Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

M/I Homes, Inc. (NYSE:MHO)

Q1 2013 Earnings Call

April 25, 2013 4:00 PM ET

Executives

Phil Creek – EVP and CFO

Bob Schottenstein – Chairman, President and CEO

Paul Rosen – President, Mortgage Company

Marie Hunker – VP and Corporate Controller

Kevin Hake – SVP

Analysts

Alan Ratner – Zelman & Associates

Alex Barrón – Housing Research Center

Joel Locker – FBN Security

Daniel Conblow – Raymond James

Operator

Good afternoon. My name is Stephanie and I’ll be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes First 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.

I would now like to turn the conference over to Phil Creek. Please go ahead sir.

Phil Creek

Thank you very much for joining us. On the call today is Bob Schottenstein, our CEO and President; Tom Mason, our EVP; Paul Rosen, President of our Mortgage Company; and Marie Hunker, VP and Corporate Controller; and Kevin Hake, 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, 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.

With that, I’ll turn the call over to Bob.

Bob Schottenstein

Thank you, Phil. Good afternoon and thank you for joining us for our call today. We’re very pleased with our first quarter results and our continued improvement in profitability, margins, revenues and sales performance. We reported $4.6 million of net income for the quarter a significant improvement over the last year’s first quarter loss of 3.2 million. And our fourth consecutive quarter of net income. Our results are reflection of improving housing conditions combined with strong performance and solid execution by our M/I Homes team throughout our markets.

2012 was a turnaround year for our company as well as the other homebuilders, as we came off the bottom with nationwide new homes sales increasing by nearly 25% over 2011. The stronger demand and improving conditions experienced by our industry and our company in 2012 is clearly contingent and, in fact, has gathered additional steam, as we move into the 2013 spring selling season.

Companywide, our sales and traffic have been strong. As we’ve previously announced earlier this quarter, our January and February sales were very good, increasing by 33% over the same two months in 2012. March was even a stronger month, as we sold over 448 homes, or a 44% increase over March of 2012. And March of this year was our best sales month since March of 2005.

For the quarter, we sold 1,047 homes, 37% better than last year’s first quarter, and our best sales quarter since the first quarter of 2006. As a result of our strong first quarter, we’re ahead of plan in virtually all of our markets. Conditions in the field continue to be very good.

In addition to the higher quantity of traffic, the quality of traffic is also improving, with buyers having both a greater sense of optimism as well as a greater sense of urgency, no doubt fueled by the historically low interest rates, limited inventory both new and used and the fact that we’re also seeing rising prices in many markets and submarkets.

The strength of our first quarter sales has resulted in an equally strong first quarter backlog, comprised of 1,385 homes, 48% better than a year-ago, with a value of $401 million, 60% better than a year-ago.

We were also pleased with our margins for the quarter. Gross margins equaled 20.1% and our SG&A expense ratio equaled 15.3%, both of these represent a 200 basis point improvement over last year’s first quarter. And our operating margin of 4.8% is the highest level we have achieve since 2006.

During the quarter we successfully opened 15 new communities and ended the quarter with 135 active communities. As we have previously disclosed, we expect to open 65 to 70 new communities this year and are on track to do so. The net result of these new community openings will be an increase in our total community count at year’s end of 25% more that at December 2012.

Over the past several years our new communities have performed very well and have been an important part of our return to profitability. We are excited about our new communities this year as we continue to focus intensely on premier locations in the better submarkets. And as we continue to strategically deploy more of our business towards our self in Mid-Atlantic regions, many of our projected new communities are located in the markets within these regions.

Our balance sheet and liquidity remains strong and we took steps during the quarter to strengthen it further, and to allow for further growth opportunities for M/I Homes by issuing $86 million of subordinated convertible notes with a 3% coupon and $58 million of additional common shares for total net proceeds of $138 million.

These proceeds contributed to our cash position of $273 million at quarter end with zero outstanding borrowings on our $140 million credit facility, and enabled us to maintain a net debt to capital ratio of 38% at the end of the quarter.

This despite growing our total inventories by more than $20 million during the quarter substantially all of the increase in inventories was in homes and backlog that are under construction.

Now I’d like to talk a little bit more about our specific regions and the performance within those regions. I’ll begin with the Midwest region, which consist of our markets in Columbus, Cincinnati, Indianapolis and Chicago.

Deliveries in the Midwest were flat for the first quarter compared with last year while our new contracts or sales in this region were up 3% for the quarter. Out of the 627 homes that we delivered in the first quarter, the Midwest region accounted for 232 or 37% of the total.

This ratio was particularly interesting in that it has continued to decline down from 40% of total deliveries in 2012 and down from 53% of our deliveries in 2009. This has occurred as we have expanded our geographic footprint and as I noted earlier continued to strategically shift and deploy more of our business to our south and Mid-Atlantic regions.

Our sales backlog in the Midwest was up 14% from the end of the first quarter last year in dollar value. And we increased our controlled lot position in the Midwest by nearly 1500 lots or about 1/3rd than a year ago. We ended the quarter with 61 our active communities in the Midwest.

Market conditions in our Midwest markets continue to vary but all our improving. Chicago continues to be one of M/I Homes, its best-performing markets. This despite generally slow macro economic conditions and lagging job growth within Greater Chicago.

Indianapolis has picked up in both margins and sales activity and the Columbus market also continues to show improving – to show signs of improvement. Cincinnati is a bit challenging, but we have successfully opened several communities there and are beginning to see signs of tangible improvements in Cincinnati as well.

Next is our south region, which is represented by Tampa and Orlando, Florida, as well as Houston, San Antonio and our newest market Austin Texas. We saw significant improvement in our Florida markets during 2012 and that improvement has clearly continued into 2003 as we are – 2013 rather, as we are achieving solid results in both Tampa AND Orlando.

We have grown our position in both of these markets, have improved our positions there and have found very good opportunities for investment in new communities. In the south region we delivered 191 homes during the first quarter, this represents a 44% increase over last year’s first quarter.

New contracts or sales in the south region increased 77% in the quarter and the south region accounted for 36% of total company wide sales, taking here our largest region for sales for the second consecutive quarter, an indication, one of our successful expansion outside the Midwest and two, our growing and strengthening presence in Texas. Let me make an additional note about Texas.

We’re very excited about our operations in Houston, San Antonia and our newest market Austin. We continue to make very meaningful progress in these markets and are excited about opening our first community in Austin on time and as scheduled early in the third quarter.

The dollar value of our sales backlog in the south region at the end of the quarter was 150% higher than a year ago. And we increased our controlled lot position in the south region by a very significant 4,000 lots or 171% more than a year ago. We had 39 communities in the south region at the end of the quarter, a 26% increase year-over-year.

Finally, our Mid-Atlantic region which is represented by our markets in Washington D.C., Charlotte and Raleigh. In the Mid-Atlantic region, our sales were up 52% for the quarter compared with 2012 and our backlog value was up 67% at quarter-end from a year earlier. We delivered 204 homes in the Mid-Atlantic region for the first quarter, 45% more than last year.

Our North Carolina markets, Charlotte and Raleigh having been perform very well. Charlotte has experienced improved margins and a strong increase in sales activity. Raleigh continues to be one of M/I Homes top markets. Washington D.C. likewise continues to be a healthy housing market. And apparently, it’s had very little deterioration from the sequestration and we’ve experienced improved sales there over the past few months.

We ended the quarter with 35 active communities in the Mid-Atlantic region. Our total controlled lots in that region at quarter’s end increased by more than 10% from last year.

And with that, I turn things over to Phil to discuss our financial results.

Phil Creek

Thanks, Bob. New contracts for the first quarter increased 37% to 1047, with the net absorption rate of 2.6 sales per community per month versus 1.9 a year ago. Our traffic for the quarter increased 8%. Our sales were up 42% in January while our traffic was down 8%. Sales were up 26% in February and traffic was up 2% and our sales were up 44% in March and traffic was up 30%.

Our active communities increased 11% from 122 at the end of March last year to 135 this year. The breakdown by region is 61 in the Midwest, 39 in the South and 35 in the Mid-Atlantic. During the quarter, we opened 15 new communities, while closing 11. Our current estimate is to end the year with about 25% higher community count that we began 2013, opening more than 65 new communities.

We project that our Southern region, led by our growth in all three Texas markets will add the most new communities in 2013. We delivered 627 homes in 2013’s first quarter, up 24% when compared to 2012’s 507 deliveries, and we delivered 65% of our backlog this quarter compared to 75% a year ago.

Our average closing price for the first quarter was $284,000, up 14% from $249,000 for last year’s first quarter and a 4% increase from $273,000 in 2012’s fourth quarter. Revenue increased 45% in the first quarter in fact the last year as a result of the increase in deliveries and also the average cost in price increase along with strong results from our financial services operations.

In the first quarter we recorded pre-tax charges of $900,000 for impairments, these first quarter charges were for older land assets and our Midwest markets. We continue to work through these older assets; we are currently down to less than 10 older, underperforming Midwest communities. Our gross margin was 20.1% for the quarter up 250 basis points year-over-year. Our first quarter margins benefited from our land sales and strong operating results from our mortgage company. We continue to deal with construction cost increases led by lumber and drywall.

Land gross profit exclusive of the impact of impairments was 1.6 million in 2013’s first quarter. We sell land as part of our land management strategy and as we see profit opportunities.

SG&A expenses decreased to 15.3% of revenue for the quarter compared to 17.9% a year ago. SG&A expense increased 24% reflecting our volume increase, improved profitability and our plans for future growth. Revenue increased by 45% compared to a year ago.

Interest expense decreased 266,000 for the quarter compared to last year, reflecting higher capitalization due to higher land development activity and a lower weighted average borrowing rate offset in part by higher weighted average borrowings.

Interest incurred was 6.3 million for the quarter compared to 2012 first quarter of 5.9 million. Pre-tax income from operations was 5.8 million compared to a loss of 4.2 million a year ago. Net income was 4.6 million versus a loss of 3.2 million a year ago. Diluted EPS was $0.11 and reflects a 2.2 million non-cash equity charge related to the redemption of 50 million of our outstanding preferred stock which was announced in March and completed in April. We generated 16 million of EBITDA for the quarter and covered interest 2.8 times for the trailing four quarters.

We have $15 million in capitalized interest on our balance sheet compared to 18 million a year ago this is less than 2% of our total assets. We reported a non-cash after tax benefit of 1.8 million in the first quarter of evaluation allowance related to our deferred tax asset. At March 31, 2013 our gross deferred tax asset is 134 million and it’s fully reserved. Given our current results and improving market conditions we continue to review our financial projections with our auditors and believe that we will be able to reverse the majority of our deferred tax asset within the next 12 months.

With that I will turn it over to Paul Rosen for mortgage company results.

Paul Rosen

Thanks, Phil. Our mortgage and title operations pre-tax income increased to 5.1 million in 2013’s first quarter from 2012’s 2.1 million. Our first quarter results included increased income attributable to an increase in loans originated higher average loan amounts and higher margins on the loans we sold. We also benefited from increased revenue from the servicing tally of our loans.

The loan-to-value on our first mortgages for the first quarter was 87% in 2013, compared to 86% in 2012s first quarter. We continue to see a shift towards conventional financing, 61% of the loans closed were conventional and 39% were FHA, VA. This compares to 55% and 45%, respectively for 2012 same period.

Overall, our average mortgage amount increased 15% to $244,000 in 2013s first quarter, compared to $211,000 in 2012s first quarter. The average borrower credit score on mortgages originated by M/I Financial was 734 in the first quarter of 2013, compared to 739 in 2012s fourth quarter. Mortgage operation captured approximately 77% of our business in the first quarter, compared to 2012, 81%.

In the first quarter, we’re renewing our primary MIF credit agreement, the maximum availability was increased to 80 million with the option to add an additional 20 million and it expires March 28, 2014.

At March 31, 2013 we had 39 million outstanding under the MIF credit agreement and 14 million outstanding under our, separate 15 million repo severely, which expires November 12, 2013.

In the normal course of business, we receive inquires from investors concerning underwriting matters on specific mortgage that have purchased from us. We thoroughly review and respond to each inquiry and even though we are not required to do so, we routinely engage an independent third party to review the files and information related to the origination of each mortgage. Our reserve at March 31, 2013 with respect to these matters was $2.7 million compared to $2.3 million at December 31, 2012. M/I Financial has not repurchased any loans this year.

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

Phil Creek

Thanks, Paul. As far as the balance sheet, we continue to manage our balance sheet carefully, focusing on investing in new communities while also managing our capital structure. Total homebuilding inventory at March 31, ‘13 was $578 million, an increase of $88 million above a year ago. Our levels are higher primarily due to a higher investment in our backlog.

Our unsold land investment at quarter-end is $255 million, a 2% increase compared to last year’s $249 million. And compared to a year ago, raw land and land under development increased 24%, and finished unsold lots decreased 13%. At March 31, we had $130 million of raw land and land under development and $125 million of finished unsold lots.

We own 2,500 unsold finished lots with an average cost of $50,000 per lot, and this $50,000 average lot cost is 17% of our $290,000 backlog average sale price. And the market breakdown of our $255 million of unsold land is $89 million in the Midwest, $84 million in the South and $82 million in the Mid-Atlantic.

Lots owned and controlled at March 31 totaled 16,400 lots, 46% of which were owned and 54% under contract. We owned 7,500 lots, of which 41% are in the Midwest, 36% are in the South and 25% in the Mid-Atlantic, and our owned and controlled lots of 16,400 is an increase of 58% versus a year ago. We believe we have a very good solid land position. 37% of our owned/controlled lots are in the Midwest. 40 % of our land is in Southern region and 23% is in the Mid-Atlantic.

During 2013’s first quarter, we spent 44 million on land and 16 million on land development for a total of 60 million. About 13% of our land purchases were in the Midwest, 67% was in the South and 20% in the Mid-Atlantic.

And as to the type of our 2013 land purchases, about 54% were raw land deals, 20% were finished lot pickups, and 26% have been bulk finished lot purchases. Our estimate today for total 2013 land purchase and development spending is approximately 275 million to 325 million and this includes the 60 million that we spent in the first quarter.

At the end of the quarter, we had $76 million invested in specs, 184 that were completed and 432 specs were under construction. This translates into about five specs per community. And of the 616 total specs, 233 are in the Midwest, 196 are in the Southern region and 187 is in the Mid-Atlantic. And at March 31, 2012, we had 499 specs with an investment of 66 million.

We’ve continued to focus on managing our leverage and liquidity and balancing this with our land position needs. During the quarter, we further strengthened our balance sheet by issuing 86 million of 3% convertible debt and raising $55 million of equity while also announcing the planned redemption of 50 million of our preferred stock. We completed that redemption in April. Our financial condition continues to be strong with $273 million of cash at quarter-end. Also at March 31 the company had no borrowings under our $140 million credit facility.

This completes our presentation. We’ll now open the call for any questions or comments.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Alan Ratner with Zelman & Associates.

Alan Ratner – Zelman & Associates

Hey, guys, good afternoon. Great quarter. Congratulations.

Bob Schottenstein

Thanks, Alan.

Alan Ratner – Zelman & Associates

So, Bob, I know you guys are really excited about Texas and I love to dig in a little bit more on what you are seeing there because one of things that we have admittedly been a bit surprised at is looking at some of the other public builders’ results in Texas this past quarter to.

And admittedly we are a little bit surprised because it has been weaker than we were expecting and when you look at the demographics there, you look at the job growth, everything would suggest that, you know, the activity there should be much stronger than it has at least looking at some of the other public results. So we would love to hear kind of what you guys are seeing. I know you are still in the early innings of your ramp up there, but would love to get your thoughts on the Texas market in general.

Bob Schottenstein

Your point at early innings is apt. First of all, we are very excited. We think that our decision in 2010 to open up in Texas was sound. If we had to do it again, we absolutely would do it. Making decision to open up in Houston in 2010 followed by an opening in San Antonio in 2011 followed by an announcement of an opening in Austin and in the middle of last year we really just getting started from a in terms of playing the percentage game, you’re going to see some I think fairly stunning growth in terms of our operation because we are coming off start ups effectively, we did two small acquisitions, one in Houston and one in San Antonio.

But we feel great about our leadership team and our people in the field, we feel we’re very excited about our product, a little more than move our product and we think that we have secured positions in some very strong communities in Houston and San Antonio as well as our first openings in Austin and there’s just up as we look at the various kinds of operational metric people, products, place as well as the macro market we just have a lot of reasons for being optimistic.

Admittedly we are just getting started, but we go out of momentum that we feel like we are operating with – over sell up, but we do feel like we are operating with quite a bit of the tail wind.

Alan Ratner – Zelman & Associates

Okay. That’s good to hear and if I can ask a second one. Just kind of thinking about the price versus volume dynamic you know your order growth this quarter is probably going to be among the highest in the industry and we’ve heard from several of the builders that they are kind of in some cases pushing price a bit harder to actually slow absorptions where they might be running low on lots.

And I look at your absorption rate right now 7.9 for the first quarter, you’re not that far off in while those you were seeing kind of in that the 2002, 2003 time period when it was a more normal market. So where do you guys stand in that equation, are you actively pushing pricing in an effort to slow absorptions anywhere or do you still feel like there’s runway to go on the absorption fund without necessarily having to push price too hard?

Bob Schottenstein

You know, and those others sitting around the table here that can chime in as well but I can’t really say that there’s any community where we’re raising prices to slow absorptions.

We’re raising prices where we think the market calls for that. I think raising prices to slow absorptions is a little bit of slippery slope. You don’t know what’s going to happen tomorrow. And you know, it’s not about giving things away it’s a fine line. Every submarket within every market is different.

We’ve these conversations before. We’re also dealing with price with raw material increases. That’s not the – you don’t raise prices just to deal with raw material increases as much as you raise prices to meet the market.

The markets are improving, and I can’t say this about every one of our communities but we’ve been able to raise prices successfully in a majority of them and I’d like to thank that we’ll continue to have pricing power.

If things continue to stay on their current trajectory that we’ll be able to continue to see some pricing power throughout the year, but I can’t honestly say that we’ve raised prices to slow absorptions in any community. I don’t know if Phil or any others here with me want to add anything to that.

Alan Ratner – Zelman & Associates

Great. I appreciate that. Thanks, Bob.

Operator

(Operator Instructions) Your next question comes from the line of Alex Barrón with Housing Research Center.

Alex Barrón – Housing Research Center

Hey, thanks guys and good job in the quarter.

Bob Schottenstein

Thank you.

Alex Barrón – Housing Research Center

I wanted to, I guess focus a little bit on – excuse me, on SG&A leverage, because I feel like that’s an issue that’s been on a lot of my clients mind. And I wondered so if you could share your thoughts on you know, what you guys feel this year. It feel like last year was kind of transition year for you guys where you got passed the breakeven point. And I am wondering if we could hear some of your comments on what we should expect out of corporate SG&A versus the homebuilding SG&A?

Bob Schottenstein

Hey, Alex, obviously we’re very focused on the cost side also. Our community year end was that we expected to get continued SG&A leverage, that’s what we’re able to do. If you look at last year, we ended the year with SG&A in the 15,15, 5 range. The first quarter was low 15% about a 200 basis point improvement. With our backlog being as strong as it is, we continue to feel that we’re going to get more leverage on that, working very hard.

And in particular and you saw details of the release some of our selling expenses weren’t quite as high as we thought they would have been, primarily because the markets been a little bit better and haven’t been able – then happen to do some of the advertising and concessions and some of those thing. So not making any projections probably about it, but again it’s our plans to continue to work on the cost side and try to get more leverage.

We have added comparatively a year ago about 15% more people. Our head count is up due primarily to our growth in Texas, so that’s impacting that, but we were pretty pleased with our volumes and our leverage improvement in the first quarter.

Alex Barrón – Housing Research Center

Right. Now I – definitely there’s progress there. It’s just – I guess, compared to your peers your ratio still seems a little high. The average this quarter is probably closer to about 13%.

Bob Schottenstein

Keep in mind, Alex, that three of our 12 markets we’re just getting starting in.

Alex Barrón – Housing Research Center

Right. So I guess that’s where the opportunity is, right?

Bob Schottenstein

We think there’s opportunity, yes.

Alex Barrón – Housing Research Center

Okay. How about any comments you can offer on the direction of gross margins. It seems like you guys, I think, have a bit of a longer land position than other people, so I – that you should benefit from that, but given that you’ve been raising prices. Just kind of, what do you think is going to happen to the gross margins here also versus people’s concern about rising cost? What’s going to play out, higher margins or lower margins?

Bob Schottenstein

Well, we don’t have any guidance on where margins are headed. But based on what we know today we certainly wouldn’t expect them to go down. And the – a lot of the improvement on margin has – over the past couple of years have been fueled the increasing number of new communities that make up a greater and greater percentage of our closing volume and that percentage continues to rise, particularly as we open this year at somewhere between 65 and 70 new communities that are being unwritten based on current conditions and current expectations. So, I don’t know if you have any one add to that.

Phil Creek

Yeah. I don’t think that – again, we are dealing with cost increases, couple of markets had been hit a little harder than others. Bob – like Bob says, you always try to raise prices wherever you can based more on market conditions than anything. We did get a benefit in the first quarter from our very strong mortgage company results. We also got a benefit in the first quarter in our margins with our land sales, which opportunistically we do see some land sales continuing.

We’re trying to work hard every day increasing margins. Our average sales price in backlog actually went down about $3,000 at the end of the first quarter versus where it was at the end of last year. We think that was a little more of a mix issue.

When you look at these 15 communities that opened in the first quarter, it just so happened that the mix of more of those communities, which we also have been good to have even stronger sales than we thought in those new communities opening.

The majorities of those 15 new communities were in the more affordable price points. So that’s what kind of had our backlog dip $3,000 down. But we still feel very good about the $290,000 average sale price in backlog and, again, continue to work very hard on improving our margins.

Alex Barrón – Housing Research Center

And in fact, could I ask one last one? Any update on the timing of reversing the deferred tax assets?

Bob Schottenstein

I think Phil commented on that that he hoped that a majority of its frankly reversed within the next 12 months.

Phil Creek

Do you just want a little more information, Alex?

Alex Barrón – Housing Research Center

I’m sorry.

Phil Creek

Do you just want a little more information on it or what?

Alex Barrón – Housing Research Center

Well, I just got late on your call. So I was...

Phil Creek

Yeah. It’s our view based on our results and our projections and continuing to talk to our auditors that we think that the majority of that asset will be reversed in the next 12 months. I mean, really, as you probably know, the evaluation is based on the combination of past results and future projections. And right now, the evaluation is a little more heavily based on past. But as we continue to make income, we can heavily weigh a little more on future projection. So, again it’s just a matter of time. But we’re thinking the majority of that asset will get back in the next 12 months.

Alex Barrón – Housing Research Center

Got it. Great. Thanks, guys.

Phil Creek

Thanks, Alex.

Operator

Your next question comes from the line of Joel Locker with FBN Security.

Joel Locker – FBN Security

Hi, guys. Nice quarter. Just on a SG&A front, but...

Phil Creek

Thank you.

Joel Locker – FBN Security

But basically on the – you mentioned land sale profits of 1.6 million, did I hear that right?

Phil Creek

Yes, you did.

Joel Locker – FBN Security

And then – so, basically if you exclude the land sales, the impairments in the financial service income, does home building gross margins were 18.3%?

Phil Creek

That sounds a little low to me. But if you take those things out, the margins would be a little south to 20.

Joel Locker – FBN Security

But I just took the 5.1 million to 1.6 million and then added back the $900,000 for the impairment to get to, I think 18.27. But I was just curious, they were down a little bit sequentially and was wondering if you’re just – it feels like some markets are a lot different than others, just based on – talking to NDR and you guys are kind in similar markets versus out West it’s almost like a different country, and if you’re seeing – just as much pricing, cost pressure as you are with pricing and I guess the question on that is, where are you seeing the most ability to raise prices on your home?

Phil Creek

I mean, we feel really pretty good about our margins. In the first quarter, which always tends to be our lowest number of deliveries, sometimes it really does impact that. We feel like that our margins are getting a little better. But again the first quarter was little more mix than anything else. Our mortgage company, they will continue to have strong results. We do anticipate continue to sell a little land down there and to manage our land investment and those type things. So we feel pretty good about our margins.

Joel Locker – FBN Security

Right. But in your financial service income, I mean, that was much – that was higher than I expected. Was there anything one-time in there? Or is that just a new run rate where it’s much higher. And the revenues were up I think 800,000 sequentially, but your profit was up 1.6 million or so.

Bob Schottenstein

There really wasn’t anything in there to – that’s a one-time – and it hit to the plus side. While we have seen really strong margins and we hoped that they continue. I think we do need to say they were really strong margins and like in every business the margins will eventually tighten.

Joel Locker – FBN Security

Right. And what about the diluted share count going forward. What’s the good number to model, I thought it was going to be higher than the 22.7 with the convertible included.

Bob Schottenstein

A good number for the diluted share count going forward.

Marie Hunker

Well, yeah, we did the share issuance in March, so you only have like one-third having your numbers. So but our outstanding shares – at the end of the quarter were 24,173.

Joel Locker – FBN Security

Right, but what about the convertible. Are you going to factor that in also? Or is that going to be fully diluted?

Marie Hunker

No. You have to do, there is two different ways to do EPS and you do and it’s converted and then whichever way is more diluted is what you report. And it doesn’t work because our rate on converted is so low, we don’t think we’re going to be applying as converted method. So will there be any dilution from – I guess, it would if the converted method would add another about 5.3 or 4 million shares is there any of that 5.3 million are going to be added to diluted?

Phil Creek

In the calculation according to GAAP.

Joel Locker – FBN Security

Right. All right. So 24.2 is a good number for us to just regular revolution?

Phil Creek

Yeah, I mean we have thoughts that we can start better in the money now...

Bob Schottenstein

If you like Joe, we can give you a call offline and kind of go through that with you.

Joel Locker – FBN Security

Sure, sure. That would be great. All right, that’s all I’ve got. Thanks.

Bob Schottenstein

Thank you.

Operator

Your next question comes from the line of Daniel Conblow with Raymond James.

Daniel Conblow – Raymond James

Hi, guys. You answered my questions. Thanks.

Bob Schottenstein

Thanks Daniel.

Operator

(Operator Instructions) Your next question is a follow-up from Alex Barrón with Housing Research Center.

Alex Barrón – Housing Research Center

Yes, thanks. I was wondering, if you had any updated thoughts on redeeming the remaining preferred equity?

Kevin Hake

This is Kevin and we really have an earning plans right now either on the capital issue inside or the – with respect to preferred and doing the further redemption we just kind of completed the deal we did. So now if we wanted to take out more we would have taken out more. I mean we’re going to continue to look at it and evaluate it we think it has some positives to it. But on a long term basis at some point in time 9.75 is a higher cost and we’re liking it. So at some point we will look further alternatives to take it our right now we continue to need that as a source of equity in our capital structure.

Alex Barrón – Housing Research Center

And any comments along the lines of – maybe I missed it and I apologize for that because I got late on the call – along which markets you guys have seen the most improvement or ability to raise prices?

Bob Schottenstein

No particular comments on which markets Alex other than to say that we’re seeing improving conditions in every one of our markets, some are improving more than others and some sub markets within markets are showing greater improvement within the market. All-in-all, we feel very pleased with our first quarter performance, pretty much across the board as we emphasized particularly strong performance in Florida, Tampa in Orlando as well as the very strong momentum we are now getting in our new Texas markets as well as Charlotte, Raleigh. Chicago has had a very strong last 12, 24 months for us as well. But across the board, I wouldn’t want to malign any of them.

Alex Barrón – Housing Research Center

Okay. Yeah I was about to ask the reverse question. Any of them that still seem to be running a little slow maybe Maryland?

Bob Schottenstein

No, I believe we had very good sales activity in the first quarter and it really started in the latter part of last year DC. A lot of the predictions that this sequestration nonsense which slow things down have not proved to be something that we have experienced.

Alex Barrón – Housing Research Center

All right. Thanks.

Operator

(Operator Instructions) At this time there are no additional questions.

Phil Creek

Thank you very much for joining us. Look forward to talking to you again in the second quarter.

Operator

Thank you. This concludes today’s conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: M/I Homes' CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts