M.D.C. Holdings, Inc.
May 1, 2014

M.D.C. Holdings Announces 2014 First Quarter Results

DENVER, May 1, 2014 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended March 31, 2014.

2014 First Quarter Highlights and Comparisons to 2013 First Quarter

  • Income before tax of $18.6 million; excluding debt extinguishment charge, income before tax of $28.1 million*, up $5.5 million, or 24%, from $22.6 million
  • Earnings per share of $0.23; excluding debt extinguishment charge, earnings per share of  $0.35* vs. $0.45 per share 
    • 2014 first quarter net income included a $7.1 million tax provision vs. $0.1 million in the 2013 first quarter
  • Dollar value of net new orders of $466.0 million, up 6% from $441.2 million
    • Unit net new orders of 1,236 down from 1,300, offset by average sales price increase of $38,000 per home, or 11%, to $377,000
  • Backlog dollar value of $651.3 million vs. $693.1 million
  • Home sale revenues of $318.5 million vs. $331.7 million
    • Homes delivered of 873 down from 1,018, partly offset by average sales price increase of $39,000 per home, or 12%, to $365,000
  • Gross margin from home sales of 18.5% vs. 17.4%, a 110 basis point increase
  • Ending active community count of 157, up 13% from 139
    • Up 8% from 146 at December 31, 2013
  • Total lots controlled of 16,043, up 26% from 12,741
  • Book value of $24.78 per share, up 32% from $18.71 per share
  • Reinstated quarterly dividend of $0.25 per share
  • Completed early retirement of $250 million senior notes due December 2014; issued $250 million of new 10-year senior notes due 2024

Net income for the 2014 first quarter was $11.5 million, or $0.23 per diluted share, including a $9.4 million charge related to the early extinguishment of debt. In the 2013 first quarter, our net income was $22.5 million, or $0.45 per diluted share.  Due to the reversal of our deferred tax asset valuation allowance in the second quarter of 2013, our 2014 first quarter net income included a provision for income tax of $7.1 million as compared with a provision of only $0.1 million in the 2013 first quarter.

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "We focused on opening and driving sales to our new communities during the first quarter.   As a result, our active community count reached 157 by the end of March, increasing year-over-year for the first time since the 2012 second quarter. The increase positions us well to grow our unit net orders in upcoming quarters, following four consecutive quarters of year-over-year declines. Furthermore, we continued to selectively acquire new communities across most of our markets, which contributed to a 26% increase in our supply of lots owned and controlled from a year ago and supports the Company's long-term growth objectives." 

Mr. Mizel concluded, "During the quarter, we improved our debt maturity profile by issuing $250 million of 10-year senior notes and redeeming an equal amount of senior notes due in December 2014. We ended the quarter with overall liquidity of $1.1 billion, up 22% over the prior year.  We believe that our financial position, which is regarded among the best in the industry, continues to provide the appropriate balance for our industry between supporting potential growth opportunities for our Company and providing protection from the volatile and cyclical nature of the housing market."

Homebuilding

Home sale revenues for the 2014 first quarter decreased slightly to $318.5 million compared to $331.7 million for the prior year period.  The decrease in revenues resulted primarily from a 14% decrease in homes delivered to 873 as compared to 1,018 in the prior year period. The lower deliveries were caused by a 23% year-over-year decrease in beginning backlog, partially offset by a year-over-year increase in the number of homes both sold and delivered during the quarter, which was the direct result of the Company's decision to increase its inventory of speculative homes during the last half of 2013. The Company's average selling price for homes closed was $364,900, up 12% year-over-year compared to $325,900 for the prior year period, largely due to price appreciation in many of our markets combined with a shift in the mix of homes closed.

Gross margin from home sales for the 2014 first quarter was 18.5%, compared to 17.4% for both the year-earlier period and the 2013 fourth quarter. The year-over-year increase was partly attributable to our focus on increasing pricing as we took advantage of improving markets during the first half of 2013. On a sequential basis, gross margin from home sales increased in part due to a shift in the mix of homes closed, including a higher percentage of deliveries from our Nevada division, which has a higher gross margin percentage than the company-wide average.

