Q4 2024 M/I Homes Inc Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to the MI Homes fourth quarter and year-end earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, January 29th of 2025. I would now like to
Speaker Change: To turn the conference over to Field Creek, please go ahead.
Speaker Change: Thank you for joining us. Joining me on the call today is Bob Schottenstein, our CEO and President, and Derek Klutch, President of our mortgage company.
Speaker Change: because we are prohibited from discussing significant non-public items with you directly.
Speaker Change: 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.
Speaker Change: Also 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 Schottenstein: We had an outstanding year in 2024, highlighted by record homes delivered, record revenue, record income, and very strong returns.
Bob Schottenstein: We are particularly proud of our performance given the changing economic conditions and demand challenges we faced, particularly throughout the latter part of the year.
Bob Schottenstein: As everyone knows, mortgage rates began rising during the third and fourth quarters. At that time, we implemented mortgage rate buy-downs to generate traffic and incent sales.
Bob Schottenstein: Demand has become a bit more choppy during the fourth quarter, and the need for such rate buy-downs became an even more important part of our business strategy.
Bob Schottenstein: I will more fully discuss the impact of all of this in a few moments. First, I will review the highlights of our 2024 performance.
Bob Schottenstein: For the full year, homes delivered increased 12% to a record 9,055 homes, generating a record $4.5 billion in revenue, a 12% increase over 2023.
Bob Schottenstein: Gross margins for the year were 26.6%, 130 basis points better than 2023.
Bob Schottenstein: Our pre-tax margin for the full year improved to 16.3% compared to 15.1% a year ago.
Bob Schottenstein: Thus resulting in record pre-tax income of $734 million, 21% better than 2023, and a return on equity of 21%.
Bob Schottenstein: For the full year, we sold 8,584 homes, 8% better than 2023.
Bob Schottenstein: As Phil will review in more detail, our sales decelerated during the fourth quarter. Though some of the drop-off is attributable to seasonal factors, demand became choppier and more challenging in a number of our markets during the fourth quarter.
Phil: The impact of this cost is reflected in our fourth quarter gross margin of 24.6%, down 50 basis points from a year ago, and sequentially down approximately 250 basis points from the third quarter.
Phil: Nearly 50% of our buyers are now using the rate buy-down.
Phil: As we begin 2025 and approach the start of the selling season, demand remains somewhat of a challenge. Accordingly, we will continue using rate buy-downs to drive traffic and incent sales.
Phil: It's important to note that the quality of buyers that we're seeing continues to be very strong, with average credit scores approaching 750 and average down payments of nearly $90,000, or 18%.
Phil: We ended 2024 with 220 communities. Our average community count increased by 7% over 2023. We are currently estimating a 5% average community count growth for 2025.
Now I will provide some additional comments on our markets.
Phil: Our division income contributions in 2024 were led by Dallas, Columbus, Tampa, Orlando, Chicago, and Raleigh.
Phil: Our new contracts for the fourth quarter in our southern region, which consists of 11 of our 17 markets, increased 8% and 1% in our northern region, which consists of 6 of the remaining 17 markets.
Phil: For the year, new contracts increased 4% in our southern region and 12% in our northern region.
Phil: Our deliveries increased 14% over last year's fourth quarter in the southern region, representing 56% of total deliveries.
Phil: Northern Region contributed an increase of 25% over last year's fourth quarter deliveries.
Phil: For the year, homes delivered increased 5% in the southern region and increased 22% in the northern region.
Phil: Our owned and controlled lot position in the southern region increased by 16% compared to a year ago and increased by 12% in the northern region compared to 2023.
Phil: We have an excellent land position. Company-wide, we own approximately 23,800 lots, which is just under a three-year supply.
Phil: Of this total, 27% of our own lots are in the northern region, with a balance, or 73%, located in the southern region.
Phil: On top of the owned lots, we control via option contracts an additional 28,400 lots.
Phil: So, in total, we own and control over 52,000 single family lots, up 14% from a year ago, and this equates to about a five and a half year supply.
Phil: Importantly, about 54% of our lots are controlled pursuant to option contracts, which gives us significant flexibility to react to changes in demand or individual market conditions.
Phil: With respect to our balance sheet, we ended the year with an all-time record $2.9 billion of equity, which equates to a book value per share of $109.
Phil: We also ended the year with zero borrowings under our $650 million unsecured revolving credit facility and over $800 million of cash.
Phil: This resulted in a debt-to-capital ratio of 19%, down from 22% a year ago, and a net debt-to-capital ratio of negative 5%.
Phil: To conclude, let me just state that we're in the best financial condition in our company's history.
Phil: We will likely experience some compression in our gross margins in 2025 when compared to annual gross margins in 2024.
