MHO - Earnings call transcript Q1 2019

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Operator

Good afternoon, ladies and gentlemen. My name is Sam and I will be the operator assisting on the conference today. At this time, I would like to welcome everyone to the M/I Homes Incorporated First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator Mr. begin may your you conference. Creek,

Phillip Creek

you. Thank

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

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

Bob Schottenstein

our Thank quarter you joining results. Phil for our call you, good first to review afternoon and thank and

into These the quarter. well X,XXX which margins X% new in the record year during our and of closing housing during first modest That's price achieved a from quarter slowdown latter conditions and We is demand year's home in quarter. by in modest driven contributed increase performance, over ago. began $XXX,XXX, as increase level was record our of We especially $XXX increase XXXX. of are quarter X% an home to heading which decline considering first last in first a a XXXX XX% of million, as quarter pleased part continued revenue average the from closings of year contracts, last the overall with that our an a a decline the

well Our led decreased to contribution pre-tax closings conditions first income million to the financial as result in a I pre-tax about earnings of $XX.X quarter as to the quarter, X% year on margins for million late lower $XX.X segment. that lower our by earlier, the as last a from which market our noted tighter year from ago, first services

purchase first gross XXX declined charges. Our basis about year's points margin from excluding accounting by last quarter

year earnings a $XX.X fourth Importantly, is homes however, first by our per diluted lower noting a the from amount share Last homes in a quarter, are however, which ago in X,XXX a second It's increased and of our less a XX% home quarter XXXX to for a Net it gross difficult well. count. X,XXX income year's quarterly year while of quarter, for share over represented company a as as $X.XX of $XX.X the million sold first us points quarter. the $X.XX million first quarter. share in was compared improved highest first XX first the contracts result share history. first than We X% increase year's quarter worth as this basis new in XXXX’s history margin sequentially the that the quarter for highest was for last contracts in sold quarter first new was a number comp

added of quarter the affordably the first priced and growth new good Series and Series Smart of experience less communities to We ago M/I XX% the homes. by sales quarter end continue total than were of was with markets XX% example, Series of in A XX% for We sales. and of several in year more Smart line comprised good communities in our sales our than of our our XX offered more total total and being Smart sales.

in sales year our and good at calls, end XX noted being previous of we growth line. markets. and homes continue selling we XXXX to with XX additional Series be Smart of as Smart Smart in our have So out experience with rolled Series Consistent communities that, Series the good this expect to

the homes the down quarter in Our were as value in the homes at And from to first quarter. backlog sales X,XXX XXXX’s billion, year’s. last same was of backlog end $X.X slightly units X,XXX

continue our by ratio of ratio from the quarter XX.X% total last at revenues SG&A for overhead make we We quarter. expense first progress with XX basis points this during the and to on improved year,

Our of and value year this of XX opened We additional quarters quarter ago which is end, the to new liquidity We on and XXX equates with at ended a a and at and our same the homebuilding share. increase track million, of year. communities debt remained healthy the book – capital balance sheet the community the first $XX with to ended equity quarter plan XX% which last active in year from is our growth achieve strong. a from at XX% communities quarter per shareholders ratio $XXX to are an up period the X% end

and investment, new continue As monitor market obviously overall to our and housing sales growth in we our conditions manage markets. we'll

to more markets. like detail our regional I'd about three provide Now

by to we and operation, the with want to not quarter our consistent we operations that in mid-Atlantic mid-Atlantic I D.C. is and further start made decision our with a decision the D.C. wind market, Washington any market. in a our one which made region. the that markets commenting beginning in of down in three D.C. out region, to invest highlighting the First the during

we these the saying acceptable to been to have have returns for years, land been believe D.C. we As we that us unable find several on transactions calls provide in market.

only locations D.C. in communities this only and and selling. end out still over to expect year. in we're sold the selling the this past a by years. made of new homes we've completed communities and minimal have only community several started of where one be We the As we result, substantially four in active community And investments year

