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. [Operator Instructions] Thank you. Mr. Creek, you may begin your conference.

Thank you. Joining me on the call today is Bob Schottenstein, our CEO and President; Tom Mason, EVP; Derek Klutch, President of our Mortgage Company; Ann 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, 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. Also during this call, we disclosed certain non-GAAP financial measures. A presentation of the most directly comparable financial measure calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP financial measure and the GAAP measure was included in our earnings release issued earlier today that is available on our website. With that, I will turn the call over to Bob.

Thank you, Phil and good afternoon and thank you for joining our call to review our first quarter results. We are pleased with our first quarter performance, especially considering the overall slowdown in housing demand that began in the latter part of 2018 and continued heading into 2019. These conditions contributed to a modest decline in our new contracts, as well as the modest decline in our margins during the quarter. We achieved first quarter record revenue of $481 million, which was an increase of 10% from last year driven by a record level of 1,186 home closings during the quarter. That's a 6% increase over last year's first quarter and an average home closing price of $393,000, which is a 5% increase from a year ago. Our pre-tax income for the first quarter decreased by about 2% to $23.5 million from $23.9 million a year ago, as a result of the tighter market conditions late last year that I noted earlier, which led to lower margins on our closings in the first quarter, as well as lower pre-tax contribution to earnings from our financial services segment. Our gross margin declined from last year's first quarter by about 130 basis points excluding purchase accounting charges. Importantly, however, our gross margin sequentially improved by 40 basis points for the fourth quarter. Net income for the first quarter was $17.7 million compared to $18.1 million in 2018’s first quarter, while diluted earnings per share increased $0.63 a share from $0.60 a share as a result of a lower share count. We sold 1,644 homes in the first quarter, which is 5% less than the home sold in last year's first quarter. Last year first quarter was a difficult comp for us as it was the highest number of new contracts for a…

Thanks, Bob. As far as financial performance, new contract for the first quarter decreased 5% to 1,644 compared to last year's first quarter. Last year's first quarter was a 20% increase over the first quarter of ‘17 and an all time quarterly record. This quarter's new contracts ranks second all time in our company history and traffic for the quarter was up 5%. Our new contracts were down 9% in January, down 10% in February and up slightly in March. In March we had the highest sales month in our company's history. As to our buyer profile about 38% of our first quarter sales were the first time buyers compared to 36% in last year's fourth quarter and 47 % of our first quarter sales were inventory homes compared to 52% in 2018’s fourth quarter. Our community count was 214 at the end of the first quarter, up 4% versus 2018’s first quarter and up 2% from year end. The breakdown by region is 90 in the Midwest, 96 in the south, and 28 in the mid-Atlantic. During the quarter we opened 18 new communities, while closing 13. For 2019, our current estimate is that our average community count for the year should be up about 5% from the average of 205 communities in 2018. We delivered a record 1,186 homes in this year's first quarter, delivering 54% of our backlog compared to 56% a year ago. Revenue increased 10% in the first quarter reaching our first quarter record $481 million. This was primarily a result of an increase in number of homes delivered and a higher average closing price. Our average closing price for the first quarter was 393,000, a 5% increase when compared to last year's first quarter average closing price of 373,000 and our backlog sale price…

Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $5 million in the first quarter. Due to continued competitive pressures, we experienced lower pricing margins on loans originated compared to the first quarter of last year, along with higher expense levels associated with the opening of new mortgage and tile offices in certain markets. Pre-tax income was $8.8 million in 2018’s first quarter, which included additional income from the sale of a portion of our servicing portfolio. Loan to value on our first mortgages for the quarter was 82% in 2019, down from 2018’s 84%. 76 % of loans closed in the quarter were conventional, 13 % FHA, 11% V.A. compared to 77%, 13 % and 10% respectively for 2018 same period. We expect to see a minimal effect on our FHA business with the recent underwriting changes. Our average mortgage amount increased to $315,000 in the quarter compared to $302,000 last year. Loans originated increased to 2% from 781 to a first quarter record 798 and the volume of loans sold was relatively unchanged. For the quarter, the average borrower credit score on mortgages originated by M/I Financial was 745, down slightly from 747 a quarter earlier. Our mortgage operation captured about 79% of our business in the quarter, the same as 2018’s first quarter. At March 31, we had $72 million outstanding under the MIF warehouse agreement, which is a $125 million commitment that expires in June of this year and we also have $32 million outstanding under a separate $50 million repo facility which expires in October. Both facilities are typical 364 day mortgage warehouse lines that we extend annually and we don't expect any problems extending them prior to the expiration date. Now, I’ll turn the call back over to Phil.

