- Revenue: $1.1 billion, a record for the second quarter.
- Gross Margin: 28%, up from 26% last year.
- Pre-Tax Margin: 17.5%, up from 15.3% last year.
- Pre-Tax Income: $194.1 million, a 25% increase from last year.
- Return on Equity: 21%.
- Homes Closed: 2,224, a 12% increase from last year.
- Homes Sold: 2,255, a 3% increase from last year.
- Average Closing Price: $482,000, a 2% decrease from last year.
- Community Count: 211, up from 195 last year.
- Cash Balance: Over $800 million.
- Debt-to-Capital Ratio: 20%.
- Net Debt-to-Capital Ratio: -6%.
- Book Value per Share: $100, a $17 increase from last year.
- Earnings per Diluted Share: $5.12, up 24% from $4.12 last year.
- EBITDA: $200 million, up from $164 million last year.
- Effective Tax Rate: 24%, unchanged from last year.
- Mortgage and Title Operations Pre-Tax Income: $14.4 million, a 29% increase from last year.
- Mortgage Revenue: $30.8 million, a 22% increase from last year.
- Average Loan Amount: $395,000, down from $402,000 last year.
- Loans Originated: 1,618, a 26% increase from last year.
- Volume of Loans Sold: Increased by 20%.
- Average Credit Score: 750, up from 743 last year.
- Stock Repurchase: $50 million in the second quarter, with $200 million remaining under current authorization.
Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record-setting revenue and income for the second quarter, with revenues reaching $1.1 billion.
- Gross margins improved to 28% from 26% last year, and pre-tax margins increased to 17.5% from 15.3%.
- Strong balance sheet with $2.7 billion in equity and over $800 million in cash, with zero borrowings under the $650 million unsecured revolving credit facility.
- Significant increase in new contracts in the northern region by 6%, and a 21% increase in deliveries or closings in the northern region.
- Mortgage and title operations achieved a 29% increase in pre-tax income, with revenue increasing by 22% to an all-time quarterly record of $30.8 million.
Negative Points
- General economic uncertainty and rising interest rates have led to a slight decline in traffic and demand compared to the first quarter.
- Increased inventory in select markets, particularly Florida and Texas, which could impact future sales.
- SG&A expenses increased to 11.0% of revenue compared to 10.6% a year ago, due to higher selling expenses and additional headcount.
- Average closing price decreased by 2% compared to last year's second quarter.
- Increased use of incentives, such as below-market financing, to drive sales, which could impact future margins.
Q & A Highlights
Q: Bob, I'd love to drill in a little bit on the trends through the quarter and maybe into July. You mentioned demand and traffic slowed a bit, which is consistent, I think, with what others have been saying. Your orders by month though, you did see an uptick at least on a year-over-year basis in June. So I'm curious whether that's a function of kind of the buyers maybe coming back a little bit more as rates pulled back or did you do anything on incentives or pricing to maybe drive those better order results? And where do you see kind of the broader demand and incentive environment heading into the back half of the year?
A: Great questions. We won't make any comments on July, which is typically what we do with all these calls. We don't comment on the current month. And even though it's almost over, there's usually a fair amount of activity in the last several days anyway. So I wouldn't want to suggest something one way or the other regardless. But I think that we did incent a little bit more in June, not significant, but we did do a little bit more with below market financing commitments, which is below market financing that generally only applies to homes that can be delivered within 60 days or so. So it's a product that -- as is the case with our competition, applies to spec homes. It's really hard to know exactly how things are going to shake out in the back half of the year. I think most people believe that we're looking at one or two rate cuts. One's probably priced in, not so sure about the second one. But it looks like, if I had to guess, I think we're going to continue to have to provide at the same levels we are now the kind of financing incentives to get the sales that we need. We're very happy with the fact that for the first six months of this year, our sales were up 10%. Clearly, they slowed a little bit in the second quarter. Some of that is obviously seasonal. But I think some of it also was a bit of caution by buyers. And there was a lot of intra-quarter noise from all different places and parts of the economy. And we've got an election coming up, and who knows how that's going to affect everything, as we all know. But overall, I'm really optimistic about business. I think that the builders are very well-positioned, most anyway. We've never been in better shape from a liquidity standpoint. Our debt levels are very low. We're gaining market share in almost all of our markets. There's always something that's not quite hitting on all cylinders. But we're hitting on all cylinders in a whole lot of our places. And I love our footprint. Our product diversity is strong. Our land position is strong. We're poised to increase community count, really optimistic about next year and what the future lies. But we've got ways to get there yet, but this is going to be a really strong year for M/I. And we're poised for it to be the best year we've ever had, and that's what we're focused on.
Q: You did pick up the pace of buybacks this quarter, which is great to see. And I know last quarter you kind of mentioned that you were having some conversations with the Board about potentially picking up that pace. And you did so this quarter, $50 million, and yet your balance sheet is still in fantastic shape, negative net debt. So is this $50 million, should we think about this as kind of a programmatic run rate going forward? Was it more kind of one-off in nature? Where's your head at currently on the buyback?
A: Phil will answer that one. Our current view is that, as Bob said, there's always challenges in business. We do plan on opening a few more stores the second half than we did the first half, which is good news. We also plan on spending more on land the second half than we did the first half. But again, with our backlog and feel good about our spec levels, I would see us continuing in the stock repurchase area, kind of where we are now in the near term. Again, that's dependent, longer term on the business and the economy, but we did go from 25 to 50, and I would kind of see us kind of staying there, we want to have somewhat a consistent policy and program. So yeah, I kind of see us staying there in the short term, Alan.
Q: I wanted to just maybe talk about your land strategy going forward here. As it looks like you've added quite a few lots under option contracts quarter over quarter, obviously still spending on some new acquisitions in the back half of the year. I guess I'm curious, just longer term, how you think about increasing your option lot percentage, maybe as kind of the overall total or how much land you want to keep under control? And maybe more broadly, what kind of pricing trends you're seeing in your markets for land and working with those developers and other land banks out there?
A: Yeah, great question. Our strategy with respect to land acquisition, owned versus optioned, honestly has not changed in a long, long time, at least 20 years, maybe longer. Our goal is to own and control a three to five year supply of lots. Embedded in that, we do not want to own at any point in time more than a two to three year supply. With our current run-rate and owning around 25,000 lot or lot equivalents today, we're under that three year sort of threshold that is our own internal regulator. We'd rather own less and control more, but we're also growing the business. And we've talked about this in some of our previous conference or quarterly conference earnings calls, rather, that we're looking to grow the business top line by 5% to 10% a year over the next several years, and that is a goal of ours. Land is a precious commodity, arguably one of the most precious in our industry. There has clearly been land inflation, rather on the development side over the last several years. That appears to be slowing somewhat, which is encouraging. On the other hand, for the prime locations, it'll continue to be pricey for acquiring the A-locations. And it's easy to say every builder wants A-locations, but you've got to pay for A-locations, and we're not shy about doing that, and we'll continue to. There's a lot of things happening on the density side, which can help mitigate against escalating land costs, but a lot of that is dependent upon local zoning. Right now, attached townhomes, which on average produce densities in the 6 to 10 per acre range or higher, represent probably 20% of our business, whereas five years ago was less than 10%. We're doing a lot more attached townhomes in all of our markets right now, in terms of affordability and trying to manage land use costs or land costs, I should say. By the way, contrasted with average densities on single family developments being anywhere from two to four units per acre, occasionally you'll get lucky and be slightly over four, but townhome densities can be 3 to 4 to 5 times what single family would be
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
