Good afternoon. My name is Devon, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2020 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the company's opening remarks, we will open the lines for questions. Today's conference call is being recorded and will be available for replay at the company's website at kbhome.com, through April 26. Now, I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Jill, thank you. You may begin.

Thank you, Devon. Good afternoon, everyone, and thank you for joining us today to review our results for the first quarter of fiscal 2020. On the call are Jeff Mezger, Chairman, President, and Chief Executive Officer; Matt Mandino, Executive Vice President and Chief Operating Officer; Jeff Kaminski, Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Treasurer. Before we begin, let me note that during this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.These statements are not guarantees of future results, and the company does not undertake any obligation to update them. Due to factors outside of the company's control, including those detailed in today's press release and in filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, a reconciliation of the non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release and/or on the investor relations page of our website at kbhome.com. And with that, I will turn the call over to Jeff Mezger.

Thank you, Jill. And good afternoon, everyone. We are finding creative ways to adapt to changing conditions as the country deals with the COVID-19 outbreak. While Jeff and I are in the office today, practicing social distancing. The rest of our team is on this call from different locations. These are unprecedented times and our main priority continues to be the health and well-being of our community of employees, customers and business partners and their families. While we are reporting excellent first quarter results today that showed strong momentum across our footprint, given current market conditions, we are withdrawing our guidance for this year. Rather than follow our standard approach for these quarterly earnings calls, my remarks today will focus on how we are responding to the COVID-19 related challenges, the actions we are taking to navigate this uncertain environment and the strength of our positioning to manage through it. We began the process early last week of temporarily closing our sales centers, model homes and design studios to the general public. During this time, we have shifted to appointment only, following appropriate protocols to help ensure the health and safety of our employees and customers. We are also leveraging our virtual sales tools including home video tours, Interactive floor plans and an online design studio to give customers the ability to stop for new home from the comfort and safety of their mobile device or personal computer. In addition, we are also actively engaging with customers by phone, email, FaceTime, Skype and other online tool. We are seeing an increased response to our digital efforts. Month-to-date in March, visits to our website are up nearly 50% and conversions to sales leads are up over 20%, both as compared to their respective prior-year periods. In addition to the temporary changes…

Thank you, Jeff and good afternoon, everyone. I will now briefly cover highlights of our financial and operational performance for the first quarter followed by comments summarizing the strength of our significantly improved financial position and the solid liquidity supporting our planned strategies to navigate through these uncertain times. The abbreviated summary of our outstanding first quarter performance is a strong reminder of how well we have continued to execute our differentiated strategy. This same strategy and level of execution drove the tremendous improvements in our profitability, returns, financial position, liquidity and capital structure generated under the returns focused growth plan we launched in 2016. Our performance during the first quarter and for the past several years, gives me great confidence in our ability to execute during this market disruption. During the first quarter, we generated improvements in virtually all of our key profitability measures and ended the quarter with a robust balance sheet and installed liquidity. In short, it was a very strong quarter of financial performance for the company. Our first quarter housing revenues were up 34% from a year ago to $1.1 billion, reflecting a 28% increase in homes delivered, and a 5% rise in overall average selling price. Housing revenues were favorably impacted by our sizable backlog at the beginning of the quarter, which was up 24% year-over-year as well as strong market conditions and outstanding execution throughout the quarter with several of our divisions, significantly outperforming forecast delivery result. Homebuilding operating income of $60.2 million for the quarter increased 92% year-over-year from $31.3 million and our operating margin rose 170 basis points to 5.6%. Our housing gross profit margin improved 30 basis points to 17.4% including total inventory related charges of $5.7 million in the 2020 quarter and $3.6 million in the year earlier period.…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question.

Hey guys, good afternoon. Thank you for the time and hope, you're all doing well and the team is doing well, in addition. First, I guess questions here just digging in -- thinking about the backlog, the 5800 homes there. Just curious if you could just talk a little bit about that. Obviously a lot of focus on getting those homes delivered and it's encouraging to hear March closings up year-over-year. Can you talk a little bit about maybe the percentage of that backlog that was scheduled to deliver in the upcoming quarter and kind of what steps you're taking with those buyers and backlog to -- hopefully facilitate them getting to the closing line there. And on the homes that are newer, maybe haven't been started yet. Are you doing anything differently there as far as maybe putting off -- starting those homes or anything along those lines that might be mitigating some of the potential cancellation risk in the future.

