M/I Homes, Inc. (NYSE: MHO) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports full-year results, not a standalone fourth quarter. M/I Homes is a U.S. homebuilder operating Northern and Southern homebuilding segments and a financial-services segment providing mortgage and title services.
Financial and operating results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $4.03 billion | $4.13 billion | Down 2% |
| Income before income taxes | $607.3 million | $635.2 million | Down 4% |
| Net income | $465.4 million | $490.7 million | Down 5% |
| Diluted earnings per share | $16.21 | $17.24 | Down 6% |
| Gross margin | 25.3% | 25.3% | Flat |
| Operating cash flow | $552.1 million | $184.1 million | Up $368.1 million |
- Homebuilding generated 98% of consolidated revenue. Homebuilding revenue from delivered homes was $3.91 billion; land-sale revenue was $25.3 million. Financial-services revenue was $93.8 million, up 9%.
- The company delivered 8,112 homes, down 3%; average delivered price rose 1% to $483,000. Net new contracts increased 20% to 7,977. Year-end backlog was 3,002 homes valued at $1.58 billion, down from 3,137 homes and $1.70 billion.
- Housing gross margin was 23.5%, versus 23.6% in 2022. Selling, general and administrative expense increased to $431.7 million from $406.4 million, and rose to 10.7% of revenue from 9.8%.
- Cash, cash equivalents and restricted cash were $732.8 million, including $732.6 million unrestricted. Total assets were $4.02 billion and shareholders’ equity was $2.52 billion. Inventory was $2.80 billion.
- Homebuilding debt-to-capital improved to 22% from 25%. The $650 million revolving credit facility had no borrowings and $579.3 million available after letters of credit. Senior notes totaled $700 million principal: $400 million due 2028 at 4.95% and $300 million due 2030 at 3.95%. Financial-services borrowings were $165.8 million under its mortgage repurchase facility.
- Land and development spending was $343.5 million and $512.1 million, respectively. The company repurchased $65.3 million of shares during 2023; $127.8 million remained authorized at year-end.
Changes versus the prior year
- Revenue and earnings declined from 2022 record levels, mainly reflecting fewer homes delivered and lower land-sale revenue. Housing gross margin percentage was broadly stable despite incentives and higher construction and lot costs.
- Operating cash flow increased substantially, supported by net income, mortgage-loan sale proceeds exceeding originations, and a $46.7 million decrease in inventory; operating cash flow had been reduced in 2022 by inventory investment.
- Homebuyer demand improved: net contracts rose 20%, absorption increased to 3.3 homes per community per month from 3.1, and the total cancellation rate fell to 11.4% from 14.3%.
- Financial-services operating income increased $4.3 million, while homebuilding operating income declined in both regions. Northern homebuilding revenue fell 11%; Southern revenue rose 4%.
- Year-end shareholders’ equity rose 22% to a company record $2.52 billion. The company recorded $10.6 million of inventory and joint-venture impairment losses, compared with $18.4 million in 2022.
Outlook, risks and unusual items
- Management provided no numerical earnings or revenue guidance. For 2024, it expects average community count to grow approximately 10% and plans to continue managing land investment, construction cycle times, overhead, liquidity, and customer service. It expects to continue share repurchases, subject to market and business conditions.
- Management cited long-term support from limited new- and resale-home supply, favorable demographics, and rent increases, but cautioned that 2024 performance may be materially affected by mortgage rates, inflation, consumer confidence, labor and material costs, and economic conditions.
- Mortgage rates rose above 8% by late October 2023 and were approximately 7% at year-end. Sales incentives and mortgage-rate buydowns supported demand but pressured pricing and margins. Supply-chain conditions improved and average construction days fell by more than 60 days.
- The mortgage repurchase facility expires October 22, 2024. Management expects to extend it but gives no assurance of renewal; access to this facility is important to mortgage originations and home closings.
- Other material risks include land availability and valuation, regulatory and permitting delays, weather and natural disasters, construction-defect and warranty claims, mortgage-market and counterparty risks, debt covenants, and cybersecurity incidents. Warranty reserves were $32.0 million; outstanding completion bonds and standby letters of credit totaled approximately $391.7 million.
- Net interest income was $20.0 million in 2023, versus $2.3 million of net interest expense in 2022, primarily due to higher average cash balances. Mortgage-hedging gains included in financial-services revenue were $11.9 million in 2023, compared with $49.4 million in 2022.
- The independent auditor issued unqualified opinions on the financial statements and internal controls. Inventory valuation was identified as a critical audit matter because impairment assessments depend on significant community-level estimates.
Important facts for investors to verify
- Whether the planned 2024 community growth translates into higher contracts and deliveries without materially greater incentives or margin erosion.
- The timing and terms of renewal or replacement of the mortgage repurchase facility before its October 2024 maturity.
- Trends in backlog, cancellation rates, regional margins, and inventory levels, including the value and pace of homes under construction and lots under control.
- Whether unrestricted cash, operating cash flow, and available credit remain adequate as land-development spending and share repurchases continue.
- Potential changes to inventory impairment estimates, warranty liabilities, legal contingencies, and the company’s ability to meet debt covenants under weaker housing conditions.