Our SG&A expenses were $48.3 million for the 2014 first quarter, in line with our 2013 first quarter SG&A expenses of $48.2 million. Our SG&A expenses as a percentage of home sale revenues was up 70 basis points to 15.2% from 14.5% for the same period in 2013 primarily due to the decrease in home sale revenues.

Net new orders for the 2014 first quarter decreased 5% to 1,236 homes, compared to 1,300 homes during the same period in 2013. However, the dollar value of net new orders increased 6% to $466.0 million for the 2014 first quarter from $441.2 million for the 2013 first quarter as a result of the Company's ability to increase pricing during much of 2013.  The Company's cancellation rate for the 2014 first quarter was essentially flat at 19% versus 18% in the prior year first quarter. The Company ended the 2014 first quarter with a backlog of 1,625 homes with estimated sales value of $651.3 million, compared to backlog of 1,927 homes with an estimated sales value of $693.1 million at March 31, 2013.

During the first quarter 2014, many of our communities that were opened during the fourth quarter 2013 achieved active status.  At March 31, 2014, we had 157 active subdivisions, up 13% compared to 139 active subdivisions at March 31, 2013 and up 8% from December 31, 2013. In addition, at March 31, 2014 our lots owned and under option reached 16,043, up 26% year-over-year and 2% since December 31, 2013. 

Interest and other income of $13.5 million for the 2014 first quarter increased by $7.0 million from the same period in the prior year, primarily due to a $6.5 million net gain on the sale of marketable securities. The Company sold the marketable securities in part to fund our extinguishment of $250 million in Senior Notes due December 2014.  As a result of the debt extinguishment, the Company recognized a $9.4 million charge.

Financial Services

Income before taxes from our financial services operations for the 2014 first quarter was $5.1 million, compared to $7.7 million for the 2013 first quarter.  The decrease in pretax income primarily reflected a $3.4 million decrease in our mortgage operations pretax income to $2.6 million for the 2014 first quarter, compared to $6.0 million in the 2013 first quarter.  The decrease in our mortgage profitability was driven partly by lower loan lock activity, as the homebuilding segment generated lower unit home orders in recent quarters compared with the same periods a year ago. Additionally, the mortgage segment realized lower per unit origination income and gains on loans locked and sold compared to the same period a year ago, resulting primarily from a more competitive mortgage market and higher interest rates. This decrease was partially offset by improvements in the other segment of our financial services operations.

About MDC

Since 1972, MDC's subsidiary companies have built and financed the American dream for more than 175,000 homebuyers. 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 Francisco Bay Area, Washington D.C., Baltimore, Philadelphia, Jacksonville, Orlando, South Florida and Seattle. 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 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 the Company 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 the Company, 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 the Company's investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican'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 the Company 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; (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; and (16) other factors over which the Company has little or no control. Additional information about the risks and uncertainties applicable to the Company's business is contained in the Company's Form 10-Q for the quarter ended March 31, 2014, 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. The Company 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.

*Please see "Reconciliations of Non-GAAP Financial Measures" at the end of this release.

 

 


M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income














Three Months Ended


March 31,


2014


2013


(Dollars in thousands, except per

share amounts)


(Unaudited)

Homebuilding:






Home sale revenues

$

318,534


$

331,748

Home cost of sales


(259,478)



(274,076)

Gross margin


59,056



57,672

Selling, general and administrative expenses


(48,341)



(48,201)

Interest and other income


13,549



6,549

Interest expense


(685)



(817)

Other expense


(614)



(356)

Loss on early extinguishment of debt


(9,412)



-

Homebuilding pretax income


13,553



14,847







Financial Services:






Revenues


9,223



12,506

Expenses


(4,924)



(5,642)

Interest and other income


788



875

Financial services pretax income


5,087



7,739







Income before income taxes


18,640



22,586

Provision for income taxes


(7,136)



(70)

Net income

$

11,504


$

22,516







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


(4,046)



2,535

Comprehensive income

$

7,458


$

25,051







Earnings per share:






Basic

$

0.24


$

0.46

Diluted

$

0.23


$

0.45







Weighted average common shares outstanding






Basic


48,585,757



48,342,145

Diluted


48,854,675



48,922,335







Dividends declared per share

$

0.25


$

-

 

 

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets














March 31,


December 31,


2014


2013

ASSETS

(Dollars in thousands, except

per share amounts)


Homebuilding:

(Unaudited)

Cash and cash equivalents

$

68,897


$

148,634

Marketable securities


508,744



569,021

Restricted cash


1,505



2,195

Trade and other receivables


30,134



23,407

Inventories:






  Housing completed or under construction


712,069



636,700

  Land and land under development


838,703



774,961

  Total inventories


1,550,772



1,411,661

Property and equipment, net


30,897



31,248

   Deferred tax asset, net of valuation allowance of $8,201 at March 31, 2014 and December 31, 2013, respectively


174,006



176,262

Metropolitan district bond securities (related party)


13,027



12,729

Prepaid and other assets


62,138



53,525

Total homebuilding assets


2,440,120



2,428,682

Financial Services:






Cash and cash equivalents


25,922



50,704

Marketable securities


15,870



19,046

Mortgage loans held-for-sale, net


64,800



92,578

Other assets


3,525



4,439

Total financial services assets


110,117



166,767

      Total Assets

$

2,550,237


$

2,595,449







LIABILITIES AND EQUITY






Homebuilding:






Accounts payable

$

31,591


$

15,046

Accrued liabilities


118,524



152,821

Senior notes, net


1,095,958



1,095,620

Total homebuilding liabilities


1,246,073



1,263,487







Financial Services:






Accounts payable and accrued liabilities


55,135



55,639

Mortgage repurchase facility


39,340



63,074

Total financial services liabilities


94,475



118,713

      Total Liabilities


1,340,548



1,382,200







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; 48,821,676 and 48,788,887 issued and outstanding at March 31, 2014 and December 31, 2013, respectively


488



488

Additional paid-in-capital


909,278



908,090

Retained earnings


292,394



293,096

Accumulated other comprehensive income


7,529



11,575

Total Stockholders' Equity


1,209,689



1,213,249

Total Liabilities and Stockholders' Equity

$

2,550,237


$

2,595,449

 

 

M.D.C. HOLDINGS, INC.

Consolidated Statement of Cash Flows














Three Months Ended


March 31,


2014


2013



(Dollars in thousands)



(Unaudited)

Operating Activities:






Net income

$

11,504


$

22,516

Adjustments to reconcile net income to net cash used in operating activities:






Loss on early extinguishment of debt


9,412



-

Stock-based compensation expense


1,292



3,376

Depreciation and amortization


934



1,078

Amortization of discount (premium) on marketable debt securities


(90)



619

Deferred income tax


7,103



-

Net changes in assets and liabilities:






      Restricted cash


690



(667)

      Trade and other receivables


(8,711)



(3,970)

      Mortgage loans held-for-sale


27,778



33,524

      Housing completed or under construction


(75,190)



(8,618)

      Land and land under development


(63,718)



(44,770)

      Prepaid expenses and other assets


(6,881)



(6,470)

      Accounts payable and accrued liabilities


(18,371)



(52,036)

Net cash used in operating activities


(114,248)



(55,418)







Investing Activities:






Purchases of marketable securities


(356,287)



(150,811)

Maturities of marketable securities


133,724



-

Sales of marketable securities


279,450



44,668

Purchases of property and equipment


(545)



(926)

Net cash provided by (used in) investing activities


56,342



(107,069)







Financing Activities:






Advances (payments) on mortgage repurchase facility, net


(23,734)



(34,859)

Proceeds from issuance of senior notes


248,375



247,813

Repayment of senior notes


(259,118)



-

Dividend payments


(12,207)



-

Proceeds from exercise of stock options


71



5,118

Net cash provided by (used in) financing activities


(46,613)



218,072







Net increase (decrease) in cash and cash equivalents


(104,519)



55,585

Cash and cash equivalents:






      Beginning of period


199,338



160,095

      End of period

$

94,819


$

215,680

 

 

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data

New Home Deliveries

















































Three Months Ended March 31,



2014


2013


% Change



Homes


Dollar
Value


Average Price


Homes


Dollar
Value


Average Price


Homes


Dollar
Value


Average Price



(Dollars in thousands)


Arizona

125


$

32,672


$

261.4


140


$

33,161


$

236.9


(11%)


(1%)


10%


California

92



41,100



446.7


146



49,589



339.7


(37%)


(17%)


31%


Nevada

120



39,937



332.8


133



32,745



246.2


(10%)


22%


35%


Washington

64



22,713



354.9


61



19,484



319.4


5%


17%


11%


West

401



136,422



340.2


480



134,979



281.2


(16%)


1%


21%


Colorado

248



93,383



376.5


304



113,488



373.3


(18%)


(18%)


1%


Utah

24



7,562



315.1


67



19,889



296.9


(64%)


(62%)


6%


Mountain

272



100,945



371.1


371



133,377



359.5


(27%)


(24%)


3%


Maryland

77



36,905



479.3


54



21,704



401.9


43%


70%


19%


Virginia

57



27,267



478.4


63



29,119



462.2


(10%)


(6%)


4%


Florida

66



16,995



257.5


50



12,569



251.4


32%


35%


2%


East

200



81,167



405.8


167



63,392



379.6


20%


28%


7%


Total

873


$

318,534


$

364.9


1,018


$

331,748


$

325.9


(14%)


(4%)


12%

 

Net New Orders


























































Three Months Ended March 31,


2014


2013


% 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)

Arizona

191


$

52,392


$

274.3


2.32


127


$

30,293


$

238.5


2.82


50%


73%


15%


(18%)

California

153



75,421



492.9


4.08


164



60,401



368.3


4.37


(7%)


25%


34%


(7%)

Nevada

150



44,861



299.1


3.16


170



47,042



276.7


5.15


(12%)


(5%)


8%


(39%)

Washington

92



34,017



369.8


2.67


93



28,546



306.9


3.01


(1%)


19%


20%


(11%)

West

586



206,691



352.7


2.90


554



166,282



300.1


3.78


6%


24%


18%


(23%)

Colorado

396



157,613



398.0


3.52


418



147,589



353.1


3.57


(5%)


7%


13%


(1%)

Utah

43



14,481



336.8


2.61


65



20,238



311.4


1.92


(34%)


(28%)


8%


36%

Mountain

439



172,094



392.0


3.40


483



167,827



347.5


3.20


(9%)


3%


13%


6%

Maryland

68



31,347



461.0


1.35


90



38,450



427.2


1.67


(24%)


(18%)


8%


(19%)

Virginia

59



29,893



506.7


1.87


93



48,656



523.2


2.52


(37%)


(39%)


(3%)


(26%)

Florida

84



25,930



308.7


2.19


80



19,981



249.8


1.93


5%


30%


24%


13%

East

211



87,170



413.1


1.76


263



107,087



407.2


1.99


(20%)


(19%)


1%


(12%)

Total

1,236


$

465,955


$

377.0


2.74


1,300


$

441,196


$

339.4


3.03


(5%)


6%


11%


(10%)


* Calculated as total net new orders in period divided by average active communities during period divided by number of months in period

 

 

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data


Active Subdivisions












March 31,


%




2014


2013


Change



Arizona

31


16


94%



California

15


12


25%



Nevada

17


9


89%



Washington

11


12


(8%)



West

74


49


51%



Colorado

38


36


6%



Utah

6


9


(33%)



Mountain

44


45


(2%)



Maryland

15


19


(21%)



Virginia

10


12


(17%)



Florida

14


14


0%



East

39


45


(13%)



Total

157


139


13%



Average for quarter ended

150


143


5%


 

Backlog




























































March 31,



2014


2013


% Change



Homes


Dollar
Value


Average Price


Homes


Dollar
Value


Average Price


Homes


Dollar
Value


Average Price



(Dollars in thousands)


