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MDC Holdings Inc (NYSE:MDC)
Q3 2019 Earnings Call
Oct 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to M.D.C. Holdings 2019 Third Quarter Conference Call. All participants are in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Mr. Derek Kimmerle, Director of SEC Reporting. Please go ahead.

Derek Kimmerle -- Director, SEC Reporting

Thank you. Good afternoon, ladies and gentlemen, and welcome to M.D.C. Holdings 2019 third quarter earnings conference call. On the call with me today I have Larry Mizel, Chairman and 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 the question and answer session, at which time we request that participants limit themselves to one question and one follow up question. Please note that this conference is being recorded and will be available for replay. For information on how to access the replay, please visit our website at mdcholdings.com.Before turning the call over to Larry, it should be noted that certain statements made during this conference call, including those related to MDC's business, financial condition, results of operation, cash flows, strategies and prospects, and responses to questions may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements.These and other factors that could impact the company's actual performance are set forth in the company's third quarter 2019 Form 10-Q, which is scheduled to filed with the SEC this afternoon. 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.

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Good afternoon, and thank you for joining today's call as we go over our results for the third quarter of 2019, discuss current market trends and provide some insight into our company's strategy and outlook. MDC turn in another quarter of strong profitability, generating net income of $51 million or $0.79 per diluted share for the third quarter of 2019.The order of momentum we experienced earlier this year carried into late summer and early fall, as our absorption pace came in at 3.6 homes per community per month for the quarter, representing a 34% year-over-year increase.This order pace, combined with a 19% rise in average community count, resulted in a 58% increase in unit orders, during an exceptionally strong July and August in which we generated a sales pace of 3.8 per community and order growth of 63%. We implemented price increases at most of our active communities in an effort to better maximize the profit for homes sold.The combination of these price increases and normal seasonality resulted in a slightly slower pace of 3.3 homes per community in September, which I would still characterize as robust for this time of year. The balance between price and pace is something we look at every day. And we will continue to manage this dynamic on a community-by-community basis to achieve optimal returns for shareholders.

In terms of demand trends by buyers segment, we continue to see relatively better sales activity that are more affordable price communities as compared to our higher price communities. This trend is fairly consistent across our footprint and shows no signs of slowing down.Whether it's a young family buying for the first tone, or aging baby boomers looking to downsize, the demand for quality, affordable housing is unlikely to diminish in the near term, as it is getting driven by a demographic factors that should persist for some time.We recognize that this shift was occurring several years ago and begin to refocus our land acquisition efforts and new home designs on addressing affordability to higher density projects and more efficient floor plans. The response to our series of more affordable homes has been tremendous. And we anticipate that our more affordable product will continue to grow as our -- grow as a percentage of our overall business.

Not only have we experienced a higher absorption rate as a result of our shift of more affordable product, we also have seen a benefit to our margins. In addition, our build times have come down over the last several quarters, which should enhance our return profile over time.As far as our ongoing approach to business, we continue to adhere to our build to order strategy, which limits the numbers specs on the ground, and allows us to sell higher margin options of upgrades to our design studios. We continue to manage our operations with a balanced land supply, carefully weighing risk versus reward before investing in new projects.

In doing so, we have maintained a strong financial position as we entered the quarter with a net debt-to-capital ratio of 27% and liquidity exceeding $1.3 billion. We believe that our combination of strong profitability, operation and financial discipline and consistent return of capital, similar quarterly dividends offer a compelling value to our investors.In summary, our in summary, or results for this quarter provide further evidence that our new home offerings are well received in the market and that our company is executing at a high level. The order of success we experience over the last few quarters has resulted in a healthy backlog of homes that we anticipate will translate into significant closings in the fourth quarter and beyond. We believe that MBC is well positioned on a number of fronts. And we are excited for what the future holds.

With that, I'd like to turn it over to Bob for more in depth look at our results this quarter.

