What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-14 compared with 2024-02-16 · 151 added, 139 removed, 457 unchanged (39% of the section changed)

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RESULTS OF OPERATIONS

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.

In 2024, we achieved all-time record homes delivered, revenue, and income despite the headwinds the housing industry faced throughout the year, including elevated mortgage interest rates, inflationary pressures, affordability issues and an uncertain economy.

Our new contracts for 2024 increased 8% compared to 2023 as we experienced improvements in homebuyer demand as a result of the limited supply of resale and new home inventory, potential homebuyers adjusting to the interest rate environment, and our offering of mortgage interest rate buydowns in the second half of the year.

We also had strong cash flow and liquidity in 2024 and ended the year with low leverage.

In addition, we improved construction cycle times in 2024 which helped us achieve a record annual gross margin of 26.6%, an 130 basis point improvement from 2023.

Our revenue increased 12% due to our record homes delivered which also increased 12% in 2024 compared to 2023.

Income before income taxes and net income both increased 21% from prior year, both company records.

We achieved the following results during the year ended December 31, 2024 in comparison to the year ended December 31, 2023:

• Homes delivered increased 12% to 9,055, an all-time record for our Company

• Revenue increased 12% to $4.5 billion, an all-time record for our Company

• Pre-tax income increased 21% to an all-time record $733,608, 16.3% of revenue

• Net income increased 21% to $564 million, an all-time record for our Company

• New contracts increased 8% to 8,584

• 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

• Absorption pace of sales per community remained consistent at 3.3 per month

• Average community count increased 7% with 220 active communities at the end of 2024

• Shareholders’ equity increased 17% to $2.9 billion, an all-time record high for our Company

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• Homebuilding debt to capital ratio improved to 19%

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.

In addition to the results described above, our financial services operations recorded a $14.7 million increase in operating income in 2024 compared to 2023 as a result of an increase in closings and a slight increase in the average loan amount.

Our company-wide absorption pace of sales per community in 2024 remained consistent compared to 2023 at 3.3 per month as a result of our 8% increase in new contracts during 2024 compared to prior year, partially offset by a smaller increase in our average community count from 202 at the end of 2023 to 216 at the end of 2024.

We plan to open additional new communities during 2025, increasing our average community count by approximately 5% compared to 2024.

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.

Income before income taxes for the twelve months ended December 31, 2024 increased 21% from $607.3 million for the year ended December 31, 2023 to $733.6 million for the year ended December 31, 2024.

In 2024, we achieved net income of $563.7 million, or $19.71 per diluted share, compared to net income of $465.4 million, or $16.21 per diluted share in 2023.

Our effective tax rate was 23.2% in 2024 compared to 23.4% in 2023.

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.

In 2024, we recorded total revenue of $4.50 billion, of which $4.39 billion was from homebuilding and $116.2 million was from our financial services operations.

Revenue from homes delivered increased 12% from 2023 driven primarily by a 12% increase in the number of homes delivered in 2024 (943 units) as the average sales price of homes delivered remained $483,000.

Revenue from our financial services segment increased 24% to $116.2 million in 2024 as a result of an increase in loans closed and sold during the year and a slight increase in the average loan amount.

Total gross margin (total revenue less total land and housing costs) increased $180.0 million in 2024 compared to 2023 as a result of a $157.6 million increase in the gross margin of our homebuilding operations and a $22.4 million improvement in the gross margin of our financial services operations.

Our homebuilding gross margin improved $157.6 million due to the 12% increase in the number of homes delivered.

Our homebuilding gross margin percentage improved 120 basis points from 23.5% in the prior year to 24.7% in 2024.

The gross margin of our financial services operations improved by $22.4 million in 2024 compared to 2023 as a result of an increase in the number of loan originations, higher margins on loans sold, and a slight increase in the average loan amount during 2024 compared to prior year.

We opened 72 new communities during 2024.