Phil: Despite the challenging and somewhat choppy market conditions, we believe that the home building industry will continue to benefit over the long term from a continued undersupply of homes, positive consumer demographics, and growing household formations.
Phil: We feel very good about our business and are well positioned as we begin 2025.
Now Phil will provide more specifics on our financial results.
Phil: Thanks, Bob. Our new contracts were up 22% in October, up 24% in November, and down 9% in December.
for 11% improvement in the quarter compared to last year.
Phil: Our sales pace was 2.7 in the fourth quarter, compared to 2.5 last year, and our cancellation rate for the fourth quarter was 14%.
Phil: Our community count was 220 at the end of the year compared to 213 at the end of 2023.
Phil: During the quarter, we opened 15 new communities while closing 12. For the year, we opened 72 new communities. We currently estimate that our average 2025 community count will be about 5% higher than 2024.
Phil: delivered 2,402 homes in the fourth quarter, delivering 76% of our backlog compared to 59% a year ago, and about 30% of our fourth quarter deliveries came from inventory homes that were sold and delivered in the quarter.
Phil: At year end, we had 4,700 homes in the field versus 4,500 homes in the field a year ago.
Phil: and revenue increased 24% in the fourth quarter to $1.2 billion. Our average closing price for the fourth quarter was $490,000, a 4% increase when compared to last year's $471,000.
Phil: Our gross margin was 24.6 for the quarter, down 50 basis points year over year, and down 250 basis points from our third quarter. This decrease is primarily due to mortgage interest rate buy-down incentives.
Phil: Our SG&A expenses increased by 16% in the fourth quarter, due primarily to higher incentive compensation due to our record results and also due to higher community count.
Phil: Our effective tax rate was 22% in the fourth quarter compared to 24% in last year's fourth quarter and our annual effective rate for 2024. It was 23% and we expect 2020 fives effective tax rate to be around 23%.
Our earnings per diluted share for the quarter increased 29% to $4 71 per share from $3 66 per share in last year's fourth quarter and increased 22% for the year to $19 71 per share from <unk> 21 per share last year during.
During the fourth quarter, we spent $50 million repurchasing our shares and for the year spent $175 million. We currently have $107 million available under our repurchase authorization and in the last three years, we have repurchased 12% of our outstanding shares now Derek <unk> will address our mortgage.
Company results.
Derek Klutch: Thanks, Bill in the fourth quarter, our mortgage and title operations achieved pretax income of $10 million.
Phil: Up $5 $4 million from 2023 with.
Derek Klutch: With revenues of $28 5 million up 45% over last year.
Derek Klutch: This was primarily the result of increased pricing margins are higher average loan amounts and more loans closed for.
Derek Klutch: For the year pre tax income was $49 $7 million with revenue of $116 2 million.
Derek Klutch: Loan to value on our first mortgages for the quarter was 82% in 2024, the same as 2023 fourth quarter.
Derek Klutch: Continue to see an increase in the use of government financing is 59% of loans closed in the fourth quarter were conventional and 41% were FHA or VA compared to 66% and 34% respectively for 2020 Three's same period.
Derek Klutch: Even with the increase in government financing, our borrower profile remains solid with an average down payment of almost 18% and an average borrower credit score on mortgages originated by <unk> financial of 749 compared to 747 last year.
Derek Klutch: Our average mortgage amount increased to $409000 in 2020 for fourth quarter compared to $383000 in 2023.
Derek Klutch: Loans originated in the quarter increased 34% from 1387 to 1862 and the volume of loans sold increased by 24%.
Derek Klutch: Our mortgage operation captured 91% of our business in the fourth quarter, an increase from 88% in 2023 fourth quarter now I will turn the call back over to Phil Thanks, Derrick as far as the balance sheet. We ended the fourth quarter with a cash balance of $822 million and no borrowings under our unsecured revolver.
Credit facility, our credit facility matures in late 2026, and our public debt with interest rates below 5% matures in 2028 and 2030.
Derek Klutch: Total homebuilding inventory at year end was $3 1 billion up 11% from the prior year and during 2024, we spent 473 million on land purchases and $646 million on land development for a total land spend of $1 1 billion. This was up from $850 million last.
Derek Klutch: At year ended December 31, 24, we had $754 million of raw land and land under development.
Derek Klutch: $886 million of finished unsold lots, we own 9300 unsold finished lots in 2024, we purchased 9000 lots of which 75% were raw compared to purchasing 7900 lots last year.
Derek Klutch: We have a strong land position at year end controlling 52000 lots, we own 24000 loss about a three year supply and other lots controlled 46% of our owned at the end of the year. We had 706 completed inventory homes about three per community in 2500 total.
Derek Klutch: Inventory homes and of the total inventory of 1034 are in the northern region in $2014 68 are in the southern region.