Sure. A lot of questions, Alan. I'll do my best, really just give you a state of play on how we manage our backlog. As you know, our backlog is typically 5 months to 5.5 months' supply of deliveries and a portion of that is in the unstated [ph] bucket and the rest is scattered through from foundation to final and we try to get into a rhythm of --- even flow deliveries, monitoring the backlog and starts. Couple of things for you. We are continuing to complete homes and as I shared, our March closings are ahead of last year. The title companies, the mortgage companies, escrow companies, city finals, everyone's finding ways to creatively accomplish their task along the way. And one thing I tried to communicate in my prepared comments, the buyers definitely want to close. We have a very motivated buyer right now that values home ownership and the safety and the security that goes with it. Because of the protocol, and the social distancing there's fewer subs working in the homes today. So we are expecting that our -- as we get deeper into the production cycle, build times will extend a little bit in that you can't have three or four different contractors in the home, at any one time. And we're working right now to spread out the -- the production width [ph] so that we don't have these chunks where you're just stuck, because you don't have the capacity with the subs being spread out. And so we're extending out the web cycle, right now we're closing homes that were, all within 30 days of completion and on March 1 and that'll be the first priority. And as we extended out a little bit then -- we will follow that up on the start side with the unstarted backlog. All of that predicated on the quality of the backlog and what are the conditions that we're seeing on the ground. Frankly, you need city. The cities all -- have a different story right now on what kind of shutdowns they have. How the economy is working. How the COVID-19 cases are? What level there are and how it's impacting things, so. Very fluid, it's a daily-focus and right now, our backlog is pretty stable.

All right. I appreciate that. That's very helpful. Related to this, I guess, but the mortgage market, that's obviously very important getting those homes closed. It seems like there's a lot of kind of turmoil going on, especially in the secondary market and in the servicing side of things. And I'm not sure if that's impacting your buyer's ability to get loans, but we have heard some originators are actually putting in some overlays to kind of mitigate their risk in terms of selling the loans. Just curious, if you could talk about. I know it's changing every day, but how is the mortgage market right now in terms of your ability to get loans closed.

What we're -- we're closing homes so it's not an issue today. There has been some nibbling around the edges with whether it's the investors or the servicers or the equity line. It's a mortgage company, where there is little requirements that are being introduced. None of them in their own a game changer. So we're continuing to operate. It's great to have a business partner that's performing with Stearns and as you've seen the Fed is absolutely committed to ensuring liquidity in the mortgage market. So they're very active buying mortgage-backed securities on a daily basis. The number of software yesterday was 50 billion in one day. So there's a lot of liquidity. And the process is working pretty well for us, not an issue today.

Great. Good luck to everybody. Thank you.

Our next question comes from the line of Truman Patterson with Wells Fargo. Please proceed with your question.

Hi, good afternoon, guys and thanks for taking my questions. First I wanted to start off, thanks for giving March order trends. We've heard from contacts that orders have stayed fairly elevated due to prior backlog and prior contacts. But looking more near-term and maybe I'm splitting hairs. But could you maybe parse out how traffic has actually trended in the past couple of weeks on a year-over-year basis.

Yes, it's hard to comp that Truman, because we closed our sales offices last week. So any walk in traffic, we may have seen, we didn't want to see to keep our employees safe. We'd love the CM in the right conditions, but we -- shut our doors last week. So the traffic in the leads that we're working right now are all internet based and by appointment only once we get past the Internet process. And -- on the Internet side, things are doing fine. I shared we're up year-over-year on Internet leads, but we have closed the doors for the walk in traffic.

Any way, you could net those out between the walk in traffic and the Internet traffic?

I mean, it's really hard to because it's corresponding all that -- hard thing to...

