M/I Homes Inc (MHO) 2006 Q2 法說會逐字稿

Good afternoon. My name is Renee, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the M/I Homes second-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 period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, CFO Phil Creek. Sir, you may begin your conference.

Thank you for joining us today.

Joining me on the call is Bob Schottenstein, our CEO and President.

First, to address regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because, as you know, we are prohibited from discussing significant nonpublic items with you directly. As usual, we provided our earnings guidance in our press release.

As to forward-looking statements, this presentation includes forward-looking statements as characterized in the Private Securities Litigation Reform Act of 1995. Any statements that are not historical in nature are forward-looking statements that involve risk and uncertainty that could cause actual results to differ materially from those in the forward-looking statements. Please refer to our most recent 10-K, 10-Q, and earnings press releases for other factors that could cause results to differ. Be advised that the Company undertakes no obligation to update any forward-looking statements made during this call, the audio of which will be available on our Web site through July 2007.

It should also be noted that certain information related to the use of non-GAAP financial measures required by SEC Regulation G is posted on our Web site. This information can be accessed by logging onto the M/I Homes Web site at MI Homes.com, then clicking on the Investor Relations section of the site and selecting "non-GAAP financial information reconciliation."

Now, I will turn the call over to Bob.

Thanks, Phil. I would also like to welcome everyone to the call. Thank you for joining us.

For purposes of my remarks, they will be divided into four sections. First, I will provide an overview of the quarter; second, comments about changes in our senior management team; third, industry trends, our outlook for 2006, along with our strategy; and finally, I will briefly review our specific markets before then turning things back over to Phil, who will more thoroughly review our financial highlights.

First, the quarter -- net income for the quarter was $18.3 million with diluted earnings per share of $1.29. This represents a 4% increase in income and a 7% increase in EPS over the amounts recorded during the second quarter of 2005 -- all in all, a very solid financial quarter for M/I Homes. For the first six months, net income and EPS were up slightly over last year's first half with 2006 first-half net income of $34.7 million and earnings per share of $2.43. As mentioned in the press release, these results are net of after-tax charges totaling $0.34 per share, the details of which Phil will review later in the call. They are also net of a $0.02 per share charge relating to the expensing of equity compensation.

During the quarter, we produced record revenue and record gross margins with our margins exceeding 27%. The record margins are largely as a result of a planned and previously announced geographic shift in our closing mix with nearly 40% of second-quarter closings coming from Florida, compared to 24% a year ago. In addition, we believe the strength of our second-quarter margins is also a reflection of the quality of our strong operations.

While second-quarter new contracts declined 35% from 2005 same period, homes delivered during the quarter increased by 16%. For the first six months, new contracts were down 16% while closings were up 12%. During the quarter, we purchased $28 million worth of ground. This number represents a significant reduction from that which was budgeted at the beginning of 2006 and reflects our increasingly cautious view of the markets. We will discuss our views with respect to land purchases later in the call.

Finally, during the quarter, we repurchased approximately $5 million worth of our stock, bringing the total year-to-date repurchases to approximately $18 million.

Some brief comments about recent changes in our senior management team -- as set forth in our June 15 press release, my brother, Steven Schottenstein, resigned as Chief Operating Officer of the Company. More recently, in connection with the terms of his resignation, Steven has also resigned from our Board. Steven has been a key member of our senior management at M/I Homes for nearly 27 years. He served with great distinction. Everyone at M/I Homes wishes him only the best in his new endeavors and thanks him for his service and contribution. He remains a significant shareholder, owning approximately 6% of outstanding shares.

In connection with Steven's departure, we have restructured and expanded the areas of responsibility of certain select members of our senior management team. We have every confidence that these changes will allow us to focus on leading M/I Homes through these challenging and in some instances difficult market conditions and in remaining one of the nation's leading homebuilders.