For X% minimal what and investment lots. also which Elsewhere quarter we a from active less new the region, D.C. as two our in Charlotte, we X% have communities, region divisions unsold been own is down ago each worth decline with XX% in hard material replacement are year will of move open these into and the strong Raleigh and our XX decrease down quite is a communities total. XXXX. we a was markets Overall not for some in in sales our the ago the We mid-Atlantic delivered mid-Atlantic XX% to North mid-Atlantic it's future. Raleigh from year year and from XXX first in But XX value earlier. and the we so XX% time today year-over-year, homes Carolina were in ended Charlotte working region a than quarter during in in are company new to backlog us a the which and for as be contracts is of quarter, the continue in wide

year actually in mid-Atlantic region of increased the ago. a total at compared quarter lots to Our by the end X% when controlled the

from for is and of Florida XXX a total. of southern the X% Texas which XX% increase year our region the represented was a We comprised Next, which quarter, four three and the ago closings company markets. had

is year at increase communities with decreased region contracts a southern the backlog we and dollar of X% compared is Sarasota, at selling. New than for open fully continue – performance. to region value the X% progress a controlled our earlier position higher was a last in make four in scale our from when quarter, in end make our continue the to region markets region ago. of XX% in southern division and in of had growing in Florida which to with of the XX region in this we quarter. and region sales newest important the our X% improving We XX southern Texas Texas financial year communities our lot decreased March now quarter southern our And the the the southern The in end and progress operation year which

positions Tampa, each for strong and strong operations Florida continue be they have in and market both Orlando We us. to very

the Midwest region. Finally,

divisions ago and had year in from the XX% company Our represent XXX six deliveries quarter, Midwest first a increase XX% which total. a of was

each with the ago. value say lot our let and were ago year is a year ago, in New up a contracts XX a backlog we which the communities quarter Midwest, compared overall quarter. active Midwest with the the in Midwest position a from increase just Midwest Midwest year dollar of me six from the very was up for controlled X% X% Sales X% the in are our down in pleased and ended to X% was markets. We of in end the

let the solid call to very that Phil. XXXX. over over that, conclude well we are a about saying turning and positioned excited very our With turn have our good feel business, Before markets very about I'll Phil, it to by are me

Phillip Creek

Bob. Thanks,

new the was quarter. quarterly first last to year's ‘XX first an quarter X,XXX year's time to far record. Last As as first compared quarter contract financial a of increase quarter for XX% performance, and first the over X% all decreased

the contracts company time X%. in up for new traffic quarter quarter's second ranks our This and all history was

slightly X% sales in down highest XX% In down Our new in in up March. were March we company's contracts month the and in our February history. had January,

were profile As XX% were and compared XX% fourth first inventory in buyers of compared fourth quarter of to quarter. last sales our first the sales our year's our XX% quarter quarter to time in XX XXXX’s % about buyer first homes to

year the up by in X% at the end. breakdown the was count mid-Atlantic. XX quarter the community XXX X% and from XX up in Our is Midwest, of south, versus XX quarter, XXXX’s in first first The region end and the

while opened communities, we During quarter XX new the XX. closing

average our in ago. million. number quarter, the higher increase our of compared in X,XXX was delivered closing should This our quarter our average We price. up primarily community average record XXXX, delivering from delivered Revenue backlog and record to XX% this a current first X% first is For year's reaching year of the about XX% quarter a in $XXX that communities homes homes a an for of first a XXX XX% year increased result XXXX. in the be of count estimate

