M/I Homes (MHO) 31 Jan 242023 Q4 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to M/I Homes Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded on Wednesday, January 31, 2024. I would now like to turn over the conference to Phil Creek.

Joining me on the call today is Bob Schottenstein, our CEO and President; and Derek Klutch, the 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.

made I forward-looking remind press statements applies any statements, cautionary that release forward-looking to about call. language contained comments to want everyone to the also As this during in today's be forward-looking made any that to call. statements company no during undertakes Also obligation advised update this the With that, call Bob. turn to the I'll over

in fourth an thank year best XXXX full and our XX-year outstanding morning, of and in our for Good one call as We had quarter joining you we year XXXX, highlight our history. results. the

We pleased headwinds our XXXX given the pressures rising most results housing as inflationary general enter with throughout interest and well economy. are we of uncertainty with particularly together the the the rate environment industry significant faced as year, a as within

over of the fall of traffic per month sales increase use last and quarter, very absorptions. homes, quarter. the and choppy very December quarter, Pretax the for year as the community our we and steady, a to last see in income very saw Strength fourth with fourth pleased Notably, fourth million year. were strong year, sales were a and significantly equity to of contributed the performance. XX.X%, the XX% income as $XXX came return was with quarter to the begin of in selective demand. rates we Gross returns. our Return pretax our with pickup We financing product same in solid the targeted both below-market and our at incentives For and had XX%. Clearly, equaled a best XX.X%. year our fourth In year margins X,XXX strong communities margins hold full rising we rates. along on offerings, a notwithstanding better sold market gross conditions

XXXX. For homes, year, increase the of XX% sold we an full over X,XXX

during credit of XXXX. during seeing payment be compared pace that buyers X.X The community an community we're pace with and to average averaged quality X.X continues monthly of scores Our average homes XXX the sales down a per of sales year to homes XX%. per above strong,

exceeding priced sales, Series which Our very our company overall our Smart continues the to report the performance. but on our improvement positive in begin with that most pleased traffic fourth has to comprised saw a we year as year in quarter and a our not sales impact, product year. fourth quarter the XX% in of this I'm just quarter Smart last ago. Series, we to fourth demand have the continued sales sales in compared total XX% is January affordably that

are selling about a good optimistic season. very We

to our in see cycle time. We improvement continue construction

XX additional During a by quarter, an remains Improvement than the our sequentially. area major has days cycle days. by XX time more time time improved cycle our fourth focus cycle in of Year-over-year, improved us. for

of the XXXX. we X% that close terms homes began roughly were homes year, XXXX given with fewer deliveries, less to pleased field, In we X,XXX the than very for XX% in

on will additional provide our Now I markets. comments some

Dallas, by Tampa, Orlando, years. Charlotte had strong income all Columbus, very in led contributions Sarasota division were Raleigh, Our XXXX and

New our region. Northern contracts in our for the Southern XX% region fourth and XX% increased quarter in

region. XX% contracts in Southern For XX% region our our in increased new and the year, Northern

of region deliveries fourth year's a decreased year's XX% or comprising the decrease deliveries in Our region, deliveries, quarter XX% our contributed X,XXX XX% last XXX over over last Northern Southern of fourth total. quarter.

the homes region, in increased year, region. XX% Southern decreased the Northern but X% delivered For the in

region. Southern by lot in controlled increased in position last X% XX% compared lots the and Our region owned and owned Northern year, to increased controlled the

of to with up top and which we conditions. own about demand controlled equates pursuant and to XX% the Company-wide, region, share. total, or flexibility which On X-year the a all-time X-year ago individual lots are our an lots XX% a own year excellent is of contracts. additional us Most is are to approximately a the lots, in have we of via our that Northern $XX per to approximately lots, value ended we sheet, XX,XXX roughly $X.X supply. XX,XXX balance We position. to control total, our importantly, we market changes in about of of supply. land which with to With our respect year own gives single-family book This equates billion contracts Southern control a X% record lots. XX,XXX of lots, region. in an and In option react XX% balance from the Of equity, significant option

with year zero This million million down cash ratio facility. XX% debt-to-capital a ago unsecured the year resulted net a -X%. in revolving under ended also $XXX credit a debt-to-capital XX%, of and borrowings and We ratio of $XXX our of from

me our business in say, let feel our of conclude, we are financial good very year With about over I'll just another deliver expect fully Phil. strong turn I and best to As to history. We that, condition in results XXXX. the in it

October, November up in a Our and quarter overall. the new XX% in in improvement contracts in up XX% XX% XX% for up were December

rate pace sales to was XX%. fourth for the and year's X.X% quarter the quarter Our in our was compared in fourth X.X% fourth last cancellation quarter

year XX% to XX% a of buyer first-time ago. As quarter our were profile, fourth buyers compared sales to to our

In sales quarter. homes quarter fourth of our in to inventory compared were XX% addition, year's fourth XX% last

of compared community Our of at XXXX was end XXX end XXX 'XX. the count to the at

while quarter, communities the closing opened new During XX. XX we

about than year we ago. delivering communities. the of fourth to We our backlog XX in quarter, delivered will We XX% a higher For new homes the XXXX year, XX% that XXXX compared average estimate currently XXXX. our be count opened community XX%

in we XX% the the decreased million. At the X,XXX field stated $XXX X,XXX our third we in in December quarter less with ago. homes quarter the call, versus fourth field had conference ago. X,XXX homes entered we XX, than As fourth homes the year field a to quarter year in a Revenue in

a quarter average Our average quarter to the last was $XXX,XXX, when compared decrease fourth $XXX,XXX. year's price of closing price for closing X% fourth

Our for basis XXX were the XX.X% gross quarter, points margins up year-over-year.

flat were year, XX.X%. For our at margins the gross full

in the $X.X Our increased the higher equity due the quarter higher fourth increased balances to year, our on real and of to Interest and levels at expenses compensation, by million and estate income SG&A primarily taxes strong having versus for last cash million on due income incentive XX.X% to increased cost our $XX.X XX%. more our our quarter inventory X% pretax return was remained communities.

million quarter, fourth the we generated EBITDA. During of $XXX

of generated For year from to last operations the we flow compared this $XXX million $XXX million full EBITDA. year, million $XXX year. We cash generated of generating

in fourth quarter to to effective our XX%. be XX% XX% XX%. for was was effective rate fourth quarter, rate also last compared We rate year's XXXX tax tax the effective as Our year and around the expect

year diluted decreased fourth earnings last the Our X% for for $XX.XX the quarter per $XX.XX share $X.XX last quarter to decreased year's $X.XX share year. and per from share in per to from

quarter, the During we fourth shares. spent $XX our repurchasing million

spent currently For the our three We under the $XX we available repurchase shares. last our repurchased In $XXX million year, years, outstanding authorization. have X% have million. of we

address company Now results. mortgage our Derek Klutch will

as of our loans million, margins, and year, result operations million from of of and closed. quarter, $X million. down fourth on $XX.X title income lower primarily the XXXX average fewer revenue pricing lower a achieved Down pretax over loan In mortgage XX% $X.X last amounts

This period. was quarter VA. our mortgages and $XX.X the was respectively, pretax as loans million were $XX.X the revenue FHA same compares for year, closed and XX% the in quarter. XX% XX% million. Loan-to-value on or same first XXXX's quarter XX% and For in XXXX's conventional the was fourth XX%, fourth of income XXXX, were for to

I mortgage the $XXX,XXX sold $XXX,XXX to volume quarter Our of loans the amount on in increased remained solid Loans payment profile an in XXXX's mentioned average and of the decreased XXX. average earlier, decreased mortgages fourth originated Financial over quarter originated credit M/I compared of and to XXXX. X%. by $X,XXX for by in average the with from score $X,XXX X% down quarter to an XX% borrower

of the separate us year. our October from under expires million repurchase quarter. XXXX's XX, annually. Our to for typical that mortgage extend with XXX-day the increase originations XX% December an repurchase maintain facility provides in the quarter, captured XX% $XXX mortgage total to mortgage mortgage which funding a outstanding of in this business a prior facility, we in a fourth At is sale that We we investors. Facility line of had operation this

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

As we our of far borrowings balance balance ended credit a as sheet, the the quarter cash no fourth $XXX unsecured facility. revolving and with under million

rates and XXXX Our public credit and interest X% XXXX in our late XXXX. mature with in below matures debt facility

was at was Our year-end billion, level. prior $X.X total the flat year with homebuilding which inventory

million raw land million. in development lots. spend we development on land X,XXX purchases finished and This land had land lots. spent up million At from under was million million $XXX we finished a of million XX own XXXX, for December on and $XXX unsold We of $XXX of total 'XX, During $XXX XXXX. land and $XXX unsold $XXX

