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M.D.C. Holdings Announces 2018 Second Quarter Results

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M.D.C. Holdings Announces 2018 Second Quarter Results

Low new and existing home inventories, healthy consumer demand, and the success of our more affordable product offering combined to drive a favorable pricing environment, resulting in the continued expansion of our gross margin during the second quarter of 2018.

PR Newswire

DENVER, Aug. 1, 2018 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE:MDC) announced results for the second quarter ended June 30, 2018.

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "We are very pleased with our performance in the second quarter of 2018, as we posted year-over-year improvements in several key areas of our business and laid the foundation for future growth.  The strategic initiatives our Company has implemented over the last several quarters coupled with our strong execution in the quarter culminated in a 48% year-over-year increase in pretax income.  We continued to see healthy demand in our markets, especially at affordable price points, which allowed us to raise prices in a majority of our communities during the quarter.  We believe we are well positioned as we head into the second half of the year, given the strong fundamentals we see in our markets and our positioning within those markets."

Mr. Mizel continued, "The second quarter also represented the seventh consecutive quarter in which we approved more lots for purchase than we did in the year ago period.  Consistent with the first quarter of 2018, almost 50% of those lot approvals are targeted to be a part of our Seasons Collection or other more-affordable product lines.  At the end of the quarter, we had more than 23,500 lots under control, representing a 38% increase over the second quarter of 2017.  Our recent land acquisition efforts give us a great runway for growth and position us to benefit from the rapidly improving market for affordable homes."

Mr. Mizel concluded, "We are very optimistic about the future of our Company given our operational performance this quarter, our recent land acquisition activity and our strong balance sheet.  The strategic initiatives we implemented over the last several quarters put us on a path to better consistency in our operating results.  The effectiveness of these initiatives was evident in the second quarter of 2018, and we are excited for what the future holds."

2018 Second Quarter Highlights and Comparisons to 2017 Second Quarter

  • Net income up 89% to $63.9 million, or $1.12 per diluted share, from $33.9 million or $0.60 per diluted share*
    • Effective tax rate of 16.6% vs. 34.7%
  • Pretax income up 48% to $76.6 million from $51.9 million
  • Home sale revenues up 16% to $749.6 million from $647.6 million
    • Average selling price of homes delivered up 8% to $496,000
  • Gross margin from home sales up 230 basis points to 19.1% from 16.8%
  • Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") even with prior year-over-year at 10.9%
  • Dollar value of net new orders up 9% to $776.2 million from $710.6 million
    • Monthly sales absorption pace of 3.68, up 8%
  • Lot purchase approvals increased by 10% to 3,678 lots in 49 communities

* Per share amount for the 2017 second quarter has been adjusted for the 8% stock dividend declared and paid in the 2017 fourth quarter

2018 Outlook – Selected Information

  • Backlog dollar value at June 30, 2018 up 16% year-over-year to $1.95 billion
    • Gross margin from home sales in backlog at 6/30/2018 roughly even with 2018 second quarter closing gross margin of 19.1%
    • Average selling price of homes in backlog at 6/30/2018 of $487,400 is lower than 2018 second quarter closing average sales price of $496,000
    • Backlog conversion ratio (home deliveries divided by beginning backlog) for the third quarter estimated to be in the 40% to 41% range
  • Active subdivision count at 6/30/2018 of 164, up 7% year-over-year and 9% from 12/31/2017
    • Targeting a 10% year-over-year increase in active subdivision count by year end (from 151 at 12/31/2017 to at least 166 at 12/31/2018)
  • Lots controlled of 23,626 at 6/30/2018, up 38% year-over-year
  • Quarterly dividend of $0.30 ($1.20 annualized) declared in July 2018, up 30% year-over-year (after adjusting for 8% stock dividend in December 2017)
  • Estimated effective tax rate for the final six months of 2018 between 25% and 27%, excluding impact of any further discrete items

About MDC

M.D.C. Holdings, Inc. was founded in 1972. MDC's homebuilding subsidiaries, which operate under the name Richmond American Homes, have built and financed the American Dream for more than 195,000 homebuyers since 1977.  MDC's commitment to customer satisfaction, quality and value is reflected in each home its subsidiaries build. MDC is one of the largest homebuilders in the United States. Its subsidiaries have homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Diego, Orange County, San Francisco Bay Area, Sacramento, Washington D.C., Baltimore, Orlando, Jacksonville, South Florida, Seattle and Portland. The Company's subsidiaries also provide mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency, Inc. and American Home Title and Escrow Company, respectively. M.D.C. Holdings, Inc. is traded on the New York Stock Exchange under the symbol "MDC." For more information, visit www.mdcholdings.com.

