What changed in this filing

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Item 1. Business

2024-02-16 compared with 2023-02-17 · 71 added, 57 removed, 254 unchanged (34% of the section changed)

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We offer title services through subsidiaries that are 100%-owned by the Company.

Our financial services operations accounted for 2% and 3% of our consolidated revenues in 2022 and 2021, respectively.

Our financial services operations accounted for 2% of our consolidated revenues in both 2023 and 2022.

See the “Financial Services” section below for additional information regarding our financial services operations.

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Industry Overview and Current Market Conditions

Beginning in the second half of 2022, many of our markets began to experience a slowdown in homebuilding demand due to an unprecedented increase in mortgage interest rates and historically high inflation, which negatively impacted affordability and mortgage availability.

Homebuilding conditions also continued to be negatively impacted by labor and supply shortages and increasing costs of materials and labor.

We began to adjust sales prices and provide sales incentives in most of our markets during the fourth quarter of 2022 as well as offer financing incentives, all of which had a negative impact on our revenues, gross margins and income in the fourth quarter of 2022 compared to what we have experienced over the past two years.

We are focused on managing our investment in land inventory and land development based on current market conditions and our projected future sales absorption levels, in addition to managing overhead costs and minimizing raw material and construction costs.

We believe that the economic uncertainties caused by increased interest rates, historically high inflation, labor and supply shortages, and increased cost pressures may continue into 2023.

Despite the affordability issues and slowing demand resulting from the negative economic conditions, we believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of new and resale inventory.

During 2023, housing market conditions stabilized compared to the more challenging housing market conditions that were present during the second half of 2022 and the first quarter of 2023.

Housing demand deteriorated during most of 2022 in connection with significant increases to 30-year fixed mortgage rates resulting from the Federal Reserve's aggressive actions to combat inflation.

We believe that this interest rate environment caused many potential homebuyers to stay on the sidelines and delay their home purchases which resulted in lower new contracts and higher cancellations in 2022.

The Federal Reserve implemented more modest interest rate changes in 2023 than in 2022 which we believe improved consumer confidence.

We continued to offer sales incentives and interest rate buy-downs in select communities in 2023 to further stimulate demand which, in combination with product mix, lowered our average closing price in 2023 compared to 2022.

Inventory levels in the housing market remain undersupplied relative to demand due to (1) the underproduction of new homes over the past decade and (2) near record low levels of existing home resale inventory.

We believe that the 20% increase in new contracts during 2023 compared to 2022 resulted from the more stable interest rate environment, our sales incentives and interest rate buy-down offerings and the low inventory levels in the housing market.

In addition, supply chain conditions also normalized to a large degree with average construction cycle times improving year-over-year.

With respect to current market conditions, we believe that the underproduction of new homes over the past decade and the constrained supply of resale inventory will continue to benefit the housing industry over the long term.

The current demand for new homes, however, remains subject to uncertainty due to ongoing inflation concerns, consumer confidence, and the current interest rate environment.

The potential effect of these factors is uncertain and could adversely impact our operations and financial results in future periods.

We believe that we are well positioned to manage through the ever-evolving housing industry market conditions with our affordable product offerings, land position and planned new community openings.

We remain sensitive to potential changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending, and selectively offering incentives.

Our strong balance sheet and liquidity position should also provide us with flexibility through changing economic conditions.

However, we cannot provide any assurances that our strategic business objectives will remain successful, and we may need to adjust elements of our strategy to address evolving market conditions more effectively.

Business Strategy

We remain focused on maximizing profitability, continuing to expand our market share using our more affordable designs, and being more selective investing in land and land development opportunities.

We are focused on maximizing profitability, continuing to expand our market share using our more affordable designs and being selective in land and land development investment opportunities.

Consistent with our focus on improving long-term financial results, we expect to continue to emphasize the following strategic business objectives in 2024:

• managing our land spend and inventory levels;

• improving our construction cycle times;

• opening new communities;

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• emphasizing customer service, product quality and design, and premier locations.

Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to numerous factors, including the impacts of mortgage availability, inflation, increasing labor and supply costs, and supply chain disruptions and labor shortages.

Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to numerous factors, including the impacts of mortgage availability, inflation, interest rate increases, increasing labor and supply costs, and supply chain disruptions and labor shortages.

These factors are highly uncertain and outside our control.

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In 2023, we continued to focus our marketing efforts on first-time and move-up homebuyers, including home designs targeted to first-time, millennial, multi-generational and empty-nester homebuyers.

We market and sell our homes primarily under the M/I Homes brand.

