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M/I Homes Inc (NYSE:MHO)
Q4 2020 Earnings Call
Feb 2, 2021, 4:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the M/I Homes Fourth Quarter Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Phil Creek. Please go ahead.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thanks for joining us today. 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. 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, 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.

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

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thanks, Phil. Good afternoon, and thank you for joining our call. We are extremely pleased with our fourth quarter and full year results, highlighted by significant growth and record-setting financial achievements across the board. By every measure, 2020 was an outstanding year for M/I Homes. We nearly doubled our net income, increasing our bottom line by 88% over 2019, resulting in a very strong return on equity of 22%. A number of factors contributed to our strong returns.

We achieved record revenue of $3 billion, an increase of 22% over 2019. Record closings of 7,709 homes, 22% better than a year ago. Very strong gross margins that reached 23% in the fourth quarter and 22.2% for the full year, a 260 basis point improvement over 2019. And our full year pre-tax income percentage improved 360 basis points to 10.2%. These results continue the trend of strong growth in revenues and earnings that we've achieved, frankly, since coming out of the recession.

Specifically, since 2012, our revenues have grown at a compounded annual rate of 19%, and our pre-tax income has grown at an even more impressive compound annual rate of 49%. In addition, the strong performance of our mortgage and title operations as well as improved SG&A operating leverage also contributed to our record earnings. We also had an outstanding sales year. New contracts for the year improved by 39% to a record 9,427 homes sold.

Fourth quarter sales continued the strong pace of sales that began in late April. During the quarter, we sold 2,128 homes, a fourth quarter record and 27% better than a year ago. Overall, housing demand remains very strong, driven by a number of factors, including historically low mortgage rates, low inventory levels, and increasing number of millennials joining the ranks of homeownership and a shift in buyer preference away from renting in more densely populated areas, in favor of single-family homes.

In addition, a number of other factors also helped drive our strong sales performance. Among them are the quality of our locations, our ability to execute on many fronts, including successfully managing a rapidly increasing number of online leads and the continued success and growth of our Smart Series line of homes. With respect to our Smart Series, let me remind you that this is our most affordably priced product offering.

At the end of 2020, our Smart Series was being offered in all 15 of our housing markets, comprised 62 of our total communities or 31% of total and accounted for more than 35% of total company sales. Our Smart Series communities continue to provide a better monthly sales pace, better margins, faster cycle time and, as a result, better overall returns. We fully expect the sale of our Smart Series homes to grow further within our markets and likely approach 40%-plus of total M/I sales in the coming year.

And in terms of demand and traffic as we begin 2021, housing conditions continue to be very robust throughout all 15 of our markets. Our year-end backlog increased 64% in units to 4,389 homes, and the dollar value increased by 74% to an all-time company record of $1.8 billion. Now I will provide some additional comments on our markets, which we divide into two regions. The Northern region, which consists of Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis and Detroit.

And the Southern region, which consists of the balance of our markets: Charlotte, Raleigh, Orlando, Tampa, Sarasota, Houston, Dallas, Austin and San Antonio. We experienced strong performance in the fourth quarter across both the Northern and Southern regions, with new contracts in the Southern region increasing by 31% for the quarter and 21% in the Northern region. Our closings or deliveries increased 16% over last year's fourth quarter in the Southern region and increased 19% over last year's fourth quarter in the Northern region.

Our owned and controlled lot position in the Southern region increased by 23% compared to a year ago and increased by 12% in the Northern region compared to last year. While we are selling through communities somewhat faster than expected, it's important to underscore that we are very well positioned to open new communities in 2021 and well into 2022. 37% of our owned and controlled lots are in the Northern region with the balance, 63%, in the Southern region.

We have a very strong land position. Companywide, we own and control approximately 40,000 lots, up 19% from last year, which equates to about a four to five year supply. Perhaps more important, over half of the lots that we own and control or about 57% are controlled under option contracts and not yet on our books. This gives us significant competitive flexibility to react to changes in demand or individual market conditions. We had 112 communities in the Southern region at the end of the quarter, down from 129 a year ago. And we had 90 communities in the Northern region at the end of the quarter, down from 96 a year ago.

