Q1 2023 MDC Holdings Inc Earnings Call

Participants

David D. Mandarich; President, CEO & Director; M.D.C. Holdings, Inc.

Derek R. Kimmerle; VP, CAO & Controller; M.D.C. Holdings, Inc.

Larry A. Mizel; Executive Chairman; M.D.C. Holdings, Inc.

Robert Nathaniel Martin; Senior VP & CFO; M.D.C. Holdings, Inc.

Alan S. Ratner; MD; Zelman & Associates LLC

Alex Barrón; Founder and Senior Research Analyst; Housing Research Center, LLC

Andrew Azzi; Analyst; JPMorgan Chase & Co, Research Division

Buck Horne; SVP of Equity Research; Raymond James & Associates, Inc., Research Division

Truman Andrew Patterson; Director and Senior Research Analyst; Wolfe Research, LLC

Unidentified Analyst

Presentation

Operator

Good day, and welcome to the M.D.C. Holdings 2023 First Quarter Conference Call. All participants will be in a listen-only mode. (Operator Instructions.] Please note, this event is being recorded. I would now like to turn the conference over to Derek Kimmerle, Chief Accounting Officer. Please go ahead.

Derek R. Kimmerle

Thank you. Good morning, ladies and gentlemen, and welcome to M.D.C. Holdings 2023 First Quarter Earnings Conference Call. On the call with me today, I have Larry Mizel, our Executive Chairman; David Mandarich, 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 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 M.D.C.'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 first quarter 2023 Form 10-Q, 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

Thank you for joining us today as we go over our results for the first quarter of 2023 and share our thoughts on current market conditions. M.D.C. generated net income of $81 million in the first quarter or $1.08 per diluted shares, we delivered 1,851 homes during the three-month period, well in excess of our previously stated guidance as our team did an excellent job of closing buyers and backlog and delivered spec homes to quick move-in buyers or focus during the quarter skewed more towards generating sales versus holding pricing as we were willing to sacrifice some margin to keep the momentum going in our homebuilding operations. We believe this is the right strategy for today's market where buyers continue to be motivated to own a home but remain sensitive to changes in affordability. Our net order total increased significantly in the first quarter of 2023 relative to the fourth quarter of 2022, as buyers adapted to the higher rate environment, we adjusted our pricing and incentive levels to spur sales activity.

Cancellations also declined dramatically from the fourth quarter, thanks to the more stable market conditions and higher deposit requirements we implemented to build-to-order homes. We generated 1,767 net new orders for the quarter on an absorption pace of 2.6 homes per community per month. Our gross order total came in at 2,520. Both net and gross orders increased on a sequential basis each month of the quarter, underscoring the positive momentum we experienced at our communities. We feel we are in position to maintain this order momentum based on the activity we see at most of our communities, and the focus we have on more affordable segments of the market.

Our net sales of the company will benefit from a higher community count this year as compared to last year. From a macro perspective, we believe the new home industry continues to benefit from a number of tailwinds. Existing home inventory remains constrained according to the most recent release from the National Association of Realtors, which shows there were 980,000 homes for sale nationally. This represents a 2.6 month supply of homes at the current sales pace. Employment data continues to be encouraging and with continued job growth and low unemployment, mortgage interest rates have stabilized during the quarter and even retreated from recent highs. All these factors contribute to the favorable fundamental backlog we see powering our industry.

At the local level, we believe our homebuilding operations will continue from the in-migration and strong job growth patterns that have characterized our markets. We have an established presence in some of the highest-growth MSAs in the country. We are attracting employers and high wage earners from other locations. We believe these migration trends will continue to give us a natural pipeline of new home demand in the coming months. M.D.C. should continue to benefit from the size and scale advantages we have over the smaller private builders in our markets. Our ability to procure land, labor and materials necessary for our business is key to our success. Given our scale in the markets we operate, we can typically accomplish this on more favorable terms than most of our smaller competitors. We also have an advantage when it comes to cost and access to capital, a factor that has only become more important in the recent regional banking turmoil. We ended the first quarter with a cash and marketable securities balance of over $1.6 billion. which is a testament to our ability to adjust our capital spending plans and generate liquidity when we feel it's appropriate. We structured our balance sheet to withhold slowdowns in the market like we experienced at the end of last year and to take advantage of the opportunities when they arise. We are in a great position to reinvest in our operations and fund our industry-leading dividend, which currently stands at $2 per share on an annualized basis. Given the strength of our balance sheet, positive fundamentals underlying our industry and the health of our homebuilding operations, I am optimistic about the future of MDC.

Now I would like to turn the call over to David, who will provide more detail on our homebuilding operations this quarter.

David D. Mandarich

Thanks, Larry. We saw a significant improvement in market conditions in the first quarter of 2023 relative to the fourth quarter of 2022. As mortgage rates stabilized and buyer confidence improved, leading to better traffic levels and fewer cancellations. We lowered base prices at a number of communities and offered incentives to drive sales. And these actions proved be very successful getting buyers off the sidelines. Mortgage rate buydowns and other financing incentives continue to be the most effective tools to entice buyers, particularly for those who are more concerned about their monthly payment. The rebound in order activity was fairly broad-based across our homebuilding operations during the quarter, with all three segments performing well. Profitability took a step down during the quarter as a result of lower base prices and higher incentive activity. Our West and Mountain segments have been the most impacted with our East segment now having the highest absolute gross margin level.

Our pivot to starting more speculative inventory in the fourth quarter was a key driver of our sales success during the first quarter as we generated sales from buyers looking for a quick close. While we continue to believe a build-to-order operating model is the most prudent homebuilding strategy over the long term, we plan on maintaining a higher level of speculative inventory moving forward to appeal to the quick move-in buyer. Another reason we are starting more spec homes is to offset the longer build times that continue to plague our industry. Most of the delays now are concentrated in the back end of the construction process. While we do not see an improvement in our build time for homes delivered in the quarter, we have seen improvements in the front end of the construction process.

During the first quarter, we saw a decrease of over one month in our average start to frame a complete cycle time. We are hopeful that we will begin to see improvements in the back end of the construction process as we progress through the year. I'm very pleased with our performance in the first quarter of 2023, particularly in light of all the headwinds we faced at the end of 2022. We responded quickly to changing market conditions with effective pricing strategies and additional spec inventory. We stabilized our backlog and reduced the number of cancellations. Thanks to our ability to convert spec homes and to quick move-in closings, we generated a significant amount of cash from our homebuilding operations. Overall, 2023 is off to a great start, and I'm excited for the opportunities that lie ahead.

With that, I'd like to turn the call over to Bob, who will provide more detail on our financial results this quarter and give some guidance for the coming quarter.

Robert Nathaniel Martin

Thanks, David, and good morning, everyone. During the first quarter, we generated net income of $80.7 million or $1.08 per diluted share, representing a 46% decrease from the first quarter of 2022. Pretax income from our homebuilding operations for the quarter were $91 million, which represented a 52% decrease from the first quarter of 2022. This was partly due to an 18% decrease in home sale revenues as a result of lower closing volume. The pretax decrease was also caused by lower gross margin from home sales, largely due to increased incentives and higher construction costs incurred on those homes that closed during the period.

Our financial services pretax income increased during the first quarter of 2023 to $18 million. The increase was due to lower compensation costs driven by lower headcount, an increase in capture rate and the allocation of revenue from our homebuilding business associated with our financing incentives. Both our homebuilding and financial services pretax income benefited from increased interest income during the quarter. On a consolidated basis, we recognized $15.1 million of interest income during the first quarter compared with only $279,000 in the prior year quarter. Our income tax expense of $28.3 million for the first quarter represented an effective tax rate of approximately 26%, a slight improvement from 26.5% in the prior year quarter. We continue to expect our effective tax rate for the full year to be roughly 25.5%. This estimate does not include any discrete items or any potential changes in tax rates or policies.

We delivered 1,851 homes during the quarter, which represented a 17% decrease year-over-year. However, we exceeded our previously estimated range for the quarter of 1,500 to 1,600 closings. As Larry mentioned, we made a concerted effort during the quarter to prioritize our sales pace, especially as it related to our inventory of completed spec homes. As a result, we were able to sell and close over 600 homes during the quarter, which accounted for 34% of our total deliveries. The average selling price of homes delivered during the quarter decreased 1% to $551,000. This was below the midpoint of our previously provided guidance due to higher incentive levels on our completed spec inventory. The majority of the spec inventory sold and closed in the first quarter originated from cancellation activity and was personalized by the original homebuyer and not by our design teams. We are optimistic about lower incentive levels on our spec inventory moving forward as our design teams thoughtfully contented these homes with some of our most popular options and upgrades.

We currently anticipate home deliveries for the 2023 second quarter of between 1,600 and 1,700 units, and we expect the average selling price of these units to be approximately $550,000. There continues to be a heightened risk of underperformance relative to our forecast due to the increased volatility of economic and industry conditions. Gross margin from home sales decreased by 890 basis points year-over-year to 16.8%. Excluding inventory impairments, gross margin from home sales decreased 810 basis points to 17.6%. This decrease was largely driven by an increase in incentives as well as higher construction costs year-over-year. The majority of the homes that closed during the first quarter were started during the spring and summer of 2022 when the lumber and other direct construction costs were at their recent peak. We are currently expecting gross margin from home sales for the 2023 second quarter of approximately 17%, assuming no impairments or warranty adjustments.

As we see more of our intentional spec inventory work its way into our closing population, and we move further away from the period of peak construction costs, we should see gross margins stabilize and even possibly improve from recent levels. Our total dollar SG&A expense for the 2023 first quarter decreased $34.3 million from the 2022 first quarter, driven by decreased general and administrative expenses due to a decrease in head count as well as decreased stock-based and deferred compensation expenses. This resulted in an SG&A expense as a percentage of home sale revenues of 9.3% for the quarter, representing a 110 basis point improvement from the prior year quarter.

We currently estimate that our gross general and administrative expenses for the second quarter of 2023 will be approximately $50 million. The dollar value of our net orders decreased 48% year-over-year to $957.3 million, driven by a 44% decrease in net unit orders and a 7% decrease in our average selling price of those orders. Gross orders for the first quarter of 2023 were 2,520 which is a 33% decrease from the first quarter of 2022. Approximately two-thirds of our gross orders during the current quarter were for spec homes. We expect this trend to continue as homebuyers continue to show a preference for quick move-in homes amid the ongoing uncertainty around mortgage rates. While our cancellation rate increased year-over-year from 17% of gross sales in the first quarter of 2022 to 30% of gross sales in the current year, it decreased significantly on a sequential basis. We believe the actions we took during the fourth quarter to increase our quick move in inventory as well as deposit requirements on built-to-order homes are having the desired impact and we should continue to see our cancellation activity normalize.

Year-over-year decrease in our average sales price of net new orders was due to decreases in base pricing during the second half of 2022, most notably during December as we discussed during our previous call, and to a lesser extent, increased incentives. As it relates to April, we are pleased with the net order activity we experienced. We saw gross orders remain consistent with March levels, and our cancellation activity continue to trend downward with our lowest absolute number in over a year. Our Active subdivision count was at 236 to end the quarter, up 18% from 200 a year ago. Looking at the graph on the right, the number of soon-to-be-active communities continues to exceed the number of soon-to-be inactive communities at March 31, 2023. This indicates that our active subdivision count is likely to continue increasing in the near term.

During the first quarter, we acquired 243 lots, resulting in total land acquisition spend of $44 million and incurred $77 million of land development costs. At the end of the first quarter, we had $19.2 million in cash deposits, $2.6 million in capitalized costs and $2.2 million in letters of credit at risk associated with the 2,951 lots remaining under option. While land acquisition approval activity remained low during the quarter, we have seen an increase in deal flow. In addition to the 2,951 lots controlled via option at quarter end, we had an additional 2,198 lots that are at various stages of due diligence. It should be noted that these lots still require approval by our asset management committee prior to being reflected within our controlled lot count.

Our distinct operating strategy focuses on maximizing risk-adjusted returns while minimizing the risks of excessive leverage and land ownership. As a result, our financial position is among the best in the industry. We ended the quarter with over $1.6 billion of cash and short-term investments, total liquidity of $2.8 billion and no senior note maturities until January 2030. Our debt-to-capital ratio at the end of the quarter was 32.3%, and our cash and short-term investments exceeded our homebuilding debt as of quarter end.

At March 31, our stockholders' equity was over $3.1 billion and our book value per share was $42.83. We continue to generate strong cash flow from operations with inflows of $426 million in the first quarter of 2023 compared to $118 million in the first quarter of 2022. Given solid sales during the quarter and our recent pivot on spec strategy, we started 1,666 homes during the quarter, up 170% sequentially from the fourth quarter. We expect our construction starts to again increase on a sequential basis from the first quarter to the second quarter of 2023.

In summary, our strategic decision to build more spec inventory is already paying dividends as over 1/3 of our first quarter deliveries were both sold and closed during the quarter. This delivery volume allowed us to exceed $1 billion in home sale revenues for the 11th consecutive quarter. We believe that this spec inventory strategy, coupled with the cycle time improvements we are beginning to see in the front end of the construction process will provide us with continued momentum as we progress through the remainder of 2023.

That concludes our prepared remarks, we'll now open up the line for questions.

Question and Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions.] Our first question comes from Michael Rehard with JPMorgan.

Andrew Azzi

This is Andrew Azzi on for Mike. Congrats on the quarter. I wanted to ask about SG&A. It was certainly lower than what we were expecting, maybe given your more aggressive sales strategy. Is there anything we can have to think about in terms of the sustainability of this kind of rate? Or maybe any thoughts on the type of deleveraging that we should be expecting throughout the year?

Robert Nathaniel Martin

Yes. Certainly, we did better on the top line, and I'm sure you picked up on that. On the actual G&A line, there was a little noise there. It was lower than expected. We had guided to $50 million to $55 million. I think the actual is $43 million. And that was some adjustments in our bonus accrual. So, we talked about a $50 million number for the G&A line as our best guess for Q2. So, I think that's the best thing to go with.

Andrew Azzi

Okay. And then I kind of wanted to zero in, if possible, on how widespread or prevalent the base price reductions were across the portfolio and maybe what your current level of incentives are and how you're thinking about potentially adjusting these?

Robert Nathaniel Martin

It's a good question. I would say we probably put forth base price decreases on just shy of half of the communities that we had to start. And then the average when we did a decrease was about 4% of base. From an incentive standpoint, on the sales that we had during the quarter, we were at about 8% once you include the impact of financing incentives.

Operator

The next question comes from Stephen Kim with Evercore ISI.

Unidentified Analyst

This is actually Trey on for Steve. Looking at the backlog, historically, it's -- that turnover ratio has been somewhere between 40% and 50% over the last cycle as you've been that predominantly built-to-order builder. This quarter was 62%. You talked about a good number of homes sold in close in the quarter and the guide looking forward implies something in the high 50s. With this shift to including more specs in your strategy going forward, how do you envision that backlog turnover range leveling out over time?

Robert Nathaniel Martin

I hope that we'll be closer to that 60% over time. I think the reason that it's a little bit lighter. -- this coming quarter is we sold through some of the finished inventory or close to finished inventory. So, our spec supply is a little bit younger at this point, if that makes sense. So not as available to close during the current quarter as it was during Q1. But after we get through that period of time being in the high 50s or low 60s should be somewhat normal, maybe even above that depending upon where we go with the level of spec inventory.

Unidentified Analyst

That's a great segue to the second question. You talked about two-thirds of the orders in the quarter started out as specs. Do you see that kind of level as sustainable? Then also on the margin front related that you talked about in this quarter, you had to incentivize a little bit more on the specs given that they were customized by the prior owner and not by you all.

So, how do you think about the incentive levels and really the margin differential between the specs and your build-to-order homes going forward? Do you think that would widen further or do you think there's a narrowing there over time?

Robert Nathaniel Martin

I think, first of all, with regard to, I guess, the additional incentives on specs, we started out the quarter still somewhat uncertain about market conditions, just getting into spring selling. So certainly, there was an incentive to keep going on the specs to offer some additional incentives, as you indicated, some of those specs might not have been the perfect combination that we would have otherwise envisioned. They started a year ago, even more in some cases. So, it made sense for us to take a little bit more volume above and beyond margin during the quarter. I think that spread maybe narrows a little bit now that we've got some spring selling under our belt. But we'll see. There's a lot of uncertain things happening in the world with regional banks and whatnot. That was mentioned a couple of times already on the call. So, we have to respond to market conditions, and that will factor into the equation.

What was the other part of your question, Trey?

Unidentified Analyst

You talked about two-thirds of your orders in the quarter were started as specs. How do you kind of see that lifting outside? Is two-thirds kind of what you're shooting for? Or was that a little bit higher or a little bit lower than how you guys are trying to position yourselves?

Robert Nathaniel Martin

Yes. And one point of clarification, it's two-thirds were spec when they were purchased, meaning they may have sold as dirt and then canceled and then sold again as a spec, if that makes sense. I see the market driving where we go with that. We're committed to building specs, but we also have a dirt program. So right now, clearly, we've seen that specs are more in favor. And I think that's what has driven us to two-thirds spec and one-third dirt. If we see consumer preferences shift or if we're a little bit lighter on inventory, it could go one way or the other.

Operator

Your next question comes from Truman Patterson with Wolfe Research.

Truman Andrew Patterson

Just to touch on the G&A line a little bit further, understand kind of the comp timing variability. But last quarter, you all discussed some cost reduction, and I believe it kind of implied head count, right? Any chance you can help us think through kind of the level of headcount reduction? And is that all kind of in the past, given the nice rebound that we've seen sequentially in demand so far this year?

Robert Nathaniel Martin

I think, one, the headcount reduction was considered in the $50 million that we're talking about for Q2. But yes, I think we'll respond to market conditions. But given that we've had a reasonable spring selling season, it gives us the mindset of not having reductions in headcount. And we were pretty early in the back half of last year, making adjustments where we thought were necessary. So again, we'll have to see where market conditions are going, what sales are happening real time. But given what's happened in the first quarter, I think we feel better about where our headcount is.

Truman Andrew Patterson

Okay. And then first quarter gross margin came in a little bit below your expectations. Could you discuss what kind of drove that intra-quarter. And then I believe there was a line in your opening commentary that gross margin could stabilize to possibly increase. I was just hoping you could elaborate on that a little bit.

Robert Nathaniel Martin

Sure. So first of all, the mindset in Q1, especially to start, given that we just came out of a pretty gnarly period in Q3 and Q4 was to favor pace a bit over price. So naturally, we greatly exceeded what was expected on the top line. And that was a choice that we made as we've seen more activity that's been positive in Q1 and even continuing into April. It really gives us more confidence. It gives us a sense that maybe some of those incentives won't be as necessary going forward. So, I think that factors in to the comment about back half of the year margins to be a little bit more specific about it.

The other thing that's going on is I think you start seeing more of the low point of lumber costs coming through in the back half of the year, whereas in Q1, we were still at the peak coming through closings. Got you. Understood there. And then just -- hopefully, I can squeeze one more in, the interest income jumped quarter-over-quarter to like $13.5 million. It jumped with the marketable securities balance. But if I'm looking at my math correctly, I think it implies like an 8% annualized yield. Could you just help us understand the investments and how sustainable those are, the interest income?

Robert Nathaniel Martin

Well, I think both the interest rate on the cash and the marketable securities have come up, and you're really talking about bank balances versus treasury balances. So, it's all moved up. So, I think you have to compare that interest number to the entire cash plus marketable securities balance.

Operator

The next question comes from Alan Ratner with Zelman & Associates.

Alan S. Ratner

Thanks for all the details so far. First question on the, I guess, the margin and the land book in general. So, if you're running around 17% gross margin company-wide right now, probably implies you still have a fair amount of projects below that average, maybe in the lower teens range. And recognizing that it seems like pricing is firming and maybe incentives in the near term are dialing back a little bit. Can you just give us a little quantification in terms of kind of the number of communities or percentage of communities that you tested for impairment during the quarter or had indicators of impairment and kind of what that cushion looks like for potential further price pressure before impairments would be necessary?

Robert Nathaniel Martin

I think we've not shared that information somewhat purposely, but naturally, it was a lot fewer this first quarter than it was in the fourth quarter. So, we seem to be moving further away from that possibility.

Alan S. Ratner

Okay. But just to be clear, the stress test for that impairment would be if a particular project is kind of cash flowing negative on an undiscounted basis, right? So probably implying a gross margin in the 10% range or so, would trigger something like that?

Robert Nathaniel Martin

Trigger a test. I think it has to be well below 10% before you're actually impairing on the gross line. But certainly, you might start looking at it.

