Q3 2020 M/I Homes Inc Earnings Call
[music].
Good afternoon, everyone and welcome to the M.I. homes third quarter earnings release Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Ask your question you May Press Star and then one to withdraw your questions you May press star into.
Please also note todays event is being recorded.
At this time I'd like to turn the conference call over to Phil Creek, Sir. Please go ahead.
Welcome to our call.
Joining me on the call today is Bob Schottenstein, our CEO and President Tom Mason either be.
Klutch President of our mortgage company and Marie Hunker, VP corporate controller, and Kevin Hake Senior VP first to address regulation fair disclosure. We encourage you to ask any questions regarding issues that you consider material. During this call because we are prohibited from discussing significant non public.
Right and with you directly.
And as to forward looking statements I want to remind everyone that the cautionary language about forward looking statements contained in todays press release also applies to any comments made during this call including comments related to cope with 19 also be advised that the company undertakes no obligation to update any forward looking.
Statements made during this call.
Also during this call we disclose certain non-GAAP financial measures a presentation of the most directly comparable financial measure calculated in accordance with the gap and a reconciliation of the differences between the non-GAAP financial measure in the GAAP measure was included in our earnings release issued earlier today that is available.
On our website I'll now turn the call over to Bob. Thank you, Phil and thank you for joining us today.
We had an outstanding record setting quarter highlighted by a 71% increase in new contracts, a 29% increase in homes delivered and a 94% increase in net income.
For the quarter, we sold 2949 homes year to date through September we have sold 7299 homes, 43% better than last year and more than we sold in all of 2019.
Our sales were strong across the board and throughout all of our markets.
Our absorption pace improved significantly to 4.6 sales per community per month compared to 2.6, a year ago.
A number of factors contributed to our strong sales performance low interest rates low inventory levels, a shift in buyer preference towards single family homes, and an increasing number of millennials opting for home ownership.
All of these are fueling a robust housing market.
In addition, we continue to gain market share in most of our markets based upon the strength and quality of our communities.
The quality of our on of our online marketing execution in generating online leads and converting those online leads into sales.
And.
The.
Continued strong market acceptance of our most affordably priced smart series line of homes.
Our smart series sales comprised nearly 36% of total company wide sales during the quarter compared to 28% a year ago.
We are now selling our smart series homes in all 15 of our divisions and on average.
Smart series communities produce better sales pace, better gross margins better cycle time and better returns.
We delivered 2137 homes in the quarter year to date through September we have now delivered 5467 homes, which is 25% more than last year.
Our backlog sales value at September 30, equaled $1.8 billion, an all time record and units in backlog increased 54% to a record 4503 homes.
Our margins and returns during the quarter were also very strong.
Gross margins during the third quarter improved by 240 basis points to 22.9% and our ASG M&A expense ratio improved by 60 basis points to 11.6%.
And our pre tax impact income percentage significantly improved to 11.2%.
All of this resulted in a greater than 90% improvement in both pre tax and net income for the quarter.
Our financial services business also had a record quarter highlighted by strong income and excellent capture rate and very solid across the board execution.
Now I will provide some additional comments on our markets.
As you know we divide our 15 markets into two regions. The Northern region consists of six of our 15 markets.
Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, and Detroit.
Our southern region consists of the remaining nine markets, Charlotte and Raleigh, North Carolina.
Orlando, Tampa, and Sarasota, Florida, and Houston, Dallas, Austin, and San Antonio, Texas.
As I indicated earlier, we experienced strong performance strong sales performance in the third quarter across all of our markets.
New contracts in the southern region increased 63% for the quarter, while new contracts in the northern region increased 85%.
Our deliveries increased by 27% over last year in the southern region.
To 1269 deliveries or 59% of company total.
The northern region posted 868 deliveries and an increase of 33% over last year and 41% of total.
We also had substantial income contributions from most of our markets led by Orlando, Dallas, Minneapolis, Columbus, Charlotte Tampa and Cincinnati.
With Indianapolis, Houston, and Austin also having a very strong third quarter.
Our controlled lot position in the southern region increased by 49% compared to a year ago and increased by 17% in the northern region.