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

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For 2024, selling, general and administrative expense increased $61.1 million, and increased as a percentage of revenue to 10.9% in 2024 from 10.7% in 2023.

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 $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:

Selling expense increased $25.4 million from 2023 and remained consistent as a percentage of revenue at 5.2%.

Sales and realtor commissions contributed $16.5 million to the increase in selling expense in 2024 due to the increase in the homes delivered as well as higher external sales commission rates paid during the period compared to prior year.

In addition to commissions, costs associated with our sales offices, including compensation-related expenses and models, increased $8.9 million in 2024 due to our increased community count.

General and administrative expense increased $35.7 million in 2024 compared to 2023 and also increased as a percentage of revenue from 5.5% in 2023 to 5.7% in 2024.

The dollar increase in general and administrative expense was primarily due to an $19.4 million increase in compensation-related expenses, a $4.2 million increase in costs associated with information systems, a $3.8 million increase in professional fees, a $2.3 million increase in land-related costs, and a $6.0 million increase in miscellaneous expenses.

Housing market conditions were relatively healthy in 2024 despite inflation, elevated mortgage interest rates and rising housing prices, which impacted affordability for the average homebuyer, particularly in the second half of the year.

Despite these affordability challenges, our offering of sales incentives and mortgage interest rate buydowns helped spur our new contracts in this period.

We expect to selectively offer sales incentives in 2025 to support homebuyers, drive order activity and minimize cancellations.

Our use of sales incentives and mortgage interest rate buydowns in 2025 will depend on, among other things, market dynamics, including mortgage interest rates and overall housing affordability, as well as community-specific considerations, including the size and construction stage of the backlog, sales pace and lots remaining available for sale.

We expect some margin compression in 2025 when compared to 2024 levels as a result of the current market conditions.

We also expect to increase our land acquisition and development investment activity in 2025 compared to 2024 to support future growth, subject to market conditions and available opportunities that meet our investment return standards.

We will continue to prioritize managing our land spend and inventory levels of finished lots and inventory homes by balancing our development investment activity and our construction pace.

While 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, the housing market remains subject to unpredictability as a result of uncertain macroeconomic conditions, including labor and material costs and availability, inflation, mortgage interest rates, and the economic concerns of our potential homebuyers.

Although the extent to which these factors will impact our business is unpredictable, we believe that we are well positioned to continue to grow over the long-term by focusing on our land position, new community openings, and affordable product offerings.

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

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

We cannot provide any assurances that our strategic business objectives listed below will remain successful, and we will need to remain agile to effectively address changes in market conditions.

We expect to emphasize the following strategic business objectives in 2025:

• promote sales where necessary through interest rate buydowns and/or other incentives;

• managing our land spend and inventory levels;

• improving our construction cycle times;

• managing our construction cycle times;

• opening new communities;

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The following table shows, by segment:

gross margin;

selling, general and administrative expense;

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interest (income) expense;

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

and income before income taxes for the years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

(In thousands) 2024 2023 2022

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Total revenue $ 4,504,670 $ 4,033,502 $ 4,131,393

Gross margin:

Cost of Sales:

Northern homebuilding $ 1,480,326 $ 1,228,949 $ 1,379,936

Southern homebuilding 1,825,455 1,785,624 1,707,615

Financial services (a)

Total cost of sales $ 3,305,781 $ 3,014,573 $ 3,087,551

General and administrative expense:

Northern homebuilding $ 42,908 $ 36,827 $ 36,659

Southern homebuilding

76,200 65,078 61,775

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52,826 45,115 41,813

Total gross margin

Segment general and administrative expense

$ 171,934 $ 147,020 $ 140,247

Selling, general and administrative expense:

Corporate and unallocated general and administrative expense

86,488 75,745 74,564

Total general and administrative expense $ 258,422 $ 222,765 $ 214,811

Selling expense:

Northern homebuilding $ 95,680 $ 81,847 $ 80,142

Southern homebuilding

136,198 124,860 109,698

Financial services (a)

