Good morning, ladies and gentlemen, and welcome to the M/I Homes Inc. second 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. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Wednesday, July 30, 2024. I would now like to turn the conference over to Phil Creek. Please go ahead. Thank you. Joining me on the call today is Bob Schottenstein, our CEO and President, and Derek Klotz, 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. 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. With that, I'll turn the call over to Bob. Thanks, Phil. Good morning, and thank you for joining us today. We had a very strong second quarter, highlighted by record-setting revenue, income, gross margins, and pre-tax margins. We are very pleased with our second quarter results. Clearly one of the best quarters in company history. We are particularly pleased with our performance, given the general economic uncertainty that dominated the second quarter. A quarter that featured rising rates and a fair amount of rate volatility, a slight decline in both traffic and demand when compared to the first quarter, and an overall general sense that buyers were becoming slightly more cautious about purchasing a new home. Even though we have seen a rise in inventory in select markets, most notably Florida and Texas, we strongly believe that the underlying fundamentals of our industry remain strong. There exists a housing shortage in every one of our 17 markets, and we continue to see an ever-increasing number of millennials and Gen Z buyers seeking homeownership. All of this suggests a very bright future for our industry. In terms of our performance, we closed 2,224 homes in the second quarter, 12% better than last year, with second-quarter revenues reaching a record $1.1 billion. Gross margins were extremely strong, coming in at 28% compared to 26% last year. Moreover, our pre-tax margins were 17.5% compared to 15.3% last year. This resulted in record pre-tax income of $194.1 million, 25% better than a year ago, and a very solid return on equity of 21%. We sold 2,255 homes during the quarter, a 3% improvement over 2023. As mentioned earlier, demand and traffic somewhat slowed from the strong first quarter as the second quarter began in April. The quality of our buyers continues to be very good, with average credit scores of 750 and an average down payment of 19% or just over $90,000. And our Smart Series, which is our most affordable line of homes, continues to be a very successful and important contributor to our business, with Smart Series sales comprising 53% of second-quarter sales. Now I will provide some additional comments on our markets. Our division income contributions in the second quarter were led by Dallas, Columbus, Tampa, Chicago, Orlando, and Cincinnati. New contracts for the second quarter in our Northern Region increased by 6%, while new contracts in our Southern Region were flat compared to last year. Closings in the Southern Region increased by 5% from last year, and deliveries or closings in the Northern Region increased by 21% from last year. 57% of our closings came out of the Southern Region, with a balance of 43 coming out of the Northern Region. Our owned and controlled lot position in the Southern Region increased by 22% compared to a year ago and increased 16% from last year in the Northern Region. 34% of our owned and controlled lots are in the Northern Region, with 66% being in the Southern Region. We have an exceptionally strong land position. Company-wide, we own approximately 23,000 lots, which is roughly a 3-year supply, in line with our strategy. In regards to our balance sheet, we ended the second quarter of 2024 with an all-time record $2.7 billion of equity, equating to a book value per share of $100. We also ended the quarter with over $800 million of cash and 0 borrowings under our $650 million unsecured revolving credit facility. This resulted in a debt-to-capital ratio of 20% and a net debt-to-capital ratio of -6%. As I conclude, let me just state that we are in the best financial condition in our history. Our balance sheet has never been stronger, and we have a lot of operating momentum.... We feel very good about our business and the home building industry, and want to state that M/I Homes is well-positioned to have a very strong 2024. With that, I'll turn it over to Phil. Thanks, Bob. Our new contracts were up 1% in April, flat in May, and up 8% in June, and our cancellation rate for the second quarter was 10%. 53% of our second quarter sales were to first-time buyers, and 60% were inventory homes. Our community count was 211 at the end of the second quarter, compared to 195 a year ago, and the breakdown by region is 92 in the Northern Region, 119 in the Southern Region. During the quarter, we opened 17 new communities while closing 25. We currently estimate that our average 2024 community count will be about 5% higher than last year. We delivered 2,224 homes in the second quarter, which was 66% of our backlog, and 30% of our second quarter closings came from inventory homes that were sold and closed in the quarter. As of June 30, we had 5,100 homes in the field, versus 4,700 homes in the field a year ago, and 4,500 homes in the field at 3/31/2024. Our revenue increased 9% in the second quarter, and our average closing price in the quarter was $482,000, a 2% decrease when compared to last year's second quarter. Our second quarter gross margin was a record 27.9%, up 240 basis points year-over-year, and up 80 basis points from our first quarter. Our construction costs