Industry trends and our outlook for 2006, along with our strategy -- as all of you know, it is certainly well-documented that the housing industry is in transition. While every market is different and requires its own analysis and approach, in general, we are experiencing reduced traffic, weakening demand, increased cancellation rates, and the oversupply of inventory. In addition, affordability has been impacted. The markets have shifted from a strong sellers market to a buyer's market, and as one reporter recently put it, buyers recognize there's no need to rush out and buy a home today.

In terms of our planning, we do not expect any improvement in these conditions for the remainder of 2006. Beyond that, it is difficult to predict when macro conditions will improve. At the same time, the long-term outlook for the housing industry is good. In particular, in most markets, the short and long-term prospects for job growth and household formation, key drivers with respect to our industry, are solid and suggest a strengthening of buyer demand as the oversupply burns off. We are responding to these changing and challenging conditions on a market-by-market and oftentimes on a community-by-community basis within our submarkets, attempting to balance our desire to preserve margin integrity with sales pace. Even within the same market, our approach can differ based on the particulars of our communities and the conditions on the ground.

We have dramatically slowed and curtailed our land purchases. At the beginning of 2006, we had planned and budgeted to purchase over $260 million worth of ground. Today, that number is less than 175 million and in each case, we have carefully evaluated every deal in light of current market conditions with respect to margins, sales pace, and returns.

Headcount and overhead -- while many of our public builders -- or unlike, I should say, many of our fellow public builders, as a company, we first began experiencing the slowdown during the first half of 2004, when conditions in Columbus, Cincinnati and Indianapolis began to soften. Since that time, we have been very proactive in managing our expenses and rightsizing our home building divisions. Specifically, in the last 12 months alone, we have reduced our staffing levels in the Midwest by nearly 30%. We will continue to aggressively monitor and balance headcount based on supply and demand factors.

With respect to specs, M/I Homes has always been a conservative builder of specs with spec inventory generally running between 8% and 15% of our annual sales run rate. We believe this cautious policy has served us very well in the past, and we will continue to be vigilant in this area.

Finally, I would be remiss if I didn't also discuss service, quality and design, as these have always been at the foundation of M/I Homes. Our focus on these areas has been intensified during the last 18 months, as we believe those builders who can continue to differentiate and distinguish themselves in these three key areas will further prosper during difficult market conditions.

In terms of guidance and in light of the above, we are reducing our 2006 expected deliveries to approximately 4500 homes, broken down as follows -- 1925 deliveries in Ohio and Indiana; 1775 deliveries in Florida; and 800 closings in North Carolina and Washington, DC. We also now believe that gross margins will be about the same in 2006 as in 2005, which is 25%. However, with housing fundamentals being weak and with no evidence of improvement in the near-term, we are lowering our annual EPS guidance to $6.30 to $6.65 per share. We also expect that a significant portion of our annual deliveries will come in the second half of the year with approximately 1025 occurring in the third quarter and 1650 homes being closed in the fourth quarter, due to the timing of our community openings and the mix of homes in backlog.

Last, let me just briefly discuss our markets. First, the Midwest -- conditions continue to be challenging and frankly have softened even further since things began to slow, as I mentioned earlier, during the second half of 2004. We continue to offer incentives in all three markets to stimulate our business. We've also reduced our workforce in these markets and will continue to evaluate that as well. At the current time, our effective gross margin run-rate in Columbus, Cincinnati and Indianapolis is between 17 and 18%.

The Washington, DC market has experienced slower new contracts and a higher cancellation rate for M/I Homes, similar to what most if not all other builders are experiencing. Margins are dropping considerably in this market, as the market is struggling with the overhang of investor resales and large homebuilders have been offering deep discounts. As conditions improve and inventory works its way through the market, we believe that housing fundamentals, the strong housing fundamentals will return to this market.

Our North Carolina market, specifically Charlotte, has shown very strong results. Traffic has been good, and our community count is growing. New contracts in the state of North Carolina were up 20% in the second quarter. We are growing significantly and are seeing improved margins in our backlog. We expect to close nearly 600 homes in the state of North Carolina this year, compared to less than 400 last year.

Finally, Florida continues to be a solid performer despite tough conditions in the West Palm Beach market. Our June 30 backlog of sales value in Florida is higher than last year by almost 30%. We are also on pace to increase our community count in Florida. Admittedly, operation -- or market conditions rather have softened in Tampa and Orlando. However, we're still seeing solid activity with very decent margins.

At this point, I will turn it over to Phil to review the financial highlights.

Thanks, Bob.

2006's second-quarter new contracts were 764, down 35% from a year ago. For the quarter, traffic decreased 20% and our cancellation rate was 30% compared to 19% in last year's second quarter. Our sales were down 39% in April, while traffic was down 14%. Sales were down 38% in May with traffic down 33%. And our sales were down 26% in June with traffic down 8%. Our community count was 165 at June 30 '06 versus 127 year ago and 155 at March 31 of this year. We currently have 94 communities in the Midwest, 41 in Florida, and 30 in North Carolina and DC. We project 170 new communities at 9-30 and 175 at 12-31-06. The 175 at year-end is estimated to be 86 in the Midwest, 51 in Florida, and 38 in North Carolina and Washington DC.

Homes delivered in 2006's second quarter reached 987, compared to 853 for '05's second quarter, up 16%. As expected, the mix of our closings shifted as 38% of our deliveries were in Florida this quarter versus 24% a year ago. We delivered 32% of our backlog this quarter, compared with 29% a year ago.

Gross profit increased 18.3 million in the second quarter of this year and 28.2 million for the first six months over 2005. Gross margin percentage increased by more than 200 basis points in both the second quarter and the first six months of this year to over 27% for both periods, a record for us. These strong margins were due primarily to our increased mix of Florida closings, where our margins and backlog for very strong.

Our gross margin and backlog at the end of '05 was about 26%, while the current margins and backlog are around 24%. Unfortunately, due to current weak market conditions, we believe gross margins will probably deteriorate a little bit more sequentially throughout the second half of year to an annual rate of about 25% on 2006 full-year closings, which as Bob said, is about even with last year.

Land gross profit was $980,000 in 2006 second quarter, compared to 1.5 million in last year's second quarter. For the first six months of '06, land gross profit was 1.1 million versus 2.7 million last year. Overall, our land gross profit was down approximately 475,000 for the quarter and 1.6 million year-to-date. Land gross profit was around 35% for the quarter versus 16% a year ago and was 26% for the first six months compared to 15% in '05. Last year, we had 7.3 million of land sales gross profit for the year. We currently estimate we will slightly exceed that amount this year.

Our G&A cost in '06's second quarter increased 11.5 million to 9.4% of revenue from 6.7% of revenue in the prior-year quarter. Year-to-date, G&A costs were 8.7 versus 6.4 for the same period in '05. The increase is primarily attributable to the following. 7.7 million of the quarterly 11.5 million increase was made up of the following items -- 5.3 million was incurred upon the separation from the company's Chief Operating Officer. Our compensation committee employed a comp consultant to help review industry practices in this area, and our Board approved this separation package. We filed an 8-K this morning detailing the agreement, including Steven resigning from the Board. Write-offs of 1.4 million of deposits and costs of certain abandoned land transactions, primarily in South Florida and there was $1 million of severance, primarily associated with workforce reduction in our Columbus operation. In the last 12 months, we have reduced our headcount by approximately 30% in the Midwest.

The total diluted EPS charge was $0.34, and the breakdown of the $0.34 was $0.23 for the COO separation, $0.06 for the land write-off, and $0.05 for the severance.

In addition to these charges, we had 1.4 million of increased costs related to our investment in land, due primarily to real estate taxes and other costs, $1 million for amortization of intangibles and costs related to our acquisition of Shamrock Homes in July of '05, and also the expense of $400,000 for stock options, a new FASB requirement this year.

