M/I Homes (MHO) Q1 2026 Earnings Transcript

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Date

Wednesday, April 22, 2026 at 10:30 a.m. ET

Call participants

- Chairman, President, and Chief Executive Officer — Robert H. Schottenstein

- Executive Vice President, Chief Financial Officer, and Treasurer — Phillip G. Creek

- President, M/I Financial — Derek R. Klutch

Full Conference Call Transcript

Robert Schottenstein: Thanks, Phil. Good morning, everyone, and thank you for joining us today. We had a very solid first quarter, highlighted by revenues of $921 million, pretax income of $89 million and a strong pretax income return of 10%. Clearly, during the quarter, new home demand and homebuilding conditions continue to be challenged, challenging and impacted by affordability and even consumer confidence, the conflict in the Middle East and general uncertainty and volatility in the broader economy. Despite this, we were very pleased to increase our first quarter new contracts by 3%, generate gross margins of 22%, and produce a return on equity of 12%.

Our sales momentum from late last year continued into January and February, even with the winter storms that had a pretty significant impact on a number of our markets at the beginning of the year. During this period, we saw improved traffic and heightened homebuyer activity as we begin the spring selling season. However, market conditions slightly shifted at the end of February and into March as events in the Middle East pushed mortgage rates up higher, impacted gas prices and contributed to further market uncertainty. In managing all of this, mortgage rate buydowns continue to be an important part of our sales strategy.

We continue to successfully balance margins and sales pace at the community level and offer mortgage interest rate buydowns both on spec sales and to-be-built sales as a leading incentive to promote our sales activity. During the quarter, we closed 1,914 homes a 3% decrease compared to a year ago. Our first quarter total revenue decreased 6% to $921 million, and pretax income decreased 39% to $89.2 million. Still, we ended the quarter with a record $3.2 billion in shareholders' equity, and our book value per share is now at a record $125, up 11% from last year. As I mentioned, our sales improved 3% year-over-year. We sold 2,350 homes during the quarter.

Our monthly sales pace averaged 3.4 homes per community, consistent with 2025. We continue to see high-quality buyers in terms of creditworthiness with average credit scores of 747 and an average down payment of 15%. Our Smart Series, which is our most affordable line of homes, continues to be an important contributor to our sales performance. During the first quarter, Smart Series sales were about 47% of total sales compared to 53% a year ago. Company-wide, about half of our buyers are first-time homebuyers, while the other half are first, second or third move up. The diversity of our product offering remains an important factor and contributing to our sales performance and overall profitability.

We ended the first quarter with 230 communities and are on track to grow our community count in 2026 by an average of about 5% from 2025. Turning to our markets. Our division income contributions in the first quarter were led by Chicago, Columbus, Dallas, Orlando and Raleigh. New contracts for the first quarter in our Northern region decreased by 4%, while new contracts in our Southern region increased by 8% compared to a year ago. Our deliveries in the Northern region decreased 9% compared to last year and represented just under 40% of our company-wide total. Our Southern region deliveries increased by 1% over a year ago and represented the other 60% of our deliveries.

We have an excellent land position. Our owned and controlled lot position in the Southern region decreased by 13% compared to last year, and increased by 21% compared to a year ago in our Northern region, 40% of our owned and controlled lots are in the Northern region, the other 60% in the South. Company-wide, we own approximately 24,200 lots, which is slightly less than a 3-year supply. In addition, we control approximately 25,800 lots via option contracts, which results in a total of roughly 50,000 owned and controlled lots equating to about a 5-year supply. Our balance sheet continues to be very strong.

As I previously mentioned, we ended the first quarter with an all-time record $3.2 billion of equity, 0 borrowings under our $900 million unsecured revolving credit facility and over $750 million in cash. This resulted in a debt-to-capital ratio of 18%, and a net debt-to-capital ratio of negative 2%. As I conclude, I'll remind everyone that 2026 marks our 50th year in business. We're very proud of our record and look to build on our success in 2026. Given the strength of our balance sheet, the breadth of our geographic footprint and excellent land position and well-located communities along with a diverse product offering, we are well positioned to continue delivering very solid results in 2026.

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

Phillip Creek: Thanks, Bob. Our new contracts were up 3% when compared to last year. They were up 11% in January, up 7% in February and down 6% in March. Our cancellation rate for the quarter was 8%. Our monthly new contracts increased sequentially throughout the quarter. Last year's March new contracts were the highest month of 2025. 50% of our first quarter sales were the first-time buyers and 70% were inventory homes. Our community count was 230 at the end of the first quarter compared to 226 a year ago. The breakdown by region is 91 in the Northern region and 139 in the Southern region. During the quarter, we opened 22 new communities while closing 24.

We delivered 1,914 homes in the first quarter. About 50% of these deliveries came from inventory homes that were both sold and delivered within the quarter. And as of March 31, we had 4,600 homes in the field versus 4,800 homes in the field a year ago. Revenue decreased 6% in the first quarter. Our average closing price for the first quarter was $459,000, a 4% decrease when compared to last year's first quarter average closing price of $476,000. Our first quarter gross margin was 22%, down 390 basis points year-over-year due to higher home buyer incentives and higher lot costs versus the same period a year ago.

Our first quarter SG&A expenses were 12.7% of revenue versus 11.5% a year ago, and our first quarter expenses increased 4% versus a year ago. Increased costs were primarily due to increased selling expenses, increased community count and additional headcount. Interest income, net of interest expense for the quarter was $3.1 million. Our interest incurred was $9 million. We had solid returns for the first quarter given the challenges facing our industry. Our pretax income was 10% and our return on equity was 12%. During the quarter, we generated $99 million of EBITDA compared to $154 million a year ago, and our effective tax rate was 24% in the first quarter, same as the prior year first quarter.

Our earnings per diluted share for the quarter was $2.55 per share compared to $3.98 last year, and our book value per share is now $125 a share, a $12 per share increase from a year ago. Now Derek Klutch will address our mortgage company results.

Derek Klutch: Thanks, Phil. Our mortgage and title operations achieved pretax income of $14.1 million, a decrease of 12% from $16.1 million in 2025's first quarter. Revenue decreased 1% from last year to $31.2 million due to slightly lower margins on loans sold and a lower average loan amount, but offset by an increase in loans originated. Average loan to value on our first mortgages for the quarter was 85% compared to 83% in 2025's first quarter, 66% of the loans closed in the quarter were conventional and 34% FHA/VA, compared to 57% and 43%, respectively, for 2025's first quarter. Our average mortgage amount decreased to $401,000 in 2026 this first quarter compared to $406,000 last year.

Loans originated increased to 1,579 loans, which was up 3% from last year, while the volume of loans sold increased by 1%. Finally, our mortgage operation captured 96% of our business in the first quarter, up from 92% last year. Now I will turn the call back over to Phil.

Phillip Creek: Thanks, Derek. Our financial position continues to be very strong. We ended the first quarter with no borrowings under our $900 million credit facility and had a cash balance of $767 million. We continue to have one of the lowest debt levels of the public homebuilders and are very well positioned. Our bank line matures in 2030 and our public debt matures in 2028 and 2030, and has interest rates below 5%. Our unsold land investment at the end of the quarter was $1.9 billion compared to $1.7 billion a year ago. At March 31, we had $844 million of raw land and land under development, and $1 billion of finished unsold lots.

During 2026 first quarter, we spent $79 million on land purchases and $104 million on land development for a total of $183 million. At the end of the quarter, we had 740 completed inventory homes and 2,584 total inventory homes. And of the total inventory, 999 are in the Northern region and 1,585 in the Southern region. At March 31, 2025, we had 686 completed inventory homes and 2,385 total inventory homes. We spent $50 million in the first quarter repurchasing our stock and have $170 million remaining under our Board authorization. In the last 4 years, we have repurchased 18% of our outstanding shares. This completes our presentation. We'll now open the call for any questions or comments.

Operator: Your first question comes from the line of Natalie Kulasekere from Zelman & Associates.

Unknown Analyst: I'm just curious, have you received any form of communication regarding any cost increases from your vendors because of fuel prices, maybe it could be a fuel surcharge stacked on top of your existing contracts? And if you have, do you think it's something that you could negotiate with your trade partners?

Robert Schottenstein: Thanks, Natalie. The short answer is yes. The issue of increased fuel has come up in several divisions. I don't know if it's come up everywhere. I'm aware of 2 or 3 or 4 instances where it has and it could well be more. So far, there hasn't been much impact. In fact, so far, I think there's been no impact.

Having said that, if the conditions were to persist at worse, at some point, we've been in business for 50 years, and one of the things we're most proud about is not only the consistency of our strategy, but the long-standing relationships both at the national level and at the local level that we have with so many of our subcontractors and suppliers, many of whom we've been doing business with for a long, long time. And one of the reasons that we're able to do business with people for a long time is we try to deal very fairly with them both in good time and in bad. You didn't ask maybe this as part of your question.

But during the last year, we've gone back to a number of those subcontractors from our point of view and sought to see cost reductions. We had a very, very aggressive, intense internal cost reduction effort that we launched, I think, a little over a year ago, maybe a little more than a year ago in anticipation of the current conditions with declining margins and so forth. And we had quite a bit of success doing that. We know that's a 2-way street, and there's times that they work with us. There's times that we're going to have to work with them.

So far on the gasoline and oil situation, though, I'm not aware of any impact, unless you are, Phil. I hope that's helpful.

Unknown Analyst: Yes. And I guess I just have one more follow-up. So your ASP within the $470,000 to $480,000 range, if not higher across most quarters since 2022. So is there anything specific that drove this lower this quarter? And if so, how should we look at it going forward? Should it kind of be lower than the $470,000, $480,000 range? Or do you think it's going to -- do you reckon it's going to climb back up to that?

Robert Schottenstein: It surprised me that it was -- we knew it would be lower. I didn't think it would be maybe quite this much lower. It's not that much. When you really look at it, $470,000 versus $460,000. Having said that, affordability is the favorite buzzword in our industry today other than maybe rate buydowns as I think about it. But affordability is up there. And really, it began in our company about 5 years ago where we began a very concerted effort to produce more affordable product, particularly attached townhome product. Company-wide, it's probably maybe 20% or 25% of our business, somewhere in there. It moves a little quarter-to-quarter with new communities and so forth and timing of closeouts.

And I think it's -- I actually think it's more mix than anything else. I'd expect our average sales price to be at this level, maybe slightly higher, so they bounce around in this -- in the upper 4s for the foreseeable future.

Operator: [Operator Instructions] Your next question comes from the line of Kenneth Zener from Seaport Research Partners.

Kenneth Zener: I wonder, given your Smart Series, very successful, 47, I'm just going to call it half. And how -- can you talk to that. Are most of your intra-quarter order closings coming from the Smart Series almost by definition because it's like prebuilt? Is that the correct assumption that I'm making?

Robert Schottenstein: Not necessarily. We manage our spec levels or inventory home levels on a subdivision-by-subdivision basis. And it's less related to maybe the price point of the community at times than -- I think it's more -- it more relates to the location of the community where we think the buyers are coming from. Clearly, I think there's a few more specs with attached product because you build building by building. And some of that is Smart Series, some of it isn't. I don't think there's really any discernible difference between intra-quarter closings coming from Smart Series spec homes versus the other half of our business. And by the way, not every Smart Series buyer is a first-time homebuyer either.

It's just a product line that we've tried to push really hard to take advantage of bringing our price points down. But Phil, do you want to add something?

Phillip Creek: Yes. And overall, we feel really good about where our spec levels are. As Bob says, it really varies community to community. This has been a higher percentage, about 50% of the closings occurring within the quarter. Reduced cycle time has helped. It doesn't take us as long to get houses built as it did a year ago. We're also trying to continue to be focused on when we put specs out there, let's make sure we put the right specs out there on the right lots. We're like most builders, we would prefer to have more dirt sales, more to-be-built sales, because,