While we are selling through a number of our communities faster than anticipated we are nonetheless, very well positioned to handle demand.
35% of our owned and controlled lots are in the northern region with the balance roughly 65% in the southern region.
We have an outstanding land position companywide.
In total we own and control approximately 40000 lots or about a four and a half to five year supply.
Importantly, roughly 60% of our lots are controlled under option contracts, which with more than half of our lots controlled by option gives us tremendous flexibility to react to changes in demand or individual market conditions.
We had 121 communities in the southern region at the end of the quarter, which is down from 132 a year ago.
And also down from 126 at the end of this year second quarter.
We had 86 communities in the northern region at the end of the third quarter down slightly from a year ago and down from 94 at the end of this years second quarter.
Before I turn it over to Phil Let me just make a few closing comments, despite our record performance and strong sales, we acknowledge the continuing challenges our country. Indeed, the world is facing in dealing with the effects of the Cove at 19 pandemic.
The pandemic continues to affect our operations, though our teams have managed through it very well.
We continue to focus on building and selling quality homes, and we continue to manage our operations and our business with the highest standards for our employees customers and their incumbent in there competing work environment.
Finally, let me conclude by saying that in addition to having a record shattering quarter. Our company is in the best shape ever.
Our financial condition is strong our balance sheet is healthy we have meaningful operating momentum and are poised to have an outstanding year for.
Phil.
Thanks, Bob for his financial results new contracts for the third quarter increased 71% to 2949, an all time quarterly record compared to 1721 for last year's third quarter, our new contracts were up 75% in July up 94% in August.
And at 44% in September our sales pace was 4.6 in the third quarter compared to last year's two point Sixx, our cancellation rate for the third quarter was 10%.
As to our buyer profile about 53% of our third quarter sales were to first time buyers compared to 50% in the second quarter. In addition, 40% of our third quarter sales were inventory homes compared to 45% in the second quarter.
Our community Count was two old seven at the end of the third quarter compared to 221 at the end of 19 third quarter breakdown by region is 86 in the northern region and 121 in the southern region. During the quarter. We opened 12, new communities, while closing 25, and we opened 51.
New communities during the nine months ended 930 this year we.
We delivered a third quarter record 2137 homes, delivering 58% of our backlog, which was the same percentage as a year ago and revenue increased 30% in the third quarter, reaching a third quarter record of $848 million.
Our average closing price for the third quarter was 380000, a 1% decrease when compared to last year's third quarter average closing price of 382000, and our backlog sales price is 404000 up from 390, a year ago, and our backlog average sales price of our stock.
Part series is 315000.
Our third quarter 2020, operating gross margin was 22.9% of 240 basis points year over year and up 100 basis points from the second quarter.
And our third quarter SGN expenses were 11.6 of revenue, increasing improving 60 basis points compared to 12.2, a year ago, reflecting greater operating leverage interest expense decreased $3.4 million for the quarter compared to last year interest incurred for the quarter was.
$10 million compared to $12.9 million a year ago.
The decrease is due to lower outstanding borrowings in this year's third quarter as well as a lower weighted average borrowing rate.
During the third quarter, we generated a 111 million of EBITDA compared to 67 million in last year's third quarter, we had $22 million in capitalized interest on our balance sheet, which is about 1% of our total assets our effective tax rate was 23% in the quarter compared to last year's 25.
4% in the third quarter, our third quarter rate benefited from energy tax credits that were retroactive to 2019, and we estimate our annual effective rate this year to be around 23%.
And our earnings per diluted share for the quarter increased to 251 per share from 132 last year.
Now Derek will cover our mortgage company results.
Thanks, Phil.
Our mortgage and title operations achieved record third quarter results in pre tax income revenue and number of loans originated.
Revenue was up 115% to $28.9 million due to a higher volume of loans closed and sold along with significantly higher pricing margins.
For the quarter the pre tax income was $19.2 million, which was a 241% increase compared to 2000 Nineteens third quarter.
76% of the loans closed in the quarter were conventional and 24% FHLB or VA compared to 78% and 22% respectively for 2000 Nineteens third quarter.
Our average mortgage amount increased to $314000 in 2000, Twentys third quarter compared to $312000 last year.
