Market Overview

AV Homes Reports Results for Second Quarter 2018

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Second Quarter 2018 Highlights - as compared to the prior year second quarter (unless otherwise noted)

  • Total revenue increased 1.2% to $203.6 million
  • Homebuilding revenue increased 0.9% to $198.7 million
  • Average selling price for homes delivered increased 1.5% to $336,000 per home
  • Backlog increased 2.1% to 1,092 units

SCOTTSDALE, Ariz., Aug. 01, 2018 (GLOBE NEWSWIRE) -- AV Homes, Inc. (NASDAQ:AVHI), a developer and builder of residential communities in Florida, the Carolinas, Arizona and Texas, today announced results for its second quarter ended June 30, 2018.  Total revenue for the second quarter of 2018 increased 1.2% to $203.6 million from $201.2 million in the second quarter of 2017.  Net income and diluted earnings per share increased to $3.0 million and $0.13 per share, respectively, compared to net income of $0.6 million and $0.03 per share in the second quarter of 2017.  The second quarter of 2017 results included a $2.9 million pre-tax charge for debt extinguishment costs for the partial tender of the Company's 8.50% Senior Notes.

The increase in total revenue for the second quarter of 2018 compared to the prior year period included a 0.9% increase in homebuilding revenue to $198.7 million.  The increase in homebuilding revenue was primarily driven by increases in average selling prices.  During the second quarter of 2018, the Company delivered 592 homes, comparable to the 595 homes delivered during the second quarter of 2017, and the average unit price per closing improved 1.5% to approximately $336,000 from approximately $331,000 in the second quarter of 2017 due to price increases and improvements in the mix of homes sold.

Homebuilding gross margin was 17.4% in the second quarter of 2018, comparable to the 17.4% in the second quarter of 2017 with margin improvement in Florida and Arizona being offset by lower margins in the Carolinas and the 10 basis point negative impact from the purchase accounting for Oakdale-Hampton Homes in Dallas.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.5% and 2.8% in the 2018 and 2017 periods, respectively.

Total SG&A expense as a percent of homebuilding revenue increased to 14.5% in the second quarter of 2018 from 13.7% in the second quarter of 2017.  Homebuilding SG&A expense as a percentage of homebuilding revenue increased to 11.9% in the second quarter of 2018 from 11.2% in the second quarter of 2017.  The increase was primarily due to the initial SG&A investment in Dallas as we increase the communities with deliveries from six at the beginning of the year to an estimated 16 communities by the end of the year.  Corporate general and administrative expenses as a percentage of homebuilding revenue remained flat at 2.5% in the second quarter of 2018 compared to the same period a year ago.

The number of new housing contracts signed, net of cancellations, during the three months ended June 30, 2018 decreased 10.3% to 620 units, compared to 691 units during the same period in 2017.  The average sales price on contracts signed in the second quarter of 2018 increased 5.6% to approximately $342,000 from approximately $324,000 in the second quarter of 2017.  The aggregate dollar value of the contracts signed during the second quarter decreased 5.3% to $211.8 million, compared to $223.7 million during the same period one year ago.  The backlog value of homes under contract but not yet closed as of June 30, 2018 increased 3.4% to $365.3 million on 1,092 units, compared to $353.4 million on 1,070 units as of June 30, 2017.

Definitive Merger Agreement with Taylor Morrison Home Corporation

On June 7, 2018, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Taylor Morrison Home Corporation, ("Taylor Morrison").  Subject to the terms and conditions set forth in the Merger Agreement, each issued and outstanding share of common stock of AV Homes will be converted into the right to receive (A) 0.9793 shares of Taylor Morrison Class A common stock ("Taylor Morrison Shares"); (B) $21.50 in cash; or (C) $12.64 in cash, and 0.4034 Taylor Morrison Shares.   The cash election and stock election are subject to adjustment pursuant to the terms of the Merger Agreement such that the aggregate consideration will consist of approximately 58.8% cash and approximately 41.2% Taylor Morrison Shares.  The completion of the transaction is subject to customary closing conditions.

As a result of the Company's entry into the Merger Agreement with Taylor Morrison, the Company will not be hosting a conference call or webcast to discuss its financial results for the second quarter ended June 30, 2018.

About AV Homes, Inc.

AV Homes, Inc. is engaged in homebuilding and community development in Florida, the Carolinas, Arizona and Texas. Its principal operations are conducted in the greater Orlando, Jacksonville, Charlotte and Raleigh, Phoenix and Dallas-Fort-Worth markets. The Company builds communities that serve both active adults (55 years and older) as well as people of all ages. AV Homes common shares trade on NASDAQ under the symbol AVHI. For more information, visit www.avhomesinc.com.

This news release and the Investor Presentation posted to our website contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the cyclical nature of the homebuilding industry and its dependence on broader economic conditions; availability and suitability of undeveloped land and improved lots; ability to develop communities within expected timeframes; increases in interest rates and availability of mortgage financing; the impact of the Tax Cuts and Jobs Act on homebuyer demand; elimination or reduction of tax benefits associated with home ownership; the prices and supply of building materials; the availability and skill of subcontractors; our ability to successfully integrate acquired businesses; effect of our expansion efforts on our cash flows and profitability; competition for home buyers, properties, financing, raw materials and skilled labor; our ability to access sufficient capital; our ability to generate sufficient cash to service our indebtedness; terms of our financing documents that may restrict our operations and corporate actions; fluctuations in interest rates; our current level of indebtedness and potential need for additional financing; our ability to purchase outstanding notes upon certain fundamental changes; our ability to obtain letters of credit and surety bonds; cancellations of home sale orders; the geographic concentration of our operations; inflation affecting homebuilding costs or deflation affecting declines in spending and borrowing levels; warranty and construction defect claims; health and safety incidents in homebuilding activities; the seasonal nature of our business; impacts of weather conditions and natural disasters; resource shortages and rate fluctuations; value and costs related to our land and lot inventory; overall market supply and demand for new homes; our ability to recover our costs in the event of reduced home sales; conflicts of interest involving our largest stockholder; contractual restrictions under a stockholders agreement with our largest stockholder; dependence on our senior management; effects of government regulation of development and homebuilding projects; development liabilities that may impose payment obligations on us; our ability to utilize our deferred income tax asset; impact of environmental changes and governmental actions in response to environmental changes; dependence on digital technologies and related cyber risks; future sales or dilution of our equity; impairment of intangible assets; and other factors described in our most recent Annual Report on Form 10-K for and our other filings with the Securities and Exchange Commission, which filings are available on www.sec.gov. In addition, material risks that could cause actual results to differ from forward-looking statements include: the integration of Taylor Morrison and AV Homes and the ability to recognize the anticipated benefits from the combination of Taylor Morrison and AV Homes; the risk associated with AV Homes' ability to obtain the shareholder approval required to consummate the merger and the timing of the closing of the merger, including the risk that the conditions to the transaction are not satisfied on a timely basis or at all and the failure of the transaction to close for any other reason; the outcome of any legal proceedings that may be instituted against the parties and others related to the merger agreement; unanticipated difficulties or expenditures relating to the transaction, the response of business partners and retention as a result of the announcement and pendency of the transaction; risks relating to the value of the Taylor Morrison common stock to be issued in connection with the transaction; the anticipated size of the markets and continued demand for Taylor Morrison's and AV Homes' homes and the impact of competitive responses to the announcement of the transaction; access to available financing on a timely basis and on reasonable terms.  Forward-looking statements are based on the expectations, estimates, or projections of management as of the date of this news release and the Investor Presentation. AV Homes disclaims any intention or obligation to update or revise any forward-looking statements to reflect subsequent events and circumstances, except to the extent required by applicable law.

Additional Information about the Merger and Where to Find It:

This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. In connection with the proposed transaction between Taylor Morrison and AV Homes, Taylor Morrison has filed with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 that includes a preliminary Proxy Statement of AV Homes that also constitutes a preliminary Prospectus of Taylor Morrison (the "Proxy Statement/Prospectus"). AV Homes plans to mail to its shareholders the definitive Proxy Statement/Prospectus in connection with the transaction. INVESTORS AND SECURITY HOLDERS OF AV HOMES ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT TAYLOR MORRISON, AV HOMES, THE TRANSACTION AND RELATED MATTERS. Investors and security holders will be able to obtain free copies of the Proxy Statement/Prospectus and other documents (when available) filed with the SEC by Taylor Morrison and AV Homes through the website maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the documents filed with the SEC by Taylor Morrison in the Investor Relations section of Taylor Morrison's website at http://investors.taylormorrison.com or by contacting Taylor Morrison's Investor Relations at investor@taylormorrison.com or by calling (480) 734-2060, and will be able to obtain free copies of the documents filed with the SEC by AV Homes in the Investor Relations section of AV Homes' website at http://investors.avhomesinc.com or by contacting AV Homes' Investor Relations at m.burnett@avhomesinc.com or by calling (480) 214-7408.

Participants in the Merger Solicitation

Taylor Morrison, AV Homes and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of AV Homes in connection with the transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, is included in the Proxy Statement/Prospectus described above filed with the SEC. Additional information regarding Taylor Morrison's directors and executive officers is also included in Taylor Morrison's proxy statement for its 2018 Annual Meeting of Shareholders, which was filed with the SEC on April 17, 2018, or its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 21, 2018, and information regarding AV Homes' directors and executive officers is also included in AV Homes' proxy statement for its 2018 Annual Meeting of Stockholders, which was filed with the SEC on April 18, 2018, or its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 23, 2018. These documents are available free of charge as described above.

Investor Contact:        

Mike Burnett
EVP, Chief Financial Officer
480-214-7408
m.burnett@avhomesinc.com 

                                     
AV HOMES, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share data)
           
                     
    Three Months Ended   Six Months Ended            
    June 30,   June 30,            
    2018     2017     2018     2017              
Revenues                                    
Homebuilding   $ 198,656     $ 196,884     $ 343,801     $ 345,544              
Amenity and other     4,289       4,125       9,107       8,762              
Land sales     615       185       2,660       2,436              
Total revenues     203,560       201,194       355,568       356,742              
                                     
Expenses                                    
Homebuilding cost of revenue     164,055       162,600       285,032       285,465              
Amenity and other     4,106       3,566       9,350       7,896              
Land sales     207       180       438       1,162              
Total real estate expenses     168,368       166,346       294,820       294,523              
Selling, general and administrative expenses     28,718       27,014       54,233       49,385              
Interest income and other     (581 )     (253 )     (850 )     (258 )            
Interest expense     3,012       3,685       6,403       4,522              
Loss on extinguishment of debt           2,933             2,933              
Total expenses     199,517       199,725       354,606       351,105              
                                     
Income before income taxes     4,043       1,469       962       5,637              
Income tax expense     1,044       822       306       2,551              
Net income   $ 2,999     $ 647     $ 656     $ 3,086              
                                     
Basic earnings per share   $ 0.13     $ 0.03     $ 0.03     $ 0.14              
Basic weighted average shares outstanding     22,584       22,487       22,577       22,479              
                                     
Diluted earnings per share   $ 0.13     $ 0.03     $ 0.03     $ 0.14              
Diluted weighted average shares outstanding     22,925       22,800       22,908       22,785              

 

                     
AV HOMES, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(in thousands)
       
                     
    June 30,   December 31,        
    2018    2017         
Assets   (unaudited)              
Cash and cash equivalents   $  115,978     $  240,990          
Restricted cash      1,794        1,165          
Receivables      4,366        13,702          
Land and other inventories      731,552        603,851          
Property and equipment, net      39,948        32,664          
Prepaid expenses and other assets      21,693        17,117          
Deferred tax assets, net      70,079        70,365          
Goodwill      39,023        30,290          
Total assets   $  1,024,433     $  1,010,144          
                     
Liabilities and Stockholders' Equity                    
                     
Liabilities                    
Accounts payable   $  40,542     $  35,810          
Accrued and other liabilities      33,418        29,193          
Customer deposits      13,730        9,507          
Estimated development liability      31,363        31,556          
Senior debt, net      473,086        472,108          
Total liabilities      592,139        578,174          
                     
Stockholders' Equity                    
Common stock, par value $1 per share      22,472        22,475          
Additional paid-in capital      406,292        404,859          
Retained earnings      6,549        7,655          
       435,313        434,989          
Treasury stock      (3,019 )      (3,019 )        
Total stockholders' equity      432,294        431,970          
Total liabilities and stockholders' equity   $  1,024,433     $  1,010,144          
                         

