Good afternoon. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the M/I Homes First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you. I’d like to now turn the conference over to Phil Creek. Please go ahead, sir.

Thank you. Thank you for joining us today. Joining me on the call is Bob Schottenstein, our CEO and President; Tom Mason, EVP; Paul Rosen, President of our Mortgage Company; Ann Marie Hunker, our VP, 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, 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. With that, I’ll now turn the call over to Bob.

Thanks, Phil, and good afternoon, everyone. We are off to a strong start in 2016, highlighted by very good sales, record first quarter closings, our strongest first quarter backlog in 10 years, strong performance from our Financial Services segment, and solid income with improving returns. As stated in this morning’s release, we’re very pleased with our first quarter results. The spring selling season has been very good so far and our sales growth has been robust. We sold 1,314 homes in the quarter, 19% more than a year ago. And it’s important to note that our year-over-year increase in sales was achieved evenly across our three geographic regions, being the Midwest, Mid-Atlantic, and South. We closed 876 homes in the quarter, which was a company record for the first quarter, and is up 22% over last year’s closings. Revenues for the quarter also increased by 23%. Our backlog sales value increased 27% to $730 million and backlog units increased 22% to 1,969 homes. At quarter’s end, we had 356 more homes in backlog than a year ago. And as I noted earlier, this is our strongest first quarter backlog in 10 years. Pre-tax income for the quarter was $14.7 million compared with $15.7 million a year ago. Excluding the impact of land sale profit, our pre-tax income significantly increased by 34% over last year on 23% more revenues. During last year’s first quarter, we had over $5 million of land sale gross profit compared with less than a $1 million this year. I simply mention just to remind everyone that even though land sales occur within our business from time to time, they’re by no means routine and can fluctuate significantly from quarter to quarter. During the quarter, we successfully opened a number of new communities as planned finishing the…

Thanks, Bob. We continue to focus on improving our profitability and our returns. New contracts for the first quarter increased 19% to 1,314. Our traffic for the quarter was up 26% and our community count was up 18%. Our new contracts were up 24% in January, up 25% in February and up a 11% in March. As to our buyer profile, 40% of our first quarter sales were to first-halftime buyers, that compares to 38% in 2015’s fourth quarter, and 45% of our first quarter sales were inventory homes compared to 51% in 2015’s fourth quarter. Our active communities were 181 at the end of the first quarter. To breakdown by region is, 72 in the Midwest, 68 in the South, and 41 in the Mid-Atlantic. During the quarter, we opened 13 new communities, while closing seven. For 2016, our current estimate is that our average community count for the year should be up about 10% over 2015 levels. We delivered 876 homes in the first quarter, delivering 57% of our backlog compared to 59% a year ago. Revenue increased 23% in the first quarter compared to last year, primarily as a result of an increase in average closing price and number of homes delivered. Our average closing price for the first quarter was 353,000, a 9% increase over last year’s 325,000, and our backlog sale price is 371,000, which is up 4% from a year ago. Land gross profit was 700,000 in 2016’s first quarter compared to $5.2 million in 2015’s first quarter. We sell land as part of our land management strategy and as we see profit opportunities. This reduced land sale profit of $4.5 million had a big impact on our comparative results. During the first quarter, we took a $2.2 million charge for cost associated with…

Thanks, Phil. Our Mortgage and Title operations pre-tax income increased from $5 million in 2015’s first quarter to $5.9 million in the same period of 2016. Our first quarter results include an increase in loan originated from 568 to 604, an increase in average loan amount and higher margin sold – on loans sold. The loan-to-value on our first mortgages first quarter was 85% in 2016, same as 2015. 71% of the loans closed were conventional and 29% were FHA, VA, the same as the first quarter of 2015. Overall, our average mortgage amount increased 10% to $293,000 in 2016’s first quarter compared to $266,000 in 2015’s first quarter. The average borrower credit score on mortgages originated by M/I Financial is 734 in the first quarter of 2016 compared to 738 in 2015’s fourth quarter. Our mortgage operation captured approximately 82% of our business in the first quarter, same as 2015’s, first quarter. On March 31, 2016, we had 73 million outstanding under the M/I F credit agreement, which is $110 million commitment that expires June 24, 2016, and $14 million outstanding under a separate repo facility, which expires November 1, 2016. Both facilities are typically 364-day mortgage warehouse facilities that we extend annually. Now, I’ll turn the call back over to Phil.

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 home building inventory at March 31, 2016 was $1.2 billion, an increase of $200 million above March 31, 2015 levels, primarily due to higher investment in our backlog, higher community count, and more finished lots. Our land investment at March 31, 2016 is $572 million, a 22% increase compared to $470 million a year ago. At March 31, we had $237 million of raw land and land under development and $335 million of finished unsold lots. We owned 4,285 unsold finished lots with an average of 78,000 per lot, and this average lot cost is 21% of our 371,000 backlog average sale price. Our goal is to maintain about one-year supply of owned finished lots. The market breakdown of our $572 million of unsold land is $165 million in the Midwest, $226 million in the South, and $181 million in the Mid-Atlantic. Lots owned and controlled as of March 31, 2016 totaled 22,262 lots, 49% of which were owned and 51% under contract. We owned 10,868 lots of which 32% are in the Midwest, 43% are in the south, and 25% in the Mid-Atlantic. During 2016’s first quarter, we spent $52 million on land purchases and $32 million on land development for a total of $84 million. About 40% of the purchase amount was raw land. Our estimate today for 2016 land purchase and development spending is $425 million to $475 million, which included the $84 million spent in our first quarter. At the end of the quarter, we had 326 completed inventory homes, which is two per community and 801 total inventory homes. Of the total inventory homes, 235 are in the Midwest, 399 are in the Southern region, and 167 in the Mid-Atlantic. At March 31 2015, we had 413 completed inventory homes and 872 total inventory homes. Our financial condition continues to be strong with $605 million in equity and net debt to cap ratio of 51%. At March 31, 2016, there was $115 million outstanding under our $400 million unsecured revolving credit facility. We have no debt maturing this year and only $58 million of convertible debt due in 2017. This completes our presentation. We’ll now open the call. Christy?

Yes, sir.

We’re ready to take any questions.

All lines have been opened.

Christy, we can’t hear you anything.

[Operator Instructions]

Christy, are you there?

Yes, sir. I’m here. All lines have been opened for questions or comments.

I think there has been technical problems with the call from the outset. How many participants do you show?

12.

Can you check with them to see if there are any questions. Can you ask now?

[Operator Instructions] And you do have a question from Alan Ratner.

Hey, guys. Good afternoon. I’m glad we were able to get that straightened out here.

Alan, let me ask you a question before you ask us one?

Please do?

We’re concerned that there may have been technical issues on the call. Were you able to hear at all?

We heard it crystal clear. So all good.

Okay, good. Thanks, Alan.

Yes, and absolutely. So first off, just a quick complement. I think you guys are doing a great job of delivering solid growth, execution, very consistent I know. It doesn’t seem like the market might be giving you the credit for it. But from our perspective, I think it’s impressive what you guys are doing. And obviously with the expansion to Sarasota, looks like you guys have more opportunity to expand the footprint, which is good to see. With that out of the way, I guess, my question on the gross margin, you mentioned you had some purchase accounting headwind this quarter and there was some mix as well. The homebuilding gross margin piece, if we back out the land was lower than what you guys reported in the last couple of years. Just curious, is that mix headwind, should you expect that to subside going forward through the year, or where do you see your margin and backlog relative to what you just delivered here?

Alan, we’re not going to make any projections as normal as far as margins. We talked about a couple of things. We talked about the purchase accounting being about 20 basis points compared to a year ago. We were pleased the first quarter margin was better than the fourth. I’m sure you’re focused on the first quarter of this year versus last year. Also there is an increase in land cost built in there. When you look at the mix, for instance, we talked about the challenges in D.C. We did deliver more homes in D.C. in the first quarter of this year than a year ago, and that brought the margin down some, and a couple of other markets, which might have had just some really, really high margins the first quarter of last year weren’t quite duplicated this year. So it was some mix issues in there also.

The only other thing I’ll add to that is, thank you for your comments. Before you asked a question, I appreciate it, and we agree with you. We’re very – as I said, we feel really good about our performance and are encouraged by demand we’re seeing in our models, obviously the strengths thus far the spring selling season and feel that we’ve got some really good momentum.

Great, thanks, Bob. And if I could sneak in one more, I don’t know if Paul is on for Q&A. But just on a mortgage side, as you kind of cycling through the first round of originations under trade. We’re hearing on the backend, when you sell loans to investors that there has been some delays or just some more scrutiny on those loans, which is taking a bit longer to sell in some cases. So you mentioned your warehouse line. Just curious if there’s any contingencies in place there to protect yourself against potential delays on selling loans in the future, as you sell more in 2Q and 3Q that fall under TRID? And I guess just any commentary in general related to TRID that you are seeing would be helpful. Thank you.

Well, thank you for the question. Actually, we had prepared for a TRID in August of last year. It didn’t come until later on. We never really had to implement any of our contingency plans. But our operations are closing loans on the TRID and they’re being purchased at the same speed, as I had been before TRID. The compliance and review by our investors have not slowed us down at all. Having said that, we still have a contingency plan in place, where we sell directly to the agencies. So should the investors be slow in purchasing loans, we can sell direct and not be impacted by it.

That’s very helpful. What percentage do you sell direct to the agencies right now versus correspondent or outside lenders or investors?

It’s generally based on the execution in each month, it runs anywhere from 30% to 70% based upon where we can sell our loans, we get the best execution.

Got it. That’s really helpful. Thanks a lot, guys, and good luck.

Thanks, Alan.

Your next question comes from the line of Michael Rehaut with JPMorgan

Good afternoon. Jason in for Mike. First question, I think last quarter you mentioned that there were some issues with labor that had been resolved -- or not resolved, but that they had stabilized and that you are able to manage them better. So just wanted to get an update on the labor and materials front and what you are seeing there and if there’s certain markets that are still being more impacted than others?

Can you pick up the speaker line, it just been holding and holding?

I think as far as from the cost and labor side, we think things have actually improved a little bit. We’ve seen some stability as we’ve worked hard on having good partnerships and also acquiring some incremental vendors. Hard costs in the quarter really were not up that much from the prior quarter or two. Each market is a little bit different. Lumber’s been trending up a little bit, concrete in certain markets. When you start looking at the labor side in certain markets, frame labor continues to be a little bit of a challenge. But overall, we start looking at our cost increases. It’s really been more on the land side and the land development side, as opposed to the sticks and bricks.

Okay, great. That’s helpful. And then I guess just moving to the land market, wanted to get the latest on the recent trends you are seeing there in terms of competition and pricing, and then also how you are thinking about land spend this year, and then I guess, beyond this year, how you are thinking about land spend as we get a little bit further into the cycle?

I don’t – let me take the first part of that and then Phil already mentioned what the projected land spend was. But I’ll – he will repeat that here when I’m finished. I don’t think we’ve seen any noticeable change since the last quarter or two, and what’s happening out in the field vis-à-vis land transactions. We’re in 2014 and soon to be in 2015 very competitive markets And the level of competition for the premier locations and the prime thesis hasn’t really changed, and it’s got no better, it’s got no worse. I feel like our land position is the strongest it’s ever been, both in terms of quality, the dispersion of the land across the various markets, the fact that we only have about half of the land on our books and the rest is tied up pursuant to contracts. And we feel really good about it. We feel like we’ve got that the land under control to fuel pretty good growth for the company over the next several years. Phil, why don’t you talk about spend?

Yes, as we said the estimate today for 2016 is to spend 425 to 475 for the year, and that includes land purchases and land development. As Bob said, today, we control about 22,000 lots. If you look at a year ago, it was about 20,000 lots. We like owning a two to three-year supply of our current run rate. And inside that two to three-year supply, as we said, we like owning about one-year of finished lots, and we own about 4,300 finished lots at 331. So we think we have a really good position.

Okay. And then just lastly, just to follow up on the stucco charges. Is that something that could potentially impact other markets, or is that really just specific to Florida, and how should we think about that?

Jason, this is Tom. We’ve – that’s only in our Florida markets and it is almost exclusively on our Tampa market we’ve not seen it elsewhere.

Okay, thanks.

And your next question comes from the line of Alex Barron from Housing Associates.

Hey, Alex.

Hey, Phil. So I was hoping you could comment, you went a little fast for me on your order trends for the quarter. If you could repeat that again, I would appreciate it, and also any comment on April?

We don’t make any comment on April. As far as for the quarter, our new contracts were up 24% in January. We were up 25% in February. We were up a 11% in March. Our traffic for the quarter was up 26%.

Okay. Was the change in the first two months versus the last month just due to a more difficult comp, or was there – did you feel some type of a slowdown in demands? What do you think it was?

We’ve – this is Bob Schottenstein. We’ve been very pleased thus far with the traffic and the demand we’ve seen in virtually all of our markets throughout the first quarter. As I mentioned in my specific market by market review, Houston is – the demand is not where we’d like it to be. And the D.C. market though it’s been somewhat sluggish there too, we have begun to see slightly improving conditions there. But we are very pleased with having our first quarter sales up by nearly 20% and the fact there was 25, 24, 11 or, however, went month by month. We don’t – we didn’t feel any necessary trends from that. It was more about comparing to a big March a year ago.

Got it. And then as far as the SG&A trends or outlook for this year, are you guys projecting, you’re going to see some further leverage as the volume, and any comments on the corporate side of the dollars? Are those going to stay around these current levels, or continue to go up with volume?

As we’ve been saying for the last couple of years, if you look at our SG&A, we’ve been working very hard to bring that down. It would be our plan to continue to work very hard on that with our backlog the way it is and so forth. Again, we would expect our SG&A leverage to continue go in the right way. And even though we don’t have any specific guidance in the market, internally our goal is to bring it down.

Do you think at the end of the day between gross margins and SG&A, your operating margins were end up being equal or better than last year?

We don’t have any projections on those type things. I mean I think when you look at our pretax income, return on sales, those type things, again when you trough the land sale differential out and the Stucco charge, we did get improvement in that in the first quarter. We continue to talk about in our goals are to improve profitability and improve our returns. So yes, that’s what we’re focused on.

Got it. Good job and best of luck, thanks.

Thanks, Alex.

At this time, there are no further questions.

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