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

our construction first margin year, the adjustments ‘XX Excluding last of to and quarter. accounting is quarter. XXX This points a XX from operating basis XX.X. the quarter purchase down estimate gross and points quarter basis that flat increase during our the when were acquisition fourth first compared We costs over an XXXX’s labor our of year-over-year fourth is was

points were basis ago, area Improving major Our of efficiencies a greater XX focus. of first be operating compared to improving quarter expenses to our XX.X a XX.X leverage. SG&A revenue, operating year continues reflecting

accounting as million the quarter, is Our expense well to purchase to for last due weighted equivalent year quarter This average $X.X was higher XXX,XXX first a quarter last Interest $XX.X rate. compared were outstanding acquisition increased higher pre-tax million. incurred of the related first increase million compared for results ago. expenses year’s quarter to to as borrowings were year ‘XXs by quarter in $XX.X impacted a first borrowing XXX,XXX the expenses, interest

around tax of in We estimate annual was in year's total XXXXs first X% effective about This have rate capitalized first our and We $XX quarter. sheet. to our quarter to XX% in be XXXX on compared effective XX% million our our assets interest rate balance is in last XX%.

share per a lower share $X.XX to the share share per last $X.XX for increased of per Our result as count. year, quarter diluted our earnings from

During the quarter, we outstanding shares. of repurchased our X million

company our results. address Derek Now mortgage will

Derek Klutch

Thanks, Phil.

tile XXXX loans lower quarter experienced year, income pre-tax associated first million in quarter. was certain of million Our the margins the markets. and achieved on in compared Pre-tax of income of in new continued last first with and to the opening with originated to higher competitive pressures, title Due pricing XXXX’s operations along we mortgage expense offices % XXXX, $X.X same income mortgage from levels $X which of to servicing the period. portion first XXXX’s our included for XX%. for respectively our loans % was in conventional, down portfolio. Loan to of % quarter, sale quarter on XX additional XX% closed mortgages in value XX% from the XX%, FHA, first the and were XX% quarter compared of V.A. a XX XX

to recent underwriting our a business We on the with changes. see expect minimal effect FHA

Loans increased loans $XXX,XXX XXX to to mortgage volume last to and was average first to relatively originated sold a quarter the the compared unchanged. amount X% record year. XXX increased in from $XXX,XXX quarter Our of

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

expiration XX% we under separate don't mortgage warehouse have Our first which quarter, outstanding $XX a had facilities that warehouse prior about lines any expect expires XXX $XX and mortgage Both same in also extend captured we are facility expires that of a XX, as million the of in and extending commitment in problems to repo outstanding the is our day MIF million under this annually operation them date. XXXX’s million we we March the typical $XXX quarter. October. agreement, At million the which $XX year business June

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

Phillip Creek

Thanks, Derek.

the sheet, investment and This continue new ‘XX. our while in structure. increase count higher in our as sheet billion, was we was above homebuilding $X.X $XXX XX, to of increase to due March focusing XX, manage primarily carefully, Total our at on higher balance an far March ‘XX finished also million backlog, As capital investing managing lots. communities, more balance inventory community

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

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

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

the today for we purchased estimate land spending quarter, a million year-to-date. to community per the total about includes and completed development $XXX Our $XXX million XXXX had the homes, of is At $XXX the had million homes. three total inventory XXX XXX XXXX inventory X,XXX Of XX, in homes. southern Midwest, which end spent XXX the inventory homes region mid-Atlantic inventory in completed total at we and ‘XX XXX and the in XXX the inventory total March and for and

million on of our balance January of $XX in adopted resulting capitalization of operating lease As our standard, ’XX, sheet. X, accounting the we the new leases

equity unsecured facility. million homebuilding And under with debt-to-cap million XX%. condition there to financial $XXX outstanding credit strong Our XXX and ‘XX revolving XX, in in be of March XXX our were million continues

continue and focus managing our our this liquidity for and We call land open comments. balancing This or to the now completes any leverage our on questions presentation. needs. We’ll with

Operator

of Wedbush. first your line Instructions] from comes And McCanless from Jay the [Operator question

Jay McCanless

on nice a Congrats guys. Hey. afternoon, Good quarter.

Bob Schottenstein

Thanks, Jay.

Jay McCanless

got All right. three I’ve quick.

wanted conclusion Number that’s I the now one, couple think flat on, you guys knowing talked also to things. you sales Easter, First in and quite [indiscernible] were the ask about other par? that

Bob Schottenstein

month to begun. not quarter practice our the on been the of comment it's Jay, just

it. past that we'll stay with consistent with practice So

Jay McCanless

All right.

you talked had, guys about question Second [inaudible]? I

Bob Schottenstein

a it - was it pretty and very, Board think the was across much month. very strong it I was

of improving reflected in if and you started to - it March. that’s slow drop don't I improving will a month out know, from period I Year five so housing that And to year. in think part began housing four I beginning point almost the hold condition, you the both the over very crescendoing then rates think the selling off take in season, XX small - February, interest of January think a little XX the because XX, preceded. good or really things start. in of And those basis a

Jay McCanless

absorption market And Could was a how and which talk then worse for bit southern region those saw on down, average. you most sales you the did the the responded? little about know, you

Bob Schottenstein

Yeah, quarter. little a that. we March really I traffic for X% into way get the you than don't stronger any know, mean, we about Jay. up detail that being overall, was talked

were You in little we know, pleased, sales. very overall, January specially than they a our March. higher and with were in cancellations March But February were

Jay McCanless

in then And you you’re doing? in I seeing are any pilot last move the especially the discounting, public had, it. bit seeing of and are measure competitors [ph] you're versus question concerning up what terms competitors doing, Got housing what little

Bob Schottenstein

anything. specific taking You There that's I'm not know, might aware some be of pockets where place.

because because I I one think and what significant price aware more on active a if feel anything little of here commenting right don't aware aren't I not it of other many not just know I competitive interesting the it. lot is your move really dealing But know points with wouldn't of there an up, else have competition. anyone I'm particular. now. I in call private more of more And a that comfortable not is. not I'm Cincinnati you builder heard maybe Texas than - it. point

Jay McCanless

Thank very Okay. you much.

Bob Schottenstein

you. Thank

Operator

line question Thomas Zelman next from And Maguire from Associates. your comes of the &

Thomas Maguire

environment job a Nice tough navigating here. Hey, guys.

through? just demand Just able as were to during side. strategy target peel in And back to incentive Were the come changes improve stay to these March you and and any there month? the incentive on orders demand your

Bob Schottenstein

during did during were the any incentive changes month, the you approach made there quarter? said You our in

Thomas Maguire

you. Thank Correct.

Bob Schottenstein

bit. little a Maybe

selling them season that quarter, the our end that of in subdivision began the demand much the underlying I place begin market as subdivisions going to we improve the and quarter, move scale through itself. pretty a in incentives we had maintained to saw back on the but into - certain we think towards as we

Thomas Maguire

makes the just business. financial it. sense. on Got quickly And service then That

of in Just we on some Does margin digesting the shifting that more how challenging maybe of of that? bottomed gears, we're Just from about all you color there. the here? competitive business can for changes from some in it the would the the the perspective in of a are it appreciate talk where in like and now environment lowest conditions can just we've industry terms revenue both quarter think years. and improve feel was this maybe you seen and the number balanced But about

Bob Schottenstein

Since Derek challenging manages that on great that answer times, the mortgagee times one. will in him company in and let

Derek Klutch

Thanks, Tom.

builder You business I in other the bit. say of space we seeing low, stay the refinance little our rising last if at stabilize [indiscernible] - year, the like we lot mortgage back see business. the a margin, lenders And get and a with am margin other and wouldn't The with know, think aggressive that's after more little rates the stay companies leveling of I the where builder should the reduce bit us to not I the the just interest pressure – is do ouXr pricing of able getting to not be coming to banks but but rates out caused are mortgage to a bottom, other interest because competitive. we

Thomas Maguire

Have great a Thanks, guys. it. day. Got

Bob Schottenstein

Thanks, Thomas.

Operator

from comes from of question Advisors. Pilot Art line the next your And Winston

Art Winston

or it's normal a homes home plan had to wondering switch the though of the possible build the originally expensive to $XXX,XXX if feasible you mover some on more was even Thank showcase, lower from price lots? lot home you. into up these I

Bob Schottenstein

just is brand our that. of on be Art, small a part really, showcase clear to Our really business

the communities. was even with performing We it's takes. the Series of we We that time. experienced good business relatively look know, exiting look Smart most we our subdivisions the across aren't at, if the look incrementally community, quarter the not a that's know, product done communities the You We've and ability done the things the at is rest that time demand all changing and of even have has you What in every at the there's perhaps improved for us that. subdivision our business whole it got if all of we've what lot or bad. we'll our if

we community have guidelines has product communities and a sell expectations We be Each big those underwriting part. for in its certainly each can own of high community. set the that

with now. understand. not whole acceptable time there's of you when levels answer this aren't performing. performing a lot short that and news because do our tough. But right product and zoning can most our of good the forth is, communities at the is The it's so We you Sometimes look at restrictions are know all communities I

Art Winston

to traffic One question. hear contract the that I Thanks. XX%? as communities these were down things right X% other and the new Did communities up through was your finance but

Bob Schottenstein

not down were contracts were Contracts down… XX%,

Derek Klutch

X…

Bob Schottenstein

X% or X%...

Derek Klutch

for the quarter. X%

Bob Schottenstein

Traffic up was Art. X%,

Art Winston

you. Okay. Thank

Operator

question line [Operator Jay of Instructions] do up the And have we a from follow from Wedbush. McCanless

Jay McCanless

a up had I follow [inaudible]?

Derek Klutch

you Well, Yeah. Jay, talked When orders look one as I mean it there to XX. things around the we're a quarter as down last first community. now far at about we've of year like was the as now about couple

while. some significance be had that us parts We that a with severance did we've of for We wasn't for $XXX,XXX for much. know, you will the we So the unfortunately XX of orders staying been and the quarter have really nor of all list know, last impact working this lots. And But you people that any situation year down market for type also, by not in we're that hope us above mentioned there. does year cost, it Not that that Bob investing first to what the not anticipating the of hope. - is in it down be a been year. end about unsold then the today community while, with many

Jay McCanless

is deflation product it on starting then [inaudible]? And

Derek Klutch

this it year was Detroit XX. year. you know, round [ph] of was last in March figures about this XX We it year actually about picked and And orders

it's but So not significant.\ know, it's you helped,

Jay McCanless

general feel in [indiscernible] community question d pricing How getting pricing or pricing and had, - [indiscernible] then you're power, net I more talk there? like region base success And other the about

Derek Klutch

various make question, move is we are seeing I prices in mean, I the your understand the – question? the you're saying sure that’s opportunity to

Jay McCanless

More you're do incentives cetera… to than for et and what having discount

Derek Klutch

question our margins XX now right to XX think the a were may think closings. encouraging it nearly XX% Well, I of point you % during and know, But and a be below things call, sort of to I sequentially think have that XX% is closer better first we out. XX. whole where dipped power margins? also incentives. think range one we results as the more we and see But pricing more to move above bit whole need sort every that's the basis that. time We've our get just a and But little basically end up business quarter know, this we'll do think There was you of times. a of slightly And on see business. maybe business see at now. gross lower playing it I some how to almost a between a XX% of We react. see - we I XX our been But we'll don't slightly time, don't where year lot there's lot Try with you be saying for there'll lot wait quite and see and for

Jay McCanless

my great. for Okay, call. Thanks taking

Operator

time And we at sir, further have this no questions.

Bob Schottenstein

to to talking forward Thanks. next very quarter. us. you Look Thank you for joining much

Operator

gentlemen, today's Ladies conference this call. and conclude does

disconnect.+ now may You

Phillip Creek	IR
Bob Schottenstein	CEO and President
Tom Mason	EVP
Derek Klutch	President, Mortgage Company
Ann Marie Hunker	VP and Corporate Controller
Kevin Hake	Senior VP
Jay McCanless	Wedbush
Thomas Maguire	Zelman & Associates
Art Winston	Pilot Advisors

M/I Homes (MHO) 24 Apr 192019 Q1 Earnings call transcript