M.D.C. HOLDINGS, INC. The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management's experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and this Quarterly Report on Form 10-Q. Three Months EndedMarch 31, 2022 2021 (Dollars in thousands, except per share amounts)
Homebuilding: Home sale revenues$ 1,240,520 $ 1,041,858 Home cost of sales (921,378) (813,888) Inventory impairments (660) - Total cost of sales (922,038) (813,888) Gross profit 318,482 227,970 Gross margin 25.7 % 21.9 % Selling, general and administrative expenses (129,314) (114,993) Interest and other income 755 967 Other expense (1,424) (437) Homebuilding pretax income 188,499 113,507 Financial Services: Revenues 29,131 45,023 Expenses (16,935) (15,105) Other income, net 1,187 887 Financial services pretax income 13,383 30,805 Income before income taxes 201,882 144,312 Provision for income taxes (53,461) (33,622) Net income$ 148,421 $ 110,690 Earnings per share: Basic$ 2.09 $ 1.58 Diluted$ 2.02 $ 1.51 Weighted average common shares outstanding: Basic 70,766,146 69,790,927 Diluted 72,938,414 72,788,177
Dividends declared per share$ 0.50 $ 0.37 Cash provided by (used in): Operating Activities$ 118,055 $ (57,957) Investing Activities$ (6,884) $ (5,749) Financing Activities$ (126,280) $ 336,342 -23-
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Industry Conditions and Outlook for MDC*
The housing market was resilient during the first quarter despite volatile geopolitical conditions, accelerating inflationary pressures, and increasing mortgage interest rates. We believe the strength in demand for new homes continues to be driven by a supply-demand imbalance resulting from over a decade of underproduction of new homes and a continued focus on suburban ownership. As a result of this supply-demand imbalance, we continued to raise sales prices in the majority of our communities during the first quarter in order to (1) offset cost increases, which have been significant due to labor and material shortages and inflationary pressures; (2) reduce our sales absorption rate to keep our backlog at a level that is manageable for our construction personnel and trade partners, and; (3) improve the profitability per home closed given the limits on construction capacity. As a result of our focus on pricing over the past year, our gross margin from home sales for the first quarter was 25.7%, an improvement of 380 basis points compared to the first quarter of 2021. Throughout the industry we have seen continued disruptions in the supply chain due to the impacts of the pandemic and strong demand for new homes, which have caused shortages of certain building materials and tightness in labor markets. These disruptions have caused our cycle times to extend. We continue to work with our suppliers and trade partners to address these issues, but we do not expect conditions to significantly improve in the near term. Continued supply chain disruptions and labor and material shortages could further extend delivery times and increase cost pressures. We ended the quarter in a strong financial position, with total cash and cash equivalents of$582 million , total liquidity of$1.73 billion and a debt-to-capital ratio of 35.5%, giving us the ability to continue to grow our business responsibly. To that end, subsequent to the first quarter our subsidiary,Richmond American Homes of Tennessee, Inc. , entered into an asset purchase agreement to acquire substantially all of the homebuilding assets ofThe Jones Company of Tennessee, L.L.C. , a leading homebuilder in theNashville market. This acquisition provides us with the opportunity to quickly scale our operations in one of our newest markets and allows us to increase our footprint within one of our more affordable markets. While we remain confident in the long term growth prospects for the industry, the demand for new homes is subject to continued and increasing uncertainty due to many factors, including the current geopolitical environment, the recent increase in mortgage interest rates, rising inflation, the ongoing impact of the COVID-19 pandemic and other factors. The potential effect of these factors is highly uncertain and could adversely and materially impact our operations and financial results in future periods.
