Ladies and gentlemen, thank you for standing by, and welcome to M/I Homes Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Phil Creek. Thank you. Please go ahead..

Thank you very much for joining us. On the call today 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.

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 nonpublic 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.

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 early today that is available on our website. With that, I'll turn the call over to Bob..

Thank you, Phil. Good afternoon, and thank you for joining our call to review our third quarter results. The third quarter was an outstanding quarter for M/I Homes. We are very pleased and proud of our results as we achieved record-setting performance on many fronts.

Clearly, housing conditions are generally good and have been aided by a very favorable interest rate environment. That said, we believe that our performance stands strong and that we are outperforming in a number of our markets. During the quarter, we sold a record 1,721 homes, 32% better than a year ago.

Our community count was up on average about 5% for the quarter. So our monthly sales absorption pace noticeably improved compared to a year ago. Revenue for the quarter was a record $653 million, 15% better than last year. The increase in revenue was largely driven by record third quarter deliveries.

In that regard, we delivered 1,651 homes during the quarter, a 16% increase over last year. Our average sales price on homes closed during the quarter was $382,000, a 2% decrease from a year ago. The decrease in average sales price was intentional as we continue to deliver more and more of our most affordably priced Smart Series homes.

I will discuss that in more detail in a few minutes. We also are pleased to report continued improvement in our overall profitability. gross margins sequentially improved by 130 basis points over the second quarter to 20.5%. And our SG and a expense ratio continued to improve coming in 50 basis points higher than last year.

As a result of these improved margins, pretax income for the quarter was a record $50.1 million 27% better than last year and net income from for the quarter increased 29% to $37.8 million MI financial our financial services business once again had a very solid quarter with $5.6 million of pretax income 16% better than last year.

As noted earlier, we continue to be very pleased with the rollout and performance of our Smart Series. This is our most affordably priced line of homes. At the end of the quarter, our Smart Series homes were being sold in 50 of our communities or 23% of total M/I communities.

Contrast this with a year ago when we were offering our Smart Series in just 8% of total M/I communities. In the third quarter, our Smart Series accounted for 28% of total company sales. And as mentioned in previous calls, we continue to seek both better sales pace and better margins in most of our Smart Series communities.

At the end of the quarter, our sales value in backlog was $1.1 billion, roughly equal to that of the year ago. Units in backlog were up 2% to 2,915 homes, and our average price in backlog was down 3%, again, largely due to the increasing mix of more Smart Series homes. Our balance sheet is in very good shape, and our liquidity remains strong.

We ended the quarter with a very healthy homebuilding debt-to-capital ratio of 44% and shareholders equity at a record $955 million. This is 14% better than a year ago. And our book value per share at the end of the quarter equates to just below $34 per share.

Now I'll provide a little bit more detail about our regional housing markets and their performance. Beginning with the southern region, which comprises our nine markets located in Florida, Texas, and North Carolina. We had 1000 deliveries in the southern region for the quarter 90% better than last year, and 61% of company total.

New contracts in the southern region increased 42%.

During the quarter, we experienced very solid increases in both closings and sales in all four of our Texas markets, as well as in Charlotte, and are making significant progress in growing our relatively new operation in Sarasota, Florida, where we have 10 communities now open and selling which is almost double the We had a year ago.

This has all led to substantial increases in our contracts and deliveries in Sarasota. Orlando and Tampa also grew their unit volumes. And as stated in previous calls, they continue to be 2 of our strongest markets.

The dollar value of our sales backlog in the Southern region at the end of the quarter was 3% higher than a year ago, while our controlled-lot position increased 1% compared to last year. We had 132 communities in the Southern region at the end of the quarter, this is 6% better than September of a year ago.

As mentioned in our previous earnings calls, we are in the process of winding down our D.C. operation. We expect to be substantially completed and sold out of D.C. by the end of this year. Our investment in the D.C. market today is minimal. We have 0 unsold lots remaining. And it should be noted that our D.C.

operation did not contribute in any meaningful way to our Q3 results, specifically during these in the quarter in D.C., we recorded 7 new contracts and 15 deliveries. Moving next to the Northern region, which consists of our 6 markets located in Ohio, Indiana, Illinois, Michigan and Minnesota.

This Northern region had 651 deliveries in the third quarter, which was up 12% from last year and represents 39% of company total. New contracts in the Northern region were up 18% for the quarter while our sales backlog was down 4% from the end of last year in dollar value.

