M/I Homes Q4 2024 Earnings Report

M/I Homes EPS Results

• Actual EPS: $4.71
• Consensus EPS: $4.96
• Beat/Miss: Missed by -$0.25
• One Year Ago EPS: N/A

M/I Homes Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.15 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

M/I Homes Announcement Details

• Quarter: Q4 2024
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 10:30AM ET

M/I Homes (NYSE:MHO), together with its subsidiaries, engages in the construction and sale of single-family residential homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee. The company operates through Northern Homebuilding, Southern Homebuilding, and Financial Services segments. It also designs, constructs, markets, and sells single-family homes and attached townhomes to first-time, millennial, move-up, empty-nester, multi-generational, and luxury homebuyers under the M/I Homes brand name. In addition, the company purchases undeveloped land to develop into developed lots for the construction of single-family homes, as well as for sale to others. Further, the company originates and sells mortgages; and serves as a title insurance agent by providing title insurance policies, examination, and closing services to purchasers of its homes. M/I Homes, Inc. was founded in 1976 and is based in Columbus, Ohio.

M/I Homes Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Mi Homes 4th Quarter and Year End Earnings Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, January 29, 2025. I would now like to turn the conference over to Phil Crick.

[Operator]

Please go ahead.

[Phillip Creek, EVP and CFO at M/I Homes]

Thank you for joining us. Joining me on the call today is Bob Schottenstein, our CEO and President and Derek Klutch, President of our Mortgage Company. First to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non public items with you directly. And as to forward looking statements, I want to remind everyone that the cautionary language about forward looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward looking statements made during this call.

[Phillip Creek, EVP and CFO at M/I Homes]

With that, I'll turn the

[Phillip Creek, EVP and CFO at M/I Homes]

call over to Bob.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks, Phil. Good morning and thank you for joining us today. We had an outstanding year in 2024, highlighted by record homes delivered, record revenue, record income and very strong returns. We are particularly proud of our performance given the changing economic conditions and demand challenges we faced, particularly throughout the latter part of the year.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

As everyone knows, mortgage rates began rising during the 3rd and 4th quarters. At that time, we implemented mortgage rate buy downs to generate traffic and incent sales. Demand has become a bit more choppy during the Q4 and the need for such rate buy downs became an even more important part of our business strategy. I will more fully discuss the impact of all of this in a few moments. First, I will review the highlights of our 2024 performance.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

For the full year, homes delivered increased 12% to a record 9,055 homes, generating a record $4,500,000,000 in revenue, a 12% increase over 2023. Gross margins for the year were 26.6 percent, 130 basis points better than 2023. Our pre tax margin for the full year improved to 16.3% compared to 15.1% a year ago, thus resulting in record pretax income of $734,000,000 21% better than 2023 and a return on equity of 21%. For the full year, we sold 8,584 Homes, 8% better than 2023. As Phil will review in more detail, our sales decelerated during the Q4.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Though some of the drop off is attributable to seasonal factors, demand became choppier and more challenging in a number of our markets during the Q4. And with rates rising, the cost of rate buy downs became more expensive. The impact of this cost is reflected in our 4th quarter gross margin of 24.6%, down 50 basis points from a year ago and sequentially down approximately 2 50 basis points from the Q3. Nearly 50% of our buyers are now using the rate buy down. As we begin 2025 and approach the start of the selling season, demand remains somewhat of a challenge.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Accordingly, we will continue using rate buy downs to drive traffic and incent sales. It's important to note that the quality of buyers that we're seeing continues to be very strong. With average credit scores approaching 750 and average down payments of nearly $90,000 or 18%. We ended 2024 with 220 communities. Our average community count increased by 7% over 2023.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We are currently estimating a 5% average community count growth for 2025. Now I will provide some additional comments on our markets. Our division income contributions in 2024 were led by Dallas, Columbus, Tampa, Orlando, Chicago and Raleigh. Our new contracts for the Q4 in our Southern region, which consists of 11 of our 17 markets, increased 8% and 1% in our Northern region, which consists of the 6 of the remaining 17 markets. For the year, new contracts increased 4% in our southern region and 12% in our northern region.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Our deliveries increased 14% over last year's Q4 in the Southern region, representing 56% of total deliveries. Northern region contributed an increase of 25% over last year's 4th quarter deliveries. For the year, homes delivered increased 5% in the Southern region and increased 22% in the Northern region. Our owned and controlled lot position in the Southern region increased by 16% compared to a year ago and increased by 12% in the northern region compared to 2023. We have an excellent land position.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Company wide, we own approximately 23,800 lots, which is just under a 3 year supply. Of this total, 27% of our owned lots are in the northern region with the balance or 73% located in the southern region. On top of the owned lots, we control via option contracts an additional 28,400 lots. So in total, we own and control over 52,000 single family lots, up 14% from a year ago, and this equates to about a 5.5 year supply. Importantly, about 54% of our lots are controlled pursuant to option contracts, which gives us significant flexibility to react to changes in demand or individual market conditions.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