Three Months Ended
For the three months endedMarch 31, 2022 , our net income was$148.4 million , or$2.02 per diluted share, a 34% increase compared to net income of$110.7 million , or$1.51 per diluted share, for the same period in the prior year. Our homebuilding business was the driver of these year-over-year improvements, as pretax income from our homebuilding operations increased$75.0 million , or 66%, compared to the same period in the prior year. This was slightly offset by a decrease in pretax income from our financial services operation of$17.4 million , or 57%, compared to the period endedMarch 31, 2021 . The increase in homebuilding pretax income was the result of a 19% increase in home sale revenues and a 430 basis point increase in our operating margin. The increase in operating margin is the result of our improved pricing resulting in an increase to gross margin of 380 basis points as well as an improvement of 60 basis points in our selling, general and administrative expenses as a percentage of home sale revenues. The decrease in financial services pretax income was primarily due to our mortgage operations, which benefited from increased profitability per loan originated during the period endedMarch 31, 2021 . As competition in the primary mortgage market has increased, we have seen these profit levels return to more historical levels during the period endedMarch 31, 2022 . The dollar value of our net new home orders increased 12% from the prior year period, due to a 14% increase in the average selling price of net new orders, slightly offset by a 2% decrease in the number of net new orders. The decrease in the number of net new orders was due to an decrease in the monthly sales absorption rate in order to keep our backlog at a manageable level given the increase in cycle times discussed above. The increase in the average selling price was the result of continued price increases implemented in nearly all of our communities.
* See "Forward-Looking Statements" below.
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Homebuilding
Pretax Income:
Three Months Ended
March 31, Change
2022 2021 Amount %
(Dollars in thousands)
West $ 130,526 $ 77,187 $ 53,339 69 %
Mountain 50,506 45,858 4,648 10 %
East 31,394 7,835 23,559 301 %
Corporate (23,927) (17,373) (6,554) (38) %
Total Homebuilding pretax income $
188,499
For the three months endedMarch 31, 2022 , we recorded homebuilding pretax income of$188.5 million , an increase of 66% from$113.5 million for the same period in the prior year. The increase was due to a 19% increase in home sale revenues, a 380 basis point increase in our gross margin from home sales and a 60 basis point decrease in our selling, general and administrative expenses as a percentage of revenue. Our West segment experienced a$53.3 million year-over-year increase in pretax income, due to a 15% increase in home sales revenue and an improved gross margin. Our Mountain segment experienced a$4.6 million increase in pretax income from the prior year, as a result of a 3% increase in home sales revenue and an improved gross margin. Our East segment experienced a$23.6 million increase in pretax income from the prior year, due primarily to a 97% increase in home sales revenue as well as an improved gross margin. Each of our homebuilding segments also benefited from decreased selling, general and administrative expenses as a percentage of revenue driven by improved operating leverage. Our Corporate segment experienced a$6.6 million decrease in pretax income, due primarily to increases in stock-based compensation expense, bonus expense and salary related expenses due to higher average headcount and increased salaries. Assets: March 31, December 31, Change 2022 2021 Amount % (Dollars in thousands) West$ 2,548,681 $ 2,472,378 $ 76,303 3 % Mountain 1,141,395 1,072,717 68,678 6 % East 479,790 450,675 29,115 6 % Corporate 547,698 547,364 334 0 % Total homebuilding assets$ 4,717,564 $ 4,543,134 $ 174,430 4 % Total homebuilding assets increased 4% fromDecember 31, 2021 toMarch 31, 2022 . Homebuilding assets increased in each of our operating segments largely due to a greater number of homes completed or under construction as of period-end. -25-
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New Home Deliveries & Home Sale Revenues:
Changes in home sale revenues are impacted by changes in the number of new homes
delivered and the average selling price of those delivered homes. Commentary for
each of our segments on significant changes in these two metrics is provided
below.
Three Months Ended March 31,
2022 2021 % Change
Home
Home Sale Average Home Sale Average Sale
Homes Revenues Price Homes Revenues Price Homes Revenues Average Price
(Dollars in thousands)
West 1,243 $ 707,311 $ 569.0 1,276 $ 616,611 $ 483.2 (3) % 15 % 18 %
Mountain 548 335,128 611.5 612 324,717 530.6 (10) % 3 % 15 %
East 442 198,081 448.1 290 100,530 346.7 52 % 97 % 29 %
Total 2,233 $ 1,240,520 $ 555.5 2,178 $ 1,041,858 $ 478.4 3 % 19 % 16 %
For the quarter ended March 31, 2022 , the number of new homes delivered in each
of our segments was negatively impacted by an increase in construction cycle
times. This increase was primarily the result of extended permitting times,
supply chain disruptions and labor shortages as a result of the pandemic as well
as the increased demand for new homes.