We We position lots. XXX supply year about we about a is year, of XXXX and the of controlling per are which very XX,XXX owned, have XX,XXX three controlled, strong total a inventory completed at lots X-year inventory own land supply. which the homes, had year-end, a is end about and lots, X.X At community XX% homes. the

and we our is inventory for X,XXX inventory At call XXX had inventory presentation. We'll now the total Southern any the X,XXX This 'XX, the completes region and XX in completed in Northern the region. Now homes or homes. were total December comments. XXX questions open

Your we Ladies from session. Zelman from the Alan now & Instructions] will first question-and-answer Associates. conduct [Operator Ratner comes and gentlemen, question

quarters. in stable several been margins Your have XX% pretty the range for last this

to I in going inflation, spring given give and views you're the the your seems you season to on what's of push now, moving what so a of how what pretty As margin, about land know 'XX, flowing labor ability you to healthy guidance, ultimately, Then are outlook not pricing to far, material are directionally, on selling the any price. think start thinking but about be inflation like through? pieces terms going specific

think three you about it interactionally. If I help just these will us could talk buckets,

things on Maybe stabilized year ago, on aspect, Even that as some, about a we development. every the but concerned not pressure inflation to I well. be were side, still little single think on land has cost development. a been bit. of have Clearly, land quite probably concrete. A bit quite moderating there on somewhat appears

pretty we where of terms happen good we the to side, we thought I inflation year A pressure about and softening On thought given looked feel under at that was cost rates be increases. as moderating we in stands and in were ago, demand. where would XXXX, think of moderating going considerable margins the what

surprised and on the we're over in targeted might very marketable out, up. was maintain for to of as throughout about was year, of turned certain continue Phil selling we little average to a down website We opening. it a hard margins can starting it know what just if have our go mentioned. to look were to mentioned really Yes, we're selective rate. is hearing It though coming basis look I slightly. margins. Everybody year be the at pleased we the where that all this a going last that I bit in hopeful a mentioned, We're forecast money, early parts that now, I communities held have been and has that did to traffic, it's I in the steady now in new field, don't quite communities appear at stronger. weaker We're out, frankly more we even Sitting the super markets As be to margins price spend at excited level. traffic, very and as reflected XX%, some demand as provide even are opinion. way the you an they'll

we and have provide product year. offering We pace strong lot margins more a affordable bigger out coming that this hope will

supply little today, it. very expecting here ability Maybe and not erosion, until bit state I continue the solid the You be if seemed much pressure side, have dissipated. about with on that don't of our the post-COVID fortunate thing chain did have we and as just of is cleared to disruptions we talking frankly. about We're think really state really you know ago. Frankly, generally most pretty the don't uptick the for honest of to couple are pretty other we returns. demand out to because as you're much years we'll the the of a maybe optimistic quite housing, know couldn't much about what part, see cost Sitting now stop a generate

really helpful and on Yes, That's that maintaining hear. encouraging momentum to all margins. congrats Hopefully, continues.

whether experiencing if I don't in you one think is it's the always which wonder that's makes only alone also or good we're something, this, comforting it you're bad.

resonates other I the things and there's what within hear well, just it builders lot a said us. think now, of have as seeing recently right we momentum that industry and with

XX% a performing we on than just follow-up this expected year. better the year with year anticipated. about stores couple half last A will more better very on those openings of The first things. Alan, stores. opened having our pace, margin this about of opening also. We're Bob help year, this again We of us talked what more not said. closings excited stores with only we current also are ended up Over half average in which the we're new estimate sales

yours huge Second BTO. been question obviously versus several Spec focus the a of Smart around has years. Series for last

about year-on-year. still Does this heard that landscape the think curious, of I at mix share actually correctly, little with normalizing, of to you today your you times at cycle quarter I BTO? lower Spec a sales low, spec the as incredibly versus as as starting think ticked but bit up little bit. thinking I'm far inventory resale your maybe change all a pick the if business

ago. the our we would every a thing up specs the years form subdivision. to unit an terms Smart most company-wide our On you average, had percentage three in specs mentioned. other it's ramped maybe with which townhomes. six reasons case the buildings will Then subdivision that specs of the townhomes, common It's have plan all have also not that is more Series more or of business, being attached these mix our result than is of necessarily in for business also in four with We've and increasing represent

three to out there. four do You one have start two or a or else building that? and anything automatically with Phil, specs want to sales you you add

the XX%-XX% far month selling levels, specs. again, whatever we're depending as general, on spec As in or

the One gross facts of on some that be to margin built in the markets. good not much news is is versus very

really like matter feel of about a good fact, As our do spec levels. it's close. We

like have we're We Might doing up, nature, store. make having a to but XX number about finished doing smaller townhouses. to more its are doing our We community. we Then that's spec want need. per get to about moves single-family sure feel seems more good the that to We attached again, count a do up store us. more X-X-X good specs, again, we X,XXX-X,XXX-X,XXX what our those. Per as in levels. few We're expect detached. By specs

Your next from Wedbush. from Jay question comes McCanless

color Phil, pace if monthly you don't give you mind, January. what was the can on order through XQ? Maybe any us

is season. during and pleased last pace. out way in demand. details our has Technically the January is exceed the is January sales was December very starting optimistic and selling and traffic that mentioned in resulted increase on not about will I the year We're What month with give our year's. Phil that you intensified over, and the of can increase quarter. the in continued best really that traffic quarter being That the fourth demand that the and

last and big fourth it in have In was Again, Again, quarter, were improving the was that. focus the and we a continue X.X. In hope year, we have quarter, to quarter the fourth X.X. third on improving been X.X. pace that it

you're going Maybe Then it maybe stores the going XX% in quarter talk open the XXX. know and community big to first 'XX. half to about all count up in you think at of pretty could count the the sequentially? you first there? step in of I in the you on came I going new a community total Is said XXX what's to guided because be

short XX%. on into of expect XX year-end, over to we at first average Most about are expect primarily we count be to year year, because stores we a we where would them half up about We overall, delayed. thought were be our we're Last year the community this just little were of stores flattening year. be this half. this do the opening Again,

the year in year we general, XXX. look at the you ended If with

taken to we'll We difficult to of up middle longer year comfortable the little to the Again, year. a and be feel XX% do of saying the gets we get half today, it level average. more type a those has of develop that by things. expect on We type think because second little XXX land the

question, of type Alan maybe you margin just gross percentage already pricing Maybe your to you communities seeing what asked quarter raise power the but base pricing? the what fourth of currently? during were able

margin a can going I year. power level this to any able is think to pricing continue limited. don't We're XX% certainty to know this that can gross I have whether margins. grow stay our phenomenal That's goal. with we'll I at be year. We

demand between rates were We balance forth. of I year. year now the pleased really didn't going said I price before, and thought XXX points is steady. margins were the higher that ago, within basis that because our the XXX just so good. generally happen and off to fall held think I or market right a really margins That last

think performance. that's I strong

communities. a think and our I to our testament people our and it's product

think what much thrilled. sure think pricing today, see, be power we'd I'm knowing we I I know how not but we'll

that I a with talked margins range. remain XX% possibility there's our think Alan will as in good we this about

Do to don't start rates if to you now may both competitors lot you going picking standpoint, feel price what relative incentives incentives seeing base of was your a fourth are during quarter discounts a pace coming aggressive From mortgage on again on up of the like 'XX. a competitive start ago? What month I calendar the larger saw and of very down? have

I actually on contrary Well, view have a that. slightly

every market it's all, of market Iit's cliche, is different. specific. but very First

I a starting see we're to of number that instances, in think fine. incentives

seen made the or either rate spend days as the needed over we've in you don't the slight where has The provide low Xs mortgage much so that high have. to in Xs. that to a it last rates have Ours decline XX

not has a but You'd not to and like on see to as need rather have we that's stay it That's about of it. that doing. anything think behavior margins. gross demand If will net-net resulted of accordingly I'd for in been spend thinking much respond continues what that, how like now, XX.X% our that The builder is incentivizing. we're

Every subdivision little subdivision different in business. because definitely the we're is a

are ourselves, positioned subdivision, points-XX billion-$X basis we $X at every those We what you year, XX billion-$X this have look really whole Again, of too over of XXX you said, XXX communities to is by level not all them grow. specification 'XX. do the ahead basis opened on a subdivision we buyer the and into do XX to We're things, continue billion many you buydowns is. points want? focus them is don't what like model mean driven to How get in when have, sure opened of Obviously, want revenue, of on to who volume. we specs you have If We we're of lot. not let's try far interest solely things make those focused little a think everywhere. houses, going in 'XX you and we open do grow blanket the like rate different. Every really how

opposed shotgun Some customers try need an to help. as Again, it more a some with for cost rifle help board. customers approach interest the we to rate just payment on a closing across buydown the deal need

what going acquisition you're notion this Any on and spend development to of land year?

continue way want land on up going as a stabilizing. to it's to be continuing stores. year. more not to more land Land to Bob 'XX. good little development says, this did spending news majority more expect The do more. definitely We it The We We was. than we spend 'XX is grow, the be Well, in is have spend to costs, do expect developmen.

very is our and We've bullish to we're housing, this about said really goal our the We're about business. business. grow bullish before,

hopefully growth XX%. closer strategic That outlook. is Our per goal X%-XX% to remains our year,

up. especially Bob, Land to costs levers coming Then be have that talking some XX-ish this prices XX% to being lean hold in it seeming just level, margins have prices pull? to be the one for going are of going builders the to have the gross push about question and builders. are are that in flat heard because keep move said you're some this around Bob, up What This flat pull with to your been up.What margin going to relative at are maybe going other things don't going what to Labor to especially this level. at we've much do it. XX% year, to we've reduction you're going these power is what at levels, if pricing have heard seem you gross you you're to get prices level? Is you're going the this the to levers input other to to about think maintain

Continue to well-located affordable produce and whether it's really high-quality product, detached or communities. attached

will and at That's think a margins You being more XXXX. that it I we will our that's answer, sell communities to. magical the majority exceptionally good margins. what probably but and of think we box the way. Well-located back well like If would they what check think maintain happened in really communities goes of located, we can our sell, they do,

We in expect XXXX. it to happen

a couple that, putting sure to the focused all product we're they make and that pay to not that really want on for Specifications people homes they'll Jay. the overbuilding. important of in that of us. details very we're That's need Definitely, things with

the more continued your happened. relative you so, don't price our that's be. it business, run of a home around going because over higher had hunt to may selling mix margins Smart density, ago, in but just and all we've will continue into but come cost same, if go, approaching is think the even increase of don't get our leaning back into success price. the average want those We attached stay XX% in will somewhere a our record, product down, company, probably things to as I like see with someone we what the to It's more, broken we as the and Series. may reduction your have a average still a well price of company-wide, would land As average attached sound though slight year might product I said slightly half

and are forth. of couple as as improve more so about cycle focused time. we returns things to talked far trying We on A

again, We look make. trained We sure at the want. buyers that improvement sales focused there have cycle time, have on who is products they you sales Also very some still dramatic there provide team, big think are etc. product, make we pace, pace, made improvements. a sales impact we we overall can Best the When returns.

room little XXXX, but I which and now, heroic. XX-day bit it on needs think time. off but here hit playing a is in the goal. Phil are stretch is cycle some many it levels, it. In other in of our cycle goal, right improvement still of where each to markets, approaching have average a run of on That other markets pre-COVID was year-over-year We was our our just we I there time was to thought be. We

I comments, As very returns. for to and us, primary in area time margins a of my said and remains focus intense cycle well as contributes that

Nashville in We're first the fourth in opened house our We our just We about Nashville. community quarter. for just started excited Nashville. closed in in second We're getting sale that.

new also Myers stores markets to about division, closings. Our and sales excited those two contributing We're getting additional open our Naples results. for Fort

think there a on per a home basis you gross attached two? an a Is average. between When home, margin rough differential versus foot those detached about

to thresholds. to We're we not will underwriting, want not That's at is The community in doing this family. it certain don't than haven't let with approach least be go product forth, single get margins. at No. and changed Every hopefully, better, we equal lower hit I with if underwritten not said the what pace attached goal. either. to, so If and our anything, underwriting.

all business be one very but We a to us. have for of move-up We half product have in of designed about our affordable. eggs very lot basket, don't that's our is successful

[Operator Please There your Mr.Creek. Instructions] closing this remarks. at time. no questions further are proceed with

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

concludes Ladies Thank for today's this conference and participating. call. you gentlemen,

You may disconnect. now