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MDC Holdings Inc (NYSE:MDC)
Q4 2020 Earnings Call
Feb 2, 2021, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to M.D.C Holdings' 2020 Fourth Quarter Conference Call. [Operator Instructions] Please note that this event is being recorded.

I'd like to turn the conference over to Mr. Derek Kimmerle, Director of SEC Reporting.

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.

At this time, all participants are in a listen-only mode. After finishing our prepared remarks, we will conduct a question-and-answer session, at which time we request that participants limit themselves to one question and one follow-up question. Please note that this conference is being recorded and will be available for replay. For information on how to access the replay, please visit our website at 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 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 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.

Larry A. Mizel -- Executive Chairman

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 a 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 communities' 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 10-year issuance. These two 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?

David D. Mandarich -- President and Chief Executive Officer

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 toward better affordability and the response has been tremendous. Several of our operation 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 continues 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 macroeconomic 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 desire for home ownership, both 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 place a greater emphasis on now and where to live.

Now, I'd like to turn it back to Larry.

Larry A. Mizel -- Executive Chairman

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 required 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 sub-contractors for making 2020 an incredibly successful year in spite of the immense challenges we faced. 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 in our results and our outlook.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Thanks, Larry, and good morning everyone. We ended 2020 with another strong quarter as pre-tax 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 pre-tax 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 remained 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 for 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 for 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 150 [Phonetic] 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 amounts or timing of various accruals.

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

Staci Woolsey -- Vice President and Chief Accounting Officer

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 in 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 in 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 just 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 in backlog as of year-end. Only 38% of homes in 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.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

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 close-outs 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 continue 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 enhanced that liquidity with our $350 million senior note issuance in January.

Even with a solid balance sheet and a strong demand environment, risk 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 our continued commitment to rewarding our shareholders for their ongoing support.

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

Questions and Answers:

Operator

[Operator Instructions] First question from Michael Rehaut, J.P.Morgan. Please go ahead.

Michael Rehaut -- J.P. Morgan -- Analyst

Thanks, good morning, everyone, and congrats on the results. Hope everyone's safe and healthy out there. First question, 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 remains 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, etc., 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 20% improvement in first quarter sales pace versus fourth quarter. But directionally, does that sound reasonable just given on what you've seen so far in January and current trends?

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Hi, Mike, this is Bob. I don't think a modest assumption of an increase is unreasonable, but we're just one month in, and we've done a lot of increases in prices and there is two 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.

Michael Rehaut -- J.P. Morgan -- Analyst

Great, great, thank you for that. 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 is any potential for the gross margin to improve off of the 21.5% in the first quarter as we get further throughout the year.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Yeah. Looking at fourth quarter, first of all, in terms of the 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 [Technical Issues] the price of the houses were actually falling, 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.

Michael Rehaut -- J.P. Morgan -- Analyst

Great, thanks so much.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Sure thing.

Operator

Thank you. Next question is from John Lovallo, Bank of America. Please go ahead.

John Lovallo -- Bank of America -- Analyst

Hey, guys. Thank you for taking my questions. The first one just on the order ASP at $486,000, the highest it's been in some time, and you guys have commented on that being 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?

Robert N. Martin -- Senior Vice President and Chief Financial Officer

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, it's just that there is 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 homebuying process eventually; millennials being one of those groups; moved down buyers being another one of those groups. So we're always keeping an eye on pricing. We're always trying to innovate with the 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 is 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.

John Lovallo -- Bank of America -- Analyst

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?

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Well, I think there is 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 plots, 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 and then certainly the demands on our own personnel and the sub-contractors that we have, I think that all factors into it.

John Lovallo -- Bank of America -- Analyst

Okay, thanks a lot, guys.

Operator

Thank you. The next question is from Stephen Kim of Evercore ISI. Please go ahead.

Stephen Kim -- Evercore ISI -- Analyst

Yeah, thanks very much, guys. Congratulations on the good results. Yeah, I think that we just got some data from the existing home markets, suggesting prices are up 18% year-over-year. So, if anything, I think that your 12% growth in your order price, while really strong, really impressive, I certainly think that there is perhaps a little more room to go, and I think your guidance, sort of, suggest 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 in attempt to sort of try to catch up with demand is done and you've right-sized 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'd be just be living with a lower level of backlog turnover.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Yeah, 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 is 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.