Arizona

226


$

63,587


$

281.4


137


$

32,224


$

235.2


65%


97%


20%


California

208



106,121



510.2


247



89,688



363.1


(16%)


18%


41%


Nevada

170



53,490



314.6


241



64,216



266.5


(29%)


(17%)


18%


Washington

74



27,427



370.6


111



36,118



325.4


(33%)


(24%)


14%


West

678



250,625



369.7


736



222,246



302.0


(8%)


13%


22%


Colorado

565



237,413



420.2


584



212,109



363.2


(3%)


12%


16%


Utah

45



15,232



338.5


79



25,556



323.5


(43%)


(40%)


5%


Mountain

610



252,645



414.2


663



237,665



358.5


(8%)


6%


16%


Maryland

120



57,871



482.3


219



95,970



438.2


(45%)


(40%)


10%


Virginia

105



53,278



507.4


215



111,823



520.1


(51%)


(52%)


(2%)


Florida

112



36,852



329.0


94



25,350



269.7


19%


45%


22%


East

337



148,001



439.2


528



233,143



441.6


(36%)


(37%)


(1%)


Total

1,625


$

651,271


$

400.8


1,927


$

693,054


$

359.7


(16%)


(6%)


11%

 

 

M.D.C. HOLDINGS, INC.

Homebuilding Operational Data


Homes Completed or Under Construction (WIP lots)

















March 31,


%



2014


2013


Change


Unsold:







Completed

484


222


118%


Under construction

740


514


44%


Total unsold started homes (speculative homes)

1,224


736


66%


Sold homes under construction or completed

1,245


1,345


(7%)


Model homes

258


221


17%


Total homes completed or under construction

2,727


2,302


18%

      

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

































March 31, 2014


March 31, 2013





Lots Owned


Lots Optioned


Total


Lots Owned


Lots Optioned


Total


Total % Change


Arizona

2,861


40


2,901


2,146


40


2,186


33%


California

1,779


23


1,802


997


-


997


81%


Nevada

1,591


290


1,881


1,442


39


1,481


27%


Washington

687


140


827


493


168


661


25%


West

6,918


493


7,411


5,078


247


5,325


39%


Colorado

4,220


1,239


5,459


3,336


1,327


4,663


17%


Utah

533


20


553


465


13


478


16%


Mountain

4,753


1,259


6,012


3,801


1,340


5,141


17%


Maryland

427


311


738


592


297


889


(17%)


Virginia

466


421


887


507


287


794


12%


Florida

844


151


995


479


113


592


68%


East

1,737


883


2,620


1,578


697


2,275


15%


Total

13,408


2,635


16,043


10,457


2,284


12,741


26%

 


M.D.C. HOLDINGS, INC.

Reconciliations of Non-GAAP Financial Measures


Adjusted Income Before Income Taxes (Unaudited)


Adjusted income before taxes is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that the debt extinguishment costs had and permits investors to make better comparisons with our competitors, who may not have incurred debt extinguishment charges.

















Three Months Ended March 31,



2014


2013



(Dollars in thousands)


Income before income taxes

$

18,640


$

22,586


Debt extinguishment charge


9,412



-


Adjusted income before income taxes

$

28,052


$

22,586

 

 

Adjusted Diluted Earnings Per Share (Unaudited)


Adjusted diluted earnings per share is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that the debt extinguishment costs had and permits investors to make better comparisons with our competitors, who may not have incurred debt extinguishment charges.





























Three Months Ended March 31,



2014


2013



Dollars


EPS


Dollars


EPS



(Dollars in thousands, except per share amounts)


Numerator for diluted earnings per share under two class method

$

11,452


$

0.23


$

22,146


$

0.45


Effect of debt extinguishment charge on numerator for diluted earnings per share under two class method


5,718



0.12



-



-


Numerator for adjusted diluted earnings per share under two class method

$

17,170


$

0.35


$

22,146


$

0.45















Weighted average diluted shares outstanding


48,854,675






48,922,335




 

 

SOURCE M.D.C. Holdings, Inc.

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