Selling expenses for the quarter and year-to-date increased 60 and 80 basis points respectively to 7.4% and 7.7%. This increase is primarily due to higher selling and marketing costs of 1.3 million to support the Company's community count growth and also 1.1 million of additional advertising expenses. Also contributing to the increase was the mix of our closings, which were in higher realtor/co-op participation markets. Overall, our SG&A expenses increased to 16.7% of revenue in the second quarter, compared to 13.5% in last year's second quarter. Excluding the 7.7 million of charges which I detailed, the percentage for the quarter was 14.3%. We currently estimate this percentage will decline, particularly in the last quarter of the year, when a greater percentage of our closings will occur. Our current estimate is that we will be around 13.5% for the year in SG&A.

Operating income in the second quarter of '06 was 10.8% of revenue, and for the first six months of '06 was 11.1, compared to 12% in the second quarter of '05 and 12.1 for the first six months of '05.

Interest expense increased 1.3 million in the second quarter and 2.6 million for the first six months of '06, compared to the same periods of '05. The increase in the second quarter was primarily due to an increase in the weighted average borrowings from 394 million in '05 to 623 million as of June 30 of this year. The increase is also due to our weighted average borrowing rate increasing to 7.2% from 6.3% a year ago. The rate increase was partially offset by a 3.7 million increase in capitalized interest, as we had more land under development when compared to a year ago. We have 30.3 million in capitalized interest on our balance sheet at June 30, '06, compared to 16.7 million last year and 19.2 million at '05's year-end. This amount is approximately 2% of our total assets.

Our effective income tax rate for both the second quarter and first six months of '06 is 38%, compared to 39% for the same periods last year. Our effective tax rate for '06 reflects a change in the estimate resulting from the American Jobs Creation Act of '04 and a change in State of Ohio tax from one that is income-based to one that is based on gross receipts, along with other changes in state taxes.

For the second quarter, net income was 18.3 million, up 4% from '05 second quarter of 17.6 million. And net income for the first six months increased 1% to 34.7 million for '06.

Diluted earnings per share for the second quarter increased to $1.29 for the second quarter and to $2.43 for the first six months of '06. As Bob mentioned, this includes $0.34 for diluted share impact for certain charges and $0.02 per share for expensing of equity compensation.

M/I Financial, which includes our title operations, our mortgage and title operations' pretax income increased from 3.4 million in '05 second quarter to 4.3 million in the same period this year. The increase was primarily the result of a 13% increase in loans originated from 600 in '05 to 675 in '06. In addition, higher loan amounts and a continued increase fixed-rate loans, which have better margins than variable-rate loans, contributed to the gain. Loan-to-value on our first mortgages for the second quarter was 81% in '06 and 2005 second quarter. For the quarter, 87% of our loans were conventional with 13% being FHA VA. That compares to 88% and 12% respectively for 2005 same period. The FHA maximum mortgage limit in the markets that we operate in range from 200,000 in Florida and Indiana and North Carolina to 363,000 in Virginia and Maryland. Approximately 38% of our second-quarter closings were adjustable-rate mortgages. This compares to 46% in the second quarter of '05. 28% of our first and 30% of our second quarter 2006 applications were adjustable-rate mortgages. Of mortgages closed during the second quarter, 27% were interest-only loans. This compares to 28% in 2006 first quarter.

Overall, our average total mortgage amount was 236,000 in 2006's second quarter. The average borrower credit score of mortgages originated by M/I Financial was 719 in the second quarter of '06, compared to 717 in '06 first quarter. And the scores compared to 712 in '05 second quarter and 726 in '05 first quarter.

