M/I Homes Q1 2025 Earnings Report

M/I Homes EPS Results

• Actual EPS: $3.98
• Consensus EPS: $4.16
• Beat/Miss: Missed by -$0.18
• One Year Ago EPS: $4.78

M/I Homes Revenue Results

• Actual Revenue: $976.09 million
• Expected Revenue: $1.12 billion
• Beat/Miss: Missed by -$144.81 million
• YoY Revenue Growth: -7.40%

M/I Homes Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 10:30AM ET

M/I Homes (NYSE:MHO), together with its subsidiaries, engages in the construction and sale of single-family residential homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee. The company operates through Northern Homebuilding, Southern Homebuilding, and Financial Services segments. It also designs, constructs, markets, and sells single-family homes and attached townhomes to first-time, millennial, move-up, empty-nester, multi-generational, and luxury homebuyers under the M/I Homes brand name. In addition, the company purchases undeveloped land to develop into developed lots for the construction of single-family homes, as well as for sale to others. Further, the company originates and sells mortgages; and serves as a title insurance agent by providing title insurance policies, examination, and closing services to purchasers of its homes. M/I Homes, Inc. was founded in 1976 and is based in Columbus, Ohio.

M/I Homes Q1 2025 Earnings Call Transcript

Key Takeaways

• MI Homes reported Q1 results with new contracts down 10%, home deliveries down 8%, revenues of $976 million (–7% YoY), and pre-tax income of $146 million (–19%), achieving a 25.9% gross margin and a 19% return on equity.
• The company used mortgage rate buy-downs in 54% of transactions (up from 50% in Q4 2024) to drive traffic and sales, but expects continued margin pressure until demand stabilizes.
• MI Homes ended the quarter with a record 226 communities (up 5% planned in 2025) and holds 51,100 owned or controlled lots—approximately a five-year supply—to support future growth.
• A strong balance sheet featured $3 billion in equity (book value of $112/share), zero borrowings under its $650 million credit facility, a 19% debt-to-capital ratio, and negative 3% net debt-to-capital.
• The mortgage and title operations delivered a 31% increase in pre-tax income to $16.1 million and 17% revenue growth to $31.5 million, with an average loan amount rising to $406,000 and 92% internal capture of financing.

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the MI Homes First Quarter Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 04/23/2025. I would now like to turn the conference over to Mr.

[Operator]

Phil Creek. Please go ahead.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thank you for joining us. With me on the call is Bob Schottenstein, our CEO and President and Derek Klutch, 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.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

With that, I'll turn the call over to Bob.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks Phil. Good morning everyone and thank you for joining us. In the 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.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Before we do, however, I want to address more specifically the macroec the macro environment and how it has impacted the housing industry and our business. When we last spoke sharing our twenty twenty four 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.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Clearly, has not happened. Instead, what we have seen is the continuation of choppy and challenging conditions. Where there while there has been some uptick in demand during the first quarter, the spring selling season has been just okay. Frankly, we graded somewhere between a b minus to c plus. Clearly, 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.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

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 strong 25.9. A sequential improvement over twenty twenty four'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 twenty twenty four's full year margins of 26.6%.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Fifty four % 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 nineteen seventy six homes and revenues decreased by 7% to $976,000,000 Pre tax income decreased by 19% to $146,000,000 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 two twenty six 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%.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

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.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

30 2 Percent 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 twenty twenty five with the strongest balance sheet in company history with all time record $3,000,000,000 of equity equating to a book value per share of $112 We also ended the quarter with zero borrowings under our $650,000,000 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.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

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 homebuilding 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 twenty five and expect to have a solid year in 2025. And with that, I'll turn it over to Phil.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thanks Bob.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Our new contracts were down 10% when compared to last year. They were down 20% in January, down 10% in February and down 2% in March and our cancellation rate for the first quarter was 10%. Fifty % of our first quarter sales were to first time buyers and 65% were inventory homes. Our community count was two twenty six at the end of the first quarter compared to two nineteen a year ago. The breakdown by region is 98 in the Northern Region and 128 in the Southern Region.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