 

                               
AV HOMES, INC. AND SUBSIDIARIES
Unaudited Supplemental Information
(in thousands)
                               
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2018 and 2017:
                               
                               
                               
    Three Months Ended   Six Months Ended      
    June 30,   June 30,      
    2018   2017   2018   2017      
Numerator:                              
Basic net income   $ 2,999   $ 647   $ 656   $ 3,086      
Effect of dilutive securities                      
Diluted net income   $ 2,999   $ 647   $ 656   $ 3,086      
                               
Denominator:                              
Basic weighted average shares outstanding     22,584     22,487     22,577     22,479      
Effect of dilutive securities     341     313     331     306      
Diluted weighted average shares outstanding     22,925     22,800     22,908     22,785      
                               
Basic earnings per share   $ 0.13   $ 0.03   $ 0.03   $ 0.14      
Diluted earnings per share   $ 0.13   $ 0.03   $ 0.03   $ 0.14      
                               

The following table represents interest incurred, interest capitalized, and interest expense for the three and six months ended June 30, 2018 and 2017:

                           
    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2018     2017     2018     2017    
Interest incurred   $  8,518     $  9,318     $  17,036     $  15,523    
Interest capitalized      (5,506 )      (5,633 )      (10,633 )      (11,001 )  
Interest expense   $  3,012     $  3,685     $  6,403     $  4,522    
                                   

The following table represents depreciation and amortization expense and the amortization of previously capitalized interest for the three and six months ended June 30, 2018 and 2017: 

                           
    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2018   2017   2018   2017  
Depreciation and amortization (1)   $  1,509   $  1,035   $  2,884   $  1,916  
Amortization of previously capitalized interest      5,019      5,445      8,820      9,930  
                           
(1) Depreciation and amortization does not include the amortization of debt issuance costs, which is recorded in interest expense.
 

The following table provides a comparison of certain financial data related to our operations for the three and six months ended June 30, 2018 and 2017 (in thousands): 

                                 
    Three Months Ended   Six Months Ended        
    June 30,   June 30,        
    2018     2017     2018     2017          
Operating income:                                
Florida                                
Revenues:                                
Homebuilding   $  74,140     $  79,112     $  132,243     $  149,599          
Amenity and other      4,289        4,125        9,107        8,762          
Land sales      615        —        2,660        1,469          
Total revenues      79,044        83,237        144,010        159,830          
Expenses:                                
Homebuilding cost of revenue      58,540        62,640        103,617        118,634          
Homebuilding selling, general and administrative      9,313        9,106        18,415        18,404          
Amenity and other      4,088        3,548        9,310        7,855          
Land sales      207        —        438        196          
Segment operating income   $  6,896     $  7,943     $  12,230     $  14,741          
                                 
Carolinas                                
Revenues:                                
Homebuilding   $  76,119     $  82,517     $  130,023     $  129,362          
Land sales      —        —        —        782          
Total revenues      76,119        82,517        130,023        130,144          
Expenses:                                
Homebuilding cost of revenue      65,470        70,048        113,633        110,181          
Homebuilding selling, general and administrative      8,173        9,140        15,130        14,163          
Land sales      —        —        —        786          
Segment operating income   $  2,476     $  3,329     $  1,260     $  5,014          
                                 
Arizona                                
Revenues:                                
Homebuilding   $  39,736     $  35,255     $  64,982     $  66,583          
Land sales      —        185        —        185          
Total revenue      39,736        35,440        64,982        66,768          
Expenses:                                
Homebuilding cost of revenue      32,698        29,912        53,832        56,650          
Homebuilding selling, general and administrative      4,269        3,782        7,394        7,153          
Amenity and other      18        18        40        41          
Land sales      —        180        —        180          
Segment operating income   $  2,751     $  1,548     $  3,716     $  2,744          
                                 
Texas                                
Revenues:                                
Homebuilding   $  8,661     $  —     $  16,553     $  —          
Total revenue      8,661        —        16,553        —          
Expenses:                                
Homebuilding cost of revenue      7,347        —        13,950        —          
Homebuilding selling, general and administrative      1,954        —        3,541        —          
Segment operating loss   $  (640 )   $  —     $  (938 )   $  —          
                                 