Our controlled-lot position in the Northern region decreased 6% compared to a year ago. We ended the quarter with 89 active communities in the Northern region, which was an increase of just around 1%. Overall, we're very pleased with our operations in the Northern region.

We experienced significant increases in closings and sales in Indianapolis and are well on track to achieve higher volumes this year in our new Detroit operation. Columbus continues to be one of our strongest markets and operations, and Cincinnati is also performing very well.

And we are achieving significant growth and very solid financial performance in the Minneapolis/St. Paul market. Chicago, which has been one of our best markets for a long time, has experienced a slowdown from the strong results, which we've had there in prior years.

Before turning the call over to Phil, I will simply conclude by saying that we had very strong quarter and achieved a number of records. Our company is in excellent shape, and we are excited about our business and intend to continue focusing on growing our business and improving our profitability. We are very well positioned to have a strong 2019.

With that, I'll turn the call over to Phil..

Thanks, Bob. New contracts for the third quarter increased 32% to 1,721 compared to 1,302 for last year's third quarter. And last year's third quarter was up 6% versus 2017's third quarter. We were pleased with our sales pace at 2.6 per month in the third quarter, and our Smart Series communities are helping us improve our pace.

Our new contracts were up 38% in July, up 36% in August and up 23% in September. As to our buyer profile, about 46% of our third quarter sales were to first-time buyers compared to 43% in 2019's second quarter. And 47% of our third quarter sales were inventory homes compared to 48% in 2019 second quarter.

Our community count was 221 at the end of the third quarter, up 4% versus last year. The breakdown by region is 89 in the Northern region and 132 in the Southern region. During the quarter, we opened 16 new communities while closing 15, and we opened 58 new communities during the first 9 months of the year.

For 2019, we are on pace to achieve our estimate of about 5% growth in our average community count for the year. We delivered a third quarter record of 1,651 homes in 2019's third quarter, delivering 58% of our backlog compared to 48% a year ago, and our more efficient Smart Series is aiding our backlog conversion rate.

Revenue increased 15% in the third quarter, reaching a third quarter record of $653 million, primarily as a result of the increase in the number of homes delivered. And our average closing price for the third quarter was $382,000, a 2% decrease when compared to last year's third quarter average closing price of $390,000.

Our backlog sale price is $390,000, down 3% from a year ago, and our backlog average sale price of our Smart Series is about $280,000. Our third quarter 2019 gross margin was 20.5%, up 10 basis points year-over-year and up 130 basis points from this year's second quarter.

Our Texas gross margins have continued to improve in the last year, which was a significant reason for our gross profit improvement, along with the benefit from our Smart Series. We estimate that our construction and labor costs were flat when compared to last year's third quarter with lower lumber cost offsetting higher labor cost.

Our third quarter SG&A expenses were 12.2% of revenue, improving 50 basis points compared to 12.7% a year ago, reflecting greater operating leverage. Improving our operating efficiencies continues to be a major area of focus for us. 2019 and 2018 third quarter pre-tax results include $100,000 and $700,000 of acquisition-related expenses.

Interest expense increased $200,000 for the quarter compared to the same period last year. Interest incurred for the quarter was $12.9 million compared to $12.5 million a year ago. This increase is due to higher outstanding borrowings in this year's third quarter, offset partially by a lower weighted average borrowing rate.

We have $23 million of capitalized interest on our balance sheet, about 1% of total assets. And our effective tax rate was 24% in this year's third quarter compared to 26% in last year's third quarter. We estimate our annual effective tax rate this year to be around 26%.

Our earnings per diluted share for the quarter increased to $1.32 per share from $1.01 per share last year as a result of our lower share count and improved earnings. During the first quarter of this year, we repurchased 5 million of our outstanding shares. We have not repurchased any shares during the second or third quarter of this year.

With that, I'll turn the call over to Derek to review our mortgage company results..

Thanks, Phil. Our mortgage and title operations achieved third quarter pre-tax income of $5.6 million, a 16% increase compared to 2018's third quarter. Revenue was up 10% to a third quarter record of $13.5 million due to a higher volume of loans closed and sold, along with some improvement in pricing margins.

The loan to value on our first mortgages for the third quarter was 82% in 2019, up slightly from 81% in 2018's third quarter. 78% of loans closed in the quarter were conventional, and 22% were FHA or VA. This is the same as in 2018's third quarter.

Our average mortgage amount increased to $312,000 and 2019's third quarter compared to $305,000 last year. Loans originated increased by 23% to a third quarter record of 1,243 loans, and the volume of loans sold increased by 26%.

For the quarter, the average borrower credit score on mortgages originated by M/I Financial was 746, up from 745 last quarter. Our mortgage operation captured about 85% of our business in the third quarter, and this was up from 81% last year.

At September 30, we had $73 million outstanding under the MIF Warehousing Agreement, which is a $125 million commitment that expires in June of 2020. And we also had $36 million outstanding under a separate $50 million repo facility, which we just extended this month. The repo facility now expires in October of 2020.

Those facilities are typical 364-day mortgage warehouse lines that we extend annually. Now I'll turn the callback over to Phil..

Thanks, Derek. As far at the balance sheet, we continue to manage our balance sheet carefully, focusing on investing in new communities while also managing our capital structure. Total homebuilding inventory at 9/30/19 was $1.8 billion, an increase of $75 million above September 30, '18 levels.

This increase was primarily due to a higher community count and more finished lots. Our unsold land investment at 9/30/19 is $821 million compared to $737 million a year ago. At September 30, we had $347 million of raw land and land under development and $474 million of finished unsold lots.

We owned 5,860 unsold finished lots with an average cost of $81,000 per lot, and this average lot cost is 21% of our $390,000 backlog average sale price. Our goal is to maintain about a 1-year supply of owned finished lots and to own a 2- to 3-year supply.

The market breakdown of our $821 million of unsold land is $367 million in the Northern region and $454 million in the Southern region. Lots owned and controlled as of 9/30/19 totaled more than 29,000 lots, 51% of which were owned and 49% under contract.

We own more than 14,800 lots, of which 45% are in the Northern region and 55% in the Southern region. A year ago, we own more than 13,700 lots and controlled an additional 15,900 lots for a total of 29,600 lots. During 2019's third quarter, we spent $92 million on land purchases and $69 million on land development for a total of $161 million.

About 47% of the purchase amount was raw land. Our estimate for total 2019 land purchase and development spending is $575 million to $600 million, which includes the $444 million spent year-to-date. This compares to $552 million in total land spending in 2018.

At the end of the quarter, we had 531 completed inventory homes, about 2 per community, and 1,513 total inventory homes. And of the total inventory, 570 are in the Northern region and 943 are in the Southern region. In 9/30/2018, we had 497 completed inventory homes and 1,436 total inventory homes.

Our financial condition continues to be strong with $955 million in equity and homebuilding debt-to-cap ratio of 44%. And at 9/30/19, there was $190 million outstanding under our $500 million unsecured revolving credit facility. We will continue to focus on managing our leverage and liquidity and balancing this with our land needs.

This completes our presentation. We'll now open the call for any questions or comments..

[Operator Instructions] Your first question comes from the line of Alan Ratner with Zelman & Associates..

Hey, guys, good afternoon. Congrats on a great quarter..

Thanks Alan..

So, you know, the gross margin improvement, really, really impressive. Great to see there. I was hoping maybe you could just talk a little bit about what was going on there may be behind the numbers that drove that big improvement there. If you can just talk to the different levers there.

Was it just more pricing power this quarter than previously? Pulling back incentives? Was it something on the cost side? Was it mix-driven? Any color you could give us to better understand the magnitude that you saw this quarter in terms of improvement and how much of that do you think is sustainable at this point..

I think there are several line items that I'll touch on maybe others here will follow on, if needed. Number one, as we continue to successfully sell and close our Smart Series, in most of our Smart Series communities, our margins are better, like-for-like than in our non-Smart Series communities.

So we're beginning to see, and that's reflected in average selling price. And I think it's also reflected quite meaningfully in sales pace monthly sales pace. We're seeing that same lift occur on the gross margin side.

The second thing is, very honestly, and we've said this, I think, our operations in Texas, particularly, 2 years ago, were not where we wanted them to be. We were beginning to make tremendous progress in Texas last year.

It sometimes the you know you're making progress, but you don't see the effects of it right away because of the delays in opening new promising, exciting communities not the delay so much but just the time it takes to get them opened normally. And then also, the time from selling to closing.