Loans originated increased to a third quarter and all time record of 1600, 36 loans, 32% more than last year and.
And the volume of loans sold increased by 39%.
Our borrower profile remained solid with an average down payment of over 15% and for the quarter. The average credit score on mortgages originated by on my financial was 747 up slightly from 745 last year.
Our mortgage operation captured over 85% of our business in the third quarter, which was in line with last year.
We maintained two separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to the sale to investors.
At September Thirtyth, we had $136 million outstanding under these facilities we.
We extended our repo line. This month through October of 2021, and increased the commitment amount from 65 million to $90 million.
Both facilities are typical 364 day mortgage warehouse lines that we extend annually.
Now I'll turn the call back over to Phil Thanks, Derek as far as the balance sheet. Our total homebuilding inventory at 930 was 1.8 billion an increase of 16 million over last year, our unsold land investment at 930, 20 is $762 million compared to $821 million a year ago at September.
Thirtyth, we had $362 million of raw land and land under development and $400 million of finished unsold lots. We owned 4942 unsold finished lots with an average cost of 81000 per lot in.
And this average lot cost is 20% of our 404000 backlog average sale price. Our goal is to maintain about a one year supply of finished lots and do own a two to three year supply lots owned and controlled as of 930 20 totaled 39600 lots 15001.
Hundred of which were owned in 24500 under contract we.
We own 6900 lots in our northern region and 8200 lots in our southern region.
A year ago, we own more than 14800 lots and controlled an additional 14200 loss for a total of more than 29000 lots and during this year's third quarter. We spent 107 million on land purchases and 89 million on land development for a total of $196 million.
Year to date, we have spent 267 million on land purchases and 222 million on land development for a total year to date land spend of $489 million and about 48% of our purchase amount was raw land.
At the end of the quarter, we had 266 completed inventory homes about one per community and 1113 total inventory homes and of the total inventory of 550 or in the northern region and 563 year in the southern region.
At September Thirtyth 19, we at 531 completed inventory homes and 1513 total inventory homes. This.
This completes our presentation well now open the call for any questions or comments.
Ladies and gentlemen at this time, we will begin the question and answer session to ask a question. Please press star and one or two ago yourself from the question you May press star and two.
If you are using a speakerphone, we do ask you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
Once again that is star and then one to ask a question.
Our first question today comes from getting Mccanless from Wedbush Securities. Please go ahead with your question.
Hey, good afternoon, guys. Congrats on a really good quarter. Thank.
Thank you.
The first question I had if you think about smart series versus the other product lines, but maybe on a percentage basis, where we are where were you all able to push price. The most on smart series or on the traditional product.
Thats a really good question.
Bye bye.
My intuition is.
That.
Pushing price as opposed to starting margin, it's pretty much across the board.
I think that we've had the ability to expand margin pretty much.
In a really good sampling of all of our communities, having said that before before we were able to successfully push margins on average our smart series communities command a higher margin.
So they start with a higher base, if you will based margin but.
Phil I don't know if you have a slightly more nuanced view of that I don't think its really much different I can think of so many communities that are non smart, where we've had the ability to push margin and.
We are doing so carefully.
Yeah, you don't that other than in hindsight, you don't know whether you really did it accurately we.
We think we've I think we've been very prudent in the way we've approached it and.
But I think it's for Jay I think it's a it would be wrong to suggest that it's anything but a broad based.
Great.
Then the second question I had and thinking about.
The community count.
And it sounds like you'll ran through fair number communities during the quarter could you maybe talk about where you think the community count goes for the rest of the year and then any help you can give us in terms of where the community count might go in 2021.
You know Jay that's a it's really challenging situation situation for us if you look through the first nine months of the year we've closed.
69 communities last year. The first nine months, we closed 46. So we've had 323 more communities close this year.
Opening of communities as about been the same you know year to year.
We're trying to get communities opened the right way as fast as we can.
Course, the good news is that our absorption pace is up significantly.
Not given any guidance, but that's just such a difficult answer.
But we are hoping we are focused on community count.
And I think will be difficult for us the next couple of quarters, but oh.
