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M/I Homes Reports 2019 Third Quarter Results

October 23, 2019 GMT
M/I Homes, Inc. Logo (PRNewsfoto/M/I Homes, Inc.)
M/I Homes, Inc. Logo (PRNewsfoto/M/I Homes, Inc.)

COLUMBUS, Ohio, Oct. 23, 2019 /PRNewswire/ -- M/I Homes, Inc. (NYSE:MHO) announced results for the three and nine months ended September 30, 2019.

2019 Third Quarter Highlights:

For the third quarter of 2019, the Company reported record pre-tax income of $50.1 million and net income of $37.8 million, or $1.32 per diluted share. For the nine months ended September 30, 2019, the Company reported record pre-tax income of $114.7 million and net income of $85.8 million, or $3.04 per diluted share. This compares to pre-tax income of $96.9 million and net income of $75.3 million, or $2.56 per diluted share, for the same period of 2018. The Company incurred $0.6 million of pre-tax acquisition-related expense year-to-date in 2019 compared to $6.2 million in the same period of 2018.

Homes delivered in 2019′s third quarter reached a third quarter record of 1,651 deliveries, increasing 16% from 1,422 deliveries in 2018′s third quarter. Homes delivered for the nine months ended September 30, 2019 increased 11% to a record 4,375 deliveries from 3,953 deliveries in the first nine months of 2018. New contracts for 2019′s third quarter reached a third quarter record 1,721 contracts, increasing 32% from 1,302 new contracts in 2018′s third quarter. For the first nine months of 2019, new contracts increased 9% to a record 5,096 contracts from 4,672 contracts in 2018. Homes in backlog increased 2% at September 30, 2019 to 2,915 units, with a sales value of $1.1 billion, and an average sale price of $390,000. At September 30, 2018, the sales value of homes in backlog was $1.1 billion, with an average sale price of $401,000 and backlog units of 2,846. M/I Homes had 221 active communities at September 30, 2019 compared to 212 at September 30, 2018. The Company’s cancellation rate was 13% in the third quarter of 2019 and 16% in the third quarter of 2018.

Robert H. Schottenstein, Chief Executive Officer and President, commented, “Our third quarter results were very strong highlighted by record new contracts, homes delivered, revenue and pre-tax income. New contracts for the quarter increased 32%, homes delivered increased 16%, revenue improved by 15%, and net income increased by 29%. Gross margin improved to 20.5%, a 130-basis point improvement from the second quarter of 2019. In addition, we continue to improve our operating leverage as our overhead expense ratio for the quarter was 12.2%, 50 basis points better than last year’s third quarter. The combination of our revenue growth and improved margins resulted in a 27% increase in pre-tax income to a third quarter record of $50.1 million.”

Mr. Schottenstein continued, “Our financial condition remains strong. We ended the third quarter with record-high shareholders’ equity of $955 million, an increase of 14% from 2018′s third quarter, book value per share of $34, and a homebuilding debt to capital ratio of 44%. As we begin the final quarter of 2019, we are on track for another solid year of growth and improved financial performance.”

The Company will broadcast live its earnings conference call today at 4:00 p.m. Eastern Time. To listen to the call live, log on to the M/I Homes’ website at mihomes.com, click on the “Investors” section of the site, and select “Listen to the Conference Call.” A replay of the call will continue to be available on our website through October 2020.

M/I Homes, Inc. is one of the nation’s leading builders of single-family homes, having sold over 116,500 homes. The Company’s homes are marketed and sold primarily under the trade names M/I Homes and Showcase Collection (exclusively by M/I Homes), and also currently are sold under the name Hans Hagen Homes in the Minneapolis/St. Paul, Minnesota market and Pinnacle Homes in the Detroit, Michigan market. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; Detroit, Michigan; Tampa, Sarasota and Orlando, Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and the Virginia and Maryland suburbs of Washington, D.C.

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “targets,” “envisions”, “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements involve a number of risks and uncertainties. Any forward-looking statements that we make herein and in any future reports and statements are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors, including, without limitation, factors relating to the economic environment, interest rates, availability of resources, competition, market concentration, land development activities, integration of acquisitions, construction defects, product liability and warranty claims and various governmental rules and regulations, as more fully discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as the same may be updated from time to time in our subsequent filings with the Securities and Exchange Commission. All forward-looking statements made in this press release are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed herein will increase with the passage of time. We undertake no duty to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent filings, releases or presentations should be consulted.

M/I Homes, Inc. and Subsidiaries

Summary Statement of Income (unaudited)

(Dollars and shares in thousands, except per share amounts)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018

New contracts

1,721



1,302



5,096



4,672


Average community count

221



211



216



204


Cancellation rate

13

%


16

%


13

%


14%

Backlog units





2,915



2,846


Backlog sales value





$

1,137,207



$

1,140,037


Homes delivered

1,651



1,422



4,375



3,953


Average home closing price

$

382



$

390



$

388



$

384










Homebuilding revenue:








Housing revenue

$

631,380



$

554,820



$

1,695,558



$

1,518,278


Land revenue

8,511



829



23,042



6,424


Total homebuilding revenue

$

639,891



$

555,649



$

1,718,600



$

1,524,702










Financial services revenue

13,454



12,193



39,540



39,095


Total revenue

$

653,345



$

567,842



$

1,758,140



$

1,563,797










Cost of sales - operations

519,082



451,337



1,410,849



1,245,518


Cost of sales - purchase accounting adjustments

82



692



639



4,549


Gross margin

$

134,181



$

115,813



$

346,652



$

313,730


General and administrative expense

39,385



36,897



106,248



99,514


Selling expense

40,147



35,054



109,150



100,708


Operating income

$

54,649



$

43,862



$

131,254



$

113,508


Acquisition and integration costs







1,700


Equity in income from joint venture arrangements

(52)



(44)



(118)



(268)


Interest expense

4,637



4,426



16,626



15,192


Income before income taxes

$

50,064



$

39,480



$

114,746



$

96,884


Provision for income taxes

12,226



10,198



28,939



21,628


Net income

$

37,838



$

29,282



$

85,807



$

75,256










Earnings per share:








Basic

$

1.35



$

1.03



$

3.10



$

2.65


Diluted

$

1.32



$

1.01



$

3.04



$

2.56










Weighted average shares outstanding:








Basic

27,981



28,469



27,695



28,389


Diluted

28,598



28,906



28,238



29,511


M/I Homes, Inc. and Subsidiaries

Summary Balance Sheet and Other Information (unaudited)

(Dollars in thousands, except per share amounts)




As of


September 30,


2019


2018

Assets:




Total cash, cash equivalents and restricted cash(1)

$

33,451



$

36,360


Mortgage loans held for sale

128,322



115,189


Inventory:




Lots, land and land development

824,835



754,322


Land held for sale

8,465



14,312


Homes under construction

848,302



831,129


Other inventory

145,466



151,762


Total Inventory

$

1,827,068



$

1,751,525






Property and equipment - net

27,621



28,691


Investments in joint venture arrangements

47,557



24,568


Operating lease right-of-use assets

19,059




Goodwill

16,400



16,400


Deferred income tax asset

11,988



16,925


Other assets

70,137



68,677


Total Assets

$

2,181,603



$

2,058,335






Liabilities:




Debt - Homebuilding Operations:




Senior notes due 2021 - net

$

298,712



$

297,608


Senior notes due 2025 - net

246,962



246,441


Notes payable - homebuilding

189,900



222,700


Notes payable - other

5,508



8,838


Total Debt - Homebuilding Operations

$

741,082



$

775,587






Notes payable bank - financial services operations

108,594



104,026


Total Debt

$

849,676



$

879,613






Accounts payable

169,528



148,421


Operating lease liabilities

19,059




Other liabilities

188,699



195,097


Total Liabilities

$

1,226,962



$

1,223,131






Shareholders' Equity

954,641



835,204


Total Liabilities and Shareholders' Equity

$

2,181,603



$

2,058,335






Book value per common share

$

33.92



$

29.69


Homebuilding debt / capital ratio(2)

44

%


48

%







(1)

Includes $0.5 million and $0.9 million of restricted cash and cash held in escrow for the quarters ended September 30, 2019 and 2018, respectively.

(2)

The ratio of homebuilding debt to capital is calculated as the carrying value of our homebuilding debt outstanding divided by the sum of the carrying value of our homebuilding debt outstanding plus shareholders' equity.

M/I Homes, Inc. and Subsidiaries

Selected Supplemental Financial and Operating Data (unaudited)

(Dollars in thousands)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018

Cash (used in) provided by operating activities

$

(9,640)



$

(54,194)



$

977



$

(75,119)


Cash used in investing activities

$

(8,980)



$

(17,417)



$

(25,710)



$

(120,302)


Cash provided by financing activities

$

31,678



$

40,154



$

36,655



$

80,078


















Land/lot purchases

$

92,096



$

81,222



$

258,438



$

256,498


Land development spending

$

68,780



$

63,680



$

185,508



$

152,256


Land sale revenue

$

8,511



$

829



$

23,042



$

6,424


Land sale gross profit

$

75



$

66



$

530



$

552










Financial services pre-tax income

$

5,623



$

4,846



$

17,279



$

18,860


M/I Homes, Inc. and Subsidiaries

Non-GAAP Financial Results (1)

(Dollars in thousands)







Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018

Net income

$

37,838



$

29,282



$

85,807



$

75,256


Add:








Provision for income taxes

12,226



10,198



28,939



21,628


Interest expense net of interest income

3,625



3,516



13,788



12,765


Interest amortized to cost of sales

7,836



6,278



20,609



17,345


Depreciation and amortization

4,089



3,650



11,796



10,754


Non-cash charges

1,492



1,041



4,086



3,771


Adjusted EBITDA

$

67,106



$

53,965



$

165,025



$

141,519


M/I Homes, Inc. and Subsidiaries

Non-GAAP Reconciliation (1)

(Dollars and shares in thousands, except per share amounts)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2019


2018


2019


2018

Income before income taxes

$

50,064



$

39,480



$

114,746



$

96,884


Add: Purchase accounting adjustments (2)

82



692



639



4,549


Add: Acquisition and integration costs (3)







1,700


Adjusted income before income taxes

$

50,146



$

40,172



$

115,385



$

103,133










Net income

$

37,838



$

29,282



$

85,807



$

75,256


Add: Purchase accounting adjustments - net of tax (2)

61



512



473



3,366


Add: Acquisition and integrations costs - net of tax (3)







1,258


Adjusted net income

$

37,899



$

29,794



$

86,280



$

79,880










Purchase accounting adjustments - net of tax (2)

$

61



$

512



$

473



$

3,366


Acquisition and integration costs - net of tax (3)

$



$



$



$

1,258










Divided by: Diluted weighted average shares outstanding

28,598



28,906



28,238



29,511










Diluted earnings per share related to purchase accounting adjustments (2)

$



$

0.02



$

0.02



$

0.12


Diluted earnings per share related to acquisition and integration costs (3)







0.04










Add: Diluted earnings per share

1.32



1.01



3.04



2.56










Adjusted diluted earnings per share

$

1.32



$

1.03



$

3.06



$

2.72




(1)

We believe these non-GAAP financial measures are relevant and useful to investors in understanding our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. These non-GAAP financial measures should be used to supplement our GAAP results in order to provide a greater understanding of the factors and trends affecting our operations.

(2)

Represents purchase accounting adjustments related to our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.

(3)

Represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses, and miscellaneous expenses related to our acquisition of Pinnacle Homes. As these costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.

M/I Homes, Inc. and Subsidiaries

Selected Supplemental Financial and Operating Data




NEW CONTRACTS (a)


Three Months Ended



Nine Months Ended


September 30,



September 30,






%







%

Region

2019


2018


Change



2019


2018


Change

Northern

635



537



18

%



2,040



1,891



8

%

Southern

1,086



765



42

%



3,056



2,781



10

%

Total

1,721



1,302



32

%



5,096



4,672



9

%


HOMES DELIVERED (a)


Three Months Ended



Nine Months Ended


September 30,



September 30,






%







%

Region

2019


2018


Change



2019


2018


Change

Northern

651



583



12

%



1,739



1,548



12

%

Southern

1,000



839



19

%



2,636



2,405



10

%

Total

1,651



1,422



16

%



4,375



3,953



11

%


BACKLOG (a)


September 30, 2019



September 30, 2018




Dollars


Average





Dollars


Average

Region

Units


(millions)


Sales Price



Units


(millions)


Sales Price

Northern

1,231



$

529



$

430,000




1,284



$

549



$

427,000


Southern

1,684



$

608



$

361,000




1,562



$

591



$

379,000


Total

2,915



$

1,137



$

390,000




2,846



$

1,140



$

401,000



LAND POSITION SUMMARY (a)


September 30, 2019



September 30, 2018


Lots

Lots Under




Lots

Lots Under


Region

Owned

Contract

Total



Owned

Contract

Total

Northern

6,696


5,015


11,711




5,561


6,921


12,482


Southern

8,145


9,210


17,355




8,219


8,904


17,123


Total

14,841


14,225


29,066




13,780


15,825


29,605


(a)

Beginning in the second quarter of 2019, we changed from three reportable segments to two reportable segments: Northern and Southern. Prior year information has been restated for corresponding items of our segment information.

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SOURCE M/I Homes, Inc.