As our 4 Texas operations, which represent, certainly, a significant part of our total company's business, as they continue to get better, not just in improving their sales and closings pace but getting margins up to more acceptable levels in terms of what we expect as a company, that in and of itself is going to lift total company margins.

If I had to point to any 2 things, it would be the success of Smart Series, the continued improvement in Texas really beginning to establish not just meaningful presence but a high level of performance in some of our newer markets, most notably, Texas. So I don't think we've had a whole lot of pricing power.

And I guess, the last thing I'd say is even when our margins were a little bit below 20%, and it wasn't just being stubborn, we believe then as we believe now that this a 20% to 21% business. And it's good to see our margins in that range..

Absolutely. That was very helpful. Second question, just on the order trajectory. The monthly order cadence, very strong growth. It sounded like in July and August pulled back just a bit in September, and I think, certainly, that's reasonable. Nobody is expecting 30%-plus growth to continue indefinitely.

But was there anything purposeful there? As the quarter went on, did you intentionally try to push maybe a little bit heavier on price versus pace? Or was it just a tougher comp story? Just trying to figure out how you're thinking about the pace environment today because these are some pretty lofty growth numbers, and I want to be careful not to extrapolate anything if that's not how you're thinking about the longer-term trend of the business..

No, Alan. Nothing really of any consequence. If you look at last year's third quarter, September was the strongest month of last year. No, nothing really I mean, traffic was okay pretty much throughout the quarter. Community count was up a little bit, and we're still hoping and expecting to have 5% community count for the year.

But now we were very pleased with all 3 months..

some Smart Series, some not; some move up that got off to a particularly good start. But I suspect we had a few of those last year, too. I think we're seeing what has been pretty good conditions with interest rates closer to 4% or below 4% than where they were at the beginning of this year where they were near 5%.

But I also think we're executing at a high level. I think we've got really strong product. I don't know. I can't remember exactly who wrote it, but 1 of the analysts visited our new Smart Series product at 1 of our cities and wrote about how impressed they were with the architecture, the quality, the floor plans, comparing it to our competition.

So I think that it's good to be paid for putting more into the house, and I think we're getting paid for it. And I think we’re also seeing buyers like what we're doing..

Right. Sounds great. Thanks. Good luck..

Thanks a lot Alan..

Your next question comes from the line of Arjun Chandar with JPMorgan. Please go ahead..

Good afternoon. Thanks. And congratulations on a great quarter..

Thank you..

Just wanted to follow up with a balance sheet question. Some of your peers have recently come to market in the high-yield universe and issued a new longer duration bonds to take some of their front-end debt out. Your 21 has become our call in a couple of months.

But given the current environment and given these strong set of numbers, what are your thoughts around extending those bonds?.

Kevin?.

Yes. Hey, Arjun, it's Kevin. I'm not sure if you're asking about extending demand, but our we've been looking at refinance opportunities. We commented in the last couple of quarters on the call, and nothing has really changed that we continue to look at opportunities to refinance them.

And sometimes, before well before maturity, we'll look to take care of refinancing as you know..

Great, thank you..

Your next question comes from the line of Jay McCandless with Wedbush. your line is now open..

Good afternoon, everyone. Thanks for taking my questions. The first one I had, Phil, I think, you said September orders were up 23% this year. And it looks like I went and looked at last year's transcripts, and it looked like September last year was the strongest month at a plus-18%.

So am I reading that right that you guys did a plus-23% against a plus-18% in September?.

Yes, that would be right..

Okay. That's great momentum.

Can you talk about, did that momentum carry over in October or what you've seen so far of October?.

We don't really make any comments on the current month, Jay..

The next question I had, in terms of community count. I know you guys talked about the number of lots you bought this year.

But any color or idea, anything you can give us for 2020 as far as where you think community count is going to go?.

Well, we don't have any projections in the marketplace yet. We will provide that when we do the year-end call. But obviously, we hope that things continue to increase..

And then 1 other comment or question I had. I think, Bob, you had said earlier in when you answered Alan's question about pricing power.

What type of pricing power do you have right now on Smart Series versus move-up? And what are you seeing in terms of your competitors, in terms of discounting or incentives? Are people dialing those back now? Or anything you can give us on your pricing as well as what you're seeing out of your competitors currently..

That's sort of a tough one to for me to really dig into. My sense is a little bit of pricing power but not much across the system.