Segment selling expense

$ 231,878 $ 206,707 $ 189,840

Corporate 77,980 76,304 68,614

Total selling, general and administrative expense $ 431,707 $ 406,391 $ 390,619

Corporate and unallocated selling expense

2,495 2,235 1,740

Total selling expense:

$ 234,373 $ 208,942 $ 191,580

Operating income (loss):

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63,380 48,714 44,382

Segment operating income

$ 795,077 $ 665,202 $ 713,755

Corporate selling, general and administrative expense

Total operating income

(88,983) (77,980) (76,304)

Total operating income (a)

$ 706,094 $ 587,222 $ 637,451

Interest (income) expense - net:

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13,698 10,360 5,122

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

Segment Interest (income) expense - net

$ 10,916 $ 8,471 $ 3,206

Corporate Interest (income) expense - net

(38,430) (28,493) (956)

Total interest (income) expense - net

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$ — $ (33) $ (6)

Loss on early extinguishment of debt (c)

Income before income taxes $ 733,608 $ 607,277 $ 635,207

(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) Other income is comprised of the equity in (income) loss from joint venture arrangements.

The following table show supplemental segment information regarding depreciation and amortization expense for years ended December 31, 2024, 2023 and 2022:

Year Ended December 31,

(In thousands)

2024 2023 2022

Depreciation and amortization:

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Financial services 1,130 810 2,178

Segment depreciation and amortization

$ 8,553 $ 7,448 $ 8,276

Corporate 8,833 8,343 8,898

Total depreciation and amortization $ 17,386 $ 15,791 $ 17,174

(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, 2024 and 2023:

At December 31, 2023

(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total

December 31, 2024

(In thousands) Northern Southern Financial Services

Segment Total Corporate and unallocated Total

Deposits on real estate under option or contract $ 12,209 $ 57,274 $ — $ 69,483 $ — $ 69,483

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370,558 540,595

Total assets $ 1,063,143 $ 1,919,496 $ 1,039,801 $ 4,022,440

At December 31, 2022

(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total

Deposits on real estate under option or contract $ 8,138 $ 47,601 $ — $ 55,739

Inventory (a)

852,005 1,392,600

Investments in joint venture arrangements — 51,554 — 51,554

Other assets 38,265 103,182 (b)

Total assets $ 1,091,643 $ 2,235,590 $ 370,558 $ 3,697,791 $ 852,005 $ 4,549,796

At December 31, 2021

(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total

December 31, 2023

(In thousands) Northern Southern Financial Services

Segment Total Corporate and unallocated Total

Deposits on real estate under option or contract $ 8,990 $ 42,618 $ — $ 51,608 $ — $ 51,608

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1,016,982 1,728,561 — 2,745,543 — 2,745,543

Investments in unconsolidated joint ventures — 57,121 — 57,121

Investments in joint venture arrangements — 44,011 — 44,011 — 44,011

Other assets 37,171 104,306 (b)

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Total assets $ 1,063,143 $ 1,919,496 $ 243,176 $ 3,225,815 $ 796,625 $ 4,022,440

(a) Inventory includes:

single-family lots, land and land development costs;

(a) Inventory includes single-family lots, land and land development costs;

land held for sale;

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Northern Region.

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 the twelve months ended December 31, 2024, homebuilding revenue in our Northern region increased $376.1 million, from $1.52 billion in 2023 to $1.90 billion in 2024.

This 25% increase in homebuilding revenue was the result of a 22% increase in the number of homes delivered (704 units), primarily attributable to delivering prior year backlog, an increase in new contracts and a slight increase in the average sales price of homes delivered ($11,000 per home delivered), offset partially by a $1.7 million decrease in land sales.

Operating income in our Northern region increased $104.8 million, from $176.3 million in 2023 to $281.1 million in 2024.

The increase in operating income was primarily the result of a $124.7 million increase in our gross margin offset in part by a $19.9 million increase in selling, general, and administrative expense.

