M/I Homes, Inc. (NYSE: MHO) — Q3 2021 Form 10-Q
Business context and period. Homebuilder and mortgage/title services provider. This unaudited report covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $904.3 million | $847.9 million | $2,694.1 million | $2,139.7 million |
| Income before taxes | $116.2 million | $95.1 million | $367.8 million | $208.2 million |
| Net income | $91.0 million | $73.5 million | $283.5 million | $159.8 million |
| Diluted EPS | $3.03 | $2.51 | $9.46 | $5.50 |
| Housing gross margin | 22.7% | 20.3% | 22.4% | 19.6% |
- Revenue rose 7% in Q3 and 26% year to date; net income rose 24% and 77%, respectively. Q3 homebuilding revenue benefited mainly from a 13% increase in average delivered-home price, partly offset by 4% fewer deliveries. Year-to-date growth reflected 16% more deliveries and a 9% higher average price.
- Q3 total gross margin was 24.5%, up 160 basis points year over year. SG&A was 10.7% of revenue, down from 11.6% in Q3 2020.
- Backlog at quarter-end reached 5,407 homes, up 20%, with record aggregate sales value of $2.546 billion, up 40%. New contracts fell 33% in Q3 to 1,964, while nine-month contracts increased 1% to 7,340. Deliveries were down 4% in Q3 and up 16% year to date.
- Cash, cash equivalents and restricted cash were $221.2 million at September 30, 2021, including $220.9 million unrestricted. Inventory was $2.353 billion, up from $1.917 billion at year-end 2020. Total assets were $3.047 billion and shareholders’ equity was $1.544 billion.
- Operating cash flow was negative $34.3 million for the first nine months, versus positive $197.2 million in 2020, primarily reflecting a $412.2 million inventory increase. Investing cash flow was negative $31.9 million; financing cash flow was positive $26.6 million.
- No borrowings were outstanding on the $550 million homebuilding revolver; $455.6 million remained available after letters of credit. Financial-services credit facilities had $211.3 million outstanding and $2.2 million available. Homebuilding debt-to-capital was 31%, versus 34% at year-end 2020.
Material changes, outlook and risks
- In August, the company issued $300 million of 3.95% senior notes due 2030 and redeemed $250 million of 5.625% notes due 2025. The refinancing produced a $9.1 million early-extinguishment loss, including a $7.1 million premium and $2.0 million write-off of debt costs. The company retained $400 million of 4.95% notes due 2028.
- Management cited continued strong housing demand, low interest rates and limited housing supply, but reported construction delays and shortages of materials, labor and transportation. Longer build cycles have constrained closings and led the company to limit sales in many communities and manage pricing against cost inflation.
- The company expects a return to more typical seasonal sales patterns and continued extended construction timelines. It did not provide a 2021 land-spending estimate. Management estimated active communities could rise to 200–220 by year-end 2022, compared with 176 at September 30, 2021, subject to planned openings and development timing. Nashville market entry was announced in October 2021.
- Land spending for the first nine months included $473.8 million for acquisitions and $281.2 million for development. The company reported approximately 43,000 lots under control and land/lot options with aggregate purchase price of $866.7 million.
- Key exposures include supply-chain and cost pressures, interest-rate and housing-demand changes, land development and permitting delays, and warranty, litigation and land-commitment risks. Stucco-related Florida claims had a $3.2 million reserve; management said the review remains ongoing and future estimates could change. Outstanding completion bonds and standby letters of credit totaled $363.6 million. Other legal matters are subject to uncertainty.
- Management said available cash, operating receipts and credit availability should cover anticipated needs for at least 12 months. The company was in compliance with stated debt covenants at quarter-end. A new $100 million share-repurchase program began in July; $15.5 million had been spent and $84.5 million remained available at quarter-end.
Important facts for investors to verify
- Whether supply, labor and development constraints continue to limit deliveries, community openings and backlog conversion.
- Whether higher selling prices and cost controls can sustain housing margins as material and labor costs evolve.
- The cash and working-capital effects of inventory growth, land commitments and ongoing repurchases.
- Potential changes in stucco-related repair costs, recoveries, warranty reserves and other legal contingencies.
- The status and terms of financial-services borrowing facilities, including the October 2021 extension of the mortgage repurchase facility.