During the quarter, we opened 27 new communities while closing 21. We currently estimate that our average twenty twenty five community count will be about 5% higher than last year. We delivered nineteen seventy six homes in the first quarter, delivering 78% of our backlog and about 35% of our first quarter deliveries came from inventory homes that were sold and delivered in the quarter. And at March 31, we had 4,800 homes in the field versus 4,500 homes in the field a year ago. Our revenue decreased 7% in the first quarter and our average closing price in the first quarter was 476,000 a 1% increase when compared to last year.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Our first quarter gross margin was 25.9%, down 120 basis points year over year and up 130 basis points over last year's fourth quarter. Our first quarter SG and A expenses were 11.5% of revenue compared to 10.5 a year ago. Our first quarter expenses increased 2% versus a year ago. Our increased costs were primarily due to increased community count and additional headcount. Interest income, net of interest expense for the quarter was $5,200,000 and our interest incurred was $8,800,000 Our pre tax income was 15% and our return on equity was 19%.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

During the quarter, we generated $154,000,000 of EBITDA compared to $187,000,000 in last year's first quarter and our effective tax rate was 24% in the first quarter compared to 23% in last year's first quarter. Our earnings per diluted share for the quarter decreased to $3.98 per share from $4.78 per share last year and our book value per share is now $112 a $17 per share increase from a year ago. Now Derek Klutch will address our mortgage company results.

[Derek Klutch, President & CEO of M/I Financial at M/I Homes]

Thanks Phil. Our mortgage and title operations achieved pre tax income of $16,100,000 an increase of 31% from $12,300,000 in twenty twenty four's first quarter. Revenue increased 17% from last year to a first quarter record $31,500,000 due to higher margins on loans sold and a higher average loan amount, partially offset by a slight decrease in loans originated. The average loan to value on our first mortgages for the quarter was 83% compared to 82% in twenty twenty four's first quarter. We continue to see an increase in the use of government financing, as 57% of the loans closed in the quarter were conventional and 43% FHA or VA, compared to 6832% respectively for twenty twenty four's first quarter.

[Derek Klutch, President & CEO of M/I Financial at M/I Homes]

Our average mortgage amount increased to $406,000 in twenty twenty five's first quarter, compared to $386,000 last year. Loans originated decreased to $15.30, which was down 2% from last year, while the volume of loans sold increased by 26%. Our borrower profile remains solid, with an average down payment of 17% and an average credit score of 746 compared to 747 in twenty twenty four's first quarter. Finally, our mortgage operation captured 92% of our business in the first quarter, up from 88% last year. Now I will turn the call back over to Phil.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thanks Derek. So the balance sheet, we ended the first quarter with a cash balance of $776,000,000 and no borrowings under our unsecured revolving credit facility. We continue to have one of the lowest debt levels of the public homebuilders and are well positioned with our maturities. Our bank line matures in late twenty twenty six and our public debt matures in 2028 and 02/1930. Our unsold land investment at March 31 is $1,700,000,000 compared to $1,400,000,000 a year ago and in March 31, we had $866,000,000 of raw land and land under development and 803,000,000 of finished unsold lots.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

During the first quarter, we spent a hundred and 46,000,000 on land purchases and a hundred and 2,000,000 on land development for a total of 248,000,000. And at March 31, owned 25,000 lots and controlled 51,000 lots. At the end of the quarter, we had 700 completed inventory homes and 2,400 total inventory homes. And of the total inventory 900 are in the Northern Region and 1,500 are in the Southern Region. At 03/31/2024, we had 400 completed inventory homes and 1,900 total inventory homes.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

We spent $50,000,000 in the first quarter repurchasing our stock and have $200,000,000 remaining under our current Board authorization. Since 2022, we have repurchased 13% of our outstanding shares. This completes our presentation. We will now open the call for any questions or comments.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer first question comes from Alan Ratner at Zelman and Associates. Please go ahead.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Hey, guys. Good morning.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Job in a

