Q3 2024 M/I Homes Inc Earnings Call
At this time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.
At any time during this call you required immediate assistance. Please press star zero for the operator. This call is being recorded on Tuesday October 30 of 2024, I would now like to turn the conference over to Mr. Phil Creek. Please go ahead.
Phil Creek: Thank you.
With me on the call today is Bob Schottenstein, 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.
Phil Creek: This call because we are prohibited from discussing significant nonpublic 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 todays press release also applies to any comments made during this call.
Phil Creek: Be advised that the company undertakes no obligation to update any forward looking statements made during this call with that I'll turn the call over to Bob. Thanks, Phil Good morning, and thank you for joining us today.
Bob: We have a very strong third quarter highlighted by record homes delivered record revenue and record income.
We are particularly pleased with our results given the various macro economic headwinds and other challenges our industry faced during the third quarter.
Variety of outside factors impacted traffic and demand and led to generally choppy selling conditions throughout the quarter.
We saw a lot of movement in interest rates initially trending down in anticipation of the fed 50 basis point rate cut and then for some somewhat unexpectedly going up with mortgage rates hovering in the mid 6% range before rising to just above 7%.
And with Florida, representing about 20% of our overall business. We were clearly impacted in the latter part of the quarter and our four Florida markets by both Hurricane Helene and Hurricane Milton Fortunately for us our homes held up very well.
Very little to no damage in any of our communities are certainly nothing significant but clearly an impact on our operations the ability to open our sales offices and the impact it had on traffic and demand during the latter part of the quarter.
Bob: And then finally the upcoming presidential election has also had some impact on consumer behavior, we all look forward to that being behind us.
Bob: Despite all of this our results stand strong as we executed at a very high level throughout the quarter.
We closed a record 2271 homes in the quarter, which is 8% better than a year ago year to date, we have closed 6653 homes, a 9% increase over 2023.
Bob: Third quarter revenue reached a record $1 $1 billion, 9% better than last year and year to date, our revenues equal roughly $3 3 billion, an 8% increase over 2023.
We sold 2023 homes during the quarter slightly better than last year's third quarter of 2021 homes sold.
Bob: Year to date, we have sold 6825 homes, 7% better than 2023.
during the latter part of the quarter. And then finally, the upcoming presidential election has also had some impact on consumer behavior. We all look forward to that being behind us.
Bob: Quality of our buyers continues to be very good with average credit scores of around 750, and average down payments slightly above 18% equaling about $90000 down payment per buyer on average.
Despite all of this, our results stand strong as we execute it at a very high level throughout the quarter.
We closed a record 2,271 homes in the quarter, which is 8% better than a year ago. Year to date, we have closed 6,653 homes, a 9% increase over 2023.
Bob: We are really pleased with our income in returns pre tax income for the quarter increased 6% to a record $188 $7 million year to date, our pretax income equals $563 million, 20% higher than 2023.
3rd quarter revenue reached a record $1.1 billion, 9% better than last year, and here today our revenues equal roughly $3.3 billion and 8% increase over 2023.
Gross margins for the quarter or a third quarter record of 27, 1% 20 basis points better than last year, and our pre tax income percentage for the quarter.
We sold 2,023 homes during the quarter, slightly better than last year's third quarter of 2021, ohm so old.
Bob: Was a very solid 16, 5%.
Our strong results generated a 20% return on equity with our book value per share now at a record $105 up 20% from a year ago.
Here today we have sold 6,825 homes, 7% better than 2023.
We continue to promote sales in a very targeted and strategic way using mortgage rate buy downs about one third of our buyers during the quarter used our rate buy down program.
Quality of our buyers continues to be very good with average credit scores of around 750 and average down payments, slightly above 18%, equalling about a $90,000 down payment per buyer on average.
And about half of our buyers during the quarter purchased our most affordable line of homes, which we call our smart series.
We are really pleased with our income and returns. Pre-tacks income for the quarter increase 6% to a record 188.7 million dollars.
For the balance of our buyers about 50% purchasing are more expensive move up product.
We feel very good about the breadth of our product offering and product mix across our 17 markets.
Here today, our pretext income equals $563 million, 20% higher than 2023.
As we enter the fourth quarter, we remain on track to open a number of new communities and we are very excited about the many new communities. We will be opening in 2025, our average community count for 2024 will be about 5% higher than 2023, and we expect to further grow our community.
Gross margins for the quarter were a third quarter record of 27.1% 20 basis points better than last year. And our pre-tax income percentage for the quarter.
was a very solid 16.5%. Our strong results generated the 20% return on equity with our book value per share, now at a record 105 dollars, up 20% from a year ago.
Bob: Count in 2025.
Our division income contributions in the third quarter were led by Dallas, Columbus, Tampa, Orlando, Chicago and Raleigh.
We continue to promote sales in a very targeted and strategic way using mortgage rate by downs. About one-third of our buyers during the quarter use our rate by down program.
New contracts for the third quarter in our northern region increased by 1%.
New contracts in the southern region were flat comparatively to prior year's third quarter.
and about half of our buyers during the quarter purchased our most affordable line of homes which we call our smart series.
Our deliveries in the southern region decreased by 7% from a year ago, while our deliveries in the northern region increased by 37% from last year.
The balance of our buyers about 50% purchasing or more expensive move up product.
Bob: 55% of our deliveries came out of the southern region.
We feel very good about the breadth of our product offering and product mix across our 17 markets.
Bob: The balance of 45% came out of the northern region.
As we enter the fourth quarter, we remain on track to open a number of new communities.
Our owned and controlled lot position in the southern region increased by 20% compared to a year ago and increased by 11% in the northern region compared to last year.
and we are very excited about the many new communities we will be opening in 2025. Our average community count for 2024 will be about 5% higher than 2023. And we expect a further grow our community count in 2025.
33% of our owned and controlled lots are in the northern region. The other 67% in the southern region.
We have an exceptional land position very strong companywide, we own approximately 24000 lots, which is about a $2 seven year supply. In addition, we control an additional 52000 lots.
Our Division income contributions in the third quarter were led by Dallas, Columbus, Tampa, Orlando, Chicago, and Raleigh.
New contracts for the third quarter in our Northern region increased by 1% New contracts in the Southern region were flat comparatively to prior years third quarter.
With respect to our balance sheet, we ended the third quarter with an all time record $2 $8 billion of equity.
Bob: Our cash balance of $720 million and zero borrowings under our $650 million unsecured revolving credit facility.
Our deliveries in the southern region decreased by 7% from a year ago, while our deliveries in the northern region increased by 37% from last year.
Bob: This resulted in a debt to capital ratio of 20% down from 22% a year ago, and a net debt to capital ratio of negative 1%.
55% of our deliveries came out of the southern region and the balance of 45% came out of the northern region.
Our own and controlled lock position in the southern region increased by 20% compared to a year ago, and increased by 11% in the northern region compared to last year.
I conclude let me just state that our balance sheet is in excellent shape and that we are in the best financial condition in our history.
We feel really good about our business.
33% of our own and controlled lots are in the northern region, the other 67% and the southern region.
And our prospects for continued growth and success as we look to 2025 and beyond.
We have an exceptional land position, very strong. Company wide, we own approximately 24,000 lots, which is about a 2.7-year supply. In addition, we control an additional 52,000 lots.
Mike M. I homes is very well positioned to have another year of strong results in 2024 with that I'll turn it over to Phil Thanks, Bob as far as financial results, our new contracts were flat with last year. They were down 5% in July up 2% in August and up 3%.
With respect to our balance sheet, we ended the third quarter with an all-time record $2.8 billion of equity.
