What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 176 added, 266 removed, 420 unchanged (51% of the section changed)

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Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.

See “Forward - Looking Statements” above in Part I.

See “Special Note of Caution Regarding Forward - Looking Statements” above in Part I.

Listed below are those estimates and policies that we believe are critical and require the use of complex judgment in their application.

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Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit.

Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material.

Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, are not material.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

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The discount rate used in determining each asset’s estimated fair value reflects the inherent risks associated with the related estimated cash flow stream, as well as current risk-free rates available in the market and estimated market risk premiums.

During the fourth quarter of 2022, we recorded an aggregate loss of $18.4 million that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase in order to right-size our land portfolio and $8.2 million of asset impairment charges.

Our quarterly assessments reflect management’s best estimates.

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RESULTS OF OPERATIONS

We began to experience weakening in homebuyer demand during the second half of 2022.

The robust housing market of the previous 18 months began to decline as a result of the uncertain macroeconomic conditions in the broader U.S.

economy, particularly the historic rise in mortgage interest rates and the high rate of inflation not experienced since the 1970s.

We believe that these economic conditions, together with housing affordability issues and consumer fears of an economic recession, caused many potential homebuyers to postpone their homebuying decisions.

As a result of this weakening demand, our new contracts and homes delivered declined 27% and 3%, respectively, in 2022 from 2021.

In addition, our company-wide absorption pace of sales per community in 2022 declined to 3.1 per month compared to 4.1 per month in 2021 as a result of the declining market conditions.

Our average number of selling communities increased to 196 at the end of 2022 from 175 at the end of 2021.

Despite these challenges, we achieved the following results during the year ended December 31, 2022 in comparison to the year ended December 31, 2021, all of which represented record highs for the Company:

• Revenue increased 10% to $4.1 billion

• Income before income taxes increased 25% to $635.2 million

• Net income increased 24% to $490.7 million

• Shareholders’ equity of $2.1 billion

Our improved profitability is attributable primarily to improved margins and overhead leverage when compared to 2021 as consumer demand for housing remained robust in 2021 and early 2022 when the majority of our homes delivered during 2022 were placed under contract, driving record financial results for our business.

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

However, we continue to believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of new and resale inventory.

In January 2023, we sold approximately 630 homes, an 18% decrease compared to January 2022, but an approximate 60% sequential increase compared to average monthly sales during the second half of 2022.

We have also experienced an increase in traffic compared to prior year’s January.

Given the uncertainty in the housing market and the general economy, we may choose to delay the development and opening of some new communities to match homebuyer demand in 2023.

We recorded an aggregate loss of $18.4 million during the fourth quarter of 2022 that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase in order to right-size our land portfolio and $8.2 million of asset impairment charges.

Summary of Company Financial Results in 2022

The calculations of adjusted income before income taxes, adjusted net income, and adjusted housing gross margin, each of which is a non-GAAP measure, are described and reconciled to income before income taxes, net income, and housing gross margin, respectively, which represent the most directly comparable financial measures calculated in accordance with GAAP, below under “Non-GAAP Financial Measures.”

Income before income taxes for the twelve months ended December 31, 2022 increased 25% from $509.1 million for the year ended December 31, 2021 to $635.2 million for the year ended December 31, 2022.

Income before income taxes was unfavorably impacted by $18.4 million of asset impairment charges and deposit write-offs in 2022 and by $9.1 million pre-tax charge for loss on early extinguishment of debt related to the redemption of our 2025 Senior Notes (as more fully discussed below and in Note 8 to our Consolidated Financial Statements) in 2021.

Excluding these charges in both 2022 and 2021, adjusted income before income taxes increased 26% from $518.2 million in 2021 to $653.6 million in 2022.

In 2022, we achieved net income of $490.7 million, or $17.24 per diluted share, which includes the after-tax impact of the asset impairment charges and deposit write-offs noted above ($0.50 per diluted share), compared to net income of $396.9 million, or $13.28 per diluted share in 2021, which includes the after-tax impact of the loss on early extinguishment of debt noted above ($0.23 per diluted share).

Excluding these charges in both periods, adjusted net income increased 25% from $403.9 million ($13.51 per diluted share) in 2021 to $504.6 million ($17.74 per diluted share) in 2022.

In 2023, we achieved our second-highest revenue, income before income taxes and net income in Company history despite the significant headwinds the housing industry faced entering the year, including high mortgage interest rates, inflationary pressures and an uncertain economy.

Our new contracts for 2023 increased 20% compared to 2022 as we experienced improvements in homebuyer demand as a result of the limited supply of resale and new home inventory and potential homebuyers adjusting to the interest rate environment compared to the hesitation that appeared to exist in the second half of 2022.

We also had very strong cash flow and liquidity and ended the year with low leverage.

In addition, during 2023, supply chain disruptions eased leading to improved construction cycle times, both of which helped sustain our gross margin at 25.3%, the same as last year.

Our revenue declined 2% while our homes delivered decreased 3% in 2023 compared to 2022.

Income before income taxes and net income decreased 4% and 5%, respectively, from prior year’s record levels.

We achieved the following results during the year ended December 31, 2023 in comparison to the year ended December 31, 2022:

• New contracts increased 20% to 7,977

• Average price of homes delivered increased 1% to $483,000

• Absorption pace of sales per community improved to 3.3 per month

• Average community count increased 9% to 213 at the end of 2023

• Shareholders’ equity increased 22% to $2.5 billion, an all-time record high for our Company

• Book value per common share increased to a record high $91 per share

• Homebuilding debt to capital ratio improved to 22%

In addition to the results described above, our financial services operations achieved a $4.3 million increase in operating income in 2023 compared to 2022, benefiting from higher margins and an increase in the average loan amount.

Our company-wide absorption pace of sales per community in 2023 improved to 3.3 per month compared to 3.1 per month in 2022 as a result of our 20% increase in new contracts during 2023 compared to prior year, partially offset by a smaller increase in our average community count from 179 at the end of 2022 to 202 at the end of 2023.

We plan to open additional new communities during 2024, increasing our average community count by approximately 10% compared to 2023.

Income before income taxes for the twelve months ended December 31, 2023 decreased 4% from $635.2 million for the year ended December 31, 2022 to $607.3 million for the year ended December 31, 2023.

In 2023, we achieved net income of $465.4 million, or $16.21 per diluted share, compared to net income of $490.7 million, or $17.24 per diluted share in 2022.

Our effective tax rate was 23.4% in 2023 compared to 22.8% in 2022.

In 2022, we recorded record total revenue of $4.13 billion, of which $4.01 billion was from homes delivered, $34.8 million was from land sales, and $86.2 million was from our financial services operations.

Revenue from homes delivered increased 10% from 2021 driven primarily by a 14% increase in the average sales price of homes delivered ($59,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the quarter were placed under contract, offset partially by a 3% decrease in the number of homes delivered in 2022 (272 units), which was due to reduced demand for new homes as well as increased year-over-year cycle times related to supply chain issues and labor shortages.

Revenue from land sales increased $21.4 million from 2021 due primarily to more land sales in the current year compared to the prior year.

Revenue from our financial services segment decreased 16% to $86.2 million in 2022 as a result of a decrease in loans closed and sold during the year, in addition to lower margins on loans sold during the period compared to the prior year.