West Segment Commentary
For the three months ended March 31, 2022 , the decrease in new home deliveries
was the result of a decrease in backlog conversion rates in most of our markets
within this segment as a result of the increased construction cycle times
discussed above. This decrease was partially offset by an increase in the number
of homes in backlog to begin the period. The average selling price of homes
delivered increased as a result of price increases implemented over the past
twelve months as well as a shift in geographic mix of homes delivered from
Nevada to our Northern California markets. These increases were slightly offset
by a shift in mix to lower priced communities.
Mountain Segment Commentary
For the three months ended March 31, 2022 , the decrease in new home deliveries
was the result of a decrease in backlog conversion rates in most of our markets
within this segment as a result of the increased construction cycle times
discussed above. This decrease was partially offset by an increase in the number
of homes in backlog to begin the period. The average selling price of homes
delivered increased as a result of price increases implemented over the past
twelve months.
East Segment Commentary
For the three months ended March 31, 2022 , the increase in new home deliveries
was the result of an increase in the number of homes in backlog to begin the
period as well as an increase in backlog conversion rates as a result of the
construction status of those homes in beginning backlog. The average selling
price of homes delivered increased as a result of price increases implemented
over the past twelve months as well as a shift in mix within several markets to
higher priced communities.
Gross Margin from Home Sales:
Our gross margin from home sales for the three months endedMarch 31, 2022 , increased 380 basis points year-over-year from 21.9% to 25.7%. Gross margin from home sales increased across each of our segments on both build-to-order and speculative home deliveries driven by continued price increases implemented across nearly all of our communities. This increase was partially offset by an increase in building costs year-over-year, a$0.7 million inventory impairment and a$2.4 million warranty accrual adjustment recognized during the three months endedMarch 31, 2022 . -26-
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Selling, General and Administrative Expenses:
Three Months Ended March
31,
2022 2021 Change
(Dollars in thousands)
General and administrative expenses
5.8 % 5.5 % 30 bps
Marketing expenses
2.1 % 2.5 % -40 bps
Commissions expenses
2.6 % 3.1 % -50 bps
Total selling, general and administrative expenses
10.4 % 11.0 % -60 bps
General and administrative expenses increased for the three months ended
Marketing expenses were flat for the three months ended
Commissions expenses decreased slightly for the three months endedMarch 31, 2021 due to increased home sale revenues, which were offset by changes to our commission structure. -27-
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Other Homebuilding Operating Data
Changes in the dollar value of net new orders are impacted by changes in the
number of net new orders and the average selling price of those homes.
Commentary for each of our segments on significant changes in these two metrics
is provided below.
Three Months Ended March 31,
2022 2021 % Change
Monthly Monthly
Dollar Average Absorption Average Monthly Dollar Absorption
Homes Value Price Rate * Homes Dollar Value Price Absorption Rate * Homes Value Average Price Rate
(Dollars in thousands)
West 1,704 $ 1,000,954 $ 587.4 5.54 1,775 $ 904,691 $ 509.7 5.80 (4) % 11 % 15 % (4) %
Mountain 920 581,971 632.6 5.63 1,011 562,753 556.6 5.91 (9) % 3 % 14 % (5) %
East 527 253,850 481.7 4.78 423 168,021 397.2 4.62 25 % 51 % 21 % 3 %
Total 3,151 $ 1,836,775 $ 582.9 5.42 3,209 $ 1,635,465 $ 509.6 5.64 (2) % 12 % 14 % (4) %
*Calculated as total net new orders (gross orders less cancellations) in period ÷ average active communities during period ÷ number of months in period.
Average Active Subdivisions
Active Subdivisions Three Months Ended
March 31, % March 31, %
2022 2021 Change 2022 2021 Change
West 112 97 15 % 103 102 1 %
Mountain 53 55 (4) % 55 57 (4) %
East 35 34 3 % 37 31 19 %
Total 200 186 8 % 195 190 3 %
West Segment Commentary
For the three months ended March 31, 2022 , the decrease in net new orders was
due to a decrease in the monthly sales absorption rate. This was partially
offset by an increase in average active subdivisions year-over-year. The
increase in average selling price was due to continued price increases
implemented over the last twelve months within nearly all of our communities.
