M/I Homes, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. M/I Homes builds single-family homes across Northern and Southern U.S. markets and provides mortgage and title services.
Financial performance and operating metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1,046.7 million | $1,000.5 million | +5% |
| Income before taxes | $180.2 million | $136.0 million | +33% |
| Net income | $138.1 million | $103.1 million | +34% |
| Diluted EPS | $4.78 | $3.64 | +31% |
| Operating cash flow | $115.8 million | $251.5 million | Down $135.7 million |
- Total gross margin was $283.3 million, or approximately 27.1% of revenue. Homebuilding housing gross margin improved to 25.1% from 21.5%, a 360-basis-point increase. Management attributed the improvement primarily to higher deliveries and lower construction costs.
- Homes delivered increased 8% to 2,158; net new contracts increased 17% to 2,547. Ending backlog was 3,391 homes, up 3%, with an aggregate sales value of $1.79 billion. Average delivered home price fell 3% to $471,000, primarily reflecting mix.
- Selling, general and administrative expense increased 10% to $110.0 million and rose to 10.5% of revenue from 10.0%. Net interest income was $6.9 million, compared with $1.4 million, mainly due to higher average cash balances.
- Financial services revenue grew 7% to $27.0 million; segment income before taxes was $12.3 million versus $12.6 million. Loans originated increased 24% to 1,556.
Financial position, debt and liquidity
- Cash, cash equivalents and restricted cash were $870.2 million at March 31, 2024, including $869.7 million of unrestricted cash. Total assets were $4.21 billion; shareholders’ equity was $2.64 billion.
- Inventory was $2.77 billion, down from $2.80 billion at year-end 2023. The company reported no inventory or joint venture impairment charges in either comparable quarter.
- Total notes payable were $924.3 million in principal: $700 million of senior notes ($400 million due 2028 and $300 million due 2030) and $224.3 million outstanding under the financial-services mortgage repurchase facility. No borrowings were outstanding under the $650 million homebuilding revolving facility; after letters of credit, $579.2 million was available.
- Homebuilding debt to capital was 21%, compared with 22% at December 31, 2023. The company reported compliance with applicable debt covenants. The mortgage repurchase facility matures October 22, 2024; management expects to extend it but cannot assure an extension.
- Operating cash flow was lower year over year, including because the prior-year period benefited from a $175.3 million inventory reduction. Q1 2024 investing cash use was $17.1 million, chiefly from joint venture contributions; financing cash provided was $38.7 million, including net financial-services borrowings and offset by $25.3 million of share repurchases.
Changes, outlook and risks
- Management described Q1 as a record first quarter for deliveries, revenue, pretax income, net income and diluted EPS. New contracts rose amid improved demand, which management linked to limited resale and new-home supply and buyers adjusting to interest rates. The cancellation rate declined to 8.3% from 12.8%.
- Management expects average community count to increase approximately 10% in 2024 and plans to open new communities. At quarter-end, the company had 219 active communities and approximately 47,500 lots under control, described as about a six-year supply based on trailing deliveries. No full-year revenue or earnings guidance is provided in the filing.
- Management’s priorities include managing land spend and inventory, improving construction cycle times, controlling overhead, maintaining liquidity, and emphasizing customer service and product quality. It expects to meet anticipated 2024 cash needs through receipts, cash balances and credit availability and expects to continue share repurchases, subject to conditions and discretion.
- Management identified uncertainty in mortgage rates and broader economic conditions, inflation, labor and material availability and costs, housing affordability, and homebuyer sentiment as risks to sales, costs and margins. Housing activity is seasonal, and results may vary with community and home mix.
- Commitments include approximately $1.13 billion of land and developed-lot options or contingent purchase agreements, subject to conditions, and approximately $438.7 million of completion bonds and standby letters of credit. Mortgage loan-sale guarantees cover approximately $531.3 million of loans; the filing states that underlying assets offset the associated risk. Legal proceedings are described as incidental; management believes their resolution will not materially affect the company, while noting inherent uncertainty.
Important facts for investors to verify
- Whether stronger contracts and lower cancellations persist, especially as mortgage rates and affordability change; monitor backlog conversion, delivered home prices and incentives.
- Whether gross-margin improvement continues as construction costs, product mix and community mix evolve.
- Cash generation and land investment: Q1 operating cash flow fell substantially year over year, while the company increased land acquisition and development spending.
- Extension or replacement of the financial-services mortgage repurchase facility before its October 2024 maturity and the related borrowing cost and availability.
- Exposure to land options, completion guarantees, warranty claims and legal matters, and whether actual costs differ from management estimates.
- Repurchase pace and remaining authorization: $102.5 million remained at quarter-end; future repurchases are discretionary and subject to debt restrictions and market conditions.