Total gross margin (total revenue less total land and housing costs) increased $135.0 million in 2022 compared to 2021 as a result of a $150.8 million improvement in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin), offset partially by a $15.8 million decline in the gross margin of our financial services operations.

With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved

$142.3 million, due to the 14% increase in the average sales price of homes delivered ($59,000 per home delivered) compared to prior year, partially offset by the 3% decrease in the number of homes delivered.

Our housing gross margin percentage improved 150 basis points from 22.1% in the prior year to 23.6% in 2022.

Exclusive of the asset impairment charges and deposit write-offs in 2022, our adjusted housing gross margin percentage improved 190 basis points.

Our gross margin on land sales (land gross margin) improved $8.6 million in 2022 compared to 2021 as a result of the mix of lots sold in the current year compared to the prior year.

The gross margin of our financial services operations declined $15.8 million in 2022 compared to 2021 as a result of a decreases in the number of loan originations and lower margins on loans sold, partially offset by an increase in the average loan amount during 2022 compared to prior year.

We opened an all-time record 101 new communities during 2022.

In 2023, we recorded total revenue of $4.03 billion, of which $3.91 billion was from homes delivered, $25.3 million was from land sales, and $93.8 million was from our financial services operations.

Revenue from homes delivered decreased 2% from 2022 driven primarily by a 3% decrease in the number of homes delivered in 2023 (254 units), offset partially by a 1% increase in the average sales price of homes delivered ($4,000 per home delivered).

Revenue from land sales decreased $9.5 million from 2022 due primarily to fewer land sales in the current year compared to the prior year.

Revenue from our financial services segment increased 9% to $93.8 million in 2023 as a result of an increase in loans closed and sold during the year, in addition to higher margins on loans sold during the period compared to the prior year.

Total gross margin (total revenue less total land and housing costs) decreased $24.9 million in 2023 compared to 2022 as a result of a $32.5 million decline in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin), offset partially by a $7.6 million improvement in the gross margin of our financial services operations.

With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) declined $24.2 million, due to the 3% decrease in the number of homes delivered, offset partially by the 1% increase in the average sales price of homes delivered ($4,000 per home delivered) compared to prior year.

Our housing gross margin percentage declined 10 basis points from 23.6% in the prior year to 23.5% in 2023.

Our gross margin on land sales (land gross margin) declined $8.4 million in 2023 compared to 2022 as a result of fewer land sales and the mix of lots sold in the current year compared to the prior year.

The gross margin of our financial services operations, however, improved by $7.6 million in 2023 compared to 2022 as a result of an increase in the number of loan originations, higher margins on loans sold, and an increase in the average loan amount during 2023 compared to prior year.

We opened 76 new communities during 2023, our second highest number in Company history.

We sell a variety of home types in various communities and markets, each of which yields a different gross margin.

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The mix of communities delivering homes may cause fluctuations in our new contracts and housing gross margin from year to year.

For 2022, selling, general and administrative expense increased $15.8 million, which partially offset the increase in our gross margin discussed above, but improved as a percentage of revenue to 9.8% in 2022 from 10.4% in 2021.

For 2023, selling, general and administrative expense increased $25.3 million, and increased as a percentage of revenue to 10.7% in 2023 from 9.8% in 2022.

Selling expense increased $17.3 million from 2022 and increased as a percentage of revenue to 5.2% in 2023 from 4.6% in 2022.

Variable selling expense for sales commissions contributed $13.3 million to the increase due to the increase in the average sales price of homes delivered as well as higher external sales commission rates paid during the period compared to prior year.

Non-variable selling expense increased $4.0 million primarily related to increased costs associated with our sales offices and models due to our increased community count.

General and administrative expense increased $8.0 million compared to 2022 and also increased as a percentage of revenue from 5.2% in 2022 to 5.5% in 2023.

The dollar increase in general and administrative expense was primarily due to an $11.5 million increase in compensation-related expenses due to our increased headcount and strong financial performance which led to higher incentive-based compensation, a $2.5 million increase in land-related costs primarily due to write-offs of abandoned land transaction costs and a $8.8 million increase in miscellaneous expenses.

Selling expense decreased $7.0 million from 2021 and improved as a percentage of revenue to 4.6% in 2022 from 5.3% in 2021, partially offsetting the increase in general and administrative expense above.

Variable selling expense for sales commissions contributed $8.7 million to the decrease due to the lower number of homes delivered during the period, offset partially by a $1.7 million increase in non-variable selling expense primarily related to increased costs associated with our sales offices and models.

Housing market conditions began to decline during the second half of 2022, resulting in significantly weakened overall demand for new homes.

We attribute this decline in demand to various macroeconomic conditions, including steep increases in mortgage rates since January 2022, substantial increases in home prices over the past two years, the high rate of inflation, and economic recession concerns of our potential homebuyers.

The extent to which these factors will continue to impact our business is highly uncertain and unpredictable, and our past performance should not be considered indicative of our future results on any metric or set of metrics given the uncertainty in the U.S.

Despite these negative economic developments, we believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of available homes, positive consumer demographics, scarcity of rentals and increasing rent prices.

We believe that we are well positioned to manage through these challenging economic conditions with our affordable product offerings, lot supply and planned new community openings.

We remain sensitive to the changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending and offering incentives, including mortgage interest rate buy-downs, to retain our backlog and improve our sales pace.

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

The dollar increase in general and administrative expense was primarily due to an $8.9 million increase in compensation-related expenses and a $1.1 million increase in land-related costs, offset partially by a $2.0 million decrease in miscellaneous expenses.

Housing market conditions stabilized during 2023 compared to the second half of 2022 with interest rates leveling off late in 2023.

Future homebuyer demand remains subject to uncertainty due to various macroeconomic conditions, including labor and material costs and availability, interest rates, inflation, and the economic concerns of our potential homebuyers.

The extent to which these factors will impact our business is unpredictable.

However, we believe that we are well positioned to manage through these economic 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 for closing cost assistance or mortgage rate buydowns.

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

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

We believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of available homes, positive consumer demographics, and increasing rent prices.

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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During 2023, we invested $343.5 million in land acquisitions and $512.1 million in land development.

We invested in less land acquisitions in 2022 due to declining demand for new homes and invested more in land development to finish lots needed to start homes and allow us to open new communities in an effort to increase demand and sales.

We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will

adjust our land and investment spend accordingly.

As a result of the unprecedented current market conditions with municipality delays, extended cycle times, and increased mortgage interest rates impacting sales, we are not providing land spending estimates for 2023 at this time.

We invested more in land development than in land acquisitions in order to finish lots needed to start homes and allow us to open new communities.

We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly.

We ended 2023 with approximately 45,700 lots under control, which represents a 5.6 year supply of lots based on 2023 homes delivered, including certain lots that we anticipate selling to third parties.

This represents a 4% decrease from our approximately 44,000 lots under control at the end of 2021.

We opened a record 101 communities and closed 80 communities in 2022, ending the year with a total of 196 communities, compared to 175 at the end of 2021.

Although the timing of opening new communities and closing out existing communities is subject to substantial variation, we expect to grow our community count by approximately 15% by the end of 2023 to 225 communities.