Bob Martin -- Chief Financial Officer

Thanks, Larry, and good afternoon, everyone. I think you can tell from Larry's comment that we're very excited about the success we have seen from our strategic focus on more affordable homes in our bill to order philosophy. However, I would be remiss, if I didn't acknowledge that our top and bottom line results have not yet seen the full benefit from our success.As you can see on this slide, home sale revenues decreased by 2% for the 2019 third quarter to $750.3 million, and then income declined by 5% to $50.6 million or 40.79 per diluted share. You'll see in the coming slides that the strategies we have put in place are becoming more pronounced in our operating results, putting us on the verge of significant top and bottom line growth in coming quarters. First, on slide five, I will focus on the components of home sale revenues. The number of homes we delivered improved by 8% year-over-year driven by 7% increase in the number of homes we have in backlog to start the quarter. Our backlog conversion rate was 40%, right in the middle of the expected range for Q3 that we discussed in our previous call, and in line with 40% achieved a year ago.However, the increase in units delivered was more than offset by 9% decrease in our average selling price. This decrease was in line with our strategic focus at 62% of our closings came from product lines that we characterize as our more affordable offerings as compared with 49% a year ago The decreases also within the range, we outlined on our prior earnings call.

Geographically, we also had a temporary spike in the number of closings coming from Nevada. This is the results of the utility company delays that shifted closings for a number of more affordable units in Nevada from q2 q3. We also had a low number of closings from our more expensive subdivisions in Southern California during q3. Looking forward to the Fourth quarter, we are targeting our backlog conversion rate to reach approximately 50%. Compared to the 49% backlog conversion rate we achieved in the fourth quarter of 2018. If it is a 50% backlog conversion rate would be our highest in more than four years.Also, our Q4 average selling price should rebound somewhat roughly $450,000 as a mix of closings in Southern California and Nevada shifts back to more typical levels.If we achieve both the backlog conversion rate and average selling price targets for Q4. We would generate quarterly home sale revenues exceeding $1 billion for the first time since 2006, yielding a year a year increase of approximately 20%. We are optimistic about our potential to reach these targets. Given that, we already have the backlog in place. However, there is risk to achieving them as the majority of the units will close in the back half of the quarter, so any construction or financing delays could push deliveries into 2020. The targeted conversion rate and average selling price also assumes that overall market conditions remain favorable, similar to what we've recently experienced.Turning the slide six, you can see that our gross margin from home sales was up 110 basis points year-over-year to 18.8%. This increase was driven by an $11.1 million year-over-year reduction in inventory impairments, partially offset by lower margins on spec homes, particularly in our California markets.

Relative to Q2, our gross margin decreased 70 basis points. This is partially explained by the absence of any positive warranty adjustments, which added 20 basis points in gross margin in Q2. Also, we saw a shift in the mix of our closings away from our Northern California and Colorado markets, which were our highest margin markets in third quarter.There's always a possibility for some short-term volatility in our gross margins based on factors, such as mix and the influence of spec inventories. However, we are encouraged by the continued health of our estimated backlog gross margin, which ended the quarter at level slightly above the 2019 third quarter gross margin of 18.8%.As always, note that the gross margin level we actually realize in future periods could be impacted by cost increases, cancellations, price or incentive changes, impairments, reserve adjustments and other factors.Our total dollar SG&A expense for the 2019 third quarter was up $9.2 million from the 2018 third quarter. The increase is mostly due to a $6.7 million increase in our general and administrative expense, resulting from a $7.4 million year-over-year increase in stock-based compensation expense. The amount of stock-based compensation expense has been volatile from quarter-to-quarter based upon the accounting required for performance share units, which are described in detail in our Form 10-QFor the third quarter of 2019, the expense we recognized for performance share units was at an all time high of $8 million. This was due to the exceptionally strong sales performance we saw during the quarter, which increased our backlog value significantly year-over-year, and increase the likelihood that the performance conditions associated with these units would be achieved. Said another way, the high expense in this quarter was driven by the success, we have had in implementing our strategic initiatives.Our fourth quarter performance share unit expense will likely decrease by roughly $3 million, compared to the expense we just recognized in the third quarter. In addition, to the general administrative increase, we also had a $2.4 million increase in marketing expenses caused by additional costs incurred to open advertising staff are significant year-over-year increase in average active communities