I think as we get into the latter part of next year, hopefully up will be a little better situation, but having said that you know as Bob said there are more smart cities communities. Those sales pace are better. So we're watching it very carefully and do all we can to the other thing I'd add to that is.
That there's there's two factors that are impacting community count in the very near term there probably will be a little bit of choppiness.
One of those factors is the very robust sales pace over the last four to five months.
And selling even though were.
Controlling sales if you will in in a very decent portion of our communities not wanting to get too far out ahead of ourselves notwithstanding that we are selling out of some communities faster than we anticipated. The other side of that is is because of co the and work from home or furlough.
Those.
It's not everywhere, but in many of the.
Locales in which we operate the submarkets that municipalities the townships et cetera, the entitlement process in the sign offs needed to complete development and to commence new home construction and secure the first tranche of building permits and so forth has.
Been delayed.
For note for no economic reason, but for just just the reality of the shortage of people that are there to do the work so you're sort of getting pulled from both ends having said all that.
We've said this before we'll say it again, we are poised for growth.
The growth may not be it on an even playing but we think we're really poised for growth.
Based on what we believe today of what we know today over the next 12 to 24 months.
Great and then the last question I had.
Last year, you guys had a backlog conversion rate in the fourth quarter of roughly 66% and just wanted to see if you're running a similar rate to that with what you've converted some for or if theres any any type of dispersion you can give us of when all the the.
Huge crop of orders in Threeq, you might deliver over the next couple of quarters.
Yeah Ajay.
We don't give any projections as far as fourth quarter closings are for your or anything else. I mean, we do hope and plan to close more houses in the fourth quarter than we did a year ago. The backlog is quite a bit higher I would point out a couple of things that when you look at.
The large amount of sales we added in the third quarter. This year versus last year for instance, if you look at the 930 backlog. This year like 65, 66% of those sales into 930 backlog came in the third quarter.
It takes a certain amount of time to get those houses in the field and built if you look at the backlog at September of 19 about 58% of those houses were sold in the third quarter of 19. So my point is there is more recent sales in the current backlog.
Theres also a situation where even though I have a few more houses in the field 930, this year than a year ago. I do have you know 400, less specs and those specs and in general are not as far along construction wise.
So.
I would not be surprised to see my backlog conversion rate lower in the fourth quarter, but having said that you know, we do hope and plan assuming things kind of stay the way. They are that we will close on a few more houses in the fourth quarter than a year ago, but it won't be any crazy now.
We are way above last year, the guy to answer your question.
Okay. That's great very helpful. Thank you.
Our next question comes from Alan Ratner from Zelman and Associates. Please go with your question.
Hey, guys. Good afternoon, congrats on the great results, Thanks, Alan balance.
Phil I wanted to I might have missed heard this number so I was hoping to double check in and just get your thoughts on it I I thought I heard.
You gave us roughly 5000 unsold finished lots and.
If that's correct and just please confirm that but you think get a common after the fact that said like you. Your target is a one year supply of finished lots on the book. So if that number is right. It would appear to be well below your kind of a one year sales pace at least that you've been running at this year closer to the eight to 9000 range. So can you do.
Talk a little bit about that if I'm hearing that correctly or be if not can you correct me.
Yeah, you're hearing that correctly, Alan and again you know.
I always use the most current closing rate optimistic people tend to use sales were being conservative financial person I always use the closing rate so.
I would like to have 770, 500, we have less than that.
We'd also like to have you now own two to three years of our current run rate and if you look at our current closing right. We're we're close to that two number so.
Good Bob totally we think we have a very very strong land position well, we'd like to own a few more lots in certain situations. Yeah. The answer is probably yes, having said that there's a difference. If you have finished lots ready to go optioned.
Or even raw land that geno rate to put a shovel in the ground. So you've got to look behind and see what.
Compose that option, but we think we have a very strong land position, but you know if we got a few more lots at prime and make us a little happier Bob I don't know if you well I'll yeah on.
Other than what I said before Alan how we sold more houses than we thought we would of course, so as everyone else and our newer communities going to come online, maybe a quarter or so slower than anticipated, probably maybe not a full quarter, but maybe a month or so which could impact the quarter.