That having said that, when we open in most of our Smart Series communities, we're opening at slightly higher margins than we are in many of our, what I call, move-up or non-Smart because we believe we can get it based upon the experience that maybe we've had with the communities that have been opened thus far.

Once they're opened, depending upon pace maybe a little bit, but that's a we're all about getting not leaving money on the table. We try to push pricing as much as we can, but we also want to be smart. I don't mean that no pun interested.

We also want to be careful because this is a very the affordability issue is one where there's not a lot of the elasticity, and this is a rate-sensitive, price-sensitive buyer to begin with. And we so far, we've been very, very pleased with our ability to be very competitive in our Smart Series communities.

Some of which, particularly in Texas, were located very close to some also very strong, more affordably priced communities of other national builders. So it's we can't really claim that it's brand new because we've now been opened for almost 2.5 years with Smart Series.

But in some of our markets, we've only been opened for a little more than a year, but we've seen, so far, very encouraging results and I would say very little pricing power. More than that, simply being able to get it from day 1.

Phil, did you want to add something?.

Yes. One other thing I would add, Jay, is we talked about we're opening a lot of new communities. If you look at all last year, we opened 67. We've opened 58 the first 9 months, with, obviously, more planned in the fourth quarter. And we obviously expect to close quite a few or open quite a few more communities this year in total than last year.

So we spent a lot of time on making sure we open right, that we open with the right product at the right price point, showing the right model and options and try to be very careful, don't get too far ahead of ourselves for sudden too many, too fast, making sure we identify what the customer really sees as far as value.

So hopefully, we're getting all we can, as Bob said, when we opened and try to control the sales pace and the product and the price at the right level. So we really think now execution really, really matters. And hopefully, we have the right product at the right price point that people will pay for.

But having said that, we are trying to make sure we continue to grow our units and grow our volume. We were very pleased that with a 15% revenue growth, we had a 30% income growth, so we felt pretty good about that..

Great. And then my last question. Gross margin again was much better than we expected.

And just if you look at what's in your backlog now, Phil, is that gross margin level sustainable? Assuming that these Texas communities you're talking about have some lags to them, is this a gross margin that can carry for a couple more quarters?.

Jay, as we Bob was says, we think it's a 20% to 21% business, if you look at the 3 quarters prior to this when we were above 20%. When you're doing 45% to 50% specs, a number of what close fairly quickly, it's always a little bit hard to predict what that margin is. We did feel good that costs are not going up much.

So we spent a lot of time on pricing and at margin line. Hopefully, we'll continue to be in that 20%, 21% range. Pretax income this quarter was up close to 8%. It was the second most profitable quarter we've ever had in our history. We feel really good about that.

So we want to be all about growing the top line but hopefully, growing the bottom line a little more, and a huge piece of that is the margin line. Especially with the average sale price coming down, we got to pay attention to the margin line and the expenses as well as interest. So we'll continue to work on all those things..

Sounds great, thanks for Taking my question..

Thanks Jay..

Your next question comes from the line of Art Winston with Pilot Advisors. Your line is now open..

Thank you, guys, for a sensational 9 months, and congratulations on the rollout of the Smart Series. It's terrific. My first question is, did I do the arithmetic wrong, which I probably did, but it seems to me that your homebuilding inventories are down are up at the same time that your homebuilding debt is down. I wonder if I missed something..

Are you talking about homebuilding debt? You're probably looking at which is the bank line being down. I imagine what you're looking at..

Yes, the other debt is more or less even that's down a little bit, I think. But I'm not sure I'm right..

So Art, you're comparing with a year ago or beginning of the year or?.

I'm quite at the beginning of the year..

Yes. I mean, we usually have a seasonal buildup in total inventory as we build more houses in the second and third quarter. I don't have the balance sheet right in front of me, but we did sort of give you that our leverage is down, that we've made progress over September from a year ago because that's really the most direct comparison.

And so yes, we're we think we're making good progress on our leverage..

Yes. It's a very good cash flow.

My next question is, is the Smart Series product the same from market to market? Or is it different in each place?.

It's very similar throughout Texas. The Midwest, pretty similar from Columbus to Cincinnati to Indianapolis and so forth, a little bit different but more Midwestern look in the Carolinas, and certainly, all together, different. When I say different, I'm really talking elevation, not much floor plan but also different in [indiscernible]..

Okay. All right.

And my last question, is it now the time to do contiguous geographic expansion like we've done in the past? Is it now the time to be doing that?.

