M/I Homes, Inc. (MHO) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of M/I Homes, Inc. [Operator Instructions] It is now my pleasure to turn today's meeting over to Robert H Schottenstein, Chairman, Chief Executive Officer and President of M/I Homes. The floor is yours.

Thank you. Good morning. Welcome to the 2020 Annual Meeting of the Shareholders of M/I Homes. My name is Bob Schottenstein, and I'm the President, Chief Executive Officer and Chairman of the Board of Directors. As we previously disclosed, due to the public health impact of the COVID-19 pandemic and to support the health and well-being of our shareholders, stakeholders, employees and community, we are holding this year's Annual Meeting in a virtual-only format. We appreciate you joining us today and hope that you are healthy and safe in this challenging time. I would now like to take a moment to introduce the other directors of the company who are present electronically for today's meeting: first, Phil Creek, who is also an Executive Vice President and the Chief Executive Officer of our company; Tom Mason, also an Executive Vice President, Chief Legal Officer and Secretary of the company; Friedrich Böhm, our Lead Director; Bill Carter; Michael Glimcher; Lisa Ingram; Nancy Kramer; and Norman Traeger. Thank you for joining us. Before we make our presentation about the 2019 fiscal year, we are going to take care of the formal part of this annual meeting. Therefore, if the meeting will now come to order, I would like to ask Tom Mason, who will act as Secretary of the meeting and will run the formal part of this meeting to report on the notice for this meeting. Tom?

Thank you, Bob, and good morning to everyone. On April 7 of this year, written notice of this meeting, our annual report, a proxy statement and a proxy card were mailed to all shareholders of record at the close of business on March 16, 2020, which was the record date for this meeting. The tabulation of today's votes will be conducted by Tammie Marshall of Computershare, the company's registrar and transfer agent, who will act as inspector of elections for this annual meeting. In addition to counting the votes, Ms. Marshall will also determine the number of votes which are present in person or by proxy. Ms. Marshall has made available on the meetings -- on the meeting center screen a list of shareholders of record certified as of the record date. If you joined this virtual meeting as a shareholder and you've already submitted a proxy, you do not need to vote in person on the meeting center screen. If, however, you have joined the meeting as a shareholder and wish to vote in person on the meeting center screen, you may do so by clicking on the Cast Your Vote link that is located on the left side of the screen, and voting any time prior to the time we declare the polls closed. The polls are now open, and we will close the polls immediately following the consideration of the last matter to be voted on today. I now ask Ms. Marshall to report on a number of votes entitled to be cast at this meeting.

Thank you, Mr. Secretary. As of the record date, there were 28,583,329 common shares outstanding and votes eligible to be cast at this annual meeting. Of such amount, 26,996,841 shares are present in person or by properly executed proxy, as a result, a quorum exists for this meeting.

Thank you, Tammie. There are 3 matters to be considered at this annual meeting. First, the election of 3 directors for terms expiring in 2023. Second, an advisory resolution to approve the compensation of the company's named executive officers, known commonly as say on pay. And third, a proposal to ratify the appointment of Deloitte as the company's accounting firm for 2020. Please note that shareholders will have the opportunity to ask questions regarding each matter being voted upon at this meeting when such matter is addressed. In addition, shareholders will have the opportunity to ask general questions about the company following our presentation regarding our 2019 fiscal year performance. To ask a question, again, shareholders should click on the dialogue icon in the upper-right corner of the meeting center screen. Now with respect to the first matter, the 3 nominees for election as directors are: Phil Creek, Nancy Kramer and Norman Traeger. The plurality of the votes of the outstanding common shares is required to elect each nominee. May I have a motion with respect to the election of directors, please?

My name is Ann Marie Hunker, and I am a shareholder of the company. I move for the adoption of the following resolution. Resolved that Phillip G Creek, Nancy J. Kramer and Norman L. Traeger be elected to serve as directors of M/I Homes until the 2023 Annual Meeting of Shareholders and until their successors are duly elected and qualified or until their earlier resignation, removal from office or death.

My name is Scott Turner, and I'm a shareholder of the company. I second the motion.

Thank you, both. At this time, if there are any questions regarding this matter, now is the time to present those. We do not show any questions in the queue. We'll just give it a moment. No questions. Okay. We will now turn to the second matter, which is the approval on an advisory basis of the compensation of the company's named executive officers. The affirmative vote of a majority of the outstanding common shares is required to approve this proposal. May I have a motion with respect to this matter.

I move for the adoption of the following resolution: resolve that the shareholders approve on an advisory basis, the compensation of the company's named executive officers as disclosed in the proxy statement.

I second the motion.

Thank you, both. Are there -- if you have a question regarding this matter now is the time to present it. We show no questions in the queue. Okay. We will now turn to the third matter, which is the ratification of the appointment of Deloitte as the company's accounting firm for 2020. The affirmative vote of a majority of the outstanding common shares is required to ratify the appointment. May I have a motion with respect to this matter?

I move for the adoption of the following resolution: resolved that the appointment of Deloitte as M/I Home accounting firm for 2020 is ratified on behalf of the company.

I second that motion.

Thank you, both. As before, now is the time, if there's any questions relating to this matter, please so present it. We show no questions in the queue. Thank you. At this time, I now ask those shares -- we've done that. At this time, I declare the polls closed. Ms. Marshall, will you please report?

Yes. Thank you, Mr. Secretary and Mr. Chairman. I hereby report that Phil Creek, Nancy Kramer and Norman Traeger have been elected to the company's Board of Directors. The compensation of the company's named executive officers has been approved by the shareholders and the ratification of the appointment of Deloitte as the company's accounting firm for 2020 have been approved.

Thank you, Ms. Marshall. The certificate of the inspector of elections will be included in the records of this meeting. The formal part of this meeting is concluded, and we will now proceed with our presentation regarding our 2019 fiscal year. First, because of the Private Securities Litigation Reform Act, certain of the matters which we are about to discuss regarding the company's future performance, our expectations for the future and certain statements related to the COVID-19 pandemic constitute forward-looking statements that are dependent on certain risks and uncertainties. Any forward-looking statements are not guarantees of future performance and actual results may differ materially as a result of the risk factors described in the company's most recent annual report and quarterly report. Thank you. Bob?

Thank you, Tom. Moving to the slides, which should be on your screen. First, Slide 2, which basically gives you a quick snapshot of our company. We've been in business since 1976. We are one of the nation's leading homebuilders. Our company has been publicly traded since 1993. We operate in 15 markets. You can see them shown on Slide 2. And since 1976, we have sold over 120,000 homes. Next, Slide 3, a snapshot of our performance in 2019, which was, by virtually every measure, one of the best years in company history, a record year, highlighted by record sales, 16% better than 2018. Record closings 9% better than 2018. Record revenue of $2.5 billion, pretax income increasing 18% to $166 million. We increased our communities, which are our stores to 225 across our 15 markets. We ended 2019 with a very strong backlog of over 2,600 homes, which was 22% better than at the end of 2018. Our mortgage and title operation, M/I Financial had a very strong year with record volume. We continue to post superior customer service scores. Our balance sheet was as strong as any time in company history at the end of 2019, and we were very well positioned competitively and otherwise as we entered 2020. Moving to the next slide, which describes the first quarter of 2020, which ended March 31. We entered 2020 with great operating momentum and that momentum continued, in fact, accelerated in both January and February and into early March. For the quarter, we posted a number of all-time records, beginning with record income, up 79% over the first quarter of 2019, record revenues, up 20%, record closings, up 26%, very strong record sales, up 27%, and our backlog continued to grow, as of the end of the quarter, it was at an all-time record, up 23% in units versus the end of the first quarter in 2019. Beginning in mid-March, we really began dealing in a very significant way with the impact of the COVID-19 pandemic. I'll talk about that in a few moments. Obviously, it's had an unprecedented and very severe impact on our economy. And as then as of now, our primary concern has remained the health and well-being of our employees, our trade partners, our subcontractors, our customers and all of their families. So what are we doing? And how are we operating during this crisis?

Hey, Bob, we lost connection.

Hold on a minute, we've got a technical glitch. Just bear with me for a second. While we're reviving the screen, let me share with you what we've been doing during this crisis. In all of our markets, except for Detroit, Michigan, homebuilding and mortgage services have been deemed essential. So we remain open for business, albeit on very limited and constrained conditions. We are in constant discussions with our leadership teams, constant discussions with all of our people, making certain that they are engaging in safe practices. Nearly 75% of our people are working from home. Our construction personnel continued to build homes. Our sales offices are open, but only by private appointment only, and we're doing all that we can to safely continue selling, building and delivering homes. At the same time, we're managing very carefully, very conservatively and very appropriately, we believe as we navigate through this unprecedented challenging environment. What are we doing? Very strong focus on liquidity. I want to make sure we never run out of cash, continuing to make certain that we have a very strong balance sheet, controlling our expenses, carefully managing our capital expenditures, which really is our land spend, and obviously, monitoring our headcount. Beginning in the middle of March was when we really first began to see, from a demand and sales side, the impact of the pandemic. From that point in mid-March to early April, we saw a significant increase in our cancellation rate and a very marked decline in our sales. Specifically, the latter part of March into the very first week of April, our sales were off year-over-year by approximately 50%. Since, however, that first week in April, our conditions for us on the sales side and also in terms of cancellations, have noticeably improved. And during the latter part of April, our drop-off in sales improved from what was a decline of 50% or more in the latter part of March to 35% or less. Today, we have a greater-than-ever focus on leveraging our digital platform, our online traffic has increased substantially over last year, and we are pleasantly surprised at the rate of interest and the pace of sales as we continue to move through this crisis Going forward, our company remains in the best shape ever. We're well positioned to navigate through this challenging environment. We've survived difficult times before, most recently, the Great Recession, and we're very confident that we'll get through this, too. We have a very experienced and focused management team and very strong digital tools to maximize sales during this new environment. We will continue to focus on conserving cash, maximizing liquidity, maintaining our strong balance sheet, continuing to -- continue to carefully evaluate our land spend and controlling our overhead. And we are continuing to develop and implement revised operating strategies for sales, construction and mortgage loan closings while maintaining the safest environment possible and absolutely continue to focus on our key core values, which are customer service, producing quality homes and always striving to build a better home and offer a better home buying experience. That concludes my report. With that, we'll open it up for any questions. Seeing that there are none, that concludes our annual meeting. We thank you all for joining us, and have a great day and stay safe.

This concludes the meeting. You may now disconnect.