The dollar value of our net orders increased 50% year-over-year to $871.7 million, driven by a 58% increase in unit net orders that was slightly offset by a 5% decrease in average selling price. The demand for a more affordable product lines remain strong during the quarter of third quarter of 2019, accounting for 60% of our net new orders compared to 54% a year ago. This increase was largely attributable to the continued success of our Seasons collection, which accounted for 41% of our net new orders in the 2019 third quarter.The increased prominence of our more affordable product lines across most of our markets contributed year-over-year decrease in the average price of our net new orders.Our monthly absorption rate of 3.6 was 34% increase from the 2018 third quarter and was our highest third quarter absorption pace since 2005. We saw significant increases in all three of our segments as well as in both more affordable and traditional product categories. Our third quarter 2019 unit net orders further benefited from a 19% year-over-year increase in average active subdivisionsWe ended the quarter with an estimated sales value for homes in our backlog of $2.1 billion, which was up 16% year-over-year on the strength of our new order activity in the third quarter. This backlog value end of the quarter is at highest level since 2006. And is a key factor supporting our expectation for significant year-over-year increases in our revenue and earnings in the coming quarters.

Active subdivision count was at 190 to end the 2019 third quarter, up 20% from 158 a year ago. We saw an increased number of active subdivisions in both the East and West segments with the West segment experienced the largest increase. Active subdivisions in the Mountain segment were up only slightly year-over-year.Looking at the graph to the right, on slide 10, the number of soon to be active communities was almost the same as the number of soon to be inactive communities at September 30, whereas the prior four quarters had more favourable variances.This indicates to me that our active subdivision count in the short term will be relatively flat compared to our active community count to end up third quarter. Nonetheless, based on the progress we have already made, we are on track to end 2019 with community count growth of 10% or greater from where we started the year in line with the guidance we offered to start 2019.The number of lots we approved this quarter increased by 19% year-over-year following three consecutive quarters of year-over-year declines. This acceleration of activity reflects our confidence in market conditions given the solid sales activity we've seen so far this year.On the strength of these lot approvals, the total number of loss we controlled at the end of the third quarter was at a high for this year, it has nearly reached its highest level in more than a decade.

For the 2019 third quarter, we acquired 2178 lots for roughly $164 million, with an additional $109 million to spend on development costs. Approximately, 39% of the lots acquired in the third quarter we're finished lots.Net homebuilding debt-to-capital was only 26.7% at the end of the third quarter, demonstrating our firm commitment to maintaining a strong balance sheet. Furthermore, our liquidity to end the 2019 third quarter was at $1.35 billion, providing us with significant resources to fund continued growth.Given the significant growth in our backlog, and active subdivision count to end the quarter, as well as our dedication to an affordability focused built order strategy. We are excited about the potential for significant year-over-year earnings growth in incoming quarters. We look forward to the opportunity to continue that growth longer term as we further deploy financial resources into our markets across the country.

And with that, I'll now turn the call back to the operator for our question-and-answer session.

Questions and Answers:

Operator

Thank you. We will not begin the question-and-answer session [Operator Instructions] Your first question today comes from a Stephen Kim with Evercore ISI. Please go ahead.

Stephen Kim -- Evercore -- Analyst

Thanks very much, guys. Thanks for all the detail. I wanted to ask you about your land spend if I could just for a sec, land spend picked up a little bit here. And obviously, you spent a fair amount over the last year or so more than last year, actually, last couple of years preparing for this big ramp in entry level, which is obviously you're in the -- in very much in the midst of. Was curious if you anticipate having the ability to ratchet back your land spend, for at this rate we saw this quarter, call it 273 million bucks or so it's a pretty decent run rate for you on an ongoing basis. In other words, are you building land, a land balance here, in your opinion, to accelerate growth further, or is this a pretty steady rate that we could expect going forward?

