M/I Homes, Inc.

Good afternoon, everyone, and welcome to the MI Homes third quarter earnings release conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the comments call over to Phil Creek. Sir, please go ahead.

Welcome to our call. Joining me on the call today is Bob Schottenstein, our CEO and President, Tom Mason, EVP, Derek Klutsch, President of our Mortgage Company, Anne Marie Hunker, VP Corporate Controller, and Kevin Hanks, Senior VP. First to address regulation, fair disclosure, We encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, 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, including comments related to COVID-19. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. Also during this call, we disclose certain non-GAAP financial measures. A presentation of the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today that is available on our website. I'll now turn the call over to Bob.

Thank you, Phil, and thank you for joining us today. We had an outstanding record-setting quarter, highlighted by a 71% increase in new contracts, a 29% increase in homes delivered, and a 94% increase in net income. For the quarter, we sold 2,949 homes. Year-to-date through September, We have sold 7,299 homes, 43% better than last year and more than we sold in all of 2019. Our sales were strong across the board and throughout all of our markets. Our absorption pace improved significantly to 4.6 sales per community per month compared to 2.6 a year ago. A number of factors contributed to our strong sales performance, low interest rates, low inventory levels, a shift in buyer preference towards single-family homes, and an increasing number of millennials opting for home ownership. All of these are fueling a robust housing market. In addition, we continue to gain market share in most of our markets based upon the strength and quality of our communities, the quality of our online marketing execution in generating online leads and converting those online leads into sales, and the continued strong market acceptance of our most affordably priced Smart Series line of homes. Our Smart Series sales comprise nearly 36% of total company-wide sales during the quarter, compared to 28% a year ago. We are now selling our Smart Series homes in all 15 of our divisions. And on average, our Smart Series communities produce better sales pace, better gross margins, better cycle time, and better returns. We delivered 2,137 homes in the quarter. Year to date through September, we have now delivered 5,467 homes which is 25% more than last year. Our backlog sales value at September 30 equaled $1.8 billion, an all-time record, and units in backlog increased 54% to a record 4,503 homes. Our margins and returns during the quarter were also very strong. Gross margins during the third quarter improved by 240 basis points to 22.9%, and our SG&A expense ratio improved by 60 basis points to 11.6%. And our pre-tax income percentage significantly improved to 11.2%. All of this resulted in a greater than 90% improvement in both pre-tax and net income for the quarter. Our financial services business also had a record quarter, highlighted by strong income, an excellent capture rate, and very solid across-the-board execution. Now I will provide some additional comments on our markets. As you know, we divide our 15 markets into two regions. The northern region consists of six of our 15 markets, Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, and Detroit. Our southern region consists of the remaining nine markets, Charlotte and Raleigh, North Carolina, Orlando, Tampa, and Sarasota, Florida, and Houston, Dallas, Austin, and San Antonio, Texas. As I indicated earlier, we experienced strong sales performance in the third quarter across all of our markets. New contracts in the southern region increased 63% for the quarter, while new contracts in the northern region increased 85%. Our deliveries increased by 27% over last year in the southern region to 1,269 deliveries, or 59% of company total. The northern region posted 868 deliveries, an increase of 33% over last year and 41% of total. We also had substantial income contributions from most of our markets, led by Orlando, Dallas, Minneapolis, Columbus, Charlotte, Tampa, and Cincinnati, with Indianapolis, Houston, and Austin also having a very strong third quarter. Our controlled lot position in the southern region increased by 49% compared to a year ago and increased by 17% in the northern region. While we are selling through a number of our communities faster than anticipated, we are nonetheless very well positioned to handle demand. 35% of our owned and controlled lots are in the northern region with a balance roughly 65% in the southern region. We have an outstanding land position company-wide. In total, we own and control approximately 40,000 lots, or about a four and a half to five year supply. Importantly, roughly 60% of our lots are controlled under option contracts, which, with more than half of our lots controlled by option, gives us tremendous flexibility to react to changes in demand or individual market conditions. We had 121 communities in the southern region at the end of the quarter, which is down from 132 a year ago, and also down from 126 at the end of this year's second quarter. We had 86 communities in the northern region at the end of the third quarter, down slightly from a year ago, and down from 94 at the end of this year's second quarter. Before I turn it over to Phil, let me just make a few closing comments. Despite our record performance and strong sales, we acknowledge the continuing challenges our country, indeed the world, is facing in dealing with the effects of the COVID-19 pandemic. The pandemic continues to affect our operations, though our teams, have managed through it very well. We continue to focus on building and selling quality homes, and we continue to manage our operations and our business with the highest standards for our employees, customers, and their accompanying work environment. Finally, let me conclude by saying that in addition to having a record-shattering quarter, our company is in the best shape ever. Our financial condition is strong, our balance sheet is healthy, We have meaningful operating momentum and are poised to have an outstanding year. Phil?