Okay. And then positive, you all are managing your cash flows. Could you just discuss how you're pulling back on the land spend. Are you rotating more toward option land? Are you doing the land closing dates to purchase or are you just really pulling back on land altogether.

Good question, Truman. For starters, for all the questions we get, I just want to remind everybody, it's very fluid and this hasn't been around that long. If you think our earnings release, we just put out was based on results that ended 25 days ago. So we're 25 days at the end of a very successful quarter and now navigating through all this disruption. And our view right now has been to buy time. We're not going to people and negotiating discounts. We're not doing anything like that. Let's all work on this and buy some time and in the process, we curtailed spend on entitlements, which can add up to a lot of money across the system in many cities, they've canceled the public hearings in the short run. So why spend money on an engineer, if you can't get a map approved. So we've stopped all that. But we're continuing to poke around on the land search side. But right now, will be a little more cautious with commitments and we're working with our partners on land selling and the land developers. Let's just pause, give us some time and let's see how things settle out over the next 60 days. That's our primary focus right now. Through that process, you're going to spend less on land in the next 60 days.

Our next question comes from the line of Mike Dahl with RBC Capital. Please proceed with your question.

Hi, thanks for taking my questions. And first and foremost, took that you all and your teams are staying safe and healthy. And it's good to see you taking a proactive approach here. I guess, I just wanted to ask first a little more detail about how you are approaching the appointment process, when it comes to new sales. Because on your website it simply says that things are temporarily closed, but it sounds like maybe your funneling then Internet leads into still some in person visits to the sales center. But can you just walk us through that a little more. What is the process to get someone into a model home at this point for an in-person visit. And likewise, give us a little insight into then the design center phase, which ends up being pretty crucial to your closing process?

Sure. And what we're already finding Mike is, this is making us a better company in that we're testing our brains [ph] and virtual selling and the Internet far more than we did a couple of months ago. And the buyer is responding. It's also changing the buyer's thought process on what it takes to acquire a home or go through the personalization process. So we're -- we have closed our sales offices to walk-in traffic. The first priority is the safety of our employees and in turn our customers. So we're complying with everything and we thought we'd move quick and close to walk in traffic. Past that if we have a sales office with two sales consultants in it, they are actively working remote right now through all the virtual tools we have, the online tools, communicating with people, demonstrating product. And our criteria is, if you get through all that and the buyer expresses an interest in visiting the model park and our sales team in that location is comfortable, given him a private tour just that group and they comply with all the CDC protocol, we'll go ahead and show them the models. And that's what we have in place across the system. So we have -- all those have to align and then we'll open up the models in short time. Interestingly on the studio side, people are very comfortable making their selections online that we actually finales [ph] in our studio last week, 225 buyers. Last week that went through the process and we're finding things we can do along the way, like our carpet supplier, a great partner in Shah [ph] is willing to ship on each of our buyer's carpet samples of what they selected. And ship them out quickly, so they can from wherever the samples gets shipped to. We're bringing it to them for the choice as opposed to them coming to us. So there's a lot of things like this going on right now, but the studios are functioning well in a remote prospects.

Okay, that's really helpful. And then my second question, you've mentioned a handful of times now how fluid it is and I think we all understand that. With respect to the shelter in place order, it's good that initially -- largely constructions exempt. But we've heard couple of instances where construction is initially exempt. But then there is some -- some question of whether or not there has been some shift in that, where areas are going to look -- rethink construction and whether that should be exempt. And then what specific activities would be considered part of that, i.e. the -- in-person appointments, which I think you mentioned is subject to all the other criteria. So have you seen in any large markets that have initially kind of exempt construction, but now you're hearing that may end up being more restrictive?