[Alan Ratner, Managing Director at Zelman Partners LLC]

tricky good morning, Nice job in a tricky environment out there. It seems like it's changing by the day, so I'm sure it's not easy. First question, Bob, I'd love to drill in a little bit in terms of what you're seeing both from a geography standpoint and a price point perspective. Just curious like with all of the moving pieces going on, have you seen any notable shifts in buyer demand either within price points, Smart Series versus they move up or geography, any kind of relative winners and losers given all of the noise today?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Well, great question. As it relates to price point, let me let me address that one first. Not really, much of a change in demand. We have a number of very high producing smart series communities throughout the company, which is our product line that primarily caters to the first time buyer. It's roughly 54% of our sales, were Smart Series sales and that's been about what it has been.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But we also have a lot of really strong move up second time, third time purchase communities. I don't think there's any real conclusion to be drawn on that. If there was, that would be something that we would be all over. We look at that constantly. It's a great question.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Geographically, I think there have been some noticeable differences. Particularly during the latter part of last year, the Florida markets, I would single out rather Tampa more so than Orlando or Sarasota. We're sort of just getting started in Fort Myers Naples, so we don't have enough critical mass to really draw a conclusion. But Tampa was clearly struggling more than the other Florida markets. It has rebounded somewhat in the last number of weeks.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Some of that is just more aggressive promotions by us with price. But some of it I think is a return buyers, a little bit better traffic. As we look around, Indianapolis has been quite strong, so is Cincinnati. Chicago has been a real bright spot for us as well. And, know, Houston and Dallas continue to be good.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Dallas is not quite as good as it was maybe three or four months ago, but we remain very bullish about both those Texas markets. I think that Austin has been in somewhat of a transition for all the builders there for about the last year and a half or so. And I think, but long term I think the Austin market is a tremendous market to be in. And then Columbus, I think our business has been very, very solid. Charlotte and Raleigh have held up quite well, comparatively speaking.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So Detroit a little bit softer. You know, that's sort of the way I see it. I mean, I think that the situation within the overall economy, which as you said is changing daily if not hourly, has certainly presented its share of challenges. Our new communities are off to, not all, but most are off to a very strong start. And I think some of our margin lift very frankly in the first quarter, sequential margin lift, which helped offset what otherwise would have been a little bit of a margin decline, more of a margin decline from a year ago.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I think the margin lift was buoyed by the positive impact of a number of our new community openings. And we're excited about the new communities we're opening this year. I don't think the sky is falling. Don't think it's any time to panic, but it's just a little bit of a hold on time. The spring selling season I think has been just okay.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

March was better than January and February. I guess we're still in it. April's not as good as March. But we'll look, it's no time to panic as I said. We're going to keep doing what we're doing.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We think we can have a very solid year.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Appreciate the very detailed rundown there and definitely encouraging to hear Tampa is showing some signs of life and, the new community performance as well. That's, those are all good

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And you know, don't think Tampa I don't think Tampa's going anywhere anytime soon. By that I mean, it's a city that is still seeing on average over the last four years, very respectable population growth. It's likely to continue. In fact, if you look at population growth throughout most of our markets, many of them over the last four years have seen four, five, six, eight, 10 percent population growth, which bodes well for household formations, which bodes really well for our industry. We'll get through this period of time, but I wouldn't want to be in any other business.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Gotcha. Appreciate that. Second question on kind of the spec strategy. I mean, you and others obviously have pivoted pretty hard towards spec over the last several years. Think you said it was about 65% of your sales this quarter.