Thanks, Bob. As far as financial results, new contracts for the third quarter increased 71% to 2,949, an all-time quarterly record, compared to 1,721 for last year's third quarter. Our new contracts were up 75% in July, up 94% in August, and up 44% in September. Our sales pace was 4.6 in the third quarter compared to last year's 2.6. Our cancellation rate for the third quarter was 10%. As to our buyer profile, about 53% of our third quarter sales were to first-time buyers compared to 50% in the second quarter. In addition, 40% of our third quarter sales were inventory homes compared to 45% in the second quarter. Our community count was 207 at the end of the third quarter compared to 221 at the end of 19's third quarter. The breakdown by region is 86 in the northern region and 121 in the southern region. During the quarter, we opened 12 new communities while closing 25. And we opened 51 new communities during the nine months ended 9-30 this year. We delivered a third quarter record 2,137 homes. delivering 58% of our backlog, which was the same percentage as a year ago. And revenue increased 30% in the third quarter, reaching a third quarter record of $848 million. Our average closing price for the third quarter was $380,000, a 1% decrease when compared to last year's third quarter average closing price of $382,000. And our backlog sales price is $404,000, up from $390,000 a year ago, And our backlog average sales price of our smart series is 315,000. Our third quarter 2020 operating gross margin was 22.9% of 240 basis points year over year and up 100 basis points from the second quarter. And our third quarter SG&A expenses were 11.6 of revenue, increasing, improving 60 basis points compared to 12.2 a year ago reflecting greater operating leverage. Interest expense decreased $3.4 million for the quarter compared to last year. Interest incurred for the quarter was $10 million compared to $12.9 million a year ago. The decrease is due to lower outstanding borrowings in this year's third quarter as well as a lower weighted average borrowing rate. During the third quarter, we generated 111 million of EBITDA compared to 67 million in last year's third quarter. We have 22 million in capitalized interest on our balance sheet, which is about 1% of our total assets. Our effective tax rate was 23% in the quarter compared to last year's 24% in the third quarter. Our third quarter rate benefited from energy tax credits that were retroactive to 2019. and we estimate our annual effective rate this year to be around 23%. And our earnings per diluted share for the quarter increased to 251 per share from 132 last year. Now Derek will cover our mortgage company results.

Thanks, Phil. Our mortgage and title operations achieved record third quarter results in pre-tax income, revenue, and number of loans originated. Revenue was up 115% to $28.9 million due to a higher volume of loans closed and sold, along with significantly higher pricing margins. For the quarter, the pre-tax income was $19.2 million, which was a 241% increase compared to 2019's third quarter. 76% of the loans closed in the quarter were conventional and 24% FHA or VA. compared to 78% and 22% respectively for 2019's third quarter. Our average mortgage amount increased to $314,000 in 2020's third quarter compared to $312,000 last year. Loans originated increased to a third quarter and all-time record of 1,636 loans, 32% more than last year. and the volume of loans sold increased by 39%. Our borrower profile remained solid, with an average down payment of over 15%. And for the quarter, the average credit score on mortgages originated by MI Financial was 747, up slightly from 745 last year. The mortgage operation captured over 85% of our business in the third quarter, which was in line with last year. We maintain two separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to the sale to investors. At September 30th, we had $136 million outstanding under these facilities. We extended our repo line this month through October of 2021 and increased the commitment amount from $65 million to $90 million. Both facilities are typical 364-day mortgage warehouse lines that we extend annually. Now I'll turn the call back over to Phil. Thanks, Derek.