These increases were partially offset by a shift in mix to lower priced
communities.
Mountain Segment Commentary
For the three months ended March 31, 2022 , the decrease in net new orders was
due to a decrease in the monthly sales absorption rates in each of our Colorado
and Utah markets, as well as a decrease in average active subdivisions within
our Utah market. The increase in average selling price was due to price
increases implemented over the last twelve months within nearly all of our
communities.
East Segment Commentary
For the three months ended March 31, 2022 , the increase in net new orders was
primarily driven by an increase in average active subdivisions year-over-year,
as well as an increase in the monthly sales absorption rates in each of our
Florida markets. The increase in average selling price was due to price
increases implemented over the last twelve months within nearly all of our
communities.
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Cancellation Rate:
Cancellations as a Percentage of
Homes in Beginning Backlog
2022 2021
Three Months Ended
March 31, March 31,
West 8 % 7 %
Mountain 8 % 8 %
East 9 % 13 %
Total 8 % 8 %
Our cancellations as a percentage of homes in beginning backlog to start the
quarter ("cancellation rate") was consistent year-over-year. The improvement in
our East Segment was primarily driven by our Florida markets, which experienced
improved economic conditions year-over-year, driven by unemployment rates that
have returned to pre-pandemic levels.
Backlog:
March 31,
2022 2021 % Change
Dollar Average Dollar Average Dollar Average
Homes Value Price Homes Value Price Homes Value Price
(Dollars in thousands)
West 4,677 $ 2,651,123 $ 566.8 4,209 $ 2,157,618 $ 512.6 11 % 23 % 11 %
Mountain 2,546 1,668,048 655.2 2,417 1,355,201 560.7 5 % 23 % 17 %
East 1,335 628,631 470.9 1,060 414,474 391.0 26 % 52 % 20 %
Total 8,558 $ 4,947,802 $ 578.1 7,686 $ 3,927,293 $ 511.0 11 % 26 % 13 %
At March 31, 2022 , we had 8,558 homes in backlog with a total value of
$4.95 billion . This represented an 11% increase in the number of homes in
backlog and a 26% increase in the dollar value of homes in backlog from
March 31, 2021 . The increase in the number of homes in backlog is primarily a
result of an increase in cycle times within nearly all of our markets. The
increase in the average selling price of homes in backlog is due to continued
price increases implemented over the past twelve months in nearly all of our
communities. These increases were slightly offset by a shift in mix to lower
priced communities, most notably in our West segment, consistent with our
ongoing strategy of offering more affordable home plans. Our ability to convert
backlog into closings could be negatively impacted in future periods by the
pandemic, the extent to which is highly uncertain and depends on future
developments.
Homes Completed or
March 31, %
2022 2021 Change
Unsold:
Completed 19 36 (47) %
Under construction 313 64 389 %
Total unsold started homes 332 100 232 %
Sold homes under construction or completed 7,445 5,854 27 %
Model homes under construction or completed 513 502 2 %
Total homes completed or under construction 8,290 6,456 28 %
The increase in sold homes under construction or completed is due to the increase in the number of homes in backlog year-over-year due to increase in cycle times discussed above.
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Lots Owned and Optioned (including homes completed or under construction):
March 31, 2022 March 31, 2021
Total
Lots Lots Lots Lots %
Owned Optioned Total Owned Optioned Total Change
West 15,548 4,237 19,785 12,658 3,921 16,579 19 %
Mountain 6,741 4,240 10,981 6,790 3,418 10,208 8 %
East 4,318 2,728 7,046 3,088 2,148 5,236 35 %
Total 26,607 11,205 37,812 22,536 9,487 32,023 18 %
Our total owned and optioned lots at March 31, 2022 were 37,812, which was an
18% increase year-over-year. We believe that our total lot supply, coupled with
our planned acquisition activity, can support growth in future periods. See
"Forward-Looking Statements" below.