As I mentioned, the decline in community count is partially a result of our accelerated sale pace. But it's also important to recognize that nearly 1/3 of our communities are now offering our Smart Series homes. And that these communities not only often have more lots in total, but as noted earlier, generally produce a greater sales pace. Before turning the call over to Phil, let me just make a few concluding comments. First, our financial condition is very strong with $1.3 billion of equity at December 31 and a book value of $44 per share.

We ended 2020 with a cash balance of $261 million and 0 borrowings under our $500 million unsecured revolving credit facility. This resulted in a 34% debt-to-cap ratio, down from 38% a year ago and a net debt-to-cap ratio of 23%. Second, 2020 was a year of unprecedented challenge and severe hardship caused by the global pandemic. As an industry, we have been very fortunate that our business and the business of our competitors has held up exceptionally well.

As it relates to M/I Homes, I could not be more proud of our company as we came together to safely and carefully provide quality homes to so many. Finally, as we move forward into 2021, we are very optimistic about our business. Our backlog is strong. Our sales pace has been terrific. We have an excellent land position, and housing conditions, including both demand and traffic continue to be very good. We have a lot of operating momentum and are positioned for another strong year in 2021.

Phil?

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thanks, Bob. As far as financial results, new contracts for 2020 increased 39% to 9,427, an all-time record compared to 6,773 for last year. Our new contracts were up 14% in October, up 36% in November and up 35% in December for a 27% improvement in the quarter compared to last year's fourth quarter. Our sales pace was 3.5 in the fourth quarter compared to 2.5 in last year's fourth quarter.

And our cancellation rate for this year's fourth quarter was 10%. We are also pleased to say that our buyer demand continued to be very strong in January. As to our buyer profile, about 53% of our fourth quarter sales were to first-time buyers compared to 49% a year ago. In addition, 43% of our fourth quarter sales were inventory homes compared to 44% in last year's fourth quarter. Our community count was 202 at the end of the year compared to 225 at the end of 2019, and the breakdown by region is 90 in the Northern region and 112 in the Southern region.

During the quarter, we opened 18 new communities while closing 23. And for the year, we opened 69 new communities and closed 92. We delivered a record 2,242 homes in the fourth quarter, delivering 50% of our backlog compared to 66% a year ago. There are a couple of factors that led to this decline in backlog conversion rates when compared to last year. First, our extremely strong sales and significantly higher backlog levels in the back half of 2020 led to longer times for getting homes started.

Secondly, we have been selling spec homes nearly as fast as we can get them started, which leads to lower spec home inventories, especially those which are closer to completion and could contribute to closings within 90 days. Revenue increased 22% in the fourth quarter of this year, reaching a fourth quarter record $906 million. And our average closing price for the fourth quarter was $389,000, a 3% increase when compared to last year's fourth quarter average closing price of $377,000.

Our backlog average sale price is $419,000, up 6% from a year ago, and our backlog average sale price of our Smart Series is $322,000. We recorded $8.4 million of impairment charges in the fourth quarter compared to $5 million in last year's fourth quarter. And our operating gross margins, excluding impairments for the fourth quarter, was $24.1 million, up 420 basis points year-over-year and up 120 basis points from 2020's third quarter. Our higher margins in our Texas operations were a big driver of our margin improvement.

And for the full year of 2020, our operating gross margin was 22.5% versus last year's 19.8%. Our construction costs increased by about 3% in the fourth quarter, with the biggest impact from lumber. And our fourth quarter and full year SG&A expenses were 11.7% of revenue, a 40 basis points improvement compared to 2019. And 2020 is our third consecutive year of improved SG&A efficiency. Interest expense decreased $3.5 million for the quarter compared to the same period last year and decreased $11.7 million for the 12 months of this year.

The decrease for the year is due to lower outstanding borrowings as well as a lower weighted average borrowing rate. And interest incurred for the quarter was $10 million compared to $12.5 million a year ago. And for the year, interest incurred was $40 million versus $49 million a year ago. We are pleased with our improved returns for the year. Our pre-tax income was 10.2% versus 6.6% last year, and our return on equity was 22% versus 14% a year ago.

