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M/I Homes Reports 2017 Third Quarter Results

COLUMBUS, Ohio, Oct. 25, 2017 /PRNewswire/ -- M/I Homes, Inc. (NYSE: MHO) announced results for the three months and nine months ended September 30, 2017.

2017 Third Quarter Highlights:

  • Net income increased to $22.3 million ($0.64 per diluted share) from $10.9 million ($0.35 per diluted share) in 2016
  • Diluted earnings per share increased to $0.71, excluding the $0.07 per share impact of a $2.3 million equity adjustment due to the redemption of preferred shares. In 2016's third quarter, diluted earnings per share was $0.65, excluding the impact of stucco-related charges
  • New contracts increased 13% to 1,225, a record level for the third quarter
  • Homes delivered increased 9% to a third quarter record 1,256
  • Revenue increased 8% to a third quarter record $476 million
  • Backlog sales value increased 11% to $912 million; backlog units increased 7% to 2,378
  • Estimated impact of hurricanes - 20 delayed closings and $700,000 of community and model home repair costs

For the third quarter of 2017, the Company reported net income of $22.3 million, or $0.64 per diluted share. This compares to net income of $10.9 million, or $0.35 per diluted share, for the third quarter of 2016. The current quarter diluted earnings per share was reduced by a $2.3 million after-tax fair value equity adjustment ($0.07 per diluted share) related to the previously announced redemption of our outstanding preferred shares which was completed on October 16, 2017. The third quarter of 2016 included a $14.5 million pre-tax charge ($0.30 per diluted share) for stucco-related repair costs in certain of our Florida communities. For the nine months ended September 30, 2017, the Company reported net income of $56.2 million, or $1.73 per diluted share, compared to net income of $36.0 million, or $1.17 per diluted share, for the same period of 2016. Year-to-date in 2017 and 2016, the Company incurred $8.5 million ($0.18 per diluted share) and $19.4 million ($0.40 per diluted share) of pre-tax charges, respectively, related to stucco-related repairs. Exclusive of these stucco-related charges in both periods, year-to-date net income was $61.6 million compared to $48.1 million in 2016's same period, a 28% increase.

Homes delivered in 2017's third quarter were 1,256 compared to 1,148 deliveries in 2016's third quarter - a 9% increase. Homes delivered for the nine months ended September 30, 2017 increased 14% to 3,505 from 2016's deliveries of 3,066. New contracts for 2017's third quarter were 1,225, an increase of 13% over 2016's third quarter. For the first nine months of 2017, new contracts increased 9% to 4,079 from 3,756 in 2016. M/I Homes had 179 active communities at September 30, 2017 compared to 174 at September 30, 2016, a 3% increase. The Company's cancellation rate was 15% in the third quarter of 2017 and 2016. Homes in backlog increased 7% at September 30, 2017 to 2,378 units, with a sales value of $912 million (an 11% increase over last year's third quarter), and an average sales price of $383,000. At September 30, 2016, the sales value of homes in backlog was $821 million, with an average sales price of $370,000 and backlog units of 2,221.

Robert H. Schottenstein, Chief Executive Officer and President, commented, "We are very pleased with our third quarter results highlighted by record revenue, record new contracts and record homes delivered. We reached our highest third quarter backlog level in more than 10 years, with a sales value of $912 million - an 11% increase over 2016's third quarter. Gross margins improved 30 basis points to 21.4% and net income improved 12% over 2016's third quarter, excluding the impact of 2016's stucco-related charges. We achieved this strong performance despite the impact of hurricanes in our Florida and Houston markets which delayed approximately 20 third quarter deliveries, slowed down sales and resulted in approximately $700,000 of community and model home repair costs."

Mr. Schottenstein continued, "Our financial condition remains strong. During the quarter, we issued $250 million of 8-year senior notes, converted $58 million of our convertible notes into equity and completed the redemption of $50 million of our preferred shares in October. These steps both strengthened and simplified our balance sheet. We ended the quarter with $104 million of cash, no outstanding borrowings under our $475 million unsecured credit facility, shareholders' equity of $723 million and a healthy homebuilding debt to capital ratio of 47%. As we begin the final quarter of 2017, we are well positioned for another solid year. We have a strong backlog and housing market conditions remain favorable throughout most of our markets. We will continue to focus on increasing profitability while growing our market share and investing in well-located attractive land opportunities."

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 2018.

M/I Homes, Inc. is one of the nation's leading builders of single-family homes, having sold over 104,400 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 operates under the name Hans Hagen Homes in its Minneapolis/St. Paul, Minnesota market. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; 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, construction defect, 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, 2016, 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,


2017


2016


2017


2016

New contracts

1,225



1,088



4,079



3,756


Average community count

183



174



182



176


Cancellation rate

15

%


15

%


14

%


13

%

Backlog units





2,378



2,221


Backlog sales value





$

911,657



$

821,494


Homes delivered

1,256



1,148



3,505



3,066


Average home closing price

$

366



$

365



$

368



$

361










Homebuilding revenue:








Housing revenue

$

459,342



$

419,228



$

1,289,893



$

1,105,701


Land revenue

5,318



12,674



12,438



31,816


Total homebuilding revenue

$

464,660



$

431,902



$

1,302,331



$

1,137,517










Financial services revenue

11,763



10,562



37,938



30,564


Total revenue

$

476,423



$

442,464



$

1,340,269



$

1,168,081










Cost of sales - operations

374,673



349,135



1,054,052



924,106


Cost of sales - stucco-related charges



14,500



8,500



19,409


Gross margin

$

101,750



$

78,829



$

277,717



$

224,566


General and administrative expense

31,337



29,160



89,209



78,249


Selling expense

31,136



27,663



88,666



75,462


Operating income

$

39,277



$

22,006



$

99,842



$

70,855


Equity in income from joint venture arrangements

(71)



(24)



(198)



(413)


Interest expense

4,675



3,587



13,847



13,160


Income before income taxes

$

34,673



$

18,443



$

86,193



$

58,108


Provision for income taxes

12,346



7,501



29,994



22,061


Net income

$

22,327



$

10,942



$

56,199



$

36,047


Excess of fair value over book value of preferred shares subject to redemption

2,257





2,257




Preferred dividends

1,218



1,218



3,656



3,656


Net income to common shareholders

$

18,852



$

9,724



$

50,286



$

32,391










Earnings per share:








Basic

$

0.74



$

0.39



$

2.00



$

1.31


Diluted

$

0.64



$

0.35



$

1.73



$

1.17










Weighted average shares outstanding:








Basic

25,581



24,669



25,106



24,665


Diluted

30,675



30,139



30,539



30,093



M/I Homes, Inc. and Subsidiaries

Summary Balance Sheet and Other Information (unaudited)

(Dollars in thousands, except per share amounts)



As of


September 30,


2017


2016

Assets:




Total cash, cash equivalents and restricted cash

$

103,636



$

23,308


Mortgage loans held for sale

91,987



95,545


Inventory:




Lots, land and land development

663,170



554,150


Land held for sale

12,330



15,956


Homes under construction

645,816



544,350


Other inventory

134,493



110,697


Total Inventory

$

1,455,809



$

1,225,153






Property and equipment - net

25,320



21,792


Investments in joint venture arrangements

22,981



26,528


Deferred income taxes, net of valuation allowance

29,569



39,944


Other assets

55,393



64,967


Total Assets

$

1,784,695



$

1,497,237






Liabilities:




Debt - Homebuilding Operations:




Senior notes due 2021 - net

$

296,505



$

295,401


Senior notes due 2025 - net

245,958




Convertible senior subordinated notes due 2017 - net



56,949


Convertible senior subordinated notes due 2018 - net

85,955



85,246


Notes payable - homebuilding



85,000


Notes payable - other

4,057



8,566


Total Debt - Homebuilding Operations

$

632,475



$

531,162






Preferred shares subject to redemption

50,420




Notes payable bank - financial services operations

91,275



91,483


Total Debt

$

774,170



$

622,645






Accounts payable

120,598



110,179


Other liabilities

166,954



132,821


Total Liabilities

$

1,061,722



$

865,645






Shareholders' Equity

722,973



631,592


Total Liabilities and Shareholders' Equity

$

1,784,695



$

1,497,237






Book value per common share

$

26.27



$

23.58


Homebuilding debt / capital ratio(1)

47

%


46

%



(1)

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

(Dollars in thousands)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2017


2016


2017


2016

Adjusted EBITDA(1)

$

48,765



$

31,284



$

126,042



$

96,402










Cash (used in) provided by operating activities

$

(26,705)



$

(14,437)

(2)


$

(66,025)



$

26,502

(2)

Cash used in investing activities

$

(6,022)



$

(4,868)

(2)


$

(5,065)



$

(21,679)

(2)

Cash provided by financing activities

$

106,423



$

12,613



$

140,285



$

5,384










Land/lot purchases

$

65,511



$

49,612



$

250,141



$

146,998


Land development spending

$

53,755



$

48,230



$

137,019



$

121,763


Land sale revenue

$

5,318



$

12,674



$

12,438



$

31,816


Land sale gross profit

$

365



$

1,063



$

883



$

3,095










Financial services pre-tax income

$

5,231



$

5,393



$

19,988



$

16,136




(1)

See "Non-GAAP Financial Results" table below.

(2)

During the fourth quarter of 2016, we elected to early-adopt Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash. Certain amounts above have been adjusted to apply the new method retrospectively.

M/I Homes, Inc. and Subsidiaries

Non-GAAP Financial Results (3)

(Dollars in thousands)



Three Months Ended


Nine Months Ended


September 30,


September 30,


2017


2016


2017


2016

Net income

$

22,327



$

10,942



$

56,199



$

36,047


Add:








Provision for income taxes

12,346



7,501



29,994



22,061


Interest expense net of interest income

4,003



2,980



11,719



11,531


Interest amortized to cost of sales

4,988



4,963



13,597



13,138


Depreciation and amortization

3,633



3,541



10,499



10,142


Non-cash charges

1,468



1,357



4,034



3,483


Adjusted EBITDA

$

48,765



$

31,284



$

126,042



$

96,402


M/I Homes, Inc. and Subsidiaries

Non-GAAP Reconciliation (3)

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



Three Months Ended


Nine Months Ended


September 30,


September 30,


2017


2016


2017


2016

Total revenue

$

476,423



$

442,464



$

1,340,269



$

1,168,081










Income before income taxes

$

34,673



$

18,443



$

86,193



$

58,108


Add: Stucco-related charges



14,500



8,500



19,409


Adjusted income before income taxes

$

34,673



$

32,943



$

94,693



$

77,517










Pre-tax operating margin percentage

7.3

%


4.2

%


6.4

%


5.0

%

Adjusted pre-tax operating margin percentage

7.3

%


7.4

%


7.1

%


6.6

%









Net income

$

22,327



$

10,942



$

56,199



$

36,047


Add: Stucco-related charges - net of tax



8,990



5,440



12,034


Adjusted net income

$

22,327



$

19,932



$

61,639



$

48,081










Stucco-related charges - net of tax

$



$

8,990



$

5,440



$

12,034


Divided by: Diluted weighted average shares outstanding

30,675



30,139



30,539



30,093


Diluted earnings per share related to stucco-related charges

$



$

0.30



$

0.18



$

0.40










Excess of fair value over book value of preferred shares
subject to redemption

$

2,257



$



$

2,257



$


Divided by: Diluted weighted average shares outstanding

30,675



30,139



30,539



30,093


Diluted earnings per share related to preferred shares
subject to redemption

$

0.07



$



$

0.07



$










Add: Diluted earnings per share

0.64



0.35



1.73



1.17


Adjusted diluted earnings per share

$

0.71



$

0.65



$

1.98



$

1.57






(3)

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.


M/I Homes, Inc. and Subsidiaries
Selected Supplemental Financial and Operating Data


NEW CONTRACTS


Three Months Ended


Nine Months Ended


September 30,


September 30,






%






%

Region

2017


2016


Change


2017


2016


Change

Midwest


458



407


13

%



1,545



1,409


10

%

Southern


583



437


33

%



1,798



1,444


25

%

Mid-Atlantic


184



244


(25)

%



736



903


(18)

%

Total


1,225



1,088


13

%



4,079



3,756


9

%




HOMES DELIVERED


Three Months Ended


Nine Months Ended


September 30,


September 30,






%






%

Region

2017


2016


Change


2017


2016


Change

Midwest


461



443


4

%



1,277



1,163


10

%

Southern


520



410


27

%



1,459



1,158


26

%

Mid-Atlantic


275



295


(7)

%



769



745


3

%

Total


1,256



1,148


9

%



3,505



3,066


14

%






































BACKLOG


September 30, 2017


September 30, 2016

Region

Units


Dollars
(millions)


Average
Sales Price


Units


Dollars
(millions)


Average
Sales Price

Midwest


1,025


$

416


$

406,000



918


$

356


$

388,000

Southern


1,013


$

360


$

355,000



846


$

296


$

350,000

Mid-Atlantic


340


$

136


$

399,000



457


$

170


$

371,000

Total


2,378


$

912


$

383,000



2,221


$

821


$

370,000






































LAND POSITION SUMMARY


September 30, 2017

September 30, 2016

Region

Lots
Owned


Lots Under
Contract


Total

Lots
Owned


Lots Under
Contract


Total

Midwest


4,622



4,947



9,569


3,846



5,378



9,224

Southern


5,081



7,688



12,769


4,213



5,333



9,546

Mid-Atlantic


1,746



2,779



4,525


2,068



2,381



4,449

Total


11,449



15,414



26,863


10,127



13,092



23,219

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SOURCE M/I Homes, Inc.