With respect to our balance sheet, we ended the year with an all time record $2,900,000,000 of equity, which equates to a book value per share of $109 We also ended the year with 0 borrowings under our $650,000,000 unsecured revolving credit facility and over $800,000,000 of cash. This resulted in a debt to capital ratio of 19%, down from 22% a year ago and a net debt to capital ratio of negative 5%. As I conclude, let me just state that we're in the best financial condition in our company's history. We plan to continue addressing homebuyer affordability and demand through interest rate buy downs as we did throughout the latter half of 2024. We will likely experience some compression in our gross margins in 2025 when compared to annual gross margins in 2024.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Despite the challenging and somewhat choppy market conditions, we believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of homes, positive consumer demographics and growing household formations. Feel very good about our business and are well positioned as we begin 2025. Now Phil will provide more specifics on our financial results.

[Phillip Creek, EVP and CFO at M/I Homes]

Thanks, Bob. Our new contracts were up 22% in October, up 24% in November and down 9% in December or 11% improvement in the quarter compared to last year. Our sales pace was 2.7% in the 4th quarter compared to 2.5% last year and our cancellation rate for the 4th quarter was 14%. As to our buyer profile, 50% of our 4th quarter sales were the first time buyers compared to 53% a year ago. In addition, 68% of our 4th quarter sales were inventory homes compared to 62% in last year's Q4.

[Phillip Creek, EVP and CFO at M/I Homes]

Our community count was 220 at the end of the year compared to 213 at the end of 2023. During the quarter, we opened 15 new communities while closing 12. For the year, we opened 72 new communities. We currently estimate that our average 2025 community count will be about 5% higher than 2024. Delivered 2,402 homes in the 4th quarter, delivering 76% of our backlog compared to 59% a year ago.

[Phillip Creek, EVP and CFO at M/I Homes]

And about 30% of our 4th quarter deliveries came from inventory homes that were sold and delivered in the quarter. At year end, we had 4,700 homes in the field versus 4,500 homes in the field a year ago and revenue increased 24% in the 4th quarter to 1,200,000,000 dollars Our average closing price for the Q4 was $490,000 a 4% increase when compared to last year's $471,000 Our gross margin was 24.6 for the quarter, down 50 basis points year over year and down 2 50 basis points from our 3rd quarter. This decrease is primarily due to mortgage interest rate buy down incentives. Our SG and A expenses increased by 16% in the 4th quarter, due primarily to higher incentive compensation due to our record results and also due to higher community count. As a percent of revenue, our SG and A expenses for the quarter declined 80 basis points to 11.0 when compared to last year's Q4.

[Phillip Creek, EVP and CFO at M/I Homes]

Our pre tax income percent for the quarter was 14.2 percent the same as last year and for the full year our pre tax income percentage was 16.3% versus 15.1% last year. Our return on equity was 21%. During the Q4, we generated $183,000,000 of EBITDA and for the full year, we generated $767,000,000 of EBITDA. Our effective tax rate was 22% in the 4th quarter compared to 24% in last year's Q4 and our annual effective rate for 2024 was 23%. And we expect 2025's effective tax rate to be around 23%.

[Phillip Creek, EVP and CFO at M/I Homes]

Our earnings per diluted share for the quarter increased 29% to $4.71 per share from $3.66 per share in last year's Q4 and increased 22% for the year to $19.71 per share from $16.21 per share last year. During the Q4, we spent $50,000,000 repurchasing our shares and for the year spent $175,000,000 We currently have $107,000,000 available under our repurchase authorization and in the last 3 years we have repurchased 12% of our outstanding shares. Now Derek Klutch will address our mortgage company results.

