Q4 2020 M/I Homes Inc Earnings Call
[music].
Good day and welcome to the M I homes fourth quarter earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on the Touchtone phone to withdraw your question. Please press Star then two per.
Please note this event is being recorded.
I'd now like the turn the conference over to Phil Creek. Please go ahead.
Thanks for joining us today on the call is Bob Schottenstein, our CEO and President Tom Mason E V. P. Derek clutch President of our mortgage company Ann Marie Hunker, VP, corporate controller, and Kevin Hake Senior VP.
The 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 nonpublic items with you directly and as to forward looking statements 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 COVID-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 of presentation of the the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today that is.
The available on our website with that I'll turn the call over to Bob. Thanks, Phil Good afternoon, and thank you for joining our call.
We are extremely pleased with our fourth quarter and full year results highlighted by significant growth and record setting financial achievements across the board.
By every measure 2020 was an outstanding year for M I homes.
We nearly doubled our net income increasing our bottom line by 88% over 2019, resulting in a very strong return on equity of 22%.
The number of factors contributed to our strong returns.
We achieved record revenue of $3 billion, an increase of 22% over 2019.
Record closings of 7709 homes, 22% better than a year ago.
Very strong gross margins that reached 23% in the fourth quarter and 22, 2% for the full year, a 260 basis point improvement over 2019, Andrew.
And of our full year pre tax income percentage improved 360 basis points to 10, 2%.
These results continue the trend of strong growth in revenues and earnings that we've achieved frankly since coming out of the recession.
Specifically since 2012, our revenues have grown at a compounded annual rate of 19%.
And our pretax income has grown at an even more impressive compound annual rate of 49%.
In addition, the strong performance of our mortgage and title operations as well as improved SG&A operating leverage also contributed to our record earnings.
We also had an outstanding sales year, new contracts for the year improved by 39% to a record 9427 homes sold.
Fourth quarter sales continued the strong pace of sales that began in late April.
During the quarter, we sold 2128 homes, a fourth quarter record and 27% better than a year ago.
Overall housing demand remains very strong driven by a number of factors, including historically low mortgage rates.
The low inventory levels and increasing number of millennials, joining the ranks of homeownership and.
And the shift in buyer preference away from renting in more densely populated areas in favor of single family homes.
In addition of number of other factors also helped drive our strong sales performance among them are the quality of our locations.
Our ability to execute on many fronts, including successfully managing a rapidly increasing number of online leads.
And the continued success and growth of our smart series line of homes.
With respect to our Smart series, let me remind you that this is our most affordably priced product offering.
At the end of 2020, our Smart series was being offered in all 15 of our housing markets.
Price 60 to 62 of our total communities or.
Or 31% of total and accounted for more than 35% of total company sales.
Our smart series communities continued to provide a better monthly sales pace.
Better margins faster cycle time, and as a result, better overall returns.
We fully expect the sale of our smart series homes to grow further.
Within our markets and likely approach, 40% plus of total <unk> sales in the coming year.
And in terms of demand and traffic as we begin 2021 housing conditions continue to be very robust throughout all 15 of our markets.
Our year end backlog increased 64% in the units to 4389 homes and the dollar value increased by 74% to an all time company record of $1 $8 billion.
Now I will provide some additional comments on our markets, which we divided into two regions. The northern region, which consists of Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis and Detroit.
In the southern region, which consists of the balance of our markets Charlotte Raleigh, Orlando, Tampa, Sarasota, Houston, Dallas, Austin and San Antonio.
We experienced strong performance in the fourth quarter across both the northern and southern regions with new contracts in the southern region, increasing by 31% for the quarter and 21% in the northern region.
Our closings or deliveries increased 16% over last year's fourth quarter in the southern region and increased 19% over last year's fourth quarter and the northern region.
Our owned and controlled lot position in the southern region increased by 23% compared to a year ago and increased by 12% in the northern region compared to last year.
While we are selling through community somewhat faster than expected. It is important to underscore that we're very well positioned to open new communities in 2021 and well into 2022.
37% of our owned and controlled lots are in the northern region with the balance of 63% in the southern region.
We are of very strong land position companywide, we own and control approximately 40000 lots up 19% from last year.
Which equates to about a four to five year supply.
Perhaps more important over half of the lots that we own and control of.
For about 57% are controlled under option contracts and not yet on our books.
This gives us significant competitive flexibility to react to changes in demand or individual market conditions.