Bob Martin -- Chief Financial Officer

Steve, I think this is a demand pull market. And the market is pulling us forward. And we're growing into it. And we expect to participate in what is taking place and what we see happening in the markets.

Stephen Kim -- Evercore -- Analyst

That wasn't exactly an answer to the question I didn't think in terms of, from what I'm hearing you say, demand is incredibly -- is very strong for your product. And that, obviously is what we're seeing results, but I was curious if the -- let the amount of land reinvestment that you're making is in your view running at a level to help you accelerate your growth in 2020 and beyond or if it's a level that you view is sort of steady state.

Bob Martin -- Chief Financial Officer

I think we're anticipating the demand it continue to grow. And we expect to participate, Steve.

Stephen Kim -- Evercore -- Analyst

And in a similar vein, Larry, you've always -- you and David have always been very careful with the land strategy. When others would be more speculative, you've always held back. And I'm curious as to how you view the land parcels that you're seeing the land deals that you're seeing crossing your desks today. Are you seeing them located further away in order to support your entry level focus? Or do you find that you're able to through density and maybe other adjustments remain somewhat closer in -- the employment centers and so forth and still hit the price points. Effectively what I'm getting at is I'm curious as to whether or not an entry level focus, by definition pushes you a little bit more out into the fringe here at a point in the cycle, which probably is probably not early.

Bob Martin -- Chief Financial Officer

I don't think it's late. And we have for, I don't know, 40 years plus. as long as you have money, you can buy good land, we have adequate liquidity. We are buying good land, and the majority of what we're buying is right aligned with the market demand is we see it at this time. We haven't changed any of our strategies. We're pretty consistent. We buy what we believe we need. We don't buy big parcels of land we buy lots, not acres and inroads served us well. And I believe that will continue to, also Steve.

Stephen Kim -- Evercore -- Analyst

Great. Thanks Larry. Bob, quick one for you. The backlog-the margin in backlog last quarter was a bit higher than what -- I think it was a bit higher than, what you did this quarter. And so I was curious as to, did anything surprise you in terms of the what ultimately close and drove the margin above this quarter?

Bob Martin -- Chief Financial Officer

I think there's always the chance for some volatility in the margins and once you take out that -- weren't you definitely had last quarter we're about 50 basis points off from where we were last quarter. I think there's some mix in there there's different things going off specs. There's nothing I would view as alarming there. We kind of view that as margin picture as somewhat consistent in that, that kind of high teens low 19 level we've been over the past few quarters.And I think we find it encouraging that the backlog -- our gross profit margin now what we estimated to come out is higher than we what we disclose at that 18 eight. That's always a good sign and kind of speaks to you know further stability in our gross profit margins.

Stephen Kim -- Evercore -- Analyst

Got it. Thanks a lot. Thank you.

Operator

Thank you. Your next question comes from Alan Ratner with Zelman & Associates. Please go ahead.

Alan Ratner -- Zelman and Associates -- Analyst

Hey guys. Good afternoon. Thanks for taking my questions. So first one, I guess just continuing on the gross margin, to be honest with you, I mean I guess when I look at the margin of backlog and compare that to your really strong order growth. I guess I'm a little surprised that, that there's not an ability to push that margin, even a bit higher than the range you've been kind of running after the first three quarters of the year.So maybe that's coming, I'm not sure, but Bob or Larry, could you just talk a little bit about how you're thinking about the pace versus price equation today? Because when I see 60% order growth, it kind of feels like maybe there's some, some margin being left on the table, but perhaps you're seeing something else on the consumer side that gives you a bit more pause as far as pushing price harder than you are today?