Our homebuilding gross margin percentage improved 270 basis points from 19.4% in 2023 to 22.1% in 2024.

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

Selling, general and administrative expense increased $19.9 million from $118.7 million in 2023 to $138.6 million in 2024 and decreased as a percentage of revenue to 7.3% in 2024 from 7.8% in 2023.

The increase in selling, general and administrative expense was attributable to a $13.8 million increase in selling expense, due to a $11.6 million increase in sales and realtor commissions and a $2.2 million increase primarily related to costs associated with our sales offices and models.

The increase in selling, general and administrative expense was also attributable to a $6.1 million increase in general and administrative expense, which primarily related to an increase in compensation-related expenses.

During 2024, we experienced a 12% increase in new contracts in our Northern region, from 3,361 in 2023 to 3,761 in 2024.

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.

Backlog decreased 9% from 1,248 homes at December 31, 2023 to 1,136 homes at December 31, 2024 as a result of more inventory homes sold in the fourth quarter of 2024 due to sales incentives offered.

The increase in new contracts was primarily due to increased demand and improved absorption rate.

Average sales price in backlog increased to $561,000 at December 31, 2024 compared to $531,000 at December 31, 2023 primarily due to the mix of homes being sold.

During the twelve months ended December 31, 2024, we opened 21 new communities in our Northern region compared to 33 during 2023.

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.

Our monthly absorption rate in our Northern region improved to 3.3 per community in 2024 compared to 2.8 per community in 2023 as a result of the increase in the number of new contracts and the decrease in the number of average active communities during 2024 compared to 2023.

Southern Region.

For the twelve months ended December 31, 2024, homebuilding revenue in our Southern region increased $72.7 million, from $2.42 billion in 2023 to $2.49 billion in 2024.

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.

This 3% increase in homebuilding revenue was primarily the result of a 5% increase in the number of homes delivered (239 units) due to increased availability of inventory homes and improved construction cycle times on our backlog homes offset in part by a 1% decrease in the average sales price of homes delivered ($7,000 per home delivered) and a $10.9 million decrease in land sales.

Operating income in our Southern region

increased $10.4 million from $440.2 million in 2023 to $450.6 million in 2024.

This increase in operating income was the result of a $32.9 million improvement in our gross margin offset by a $22.5 million increase in selling, general, and administrative expense.

Our homebuilding gross margin improved $32.9 million, due primarily to the increase in the number of homes delivered during the period offset by the decrease in the average sales price of homes delivered.

Our homebuilding gross margin percentage improved 50 basis points from 26.1% in 2023 to 26.6% in 2024 primarily due to increased number and mix of homes delivered.

Selling, general and administrative expense increased $22.5 million from $189.9 million in 2023 to $212.4 million in 2024 and increased as a percentage of revenue to 8.5% in 2024 from 7.9% in 2023.

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.

The increase in selling, general and administrative expense was attributable to a $11.1 million increase in general and administrative expense, which was primarily related to a $4.9 million increase in compensation related expenses as a result of an increase in headcount and incentive compensation due to our strong financial performance during the period, a $1.2 million increase in land-related expenses, and a $5.0 million increase in miscellaneous expenses.

Selling expense increased $11.3 million due to a $4.9 million increase in realtor commissions and a $6.4 million increase in costs related to our sales offices and models due to our increased community count.

During 2024, we experienced a 4% increase in new contracts in our Southern region, from 4,616 in 2023 to 4,823 in 2024, which was primarily due to an increase in our average number of communities to 121 communities compared to 101 communities in the prior year.

Backlog decreased 20% from 1,754 homes at December 31, 2023 to 1,395 homes at December 31, 2024.

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.

Average sales price in backlog increased to $547,000 at December 31, 2024 from $520,000 at December 31, 2023 primarily due to the mix of homes in backlog.

During 2024, we opened 51 communities in our Southern region compared to 43 in 2023.

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.

