M/I HOMES, INC. Q1 FY2025 earnings call

• Macro environment was challenging with changing economic conditions, interest rate fluctuations, etc. Continued use of rate buydowns to drive traffic and sales.
• Solid first quarter results despite new contracts down 10%, gross margin 25.9% (sequential improvement).
• Balance sheet was strongest in company history with $3 billion equity and zero borrowings under revolving credit facility.
• Community count ended at 226, on track to grow 5% in 2025.
• Mortgage company had strong pre-tax income and revenue growth.

Homebuilding Segment

• New contracts down 10% compared to last year. Revenues decreased by 7% to $976 million.
• Gross margin was 25.9%, a sequential improvement over 2024's fourth quarter but down 120 basis points from last year's first quarter.
• Deliveries decreased by 8% to 1,976 homes.
• Community count ended the quarter at 226, on track to grow by an average of 5% in 2025.
• 58% of deliveries from Southern region, 42% from Northern region. Owned and controlled lot position: Southern region increased 11% y-o-y, Northern region flat. Company-wide, owns ~25,000 lots and controls ~26,000 via options, total 51,100 lots (about a five-year supply).

Mortgage Company

• Pre-tax income was $16.1 million, an increase of 31% from 2024's first quarter.
• Revenue increased 17% to a first quarter record $31.5 million due to higher margins on loans sold and higher average loan amount.
• Loans originated decreased 2% y-o-y, while loans sold volume increased by 26%.
• Average loan amount increased to $406,000, borrower profile solid with average down payment 17% and average credit score 746.

• Will continue to offer rate buy-down incentives. Gross margins likely under pressure throughout the year compared to 2024's full year margins.
• Optimistic about long-term homebuilding industry due to undersupply of homes and growing household formations in 17 markets.
• Expect a solid year in 2025.

• Macroeconomic uncertainties, including volatile stock market, threatened tariffs, inflation, interest rate fluctuations, and declining consumer confidence.
• Potential impact of tariffs on costs and consumer confidence.
• Continued need for rate buydowns which may pressure gross margins.

Q: Drilled in on geography and price point, any notable shifts in buyer demand?

A: Bob Schottenstein noted no major change in price point demand, Smart Series (54% of sales) and move-up communities. Geographically, Tampa showed signs of life, Indianapolis, Cincinnati, Chicago, Houston, Dallas strong; Detroit softer.

Q: On spec strategy, spec margin differential and whether dialed back starts?

A: Bob Schottenstein said specs have slightly lower margins (150-200 basis points average), but balance with buyers. Derek Klutch added subdivision-by-subdivision management, attached townhouses and Smart Series have different spec strategies.

Q: On order pace, units under construction, starts related to pace?

A: Phil Creek said continuing to be careful with units in the field, balancing margin and pace on subdivision basis.

Q: On buydowns, how they differ in conventional vs FHA/VA loans and efficacy?

A: Bob Schottenstein said rate buydowns are effective tool to drive traffic, protect sales backlog. Phil Creek added focus on monthly payment, mortgage company helps with individual customer needs.

Q: On lot cost inflation, tariff impacts on costs?

A: Bob Schottenstein and Phil Creek said sticks and bricks costs stable, no major tariff impact yet; lot costs continue to rise but no significant price movement seen.

Q: On balance sheet, share repurchases, accelerating pace?

A: Phil Creek said consistent repurchase strategy, will continue to look at but maintain conservative approach.

Q: On gross margin backlog, exit velocity, pricing power?

A: Phil Creek said gross margin backlog flat, exit velocity unpredictable, pricing power limited, especially in current environment with little true pricing power.