MHO - Earnings call transcript Q3 2017

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon and welcome to the M/I Homes, 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 session. [Operator Instructions]. Thank you. to conference like Creek. to now would turn over the Phil I go Please ahead.

Phil Creek

joining you us. Thank for

call is of the and Mason, Ann On today Hunker, Kevin EVP; President; CEO Marie VP. Derek Tom Hake, and our Klutch, Corporate President VP, our Senior Company; Bob Mortgage Controller; Schottenstein, our

accordance forward-looking during the directly remind GAAP language to disclose turn we statements, directly. our of Bob. non-GAAP release this we any measure measure earlier that items about Regulation prohibited our as this no comments was and ask Also everyone call, And we forward-looking statements to you update financial are call any available reconciliation forward-looking comparable undertakes with website. consider call. measure I’ll GAAP the Also press to company questions differences First to the call. encourage made the obligation you during during address applies want regarding discussing today’s material With non-public significant from you A Fair call this Disclosure, in be of today on I to over to issues the financial with in release presentation most and measures. a certain made issued the that, advised during earnings this financial statements cautionary contained included the that between to is that also also non-GAAP that any because calculated in

Bob Schottenstein

somewhat Florida markets. caused record expenses. by and thank strong We nearly hurricanes contracts, quarters deliveries, another growth to our results. sales in our review $X hurricanes approximately Good quarter new of three reported down revenues, deliveries, profitability and Thank impact of delayed achieved us improved in performance the third XX million income we and and Huston highlighted third quarter, slowed Whilst notwithstanding our afternoon you all record you joining for and Phil. strong quarter record

increased contracts X,XXX record homes. XX% year-over-year to new the For quarter a

For is nine X,XXX months this year, quarter Homes of homes, sold homes. which better we record X% last to the the year. have X,XXX a X% during first than increased a record delivered

X% of services For incurred had quarter last at detail during Klutch, quarter, XX President basis X% $XXX financial third our of which charges is to consistent came of and Financial, backlog related year. value third Mortgage for delivered of pre-tax and income homes year better in more record business XX% income impact XXXX. a points quarter last in XX.X% stucco of to the by quarter for increased of the XX% year’s quarter increased $XXX than $X.X months homes year’s with end quarter with X,XXX strong a first the increased million second increased backlog quarter, revenues. X,XXX homes. for and operation the to this M/I margins some than Derek the the sales a with very million. third but discuss also of Gross higher this will Net momentarily. third quarter record our Revenues quarter the last excluding the nine the quarter at Homes XX% were that million,

of the quarter also healthy debt XX%. balance We ratio Our sheet, very remained strong. building to liquidity ended capital home with a

in XXXX. let far Before and say our are in our me our remain markets housing of good about I markets. thus We specific review performance, pleased most performance feel favorable that our conditions business with very and regional

positioned M/I and solid is the our of Homes Given the strength backlog of well for balance of operations, year believe about we our quality are optimistic results. the and continued clearly that the

markets. of of our and last a company In and XX% southern this XX% during region. four Now, we Texas over XXX represents This region markets with beginning Florida regions, year with specific comprised our increase total delivered which respect to is the volume. the and homes our quarter, three

New the contracts in southern region during the XX% increased quarter.

XX and I last earlier third hurricanes and sales. higher as markets slightly quarter XX communities region of quarter, which quarter the at to end in impact sales a southern sales the XX% lot of as to XX region versus the communities controlled improved had ago. XX% and We divisions, our increased region in southern impacted Texas deliveries four the to year the is at mentioned was our more Texas last of deliveries the ago. communities backlog dollar these we in year, year-over-year, clearly of the in our position of Florida and quarter year While the year, compared the also at delayed had and value southern the XX% a The end than than end

progress and operation, better affordable in to year We Tampa achieving our full making the its very of Series first pleased our is to with continue in Texas progress to Sarasota of make of in markets. Tampa Orlando community. continue our be Smart sale amongst continue growing and we goal toward be best our good particular markets. more really and In four performance

third Next which and more than company total ago the year Columbus, and Midwest region, Chicago Cincinnati, in of which of Minneapolis. is We XXX consists the the delivered quarter, homes volume. Indianapolis, XX% X%