The percentage of customers that received downpayment assistance in the second quarter decreased to 4% versus 7% in '05. In the second quarter, the average mortgage balance on these downpayment-assisted originations was 179,000 compared to 167 in '05. The majority of these customers are in our Indianapolis and Columbus markets and buy our entry-level product. We sell our mortgages along with our servicing rights. Our contingent repurchase obligation due to loan delinquency is primarily limited to the first couple of payments being made timely, and in 2006, we have not repurchased any loans due to borrower delinquency.

Our mortgage operation captured about 83% of our business in the second quarter, compared to last year's 82%. We believe there will be continued pressure on our capture rate due to increased competition as the mortgage business overall is slowing. We're constantly putting programs in place that we believe will help our capture rate. We continually focus on our capture rate as M/I Financial only serves M/I Homes customers. Overall, our mortgage and title businesses produced 13% of our total operating income during the second quarter and 14% year-to-date. This compares to 11% and 14%, respectively, for 2005 same period.

The balance sheet -- homebuilding inventories at June 30 of '06 increased 32% over June 30 of '05, due primarily to our backlog and our land activity. Compared to a year ago, raw land increased 3%, land under development increased 76%, and finished unsold lots increased 81%. At June 30, '06, we had 278 million of raw land, 354 million of land under development, and 196 million of finished unsold lots. Our total unsold land investment at June 30, '06 is 828 million, which compares to 578 million last year. The market breakdown of the 828 million of unsold land is 270 million in the Midwest, 318 million in Florida, and 240 million in North Carolina and DC.

We constantly focus on our land investment. We currently plan on purchasing about 175 million of land in '06. The '06 breakdown of these planned land investments is as follows -- 17% in the Midwest, 48% in Florida, and 35% in North Carolina and DC. Year-to-date, we have purchased 138 million of land. At June 30, '06, we had 53 million invested in land joint ventures with approximately 31 million of this being in Florida. These JVs are for land acquisition and development purposes and are with homebuilding partners including Beazer, Syntec, and Avatar. Certain of these partnerships have third-party secured financing.

We owned 20,350 lots at June 30, '06, and have an additional 6600 lots under our control. In total today, we own a five-year supply and control about a seven-year supply of lots for a total under control of 26,950. This is about 1400 fewer lots than we had a year ago and 2800 less than we had at 3-31-06. The breakdown of the lots owned at 6-30-06 is 8170 in the Midwest, 9000 in Florida, and 3180 in the North Carolina and Washington, DC market. Also, the Midwest owned lots at 6-30-06 is 625 less lots than a year ago. The breakdown by region of our total lots under control is 11,450 in the Midwest, 10,600 in Florida, and 4900 in North Carolina and DC. By percentages, our controlled land is now 43% Midwest, 39% Florida, and 18% North Carolina and DC.

We have deposits and letters of credit of 17.9 million underlying -- under contract, which represents about 7% of the total value, which is about 270 million.

With regard to our land and housing inventory, we review the value on our books on a quarterly basis, as is required under Financial Accounting Standard 144, accounting for the impairment or disposal of assets, and work closely with our auditors in this area. This standard requires that a company recognize an impairment loss if the carrying amount of an asset is not recoverable from the undiscounted cash flows expected to result from the use and eventual disposition of the asset, which in our case is the sale of house. In the case of most homebuilders, the eventual use and disposition of the asset involves the home sale. Based on our latest review, we currently have no impairments.

At the end of the quarter, we had a $77 million investment in specs, 139 of which were completed, and 421 specs in various stages of construction for a total of 560 specs. This translates into about 3.4 specs per community. Of the 560 total company specs, 283 are in the Midwest, 148 are in Florida, and 129 are in North Carolina and DC. This compares to 287 specs a year ago with 31 million of investment. The increasing spec levels from the prior year reflects our increase in community count and cancellations, as well as our efforts to stimulate sales and showcase new product lines across certain of our markets.

