortgage company results.

Thank you, Phil. Our mortgage and title operations pre-tax income decreased from $1.3 million in 2009's fourth quarter to $1.1 million in the same period of 2010. The decrease was primarily the result of a decrease in loans originated from 695 in 2009 to 526 in 2010. Along with enhanced financing being offered to M/I Homes customers to help generate sales. Lowering our overall margins on originations.

The loan to value on first mortgages for the fourth quarter was 88% in 2010, the same as 2009's fourth quarter. 55% of the loans closed were FHA BA and 45% were conventional. This compares to 62% and 38%, respectively, for 2009's same period. Over 90% of our communities are eligible for FHA financing.

Overall, our average mortgage amount was $219,000 in 2010's fourth quarter, compared to $209,000 in 2009's fourth quarter. The average borrower credit score on mortgages originated by M/I Financial was 737 in the fourth quarter of 2010, compared to 731 in the third quarter and 732 in 2009's fourth quarter. Our mortgage operation captured approximately 84% of our business in the fourth quarter compared to 2009's 85%.

At December 31, 2010, M/I Financial had $32 million outstanding under the $45 million M/I Financial credit agreement. In the normal course of business, we received inquiries concerning underwriting matters and in 2010 we received 23 such inquiries. We thoroughly review and respond to each inquiry and, even though we are not required to do so, we routinely engage an independent third-party to review the files and information related to the origination of each mortgage. Our reserve on December 31, 2010, with respect to these matters, was $1.4 million. Our comparable reserve at December 31, 2009 was $1 million. M/I Financial did not repurchase any loans in 2010.

Now, I will turn the call back over to Phil.

Thanks, Paul. As far as our balance sheet, we continually focus on our capital structure, cash, and liquidity. We ended the year -- ended the quarter with $123 million of cash, which included $42 million of restricted cash. Our operating cash flow for the quarter was $6 million, and included land purchases of $16 million and land development spending of $13 million. We ended the year with $303 million of equity and net debt to CAP of 34%.

Lots owned and controlled as of December 31, 2010 total 10,170 lots, 75% of which were owned and 25% under contract. We owned 7611 lots, of which 54% are in the Midwest, 19% in Florida and 27% in mid-Atlantic. A year ago, 60% of our owned lots were in the Midwest and 18 - excuse me, 18% was in the mid-Atlantic, an indication of our new community acquisitions being weighted towards DC and North Carolina over the past year. We have also invested, as Bob said, in a couple of Houston communities.

Total homebuilding inventory at December 31, '10 was $451 million, an increase of $31 million of December 31, '09 levels. Our unsold land investment at December 31 , 2010 is $266 million which is 7611 lots. Compared to $234 million, which is 7195 lots at December 31, '09. Compared to a year ago, raw land and land under development, decreased 3% and finished, unsold lots increased 34%.

At December 31, 2010 we had $126 million of raw land and land under development, and $140 million of finished unsold lots. Our unsold, finished lots total 3008 lots, with an average cost of $46,500 per lot. This $46,500 average lot cost is 18% of our $254,000 backlog average sale price.

And the market breakdown of our $266 million of unsold land is $120 million in the Midwest, $41 million in Florida and $105 million in the mid-Atlantic region. In 2010, we spent $111 million on land and $42 million on land development for a total of $153 million. About 31% of our land purchases were in the Midwest, 14% in Florida, and 55% in the mid-Atlantic. As to the type of 2010 land purchases, about 60% had been bulk finished lot purchases, about 20% had been raw land deals and 20% had been finished lot pickups under option contracts.

Our estimate today, for 2011 land spend, is about the same as last year. Market conditions will obviously impact our spending. And at the end of the quarter, we had a $74 million investment in specs, 348 that were completed and 213 specs in various stages of construction. This translates into five specs for community. And of the 561 total specs, 278 of these units are in the Midwest, 118 are in Florida, and 165 are in the mid-Atlantic. At December 31, '09, we had 545 specs with an investment of $59 million and at September 30, 2010 we had 630 specs with an investment of $77 million.

At December 31, 2010, the Company had no borrowings under its $140 million credit facility. Our borrowing availability of the facility is currently $24 million based on the value of currently pledged properties. This availability can be increased. At quarter end we had letters of credit under our secured letter of credit facilities totaling $54 million in total cash pledged to secure LC's under these facilities was $41 million at year-end.

Our backlog starting 2011 is 582 homes, down 18% from the start of 2010. This will lead to a very challenging first quarter for deliveries and earnings. Our sales comparisons will also be very challenging, given our sales being aided in 2010's first quarter by the tax credit. We are very focused on our sales efforts since our 2011 performance will be heavily dependent on how sales progress, starting with the spring selling season.

Having said that, we are very excited about the progress we have made and think we are very -- and we are positioned very well. This completes our presentation . We'll now open the call for any questions or comments.

