M/I Homes, Inc. (MHO)

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M/I Homes, Inc. (MHO)

Q4 2008 Earnings Call

February 5, 2009 4:00 p.m. ET

Executives

Phil Creek – Executive Vice President and Chief Financial Officer

Robert Schottenstein – Chief Executive Officer and President

J. Thomas Mason, Executive Vice President

Paul Rosen – President of our Mortgage Company

Ann Marie Hunker – Corporate Controller

Analysts

Dennis McGill – Zelman & Associates

David Frank – Wanger Asset Management

Lee Brady – Wachovia

Jim Wilson – JMP Securities

Alex Barron – Agency Trading Group

Larry Taylor – Credit Suisse

Presentation

Operator

Good afternoon, my name is Lindsey and I will be your conference operator today. At this time I’d like to welcome everyone to the MI Homes Year End Conference Call. (Operator Instructions)

Mr. Creek, you may begin your conference.

Phil Creek

Thank you very much and thank you for joining us today. Joining me on the call today is Bob Schottenstein, our CEO and President, Tom Mason our Executive Vice President, Paul Rosen, the President of our Mortgage Company; and Ann Marie Hunker, our Corporate Controller.

First to address regulation fair 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.

Robert Schottenstein

Thank you, Phil, and good afternoon, everyone. The results we announced this morning clearly evidence that these are very difficult times for home builders. The combination of weak demand, falling home prices, historically low levels of consumer confidence, mounting foreclosures and the increasing recessionary pressures dominating the general economy have resulted in what many regard as the most severe housing recession in decades – perhaps ever,

After experiencing challenging conditions throughout most of 2006 and all of 2007, market conditions further deteriorated in 2008. For more than two years we have been engaged in a predominantly defensive operating strategy focusing on strengthening our balance sheet, reducing our debt and inventory levels, generating cash and reducing expenses.

We firmly believe that conserving capital and managing the balance sheet is the correct approach given the severity of current market conditions. We’ve been consistent with our actions and have been proactive in doing that which is necessary during these unprecedented times. We remain committed to this defensive strategy and believe it has served us quite well as we continue to make meaningful progress in a number of key areas.

First cash flow and debt reduction – the fourth quarter of 2008 marked our ninth consecutive quarter of positive cash flow. As a result, we ended the year with $33 million in cash on hand and zero outstanding borrowings under our credit facility. That credit facility stood at $410 million at the beginning of 2007 and $115 million at the beginning of 2008.

Second, our balance sheet – our shareholder’s equity at year end equaled $333 million with no bank debt and no other significant debt maturing until 2012 and having just recently successfully amended our credit facility. (Inaudible) managed to work through this downturn and capitalize on opportunities that will occur when housing conditions improve. At the end of 2008 our net debt to capital ratio stood at 32%. This is one of the lowest levels in the home building industry.

Three, land – during 2007 we had tremendous success in selling off excess land. That success continued in 2008. Our own lot count was 8,800 lots at the end of the year, 40% less than a year ago. Our goal is to own about a two-year supply of land. Please know that we will continue moving through our 4,000 finished lots and that we will continue to generate cash.

Four, expenses – we reduced our active community count by 12% from a year ago. Additionally, we reduced our investment levels and specs by over 40% and with regard to SG&A expenses they are down today 23% year-over-year. Further, we’ve taken our head count down by nearly 60% since peak levels in 2006.

Robert Schottenstein

Five, sales – as reported our new contract or sales for 2008 were 25% below 2007 levels, though new contracts were up 5% during 2008’s fourth quarter and for January of this year just completed our new contracts are 7% ahead of a year ago – this despite the fact that our community count as I said is down 12% from a year ago. The relative strength of our sales is clearly worthy noting. It underscores the importance of quality, good product, customer service and effective marketing.

During 2008 we undertook a number of steps to improve our business processes for the future. We reduced our operating structure down from 11 to 9 divisions and centralized some back end operations. We also reorganized financial functions in an effort to streamline and gain efficiencies.

Additionally, we have reduced the number of plans we offer, improved our cycle time and continued to look at how we can further reduce all of our costs. Within the next several months, we will be launching a new product line of what we consider to be best in class affordable homes. We are very excited about this, and we continue to focus on superior customer service – it shows.

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