Derek Klutch: Last year end, we had 592 completed inventory homes and 2023 total inventory homes.
Derek Klutch: This completes our presentation will 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. If you would like to ask a question. Please press star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is standup job, how youre thinking about davita our equipment again.
Speaker Change: First I wanted to ask the question and we will pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Alan Ratner from Zelman and Associates. Your line is open.
Alan Ratner: Hey, guys good morning.
Bob Schottenstein: Bob Congrats on the congrats on the championship I'm sure you're still riding high from that.
Alan Ratner: I am.
Alan Ratner: I'm as excited about that as I am of our business.
Alan Ratner: There you go there you got well I appreciate the commentary and certainly the choppiness in the quarter I think it's consistent with what we've heard from others.
Speaker Change: My first question I'd love to drill in specifically on Texas, and Florida, I think those are probably the areas that are most in.
Speaker Change: Focus and under some concern among investors about I think 40% or so of your your business.
Speaker Change: Can you talk a little bit about.
Speaker Change: The trends Youre seeing there just across the board I mean incentive inventory levels and just kind of how you are approaching that market given what seems to be a softening supply demand backdrop.
Speaker Change: Yes, great question.
Speaker Change: We feel better about Texas than we do Florida.
Speaker Change: We feel good about both.
Speaker Change: I will say that Tampa in particular appears to be a little bit more challenged than Orlando Sarasota and of course, where we're relatively new in Fort Myers Staples, So Idaho.
Speaker Change: Our business levels, there are not significant enough to draw any real conclusions.
Speaker Change: But clearly.
Speaker Change: The demand situation for the last probably six months.
Speaker Change: More challenging in Tampa.
Speaker Change: The other Florida markets.
Speaker Change: Our Dallas Operation continues to be very strong in Houston is very strong as well.
Speaker Change: Maybe a slight softening of demand but.
Speaker Change: But nothing that we that we can comfortably manage I think Austin is getting better.
Austin was clearly the most challenged market over the last couple of years. After it came off its sort of runaway highs and I'm talking more about the macro market, but it was the same for us.
Speaker Change: In San Antonio I would say is steady not on fire, but steady.
Speaker Change: We're expecting.
Speaker Change: A good year in Texas, and we're expecting a good year in most of Florida Tampa is the one that we're watching the most closely.
Speaker Change: Clearly.
Speaker Change: We are using rate buy downs throughout the markets. We have it is as you say a big part of our business. We're confident that we have the right strategy.
Speaker Change: Not doing anything a whole lot more now that we've been doing the last number of months there may be a few subdivisions, where we're putting a little more.
Speaker Change: On the gas.
Speaker Change: Others.
Speaker Change: But in general.
Speaker Change: We think it's very manageable I don't think it's serious.
Speaker Change: It's not inventory levels are up but I don't think its.
Speaker Change: I don't think its a situation to cause great concern.
Speaker Change: Great and I appreciate the around the horn there in the commentary it's helpful.
Speaker Change: Two additional questions if I could squeeze them in first of all.
Speaker Change: You guys, along with others have pivoted towards more of a spec model in recent years.
Speaker Change: Spec count if I, if I got those numbers correctly. It looks like your specs are up about 20% year over year completed.
Speaker Change: 10, or 15% just given the choppy demand or are you running.
Speaker Change: Go ahead, yeah around three three community just given the Choppiness in demand are you altering that strategy would be kind of adjusted your spec start pace at all or do you still feel like the current trajectory or on makes sense given given the business.
Speaker Change: We think it makes sense.
Speaker Change: <unk>.
Speaker Change: Our goal this year is to maintain the pace that we've had.
Speaker Change: Across our communities.
Speaker Change: And we're going to grow community count this year.
Speaker Change: We have slightly.
Speaker Change: With each passing quarter over the last couple of years increased our spec level increased our spec strategy and I think right now.
Speaker Change: But probably a few minor variations, it's about where it needs to be.
Speaker Change: As an example in Raleigh, where virtually 100% spec.
Speaker Change: I think that's the only market, where we're that high but otherwise it's pretty consistent across the other 17 markets and it's a very important part of our business as Phil outlined.
Speaker Change: It's close to two thirds of our business right now and it will likely remain so it may move up a little it may move down a little but that's about where we think that it needs to be at this point the to be built so a big part of our business too.
Speaker Change: And I didn't mention this in my comments, but our smart series, which for US is our most affordable product line, primarily catering to first time buyers similar townhomes. Most of your single family detached that's about $50 to 55% of our business. It is settled in there and remained at about that level, but the other way to look.
Speaker Change: That is about 40% to 45% of our business is to be built and a meaningful portion of that is as move up product. Phil did you want to add something yes, one thing I don't I know you know this as far as the cost effectiveness of mortgage rate buy downs.