The increase in the number of new communities opened primarily related to prior year delays that were pushed to 2024.

Our monthly absorption rate in our Southern region decreased to 3.3 per community in 2024 from 3.8 per community in 2023 due to the increase in average community count.

Financial Services.

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.

Revenue from our mortgage and title operations increased $22.4 million, or 24%, from $93.8 million for the twelve months ended December 31, 2023 to $116.2 million for the twelve months ended December 31, 2024 as a result of an increase in the number of loan originations, from 5,395 in 2023 to 6,731 in 2024 and an increase in the average loan amount from $393,000 in 2023 to $399,000 in 2024.

Our financial service operations ended 2024 with a $14.7 million increase in operating income compared to 2023, which was primarily due to the increase in revenue discussed above, partially offset by a $7.7 million increase in selling, general and administrative expense compared to 2023.

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.

The increase in selling, general and administrative expense was primarily attributable to a $6.4 million increase in compensation expense related to our improved results during the period, a $0.7 million increase in computer-related costs, and a $0.6 million increase in miscellaneous expenses.

At December 31, 2024, M/I Financial provided financing services in all of our markets.

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Corporate selling, general and administrative expense increased $11.0 million, from $78.0 million in 2023 to $89.0 million in 2024.

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.

The increase was primarily due to a $4.9 million increase in compensation expense due to our strong financial performance during the period, a $2.1 million increase related to costs associated with information systems and a $4.0 million increase in miscellaneous expenses.

Other income.

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.

Other income for 2023 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 2023.

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.

The Company earned $27.5 million of interest income - net in the twelve months ended December 31, 2024 compared to earning $20.0 million of interest income - net in the twelve months ended December 31, 2023.

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, 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).

Our overall effective tax rate was 23.2% for the year ended December 31, 2024 and 23.4% for the year ended December 31, 2023 (see Note 14 to our Consolidated Financial Statements for more information).

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

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At December 31, 2024, we had $821.6 million of cash, cash equivalents and restricted cash, with $821.5 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $88.9 million increase in unrestricted cash and cash equivalents from December 31, 2023.

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.

The increase in cash is primarily due to 2024 net income and home deliveries and the timing of land spend compared to prior year.

Our principal uses of cash during 2024 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 $177.0 million of our outstanding common shares under our 2021 and 2024 Share Repurchase Programs.

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.

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(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 borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries and (2) a $300 million mortgage repurchase agreement, dated October 24, 2023, as amended most recently on October 22, 2024 (the “MIF Mortgage Repurchase Facility”), with M/I Financial as borrower.

As of December 31, 2024, 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 $986 million, with $286 million payable within 12 months.

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We expect to continue managing our balance sheet and liquidity carefully in 2025 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 2025 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.

During the year ended December 31, 2024, we delivered 9,055 homes, started 9,196 homes, ended the year with approximately 4,700 homes under construction compared to approximately 4,500 at the end of last year, and spent $472.9 million on land purchases and $646.0 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.

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Operating Cash Flow Activities .

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.

During 2024, we generated $179.7 million of cash from operating activities, compared to generating $552.1 million of cash from operating activities in 2023.

The cash generated by operating activities in 2024 was primarily a result of net income of $563.7 million and a $23.1 million increase in other liabilities, offset partially by a $297.7 million increase in inventory, loan originations that exceeded proceeds from the sale of mortgage loans by $114.0 million, a $23.8 million increase in other assets and a $21.9 million decrease in accounts payable and customer deposits.

offset partially by a $28.8 million decrease in other liabilities and $31.9 million decrease in accounts payable and customer deposits.

Investing Cash Flow Activities.

During 2024, we used $54.9 million of cash in investing activities, compared to using $18.6 million of cash in investing activities during 2023.

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.

This $36.3 million increase in cash usage was primarily due to a $30.5 million increase in cash contributions to our joint venture arrangements compared to prior year.