Financial Services
Three Months Ended
March 31, Change
2022 2021 Amount %
(Dollars in thousands)
Financial services revenues
Mortgage operations $ 17,601 $ 35,165 $ (17,564) (50) %
Other 11,530 9,858 1,672 17 %
Total financial services revenues $ 29,131 $ 45,023 $ (15,892) (35) %
Financial services pretax income
Mortgage operations $ 7,433 $ 26,039 $ (18,605) (71) %
Other 5,950 4,766
1,183 25 %
Total financial services pretax income
For the three months endedMarch 31, 2022 , our financial services pretax income decreased to$13.4 million compared to$30.8 million in the first quarter of 2021. The decrease was due to our mortgage operations, which saw a decrease in pretax income from$26.0 million in the first quarter of 2021, which was our most profitable quarter in history, to$7.4 million in the first quarter of 2022. As competition in the primary mortgage market has increased, we have seen our profitability per loan originated return to more historical levels. -30-
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The following table sets forth information for our mortgage operations segment relating to mortgage loans originated and capture rate.
Three Months Ended % or
March 31, Percentage
2022 Change 2021
(Dollars in thousands)
Total Originations (including transfer loans):
Loans 1,314 1,568 (16) %
Principal $ 605,800 $ 616,004 (2) %
Capture Rate Data:
Capture rate as % of all homes delivered 59 % 72 % (13) %
Capture rate as % of all homes delivered (excludes cash sales) 62 % 74 % (12) %
Mortgage Loan Origination Product Mix:
FHA loans 12 % 20 % (8) %
Other government loans (VA & USDA) 20 % 17 % 3 %
Total government loans 32 % 37 % (5) %
Conventional loans 68 % 63 % 5 %
100 % 100 % - %
Loan Type:
Fixed rate 99 % 100 % (1) %
ARM 1 % - % 1 %
Credit Quality:
Average FICO Score 742 738 1 %
Other Data:
Average Combined LTV ratio 82 % 85 % (3) %
Full documentation loans 100 % 100 % - %
Loans Sold to Third Parties:
Loans 1,527 1,586 (4) %
Principal $ 691,358 $ 610,897 13 %
Income Taxes
Our overall effective income tax rates were 26.5% and 23.3% for the three months
ended March 31, 2022 and 2021, respectively, resulting in income tax expense of
$53.5 million and $33.6 million for the same periods, respectively. The
year-over-year increase in our effective tax rate for the three months ended
March 31, 2022 was primarily due to energy tax credits not being extended into
2022 and a decrease in the windfall on non-qualifying stock options exercised
and lapsed restricted stock during the period.
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CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Management
evaluates such estimates and judgments on an on-going basis and makes
adjustments as deemed necessary. Actual results could differ from these
estimates if conditions are significantly different in the future. See
"Forward-Looking Statements" below.
Our critical accounting estimates and policies have not changed from those
reported in Management's Discussion and Analysis of Financial Condition and
Results of Operations in our Annual Report on Form 10-K for the year ended
LIQUIDITY AND CAPITAL RESOURCES
We use our liquidity and capital resources to (1) support our operations,
including the purchase of land, land development and construction of homes; (2)
provide working capital; and (3) provide mortgage loans for our homebuyers. Our
liquidity includes our cash and cash equivalents, Revolving Credit Facility (as
defined below) and Mortgage Repurchase Facility (as defined below).
Additionally, we have an existing effective shelf registration statement that
allows us to issue equity, debt or hybrid securities up to $2.0 billion , of
which $1.0 billion remains.
Material Cash Requirements
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as ofMarch 31, 2021 , while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our Mortgage Repurchase Facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds) and operating leases. Other material cash requirements include land acquisition and development costs not yet contracted for, home construction costs, operating expenses, including our selling, general and administrative expenses, investments and funding of capital improvements and dividend payments. AtMarch 31, 2022 , we had outstanding senior notes with varying maturities totaling an aggregate principal amount of$1.5 billion , with none payable within 12 months. Future interest payments associated with the notes total$1.3 billion , with$64.2 million payable within 12 months. As ofMarch 31, 2022 , we had$33.1 million of required operating lease future minimum payments.
