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Text: On the call is Bob Schottenstein, our CEO and President; Tom Mason, EVP; Derek Klutch, President of our Mortgage Company; Ann Marie Hunker, VP, Corporate Controller; and Kevin Hake, Senior VP.
We had an outstanding first quarter, perhaps the best quarter in company history.
Setting records on many fronts, including new contracts, deliveries, revenues, and pre-tax income.
Housing conditions in all of our markets are very strong.
The robust demand for new housing is being driven by a number of factors including low mortgage rates, historically low inventory levels, a rapidly growing number of millennials joining the ranks of home ownership, and the shift in buyer preference away from renting in favor of single-family homes.
In addition, the quality of buyers is in as good a shape as we've ever seen.
Our average buyer is putting more than 15% down and has a credit score in excess of 740.
Taken together, all of these factors have created an excellent environment for new home sales that has contributed to our record setting performance.
We are proud of our results as we continue to gain market share and improve our profitability throughout every one of our 15 markets.
During the quarter we sold an all-time quarterly record of 3,109 homes, 49% better than a year ago.
Our absorption pace per community improved significantly to 5.3 sales per community compared to 3.1 sales per community a year ago.
And we continue to experience very strong results with our Smart Series, which represents our most affordably priced line of homes.
Smart Series sales comprised nearly 35% of total companywide sales during the quarter compared to 30% a year ago and just 16% in 2019.
We are selling our Smart Series product in all 15 of our divisions and in roughly one-third of our communities.
As we've shared before on average our Smart Series communities are larger with more lots and our Smart Series homes produce better monthly sales pace, higher gross margins, faster cycle time, and overall better returns.
Homes delivered during the quarter increased 35% and were a first quarter record.
Revenues increased 43% and also represented a first quarter record.
Gross margins improved by 420 basis points to 24.4% and our overhead expense ratio improved by 120 basis points.
As a result, our pre-tax income was an all-time quarterly record of $110 million, 167% better than a year ago with a pre-tax income percentage of 13.3% compared to 7.2% last year.
These strong returns resulted in a 25% return on equity improving from the 22% full year return on equity we had in 2020.
Our first quarter results continued our trend of strong growth in both revenues and earnings.
Specifically, since 2013 our revenues have grown at a compounded annual rate of 19% and our pre-tax income has grown at an even more impressive annual rate of 43%.
Companywide, our backlog sales value at the end of the quarter was a record $2.4 billion, 82% better the last year.
And our units in backlog increased by 68% to an all-time record 5,479 homes, with an average price in backlog of $433,000, nearly 10% higher than the average price in backlog last year at this time.
As I indicated earlier, all 15 of our homebuilding divisions contributed significantly to our first quarter performance.
And as you'll soon hear, our financial services, mortgage and title operations also had a record quarter, highlighted by strong income and excellent mortgage capture rate and very solid across the board execution.
Now, I will provide a few brief comments on our markets.
We divide our 15 markets into two regions.
The Northern region consists of six of our markets, namely Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis and Detroit.
While the Southern region consists of the remaining nine markets, Charlotte and Raleigh, Orlando, Tampa and Sarasota, and Houston, Dallas, Austin and San Antonio.
New contracts in the Southern region increased 46% during the quarter.
In the Northern region, new contracts increased 53% during the quarter.
Our deliveries increased 34% in the Southern region during the quarter to 1,218 deliveries or 60% of the total.
The Northern region contributed the balance 801 deliveries, an increase of 36% over last year.
Our owned and controlled lot position in the Southern region increased by 35% compared to last year and increased by 8% in the Northern region compared to last year.
While we are selling through communities somewhat faster than expected, we are very well positioned to handle the current level of demand.
35% of our owned and controlled lots are in our Northern region, while the balance roughly 65% are located in the Southern region.
We have a strong land position.
Companywide we own approximately 16,800 lots, which is roughly -- slightly less than a two-year supply.
On top of that, we control via option contracts an additional 2500 lots.
So, in total, our owned and controlled lots approximate 42,000 single-family lots, which is just under a five-year supply.
Importantly and worth noting, 60% of those lots of controlled under option contracts, which gives M/I Homes significant flexibility to react to changes in demand or individual or unexpected market conditions.
We had 100 communities in the Southern region at the end of the quarter, which is down from 125 a year ago.
In the Northern region, we had 87 communities at the end of the quarter, which is down 11% from the 98 we had last year at this time.
Clearly, this decline in community count is a result of our accelerated sales pace, but it's also important to recognize that over one-third of our communities are now are offering our Smart Series homes and that these communities often have more lots in total, but they also produce a greater sales pace.
We are managing our sales pace as well as our pricing in our communities to take advantage of the strong demand and to assure delivery of a high return on our investment.
Our financial condition is very strong with $1.4 billion of equity at the end of the quarter and the book value of $46.37 per share.
We ended the first quarter with a cash balance of $293 million and zero borrowings under our $500 million unsecured revolving credit facility.
This resulted in a 32% debt to cap ratio, down from 39% a year ago and a net debt to cap ratio of 21%.
We are very excited about our business.
Our financial condition has never been better.
We have important operating momentum throughout the company.
And the quality of our product along with the quality of our communities and our land position positions us for continued growth, continued gains in market share and strong results.
We fully expect to have an outstanding year in 2021.
As far as our financial results, new contracts for the first quarter increased 49% to 3,109, an all-time quarterly record compared to last year's first quarter 2,089.