Sure I mean, that's just the reality that that we're dealing with in most of our markets, having said that I want to just reiterate we have a great land position.
Doesn't at least at this point keep us up at night.
And we are poised for growth and.
We've we've really are we've got great momentum than Weve gained a lot of traction and so many of our markets.
That several years ago, we wouldn't have been able to say that today and.
It's good to have that momentum I think that.
I think our performance in most of our 15 markets is standing tall today and we you know we we don't we don't say that lightly and we don't take it for granted.
Got it no that's helpful and thank you for for walking me through that so I guess the follow on to that then is very impressive increase in lot lots owned or should become option. This quarter, a big sequential increase in year over year as well. So do you have any any way to kind of tell us the.
Yeah, the development phases of those lots that you tied up through option. I mean are these lots that you would expect to contribute to 21 growth at all is this more of a 22 kind of community count driver, just curious where where these lots are located and what development stage. They are at.
You know this.
I wouldn't be able to give you two accurate of a read but if I had to you know take us take a guess my guess is is that a a small fraction of them will contribute to sales and closings in 2021.
That the overwhelming majority is 22 business and beyond.
But we're.
We're we're in pretty good shape for 2021, and some of that additional stuff will create some additional sales and closings next year or.
In 2021, but most of it will be pushed out beyond that Phil that you want to see if you actually look at that that the numbers Alan the majority of the uptick in the control is actually in our Texas markets.
After being primarily a raw land pieces and Bob It's correct as usual I mean, we're really in great shape for growth in 21, and actually in really pretty good shape for 22. So the uptake really is more for the second half of 22 and 23 in two.
Texas.
Got it okay. Thank you for that and if I could squeeze in one more on.
The cash position among the highest level on record here so.
So great progress on the balance sheet, and obviously I'm sure and investing in land is the number one priority, but how do you see the balance sheet unfolding I mean your stock is at book value. Obviously M&A has been an area in the past, where you've you've selectively been able to allocate some capital towards deals to drive near term growth. So how should we think about that.
That $200 million cash balance over the near term.
Well you know.
I think buying back stock is overrated may not be a popular thing to say on this call, but I do believe that and I've.
I've had experience with other.
Other industries.
Still feel that way, having said that.
First.
First of all.
Economic conditions are uncertain, let's face it a year ago today no one could have predicted what we what we have and what weve seen occur in 2020.
Not not just the pandemic, but what happened once the pandemic hit.
Latter part of March early April we thought this was going to be a rerun of the great recession or worse.
And by you know early May it was like Whoa.
This this is quite extraordinary the bounce back in demand and by the end of May It was it a you know at least for us or at most builders are record setting pace no no one could have anticipated that.
I think the same kinds of vagaries exist today with the future.
You know what.
You know as long as it I think interest rates is the primary driver for housing right now.
Certainly some of the demand is fueled by some pandemic unique circumstances very low resale inventories I think is partly impacted by the pandemic. This notion of a preference for moving out of high density urban areas is that a long term thing as that is well that soon change once the pandemic.
Hopefully happen soon as in the distant mirror those things may not be for the long haul, but I do think the millennials beginning to come off the sidelines is not going to reverse itself.
I think that's more driven by just changes in family situations than anything else and I think low interest rates as long as they stay closer to three than before I think we'll continue to drive housing and neck right now they are below threex. So all that said.
We think we've got a lot of reason to hold on to capital to invest in our business, we would love to be in another market or two if the opportunity presented itself.
The good news is we don't have to we can achieve our growth goals over the next two to three years without doing so but at some point, we probably need another flag are too and and that could require a lot of capital.
So.
If you put all that in a blender you sort of sit on it right now.
And you know a we think our return on equity is top two or three in the entire industry and hopefully will be judged by some of these other metrics more than how we're deploying our cash for those that we'd rather see a short term buyback.
Right now very very detailed on Terra Bob. Thank you very much and great great luck.
Thanks, how much Ellen.
Our next question comes from Aaron Hecht from JMP Securities. Please go ahead with your question.
Hey, guys. Appreciate all the insight you gave on the land positions of Barclays as a critical aspect of the business and totally.
