Q1 2024 M/I Homes Inc Earnings Call
Phillip G. Creek: Here today is Bob Schottenstein, our CEO and president, and Derek Klutch, president of our mortgage company. First, to address regulatory 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 items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also, be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob.
And our CEO and President and Derek <unk> President of our mortgage company.
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 ask do forward looking statements want to remind everyone that the cautionary language about <unk>.
<unk> looking statements contained in todays press release also applies to any comments made during this call.
<unk> be advised that the company undertakes no obligation to update any forward looking statements made during this call.
With that I'll turn it over to Bob Thanks, Phil Good morning, and thank you all for joining us today.
Robert H. Schottenstein: Thanks, Phil. Good morning, and thank you all for joining us today. We had an exceptional first quarter, one of the best quarters in company history, setting first quarter records in homes delivered, revenue, and income. Homes delivered increased 8% to a record 2,158 homes. Revenue increased 5% to a record $1.05 billion, and pre-tax income increased by 33% to a first-quarter record of $180.2 million, equating to 17.2% of revenue. Gross margins for the quarter were very strong, coming in at 27%, 360 basis points better than a year ago, and up 200 basis points sequentially, and return on equity was equal to 21%.
Bob: We had an exceptional first quarter one of the best quarters in company history, setting first quarter records in homes delivered revenue and income.
Bob: Homes delivered increased 8% to a record 2158 homes revenue increased 5% to a record 1.15 billion.
Bob: And pretax income increased by 33% to a first quarter record of $182 million equating to 17, 2% of revenue.
Bob: Gross margins for the quarter were very strong coming in at 27%.
Bob: 360 basis points better than a year ago, and up 200 basis points sequentially and return on equity equaled 21%.
Robert H. Schottenstein: Despite a volatile interest rate environment and continued macroeconomic uncertainties, we were very pleased with our new contracts. For the quarter, new contracts increased by 17%, owing to the strength of our communities and product offerings and very solid across-the-board execution on the sales front. During the quarter, we were operating, on average, in 10% more communities than a year ago. We continue to benefit from strong housing fundamentals. Including an under supply of homes and low inventory levels in most markets.
Bob: Despite a volatile interest rate environment and continued macroeconomic uncertainties, we were very pleased with our new contracts.
Bob: For the quarter.
Bob: New contracts increased by 17% owing to the strength of our communities and product offerings and very solid across the board execution on the sales front.
Bob: During the quarter, we were operating on average and 10% more communities than a year ago.
Bob: We continue to benefit from strong housing fundamentals, including an under supply of homes and low inventory levels in most markets.
Robert H. Schottenstein: We have seen a slight uptick in used home listings in certain markets, particularly in Florida. However, the use of below-market financing incentives where necessary in select markets and targeted communities has been and continues to be an important driver of our business. Our Smart Series Homes, which is our most affordable line of homes, continues to be a meaningful contributor to our sales and operating performance. Smart Series sales accounted for 52% of total company sales. This is roughly equal to what it was a year ago.
Bob: We have seen a slight uptick in used home listings in certain markets, particularly Florida. However, the use of below market financing incentives incentives where necessary in select markets and targeted communities has been and continues to be an important driver of.
Our business.
Bob: Our smart series homes, which is our most affordable line of homes continues to be a meaningful contributor to our sales and operating performance.
Bob: Art series sales accounted for 52% of total company sales. This is roughly equal to what it was a year ago.
Robert H. Schottenstein: As we enter the second quarter, we are on track to open a number of new communities, increasing our average community count by roughly 10% over 2023. And the quality of our buyers, in terms of credit worthiness, continues to be very solid, with average credit scores of 747 and an average down payment of 18%, which is about $85,000. We have made significant progress in improving our cycle time. Many of our markets are now operating at pre-COVID cycle time levels, and we continue to be focused on this important operating imperative.
Bob: As we enter the second quarter, we are on track to open a number of new communities, increasing our average community count by roughly 10% over 2023.
Bob: And the quality of our buyers in terms of creditworthiness continues to be very solid with average credit scores of 747, and an average down payment of 18% which is above.
Bob: $85000.
Bob: We have made significant progress in improving our cycle time, many of our markets are now operating at pre Covid cycle time levels and we continue to be focused on this important operating imperative.
Robert H. Schottenstein: From a balance sheet standpoint, we ended the quarter in excellent shape, the best in company history. Shareholders' equity reached a record $2.6 billion, a 21% increase from a year ago, and that equates to a book value of $95 a share. Our cash balance at Quarters End equaled $870 million. We had zero borrowings under our $650 million unsecured credit facility and a debt-to-capital ratio of 21%, down from 24% a year ago, as well as a net debt-to-capital ratio of negative 7%.
Bob: From a balance sheet standpoint, we ended the quarter in excellent shape the best in company history.
Bob: Shareholders' equity reached a record $2 6 billion or 21% increase from a year ago and that equates to a book value of $95 a share.
Bob: Our cash balance at quarter's end equaled $870 million, we had zero borrowings under our $650 million unsecured credit facility and a debt to capital ratio of 21% down from 24% a year ago.
Bob: Well as a net debt to capital ratio of negative 7%.
Robert H. Schottenstein: Now I will provide some additional comments on our market. Our division income contributions in the first quarter were led by Dallas, Orlando, Columbus, Raleigh, Tampa, and Chicago. New contracts for the first quarter in the northern region increased by 40 percent, while new contracts in our southern region increased by 3 percent. Our deliveries in the southern region increased by 9% from a year ago, and our deliveries in the northern region increased by 6%. 61% of our closings came out of the southern region, and 39% out of the northern region.
Speaker Change: Now I will provide some additional comments on our markets.
Speaker Change: Our division income contributions in the first quarter were led by Dallas, Orlando, Columbus, Raleigh, Tampa and Chicago.
Speaker Change: New contracts for the first quarter in the northern region increased by 40% new contracts in our southern region increased by 3%.
Speaker Change: Our deliveries in the southern region increased by 9% from a year ago, our deliveries in the northern region increased by 6%.
Speaker Change: 61% of our closings came out of the southern region, 39% out of the northern region.
Robert H. Schottenstein: Our owned and controlled lot position in the southern region increased by 21% compared to a year ago, and it increased by 9% in the northern region. 34% of our owned and controlled lots are in the northern region, while the other 66% are in the southern region. We have an excellent land position. Company-wide, we own approximately 24,000 single-family lots, which is roughly a three-year supply. And on top of that, we control, via option contracts, an additional 23,000 lots, thus owning and controlling about a five-year supply.
Speaker Change: Our owned and controlled lot position in the southern region increased by 20, 21% compared to a year ago and increased by 9% in the northern region.
Speaker Change: 34% of our owned and controlled lots are in the northern region. The other 66% in the southern region.
Speaker Change: We have an excellent land position companywide, we own approximately 24000 single family lots, which is roughly a three three year supply.
Speaker Change: And on top of that we control via option contracts and additional 23000 lots, thus owning and controlling about a five year supply.