During the fourth quarter, we generated $127 million of EBITDA compared to $75 million in last year's fourth quarter. And for the full year 2020, we generated $383 million of EBITDA, up 60% over last year. Despite a significant amount of reinvestment into our business, we generated $168 million of positive cash flow from operations in 2020 compared to $66 million last year. We have $21 million in capitalized interest on our balance sheet.

This is about 1% of our total assets. And our effective tax rate was 21% in this year's fourth quarter compared to 19% in last year's fourth quarter. Our annual effective rate this year was 22.6% compared to 23.2% for 2019. Our fourth quarter and annual tax rate benefited from energy tax credits from prior years. And we expect 2021's effective tax rate to be around 24%. Our earnings per diluted share for the quarter increased 88% to $2.71 per share from $1.44 per share in last year's fourth quarter and increased 83% for the year to $8.23 from $4.48 per share last year.

Now Derek Klutch will address our mortgage company results.

Derek J. Klutch -- President and Chief Executive Officer of M/I Financial

Thanks, Phil. Our mortgage and title operations achieved record fourth quarter results in 2020, including record pre-tax income of $14.8 million, up $8.4 million or 131% over 2019. And record revenue of $25.6 million, which was up 62% over last year due to a higher volume of loans closed and sold along with significantly higher pricing margins. We also set a record for the number of loans originated. For the year, pre-tax income was $50.5 million and revenue was $87 million, both all-time records.

The loan-to-value on our first mortgages for the fourth quarter was 83% in 2020, up from 2019's fourth quarter of 82%. 74% of the loans closed in the fourth quarter were conventional and 26% were FHA/VA compared to 76% and 24%, respectively, for 2019's same period. Our average mortgage amount increased to $319,000 in 2020's fourth quarter compared to $303,000 in 2019. The number of loans originated increased 25% from 1,398 to an all-time quarterly record of 1,746, and the volume of loans sold increased by 15%.

Our borrower profile remains solid with an average down payment of over 15%. For the quarter, the average borrower credit score on mortgages originated was 745, a slight decline from 747 last quarter. Our mortgage operation captured over 85% of our business in the fourth quarter, an increase from 84% one year ago. We maintain two separate mortgage warehouse facilities that provide us with funding for our mortgage originations prior to sale to investors.

At December 31, we had a total of $226 million outstanding under these facilities, which expire in May and October this year. Due to our typical high-volume of fourth quarter closings, we include a seasonal increase in our warehouse facilities, which provides temporary availability of $275 million through February 4, 2021. After which time, total availability returns to $215 million. Both facilities are typical 364-day mortgage warehouse lines that we extend annually.

Now I'll turn the call back over to Phil.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thanks, Derek. As far as the balance sheet, total homebuilding inventory at 12/31/20 was $1.9 billion, an increase of $147 million over December '19 levels. During 2020, we spent $415 million on land purchases and $318 million on land development for total land spending of $733 million, which was up from $600 million in 2019. In 2020, we purchased about 11,500 lots, of which 77% were raw with about 150 average lots per community.

In 2019, we purchased about 7,500 lots, of which 63% were raw with about 100 average lots per community. 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 12/31/20, controlling almost 40,000 lots, up 19% from a year ago. And of the lots controlled, 43% are owned. Based on 2020's record closings, this is about a five year supply of inventory with just over two years owned.

And at the end of the year, we had 225 completed inventory homes, about one per community and 1,131 total inventory homes. At 12/31/19, we had 668 completed inventory homes and 1,459 total inventory homes. This completes our presentation.

We'll now open the call for any questions or comments.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Alan Ratner with Zelman & Associates. Please go ahead.

Alan Ratner -- Zelman and Associates -- Analyst

Hey, guys. Good afternoon. How are you?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Good, Alan. How are you?

Alan Ratner -- Zelman and Associates -- Analyst

I'm doing well. Congrats on the great quarter and great year. And good to hear you guys are doing well.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Appreciate it.