[Derek Klutch, President, Mortgage Company at M/I Homes]

Thanks, Phil. In the Q4, our mortgage and title operations achieved pre tax income of $10,000,000 up $5,400,000 from 2023, with revenues of $28,500,000 up 45 percent over last year. This was primarily the result of increased pricing margins, a higher average loan amount and more loans closed. For the year, pre tax income was $49,700,000 with revenue of $116,200,000 Loan to value on our first mortgages for the quarter was 82% in 2024, the same as 2023's Q4. Continue to see an increase in the use of government financing as 59% of loans closed in the Q4 were conventional and 41% were FHA or VA, compared to 66% and 34% respectively for 2023's same period.

[Derek Klutch, President, Mortgage Company at M/I Homes]

Even with the increase in government financing, our borrower profile remains solid with an average down payment of almost 18% and an average borrower credit score on mortgages originated by Mi Financial of 749 compared to 747 last year. Our average mortgage amount increased to $409,000 in 2024's 4th quarter compared to $383,000 in 2023. Loans originated in the quarter increased 34% from 13.87 to 18.62 and the volume of loans sold increased by 24%. Our mortgage operation captured 91% of our business in the 4th quarter, an increase from 88% in 2023's 4th quarter. Now I'll turn the call back over

[Phillip Creek, EVP and CFO at M/I Homes]

to Phil. Thanks, Derek. As far as the balance sheet, we ended the 4th quarter with a cash balance of $822,000,000 and no borrowings under our unsecured revolving credit facility. Our credit facility matures in late 2026 and our public debt with interest rates below 5% matures in 2028 and 2,030. Total homebuilding inventory at year end was $3,100,000,000 up 11% from the prior year.

[Phillip Creek, EVP and CFO at M/I Homes]

And during 2024, we spent $473,000,000 on land purchases and $646,000,000 on land development for total land spend of $1,100,000,000 This was up from $850,000,000 last year. And at December 31, 2024, we had $754,000,000 of raw land and land under development and $886,000,000 of finished unsold lots. We own 9,300 unsold finished lots. In 2024, we purchased 9,000 lots of which 75% were raw compared to purchasing 7,900 lots last year. We have a strong land position at year end controlling 52,000 lots.

[Phillip Creek, EVP and CFO at M/I Homes]

We own 24,000 lots about a 3 year supply and of the lots controlled 46% are owned. At the end of the year, we had 706 completed inventory homes, about 3 per community and 2,500 total inventory homes. And of the total inventory, 1034 are in the northern region and 1468 are in the southern region. Last year end, we had 592 completed inventory homes and 2023 total inventory homes. This completes our presentation.

[Phillip Creek, EVP and CFO at M/I Homes]

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

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Alan Ratner from Zelman and Associates. Your line is open.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Hey guys, good morning. Bob, just want to congrats on the championship. I'm sure you're still riding high from that.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I am.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I'm as excited about that as I am our business.

[Alan Ratner, Managing Director at Zelman Partners LLC]

There you go. There you go. Well, I appreciate the commentary and certainly the choppiness in the quarter. I think it's consistent with what we've heard from others. My first question, I'd love to drill in specifically on Texas and Florida.

[Alan Ratner, Managing Director at Zelman Partners LLC]

I think those are probably the areas that are most in focus and under some investors. It's about, I think, 40% or so of your business. Can you talk a little bit about the trends you're seeing there just across the board? I mean, incentives, inventory levels, and just kind of how you're approaching that market given what seems to be a softening supply demand backdrop?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Yes. Great question. We feel better about Texas than we do Florida. We feel good about both. I will say that Tampa in particular appears to be a little bit more challenged than Orlando, Sarasota and of course we're relatively new in Fort Myers, Naples.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So I don't our business levels there are not significant enough to draw any real conclusions. But clearly, the demand situation for the last probably 6 months has been more challenging in Tampa than the other Florida markets. Our Dallas operation continues to be very strong and Houston is very strong as well. Maybe a slight softening of demand, but nothing that we can't comfortably manage. I think Austin is getting better.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Austin was clearly the most challenged market over the last couple of years after it came off its sort of runaway highs and I'm talking more about the macro market, but it was the same for us. And San Antonio, I'd say is steady, not on fire, but steady. We're expecting a good year in Texas and we're expecting a good year in most of Florida. Tampa is the one that we're watching the most closely. Clearly, we are using rate buy downs throughout the 8 markets we have.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It is, as you say, a big part of our business. We're confident that we have the right strategy. We're not doing anything a whole lot more now than we've been doing the last number of months. There may be a few subdivisions where we're putting a little more on the gas than in others. But in general, we think it's very manageable.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I don't think it's serious. And it's not inventory levels are up, but I don't think it's a situation to cause great concern.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Great. And I appreciate the round the horn there and the commentary. It's helpful. Two additional questions if I could squeeze them in. First of all, you guys along with others have pivoted towards more of a spec model in recent years.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Spec count, if I got those numbers correctly, it looks like your specs are up about 20% year over year, completed up 10% or 15%. Just given the choppiness and demand, are you Yes,

