M/I Homes, Inc.

Hello and welcome to the MI Homes third quarter earnings conference call. My name is Brica and I'll be the call operator for today. We will have a Q&A session today and if you would like to ask a question, please press star followed by one on your telephone keypad. I will now hand over to Phil Creek to begin today's presentation. So Phil, please go ahead.

Thank you. Joining me on the call today is Bob Schottenstein, our CEO and President of Derek Clutch, President of our Mortgage Company, Ann Marie Hunker, VP, Chief Accounting Officer, Controller, and Kevin Haag, 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, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn the call over to Bob.

Thanks, Phil. Good afternoon, and thank you for joining us. We are pleased with our third quarter performance, highlighted by a number of records, including record revenue of $904 million, revised a record third quarter pre-tax income of $116.2 million, 22% better than a year ago, and a very strong return on equity of 27%. We sold 1,964 homes during the quarter, a decline of 33% from the record sales reported during last year's third quarter. Despite the decline in sales, housing demand throughout most of our markets remains very strong. Our decline in sales is due to the fact that we are operating in 15% fewer communities than a year ago, and we continue to limit sales in a majority of our communities in order to better manage deliveries and control costs. Our third quarter monthly sales base was 3.7 homes per community. Other than last year, This is the highest monthly per community sales pace we've seen in over 10 years and reflects the underlying strength of demand. Year to date, we have sold 7,340 homes, 1% ahead of last year's record, despite, as noted, community count being down 15% and continuing to limit sales in the majority of our communities. We ended the quarter with 176 active communities, we will be opening a record number of new communities in 2022. Specifically, we expect to grow our community count next year by 15% or more and end 2022 with between 200 and 220 communities. We closed 2,045 homes during the quarter, a 4% decrease from last year. Clearly, our closings were negatively impacted by the well-documented supply chain disruptions that continue to stretch our build times and impact the entire industry. On average, it is taking us 45 days longer to get homes closed. We have always been focused on achieving fast and efficient build times while assuring that homes are properly complete and ready to be delivered. We will continue to manage in this way. Our backlog is very strong. We ended the quarter with an all-time record backlog of $2.5 billion, 40% better than last year, and units and backlog increased by 20% to a third quarter record of 5,407 homes with an average price and backlog of $471,000, which is 17% higher than a year ago. In addition to reporting record third quarter income, our returns were also very strong. Gross margins improved by 160 basis points year over year to 24.5%, and our SG&A expense ratio improved by 90 basis points to 10.7%. Excluding the one-time charge for debt extinguishment, our pre-tax income percentage improved from 11.2% last year to nearly 14%. And as noted, all of this resulted in a very strong return on equity of 27%. Now I will provide some additional comments on our markets. First, let me begin by stating that I'm very excited to announce that we are commencing home building operations in Nashville, Tennessee, one of the nation's most dynamic and fastest growing housing markets, ranking 11th nationally in 2020 based on single family permits. Nashville continues to benefit from a very healthy economy, significant population growth and job growth, and we look forward to building our competitive position in the market over the next few years. As our 16th market, Nashville will, for reporting purposes, be included in our southern region, together with Charlotte and Raleigh, our four Texas markets, and our three Florida markets. We experienced strong performance from our home building divisions in the third quarter, led by Orlando, Tampa, Minneapolis, Dallas, Chicago, Columbus, and Charlotte. In fact, all of our markets produced strong results. Our deliveries decreased 8% from last year in the southern region to 1,169 deliveries, or 57% of the total. The northern region contributed 876 deliveries, an increase of 1% over last year. Our owned and controlled lot position in the southern region increased by 11% compared to last year, and increased by 5% in the northern region compared to a year ago. 34% of our owned and controlled lots are in the northern region, while the balance, roughly 66%, is in the southern region. We have a very strong land position. Company-wide, we own approximately 22,700 lots, which equates to a roughly two and a half year supply. On top of that, we control via option contracts an additional 20,300 lots. So in total, our owned and controlled lots are approximately 43,000 lots, or about a five year supply. Based on a record backlog, we expect to finish out the year with another very strong performance. Our financial condition is strong with $1.5 billion of equity at September 30th and a book value of $53 per share. We ended the quarter with a cash balance of $221 million and zero borrowings under our $550 million unsecured revolving credit facility. This resulted in and a net debt to net cap ratio of 24%. Our company is in excellent shape, the best shape ever, and we are poised to have an outstanding fourth quarter and an outstanding full year in 2021. With that, I'll turn it over to Phil.