XX% up quarter. New for were region contracts this in the

are our the significantly with pleased Minneapolis in increase new sales division where we year. over results We very year saw

continue year. in our to community like new Our well earlier have sales Smart affordable and since and markets very strong perform Series also continues Tampa to traffic strong Columbus this other Midwestern opening

ended Charlotte Raleigh continue position was Midwest for very than to region Mid-Atlantic say, Midwest in and been increased Charlotte past – value Midwest, Raleigh should to good the X% several quarter about years we the and Our lot higher We year dollar operations. us sales have to with backlog have strong feel quarter compared in moving communities the a third and from a I year the X% ago. and controlled active ago. the markets our for the both the end the up XX% XX of in in

market and number to a have I experienced did challenging. both the level remains We a modest of in this Carolina North that demand market present of should continued overall of sales to sales sellout healthy. note Raleigh But in Carolina time that’s falloff. contributed year has year North also ago. falloff the communities We markets The the a communities at and did these in That quarter. into a be of each less earlier have than the falloff this in we sales third two and DC continues and Charlotte year

number we have we reduced that Washington communities the in sale that have We also of have active reduced our and investment level for in DC market.

remains targeted well Our contracts improved year down, net down a sales quarter DC XX% The third actually that XX% of ago. with compared the backlog compared region year levels. was for were below and absorption net with and was pace all to a Atlantic factors the last new but in quarter still in year these Mid ago in as the compared sales

XX% which ago. count XX% in region of region Our Mid-Atlantic community from XXXX this volume. average comprises delivered third year in and the decrease approximately during the this a total company We X% was quarter, is from homes XXX down a

a slightly, region it results. end Phil quarter I’ll lots more the to Our turn at financial total of the that Mid-Atlantic of to increased in the thorough for over our compared And last X% control review with year.

Phil Creek

Thanks Bob.

on our profitability focus to continue returns. along We our increasing with improving

the contracts for of a level to third quarter New third XX% record quarter increased X,XXX.

X%. traffic was count for the quarter up and down X% Our was our community

August X% were up Our in in and XX% up up September. in new July contracts XX%

first the quarter ’XX As is were percentage sales quarter. to our XX% second buyers and as [borrowers] ’XX to third XX% of about profile, were in time of quarter third sales the our compared XX% homes, which same quarter inventory second

Our south of the it end quarter. were down XX XX XXX and XX Mid-Atlantic. by in the the communities active its in To at third the break in Midwest, region the

quarter a During levels of six X,XXX our communities X% XXXX we new be while up we closing estimate average opened year the delivered about third backlog in the revenue well for primarily our year as homes over financial XX% that in the third and to XX. of count XX% quarter, homes quarter delivering operation. We million. should compared an result the increase our reaching community X% record delivered the of third third $XXX record the in from ago. number of quarter, services increase quarter Revenue as increased This a was

and ago. see Our Land $XXX,XXX as is in the gross $XXX,XXX compared sale as average year land for sell was year’s opportunities. to X% to third We quarter. closing price quarter $XXX,XXX million last was profit average and third management part backlog profit year’s a $X.X our last from third land up we quarter of the in $XXX,XXX strategy compared our price

stucco the were about increasing. labor up XX XX.X%, the was cost quarter estimate related pressures charges. ’XX third that We Currently quarter up of in points gross quarter. years excluding costs impact material third drywall are Our margin lumber third and basis the over last X% and

increased compared last year. a increase for ago. the the SG&A also These million projects, an expenses. Our interest in to to Interest and count. An by was million $X.X land abandoned community were the taxes and compared associated expenses increased $X.X real-estate $X.X This quarter year primarily impacted $X.X were from cost million the of by hurricanes was XX.X% expense negatively our quarter with to quarter incurred year third increase related revenue. of due in million

million and be in rate have on XX% rate $XX our X% our capitalized total to was of year’s tax in interest third about we this estimate We and sheet, balance effective annual our affected XX%. assets quarter

in $X.XX Our million share, a earnings of quarter charge, announced earnings was and stock per noncash was preferred equity September for share completed to Diluted per reflects $X.XX about the our reduction which per October. per share. related diluted the in share $X.X

our Klutch will address mortgage Derek results. company Now

Derek Klutch

Phil. Thanks

pre-tax same in mortgage million from third income $X.X slightly in million to XXXX’s and the title quarter XXXX. Our operations in $X.X decreased period

from third were conventional This first XX% number same for or third of While and higher included increase loans this value XX% The by results XXXX FHA quarter loan loans VA. third XXXX, XX% in in sold, was payroll and originated the computer down mortgages the XX% to quarter of the to for offset expenses. of respectively XX%. XXXX related our XX% compares quarter and closed were and was our of period.