Bob: In September and our cancellation rate for the quarter was 10% 50.
A cash balance of $720 million and zero bar wings under a $650 million unsecured revolving credit facility.
50% of our third quarter sales were to first time buyers and 60% where inventory homes. Our community count was $2 17 at the end of the quarter compared to 204, a year ago. The breakdown by region is 88, and the northern region and $1 29 in the southern region.
This resulted in a debt to capital ratio of 20% down from 22% a year ago and a net debt to capital ratio of negative 1%.
During the quarter, we opened 19, new communities, while closing 13, and we currently estimate that our average 2020 for community count will be about 5% higher than last year.
So I conclude, let me just state that our balance sheet is an excellent shape and that we are in the best financial condition in our history. We feel really good about our business.
Bob: We delivered 2200 71 homes in the third quarter, delivering 66% of our backlog.
and our prospects for continued growth and success as we look to 2025 and beyond. My visit, my home is very well positioned to have another year of strong results in 2024.
At September 30, we had 5100 homes in the field versus 4600 homes in the field a year ago up 9%.
Speaker Change: With that, I'll turn it over to Phil.
Revenue increased 9% in the third quarter and our average closing price for the third quarter was 489000% to 2% increase compared to last year's third quarter average closing price of $4 81.
Phil: Thanks Bob, as far as financial results, our new contracts were flat with last year. They were down 5% in July, up to percent in August, and up 3% in September. And our cancellation rate for the quarter was 10%.
Our third quarter gross margin was a third quarter record $27, one up 20 basis points year to year.
Phil: 50% of our third quarter sales were the first time buyers and 60% were inventory homes. Our community count was 217 at the end of the quarter compared to 204 a year ago. The breakdown by region is 88 in the northern region and 129 in the southern region.
Bob: Compared to this year's second quarter, our construction costs were flat and our cycle time improved slightly.
Our third quarter SG&A expenses were $11 two of revenue compared to $10 five a year ago. Our increased costs were due to our increased community count additional head count and higher selling expenses.
Phil: During the quarter we opened 19 new communities while closing 13. And we currently estimate that our average 2024 community count will be about 5% higher than last year.
And our interest income net of interest expense for the quarter was $6 7 million.
Phil: We delivered 2271 homes in the third quarter delivering 66% of our backlog and at September 30th we had 5100 homes in the field versus 4600 homes in the field a year ago up 9%.
Our interest incurred was $8 $8 million, we are very pleased with our returns for the quarter. Our pre tax income was 17% and our return on equity was 20% during the quarter, we generated $198 million in EBITDA compared to 185 million in last year's third quarter.
Phil: Revitably increased 9% in the third quarter, and our average closing price for the third quarter was 489,000. A 2% increase compared to last year's third quarter, average closing price of 481.
And our effective tax rate was 23% in the third quarter, the same as last year's third quarter or.
Our earnings per diluted share for the quarter increased to our third quarter record $5 10 per share from $4 82 per share last year up 6%.
Phil: Our third quarter-growth margin was a third quarter record 27.1 of 20 basis points year to year.
Phil: Compared to this year's second quarter, our contrussian costs were flat and our cycle time improved slightly.
And our book value per share is now $105 $17 per share increase from a year ago now Derek <unk> will address our mortgage company results.
Phil: Our third quarter SGA expenses were 11.2 of revenue compared to 10.5 a year ago. Our increased cost reduced to our increased community count, additional head count, and higher selling expenses.
Derek: Phil our mortgage and title operations achieved pretax income of $12 9 million, an increase of 31% from $9 $9 million in 2020 Three's third quarter.
Phil: and our interest income, Nat Adventure, is expense for the quarter, was 6.7 million. Our interest incurred was 8.8 million.
Revenue increased 27% from last year to a third quarter record of $30 million due to higher margins on loans sold and increase in loans originated and a higher average loan amount.
Phil: We are very pleased with our returns for the quarter, our pre-tax income was 17% and our return on equity was 20%.
The average loan to value on our first mortgages for the third quarter was 82% same as last year.
Phil: During the quarter we generated a hundred and ninety eight million of the dollar compared to hundred and eighty five million and last year, a start quarter. And our effective tax rate was twenty three percent in the third quarter. The same as last year, a start quarter.
We continue to see an increase in the use of government financing at 66% of the loans closed in the quarter were conventional and 34% FHA or VA.
Phil: Our earnings per diluted share for the quarter increase to a third quarter record, $5.10 per share from 4.82 per share last year up 6%.
Impaired to 72% and 28% respectively for 2020 Three's third quarter.
Our average mortgage amount increased to $403000 in 2020 for third quarter compared to $394000 last year.
Phil: and our book value per share is now $105, a $17 per share increase from a year ago.
Phil: Now, Derek Klutch will address our mortgage company results. Thanks, Phil. Our mortgage entitlement operations achieved pre-text income of $12.9 million. An increase of 31% from $9.9 million in 2023's third quarter.
Loans originated increased up to 1695 loans, which was up 15% from last year, while the volume of loans sold increased by 20%.
Derek: Our borrower profile remains solid with an average down payment of over 18% and an average credit score of 750 compared to $7 48 in 2020 Three's third quarter.
Derek Klutch: revenue increased 27% from last year to a third quarter record of $30 million. Due to higher margins on loan sold, an increase in loans originated in the higher average loan amount.
Finally, our mortgage operation captured 89% of our business in the third quarter and this was up from 86% last year now.
Derek Klutch: The average loan devalue on our first mortgages for the third quarter was 82% same as last year.
Derek: Now I'll turn the call back over to Phil Thanks, Derrick as for the balance sheet. We ended the third quarter with a cash balance of $720 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 two.
Derek Klutch: We continue to see an increase in the use of government financing, a 66% of the loans closed in the quarter were conventional and 34% FHA or VA.
Derek Klutch: Comparative 72% and 28% respectively.
Derek Klutch: for 2020-3rd quarter.
26, and our public debt matures in 2028, and 2030 and as interest rates below 5%, our unsold land investment at quarter end is $1 6 billion compared to $1 3 billion a year ago and at quarter end, we had $813 million of raw land and <unk>.
Derek Klutch: Our average mortgage amount increased to $403,000 in 2024's third quarter, compared to $394,000 last year.
Derek Klutch: Loans originated in Christ up to 1,695 loans, which was up 15% from last year, while the volume of loans sold increased by 20%.
Land under development and $745 million of finished unsold lots.
Derek Klutch: Our borrowers' profile remains solid with an average down payment of over 18% and an average credit score of 750 compared to 748 in 2023's third quarter.
Derek: During 2020 for third quarter, we spent 139 million on land purchases and $181 million on land development for a total of $319 million.
Derek Klutch: Finally, our mortgage operation captured 89% of our business in third quarter, and this was up from 86% last year.
Derek: And at quarter end, we owned 24000 lots and controlled 52000 loss.
At the end of the quarter, we get 555 completed inventory homes in 2000, and 375 total inventory homes and of the total inventory 890 or in the northern region and 1485 are in the southern region.
Speaker Change: Now I'll turn the call back over to Phil. Thanks Derek. As for the balance sheet, we ended the third quarter with a cash balance of 720 million and no borrowers under our unsycure revolving credit facility.
Phil Derek: We have one of the lowest debt levels of the public home builders and our well positioned with our maturities, our bank line betuers in late 2026.
At 930, 'twenty three we get 414 completed inventory homes and 2021 total inventory homes, we spent $50 million in the third quarter repurchasing our stock and have $157 million remaining under our current board authorization since the start of 2022.