Thanks, Derek. 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, ‘19 was $1.7 billion, an increase of $150 million above March 31, ‘18. This increase was primarily due to higher investment in our backlog, higher community count and more finished lots. Our unsold land investment at quarter end was $796 million compared to $706 million a year ago. At March 31, we had $347 million of raw land and land under development and $449 million in finished unsold lots. We owned 5,595 unsold finished lots with an average cost of 80,000 per lot and this average lot cost is 20% of our 403,000 backlog average sale price. Our goal was to maintain about a 1 year supply of owned finished lots and the market breakdown of our $796 million of unsold land is 314 in the Midwest, 338 million in the south and a 144 million in the mid-Atlantic. Lots owned and controlled as of March 31, ‘19 totaled 28,000 lots, 52% of which were owned and 48% under contract. We own 14,510 lots of which 41% are in the Midwest, 45% in the south and 14% in the mid-Atlantic. A year ago we owned 12,900 lots and controlled an additional 17,900 lots for a total of 30,800 lots. During this year's first quarter we spent $80 million on land purchases and $54 million on land development for a total of $135 million, about 49% of the purchase amount was raw land. Our estimate today for a total 2019 land purchased and development spending is $550 million to $600 million which includes the $135 million spent year-to-date. At the end of the quarter, we had 560 completed inventory homes, about three per community and 1,278 total inventory homes. Of the total inventory 473 in the Midwest, 665 in the southern region and 150 in the mid-Atlantic and at March 31, ‘18 we had 425 completed inventory homes and 1100 for total inventory homes. As of January 1, ’19, we adopted the new lease accounting standard, resulting in the capitalization of $21 million of our operating leases on our balance sheet. Our financial condition continues to be strong with $871 million in equity and homebuilding debt-to-cap of 47%. And in March 31, ‘19 there were 219 million outstanding under our 500 million unsecured revolving credit facility. We continue to focus on managing our leverage and liquidity and balancing this with our land needs. This completes our presentation. We’ll now open the call for any questions or comments.

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

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

Thanks, Jay.

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

Jay, it's been our practice not to comment on the month of the quarter just begun. So consistent with that past practice we'll stay with it.

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

I think it was pretty much across the Board and it was - it was a very, very strong month. I think it reflected in a improving housing - improving housing condition, so of crescendoing if you will from the beginning of the year. Year started out a little slow in both January and February, selling season, I don't think that’s off to a very good start. And then things really began to take hold in March. And those small part I think because of the - you know, the 50, 60 almost 70 basis point drop in interest rates over the four or five month period that preceded.

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

Yeah, we really don't get into any detail that way Jay. I mean, overall, you know, we talked about traffic being up 5% for the quarter. March was a little stronger than that. You know, cancellations were a little higher in January and February than they were in March. But overall, we were very pleased, specially with our March sales.

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

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

Okay. Thank you very much.

Thank you.

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

Hey, guys. Nice job navigating a tough environment here. Just to stay on the incentive and demand side. Were there any changes just to your incentive strategy during the month? And were you able to peel back in March as these target demand improve and orders come through?

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

Correct. Thank you.

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

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

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

Thanks, Tom. You know, we see like the other builder mortgage companies with interest rates rising in the refinance business space because of [indiscernible] The banks and the other – the other mortgage lenders getting a lot more aggressive coming after the builder business. And that's caused us to reduce our margin, just to stay competitive. I wouldn't say we are at the bottom, but I am seeing a little bit of leveling out with where the pricing pressure is and if the interest rates stay low, I think we should not be able to do - not get back to the margin of ou8r last year, but stabilize a little bit.

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

Thanks, Thomas.

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

Thank you. I was wondering if it's feasible or possible to switch some of the lot into the lower price showcase, mover up home from the normal $400,000 homes even though originally you had plan to build a more expensive home on these lots?

Our showcase brand is a really, really small part of our business Art, just to be clear on that. You know, in the quarter we experienced relatively good demand across most of our communities. What the Smart Series has done for us is incrementally improved our business and it's not that the rest of the business was bad. We look at every subdivision all the time and if we've got subdivisions that aren't performing there's a whole lot of things we'll look at, with changing the product or perhaps even you know, if we have the ability even exiting the community, if that's what it takes. We've done that. We look at our communities all the time. We have high expectations for each community. Each community has its own set of underwriting guidelines and certainly the product that we sell in those communities can be a big part. Sometimes there's not a whole lot you can do with product because of restrictions and zoning and so forth that I know you understand. But the short answer is, it's tough. We look at this all the time when our communities aren't performing. The good news is most of our communities are performing at acceptable levels right now.

Thanks. One other question. Did I hear right that the traffic through your communities was as up 5% but the finance to new contract and these things communities were down 10%?

Contracts were down not 10%, contracts were down…

5…

5% or 6%...

5% for the quarter.

Traffic was up 5%, Art.

Okay. Thank you.

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

I had a follow up [inaudible]?

Yeah. Well, as far as a couple things Jay, I mean as we've talked about now we're down now to about one community. When you look at the orders there the first quarter of last year it was like around 25. So it wasn't that many orders last year also, nor does it impact the community that much. And then Bob mentioned that you know, today we're down the list 75 unsold lots. We hope to be above the market by the end of the year is what we hope. Not really anticipating any type of you know, significance there. We did have in that first quarter about $400,000 of severance cost, unfortunately for some people that had been with us for a while, that will be staying with us parts for all of this year. But the situation we've been not - not investing in and working down for a while.

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

We actually picked Detroit [ph] in March of last year. And you know, round figures it was about 25 orders this year and this year it was about 50. So you know, it's helped, but it's not significant.\

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

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

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

Well, you know, I think - I think one of the more encouraging things with our first quarter results was sequentially our gross margins were up nearly 40 basis point on closings. And you know, I don't think there's a whole lot of pricing power right now. But I also don't think there'll be a whole lot more need for incentives. But we'll just have to see and we'll wait and see and react. We've been saying for quite some time, we get this question almost every call, where do you see margins? We think our business is at 20% to 20 % business and we sort of move between that. There may be a time where it dipped slightly above 21 and slightly below 20. But we see it as basically a 20% to 21% business. Try a lot closer to the lower end of that range now and maybe during a little bit better times. But that's sort of how we see the year playing out.

Okay, great. Thanks for taking my call.

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

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

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.+