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M/I Homes Inc. (MHO)
Q1 2008 Earnings Call
April 30, 2008 4:00 pm ET
Phil Creek - SVP and CFO
Bob Schottenstein - CEO and President
Paul Rosen - President of our mortgage company
Ann Marie Hunker - Corporate Controller
Joel Locker - FTN Securities
Lee Brading - Wachovia Securities
David Frank - Wanger Asset Management
Alan Ratner - Zelman & Associates
Eric Landry - Morningstar
Nitin Dahiya - Lehman Brothers
Previous Statements by MHO
» M/I Homes, Inc. Q4 2008 Earnings Call Transcript
» M/I Homes Incorporated Q3 2008 Earnings Call Transcript
» M/I Homes Inc. Q2 2008 Earnings Call Transcript
Thank you. It is now my pleasure to turn the floor over to your host, Phil Creek. Sir, you may begin your conference.
Thank you very much. Joining me on the call today from Columbus, Ohio 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 for disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because as you know, we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, this presentation includes forward-looking statements as characterized by the Private Securities Litigation Reform Act of 1995. Any statements that are not historical in nature are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
Please refer to our most recent 10-K, 10-Q and our earnings press releases for other factors that could cause results to differ. 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 April 2009.
I will now turn the call over to Bob.
Thank you, Phil, and good afternoon, everyone. Our first quarter results reflect the difficult and challenging conditions facing the home building industry today. While margins and earnings remain under pressure, we continue to make progress in those areas within our control, where in light of the tough operating conditions, making progress is extremely important.
Specifically during the quarter, we generated $99 million of cash, resulting in a further reduction of our bank borrowings from $115 million at the December 31, 2007 to $42 million at March 31, 2008. Since the beginning of 2007, we have successfully reduced our bank borrowings by 90%. As a result, our debt-to-cap ratio at quarter's end stood at 31%. This represents one of the lowest debt levels in the home building industry.
Moreover, we remain on target to reduce the borrowings on our credit facility to zero by the end of the year. Reducing our land position is another major area of emphasis during these difficult times and we believe our performance in this area has been noteworthy. During the quarter, we reduced owned lot count by 10%. This was on top of the 30% owned lot reduction which we recorded during 2007.
We continue to make progress in aligning our overhead structure with current demands. We have reduced our workforce by more than 45% from peak levels. More specifically, our first quarter overhead expenses were 17% below last year's first quarter.
As previously reported, we successfully amended our unsecured home building credit facility during the quarter, thereby providing us with increased financial flexibility. And as Phil will review in a few minutes, we have minimal off balance sheet exposure.
The only other debt M/I Homes has is our senior notes and these do not mature until 2012. For more than two years, we have responded to market conditions by engaging in a predominantly defensive operating mode, aimed at reducing inventory and expense levels as well as continuing to improve and strengthen our balance estimate.
Home building is a cyclical business. During times like this, it is vital to give our greatest attention to those operating initiatives over which we have the greatest control. Operating defensively while focusing on those business process improvements designed to improve our customer service, enhance our quality, reduce our cost structure, and render more efficient our delivery systems in our judgment continue to serve us best, as we work through the current cycle and position M/I for the eventual improvement and selling conditions.
Before I turn things over to Phil, let me briefly review our region-by-region performance.
First the Midwest region. Midwest continues to be challenging as all of our Midwest markets continue to be down in single family permits this quarter. New contracts and homes delivered for the quarter were down 50% and 35% respectively when compared to the same period for 2007. At quarter's end, we owned 6200 lots in the Midwest versus 7100 a year ago. We continue to work towards reducing our investment levels in the Midwest. Presently, our gross margins on new orders in the Midwest range are from 12% to 15%.
Finally, let me add that during the second quarter, we are very pleased that we will be opening up our first new home community in Chicago and we're very excited about our long-term prospects in the Chicago market.
Next our Florida region. We have seen this market continue to soften. New contracts and homes delivered for the first quarter of 2008 were down approximately 10% and 40% when compared to the same periods in 2007. Cancellation rates in Florida normalized during the quarter at slightly under 20%. And both new contracts and homes delivered frankly exceeded our first quarter estimates. We sold 150 homes in the Florida region during the quarter, better than any of the previous three quarters. At quarter's end in Florida, we owned 4200 lots, significantly lower than the 8700 lots we owned in Florida at the same time a year ago. Presently, our gross margins on new orders in Florida range from 12% to 15%.