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?