At
AtMarch 31, 2022 , we had outstanding surety bonds and letters of credit totaling$383.8 million and$205.1 million , respectively, including$153.4 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit was approximately$209.4 million and$157.4 million , respectively. We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit. We have made no material guarantees with respect to third-party obligations.
Capital Resources
Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders' equity; (2) long-term financing, represented by our 3.850% senior notes due 2030, 2.500% senior notes due 2031, 6.000% senior notes due 2043, and 3.966% senior notes due 2061; (3) our Revolving Credit Facility and (4) our Mortgage Repurchase Facility. During the year-endedDecember 31, 2021 , we accelerated the retirement of all of our$250 million 5.500% senior notes, which were scheduled to mature inJanuary 2024 (see Note 14, Senior Notes, in the notes to the financial statements for further discussion). -32-
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Because of our current balance of cash, cash equivalents, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are adequate to satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See "Forward-Looking Statements" above. We may from time to time seek to retire or purchase our outstanding senior notes through cash purchases, whether through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility
Senior Notes. Our senior notes are not secured and, while the senior note
indentures contain some restrictions on secured debt and other transactions,
they do not contain financial covenants. Our senior notes are fully and
unconditionally guaranteed on an unsecured basis, jointly and severally, by most
of our homebuilding segment subsidiaries. We believe that we are in compliance
with the representations, warranties and covenants in the senior note
indentures.
Revolving Credit Facility. We have an unsecured revolving credit agreement
("Revolving Credit Facility") with a group of lenders, which may be used for
general corporate purposes. This agreement was amended on December 28, 2020 to
(1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the
"Commitment"), (2) extend the Revolving Credit Facility maturity of $1.125
billion of the Commitments to December 18, 2025 with the remaining Commitment
continuing to terminate on December 18, 2023 and (3) provide that the aggregate
amount of the commitments may increase to an amount not to exceed $1.7 billion
upon our request, subject to receipt of additional commitments from existing or
additional lenders and, in the case of additional lenders, the consent of the
co-administrative agents. As defined in the Revolving Credit Facility, interest
rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime
rate, (3) a federal funds effective rate plus 1.50%, and (4) a specified
eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined
based on our credit ratings and leverage ratio. Interest rates on eurocurrency
borrowings are equal to a specified eurocurrency rate plus a margin that is
determined based on our credit ratings and leverage ratio. At any time at which
our leverage ratio, as of the last day of the most recent calendar quarter,
exceeds 55%, the aggregate principal amount of all consolidated senior debt
borrowings outstanding may not exceed the borrowing base. There is no borrowing
base requirement if our leverage ratio, as of the last day of the most recent
calendar quarter, is 55% or less.
The Revolving Credit Facility provides for a transition from the eurocurrency rate to a benchmark replacement upon the occurrence of certain events.
The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a "term-out" of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default. The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as ofMarch 31, 2022 . We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. AtMarch 31, 2022 andDecember 31, 2021 , there were$51.7 million and$40.1 million , respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. AtMarch 31, 2022 andDecember 31, 2021 , we had$10.0 million and$10.0 million , respectively, outstanding under the Revolving Credit Facility. As ofMarch 31, 2022 , availability under the Revolving Credit Facility was approximately$1.14 billion . -33-
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Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the "Mortgage Repurchase Facility") withU.S. Bank National Association ("USBNA"). The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of$75 million (subject to increase by up to$75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement ("Custody Agreement"), dated as ofNovember 12, 2008 , by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The Mortgage Repurchase Facility was amended onSeptember 24, 2020 ,March 25, 2021 ,May 20, 2021 , andDecember 21, 2021 to adjust the commitments to purchase for specific time periods. As part of the amendments, the commitments to purchase (subject to increase by up to$75 million under certain conditions) were increased as follows: (1)$200 million for the periodsDecember 22, 2020 throughFebruary 4, 2021 , (2)$175 million for the periodsMarch 25, 2021 throughApril 22, 2021 ,June 23, 2021 throughJuly 22, 2021 ,September 22, 2021 throughOctober 21, 2021 , andMarch 23, 2022 throughApril 21, 2022 and (3)$400 million for the periodDecember 21, 2021 throughFebruary 15, 2022 . The Mortgage Repurchase Facility is scheduled to terminate onMay 19, 2022 . We are currently in negotiations to extend the Mortgage Repurchase Facility. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased by$75 million onMarch 23, 2022 effective throughApril 26, 2022 . The maximum aggregate commitment of the Mortgage Repurchase Facility was not temporarily increased as ofDecember 31, 2021 . AtMarch 31, 2022 andDecember 31, 2021 , HomeAmerican had$178.2 million and$256.3 million , respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. TheDecember 21, 2021 amendment also provides for a transition from a pricing rate based on the London Interbank Offered Rate (LIBOR) to one based on the Secured Overnight Financing Rate (SOFR). The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted TangibleNet Worth requirement, (ii) a maximum Adjusted TangibleNet Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as ofMarch 31, 2022 .