We had 112 communities in the southern region at the end of the quarter down from $1 29, a year ago, and we had 90 communities in the northern region at the end of the quarter down from 96, a year ago.
As I mentioned the decline in community Count is partially a result of our accelerated sales pace.
But it's also important to recognize that nearly a third of our communities are now offering of our smart series homes.
And that these communities not only often have more lots in total but as noted earlier generally produce a greater sales pace.
Before turning the call over to Phil Let me just make a few concluding comments.
First our financial condition is very strong with $1.3 billion of equity at December 31, and the book value of $44 per share.
We ended 2020 with the cash balance of $261 million and zero borrowings under our $500 million unsecured revolving credit facility. This.
This resulted in a 34% debt to cap ratio down from 38% of year ago, and a net debt to cap ratio of 23%.
Second <unk>.
2020 was the year of unprecedented challenge and severe hardship caused caused by the global pandemic.
As an industry, we have been very fortunate that our business and the business of our competitors has held up exceptionally well.
As it relates to homes I could not be more proud of our company as we came together to safely and carefully provide quality homes to so many.
Finally, as we move forward into 2021, we are very optimistic about our business.
Our backlog is strong our sales pace has been terrific. We have an excellent land position and housing conditions, including both demand and traffic continue to be very good.
We have a lot of operating momentum and are positioned for another strong year in 2021.
Phil Thanks, Bob for his financial results new contracts for 2020 increased 39% to 9427, an all time record compared to 6773 for last year, our new contracts were up 14% in October up 36% in November.
And up 35% in December for a 27% improvement in the quarter compared to last year's fourth quarter our.
Our sales pace was three 5% in the fourth quarter compared to $2 five in last year's fourth quarter and our cancellation rate for this year's fourth quarter was 10%.
We are also pleased to say that our buyer demand continued to be very strong in January.
<unk>, our buyer profile about 53% of our fourth quarter sales were the first time buyers compared to 49% of year ago. In addition of 43% of our fourth quarter sales were inventory homes compared to 44% in last year's fourth quarter.
Our community Count was two <unk> at the end of the year compared to $2 25 at the end of 2019 and the breakdown by region is 90 in the northern region and 112 in the southern region. During the quarter. We opened 18, new communities, while closing 23 and for the year, We opened 69 new communities.
<unk> and closed 92.
We delivered a record 2242 homes in the fourth quarter, delivering 50% of our backlog compared to 66% of year ago. There are a couple of factors that led to this decline in backlog conversion rate when compared to last year first our extremely strong sales and significantly higher.
Backlog levels in the back half of 2020 led to longer times for getting home started secondly, we had been selling spec homes nearly as fast as we can get them started which leads to lower spec home inventories, especially those which are closer to completion and could contribute to closings within non.
Of the days.
Revenue increased 22% in the fourth quarter of this year, reaching a fourth quarter record $906 million and our average closing price for the fourth quarter was 389000 of.
<unk>, 3% increase when compared to last year's fourth quarter average closing price of 377000, and our backlog average sales price is 419000 up 6% from a year ago and our backlog average sales price of our smart series of 322000.
We reported $8 4 million of impairment charges in the fourth quarter compared to $5 million in last year's fourth quarter and our operating gross margins excluding impairments for the fourth quarter was $24 one of 420 basis points year over year and up 120 basis points from 2002.
Third quarter, our higher margins in our Texas operations were a big driver of our margin improvement and for the full year of 2020, our operating gross margin was 22, 5% versus last year's 19 eight.
Our construction costs increased by about 3% in the fourth quarter with the biggest impact from lumber.
And our fourth quarter and full year SG&A expenses were 11, 7% of revenue of 40 basis points improvement compared to 2019, and 2020 is our third consecutive year of improved SG&A efficiency interest expense decreased $3 5 million for the quarter.
Compared to the same period last year and decreased $11 7 million for the 12 months of this year. The decrease for the year is due to lower outstanding borrowings as well as the lower weighted average borrowing rate and interest incurred for the quarter was $10 million compared to $12 5 million a year ago.
For the year interest incurred was $40 million versus $49 million a year ago. We are pleased with our improved returns for the year. Our pre tax income was 10, 2% versus $6 six last year and our return on equity was 22% versus 14% of year ago during.
During the fourth quarter, we generated $127 million of EBITDA compared to $75 million in last year's fourth quarter and for the full year 2020, we generated $383 million of EBITDA of 60% over last year. Despite.