(Operator Instructions) Your first question comes from Ivy Zelman from Zelman and Associates. Your next question comes from Alex Barron from Housing Research Center.

Hey, guys. How are you doing?

Good how are you?

Good, thanks. I wanted to get a feel for how you guys are thinking about 2011. A lot builders I guess, similar to you, are opening new communities. Many of them have said in the first half of the year. My question is, do you, given that there is no tax credit this year, do you guys feel the overall pool the buyers will be similar or lower to last year and therefore more communities will see a lower sales space or do you think the sales will be similar? And what the new communities you will be able to gain more units and more market share?

Little bit of both, Alex. First of all, as you heard Phill mention for the year, if you look at where we started out at 2011, and where we finished on a net basis our community count will grow by approximately 10 to 12 communities. So, going for what they've 110 to 120 to 125 communities. So, that is the delta you're dealing with.

Without question, and given that we are in a subdivision business, our best performing communities, by a lot, are the so-called new communities. Which we define as communities we've open since January of 2009. We are closing out Legacy communities which are a drag on margins and a drag on earnings. And looking, where it makes sense to do so, to replace them with communities which are accretive. And, even though it's not reflected in the fact that we're still not quite profitable. We think that our approach which we -- and we have been following that approach for will more than a year, has been very effective. Because, the performance of most of our new communities has been quite good. And, so, if demand stays about where it is, but we replace older communities with new, and maybe add one or two more across our 10 markets, you know we think that is the right strategy.

We are not counting on a robust increase in new home demand this year. We are counting on a slight improvement. And it may be more back loaded than front loaded. We are counting on somewhat of a slight improvement. And frankly some of our newer communities, price wise and otherwise, are more attractive from a demand standpoint. So, I hope that answers your question. Is combination of two, three, four, five items that sort of intersect at the spot where we think it makes sense. And it means our hurdle ramp

No, thanks for the answer. My second question, I guess, is given, what happened in the fourth quarter, it seems like your orders were relatively better than most other guys. And, but there was a little bit of sequential drop in margin. Given what you know about backlog, should we expect the margins to continue to drop a little more in the first quarter?

We don't make any projections on those types of things. As we said in our comments, things do continue to be difficult. We do feel better about our new communities coming on board. On the other hand we are still working through Legacy communities and we are trying to work through those as effectively as we can. We are also very focused on our cash balance and our liquidity.

So, we balance of all those things, the issue is with the Legacy communities. It is hard to make any predictions on margins. We are obviously focused on margins very, very closely. The third quarter ended really little better than we thought, when it came in at 18%. Again, the good news is we are up about 150 basis points for the year.

The other side of that, you know, trying to maybe give a little more color without providing guidance, per se. Is that, as our new communities, which have high hurdle rates and profitable margin levels, as they become a greater percentage of the mix, which they are on a daily basis. We would expect that to be reflected in our margins, particularly if the mix settles appropriately across all of our markets.

The last thing I will say is, as I said at the outset of my comments, our goal for 2010 was to be profitable. That is our goal for 2011 as well. You would expect nothing less, but let me leave it at that.

No, that sounds great. If I could ask one more and I'll get out of the way. Now that you have this new debt in place, obviously it came with a slightly higher coupon rate. How should I think about the interest expense below the operating line? Is that something that, some builders have set theirs is going to go away as they invest more in land? Or do you have some sort of a run rate? Like is $3 million a quarter something good to think about?

When you look at the interest incurred number, you know the impact for '11, as you can figure out. We had 200 million new at about 200 basis points higher than the old . Plus we had the 41. When you roll that through, the interest incurred number goes about $5 million.

As far as how much of that goes through the [P&L], that's dependant on our building level of how this and also our level of land development. We don't project or give out those numbers externally. I think it would be a -- not a good way of looking at it. To think our interest expense is going to go down, when our interest incurred is going up about 30%.

Okay, thanks so much.

Your next question comes from Ivy Zelman or Zelman and Associates.

This is Alan on for Ivy. Can you hear me?

We can hear you perfectly, this time.

I think Ivy must have had some technical difficulties. But, I know she was hoping to ask you a little bit more as far as some color on address margin. Obviously you highlighted the sequential pressure and it sounds like 3Q might have been a littler higher than expected. I was wondering if you could maybe isolate the pressure between some of the material costs that you cited in your prepared remarks versus maybe some discounting or incentives that you would have done ahead of year-end? One thing that caught us, was the very high backlog conversion. I was curious if there might have been some aggressive discounting to move through some spec products that could have had a one-time impact on the margin or if it's something more sustainable from raw materials?

That is a lot of questions. As far as the spec level, when you look at our sales the last few quarters, for different reasons, our sales have been 40% to 50% specs. In general we've been consistent in our remarks. Specs in general, carry a little bit lower margin than to be built. After the tax credit expired last April, sales dipped down quite a bit. There was more margin pressure. And, again, the tax credit you know, the third quarter sales and the fourth quarter sales, those are ones that we closed the fourth quarter. So, those margins were a little bit lower.

But I think the biggest thing, you know we just continue to be challenged by you know weak demands. We try to balance that all by having more attractive communities and as Bob talked about , our new communities, the majority of them, continue to perform. Pretty much the way we think they should perform in the way that we approve them. But again the Legacy communities, there tends to be a cap on those because you tend to be working through higher land costs. Maybe sometimes less attractive locations. Again, we want to work through those Legacy communities to get our investment out of those so we can we deploy them in a better way.

We were pleased to see our margins grow for the year. We were not pleased to see them as low as they were in the fourth quarter. On the other hand we were pleased that we were able to get, in particular, a number of Legacy communities closed out. And as we look at the this year, with the impact of new communities both during the last half or the last year and new communities that we expect to be opening during the first half of this year, you know, we are hopeful we will see some left there.

Great, it appreciate that and just to ask a little more pointedly, it doesn't sound like you had a material impact for the raw material costs going up at this quarter. It could be a potential risk going forward are.

That is a correct statement who

Great, I appreciate it.

Your next question comes from Jay McCanless of Guggenheim.

Good afternoon, everyone. A couple of questions. When you said you were up 45% new communities by year-end '10 would you be comfortable with giving any kind of projection for 2011, given that you've already given the community count?

No. That depends on a lot of things as far as close out and how fast we get through some of the Legacy. The thing we try to focus on internally is based on what is open for sale and what percentage is new and again that went for 40% at 930 to 45% at 1231.

Another question I want to ask is on Florida. First is, I though the results in Florida were a little more positive than you give them credit for. Especially the orders being up on the declining community count. Can you talk a little bit more about what you're doing in Tampa and Orlando. And how you're getting those better orders in the door?

Well, I appreciate the comment. I think we had a pretty good year in Florida, too. All of us shared that. I think that the sales numbers might be a little bit misleading given the fact that Orlando had some very weak numbers in the latter part of 2009.

Which, which allowed for very favorable comps, month over month and quarter over quarter. And probably masked somewhat or at least you know distorted somewhat the improvement. But, I don't know if I can comment much more than that. I don't know if that helps answer the question.

One other comment I would make id I do think that we still view Florida as being, perhaps, being a little slower to turn. We have been able to, especially in Tampa, I think, to get in to some very good communities that have performed well. Orlando has been a little more challenged. Also in Orlando, we've been able to find a couple here and there.

Bob is exactly right. As we look at the fourth quarter of last year, we just had very weak sales in those marketplaces. We do feel we had a pretty good year they are in 2010 and also feel confident that we are going to have a better year there in 2011. We feel we're definitely making progress there.

Some of the new communities there that we think are going to help or at least with the that should reflect the bottom line got open very late in the year. So, you saw an uptick in sales but nothing that flushed through the income statement.

If I could follow up with one more question. The new communities that you are opening in Florida now, are they targeting a different buyer, I.e.- move-up versus entry-level or entry-level versus move-up? Does it bring any mix changes there we should know about?

No. Nothing material. Our strategy there is still what it's always been, which is roughly 30% to 35%, 40% first time in the balance for second move-up.

Great, thank you.

Backlog stayed pretty much flat at 220, so that doesn't really change overall.

(Operator Instructions) We have a follow-up question from Alex Barron of Housing Research Center.

Thanks for taking my follow-up. I was wondering how you guys are thinking about your SG&A levels for next year. If we see similar or maybe slightly lower revenues -- have you guys done anymore layoffs or anything in the fourth quarter? Or how are you thinking about trying to lower the SG& A going forward?

You know, Alex we continue to work very hard on all of our expense levels. Unfortunately, we've had, not only additional layoffs in the fourth quarter, we also unfortunately had layoffs in the first quarter of this year. On the other hand, we are hiring some people in Houston. We are hiring some people in Chicago. So, when you start looking at head counts overall, and even expenses overall, probably not going to see a whole lot of change in the short term. A lot of things are driven by how's our spring selling season. Based on how our spring selling season is, there may be some possible changes then. But we're really focused first and foremost on being fully loaded and fully engaged and having a very successful spring selling season.

As far as your specs strategy or your spec levels, is that five per community something that you are comfortable with? Is that a little higher than you like to see it? Or could it eve go higher that -- how can you guys think about an environment as far as specs are concerned?

We been into that four or five range for the last few quarters. We have a few more finished that we would like. Historically, we've had more than 0.3 of them as opposed to 50%.

So, I don't feel bad about the units at all. I wish my dollars were a little bit more lower. But again, right now, there's a lot of buyers, a lot realtors that help direct buyers that are focused on finished homes, spec homes. We are trying to make sure we address those market needs, but we feel pretty comparable in that four or five range per community.

We see no reason for it to increase and we have no plans to do so.

Thank you very much.

There are no further questions.

Thank you very much for joining us.

This concludes today's conference, you may now disconnect. [ Event Concluded ]