M/I Homes(MHO) - 2022 Q2 - Quarterly Report

PART 1. FINANCIAL INFORMATION Item 1. Financial Statements The report presents unaudited condensed consolidated financial statements for M/I Homes, Inc as of June 30, 2022 Unaudited Condensed Consolidated Balance Sheets Total assets grew to $3.49 billion, driven by increased inventory, while shareholders' equity rose to $1.82 billion Condensed Consolidated Balance Sheets (in thousands) | Account | June 30, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,493,324 | $3,239,853 | | Inventory | $2,816,265 | $2,452,434 | | Cash, cash equivalents and restricted cash | $188,755 | $236,368 | | Total Liabilities | $1,675,057 | $1,615,669 | | Senior notes (net) | $691,827 | $691,268 | | Total Shareholders' Equity | $1,818,267 | $1,624,184 | Unaudited Condensed Consolidated Statements of Income The company reports Q2 2022 revenue of $1.04 billion and net income of $136.8 million, with diluted EPS at $4.79 Consolidated Statements of Income Highlights (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,040,654 | $961,040 | $1,901,465 | $1,789,816 | | Income before income taxes | $182,173 | $141,297 | $304,423 | $251,578 | | Net income | $136,838 | $107,607 | $228,677 | $192,473 | | Diluted EPS | $4.79 | $3.58 | $7.93 | $6.43 | Unaudited Condensed Consolidated Statement of Shareholders' Equity Shareholders' equity grew to $1.82 billion, driven by net income and partially offset by share repurchases - For the six months ended June 30, 2022, total shareholders' equity increased by $194.1 million[14] - Net income of $228.7 million was the primary driver of the increase in shareholders' equity[14] - The company repurchased 860,000 common shares for $40.2 million during the first six months of 2022[14] Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations was $78.5 million, with financing activities leading to a net cash decrease of $47.6 million Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $78,540 | $173,801 | | Net cash used in investing activities | ($11,463) | ($12,763) | | Net cash used in financing activities | ($114,690) | ($50,042) | | Net (decrease) increase in cash | ($47,613) | $110,996 | | Cash at beginning of period | $236,368 | $260,810 | | Cash at end of period | $188,755 | $371,806 | Notes to Unaudited Condensed Consolidated Financial Statements Disclosures detail inventory growth to $2.82 billion, debt structure, segment performance, and share repurchases Inventory Breakdown (in thousands) | Category | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Single-family lots, land and land development costs | $1,136,380 | $1,125,738 | | Homes under construction | $1,514,965 | $1,187,341 | | Total inventory | $2,816,265 | $2,452,434 | - As of June 30, 2022, the company had $300.0 million of 3.95% Senior Notes due 2030 and $400.0 million of 4.95% Senior Notes due 2028 outstanding[84][85] - The company repurchased 0.6 million common shares for $24.8 million in Q2 2022, with $108.2 million remaining available under the repurchase program as of June 30, 2022[104] Revenue by Source (in thousands) | Source | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Housing | $1,851,069 | $1,725,785 | | Land sales | $6,911 | $5,747 | | Financial services | $43,485 | $58,284 | | Total revenue | $1,901,465 | $1,789,816 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses record Q2 2022 results, market headwinds from rising rates, and a positive long-term outlook - Q2 2022 saw record revenue of $1.04 billion, record income before taxes of $182.2 million, and record net income of $136.8 million[121][124] - New contracts for Q2 2022 declined 20% from Q2 2021, attributed to consumer uncertainty from inflation, rising mortgage rates, and fewer selling communities[122] - The company ended Q2 2022 with a record sales backlog value of $2.7 billion[122] - The company plans to grow its community count by approximately 15% by the end of 2022 to around 200 communities[134] Results of Operations Q2 revenue rose 8% to $1.04 billion on higher home prices, though financial services revenue declined Q2 2022 vs Q2 2021 Performance Highlights | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1.04B | $0.96B | +8% | | Homes Delivered | 2,133 | 2,258 | -6% | | Avg. Sales Price of Homes Delivered | $477k | $411k | +16% | | Housing Gross Margin % | 26.0% | 22.8% | +320 bps | | New Contracts, net | 1,820 | 2,267 | -20% | | Cancellation Rate | 11.2% | 7.0% | +4.2 p.p. | - The Northern Region's operating income increased by $12.1 million (20%) to $74.1 million in Q2 2022, driven by higher revenue and improved gross margin[147] - The Southern Region's operating income increased by $40.9 million (52%) to $120.0 million in Q2 2022, due to a significant increase in average sales price and a 430 basis point improvement in housing gross margin percentage to 29.3%[151][164] - Financial Services revenue decreased 32% to $19.4 million, and operating income fell by $9.3 million, due to a 21% drop in loan originations and lower margins[154][155] Liquidity and Capital Resources The company maintains strong liquidity with $188.8 million in cash and a homebuilding debt-to-capital ratio of 28% - At June 30, 2022, the company had $188.8 million of cash, cash equivalents and restricted cash[175] - The company had $444.3 million available under its $550 million Credit Facility, with no borrowings outstanding and $105.7 million in letters of credit[178] - The ratio of homebuilding debt to capital was 28% at June 30, 2022, down from 30% at December 31, 2021[187] - In H1 2022, the company invested $214.6 million in land purchases and $207.2 million in land development[179] - The company repurchased 0.9 million common shares for $40.2 million in H1 2022 under its $200 million share repurchase program[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed through derivative hedging instruments - The primary market risk is interest rate fluctuation, which impacts borrowings under revolving credit facilities and mortgage loan origination services[219] Key Hedging Instruments (Notional Amounts in thousands) | Description of Financial Instrument | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Uncommitted IRLCs | $562,101 | $228,831 | | FMBSs related to uncommitted IRLCs | $570,000 | $223,000 | | Mortgage loans held for sale covered by FMBSs | $184,620 | $263,088 | - For Q2 2022, the company recognized a total net loss of $8.7 million on its hedging instruments and mortgage loans held for sale, compared to a gain of $1.4 million in Q2 2021, reflecting the volatile interest rate environment[46][224] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[227] - No material changes were made to the internal control over financial reporting during the quarter ended June 30, 2022[228] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information regarding the company's legal proceedings is referenced in Note 6 of the financial statements - Details on legal proceedings are provided in Note 6 to the Company's Consolidated Financial Statements[229] Item 1A. Risk Factors No material changes to risk factors are reported, aside from inflation and interest rate impacts discussed in the MD&A - No material changes to risk factors from the 2021 Form 10-K are reported, other than the impact of inflation and increased interest rates[230] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 550,000 common shares for $24.8 million in Q2 2022 under its repurchase program Common Share Purchases in Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Value of Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | April 2022 | 20,000 | $44.64 | $132,193,648 | | May 2022 | 420,000 | $45.43 | $113,115,168 | | June 2022 | 110,000 | $44.28 | $108,244,293 | | Q2 Total | 550,000 | $45.17 | $108,244,293 | - The 2021 Share Repurchase Program authorizes up to $200 million in share repurchases and has no expiration date[232] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[235] Item 4. Mine Safety Disclosures The company reports no mine safety disclosures - None[236] Item 5. Other Information The company reports no other information - None[237] Item 6. Exhibits This section lists all exhibits filed with the report, including certifications and XBRL data files - Filed exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files (101 series)[239] Signatures