Despite a significant amount of reinvestment into our business, we generated $168 million of positive cash flow from operations in 2020 compared to $66 million last year.
We had $21 million in capitalized interest on our balance sheet. This is about 1% of our total assets.
And our effective tax rate was 21% in this year's fourth quarter compared to 19% in last year's fourth quarter. Our annual effective rate. This year was $22 six compared to $23. Two for 2019, our fourth quarter and annual tax rate benefited from energy tax.
It's from prior years, and we expect 2021% effective tax rate to be around 24%.
Our earnings per diluted share for the quarter increased 88% to $2 71 per share for $1 44 per share in last year's fourth quarter and increased 83% for the year to $8 23 from $4 48 per share last year now Derek <unk> will address our mortgage company results. Thanks, Phil.
Our mortgage and title operations achieved record fourth quarter results in 2020, including record pre tax income of $14 8 million up.
Up $8 4 million.
Or 131% over 2019.
And record revenue of $25 6 million, which was up 62% over last year due to a higher volume of loans closed and sold along with significantly higher pricing margins. We also set a record for the number of loans originated.
For the year pretax income was $50 $5 million and revenue was $87 million, both all time records the.
The loan to value on our first mortgages for the fourth quarter was 83% in 2020 up from 2019 fourth quarter of 82%.
74% of the loans closed in the fourth quarter were conventional and 26% were FHA or VA compared to 76% and 24% respectively for 2019 same period.
Our average mortgage amount increased to $319000 in 2000, Twenty's fourth quarter compared to $303000 in 2019.
The number of loans originated increased 25% from 398 to an all time quarterly record of 746.
And the volume of loans sold increased by 15%.
Our borrower profile remains solid with an average down payment of over 15%.
For the quarter the average borrower credit score on mortgages originated was $7 45, a slight decline from 747 last quarter.
Our mortgage operation captured over 85% of our business in the fourth quarter, an increase from 84% one year ago.
We maintain two separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to sale to investors.
At December 31, we had a total of $226 million outstanding under these facilities, which expire in May and October of this year.
Due to our typical high volume of fourth quarter closings. We include a seasonal increase in our warehouse facilities, which provides temporary availability of $275 million through February 4th 2021, after which time total availability of returns to $215 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, Derik as far as the balance sheet total homebuilding inventory at 12 31, 'twenty was $1 9 billion, an increase of 147 million over December 19 levels.
During 2020, we spent $415 million on land purchases and $318 million on land development for a total land spending of $733 million, which was up from $600 million in 2019 and.
2020, we purchased about 11500 lots of which 77% will roll with about 150 average lots per community.
In 2019, we purchased about 7500 lots of which 63% were raw with about 100 average lots per community in general most of our smart series communities, our role and deals and have above average company pace and margin.
We have a strong land position at 12, 31, 'twenty controlling almost 40000 lots of 19% from a year ago and of the lots controlled 43% of our owned based on 2020 record closings. This is about a five year supply of inventory with just over two years owned.
And at the end of the year, we had 225 completed inventory homes about one per community and 1131 total inventory.
At 12, 31, 19, we had 668 completed inventory homes and 1459 total inventory homes the.
This completes our presentation, we'll now open the call for any questions or comments.
We will now begin the question and answer session to ask a question you May Press Star then one on the other touchtone phone if you're using a speakerphone. Please pick up your handset this low price.
The key.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Alan Ratner with Zelman and Associates. Please go ahead.
Hey, guys. Good afternoon, how are you.
Good Alan how are you.
Doing well congrats on the great a great quarter and great year and good to hear you guys are doing well.
So I guess first to start off with the gross margin you know that was the area of at least relative to our expectations that really was blow away much much better than expected so would love to get a little bit more insight into what drove the strength. This quarter I mean, obviously, the strong market, but very significant sequential step up.
Anything we need to be cognizant of you know from a mixed perspective or timing related to cost inflation things like that or is this a pretty good indicator of where your your margins are in backlog right now.
I think that Theres, a couple of things and.
And maybe Phil wants to add to it one is clearly as as smart series sales.
And and then closings become a greater percentage of the mix that will help bring margins up because.
In almost each case, our smart series communities have slightly better gross margins that's number one number two.
We have made tremendous progress.
In strengthening the quality of our operation and the size of our operations in Texas.