Phil Derek: and our public debt in the tours in 2028 and 2030, and as interest rates below 5%.
Phil Derek: Our on-sode land investment at 1.6 billion compared to 1.3 billion a year ago, and at 1.4 and we get 813 billion of our all-land at land under development, and 745 million have finished on so lots.
We have repurchased 13% of our outstanding shares. This completes our presentation, we'll now open the call for any questions or comments.
Thank you ladies and gentlemen, we will now begin the question answer session should you have a question. Please press star followed by the wondering you touched on phone you would hear prompt that Johan has memories should you wish to decline from the polling process. Please press star followed by the Q.
Phil Derek: During 2024, third quarter, we spend 139 billion on land purchases and 181 million on land development for a total of 319 million.
Phil Derek: And at Quarter End, we own 24,000 lots and control 52,000 lots.
Using a speaker phone please lift the handset before pressing.
Phil Derek: At the end of the quarter, we get 555 completed inventory homes and 2,375 total inventory homes. And of the total inventory, 890 are in the northern region and 1,485 are in the southern region.
One moment. Please for your first question.
Your first question comes from Alan Ratner with Zelman. Your line is now open.
Hey, guys good morning.
Alan Ratner: A nice nice quarter congrats on the strong results.
Thanks Alan.
Phil Derek: At 930.23, we had 414 completed inventory homes and 2,021 total inventory homes.
Alan Ratner: I'm, Bob I'd Love to just pick your brain a little bit on what you're seeing across price points in your and your footprint I know so much of your growth over the last few years has come via Smart series in the entry level and the strong demand there. It seems like the commentary from other builders recently has been that the choppiness.
Derek: <unk> seen of late is maybe more so at the entry level given kind of the volatility in rates affordability constraints et cetera, and I know you guys are diversified across multiple price points I'm. Just curious if you're seeing notable differences there and whether you think about the upcoming spring selling season, if you're thinking about positioning your <unk>.
Speaker Change: This completes our presentation. We'll now open the call for any questions or comments.
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2.
Company towards growth and outsized growth in one price point versus another.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: Great Great question.
Speaker Change: One moment, please, for your first question. Your first question comes from Alan Ratner with Zellman. Your line is now open.
Derek: <unk>.
Speaker Change: Agree with a lot of what you said I think that the affordability issues are real.
Speaker Change: Hey guys, good morning. Nice quarter, congrats on the strong results. Thanks, Alan.
I think that.
Derek: I'm really pleased.
We have such a strong product offering.
Speaker Change: I'm Bob. I'd love to just pick your brain a little bit on what you're seeing across price points in your in your footprint You know I know so much of your growth over the last few years has come Via the smart series and the entry level and the strong demand there
Derek: Extends beyond our what we call our smart series.
Look our sales were basically flat, we sold one or two more homes in the third quarter than we did a year ago.
Speaker Change: It seems like the commentary from other builders recently has been that the choppiness we've seen of lathe is...
<unk> of them were smart series half or move up.
So I'm glad we have both.
Speaker Change: maybe more so at the entry level, given kind of the volatility in rates, affordability constraints, etc. And I know you guys are diversified across
I think that the first time buyer and in the more affordably priced product will continue to be there may be some intra quarter or throughout the year choppiness, but I think it's going to continue to be a big part of our business.
Speaker Change: multiple price points. I'm just curious if you're seeing notable differences there and whether, as you think about the upcoming spring selling season, if you're thinking about positioning your company towards growth and outsized growth in one price point versus another.
Derek: <unk>.
Hovering around this 50% range might get a little larger yes, sure. We're doing a lot more attached town homes, which is which is meeting the.
Derek: The buyer at a more affordable price point, we're doing a lot more of that than we used to its approaching about 20% of our business some markets even higher.
Speaker Change: I'm really pleased that we have such a strong product offering that extends beyond what we call our smart series.
Derek: But we.
Derek: Yeah.
Derek: I mean long term like I could not be more bullish about the industry I think it's really smart for us to have the full array of product offerings, we don't have any any strategic.
Speaker Change: Look, our sales were basically flat. We sold one or two more homes in the third quarter than we did a year ago.
Shifting plan, we like where we are we like our position really excited about our land position.
Speaker Change: Half of them were Smart Series, half were MOVA, so I'm glad we have both.
Derek: We've grown community count this year, we expect to grow community count next year and beyond.
Speaker Change: I think that the first-time buyer and the more affordably priced product will continue to be, there may be some intra-quarter or throughout the year choppiness, but I think it's going to continue to be a big part of our business.
We're looking to continue to grow the business as we've said throughout every single call over the last number of years.
Derek: They're just there's a lot of stuff going on right now theres a whole lot of noise.
I think thats been the common theme of every builder call and it's because it's the way it is but.
Speaker Change: Hovering around this 50% range might it get a little larger? Yeah, sure We're doing a lot more attached townhomes, which is which is meeting, you know, the buyer at a more affordable price point We're doing a lot more of that than we used to
Derek: Conditions are not bad.
Derek: Record returns record profit.
Derek: Recent sales strong closings.
Derek: Recently, we've seen a pickup in traffic, it's just very hard to draw any clear.
Speaker Change: It's approaching about 20% of our business, some markets even higher.
Conclusion as to where we are at a moment in time I think all of US are looking forward to getting this election behind us it's been quite challenging for a lot of pieces and parts of our economy.
Speaker Change: I mean, long term, I could not be more bullish about the industry. I think it's really smart for us to have the full array of product offering. We don't have any strategic shift planned. We like where we are. We like our position.
Derek: And I think it is impacting consumer behavior.
Speaker Change: We're really excited about our land position. You know, we've grown community count this year. We expect to grow community count next year and beyond.
Derek: The impact that the Hurricanes had.
Derek: And for our operations and as I said, Florida is about 20% plus or minus of our total business and where we have very very strong operations in Tampa, Orlando and Sarasota, and we're just getting started and have really high hopes for our Fort Myers enables operation.
Speaker Change: There's a lot of stuff going on right now. There's a lot of noise.
From a damage standpoint, we were very fortunate our houses held up exceptionally well and while we did have some damages some damage to our communities that was not material and thank god.
Speaker Change: I think that's been the common theme of every builder call, and it's because it's the way it is.
Derek: There was no.
Derek: No loss of life or anything like that.
Speaker Change: Recently, we've seen a pickup in traffic. It's just very hard to draw any clear...
Derek: But we.
Derek: We were basically closed in Tampa and Orlando for almost two weeks.
Not many people are out shopping and that had an impact on how strongly we closed the month out from a sales and closing standpoint, we dropped about 20 closings in Florida that would've closed in the third quarter.
Uh huh.
Those deals did not cancel.
Speaker Change: The impact that the hurricanes had for our operations, and as I said, Florida is about 20% plus or minus of our total business.
Derek: That closing this month.
Derek: <unk>.
Derek: So long answer to a complicated question I'm really optimistic about the spring selling season, we'll know it when it comes we're prepared for it we expect to grow the business next year, we expect the smart series to continue to be strong, but we have a lot of move up communities coming on next year or two.
Speaker Change: And we have very, very strong operations in Tampa, Orlando, and Sarasota, and we're just getting started and have really high hopes for our Fort Myers and Naples operation.
Speaker Change: From a damage standpoint we were very fortunate our houses held up exceptionally well and While we did have some damages some damage to our communities. It was not material and thank God There was no
Derek: We're not I don't think we're heavily weighted on any one end of the product spectrum.