At June 30, '06, there was 447 million outstanding under our revolving credit facility, as compared to 232 million a year ago. We currently have 750 million available under this facility, which matures in September of '08. We currently expect to have a peak borrowing in the third quarter of about 500 million. We visited all three ratings agencies recently, and S&P has already reconfirmed our strong double-B rating.

Long-term debt at June 30, '06 totaled 656 million, compared to 450 a year ago. This includes 200 million of public senior notes set to mature in 2012 with a fixed rate of 6 7/8%.

Homebuilding debt-to-equity was 107% at June 30, '06 versus 83% a year ago. Homebuilding debt-to-cap was 52% versus 45 a year ago. We currently expect our homebuilding debt-to-cap to remain at about 52% into the third quarter and declined to about 45% by year-end. Our target remains to be at 50% or lower in homebuilding debt-to-cap.

Our interest coverage for the quarter remains strong at 5.1 times EBITDA. EBITDA for the quarter was 36 million. Interest incurred for the quarter was 11.1 million, compared to 6.2 million in '05 second quarter. At June 30 of '06, shareholders equity was 611 million with a book value per share of $44.

We repurchased 130,000 treasury shares in '06's the second quarter at an average price of $36. At quarter end, we had 3.7 million shares in treasury at an average price of $20. Year-to-date, we have repurchased 18 million of stock. We review our share repurchase program at our quarterly Board meeting and currently have 7 million of repurchase authority. We constantly review our capital allocation, including land acquisition and stock repurchases. We always focus on our balance sheet and its leverage in conjunction with our investment.

In summary, we believe our financial performance in the second quarter was solid. We do expect challenging times ahead, given the current weakness in the homebuilding industry. As Bob mentioned, we currently expect to deliver approximately 4500 homes this year, which would be a record for us. However, due to declining gross margins and soft demand across most of our markets, we are reducing our '06 diluted EPS guidance to a range of 6.30 to 6.65. This guidance also includes approximately $0.14 per share for expensing of equity compensation.

This completes our presentation. We now will open the call for questions and comments.

(OPERATOR INSTRUCTIONS). Ivy Zelman, Credit Suisse.

Good afternoon, guys. Gosh, Phil, you're thorough. I'm going to start calling you Thorough Phil.

Your margins you mentioned in the Midwest are running you said about 17 to 18%.

That's right.

You were referring to gross margins of course, correct?

Gross margins.

So assuming SG&A that you would allocate to those, to that region, you are looking at -- if you're 13-plus% or 14% SG&A, you would be looking at a pretty low margin. Am I missing something?

No. (multiple speakers)

(multiple speakers).

Profitability levels in all three markets have weakened considerably.

When I think about that, though, I realize, Bob, that those markets are very tough. What I guess I'm trying to gauge is that your gross margin is right now at 25% and backlog -- or I'm sorry, 24% in backlog and 25% at the run-rate for the year. What would concern me is what should a builder really earn on a margin for sort of a normal environment where, if you are not a beneficiary of having bought land at a significant discount to today's market prices, if you wanted to go and buy a lot today and have no benefit from home price appreciation and just sticking bricks, what's the normal margin? It's certainly, I would hope, not the Midwest margins you are generating and probably not the 24% even in backlog, because that's probably the benefit of inflation. So where -- is 20 the right number? Where should we think about normal margins?

Great, great question, because even when the smoke clears and demand is restored, you know, the big money question is the one you asked -- at what price? Because I think that, as margins have declined as considerably as they have across the industry, as reflected in the reports that have come out now from the various builders -- when demand returns, it will be a long climb back up, and where will the clime stop?

Historically, the normalized margins in our industry, as you probably know better than most, have been somewhere around 20, 21, 22%. Right now, in Columbus, Cincinnati and Indianapolis, on a go-forward basis, we will not undertake any new deals unless we believe it will cancel out and make sense at an approximately 22% gross margin.