And that scale and improvement.
Has has impacted in a positive way virtually every one of our financial metrics, including margins.
The only other thing I would say, maybe Phil wants to add to it.
The the conditions as they exist today.
Is there an opportunity for margins to go up I don't know I feel like this is a pretty good spot.
And I also notwithstanding the cost pressures I think the current levels of demand should give us some ability to be able to offset most of those.
You know.
Keep the margins about where they are we don't give guidance on it but we've historically said things like we think housing is it.
Homebuilding is the 20% to 21% business right now, it's a 22% to 23 plus percent business and I think that's about where it is today.
Bill you know of any of that.
And the only other thing is that.
As far as store count we are selling out of communities faster than we thought we are managing our sales process very very quick very carefully and as you have fewer sales opportunities and most of our situations. There is an opportunity to raise price. So execution, we always talk about.
Really really matters. So hopefully we're executing at a pretty high level as we had fewer sales opportunities in certain communities.
I appreciate that.
Both of your perspectives, there until you kind of touched on my second question, there with the community count.
First off I appreciate the insight you gave as far as the size of the communities because I think that's something that gets lost a lot of times when when we're just looking at absolute community count is that the composition of these communities can differ quite quite significantly. So on one hand, it sounds like you're well positioned for continued growth just based on the lots you have on the ground.
Even though of community counts under pressure, but Phil you kind of touched on the idea of that you don't want that to GAAP out too much. So you are probably at a point, where maybe in some markets in some communities you actually are limiting the the pace of sales. So I'm curious as I look at your lot count now is there a possibility to kind of stem the tide of these declines in community count and actually.
See some growth there over the course of 'twenty, one or do you think that that's a number that's going to remain under pressure for the next few quarters just based on whats.
What's in the pipeline and delays on development and dealing with municipalities et cetera.
I'm going to try to answer the question in.
Others can chime in.
I want to underscore something about.
The first comment you made Allen.
We're not apologizing for our community count we have sold out of the communities faster.
We and frankly I think the whole industry is dealing with.
A little bit of delays of new communities coming on some of those delays are a direct result of of staffing issues that have been impacted by COVID-19 and thats non excuse such as the situation we're dealing with the.
For the conditions in general for Us have been phenomenal. So you can't complain about anything.
But having said all of that selling out faster new ones coming on slower not all community and this was your first point not all communities are equal.
With Smart series accounting for nearly a third of our communities and that will grow.
And with the pace and smart series communities.
And the size of those communities.
Some cases being 10 15, 20% larger of the pace being 10 15, 20% per month higher.
With less communities you can sell more houses and.
That arithmetic, just translates that way and that's what we've seen.
Phil if you want to talk about the outlook for the balance of the year I mentioned in my comments that.
We fully expect down the road to continue growing our company.
We're not satisfied remaining flat we want to grow units, we want to grow closings and orders in order to do that where we will also be growing community count.
This year and next exactly when they come on within the quarters is a little bit less certain but Phil as I talked about we opened.
69, new stores in 2020.
<unk> closed out of more stores than we thought we would therefore, we ended up with the down community count.
We do plan on opening more stores this year than last year and as Bob said due to more of the smart series being raw land the <unk>.
Store count is more skewed towards the second half of next year versus the first half.
It's just so hard to predict closeouts, we're trying to manage that process.
Best we can from a pricing standpoint from a construction standpoint, and so forth, but you know our plan is definitely to continue our growth we talked about the growth. We've achieved the last 10 years, we obviously have a record high backlog right now we feel very very good about our land position.
But community count for us will be challenged especially that the first part of the year, but again, we plan to continue our growth.
Great No that's very helpful and congrats and good luck.
Thanks. Thanks.
The next question comes from Art Winston with pilot Advisors. Please go ahead.
Thank you guys for the great results I'm sure one of the cycle is depreciated I had two questions.
Given the you sort of step one.
<unk> slowed down buying the land and the first couple of months of the year and then you end up spending.
700 plus million.
I was wondering if you think that.
And the like.
Competitors wanted to maybe buy the same land. If you are forced to pay up and the potential for the return on investment from the line you bought this year could be less profitable than purchases of historically.
No I don't first of all of our thank you for the for the opening comments.
When we delayed land when we pause and I think we talked about this exact point, we view during the last conference call last quarter.
When we paused almost every one of our land transactions.