Derek: I just you know I feel really good about the way the mix is lined up and I think it's helping us from a sales standpoint, right now I think comparatively speaking our sales look quite good compared to our peers and without the move up product I don't think they would have looked as good just in the recent quarter. So I think.
Speaker Change: No loss of life or anything like that, but we were basically closed in Tampa and Orlando for almost two weeks.
Speaker Change: Not many people were out shopping, and that had an impact on how strongly we closed the month out from a sales and closing standpoint. We dropped about 20 closings in Florida that would have closed in the third quarter.
Derek: The underlying premise of your question is correct, but.
I think we have a chance to finish out the year in really good shape last year, the fourth quarter sales, where we sort of linked to the finish line.
Speaker Change: Those deals did not cancel, they're closing this month.
I think a lot of our peers lyft with us and.
Speaker Change: So, long answer to a complicated question. I'm really optimistic about the spring selling season. We'll know it when it comes. We're prepared for it. We expect to grow the business next year. We expect the Smart Series to continue to be strong.
Derek: I think we have a little bit more momentum right now than we did a year ago right now and look.
Derek: We were we were.
Promoting with three and seven eights for FHA mortgage in <unk> conventional.
About a third of our buyers took that product during the third quarter, we're now promoting with rates in the upper fours on the FHA side and upper fives on the conventional side with the opportunity for for buy downs to one buy downs and so forth and we're going to continue to do that.
Speaker Change: But we have a lot of move-up communities coming on next year, too. I don't think we're heavily weighted on any one end of the product spectrum.
As necessary, it's very targeted I think were very strategic about it.
Derek: But it is clearly driving traffic right now across the industry and.
Speaker Change: And without the Move Up product, I don't think they would have looked as good just in the recent quarter. So I think you're, you know, the underlying premise of your question is correct.
And that looks like it's going to continue for the foreseeable future.
Speaker Change: But, you know, I think we have a chance to finish out the year.
Thank you for that very comprehensive answer Bob I appreciate all the thoughts.
Speaker Change: in really good shape. Last year, the fourth quarter sales were, we sort of limped to the finish line. I think a lot of our peers limped with us.
Alan Ratner: I agree that the diversification price point gives you a lot of optionality to kind of flex wherever the market goes.
Alan Ratner: I have a follow up on kind of the last point you brought up on the rate buy down that's kind of where I was going to go next and I know you don't guide for gross margin, but your margins have been very solid and stable really for the last year year and a half kind of in the 25% plus range.
Speaker Change: I think we have a little bit more momentum right now than we did a year ago right now and look, you know we were we were
Speaker Change: Promoting with three and seven eights for FHA mortgage and four and seven eights conventional
Speaker Change: About a third of our buyers took that product during the third quarter. We're now promoting with rates in the upper fours on the FHA side and upper fives on the conventional side.
Alan Ratner: It seems like incentives are picking up across the industry rate buy downs, or perhaps becoming a little bit more.
Expensive in the near term just given the volatility in rates.
Speaker Change: with the opportunity for, you know, for buy-downs, 2-1 buy-downs and so forth.
Given the magnitude of rate buy downs, you're offering should we expect a little bit of pressure to your margin over the next quarter or two or would you say that what you're offering right now is kind of pretty consistent with what <unk> been offering for the last several quarters.
Speaker Change: And we're going to continue to do that as necessary. It's very targeted.
That's a really hard question to answer, but I do think.
Derek:
Derek: I want to be really careful with how I say this because youre somewhat rewarded on the way up and then your harshly penalized on the way down.
Speaker Change: Thank you for that very comprehensive answer Bob. I appreciate all the thoughts
I guess, that's the way life is.
Speaker Change: and yeah, agree that the diversification price point gives you a lot of optionality to kind of flex to wherever the market goes.
Derek: <unk>.
Our 27% gross margins and 17% pre tax margin sustainable long term.
Speaker Change: I have a follow-up on kind of the last point you brought up on the rate buydowns that's kind of where I was going to go next and
Speaker Change: I don't think so.
But does that mean, we're going to back to 20% and 8% pretax margins no I don't think that either I think there could be some slight downward pressure how much remains to be seen.
Speaker Change: year, year and a half, kind of in this 25% plus range. And, you know, it seems like incentives are picking up across the industry, rate buy downs are perhaps becoming a little bit more
Speaker Change: We have.
We have a number of communities throughout our our footprint that are running 30% plus gross margins right now even with the rate buy down.
Speaker Change: expensive in the near term just given the volatility and rates. So you know given the magnitude of rate buydowns you're offering, should we expect a little bit of pressure to your margin over the next quarter or two or would you say that what you're offering right now is kind of pretty consistent with what you've been offering for the last several quarters?
Derek: So.
A lot of it is going to be mix dependent.
Derek: We don't we don't.
Derek: We price on a per community basis with in every market that we're in.
We're very focused on that.
Speaker Change: That's a really hard question to answer, but I do think...
We have we have communities that are in the low twenties right now because thats what it takes to sell houses, but we have a lot more that are in the upper twenty's and as I said a number in the low Thirty's, we'll just have to see I mean, I think there could be some slight downward pressure, but I expect us to continue to produce very strong returns.
Speaker Change: I want to be really careful with how I say this because, you know, you're somewhat rewarded on the way up and then you're harshly penalized on the way down. I guess that's the way life is.
Speaker Change: are 27% gross margins and 17% pre-tax margins sustainable long-term.
Derek: And.
Derek: Right.
You know.
Derek: We're going to we're going to do what we can you can only sell a home lunch.
Speaker Change: I don't think so. But does that mean we're going back to 20% and 8% pre-tax margins? No, I don't think that either. I think there could be some slight downward pressure. How much remains to be seen.
Derek: And you know.
Derek: I mean, none of US wanted to fall in the short for margins because you got to sell homes, but.
I think that I think that our margins will will continue to stand comparatively tall in comparison to our peers because they have and I think we will continue to we talk a lot about that with our leaders our division leaders and so forth back that's one of the most talked about topics but.
Speaker Change: You know, we have.
Speaker Change: We have a number of communities throughout our footprint that are running 30% plus gross margins right now, even with the rate buy-down.
Speaker Change: So a lot of it's going to be mixed dependent we don't we don't
We're going to see I mean.
No one really knows whats going to happen with rates.
If rates do start to come down even a little bit there is less need for buy downs that will provide margin lift.
Speaker Change: We're very focused on that. We have communities that are in the low 20s right now, because that's what it takes to sell houses.
Or at least avoid margin decline so we'll just.
It's a very hard question, but.
The builders have been have been posting pretty strong margins for quite some time.
And we're likely to see some decline I read Horton.
Speaker Change: And, you know, we're going to do what we can. You can only sell a home once. And, you know,
Derek: Commentary I think they are expecting it.
We'll see I mean, we.
Derek: We may see a little decline I don't think it's going to be significant.
Speaker Change: Great I appreciate that Bob and it wouldn't be any fun, if I ask the easy question. So thanks, thanks for the thoughts and good luck.
Speaker Change: but
Speaker Change: I think that our margins will continue to stand comparatively tall in comparison to our peers because they have, and I think they'll continue to. We talk a lot about that with our leaders, our division leaders and so forth. In fact, it's one of the most talked about topics.
I expect and good luck in upstate Michigan.
Speaker Change: I expect nothing less from a Michigan Vale.
Speaker Change: And I was just about to wish you. Good luck. This weekend, so good luck and Penn State.
Bob: Thanks Buddy.
Your next question comes from Ken Zenner with Seaport Research Your line is Allison.
Speaker Change: You know, we're going to see. I mean, no one really knows what's going to happen with rates.