[Alan Ratner, Managing Director at Zelman Partners LLC]

We've heard from some other builders that seem to be dialing back spec starts a bit here over the last few months given the choppiness in activity and others have kind of signaled trying to maybe bring down that spec share a little bit closer to longer term averages. I'm curious, A, what are you seeing in terms of the spec margin differential? I know you've actually seen some pretty healthy margins on your spec product, but, have you also dialed back those starts, more recently?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Well, first let's put it in perspective. This is an area where I think, and you know it probably better than me, but this is an area where there's a distinct difference in strategies across the various public builders. With some over the last few years going to a 100% spec approach towards the business. We increased significantly, five years we were probably 20%, thirty %, maybe 40% spec. Now we're somewhere between 5065% spec.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We sort of like the balance. In general, specs have sold at lower margins. And during some periods it's been 100 basis points, during others it's been 200 basis points. I think that the average in our company is probably today around 150 to 200 basis points. Some markets may be a little higher than that.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But we've been able to keep the gap between the two pretty close, not out of stubbornness. That's just where it's the buyers seem to be. But there is a slightly lower margin on specs in most of our markets.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

You know, also, Alan, it's just kind of a a subdivision by subdivision issue. Product matters quite a bit.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

You know, today, we're doing 20% attached townhouses. And attached townhouses, you know, tends to happen when you sell a, you know, a unit or two in the building, you start another building, etcetera. Also, our smart series, our more affordable product line, in general, we have a few more specs. If you look right now with us having about three finished specs per community, we feel very good with that. Also, with the rate buy down, it's pretty costly when you start getting outside a forty five to sixty day window to be buying down those rates.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

So again, we manage that on a subdivision by subdivision basis for sure.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Perfect, thanks a lot for all the detail. Good luck.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks, Alan.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thanks, Alan.

[Operator]

Thank you, ladies and gentlemen. The next question comes from Kenneth Zener at Seaport. Please go ahead.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Good morning, everybody. Thank you.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Good morning.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

I am interested on how you're thinking about your order pace, which it's a fall seasonality, it's just pace kind of maybe down a little bit if you look at the three and long term averages. But more importantly, how are you thinking about your units under construction and how starts are going to be related to pace as you kind of map out where expectations might be for your units under construction by the end of the year? I'm just you know, if you're building spec, you might want to build more spec, right, even if orders aren't there because it'll drive the closings. Can you talk a little bit about how you're thinking about that?

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Well, if you look, look at us today, you know, we do have a few more communities than a year ago. And as we talked about, we planned this year on having on average about 5% more. We talked about in my remarks that houses in the field today are like 4,800 versus 4,500. So we are continuing to be careful with what we put in the field. However, as Bob said, we're trying to manage very carefully on a subdivision basis.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

It takes a long time to get a locations under control, bought, developed, and opened. So we're trying to balance that good margin, good return versus pace. So it's just something that we manage on a subdivision basis constantly. We would like to do a little more volume than we're doing. Last year we did over 9,000 houses.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Our volume in the first quarter was down a little bit. But again, we're being mindful not to get too far ahead of things in the market. But again, where we are now with having a few more communities and a few more houses in the field, we feel like we're in pretty good shape.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Right. And I wonder, buy downs, which had been done in the 60s and 70s by builders went away. And I've always been kind of curious as to why that happened. It's you hear some builders talking more about price reduction versus mortgage buy downs. Can you comment on how those buy downs might directionally break apart or be different within your conventional loan structures where there's more down payment versus the FHA, VHA, which is a lower down payment?

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Are you seeing more of that efficacy in the lower down payment loans

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

products?

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

The first thing I would say is that, again, we manage that not only on a community basis, but a customer basis. Customers more in the entry level price point, a number of those customers may need more help in closing cost, being stressed a little bit for out of pocket, those type of things. Again, buyers are different. I don't know, Derek, Bob, do you wanna Well, couple things on it.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

First of all, mortgage rate buy downs today, I can't come up with a better or more effective tool given the rate environment and all the other issues and all the noise that we've been all talking about. I can't think of a better way to drive traffic and hopefully promote sales. Pure price reductions have a massive impact on backlog where people bought at a certain price. If you lower the price today, you're going to be retrading the entire backlog or at least big portions of it. So the great thing that the mortgage rate buy downs do is they protect the integrity of your sales backlog.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

That's number one. Number two, in terms of what we're offering, our government rate is the buy down rate is lower than the conventional rate. Today, on our FHA and government packages, we're generally on a thirty year fixed rate basis around four and seven eighths. Whereas with conventional, we're right around five and seven eighths. When and if this goes away, is I think when mortgage rates, either the spread over the ten year, which brings down rates, or rates themselves come down notwithstanding the spread, somewhere in the six or so percent range.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

There's, know, and then demand starts to come back. I don't think we have to get back to three and four percent thirty year fixed rate mortgages to get rid of rate buy downs. But you know, that's something that no one knows for sure. As rates do drop, cost of buy downs drops as well. But right now, it's let's call it for what it is, Kenneth.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's propping up the home building industry. If you took away rate buy from from every major builder in the country, I'm not sure where we'd be, but we wouldn't be where we are. And it's also a tremendous competitive advantage for the larger builders like us, who own their own mortgage company and are able to nimbly almost almost on a daily basis react to what's happening. And we've tried to do that as best as we can.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

I mean, primarily, we're in the payment business.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

And what's most important to the majority of the people is what's that monthly payment. And again, there's a different result based on a price reduction, which also can impact appraisal values of homes and those type of things, which Bob talked about. But again, the rate buy down, you know, it depends, you know, what the customer really needs. We try to be as efficient as possible. Our mortgage company helps us a lot deal with individual customers.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Customers need different things, and and we try to, make that available to them at at the most efficient cost we can.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Thank you for your thoughtful answer.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Appreciate it. Thank you.

[Operator]

Thank you. The next question comes from Buck Horne at Raymond James. Please go ahead.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Hey, thanks. Appreciate the time and the opportunity. Congrats on the results in a difficult environment. Thank you

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

for Thanks, Buck.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Yes, you're very welcome. Thinking through the kind of impacts potentially as the quarters progress for the remainder of the year and how you're thinking through things like lot cost inflation as it's going to roll through the income statement and also your stick and brick costs factoring in the potential tariff impacts. I'm wondering if you guys have thought through that in terms of the supply chain and kind of what kind of Yeah.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I'll

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

I'll give a little initial answer and then I think Phil has a lot more detail than perhaps I do on that. Just on sticks and bricks, right now, there's really been no impact. Our costs are essentially what they were a year ago. In some instances, they're slightly lower, which has probably helped some of the sequential movement on the margins. And despite all the noise which crescendos and then decrescendos, I can use the music terms on tariffs.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We haven't seen any impact yet. Will there be impact? Probably, but right now, I don't think that our industry has yet felt it other than it's probably having some effect on consumer confidence in some indirect way. My guess is, if we do see an effect, won't show until somewhere late in the year. When if those costs do go up by virtue of tariffs, they're reflected in our fourth quarter closings.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Beyond that, Phil, if you wanna add anything.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

No, we think our national account people and our purchasing teams have done a really good job. We've been working on a number of programs the last couple of quarters. And as Bob said, our sticks and bricks in the first quarter were actually a little less. So we're pleased with that.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

We're obviously trying to make sure that we're not single sourced anywhere. We have seen a little more availability of substance suppliers, but really that's about it. We're just trying to stay on top of everything as we can, you know, try to focus on affordability best we can with targeted product to make sure we have specifications right in our product line because lot costs are continuing to go up. But, you know, overall, we feel pretty good about where we are.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And and just to talk about lot costs for a second, because that's a that's an area that has a massive impact on affordability and the end price of a home.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

There's no component, as you know, that impacts the end price more than land and land development. I don't think anyone should count on much movement on land prices in any of the markets in which we do business. First of all, like many of our competitors, we're relentlessly focused on securing what we call premier locations. We're not the only one. There's a lot of competition, even if we're more careful about what we buy because we wanna make sure it pencils.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We haven't really seen much movement on the price side. Maybe better terms, by that I mean, maybe able to push off closing or buy more time, buy more time given the fact that in some markets it's taking longer to get things zoned, it's taking longer to get approvals. A seller understands that. They know we're not going to close on unzoned ground. That's just not what we do and most of our competitors don't either.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

So other than the term side, there really hasn't we haven't seen much nor do I think we will see much on the price side. I don't think there's the old line there. They're not making any more of it. Land is what it is and the strong locations I think are gonna continue to command top dollar prices. And if you wanna play the game, you're gonna have to do that.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And that's and we're prepared to. Our balance sheet has never been stronger. We've got a great land position. We own less than a three year supply. We've always been very disciplined on that.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Our strategy with respect to owned and controlled really hasn't changed. We're not big on using land bankers. We don't feel like we need to and we don't want to pay, I use the t word, we don't want to pay a tariff to land bankers when we don't have to. And we feel really good about our land strategy, but that part of the component of the end price, I don't see much change on that anytime in the foreseeable future.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Very helpful. I appreciate all those detailed thoughts. Just want to shift, you mentioned the balance sheet of course never being in a stronger position than it is right now. Your shares are now below book value. It sounds like you're potentially dialing back the start space for the remainder of the year.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

You have remained very consistent with the cadence of repurchase activity, but just wondering if you would consider leaning in to current market conditions and accelerating the pace of repurchases.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

It's something we always look at it. We talk about it every quarter with our board. We've tried to maintain consistency. We're not trying to game the time in which we purchase. We think a consistent approach is the most sound one.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And in all likelihood, what we have been doing, we'll continue to do. Phil, don't know if you have anything to add.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Yeah, Buck, mean, like Bob said, we've had a consistent strategy the last few quarters, buying $50,000,000. And you know, we think now is a is a good time to have lower leverage, and bank line availability and those type of things. You know, our interest encourage, one of the lowest in the business, and we like that position.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Something we'll continue to look at, but, again, we're just trying to be very mindful to make sure we're positioned very good. We've always run a a conservative company, and that's kinda kept us where we are and so forth. But something we'll continue to look at, but we feel really good about where we are.

[Buck Horne, Managing Director - Equity Research at Raymond James Financial]

Alright. Very good. Thanks for the thoughts, guys. Appreciate it.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thanks.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thanks.

[Operator]

Thank you. The next question comes from Jay McCanless at Wedbush. Please go ahead.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Hey, good morning, guys. First question I had, where do you think the gross margin backlog is right now relative to what you saw in first quarter and maybe directionally how that's been trending so far in the second quarter?

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Know, Jay, that's a pretty it's a pretty flat number. But, again, as I said, about, you know, 35% of our closings during the quarter came from spec sales that sold and closed in the quarter. So, talked about the continued pressure on margins. We're doing all we can to keep those margins as high as we can. But, we were pleased with the 25.9 in the first quarter, but we think there'll be continued margin pressures as we go through the year.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

And then, know, the exit velocity from January to March, it looks like orders continue to the order comp continue to get better. For all of 2Q, you guys have an easier comp to last year, I guess. You know, what are you seeing right now out in the field, whether it's from resale competition or other headwinds that that, could make the rest of the quarter maybe trend a little bit lower than what you saw in March?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Boy, you know, if I knew what sales were gonna be like next week, I would tell you. It's there's been so much, you know, we're all sick of the word uncertainty. But there has been so much uncertainty and so much volatility just within, you know, the economy in general. But that's translated itself to demand as well, week to week. You know, some weeks we see a big uptick in traffic, then the next week it comes down.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

There's been very little consistency. It's been highly unpredictable. I actually thought our margins would be lower than they are. They've held up better than expected. It's not because, you know, what's the term that I heard used the other day?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

We're not trying to be margin proud. I like that line. We think we're balancing our margins with what it takes to get our sales to where they need to be. We know nothing good happens unless you sell something. And we're pushing to sell as much as we can.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But right now, I think the second quarter's, if I had to guess, I think it's gonna be up and down uneven and mostly on the challenging side. But I don't know, I'm hoping that we'll be pleasantly surprised. The sky is not falling. And I said that earlier. And I think the stocks are trading at ridiculously low values, suggesting almost that this is like trending towards some kind of recession or great recession, which I think is I just don't subscribe to that at all.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

And bringing 15% to the bottom line and a near 20% return on equity. The first quarter was one of the best first quarters in company history. It wasn't as good as a year ago, I get that. But we're poised to have a very strong year, and at least a very solid year. Compared to last year, likely down unless something significant were to change.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

But that's no surprise. But I think we're very well positioned. I think many of our peers are very well positioned. I don't think see anything crazy happening out there with builder behavior, including us. So just think it's very very hard to forecast and give that kind of guidance.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

If you do, you're gonna end up, know, we've never led the league in guidance anyway as we're often reminded and we're certainly not gonna start now. So that's a hard one, Jay. I respect the question completely. I don't mean to be less than honest about it, but I just don't know.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

You know, Jay, I mean, you're right.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

I mean, if you look at the second quarter of last year, our sales were actually up 3%. But I mean, we were surprised January and February sales were weaker than we thought. March was better. And we're not sure exactly why. Again, it's just something we watch every week community by community.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

We did open, you know, 27 stores the first quarter, and we're gonna be opening a lot of stores a year as the year goes on. But it's still just very choppy out there.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Okay. And then, Phil, could you give me the total spec numbers at the end of the quarter and and where they were last year? I didn't catch those numbers.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

The spec quarter the spec numbers?

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Yeah. Compared to what you Yeah. The spec numbers.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Yeah. If you look at the end of the quarter, we had 700 completed specs. A year ago, we had 400. And as far as total specs, now we have 2,400. And a year ago, we had 1,900.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

We feel really good where we are, you know, basically having about three completed specs per community.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Our community count is up too.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Our community count is up and we talked about it being up, you know, on average about 5%, and it should move up as the year goes on. So we feel good about where we are, managing that very carefully. There is most of the time a little bit of margin leak between specs and to be built.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

But again, we try to be very careful, you know, how we price and sell those specs also.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Got it. And then and then the last question for me, just pricing power. What percentage of communities were you able to raise prices quarter?

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

A good question. That that's just a really difficult question. You know, we we've been pleased with the ASP and the margin and the pace of the new communities we've opened the last couple of quarters. In general, they're performing a little better than we thought. I mean, we've raised prices where we can, but and we feel really good, especially about our new communities.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

That's just a really tough question. But, you know, when you look at our margins at 25.9, you know, again, we're pretty pleased with that.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

One of the I know some builders report that information. Where that gets very confusing is when you open up new phases in an existing community and you always intended the new phase to be at a slightly higher price because the lot cost is slightly higher. Is that pricing power?

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Do you call that pricing power? You're trying to hold the margins the same? I'd say where there's true pricing power is probably less than 10% of our communities, if I had to put a number on it. Right now in this environment, there's very little pricing power.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Understood. Okay, thanks guys. Appreciate it.

[Robert Schottenstein, Chairman, President & CEO at M/I Homes]

Thank you.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

Thanks Jay.

[Operator]

Thank you. We have no further questions. I will turn the call back over to Mr. Phil Creek for closing comments.

[Phillip Creek, Executive VP, CFO & Director at M/I Homes]

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

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

Participants

Executives

• Robert Schottenstein, Chairman, President & CEO
• Derek Klutch, President & CEO of M/I Financial

Analysts

• Phillip Creek, Executive VP, CFO & Director at M/I Homes
• Alan Ratner, Managing Director at Zelman Partners LLC
• Kenneth Zener, Senior Analyst at Seaport Research Partners
• Buck Horne, Managing Director - Equity Research at Raymond James Financial
• Jay McCanless, SVP - Equity Research at Wedbush Securities