MHO

Business Context and Reporting Period

M/I Homes, Inc. (MHO) is a leading single-family homebuilder operating in the Northern and Southern United States, alongside financial services operations (M/I Financial). This Form 10-Q covers the quarterly period ended June 30, 2026, and the six months ended on that date. The company operates in a challenging macroeconomic environment characterized by elevated mortgage interest rates (mid-to-upper 6% range), inflationary pressures, and affordability constraints.

Key Financial Metrics

Liquidity & Debt: As of June 30, 2026, the company held $735.9 million in cash and cash equivalents. Total debt obligations included $252.4 million in financial services notes, $398.8 million in Senior Notes due 2028, and $298.1 million in Senior Notes due 2030. The company had $817.5 million available under its $900 million unsecured revolving credit facility and $3.4 million available under its mortgage repurchase facilities.

Material Changes vs. Prior Period

• Revenue Decline: Revenue decreased 9% in Q2 2026 and 7% for the six-month period compared to the prior year. This was driven by a 6% decrease in homes delivered (Q2) and a 4% decrease in average sales price (Q2), partially offset by a $12.3 million increase in land sales.
• Profitability Compression: Net income fell 35% in Q2 and 37% for the six months. Gross margin declined 260 basis points (Q2) and 310 basis points (6 months) due to higher lot costs, increased sales incentives (mortgage rate buydowns), and a $4.2 million inventory charge.
• Contract Activity: Despite lower deliveries, new contracts increased 15% in Q2 to a record 2,387 and 8% for the six months to 4,737, indicating improved demand absorption.
• Unusual Items: The company recorded $4.2 million in inventory charges and $5.5 million in warranty charges (related to attic ventilation issues in two Florida communities) during the six months ended June 30, 2026.

Guidance, Outlook, and Risks

Outlook: Management expects market challenges, including elevated interest rates and affordability constraints, to persist through the remainder of 2026. Strategies include disciplined overhead management, prudent land acquisition, and the selective use of sales incentives to support demand. The company plans to increase its average community count by approximately 5% in 2026.

Capital Allocation: The company repurchased $100.1 million of common shares in the first half of 2026 under its 2025 Share Repurchase Program, with $120.3 million remaining available.

Risks & Contingencies:

• Interest Rate Sensitivity: Fluctuations in interest rates impact mortgage affordability and the fair value of derivative instruments used to hedge loan originations.
• Warranty Claims: Specific warranty issues in Florida communities resulted in significant charges; future costs may vary based on historical experience and claim settlement history.
• Land Supply: The company maintains approximately 49,100 lots under control (a five-year supply), but land acquisition spending is adjusted based on sales pace.

Investor Verification Checklist

• Inventory Charges: Verify the nature and recoverability of the $4.2 million inventory charge and the $5.5 million warranty charge related to Florida communities.
• Incentive Impact: Assess the sustainability of the $63.2 million in sales incentives (Q2) and their impact on future gross margins.
• Backlog Quality: Review the backlog of 2,426 homes, noting the average sales price is approximately 3% below the prior-year level, reflecting a shift toward more affordable inventory.
• Debt Covenants: Confirm continued compliance with the Credit Facility and Senior Notes covenants, particularly the leverage ratio (currently 0.02 vs. 0.60 limit) and tangible net worth requirements.
• Joint Venture Exposure: Monitor the $62.0 million investment in joint ventures, which decreased significantly due to lot distributions.