Dividends
During the three months ended
MDC Common Stock Repurchase Program
AtMarch 31, 2022 , we were authorized to repurchase up to 4,000,000 shares of our common stock. We did not repurchase any shares of our common stock during the three months endedMarch 31, 2022 . -34-
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Consolidated Cash Flow
During the three months endedMarch 31, 2022 , net cash provided by operating activities was$118.1 million compared with net cash used in operating activities of$58.0 million in the prior year period. Cash used to increase housing completed or under construction for the three months endedMarch 31, 2022 and 2021 was$277.2 million and$218.7 million , respectively, as homes in inventory increased significantly during both periods. During the three months endedMarch 31, 2022 and 2021, the most significant source of cash provided by operating activities was net income of$148.4 million and$110.7 million , respectively. Cash provided by the decrease in mortgage loans held-for-sale increased$92.8 million from$1.8 million in the three months endedMarch 31, 2021 , as a result of the above average level of originations that occur during the fourth quarter, as well as a year-over-year decrease in the capture rate on homes delivered in the three months endedMarch 31, 2022 . Cash provided by the decrease in land and land under development for the three months endedMarch 31, 2022 and 2021 was$108.8 million and$35.0 million , respectively, as home starts outnumbered lot acquisitions during the respective periods. Cash used to increase trade and other receivables for the three months endedMarch 31, 2022 and 2021 was$16.7 million and$40.3 million , respectively, due to the year-over-year increases in home deliveries during both periods. Cash provided by the change in accounts payable and accrued liabilities for the three months endedMarch 31, 2022 and 2021 was$57.6 million and$61.6 million , respectively, due to the increased construction spend during both periods as a result of the increases in home deliveries as well as the increase in homes in inventory at both period ends.
During the three months ended
During the three months endedMarch 31, 2022 , net cash used in financing activities was$126.3 million compared with net cash provided by financing activities of$336.3 million in the prior year period. The primary driver of this decrease in net cash provided by financing activities was the proceeds from the issuance of senior notes of$347.7 million during the three months endedMarch 31, 2021 . Cash used in payments on mortgage repurchase facility was$78.1 million for the three months endedMarch 31, 2022 compared with cash provided by advances on mortgage repurchase facility of$15.1 million for the three months endedMarch 31, 2021 , driven by the increased proceeds from the sale of mortgage loans. -35-
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OTHER
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, as well as statements
made by us in periodic press releases, oral statements made by our officials in
the course of presentations about the Company and conference calls in connection
with quarterly earnings releases, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements regarding our business, financial
condition, results of operations, cash flows, strategies and prospects. These
forward-looking statements may be identified by terminology such as "likely,"
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," or the negative of such
terms and other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements contained in this
Report are reasonable, we cannot guarantee future results. These statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from those expressed or implied by the forward-looking statements. We
undertake no obligation 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 subsequent reports on Forms
10-K, 10-Q and 8-K should be considered. Additionally, information about issues
that could lead to material changes in performance and risk factors that have
the potential to affect us is contained under the caption "Risk Factors" in Item
1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and
Item 1A of Part II of this Quarterly Report on Form 10-Q.
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