Speaker Change: If rates do start to come down even a little bit and there's less need for buy downs that will provide margin lift
Ken Zenner: Good morning, everybody.
Derek: Morning.
I Wonder if you could talk to the percent of closings that were intra quarter orders I think you might've said, 60%, but I.
Speaker Change: or at least avoid margin decline. So, we'll just,
Speaker Change: It's a very hard question, but, um...
Sure.
Derek: This is kind of a housekeeping and then if you could comment.
On the margin spread you're seeing between those intra quarter closings in your backlog or if you prefer commentary around the smart series.
Speaker Change: And we're likely to see some decline. I read Horton's commentary. I think they're expecting it. You know, we'll see. I mean, you know, we may see a little decline. I don't think it's going to be significant.
Derek: <unk> your move up.
Derek: And then related to that why do you think your margin stand taller than peers given that you have the.
Speaker Change: I appreciate that Bob and it wouldn't be any fun if I asked the easy questions so thanks thanks for the thoughts I expect nothing less from a Michigan male
Operational data thank you.
Derek: As far as the first comment you made.
About 40% of our closings.
Basically came from spec houses that sold and closed during the quarter, it's kind of been that way in the last couple of quarters.
Speaker Change: And I was just about to wish you good luck this weekend. So good luck at Penn State. Thanks, buddy.
We do feel really good about our spec levels in general our spec levels are a little higher in communities that have attached town houses.
Speaker Change: Your next question comes from Kenneth Zenner with Seaport Research. Your line is now open.
Speaker Change: Good morning, everybody. Morning.
Derek: And the more affordable smarts degrees as far as a gross profit.
Kenneth Zenner: I wonder if you could talk to the percent of closings that were intra-quarter orders. I think you might have said 60% but I wasn't sure.
Speaker Change: Harrison really hasnt, a whole lot different again as Bob said, it just kind of depends on the communities.
Kenneth Zenner: This is kind of a housekeeping. And then if you could comment on the margin spread you're seeing between those inter-corridor closings and your backlog, or if you prefer commentary around the smart series versus your move up.
Derek: Our smart series versus our move our product we feel very good about the margins on.
Derek: All of those product lines.
Derek: Other thing I'd say is.
Derek: It sounds a little cliche I think we have really well located communities.
Kenneth Zenner: And then related to that, you know, why do you think your margins stand taller than peers given that you have the, you know, operational data? Thank you.
Derek: Cities.
The divisions within our company that are posting the highest margins are some of the most competitive housing markets in the country like Dallas Raleigh, Charlotte <unk>.
Speaker Change: As far as the first comment you made, about 40% of our closings
Derek: Columbus.
Derek: Chicago.
Derek: And I think we've just got some really well located communities that are generating very very strong returns for us.
Speaker Change: It's kind of been that way the last couple of quarters.
Derek: Orlando is another one.
Derek: And.
Speaker Change: that have attached townhouses.
Derek: We hope we can continue with that is what we try to do that's that's that's.
You talk about main things in business and it all comes down to execution, but.
Speaker Change: comparison really isn't a whole lot different again as Bob said it just kind of depends on the communities
Derek: Premier locations is a main thing concept within our business and we're constantly trying to find ways to get those premier locations and not just open up another community.
Speaker Change: You know, our Smart Series versus our Mover product, we feel very good about the margins on the...
Speaker Change: all those product lines.
Speaker Change: And, you know, the other thing I'd say is, um...
Speaker Change: Well it is clear that discipline is it's in the numbers.
Speaker Change: It sounds a little cliche. I think we have really well-located communities.
Derek: My second question really.
Derek: Really appreciate your comments around Florida at 20%.
Speaker Change: Cities, the divisions within our company that are posting the highest margins
Speaker Change: Can you comment on taxes.
Speaker Change: Sure just to give us.
Speaker Change: are some of the most competitive housing markets in the country, like Dallas, Raleigh, Charlotte, Columbus, Chicago,
A little flesh that out a little bit.
Speaker Change: And.
Broadly do you think the mortgage incentives.
Speaker Change: Pulling forward demand with most new homebuyers markets you serve.
Speaker Change: Having buy downs prevalent I'm, just I'm curious as to your thought whether that's actually pulling forward demand at all given the incentive structure. Thank you very much appreciate your time.
Speaker Change: You know we we hope we can continue it. That's what we try to do. That's that's that's
Speaker Change: Yes, I don't have the exact share number.
The exact percentage of our business the Texas right in front of me, but Florida has been about 20% of our business plus or minus Texas is a little higher than that.
Speaker Change: You know, you talk about main things in business and it all comes down to execution, but
Speaker Change: Florida, and Texas for huge parts of our business and we will continue to be as we look forward, particularly when you consider where they're really just getting started it's a brand new operation for us in Fort Myers and Naples.
Speaker Change: Premier Locations is a main thing concept within our business, and we're constantly trying to find ways to get those Premier Locations and not just open up another community.
And what was the second part of the question as far as pulling forward demand in those types of things you know our view is if you look at household formations.
Speaker Change: And even though some of the housing inventory levels have increased again, you really have to look out for that inventory is located in the price point and the aging of it.
Speaker Change: Wadley, do you think the mortgage incentives
We think the industry is positioned very well and there is a lot of demand out there.
Speaker Change: are pulling forward.
Speaker Change: Demand with most new homebuyers, markets you serve, having buydowns prevalent. I'm just, I'm curious as to your thought whether that's actually pulling forward demand at all given the incentive structure. Thank you very much. Appreciate your time.
Speaker Change: Interest rates and payments always matter.
And you do what you need to do at certain times.
Speaker Change: To help your sales and help your business as Bob mentioned, our interest rate buy downs are very focused on a subdivision and inventory level situation.
Speaker Change: I don't have the exact share number, the exact percentage of our business that Texas is right in front of me. But Ford has been about 20% of our business, plus or minus Texas is a little higher than that.
Speaker Change: So we still feel good about the macro economic and the outlook for our industry is just right now with all this going on in the marketplace.
Speaker Change: and Florida and Texas are huge parts of our business and will continue to be as we look forward particularly when you consider we're really just getting started it's a brand new operation for us in Fort Myers and Naples
Speaker Change: Buy downs are kind of the flavor of the time right now.
Speaker Change: And what was the second part of the question? As far as, you know, pulling forward demand and those type of things, you know, our view is if you look at household formations,
Speaker Change: Thank you very much.
Speaker Change: Thanks.
Your next question comes from Alex Barron with housing being reached.
Speaker Change: Sir your line is now.
Speaker Change: And even though some of the housing inventory levels have increased, again, you really have to look at where that inventory is located and the price point and the aging of it.
Yeah, Thanks, gentlemen, and great job on the quarter.
Speaker Change: Thanks.
Alex Barron: My general questions were.
Speaker Change: What would you say is the average mortgage rate that people in backlog.
Speaker Change: Going into the quarter with right.
Speaker Change: Right now given the incentives you guys had been all of them.
Speaker Change: I mean, that's a really hard specific type number we talked about about a third of the customers are getting.
Speaker Change: Assistance with those bought down rates it really depends on the community I mean, some buyers need some helping closing cost. So every bars, a little bit different and again, we target that based on what we need to on a community basis.
Speaker Change: So, we still feel good about the macroeconomic and the outlook for our industry, it's just right now, with all that's going on in the marketplace, buy downs are kind of the flavor of the time right now.
Speaker Change: But as far as an overall rate type thing that would be a real hard number to come up with plus I'm not sure. It's all that meaningful to start with.
Speaker Change: Thank you very much.
Alex Barron: Keep in mind Alex.
