MDC(MDC) - 2022 Q1 - Quarterly Report

Part I. Financial Information Financial Statements For Q1 2022, M.D.C. Holdings, Inc. reported total assets of $5.06 billion, net income of $148.4 million (up 34%), and positive operating cash flow of $118.1 million | Financial Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Assets | $5,059,114 | $4,963,528 | | Total Liabilities | $2,348,032 | $2,366,382 | | Total Stockholders' Equity | $2,711,082 | $2,597,146 | | Income Statement Highlights (Three Months Ended March 31) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Home Sale Revenues | $1,240,520 | $1,041,858 | | Net Income | $148,421 | $110,690 | | Diluted EPS | $2.02 | $1.51 | | Cash Flow Highlights (Three Months Ended March 31) | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $118,055 | $(57,957) | | Net cash (used in) investing activities | $(6,884) | $(5,749) | | Net cash provided by (used in) financing activities | $(126,280) | $336,342 | - Subsequent to quarter-end, the company agreed to acquire homebuilding assets of The Jones Company of Tennessee, L.L.C. for approximately $117.3 million in cash to scale Nashville operations[99][100] Segment Reporting The company's Q1 2022 homebuilding revenues increased 19% to $1.24 billion, with pretax income up 66% to $188.5 million, while financial services pretax income declined 57% to $13.4 million | Homebuilding Revenues by Segment | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :--- | :--- | :--- | | West | $707,311 | $616,611 | | Mountain | $335,128 | $324,717 | | East | $198,081 | $100,530 | | Total | $1,240,520 | $1,041,858 | | Pretax Income by Segment | Q1 2022 (in thousands) | Q1 2021 (in thousands) | | :--- | :--- | :--- | | Total Homebuilding | $188,499 | $113,507 | | Total Financial Services | $13,383 | $30,805 | | Total Pretax Income | $201,882 | $144,312 | Inventories Total inventories increased to $3.93 billion as of March 31, 2022, primarily driven by a rise in housing completed or under construction, with a minor impairment recorded in the West segment | Inventory Breakdown | March 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Housing completed or under construction | $2,194,303 | $1,917,616 | | Land and land under development | $1,734,515 | $1,843,235 | | Total Inventories | $3,928,818 | $3,760,851 | - An inventory impairment of $660,000 was recognized in the West segment for one subdivision during Q1 2022, with no impairments in Q1 2021[49][50] Commitments and Contingencies As of March 31, 2022, the company had $383.8 million in surety bonds, $205.1 million in letters of credit, and option contracts for 11,205 lots with $58.3 million in at-risk deposits - The company has option contracts to purchase 11,205 lots, secured by $45.0 million in cash deposits and $13.3 million in letters of credit[81] - Outstanding surety bonds and letters of credit totaled $383.8 million and $205.1 million, respectively, to support various operational obligations[78] Lines of Credit The company maintains a $1.2 billion unsecured Revolving Credit Facility with $1.14 billion available, and its financial services subsidiary uses a Mortgage Repurchase Facility with a $178.2 million obligation - The Revolving Credit Facility has a total commitment of $1.2 billion, with $10.0 million drawn and $51.7 million in letters of credit outstanding, leaving $1.14 billion available at March 31, 2022[86][90] - The Mortgage Repurchase Facility had a repurchase obligation of $178.2 million at March 31, 2022, down from $256.3 million at year-end 2021[92] Management's Discussion and Analysis (MD&A) Management reported a resilient housing market in Q1 2022, with a focus on price increases leading to a 25.7% gross margin, $148.4 million net income, and $1.73 billion in liquidity - The company's Q1 strategy focused on raising sales prices to offset cost increases and manage construction capacity, resulting in a 25.7% gross margin, up 380 basis points year-over-year[103] - Net income for Q1 2022 increased 34% to $148.4 million, driven by a 66% increase in homebuilding pretax income, partially offset by a 57% decrease in financial services pretax income[107] - The dollar value of net new home orders increased 12% year-over-year, driven by a 14% increase in average selling price, while the number of net new orders decreased by 2%[108] - The company ended the quarter with total liquidity of $1.73 billion and a debt-to-capital ratio of 35.5%[105] Homebuilding Operations Analysis Homebuilding pretax income surged 66% to $188.5 million on 19% higher revenues of $1.24 billion, driven by increased average selling prices and an expanded gross margin of 25.7% | Home Deliveries & Revenue (Q1 2022 vs Q1 2021) | Homes Delivered | % Change | Home Sale Revenues ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total | 2,233 | 3% | $1,240.5M | 19% | | Net New Orders (Q1 2022 vs Q1 2021) | Homes | % Change | Dollar Value ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total | 3,151 | (2)% | $1,836.8M | 12% | | Backlog (as of March 31) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Homes | 8,558 | 7,686 | 11% | | Dollar Value | $4,947.8M | $3,927.3M | 26% | - Gross margin from home sales increased 380 basis points to 25.7% in Q1 2022 from 21.9% in Q1 2021, driven by price increases across nearly all communities[122] Financial Services Operations Analysis Financial services pretax income significantly decreased by 57% to $13.4 million in Q1 2022, primarily due to mortgage operations' profitability returning to historical levels and a lower mortgage capture rate - Financial services pretax income decreased by $17.4 million (57%) year-over-year, mainly because mortgage operations profitability returned to more historical levels after a record Q1 2021[140] | Mortgage Operations Data (Q1) | 2022 | 2021 | | :--- | :--- | :--- | | Total Originations (Principal) | $605.8M | $616.0M | | Capture Rate (% of all homes delivered) | 59% | 72% | Liquidity and Capital Resources The company maintains a strong capital position with $1.5 billion in senior notes outstanding, 11,205 optioned lots, and $118.1 million in positive operating cash flow, ensuring adequate resources for future needs - At March 31, 2022, the company had outstanding senior notes with an aggregate principal of $1.5 billion, with no maturities within 12 months[151] - The company had deposits securing option contracts to purchase 11,205 lots for a total estimated price of $1.02 billion[152] - Net cash from operating activities was $118.1 million, a significant turnaround from a $58.0 million use of cash in Q1 2021, primarily driven by net income and changes in working capital[169] Market Risk Disclosures The company faces interest rate risk, primarily in mortgage operations, which it hedges using derivatives like interest rate lock commitments ($521.1 million) and forward sales of mortgage-backed securities ($378.5 million) - The company's primary market risk is interest rate fluctuations, which impact its mortgage loans held-for-sale, interest rate lock commitments, and variable-rate debt[177] - To manage risk, HomeAmerican had $521.1 million in interest rate lock commitments and hedged its positions with $378.5 million in forward sales of securities at quarter-end[177] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period[182] - There were no material changes to internal control over financial reporting during the first quarter of 2022[182] Part II. Other Information Legal Proceedings Management believes ongoing legal actions arising from ordinary business operations will not materially affect the company's financial condition, results, or cash flows - In management's opinion, legal actions arising from the ordinary course of business are not expected to have a material adverse effect on the company's financials[184] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K were reported - No material changes from the risk factors included in the Company's 2021 Annual Report on Form 10-K were reported[185] Share Repurchases and Use of Proceeds The company did not repurchase shares under its program in Q1 2022, but withheld 32,926 shares for employee tax obligations related to restricted stock vesting - The company is authorized to repurchase up to 4,000,000 shares of its common stock but made no repurchases under this program during Q1 2022[186] - 32,926 shares were withheld in February 2022 to satisfy employee tax obligations upon the vesting of restricted stock[186]