MDC(US:MDC)2023-05-02 22:22Financial Data and Key Metrics Changes - The company generated net income of $80.7 million, or $1.08 per diluted share, representing a 46% decrease from the first quarter of 2022 [9] - Gross margin from home sales decreased by 890 basis points year-over-year to 16.8% [12] - Total dollar SG&A expense for the first quarter decreased by $34.3 million from the previous year, driven by decreased general and administrative expenses [13] - The average selling price of homes delivered decreased by 1% to $551,000, below the midpoint of previously provided guidance [11] Business Line Data and Key Metrics Changes - The company delivered 1,851 homes during the quarter, a 17% decrease year-over-year, but exceeded previously estimated guidance [35][122] - The dollar value of net orders decreased by 48% year-over-year to $957.3 million, driven by a 44% decrease in net unit orders [38] - The company started 1,666 homes during the quarter, up 170% sequentially from the fourth quarter [41] Market Data and Key Metrics Changes - The company ended the quarter with over $1.6 billion in cash and short-term investments, total liquidity of $2.8 billion, and no senior note maturities until January 2030 [16] - Existing home inventory remains constrained, with only 980,000 homes for sale nationally, representing a 2.6 months supply [99] Company Strategy and Development Direction - The company plans to maintain a higher level of speculative inventory to appeal to quick move-in buyers, while still believing a build-to-order model is prudent long-term [32] - The company is optimistic about lower incentive levels on spec inventory moving forward, as design teams are enhancing these homes with popular options and upgrades [36] - The strategic decision to build more spec inventory is already paying dividends, with over one-third of first-quarter deliveries sold and closed during the quarter [136] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong balance sheet and positive fundamentals in the homebuilding industry [6] - The company noted a rebound in order activity across homebuilding operations, with all three segments performing well [7] - Management acknowledged heightened risks of underperformance due to increased economic volatility but remains confident in the company's ability to adapt [12][29] Other Important Information - The company has seen a significant improvement in market conditions in the first quarter of 2023 compared to the fourth quarter of 2022, with stabilized mortgage rates and improved buyer confidence [93] - The company has a strong financial position, with stockholders' equity over $3.1 billion and a book value per share of $42.83 [111] Q&A Session Summary Question: What is the outlook for the interest income and its sustainability? - Management indicated that interest income jumped to $13.5 million, implying an 8% annualized yield, and discussed the sustainability of these investments [51] Question: How do you see the level of speculative orders moving forward? - Management noted that two-thirds of orders were started as specs, indicating a preference for quick move-in homes, and this trend is expected to continue [69] Question: Can you elaborate on the gross margin and its future stabilization? - Management acknowledged that gross margin came in below expectations but expressed hope for stabilization and potential improvement as construction costs decrease [145][159] Question: What is the company's strategy regarding land acquisition and pricing? - Management reported seeing softness in land prices and terms, indicating a favorable environment for land acquisition moving forward [55][78]