Operating income   $  11,483     $  12,820     $  16,268     $  22,499          
                                 
Unallocated income (expenses):                                
Interest income and other      581        253        850        258          
Corporate general and administrative expenses      (5,009 )      (4,986 )      (9,753 )      (9,665 )        
Loss on extinguishment of debt      —        (2,933 )      —        (2,933 )        
Interest expense      (3,012 )      (3,685 )      (6,403 )      (4,522 )        
Income before income taxes      4,043        1,469        962        5,637          
Income tax expense      1,044        822        306        2,551          
Net income   $  2,999     $  647     $  656     $  3,086          
                                         

Data from closings for the Florida, Carolinas, Arizona and Texas segments for the three and six months ended June 30, 2018 and 2017 is summarized as follows (dollars in thousands): 

                   
              Average  
    Number         Price  
For the three months ended June 30,   of Units   Revenues   Per Unit  
2018                  
Florida   248   $ 74,140   $ 299  
Carolinas   200     76,119     381  
Arizona   117     39,736     340  
Texas   27     8,661     321  
Total   592   $ 198,656     336  
                   
2017                  
Florida   268   $ 79,112   $ 295  
Carolinas   220     82,517     375  
Arizona   107     35,255     329  
Texas            
Total   595   $ 196,884     331  
                   

 

              Average  
    Number         Price  
For the six months ended June 30,    of Units    Revenues   Per Unit  
2018                  
Florida    445   $  132,243   $  297  
Carolinas    345      130,023      377  
Arizona    187      64,982      347  
Texas    53      16,553      312  
Total    1,030   $  343,801      334  
                   
2017                  
Florida    515   $  149,599   $  290  
Carolinas    342      129,362      378  
Arizona    200      66,583      333  
Texas    —      —      —  
Total    1,057   $  345,544      327  
                   

Data from contracts signed for the Florida, Carolinas, Arizona and Texas segments for the three and six months ended June 30, 2018 and 2017 is summarized as follows (dollars in thousands):

                           
    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of    Dollar   Price Per  
For the three months ended June 30,   Signed   Cancellations   Cancellations   Value   Unit  
2018                          
Florida    259    (28)    231   $  70,843   $  307  
Carolinas    215    (15)    200      76,082      380  
Arizona    177    (28)    149      50,306      338  
Texas    65    (25)    40      14,573      364  
Total    716    (96)    620   $  211,804      342  
                           
2017                          
Florida    405    (36)    369   $  108,789   $  295  
Carolinas    236    (29)    207      76,768      371  
Arizona    141    (26)    115      38,141      332  
Texas    —    —    —      —      —  
Total    782    (91)    691   $  223,698      324  
                           

 

                           
    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of    Dollar   Price Per  
For the six months ended June 30,   Signed   Cancellations   Cancellations   Value   Unit  
2018                          
Florida    614    (59)    555   $  163,561   $  295  
Carolinas    481    (49)    432      165,933      384  
Arizona    346    (50)    296      98,018      331  
Texas    124    (56)    68      26,320      387  
Total    1,565    (214)    1,351   $  453,832      336  
                           
2017                          
Florida    807    (75)    732   $  213,835   $  292  
Carolinas    441    (49)    392      147,083      375  
Arizona    282    (51)    231      77,566      336  
Texas    —    —    —      —      —  
Total    1,530    (175)    1,355   $  438,484      324  
                           

Backlog for the Florida, Carolinas, Arizona and Texas segments as of June 30, 2018 and 2017 is summarized as follows (dollars in thousands):

                   
              Average  
    Number   Dollar    Price  
As of June 30,   of Units   Volume   Per Unit  
2018                  
Florida    482   $  143,788   $  298  
Carolinas    289      110,769      383  
Arizona    259      85,308      329  
Texas    62      25,406      410  
Total    1,092   $  365,271      334  
                   
2017                  
Florida    559   $  165,721   $  296  
Carolinas    311      119,262      383  
Arizona    200      68,381      342  
Texas    —      —      —  
Total    1,070   $  353,364      330  


 

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