Well, job 1 to us continues to be grow our existing markets. We think we have significant headroom in a number of our markets. We haven't been in the 4 Texas markets that long. We purchased the Minneapolis builder a couple of years ago. We purchased the Detroit builder about a year ago. We opened to service other markets.

So we feel like there's a lot of headroom for where we are. So that's job One. Having said that, we also have the management and the capital. We continue to look for the right opportunity.

The right opportunity is a combination of a really strong homebuilding leadership team, along with a housing market, that we feel like there's enough depth and breadth for us to get, hopefully, 300, 400, 500 units, along with a competitive landscape that we like. So we do continue to look. But if we find something, fine.

If we don't, we feel like we have plenty of headroom in our markets for us to continue pretty significant growth through the next few years..

Good. Great. Thank you guys..

Thank you..

[Operator Instructions] Your next question comes from the line of Alex Barron with Housing Research. Your line is now open..

Yeah, thanks, guys and great job. I believe I heard you mentioned, Bob, that you already hit the 25% you were expecting to hit with Smart Series.

So I guess, given how the business has evolved in the last year, I'm wondering how you're thinking is whether it's still the same to stay at kind of these levels, or how hard do you think the Smart Series will become as a percentage of your business in the next couple of years?.

We don't really know for sure. But I'll say 2 things. Number one, we still have great communities and great product offering in what we call non-Smart or move-up, and that's not going to go away. We're seeing tremendous success pretty much throughout with the Smart Series rollout.

And I've been knowing what I know today, it'll probably continue to grow in terms of mix, likely into the low to mid-30s. Will it ever get to 40%? I don't know. We'll be addressing it and advising first of all, we'll react to market conditions. It's an important part of our strategy. It's not our only strategy.

And we have no intention of making it our only strategy. But it is an important part of our operational strategy, and we'll continue to review it as we march on down the road, and in each of these calls, we'll continue to update as best as we can.

But knowing what we know today, it'll probably be a little higher next call and the call after and maybe the call after, and then we'll see..

Okay. Great. My other question has to do with, I think, the topic on a lot of people's minds these days, which is recession. And I'm curious whether....

I'm sorry. I didn't hear what you said. Oh, recession. Okay..

Recession, yes, and I think that it's on a lot of investors' minds these days. So I'm curious, kind of a 2-part question.

One, whether your clients are indicating that that's something undermines; and b, if we did have one in the next year or 2, how do you think that would change or affect the business at all?.

I think it's on everybody's minds. It certainly should be. It's you've always got to keep, so to speak, 1 foot on the gas and but also another one close to the brakes. If you look at our land position, I think we're not sitting here advancing a theory that we just decided to go to land light.

If you look at M/I's lands position over the last several years, I think, we've always had a very at least since coming out of the last recession, a very safe and quality land position and that we control enough lots to grow the business, but roughly half or even lesser times have been on our books.

The percentage of lots that we acquired from third-party developers versus developed ourselves, I think, has been kept in relative check. We shied away from doing much larger land deals than we would have done pre the last recession. We control today nearly 30,000 lots, as Phil mentioned, and barely half of them are on our books.

And today, we only own what we own or what are finished, rather, is less than a 1-year supply based upon our current sales run rate. So even though we're bullish about the business and excited about our performance, we're feeling pretty good. We also are paying very close attention to our balance sheet because no one knows what's going to happen.

But we've announced the guidance we've given on land spend suggests that we think housing still has some room to run, and we intended we intend to run with it. But if something were to happen, we think we're well positioned to react to it, depending upon how severe it is. I don't think it would help too many builders.

I don't think it would I think it would hurt. How much? We really don't know. I don't think it would help. I think watching interest rates in particular is a very, very important metric because I think we're in an increasingly very much interest rate-sensitive environment.

So that's something we're also watching as we look at capital expenditure and so forth. But right now, I think we're clearly more optimistic than not about whether anything is on the horizon. And we also think from a balance sheet and land position, we're in really in good shape. We don't want something to happen.

But if it did, I simply we've addressed it before in a with a much worse with a much less secure and strong balance sheet, so I think that we would be in a very good position to address it again. But no one really knows..

Okay, appreciate the answer. Thank you..

Thanks, Alex..

There are no further questions at this time. I would now like to hand the conference over back to the presenters..

Thank you very much for joining us..

Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect..