- Earnings call transcript Q3 2022

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Operator

Hello, and welcome to today’s M/I Homes Incorporated Third Quarter Earnings Conference Call. My name is Bailey and I’ll be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host Phil Creek. Sir, please go ahead when you’re ready.

Phil Creek

you. Thank

Mortgage the Krohne, Bob Legal Mark our Klutch, of on and our Officer; Kirkendall, today Hunker, President Susan Marie President; SVP our VP, call Treasurer. me Controller; Schottenstein, is CEO Derek VP Joining and Ann and Company; and Chief

as today’s First, Regulation cautionary discussing you made because release I’ll call we we turn language this about prohibited be undertakes forward-looking from statements Fair forward-looking encourage over call. any any with to ask call to this to this regarding material the issues to want And applies contained everyone advised comments during during non-public I Bob. in forward-looking any address significant obligation directly. With the made company items press the questions that no that Disclosure, call. to to that, Also to you you statements, consider are that also during update remind statements

Bob Schottenstein

afternoon for and Thank you, thank today. Phil. joining you Good us

We record XX% margins are by the XX.X%. to by income operating expense ratio increased for Pre-tax overhead income margins income $X Gross by report record quarter. pre-tax the million, points for basis XX XX.X% We strong also $XXX $XXX were Revenue revenue, to record XXXX, share and basis to to by XX.X%. results and margins quarter by improved XXX $X.XX. billion, SG&A financial XX% and by pleased of to increased per per returns improved basis by our points third very XXX improved report XX% points XX% highlighted share. increased increase and to pleased net to million to earnings record to earnings

XX% in return a of during very of strong All quarter. this the equity on resulted

and new ever as markets demand the XXXX, demand experienced. of Our financial that conditions as and experienced throughout strong good of we’ve quality was home within results reflect homes our where all we for record quantity market setting the new

doubled rise of rates. On the actions and points. year dramatically more mortgage and significantly response now mortgage in to factors primarily there changed beginning other federal general the increasing unprecedented across the rate, Reserve’s to funds that are of conditions. all has all demand since impacted hand, the In than things X%. have beginning have rates and exceed This this rapid since markets economic the benchmark due growth, the Clearly, homes job for influence year confidence consumer the price many including demand Federal

why industry recent in very However, and reason have in the and rise primary a rapid this noticeable seen entire is we significant pullback the rates demand.

During the the X,XXX that XX% quarter homes from homes, the quarter, we sold sold we third in decline of XXXX. X,XXX

communities quarter, we were a X% ago. year in than the operating During fewer

size basis also on a no perhaps And incentives it meet and has fits by provide nine different aggressively steps was across over the standards. growth time, if and/or cancel taking our subdivision Every of to is current pricing current terms the what now with every past Given strategy, we and longer current cash all meets the market adjust to carefully all reexamining deal is general months underwriting defensive operating overall even either renegotiate within necessary taking certainly and maintaining economy, deal conserving a not uncertainty conditions have demand. operating concerning and markets expenses, is a consuming debt state in to try one offensive focused never we’re a of our shifted strategy all the our subdivision from every approach or and predominantly on what levels, land the and mostly been. subdivision controlling sheet steps on strong balance our pending and focused the buy monitoring low and predominantly order

past some try achieving simply the no more XX% of about of put in than strategic done margins communities have some incentives quarters, our others, particular a gross XX%. be our require excess As community, incentives many very XX% between require to and number averaged very with margins pricing we’ve gross company-wide and at within careful we Past in our of all. communities

guidance home historically As dropping. the XX% as gross persist, roughly conditions to not margin these said a margins been over have is XX% providing current that regard, have any say past will years be be that not we building will we In has repeatedly and that than to business. margin five other

impact our from year the the days to Turning quarter. where ago, markets a third the of end XX in to deliveries, of the X% from due Ian approximately shift during quarter the XX fourth by of the we primarily Florida quarter our to delivery Hurricane saw declined closings last

Now, some additional I markets. our on will provide comments

income division by Minneapolis. were and Orlando Tampa, the Our Raleigh, Columbus, contributions third quarter in led Dallas,

year-over-year, in given However, decreased XX% and for in the the by region. XX% the came conditions the Southern decreased I of decreased Deliveries region X% region. Northern third decline the out out quarter year-over-year. deliveries increased the contracts in Southern of discussed region Northern XX% the X% deliveries of market region Northern in that the our earlier, in while by Southern XX% new region,

Southern do owned region, and and of the community and in the are new Northern ago our XXXX. lots lot our controlled Northern owned the other a by and Our increased controlled in of to number expect increased position by region a grow the XX% open in to year compared XX% XX% the region. in communities record count Southern in fully in to further XXXX region. We X%

very We are about good and our communities. feel excited

a additional X% roughly we and owned increased XX,XXX position. to a of lots. these contracts region, lots year On total, and owned half are in year roughly approximately supply. lots, a XX,XXX via a approximately total, XX,XXX XX% is own Company-wide land XX% lots In the have supply. control an controlled option we three Southern year-over-year our or five which the Northern this region. Of lots, strong in We top

– that conditions controlled XX% controlled earlier and changing of changing to to the to I give half in are noted about as us are owned agreements, flexibility react almost pursuant comments. market market significant option my we which the to Importantly, lots

of our In balance terms sheet, very is strong. financial our condition

are shape the ever. we best fact, In in

down Specifically an $X.X for year XX%. to cash over million unclear $XX is economy we unsecured In in the credit our from increase improve. of equity ended concerning ratio to of and a much ratio of homes book shareholders there’s of it will debt share, quarter a XX% facility. billion, general of last capital zero year, XX% uncertainty under of borrowings and the debt revolving net XX% a This capital with a new last $XXX million when record value $XX resulted demand some and

will benefit strong However, over a we demographic fundamentals general long-term housing the believe trends favorable strongly of housing undersupply markets. from and markets including throughout that our

given balance Phil. are manage it I’ll changing of and We levels, times, low uncertain the positioned With our and strength these through that, over diverse communities. debt product offerings sheet, turn to to well well located

Phil Creek

Bob. Thanks,

were rate Our August, down in September, new down XX%. for and our XX% quarter July, XX% down was cancellation third in contracts and the in XX%

profile, quarter. our compared to year’s were XX% buyer buyers first our in third of sales to XX% last third time quarter As about the

second to addition, XX% the of compared sales In XX% inventory third our homes quarter. in quarter were

were year at closing our in quarter. and XX% delivered the region the And of XXXX new And in the X,XXX in is the XXX Our backlog we third third impacted was ago, We compared negatively quarter Ian. currently We with in the homes breakdown about quarter delivering quarter, last Hurricane and quarter during ending homes down from community Southern a XX XX third deliveries estimate communities We ago. the year third XXX third end by quarter Northern XXXX region XXX XX% of the to opened count the XX% while by communities. a XX region. compared year’s to started XX. our

homes X,XXX homes which September year prior versus XX% the ago, Now We in field XX%. a the X,XXX at the in had year. X/XX XX, more over field up had homes is at versus we

sales to quarter, third reaching $X with Revenue the on balancing record, a our increased continue quarter in third production and market focus We XX% conditions. our pace billion.

increase $XXX,XXX. closing closing quarter price average was an a the for third quarter to to year’s average all-time XX% compared $XXX,XXX, Our price record third last

Now sales our all-time ago. $XXX,XXX. our record an average sales The And $XXX,XXX, price of average new price third line sale a up price year our $XXX,XXX our backlog $XXX,XXX. of also from is quarter backlog Smart was is average Series product contracts

was gross and Our points third margin the year-over-year basis points XX from XX.X%, up quarter. second quarter XXX basis down

was million. a the $XXX,XXX of pursuing. revenue was XX.X% and included compared SG&A to incurred deposits for million improving land expense write-off $X year third interest quarter quarter no third Interest longer the we that of of for points the for quarter were XX.X% expenses are quarter $X results deals ago. pre-acquisition and basis On our XX Our expense

are quarter. with the for our pleased We returns third

was on year’s quarter. pretax Our the EBITDA in $XXX income equity million quarter we last XX%. to of return generated $XXX XX% compared million third And was and our during

year’s effective credits. rate decrease to was energy the quarter the Our last of third was third extension tax in to quarter XX% XX% the compared due into the tax

in outstanding our quarter of our for we last diluted share quarters, And year repurchased up months million, earnings the And $X.XX per on shares We million increase $XX and available five an $XX book to last a XX%. which ago. per during value this have the of share X% share Our $XX the $X.XX shares. repurchasing in per from million $XX spent current $XX buybacks per nine stock our spent $XXX per now the under is share buying million of back outstanding million first leaves year, share share X.X for third quarter from increased repurchase authorization. our year, we

results. Now, mortgage our will Derek address company Klutch

Derek Klutch

Thanks, Phil.

as The pretax business. lower XX% from the purchase VA compared million of XX% and in sold, the to third the loans income due XX% average margins to pricing loans title XX% or we the to conventional continue year lower $X.X mortgage third volume compared for decreased year. quarter. experience in last $X.X million mortgages on XX%, was a Our for closed quarter. million our last for Revenue XXXX’s and and of X% and FHA were XXXX’s respectively to closed same achieved and due competition operations loan-to-value to quarter of third with $XX.X quarter first

to increased average Our quarter last mortgage to $XXX,XXX year. in amount compared the $XXX,XXX

was from volume the down loans, to decreased loans X%. XX% originated which last loans by of while year, sold X,XXX decreased However,

over average remains credit average by originated borrower down an with Our XXX. of Financial and mortgages profile M/I on payment an solid of score XX%

year. our Finally, captured our last third the compared quarter XX% XX% to of operation mortgage in business

Now, back over call the I’ll Phil. turn to

Phil Creek

Thanks, Derek.

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

lowest builders one and home have position We with the maturities. public of the of debt our our well levels

debt public XXXX, and in X%. our and mid-XXXX in matures matures XXXX line rates below bank Our as interest and

$XXX investment and of to unsold under billion XX September a At X/XX, $X.X at of unsold raw Our year $XXX land land development we land and is million ago. compared $XXX million had finished lots. million

completed XX,XXX lots about own During challenging is million. X,XXX At the quarter, inventory, deals on in of $XXX our million $XX inventory that control, on X,XXX third the XXX homes we our land we north for we and XX,XXX of are current raw. With inventory dollars for are total X,XXX conditions, now the And completes a homes unsold completed that XX,XXX This market those inventory own but spent total risk million. controlled X,XXX September lots our we had XX, not Breakdown XXX XX,XXX total XX,XXX lots year’s XXX and the do end land any $XXX we for development and closely quarter, total monitoring unsold lands had homes. and homes. We’ll the span of the finished, of and questions. under open the southern XXX, last million we At and are in development, the for owned lots. call purchases region the total $XX XX presentation. region. inventory and we At

Operator

of the & Thank go Associates. Lederman from you. ahead. [Operator line today Zelman Please from comes first Jesse Instructions] question The

is Your line now open.

Jesse Lederman

I’m you earlier you quarter. when questions, factoring you know for communities base net it your not is which really or which community down incentives? congrats strong if sequentially and price taking markets in mentioned by could on give estimate that I my thanks would little pricing you are which on, And is a basis. seeing the on Because curious, what community both Hi, incentives reductions just needed you and a and seeing a in prepared Bob, most. are remarks your color

Bob Schottenstein

Yes, hard great that’s and a question answer. one really a to

releases. that don’t you don’t As of you I know, every guidance, point your because one – know, we out give we in give

– so And but is responsive I’ll really try good really to I’ll what a to be question.

down. to to to any with XX% that do we’re it with and Pricing you. was in of not in land door one if is markets best competitor on having clearly and there of doing do we you Is Dallas but finish under incredibly lots pressure we for look, to but wouldn’t come very points, difficult XXX an because prices believe in be gone which will, point. that is Pricing come but to better. and is rapid owns easy, much too think or strategy. than And there so to going That’s for crack discounting beginning in that’s buying the builder settle more and is trying inventories all most know now. right be that that? community? what in is runaway example, interest How Are realistic know all much now see. in; we don’t I’m basis we’re little smarter know the where own basis And it to up through I the down that’s XXX It’s what a is just about be right come don’t many meet margins, rise I builder’s next I else, they really Austin a the intuition. to down we our I’m deep sooner. I I think tougher not very they’re for a on that we that don’t to XX% down margins prices science. points would’ve terms price us, to know. going be How take points, to seems factors markets in but some we’re see XX%. guidance, We What than going are builders. basis average down? are going rise be going range. the a their exactly different do are than considerably influence will to somewhere if company-wide. to might nut know us there, so, There much land to so that land XXX that holding Are company-wide sales pricing sitting they blunt just We art and demand. we think dealt just that’s that going very,

year builders a three-year supply. We supply. four own own Some barely a five to year

we Some builders have some zero. callable debt, have

we’re be hair’s our to Our not on hands, trying sitting on fire. we’re That doesn’t prudent. mean but

We’re trying the backlog. to protect

But been so think for I or backlog in most quite incentivizing our we’ve prices closed be successful exclusively done well –most and and I days, we able has recently XX margin of too do just of impacting with think now, disrupting one much. get without or without August, very it as quite close that appraisals. around have high days being job to we XX far well to not rates too we’ve much And with been mortgage September. is other that. competitive that to doing specs buying clearly hope us that And until up competitors XX incentivize in days homes down able can to that on and messing that by within base work the

got sell that’s, We’ve I’m year think a the division month, you. city within right having coming our premium to selling may is a all some any next still at at that you in we’re maintaining frank are for may to And to margins. I not but same go and very or two can and pricing be meets We there communities you know if and with a But backlog. having in underwriting tell new a but said. open we’re having and to price still two be the we’re that, that on; a up can averaging certain I and going what is where half yet fresh I’m said way to and there just close now, We’ll we’re it’s come from new to price trying below in disrupt communities. XX%. well to not reductions Now, the communities where discount, others I’ve new

an biggest be builders a investors or think business? a to XX% lot we question, a the the that in? Maybe What Your write-off/impairments have don’t the XX% just will and how is of so, question is next I yet. settle XX% business, And it will will where a was, have. much know that XX% XX%, or margin

Jesse Lederman

color, were really I you all there. Yes, Right. to able provide the appreciate

said one a point, risk that newer up on a price you without there prices know having Just I backlog; on without some, can it follow cut necessarily. you lower a communities quick were being

So, area, homes if in opening compare to up that you to be that new how may those those existing price below an pricing? communities are existing community that on similar are community were the a far

Bob Schottenstein

to don’t I that. answer I really you has on Phil something a can though say that so… he know wants give accurate

Phil Creek

thing amount we’re one was bit; the pretty Well, sale it it, average in price at in was $XXX,XXX. stores large, well. of stores And our the performing the as did guess interesting new and quarter in a price quarter And a if on I us fair you little closing Bob are third surprise new contracts actually the said, again, third buying $XXX,XXX. opening look

opened During new the third XX stores. quarter, we

of to probably year down will. yet come kind not come The So, mean, I some next, again answer kind down to got somewhere. ASPs expecting, I mean of you the we guidance are so? or

so just store, business. opening as land gone mean, a we last affordable issue up, much one a the but is have it prices years. its We’re obviously stay backlog, on it’s got through to I But new if with probably can, trying five if of you’ve couple as the that. to fair or tail move end XX the issue we’ll pretty issue another subdivision we’re lots left, one with amount get aggressive a subdivision its

is bit a very close different attention little to of all now, community every just right So them. we’re paying but

Bob Schottenstein

The did, we much fell. or that average as renegotiate have our we’re deal, what might period reevaluating many deal. two way every we following deal land Almost we that the clear deal the to come pandemic But we houses company, our a more yesterday same had in I in of a line the remarks that of in if there’s a mode. instead sky figuring we’re question my were that Smart spent back in we March other week as affordable now but and for about sell to reevaluating single than things, just just I this higher where because community so smart do yesterday up to in mode to factor, the put than XXXX how handle made hope too our Series line. we should do, same during week in land the premium is everything. reset time community didn’t and $XXX,XXX we intended and a out the might homes where went into more looking three pause every series at put we Luckily, certain other try at on a our particular looking price And in less

things that of like And a also muddled comparisons. create so lot

builder grand and an apple around just price to and $XXX,XXX, average but variety my reductions in between are trying a a XX to XX grand and different if price place. with somewhere guess You’re of apples-to-apples get take going is compare make,

reduction next margin with the think XX-months. I over

the things the see you’re and some just field. think of that what from starting that’s in I happening are hear, to

Jesse Lederman

Thanks. communities quick and have Phil for any watching watch you there you’re that list impairment? One are may, of existing helpful, now that on potential your really more That’s Bob. kind one,

Bob Schottenstein

to, or our don’t material, could dollars million under these might – the some it’ll away. from in walk from number. There shared any for there. and some don’t mean, of also tomorrow a we’re every unable here I be deals single will if to that’s or to but very earned There but think way in here land fraction not borrow Yes, do as a we’ve the renegotiate quarter I we’re be to penny to $XX cancel primary walk had we or be a his it’s some to, write-offs likely there, manageable to, of some from million, bank the dollars Phil could but it deal, a we to don’t one very, write a community holdings. one remarks, $XX in cancel a and away likely want we to be extend, spend walkways. option, few have third right few did if had it’s we but small We want if We and check it.

So, if position I we these to deals clear of the current just being didn’t lot the time, I’m see. XX%. extended that’s time, I’m we that of away will if action of they We’ve we don’t than know land under to lot – it we more the buy feel didn’t And we so make got But because tied addition or did necessary. We’ve effort. and love we’re a getting equity, will be in. not lot these we bragging or can’t environment, get it deals. position X% in always sweat our to up, in If from There XX% a them, said we walk of about don’t great take in deals position, expense more a because the want we’ll about maybe them make sense do do. like we’ll repriced

Jesse Lederman

Thank it you. on. I’ll pass helpful. very That’s

Bob Schottenstein

our total the things. want sometimes think will insignificant hear compared – holdings. don’t I material just land impairments. different be because see I don’t I to underscore, very any to It’d people

Jesse Lederman

you Understood. again. Thank

Operator

Instructions] any call to back at pass are Phil remarks. Thank so closing you. to like further this conference questions registered I’d for Creek time, over no There [Operator a

Phil Creek

for much very you us. Thank joining

quarter. Looking to next you talking to forward

Operator

today’s concludes This your call. conference you Thank all participation. for

line. now may disconnect your You

M/I Homes (MHO) 27 Oct 222022 Q3 Earnings call transcript