M/I Homes, Inc. (MHO)

MHO 
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M/I Homes, Inc. (MHO)

Q1 2013 Earnings Call

April 25, 2013 4:00 PM ET

Executives

Phil Creek – EVP and CFO

Bob Schottenstein – Chairman, President and CEO

Paul Rosen – President, Mortgage Company

Marie Hunker – VP and Corporate Controller

Kevin Hake – SVP

Analysts

Alan Ratner – Zelman & Associates

Alex Barrón – Housing Research Center

Joel Locker – FBN Security

Daniel Conblow – Raymond James

Presentation

Operator

Good afternoon. My name is Stephanie and I’ll be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes First 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 session. (Operator Instructions) Thank you.

I would now like to turn the conference over to Phil Creek. Please go ahead sir.

Phil Creek

Thank you very much for joining us. On the call today is Bob Schottenstein, our CEO and President; Tom Mason, our EVP; Paul Rosen, President of our Mortgage Company; and Marie Hunker, VP and Corporate Controller; and Kevin Hake, Senior VP.

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. And as to forward-looking statements, want 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.

With that, I’ll turn the call over to Bob.

Bob Schottenstein

Thank you, Phil. Good afternoon and thank you for joining us for our call today. We’re very pleased with our first quarter results and our continued improvement in profitability, margins, revenues and sales performance. We reported $4.6 million of net income for the quarter a significant improvement over the last year’s first quarter loss of 3.2 million. And our fourth consecutive quarter of net income. Our results are reflection of improving housing conditions combined with strong performance and solid execution by our M/I Homes team throughout our markets.

2012 was a turnaround year for our company as well as the other homebuilders, as we came off the bottom with nationwide new homes sales increasing by nearly 25% over 2011. The stronger demand and improving conditions experienced by our industry and our company in 2012 is clearly contingent and, in fact, has gathered additional steam, as we move into the 2013 spring selling season.

Companywide, our sales and traffic have been strong. As we’ve previously announced earlier this quarter, our January and February sales were very good, increasing by 33% over the same two months in 2012. March was even a stronger month, as we sold over 448 homes, or a 44% increase over March of 2012. And March of this year was our best sales month since March of 2005.

For the quarter, we sold 1,047 homes, 37% better than last year’s first quarter, and our best sales quarter since the first quarter of 2006. As a result of our strong first quarter, we’re ahead of plan in virtually all of our markets. Conditions in the field continue to be very good.

In addition to the higher quantity of traffic, the quality of traffic is also improving, with buyers having both a greater sense of optimism as well as a greater sense of urgency, no doubt fueled by the historically low interest rates, limited inventory both new and used and the fact that we’re also seeing rising prices in many markets and submarkets.

The strength of our first quarter sales has resulted in an equally strong first quarter backlog, comprised of 1,385 homes, 48% better than a year-ago, with a value of $401 million, 60% better than a year-ago.

We were also pleased with our margins for the quarter. Gross margins equaled 20.1% and our SG&A expense ratio equaled 15.3%, both of these represent a 200 basis point improvement over last year’s first quarter. And our operating margin of 4.8% is the highest level we have achieve since 2006.

During the quarter we successfully opened 15 new communities and ended the quarter with 135 active communities. As we have previously disclosed, we expect to open 65 to 70 new communities this year and are on track to do so. The net result of these new community openings will be an increase in our total community count at year’s end of 25% more that at December 2012.

Over the past several years our new communities have performed very well and have been an important part of our return to profitability. We are excited about our new communities this year as we continue to focus intensely on premier locations in the better submarkets. And as we continue to strategically deploy more of our business towards our self in Mid-Atlantic regions, many of our projected new communities are located in the markets within these regions.

Our balance sheet and liquidity remains strong and we took steps during the quarter to strengthen it further, and to allow for further growth opportunities for M/I Homes by issuing $86 million of subordinated convertible notes with a 3% coupon and $58 million of additional common shares for total net proceeds of $138 million.

These proceeds contributed to our cash position of $273 million at quarter end with zero outstanding borrowings on our $140 million credit facility, and enabled us to maintain a net debt to capital ratio of 38% at the end of the quarter.

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