Our new contracts were up 68% in January, up 21% in February and up 64% in March and our sales pace was 5.3 for the first quarter compared to last year's 3.1.
And our cancellation rate for the first quarter was 7%.
And as Bob stated, we continue to manage sales pace and returns in our communities closely.
As to our buyer profile, about 56% of our first quarter sales were to first time buyers compared to 53% in the fourth quarter of last year.
In addition, 43% of our first quarter sales were inventory homes, the same as 2020's fourth quarter.
Our community count was 187 at the end of the first quarter compared to 223 at the end of 2020's first quarter.
The breakdown by region is 87 in the Northern region and 100 in the Southern region.
During the quarter, we opened 21 new communities, while closing 36.
And last year's first quarter, we opened 17 new communities.
We delivered a first quarter record of 2,019 homes, delivering 46% of our backlog compared to 56% a year ago.
Production cycle times are being lengthened by supply issues.
Revenue increased 43% in the first quarter, reaching the first quarter record of $829 million and our average closing price for the first quarter was $395,000, a 6% increase when compared to last year's first quarter average closing price of $374,000 and our backlog average sale price is $433,000, up from $399,000 a year ago and our backlog average sales price of our Smart Series is $335,000.
Our first quarter gross margin was 24.4%, up 420 basis points year-over-year.
Our construction and land development costs continue to increase with our biggest impact from lumber.
Our first quarter SG&A expenses were 11% of revenue, improving a 120 basis points compared to 12.2% a year ago, reflecting greater operating leverage.
Interest expense decreased $3.5 million for the quarter compared to the same period last year and interest incurred for the quarter was $10.2 million compared to $11.9 million a year ago and the decrease is due to lower outstanding borrowings in this year's first quarter as well as a lower weighted average borrowing rate.
We are pleased with our improved returns for the first quarter.
Our pre-tax income was 13.3% versus 7.2% a year ago and our return on equity was 25% versus 15% a year ago.
During the quarter, we generated $125 million of EBITDA compared to $59 million in last year's first quarter and we generated $75 million of positive cash flow from operations in the first quarter compared to using $24 million a year ago.
We have $22 million in capitalized interest on our balance sheet, about 1% of our total assets and our effective tax rate was 23% in this year's first quarter, the same as last year's first quarter.
And we estimate our annual effective rate this year to be around 24%.
And our earnings per diluted share for the quarter increased to $2.85 per share from $1.09 per share last year.
Now, Derek Klutch will address our mortgage company results.
Our mortgage and title operations achieved record first quarter results in pre-tax income, revenue and number of loans originated.
Revenue was up 120% to $29.6 million due to a higher volume of loans closed and sold, along with higher pricing margins than we experienced last year.
For the quarter, pre-tax income was $19.7 million, which was up 250% over 2020's first quarter.
The loan to value on our first mortgages for the quarter was 84%, same as 2020's first quarter.
78% of the loans closed in the quarter were conventional and 22% FHA or VA.
This compared to 72% and 28%, respectively, for 2020's first quarter.
Our average mortgage amount increased to $328,000 compared to $306,000 last year.
Loans originated increased to a first quarter record of 1,575 loans, 39% more than last year.
And the volume of loans sold increased by 50%.
Our borrower profile remains solid with an average down payment of over 15% and an average credit score on mortgages originated by M/I Financial of 746, up from 745 last quarter.
Our mortgage operation captured over 84% of our business in the first quarter, which was in line with 85% last year.
We maintain two separate mortgage warehouse facilities with combined availability of $215 million that provide us with funding for our mortgage originations prior to the sale to investors.
At March 31, we had a total of $176 million outstanding under these facilities which expire in May and October of this year.
Both facilities are typical 364-day mortgage warehouse lines that we extend annually.
We have requested an extension of the Warehouse agreement that expires in May and we expect the banks to approve the extension shortly with closing anticipated prior to expiration.
As far as the balance sheet, our total homebuilding inventory at March, 31 was $2 billion, an increase of $138 million from March 31, '20.
Our unsold land investment at March 31 of this year is $742 million compared to $809 million a year ago.
At March 31, we had $426 million of raw land and land under development and $316 million of finished unsold lots.
We owned 4,227 unsold finished lots with an average cost of $75,000 per lot and this average lot cost is 17% of our $433,000 backlog average sale price.
Our goal is to own a two to three-year supply of land.
During this year's first quarter, we spent $92 million on land purchases and $71 million on land development for a total of $163 million, which was up from $138 million in last year's first quarter.
And in the first quarter of this year, we purchased 2,500 lots of which 75% were raw.
In last year's first quarter, we purchased 1,800 lots of which 70% were raw.
In general, most of our Smart Series communities are raw land deals and have above average company pace and margin.
We have a strong land position at March 31, controlling 42,000 lots, up 24% from a year ago, and of the lots controlled, 40% are owned about a five-year supply.
And at the end of the quarter, we had 98 completed inventory homes and 708 total inventory homes and of the total inventory 423 homes are in the Northern region and 285 are in the Southern region.
At March 31 last year, we had 556 completed inventory homes and 1,322 total inventory homes.
We'll now open the call for any questions or comments.

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q1 earnings per share $2.85.
quarterly revenue increased 43% to $828.8 million.
homes in backlog at march 31, 2021 had total sales value of $2.4 billion, 82% increase from a year ago.

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