Alan Ratner -- Zelman and Associates -- Analyst

So I guess, first, to start off with the gross margin. That was the area, at least, relative to our expectations that really was blow away, much better than expected. So would love to get a little bit more insight into what drove the strength this quarter. I mean, obviously, it's a strong market, but very significant sequential step-up. So anything we need to be cognizant of from a mix perspective or timing related to cost inflation, things like that? Or is this a pretty good indicator of where your margins are in backlog right now?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

I think that there's a couple of things, and maybe Phil wants to add to it. One is clearly as Smart Series sales and then closings become a greater percentage of the mix that will help bring margins up because in almost each case, our Smart Series communities have slightly better gross margins, that's number one.

Number two, we have made tremendous progress in strengthening the quality of our operation and the size of our operations in Texas. And that scale and improvement has impacted in a positive way, virtually every one of our financial metrics, including margins.

The only other thing I'd say, maybe Phil wants to add to it, the conditions as they exist today, is there an opportunity for margins to go up? I don't know. I feel like this is a pretty good spot. And I also, notwithstanding the cost pressures, I think the current levels of demand should give us some ability to be able to offset most of those and keep the margins about where they are.

We don't give guidance on it, but we've historically said things like we think housing is -- or homebuilding is a 20% to 21% business. Right now, it's a 22% to 23-plus-percent business. And I think that's about where it is today. Phil, do you have anything to add?

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Yes, the only other thing is that as far as store count, we are selling out of communities faster than we thought. We are managing our sales process very, very quick, very carefully. And as you have fewer sales opportunities, in most of our situations, there is an opportunity to raise price. So execution, we always talk about really, really matters. So hopefully, we're executing at a pretty high level as we have fewer sales opportunities in certain communities.

Alan Ratner -- Zelman and Associates -- Analyst

I appreciate that, both of your perspectives there. And Phil, you kind of touched on my second question there with the community count. First off, I appreciate the insight you gave as far as the size of the communities, because I think that's something that gets lost a lot of times when we're just looking at absolute community count as that the composition of these communities can differ quite significantly.

So on one hand, it sounds like you're well positioned for continued growth just based on the lots you have on the ground, even though community count is under pressure. But Phil, you kind of touched on the idea that you don't want that to gap out too much. So you're probably at a point where maybe in some markets and some communities, you actually are limiting the pace of sales.

So I'm curious, as I look at your lot count now, is there a possibility to kind of stem the tide of these declines in community count and actually see some growth there over the course of 2021? Or do you think that, that's a number that's going to remain under pressure for the next few quarters just based on what's in the pipeline, delays on development and dealing with municipalities, etc?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

I'm going to try to answer that question and well others can chime in. I want to underscore something about the first comment you made, Alan. We're not apologizing for our community count. We have sold out of communities faster. We -- and frankly, I think the whole industry is dealing with a little bit of delays in new communities coming on. Some of those delays are a direct result of staffing issues that have been impacted by COVID. And that's not an excuse, that's just the situation we're dealing with. The conditions, in general, for us have been phenomenal, so you can't complain about anything.

But having said all that, selling out faster, new ones coming on slower, not all community -- and this was your first point, not all communities are equal. With Smart Series accounting for nearly a third of our communities, and that will grow. And with the pace of Smart Series communities, and the size of those communities, in some cases, being 10%, 15%, 20% larger and the pace being 10%, 15%, 20% per month higher, with less communities, you can sell more houses. And that arithmetic just translates that way, and that's what we've seen.

Phil, if you want to talk about the outlook for the balance of the year? I mentioned in my comments that we fully expect down the road to continue growing our company. We're not satisfied, remaining flat. We want to grow units. We want to grow closings. In order to do that, we will also be growing community count this year and next, exactly when they come on within the quarters is a little bit less certain. But, Phil?

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Yeah, as I talked about, we opened 69 new stores in 2020. We closed out of more stores than we thought we would. Therefore, we ended up with the down community count. We do plan on opening more stores this year than last year. And as Bob said, due to more of the Smart Series being raw land, the store count is more skewed toward the second half of next year versus the first half. It's just so hard to predict closeouts.