Yes, Mike, as you touched on and I have it. It is very fluid. And unfortunately, this process in many cases the -- whether it's a state order or city order or the Federal order are not clearly written. So there is a lot of interpretation. And as the order comes down from the Governor's to the Mayors or the county commissioners, it's all subject to some of these interpretation in a way the bills are written. So there's cities where the order would come out and we would interpret the order as you can't work. And our industry would work with that governmental entity and they would clarify it. And now, it's okay, you can go to work. There's others where we thought it said, you could work and they've come out and said no, you can't work. And as we're sitting on this call, this is moving around by the hour. As we sit on this call, right now Seattle Metro, King County, as of Friday has shut down to construction. And they've made the decision there that it's not an essential business. For us, Seattle is not a very big part of our business. So we'd like to see it open. So we can continue to advance our progress there and we're doing well in Seattle. But as of Friday night, Seattle closed down. If you go over to Texas, there is some confusion in Austin, where the Mayor has come out and written guideline, where construction would not be an essential business unless affordable housing or government housing. And we're working with the Mayor, we the industry, working with the Mayor and the Governor to try to get clarity there and does it apply to the City of Austin, or all of Travis County or all of Metro Austin and there's a lot of confusion in the system. Other than those two, I'm not aware of anything where there is a conflict today. We are open for business here in the State of California there that you can actually read the rules and it would suggest even to the customer that it's okay to go visit community, because it's an essential business. So it's pretty varied out there. But other than my two anecdotes on Austin and Seattle, everything else is operating today.

Our next question comes from the line of Stephen Kim with Evercore ISI. Please proceed with your question.

Thanks very much guys. Obviously very unusual time. The numbers -- really my question relates to how you're adjusting your -- the way you're going to be managing things at the community level, specifically with respect to pricing in this kind of highly unusual time. Now in your case, because you've shut down your sales centers and that sort of thing. Maybe the answer is a two stage answer. But my question is effectively, this demand drop off is not really tied to price. But typically, when sales slowdown, division Presidents modulate price and discounts to maintain a certain level of pace. I mean, that's just the way the business kind of runs. And in this scenario. And as you move forward and hopefully get to more normalized environment, but still with the probably some lingering effects of COVID on your traffic and sales. Are you going to continue to leave the pricing decisions up to the division Presidents or are you preparing to -- are you doing now or are you preparing to address pricing with a little bit of more about centralized -- in a little bit more of a centralized manner to -- so that you don't -- so you don't have price cuts or increased discounts, which would be done to try to raise traffic or volumes when that's not really the issue keeping volumes down.

Stephen, that's a good question. And you're absolutely right. It is different right now. We're not slowing down in demand, because of subprime mortgages or a pop in pricing or lack of demand or anything like that. It's -- this terrible pandemic. And then a government decision. And I guess, it would depend on the duration. Right now in the short run, we're taking the view that we have a nice backlog to continue to generate revenue out of. We don't have a lot of inventory out there to go quote liquidate. So we don't see an urgency to go, do anything with price today. If anything, the inventory has got a higher value today, if there's people out there they want to move into a home very quickly, because of these -- for the health and the safety and the security, I've talked about. So our view right now is, let's take our time, wait until there's clarity, continue to sell homes like we are, continued some minding our backlog for deliveries, which we are and depending on how things settle in each market will revisit it. But unless this thing was -- is really extended, I don't see major price moves here. I think this is more timing and the quality of the process with the customer.

Yes, that's encouraging. And certainly, we don't -- we certainly haven't heard of anything suggesting that pricing industry-wide has been weakening. And so that's good to hear. Now you've said that cancellation rates have held steady, buyers are motivated to close. Assuming that's because in part, they see the pricing is holding steady. My second question relates to how this may play out in terms of the existing home market influencing the new home market. Typically the existing home market and the new home market tend to move somewhat together since they're both tied to similar economic factors and consumer confidence and all that. But today is different. The new market, the new residential construction market is much better equipped in my view to deal with social distancing than the resale market. And it looks like, I mean certainly this could continue to depress existing home transactions and be a problem in the resale market much more so than the new market. So are you concerned and are you preparing in any way to educate your DPs or your buyers that to not be reactive if you see pricing from folks in the resale market, who really do need to sell cutting their prices. Are you worried at all about that bleeding over into the new market or do you think that there is an ability to keep that separation, keep that, if you will, -- somewhat quarantined to the resale market, while the new market is able to retain pricing.

