M/I Homes, Inc.

Good morning, ladies and gentlemen, and welcome to the MI Home's fourth 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. 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, January 29th of 2025. I would now like to turn the conference over to Phil Creek. Please go ahead.

Thank you 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 nonpublic items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn the call over to Bob. 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. As everyone knows, mortgage rates began rising during the third and fourth 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 fourth quarter, 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. For the full year, homes delivered increased 12% to a record 9,055 homes, generating a record $4.5 billion in revenue, a 12% increase over 2023. Gross margins for the year were 26.6%, 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 pre-tax income of $734 million 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 fourth quarter. 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 fourth quarter. And with rates rising, the cost of rate buy-downs became more expensive. The impact of this cost is reflected in our fourth quarter gross margin of 24.6%, down 50 basis points from a year ago, and sequentially down approximately 250 basis points from the third quarter. 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. 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. 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 fourth quarter in our southern region, which consists of 11 of our 17 markets, increased 8% and 1% in our northern region, which consists of six of the remaining 17 markets. For the year, new contracts increased 4% in our southern region and 12% in our northern region. Our deliveries increased 14% over last year's fourth quarter in the southern region, representing 56% of total deliveries. The northern region contributed an increase of 25% over last year's fourth 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. Company-wide, we own approximately 23,800 lots, which is just under a three-year supply. Of this total, 27% of our own 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 five and a half 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. With respect to our balance sheet, we ended the year with an all-time record $2.9 billion of equity, which equates to a book value per share of $109. We also ended the year with zero borrowings under our $650 million unsecured revolving credit facility, and over $800 million 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%. To 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. Despite the challenging and somewhat choppy market conditions, we believe that the home building industry will continue to benefit over the long term from a continued undersupply of homes positive consumer demographics, and growing household formations. We feel very good about our business and are well-positioned as we begin 2025. Now Phil will provide more specifics on our financial results.