Speaker Change: A lot easier to do those type things within a 30 45 60 day window entity is to try to get longer than that so again, putting a few more specs out there that way you can offer that more.
Speaker Change: More deep discount type financing, but again, you've got it closed at $30 or 45 days and I don't think.
Speaker Change: Im saying anything out of school that I recently had a conversation with another builder.
Speaker Change: That asked me if we were offering long term rate locks on to be built.
Speaker Change: And on the one hand, it's no one's business other than our buyers, but on the other hand.
Speaker Change: All of the mortgage rate buy downs that we have been using to generate traffic.
Speaker Change: Have been designed to assist the sale of homes that could close roughly within 60 days. So so you need to have homes in the field specs ready to be delivered and we are you know we said we opened about 75, new stores last year, we do plan on opening more stores this year.
Speaker Change: Re subdivisions as a little bit different we are doing a few more attached townhouses.
Speaker Change: The majority of our specs tends to be on the smart series more affordable and that area kind of drives a few more specs.
Speaker Change: We do see our spec levels going up some but.
Speaker Change: Again, that's something we control very closely Allen.
Speaker Change: Great I appreciate all of that those comments, there and everything makes sense last one if I could squeak in one more I know you don't give gross margin guidance, but you alluded to margins being under some pressure given the rate buy downs and the incentives you're offering I.
Speaker Change: I was just hoping maybe you can give a little bit of clarity on the margin pullback you saw this quarter about 250 basis points sequentially.
Speaker Change: Yes.
Speaker Change: Yes, I think it's a great question.
Speaker Change: That's the big unknown in our industry whats going to happen to rates.
Speaker Change: Right.
Speaker Change: Based on what I know today, or where I believe today and I think this is widely shared by a lot of our competitors. It is critically important to continue using rate buy downs to generate traffic to promote sales until it isn't.
Speaker Change: And we don't know when the isn't going to come having said all of that.
Speaker Change: The cost doesn't move week to week, sometimes day to day.
Speaker Change: And.
Speaker Change: Because as the tenure.
Speaker Change: Moderate somewhat the cost come down cost comes down less impact on margins.
Speaker Change: In the third quarter about a third of our sales utilize the rate buy down it jumped up to 50%.
Speaker Change: In the fourth quarter, my guess its going to sort of stay there I think the fourth quarter's probably reflective if we had to guess.
Speaker Change: One of the reasons, we don't give guidance as we don't know.
Speaker Change: It's an interesting situation five years ago, if our quarterly margins were 24, 6% question would've been you think they can get much higher those are great margins, but on the other hand, when youre coming off 26, 27%.
Speaker Change: And in a number of our divisions, we have margins approaching 30%.
Speaker Change: I've said during previous calls either your question or someone else's that these are very high margins almost unprecedented probably not long term sustainable.
Speaker Change: I will also say this 24% to 25% margin business is an excellent business that can generate very solid returns.
Speaker Change: We tend to overreact, both on good news and bad news.
Speaker Change: That.
Speaker Change: I think things are starting to settle in a little bit we shall see.
Speaker Change: But we feel really good about our business I know the demand is a bit choppy, there's still there's tremendous uncertainty coming from every.
Speaker Change: Almost every day, whether it's immigration or tariffs or inflation or interest rates or you name it.
It's the word cloud of the day.
Speaker Change: But against that backdrop, I do think that home building and home new home building, a new home construction.
Speaker Change: Is very very solid.
Speaker Change: Foundation of underlying metrics and while there may be some noise quarter to quarter.
Speaker Change: We're poised to grow this company in 2025, and 2026 and 2027 and we believe we can.
Speaker Change: And just one other comment Alan on the interest rate buy downs and so forth I mean really every community and every customer is a little different we tried to be very targeted some customers, especially on the more affordable product need help with closing costs to get it in the house.
Speaker Change: So therefore, we have a certain amount of price stand for financing and closing costs and those people may not really be able to qualify or get the cheaper financing, but again, we're able to help them with closing costs and get them in the house. So we tried to be very targeted the mortgage rate buy downs in general are fairly expensive.
Speaker Change: Again, it depends on how many specs you have in those type things, but we tried to be very targeted and just used at where we need to but of course, it's really hard to predict what we're going to do this year.
Speaker Change: I guess I would call it all but one last 0.1 last point of optimism.
Selling season is really just getting started and some selling seasons are better than others and last year's was quite good.
Speaker Change: <unk>.
Speaker Change: We are hopeful that this will be as well, but we'll know when we know.
Speaker Change: We're ready to go we're ready to react.
Speaker Change: Good luck.
Alan Ratner: Thanks Alan.
Speaker Change: Our next question comes from the line of Ken Zhang from Seaport Research Partners. Your line is open.
Ken Zhang: Good morning, everybody.