[Alan Ratner, Managing Director at Zelman Partners LLC]

run through a community.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Just given the choppiness and demand, are you altering that strategy? Have you kind of adjusted your spec start pace at all? Or do you still feel like the current trajectory you're on makes sense given the business?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We think it makes sense. Our goal this year is to maintain the pace that we've had across our communities and we're going to grow community count this year. We have slightly with each passing quarter over the last couple of years increased our spec level, increased our spec strategy. And I think right now, there are probably a few minor variations. It's about where it needs to be.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

As an example, in Raleigh, we're virtually 100% spec. I think that's the only market where we're that high. But otherwise, it's pretty consistent across the other 17 markets. And it's a very important part of our business as Phil outlined. It's close to 2 thirds of our business right now and it will likely remain.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So it may move up a little, it may move down a little, but that's about where we think it needs to be at this point. The to be built are a big part of our business too. And I didn't mention this in my comments, but our Smart Series, which for us is our most affordable product line, primarily catering to first time buyers, some are townhomes, most are single family detached. That's about 50% to 55% of our business. It is settled in there and remained at about that level.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But the other way to look at that is about 40% to 45% of our business is to be built and a meaningful portion of that is move up product. Phil, did you want to add something?

[Phillip Creek, EVP and CFO at M/I Homes]

Yes. One thing, Allen, I know you know this. As far as the cost effectiveness of mortgage rate buy downs, a

[Phillip Creek, EVP and CFO at M/I Homes]

lot easier to do those type things within a 30, 45, 60 day window than it is to try to get longer than that. So again, putting a few more specs out there that way you can offer that more deep discount type financing, but again you got to close within 30 or 45 days.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And I don't think I'm saying anything out of school, but I recently had a conversation with another builder that asked me if we were offering long term rate locks on to be built. And on the one hand, it's no one's business other than our buyers. But on the other hand, all of the mortgage rate buy downs that we have been using to generate traffic have been designed to assist the sale of homes that can close roughly within 60 days. So you need to have homes in the field specs ready to be delivered. And we are we said we opened about 75 new stores last year.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We do plan on opening more stores this year.

[Phillip Creek, EVP and CFO at M/I Homes]

Every subdivision is a little bit different. We are doing a few more attached townhouses. The majority of our specs tends to be on the Smart Series more affordable and that area kind of drives a few more specs. So we do see our spec levels going up some, but again that's something we control very closely, Alan.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Great. I appreciate all of those comments there and everything makes sense. Last one, if I could squeak in one more. I know you don't give gross margin guidance, but you alluded to margins being under some pressure given the rate buy downs and the incentives you're offering. I was just hoping maybe you can give a little bit of clarity on the margin pullback you saw this quarter, about 2 50 basis points sequentially.

[Alan Ratner, Managing Director at Zelman Partners LLC]

No. I

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

think it's a great question. And it's the big unknown in our industry. What's going to happen to rates?

[Alan Ratner, Managing Director at Zelman Partners LLC]

Right.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Based on what I know today or I believe today and I think this is widely shared by a lot of our competitors, it's critically important to continue using rate buy downs to generate traffic to promote sales until it isn't. And we don't know when the isn't is going to come. Having said all that, the cost does move week to week, sometimes day to day. And as the tenure moderates somewhat, the cost comes down, less impact on margins. In the Q3, about a third of our sales utilized the rate buy down.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It jumped up to 50% in the Q4. My guess is going to sort of stay there. I think the 4th quarter is probably reflective if we had to guess. One of the reasons we don't give guidance is we don't know. It's an interesting situation.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

5 years ago, if our quarterly margins were 24.6%, the question could have been, do you think they can get much higher? Those are great margins. But on the other hand, when you're coming off 26%, 27% and in a number of our divisions, we have margins approaching 30%. Those I've said during previous calls, either your question or someone else's, that these are very high margins, almost unprecedented, probably not long term sustainable. But I will also say this, a 24% to 25% margin business is an excellent business that can generate very solid returns.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And we tend to overreact both on good news and bad news. I think that I think things are starting to settle in a little bit. We shall see. But we feel really good about our business. I know the demand is a bit choppy.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