While we believe 2023 will be a very challenging year compared to the past few years of historically strong market conditions, we believe that we are well positioned with a strong balance sheet and backlog to manage through the current economic environment.

This represents a 9% increase from our approximately 42,100 lots under control at the end of 2022.

We opened 76 communities and closed 59 communities in 2023, ending the year with a total of 213 communities, compared to 196 at the end of 2022.

Although the timing of opening new communities and closing out existing communities is subject to substantial variation, we expect to grow our average community count by approximately 10% by the end of 2024.

We believe that we are well positioned with a strong balance sheet to manage through the current economic environment.

However, the challenging macroeconomic conditions described above could materially and negatively affect our performance in 2024, particularly when compared to our performance over the past few years.

Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of increased mortgage interest rates, inflation, materials and labor cost increases, supply chain disruptions and labor shortages, and the further impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things.

These factors are highly uncertain and outside our control.

As a result, our past performance may not be indicative of future results.

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operating income (loss);

interest expense (income);

interest (income) expense;

and depreciation and amortization for the years ended December 31, 2023, 2022 and 2021:

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Northern homebuilding $ 294,994 $ 334,300 $ 331,521

Southern homebuilding (b)

Southern homebuilding

630,106 623,347 475,366

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93,829 86,195 102,028

Total gross margin (b) (c)

Total gross margin

$ 1,018,929 $ 1,043,842 $ 908,915

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Northern homebuilding $ 176,320 $ 217,499 $ 211,958

Southern homebuilding (b)

Southern homebuilding

440,168 451,874 312,661

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Corporate selling, general and administrative expense (77,980) (76,304) (68,614)

Total operating income (b) (c)

Total operating income

$ 587,222 $ 637,451 $ 518,296

Interest expense (income):

Interest (income) expense - net:

Northern homebuilding $ (186) $ (469) $ 76

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Corporate (28,493) (956) (1,368)

Total interest expense $ 2,250 $ 2,156 $ 9,684

Other income (d)

Total interest (income) expense - net

$ (20,022) $ 2,250 $ 2,156

Loss on early extinguishment of debt (e)

Other income (b)

$ (33) $ (6) $ (2,046)

Loss on early extinguishment of debt (c)

Income before income taxes $ 607,277 $ 635,207 $ 509,114

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(a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.

(b) The year ended December 31, 2020 includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements).

(c) Total gross margin and total operating income were reduced by $18.4 million of asset impairment charges and deposit write-offs taken during the year ended December 31, 2022 and $8.4 million of asset impairment charges taken during the year ended December 31, 2020.

(d) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.

(e) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

(b) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.

(c) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs .

The following tables show total assets by segment at December 31, 2023, 2022 and 2021:

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Land sale revenue $ 20,846 $ 32,162 $ 8,769

Operating income homes (a) (b)

Operating income homes (a)

$ 437,054 $ 440,329 $ 310,550

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Land sale revenue $ 25,301 $ 34,771 $ 13,390

Operating income homes (a) (b) (c)

Operating income homes (a)

$ 613,128 $ 657,638 $ 521,391

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(a) Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.

(b) Includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements) taken during 2020.

(c) Includes $18.4 million of asset impairment charges and deposit write-offs taken during the year ended December 31, 2022 and $8.4 million of asset impairment charges taken during the year ended December 31, 2020.

Year Ended December 31,

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Total cancellation rate 11.4 % 14.3 % 7.8 %

Non-GAAP Financial Measures

This report contains information about our adjusted housing gross margin, adjusted income before income taxes, and adjusted net income, each of which constitutes a non-GAAP financial measure.

Because adjusted housing gross margin, adjusted income before income taxes, and adjusted net income are not calculated in accordance with GAAP, these financial measures may not be completely comparable to similarly-titled measures used by other companies in the homebuilding industry and, therefore, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP.

Rather, these non-GAAP financial measures should be used to supplement our GAAP results in order to provide a greater understanding of the factors and trends affecting our operations.

Adjusted housing gross margin, adjusted income before income taxes, and adjusted net income are calculated as follows:

Year Ended December 31,

(Dollars in thousands) 2022 2021 2020

Housing revenue $ 4,010,427 $ 3,630,469 $ 2,939,962

Housing cost of sales 3,064,515 2,826,810 2,351,621

Housing gross margin 945,912 803,659 588,341

Stucco-related charges (a)

Impairment (b)

18,352 — 8,435

Adjusted housing gross margin $ 964,264 $ 803,659 $ 597,636

Housing gross margin percentage 23.6 % 22.1 % 20.0 %

Adjusted housing gross margin percentage 24.0 % 22.1 % 20.3 %

Income before income taxes $ 635,207 $ 509,114 $ 310,043

Stucco-related charges (a)

Impairment (b)

18,352 — 8,435

Loss on early extinguishment of debt (c)

Adjusted income before income taxes $ 653,559 $ 518,186 $ 319,338

Net income $ 490,662 $ 396,868 $ 239,874

Stucco-related charges - net of tax (a)

Impairment - net of tax (b)

13,948 — 6,411

Loss on early extinguishment of debt - net of tax (c)

Adjusted net income $ 504,610 $ 403,853 $ 246,939

(a) Represents warranty charges, net of recoveries, for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 8 to our Consolidated Financial Statements).

(b) Represents asset impairment charges and deposit write-offs taken during 2022 and asset impairment charges taken during 2020.

(c) Loss on early extinguishment of debt relates to the early redemption of our 2025 Senior Notes during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

We believe adjusted housing gross margin, adjusted income before income taxes, and adjusted net income are each relevant and useful financial measures to investors in evaluating our operating performance as they measure the gross profit, income before income taxes, and net income we generated specifically on our operations during a given period.

These non-GAAP financial measures isolate the impact that the acquisition-related charges, stucco-related charges and impairment charges have on housing gross margins;

the impact that the other income, loss on early debt extinguishment, acquisition-related charges, stucco-related charges and impairment charges have on income before income taxes;

and that the other income, loss on early debt extinguishment, acquisition-related charges, stucco-related charges and impairment charges have on net income, and allow investors to make comparisons with our competitors that adjust housing gross margins, income before income taxes, and net income in a similar manner.

We also believe investors will find these adjusted financial measures relevant and useful because they represent a profitability measure that may be compared to a prior period without regard to variability of the charges noted above.

These financial measures assist us in making strategic decisions regarding community location and product mix, product pricing and construction pace.

Year Over Year Comparisons

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The calculation of adjusted housing gross margin (referred to below) is described and reconciled to housing gross margin, the financial measure that is calculated using our GAAP results, below under “Segment Non-GAAP Financial Measures.”

Northern Region.

During the twelve months ended December 31, 2022, homebuilding revenue in our Northern region increased $118.5 million, from $1.60 billion in 2021 to $1.71 billion in 2022.

This 7% increase in homebuilding revenue was the result of an 8% increase in the average sales price of homes delivered ($35,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the year were placed under contract, partially offset by a decrease in the number of homes delivered (11 units), due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, difficult comps versus last year, and a $2.0 million decrease in land sale revenue.

Operating income in our Northern region increased $5.5 million, from $212.0 million in 2021 to $217.5 million in 2022.

The increase in operating income was primarily the result of a $2.7 million increase in our gross margin in addition to a $2.8 million decrease in selling, general, and administrative expense.