Good morning, Ken.
Ken Zhang: Sorry, if I missed it what was the number of homes in the field.
Speaker Change: If you have that.
Speaker Change: I think it was 4700, Phil you gave homestead failed, yes, it's about 3% up from last year of 4700 versus 4500.
Speaker Change: Excellent.
Speaker Change: I Wonder if you might be able to provide a little context around I believe you said, 31%.
Speaker Change: Closings was intra quarter order closings can you talk to the margin spread you guys youre seeing where between the those units and the backlog given the propensity.
Speaker Change: Mortgage buy downs to be affecting those units.
Speaker Change: That's a hard one.
Speaker Change: Some of our markets, our spec sale margins are either at or equal to <unk>.
Speaker Change: Our to be built margins, which I know it sounds a little counterintuitive, but that is the case that has not always been the case typically spec sale margins for 1% to 200 basis points less at least we've seen over the years than to be built.
Speaker Change: I would say that the average is probably somewhere around 100 to 150 basis points less across the whole system on specs, but.
Speaker Change: A number of our markets, including sizable ones are to be built margins and our spec margins are either the same or in some cases, the spec margins are little higher.
Speaker Change: But if you put it through the blender and take it out.
Speaker Change: It's slightly lower maybe 100 to 150 basis points and of course, that's reflected in our full year margins, because we had a pretty aggressive spec strategy throughout the year.
Speaker Change: And frankly the.
Speaker Change: <unk> in terms of strategy. The specs are critically critically important right now because as I've just mentioned during the last question.
Speaker Change: <unk>.
Alan Ratner: Alan Ratner his question.
Speaker Change: <unk>.
Speaker Change: The specs.
Speaker Change: That concludes within 60 days and we need to have a.
Speaker Change: A good number of them ready to go in order to take advantage of attractive rate buy downs.
Right.
Speaker Change: If you if you don't mind continuing on this topic, a little bit because youre smart series, which is.
Speaker Change: You kind of even though you have a <unk>.
Speaker Change: <unk> highly bifurcated right between the Smart series and your other units is that a function of you think that the smart series.
Speaker Change: Being more affordable attracting more demand so that can actually give you somewhat better net pricing than the higher price point, perhaps.
Speaker Change: You very much.
Speaker Change: I don't think so.
Speaker Change: Okay.
Speaker Change: A lot of it depends.
Speaker Change: This is not the answer you are looking for so I apologize, but I've got to tell you that we're not at all.
Speaker Change: It is community specific.
Speaker Change: Some of our smart series communities.
Speaker Change: Lower than average margins.
Speaker Change: Many of them have right on the button margins and some have premium margins.
Speaker Change: And a lot of that <unk> back to the quality of the communities.
We have some a number of move up product communities throughout a number of our markets.
Speaker Change: Where our margins are very very strong and then some where they are slightly below it's really hard to draw a conclusion other than strength of a particular community.
Speaker Change: And.
Speaker Change: Look.
Speaker Change: We feel really we don't want to see our margins drop.
Speaker Change: We feel really good about our margins when compared to the industry they've held up high.
Speaker Change: I'm not going to say, we have the highest returns, but we're up there.
Speaker Change: We're we're generally quarter in quarter out and the upper tier bringing.
Speaker Change: Bringing over 16% to the bottom line. This past year, I think compared very favorably with the public builders.
Speaker Change: And I think that is.
Speaker Change: As we move through this year, we will continue to perform at a competitively favorable level because I think we've got really good communities.
Speaker Change: Even though we're going to be opening.
Speaker Change: A very significant number of new communities this year.
Speaker Change: With high hopes for them to perform well.
Speaker Change: A good number of our communities that we're operating out of now well over half we've been running with for at least a year or so and we have a good feel for how they're going to perform for both for both the sale and margin standpoint.
Speaker Change: One of the things, we really like is not only a diversification of geography and markets, we really like to have a product and price diversity.
Speaker Change: And as Bob said generally have 40%, 50% of our business focus on the first time buyer and again the average sale price tends to be more 400, or whatever we still like to have those communities well located as best we can.
Speaker Change: To give people a reason to buy and not just price. If you look at the last six quarters, our ASP and backlog has basically gone from 500 to 550.
Speaker Change: No.
Speaker Change: Right now, we're kind of seeing our move up product perform a little better than our entry level product, but again that changes quarter to quarter sometime we just like having that diversity in our business.
Speaker Change: Some of our just give a little bit more color some of our strongest margins in the company are in Dallas. There was a question about Texas Orlando There was a question about Florida.
Speaker Change: Charlotte Columbus.
Speaker Change: Columbus, Chicago, we've had a number of divisions that are running very strong margins.
Speaker Change: Even in this climate.
Speaker Change: Thank you very much for your full response.