Totally understandable why there's going to be some volatility given the results you guys. It is it's really been amazing to watch.
So what I want to hit on the land, but wondering in terms of.
Margins you know there's been some cost inflation over the year lumber.
Lumber being the one that has been called out a number of times. So wondering if we need to be sense of what the margin profile is going to look like over the next couple of quarters and the orders that you took this quarter and earlier in the year roll through with some of those.
Cost inflation items.
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You know when you look at you know stick and brick cost in general you know lumber is definitely a jumped up quite a bit and come off some I think if you look at you know across our company you know in the third quarter, we had a a 3% to 5% increase in those type.
Cost Oh, we have been raising price very very aggressively the good news is land development costs have not been up you know that much.
We've been very very pleased with the improvement in our margin in the last couple of quarters.
Don't predict what they will be but I will tell you that you know we really try to focus on opening new communities. The best way we can.
Demand is still very good.
So you know, we're hoping very much to you know keep these strong margins we have a.
Our margins in taxes have improved dramatically of all four of our Texas divisions. Now are at that you know 500 units a year run rate plus.
And that's really given US you know more communities in more scale and as Bob talked about the smart series are those margins being better.
So we focused on it a lot hopefully lumber is going to continue to come.
Come down a little bit.
We are being very careful with sales of getting too far out on delivery dates and that make sure. We have our costs not only locked in but locked in with people. We believe that can honor all those commitments and not get too far ahead of ourselves So having said all that.
We are doing all we can to keep our margins as strong as we can.
Gotcha, and Bob you made a comment that Alan about potentially looking at new markets.
I want to share, which markets you might be contemplating entering at some point.
If we were further along I would right now.
First of all let me be really really clear we.
We do at least for the next several years assume we can grow our units by.
Of course, this year they've grown by a it almost.
Unimaginable pace.
Though right, 71% growth in the last quarter in units.
That's not long term sustainable for for us or anyone but assuming we can grow our units you know in that 10% to 15% or more over the next several years at some point.
We believe we would need an additional market or two.
So it's not something that right now we need to do something or will have trouble achieving our growth grows over the next two or three years, but.
So there's probably four or five markets that we've been sort of looking at but.
I can't really comment on it it wouldn't be smart and it might be misleading.
Okay and Phil in terms of.
The answer is rolling through the income statement is there now enough but.
Backlog to be capitalized that answer is what we should think that that line could go to zero pretty soon.
I would not count on that.
We have im pleased that our interest incurred you know has been going down however.
However, our land spend and some of our land activities have been kind of lower than we thought they would be you know we did it the pause button in that March April May timeframe. You know would expect you know land activity to increase in the fourth quarter and next year. So hopefully we will continue to be.
The.
Efficient there would not see that number you know getting down that low of a level, but up hopefully.
Hopefully we will continue to see some improvement.
Thank you very much greater results.
Thanks, a lot Eric.
Our next question comes from Art Winston from pilot Advisors. Please go ahead with your question.
I suspect I can say to you guys on behalf of most of the shareholders for your excellent stewardship of this company cooks. Thanks.
I was wondering in the second quarter Conference call you gave your conservative outlook and all the things that may not be right. Yet. It seems like you stepped up your investment in land and community, it's very rapidly and I wonder if anything changed during the course of the quarter or anything changed in your procurement hurdle rates or anything like that.
Made first of all our thanks for your comment.
As far as the question.
Maybe a little bit.
I think that there's several things that that had been true at the same time.
And one of them is that in the face of much wrap much more rapid than expected sales and selling out of communities faster.
We realized that in a few of our markets we needed to be more aggressive.
As we looked out over the next 123 years.
But at the same time some of the additional purchases have been fueled by improved operating performance and execution and frankly confidence in that execution in some of our markets that threeq two or three years ago had been struggling.
A couple of years ago.
In some of our Texas markets, we weren't doing nearly as well as we are now.
We were underperforming frankly, and we're not anymore and as a result, you know it's one thing.
To say, we want to grow in a certain market from X to X plus 20% X plus 40%. It's another thing to say, let's get X fixed first and so in probably two or three or four of our markets where we've seen.