were flat in the second quarter compared to the first quarter, and our cycle time decreased by 10 days in the second quarter versus the first quarter. Our second quarter issue expenses were 11.0 revenue, compared to 10.6 a year ago. Our increased costs were due to our increased community count, higher selling expenses, and additional headcount. Interest income, net of interest expense for the quarter was $7.3 million, and our interest incurred was $8.8 million. We are very pleased with our returns for the second quarter. Our pre-tax income was 17%, and our return on equity was 21%. During the quarter, we generated $200 million of EBITDA, compared to $164 million in last year's second quarter, and our effective tax rate was 24% in the second quarter, the same as last year. Our earnings per diluted share for the quarter increased to an all-time record $5.12 per share, from $4.12 per share last year, up 24%. Our book value per share is now $100, a $17 per share increase from a year ago. Now, Derek Klotz will address our mortgage company results. Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $14.4 million, an increase of 29% from $11.2 million in 2023's second quarter. Revenue increased 22% from last year to an all-time quarterly record of $30.8 million, due to higher margins on loans sold, an increase in loans originated, and proceeds from the sale of servicing rights. This was offset partially by a lower average loan amount. The average loan to value on our first mortgages for the second quarter was 81%, compared to 84% last year. Continue to see an increase in the use of government financing, as 69% of loans closed in the quarter were conventional and 31% FHA or VA, compared to 71% and 29% respectively for 2023's second quarter. Our average mortgage amount decreased to $395,000 in 2024's second quarter, compared to $402,000 last year. Loans originated increased to 1,618, which was up 26% from last year, while the volume of loans sold increased by 20%. Our borrower profile remains solid, with an average down payment of 19% and an average credit score of 750, compared to 743 in 2023's second quarter. Finally, our mortgage operation captured 87% of our business in the quarter, a significant improvement from 81% last year. Now I'll turn the call back over to Phil. Thanks, Derek. For the balance sheet, we ended the second quarter with a cash balance of $837 million, and no borrowings under our unsecured revolving credit facility. We have one of the lowest debt levels of the public home builders and are well-positioned with our maturities. Our bank line matures in late 2026, and our public debt matures in 2028 and 2030, and have interest rates below 5%. Our unsold land investment at June 30, 2024, is $1.5 billion, compared to $1.3 billion a year ago. At June 30, we had $810 million of raw land and land under development, and $643 million of finished, unsold lots. During the second quarter, we spent $119 million on land purchases and $145 million on land development, for a total of $264 million. At June 30th, we owned 23,000 lots and controlled 49,000 lots, and at the end of the quarter, we had 372 completed inventory homes and 2,150 total inventory homes. Of the total inventory, 872 were in the northern region and 1,278 are in the southern region. ...At June 30, 2023, we had 303 completed inventory homes and 1,737 total inventory homes. We spent $50 million in the second quarter repurchasing our stock, up from our first quarter's $25 million, and have $200 million remaining under our current board authorization. Since 2022, we have repurchased 12% of our outstanding shares. This completes our presentation. We'll now open the call for any questions or comments. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Alan Ratner at Zelman & Associates. Please go ahead. Can't hear him. Mr. Ratner, your line is open. Please proceed with your question. Can you hear me now? Yep. Hi, Alan. Hey. Hey, Bob, sorry about that. Some technical difficulties. Thanks for taking my question, and great, great job in the quarter. Congrats on the strong performance. Thanks a lot. Yeah. Bob, I'd love to drill in a little bit, you know, on the trends through the quarter and maybe into July. You know, 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 know, you did see an uptick, at least on a year-over-year basis in June. So I'm curious, you know, whether that's a function of kind of the buyers maybe coming back a little bit more as rates pull back, or did you do anything, you know, 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? Great questions. We're—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, we did do a little bit more with below-market financing commitments, which is, you know, 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, you know, 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 are 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 is a bit of caution by buyers, and there's just a... There was a lot of intra-quarter noise from all different places and parts of the economy, and, you know, 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, you know, we got a ways to get there yet, but this is going to be a really strong year for M/I, and, you know, we're poised for it to be the best year we've ever had, and that's what we're focused on. Great. I appreciate your thoughts, and, you know, we agree, definitely, the future is bright. So on that note, you know, you mentioned your liquidity. 