The cash used in investing activities during 2023 was primarily a result of an increase in our investment in joint venture arrangements.

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During 2024, we used $36.1 million of cash in financing activities, compared to using $112.2 million of cash in financing activities during 2023.

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 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 (the “2021 Share Repurchase Program”).

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).

The cash used in financing activities in 2024 was primarily due to the repurchase of $177.0 million of our outstanding common shares during 2024 offset, in part, by proceeds of $120.3 million (net of proceeds from borrowings) under the MIF Mortgage Repurchase Facility and $21.3 million in proceeds from the exercise of stock options during 2024.

The cash used in financing activities in 2023 was primarily due to repayments of $79.9 million (net of proceeds from borrowings) under our 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 May 14, 2024, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $250 million of its outstanding common shares (the “2024 Share Repurchase Program”), which replaced the 2021 Share Repurchase Program.

During 2024, the Company repurchased 1.2 million outstanding common shares for an aggregate purchase price of $177.0 million under the 2024 and 2021 Share Repurchase Program which was funded with cash on hand.

As of December 31, 2024, the Company was authorized to repurchase an additional $106.7 million of outstanding common shares under the 2024 Share Repurchase Program (see Note 16 to our Consolidated Financial Statements).

On February 11, 2025 the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $250 million of its outstanding common shares (the “2025 Share Repurchase Program”), which replaced the 2024 Share Repurchase Program.

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 2025.

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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 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.

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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 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 21, 2025.

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Notes Payable - Financial Services.

MIF Mortgage Warehousing Agreement.

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.

MIF Mortgage Repurchase Facility.

M/I Financial entered into the MIF Mortgage Repurchase Facility on October 24, 2023, as amended, which provides for a maximum borrowing availability of $300 million and expires on October 21, 2025.

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.

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

There are no guarantors of the MIF Mortgage Repurchase Facility.

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The 2030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of M/I Homes, Inc.’s subsidiaries (the “Subsidiary Guarantors”) 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 M/I Homes, Inc.

or another subsidiary, and other subsidiaries designated as Unrestricted Subsidiaries (as defined in the indentures governing the 2030 Senior Notes and the 2028 Senior Notes), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indentures governing the 2030 Senior Notes and the 2028 Senior Notes (the “Non-Guarantor Subsidiaries”).

Subsidiaries”).

The Subsidiary Guarantors of the 2030 Senior Notes, the 2028 Senior Notes and the Credit Facility are the same and are listed on Exhibit 22 to this Form 10-K.

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The decrease in our weighted average borrowings related to decreased borrowings under our then-outstanding M/I Financial credit facilities during 2024 compared to 2023.

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, 2024 and December 31, 2023, we had no borrowings outstanding under the Credit Facility.

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 2025, 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.

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At December 31, 2024, M/I Financial had $286.2 million outstanding under the MIF Mortgage Repurchase Facility.

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.

During 2024, the average daily amount outstanding under our then-outstanding MIF credit facilities was $17.3 million and the maximum amount outstanding was $286.2 million, which occurred during December.

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.

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

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

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.

The annual rate of inflation in the United States was 2.9% in December 2024, as measured by the Consumer Price Index, up slightly from prior quarter, and down from 3.4% in December 2023.

As the rate of inflation has declined from 2022’s historic levels, our costs have stabilized.

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.

Mortgage interest rates have hovered around 7% since the end of 2023.

During the second half of 2024, the Federal Reserve reduced interest rates by 100 basis points.

High mortgage interest rates have made it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.

We plan to help combat high interest costs in 2025 by offering interest rate buydowns to potential homebuyers.

We believe that offering mortgage interest rate buydown incentives may cause otherwise hesitant potential homebuyers to decide to enter the homebuying market due to the improved affordability of obtaining a mortgage, and we believe we are well prepared to address increased demand in our markets with our current land position and open communities.

However, offering sales incentives, such as interest rate buydowns, may reduce our margins from the record level we achieved in 2024.

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