There's tremendous uncertainty coming from every almost every day, whether it's immigration or tariffs or inflation or interest rates or you name it. It's the word cloud of the day. And but against that backdrop, I do think that home building and home new home building and new home construction has very, very solid foundation of underlying metrics. And while there may be some noise quarter to quarter, we're poised to grow this company in 2025,

[Phillip Creek, EVP and CFO at M/I Homes]

in 2026, in 2027 and we believe we can. And just one other comment, Alan, on the interest rate buy downs and so forth. I mean, really every community and every customer is a little different. We try to be very targeted. Some customers, especially on the more affordable product, need help with closing costs to get in the house.

[Phillip Creek, EVP and CFO at M/I Homes]

So therefore we have a certain amount priced in for financing and closing costs and those people may not really be able to qualify or get the cheaper financing, but again we're able to help them with closing costs and get them in the house. So we try to be very targeted. The mortgage rate buy downs in general are fairly expensive, again depends on how many specs you have and those type of things. But we try to be very targeted and just use that where we need to. But of course, it's really hard to predict what we're going to do this year.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Makes sense. I appreciate all the color.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

One last point of optimism, selling season is really just getting started. And some selling seasons are better than others. And last year's was quite good. We're hopeful that this will be as well, but we'll know when we know. We're ready to go and we're ready to react.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Good

[Alan Ratner, Managing Director at Zelman Partners LLC]

luck.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks, Alan.

[Operator]

Our next question comes from the line of Ken Zener from Seaport Research Partners. Your line is open.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Good morning, everybody.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Good morning, Ken.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Sorry if I missed it. What was the number of homes in the field, if you have that?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I think it was 4,700 Phil you gave.

[Phillip Creek, EVP and CFO at M/I Homes]

Homes in the field. Yes, it's about 3% up from last year, 4,700 versus 4,500.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Excellent. Wonder if you might be able to provide a little context around I believe you said 31% of closings was intra quarter order closings. Can you talk to the margin spread you guys are seeing where between the those units and the backlog given the propensity of mortgage buy downs to be affecting those units?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

That's a hard one. Some of our markets, our spec sale margins are either at or equal to our to be built margins, which I know sounds a little counterintuitive, but that is the case. That has not always been the case. Typically, spec sale margins are 100 to 200 basis points less, at least we've seen over the years than to be built. I'd say that the average is probably somewhere around 100 to 150 basis points less across the whole system on specs.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But a number of our markets, including sizable ones, our to be built margins and our spec margins are either the same or in some cases, the spec margins are a little higher. But if you put it through the blender and take it out, it's slightly lower, maybe 100 basis points to 150 basis points. And of course, that's reflected in our full year margins because we had a pretty aggressive spec strategy throughout the year. And frankly, the specs are in terms of strategy, the specs are critically, critically important right now because as I've just mentioned during the last question, Alan Ratner's question, the specs that can close within 60 days, we need to have a good number of them ready to go in order to take advantage of attractive rate buy downs.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Right. And it's if you don't mind continuing on this topic a little bit because your Smart Series, which is you're kind of even though you have ASP numbers, highly bifurcated, right, between the Smart Series and your other units. Is that a function of you think that the Smart Series being more affordable, attracting more demand, so that can actually give you somewhat better net pricing than the higher price point perhaps? Thank you very much.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I don't think so. A lot of it depends this is not the answer you're looking for. So I apologize, but I've got to tell you the way

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Not at all. Don't worry.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's community specific. Some of our Smart Series communities have lower than average margins. Many of them have right on the button margins and some have premium margins. And a lot of that hunts back to the quality of the community. We have some a number of move up product communities throughout a number of our markets where our margins are very, very strong and then some where they're slightly below.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's really hard to draw a conclusion other than strength of a particular community. And look, we feel really we don't want to see our margins drop. We feel really good about our margins when compared to the industry. They've held up high. I'm not going to say we have the highest returns, but we're up there.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We're generally quarter in quarter out in the upper tier, bringing over 16% to the bottom line this past year, I think compared very favorably with the public builders. And I think that as we move through this year, we'll continue to perform at a competitively favorable level because I think we've got really good communities. And even though we're going to be opening a very significant number of new communities this year, with high hopes for them to perform well, a good number of our communities that we're operating out of now, well over half, we've been running with for at least a year or so and we have a good feel for how they're going to perform from both the sale and margin standpoint.

[Phillip Creek, EVP and CFO at M/I Homes]

One of the

[Phillip Creek, EVP and CFO at M/I Homes]

things we really like is not only a diversification of geography and markets, we really like to have a product and price diversity. And as Bob said, in general we have 40% to 50% of our business focused on the first time buyer. And again, the average sale price tends to be more $400 or whatever. We still like to have those communities well located as best we can, give people a reason to buy and not just price. If you look at the last 6 quarters, our ASPN backlog has basically gone from $500,000,000 to $550,000,000 So right now, we're kind of seeing our move up product perform a little better than our entry level product.

[Phillip Creek, EVP and CFO at M/I Homes]

But again, that changes quarter to quarter sometime. We just like having that diversity in our business.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Some of our just to give a little bit more color, some of our strongest margins in the company are in Dallas. There was a question about Texas, Orlando. There was a question about Florida, Charlotte, Columbus, Chicago. We've got a number of divisions that are running very strong margins even in this climate.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Thank you very much for your full response.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Appreciate the question.

[Operator]

Our next question comes from the line of Buck Horne from Raymond James. Your line is open.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Hey, thanks. Good morning, guys, and congrats on the strong results.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks, Scott.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

I wanted to go back to the Tampa market in particular. Just curious if you saw, in particular, any noticeable demand shifts coming out of the hurricanes that kind of I guess transpired there right around that October timeframe?

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Or did the hurricane shift demand? And or are you seeing any impact due to just rising insurance costs related to just Florida's cost of just a hardening of the insurance market and how are you helping your buyers deal with that?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Do you live in Tampa, Buck? I think you might.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

I do. I do live in Tampa. So we know the market well.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Yes. I suspect you do. You probably should answer your own question. Look, I think that things started

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

I like to hear

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

your answer.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I think that right, right. I think things start Tampa has always been one of our best performing markets a long time. We've been a top 5 builder in Tampa for over for many, many years. We have a very strong team there and we have a lot of confidence in that team, excellent land position. I think things started to slow down a little bit before the hurricane.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

The hurricane didn't help at all. But just channel checks are telling us that we're not alone, that that market has slowed, maybe more so than clearly more so than Orlando noticeably. Sarasota seems to be a little better. That would suggest I mean, I know the hurricane hit different areas a little different as you know very well. But I think it's I think there's a softening there and it's hard to really pinpoint the exact reason.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So I wish I could give you a better answer. We're taking a lot of steps now to try to address it. We're doing a little bit more there than we're doing in some of our markets to generate traffic and sales.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Yes. Well, we hope it's temporary. We've noticed certainly that rental demand in the Tampa market has certainly picked up quite a bit post hurricane. So maybe people are making temporary decisions and it's just a kind of temporary phenomenon before they decide to make a home decision.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I think that there's a lot of reasons to be bullish on Tampa. We got to get through this period, but to be bullish on Tampa over the 1, 2, 3, 4, 5 year period.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Yes. You're preaching to the choir here. So very bullish on Tampa. And then secondly, I guess I was just wondering if you have any comments or thoughts around just industry wide labor availability is kind of these new immigration rules and new immigration enforcement gets rolled out. Just any high level thoughts or how you would brace for any potential labor availability impact?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Right now, we're okay. Right now, I believe our industry is okay. I was at the Harvard Joint Center For Housing meeting yesterday in Washington and surprise, surprise that was a big topic with both manufacturers, suppliers as well as the builders. And I think everyone's okay. But again, I hate to keep using the U word uncertainty.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I think there's uncertainty surrounding that. There's interesting stories of more subcontractors becoming available, particularly on the land development side in certain markets. I think that's more market to market. But and we're seeing a little bit of that too with more site contractors looking for work. We don't have a labor problem right now.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I hope that we're able to continue to say that. I don't I just don't I think that's an unknown.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Got it. Yes, agreed, agreed, very much agreed. And then just real quick lastly, obviously, you guys are still putting up very strong margins in context of the industry. Returns are very solid. Profitability looks good.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Stock is obviously not reflecting that at these valuation levels. You're trading almost nearly maybe 1.1 times forward book value at these levels. Any thoughts on ability or flexibility to accelerate repurchases or extend the buyback authorization to kind of take advantage of this disconnect?

[Phillip Creek, EVP and CFO at M/I Homes]

We continue looking at that and discussing that with our Board every quarter. As I said before, we have bought back over 10% of the stock in the last couple of years. We did accelerate to $50,000,000 a quarter starting in the Q2 of last year. The balance sheet is in very, very good shape. We did up land purchases a fair amount last year to get us positioned for future growth.