Now, there's not a lot of hope and not a lot of submarkets within those three markets for that to occur for the near term, so -- and the prospects for job growth and household formations in the three Midwest markets are unlike Florida and unlike DC and North Carolina -- are not great. So I think that we are concerned about the Midwest. Next year at this time, we will have a much better feel for long-term prospects there, but your guess is as good as anyone's. I think that, on a long-term, go-forward basis, 20, 22%, somewhere in there hopefully is where things will settle into.

What about SG&A? I think that realizing that a lot of builders are all over the map when it comes to SG&A as a percent of revenue -- some are as low as 6%, and some are as high as 14%. Typically in a downturn with more advertising and communities still opening and not on the same sales leverage, you actually see it rise, or what should we see normal SG&A running at, roughly?

Phil, do you want to -- Phil is going to take a crack at that.

We are definitely a little higher than we would like to be, Ivy. Right now with our land position, certain things -- you know, real estate taxes for land and those type of things -- go through the SG&A line. Also, our Realtor co-op participation rate and amount is high due to some of the incentive programs.

I would like to think that, from our standpoint, that SG&A range could hopefully be in maybe the 10, 11% type range. As Bob said, if you can get gross margins maybe in the 22% range and interest is 1 or so, we would still have a pretty good return business. But it might take us a little while to get back to that.

Okay. With respect to incentives, you talked about some of the brokerage commissions. What was the incentive as a percent of the base for the quarter and how did that compare to the first quarter and a year ago?

It's definitely a little higher. I mean, we talked about our margins coming down about 200 basis points. When you also factor in what we are doing from a selling standpoint, that's probably another -- about 2%, so our estimate right now is, you know, 4 or 5%, which is probably about 100 to 200 basis higher than it was a couple of quarters ago.

All right. Lastly, and then I will let other people ask questions, with respect to your strategy for carryback, as you've indicated in the Midwest and making sure deals (indiscernible) otherwise it won't make sense, you mentioned, Bob, that Florida is still relatively strong for you with respect to your margins and the sales value of your backlog up more than 30%. I'm more concerned about border activity there and cancellations and maybe what the impact of those troubling signs we're seeing in the market for new activity will look like on your P&L in '07 and beyond. Certainly, unless you are immune to it, it seems that those markets are getting very tough if not -- and some would argue, in Tampa for example, it has been a freefall we're hearing. So, what are you doing right, or are you seeing that kind of outlook as well that can give us some piece of mind that it's not, across the board, as bad as it sounds?

Well, I don't know if I can give you piece of mind across the board that is not as bad as it sounds, but I can tell you this -- that in the last 90 days, we have seen a softening in both Tampa and Orlando. Things are much tougher for us in West Palm Beach, which for us is also Martin county. But we've definitely seen a slowdown -- an increase in cancellation rates in Tampa and Orlando, but our relative run rate today and relative margins are still pretty darn good and they are not near what they were six months ago. They have softened, but it's still not too bad there. And some of it also depends upon the submarket within the markets. We've got some locations in both Tampa and Orlando that are doing very well.

Also, Ivy, if you look at our backlog as we talked about, our backlog at 6-30 is over 500 million in Florida, compared to about 400 million a year ago. Of course, we always try to stay in a situation where we can deliver the house within a year. With the very strong backlog we have, just from a production standpoint, we've not had to get perhaps as aggressive as some other people. But as Bob said, we definitely have gotten some more competitive in Florida. Our margins have come down from the 25%-plus, plus being close to 30, and today, on what we're selling in margins in Florida are 25% or less. So we definitely have gotten more competitive there. We also have a number of new communities opening in Florida, and it definitely has slowed down some there.

Great, thanks, guys. I will let others ask.

(OPERATOR INSTRUCTIONS). There appear to be no further questions at this time. I will now turn the floor back over to your host for any closing remarks.

Thank you very much for joining us and we look forward to speaking to you again at the end of the third quarter. Thanks.

This concludes your M/I Homes second-quarter conference call. You may disconnect and have a great day.