Speaker Change: I appreciate the question.
Speaker Change: Our next question comes from the line of Buck Horne from Raymond James Your line is now open.
Buck Horne: Hey, Thanks, Good morning, guys and congrats on the strong result.
Speaker Change: I'm wondering if you guys go back to the comp.
Speaker Change: <unk> market in particular, just curious if you saw.
Speaker Change: In particular, any noticeable demand shifts coming out of the hurricanes that kind of transpired there right around that October time framework.
Speaker Change: Did the hurricane shift demand <unk>.
Speaker Change: Are you seeing any impact due to rising insurance costs related to just Florida is cost of.
Speaker Change: Just a hardening of the insurance market and kind of how are you, helping your buyers deal with that.
Speaker Change: I do live in the Tampa book, I think you might.
Speaker Change: Do I do live in Tampa, So we know the market well.
Speaker Change: I suspect you do you probably should answer your own question look I think started I'd like to hear Jamie I think.
Jamie: Right right I think things start Tampa has always been one of our best performing markets for a long time, we've been a top five builder in Tampa for over.
Speaker Change: For many many years.
Jamie: We have very strong team there.
Jamie: And we have a lot of confidence in that team.
Jamie: Excellent land position.
Jamie: I think things start to slow down a little bit before the hurricane the hurricane didn't help.
Jamie: It didn't help at all but.
Jamie: You know just channel checks are telling us that we're not alone.
Jamie: That that market has slowed.
Jamie: Maybe more so than clearly more so than Orlando noticeably Sarasota seems to be a little better.
Jamie: That would suggest.
Jamie: I know the hurricane hit different areas a little different.
Jamie: As you know very well.
Jamie: I think it's I think there is a softening there.
Jamie: It's hard to really its hard to really pinpoint the exact reason.
Jamie: So.
Jamie: Wish I could I wish I could give you a better answer we're taking a lot of steps now to try to address it we're doing a little bit more there than we are doing in some of our markets to generate traffic and sales.
Speaker Change: Yeah, well, we hope it's temporary we've noticed certainly that rental demand in the Tampa market has certainly picked up quite a quite a bit post hurricane. So maybe people are making temporary decisions and it's just a kind of a temporary phenomenon before they decided to make a decision.
Jamie: Thanks.
Jamie: I think theres a lot of reasons to be bullish on Tampa, we got to get through this period, but to be bullish on Tampa.
Jamie: Over the 12345 year period.
Jamie: Yes, you're preaching to the acquired here.
Jamie: Very bullish on Tampa.
Speaker Change: And then secondly, I guess I was just wondering if you have any comments or thoughts around just industry wide labor availability is kind of these new immigration rules. The new immigration enforcement gets rolled out just any any high level thoughts or how you would break for any potential labor.
Jamie: <unk> ability impact.
Speaker Change: Right now we're <unk>.
Speaker Change: Right now I believe our industry is okay.
Speaker Change: I was at the Harvard Joint Center for housing meeting yesterday in Washington.
Speaker Change: Surprise surprise that was a big topic with both manufacturers.
Speaker Change: <unk> as well as the builders and I think everyone's okay, but again I hate to keep using the word uncertainty I think there is uncertainty surrounding that.
Speaker Change: There's there's interesting stories of more subcontractors, becoming available, particularly on the land development side in certain markets.
Speaker Change: I think that's more market to market.
Speaker Change: But.
Speaker Change: And we're seeing a little bit of that too with more site contractors looking for work.
We don't have a labor problem right now.
Speaker Change: I hope that we're able to continue to say that.
Speaker Change: I don't I, just don't I think that's it.
Speaker Change: Got it Yep Yep agreed agreed very much great.
Speaker Change: And then just real quick lastly, obviously you guys are still putting up very strong margins in context of the industry returns are very solid profitability looks good.
Speaker Change: Stock is obviously not.
Speaker Change: Selecting that at these valuation levels Youre trading almost nearly maybe one one times forward book value at these levels.
Speaker Change: Any thoughts on ability or flexibility to accelerate repurchases or extend the buyback authorization to kind of take advantage of this disconnect.
Speaker Change: We continue looking at that and discussing that with our board every quarter.
Speaker Change: As I said before we have bought back over 10% of the stock in the last couple of years, we did accelerate to $50 million a quarter starting in the second quarter of last year.
Speaker Change: Balance sheet is in very very good shape.
Speaker Change: We did up land purchases, if I am out last year to get us position for future growth. We talked about we have 9000 finished lots on the ground. So we're really positioned well to grow if we need to tap on the brakes, obviously, we can do that but as far as stock repurchases is something we will.
Speaker Change: Tried to come up with a consistent program something we felt we needed to do and we've been doing that but we will continue to look at.