As far as the balance sheet, our total home building inventory at 930 was $1.8 billion, an increase of $16 million over last year. Our unsold land investment at 930.20 is $762 million compared to $821 million a year ago. At September 30th, we had $362 million of raw land, land under development, and $400 million of finished unsold lots. We owned 4,942 unsold finished lots with an average cost of $81,000 per lot. And this average lot cost is 20% of our $404,000 backlog average sale price. Our goal is to maintain about a one year supply of finished lots and to own a two to three year supply. Lots owned and controlled as of 9-30-20 totaled 39,600 lots. 15,100 of which were owned and 24,500 under contract. We own 6,900 lots in our northern region and 8,200 lots in our southern region. A year ago, we owned more than 14,800 lots and controlled an additional 14,200 lots for a total of more than 29,000 lots. And during this year's third quarter, we spent $107 million on land purchases and $89 million on land development for a total of $196 million. Year-to-date, we have spent $267 million on land purchases and $222 million on land development for a total year-to-date land spend of $489 million, and about 48% of our purchase amount was raw land. At the end of the quarter, we had 266 completed inventory homes, about one per community, and 1,113 total inventory homes. And of the total inventory, 550 are in the northern region and 563 are in the southern region. At September 30th, 19, we had 531 completed inventory homes and 1,513 total inventory homes. This completes our presentation. We'll now open the call for any questions or comments.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, please press star and one. To withdraw yourself from the question key, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the numbers to ensure the best sound quality. Once again, that is star and then one to ask a question. Our first question today comes from Jay McCandless from Wedbush Securities. Please go ahead with your question.

Hey, good afternoon, guys. Congrats on a really good quarter. Thank you. The first question I had, if you think about Smart Series versus the other product lines, maybe on a percentage basis, where were you all able to push price the most, on Smart Series or on the traditional product?

That's a really good question. My intuition is that pushing price as opposed to starting margin, that's pretty much across the board. I think that we've had the ability to expand margin pretty much in a really good sampling of all of our communities. Having said that, before we were able to successfully push margins on average, our smart series communities command a higher margin. So they start with a higher base, if you will, base margin. But, Bill, I don't know if you have a slightly more nuanced view of that. I don't think it's really much different. I can think of so many communities that are non-smart where we've had the ability to push margin. And we're doing so carefully. You know, you're Other than in hindsight, you don't know whether you really did it accurately. We think we've been very prudent in the way we've approached it. Jay, I think it would be wrong to suggest that it's anything but broad-based.

Great. Then the second question I had in thinking about the community count and it sounds like you all ran through a fair number of communities during the quarter. Could you maybe talk about where you think the community count goes for the rest of the year and then any help you can give us in terms of where the community count might go in 2021?

You know, Jay, that's a really challenging situation for us. If you look through the first nine months of the year, we've closed 69 communities. Last year, the first nine months, we closed 46. So we've had 23 more communities closed this year. Opening of communities has about been the same year to year. We're trying to get communities opened the right way as fast as we can. Of course, the good news is that our absorption pace is up significantly. not given any guidance because that's just such a difficult answer. But we are hoping, we are focused on community count, and I think it will be difficult for us the next couple of quarters, but I think as we get into the latter part of next year, hopefully we'll be in a little better situation. But having said that, as Bob said, there are more Smart Series communities Those sales pace are better. So, you know, we're watching it very carefully and do all we can.

