M/I Homes, Inc.

Good morning, ladies and gentlemen. Welcome to the MI Homes Inc. Third Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, October 25, 2023. I'd now like to turn the conference over to Phil Creek. Please go ahead.

Thanks. Thanks for joining us. Joining me on the call today is Bob Schottenstein, our CEO and President, and Derek Clutch, 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.

I now turn the call over to Bob. Thanks, Phil. Good morning, and thank you for joining our call to review MI Home's third quarter results. We had an outstanding quarter, one of the best in company history, highlighted by record revenue record income, a 50% increase in new contracts, and very strong margins and returns. In addition, we ended the quarter with record shareholders' equity and a balance sheet that's as strong as at any time in our 47-year history. Our third quarter results build upon the very strong results we previously reported in the first and second quarters of this year. We are particularly pleased to report these results, notwithstanding an unprecedented rapid rise in interest rates, continued concerns from all kinds of macroeconomic factors, as well as heightened conflict in the Middle East and across the globe. We increased our revenues during the quarter by 3% to a record $1 billion. Deliveries during the quarter also increased by 3%. Pre-tax income improved by 7% to a record $178 million. Gross margins for the quarter improved to 27%. That's 10 basis points better than last year and 140 basis points better than our second quarter. We also benefited from the continued improvement in our construction cycle time, 50 days better than a year ago. and we are focused on further improving that in future quarters. Retax income equaled 17% of revenue, and our return on equity equaled 23%. As previously noted, new contracts improved by 50% from a year ago, reflecting the strength of our product offerings, our intense focus and success in designing more affordable product, quality of our communities, and our ability to selectively use below-market financing incentives to drive both traffic and sales. Over 50% of our buyers are first-time buyers, and our Smart Series, which is our most affordable line of homes, continues to be a leading contributor to our strong sales performance. Our Smart Series is particularly attractive to the millennial buyer. and our Smart Series sales comprise roughly 55% of total company sales. During the past several weeks, we have seen additional increases in mortgage rates, with the 30-year rate now hovering at around 8%. This recent rise has somewhat impacted demand. Clearly, we are seeing a bit more consistency from market to market and a slight slowdown in activity. As we have in the past, we will respond accordingly by focusing on below market mortgage rates to incent sales where we believe it to be necessary. At the end of the quarter, with record shareholders' equity of $2.4 billion, 25% better than a year ago. In addition, we have zero borrowings under our $650 million line of credit and a quarter-ending cash balance of $736 million. and our debt-to-capital ratio of 22% positions us with one of the lowest leverage levels in our industry. As noted earlier, our balance sheet is as strong as it's ever been. Now I will provide a few additional comments on our various markets. Our division income contributions in the third quarter were led by Dallas, Orlando, Tampa, Raleigh, Austin, and Columbus. New contracts for the third quarter in the northern region increased by 90%, while new contracts in our southern region increased by 29%. Deliveries in the southern region increased 15% from last year, while deliveries in our northern region decreased by 13%. 65% of all deliveries come out of our southern region, the balance of 35% the northern region. Our owned and controlled lot position in the southern region decreased by 4% compared to a year ago, and in the northern region increased by 1% compared to a year ago. 35% of our owned and controlled lots are in our northern region, while 65% of our owned and controlled lots are in our southern region. We have an excellent land position. Company-wide, we own approximately 23,000 lots, which is roughly a three-year supply. As I conclude, let me just state again that we are in the best financial condition in our history. We remain on track and are very excited to open a number of new communities yet this year, thus increasing our community count by approximately 15% from last year. We feel very good about our business. and are well positioned to have another year of strong results in 2023. With that, I'll turn it over to Phil.