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 kicking up that pace, and, you did so this quarter, $50 million, and yet, you know, 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, you know, kind of one-off in nature? Where's your head at currently on the buyback? Phil, Phil will answer that one. Yeah, our current view is that, you know, 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 we did the first half. But again, you know, 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, you know, longer term on the business and the economy. But, you know, 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. Yeah, I kind of see us staying there in the short term, Alan. Appreciate that, guys. Thanks a lot. Thank you, Alan. Thank you. Next question comes from Buck Horne at Raymond James. Please go ahead. Hey, good morning. Hey, Buck. Congrats on the great quarter. So yeah, thanks. Thanks, Buck. And, it's good to... Buck, it's good to have you on the call. It's great to be here, so thank you. Thank you very much. And 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 contract 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, you know, option lot percentage, maybe as kind of, you know, 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? Yeah, great question. Our strategy with respect to land acquisition, owned versus optioned, honestly has not changed in a long, long time. You know, at least 20 years, maybe longer. Our goal is to own and control a 3- to 5-year supply of lots. Embedded in that, we do not want to own, at any point in time, more than a 2- to 3-year supply. With our current run rate and owning around 25,000 lot or lot equivalents today, we're under that 3-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. We've talked about this in some of our previous conference or quarterly conference, earnings calls rather, that, you know, we're looking to grow the business top line by 5%-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, you know, it'll continue to be pricey, for acquiring the A locations. And it's easy to say every builder wants A locations, but you got to pay for A locations, and we're not shy about doing that, and we'll continue to. You know, 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, you know, local zoning. Right now, attached townhomes, which on average produce densities in the 6-10 per acre range or higher, represent probably 20% of our business, whereas 5 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 land, 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 2-4 units per acre. Occasionally, you'll get lucky and be slightly over 4. But townhome densities can be 3 to 4 to 5 times what single-family would be, and so all that relates to end cost of a finished lot. But you know, we've always been pretty consistent with this strategy. We essentially do no land banking other than with the seller. As Phil often says, the best land banker is the seller, if you can get them to hold till you're ready. We try to do that as much as possible. We have not engaged with institutional or so-called third-party land bankers. We know a lot of builders are. That doesn't seem to be too appealing to us at this point. Frankly, just like you know, leaping big into the build for rent, wholesale business was never big for us either. We try to focus on our core business and do what we think we know how to do, and that's sort of our approach. Buck, this is Phil. Just to add a couple of things in there. Like Bob said, we really focus on premier locations as much as we can. Hopefully, the better school districts, near the better shopping, near the better transportation. We think in really good times, those A locations will sell really well, but we also think in difficult times, they will still sell okay, so you can work through it. So we strive to own a 2- to 3-year supply, and inside that 2- to 3-year, to have about a 1-year supply of finished lots, so we don't go dark in communities or don't rely too much on, you know, outside developers and those type of things. Today, we develop about 80% of our own sites, which has been a little higher than in the past. And as far as off-balance sheet, you know, when you look today, we have about 26,000 lots off the books under option. The value of that's about $1.4 billion. Again, a lot of that's raw. It's about $1.4 billion. And as far as risk dollars, we have risk dollars of about $90 million of that, which is about 7% of the value. So again, we have about 7% of that lot value at risk. Again, you know, we try to get terms with the sellers as it makes sense, but we feel very good about where we are. You know, our current closing rate is about 9,000 units a year, so owning less than 27,000, which is where we are now, we feel really good about that. And again, you know, this year we're gonna open about 80 new stores. Last year, we opened 76. We feel good about that. We are working through stores a little faster than we thought, and that's why it's brought our average community count run rate down to maybe 5% this year. We thought it would be more like 10% the first of the year. But we're always concentrating on the location, the quality of the community. Sales pace is very, very important to us, but overall, we feel like we're in really good shape. That was exceptionally thorough and really impressive answer. So thanks for all the details on that question. So second quick follow-up. Just thinking about the resale inventory situation in your market as it varies, because you're exposed to some markets that both, you know, have quite a year-over-year increase in resale inventory, but several