The other thing I'd add to that is that there's two factors that are impacting community count in the very near term. There probably will be a little bit of choppiness. One of those factors is the very robust sales pace of the last four to five months. And selling, even though we're controlling sales, if you will, in and a very decent portion of our communities not wanting to get too far out ahead of ourselves. Notwithstanding that, we are selling out of some communities faster than we anticipated. The other side of that is because of COVID and work from home or furloughs, it's not everywhere, but in many of the locales in which we operate, the submarkets, the municipalities, the townships, et cetera, the entitlement process and the sign-offs needed to complete development and to commence new home construction and secure the first tranche of building permits and so forth has been delayed for no economic reason but for just the reality of the shortage of people that are there to do the work. So you're sort of getting pulled from both ends. Having said all that, we've said this before, we'll say it again, we're poised for growth. The growth may not be on an even plane, but we think we're really poised for growth based on what we believe today and what we know today over the next 12 to 24 months.

Great. And then the last question I had, last year you guys had a backlog conversion rate in the fourth quarter of roughly 66 percent just wanted to see if if you're running a similar rate to that with what you've converted so far um or if there's any any type of of dispersion you can give us of when all the the this huge crop of orders in 3q might deliver over the next couple quarters

You know, Jay, we don't give any projections as far as fourth quarter closings or foyer or anything else. I mean, we do hope and plan to close more houses in the fourth quarter than we did a year ago. The backlog is quite a bit higher. I would point out a couple things, that when you look at the large amount of sales we had in the third quarter this year versus last year, for instance, if you look at the 930 backlog this year, like 65, 66% of those sales in the 930 backlog came in the third quarter. It takes a certain amount of time to get those houses in the field and built. If you look at the backlog at September of 19, about 58% of those houses were sold in the third quarter of 19. So my point is there's more recent sales in the current backlog There's also a situation where even though I have a few more houses in the field 930 this year than a year ago I do have you know 400 less specs and those specs in general are not as far along construction wise so I Would not be surprised to see my backlog conversion rate lower in the fourth quarter but having said that you know we do hope and plan to assuming things kind of stay the way they are, that we will close a few more houses in the fourth quarter than a year ago, but it won't be any crazy number way above last year to kind of answer your question.

Okay, that's great. Very helpful. Thank you.

Our next question comes from Alan Ratner from Zellman & Associates. Please go ahead with your question.

Hey, guys. Good afternoon. Congrats on the great results.

Thanks, Alan.

Phil, I wanted to, I might have misheard this number, so I was hoping to double check it and just get your thoughts on it. I thought I heard you gave roughly 5,000 unsold finish lots. And if that's correct, you know, just please confirm that. But you did get a comment after the fact that said, like, your target is a one-year supply of finish lots on the book. So If that number is right, it would appear to be well below kind of a one-year sales pace, at least that you've been running at this year, closer to the $8,000 to $9,000 range. So can you just talk a little bit about that, A, if I'm hearing that correctly, or B, if not, can you correct me?

Yeah, you're hearing that correctly, Alan. And again, I always use the most current closing rate. Optimistic people tend to use sales, but being a conservative financial person, I always use the closing rate. I like to have 7,7500. We have less than that. We'd also like to have own two to three years of our current run rate. If you look at our current closing rate, we're close to that two number. I agree with Bob totally. We think we have a very, very strong land position. Will we like to own a few more lots in certain situations? Yeah, the answer is probably yes. Having said that, there's a difference if you have finished lots ready to go optioned or even raw land that's ready to put the shovel in the ground. You've got to look behind and see what composed that option. We think we have a very strong land position, but if we had a few more lots, it would probably make us a little happier.

Bob, I don't know if you agree with that. Other than what I said before, Alan, have we sold more houses than we thought we would have? Of course. So has everyone else. And our newer community is going to come online maybe a quarter or so slower than anticipated. probably, maybe not a full quarter, but maybe a month or so, which could impact the quarter. I mean, that's just the reality that we're dealing with in most of our markets. Having said that, I want to just reiterate, we have a great land position. It doesn't, at least at this point, keep us up at night. And we are poised for growth. And we've really... We've got great momentum and we've gained a lot of traction in so many of our markets that several years ago we wouldn't have been able to say that today. And it's good to have that momentum. I think our performance in most of our 15 markets is standing tall today. And we don't say that lightly and we don't take it for granted.