Bob Martin -- Chief Financial Officer

We have increased price in third quarter we increased price about 80% of our subdivisions. Yeah relatively modest, probably on average about 1% of the price increase in the -- those subdivisions that we did increase price. So we are actively doing that.We do look at pricing on a weekly basis and make adjustments as necessary. Get the, the only other thing I think that would factor in there is, is you're on the front end of, of subdivisions and as you know, we've increased our subdivision count quite substantially this year.I think there is a tendency to try to make sure you get enough units going, especially since we built the order to make sure you've got a good enough runway for your trait. So there's some of that going on. You don't want to increase so much that you're slowing down the sales. So yourself don't have anything to work on. So there's a little bit of that. But we're still looking at it on a weekly basis to try to make sure that that balance is right.

Alan Ratner -- Zelman and Associates -- Analyst

Okay. That's helpful, Bob. And then on the SG&A obviously, the strong orders that understanding that, there's some stock comp being triggered here. How should we think about that going forward? Is this step up that we saw this quarter? Is that the, the reasonable run rate for corporate G&A or was there somewhat of a, I guess catch up, from the first half of the year now and will that maybe pull back a little bit in subsequent course?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yes, speaking to that, just specifically to the PS US, the performance share US the accounting gets a little tricky. It contributes to volatility in that amount $8 million during the quarter was at really all time high for us. We haven't seen at that level, and it was driven by really fantastic orders. Since the orders were so good, all of a sudden, the probability of those being achieved increased as well. So what we think is going to happen is that $8 million will decrease, probably by about $3 million to $5 million, for Q4, we will have to evaluate it at the end of Q4 and kind of make sure everything's still lines up. But that's what we see right now. So if everything else is equal, you would see a $3 million sequential reduction in the G&A.

Alan Ratner -- Zelman and Associates -- Analyst

Got it. That's helpful. Thanks guys.

Operator

Thank you. Your next question comes from John Lovallo with Bank of America. Please go ahead.

John Lovallo -- Bank of America -- Analyst

Hey guys. Thank you for taking my question. Maybe just to go back to Alan's question for a second on the gross margin. I mean, even without pushing price further, I mean, just thinking about the volume that's coming through in the fourth quarter ,the price increases that already have been announced. And then just the improved mix, that should happen sequentially. It does feel like fourth quarter gross margin should be better than just slightly better sequentially. I'm just trying to understand if we're missing something here?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

I mean, you see what's out there and the best thing to look at is is our backlog that we've kind of shared with you and right now what's in backlog is just slightly better than what we just closed. So I'll leave it at that for now. No doubt. I hope you're right.

John Lovallo -- Bank of America -- Analyst

Okay, fair enough. If we think about the lots that were purchased in the third quarter, and kind of the pace that's going on there, which is pretty encouraging we think. I mean, it's fair to assume and I don't know how far you want to go out in 2020. But is it fair to assume that in 2020, you could still see pretty decent community account growth?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, I think that's certainly a possibility. I think we certainly have work to do on it. I mentioned in my prepared remarks that the soon to be active versus soon to be inactive, it's almost dead even. So that kind of means short-term, yeah, there's not as much of an opportunity to increase our community count. But as you get a little bit later in 2020, I still think it's possible to increase, so stay tuned on that. I think we still need to see what happens here in Q4 to get a better view of how that might look in 2020.

John Lovallo -- Bank of America -- Analyst

Okay. Thanks guys.

Operator

Thank you. Your next question comes from a Michael Rehaut with JP Morgan. Please go ahead.

Maggie Roth -- JP Morgan -- Analyst

Hi, this is actually Maggie on from Mike. First, I wanted to ask about your move up segment. Obviously, you saw strong demand -- really strong demand across the quarter. And you said that the entry level was performing better than the move up. And that's what we've heard from everybody else. But I was wondering if you could talk a little bit about the market dynamics in the competition that you were seeing in some of your markets there?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah. I think for the move up, just things like reduction and interest certainly helps that category as well. Just as we saw an increase in the absorption rate for more of that affordable consumer, we also saw increase in the absorption rate for the traditional more move-up type of consumer as well. So, I think even though the overall absorption rate for that consumer is a little bit lower than like our seasons collection, the gross margin is a little bit lower than our season's collection. I still think that that group is doing better.

