Business Context and Reporting Period
Company: M/I Homes, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: M/I Homes is a single-family homebuilder operating in the Midwest, Florida, and Mid-Atlantic regions, alongside a financial services segment (M/I Financial) providing mortgage and title services. The company reported its third consecutive quarter of year-over-year increases in new contracts and backlog units, despite a 23% decline in active communities compared to the prior year.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Revenue | $116.1 million | $212.3 million |
| Net Loss | $(19.9) million | $(48.0) million |
| Loss Per Share (Basic & Diluted) | $(1.26) | $(3.22) |
| Operating Cash Flow | Filing text does not provide a clear value for the three-month period. | $40.9 million |
| Total Assets | $680.8 million | $680.8 million |
| Total Liabilities | $341.7 million | $341.7 million |
| Shareholders' Equity | $339.1 million | $339.1 million |
| Cash and Restricted Cash | $104.4 million | $104.4 million |
| Senior Notes Outstanding | $200.0 million | $200.0 million |
| Backlog (Units) | 1,106 | 1,106 |
| Backlog (Value) | $260.2 million | $260.2 million |
Material Changes vs. Prior Comparable Period
- Revenue Decline: Revenue decreased 18% ($24.9 million) for the quarter and 29% ($84.8 million) for the six months compared to the prior year. This was driven by a 15% drop in average sales price (from $272,000 to $230,000 for the quarter) and a significant reduction in third-party land sales revenue.
- Loss Reduction: Despite lower revenue, the net loss improved significantly. The loss before taxes decreased 63% for the quarter (from $53.4 million to $19.9 million) and 40% for the six months (from $80.2 million to $47.8 million). This improvement was primarily due to a substantial reduction in inventory impairment charges ($7.9 million in Q2 2009 vs. $39.9 million in Q2 2008).
- Operational Metrics: Homes delivered increased 6% in the quarter (492 vs. 466) but decreased 3% for the six months (886 vs. 916). New contracts increased 43% in the quarter and 32% for the six months. Backlog increased 26% in units year-over-year.
- Cost Management: Selling, general, and administrative expenses decreased significantly due to reduced payroll, advertising, and model home expenses.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management is "cautiously optimistic" regarding the trend of increasing new contracts and backlog, attributing it to improved affordability and the $8,000 federal tax credit. However, they note the industry has "a ways to go to a full recovery" due to rising unemployment and tight credit standards.
- Unusual Items:
- Inventory Impairments: The company recorded $7.9 million in impairment charges for the quarter and $18.9 million for the six months related to inventory and investments in unconsolidated LLCs.
- Drywall Accrual: The company accrued $5.3 million during the first half of 2009 for the repair of homes in Florida involving imported drywall that may cause accelerated corrosion.
- Asset Sale: The company sold its airplane in Q1 2009 for $8.0 million, recognizing a loss of $0.9 million.
- Liquidity and Capital Resources:
- Equity Raise: On May 19, 2009, the company raised $52.6 million through a public offering of common stock.
- Debt Covenants: The company is currently restricted from paying dividends or repurchasing shares due to a negative "consolidated restricted payments basket" of $(141.9) million under its senior notes indenture.
- Cash Restrictions: Approximately $76.3 million of the company's cash is restricted and designated as collateral under its Credit Facility.
- Risks: Continued deterioration in market conditions could necessitate additional inventory impairment charges. The company faces risks related to the imported drywall litigation and the expiration of the federal tax credit on December 1, 2009.
Investor Verification Checklist
- Inventory Valuation: Verify the assumptions used for the $18.9 million in impairment charges and the potential for further write-downs given the weak housing market.
- Drywall Liability: Monitor the $5.3 million accrual for imported drywall repairs and the status of related litigation to assess potential for increased costs.
- Dividend Restrictions: Confirm the timeline for restoring the "consolidated restricted payments basket" to resume dividend payments on common and preferred shares.
- Cash Availability: Assess the impact of the $76.3 million restricted cash balance on operational liquidity and the ability to fund future land acquisitions.
- Backlog Conversion: Track the conversion rate of the 1,106-unit backlog into delivered homes, noting the 16% cancellation rate in Q2 2009.