Towards the end of March and into early April of 2020, when the pandemic really.
Became front and center.
The.
We really didn't cancel.
One deal.
99% of our transactions remained in play.
We bought time.
But we did not we didnt sacrifice the transactions, we didn't walk away from them, but we didn't have the buying back of the higher price we didn't lose them. The competitors. We tried to buy 30 60 90 days.
And in some cases got that in some cases did and just to give us time to see what the hell it was going to be happening.
And then within.
How the pandemic is going to affect us I don't think that will have any impact going forward.
On returns.
But I will say this the land market is extremely competitive.
We are all about trying to find the best locations, we possibly can we focus very heavily on a locations. It's never been our style to go out into the secondary and tertiary markets to try to buy cheap big parcels.
And see how that works, that's not our ammo and isn't today.
We talk about the 40000 lots that we own and control equating roughly to afford a five year supply less than half of its on our books.
55% to 60% control by options, our land position as the strongest it's ever been today.
Excellent very good my second question is you alluded to Texas, maybe two or three times, if we forgot about Texas.
I assume that the results for the remainder of the company I still quite excellent irrespective, excluding Texas.
Yes.
I think every one of our divisions had double digit volume growth in the.
In 2020 of which contributed to the 40% increase companywide in sales.
<unk>.
We we had an exceptional year as I sort of go around the horn and Orlando.
In Minneapolis, and Columbus, and Indianapolis, certainly Dallas Austin.
Of those Charlotte those market stand, particularly tall as I sort of scans are 15 markets.
Good.
Just one more thing that I didn't understand.
I understand that you can get more of the smart homes on on an acre of land and the other homes, but are you buying bigger parcels of land or just putting more homes in the same size price is a little bit of growth.
It's a little bit of both I mean, it's on average of the smart most of our smart series communities are raw transactions as opposed to finished lot takedowns from third parties.
And they tend to be on average larger communities. My guess is it's both the acreage it's certainly bigger than lots.
Okay.
Excellent. Thank you very much.
<unk>.
The next question comes from Alex Barron with housing Research Center. Please go ahead.
Okay.
Thank you and good afternoon, and good job guys.
Thanks Alan.
Yes, I wanted to focus on the sales team.
Yes, this quarter versus last quarter is the last quarter, you guys debt 2900 49 homes.
So this quarter of 'twenty 100, I understand some of that for the.
The community count was down but I think.
Thank you mentioned year, managing the sales pace I'm, just trying to understand the you guys.
Limiting the number of lot releases per month or are you guys, just managing it by raising prices, but not all.
For a little bit of both.
Little bit of both.
I mean the.
The.
It does us no good to.
First of all let me, let me even back up a little bit.
Yes.
It goes against your nature to ever want to quote managed sales.
No one knows what's going to happen and.
In an hour or tomorrow.
We are.
But when we when the demand is so great.
So many of our communities that our ability to deliver the homes.
Time, Inc.
<unk>, where we can protect our pricing because we're having to build we're having to deliver them so far out when that becomes at risk.
It's in our best interest to control the number of sales per home sites that we offer for sale in the particular community.
Some of it's with pushing price, but some of it's just us.
<unk> that we can only deliver.
Quality home for so many quality homes six seven months out and the particular community per month, and when we tried to do many more than that.
We run the risk of margin erosion of the inability to protect pricing.
And Alex you also get into when the communities are opening we talked about opening 69 stores last year, we opened 12 stores in the third quarter and 18 of the fourth.
So we try to make sure we can only get one chance to open the open the right way, we definitely manage how many houses how many lots we release initially.
Make sure we understand where the demand is coming from increased prices. If we can that impacts. It also but I think one thing in the last six or so months of the shown US is theres not a lot of seasonality of demands to remain very very strong and we try to take advantage of that without getting out too far ahead of ourselves, especially from a cost stand.
And also from a construction standpoint.
Yeah understood that makes sense now.
You guys mentioned that you want to continue to grow.
So what you know what can you do you expand your production capacity.
The higher more more people both the yield people sales people other than the opening more communities.
Or you can somehow.
Yes, it's frankly the same things.
I don't mean to be overly simplistic I hope this comes out the right way. It's the same things we've been doing for the last seven years.
You know, we've more than doubled our business since coming out of the recession.
Pretty much all of it has been organic with a few minor.
Acquisitions.
We've.
And our our income has grown by even a greater percentage.
So it's going to come from additional communities growing community count.
Trying to continue to push more pace per community certainly we need more field personnel to be able to manage the construction. It's all of those things and that's what we've been doing and that's what we're going to continue to do and you adjust your staffing for those type things as far as not only having land acquisition people, but heavy lane.
The development people, where you need down also having perhaps different layers of of construction. It's different from a construction standpoint, when we were doing 250 houses in Dallas versus 500 versus $7 50.
So as we get scale in these markets. These also has helped us with subs and suppliers.
The Smart series is a different issue as far as the those customers in general don't go to design centers.
The product has a few less selections for easier to get the sale process and the star process going.
So it's just about again about execution.
We think we have a really good team on the field very very happy with our land position.
We think that we're pretty much taken care of for the next two years as far as we know what we pretty much have it when you look after that assuming things don't change we're in good shape there to execute on that so when you look at our 10 years of growth and where we are today. We still think we have a lot of headroom in our existing market.
Plus we're always looking at other opportunities also and you know without getting into too much detail.
When I think back maybe six seven years ago, and I think about things like.
Online sales management, we have three times as many people working on our company today doing that as we did then.
And when I look at our marketing focus.
It's completely turned upside down from what it was back then it's all about online today I suspected that way with low.
Some of our deep editors.
Hello.
I'm sorry.
So it's also Phil talks about execution.
The way we approach the business, which is.
Which is all about growth, but all about trying to focus on what it takes to capture that growth.
Yes, you guys have done a good job and obviously of the opportunities there.
One more question if I could do you guys see the potential to see some operating.
Leverage at the gate of lower SG&A ratio this year or is the growth not been not allowed that.
I hope so I think so I mean look it's over the last three or four years. My guess is on average we've improved it somewhere between 30% and 60 basis points of year, something like that I would like to think that.
If we can continue to grow the top line, 10% to 20% we ought to continue to see that.
I mean.
We should get it.
I'm looking around the room that I'm sitting in now and even though there is hardly anybody end of it because we're trying to practice social distancing for.
Our business double I don't think we'd be there'll be twice as many people in this room.
I mean, they're all kidding aside yes, I think we can get more scale.
As for the important to us to improve our returns we worked on that very hard the last few years and.
The revenue base matters, the GP matters, especially when Youre at $3 billion plus revenue company. The SG&A as Bob talked about in the 10 basis points 20 basis points, we've got leverage over the last three years the interest line.
Interest incurred basically was flat in the last couple of years.
So we're trying to be more efficient in all phases of our operation.
We want to continue growing but we want to continue making more money and improving our returns that's very important to us also.
Okay great.
Great job on the best of luck.
Thanks, a lot thanks, Alex.
The next question comes from Jay Mccanless with Douglas. Please go ahead.
Hey, good afternoon guys.
Hi, Jay.
Hey.
So the expense question was actually of what I was going to ask about too on the G&A line. It looks like in the third quarter in the fourth quarter of this year there were some pretty meaningful.
Increases in money spent on the G&A line could you talk about what that money is going to and is it something that you all are going to be able to leverage as we move into 'twenty one.
And also are there any onetime of items in there that are worth calling out.
Jay It was a couple of things.
<unk>.
We are glad we get SG&A leverage for the year, we did have in the third quarter and the fourth quarter, especially.
More incentive expense as we had better results.
<unk> had more bonuses and those type things. We also had some increased charitable contributions, which we thought especially in these times that that was very important to do.
So overall, we did still get leverage helped to continue getting leverage in that and we were very very pleased with our 10% income in 20% plus ROE for the year.
Yeah. So just other note that was if there was a buildup there to help support potential community growth like the I'll talk about for the back half of 'twenty one.
You know there is some of that but hopefully we're going to continue having that because we definitely plan on opening more stores as we go forward but.
That's just the general operating cost as we continue to grow.
Alright.
And then maybe.
Asking the community count question a bit different this year.
For the full year it looks like the absorption was three nine orders per month.
And if you think about the land that you've got coming on at least it's in front of me for 'twenty. One do you feel like the absorption pace is going to be that level or something higher or lower.
Either because you have less debt.
Or are you going to get better sell through from Smart series.
Now if someone really new the answer to that question.
I have to ask it.
Well look if things stay like they are you bet. The absorbs the sales pace will stay where it is I don't think it will get worse it may even get better.
Because we have a lot of planned new smart communities coming on so.