Speaker Change: What we do there based on you know the economy and our business et cetera.
Speaker Change: Knowing what we know today, it's hard to see a change in our strategy going forward.
Speaker Change: Got it alright, thanks, guys congrats.
Speaker Change: Thank you Clark.
Speaker Change: And then if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: Our next question comes from the line of Jay Mccanless from Wedbush. Your line is open.
Jay Mccanless: Hey, good morning, guys. Thanks for taking my questions.
Speaker Change: I wanted to drill down yeah. Good morning, I wanted to drill down a little more on gross margin if I could.
Speaker Change: And thank you for the color of that 25 is probably a little softer than 'twenty, four but I guess if conditions stay the way they are right now.
Speaker Change: When might we see an inflection in the gross margin or should we expect at least for the next couple of quarters that it might go down sequentially from the levels you guys saw in the fourth quarter.
Speaker Change: It's a hard question to answer.
Speaker Change: <unk>.
Speaker Change: I think the fourth quarter is sort of reflective of where things are.
Speaker Change: Again, depending upon rate movement.
Speaker Change: Cost of buy downs.
Speaker Change: It's all going to have an impact because so much of the action occurs within the quarter.
Speaker Change: And.
Speaker Change: It became as I said.
Speaker Change: I think we first launched the.
Speaker Change: Buy downs either in July or August I can't remember the exact time it was.
Speaker Change: <unk>.
Speaker Change: The beginning to the middle of the third quarter.
Speaker Change: And the cost while the costs moved a bit rates was a little down and then they jump back up again, the trend lines were all rising rates rather than declining though throughout the back half of the year as you know.
Speaker Change: It just became more expensive.
Speaker Change:
Speaker Change: Not to be snarky, but not selling is not an option. So.
Speaker Change: Going to do what we need to do.
Speaker Change: And I think things things seem to be at least this week leveling off maybe even coming down a little bit in terms of cost.
Speaker Change: So next week.
Speaker Change: Most.
Speaker Change: Theres certainly a lot of action in Washington, right now and all of that is having an impact on the bond market.
Hopefully inflation under control.
Speaker Change: It appears to be.
Speaker Change: So I think.
Speaker Change: I think what we saw in the fourth quarter is likely reflective of what we'll see.
Speaker Change: On a go forward basis could be a little better.
Speaker Change: Maybe a little worse, although I don't think so so we'll just have to see but.
Speaker Change: We've settled in on a good pace for our community and our goal is to maintain that pace.
Speaker Change: So I think the fourth quarter is a good barometer.
Speaker Change: Okay. Thank you Bob.
Speaker Change: I wish I wish I knew with eight.
Speaker Change: Right.
Speaker Change: Jay I wish I knew with precision.
Speaker Change: But I don't think anybody does.
Speaker Change: No no that's a great answer thank you very helpful.
Speaker Change: And just wanted to talk for a minute about the.
Speaker Change: You had really strong 18% order growth in the south, but only 1% in the north maybe could you talk about that was it timing issues. We've heard some people talk about pretty heavy rainfall colder weather up north.
Speaker Change: We should know there to explain that discrepancy between the two segments.
Speaker Change: Well Jay it always depends on what comparable number youre looking at as far as how the fourth quarter was last year. If you look at last year. We only saw a 1600 houses. So we had a pretty low comparable going in as far as looking at the <unk>.
Speaker Change: Southern region being up 18%.
Speaker Change: Again, but the fourth quarter sales last year not being so good.
Speaker Change: We'll talk about Florida being difficult, but from a sales standpoint, our fourth quarter. This year.
Speaker Change: Compared pretty favorably in Florida over the last year certain.
Speaker Change: Certain markets in Texas also performed well.
Speaker Change: It was really just more of a weak fourth quarter last year than anything Jay.
Speaker Change: Got it.
Speaker Change: And then the last question I had and Phil Correct me, if I'm wrong on this but I think you said alright, so I got two more questions.
Speaker Change: I think you said, 30% sold and closed during the fourth quarter on closings.
Speaker Change: Yes, that's right.
Speaker Change: Okay.
Speaker Change: What are you guys.
Speaker Change: The upper end of that number could be could you potentially sell and close 40%.
Speaker Change: I'm trying to think of from a productive capacity standpoint can you really pull off that many homes or what is what is a manageable range for sold and closed in a given quarter for MRI.
Speaker Change: J of course, the theoretical answer is that we went to close as many houses as we can good completed houses at a good margin.
Speaker Change: Could that number be a 40% type number the answer is yes.
Speaker Change: Right now today, having about 2500.
Speaker Change: Houses in the field as far as specs and again, we track what stage those specs are at.
Speaker Change: Talking about have any of them were finished whatever six or 700, but yes, it could get up to 40% or so.
Speaker Change: We have the financial wherewithal to obviously put specs out there selling specs is different than to be built.
Speaker Change: And very much to have the best margins, we can on specs and not just throw them out there at lower margins, but yes, it could even get higher than 30% to 40, or so yes, and also from a mortgage rate cost by down as we've talked before and you know there's a lot more cost effective when youre trying to buy that rate down on somebody.
Speaker Change: 45 days.
Speaker Change: Got it got it.
Speaker Change: And then I guess the other the other question I had.
Speaker Change: It sounds like from a labor perspective from a materials perspective.
Speaker Change: It seems like things are setting up well for the year I guess could you talk about what youre seeing from land cost inflation and also maybe what youre seeing from some competitors. If they are still being as aggressive in the land market as they were maybe a quarter or two quarters ago.
Speaker Change: First of all.
Speaker Change: I think on fixed.
Speaker Change: Nixon bricks.
Speaker Change: Things are good.
Speaker Change: Stable.
Speaker Change: In some cases, we may we may pick up a little.
Speaker Change: Prices to say, we're very focused on that just like we are very focused on cycle time.
Speaker Change: 2024, we improved our cycle time by 11 days.
Speaker Change: I don't think we will improve it by 11 days this year, but we might prove it by several.
Speaker Change: We haven't talked about that during this call.
Speaker Change: We don't ignore those things and we're really focused on.
Speaker Change: Bob.
Speaker Change: Cost of materials, and sticks and bricks trying to do everything we can to offset the margin pressures that mortgage rate buy downs or brought about that.
Speaker Change: That's one thing on the land side.
Speaker Change: I believe that land development costs.
Speaker Change: Site work.
Speaker Change: As stabilized for now.
Speaker Change: Okay.
Speaker Change: On land acquisition.
Speaker Change: I think it's still pretty competitive.
Speaker Change: It's not crazy, but I think it's more competitive than not look we're trying to buy prime locations.
So our strategy is not to go outside the core.
Speaker Change: And by pieces that maybe only one or two people want.
Speaker Change: That's not how we operate.
Speaker Change: We we try to stay within.
Speaker Change: Where we think the most action is we've always been that way.
Speaker Change: And it's worked and we're going to continue to do that and I think on some of those pieces there can be a lot of competition.
Speaker Change: We don't get every piece, we seek to get.
Speaker Change: And we lose our fair share, but we got our fair share so I think there.
Speaker Change: I know you were in a more specific answer I think it is more competitive than not for the prime locations, which is what our business is primarily focused on.
Speaker Change: Jay we obviously track that very carefully we develop about 80% of our own staff Bob.
Speaker Change: Bob always talks about we really tried to focus on premier locations.
Speaker Change: To be in the better school districts near the better shopping better transportation, we think.
Speaker Change: Great times those community, so great, but in tough times, they still sell some if you look at the average lot cost.
In the last year as far as raw land development cost depending on the market in general the finished lot cost has gone up 10% to 15% our.
Speaker Change: Our finished lot cost now when you look at our average sale price in backlog as I talked a little bit ago.
Speaker Change: Like in the last eight quarters, our average sale price in backlog has gone from 500 to 550.
Speaker Change: You're always market price.
Speaker Change: <unk> tried to be very focused on pricing don't get too far out lock in prices in and those type things.
Speaker Change: I definitely agree I mean premier well located land has continued to go up we need to make sure. We get paid for that we focus every day not only on margin, but on sales pace to make sure we're getting stuff through the pipe, but also getting paid for what we're doing and the risks were taken.
Speaker Change: We try to manage that best we can we're hoping this year to get a little break on sticks and bricks. We are focused very hard on that as Bob said to try to offset some of these other margin pressures, but theres definitely challenges out there.
Speaker Change: Okay. That's great. Thank you Phil just since you opened the door on pace I guess are you guys expecting to run at roughly the same level of monthly absorption and 25 that we saw in 'twenty four.
Speaker Change: Wed like to have a little better pace, where she will work on that but again that becomes kind of a factor of what do you want to do price wise and what you would do margin wise, we are focused on trying to improve pace a little bit also.
Speaker Change: But also hopefully maintain where we are with growing community count.
Speaker Change: <unk> is to grow the company, we've got base growth goals and we've also have stretch growth goals.
Speaker Change: And a lot of those are dependent upon worst case, maintaining current pace.
Speaker Change: Okay. That's great. Thanks, guys I appreciate it.
Jay Mccanless: Thank you thanks Jay.
Speaker Change: There are no question at this time I would now like to turn the conference back to Mr. Phil Cusick. Please go ahead.
Thanks, very much for joining us today, and we'll talk to you next quarter.
Speaker Change: Yeah.
Speaker Change: Thank you. This concludes today's conference. Thank you for participating you may now disconnect.