M/I Homes(MHO) - 2020 Q3 - Quarterly Report

PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Presents M/I Homes, Inc.'s unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2020 Unaudited Condensed Consolidated Balance Sheets Total assets increased to $2.42 billion by September 30, 2020, with shareholders' equity rising to $1.17 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents and restricted cash | $202,512 | $6,083 | | Inventory | $1,843,409 | $1,769,507 | | Total Assets | $2,420,555 | $2,105,594 | | Liabilities & Equity | | | | Total Liabilities | $1,245,815 | $1,102,117 | | Total Shareholders' Equity | $1,174,740 | $1,003,477 | | Total Liabilities and Shareholders' Equity | $2,420,555 | $2,105,594 | Unaudited Condensed Consolidated Statements of Income Net income nearly doubled to $73.5 million in Q3 2020, reaching $159.8 million for the nine-month period Statements of Income Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $847,921 | $653,345 | $2,139,718 | $1,758,140 | | Income before income taxes | $95,109 | $50,064 | $208,192 | $114,746 | | Net income | $73,537 | $37,838 | $159,791 | $85,807 | | Diluted EPS | $2.51 | $1.32 | $5.50 | $3.04 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operating activities improved to $197.2 million, increasing cash to $202.5 million by Q3 2020 Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $197,226 | $977 | | Net cash used in investing activities | ($31,327) | ($25,710) | | Net cash provided by financing activities | $30,530 | $36,655 | | Net increase in cash | $196,429 | $11,922 | | Cash at end of period | $202,512 | $33,451 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail accounting policies, inventory, debt, fair value, segment reporting, revenue, and contingencies - Inventory increased to $1.84 billion, with homes under construction rising to $863.6 million from $757.0 million at year-end 2019[29] - In January 2020, the company issued $400 million of 4.95% Senior Notes due 2028 and used a portion of the proceeds to redeem all $300 million of its 6.75% Senior Notes due 2021[94][95] - Warranty reserves stood at $27.0 million as of September 30, 2020, including $3.7 million for potential stucco-related repairs in Florida[77][79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses record Q3 and nine-month financial performance, attributing strong growth to market conditions Results of Operations Q3 2020 saw record new contracts and homes delivered, with revenue up 30% and net income surging 94% - The company achieved all-time quarterly records for income before income taxes ($95.1 million), new contracts (2,949), homes delivered (2,137), and backlog sales value ($1.8 billion) in Q3 2020[150][152] Key Operating Metrics (Q3 2020 vs Q3 2019) | Metric | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | New Contracts | 2,949 | 1,721 | +71% | | Homes Delivered | 2,137 | 1,651 | +29% | | Backlog (units) | 4,503 | 2,915 | +54% | | Backlog Value | $1.82B | $1.14B | +60% | - The total cancellation rate improved to 9.5% in Q3 2020 from 12.6% in Q3 2019, indicating stronger contract conversions[179] Liquidity and Capital Resources Liquidity strengthened with $202.5 million cash at Q3 2020 and a 36% debt-to-capital ratio - Cash, cash equivalents, and restricted cash increased to $202.5 million at September 30, 2020, a $196.4 million increase from the beginning of the period[210] - As of September 30, 2020, the company had full availability of its $500 million credit facility, with no borrowings outstanding and $66.6 million in letters of credit, leaving $433.4 million available[213][222] - The ratio of homebuilding debt to capital improved to 36% at September 30, 2020, compared to 38% at December 31, 2019[220] Off-Balance Sheet Arrangements Off-balance sheet arrangements for land acquisition include $801.4 million in land options - The company has options and contingent purchase agreements to acquire land and lots with an aggregate purchase price of approximately $801.4 million[83] - As of September 30, 2020, the company had outstanding $267.7 million of completion bonds and standby letters of credit for development work, land purchase deposits, and other obligations[250] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuations affecting credit facilities and mortgage loan origination - The company is exposed to interest rate risk through its variable-rate credit facilities, which permitted borrowings up to $725 million as of September 30, 2020[253] Notional Amounts of Financial Instruments (in thousands) | Description | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Uncommitted IRLCs | $213,146 | $87,340 | | FMBSs related to uncommitted IRLCs | $186,000 | $88,000 | | Mortgage loans held for sale covered by FMBSs | $120,257 | $144,411 | Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2020, with no material changes - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report[261] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[262] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company faces legal proceedings, mainly stucco claims in Florida - The company faces claims and legal proceedings from homeowners regarding stucco installation in certain Florida communities[263] Item 1A. Risk Factors The COVID-19 pandemic poses a material and adverse disruption risk to business and financial performance - The company's business could be materially and adversely disrupted by the COVID-19 pandemic and the governmental measures implemented to address it[266] - While sales and closings rebounded since May 2020, the company warns that the magnitude and duration of business and economic impacts from the pandemic remain uncertain and could negatively impact future results[270] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales or common share repurchases occurred in Q3 2020 - No purchases of the Company's common shares were made during the three months ended September 30, 2020[276] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including a Master Repurchase Agreement amendment