We're trying to manage that process as best we can from a pricing standpoint, from a construction standpoint and so forth. But our plan is definitely to continue our growth. We talked about the growth we've achieved the last 10 years. We obviously have a record-high backlog, right now. We feel very, very good about our land position. But community count for us will be challenged, especially the first part of the year. But again, we plan to continue our growth.

Alan Ratner -- Zelman and Associates -- Analyst

Great. That's very helpful and congrats and good luck.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thanks.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thanks.

Operator

The next question comes from Art Winston with Pilot Advisors. Please go ahead.

Art Winston -- Pilot Advisors -- Analyst

Thank you guys for the great results, I am sure, while stockholders appreciate it. I had two questions. Given that you sort of stopped or slowed down buying the land in the first couple of months of the year. And then you end up spending $700-plus million.

I was wondering, if you think that and that competitors wanted to maybe buy the same land if you were forced to pay up. And the potential for the return on investment from the land you bought this year could be less profitable than purchases historically.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

No. I don't -- first of all, Art, thank you for the opening comments. When we delayed land, when we paused, and I think we talked about this exact point with you during the last conference call last quarter. When we paused, almost every one of our land transactions toward the end of March and into early April of 2020, when the pandemic really became front and center, I -- we really didn't cancel -- maybe one deal.

99% of our transactions remained in play. We bought time, but we did not -- we didn't sacrifice the transactions. We didn't walk away from them. We didn't have to buy them back at a higher price. We didn't lose them to competitors. We tried to buy 30 days, 60 days, 90 days. And in some cases, got that and, in some cases, didn't. Just to give us time to see what the hell was going to be happening within -- how the pandemic was going to affect us.

I don't think that will have any impact going forward on returns, but I will say this, the land market is extremely competitive. We are all about trying to find the best locations we possibly can. We focus very heavily on A locations. It's never been our style to go out into the secondary and tertiary markets to try to buy cheap, big parcels and see how that works. That's not our MO. And isn't today. We talk about the 40,000 lots that we own and control, equating roughly to a four-to-five-year supply, less than half of it's on our books, 55% to 60% is controlled by options. Our land position is as strong as it's ever been today.

Art Winston -- Pilot Advisors -- Analyst

Excellent, very good. My second question is you alluded to Texas, maybe two times or three times, if we forgot about Texas, I assume that the results for the remainder of the company are still quite excellent irrespective -- excluding Texas?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Yes. I think every one of our divisions had double-digit volume growth in 2020, which contributed to the 40% increase companywide in sales. We had an exceptional year, as I sort of go around the horn in Orlando, in Tampa, in Minneapolis, in Columbus, in Indianapolis, certainly Dallas, Austin, those -- Charlotte, those markets stand particularly tall, as I sort of scanned our 15 markets.

Art Winston -- Pilot Advisors -- Analyst

Good. Just one more thing that I didn't understand. I understand that you can get more of the smart homes on an acre land than the other homes. But are you buying bigger parcels of land or just putting more homes on the same size parcels...

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

A little bit of both. It's a little bit of both. I mean it's on average, the Smart -- most of our Smart Series communities are raw transactions as opposed to finished lot takedowns from third parties. And they tend to be, on average, larger communities. My guess is, it's both acreage, it's certainly bigger in lots.

Art Winston -- Pilot Advisors -- Analyst

Okay. Excellent. Thank you very much.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thank you.

Operator

The next question comes from Alex Barron with Housing Research Center. Please go ahead.

Alex Barron -- Housing Research Center -- Analyst

Thank you and good afternoon and good job, guys.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thanks, Alex.

Alex Barron -- Housing Research Center -- Analyst

I was -- yeah, I wanted to focus on the sales piece this quarter -- yeah, this quarter versus last quarter. So last quarter, you guys got 2,949 homes. Sold this quarter, 2,100. I understand some of that is because the community count is down. But -- and I think you mentioned you're managing the sales pace. So I'm just trying to understand, are you guys limiting the number of lot releases per month? Or are you guys just managing it by raising prices, but not -- or a little bit of both?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

A little bit of both. I mean the -- it does us no good to -- first -- well, let me even back up a little bit. It goes against your nature to ever want to "manage" the sales. No one knows what's going to happen in an hour or tomorrow.

And we're -- but when we -- when the demand is so great in so many of our communities that our ability to deliver the homes timely, where we can protect our pricing, because we're having to build -- we're having to deliver them so far out, when that becomes at risk, it's in our best interest to control the number of sales or home sites that we offer for sale in a particular community.

Some of it is with pushing price, but some of it's just us recognizing that we can only deliver a quality home or so many quality homes six, seven months out in a particular community per month. And when we try to do many more than that, we run the risk of margin erosion or the inability to protect pricing.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

And Alex, you also get into -- when the communities are opening, we talked about opening 69 stores last year. We opened 12 stores in the third quarter and 18 in the fourth. So we try to make sure -- you only get one chance to open. You open the right way. We definitely manage how many houses, how many lots we release initially, make sure we understand where the demand is coming from, increase prices if we can.

That impacts it also. But I think one thing in the last six or so months has shown us, is there's not a lot of seasonality. Demands have been very, very strong. And we try to take advantage of that without getting out too far ahead of ourselves, especially from a cost standpoint and also from a construction standpoint.

Alex Barron -- Housing Research Center -- Analyst

Yes, understood. That makes sense. Now you guys mentioned that you want to continue to grow. So what can you do to expand your production capacity? Is it hire more people, both field people, salespeople, other than open more communities or expand some higher labor...

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Yes, it's frankly the same things. I don't mean to be overly simplistic. I hope this comes out the right way. It's the same things we've been doing for the last seven years. We've more than doubled our business since coming out of the recession. And pretty much -- all of it's been organic with a few minor acquisitions. When we've -- and our income has grown by even a greater percentage.

So it's going to come from additional communities, growing community count, trying to continue to push more pace per community. Certainly, we need more field personnel to be able to manage the construction. It's all those things. And that's what we've been doing, and that's what we're going to continue to do.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

And you adjust your staffing for those type of things as far as not only having land acquisition people, but having land development people where you need them also having perhaps different layers of construction. It's different from a construction standpoint, when we were doing 250 houses in Dallas versus 500 versus 750. So as we get scale in these markets, these also-has helped us with subs and suppliers.

The Smart Series is a different issue as far as the-those customers, in general, don't go to design centers. The product has a few less selections. It's a little easier to get the sale process and the start process going. So it's just about -- again, about execution. We think we have a really good team on the field, very, very happy with our land position. We think that we're pretty much taken care of for the next two years as far as we know what we need and pretty much have it.

When you look after that, assuming things don't change, we're in good shape there to execute on that. So when you look at our 10 years of growth and where we are today, we still think we have a lot of headroom in our existing markets, plus we're always looking at other opportunities also.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

And you know without getting into too much detail, when I think back maybe six, seven years ago, and I think about things like online sales management, we have three times as many people working on our company today, doing that as we did then. And when I look at our marketing focus, it's completely turned upside down from what it was back then. It's all about online today. I suspect it's that way with most of our competitors.

Alex Barron -- Housing Research Center -- Analyst

You guys...

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Hello, I am sorry. So it's also -- Phil talks about execution. It's the way we approach the business, which is all about growth, but all about trying to focus on what it takes to capture that growth.

