M/I Homes, Inc.

Good morning, ladies and gentlemen, and welcome to the MI Homes First Quarter Earnings Conference Call. At this time, our lines are in a listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, April 23, 2025. I would now like to turn the conference over to Mr. Phil Creek. Please go ahead.

Thank you for joining us. With me on the call 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. With that, I'll turn the call over to Bob.

Thanks, Phil. Good morning, everyone, and thank you for joining us. In a first quarter dominated by rapidly changing and mostly challenging macroeconomic conditions, MI Homes posted very solid results. We appreciate the opportunity to share our results with you. Before we do, however, I want to address more specifically the macro environment and how it has impacted the housing industry and our business. When we last spoke sharing our 2024 year-end record-setting results, we commented then on the changing economic conditions and demand challenges we faced, particularly during the third and fourth quarters of last year when mortgage rates began to rise. It was during that time last year that we first implemented mortgage rate buy downs to drive traffic and incent sales. As demand for housing became more uneven during last year's fourth quarter, the need for such rate buy downs became an even more important part of our sales strategy carefully utilized by us on a subdivision by subdivision basis to try and maximize both volume and margins. As we began 2025, it was clear to us that rate buy downs remain necessary for us to drive traffic and promote sales and that such rate buy downs would continue throughout the spring selling season unless and until it became clear that consistent and solid demand had returned. Clearly, that has not happened. Instead, what we have seen is the continuation of choppy and challenging conditions. While there has been some uptick in demand during the first quarter, the spring selling season has been just okay. Frankly, we'd grade it somewhere between a B- to C+. Clearly, this has been a period marked by uncertainty, a volatile stock market, the back and forth with threatened tariffs, concerns with inflation, interest rate fluctuations, mostly going up, talk of a recession, and not surprisingly, a decline in consumer confidence. Despite all of this, we were able to post very solid first quarter results. While new contracts were down 10% compared to last year, We believe we were effective in balancing pace and price, as our gross margins were a strong 25.9%, a sequential improvement over 2024's fourth quarter, reflecting some pricing power in the first quarter, as well as the positive impact of select new communities. But margins were down 120 basis points from last year's first quarter. Given the need to continue using rate buy downs for the foreseeable future, our gross margins will likely be under some pressure as we move through the year and continue to be below 2024's full year margins of 26.6%. 54% of our buyers are now using our rate buy downs compared to just under 50% during last year's fourth quarter. That said, the credit quality of our buyers continues to be strong, with average credit scores of 746 and average down payments of 17%, or nearly $90,000. Homes delivered during the quarter decreased by 8% to 1,976 homes, and revenues decreased by 7% to $976 million. Pre-tax income decreased by 19%, to $146 million, though our pre-tax income margin was a very strong 15%, and we generated a very solid 19% return on equity. We ended the quarter with a record 226 communities and remain on track to grow our community count in 2025 by an average of 5%. With regard to our markets, Our division income contributions in the first quarter were led by Dallas, Chicago, Columbus, Charlotte, and Minneapolis. New contracts for the first quarter in our northern region decreased by 8%. New contracts in our southern region decreased by 11% compared to last year's first quarter. Our deliveries in the southern region decreased 13%. and our deliveries in the northern region decreased by 2% from a year ago. 58% of our deliveries come out of the southern region, the other 42% out of the northern region. We have an excellent land position. Our owned and controlled lot position in the southern region increased by 11% compared to a year ago and was flat versus last year in the northern region. 32% of our owned and controlled lots are in our northern region, the other 60% in our southern region. Company-wide, we own approximately 25,000 lots, which is slightly less than a three-year supply. In addition, we control approximately 26,000 additional lots via option contracts resulting in a total of 51,100 owned and controlled lots, equating to about a five-year supply. With respect to our balance sheet, We ended the first quarter of 2025 with the strongest balance sheet in company history, with all-time record $3 billion of equity, equating to a book value per share of $112. We also ended the quarter with zero borrowings under our $650 million unsecured revolving credit facility, and this resulted in a debt-to-capital ratio of 19%, down from 21% a year ago, and a net debt-to-capital ratio of negative 3%. As I conclude, we plan to continue to offer rate-buy-down incentives to meet demand, and as mentioned earlier, we'll likely continue to experience some compression in our gross margins throughout the year compared to what our margins were in 2024. Despite the short-term volatility and many market uncertainties, We remain very optimistic about our business and believe over the long term, the home building industry will continue to benefit from an undersupply of homes as well as growing household formations throughout our 17 markets. We are well positioned as we begin the second quarter of 25 and expect to have a solid year in 2025. And with that, I'll turn it over to Phil.