With respect to our homebuilding gross margin, our housing gross margin improved $3.7 million, due to the increases noted above.

Our housing gross margin percentage declined 130 basis points from 20.8% in 2021 to 19.5% in 2022 largely due to increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year.

Our housing gross margin was unfavorably impacted by $10.4 million of asset impairment charges and deposit write-offs taken in 2022.

Exclusive of these charges, our adjusted housing gross margin percentage declined 70 basis points to 20.1%.

Our land sale gross margin declined $0.9 million as a result of the mix of lots sold in the current year compared to the prior year and fewer land sales compared to prior year.

Selling, general and administrative expense decreased $2.8 million from $119.6 million in 2021 to $116.8 million in 2022, and improved as a percentage of revenue to 6.8% in 2022 from 7.5% in 2021.

The decrease in selling, general and administrative expense was attributable to a $3.8 million decrease in selling expense, due to a $5.8 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered offset, in part, by a $2.0 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models.

The decrease in selling, general and administrative expense was partially offset by a $1.0 million increase in general and administrative expense, which was primarily related to a $1.5 million increase in compensation related expenses as a result of an increase in incentive compensation due to improved results, partially offset by a $0.5 million decrease in miscellaneous expenses.

During 2022, we experienced a 25% decrease in new contracts in our Northern region, from 3,667 in 2021 to 2,747 in 2022.

Backlog decreased 44% from 1,890 homes at December 31, 2021 to 1,056 homes at December 31, 2022.

The decreases in new contracts and backlog were primarily due to decreased demand as a result of the macroeconomic conditions described above in our Overview section and difficult comps versus last year.

Average sales price in backlog increased to $523,000 at December 31, 2022 compared to $484,000 at December 31, 2021.

During the twelve months ended December 31, 2023, homebuilding revenue in our Northern region decreased $190.3 million, from $1.71 billion in 2022 to $1.52 billion in 2023.

This 11% decrease in homebuilding revenue was the result of a 12% decrease in the number of homes delivered (412 units), primarily attributable to the lower backlog at the beginning of 2023 caused by the slowdown in demand that began in the latter half of 2022 in connection with the higher interest rate environment, offset partially by a $1.8 million increase in land sale revenue and a slight increase in the average sales price of homes delivered ($1,000 per home delivered).

Operating income in our Northern region decreased $41.2 million, from $217.5 million in 2022 to $176.3 million in 2023.

The decrease in operating income was primarily the result of a $39.3 million decrease in our gross margin in addition to a $1.9 million increase in selling, general, and administrative expense.

With respect to our homebuilding gross margin, our housing gross margin declined $39.4 million, and our housing gross margin percentage declined 10 basis points from 19.5% in 2022 to 19.4% in 2023.

The decline in our housing gross margin was primarily due to the mix of homes being delivered, the decrease in the number of homes delivered, and increased costs related to incentives offered, including mortgage interest rate buydowns and closing cost assistance.

Our land sale gross margin improved $0.1 million as a result of more land sales in 2023 as well as due to the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $1.9 million from $116.8 million in 2022 to $118.7 million in 2023 and increased as a percentage of revenue to 7.8% in 2023 from 6.8% in 2022.

The increase in selling, general and administrative expense was attributable to a $1.7 million increase in selling expense, due to a $1.2 million increase in variable selling expenses resulting from an increase in realtor commissions and a $0.5 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models.

The increase in selling, general and administrative expense was also attributable to a $0.2 million increase in general and administrative expense, which was primarily related to an increase in land-related expenses.

During 2023, we experienced a 22% increase in new contracts in our Northern region, from 2,747 in 2022 to 3,361 in 2023.

Backlog increased 18% from 1,056 homes at December 31, 2022 to 1,248 homes at December 31, 2023.

The increases in new contracts and backlog were primarily due to increased demand as a result of the increase in our average number of communities to 101 communities compared to 92 communities in the prior year and improved absorption rate.

Average sales price in backlog increased to $531,000 at December 31, 2023 compared to $523,000 at December 31, 2022 primarily due to the mix of homes being sold.

During the twelve months ended December 31, 2023, we opened 33 new communities in our Northern region compared to 34 during 2022.

Our monthly absorption rate in our Northern region declined to 2.5 per community in 2022, compared to 3.6 per community in 2021 due to the decline in new contracts noted above.

Our monthly absorption rate in our Northern region improved to 2.8 per community in 2023 compared to 2.5 per community in 2022 as a result of the increase in the number of new contracts during the period compared to prior year, offset, in part, by a smaller increase in the number of average active communities.

Southern Region.

For the twelve months ended December 31, 2023, homebuilding revenue in our Southern region increased $84.8 million, from $2.33 billion in 2022 to $2.42 billion in 2023.

This 14% increase in homebuilding revenue was primarily the result of a 19% increase in the average sales price of homes delivered ($76,000 per home delivered) and a $23.4 million increase in land sale revenue, partially offset by a 5% decrease in the number of homes delivered (261 units) due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, a decrease in our average number of communities and difficult comps versus last year.

Operating income in our Southern region increased $139.2 million from $312.7 million in 2021 to $451.9 million in 2022.

This increase in operating income was the result of a $148.0 million improvement in our gross margin, offset, in part, by an $8.8 million increase in selling, general, and administrative expense.

With respect to our homebuilding gross margin, our housing gross margin improved $138.5 million, due primarily to the increase in the average sales price of homes delivered noted above.

Our housing gross margin percentage improved 340 basis points from 23.2% in 2021 to 26.6% in 2022 largely due to the increase in average sales price of homes delivered compared to prior year.

Our housing gross margin was unfavorably impacted by $8.0 million of deposit write-offs taken in 2022.

Exclusive of these charges, our adjusted housing gross margin percentage improved 380 basis points to 27.0%.

Our land sale gross margin improved $9.4 million as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $8.8 million from $162.7 million in 2021 to $171.5 million in 2022 but declined as a percentage of revenue to 7.4% in 2022 from 7.9% in 2021.

The increase in selling, general and administrative expense was attributable to a $12.2 million increase in general and administrative expense, which was primarily related to a $5.2 million increase in compensation related expenses as a result of an increase in incentive compensation due to our strong financial performance during the period, a $4.7 million increase in land-related expenses and a $2.3 million increase in miscellaneous expenses, offset, in part, by a $3.4 million decrease in selling expense.

Selling expense declined due to a $2.9 million decrease in variable selling expenses resulting from increases in sales commissions produced by the lower number of homes delivered and a $0.5 million decrease in non-variable selling expenses primarily related to the timing of sales office and model openings and a reduction in marketing costs.

During 2022, we experienced a 28% decrease in new contracts in our Southern region, from 5,417 in 2021 to 3,921 in 2022.

This 4% increase in homebuilding revenue was primarily the result of a 3% increase in the number of homes delivered (158 units) due to increased availability of inventory homes, improved construction cycle times on our backlog homes and a 1% increase in the average sales price of homes delivered ($5,000 per home delivered) primarily due to the mix of homes delivered, partially offset by an $11.3 million decrease in land sale revenue.

Operating income in our Southern region decreased $11.7 million from $451.9 million in 2022 to $440.2 million in 2023.