I'll actually add another one, Steve. I think you're going to see a shortage of listings, because you have people that are content with the safety and security of their existing home. It will -- I think it will -- whenever this settles and goes back in the other direction, I think you'll see a tighter resale market than you have even today, because people aren't necessarily putting their home on the market. And on the other side, we're doing what we can to maintain the infrastructure and the sub-contractor base and the momentum we have. So that whenever it settles, we can move quickly. I mean in the industry and I'm an optimist about the -- in a home builder. But I'm expecting when you get out the other side of it, there is going to be strong demand and people really wanting to own their own home. So we want to be ready for that.

Our next question comes from the line of Buck Horne with Raymond James. Please proceed with your question.

Hey thanks, good afternoon. I wanted to first ask about the supply chain. And just -- you see anything on the horizon, whether it's imported materials from China or other markets. Anything that could be disruptive in terms of continuing to the cadence of home closings that may or may not extend out here in the coming weeks.

Yes, Buck, we're not seeing any disruptions right now. When this thing first hit in China and the ports were closed and they didn't have trucks to move the product to the ports and all that. We quickly mobilized with all of our suppliers to understand their pipeline and their product availability and many of them have more than even a year of supply of their products. So we didn't see any real signals that the supply chain was going to be too tight and that's certainly how it's playing out for us today. We're not seeing any issues whatsoever. If anything, yet if you think about it with the drop in Chinese demand for product that may even help the availability here in the US right now. Another soundbite and we'll see how it plays out. As China's growth stop, their demand for lumber stopped with it and the Canadian lumber markets have a lot of inventory right now. So that pressure that we saw in lumber that was occurring in the first couple of months of this year. But actually end up going the other way, due to the inventory that's building up right now. So it's as fluid as everything else we're dealing with. But right now, we're not seeing any real cost pressure on supply in the last month and product is readily available.

Okay. Very helpful, thank you. And second one, if you could parse out maybe kind of in the first few weeks of March. So it's small sample size, but I'm just wondering if within your communities, if you went down price point. We're just hearing that the entry level communities there the further down price point seem to be holding up much better through the early weeks of this crisis that there is still lot of more demand. And maybe even a sense of urgency among multifamily renters in particular -- particularly trying to exit certain communities where they may or may not feel quite as safe in that type of environment, want to get a single-family house of their own for security reasons. Have you detected anything like that or have any corroborating evidence that the entry level is doing better like that.

Well, I do think it is -- we really didn't comment on it in our prepared remarks, but our first time buyer percentage did pick up in the first quarter. We're now 57% of our deliveries, so it's slightly higher than it was. I would say that because it's always been a big part of our business and it could speak to, why our sales has held steady in March. And I was observing the other day to somebody here in the office, if I'm living in a -- one of those semi downtown towers with a common hallway with 20 other renters, I'd much rather be in my own home in the suburbs, right now. And I think, we will see more of that going forward.

Great, thanks. Congratulations.

Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Good afternoon and thanks everyone for all the details through this. I wanted to ask on the traffic side again. Just that strength in website traffic and reconversion, presumably a lot of that is just replacing the in person traffic. But is there any scenario where you might consider building anymore spec to perhaps have some product available. If and when there is a recovery or kind of status quo this gap in sales however long it is kind of cleanly flows into closings in five months. How you guys think about that? Thank you.

Right now, Matthew, I'd like to stick to our business model. Our margins are higher on our built order sales have been for years and we believe that's the right way to go. And I'll never say never, because there could be some community somewhere where it makes sense to do that. But right now, we'll stick to our process and make as much money as we can for us.

Okay, got it. Thank you for that. And then I wanted to ask on the community side, presumably with sales and as models closing -- delaying, openings [indiscernible]. Are there any numbers you could put around that if there is sort of a backlog of community openings that might emerge that perhaps would be available to open later in the year.

We don't know what the...

Yes, but, I mean, our process is continuing forward on the grand openings. We're not having big grand opening as in past, where we're gathering hundreds of people around, balloons and hotdogs. But we're opening the communities, we're not opening up any community openings. There may be other external things that could prevent us from opening, but we're certainly trying to move ahead with the openings and trying to keep the business running.