others, you know, particularly kind of in those Ohio markets, where inventory remains very, very tight, near historic lows. I'm just wondering if you can maybe highlight, is that, you know, does that play out in terms of the level of incentives you're offering in the different regions and the different markets? You know, what's the... What does it take to incentivize and sell a house in the northern markets versus the southern markets right now? You know, first, let me make a comment about inventory. Clearly, we've seen a pretty noticeable increase, particularly in Florida. Some of the Texas markets have jumped up quite a bit as well. Keep in mind that some of that inventory is builder specs, not your traditional used home listings. Increasingly, builder specs, which for many years, going back, you know, maybe a decade or so, didn't really show up in the MLS listings, now are in there. So, it's not all just used homes. A lot of it is us, offering our specs with builders building more specs now than ever before. But frankly, we haven't seen much of that impact our use of incentives. There's very few markets where we haven't had to incent. 70% of our buyers are utilizing below market financing. It's as much in Minneapolis, Chicago, and Columbus as it is in Tampa and Raleigh and Dallas, and there's not really a discernible difference between any of those. By historical standards, inventory levels in most of our markets are still very manageable. While it's something we watch very carefully monthly, you know, it's-- we're not gonna ignore it, but I don't consider it a serious issue at this point by any means. All right, great. Thanks, guys. Congrats and good luck. Thank you. Thanks. Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star one. Next question comes from Jay McCanless from Wedbush. Please go ahead. Hey, good morning, everyone. Good morning, Jay. Follow up on Buck's question. Good morning, Bob. Follow up on Buck's question. Could you talk about what the gross margin differential is between your northern segment and your southern segment? I don't know that I have that specifically in front of me at this point, Phil. We've never really given that kind of specific guidance. I mean, it's really a bit of a mixed bag. I will tell you that if you look at... I'll try to answer it this way. If you take the top six performing divisions on gross margin, one or two are in Texas, one or two are in the Carolinas, one or two are in Florida, and one or two are in the Midwest. You know, the issue, Jay, you know, it- Sorry, Phil, let me just say this. A lot of it relates to the strength of our operation, the quality of our communities. It's more about that than it is about, you know, Ohio versus, you know, Florida. It really does boil down to, I mean, we are in the subdivision business, and we, right now, today, and things are always different with 17 divisions, we have a couple of divisions that have a couple of great stores that are doing 5, 8, 10 a month at exceptional margins, and that just puts a lot of money at the bottom line. But all I can tell you is the last couple of years, you know, when things were really hot, certain markets, Texas, Florida, and the Carolinas in general, were really hot, and the Midwest wasn't so hot. Then at other times in our operations, the Midwest has the best margins. It just kind of really depends on markets in general and the stores we have open. But overall, we're just really pleased, you know, with our margins and our returns. We focus very much on that, as you know. Right. And that leads into my second question, which, you know, 27.9 is pretty darn impressive, but how sustainable do you think this is going to be? Especially in light of what you said earlier, Bob, that incentive levels probably don't come down from here. How sustainable do you think that number is going into the back half of the year? I mean, that's a, it's a hard number to answer because, like I said in my comments, 30% of our closings sold and closed in the quarter. And in general, what happens is the incentives tend to be a little higher, you know, on inventory that you're trying to move through the system. But, you know, the backlog today isn't hardly any different than it was three months ago, as far as the backlog, margins and so forth. It's very hard to find these locations, get everything zoned, approved, developed, community open. You know, we're not a volume-first driven company, as some of our competition is. So every subdivision is different. You know, we kind of do what we need to do to get a certain amount of volume through communities. We were very surprised our second quarter margins were better than our first. Yeah, and the only thing I'd add, another way to ask that question, I don't mean to put words in your mouth, Jay, but another way to ask that question would be: How sustainable are 17.5% pre-tax margins? Because that's where we are right now. And I hope they're sustainable for the next several years, but, you know, even if they dropped a little bit down to 16 or 15, we'd still be better than most, if not almost all the other builders right now. There's only 2 or 3 builders whose pre-tax margins are at our level or above, and many are below 15 today. And so we don't want ours to drop, but I think our margins over the last number of years have compared very favorably with our peers, and I believe they'll continue to. And a big- That's the best way I can answer that. And a big impact also, Jay, is the new stores. Like we said, we opened 38 new stores the first half. We opened 