Alan S. Ratner

Yes. Got you. Okay. Second, on the land side. So, land spend was obviously quite low this quarter. Your lot count is down 40% or so from the peak. It sounds like activity is picking up there. Can you talk about what you're seeing in the land market in terms of pricing today? What type of underwriting assumptions you're making on deals you are approving in terms of either margin or return, recognizing that right now your margins are probably a little bit below where you might be underwriting? Are you actually seeing an opportunity to improve margins on deals you're approving today?

David D. Mandarich

This is David speaking. Clearly, what we've seen is last year that maybe land values went up substantially. As you know from our last call, we dropped a lot of options. As well as some of our other competitors have. But we're seeing land values getting softer, terms getting softer. And like Bob said earlier, we actually have a pipeline of deals now that we feel pretty good about. And I think our sellers are a little more flexible today than they certainly were 12 months ago.

Alan S. Ratner

What about versus like three or six months ago, though, David, because I would be surprised if lot prices are coming down, just kind of listening to what you're saying, and others are saying in terms of the pickup in activity in the spring. It seems like that would kind of embolden land sellers to hold firm on price, but you're actually seeing prices moving lower here in the near term?

David D. Mandarich

Yes, I have. We've seen land prices come down. And equally important, we've seen terms get softer. So, we have seen definite softness.

Operator

The next question comes from Buck Horne with Ramon James & Associates.

Buck Horne

I kind of want to follow up on that last comment about the land market and kind of the pricing that you're seeing out there. In terms of your option strategy going forward, as you've kind of weaned the backlog of lots you have under option contract to a pretty low level historically, is now the time to take advantage of the balance sheet and kind of the softness you're seeing? Would you consider structurally finding -- or are there opportunities to put more land under option right now? Or what's the willingness to do so?

David D. Mandarich

It's -- yes, we're adding subdivisions actually on all of our divisions, and we're sticking to our netting on margins and returns. But we're seeing some pretty good deal flow here just recently. So, we're encouraged. And I think last year, we got plenty nervous when the market retracted back in fourth quarter and us and others had really what a challenging time on sales. But I think after this first quarter, it looks more stabilized. It looks like our consumers are dealing with a higher interest rate. We think we're going to have probably a little less incentive. So, we're encouraged that we're going to be at some subdivisions on, and we've actually got deal flow everywhere.

Buck Horne

Okay. All right. That's helpful. And in terms of -- as the market has strengthened here and stabilized, are you able now to start or have you started increasing base prices in communities? And if so, like maybe some percentage of communities that saw some increase month-over-month? Or is it right now mainly starting to dial back the incentive levels rather than raise base pricing?

Robert Nathaniel Martin

We have, Buck, started to increase base prices that was maybe a little bit more towards the back part of the quarter, but nearly half of our communities, we had some sort of base price increase. On average, that increase might have been 3%.

Operator

[Operator Instructions.] Our next question comes from Alex Barron with Housing Research Center.

Alex Barrón

Yes, I wanted to ask about whether you guys have any authorization to buy back stock and just generally, what's your philosophy because you're obviously holding a lot of cash, and I don't think you bought back stock in quite a while. So just curious about that.

Robert Nathaniel Martin

Yes. I think you've summarized the situation well. We have not bought back stock in a while. So that should be kind of one bullet point. In fact, I think it's been decades. That said, we do have an authorization outstanding. So, in theory, we could do that at any time really. So again, haven't done it in a while. We do have it out there for moments in time where we think it could be appropriate, but we haven't done it yet.

Alex Barrón

Actually, it would seem that your stock still trading below book may not be a bad place to put some capital to work. But anyway, so I wanted to -- I wasn't clear on the explanation. You said a quarter ago, the guidance on G&A was about $50 million to $55 million, and it came in at $42 million and change. What accounted for the difference?

Robert Nathaniel Martin

Yes. So, we had a certain bonus accrual to be paid in cash and part of that bonus was paid again instead in restricted stocks. That was a big part of the difference. So, for Q2, we're talking about $50 million of G&A. So, kind of going back to that range that we had previously discussed. In other words, there was some noise that brought it down in Q1 to the 43%, but we don't expect it to stay there.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Bob Martin for any closing remarks.

Robert Nathaniel Martin

Great. Thanks to everyone for being on the call today. We look forward to hosting you again upon the conclusion of our second quarter.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may all disconnect.