M/I Homes, Inc.

Good day, and welcome to the MI Homes First Quarter Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Phil Creek. Please go ahead.

Thank you. Thank you for joining us today. On the call is Bob Schottenstein, our CEO and President, Tom Mason, EVP, Derek Clutch, President of our Mortgage Company, Anne Marie Hunker, VP and Corporate Controller, and Kevin Haake, 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, I 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. I'll now turn the call over to Bob.

Thanks, Phil. Good afternoon everyone and thank you for joining our call to review our first quarter results. We had an outstanding first quarter, perhaps the best quarter in company history, setting records on many fronts including new contracts, deliveries, revenues, and pre-tax income. Housing conditions in all of our markets are very strong. The robust demand for new housing is being driven by a number of factors. including low mortgage rates, historically low inventory levels, a rapidly growing number of millennials joining the ranks of home ownership, and a shift in buyer preference away from renting in favor of single-family homes. In addition, the quality of buyers is in as good a shape as we've ever seen. Our average buyer is putting more than 15% down and has a credit score in excess of 740. Taken together, all of these factors have created an excellent environment for new home sales that has contributed to our record setting performance. We are proud of our results as we continue to gain market share and improve our profitability throughout every one of our 15 markets. During the quarter, we sold an all-time quarterly record of 3,109 homes. 49% better than a year ago. Our absorption pace per community improved significantly to 5.3 sales per community compared to 3.1 sales per community a year ago. And we continue to experience very strong results with our Smart Series, which represents our most affordably priced line of homes. Smart Series sales comprised nearly 35% of total company-wide sales during the quarter, compared to 30% a year ago and just 16% in 2019. We are selling our Smart Series product in all 15 of our divisions and in roughly one-third of our communities. As we've shared before, on average, our Smart Series communities are larger with more lots And our Smart Series homes produce better monthly sales pace, higher gross margins, faster cycle time, and overall better returns. Homes delivered during the quarter increased 35% and were a first quarter record. Revenues increased 43% and also represented a first quarter record. Gross margins improved by 420 basis points to 24.4%, and our overhead expense ratio improved by 120 basis points. As a result, our pre-tax income was an all-time quarterly record of $110 million, 167% better than a year ago, with a pre-tax income percentage of 13.3% compared to 7.2% last year. These strong returns resulted in a 25% return on equity, improving from the 22% full-year return on equity we had in 2020. Our first quarter results continued our trend of strong growth in both revenues and earnings. Specifically, since 2013, our revenues have grown at a compounded annual rate of 19%, And our pre-tax income has grown at an even more impressive annual rate of 43%. Company-wide, our backlog sales value at the end of the quarter was a record $2.4 billion, 82% better than last year. And our units in backlog increased by 68% to an all-time record 5,479 homes, with an average price in backlog of $433,000, nearly 10% higher than the average price and backlog last year at this time. As I indicated earlier, all 15 of our home building divisions contributed significantly to our first quarter performance. And, as you'll soon hear, our financial services mortgage and title operations also had a record quarter, highlighted by strong income, an excellent mortgage capture rate, and very solid across-the-board execution. Now I will provide a few brief comments on our markets. We divide our 15 markets into two regions. The northern region consists of six of our markets, namely Columbus, Cincinnati, Indianapolis, Chicago, Minneapolis, and Detroit, while the southern region consists of the remaining nine markets, Charlotte and Raleigh, Orlando, Tampa, and Sarasota, and Houston, Dallas, Austin, and San Antonio. New contracts in the southern region increased 46% during the quarter. In the northern region, new contracts increased 53% during the quarter. Our deliveries increased 34% in the southern region during the quarter to 1,218 deliveries or 60% of total. The northern region contributed the balance, 801 deliveries, an increase of 36% over last year. Our owned and controlled lock position in the southern region increased by 35% compared to last year and increased by 8% in the northern region compared to last year. While we are selling through communities somewhat faster than expected, We are very well positioned to handle the current level of demand. 35% of our owned and controlled lots are in our northern region, while the balance, roughly 65%, are located in the southern region. We have a strong land position. Company-wide, we own approximately 16,800 lots, which is roughly slightly less than a two-year supply. On top of that, we control via option contracts an additional 25,200 lots. So in total, our owned and controlled lots approximate 42,000 single-family lots, which is just under a five-year supply. Importantly, and worth noting, 60% of those lots are controlled under option contracts, which gives MI Homes significant flexibility to react to changes in demand or individual or unexpected market conditions. We had 100 communities in the southern region at the end of the quarter, which is down from 125 a year ago. In the northern region, we had 87 communities at the end of the quarter, which is down 11% from the 98 we had last year at this time. Clearly, this decline in community count is a result of our accelerated sales pace, but It's also important to recognize that over one-third of our communities are now offering our Smart Series homes and that these communities often have more lots in total, but they also produce a greater sales pace. We are managing our sales pace as well as our pricing in our communities to take advantage of the strong demand and to assure delivery of a high return on our investment. Before I turn the call over to Phil, Let me just make a few final comments. Our financial condition is very strong with $1.4 billion of equity at the end of the quarter and a book value of $46.37 per share. We ended the first quarter with a cash balance of $293 million and zero borrowings under our $500 million unsecured revolving credit facility. This resulted in a 32% debt-to-cap ratio down from 39 percent a year ago and a net debt-to-cap ratio of 21 percent. We are very excited about our business. Our financial condition has never been better. We have important operating momentum throughout the company and the quality of our product along with the quality of our communities and our land position positions us for continued growth continued gains in market share, and strong results. We fully expect to have an outstanding year in 2021. With that, I'll turn it over to Phil.