increased the X% Our to XXX mortgage XXX to in $XXX,XXX average of from to Loans compared by increased and X%. XXXX. originated XXXX’s loans volume $XXX,XXX decreased sold quarter in third amount

M/I was XXX, quarter, a XXX earlier. borrower originated score credit average mortgages from slightly quarter This Financial the on up by

operations million a million we commitment mortgage to $XX expect compared million September and separate facility. we the At $XX date the warehouse prior about warehouse had in XX of our lines agreements, Those extend XX%. Our is expiration which we are repo end million mortgage captured $XX to $XXX month. MIF facilities have a facility day the XXXX’s business its the XX% third annually under under extend we outstanding at XXX of outstanding repo to this typical that and quarter,

over I’ll turn Phil. the back Now to call

Phil Creek

Thanks Derek.

We balance backlog, was higher X/XX/XX capital $X.X continue an carefully to count community manage year’s on and building last more home to million due finish communities, our in investing while in new $XXX lots. levels, higher structure. also above primarily of Total investment manage inventory level our billion, our increase focusing increased sheet in

lot of XXX,XXX Our unsold is of cost owned ago. investment compared We $XXX with and XX backlog development year million X,XXX this our At per of to land $XXX lots. at average million under and finish sale raw XX% an of unsold lot finished is land XX,XXX lots land $XXX average we price. unsold a average million, $XXX and X/XX/XX had September

under lots, owned an XX,XXX to which XX% controlled contract. year the own in XX,XXX is for the of XX,XXX total of market owned XX,XXX Mid-Atlantic. land lots lots south of are breakdown $XXX $XXX in $XXX lots. and and our Our the additional finished ago million million our unsold the the and in about XX% XX% in south of which XX,XXX Midwest, Lots were We lots we X/XX/XX owned in one as lots. owned totaled of of supply XX% the Midwest, is XX% maintain a $XXX and in million A Mid-Atlantic. goal The controlled million year’s of and

raw on year’s million land quarter million this purchase amount a $XX was spent for $XX $XXX During we million of total of the land third on about development XX% and land. purchases, and

X/XX/XX the and inventory in XXX to XXXX southern inventory we million and XXX for region and Mid-Atlantic. includes had homes. homes At spending community X,XXX the And total XXX had $XXX total $XXX XXX of land the year-to-date. which inventory estimate about of the XXX the and Our At homes, inventory in XXX inventory in which Midwest, are the homes. spent end total completed is $XXX million, purchase million is we development two the quarter per completed

our with focus to continue needs. leverage We land on and this balancing position and managing our liquidity

we of XX shares sheet balance year which converted million quarter the eight million of strengthened in equity, had $XXX $XX further into notes, the redemption notes senior During convertible our million by completed October. issuing was of preferred announced of

outstanding presentation. Our with credit continues strong of We’ll $XXX rate. financial any million no of for XX% XXX our cash, borrowings shareholders’ With and condition calls million to facility open the that that, $XXX be now equity to million building comments. debt home completes our Cap under and a of questions

Operator

Instructions]. [Operator

Ratner from comes question Alan & first Your from Zelman Associates.

Alan Ratner

is material which costs inflation Bob, pretty you Other cost Hey only side. guys, my a higher A levels builders that X% and talked your have comment surprising. up great first Congratulations! question, year-over-year labor about were the of on made good afternoon. quarter.

inflation? curious you’re an what power price expand could assume seeing the that on pressure compares I I’m low? about that so doing bit, than Thank curious are to forward? other keep you. a for that on the X%, maybe your little you little what how that push And so talk more if side of bit was means a going pricing margin bit and cost maybe guys that to a you cost So ability just

Bob Schottenstein

that you the then him Phil question one the and commented your the answering if add for I’ll on was First, and pressures it. about thank necessary comments let pricing quarter. increase begin maybe to I’ll the and pricing that

Phil Creek

pressures looks I to Yeah, certain market number improve are areas Alan just than you, also materials about and there little XX% material, always and out in it there the It been. few are gave our as certain pressures a we like It the but those, a has increase third lumber, today quarter. But XX% different. far the is work was every with about was overall more margins, forth, have X% as per as trying pleased comment such we so bit been I know you that actually about also hard the more seeing X,XXX labor. made in there home.