Got it. That's helpful, and thank you for walking me through that. So I guess the follow-on to that then is very impressive increase in lots owned, or excuse me, option this quarter, a big sequential increase in year-over-year as well. So do you have any way to kind of tell us the development phases of those lots that you tied up through option? I mean, are these lots that you would expect to contribute to 21 growth at all? Is this more of a 22 kind of community count driver? Just curious where these lots are located and at what development stage they're at.

You know, I wouldn't be able to give you too accurate of a read, but if I had to, you know, take a guess, my guess is that a small fraction of them will contribute to sales and closings in 2021. That the overwhelming majority... is 22 business and beyond. But we're in pretty good shape for 2021. And some of that additional stuff will create some additional sales and closings next year in 2021. But most of it will be pushed out beyond that. Phil, did you want to say something?

Yeah, if you actually look at the numbers, Alan, the majority of the uptick in the control is actually in our Texas markets. It happens to be primarily raw land pieces, and Bob is correct as usual. I mean, we're really in great shape for growth in 21 and actually in really pretty good shape even for 22. So the uptick really is more for the second half of 22 and 23 in Texas. Got it. Okay.

Thank you for that. And if I could squeeze in one more, the cash position among the highest levels on record here. So great progress on the balance sheet. And obviously, I'm sure investing in land is the number one priority. But how do you see the balance sheet unfolding? I mean, your stock is at book value. Obviously, M&A has been an area in the past where you've selectively been able to allocate some capital towards deals to drive near-term growth. So how should we think about that $200 million cash balance over the near term?

Well, you know, I think buying back stock is overrated. It may not be a popular thing to say on this call, but I do believe that. And I've had experience with other industries, and I still feel that way. Having said that... first of all, economic conditions are uncertain. Let's face it. A year ago today, no one could have predicted what we've seen occur in 2020. Not just the pandemic, but what happened once the pandemic hit. The latter part of March, early April, we thought this was going to be a rerun of the Great Recession, or worse. And by You know, early May, it was like, whoa, this is quite extraordinary, the bounce back in demand. And by the end of May, it was at a, you know, at least for us and most builders, a record-setting pace. No one could have anticipated that. I think the same kinds of vagaries exist today with the future. You know, what... You know, as long as I think interest rates is the primary driver for housing right now, uh, certainly some of the demand is fueled by some pandemic, unique circumstances, very low resale inventories, I think is partly impacted by the pandemic. This notion of a preference for moving out of high density urban areas. Is that a long-term thing? Is that, is, will that soon change once the pandemic hopefully happens soon is in the distant mirror. Those things may not be for the long haul, but I do think the millennials beginning to come off the sidelines is not going to reverse itself. I think that's more driven by just changes in family situations than anything else, and I think low interest rates, as long as they stay closer to three than to four, I think will continue to drive housing, and right now they're below three. So all that said... We think we've got a lot of reason to hold on to capital to invest in our business. We would love to be in another market or two if the opportunity presented itself. The good news is we don't have to. We can achieve our growth goals over the next two to three years without doing so. But at some point, we probably need another flag or two, and that could require a lot of capital. So if you put all that in the blender, you sort of sit on it right now. And, you know, we think our return on equity is top two or three in the entire industry, and hopefully we'll be judged by some of these other metrics more than how we're deploying our cash for those that would rather see a short-term buyback.

Great. No, very detailed on there, Bob. Thank you very much, and great luck.

Thanks so much, Alan.

Our next question comes from Aaron Hecht from JMP Securities. Please go ahead with your question.