Our marketing efforts are directed at driving interest in and preference for the M/I Homes brand over other homebuilders, the resale market, and in some cases the option to remodel an existing home.

We market and sell our homes under the M/I Homes brand.

Our marketing efforts are directed at driving awareness, interest, demand and preference for the M/I Homes brand over other homebuilders, the resale market, and the option to remodel an existing older home.

We provide our homebuyers with the following products, programs and services which we believe differentiate our brand:

(1) homes with high quality construction located in attractive areas and desirable communities that are supported by our 10-year transferable structural warranty in all of our markets;

(1) homes with high quality construction located in attractive areas and desirable communities that are supported by our 10-year transferable structural warranty;

(2) our Whole Home Building Standards which are designed to deliver features and benefits that satisfy the buyer’s expectation for a better-built home, including a more eco-friendly and energy efficient home that we believe will generally save our customers up to 30% on their energy costs compared to a home that is built to minimum code requirements;

(3) our Design Studios and Design Consultants that assist our homebuyers in selecting product and design options;

(3) our onsite and online Design Studios and Design Consultants that assist our homebuyers in selecting product and design options;

(4) fully furnished model homes and highly-trained sales consultants to build the buyer’s confidence and enhance the quality of the homebuying experience;

(5) our mortgage financing programs that we offer through M/I Financial, including competitive fixed-rate and adjustable-rate loans;

(5) our mortgage financing programs that we offer through M/I Financial, including competitive fixed-rate and adjustable-rate loans and, in certain cases, interest rate buy-down incentives;

(6) our Ready Now Homes program which offers homebuyers the opportunity to close on certain new homes in 90 days or less;

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Our Design Studios allow our homebuyers to select from a variety of product and design options that are available for purchase as part of the original construction of their homes.

Our centers are staffed with Design Consultants who help our homebuyers select the right combination of options to meet their budget, lifestyle and design sensibilities.

In most of our markets, we offer our homebuyers the option to consider and make design planning decisions using our Envision Online Design Center.

Our centers are staffed with Design Consultants who help our homebuyers select the right

combination of options to meet their budget, lifestyle and design sensibilities.

In most of our markets, we offer our homebuyers the option to consider and make design planning decisions using our Online Design Center.

We believe this tool is helpful for prospective buyers to use during the planning phase and makes their actual visit to our Design Studios more productive and efficient as our Design Consultants can view the buyer’s preliminary design selections and pull samples in advance of the buyer’s visit.

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Our communities are designed as neighborhoods that fit existing land characteristics.

We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design options for each model.

We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design

options for each model.

We believe our communities have attractive entrances with distinctive signage and landscaping and that our attention to community detail avoids a “development” appearance and gives each community a diversified neighborhood appearance.

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We devote significant resources to the research, design and development of our homes to meet the demands of our buyers and evolving market requirements.

We regularly review our plans offered per division to ensure that these home designs are still

relevant and appropriate for that particular market.

Across all of our divisions, we currently offer nearly 400 different floor plans designed to reflect current lifestyles and design trends.

With a growing at-home workforce, we have had to address evolving lifestyle needs.

In particular, home offices are in high demand with features such as high ceilings, larger floor area and natural light.

We continue to develop new floor plans and communities specifically for the growing empty-nester market.

We regularly review the plans offered in each of our divisions to ensure that our home designs are still relevant and appropriate for that particular market.

Across all of our divisions, we currently offer over 500 different floor plans designed to reflect current lifestyles and design trends.

Work-from-home needs for potential homebuyers continue to be an important planning tool for us, and we will continue to design and offer in-home spaces that are bright, functional and bring value to our buyers.

We also continue to develop new floor plans and communities specifically for the growing empty-nester market.

These plans (primarily ranch and main floor master bedroom type plans) focus on move-down buyers, are smaller in size, and feature outdoor living potential, fewer bedrooms, and improved community amenities.

Our homebuilding divisions often share successful plans with other divisions, when appropriate.

Our homebuilding divisions often share successful floor plans with other divisions, when appropriate.

We continue to look for opportunities to develop more multi-family communities.

In some cases where commercial and office developments are in less demand, we see potential to rezone to a higher density multi-family solution.

As affordability remains a key driver of sales, our “Smart Series” has become more important than ever and represented approximately 55% of our total sales for the year ended December 31, 2023.

Our “Smart Series” is market specific and intended to offer buyers excellent value, desirable locations, and pre-selected packages of upgraded finishes and appliances.

The “Smart Series” targets entry-level and move-down buyers and focuses significant attention on affordability, livability and offering some design flexibility to our customers.

The “Smart Series” targets entry-level and move-down buyers and focuses significant attention on affordability, livability and design flexibility.