This decrease in operating income was the result of an $18.4 million increase in selling, general, and administrative expense, offset, in part, by a $6.7 million improvement in our gross margin.

With respect to our homebuilding gross margin, our housing gross margin improved $15.2 million, due primarily to the increase in the average sales price of homes delivered and the increase in the number of homes delivered during the period, offset partially by increased construction and lot costs.

Our housing gross margin percentage declined 40 basis points, however, from 26.6% in 2022 to 26.2% in 2023 primarily due to increased costs related to incentives offered, including mortgage interest rate buydowns and closing cost assistance, offset partially by the increase in average sales price of homes delivered compared to prior year.

Our land sale gross margin declined $8.4 million as a result of fewer land sales in 2023 compared to 2022 as well as due to the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $18.4 million from $171.5 million in 2022 to $189.9 million in 2023 and increased as a percentage of revenue to 7.9% in 2023 from 7.4% in 2022.

The increase in selling, general and administrative expense was attributable to a $3.3 million increase in general and administrative expense, which was primarily related to a $4.2 million increase in compensation related expenses as a result of an increase in incentive compensation due to our strong financial performance during the period and a $0.4 million increase in land-related expenses, partially offset by a $1.3 million decrease in miscellaneous expenses.

Selling expense increased $15.2 million due to a $12.1 million increase in variable selling expenses resulting from increases in realtor commissions and a $3.1 million increase in non-variable selling expenses primarily attributable to costs related to our sales offices and models due to our increased community count.

During 2023, we experienced an 18% increase in new contracts in our Southern region, from 3,921 in 2022 to 4,616 in 2023, which was primarily due to an increase in our average number of communities to 101 communities compared to 86 communities in the prior year.

Backlog decreased 16% from 2,081 homes at December 31, 2022 to 1,754 homes at December 31, 2023.

The decreases in new contracts and backlog were primarily due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, a decrease in our average number of communities, and difficult comps compared to prior year.

Average sales price in backlog increased to $551,000 at December 31, 2022 from $493,000 at December 31, 2021.

The decrease in backlog was primarily due to improved construction cycle times allowing us to deliver homes in backlog at a faster rate compared to last year.

Average sales price in backlog decreased to $520,000 at December 31, 2023 from $551,000 at December 31, 2022 primarily due to the mix of homes delivered.

During 2023, we opened 43 communities in our Southern region compared to 67 in 2022.

Our monthly absorption rate in our Southern region declined to 3.8 per community in 2022 from 4.7 per community in 2021.

The decline in the number of new communities opened primarily related to our decision to delay land purchases that were scheduled to occur in late 2022 and early 2023 due to the declining market demand for new homes that began in the second half of 2022 along with extended timelines related to utility availability, which pushed community openings into 2024.

Our monthly absorption rate in our Southern region remained flat at 3.8 per community in both 2023 and 2022.

Financial Services.

Revenue from our mortgage and title operations decreased $15.8 million, or 16%, from a record $102.0 million for the twelve months ended December 31, 2021 to $86.2 million for the twelve months ended December 31, 2022 as a result of an 18% decrease in the number of loan originations, from 6,525 in 2021 to 5,374 in 2022, and lower margins on loans sold during the period compared to prior year.

Partially offsetting this was an increase in the average loan amount from $343,000 in 2021 to $385,000 in 2022.

Our financial service operations ended 2022 with a $17.9 million decrease in operating income compared to 2021, which was primarily due to the decrease in revenue discussed above in addition to a $2.1 million increase in selling, general and administrative expense compared to 2021.

The increase in selling, general and administrative expense was attributable to an increase in compensation expense related to our increase in employee headcount as a result of our expansion into new markets.

Revenue from our mortgage and title operations increased $7.6 million, or 9%, from a $86.2 million for the twelve months ended December 31, 2022 to $93.8 million for the twelve months ended December 31, 2023 as a result of an increase in the number of loan originations, from 5,374 in 2022 to 5,395 in 2023 and an increase in the average loan amount from $385,000 in 2022 to $393,000 in 2023.

Our financial service operations ended 2023 with a $4.3 million increase in operating income compared to 2022, which was primarily due to the increase in revenue discussed above, partially offset by a $3.3 million increase in selling, general and administrative expense compared to 2022.

The increase in selling, general and administrative expense was attributable to a $1.1 million increase in compensation expense related to our improved results during the period, a $0.6 million increase in indemnifications, a $0.9 million increase in appraisal costs, and a $0.7 million increase in miscellaneous expenses.

At December 31, 2023, M/I Financial provided financing services in all of our markets.

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Corporate selling, general and administrative expense increased $1.7 million, from $76.3 million in 2022 to $78.0 million in 2023.

The increase was primarily due to a $2.8 million increase in compensation expense due to increased headcount during the period, a $1.9 million increase related to costs associated with new information systems and a $3.0 million increase in miscellaneous expenses.

The increase was primarily due to a $4.2 million increase in compensation expense primarily due to our strong financial performance during the period, partially offset by a $0.8 million decrease related to costs associated with new information systems and a $1.7 million decrease in miscellaneous expenses.

Other income.

Other income includes a $1.9 million gain on the sale of a non-operating asset that occurred during the fourth quarter of 2021 (see Note 1 to our Consolidated Financial Statements for more information) and equity in income from joint venture arrangements.

Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special purpose entity is established (“LLCs”) with the other partners.

The Company earned less than $0.1 million and $0.1 million of equity in income from its LLCs during 2022 and 2021, respectively.

Interest Expense - Net.

Interest expense for the Company increased $0.1 million from $2.2 million in the twelve months ended December 31, 2021 to $2.3 million in the twelve months ended December 31, 2022.

This increase in interest expense was primarily due to an increase in our average outstanding borrowings resulting in an increase in our weighted average borrowings from $716.7 million in 2021 to $811.0 million in 2022.

Loss on Early Extinguishment of Debt.

We recognized a loss on early extinguishment of debt of $9.1 million during 2021 as a result of the write-off of unamortized debt issuance costs and a prepayment premium associated with the redemption of our 2025 Senior Notes.

Other income for 2023 and 2022 includes equity in income from joint venture arrangements.

Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special

purpose entity is established (“LLCs”) with the other partners.

The Company earned less than $0.1 million of equity in income from its LLCs during both 2023 and 2022.

Interest (Income) Expense - net.

The Company earned $20.0 million of interest income - net in the twelve months ended December 31, 2023 compared to incurring $2.3 million of interest expense - net in the twelve months ended December 31, 2022.

This was primarily due to a higher average cash balance on hand compared to prior year.

Income Taxes.

Our overall effective tax rate was 23.4% for the year ended December 31, 2023 and 22.8% for the year ended December 31, 2022.

The increase in the effective rate for the twelve months ended December 31, 2022 was primarily attributable to decreased tax benefits from energy tax credits and equity compensation (see Note 14 to our Consolidated Financial Statements for more information).

Segment Non-GAAP Financial Measures.

This report contains information about our adjusted housing gross margin, which constitutes a non-GAAP financial measure.

Because adjusted housing gross margin is not calculated in accordance with GAAP, this financial measure may not be completely comparable to similarly-titled measures used by other companies in the homebuilding industry and, therefore, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP.

Rather, this non-GAAP financial measure should be used to supplement our GAAP results in order to provide a greater understanding of the factors and trends affecting our operations.