As we begin this year.
The demand of traffic that we're seeing is very strong.
Now.
I think it's likely to remain that way as long as interest rates day, a lot closer to 3% than say, 4% and right now they are below 3% and all the indications given so many things that we read and hear I think theyre going to stay about where they are for a considerable length of time and the the homeownership rate of.
<unk> the millennials, it's been well documented.
That's the beginning to tick up by eight quarters and halves and that represents an enormous enormous potential tailwind for all kinds of housing used homes, but also new homes and.
We're starting to see our fair share of that.
So is that.
So a way to characterize this as the year, where we need to focus on what it makes the MH sales base looks like and.
And judge you guys on that rather than just where the gross commute or of the net community Count falls out is that do you think that's a fair way to look at this year think about this year given the challenges that are out there from the land development side.
E J.
Jay you always want to get all of the metrics going the right way and margins important community counts important sales paces important all of those things you you watch every day and a lot of different ways.
We plan on opening more stores this year than we did last year the.
Hard thing to predict is just how many you sell out of but again, if we're selling out faster than we thought like we did last year, we got higher price and higher margin, we're not out there with the hair on fire bind D&C locations just to get more stores because we.
Haven't really strong land position and the stores are coming.
But more of the store's common are our raw land that we got to develop and that takes a little more time.
So it's very very hard to give a community count prediction it is important to us.
But more important.
And then community count in our closings and sales. So we're going to do all we can we should expect to close more houses this year than last year, because we have a lot higher backlog than we talked about January sales being strong in market conditions remaining very strong.
But.
There will be pressure under community count, especially the first half of the year or so, but we are opening more stores for the second half and we're going to do all we can to <unk>.
Net stores opened as fast as we can the right way and we.
We think we're positioned to have a really good year.
And we will do all we can to.
It will improve our sales pace and our sales over last year.
Yeah.
Absolutely.
And then the other question.
I guess is are the municipal headwinds that you talked about in terms of getting the per.
Yeah.
And the inspections et cetera are those.
Worse now than they were three months ago six months ago have they started to get better could you just talk about.
You are of that right now.
You know I'm not really sure I haven't heard that they're worse, but I also haven't heard that they are better some of the guests that they are probably about the same and it's also market specific some of it some places of worst than others, but.
It's manageable.
<unk>.
Youre not going to find new complaining about anything look I wish there was greater density that will allow for more affordable housing throughout the whole country I think thats, the big issue, but youre not going to hear me complaining about anything I think these are about the best housing conditions, we've ever seen you heard Derek lets talk about our mortgage and title operation.
Our average buyers, putting 15% down has a credit score of north of 740.
This is nothing like when we had strong demand back in the early two thousands when there was no credit and a lot of speculators and slippers buying this is real buyers with phenomenal credit that want to live in the single family home and these are great great conditions, and if it takes a little longer for new communities to come along then so be it.
I know, we're going to get our fair share of our growth. We've had I think just really we're really proud of the growth. We've had over the last seven eight years and we expect to be able to continue that as long as the conditions will allow.
It was definitely an phenomenal year. Thank you for taking my questions.
Thanks, a lot.
As a reminder, if you have a question. Please press star then one to be join in to the queue. The.
The next question is the follow up from art Winston with pilot advisors.
Please go ahead.
Bob and Phil I realize that you're not fans of the stock repurchase, but I was curious if the board ever has contemplated a cash dividend to.
To its shareholders.
Well I'm not sure I didn't quite get that question I didn't hear it all the repurchase if you look at the stock price I mean, we're very pleased there was a significant improvement in book value last year up to 44 box very strong earnings 20% plus in net.
Worse.
We look at business right now being very strong we talked about all of the land we bought in 2020.
And we do have.
Significant amount of cash earmarked.
For land purchases also this year, so we do watch the stock price for sure.
The Gladiator My question. When I said, you guys are not fans of stock repurchase, but what about has the board ever considered of cash dividend to the shareholders paying a dividend.
Ears ago, we had well I was going to get to that answer I apologize.
No problem and we have had that years ago and.
We're at the board, we talk about different things, but I would not say that's anything that's under a lot of consideration right now.
Any other questions pardon me.
Is that all from art Winston.
Okay. Okay. Thanks art.
This concludes our question and answer session I would now like to turn the conference back over to our speakers for any closing remarks.
Thank you very much for joining us look forward to talking to you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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