M/I Homes, Inc. (MHO)

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M/I Homes Inc. (MHO)

Q3 2008 Earnings Call

October 30, 2008; 4:00 pm ET


Bob Schottenstein - Chief Executive Officer and President

Phil Creek - Executive Vice President and Chief Financial Officer

Paul Rosen - President of our Mortgage Company

Ann Marie Hunker- Corporate Controller


Ivy Zelman - Zelman & Associates

Alex Barron - Agency Trading Group

Jennifer Morrison - Principal Global Investors



Ladies and gentlemen, thank you for standing by and welcome to the M/I Home’s third quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer. (Operator Instructions) It would now like to turn the conference over to Phil Creek. You may begin your conference.

Phil Creek

Thank you very much. Joining me on the call today is Bob Schottenstein, our CEO and President; Paul Rosen, the President of our Mortgage Company; and Ann Marie Hunker, our Corporate Controller.

First to address regulation per disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non-public items with you directly. As to forward-looking statements, before we began I would like to remind everyone that the cautionary language about forward-looking statements contained in today’s press release also applies to any comments made during this call.

Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. The audio of which will be available on our website through October 2009. With that I will now turn the call over to Bob.

Bob Schottenstein

Thank you, Phil and good afternoon. We are undoubtedly facing, what may well be the most difficult time in the history to homebuilding industry. After experiencing difficult conditions throughout most of 2006, all of 2007 and the first half of 2008, market conditions for housing in the overall economy for that matter deteriorated even further in the third quarter.

Demand remains weak, inventory levels are too high in most markets, consumers confidence is at or near an historical low, unemployment is on the rise and if all that weren’t enough, mortgage lending standards have tightened and the recent unprecedented turmoil in the financial markets have further contributed to very tough conditions for home builders.

No one knows how long these conditions will last or whether we have hit the bottom. What we do know is this; in this increasingly uncertain and challenging environment it is absolutely essential that we focus on what we can control and that we continue to execute on the predominantly defensive operating strategy that we first began to deploy over two years ago.

That strategy which is squarely aimed at strengthening our balance sheet, reducing our debt and inventory levels, generating cash and optimizing the overhead structure of our operations has served us well. As we have may considerable progress on a number of important fronts.

One, debt reduction: at the beginning of 2007, we have $410 million on our homebuilding credit facility. At the beginning of this year we have successfully reduced that amount to $115 million. At the end of the third quarter the balance was zero and we now have $14 million cash on hand. At the beginning of 2007, our net debt to capital ratio stood at 44%, it is now 32%.

Two, land: our owned lot count equaled 9,530 lots at the end of the third quarter, 43% less than the year ago a 31% reduction since the beginning of 2008. Our fourth quarter land sales last year of nearly 4000 lots was a major part of this reduction and its worth noted that relative to our size that bulk sale was arguably the largest in our industry and as we now look back at it, it was clearly a very prudent and timely move.

Three, cash flow: we have successfully generated positive cash flow for eight consecutive quarters and we look forward to receiving a nearly $40 million tax refund, which is significant amount for us early next year.

Four: we continue to reduce both our community count and our investments levels in specs. Phil will detail this in a few minutes.

Five: we will continue to work diligent, we are reducing our SG&A. For the quarter, it is nearly 30% less than it was a year ago and our headcount is down by more than 50% from peak levels.

Finally, our shareholders equity at quarters end equaled $408 million. With no bank debt and no other significant debt maturing until 2012, we are strongly position to work through this downturn and it well position to capitalize on opportunities that will occur once housing conditions improve.

Before discussing our regions, let me just say a brief word about recent congressional action. The stimulus package passed by Congress several months ago contains some important oversight provisions for the government sponsored entities. On the other hand, the Selco $7,500 credit for first-time home buyers, build a spark any meaningful home buying activity and in a word was ineffective.

We urgently need to stimulus package being the housing that provides a real and meaningful credit for all homebuyers; not just first-time buyers and not just for buyers of new homes. Such a credit, if coupled with the temporary rate by down would in our view go a long way is helping to stem the tide of falling home prices and will help us store real demand. A program like this as many of you know was employed 1975; it worked then and it will work again now and would really go a long way and helping to bolster our entire economy.

Read the rest of this transcript for free on seekingalpha.com