We've gone from Soso performance or underperformance to very high level of performance now we really have confidence that we can take those markets to the next level have the opportunity to do so.
The markets will allow us to admittedly the very competitive but you know we think we believe we can compete so I think it's the two of those things happening at roughly the same time that have spiked some of the some of the additional land under control.
Understood It seems that rich.
Britain pick right that the investment new investment community is higher that you're buying bigger bigger community. Its very best thinking bigger larger communities is that possible.
I think in general when you look at our Smart series communities they tend to be more lots.
They also tend to be.
Is 200 lots, we may be putting to 75 or 100 lots on the ground as opposed to 50, just because sales are so strong and we don't want to go dark in there. So yes communities have gotten a little bit larger, but that's also something that we can manage closely and quickly.
If demand or the market changes.
Got you one last question.
I hear what you said about stock repurchase even though historically you've done it very judiciously and effectively but what about the outside possibility. It just barring another $100 million to $150 million.
You know, 3% or something you're putting on the balance sheet cash ever need it you could afford to pay the interest right now is that a consideration.
You know I think that you know as Bob talked about even though business is very very good there there is a lot of uncertainty.
Oh, we think we have a very good business positioned well up but also we do think the land spend is probably going to tick up you know the next couple of quarters.
We also think that being in a lower leverage situation. During these uncertain times, probably makes a lot of sense. We are very glad in good shape to have a $500 million Bank line Undrawn, which we can get to if we need. So we think we have a lot of that.
Liquidity, there if we need it so again, it's something that we look at constantly and discuss with our board and we will continue to.
Okay, well thanks for everything.
Thanks Art.
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And our next question comes from Alex Barron from housing Research Center. Please go ahead with your question.
Hey, guys good afternoon, and congrats on the strong results.
Thank you.
I was curious if you guys could comment on roughly the trend of the.
Of the orders in the.
In the quarter.
And also whether you could offer any comments about how October is going.
I'll, let Phil comment on the month monthly year over year increase from a September August.
And and July.
We will not we have not and do not provide it.
Any guidance on the current month, but Phil if you want to talk about the three months and Alex I mean, the demand really was solid all the way through you know the month when you start looking at the numbers you know it depends a little bit on how you know last year's July was how last years August was.
Did we do a little more managing of sales as we went through the quarter. The answer is probably yes, again, not wanting to get delivery dates out too far to outrun our cost protection.
Not get out front, we do still have you know some supply challenges with windows and apply it to each market different think we're working through all thanks. Okay.
And Michael time, it's not really gotten any worse, but demand has continued to stay very very strong.
Okay, great so that said.
Is right now you know there's this conversation about price versus pace is right now.
Do you still feel comfortable that you can handle that the current pace are you guys.
I guess more inclined to be limiting sales in pushing the prices.
You know that's a a subdivision by subdivision a decision.
And we trust our experienced area presidents, along with our region presidents.
So to work through those things up you know the backlog is significantly higher than last year.
You know we had a very very strong sales pace you know our margins were up 250 basis points. So hopefully we're pulling the right levers are just really comes down to a subdivision by subdivision you know answer Alex.
Got it.
One other question on the EPS DNA I noticed the corporate.
Dollar amount they guess was.
Yes, a little bit higher than than.
And last year obviously.
But you know I was curious you feel like this is kind of a new run rate that we should expect going forward or was there any one time items in there.
You know Alex the big piece of that was incentive compensation you know our leadership team and our people in general are based are compensated to a large amount you know on bonuses income customer service and those type things and those bonuses are booked primarily.
As the income is earned and we had almost $800 million pretax quarter, the best quarter ever so that generated higher bonus accruals.
So again that was the biggest reason for that increase.
Got it okay, well best of luck for the rest of the year guys. Thanks.
Thanks, Alex Thank you.
Yeah.
And ladies and gentlemen, once again, if you would like to ask a question. Please press Star then one.
So it's all your questions you May press star and two.
And ladies and gentlemen at this time in showing no additional questions I'd like to turn the conference call back over to management for any closing remarks.
Thank you very much for joining us look forward to talking to you next time.
Okay.
Ladies and gentlemen that will conclude today's conference call. We do thank you for attending you may now disconnect your lines.