In a typical opening, we will have a waiting list or contact list of several hundred, when we get the models completed. So what we're doing is completing the models, merchandising, getting ready to open. We will staff them. We're doing the same thing with the virtual selling effort and by appointment only and we would open for sales, we just not having the big promotional events that we typically do.

Our next question comes from the line of John Lovallo with Bank of America. Please proceed with your question.

Hey, guys. Thank you for taking my questions here as well. The first one is, I'm just curious, how much skin the typical KB buyer has in the game in the sense of -- what are they putting down for a down payment. Is that down payment generally refundable? And maybe if in certain situations, the down payment was not refundable in the past. Are you guys making exceptions today kind of given the extenuating circumstances and the pressure on the consumer?

If they can't qualify for a long jump, we always refund the money if we haven't started the home and they changed their mind. We'd like to keep them for another day. So you'd refund the money and past that our deposits vary by city. And if the homes completed and the loans approved and they don't want to perform at this time. Our first step would be the same pause that we're doing with land sellers. We're going to offer them a 30 day, 60 day window. Okay, let's call it a time out. Keep everything ready to go. And let's see how the world settles. So first step right now is not managing the deposits, but managing our customers and keep them in the game.

Okay, that's helpful. And then, understanding that this is going to be project by project and community by community. But is there a rule of thumb that you guys think about where a margin -- based on gross margin, what pricing on a project would have to go in order to trigger an impairment on the land.

Okay. Look on the impairment side, there's three big factors surrounding it. One is the macroeconomic situation and what we're seeing right now is completely different than what we saw probably in the last downturn, big downturn for housing is not financial sector driven. We don't believe we'll see the same level of distressed inventory. We don't have the easy credit situation, everything else. So I think everything is pointing to a much better conditions in the macro. If you look at our land portfolio and the quality of our land portfolio that's also improved tremendously. We've been pretty cautious with land investments. We're still investing in the best submarkets, relatively modest lot counts, we're staying right down the middle of a strategy as far as setting up our communities to be at the low price points, shorter duration land position. So the second component of that our land portfolios looking very positive. And then finally, kind of getting to your question. And you start looking at community level performance. And if you look back over the last 12-month period, our gross margins are right around the 19% range. At that level, there is still quite a bit of room. As you could imagine before your on discounted cash flow becomes negative. And before we start looking at pricing, we do have other levers available to us. Instead of just simply cutting price -- we certainly look at the size of homes we're building and offering, DAV [ph] savings, other cost reduction, revenue adjustment strategies that we could do. So we think, we're quite a way -- quite a ways away from that. We think there's a lot of room on that piece. Always at risk, when there's market disruptions. But we believe we're much more favorably positioned than at any point in the last decade or so. As far as making it through this and we also don't expect to see huge market disruptions that we saw in terms of pricing.

Our next question comes from the line of Michael Rehaut with JP Morgan. Please proceed with your question.

Thanks. I appreciate it and hope everyone is -- the whole KB team is healthy and safe. First question, I had was maybe just kind of circling back and talking a little bit about the backlog from another perspective. Obviously over the next month or two, you know, there is going to be dramatic changes in the country with regards to unemployment and you saw the -- sure you might have seen the unemployment claims spike today. I was just curious if you've -- you talked about being perhaps proactive or working with different buyers. If there's been any initial efforts over the last week or two around reaching out to whatever percent of backlog it may be -- that might be more susceptible to some of the employment trends or some of the tougher industries being hit right now. As it relates to the shutdowns that are ongoing. And if you have any early sense around what percent of the backlog might be kind of in that -- susceptible or subject to those types of tougher to hit industries.

