M.D.C. Holdings first quarter earnings story followed a familiar plot line. Like many of its public builder peers, the company narrowed its losses for the quarter, continued to cut costs, and announced the rollout of a new product line aimed to accelerate orders and improve margins.

The company reported a net loss of $40.9 million, or -$0.88 per share, which was a significant improvement from a $72.8 million loss from a year ago. Fewer asset valuation adjustments helped curb the losses; the company took $14.6 million in asset impairments, down from $54.8 million in 1Q2008. However, offsetting that progress was an increase in the company's deferred tax valuation allowance by $15.3 million versus $10.6 million a year ago.

Despite the loss, the company generated nearly $240 million operating cash flow for the quarter, thanks in part to a $161 million tax refund, growing its overall cash count to more than $1.6 billion. At that level, cash represents two-thirds of the assets on the company's balance sheet. Ever since the company's cash balance hit the $1 billion mark, analysts have been keen to know when management might decide to deploy that cash to refill the company's lot pipeline, which has shrunk to 35% in the past year to 8,542 lots controlled. And during the company's first quarter earnings call on Friday, May 8, the curiosity went unabated.

"We're going to be patient," explained company senior vice president and CFO Chris Anderson.

However, CEO Larry Mizel added, "We're very active with our land group I think in every market, continuing the evaluation of prospective transactions." He also mentioned that the government's Public-Private Investment Program, which intends to encourage private investors to buy up toxic assets from banks, in turn providing their balance sheets with some stability, was starting to help deal flow.

During the quarter, management moved to further reduce risk and cost by doing some fine-tuning on the balance sheet. The company decreased its exposure to sureties by roughly 14% sequentially, leaving it with approximately $20 million in development work to fulfill its obligations on $150 million in bonds outstanding.

Moreover, management cut its selling expenses nearly in half, compared to a year ago. While a decrease in commission spending was a result of a decrease in home sales, the company achieved significant marketing savings by moving toward a more Web-centric marketing program. Management also reduced G&A expenses to 38.4 million from $51.2 million a year ago, mainly through a 41% reduction in head count year over year. However, all dollar spend reductions aside, SG&A as a percentage of revenues remained a blatant weakness on the balance sheet at a combined 29.5% of sales, a level that analyst Ivy Zelman of Zelman & Associates described as "by far the highest level on record."

On the good news front, gross margins were up year over year from 15.9% in 1Q2008 to 20.2% at the end of 1Q2009, and closings and new orders exceeded many analysts' expectations and cancellation rates had subsided. The company closed 580 homes during the quarter at an average selling price of $287,900 and netted new orders for 676 homes; backlog at the end of the quarter stood at 629 homes under contract with an estimated sales value of $196.0 million. Can rates fell from 43% last year to 23% during the quarter.

However, the 49% year-over-year decline in closings contributed to a fall off in revenues from $388.3 million a year ago to $173.0 million for the quarter. Also pressuring revenue is a continued contraction in the average selling price, which fell 8% from the same period the last year. In addition to general market price declines, some of the selling price decline was attributable to the company's aggressive push to clear out old spec and model inventory, which also negatively affected margins. Nearly 75% of the company sales for the quarter were spec homes.

Clearing out older spec and model inventory also was an important first step in the rollout of a new smaller, more affordably priced product line. Executives shared little details of the plans, other than to say they are designed to meet the needs of today's buyer and are more efficient to build. However, Mizel also said the company would move to leverage its design center offerings with the product line, which allow customers to personalize the plans while providing margin opportunity for M.D.C.