[Phillip Creek, EVP and CFO at M/I Homes]

We talked about we have 9,000 finished lots on the ground. So we're really positioned well to grow. If we need to tap on the brakes, obviously, we can do that. But as far as stock repurchases, that's something we'll try to come up with a consistent program, something we felt we needed to do. We've been doing that, but we'll continue to look at what we do there based on the economy in our business, etcetera.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Yes. I mean knowing what we know today, it's hard to see a change in our strategy going forward.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Got it. All right. Thank you, guys. Congrats.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks, Clark.

[Operator]

Our next question comes from the line of Jay McCanless from Wedbush. Your line is open.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Hey, good morning guys. Thanks for taking my questions. Good morning, Jay. So I wanted to drill down a little more on gross margin if I could. And thank you for the color that 'twenty five is probably a little softer than 'twenty four.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

But I guess if conditions stay the way they are right now, when might we see an inflection in the gross margin? Or should we expect at least for the next couple of quarters that it might go down sequentially from the levels you guys saw in the Q4?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's a hard question to answer. I think the Q4 is sort of reflective of where things are. Again, depending upon rate movement and cost of buy downs, that's all going to have an impact because so much of the action occurs within the quarter. And it became, as I said, I think we first launched the buy downs either in July or August. I can't remember the exact time.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It was the beginning to the middle of Q3. And the cost while the cost moved a bit, rates went a little down and they jumped back up again. The trend lines were all rising rates rather than declining though throughout the back half of the year as you know. It just became more expensive and not to be snarky, but not selling is not an option. So we're going to do what we need to do.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And I think things seem to be at least this week leveling off, maybe even coming down a little bit in terms of cost. So next week, who knows? There's certainly a lot of action in Washington right now and all of that's having an impact on the bond market. Hopefully inflation is under control. It appears to be.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So I think what we saw in the Q4 is likely reflective of what we'll see on a go forward basis. Could be a little better, maybe a little worse, although I don't think so. So we'll just have to see. But we've settled in on a good pace for community and our goal is to maintain that pace. And so I think the Q4 is a good barometer.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Thank you, Bob. The next question

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I wish I knew with hey Jay, I wish I knew with precision, but I don't think anybody does.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

No, that was a great answer. Thank you. Very helpful. And just wanted to talk for a minute about the you had really strong 18% order growth in the South, but only 1% in the North. Maybe could you talk about that?

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Was it timing issues? We heard some people talk about pretty heavy rainfall, colder weather up north. Anything we should know there to explain that discrepancy between the two segments?

[Phillip Creek, EVP and CFO at M/I Homes]

Well, Jade, it always depends on what comparable number you're looking at as far as how the Q4 was last year. If you look at last year, we only sold 1600 houses. So we had a pretty low comparable going in. As far as looking at the southern region being up 18%. Again, but the Q4 sales last year not being so good, people talk about Florida being difficult, but from a sales standpoint, our Q4 this year compared pretty favorably in Florida the last year.

[Phillip Creek, EVP and CFO at M/I Homes]

Certain markets in Texas also performed well. It was really just more of a weak Q4 last year than anything, Jay.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Got it. And then the last question I had and Phil correct me if I'm wrong on this, but I think you said, actually I got 2 more questions. I think you said 30% sold and closed during the Q4 on closings.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

I guess

[Phillip Creek, EVP and CFO at M/I Homes]

That's right.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Okay. What do you guys think the upper end of that number could be? Could you potentially sell and close 40%? I mean, I'm just I'm trying to think of from a productive capacity standpoint, can you really pull off that many homes or what is a manageable range for sold and closed in a given quarter for MI?

[Phillip Creek, EVP and CFO at M/I Homes]

Jay, of course, the theoretical answer is that we want to close as many houses as we can, good completed houses at a good margin. I mean, could that number be a 40% type number? The answer is yes. Right now today having about 2,500 houses in the field as far as specs and again we track what stage those specs are at. We talked about how many of them were finished whatever, 600 or 700.

[Phillip Creek, EVP and CFO at M/I Homes]

But yes, it can get up to 40% or so. We have the financial wherewithal to obviously put specs out there. Selling specs is different than to be built. We're trying very much to have the best margins we can on specs and not just throw them out there at lower margins. But yes, could it get higher than 30% to 40% or so?