Forward-Looking Statements

Certain statements in this release, including any statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, constitute "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 factors that may cause the actual results, performance or achievements of MDC to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic conditions, including changes in consumer confidence, inflation or deflation and employment levels; (2) changes in business conditions experienced by MDC, including cancellation rates, net home orders, home gross margins, land and home values and subdivision counts; (3) changes in interest rates, mortgage lending programs and the availability of credit; (4) changes in the market value of MDC's investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican Mortgage Corporation's sale of mortgage loans (6) the relative stability of debt and equity markets; (7) competition; (8) the availability and cost of land and other raw materials used by MDC in its homebuilding operations; (9) the availability and cost of performance bonds and insurance covering risks associated with our business; (10) shortages and the cost of labor; (11) weather related slowdowns and natural disasters; (12) slow growth initiatives; (13) building moratoria; (14) governmental regulation, including the interpretation of tax, labor and environmental laws; (15) terrorist acts and other acts of war; (16) changes in energy prices; and (17) other factors over which MDC has little or no control. Additional information about the risks and uncertainties applicable to MDC's business is contained in MDC's Form 10-Q for the quarter ended June 30, 2018, which is scheduled to be filed with the Securities and Exchange Commission today.  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 in this press release will increase with the passage of time. MDC undertakes no duty to update publicly 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 webcasts should be consulted.

M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income



Three Months Ended


Six Months Ended


June 30,


June 30,


2018


2017


2018


2017


(Dollars in thousands, except per share amounts)


(Unaudited)

Homebuilding:












Home sale revenues

$

749,608


$

647,620


$

1,357,296


$

1,211,099

Land sale revenues


-



1,351



-



1,598

Total home and land sale revenues


749,608



648,971



1,357,296



1,212,697

Home cost of sales


(606,403)



(539,077)



(1,103,035)



(1,008,019)

Land cost of sales


-



(1,202)



-



(1,413)

Inventory impairments


(200)



-



(750)



(4,850)

Total cost of sales


(606,603)



(540,279)



(1,103,785)



(1,014,282)

Gross profit


143,005



108,692



253,511



198,415

Selling, general and administrative expenses


(81,571)



(70,709)



(152,912)



(137,007)

Interest and other income


1,774



2,847



3,633



5,174

Other expense


(871)



(666)



(1,434)



(1,017)

Other-than-temporary impairment of marketable securities


-



(1)



-



(51)

Homebuilding pretax income


62,337



40,163



102,798



65,514













Financial Services:












Revenues


21,372



19,073



40,407



37,052

Expenses


(9,611)



(8,500)



(18,442)



(16,398)

Interest and other income


2,518



1,238



2,385



2,217

Other-than-temporary impairment of marketable securities


-



(80)



-



(131)

Financial services pretax income


14,279



11,731



24,350



22,740













Income before income taxes


76,616



51,894



127,148



88,254

Provision for income taxes


(12,717)



(18,023)



(24,485)



(32,134)

Net income

$

63,899


$

33,871


$

102,663


$

56,120













Other comprehensive income related to available for sale securities, net of tax


-



1,944



-



3,930

Comprehensive income

$

63,899


$

35,815


$

102,663


$

60,050













Earnings per share:












Basic

$

1.13


$

0.61


$

1.82


$

1.01

Diluted

$

1.12


$

0.60


$

1.79


$

0.99













Weighted average common shares outstanding:












Basic


56,102,684



55,635,454



55,987,525



55,542,325

Diluted


57,041,006



56,639,653



56,968,002



56,231,245













Dividends declared per share

$

0.30


$

0.23


$

0.60


$

0.46

 

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets



June 30,


December 31,


2018


2017

ASSETS

(Dollars in thousands, except


per share amounts)

Homebuilding:

(Unaudited)




Cash and cash equivalents

$

378,219


$

472,957

Marketable securities


-



49,634

Restricted cash


7,443



8,812

Trade and other receivables


54,719



53,362

Inventories:






Housing completed or under construction


1,077,406



936,685

Land and land under development


977,694



893,051

Total inventories


2,055,100



1,829,736

Property and equipment, net


55,112



26,439

Deferred tax asset, net


37,350



41,480

Prepaid and other assets


45,450



75,666

Total homebuilding assets


2,633,393



2,558,086

Financial Services:






Cash and cash equivalents


47,661



32,471

Marketable securities


44,328



42,004

Mortgage loans held-for-sale, net


107,185



138,114

Other assets


15,062



9,617

Total financial services assets


214,236



222,206

      Total Assets

$

2,847,629


$

2,780,292

LIABILITIES AND EQUITY






Homebuilding:






Accounts payable

$

52,513


$

39,655

Accrued liabilities


168,899



166,312

Revolving credit facility


15,000



15,000

Senior notes, net


987,272



986,597

Total homebuilding liabilities


1,223,684



1,207,564

Financial Services:






Accounts payable and accrued liabilities


53,285



53,101

Mortgage repurchase facility


80,819



112,340

Total financial services liabilities


134,104



165,441

      Total Liabilities


1,357,788



1,373,005

Stockholders' Equity






Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding


-



-

Common stock, $0.01 par value; 250,000,000 shares authorized; 56,435,989 and 56,123,228 issued and outstanding at June 30, 2018 and December 31, 2017, respectively


564



561

Additional paid-in-capital


1,156,477



1,144,570

Retained earnings


332,800



258,164

Accumulated other comprehensive income


-



3,992

Total Stockholders' Equity


1,489,841



1,407,287

Total Liabilities and Stockholders' Equity

$

2,847,629


$

2,780,292

 

M.D.C. HOLDINGS, INC.

Consolidated Statement of Cash Flows



Three Months Ended


Six Months Ended


June 30,


June 30,


2018


2017


2018


2017


(Dollars in thousands)


(Unaudited)

Operating Activities:












Net income

$

63,899


$

33,871


$

102,663


$

56,120

Adjustments to reconcile net income to net cash provided by (used in) operating activities:












Stock-based compensation expense


4,824



1,443



6,075



2,038

Depreciation and amortization


5,316



1,376



9,952



2,704

Inventory impairments


200



-



750



4,850

Other-than-temporary impairment of marketable securities


-



81



-



182

Net gain on sale of available-for-sale marketable securities


-



(1,197)



-



(1,758)

Net gain on marketable equity securities


(1,278)



-



(125)



-

Amortization of discount / premiums on marketable debt securities, net


(184)



-



(366)



-

Deferred income tax expense


3,134



6,813



3,557



10,033

Net changes in assets and liabilities:












      Trade and other receivables


944



(1,907)



(2,317)



5,419

      Mortgage loans held-for-sale


5,973



2,090



30,929



43,491

      Housing completed or under construction


(68,198)



(18,841)



(133,576)



(39,707)

      Land and land under development


(12,905)



8,491



(84,457)



37,521

      Prepaid expenses and other assets


(5,497)



(5,195)



(5,108)



(7,602)

      Accounts payable and accrued liabilities


9,070



774



15,835



8,845

Net cash provided by (used in) operating activities


5,298



27,799



(56,188)



122,136













Investing Activities:












Purchases of marketable securities


(5,898)



(6,682)



(14,659)



(12,043)

Maturities of marketable securities


50,000



-



50,000



-

Sales of marketable securities


3,760



6,467



12,460



11,450

Purchases of property and equipment


(6,735)



(242)



(13,051)



(1,364)

Net cash provided by (used in) investing activities


41,127



(457)



34,750



(1,957)













Financing Activities:












Payments on mortgage repurchase facility, net


(9,307)



(1,415)



(31,521)



(45,358)

Dividend payments


(16,928)



(12,912)



(33,793)



(25,809)

Proceeds from exercise of stock options


5,553



5,697.00



5,835



7,304.00

Net cash used in financing activities


(20,682)



(8,630)



(59,479)



(63,863)













Net increase (decrease) in cash, cash equivalents and restricted cash


25,743



18,712



(80,917)



56,316

Cash, cash equivalents and restricted cash:












      Beginning of period


407,580



324,291



514,240



286,687

      End of period

$

433,323


$

343,003


$

433,323


$

343,003













Reconciliation of cash, cash equivalents and restricted cash:












Homebuilding:












Cash and cash equivalents

$

378,219


$

314,814


$

378,219


$

314,814

Restricted cash


7,443



5,027



7,443



5,027

Financial Services:












Cash and cash equivalents


47,661



23,162



47,661



23,162

Total cash, cash equivalents and restricted cash

$

433,323


$

343,003


$

433,323


$

343,003


 

New Home Deliveries




 Three Months Ended June 30, 



2018


2017


 % Change



 Homes


 Home Sale
Revenues


 Average
Price


 Homes


 Home Sale
Revenues


 Average
Price


 Homes


 Home Sale
Revenues

 Average
Price



(Dollars in thousands)


West

769


$

391,806


$

509.5


728


$

323,758


$

444.7


6%


21%


15%


Mountain

522



268,541



514.4


462


223,005


482.7


13%


20%


7%


East

221



89,261



403.9


222



100,857



454.3


(0)%


(11)%


(11)%


Total

1,512


$

749,608


$

495.8


1,412


$

647,620


$

458.7


7%


16%


8%




 Six Months Ended June 30, 



2018


2017


 % Change



 Homes


 Home Sale
Revenues


 Average
Price


 Homes


 Home Sale
Revenues


 Average
Price


 Homes


 Home Sale
Revenues

 Average
Price



(Dollars in thousands)


West

1,450


$

711,315


$

490.6


1,433


$

632,838


$

441.6


1%


12%


11%


Mountain

938



477,173



508.7


831


395,896


476.4


13%


21%


7%


East

398



168,808



424.1


404



182,365



451.4


(1)%


(7)%


(6)%


Total

2,786


$

1,357,296


$

487.2


2,668


$

1,211,099


$

453.9


4%


12%


7%

 

 

Net New Orders



 Three Months Ended June 30, 


2018


2017


% Change


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate *


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate *


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate


(Dollars in thousands)

West

1,020


$

458,082


$

449.1


4.55


858


$

379,540


$

442.4


3.90


19%


21%


2%


17%

Mountain

508


250,454


493.0


2.97


525


244,518


465.7


3.54


(3)%


2%


6%


(16)%

East

193



67,627



350.4


2.65


215



86,549



402.6


2.14


(10)%


(22)%


(13)%


24%

Total

1,721


$

776,163


$

451.0


3.68


1,598


$

710,607


$

444.7


3.41


8%


9%


1%


8%



 Six Months Ended June 30, 


2018


2017


% Change


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate *


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate *


Homes


Dollar
Value


Average
Price


Monthly
Absorption
Rate


(Dollars in thousands)

West

2,053


$

937,759


$

456.8


4.66


1,751


$

779,006


$

444.9


3.88


17%


20%


3%


20%

Mountain

1,175


590,045


502.2


3.45


1,082


508,778


470.2


3.69


9%


16%


7%


(7)%

East

397



147,943



372.7


2.82


461



195,535



424.2


2.25


(14)%


(24)%


(12)%


25%

Total

3,625


$

1,675,747


$

462.3


3.93


3,294


$

1,483,319


$

450.3


3.47


10%


13%


3%


13%

 

 

Active Subdivisions










Average Active Subdivisions


Average Active Subdivisions



Active Subdivisions


Three Months Ended


Six Months Ended



June 30,


%


June 30,


%


June 30,


%



2018


2017


Change


2018


2017


Change


2018


2017


Change


West

78


70


11%


75


74


1%


73


75


(3)%


Mountain

61


50


22%


57


50


14%


57


49


16%


East

25


33


(24)%


24


34


(29)%


24


34


(29)%


Total

164


153


7%


156


158


(1)%


154


158


(3)%

 

Backlog




June 30,



2018


2017


% Change



Homes


Dollar
Value


Average
Price


Homes


Dollar
Value


Average
Price


Homes


Dollar
Value


Average
Price



(Dollars in thousands)


West

2,054


$

1,011,780


$

492.6


1,665


$

802,313


$

481.9


23%


26%


2%


Mountain

1,490



766,539



514.5


1,319



634,181



480.8


13%


21%


7%


East

454



170,364



375.3


526



241,341



458.8


(14)%


(29)%


(18)%


Total

3,998


$

1,948,683


$

487.4


3,510


$

1,677,835


$

478.0


14%


16%


2%

 

Homes Completed or Under Construction (WIP lots)




June 30,


%



2018


2017


Change


Unsold:







Completed

86


77


12%


Under construction

268


153


75%


Total unsold started homes

354


230


54%


Sold homes under construction or completed

2,980


2,547


17%


Model homes under construction or completed

373


316


18%


Total homes completed or under construction

3,707


3,093


20%

 

Lots Owned and Optioned (including homes completed or under construction)




June 30, 2018


June 30, 2017





Lots
Owned


Lots
Optioned


Total


Lots
Owned


Lots
Optioned


Total


Total %
Change


West

7,906


2,916


10,822


5,665


2,011


7,676


41%


Mountain

5,329


4,041


9,370


4,986


2,057


7,043


33%


East

1,509


1,925


3,434


1,353


1,022


2,375


45%


Total

14,744


8,882


23,626


12,004


5,090


17,094


38%

 

Selling, General and Administrative Expenses




Three Months Ended June 30,


Six Months Ended June 30,



2018


2017


Change


2018


2017


Change



(Dollars in thousands)


General and administrative expenses

$

40,372


$

32,292


$

8,080


$

76,125


$

64,661


$

11,464


General and administrative expenses as a percentage of home sale revenues


5.4%



5.0%



40 bps



5.6%



5.3%



30 bps





















Marketing expenses

$

17,215


$

16,976


$

239


$

32,786


$

32,100


$

686


Marketing expenses as a percentage of home sale revenues


2.3%



2.6%



(30) bps



2.4%



2.7%



(30) bps





















Commissions expenses

$

23,984


$

21,441


$

2,543


$

44,001


$

40,246


$

3,755


Commissions expenses as a percentage of  home sale revenues


3.2%



3.3%



(10) bps



3.2%



3.3%



(10) bps





















Total selling, general and administrative expenses

$

81,571


$

70,709


$

10,862


$

152,912


$

137,007


$

15,905


Total selling, general and administrative expenses as a percentage of  home sale revenues


10.9%



10.9%



0 bps



11.3%



11.3%



0 bps

 

Capitalized Interest




Three Months Ended


Six Months Ended



June 30,


June 30,



2018


2017


2018


2017



(Dollars in thousands)


Homebuilding interest incurred

$

15,639


$

13,194


$

31,264


$

26,382


Less:  Interest capitalized


(15,639)



(13,194)



(31,264)



(26,382)


Homebuilding interest expensed

$

-


$

-


$

-


$

-















Interest capitalized, beginning of period

$

58,738


$

66,076


$

57,541


$

68,085


Plus: Interest capitalized during period


15,639



13,194



31,264



26,382


Less: Previously capitalized interest included in home and land cost of sales


(16,150)



(17,179)



(30,578)



(32,376)


Interest capitalized, end of period

$

58,227


$

62,091


$

58,227


$

62,091

 

Cision View original content:http://www.prnewswire.com/news-releases/mdc-holdings-announces-2018-second-quarter-results-300689838.html

SOURCE M.D.C. Holdings, Inc.

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