Adjusted housing gross margin for each of our reportable segments is calculated as follows:

Year Ended December 31,

(Dollars in thousands) 2022 2021

Northern region:

Housing revenue $ 1,711,627 $ 1,591,125

Housing cost of sales 1,377,517 1,260,721

Housing gross margin 334,110 330,404

Impairment (a)

Adjusted housing gross margin $ 344,515 $ 330,404

Housing gross margin percentage 19.5 % 20.8 %

Adjusted housing gross margin percentage 20.1 % 20.8 %

Southern region:

Housing revenue $ 2,298,800 $ 2,039,344

Housing cost of sales 1,686,998 1,566,089

Housing gross margin 611,802 473,255

Impairment (a)

Adjusted housing gross margin $ 619,748 $ 473,255

Housing gross margin percentage 26.6 % 23.2 %

Adjusted housing gross margin percentage 27.0 % 23.2 %

(a) Represents asset impairment charges taken during the respective periods.

The increase in the effective rate for the twelve months ended December 31, 2023 was primarily attributable to decreased tax benefits from energy tax credits offset by increased tax benefits from equity compensation (see Note 14 to our Consolidated Financial Statements for more information).

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

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At December 31, 2023, we had $732.8 million of cash, cash equivalents and restricted cash, with $732.6 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $422.0 million increase in unrestricted cash and cash equivalents from December 31, 2022.

Our principal uses of cash during 2022 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $55.3 million of our outstanding common shares under our 2021 Share Repurchase Program during the first, second and third quarters of 2022.

In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.

The Company is a party to three primary credit agreements:

(1) the Credit Facility, our $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc.

as borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries;

(2) the MIF Mortgage Warehousing Agreement, our $200 million secured mortgage warehousing agreement (which increased to $275 million from September 19, 2022 to November 13, 2022

and to $300 million from November 14, 2022 to February 6, 2023), with M/I Financial as borrower;

and (3) the MIF Mortgage Repurchase Facility, our $90 million mortgage repurchase agreement, with M/I Financial as borrower.

As of December 31, 2022, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities totaling an aggregate principal amount of $946 million, with $246 million payable within 12 months.

The increase in cash is primarily due to 2023 net income, home deliveries, fewer homes under construction compared to prior year, and the timing of land spend compared to prior year.

Our principal uses of cash during 2023 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $65.3 million of our outstanding common shares under our 2021 Share Repurchase Program (as defined below) during 2023.

In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, the sale of mortgage servicing rights, excess cash balances, borrowings under our credit facilities, and other sources of liquidity.

The Company is a party to two primary credit agreements:

(1) a $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc.

as borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries and (2) a $300 million (subject to increases and decreases during certain periods) mortgage repurchase agreement, dated October 24, 2023, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).

As of December 31, 2023, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities in an aggregate principal amount of $866 million, with $166 million payable within 12 months.

Future interest payments associated with these notes payable totaled $166 million as of December 31, 2023, with $32 million payable within 12 months.

As of December 31, 2022, there were no borrowings outstanding and $94.9 million of letters of credit outstanding under our $650 million Credit Facility, leaving $555.1 million available.

We expect to continue managing our balance sheet and liquidity carefully in 2023 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2023 from cash receipts and availability under our credit facilities, as well as excess cash balances.

During the year ended December 31, 2022, we delivered 8,366 homes, started 7,792 homes, and spent $341.1 million on land purchases and $496.2 million on land development.

We are selectively acquiring and developing lots in our markets to replenish and increase our lot supply and are being more selective in investing in land and land development opportunities in response to the current market conditions.

We will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.

Pursuant to our land option agreements, as of December 31, 2022, we had a total of 17,049 lots under contract, with an aggregate purchase price of approximately $803.5 million, to be acquired during the period from 2023 through 2029.

As of December 31, 2023, there were no borrowings outstanding and $70.7 million of letters of credit outstanding under our Credit Facility, leaving $579.3 million available.

We expect to continue managing our balance sheet and liquidity carefully in 2024 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2024 from cash receipts, excess cash balances and availability under our credit facilities.

During the year ended December 31, 2023, we delivered 8,112 homes, started 7,956 homes, ended the year with 4,375 homes under construction compared to 4,522 at the end of last year, and spent $343.5 million on land purchases and $512.1 million on land development.

We are actively acquiring and developing lots in our markets to replenish our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.

Pursuant to our land option agreements, as of December 31, 2023, we had a total of 21,286 lots under contract, with an aggregate purchase price of approximately $1.1 billion, to be acquired from 2024 through 2030.

Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds.

Our use of these arrangements is for the purpose of securing the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.

We use these arrangements to secure the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.

See Note 6 to our Consolidated Financial Statements for more information regarding these arrangements.

Operating Cash Flow Activities .

During 2022, we generated $184.1 million of cash in operating activities, compared to using $16.8 million of cash from operating activities in 2021.

During 2023, we generated $552.1 million of cash in operating activities, compared to generating $184.1 million of cash from operating activities in 2022.

The cash generated by operating activities in 2023 was primarily a result of net income of $465.4 million, proceeds from the sale of mortgage loans that exceeded mortgage loan originations by $72.9 million and a $46.7 million decrease in inventory, offset partially by a $35.2 million decrease in other liabilities and $31.9 million decrease in accounts payable and customer deposits.

The cash generated by operating activities in 2022 was primarily a result of net income of $490.7 million, proceeds from the sale of mortgage loans that exceeded mortgage loan originations by $33.5 million and a $34.3 million increase in other liabilities, offset partially by a $348.7 million increase in inventory and $30.7 million decrease in accounts payable and customer deposits.

The cash used in operating activities in 2021 was primarily a result of a $508.2 million increase in inventory, along with payments for mortgage loan originations which exceeded the proceeds from the sale of mortgage loans by $43.9 million, offset by net income of $396.9 million and a $121.7 million increase in accounts payable, customer deposits and other liabilities.

Investing Cash Flow Activities.

During 2023, we used $18.6 million of cash in investing activities, compared to using $27.4 million of cash in investing activities during 2022.

This $24.3 million decrease in cash usage was primarily due to a decrease in cash contributions to our joint venture arrangements compared to prior year.

This $8.7 million decrease in cash usage was primarily due to $10.7 million of proceeds from the sale of a portion of our mortgage servicing rights (which occurred during the second quarter of 2023), offset, in part, by a $3.4 million decrease in cash contributions to our joint venture arrangements compared to prior year.

The cash used in investing activities during 2022 was primarily a result of an increase in our investment in joint venture arrangements.

Financing Cash Flow Activities.

During 2022, we used $81.5 million of cash in our financing activities, compared to generating $44.1 million of cash during 2021.

The cash used in financing activities in 2022 was primarily due to net repayments under our two M/I Financial credit facilities of $20.4 million in addition to the repurchase of $55.3 million of our outstanding common shares during 2022.

On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (see Note 16 to our Consolidated Financial Statements).

On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program by an additional $100 million.

During 2022, the Company repurchased 1.2 million common shares with an aggregate purchase price of $55.3 million which was funded with cash on hand.

As of December 31, 2022, the Company was authorized to repurchase an additional $93.1 million of outstanding common shares under the 2021 Share Repurchase Program.