We continue to increase our multi-family Smart Series offerings in several of our divisions.

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We design all of our product lines to reduce production costs and construction cycle times while adhering to our quality standards and using materials and construction techniques that reflect our commitment to more environmentally conscious homebuilding methods.

Some of those techniques include wall, floor, and roof panelization to minimize waste as well as construction waste recycling.

We also strive to maximize greenspace, develop in environmentally harmonious communities, build energy efficient homes, and purchase sustainable inputs.

All of our homes are constructed according to proprietary designs that meet the applicable FHA and VA requirements and all local building codes.

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Our raw materials consist primarily of lumber, concrete and similar construction materials, and while these materials are generally available from a variety of sources, we have reduced construction and administrative costs by executing national purchasing contracts with select vendors.

However, we experienced labor and supply shortages and price increases in 2022 as well as increased cycle times.

We experienced more normalized labor and supply markets in 2023 which improved our construction cycle times.

Our homes are constructed according to standardized prototypes which are designed and engineered to provide innovative product design while attempting to minimize costs of construction and control product consistency and availability.

We believe our construction process, and the construction cycle times resulting from product line design referenced above, generally reduce the time our subcontractors and vendors spend transporting labor, equipment, and materials to and from our communities and thereby also reduce the environmental impact and carbon emissions associated with construction for our homes.

We generally employ subcontractors for the installation of site improvements and the construction of homes.

We believe our construction process, and the construction cycle times resulting from our product line design, generally reduce the time our subcontractors and vendors spend transporting labor, equipment, and materials to and from our communities as well as the environmental impact and carbon emissions associated with the construction of our homes.

We generally employ subcontractors to install site improvements and construct homes.

The construction of each home is supervised by a Personal Construction Supervisor who reports to a Production Manager, both of whom are employees of the Company.

Our Personal Construction Supervisors manage the scheduling and construction process.

Subcontractor work is performed pursuant to written agreements that require our subcontractors to comply with all applicable laws and labor practices, follow local building codes and permits, and meet performance, warranty, and insurance requirements.

The agreements generally specify a fixed price for labor and materials and are structured to provide price protection for a majority of the higher-cost phases of construction for homes in our backlog.

For our buyers that are not interested in purchasing an inventory home (homes started in the absence of an executed contract), we begin construction on the homes after we have obtained a sales contract and preliminary written confirmation from the buyer’s lender that financing should be approved.

Our subcontractors perform pursuant to written agreements that require them to comply with all applicable laws and labor practices, follow local building codes and permits, and meet performance, warranty, and insurance requirements.

The agreements generally specify a fixed price for labor and materials and provide price protection for a majority of the higher-cost phases of construction for homes in our backlog.

For our buyers who are not interested in purchasing an inventory home (homes started in the absence of an executed contract), we begin construction on the home after we obtain a sales contract and preliminary written confirmation from the buyer’s lender that financing should be approved.

In certain markets, contracts may be accepted contingent upon the sale of an existing home, and construction may be authorized through a certain phase prior to satisfaction of that contingency.

The construction of our homes typically takes approximately four to six months from the start of construction to completion of the home, depending on the size and complexity of the particular home being built, weather conditions, and the availability of labor, materials, and supplies.

However, due to the strong overall housing demand in 2021 and early 2022, we experienced disruptions in our supply chain, including the availability of labor and the timely availability of certain materials, which lengthened our production cycle times in certain markets.

As demand began to slow in the latter half of 2022, however, some of these disruptions began to subside in a number of our markets.

We remain focused on improving cycle times in all of our markets.

We remain focused on improving construction cycle times in all of our markets.

In 2023, we reduced our average days under construction by more than 60 days.

Continued improvement in supply chain and labor market conditions would enhance our ability to reduce production times.

We construct inventory homes to facilitate delivery of homes on an immediate-need basis under our Ready Now Homes program and to provide presentation of new products.

For some prospective buyers, selling their existing home has become a less predictable process and, as a result, when they sell their home, they often need to find, buy and move into a new home in

90 days or less.

For some prospective buyers, selling their existing home has become a less predictable process and, as a result, when they sell their home, they often need to find, buy and move into a new home in 90 days or less.

Other buyers simply prefer the certainty provided by being able to fully visualize a home before purchasing it.

Of the total number of homes closed in 2023 and 2022, 57% and 43%, respectively, were inventory homes which include both homes started as inventory homes and homes that started under a contract that were later cancelled and became inventory homes as a result.

The increase in the percentage of inventory homes closed in 2022 compared to 2021 was due to longer cycle times on new builds and the uncertain interest rate environment which we believe led buyers to purchase homes that could close quickly and, therefore, provide less interest rate risk.