[Phillip Creek, EVP and CFO at M/I Homes]

Yes. Also from a mortgage rate cost buy down, as we talked before and you know, it's a lot more cost effective when you're trying to buy that rate down on somebody close in 45 days.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Got it. And then I guess the other question I had, it sounds like from a labor perspective, from a materials perspective, it seems like things are setting up well for the year. I guess, could you talk about what you're seeing from land cost inflation? And also maybe what you're seeing from some competitors, if they're still being as aggressive in the land market as they were maybe a quarter or 2 quarters ago?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

First of all, I think on mix and bricks, things are good, stable. In some cases, we may pick up a little. Price is to say, we're very focused on that, just like we're very focused on cycle time. 2024, we improved our cycle time by 11 days. I don't think we'll improve it by 11 days this year, but we might improve it by several.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We haven't talked about that during this call, but we don't ignore those things. And we're really focused on cost of materials and sticks and bricks, trying to do everything we can to offset the margin pressures that mortgage rate buy downs have brought about. That's one thing. On the land side, I believe that land development costs, site work has stabilized for now. On land acquisition, I think it's still pretty competitive.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's not crazy, but I think it's more competitive than not. Look, we're trying to buy prime locations. So our strategy is not to go outside the core and buy pieces that maybe only 1 or 2 people want. That's not how we operate. We try to stay within where we think the most action is.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We've always been that way and it's worked and we're going to continue to do that. And I think on some of those pieces, there can be a lot of competition. We don't get every piece we seek to get and we lose our fair share, but we get our fair share. So I think there you want a more specific answer. I think it's more competitive than not for the prime locations, which is what our business is primarily focused on.

[Phillip Creek, EVP and CFO at M/I Homes]

Jay, we obviously track that very careful. We develop about 80% of our own stuff. Bob always talks about we really try to focus on premier locations. We want to be in the better school districts, near the better shopping, near the better transportation. We think in great times those communities are so great, but in tough times they still sell some.

[Phillip Creek, EVP and CFO at M/I Homes]

If you look at the average lot cost in the last year as far as raw land developed cost depending on the market, in general, the finished lot cost has gone up 10% to 15%, our finished lot cost. Now when you look at our average sale price and backlog as I talked a little bit ago, feel like in the last 8 quarters, our average sale price and backlog has gone from 500 to 550. You always market price. We try to be very focused on pricing. Don't get too far out locking prices in and those type of things.

[Phillip Creek, EVP and CFO at M/I Homes]

But I definitely agree. I mean premier well located land has continued to go up. We need to make sure we get paid for that. We focus every day not only on margin but on sales pace to make sure we're getting stuff through the pipe but also getting paid for what we're doing and the risk we're taking. So again, we try to manage that best we can.

[Phillip Creek, EVP and CFO at M/I Homes]

We're hoping this year to get a little break on sticks and bricks. We are focused very hard on that, as Bob said, to try to offset some of these other margin pressures, but there's definitely challenges out there.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

That's great. Thank you, Phil. And just since you opened the door on pace, I guess, are you guys expecting to run at roughly same level of monthly absorption in 2025 that we saw in 2024?

[Phillip Creek, EVP and CFO at M/I Homes]

We'd like to have a little better pace. We're sure we're working on that. But again, that becomes kind of a factor of what do you want to do price wise and what do you want to do margin wise. We are focused on trying to improve pace a little bit also.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But also hopefully maintain where we are. With growing community count, we're trying our goal is to grow the company. We've got base growth goals and we've also have stretch growth goals and a lot of those are dependent upon worst case maintaining current pace.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

That's great. Thanks guys. Appreciate it.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thank you.

[Phillip Creek, EVP and CFO at M/I Homes]

Thanks Jay.

[Operator]

There are no question at this time. I would like to turn the conference back to Mr. Phil Trick. Please go ahead.

[Phillip Creek, EVP and CFO at M/I Homes]

Thanks very much for joining us today and we'll talk to you next quarter.

[Operator]

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.

Participants

Executives

• Robert Schottenstein, Chairman, President & CEO
• Derek Klutch, President, Mortgage Company

Analysts

• Phillip Creek, EVP and CFO at M/I Homes
• Alan Ratner, Managing Director at Zelman Partners LLC
• Kenneth Zener, Senior Analyst at Seaport Research Partners
• Buck Horne, Managing Director - Equity Research at Raymond James Financial
• Jay McCanless, SVP - Equity Research at Wedbush Securities