76 new stores last year, and we intend to open more than 38 new stores in the second half. And a lot of the impact of your expense levels, getting those stores open and also your margins, I mean, hopefully, we're opening the right way and don't get too far ahead of ourselves and get off on the right foot, but there's just a lot of moving parts to that. Got it. And then the next question I had in terms of G&A dollars, a little higher than we were expecting this quarter. What should we think about as a good quarterly run rate for that, especially with the increase in community count you guys were talking about? Well, when you look at it, I do have about 10% more people today than a year ago. You know, I have more stores than I had a year ago. Our selling expenses on the variable side are a little higher than a year ago. So we were a little disappointed with our SG&A in the second quarter. You know, I was sure hoping to be a little bit less than last year. Gets back to the old saying, you don't want expenses growing faster than revenue. But I would imagine I'll kind of stay kind of where I am, Jay, as far as the percentage and so forth in that 11% range. Could you talk about pricing power during the quarter? Maybe what percentage of communities you're able to raise price or hold price during the quarter? I don't have an exact percentage. My sense is that because of the softness, second quarter being slightly softer than the first, that very few communities did we raise prices. There might have been, you know, a handful. Most either we kept the same, there might have been a few. There probably as many that we raised as that we lowered. My guess is that 80% or so stayed the same, and on the fringes, there might have been a few that we raised or a few that we had to lower, given the slight softening in demand. Also, the good thing, as I mentioned, our construction costs were pretty much flat the second quarter versus the first. We did get about 10 days improvement in cycle time, so we are working on all the things we can, you know, to continue helping our returns. Yeah, and that was going to be my last question. Just could you talk about what you're seeing in terms of lumber prices? Is that a tailwind? And then also, maybe what you're hearing on labor. Well, lumber prices have, you know, moved in the right direction for our industry, clearly. That's a good thing. You know, total hard costs during the quarter- They're pretty much a push. Pretty much a push. Every market's a little bit different. You know, we just got through having detailed revised budget discussions with all of our division leadership teams, which included all of our purchasing heads and so forth. But overall, it kind of looks like things are a push. You know, as Bob said, we're doing more attached townhouses, we're doing more smaller, single-family detached. You know, our average sale price has pretty much been flat. You know, we're trying to deal with affordability as best we can. We're not anticipating, and really never do, getting any benefit from lower cost. Land development costs continue to go up, but not at the double digit level. They have been going up the last few years, so that's helping us some. But, we're not counting on cost reductions to really help us that much, Jay. It sounds great. Thanks, guys. Thank you. Thanks. Thank you. Next question comes from Alex Barron at Housing Research Center. Please go ahead. Thanks, guys, and congratulations on the results. Thank you. Going back to the, You're welcome. Going back to the SDNA, was there any one-time item, or is this kind of a run rate for $64 million corporate expense? No, Alex, there's not anything really unusual in there. It's just a combination of, you know, 10% more people, you know, because we're opening more stores and obviously plan on continuing our growth next year. It's just a combination of all those things, more stores and more people and a little more selling expense. Got it. Then as far as the build time, you mentioned that you cut down 10 days, but can you tell us from what to what? Like, what's the current build time, and how much more do you think you can push it? I think, I can tell you this, I think we're probably about at, you know, near max. We're at or below pre-COVID levels in nearly every single one of our markets. We've actually improved in some markets from pre-COVID. I don't know how many more days we could sneak out of it, but right now, in the vast majority of our divisions, our construction efficiencies are at a very high level and a very, very acceptable level. But in absolutes, is it like four months, something in that ballpark? Average right now, average right now is about 140. Yeah, but some markets were in the 110s, 107s, 105s- Yeah. - where we do, you know, maybe more smart series, it and in markets where we have more towns, you'll see... You can-- there's, there can be some pretty big variations from market to market. Yeah, we actually have templates for each of our product lines, and again, as Bob said, that varies by market also, but overall, today, we're like about 140. Got it. If I could ask one more. In terms of spec versus build to order, like, what percentage are you guys at right now? We're about 60% spec right now. Okay. Thanks, guys, and best of luck. Thanks so much. Thanks. Thank you. That is all the questions we have. I will turn the call back over to Phil Creek for closing comments. Thank you for joining us. Look forward to talking to you next quarter. Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your line.