The increase in the percentage of inventory homes closed in 2023 compared to 2022 was due to higher demand and more selective incentives offered on inventory homes compared to new builds.

The incentives we offered on inventory homes in 2023 were based on community level market conditions and we may decide to discontinue such incentives in 2024 depending on how market conditions evolve.

We sell our homes under standard purchase contracts, which generally require a homebuyer deposit at the time of signing the contract.

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The Home Builder’s Limited Warranty covers construction defects for a statutory period based on geographic market and state law (currently ranging from four to ten years for the states in which the Company operates) and includes a mandatory arbitration clause.

The structural warranty is for 10 years for homes sold after December 31, 2021, 10 or 15 years for homes sold after December 1, 2015 and on or before December 31, 2021, and 10 or 30 years for homes sold after April 25, 1998 and on or before December 1, 2015.

The structural warranty is for 10 years for homes sold after December 31, 2021, 10 or 15 years for homes sold after December 1, 2015 and on or before December 31, 2021 (except for homes sold in Texas), and 10 or 30 years for homes sold after April 25, 1998 and on or before December 1, 2015 (except for homes solid in Texas).

We also pass along to our homebuyers all warranties provided by the manufacturers or suppliers of components installed in each home.

Although our subcontractors are generally required to repair and replace any product or labor defects during their respective warranty periods, we are ultimately responsible to the homeowner for making such repairs during our applicable warranty period.

Although our subcontractors are generally required to repair and replace any product or labor defect during their respective warranty periods, we are ultimately responsible to the homeowner for making such repairs during our applicable warranty period.

Accordingly, we have estimated and established reserves for both our Home Builder’s Limited Warranty and potential future structural warranty costs based on the number of home deliveries and historical data trends for our communities.

In the case of the structural warranty, we also employ an actuary to assist in the determination of our future costs on an annual basis.

Our warranty expense (excluding stucco-related repair costs in certain of our Florida communities in 2020, as more fully discussed in Note 8 to our Consolidated Financial Statements) was approximately 0.7%, 0.6% and 0.7% of total housing revenue in 2022, 2021 and 2020, respectively.

Our warranty expense was approximately 0.6%, 0.7% and 0.6% of total housing revenue in 2023, 2022 and 2021, respectively.

Land Acquisition and Development

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Before acquiring land, we complete extensive comparative studies and analyses, which assist us in evaluating the economic feasibility of each land acquisition.

We consider a number of factors, including projected rates of return, estimated gross margins, and projected pace of absorption and

sales prices of the homes to be built, all of which are impacted by our evaluation of population and employment growth patterns, demographic trends and competing new home subdivisions and resales in the relevant sub-market.

We consider a number of factors, including projected rates of return, estimated gross margins, and projected pace of absorption and sales prices of the homes to be built, all of which are impacted by our evaluation of population and employment growth patterns, demographic trends and competing new home subdivisions and resales in the relevant sub-market.

We attempt to acquire land with a minimum cash investment and negotiate takedown options when available from sellers.

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The development agreements under which we are required to provide completion bonds or letters of credit are generally not subject to a required completion date and only require that the improvements are in place in phases as homes are built and sold.

In locations where development has progressed, the amount of development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing delays in obtaining release of the bonds or letters of credit.

Our ability to continue development activities over the long-term will depend upon, among other things, a suitable economic environment and our continued ability to locate suitable parcels of land, enter into options or agreements to purchase such land, obtain governmental approvals for such land, and consummate the acquisition and development of such land.

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In situations where we believe targeted returns are no longer likely to be achieved, we may choose to terminate certain land purchase contracts which may result in write-offs of deposits and/or pre-acquisition costs.

During the years ended December 31, 2022, 2021 and 2020, we incurred $13.6 million, $2.0 million and $2.2 million, respectively, of write-offs for land deposits and pre-acquisition costs for land that we no longer intend to purchase.

The following table sets forth our land position in lots (including lots held in joint venture arrangements) at December 31, 2023:

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We also provide title and closing services to purchasers of our homes through our 100%-owned subsidiaries, TransOhio Residential Title Agency Ltd., M/I Title Agency Ltd., and M/I Title LLC.

Through these entities, we serve as a title insurance agent by providing title insurance policies and examination and closing services to purchasers of our homes in all of our housing markets except for North Carolina.

TransOhio Residential Title Agency Ltd.

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We compete primarily on the basis of price, location, design, quality, service, and reputation.

Our financial services operations compete with other mortgage lenders to arrange financings for homebuyers.