Maggie Roth -- JP Morgan -- Analyst

Okay, thanks. And I apologize if I missed this during the prepared remarks. But can you give us the percentage of orders and closings first season this quarter versus last year?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, for orders, I believe we are at 60% versus 54% last year, and I think for closings it was 62% verses 49%

Maggie Roth -- JP Morgan -- Analyst

Okay, thank you.

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

That was affordable overall, I should say.

Maggie Roth -- JP Morgan -- Analyst

Okay, got it. Thank you.

Operator

The next question comes from Truman Patterson with Wells Fargo. Please go ahead.

Truman Patterson -- Wells Fargo -- Analyst

Hi, good afternoon, guys. Thanks for taking my question. Just wanted to follow-up on that prior question, you all said 60% of orders this quarter were toward the affordable product, versus 54% last year. Has a shift toward the affordable product. Is this largely finished? Or do you think you guys have more rotation to go?

Bob Martin -- Chief Financial Officer

Yeah, when we initially talked about it, we talked about 50% to 60% be in the right kind of range. I could see it's going a little bit higher, could slowed up more toward 65% to 70%, 80% range, but I think it has flattened out a little bit. Yeah, we still want some exposure to up to a more traditional buyer. It just doesn't grow this quickly.

Truman Patterson -- Wells Fargo -- Analyst

All right. Thank you. I was hoping you could possibly discuss, it might be a little difficult to dissect, but maybe qualitatively discussed the margin profile on some of your newer entry level communities versus those that have been open a year or two. I'm really hoping to understand, whether competition in the entry level land market is intensifying and driving up costs and this is possibly impacting gross margins near-term?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, it is tough to split up. I will say you've heard it from a lot of builders, our focus on the more affordable consumer. So I think it's certainly a factor, there's more competition out there. I would not say at this point that it's necessarily driven up costs a lot. And I will say, we certainly benefit from a built order strategy and that makes us a bit distinct on how we operate, maybe insulates us a little bit, allows us to get into some better land positions into master plans where some others might not be able to get into. So I think that's where he's still playing out and we're glad to have a head start on tending to the more affordable consumer.

Truman Patterson -- Wells Fargo -- Analyst

Okay. And then hoping for clarity on your September orders, I believe you all suggest in the prepared remarks that the absorption pace in September took a step back relative to July and August, just looking for clarity, that was purely due to you all pushing pricing correct not, deterioration and market conditions or anything like that?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, I mean, 33 in September, I think, is pretty good. So it's hard to call that anything that resembles pure market conditions. So, yes, it comes after we had increased or during the time when we're increasing pricing and 80% of our subdivision. So I still think that is quite healthy.

Truman Patterson -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Thank you. [Operator Instructions] Your next question comes from Buck Horne with Raymond James. Please go ahead.

Buck Horne -- Raymond James -- Analyst

Hey, thanks. Good afternoon. Just continuing on that trend, any chance you'd be willing to characterize how October demand is shaped up if there's been any sort of other response to the price increases that we're putting in September or any color on October so far?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

I mean, I think, October is shaping up good. I think -- similar to previous months, we're expecting a significant year-over -year increase in the number of net new orders in October versus a year ago.

Buck Horne -- Raymond James -- Analyst

Okay. And -- I just noticed, your mix of option land seems to be going down at a fairly quick pace, I guess option lots controlled or down 20% or better year-over-year. Is there something going on? Is it getting more difficult to find additional deals to put other option? Is that a function of competition out there? How do you think about you know, the right mix of putting land on the balance sheet versus what you can do and find options out there to keep the community account going?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, you know, I know you know that. If we could have everything under option you know, finished rolling options. We'd love to do that. It's just not available in a lot of our markets without putting up really high deposits or doing something else that maybe makes the transaction really not off balance, even if it appears to be. I think there's a lot more deals now that that do require development but I think of what we approve is it's roughly 18% that requires development. So it's just harder to get kind of pure options done, when that's the case.