The timing and amount of any future purchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

At December 31, 2022 and December 31, 2021, our ratio of homebuilding debt to capital was 25% and 30%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes, our 2028 Senior Notes, and Notes Payable-Other) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity.

During 2023, we used $112.2 million of cash in financing activities, compared to using $81.5 million of cash in financing activities during 2022.

The cash used in financing activities in 2023 was primarily due to repayments of $79.9 million (net of proceeds from borrowings) under our three then-outstanding M/I Financial credit facilities and the repurchase of $65.3 million of our outstanding common shares during 2023, offset, in part, by $33.8 million in proceeds from the exercise of stock options during 2023.

On February 17, 2022, the Company announced that its Board of Directors approved a $100 million increase to its 2021 Share Repurchase Program.

On November 15, 2023, the Company announced that its Board of Directors approved an additional increase of $100 million, for a total of $300 million authorized for repurchases under the 2021 Share Repurchase Program.

During 2023, the Company repurchased 0.7 million outstanding common shares for an aggregate purchase price of $65.3 million under the 2021 Share Repurchase Program which was funded with cash on hand.

As of December 31, 2023, the Company is authorized to repurchase an additional $127.8 million of outstanding common shares under the 2021 Share Repurchase Program (see Note 16 to our Consolidated Financial Statements).

Based on current market conditions, expected capital needs and availability, and the current market price of the Company’s common shares, we expect to continue repurchasing shares during 2024.

The timing and amount of any future purchases under the 2021 Share Repurchase Program will be based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

At December 31, 2023 and December 31, 2022, our ratio of homebuilding debt to capital was 22% and 25%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes and our 2028 Senior Notes) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity.

We believe that this ratio provides useful information for understanding our financial position and the leverage employed in our operations, and for comparing us with other homebuilders.

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In addition, we routinely monitor current and anticipated operational and debt service requirements, financial market conditions, and credit relationships, and we may choose to seek additional capital by issuing new debt and/or equity securities or engaging in other financial transactions to strengthen our liquidity or our long-term capital structure.

The financing needs of our homebuilding and financial services operations depend on anticipated sales volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors.

The financing needs of our homebuilding and financial services operations depend on anticipated sales and home delivery volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot

purchases, debt maturity dates, and other factors.

If we seek such additional capital or engage in such other financial transactions, there can be no assurance that we would be able to obtain such additional capital or consummate such other financial transactions on terms acceptable to us, if at all, and such additional equity or debt financing or other financial transactions could dilute the interests of our existing shareholders, add operational limitations and/or increase our interest costs.

Included in the table below is a summary of our available sources of cash from the Credit Facility, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility as of December 31, 2022:

Included in the table below is a summary of our available sources of cash from the Credit Facility and the MIF Mortgage Repurchase Facility as of December 31, 2023:

(In thousands) Expiration

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The Credit Facility has an expiration date of December 9, 2026.

(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's warehousing agreements as of December 31, 2022, which was $390 million, which included a temporary increase for the MIF Mortgage Warehouse Agreement applicable through February 6, 2023 (as described below) at which time the maximum aggregate commitment amount under the two agreements reverted to $290 million.

The MIF Mortgage Warehousing Agreement has an expiration date of May 26, 2023.

M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility, which extended its term for an additional year to October 23, 2023.

(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Repurchase Facility, which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's repurchase agreement as of December 31, 2023, which was $300 million, which included a temporary increase applicable through February 9, 2024 (as described below) at which time the maximum aggregate commitment amount under the agreement reverts to $240 million through September 17, 2024.

The MIF Mortgage Repurchase Facility has an expiration date of October 22, 2024.

Notes Payable - Homebuilding.

Homebuilding Credit Facility .

On December 9, 2022, the company entered into an amendment to the Credit Facility, which, among other things, (1) increased the commitments from lenders to $650 million, (2) extended the maturity to December 9, 2026, (3) increased the accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders, (4) increased the sub-facility for letters of credit included in the Credit Facility to $250 million from $150 million, and (5) replaced LIBOR with the secured overnight financing rate (“SOFR”) as an interest rate bench mark (subject to a floor of 0.25%) and permitted the Company to select an index rate for each borrowing from multiple interest rate options, including one, three or six month adjusted term SOFR, plus a margin of 1.75 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s then applicable leverage ratio).

The Credit Facility provides for an aggregate commitment amount of $650 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders.

The Credit Facility matures on December 9, 2026.

Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options, including one, three, or six month adjusted term secured overnight financing rate (“SOFR”) (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio).

Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory.

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The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.5 billion at December 31, 2023 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity.

In addition, the Credit Facility contains covenants that limit the Company’s number of

unsold housing units, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).

The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries, subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries.

In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).

The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries.

The guarantors for the Credit Facility are the same subsidiaries that guarantee our 2030 Senior Notes and our 2028 Senior Notes.

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Investments in Unrestricted Subsidiaries and Joint Ventures ≤ $ 730.6 $ 6.0

Unsold Housing Units ≤ 3,087 1,505

Unsold Housing Units and Model Homes

≤ 2,881 1,477

Notes Payable - Financial Services.

MIF Mortgage Warehousing Agreement.

The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial.

The MIF Mortgage Warehousing Agreement provides a maximum borrowing availability of $200 million, which increased to $275 million from September 19, 2022 to November 13, 2022 and increased to $300 million from November 14, 2022 to February 6, 2023, which were periods of expected increases in the volume of mortgage originations.

The MIF Mortgage Warehousing Agreement expires on May 26, 2023.

Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month BSBY rate (adjusting daily) (subject to a floor of 0.25%) plus a spread of 190 basis points.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Warehousing Agreement was set at approximately one year and is under consideration for extension annually by the participating lenders.

We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of May 26, 2023, but we cannot provide any assurance that we will be able to obtain such an extension.

The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial that are being “warehoused” prior to their sale to investors.

The MIF Mortgage Warehousing Agreement provides for limits with respect to certain loan types that can secure outstanding borrowings.

There are currently no guarantors of the MIF Mortgage Warehousing Agreement.

As of December 31, 2022, there was $200.9 million outstanding under the MIF Mortgage Warehousing Agreement and M/I Financial was in compliance with all covenants thereunder.

The financial covenants, as more fully described and defined in the MIF Mortgage Warehousing Agreement, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of December 31, 2022:

The MIF Mortgage Warehousing Agreement was used to finance eligible residential mortgage loans originated by M/I Financial.

On December 6, 2023, the Company terminated the MIF Mortgage Warehousing Agreement, which at the time had a borrowing availability of $120 million.

MIF Mortgage Repurchase Facilities.

M/I Financial allowed the previous MIF Mortgage Repurchase Facility, dated October 30, 2017, as amended, to expire on its scheduled expiration date of October 23, 2023 and did not renew the facility.

M/I Financial entered into a new mortgage repurchase agreement on October 24, 2023 (the “MIF Mortgage Repurchase Facility”), which provides for a maximum borrowing availability of $300 million (subject to increases and decreases during certain periods) and expires on October 22, 2024.

The borrowing availability under the MIF Mortgage Repurchase Facility is $300 million from November 11, 2023 through February 9, 2024, will decrease to $240 million from February 10, 2024 through September 17, 2024 and will increase to $270 million from September 18, 2024 until maturity.