Our financial services operations compete with other mortgage lenders to arrange financing for homebuyers.

Principal competitive factors include pricing, mortgage loan terms, underwriting criteria, interest rates, customer service and other features of mortgage loan products available to the consumer.

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For instance, the SEC has proposed extensive climate-related disclosure rules, which, if adopted, would likely impose significant compliance costs on us.

Environmental costs and accruals were not material to our operations, cash flows or financial position in 2022, 2021 or 2020.

Environmental costs and accruals were not material to our operations, cash flows or financial position in 2023, 2022 or 2021, although we did experience a reduction in our energy efficient home credits in 2023 when compared to prior years as the Inflation Reduction Act (“IRA”) that was enacted August 16, 2022 made the requirements for obtaining the tax credit more difficult to obtain.

Our homebuilding operations are also subject to various local, state and federal statutes, ordinances, rules and regulations concerning building, zoning, design, construction, sales, consumer protection and similar matters.

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In addition, our homebuilding operations are regulated in certain areas by restrictive zoning and density requirements that limit the number of homes that can be built within the boundaries of a particular area.

We may also experience extended timelines for receiving required approvals

from municipalities or other government agencies that can delay our anticipated development and construction activities in our communities.

During 2022, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2023.

We may also experience extended timelines for receiving required approvals from municipalities or other government agencies that can delay our anticipated development and construction activities in our communities.

During 2023, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we may experience a similar level of delays in 2024.

Our mortgage company and title insurance agencies are subject to various local, state and federal statutes, ordinances, rules and regulations (including requirements for participation in programs offered by FHA, VA, USDA, Ginnie Mae, Fannie Mae and Freddie Mac).

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None of our employees are represented by a collective bargaining agreement.

In January 2023, we reduced our headcount by approximately 10% as a result of market conditions.

We believe that our employees are our most important resource.

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We recognize the value of creating a collaborative, inclusive workplace, and to help foster such an environment, we promote a culture of mutual understanding and respect among employees, customers and building partners.

We are committed to a culture of diversity, equity and inclusion.

We are committed to a culture of diversity, equity and inclusion (“DEI”).

In 2020, we established a Diversity, Equity and Inclusion Committee (the “DEI Committee”) which is comprised of certain members of our executive team and senior leaders in our human resources department and our mortgage and business operations divisions.

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Environmental, Social and Governance

During 2022, our environmental, social and governance (“ESG”) working group (which we formed in 2020 and is comprised of certain members of our leadership team and other members from a cross section of the Company) continued to focus on

advancing our ESG practices and reporting.

Among other things, the ESG working group continued to evaluate the impact of our business on the environment and how our actions contribute to environmentally responsible sustainability (including through green space preservation, redevelopment and infill activities and incorporation of energy efficient technology and building standards), the potential impact of climate change on our business, our human capital management policies and practices (including our DEI and employee engagement and safety initiatives), our community engagement and our corporate governance practices.

In 2022, we also published our third annual Environmental, Social and Governance Report which provides detailed information regarding our ESG policies, initiatives and strategies and includes certain quantifiable performance indicators for 2021.

These performance indicators were based on the Sustainability Accounting Standards Board industry-specific standards and applicable aspects of the Global Reporting Initiative standards.

During 2023, our environmental, social and governance (“ESG”) working group (which we formed in 2020 and is comprised of certain members of our leadership team and other members from a cross section of the Company) continued to focus on advancing our ESG practices and reporting.

Among other things, the ESG working group continued to evaluate the impact of our business on the environment and how our actions contribute to environmentally responsible sustainability (including through green space preservation and dedication, redevelopment and infill activities, prioritizing development of locations with proximity to infrastructure and incorporation of energy efficient inputs and technology and building standards), the potential impact of climate change on our business, our human capital management policies and practices (including our DEI and employee engagement and safety initiatives), our community engagement and our corporate governance practices.

We periodically evaluate the potential impact of climate change and other environmental-related risks on our business.

We also seek to limit the impact of our business on the climate by:

(1) purchasing sustainable and energy efficient inputs;

(2) using efficient construction techniques to reduce construction cycle time and material spoliation;

(3) locating our communities in infill or redevelopment areas, where possible;

and (4) building energy efficient homes.

In 2023, we also published our fourth annual Environmental, Social and Governance Report which provides detailed information regarding our ESG policies, initiatives and strategies and includes certain quantifiable performance indicators for 2022.

These performance indicators were largely based on the Sustainability Accounting Standards Board industry-specific standards.

We believe our Environmental, Social and Governance Report demonstrates our commitment to integrate sustainable values into our company and business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business