M/I Homes, Inc. (NYSE: MHO) — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide a complete standalone fourth-quarter income statement. M/I Homes builds single-family homes and townhomes across 17 markets in ten states, with homebuilding contributing 98% of consolidated revenue.
Financial and operating performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $4.131 billion | $3.746 billion |
| Income before taxes | $635.2 million | $509.1 million |
| Net income | $490.7 million | $396.9 million |
| Diluted earnings per share | $17.24 | $13.28 |
| Operating cash flow | $184.1 million provided | $16.8 million used |
| Cash, cash equivalents and restricted cash | $311.5 million | $236.4 million |
| Shareholders’ equity | $2.071 billion | $1.624 billion |
- Housing revenue rose 10% to $4.010 billion. Homes delivered declined 3% to 8,366, while average delivered home price increased 14% to $479,000.
- Housing gross margin was 23.6%, up from 22.1%; adjusted housing gross margin, a non-GAAP measure excluding specified impairment and deposit write-offs, was 24.0% versus 22.1%.
- Selling, general and administrative expense was $406.4 million, or 9.8% of revenue, compared with 10.4% in 2021. The effective tax rate was 22.8%.
- New net contracts fell 27% to 6,668. Year-end backlog declined to 3,137 homes worth $1.70 billion, from 4,835 homes worth $2.37 billion. The cancellation rate rose to 14.3% from 7.8%.
- Financial services revenue decreased 16% to $86.2 million; loans originated declined to 5,374 from 6,525. About 78% of 2022 deliveries were financed through M/I Financial, versus 84% in 2021.
- Inventory increased to $2.829 billion from $2.452 billion. The company reported $184.1 million in operating cash inflow despite a $348.7 million increase in inventory.
Debt and liquidity
- Unrestricted cash was $310.6 million at year-end. The $650 million revolving credit facility had no borrowings outstanding and $555.1 million available after letters of credit.
- Debt included $300 million of 3.95% senior notes due 2030, $400 million of 4.95% senior notes due 2028, and $245.7 million of financial-services borrowings. The filing also reports $692.5 million of indebtedness net of issuance costs excluding the mortgage facilities; debt figures therefore vary by scope and presentation.
- The homebuilding debt-to-capital ratio was 25%, down from 30%. The company reported compliance with its credit and note covenants at year-end.
- M/I Financial’s $200 million mortgage warehouse agreement was due to expire May 26, 2023; its $90 million mortgage repurchase facility was due to expire October 23, 2023. Renewal or replacement was not assured.
Changes, outlook and risks
- Demand weakened in the second half of 2022 amid sharply higher mortgage rates, inflation and affordability pressure. Management began reducing prices and offering sales and mortgage-rate incentives in many markets.
- Fourth-quarter 2022 included an $18.4 million aggregate loss: $10.2 million of land-deposit and pre-acquisition cost write-offs as the company right-sized its land portfolio, and $8.2 million of inventory impairment charges. The filing does not provide a clear standalone fourth-quarter revenue or profit figure in the supplied text.
- Management described 2023 as challenging and did not provide land-spending estimates. It expects to manage land investment, inventory and overhead carefully, while targeting approximately 225 communities by year-end, about 15% growth from 196.
- January 2023 net home sales were approximately 630, down 18% year over year but about 60% above the average monthly pace in the second half of 2022. Management cautioned that recent results may not predict 2023 performance.
- Key risks include further mortgage-rate increases, weakening demand and cancellations, inability to pass through labor and material cost inflation, land and inventory impairment, construction delays, municipal approvals, and refinancing or renewal of mortgage warehouse facilities. Florida stucco claims, warranty obligations, mortgage-loan repurchase representations, and other legal proceedings are additional contingencies.
- The company recorded no goodwill impairment. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; inventory valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether sales pace, cancellation rates and backlog stabilize, and whether incentives further reduce realized prices and margins.
- Whether inventory growth and unsold speculative homes lead to additional impairments or cash-flow pressure.
- Renewal or replacement terms for M/I Financial’s 2023-expiring warehouse and repurchase facilities.
- Actual exposure from Florida stucco claims, warranty reserves and mortgage-loan representations or repurchase obligations.
- How much of reported earnings growth reflects delivered-home pricing and margins established before the late-2022 slowdown; adjusted measures are non-GAAP.
- Whether planned community-count expansion and land spending remain appropriate if market conditions deteriorate.