Alex Barron -- Housing Research Center -- Analyst

Yes. No, you guys have done a good job. And obviously, the opportunity is there. One more question, if I could. Do you guys see the potential to see some operating leverage to get a lower SG&A ratio this year? Or is the growth not going to allow that?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

I hope so. I think so. I mean, look, it's -- over the last three or four years, my guess is, on average, we've improved it somewhere between 30 and 60 basis points a year, something like that. I'd like to think that if we can continue to grow the top line 10% to 20%, we ought to continue to see that. I mean, we should get it. I'm looking around the room that I'm sitting in now and even though there's hardly anybody in it because we're trying to practice social distancing, if our business doubled, I don't think there'll be twice as many people in this room. So I mean they're -- all kidding aside, yes, I think we can get more scale.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

I mean, it's really important to us to improve our returns. We worked on that very hard the last few years. And the revenue base matters, the GP matters, especially when you're at a $3 billion-plus revenue company. The SG&A, as Bob talked about, 10 basis points, 20 basis points. We have got leverage over the last three years. The interest line, interest incurred, basically was flat the last couple of years. So we're trying to be more efficient in all phases of our operation. We want to continue growing, but we want to continue making more money in improving our returns. That's very important to us also.

Art Winston -- Pilot Advisors -- Analyst

Okay. Great. Well, great job and best of luck for this year. Thanks.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thanks a lot.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thanks. Alex.

Operator

The next question comes from Jay McCanless with Wedbush. Please go ahead.

Jay McCanless -- Wedbush -- Analyst

Hey, good afternoon, guys.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Hi, Jay.

Jay McCanless -- Wedbush -- Analyst

Hey. So the expense question was actually one I was going to ask about, too. On the G&A line, it looks like in third quarter and fourth quarter this year, there were some pretty meaningful increases in money spent on the G&A line. Could you talk about what that money is going to? And is it something that you all are going to be able to leverage as we move into '21? And also, are there any onetime items in there that are worth calling out?

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Jay, it was a couple of things. We are glad we got SG&A leverage for the year. We did have in the third quarter and the fourth quarter, especially more incentive expense as we had better results, we had more bonuses and those type of things. We also had some increased charitable contributions, which we thought, especially in these times, that was very important to do. So overall, we did still get leverage, hope to continue getting leverage in that. And we were very pleased with our 10% income and 20%-plus ROE for the year.

Jay McCanless -- Wedbush -- Analyst

Yes, absolutely. I just -- I didn't know if that was -- if there was a buildup there to help support potential community growth like you all talked about for the back half of '21.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

There's some of that. But hopefully, we're going to continue having that because we definitely plan on opening more stores as we go forward, but that's just a general operating cost as we continue to grow.

Jay McCanless -- Wedbush -- Analyst

Right. And then maybe asking the community count question a bit different. I mean this year, for the full year, it looks like the absorption was 3.9 orders per month. And if you think about the land that you've got coming on, at least, it's in front of me for '21, do you feel like the absorption pace is going to be that level or something higher or lower? Either because you have less specs or you're going to get better sell-through from Smart Series?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Now if someone really knew the answer to that question.

Jay McCanless -- Wedbush -- Analyst

I had to ask you.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Well, look, if things stay like they are, you bet the absorption -- the sales pace will stay where it is. I don't think it will get worse, it may even get better. Because we have a lot of planned new smart communities coming on. So as we begin this year, the demand and traffic that we're seeing is very strong. I think it's likely to remain that way as long as interest rates stay a lot closer to 3% than, say, 4%. And right now, they're below 3%. And by all indications, given so many things that we read in here, I think they're going to stay about where they are for considerable length of time.

And the homeownership rate among the millennials, it's been well-documented. That's beginning to tick up by eights, quarters, and halves and that represents an enormous, enormous potential tailwind for all kinds of housing, used homes but also new homes. And we're starting to see our fair share of that.

Jay McCanless -- Wedbush -- Analyst

Got it. I mean, so is that -- so a way to characterize that would be this is a year where we need to focus on what MHO sales pace looks like and judge you guys on that rather than just where the gross -- or the net community count falls out. Is that -- do you think that's a fair way to look at this year, think about this year, given just the challenges that are out there from the land development side?

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Jay, you always want to get all the metrics going the right way. And margin is important. Community count is important. Sales pace is important. There's all those things you watch every day in a lot of different ways. I mean, we plan on opening more stores this year than we did last year. The hard thing to predict is just how many you sell-out of. But again, if we're selling out faster than we thought, like we did last year, we got higher price and higher margin.

We're not out there with their hair on fire, buying B and C locations just to get more stores because we have a really strong land position and the stores are coming. But more of the stores come in are raw land that we got to develop, and that takes a little more time. So it's very, very hard to give a community count prediction. It is important to us. But more important than community count are closings and sales. So we're going to do all we can.

We sure expect to close more houses this year than last year because we have a lot higher backlog, and we talked about January sales being strong and market conditions remaining very strong. But there will be pressure under community count, especially the first half of the year or so, but we are opening more stores in the second half, and we're going to do all we can to get stores opened as fast as we can the right way. And we think we're positioned to have a really good year, and we'll do all we can to improve our sales pace and our sales over last year.

Jay McCanless -- Wedbush -- Analyst

Yeah, absolutely. And then the other question, I guess is, are the municipal headwinds that you talked about in terms of getting the platts and inspections, etc. Are those worse now than they were three months ago, six months ago? Have they started to get better? Can you just talk about where you are in that right now?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

I'm not really sure. I haven't heard that they're worse, but I also haven't heard that they're better. So I'm going to guess that they're probably about the same. And it's also market-specific. Some places are worse than others, but it's manageable. You're not going to find me complaining about anything.

Look, I wish there was greater density that will allow for more affordable housing throughout our whole country, I think that's a big issue. But you're not going to hear me complaining about anything. I think these are about the best housing conditions we've ever seen. You heard Derek Klutch talk about our mortgage and title operation. Our average buyer is putting 15% down as a credit score north of 740. This is nothing like when we had strong demand back in the early 2000s, when there was no credit and a lot of speculators and flippers buying.

This is real buyers with phenomenal credit that want to live in a single-family home. And these are great, great conditions. And if it takes a little longer for new communities to come along, then so be it. I know we're going to get our fair share of our growth. We've had, I think, just really-we're really proud of the growth we've had over the last seven, eight years, and we expect to be able to continue that as long as the conditions will allow.

Jay McCanless -- Wedbush -- Analyst

Those definitely a phenomenal year. Thank you for taking my questions.

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Thanks.

Operator

[Operator Instructions] The next question is a follow-up from Art Winston with Pilot Advisors. Please go ahead.

Art Winston -- Pilot Advisors -- Analyst

Bob and Phil, I realize that you're not fans of stock repurchase, but I was curious if the Board ever has contemplated a cash dividend to its shareholders?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Well, I'm not sure-I didn't quite get that question. I didn't hear at all.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

I heard stock repurchase. If you look at the stock price, I mean, we're very pleased. There was a significant improvement in book value last year, up to $44, very strong earnings, 20% plus in net worth. We look at business right now being very strong. We talked about all the land we bought in 2020. And we do have a significant amount of cash earmarked for land purchases also this year. So we do watch the stock price for sure, glad...

Art Winston -- Pilot Advisors -- Analyst

My question-no, I said you guys are not fans of stock repurchase, but what about-has the Board ever considered a cash dividend to the shareholders, paying a dividend?

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Years ago, we had one.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

I was going to get to that. Yeah.

Art Winston -- Pilot Advisors -- Analyst

I'm sorry, I apologize.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

That's no problem. I mean, we have had that years ago and we're at the Board, we talk about different things, but I would not say that's anything that's under a lot of consideration right now. Any other questions?

Operator

Pardon me. Is that all from Art Winston?

Art Winston -- Pilot Advisors -- Analyst

That's it.

Operator

Okay.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Okay. Thanks, Art.

Operator

This concludes a question-and-answer session. I would now like to turn the conference back over to our speakers for any closing remarks.

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Thank you very much for joining us. Look forward to talking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Phillip G. Creek -- Executive Vice President, Chief Financial Officer

Robert H. Schottenstein -- Chairman, President and Chief Executive Officer

Derek J. Klutch -- President and Chief Executive Officer of M/I Financial

Alan Ratner -- Zelman and Associates -- Analyst

Art Winston -- Pilot Advisors -- Analyst

Alex Barron -- Housing Research Center -- Analyst

Jay McCanless -- Wedbush -- Analyst

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