M/I Homes, Inc. (NYSE: MHO) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. M/I Homes builds single-family homes across Northern and Southern U.S. markets and operates mortgage and title services.
Financial and operating results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $828.8 million | $577.6 million |
| Income before taxes | $110.3 million | $41.4 million |
| Net income | $84.9 million | $31.7 million |
| Diluted EPS | $2.85 | $1.09 |
| Operating cash flow | $75.2 million | $(24.2) million |
- Revenue rose 43%; homes delivered increased 35% to 2,019, while average delivered home price increased 6% to $395,000.
- Housing gross margin improved to 21.6% from 18.4%; total gross margin percentage was 24.4%, up 420 basis points. SG&A declined to 11.0% of revenue from 12.2%.
- New contracts increased 49% to 3,109. Backlog rose 68% to 5,479 homes, with a reported value of $2.4 billion, up 82%.
- Financial services revenue increased 120% to $29.6 million; the segment originated 1,575 loans versus 1,131 a year earlier.
Liquidity, debt and balance sheet
- Cash, cash equivalents and restricted cash totaled $292.9 million at March 31, 2021, including $292.4 million of unrestricted cash. Operating cash flow improved year over year; investing activities provided $0.6 million and financing activities used $43.7 million.
- Homebuilding revolver borrowings were zero; $433.3 million remained available after $66.7 million of letters of credit. Homebuilding debt to capital was 32%, versus 34% at year-end 2020.
- Debt included $250 million principal of 5.625% senior notes due 2025 and $400 million of 4.95% senior notes due 2028. Financial-services facility borrowings totaled $176.2 million. The company reported compliance with applicable debt covenants.
- Total assets were $2.71 billion and shareholders’ equity was $1.35 billion. Inventory was $1.96 billion, up from $1.92 billion at December 31, 2020.
Changes, outlook and risks
- Management described record first-quarter contracts, deliveries, revenue, pretax income and backlog. Profit improvement reflected higher deliveries, stronger housing margins, overhead leverage and record financial-services results.
- Management expected housing demand to remain supported by low mortgage rates, limited available homes and buyer demand, but cautioned that COVID-19 developments or higher mortgage rates could weaken conditions. No 2021 land-spending or community-count estimates were provided.
- Higher lumber and other construction costs, labor and product shortages, and supply-chain disruptions were affecting costs and construction cycles. The company said price increases and cost management had helped preserve or improve margins, but future cost levels and disruptions remained uncertain.
- Community count fell to 187 from 223 a year earlier as sales accelerated; management warned that difficulty replacing communities promptly could constrain its ability to meet demand. The company reported approximately 42,000 lots under control and $919.6 million of land and developed-lot options or contingent purchase agreements.
- Florida stucco-related claims remained a contingency. The reserve was $4.1 million at quarter-end; no additional stucco charges or recoveries were recorded in Q1. Management said estimates could change materially as its review continues. Other legal proceedings were described as not expected to have a material overall effect, although outcomes remain uncertain.
- The mortgage warehousing facility, with $102.2 million outstanding at quarter-end, was due to expire May 28, 2021. Management expected an extension but gave no assurance it could obtain one. The mortgage repurchase facility expires October 25, 2021.
Important facts for investors to verify
- Whether strong contracts and backlog convert into deliveries and earnings, and whether active communities can be replenished.
- How lumber, labor and other input costs, selling prices and supply-chain constraints affect margins and build times.
- Liquidity and refinancing developments, particularly the extension of the mortgage warehousing facility and access to available credit.
- Changes in stucco repair estimates, other warranty reserves and legal contingencies.
- Whether housing demand holds up if mortgage rates rise or economic conditions change; interim results are not necessarily indicative of full-year results.