Speaker Change: Thanks.
I think this is pretty much true across the industry.
Speaker Change: Your next question comes from Alex Barron with Housing Research Center. Your line is now open.
Alex Barron: While the mortgage rate buy downs have been a very powerful.
Speaker Change: Very powerful tool.
Alex Barron: Yeah, thanks, gentlemen, and great job on the quarter.
Helping to generate sales.
Alex Barron: My general questions were, you know, what would you say is the average mortgage rate that people in backlog are going into the quarter with right now given the incentives you guys have been offering?
Speaker Change: They are only good for four loans.
Speaker Change: Our homes I should say that can close generally within about 60 days.
Speaker Change: So these are not 180 day rate locks if you will so.
Speaker Change: The buyers take advantage of these about a third in our case.
Speaker Change: I mean, that's a really hard, you know, specific type number. You know, we talked about, about, you know, a third of the customers are getting.
Speaker Change: Every instance, it's for a home that's either been in construction and now getting ready to close or a spec. That's closed are all within 60 days.
Speaker Change: assistance with those bought down rates. It really depends on the community. I mean some buyers need some help in closing costs so every buyer is a little bit different and again we target that based on what we need to on a community basis.
Speaker Change: So that that makes it harder to.
Did you have a lot of unlocked if you will loans in the backlog otherwise it makes it very very hard to come up with an average.
Speaker Change: But as far as an overall rate type thing, that would be a real hard number to come up with, plus I'm not sure it's all that meaningful to start with.
Got it.
Speaker Change: About.
Speaker Change: Maybe an average of what the incentives you guys are offering at this point as a percentage of the price how much would that be.
Speaker Change: Keep in mind, Alex, and I think this is pretty much true across the industry, that while the mortgage rate buydowns have been a very powerful tool in helping to generate sales,
Speaker Change: You know again, Alex that's a real difficult number at the end of the day it flushes through what the gross margin is.
Look at our margins in that 27% range the last few quarters.
Speaker Change: Really pleased with that again, depending on the subdivision, we price in a certain amount for financing closing cost et cetera, and we try to be very targeted as far as what does that customer actually need and our mortgage operation as Derek says has about a 90% capture rate so our mortgage company.
Speaker Change: So these are not 180-day rate locks, if you will. So the buyers that take advantage of these, about a third in our case,
Speaker Change: <unk> worked very closely our loan officers with those buyers to customize something for them to get what they need to close and every customer tends to be a little bit different. So you insert whatever you need to there is always incentives going on but bottom line, we feel very good about our margins on our.
Speaker Change: You have a lot of unlocked, if you will, loans in the backlog otherwise. It makes it very, very hard to come up with an average.
Speaker Change: Got it. What about maybe an average of what the incentives you guys are offering at this point as a percentage of the price, you know, how much would that be?
Speaker Change: Our returns.
Speaker Change: Yes, no doubt.
Speaker Change: They've been they've been great.
Speaker Change: What about on the corporate G&A Phil.
$68 million this quarter kind of a step up versus the last two quarters is that a one time nature to those numbers or is that kind of like the new run rate.
Speaker Change: If you look at our margins in that 27% range the last few quarters, you know, we're really pleased with that.
Speaker Change: As I said, our SG&A numbers are up for a couple of different reasons, we do have about 10% more people companywide.
Speaker Change: Again, depending on the subdivision, we price in a certain amount for financing, closing costs, etc.
Speaker Change: Factoring all of the divisions and so forth, we do have about 67% more stores.
Speaker Change: And we try to be very targeted as far as what does that customer actually need. And our mortgage operation, as Derek says, has about a 90% capture rate. So our mortgage company can work very closely, our loan officers with those buyers.
Speaker Change: Doing more things at a corporate marketing level as far as to help us sell houses.
Speaker Change: Also our incentive compensation is up due to our improved returns. So it's a number of things in there and as Bob said, we also plan on continuing our growth. So it's hard to project out what those numbers are and again, we don't get into those type of things but.
Speaker Change: to customize something for them to get what they need to close. And every customer tends to be a little bit different. So, you know, you incent whatever you need to. There's always incentives going on. But bottom line, we feel very good about our margins and our returns.
Speaker Change: No we feel like we're continuing to position the company very well for continued growth.
Speaker Change: Got it.
Speaker Change: Yeah, no doubt they've been great. What about on the corporate G&A, Phil, that was 68 million this quarter, kind of a step up versus the last two quarters. Is that a one-time nature to those numbers or is that kind of like the new run rate?
Speaker Change: I'll get back in the queue. Thank you.
Speaker Change: Thanks.
Speaker Change: Your next question comes from Buck Horne with Raymond James Your line is now open.
Speaker Change: Sure.
Buck Horne: I wanted to go back to Florida, just for a second and the hurricane impacts first of all very good news to hear that things held up really well in.
Phil Derek: You know, as I said, our SG&A numbers are up for a couple of different reasons. We do have about 10% more people company-wide.
Speaker Change: No serious damages.
Phil Derek: Respecting all the divisions and so forth, we do have about six, seven percent more stores. We are doing more things at a corporate marketing level as far as to help us sell houses.
Speaker Change: But should we think about any lingering impacts from I mean may be milled and more so in October just lingering impacts on.
Speaker Change: Order activity or closings in the fourth quarter, just due to the lost selling days.
Phil Derek: Also our incentive compensation is up due to our improved returns.
Construction time.
Speaker Change: I think from a delivery. It's a good question Buck I think from a delivery standpoint.
Phil Derek: So, it's a number of things in there, and as Bob said, we also plan on continuing our growth. So, it's hard to project out what those numbers are, and again, we don't get into those type of things.
Speaker Change: I don't think so.
Speaker Change: I think that Thats behind us.
Speaker Change: In terms of.
Phil Derek: You know, we feel like we're continuing to position the company very well for continued growth.
Speaker Change: Demand.
Speaker Change: I don't think much impact.
Speaker Change: Orlando in the fourth quarter.
Speaker Change: Got it. Okay, I'll get back in the queue. Thank you.
Speaker Change: So we have such a small operation in Fort Myers, Naples, it wouldn't be material anyway.
Speaker Change: Thanks.
Speaker Change: Relatively brand new market for US. The question is really Tampa, and Sarasota, and frankly, Sarasota was probably hit the hardest if any of the floor for Florida markets by Milton.
Speaker Change: I wanted to go back to Florida just for a second and the hurricane impacts. First of all, you know, very good news to hear that, you know, things held up really well and
Speaker Change:
Speaker Change: It could be slight.
Speaker Change: I'm not going to say it won't be anything.
Speaker Change: No serious damages. But should we think about any lingering impacts from, I mean, maybe Milton more so in October, just lingering impacts on, you know, order activity or closings in the fourth quarter, just due to the lost selling days and or lost construction time?
Speaker Change: <unk>.
Speaker Change: No I think the psyche of folks living in those two cities.
Every day, they reminded of what happened I mean Street after Street after Street.
Speaker Change: And particularly older communities, where there's still.
Speaker Change: Theres still on stuff, that's not yet cleaned up.
Speaker Change: I think from a delivery... it's a good question, Buck. I think from a delivery standpoint...
Speaker Change: We remain that way for a number of months, but.
Speaker Change: I will say this I think that.
Speaker Change: I don't think so. I think that that's behind us. In terms of...
Speaker Change: The fact that new home construction throughout and this is true of every builder I know of that does business in Florida, New home construction.
Speaker Change: demand. I don't think much impact in Orlando in the fourth quarter. We're so, you know, we have such a small operation in Fort Myers Naples it wouldn't be material anyway. That's a relatively brand new market for us.
Speaker Change: Really held up well improved its value and thank goodness for that and I think that.
Tampa has been one of our best markets for as long as we've been there going all the way back to the early eighties.
We're very bullish about Tampa long term.
Speaker Change: Really even though we've only been opened in Sarasota for about four or five years, it's become a significant contributor to the company and we're really bullish about it long term there could be a little noise here in the fourth quarter, but.
Speaker Change: It could be slight. I'm not going to say it won't be anything.
Speaker Change: I don't think it'll be material.
Speaker Change: But one of the things Youre always concerned that is power.
Speaker Change: particularly older communities where there is still there is still stuff that's not yet cleaned up could remain that way for a number of months.
Speaker Change: That there was a pretty big hits to the power system.
No company, why we develop about 80% of our own land.
Speaker Change: I will say this, I think that...
Speaker Change: So making sure you continue to get power hookups, not just for new houses coming short term, but transformers and those type of things in those communities. So youre always concerned a little bit about that but again.
Speaker Change: The fact that new home construction throughout, and this is true of every builder I know of that does business in Florida, new home construction.
Speaker Change: really held up well and proved its value, and thank goodness for that.
Speaker Change: We tried to stay on top of those things as best we can.
Speaker Change: That's great color guys and yeah. We certainly appreciate your support for our name with Tampa and Sarasota long term and we see those I think youre exactly right in terms of the psyche impact and the cleanup efforts.
Speaker Change: You know, Tampa has been one of our best markets for as long as we've been there, going all the way back to the early 80s. And we're very bullish about Tampa long term.
Speaker Change: Rick real quick follow.
Speaker Change: Really, even though we've only been open in Sarasota for about four or five years, it's become a significant contributor for the company, and we're really bullish about it long term. There could be a little noise here in the fourth quarter, but I don't think it'll be material.
Speaker Change: A follow up on that is insurance have you seen any impact from insurance carriers or is there any.
Speaker Change: <unk> in terms of the cost of getting property insurance post hurricane or your buyers or how the retail part.
Our acting.
Speaker Change: One of the things you're always concerned about is power.
Speaker Change: Another really good question I think it's too soon to know, but I doubt if it is going down it's going to become more expensive. It just has too right.
Speaker Change: And that there was
Speaker Change: Pretty big hits to the power system so company why we develop about 80% of our own land
Speaker Change: <unk>.
Speaker Change: I would not want to be in that business, but I guess indirectly we're somewhat dependent upon that business. So that'll be something that we closely watch I don't have any insight into that at this point.
Speaker Change: So, making sure you continue to get power hookups, not just for new houses coming short-term, but transformers and those type of things in those communities. So you're always concerned a little bit about that, but again, we try to stay on top of those things as best we can.
Speaker Change: Im chat about that with other.
Speaker Change: Other leaders in our industry and I don't think anybody quite knows yet other than it's likely to go up.
Speaker Change: Got you and one last question if I can so again the question is whether the insurance industry.
Speaker Change: That's great color guys and yeah we certainly appreciate your support for you know staying with TAMP and Sarasota long term and we see those I think you're exactly right in terms of the the psyche impact and the cleanup efforts.
Speaker Change: Ill.
Speaker Change: Give appropriate credit to the strength of new home construction.
Speaker Change: Because of the damage to new homes.
Was it was extraordinarily low when you take into account the severity of the storm and the unprecedented nature of it.
Speaker Change: That I don't think we know the answer to.
Speaker Change: Yes.
Speaker Change: A lot of sense and just real quick you mentioned traffic levels seemed to show a recent uptake there I'm just wondering if you can elaborate that and just what kind of indications you're seeing in terms of pent up demand out there.
Speaker Change: I would not want to be in that business but I guess indirectly we're somewhat dependent upon that business.
Speaker Change: I don't think I can elaborate anymore, because I don't know how much pent up to the hand. There is this is the slowest time of the year.
Speaker Change: So, that'll be something that we closely watch. I don't have any insight into that at this point.
Speaker Change: The fourth quarter.
Speaker Change: Year in year out.
Speaker Change: I've chatted about that with other leaders in our industry.
Speaker Change: Even when things aren't encumbered with all this election stuff everything else the fourth quarter is the slowest quarter of the year.
Speaker Change: I don't think anybody quite knows yet other than it's likely to go up.
Speaker Change: The question is whether the insurance industry
Speaker Change: The last three months of the year and so this is generally not a time for robust demand and robust sales.
Speaker Change: give appropriate credit to the strength of new home construction.
Having said that.
Speaker Change: We've seen traffic begin to pick up here in the last two to three weeks, which is encouraging given the time of year. It is.
Speaker Change: And you know we're.
Speaker Change:
Speaker Change: That I don't think we know the answer to.
I don't think we're alone in this last year's fourth quarter sales as I said before I think most.
Speaker Change: That makes a lot of sense. And just real quick, you mentioned traffic levels seem to show a recent uptick. I was just wondering if you could elaborate that and just what kind of indications you're seeing in terms of pent-up demand out there.
Most of us.
Speaker Change: The industry limped to the finish line.
Speaker Change:
Speaker Change: I think we have a chance to not quite linked so much this year I think it will be better.
Speaker Change: Thanks for the color guys. Good luck.
Speaker Change: I don't think I can elaborate anymore, because I don't know how much pent-up demand there is. This is the slowest time of the year. You know, the fourth quarter, year in, year out.
Speaker Change: Thanks Buck.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question. Please press star one.
Speaker Change: Our next question comes from Jay Mccanless with Wedbush. Your line is now open.
Speaker Change: Even when things, you know, aren't encumbered with all this election stuff and everything else, the fourth quarter is the slowest quarter of the year.
Jay Mccanless: Hey, good morning, everyone.
Speaker Change: Hi, Jason I guess still good morning.
Speaker Change: We can dig in a little more into what actually happened with the sales mix this quarter to hit that really solid gross margin.
Speaker Change: the last three months of the year.
Speaker Change: And so this is generally not a time for robust...
Speaker Change: demand and robust sales.
Speaker Change: Having said that, we've seen traffic begin to pick up here in the last two to three weeks, which is encouraging given the time of year it is.
Speaker Change: As far as what happen each month of the quarter as we went through.
Speaker Change: Or was.
Was it a hanger.
Speaker Change: Ned.
Speaker Change: And they improved as the quarter went on Jay.
Speaker Change: And, you know, we're, you know, it's.
Speaker Change: Okay.
Speaker Change: And I guess it kind of falls into my next question what.
Speaker Change: I don't think we're alone in this. Last year's fourth quarter sales, as I said before, I think most of us in the industry limped to the finish line.
Speaker Change: With rates going up, but now youre seeing traffic's looking better Bob I guess, how how is October played out, especially given some of the higher rates that we've seen.
Speaker Change: I think we have a chance to not quite limp so much this year. I think it'll be better.
Speaker Change: Well.
We normally don't talk about the current month.
Speaker Change: Thanks to the color guys. Good luck.
Speaker Change: Thanks, Spock.
Speaker Change: But.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Jay McAnlis with Wedbush. Your line is now open.
Speaker Change: I think October is playing out better than expected, let me just say that.
Speaker Change: Okay. We've also we've been pleased.
Speaker Change: They've actually performed better than we thought our new stores that had been opening.
Jay McAnlis: Hey, good morning everyone. Hi Jay. I guess Phil, hey good morning. We could dig in a little more into what actually happened with the sales mix this quarter to hit that really solid gross margin.
Speaker Change: And that's a that's a really big number of course last year. We opened 75, new stores. We grew average community count last year, seven or 8% and this year, we're going to be in that ballpark again.
Jay McAnlis: As far as what happened each month of the quarter as we went through? Well, or was it a heavier mix of certain...
Speaker Change: So the performance of your new stores really really matter.
Speaker Change: So as Bob mentioned I mean.
Speaker Change: and they improved as the quarter went on, Jay.
Speaker Change: We have been opening.
Speaker Change: <unk> or whatever of move up type operations, we really like.
Speaker Change: Okay and I guess it kind of falls into my next question what
Speaker Change: Product and price diversification and especially some of those move up communities. We've opened have done very very well. So again thats helped us also.
Speaker Change: With rates going up, but now you're saying traffic's looking better, Bob, I guess, how has October played out, especially given some of the higher rates that we've seen?
Speaker Change: That's great so.
Speaker Change: Well...
Speaker Change: And then one other thing just I know everybody's been talking about the election, but what we've heard from some of your other public competitors in the new housing spaces.
Speaker Change: You know, we normally don't talk about the current month.
Speaker Change: I think October's playing out better than expected. Let me just say that.
Speaker Change: Some people are actually waiting to see if this credit develops or materializes.
Speaker Change: Jay, we've also, we've been pleased, they've actually performed better than we thought. Our new stores that have been opening.
Speaker Change: I know the Democrats and talk about I'm, not sure where the Republicans are on this issue but.
Speaker Change: Is that something that you're hearing in the field that people are kind of waiting to see whether credit materializes or not before they go forward with their purchase.
Speaker Change: And you know, that's a that's a really big number, you know, of course, last year, we opened like 75 new stores. We grew average community count last year, seven or 8%. And this year, you know, we're going to be in that ballpark again. So the performance of your new stores really, really matter. Also, as Bob mentioned, I mean,
Speaker Change: I think I've heard everything but that.
Yes.
Speaker Change: I don't mean to be snarky.
Speaker Change: I haven't heard anything about that is a cause for pause.
Speaker Change:
Speaker Change: Thank you.
Speaker Change: Or worn out.
<unk>.
Speaker Change: More of a confidence issue than anything else.
Speaker Change: product and price diversification, and especially some of those move up communities we've opened have done very, very well. So again, that's helped us also.
Speaker Change: Yeah Yeah.
Speaker Change: Yes.
Speaker Change: Knowing what we know today I am pleased with where.
Speaker Change: Traffic and demand looks like it is for us right now.
Speaker Change: That's great. So, and then one other thing, just, you know, I know everybody's been talking about the election, but.
Okay.
Speaker Change: That sounds great and then last one could you talk about pricing.
Speaker Change: What we've heard from some of your other public competitors in the new housing space is that
Speaker Change: Especially it sounds like move up you guys are getting pricing, but maybe what percentage of your communities were able to raise price during the quarter.
Speaker Change: Some people are actually waiting to see if this credit develops or materializes.
Speaker Change: I know the Democrats have talked about it. I'm not sure where the Republicans are on this issue, but is that something that you're hearing in the field that people are kind of waiting to see whether credit materializes or not before they go forward with their purchase?
Speaker Change: No, we didnt talk about that but.
Speaker Change: Raw demands okay. If you look at our average our average sale price in backlog. The last few quarters. It has continued to go up.
Speaker Change: I think I've heard everything but that.
Speaker Change: Do we have a higher mix of move up type communities may be a little bit, but again it comes down so much to location.
Speaker Change: I don't mean to be snarky. I haven't heard anything about that. Is it cause for pause?
Speaker Change: <unk> price point every community is a little bit different we talked about being very targeted and incentives.
Speaker Change: I just think, you know...
Speaker Change: or worn out.
Speaker Change: More of a confidence issue than anything else.
But.
Speaker Change: We're really pretty pleased.
Speaker Change: Yeah, yeah.
Speaker Change: With our price point and margins and how it is J. When you have $345 billion of revenue 10 basis points 25 basis points matter. So much so we focus on that pricing everyday.
Speaker Change: You know, knowing what we know today, I'm pleased with where, you know, traffic and demand looks like it is for us right now.
Speaker Change: Thanks.
Speaker Change: That sounds great. Oh, and then last one, could you talk about pricing, especially sounds like MoveUp, you guys are getting pricing, but maybe what percentage of your communities were able to raise price during the quarter?
Speaker Change: Understood. Okay, great. Thanks, guys appreciate it.
Appreciate the time thank you.
Speaker Change: Your next question comes from Alex Barron with housing Research Center. Your line is now open.
Alex Barron: Yes, thanks for the follow up.
Alex Barron: Yes, I was looking at your <unk>.
Alex Barron: Share repurchase activity.
Alex Barron: Obviously then.
Alex Barron: Picking up quarter in the last few quarters just wanted to see you go.
Alex Barron: So.
Alex Barron: Share with us.
Alex Barron: General thought.
The new approach.
Alex Barron: So for buybacks going forward.
Alex Barron: Also whether there's been any discussion or thoughts about it.
Speaker Change: product, price point, you know every community is a little bit different. We talked about being very targeted in incentives.
Alex Barron: Some of the dividend.
Your questions about share repurchase.
Speaker Change: What's up?
Alex Barron: Yes.
Speaker Change: You know we're really pretty pleased
Alex Barron: We've had $50 million a quarter of repurchases the last couple of quarters.
Speaker Change: with our price point and margins. And you know how it is, Jay, when you have three, four, $5 billion of revenue, 10 basis points, 25 basis points matter so much. So we focus on that pricing every day.
Alex Barron: You know, we look at that every quarter as.
Alex Barron: As far as what our business needs are we do like our leverage where it is right now in the 20% range.
Jay McAnlis: Understood. Okay, great. Thanks guys. Appreciate the time.
Alex Barron: So we will continue.
To look at that we talked about our low debt levels and so forth.
Speaker Change: Your next question comes from Alex Barron with Housing Research Center. Your line is now open.
Alex Barron: But.
You know we.
Alex Barron: We like what we're doing we talked about we bought back over 10% of the stock in the last couple of years and that's something we'll just continuing to look at and depending on our business and so forth.
Alex Barron: Yeah, thanks for the follow-up. Yes, I was looking at your share repurchase activity and it's obviously been
Alex Barron: Just continue we're pleased with what we're doing.
Speaker Change: Share with us your general thought process as you approach
Alex Barron: The other the other part of your question is about our thoughts about a dividend. There is no plans for anything like that at this point.
Alex Barron: share buybacks going forward, and also whether there's been any discussion or thoughts about introducing a dividend.
Speaker Change: Okay. Thank you gentlemen.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Your questions about share repurchase?
Speaker Change: There are no further questions at this time I will now turn the call over to north to Craig for closing remarks.
Speaker Change: Yes.
Speaker Change: We've had $50 million a quarter of repurchases the last couple of quarters.
Speaker Change: Thank you for joining us look forward to talking to you next quarter.
Speaker Change: You know, we look at that every quarter.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating in <unk>.
Speaker Change: Your line.
Speaker Change: We like what we're doing. We talked about we've bought back over 10% of the stock in the last couple years and that's something we'll just, you know, continually look at and depending on our business and so forth.
Speaker Change: Just continue. We're pleased with what we're doing.
Speaker Change: The other part of your question is about our thoughts about a dividend and there's no plans for anything like that at this point.
Speaker Change: Okay, thank you, gentlemen.
Speaker Change: Thanks.
Speaker Change: There are no further questions at this time. I will now turn the call over to Mr. Creek for closing remarks.