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Text: Joining me on the call today is Bob Schottenstein, our CEO and President, Derek Klutch, President of our Mortgage Company, Ann Marie Hunker, VP, Chief Accounting Officer Controller and Kevin Hake, Senior VP.
We are pleased with our third quarter performance highlighted by the number of records including record revenue of $904 million, revised 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 the year ago and we continue to limit sales in the majority of our communities in order to better manage deliveries and control costs.
Our third quarter monthly sales pace 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 in 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 homebuilding 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 into our three Florida markets.
We experienced strong performance from our homebuilding 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.
Companywide, we own approximately 22,700 lots, which equates to a roughly two and a half year supply.
On top of that we control the option contracts and 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 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.
New contracts for the third quarter decreased to 1,964 compared to 2,949 for last year's third quarter.
And in last year's third quarter our new contracts were a record and we're up 71% from the prior year.
Our new contracts were down 32% in July down 41% in August and down 24% in September and our cancellation rate was 8% in the third quarter.
As to our buyer profile about 50% of our third quarter sales were the first time buyers compared to 51% in the second quarter.
In addition, 39% of our third quarter sales were inventory homes compared to 43% in the second quarter.
Our community GAAP was 176 at the end of the quarter, compared to 207 at the end of last year's third quarter and the breakdown by region is 85 in the northern region and 91 in the southern region.
During the quarter, we opened 26 new communities while closing 25 and during last year's third quarter we opened 12 new communities.
We have opened 63 new communities in the first nine months of this year compared to 51 last year.
We delivered 2,045 homes in the third quarter, delivering 37% of our backlog compared to 58% a year ago.
Year-to-date, we delivered 6,322 homes, which is 16% more than a year ago.
We now have 5,300 homes in the field, which is 20% more than the 4,000 we had this time last year.
Revenue increased 7% in the third quarter reaching a third quarter record $904 million.
Our average closing price for the quarter was $430,000, a 13% increase when compared to last year's third quarter average closing price at $380,000.
And our backlog average sale price is an all-time record of $471,000 up from $404,000 a year ago and our backlog average sale price for our smart series is $374,000.
Our third quarter gross margin was 24.5%, up 160 basis points year-over-year.
And our third quarter s SG&A expenses were 10.7 of revenue improving 90 basis points compared to 11.6 a year ago, this reflects greater operating leverage and it was our lowest third quarter percentage in our company history.
Interest expense decreased $1.3 million for the quarter compared to last year.
Interest incurred for the quarter was $9.3 million compared to $10 million a year ago.
This decrease is due to lower outstanding borrowings and higher interest capitalization due to higher levels inventory under development than last year.
And during the third quarter we issued $300 million of senior notes due 2030 and used the majority of the proceeds to redeem all of our $250 million of senior notes that were due in 2025.
This resulted in the $9.1 million loss on early extinguishment of debt.
We are very pleased with our returns for the third quarter.
Our pre-tax income was 13% and 14% excluding our debt charge versus 11% a year ago, and our return on equity was 27% versus 19% a year ago.
During the quarter, we generated $132 million of EBITDA compared to $111 million last year's third quarter.
And we used $34 million of cash flow from operations for the first nine months compared to generating $197 million a year ago, primarily due to our increased land purchases.
We have $23 million of capitalized interest on our balance sheet this is about 1% of our total assets.
And our effective tax rate was 22% in the third quarter compared to 23% in last year's third quarter.
We currently estimate our annual effective rate this year to be around 22%.
And our earnings per diluted share for the quarter increased to $3.03 per share from $2.51 per share last year.
During the quarter we repurchase 243,000 of our outstanding common shares for $16 million, and we have $84 million available under our current repurchase authority.
Our current plans based on the existing market conditions are to continue repurchasing our shares.
Our mortgage and title operations achieved pre-tax income of $9.9 million, compared with $19.2 million in 2020 third quarter.
Revenue decreased 28% from last year to $20.8 million.
This was due to a lower volume of loans closed and sold and due to more competitive market conditions significantly lower pricing margins than we experienced in last year's third quarter.
The loan to value on our first mortgages was 82% compared to 84% in 2020 third quarter, 81% of the loans closed were conventional and 19% FHA or VA compared to 76% and 24% respectively 2020 third quarter.
Our average mortgage amount increased to $349,000 compared to $314,000 last year.
However, loans originated decreased to 1,554 loans down 5% from last year and the volume of loans sold decreased by 8%.
Our borrower profile remains solid with an average down payment of almost 18% and an average credit score on mortgages originated by M/I Financial of 751 up from 747 last quarter.
Our mortgage operation captured 85% of our business in the third quarter, the same as 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 30, we had $142 million outstanding under the M/I warehousing agreement which expires in May of 2022.
We also had $70 million outstanding under a separate $90 million repo facility which we recently extended through October 2020.
Both facilities are typical 364 day mortgage warehouse lines that we extend annually.
As far as the balance sheet we ended the third quarter with cash of $221 million and no borrowings under our unsecured revolving credit facility.
Total homebuilding inventory at 9/30/21 was $2.4 billion, an increase of $0.5 billion from September 30 of last year.
And our unsold land investment at 9/30/21 is $991 million compared to $762 million a year ago.
At 9/30, we had $663 million of raw land and land under development and $328 million of finished unsold lots.
We own 4,343 unsold finished lots with an average cost of $75,000 per lot and this average lot cost is about 16% of our $471,000 backlog average sale price.
Our goal is to own a two to three years supply of land and we now own 23,000 lots, which is about a two and a half year supply.
During the third quarter we spent $231 million on land purchases and $124 million own land development for a total of $355 million, which was up from $196 million in last year's third quarter.
And at the end of the quarter, we had 62 completed inventory homes and 1,042 total inventory homes.
And of the total inventory 658 are in the northern region and 384 in the southern region.
Last year at 9/30, we had 266 completed inventory homes and 1,113 total inventory homes.

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q3 earnings per share $3.03.
q3 revenue rose 7 percent to $904.3 million.
qtrly homes delivered decreased 4% to 2,045.

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