Hey, guys. Appreciate all the insight you gave on the land position so far because it's such a critical aspect of the business and totally understandable why there's going to be some volatility given the results you guys have had because it's really been amazing to watch. So I won't hit on the land, but wondering in terms of margins, you know, there's been some cost inflation over the years. lumber being the one that's been called out a number of times. So wondering if we need to be sensitive of what the margin profile is going to look like over the next couple of quarters as the orders that you took this quarter and earlier in the year roll through with some of those cost inflation items.

You know, when you look at, you know, stick and brick costs in general, You know, lumber's definitely jumped up quite a bit, didn't come off some. I think if you look at, you know, across our company, you know, in the third quarter, you know, we had a three to five percent increase in those type costs. We have been raising price very, very aggressively. The good news is land development costs have not been up, you know, that much. We've been very, very pleased with the improvement in our margin the last couple quarters. Don't predict what they will be, but I will tell you that we really try to focus on opening new communities the best way we can. Demand is still very good, so we're hoping very much to keep these strong margins we have. Our margins in Texas have improved dramatically. All four of our Texas divisions now are at that 500 unit a year run rate plus. And that's really given us more communities and more scale. And as Bob talked about, the smart series, those margins being better. So we focused on it a lot. Hopefully, lumber is going to continue to come down a little bit. We are being very careful with sales getting too far out on delivery dates. And then make sure we have our, our costs not only locked in, but locked in with people. We believe that can honor all those commitments and not get too far ahead of ourselves. So having said all that, uh, we're doing all we can to keep our margins as strong as we can.

Gotcha. And Bob, you made a comment to Alan about potentially

looking at new markets you want to share which markets you might be contemplating entering at some point if we were further along I would right now first of all let me be really really clear we do at least for the next several years assume we can grow our units by Of course, this year they've grown by an almost unimaginable pace, 71% growth in the last quarter in units. That's not long-term sustainable for us or anyone. But assuming we can grow our units in that 10% to 15% or more over the next several years, at some point we believe we would need an additional market or two Um, so it's not something that right now we need to do something or we'll have trouble achieving our growth goals over the next two or three years. But so there's probably four or five markets that we've been sort of looking at, but, um, I can't really comment on it. It wouldn't be smart and it might be misleading.

Okay. And, and Phil, in terms of, uh, expense interest rolling through the income statement. Is there now enough backlog to capitalize that interest? We should think that that line could go to zero pretty soon.

I will not count on that. We have been pleased that our interest incurred has been going down. However, our land spend and some of our land activities have been kind of lower than we thought they would be. We did hit the pause button in that March, April, May timeframe. Would expect land activity to increase in the fourth quarter and next year. So hopefully we'll continue to be efficient there. Would not see that number getting down that low of a level, but hopefully we'll continue to see some improvement.

Thank you very much. Great results.

Thanks a lot, Aaron.

Our next question comes from Art Winston from Pilot Advisors. Please go ahead with your question.

I suspect I can thank you guys on behalf of most of the shareholders for your excellent stewardship of this company, so thanks. I was wondering, in the second quarter conference call, you gave your conservative outlook and all the things that might not be right yet. It seemed like you stepped up your investment in land and communities very rapidly, and I wonder... if anything changed during the course of the quarter or anything changed in your procurement, hurdle rates, or anything like that?

First of all, Art, thanks for your comment. As far as the question, maybe a little bit. I think that there's several things that have been true at the same time. And one of them is that in the face of much more rapid than expected sales and selling out of communities faster, we realized that in a few of our markets we needed to be more aggressive as we looked out over the next one, two, three years. But at the same time, some of the additional purchases have been fueled by improved operating performance and execution and, frankly, confidence in that execution. in some of our markets that two or three years ago had been struggling. A couple of years ago, in some of our Texas markets, we weren't doing nearly as well as we are now. We were underperforming, frankly. And we're not anymore. And it's one thing to say we want to grow in a certain market from X to X plus 20%, X plus 40%. It's another thing to say, let's get X fixed first. And so in probably two or three or four of our markets where we've seen we've gone from so-so performance or underperformance to very high level of performance, now we really have confidence that we can take those markets to the next level, have the opportunity to do so. The markets will allow us to. Admittedly, they're very competitive, but we believe we can compete. So I think it's the two of those things happening at roughly the same time that have spiked some of the additional land under control.