The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate based on Daily Adjusting One-Month Term SOFR plus a margin as defined in the repurchase agreement.

The MIF Mortgage Repurchase Facility also contains certain financial covenants each of which is defined in the repurchase agreement.

There are no guarantors of the MIF Mortgage Repurchase Facility.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility was set at approximately one year and is under consideration for extension annually by the participating lenders.

We expect to extend the MIF Mortgage Repurchase Facility on or prior to the current expiration date of October 22, 2024, but we cannot provide any assurance that we will be able to obtain such an extension.

As of December 31, 2023, there was $165.8 million outstanding under the MIF Mortgage Repurchase Facility.

M/I Financial was in compliance with all covenants thereunder.

The financial covenants, as more fully described and defined in the MIF Mortgage Repurchase Facility, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of December 31, 2023:

Financial Covenant Covenant Requirement Actual

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Tangible Net Worth ≥ $ 25.0 $ 39.9

MIF Mortgage Repurchase Facility.

The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial and is structured as a mortgage repurchase facility.

The MIF Mortgage Repurchase Facility provides for a maximum borrowing availability of $90 million.

The MIF Mortgage Repurchase Facility expires on October 23, 2023.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF

Mortgage Repurchase Facility was set at approximately one year, and is under consideration for extension annually by the participating lender.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the type of loan) plus 150 or 200 basis points depending on loan type.

The covenants in the MIF Mortgage Repurchase Facility are substantially similar to the covenants in the MIF Mortgage Warehousing Agreement.

The MIF Mortgage Repurchase Facility provides for limits with respect to certain loan types that can secure outstanding borrowings, which are substantially similar to the restrictions in the MIF Mortgage Warehousing Agreement.

There are no guarantors of the MIF Mortgage Repurchase Facility.

As of December 31, 2022, there was $44.9 million outstanding under the MIF Mortgage Repurchase Facility.

M/I Financial was in compliance with all financial covenants under the MIF Mortgage Repurchase Facility as of December 31, 2022.

Senior Notes.

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The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if:

(1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in

compliance with the terms of the applicable indenture;

(1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in compliance with the terms of the applicable indenture;

(2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc.

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In 2023 and 2022, our weighted average borrowings outstanding were $749.7 million and $811.0 million, respectively, with a weighted average interest rate of 5.33% and 4.96%, respectively.

The increase in our weighted average borrowings related to increased borrowings under our two M/I Financial credit facilities during 2022 compared to 2021 due to an increase in average loan amounts in 2022.

The decrease in our weighted average borrowing rate was due to lower interest rates on our credit facilities in 2022 compared to the prior year.

The decrease in our weighted average borrowings related to decreased borrowings under our then-outstanding M/I Financial credit facilities during 2023 compared to 2022.

The increase in our weighted average borrowing rate was due to higher interest rates on our credit facilities in 2023 compared to the prior year.

At both December 31, 2023 and December 31, 2022, we had no borrowings outstanding under the Credit Facility.

During the twelve months ended December 31, 2022, the average daily amount outstanding under the Credit Facility was $9.0 million and the maximum amount outstanding under the Credit Facility was $82.5 million which occurred during September.

During the twelve months ended December 31, 2021, the average daily amount outstanding and the maximum amount outstanding under the Credit Facility were both zero.

Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2023, offset by expected cash receipts from home deliveries and other sources, we may borrow under the Credit Facility during 2023, but do not expect the peak amount outstanding to exceed approximately $100 million.

The actual amount borrowed in 2023 (and the estimated peak amount outstanding) and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries.

repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.

During the twelve months ended December 31, 2023, the average daily amount outstanding and the maximum amount outstanding under the Credit Facility were both zero, and during the twelve months ended December 31, 2022, the average daily amount outstanding under the Credit Facility was $9.0 million and the maximum amount outstanding under the Credit Facility was $82.5 million which occurred during September.

Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2024, offset by expected cash receipts from home deliveries and other sources, we do not expect to incur borrowings under the Credit Facility during 2024.

To the extent we elect to borrow under the Credit Facility during 2024, the actual amount borrowed and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries.

The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.

The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments.

1 unchanged sentence

During 2023, the average daily amount of letters of credit outstanding under the Credit Facility was $79.5 million and the maximum amount of letters of credit outstanding under the Credit Facility was $94.9 million.

At December 31, 2022, M/I Financial had $200.9 million outstanding under the MIF Mortgage Warehousing Agreement.

During 2022, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $60.4 million and the maximum amount outstanding was $200.9 million, which occurred during December, while the temporary increase provision was in effect and the maximum borrowing availability was $300 million.

At December 31, 2023, M/I Financial had $165.8 million outstanding under the MIF Mortgage Repurchase Facility.

During 2022, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $40.5 million and the maximum amount outstanding was $80.4 million, which occurred during October.

During 2023, the average daily amount outstanding under our then-outstanding MIF credit facilities was $49.7 million and the maximum amount outstanding was $245.7 million, which occurred during January.

Universal Shelf Registration.

In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025.

Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units.

to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units.

The timing and amount of offerings, if any, will depend on market and general business conditions.

1 unchanged sentence

Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of interest rates and inflation.

The annual rate of inflation in the United States was 6.5% in December 2022, as measured by the Consumer Price Index (CPI), down slightly from 9.1% in June 2022 which was the highest inflation rate we have experienced in 40 years.

As a result of the high inflation rates during 2022, we have experienced an increase in the costs of land, materials and labor that we have been able to pass along to the consumer.

However, inflation has also reduced the purchasing power of potential homebuyers and has negatively impacted their ability and desire to buy a home and our ability to pass along our increased costs to our homebuyers.

Beginning in the second half of 2022, the pace of sales across the homebuilding industry declined significantly from the unprecedented levels experienced over the previous two years as a result of the sharp increase in mortgage interest rates from approximately 3% in December 2021 to around 6.5% at the end of 2022, the highest rates in over a decade, as well as significant inflation in the broader economy, and the substantial rise in home prices.

These macroeconomic trends have pressured housing affordability, negatively impacted homebuyer sentiment and impacted the costs of financing land development activities and housing construction.

The higher mortgage interest rates and the high rate of inflation are making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.

The annual rate of inflation in the United States was 3.4% in December 2023, as measured by the Consumer Price Index, down from 6.5% in December 2022 and from 9.1% in June 2022 (which was the highest inflation rate experienced in 40 years).

As the rate of inflation declined during 2023, our costs began to stabilize, as evidenced by our flat gross margin from year to year.

However, continued increases in inflation rates could impact our costs, potentially reduce our gross margins, reduce the purchasing power of potential homebuyers, and negatively impact their ability and desire to buy a home.

Interest rates began to rise in the second half of 2023 from 6.5% at the end of 2022 to over 8% by the end of October 2023 (the highest rates since 2001).

Rates declined slightly by the end of 2023 to approximately 7%.

Despite these recent rate fluctuations, the interest rate environment has become less volatile than during the second half of 2022.

The higher mortgage interest rates are making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.

Rising interest rates, as well as increased materials and labor costs, can also reduce gross margins.

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 7. Management’s Discussion and Analysis