Bob Schottenstein

so, with add is of what commented well at I in and terms it’s here in The week of it’s would think in what’s said been and other been least impact, I’d markets and cost Florida of thing I over from builders by the on concur pretty labor other documented doing on the much the last some those Houston with hurricane and the pressures impacted markets. or

power. was pressures would than I’d thing year I had said believe while third someone last beginning be is pricing other beginning gross weren’t because pricing higher third if margins thought The your us and of good, quarter that was you demand at year, have were the no, if to the would we we quarter it sure see to say of then give enough the

little see a very certain of a others. draw at it’s clear you to hard and reason see we’ve very, bit not but why think I places pricing power,

land heart specific seeing area where think combination think last where very I and but on sewer subdivision these, and is believe development quarter’s it will also think just it with commented excavation other where it’s of the side, continued we’re and this I associated call development and seeing pricing pressure the which a pipe I continue is both now lines. the I direct and impact and we on the during land water costs we’re

Alan Ratner

detailed that it. I Got all there response guys. appreciate

going range I community you’re for the on end the year, you on segway, to if count but closer to lot made probably you’ve the the Phil nice think in for X% the lower I come grow some to then of growth at mentioned land side, So could continuing progress count.

double up You trending have been there. digits

So you maybe spend about I if what seeing land could minute you’re the was market. talking on curious a just

optioning successful you but going mentioned land. development have cost your of You up, XX% the been almost

all So decent increase that in the the a given you has up and to those willingness do terms on developers are development auction work from you or tightened at inflation. seeing lots continued

Phil Creek

say me land the Let can and about about count talk Bob side. community something the

as didn’t community the at thought, thought soon little faster Alan, also for as XX%. of We know communities a certain we our X% far from as the communities are quite impact we had a bit you year. get would we of We few strong have X% we to now site development the have adverse count couple that more we you than sales. Previously did it we selling in As been about of Also but we know open done had hurricanes. with saying thought third than quarter a a did. out

of overall that the So us X% that’s led growth to kind year. for

take side let Bob As far the as it, I’ll of land that.

Bob Schottenstein

haven’t they – the markets basis. really the of I quarters. find increasingly excited think good on we competitive, most and on about coming know be buy intensely have I over know takedown where a Texas mean and lots pretty more deals. you You to certain able are master-planned were it’s to don’t In some I our lot finished our developments There it’s think we tend difficult we to for changed think changed much most communities strategy. But, last markets are that of number part in our

finished that We hurdle cancels are means can then we the it appropriate the with so that think of we’re a them compares and of go books very lots, But risk know we fact strong. them able land with with less trying control, about our very good and very the you favorably terms to land. still position, going and if on rates of at focused being lots if first balancing not know industry feel buy on our meet half that to and foremost in the today of, you deal locations forth, get just I we number associated and the I particularly than really best our to think

business. on But you that big I You have driven ability wind with a it a We with as thing in the I that matters is land know matters. only our the was matters competitive. been the gone in location very and lot it’s we hell lots not then only we it’s thing likely of be you will but think a our always lot think can and done right that the building It’s locations to know home but focus keep it business, is. to buy finished get well going and a I don’t can hope a where it increase. guess

Alan Ratner

Great, lot the get back I’ll thanks guys. queue. a in

Operator

Your from Wedbush. Instructions] [Operator from McCanless Jay next is question

Jay McCanless

afternoon everyone. Hi, good

Bob Schottenstein

Jay. Hey

Jay McCanless

Hey.

quarter. first and little you million in prepared last year-over-year? year’s remarks, The question Is SG&A third I the increase up about a is the of it $XXX,XXX bit about the this and in included that talked of $X.X in part $X.X remediation, as but hurricane had total land charges million versus is

Bob Schottenstein

But million commissions have last Also drop part, million that higher through of of if a some projects, year we the clean land the in $X went model, go our Jay selling that estate know from little was real million majority been that’s closings, bit you margin first through The is that helped. abandoned that to SG&A. line. Again XX of had $XXX,XXX dues, increase would percentage SG&A or community answer $X higher have of impacting would all $X.X the year. variable did the the of those but types those again is revenue or related line, taxes, HOA this things. delivered up you higher if another so

to contributed those all of number. So that SG&A things kind

Jay McCanless

certain I that, actually guys going leads projects and are some well a for question you some was more into you actually get I’ve Are little one – Okay, next completed? and trying to got markets pay to to drive co-broker paying guys in to markets my ask. up that demand in another but