Yes, Michael. Couple of things come to mind. When you have the headline as the number. So just try to understand that if you look in, not just California, I think the number was 87,000 [ph] in the state. So that's -- it's a big number, but it's -- stay with 20 million in unemployment or something like that. So it's a relatively small percentage. If you think about the buyers' behavior [Technical Difficulty] we're one of the first calls they make if they've lost their job. Because they are disappointed and they know that, they can't get in and they either lobbies or they'll go get another job and hang in there or whatever. So, we know pretty quickly if people are -- have lost employment or if their situation is drastically changed. And it's one of the benefits of having a mortgage company partner like we do now with a much higher capture rate. So we have a pulse of the [indiscernible]. I am not aware of -- of a wait for a -- a concern, frankly, that's been raised and an industry or a city where there is a lot of cans -- that the unemployment numbers stay at this level for a long period of time, you have to assume that the can rates are going to go up. But we're not seeing that yet. It's a daily, weekly thing and we're being very logical.

Okay, understood. I'm sorry. Just as -- second question was just kind of more around personnel management and kind of a tough question. But obviously, you know, there's a lot of uncertainty in terms of length of this downturn and also the -- the ability for the economy to bounce back. I was just curious if -- as you look at your business, certainly -- today it's pretty premature to think about adjusting staffing levels or anything of that nature or perhaps even furloughing or whatnot. But are there any thoughts around if this were to last for another three months, six months and the recovery might be at softer levels, given if there is persisting unemployment. I don't mean to be too gloomy of course, but I was just trying to get a sense for the flexibility that you might have in your personnel be it across the sales centers or the design studios or other parts of the fixed cost structure chain. If that's something you've started to give any thought towards.

Two opening thoughts. One I already shared that the safety and the security of our employees is the top priority for us, and for me around here. The second top priority for me is a very strong desire to maintain the organization that was operating at such a high level 25 days ago. We have a very strong machine here and it's a credit and a tribute to the employee back. So we're going to do what we can do to retain and motivate and reward the employee base. If it's a short cycle, you just -- you keep everybody and you go back to work, if this thing extends out for months and months, we've shared that our build pace then our land pace is tied to our sales pace. So if your sales pace six months or eight months out, you expect to be off dramatically. You have to do what you can't unfortunately to preserve and protect your profitability in your organization. So I think, it's way too premature to go out there. Right now, our view is let's maintain this organization, and it's operating so well. And bunker down, cut our overhead, where we can and see how things go as it starts to settle.

Our final question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you. Good afternoon, everyone, and thanks for squeezing me in. My first question is, just can you us a little bit of color around what you're seeing in your Vegas communities? Has anything changed there significantly and how you're thinking about that market? Obviously, given its reliance on tourism and travel.

As you know, Susan, Vegas is a top-performing business for us. Big business and even in March had good sales. It's like the comments I just made to Michael, we're not seeing a big rush of unemployment yet or our backlog is still relatively stable. We're closing a lot of houses in Vegas. It has been slack because of the industries that are there. That -- it's got the potential for more layoffs. The steady -- is more diversified than it was. So it's not just casinos anymore and it's like our other cities we're monitoring. It's too early to call right now, but that team is one of our best that reacting to market condition. So we'll deal with it as it comes up.

Okay, thanks. And then my second question relates a little more broadly. Given the change in and how you're communicating with buyers and trying to get buyers through the website and traffic such as that. Have you made any changes to the marketing strategy or your marketing approach. How are you making that you stay top of mind with potential buyers. Especially maybe as we think about new community openings and not having the same kind of event in the same level of -- of maybe attraction that they otherwise would have had.

We have shifted almost totally to Internet based advertise and there is very little spend any more on radio, newspaper, magazine, all the old traditional things that we did over the years. And as we continue to refine and enhance, we know which vehicles online get us the most leads and the most sales. So you're constantly refining your spend in online marketing to what you know works. And you do that, you can geo-fence your traffic. So you know the buyer profiles of who is buying in that area, as you can target them with your most effective online outreach and it's working pretty well. So it's very interesting process right now that we're still learning, right. It's going to make our industry a lot better. We're finally able to use technology to promote our homes as opposed to a billboard, in a newspaper.

Okay, thank you.

Ladies and gentlemen, this concludes our question-and-answer session, as well as today's conference call. We thank you for your participation. You may now disconnect your lines and have a wonderful day.