Robert H. Schottenstein: As I conclude, let me just state that we are in the best financial condition in our history. We feel very good about our business. We have a lot of operating momentum, and we continue to be focused on gaining market share, growing our business by approximately 5-10% per year. M-I Homes is well positioned to have another year of very strong results in 2024.
Speaker Change: As I conclude let me just state that we are in the best financial condition in our history.
Speaker Change: We feel very good about our business, we have a lot of operating momentum and we continue to be focused on gaining market share growing our business by approximately 5% to 10% per year.
Speaker Change: Mike Holmes is well positioned to have another year of very strong results in 2024 with that I'll turn it over to Phil Thanks, Bob Our new contracts were up 21% in January up 14% in February and up 17% in March and our cancellation rate for the quarter was <unk> <unk>.
Phillip G. Creek: Thanks Bob. Our new contracts were up 21% in January, up 14% in February, and up 17% in March. And our cancellation rate for the quarter was 8%. 51% of our first quarter sales were to first-time buyers, and 57% were inventory homes. Our community count was 219 at the end of the first quarter compared to 200 a year ago, and the breakdown by region is 101 in the northern region and 118 in the southern region.
Speaker Change: Percent.
Phil: The 1% of our first quarter sales were to first time buyers and 57% where inventory homes. Our community count was 219% at the end of the first quarter compared to 200, a year ago and the breakdown by region is 101 in the northern region and $1 18 in the southern region during.
Phillip G. Creek: During the quarter, we opened 21 new communities while closing 15. We currently estimate that our average 2024 community count will be about 10% higher than 2023. We delivered 2,158 homes in the first quarter, delivering 72% of our backlog. And on March 31st, we had 4,500 homes in the field versus 4,300 homes in the field a year ago, up 6%. Revenue increased 5% in the first quarter. Our average closing price for the first quarter was $471,000, a 3% decrease when compared to last year's first quarter average closing price of $486,000. The backlog average sale price is $528,000, up from $522,000 a year ago.
Phil: During the quarter, we opened 21, new communities, while closing 15, we currently estimate that our average 2020 for community count will be about 10% higher than 2023, we.
Phil: We delivered 20 158 homes in the first quarter delivering 72% of our backlog and at March 31, We had 4500 homes in the field versus 4300 homes in the field a year ago up 6%.
Phil: <unk> increased 5% in the first quarter, our average closing price for the first quarter was 471000 or 3% decrease when compared to last year's first quarter average closing price of 486000 <unk>.
Phil: Backlog average sale price is 528000 up from 522000 a year ago.
Phillip G. Creek: Our first quarter gross margin was 27.1%, up 360 basis points year-over-year and up 200 basis points from our fourth quarter, and our construction costs were flat in the first quarter compared to last year's fourth quarter. Our first quarter SG&A expenses were 10.5% of revenue compared to 10.0 a year ago. Our first quarter expenses increased 10% versus a year ago. The increased costs were due to our increased community count, higher selling expenses, and increased headcount and incentive compensation.
Phil: Our first quarter gross margin was 27, 1% up 360 basis points year over year, and up 200 basis points from our fourth quarter and our construction costs were flat in the first quarter compared to last year's fourth quarter.
Phil: Our first quarter SG&A expenses were 10, 5% of revenue compared to 10 point a year ago, our first quarter expenses increased 10% versus a year ago increase.
Phil: Increased costs were due to our increased community count higher selling expenses and increased head count and incentive compensation.
Derek J. Klutch: Interest income, net of interest expense for the quarter was $6.9 million, and our interest incurred was $8.7 million. We are very pleased with our returns for the first quarter. Our pre-tax income was 17%, and our return on equity was 21%. During the quarter, we generated $187 million of EBITDA compared to $147 million in last year's first quarter, and our effective tax rate was 23% in the first quarter compared to 24% in last year's first quarter.
Phil: Interest income net of interest expense for the quarter was $6 9 million and our interest incurred was $8 7 million.
Phil: We are very pleased with our returns for the first quarter, our pretax income was 17% and our return on equity was 21%.
Phil: During the quarter, we generated $187 million of EBITDA compared to $147 million in last year's first quarter.
Phil: And our effective tax rate was 23% in the first quarter compared to 24% in last year's first quarter, earning.
Derek J. Klutch: Earnings per diluted share for the quarter increased to a first quarter record $4.78 per share from $3.64 per share last year, an increase of 31%. And our book value per share is now $95, a $16 per share increase from a year ago. Now Derek Klutch will address our mortgage company results.
Our earnings per diluted share for the quarter increased to a first quarter record $4 78 per share from $3 64 per share last year up 31% and our book value per share is now $95 a $16 per share increase from a year ago.
Phil: Now Derek <unk> will address our mortgage company results. Thanks Bill.
Derek J. Klutch: Our mortgage and title operations achieved pre-tax income of $12.3 million, down slightly from $12.6 million in 2023's first quarter. However, revenue increased 7% from last year to $27 million due to higher margins on loans sold, an increase in loans originated, and proceeds from the sale of mortgage servicing rights, which was partially offset by a lower average loan.
Derek: Our mortgage and title operations achieved pretax income of $12 $3 million.
Derek: Down slightly from $12 6 million in 2020, Three's first quarter.
Derek: Revenue increased 7% from last year to $27 million.
Derek: Due to higher margins on loans sold and increase in loans originated and proceeds from the sale of mortgage servicing rights.
Derek: It was partially offset by a lower average loan amount.
Derek J. Klutch: Average loan-to-value on our first mortgages for the quarter was 82%, a decrease compared to 83% last year, but we continue to see an increase in the use of government finance. 68% of the loans closed in the quarter were conventional and 32% FHA or VA, compared to 81% and 19%, respectively, for 2023's first quarter. Our average mortgage amount decreased to $386,000 in 2024's first quarter, compared to $393,000 last year. However, loans originated increased to $1,556, which was up 24% from last year, while the volume of loans sold increased by 5%.
Derek: Average loan to value on our first mortgages for the quarter was 82% a decrease compared to 83% last year.
Derek: Continue to see an increase in the use of government financing of 68% of the loans closed in the quarter were conventional and 32% FHA or VA.
Derek: Compared to 81% and 19% respectively for 2020 Three's first quarter.
Derek: Our average mortgage amount decreased to $386000 in 2020 force first quarter compared to $393000 last year.
Derek: Loans originated increased to 1556, which was up 24% from last year, while the volume of loans sold increased by 5%.
Derek J. Klutch: As mentioned, our borrower profile remains solid with an average down payment of over 18% and an average credit score of 747. Finally, our mortgage operation captured 88% of our business in the first quarter, a significant improvement from 78% last year. Now, I'll turn the call back over to Phil.
Derek: As mentioned, our borrower profile remains solid with an average down payment of over 18% and an average credit score of 747.
Derek: Finally, our mortgage operation captured 88% of our business in the first quarter, a significant improvement from 78% last year now.
Derek: Now I'll turn the call back over to Phil Thanks, Derik as far as the balance sheet. We ended the first quarter with a cash balance of $870 million and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities our bank line matures in late 2002.
Phillip G. Creek: Thanks, Derek. As far as the balance sheet is concerned, we ended the first quarter with a cash balance of $870 million and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public home builders and are well positioned with our maturities. Our bank line matures in late 2026, and our public debt matures in 2028 and 2030, and has interest rates below 5%.
Derek: <unk> six and our public debt matures in 2028 and 2030.
Speaker Change: And as interest rates below 5%, our unsold land investment at the end of the quarter was $1 4 billion compared to $1 $3 billion, a year ago and at March 31, we had $752 million of raw land and land under development and $668 million of finished unsold lots during.
Phillip G. Creek: Our unsold land investment at the end of the quarter was $1.4 billion, compared to $1.3 billion a year ago. And on March 31st, we had $752 million of raw land, the land under development, and $668 million of finished unsold lots. During the first quarter, we spent $108 million on land purchases and $119 million on land development for a total land spend of $227 million. As of March 31, we owned 24,000 lots and controlled 47,000 lots. At the end of the quarter, we had 431 completed inventory homes and 1,896 total inventory homes. Of the total inventory, 850 are in the northern region, and 1,046 are in the southern region.
Speaker Change: During the first quarter, we spent $108 million on land purchases and 119 million on land development for a total land spend of $227 million.
Speaker Change: March 31, we owned 24000 lots and controlled 47000 lots at the end of the quarter. We had 431 completed inventory homes in 2896 total inventory homes and of the total inventory 850 or in the northern region and 1046 are in the southern <unk>.
Phillip G. Creek: Last year we had 432 completed inventory homes and 1,551 total inventory homes. We spent $25 million in the first quarter repurchasing our stock and have $103 million remaining under our current board authorization. Since the start of 2022, we have repurchased 10% of our outstanding shares. This completes our presentation. We will now open the call to questions or comments.
Speaker Change: <unk>.
Speaker Change: Last year, we had 432 completed inventory homes and 1551 total inventory homes.
Speaker Change: We spent $25 million in the first quarter repurchasing our stock and have $103 million remaining under our current board authorization and since the start of 2022, we have repurchased 10% of our outstanding shares.
Speaker Change: This completes our presentation will now open the call for any questions or comments.
Operator: Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the 1 on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the 2. Again, to ask a question, press star 1. Your first question comes from Alan Ratner from Zellman & Associates. Please go ahead.
Speaker Change: Thank you ladies and gentlemen should you have a question. Please press the star followed by the one on your Touchtone phone if you'd like to withdraw your question. Please press star followed by the two again asked a question press Star one.
Speaker Change: Your first question comes from Alan Ratner from Zelman and Associates. Please go ahead.
Alan S. Ratner: Hey, guys, good morning. Congratulations on a really strong quarter. Thanks, Alan.
Alan S. Ratner: Hey, guys. Good morning, congrats on the really strong quarter.
Robert H. Schottenstein: Bob, you know, my first question is, I guess, just, you know, you gave the monthly order growth rates, which is helpful. You know, rates did pick up towards the tail end of the quarter and thus far into April. Just curious if you've seen any impact either on traffic sales, or any kind of price point differentiation with rates climbing more recently, and what are your current incentives that you're offering on the rate buy-downs to combat that?
Alan S. Ratner: Thanks, Allen Bob Bob My first question I guess, just you gave the monthly order growth rates, which hit which is helpful rates did pick up towards the tail end of the quarter and thus far into April just curious if you've seen any impact either on traffic sale of any kind of price point differentiation.
Alan S. Ratner: With rates climbing more recently and what are your current incentives that you're offering on the rate buy downs to combat that.
Robert H. Schottenstein: Yeah, great question. Frankly, very similar to what I believe Pulte articulated yesterday, in the last week or so, we have seen a slight moderation in activity and in traffic. And in some ways, it's too early to know how significant it is. But I would say that what we've seen is almost identical, candidly, to what they've seen. And my guess is other builders are seeing it, too. Clearly, there's been even more volatility in rates than before, as you know as well as anyone.
Speaker Change: Yes, great question.
Speaker Change: Frankly, very similar to what I believe pulte articulated yesterday and the last week or so we have seen a slight moderation in activity and in traffic.
Speaker Change: <unk>.
Speaker Change: In some ways, it's too early to know how significant it is.
Speaker Change: I would say that what we've seen is almost identical candidly to what they've seen and.
Speaker Change: My guess is other builders are seeing it too clearly.
Speaker Change: There has been even more than before volatility in rates as you know as well as anyone.
Robert H. Schottenstein: Look, we have been very targeted and very focused, not in every community, not every market is the same, but where necessary, we will continue to be as aggressive as we have been in using financing incentives. It's pretty safe to say that the ability to provide below-market financing... Rates aren't always the same. It depends on the market. It depends on the community. Some need more help than others.
Speaker Change: <unk>.
Speaker Change: Look we have been very targeted and very focused not in every.
Speaker Change: Every community has the same not every market is the same but where necessary. We will continue to be as aggressive as we have been and using financing incentives, it's pretty safe to say that the ability to provide below market financing.
Speaker Change: Rates aren't always the same as it depends on the market depends on the community some need more help than others every community is a little bit different and frankly.
Robert H. Schottenstein: Every community is a little bit different, and frankly, we don't manage. It's not like spreading peanut butter.
Speaker Change: We don't we don't manage its not like spread in peanut butter, we try to be very very targeted and focused and I think thats. One of the reasons. Our margins have held up so well there are certain communities, where you just don't need to do as much as you need to do in others.
Robert H. Schottenstein: We try to be very, very targeted and focused. And I think that's one of the reasons our margins have held up so well. There are certain communities where you just don't need to do as much as you need to do in others. And I can't emphasize enough. As long as I've been in this business, it's been beaten into me that this is a subdivision-specific business. And every store, every community, every subdivision is a little bit different.
Speaker Change: I can't emphasize enough.
Speaker Change: Long as I've been in this business I've been it's been beaten and to me that this is a subdivision specific business and every store every community every subdivision is a little bit different.
Robert H. Schottenstein: It's not like we have 200 different variations, but we have to be very market-aware in how we deal with it. We will continue to operate that way. Might we have to do a little bit more? Possibly.
Speaker Change: It's not like we have 200 different variations, but we have to be very market market aware in how we how we deal with it we will continue to operate that way.
Speaker Change: Might we have to do a little bit more possibly if we do we will.
Robert H. Schottenstein: If we do, we will. Very pleased with our margins. We're very frank about this when we discuss it with you. I know we don't guide on margins, and you know that as well. You never fail to mention that, and I understand.
Speaker Change: Very pleased with our margins.
Speaker Change: Were very Frank about this when we discuss it with you I know, we don't guide on margins.
Speaker Change: As well you never fail to mention that.
Speaker Change: And I understand but.
Robert H. Schottenstein: But we went into this year believing margins would be under more pressure than they have been. However, our margins have held up better than expected. You know, I think we've got a lot of really strong communities. Our new communities are operating them better than we've performed them at so far. So I guess the answer is yes, there has been a slight moderation in activity recently. Although it started about two weeks ago, last week, traffic was a little better than the week before, particularly on the website.
Speaker Change: We went into this year, believing margins would be under more pressure than they have been.
Speaker Change: Our margins have held up better than expected.
Speaker Change: No I think we've got a lot of really strong communities. Our new communities are operating at better than we pro forma them out so far.
Speaker Change: So I guess the.
Speaker Change: The answer is yes, there hasnt been a slight moderation in activity recently.
Speaker Change: Although it started about two weeks ago last week traffic was a little better than the week before particularly website.
Robert H. Schottenstein: It's hard to draw too much of a conclusion from seven or eight days, but we're going to do what we need to do. In some markets, we're offering mortgages as low as five and seven-eighths, and in others, we're in the low sixes. And in some markets, the rates differ from community to community. So...
Speaker Change: It's hard to draw too much of a conclusion from 7% or eight days.
Speaker Change: But.
We're going to do what we need to do and.
Speaker Change: In some markets, we are offering mortgages as low as 5% and seven eights and others were in the low sixes.
Speaker Change: And in some markets there the rates differ from community to community.
Robert H. Schottenstein: I don't know if that really helps, but I think that's where we are. And I remain, we remain generally quite optimistic about housing. I know that resale listings have moved up, not in all, but in a number of markets, particularly Tampa and Orlando, and that's probably having a little bit of an impact combined with rates.
Speaker Change: So.
Speaker Change: I don't know if that really helps but I think that.
Speaker Change: I think thats, where we are and I remain we remain.
Speaker Change: Generally quite optimistic about housing.
I know that resale listings have moved up not in all but in a number of markets, particularly Tampa and Orlando.
Speaker Change: And that's probably having a little bit of an impact combined with rates, but when you look at historical levels I think that the fundamentals still point in the right direction.
Robert H. Schottenstein: But when you look at historical levels, I think that the fundamentals still point in the right direction. And we're focused on growing the business by 5 to 10 percent. I think it will be closer to 10 percent than 5, but we'll see.
Speaker Change: And.
Speaker Change: Hi.
Speaker Change: We're focused on growing the business by 5% to 10% I think it will be closer to 10, 5%, but we'll see.
Robert H. Schottenstein: And we believe we can continue to do that. You know, our land position; we own slightly less than a 3-year supply. We own and control about a 5-year supply. We haven't changed our land strategy in 20 years. And we're not land light where we once were. We're not land heavy where we once were. We've been pretty consistent on that, and as you know, 99 percent of our business is with consumers. What we report does not have anything material with regard to the bill for rent or wholesale or bulk sales to renter operators.
Speaker Change: And we believe we can continue to do that.
Speaker Change: Our land position, we own slightly less than a three year supply we own and control about a five year supply we haven't changed our land strategy in 20 years.
We're not land light, where we once were not land heavy where we once where we've been pretty consistent on that and as you know 99% of our business is to consumers.
Speaker Change: What we report it does not have anything material with regard to build for rent or wholesale or bulk sales two.
Alan S. Ratner: That business can be hot when it's hot and not when it's not. And maybe we should have been in it when we weren't, but we've never really had that as a big operating strategy. And, you know, we like sort of staying true to our core operating, you know, principles. That's a long answer to your question, but I wanted to cover a bunch of different things.
Speaker Change: Two renter operators.
Speaker Change: That business can be hot when it's hot and not when it's not and maybe we should have been in it when we werent, but we've never really had that as a big operating strategy and we we like sort of staying true to our core operating principles.
Speaker Change: That's a long answer to your question, but I wanted to cover a bunch of different things.
Phillip G. Creek: That's really helpful, Bob, and I really appreciate you walking us through that. Second, very helpful, the 5 to 10 percent kind of goal or target for growth. Last year, the seasonality of your closings was a little bit unusual just based on kind of where you had homes under construction in the field. Fourth quarter was a lower closing quarter, and this quarter you were up sequentially, which is also pretty unusual for 1Q.
Speaker Change: No that's really helpful, Bob and I really.
Speaker Change: Can you walk us through that.
Speaker Change: Second very helpful. The 5% to 10% kind of goal or target for growth.
Last year, the seasonality of your closings with a little bit unusual just based on kind of where you had homes under construction and field fourth quarter was lower closing quarter and this quarter you were up sequentially, which is also pretty unusual for <unk>. So can you without giving specific guidance can you, maybe just kind of walk us through the year.
Phillip G. Creek: So without giving specific guidance, can you maybe just kind of walk us through the year, how you expect the closing cadence to unfold? Is it going to be a fairly even flow, like similar to last year, or should we expect a return to more typical seasonality?
Speaker Change: Do you expect the closing cadence too to unfold is it going to be fairly even flow like similar to last year or should we expect a return to more typical seasonality.
Speaker Change: Phil Phil answer that Alan is fill up we did disclose as far as houses in the field at the end of the first quarter. We had 4500 homes in the field versus 4300 in the field last year like you say last year was kind of opposite with the end of 'twenty two sales being so weak and so forth.
Phillip G. Creek: We did disclose, as far as houses in the field go, at the end of the first quarter, we had 4,500 homes in the field versus 4,300 in the field last year. Like you say, last year was kind of opposite, with the end of 22 sales being so weak and so forth. So our expectation overall is, as Bob said, trying to grow the business 5-10% a year. You know, we would expect closings to be... You know, somewhat flat, maybe go up a little bit more toward the second half. We are doing 50 to 60% specs and have for a while.
Speaker Change: So our expectation overview overall is as Bob said trying to grow the business, 5% to 10% a year.
Speaker Change: We would expect closings to be.
Speaker Change: Somewhat flat, maybe go up a little bit more towards the second half.
Speaker Change: We are doing 50% to 60% specs and have for a while.
Phillip G. Creek: We think that in today's market and environment, for a lot of different reasons, that's kind of the best place to be, tend to have a few more specifications in the attached townhouse communities and the smaller smart series, more affordable side of it. So I would expect closings to be kind of similar in the second quarter as in the first, and then maybe go up a little bit in the second half. Our run rate, again, hopefully will be 5 to 10 percent higher on an annual basis for the next year or two. That's kind of what we're targeting.
Speaker Change: We think that.
Speaker Change: In today's market environment for a lot of different reasons, that's kind of the best place to be tend to have a few more specs in the attached townhouse communities and the smaller smart series more affordable side of it so I would I would expect closings too.
Speaker Change: They kind of similar in the second quarter as.
Speaker Change: As the first and then maybe go up a little bit in the second half.
Speaker Change: Our run rate again, hopefully will be 5% to 10% up on an annual basis for the next year or two is kind of what we're targeting we definitely have the land.
Phillip G. Creek: We definitely have the land. In Nashville, we just opened our third community there, so we're starting to sell enclosed houses at a better rate there. And then our other new market, Fort Myers Naples, is similar. They have a couple stores open. That's also going to give us, you know, some growth. So overall, we feel really good about how the business is doing.
Speaker Change: In Nashville, we just opened our third community there.
Speaker Change: So we're starting to sell and close houses at a better rate there and then our other new market Fort Myers Naples at similar they have a couple stores open that's also going to give us some growth. So overall, we feel really good about how the the business.
Alan S. Ratner: Thank you for that, Phil. That's certainly helpful for our modeling. If I could squeak in one last one, and then I'll move it on. I was a little surprised to see your FHA share up so much year over year, going from 19 to 32, because it seems like your first time buyer shares have been holding pretty steady. Any particular reason why you've seen that kind of mix shift in the mortgage product?
Speaker Change: Thank you for that.
Speaker Change: Certainly helpful for our modeling if I can squeak in one last one and then ill move it on.
Speaker Change: Was a little surprised to see your FHA share up somewhat year over year going from 19 to 32, because it seems like your first time buyer shares been holding pretty steady.
Speaker Change: Any particular reason why you have seen that kind of mix shift in the mortgage products.
Derek J. Klutch: I was a little surprised, too, and Derek's going to try to provide more color on that. Yeah, Alan, we looked into that because it was surprising, and I think what we're seeing with interest rates going up is that our price points still fit into the FHA loan limits, and the buyers are choosing to put the lower down payment down and use the other money either to buy down the rate themselves a little bit more or to pay off some debt. I think last year at this time, our average down payment was closer to 20 percent than 18 percent. It might have been 19 and change; I can't remember exactly.
Speaker Change: I was a little surprise to Derek is going to try to provide more color on the yes, we looked into that because it was surprising and I think what we're seeing with interest rates going up our price points still fit into the FHA loan limits and the buyers are choosing to put the lower down payment down and use the other money either to buy down the <unk>.
Speaker Change: <unk> themselves, a little bit more or to pay off some debt to be able to qualify I think last year. At this time, our average down payment was closer to 20% and 18% might've been 19 and change I can't remember exactly so it has.
Derek J. Klutch: You know, we still have a very high-quality buyer, putting roughly $85,000 down on average. But I was surprised the down payment didn't come down a little bit more, given the FHA. And maybe that hasn't just worked its way through. I'm not sure, but I hope so.
Speaker Change: Still have a very.
Speaker Change: High quality.
Speaker Change: Fire, putting roughly $85000 down on average, but I was surprised the downpayment didnt come down a little bit more given the FHA and maybe that Hasnt just worked its way through the system, yet I'm not sure, but interest and I hope that answers. Your question. Yes. No. Appreciate that we also bill mentioned townhome.
Alan S. Ratner: Yeah, no, appreciate that. We also, Bill mentioned townhomes, you know, we continue. Like I suspect probably most in the industry, affordability is a gigantic challenge for the country and for builders. You know, we'd all like to have more affordable, high-margin product. That's hard to do.
Speaker Change: <unk>.
Speaker Change: We continue.
Speaker Change: Mike I suspect probably most in the industry.
Speaker Change: Affordability is a gigantic challenge for the country and for builders.
Speaker Change: We'd all like to have more affordable high margin product, that's hard to do whats, helping us a little bit on that front as we continue to be doing more and more attach product, whereas it was less than probably 10% of our business three years ago today. It's.
Robert H. Schottenstein: What's helping us a little bit on that front is we continue to be doing more and more attached products. Whereas it was less than 10% of our business three years ago, today it's probably pushing 15, 16, 17% of our business, and likely we'll level out at somewhere between 15% and 20%. So that's, and I think a lot of that's incremental business, so we're excited about that.
Speaker Change: Probably pushing 15 16, 17% of our business and likely will level out at somewhere between 15% to 20%. So that's a and I think a lot of thats incremental business. So we're excited about that and then also if you look at the in our store Count continues to go up we opened 22.
Robert H. Schottenstein: Also, if you look at our store count, it continues to go up. We opened 22 new stores in the third quarter of 2023. We opened 20 new stores in the fourth quarter of last year, and then we opened 21 new stores in the first quarter of this year. So, when you look at the store count overall, like 220, there have been, you know, 60-plus new stores opened the last, you know, I'm up. So hopefully, we're focused on the right locations, the right price points, and the right products. We pay a lot of attention to that, and hopefully, that's paying off also.
Speaker Change: Two new stores the third quarter of 2003, we opened 20 new stores in the fourth quarter of last year and then we opened 21 new stores the first quarter of this year.
Speaker Change: So when you look at the store count overall to 'twenty Theres been 60, plus open the last.
Speaker Change: Nine months. So hopefully we are focused on the right locations the right price point, the right product, we pay a lot of attention to that and hopefully that's paying off also.
Alan S. Ratner: Great, well, thanks a lot, and congrats again on the strong quarter.
Speaker Change: Alright, well, thanks, a lot and congrats again on the strong quarter.
Robert H. Schottenstein: Thanks, Al, and take care.
Speaker Change: Thanks, Al and take care.
Operator: Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the number one. Your next question comes from Jay McCanless from Webosh. Please go ahead.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press the star followed by the one your next question comes from Jay Mccanless from Wedbush. Please go ahead.
Jay McCanless: Hey, good morning. Thanks for taking my question.
Jay McCanless: Hey, good morning, Thanks for taking my question Sanjay take Alan's question a step further.
Jay McCanless: So, to take Alan's question a step further, assuming that you're going to see more buyers, they're going to need to be under the FHA and the VA loan limits. How are you feeling about your current community mix and where your pricing is set on those? And then, especially as you go into the back half of the year and open up more communities, do you feel like your product will be priced appropriately to be under those limits?
Jay McCanless: Assuming that youre going to see more buyers.
Need to be under the FHA and VA loan limits.
Jay McCanless: How are you feeling about your current community mix and where your pricing is settled those and then especially as you go into the back half of the year and open up more communities had do you feel like your product will be priced appropriately to be under those limits.
Jay McCanless: Yes.
Robert H. Schottenstein: Yes. I don't know if any more needs to be said.
Jay McCanless: Yes.
Jay McCanless: I don't know if more any more needs to be said I don't know that FHA is going to continue to go up I don't think we know enough to know that.
Derek J. Klutch: I don't know that FHA is going to continue to go up. I don't think we know enough to know that. And it may come back down, but I think that, Unless I'm mistaken or missing something, I think we're in very good shape relative to FHA loan limits across our markets. I'm looking at Derek.
Jay McCanless: And it may come back down, but I think that.
Jay McCanless: Unless I'm mistaken or missing something.
Jay McCanless: I think we're very good shape relative to FHA loan limits across our markets I'm looking at Derek and Jay.
Derek J. Klutch: And Jay, you know, almost all of our SMART series has always been under the FHA loan limit, and a good portion of our other products did qualify for FHA loan limits; they just chose conventional.
Jay McCanless: Almost all of our Smart series has always been under the FHA loan limit and a good portion of our other did qualify for FHA.
Jay McCanless: Limits, they just chose conventional.
Phillip G. Creek: That's good to know. Thank you, Derek. So my second question, in the first quarter, orders in the South were up only about 3% after rising by a double-digit percentage in the last couple of quarters. Could you discuss the competitive dynamics in the South, and are you seeing more competition on price and or incentives in those markets?
Jay McCanless: Okay. That's good to know thank you Derrick.
Speaker Change: So my second question.
In the first quarter the orders in the South were up only about 3% after rising by double digit percentage the last couple of quarters.
Speaker Change: Could you discuss the competitive dynamics in the southern region and are you seeing more competition on price <unk> incentives in those markets.
Phillip G. Creek: I think a lot of that is owing to... weakness in the Austin market. Austin had been strong for us, and Austin's probably one of the more challenging markets right now, just in terms of trying to reset uh... with, As you know, probably the most heated of all the markets we do business in, you know, over the last several years until it wasn't. San Antonio got a little bit softer too. It's a very rate-sensitive market, a heavy, heavy first-time buyer.
Speaker Change: I think a lot of that is owing to.
Speaker Change: Weakness in the Austin market.
Boston had been strong for us in Austin is probably one of the more <unk>.
Speaker Change: <unk> markets right now just in terms of trying to reset.
Speaker Change: With.
Speaker Change: As you know probably the.
Speaker Change: Post heated of all the markets, we do business in.
Speaker Change: Over the last several years until it wasn't San Antonio got a little bit softer too.
It's a very rate sensitive market.
Speaker Change: Heavy heavy first time buyer.
Phillip G. Creek: Almost 100% of our business in San Antonio is SmartSeries. So, and then a little bit of softness, not much, but just a wee bit. It's still up, but not up, you know, the double digit amounts in certain of the Florida markets.
Speaker Change: 100% of our business in San Antonio is smart series.
Speaker Change: So.
Speaker Change: Then a little bit of softness not much but just a wee bit.
Speaker Change: It's still up but not up the double digit amounts in certain of our Florida markets.
Phillip G. Creek: Jay, if you look at the new contracts, again, in the first quarter of this year, we sold over 2,500; last year, we sold right about 2,200. The southern region pretty much was flat, up 3%. The change in the Midwest really was in the first quarter of last year, the Midwest, so 828, or the northern region is 828 versus 1162, and I think it was a combination that, at that time, our hotter markets, quote unquote, the southern markets, really had a really good first quarter last year in the Midwest, where the region was a little bit slow.
J J, if you look at the new contracts again in the first quarter of this year, we sold over 2500 last year, we sold right about 'twenty 200, the southern region pretty much was flat up 3%.
Speaker Change: The change in the Midwest really was in the first quarter of last year that Midwest sold 828, or the northern region is a 28 versus $11 62, and I think it was a combination that.
Speaker Change: At that time, our hotter markets quote unquote, the southern markets really had a really good first quarter last year. The Midwest Northern region was a little bit slow when you look at this year's first quarter, we had very strong sales in Columbus.
Phillip G. Creek: When you look at this year's first quarter, we had very strong sales in Columbus, Chicago, and Minneapolis. Those markets were very strong. And again, that led to a 40% increase in sales in the northern region. Bob talked about some of the challenges in Austin. Also, I think the Florida markets have been challenged a little bit by higher inventory levels. People talk about insurance costs and those things. But you know, again, overall, to sell 2,500 plus homes in the first quarter, we feel very good about that. And let's not make any mistake; the Carolinas continue to be very strong for us.
Speaker Change: Cargo Minneapolis, those markets were very strong and again that led to a 40% increase in sales in the northern region, Bob talked about some of the challenges and Austin also I think the Florida markets had been challenged a little bit higher inventory levels people talk about an insurer.
Speaker Change: <unk> costs in those type themes, but again overall the sale of 2500 plus homes. The first quarter, we feel very good about that and let's make no mistake. The Carolinas continue to be very strong for us.
Phillip G. Creek: as does Hollis and to some extent, and for the most part, Houston. So, I don't want to, I mean, you could. I don't want to leave anything out to that that might.
Speaker Change: As does Dallas and to summit for the most part Houston.
Speaker Change: So I don't want to I mean I.
Speaker Change: I don't want to leave anything out.
Speaker Change: It might mislead.
Speaker Change: Sure. Thank you for that every every single one of them every single one of our divisions hit their first quarter sales budget.
Phillip G. Creek: Thank you for that, their first quarter. That does not happen very often. That's a great accomplishment.
Speaker Change: That does not happen very often.
Speaker Change: That's a great accomplishment.
Jay McCanless: I guess when you think about the northern communities. Is there a heavier reliance on build to order there? Is that something that we need to think about? Or are you running the North and the South very similar at roughly 50% to 60% spec, and that's going to drive the closing cadence that you talked to Alan about? Very similar.
Speaker Change: I guess when you think about the northern communities.
Speaker Change: Is there a heavier reliance on build to order there or is it something that we need to think about or are you running the north and the south pretty similar at roughly $50 to 60% spec.
Speaker Change: That's going to drive the closing cadence that you talked to Alan about.
Phillip G. Creek: Very similar. There's no distinction. Our approach to specs, there could be a few one-offs, but it's no different. All 17 markets were pretty much approaching it the same way.
Speaker Change: Very similar.
Speaker Change: There is no there is no distinction.
Speaker Change: Our approach to specs there could be a few one offs, but it's no different all all 17 markets where pretty much approaching it the same way.
Phillip G. Creek: Okay, that's great. And then, and frankly, there are a number of reasons for that. One is clearly the ability to, more economically, if you will, provide financing incentives. However, long-term mortgage locks are extraordinarily expensive, even if they are available. Whereas a lot of the rate packages that you see advertised by us and, I suspect, many of our competitors, those are only really good for homes that can close within two months, approximately. So, by definition... Speckers. It's either for a speck, or it doesn't work. The importance of having spec inventory out there combined with a Smartly Designed Financing Incentive is a crucial driver.
Speaker Change: Okay.
Speaker Change: Okay, that's great and then and frankly, frankly, there's a number of reasons for that.
Speaker Change: One is clearly the ability to.
Speaker Change: More economically if you will provide financing incentives.
Speaker Change: Long term mortgage locks are extraordinarily expensive.
Speaker Change: If even if available.
Speaker Change: Whereas a lot of the right packages that you see advertised by us and I suspect many of our competitors.
Speaker Change: Those are only really good for homes that could close within two months.
Speaker Change: Approximately so by definition.
Speaker Change: <unk>.
Speaker Change: It's either for a spec or if it doesn't work so the importance of having spec inventory out there combined with.
Speaker Change: Hopefully smartly designed financing incentives as a crucial driver of sales.
Phillip G. Creek: You know, Jay, one of the reasons you see in our results is that you see a backlog average sale price of over $500, and you see a delivery price of like $4.75. We're seeing 30 to 40 percent of our closings come from specs that sell and close in the quarter, so they were not in the backlog at the start of the quarter. And in general, our specs tend to be lower average sale price.
Speaker Change: Okay Jay.
Jay: And our results you know as you see our backlog average sale price over 500, and you see a delivery price of like $4 75.
Jay: I mean, we're seeing 30% to 40%.
Jay: Of our closings come from specs that sell and close in the quarter. So they were not in the backlog at the start of the quarter and in general our specs tend to be.
Jay: Lower average sale price they tend to be more in attached townhouse communities. They tend to be more in the smart series, but again.
Phillip G. Creek: They tend to be more in attached townhouse communities. They tend to be more in the smart series. But again, you know, a big thing driving our business is opening 20 new stores a quarter. Again, what is that product? What is that price point? You know, Houston and San Antonio do a whole lot of smart series.
Jay: A big thing driving our business is opening 20, new stores a quarter again, what is that product what is that price point Houston, San Antonio does a whole lot of smart series by its nature. They have a few more specs, but again you manage that based on.
Phillip G. Creek: By its nature, they have a few more specifications, but again, you manage that based on, "We want specs to move through the system. We don't want to have a bunch of finished specs, those type things, and our spec levels are very comparable to where they were a year ago. We think we're doing a pretty good job managing it."
Jay: No.
And what specs to move through the system, we don't want to have a bunch of finished specs those type things and our spec levels are very comparable to where they were a year ago.
Jay: We think we're doing a pretty good job managing that.
Jay McCanless: Gotcha. Could you talk about how many homes you sold and closed in the first quarter and maybe what that number was last year?
Speaker Change: Got you could you talk about how many homes you sold and closed in the first quarter and maybe what that number was last year.
Phillip G. Creek: It's up a little bit, you know, this year. I think it was about 35%...back sold and closed in the same quarter. It was a little less than that last year in the first quarter.
Speaker Change: It's up a little bit.
Speaker Change: This year I think it was about 35%.
Back sold and closed in the same quarter it was little less than that last year in the first quarter Jay.
Jay McCanless: And then the next question I have... What percentage of your buyers this quarter took some type of mortgage buy-down assistance, and how did that compare, maybe, to the fourth quarter and what you saw last year?
Speaker Change: Okay.
Speaker Change: And then the next question I have.
Speaker Change: What percentage of your buyers. This quarter took some type of mortgage buy-down assistance and how does that compare maybe to fourth quarter and what you saw last year.
Derek J. Klutch: This is Derek. Almost all of the buyers used some sort of below-market rate. Some were just slightly below, some were deeply discounted. Generally, it's probably pretty flat to where it was last year. I don't think there's much difference. Again, Bob talked about, you know...
Derek: This is Derek.
Derek: Almost all of the buyers.
Derek: Use some sort of below market rates. Some were just slightly below some of the deeply discounted.
Derek: Generally its probably pretty flat to where it was last year I don't know I don't think theres much differentiation again, Bob talked about using more specific approach by community and by buyer. Some buyers need more assistance with may be closing costs or those type things and just a little bit of buy down I mean every customer can be.
Derek J. Klutch: Again, Bob talked about, you know, using a more specific approach by community and by buyer. Some buyers need more assistance with maybe closing costs or those type things and just a little bit of buy-down. I mean, every customer can be a little different. And again, our mortgage company only takes care of M-I Home customers. We're very focused on individual customers and communities.
Derek: Little different and again, our mortgage company only.
Derek: <unk> care of in my home customers were very focused on individual customers and communities.
Derek: Okay.
Jay McCanless: So, I guess the next couple of questions I have is... I guess maybe you could, if you've got that many people taking mortgage buy-down assistance along with some incentives, I guess what are some of the other operating levers that you pulled to get to this gross margin improvement from the fourth quarter to the first quarter? Was it geographic mix, or what was going on there?
Derek: So I guess the.
Derek: In the next couple of questions I have.
Derek: I guess, maybe could if you've got that many people.
Derek: Mortgage providing them assistance along with some incentives I guess, what what are some of the other operating levers that you pulled.
Derek: Get to this gross margin improvement from the fourth quarter. The first quarter was it geographic mix or what was going on there.
Phillip G. Creek: Why were our margins up as much as they were? Why were they so much better than expected? Yeah, that's it.
Derek: Well our margins up as much as they were.
Derek: Why are they so much better than expected yes.
Speaker Change: That's it.
Phillip G. Creek: You know, um... One thing, I think really good execution. It's never just one thing. It's pricing by community, not by product. Pricing to market takes a lot more work, but that's what our people are paid to do, and they do it really well. We're very fortunate in that regard. I think that we have some really well-located communities that have come on in the last year or so that are performing better than we even anticipated they would. And I think demand, you know, in general, demand has been a little better than we thought. We were very reluctant to cut prices just to drive volume.
Speaker Change: You know.
Speaker Change: One I think really good execution.
Speaker Change: Such.
Speaker Change: Never one thing.
Speaker Change: It's pricing by community, it's pricing byproduct pricing.
Speaker Change: Pricing to market takes a lot more work.
Speaker Change: But that's what our people are paid to do and they do really well and we're very fortunate in that regard I think that we have some really well located communities that have come on in the last year or so that are.
Speaker Change: Are performing better than we even anticipated they would.
Speaker Change: And.
Speaker Change: And I think demand.
Speaker Change: In general demand has been a little better than we thought.
Speaker Change: We were very reluctant to cut prices just to drive volume.
Phillip G. Creek: We're in some sub-markets; we see our competitors promoting with either big discounts to realtors for bringing people in or otherwise. And we. Not that we do everything perfectly, but we scratch our heads when we see that and go, we don't understand that. The traffic is there, why would you do that?
We're in some submarkets, we see our competitors.
Speaker Change: Promoting with either a big discounts to realtors.
Speaker Change: For bringing people in or otherwise.
Speaker Change: We do.
Not that we do everything perfect, but we scratch our head when we see that and go we don't understand that the traffic is there why would you do that but.
Phillip G. Creek: You know, uh, um... In some cases, there's mandates from corporate by competitors to do things a certain way everywhere, and they do them, whether it makes sense or not. I think that the targeted approach has always worked best for us. You know, I think our margins have really held up well over the last period of time. And I think, comparatively, they'll continue to because I think we're going to keep doing what we've been doing. I don't know if I have a better answer than that. Every community, you know; we don't have a thousand stores. If we did, it might be a lot harder.
Speaker Change: No.
Speaker Change: Some cases theres mandates from corporate by competitors to do things a certain way everywhere. They are whether it makes sense or not I think that the targeted approach has always worked best for us.
<unk>.
Speaker Change: No I think our margins have really held up well over the last period of time and I think comparatively they'll continue to because I think we're going to keep doing what we've been doing.
Speaker Change: Don't know if I have a better answer than that.
Speaker Change: Alright every can be every community we don't have a thousand stores. If we did it might be a lot harder, but we've got.
Phillip G. Creek: We've got, you know, 220 or so stores across 17 markets. There's a very intense subdivision focus. You know, if the margins can be 25 12 instead of 25, they need... And we try to monitor that as needed, you know, weekly.
Speaker Change: 220, or so stores and across 17 markets.
Speaker Change: This is a very intense subdivision focus if the margins can be $25 five instead of 25, they need to be and we try to monitor that as is.
Speaker Change: As needed weekly.
Phillip G. Creek: And I know I keep coming back, Jay, to the new stores, but you only get a chance to open one. And you know, you open a couple of lots, you sell a couple of houses, then you kind of reassess where you are.
Speaker Change: I keep coming back Jay to the new stores, but you only get a chance to open what.
Speaker Change: And.
Open a couple of blocks T cell a couple houses then you kind of reassess where you are.
Phillip G. Creek: Again, don't get too far ahead of yourselves. When you look at the margins for the last four quarters, we were 25-5 in the second quarter of 23. We were 26-9 in the third quarter of 23. Then we were down to 25-1 and now 27-1. So, mix is always impacted, you know, we have some divisions that have higher margins than others for different reasons, so there's always some mix and some products where you're opening new stores, but again, we have a big focus, always have, on gross margin. It means so much to us. The other side.
Speaker Change: Again don't get too far ahead of yourselves. When you look at margins. The last four quarters. We were we were 25, 5% in the second quarter of 2003, we were 26 nine in the third quarter at 23, they were down to 25, one and now 27 one.
Speaker Change: Mix is always impacted you know we have some divisions that have higher margins than other for different reasons. So there's always some mix and some product and where you are opening new stores, but again, we have a big focus always have on gross margin. It means so much to us.
Phillip G. Creek: The other side of it is, you know, we're really, really because not all builders account for gross margin the same way. There's nothing that you or I can do about that.
Speaker Change: The other side of it as you know.
Speaker Change: We're really really because not all builders account for gross margins in the same way there is nothing that you or I can do about that but.
Phillip G. Creek: But we're very focused on our pre-tax income percentage, 17.2% for the quarter. One of the best we've ever seen. Very pleased with that. You can't get to 17 if you don't manage the gross margin line properly.
Speaker Change: We're very focused on our pre tax income percentage 17, 2% for the quarter.
Speaker Change: The best we've ever seen very pleased with that you can't get to 17, if you don't manage the gross margin line properly.
Jay McCanless: Gotcha. Two more for me, and I'll pass them on.
Got you.
Speaker Change: Two more for me and I'll pass it on Bob I think you made a comment earlier about new communities performing better than expected. Thus far in 'twenty four is that the case for both the northern and southern regions.
Jay McCanless: Bob, I think you made a comment earlier about new communities performing better than expected thus far in 24. Is that the case in both the northern and southern regions?
Robert H. Schottenstein: I think it is, but I'm going to defer to Phil. I think he's got some of that in front of him.
Bob: I think it is but I'm going to defer to fill I think he's got some of that in front of them right now yeah. Yeah. I mean, if you look at it.
Phillip G. Creek: Yeah, yeah, I mean, uh... You know, at the end of the year, we had 102 in the northern region, now we have 101. We had 111 in the southern region at the end of 23, now we have 118. So, yeah, there are a few more new openings there, again, Fort Myers and Nashville are in the southern region where we're opening stores, new markets, and stuff. But yeah, but overall, we're pleased with all the new stores, with the way they're opening and what they're performing.
Phil: At the end of the year, we had 102 into northern now we have 101, we had 111 in the southern region at the end of 'twenty three now we have 118.
So yes, there's a few more new openings, there again Fort Myers and Nashville.
Phil: Or in the southern region, where we're opening stores in new markets and stuff, but yes, but overall, we're pleased with all the new stores with the way they are opening and what Theyre performing at Jay.
Jay McCanless: And then last one for me, stock repurchase. How are you feeling about that for the year, and should we expect some level of ongoing stock repurchase on a quarterly basis going forward?
Speaker Change: Okay, and then last one for me stock repurchase how are you feeling about that for the year and should we.
Speaker Change: Some level ongoing stock repurchase on a quarterly basis going forward.
Phillip G. Creek: You know, Jay, that's something we look at constantly. We'll be discussing it again with our board at our May quarterly meeting. The last few quarters, we've been at that $25 million repurchase level. We do think it's important to have, you know, a consistent type program.
Speaker Change: Jamie it's something we look at constantly we'll be discussing it again with our board at our May quarterly meeting the last few quarters, we've been at that $25 million repurchase level.
Speaker Change: We do think it's important to have a consistent type program.
Phillip G. Creek: You know, we're low-leverage people in general. Having $800 million in cash is a little more than we thought we would have, so again, we'll continue looking at that. We are spending more on land and will spend more on land than we did last year, with more of that expenditure being in land development. We think we're in great shape from a land standpoint, as Bob said, to continue growing the business. But we will continue looking at that, and we'll be discussing possibly increasing that level.
Speaker Change: Now, we're low leverage people in general.
Speaker Change: Don't have an $800 million of cash is a little more than we thought we would have so again, we would we'll continue looking at that we are spending more on land.
Speaker Change: We'll spend more on land that we did last year with more of that spend being in land development. I think we think we're in great shape from a land standpoint, as Bob said to continue growing the business but.
Speaker Change: We will continue looking at that and we will be discussing possibly increasing that level.
Jay McCanless: And then, just since you brought it up, Phil, maybe talk about how your land costs have gone up this year and what you're kind of projecting or thinking going forward in terms of land cost inflation.
Speaker Change: Okay and then just.
Speaker Change: Since you brought it up so maybe talk about what your land cost have gone up this year and what you're kind of projecting youre thinking going forward in terms of land cost inflation.
Phillip G. Creek: Land costs continue to increase. There's still competition for the better A locations, which we primarily, you know, focus on. We are spending more on land than last year and anticipate continuing to do that. You know, today we're developing 80 to 85% of our own communities, which is a little higher than a year ago. So it's not going up as much as it was, but raw land costs and land development costs continue to increase. But again, I mean... Your location, the product, and price point you have are key to our business. So we continue to spend a whole lot of time on that.
Land cost continue to increase there is still competition for the better a locations, which we primarily focus on.
Speaker Change: We are spending more on land than last year and anticipate continuing to do that.
Speaker Change: Today, we are developing $80 to 85% of our own communities, which is a little higher than a year ago. So.
Speaker Change: It's not going up as much as it was but raw land costs and land development costs continue to increase.
Speaker Change: But again I mean.
Speaker Change: Youre location the product price point, you have I mean, the locations are key to our business. So we continue to spend a whole lot of time on that.
Jay McCanless: Okay, sounds great. Thanks for taking my questions.
Speaker Change: Okay sounds great. Thanks for taking my questions.
Jay McCanless: Thanks, Jay. Thanks, Jay.
Phillip G. Creek: And there are no further questions at this time. I will turn the call back over to Phil Creek for closing remarks.
Speaker Change: Thanks, Jay Thanks, Jay.
Speaker Change: And there are no further questions at this time I will turn the call back over to Phil Creek for closing remarks.
Phillip G. Creek: Thank you for joining us. I look forward to talking to you again next quarter.
Phillip G. Creek: Thank you for joining us look forward to talking to you again next quarter.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining us, and you may now disconnect your lines. Thank you.
Phillip G. Creek: Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
Phillip G. Creek: Okay.
Phillip G. Creek: [noise].