Buck Horne -- Raymond James -- Analyst

Okay, that's helpful. And just one last quick one, just geographically just go through the markets, any markets you'd call out is just particularly strong or any places that are showing signs of softening at the moment. And I guess, also, just curious about Colorado in particular, just Is there any way to help boost the absorption rates even further in Colorado, just given the affordability challenges there?

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Yeah, I would say, yeah, overall Phoenix has been a better stand out for us, in terms of what they've been able to do. I think the affordability of the market has a very solid deployment of our more affordable product out there has done wonders for that market. You on the on the other end of California in particular on the more expensive realm that continues to be a bit softer.From a Colorado standpoint, the ice cap Florida is very just fine. Right now, one of the things that we have put into place in Colorado is our urban duplex product. You know, it was just in a subdivision or two and I think that is expanding in Colorado. So I think that is another step of affordability in this in the Colorado market. So we're hopeful that that will give some relief to the portability picture out here.

Buck Horne -- Raymond James -- Analyst

Perfect. Thank you, guys. Appreciate it.

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Sure.

Operator

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

Alex Barron -- Housing Research Center -- Analyst

Yeah, thanks. So, generally a lot of people say that the entry level factor is a little bit more price sensitive. So, I'm just trying to understand these price increases that you guys put through intentionally to slowdown the market, because you can't keep up with the production or is it just to try to raise margins, but I mean -- what is that going to do to orders? I guess I'm just trying to see if you can help me walk through your thinking here.

Bob Martin -- Chief Financial Officer

Yeah. I think you have the bullet point on, still strong September, 3.3 absorption rate, even though we've been focused on increasing prices to some degree. I mean, you're always going to look at the price versus paced dynamic. And we've looked at it on a subdivision-by-subdivision basis. We don't put out edicts across our markets, and say it absolutely has to be one way or the other. We want our managers' focus on all three of those aspects. Where's your production at? Where's your pace at, and where's your pricing at?So, I don't think there is just one thing out there that that you can focus on. I will say, as far as increasing prices go, first of all it is relatively modest about a 1% increase in those 80% that we did show increases in. But we -- remember, we're catering to a consumer that's looking for affordability, but we're not looking to go to the bottom of the barrel. Generally speaking, we've kept our product a little bit nicer. We allow for a bill to order product. So we feel like we attract both a consumer who's maybe first time consumer, but also a move down consumer. And, you know, somebody who maybe has maybe a little bit more money to spend just because they want the bill to order aspects that that we're able to offer. So, that's something to keep in mind as well, when you talk about how the price increases relate to MDC specifically.

Alex Barron -- Housing Research Center -- Analyst

Okay. And what were the -- I guess the incentives as a percentage of closing sort of revenue this quarter versus a year ago.

Bob Martin -- Chief Financial Officer

Let's see, incentives, I think roughly 550 basis points a year ago might have been just north of 400.

Alex Barron -- Housing Research Center -- Analyst

In last quarter?

Bob Martin -- Chief Financial Officer

Last quarter would have been right around that kind of 550 basis points.

Alex Barron -- Housing Research Center -- Analyst

Okay and thanks a lot.

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Sure.

Operator

Thank you. There are no further questions at this time. I would now like to turn the conference back over to Mr. Bob Martin, for any closing remarks.

Bob Martin -- Chief Financial Officer

Thank you and I appreciate the participation on today's call. At this point, we will end the conference call, and look forward to speaking with you again, following the report on our Q4 earnings.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Derek Kimmerle -- Director, SEC Reporting

Larry A. Mizel -- Chairman of the Board, Chief Executive Officer

Bob Martin -- Chief Financial Officer

Stephen Kim -- Evercore -- Analyst

Alan Ratner -- Zelman and Associates -- Analyst

John Lovallo -- Bank of America -- Analyst

Maggie Roth -- JP Morgan -- Analyst

Truman Patterson -- Wells Fargo -- Analyst

Buck Horne -- Raymond James -- Analyst

Alex Barron -- Housing Research Center -- Analyst

More MDC analysis

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