Understood. It seemed like, right, that the investment, new investment for community is higher, that you're buying bigger communities or investing in bigger land from larger communities. Is that possible?

I think in general, when you look at our smart series communities, They tend to be more lots. They also tend to be, if it's 200 lots, we may be putting 75 or 100 lots on the ground as opposed to 50 just because sales are so strong and we don't want to go dark in there. So yes, communities have gotten a little bit larger, but that's also something that we can manage closely and quickly if demand or the market changes.

Gotcha. One last question. I heard what you said about stock repurchase, even though historically you've done it very judiciously and effectively. But what about the outside possibility of just borrowing another $100 or $150 million at 3% or something and putting on the balance sheet in case you ever need it? You could afford to pay the interest right now. Is that out of consideration?

You know, I think that, you know, as Bob talked about, even though business is very, very good, there is a lot of uncertainty. You know, we think we have a very good business, positioned well, but also we do think the land spend is probably going to tick up, you know, the next couple of quarters. We also think that being in a lower leverage situation during these uncertain times probably makes a lot of sense. We are very glad, in good shape, to have a $500 million bank line undrawn, which we can get to if we need. So we think we have a lot of liquidity there if we need it. So, again, it's something that we look at constantly and discuss with our board, and we'll continue to.

Okay. Well, thanks for everything.

Thanks, Art. Thank you.

And our next question comes from Alex Barron from Housing Research Center. Please go ahead with your question.

Hey, guys. Good afternoon and congrats on the strong results.

Thank you.

I was curious if you guys could comment on roughly the trend of the orders in the quarter and also whether you could offer any comments about how October is going.

I'll let Phil comment on the monthly year-over-year increase from September, August, and July. We have not and do not provide any guidance on the current month. But Phil, if you want to talk about the three months on the court.

Yeah, Alex, I mean, the demand really was solid all the way through the month. When you start to look at the numbers, it depends a little bit on how last year's July was, how last year's August was. Did we do a little more managing of sales as we went through the quarter? The answer is probably yes. Again, not wanting to get delivery dates out too far to outrun our cost protection. not get out in front. We do still have, you know, some supply, you know, challenges with windows and appliances. Each market is a little different. I think we're working through all things okay, and by the time it's not really gotten any worse, but demand has continued to stay very, very strong.

Okay, great. So, that said, is right now, you know, there's this conversation about price versus pace is right now you still feel comfortable that you can handle the current pace or are you guys I guess more inclined to be limiting sales and pushing the prices?

You know that's a subdivision by subdivision decision and we trust our experienced area presidents and along with our region presidents to work through those things. The backlog is significantly higher than last year. We had a very, very strong sales pace. Our margins were up 250 basis points. So hopefully we're pulling the right levers. It just really comes down to a subdivision by subdivision answer, Alex.

Got it. One other question on the SG&A. I noticed the corporate dollar amount, I guess, was a little bit higher than last year, obviously. But, you know, I was curious, do you feel like this is kind of a new run rate that we should expect going forward, or was there any one-time items in there?

You know, Alex, a big piece of that was incentive compensation. Our leadership team, our people in general, are compensated to a large amount on bonuses, income, customer service, and those type things. And those bonuses are booked primarily as the income is earned. And we had almost a $100 million pre-tax quarter, the best quarter ever. So that generated higher bonus accruals. So again, that was the biggest reason for that increase.

Got it. OK. Well, best of luck for the rest of the year, guys. Thanks.

Thanks, Alex. Thank you.

And ladies and gentlemen, once again, if you would like to ask a question, please press star and 1. To withdraw your questions, you may press star and 2. And ladies and gentlemen, at this time, in showing no additional questions, I'd like to turn the conference call back over to management for any closing remarks.

Thank you very much for joining us. Look forward to talking to you next time.

Ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for attending. You may not disconnect your lines.