Phil Creek

Not really.

not We’re Schottenstein. any. its really Jay, Bob doing

it’s we last differently grown divisions doing anything remain It some or few forward. SG&A. to I less in scale still get when operating getting we comes quite or of really and some your newer about very it than of years divisions three have not are remains four newer appreciate we’ve our go two a that. our – years bit we old of a come and the question couple down increasingly as leverage focused over continuing really that are and on divisions to We’re as

Jay McCanless

Got it, a And just okay. then modeling question.

preferred of dividend the end this? any is quarter to With be through fourth going or comes third the that redemption the is to be in quarter the going of there preferred

Kevin Hake

in its which Kevin. we dividend of accrued Jay, so be none was quarter. took amount XX, that out, would paid will there We the it be October fourth when the

Jay McCanless

I great. Okay, questions you. That’s the all thank had,

Bob Schottenstein

Jay. Thank you so much

Operator

a of question follow Alan Associates. is & Zelman next Ratner Your up of

Alan Ratner

you another the Hey guys, some and great ask me. wanted this quarter. liquidity sheet for taking the improve for thanks made to position balance just I about guys simplify obviously question and to strides

run while. seen you continues levels convert As one equity look forwards XX’s, this I we’ve to on the in a bring we’ll of here, quite leverage ratio the into of that the in if your the that year next and know nice which the is position know kind would have you a lower converts you be stock

new right kind organically. in the environment curious know you business right been the thinking markets M&A With I just you’re about have, in now? years of a So liquidity the now? look number inquisitive how know how of also you’ve you does ventured the and

thinking something curious other extra some should be pursue there the So use if with that’s or of looking that about? if cash to liquidity your that the is we

Bob Schottenstein

Alan. this take a going as may I’m Well, Phil to far and Kevin jump crack want that and as to on then

year how remain community and $XXX at that the expected beginning conditions to and to that sure, land said in we over terms so, optimistic but count of on operating housing now right $XXX Maybe good million million about are believe somewhere were got a increase come for XX% you to X% about we in by You the down knows year not between the likely several housing your least optimistic and and are – know of we longer we at next to years. the nobody spend but own next and over just business, our or business we’re the two. conditions

to growth If that we last you look rate grow next at in over so out add we years, units to to believe and forth like that continue our here XX can XX the and our look goal. that’s few months the would terms we and as of over much

strong a sheet that it. having balance So, will allow us to do

to think to existing that you like we’re our one to job in that of know to in the have all almost I markets. you look that can continue going could and share we to competitive markets contribute know is gain I’m that think we’re also market which be at but mean past them opportunistically aren’t continue of we doing XX, there’s and the not growth we’d a we say doing additional to we in lot we very to continue of where as places company. the at and all we I do believe and

Kevin, So of about I we strategic that to of don’t know to want assessment what said. think an add you sort how things. anything overall if I

Kevin Hake

those actually convert be you still up just the they in your convertibles No, enthusiasm to but terms but equity. did converge, $XX to know and see, shares would it I have we’ll we mean of before moving, so next share we – year, about wait for

next she we we’ll grow, of markets current to leverage have expect for probably and continue opportunities. in even whit where do do open – here seeing comfortable we in was over We comfortable XX’s. our but see for looking plans our right now, we with do very current without low currently standing markets we where going, feel anything, we through a generally ended but have the We’re for are look steadily are fairly even to to we so our year don’t it but the sort

Alan Ratner

Thanks guys. lot okay luck. and good Right, a

Bob Schottenstein

you. Thank

Operator

There are no further questions.

Bob Schottenstein

end. you much to at forward very you joining look to We year talking for Thank us.

Operator

conclude conference may does you. That Thank call and disconnect. you today’s now

Bob Schottenstein	Chief Executive Officer, President
Phil Creek	Executive Vice President, Chief Financial Officer
Tom Mason	Executive Vice President
Derek Klutch	President of our Mortgage Company
Ann Marie Hunker	Vice President, Corporate Controller
Kevin Hake	Senior Vice President
Alan Ratner	Zelman & Associates
Jay McCanless	Wedbush

M/I Homes (MHO) 25 Oct 172017 Q3 Earnings call transcript