Stephen Kim -- Evercore ISI -- Analyst

Yeah, 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 is 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 set up 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 an upgrade and option, a growth cycle, effectively.

David D. Mandarich -- President and Chief Executive Officer

Hey, Steve, this is David. How are you?

Stephen Kim -- Evercore ISI -- Analyst

Doing well, thanks.

David D. Mandarich -- President and Chief Executive Officer

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-to-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 and we've got home galleries in every one of our markets. So we feel real good about it.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Yeah, I should add, we do have a National Home Gallery here at the home office, at least, a 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.

Stephen Kim -- Evercore ISI -- Analyst

Great, thanks very much, guys.

Operator

Thank you. Next question is from Ivy Zelman of Zelman & Associates. Please go ahead.

Ivy Zelman -- Zelman & Associates -- Analyst

Good morning, guys, and 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 around 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 are more willing to work with you or they still require 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. Thanks.

David D. Mandarich -- President and Chief Executive Officer

Ivy, this is David, and I would tell you that we have not had pushbacks 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 have had no pushbacks.

Ivy Zelman -- Zelman & Associates -- Analyst

That's great. David. Thank you for that. Are you finding that the lots that you are acquiring and we think about the 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 are acquiring, are you underwriting with the current absorptions that you're currently benefiting from the strength of the market with, and what you're using current pricing?

David D. Mandarich -- President and Chief Executive Officer

Well, Ivy, our business model is to underwrite to 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.

Ivy Zelman -- Zelman & Associates -- Analyst

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

David D. Mandarich -- President and Chief Executive Officer

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.

Ivy Zelman -- Zelman & Associates -- Analyst

Great, thanks. Good luck, guys.

Operator

Thank you. Next question is from Alex Barron, Housing Research Center. Please go ahead.

Alex Barron -- Housing Research Center -- Analyst

Yeah. Thanks, guys and good job on 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 two-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 grades? Thanks.

David D. Mandarich -- President and Chief Executive Officer

Alex, this is David. And I'll just tell you 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 in Boise. And the second part of your question, I'll let Bob answer.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Okay. Yeah, in terms of the stock dividend, 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 had 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.

Alex Barron -- Housing Research Center -- Analyst

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

Robert N. Martin -- Senior Vice President and Chief Financial Officer

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.

Alex Barron -- Housing Research Center -- Analyst

Got it. Okay, thanks, and great job.

Operator

[Operator Instructions] Next question is from Buck Horne, Raymond James & Associates. Please go ahead.

Buck Horne -- Raymond James -- Analyst

Hey, thanks, good afternoon. 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 and cycle times are we talking about? And how does that affect your outlook for deliveries over the course of the year?

David D. Mandarich -- President and Chief Executive Officer

Buck, I'll start with that and 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 sub-contractors 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.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Yeah, I think we do monitor our start time, 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 seven months. So could it increase a little bit from there? Yeah, I think it 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.

Buck Horne -- Raymond James -- Analyst

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 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 spring time?

David D. Mandarich -- President and Chief Executive Officer

Well, Buck, I'll start by saying that our strategy is not to build any specs and everything's build-to-order and we think our customers want a personalized house. Now, from time to time, you'll have some cans, were having certainly less cans today than we've had in the past. But, overall, our strategy is actually to build no specs. Bob, you have something to add to that?

Robert N. Martin -- Senior Vice President and Chief Financial Officer

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.

Buck Horne -- Raymond James -- Analyst

Got you. All right, great. Congrats. Thanks, guys.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

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.

Robert N. Martin -- Senior Vice President and Chief Financial Officer

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.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Derek Kimmerle -- Director of SEC Reporting

Larry A. Mizel -- Executive Chairman

David D. Mandarich -- President and Chief Executive Officer

Robert N. Martin -- Senior Vice President and Chief Financial Officer

Staci Woolsey -- Vice President and Chief Accounting Officer

Michael Rehaut -- J.P. Morgan -- Analyst

John Lovallo -- Bank of America -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

Ivy Zelman -- Zelman & Associates -- Analyst

Alex Barron -- Housing Research Center -- Analyst

Buck Horne -- Raymond James -- Analyst

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