News

M.D.C. Holdings Announces 2016 First Quarter Results

PR Newswire

DENVER

DENVER, May 5, 2016 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended March 31, 2016.

2016 First Quarter Highlights and Comparisons to 2015 First Quarter

Net income of $9.6 million, or $0.20 per share vs. $8.4 million or $0.17 per share
- Pretax income of $14.3 million vs. $13.3 million
Home sale revenues of $394.4 million, up 5% from $377.0 million
Gross margin from home sales up 90 basis points to 16.3% vs. 15.4%
- 2016 first quarter gross margin was negatively impacted by 80 basis points due to a $3.0 million warranty accrual adjustment
Dollar value of net new orders of $731.3 million, up 10%
- Net new orders of 1,646, up 3%; eighth consecutive quarter of year-over-year growth
Ending backlog dollar value of $1.43 billion, up 50%
- Ending backlog units of 3,071, up 39%

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "We are pleased with the start to our 2016 spring selling season, as we recorded an eighth consecutive quarter of year-over-year growth in our net new orders. The homebuilding industry continues to slowly gain momentum, as a result of healthy demand drivers, such as low unemployment, positive consumer confidence, wage growth and low interest rates, combined with a limited supply of new and existing home inventories."

Mr. Mizel continued, "After renewing our focus on build-to-order homes in 2015, we improved both our top and bottom line results in the 2016 first quarter, based on growth in our average selling price and gross margin percentage. We achieved these improvements while not significantly increasing our homebuilding assets, resulting in a better return on investment for our Company."

Mr. Mizel concluded, "Driving continued improvement to our returns remains a key focus for the Company in 2016. To that end, we are working on improving the cycle time for our existing home plans, in part by addressing issues caused by limited subcontractor availability in certain of our larger markets. In addition, we are expanding the geographical footprint of our new, more affordable product line, which is already available in our Colorado and Arizona markets. We believe this new product will increase our sales velocity by appealing to an expanding consumer segment that was previously priced out of the market. The new home designs are aimed at putting homeownership within reach for an under-served segment of buyers. The designs will help us reduce cycle times through a more streamlined and efficient design, but also allow homebuyers to personalize their homes with fixtures and finishes like our other Richmond American homes."

Homebuilding

Home sale revenues for the 2016 first quarter increased 5% to $394.4 million, compared to $377.0 million for the prior year period. This improvement was driven by a 5% increase in average selling price, primarily due to a mix shift to higher-priced submarkets and, to a lesser extent, price increases implemented in the prior year.

Gross margin from home sales for the 2016 first quarter was up 90 basis points from the same period in 2015. The increase was primarily due to (1) a higher percentage of our deliveries coming from build-to-order sales, which typically have higher gross margins when compared to deliveries of homes that were started without a sales contract, and (2) a 50 basis point improvement in our interest in cost of sales as a percentage of home sale revenues. These items were partially offset by an 80 basis point negative adjustment to our warranty accrual in the 2016 first quarter, which resulted from higher than expected recent warranty related expenditures.

Selling, general and administrative ("SG&A") expenses for the 2016 first quarter were $56.3 million, up $5.8 million from $50.5 million for the same period in 2015. Our SG&A expenses as a percentage of home sale revenues ("SG&A rate") increased by 90 basis points to 14.3% for the 2016 first quarter from 13.4% in the 2015 first quarter. The 90 basis point increase in our SG&A rate was driven primarily by an increase in compensation-related expenses, due to an increase in headcount and an additional $2.5 million of expense related to a stock option grant approved in the 2015 second quarter.

The dollar value of net new orders for the 2016 first quarter increased 10% to $731.3 million from $666.5 million for the same period in 2015. The improvement was the result of a 6% increase in our average selling price and a 3% increase in the net number of homes sold, which was driven by a 3% increase in our average active community count. The increase in average selling price is the result of price increases implemented in many of our active communities over the past year, coupled with a shift in mix to higher priced communities. Our cancellation rate for the 2016 first quarter increased slightly to 18% from 17% for the same period in the prior year.

Our backlog value at the end of the 2016 first quarter was up 50% year-over-year to $1.43 billion. The increase was due mostly to a 39% increase in units in backlog, driven primarily by year-over-year increases in net new orders for each of the past eight quarters, a higher percentage of build-to-order sales, which are generally in backlog for a longer period of time, and longer than average construction times as a result of limited subcontractor availability in certain of our larger markets.

Financial Services

Income before taxes for our financial services operations for the 2016 first quarter was $5.6 million, a $0.3 million increase from $5.3 million in the 2015 first quarter. The increase in pretax income was primarily the result of year-over-year increases in gains on loans locked and sold by our mortgage operations segment.

About MDC

Since 1972, MDC's subsidiary companies have built and financed the American dream for more than 185,000 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 Diego, Orange County, San Francisco Bay Area, Sacramento, Washington D.C., Baltimore, Orlando, Jacksonville, 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 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 March 31, 2016, 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
	March 31,
	2016		2015
	(Dollars in thousands, except per share amounts)
	(Unaudited)
Homebuilding:
Home sale revenues	$	394,420	$	377,009
Land sale revenues		2,324		910
Total home and land sale revenues		396,744		377,919
Home cost of sales		(330,026)		(318,642)
Land cost of sales		(1,663)		(1,125)
Inventory impairments		-		(350)
Total cost of sales		(331,689)		(320,117)
Gross margin		65,055		57,802
Selling, general and administrative expenses		(56,277)		(50,532)
Interest and other income		1,850		1,865
Other expense		(1,541)		(1,145)
Other-than-temporary impairment of marketable securities		(431)		-
Homebuilding pretax income		8,656		7,990

Financial Services:
Revenues		11,017		10,591
Expenses		(6,241)		(6,159)
Interest and other income		841		904
Financial services pretax income		5,617		5,336

Income before income taxes		14,273		13,326
Provision for income taxes		(4,710)		(4,906)
Net income	$	9,563	$	8,420

Other comprehensive income related to
available for sale securities, net of tax		1,948		1,308
Comprehensive income	$	11,511	$	9,728

Earnings per share:
Basic	$	0.20	$	0.17
Diluted	$	0.20	$	0.17

Weighted average common shares outstanding
Basic		48,827,971		48,714,637
Diluted		48,833,444		48,891,514

Dividends declared per share	$	0.25	$	0.25


M.D.C. HOLDINGS, INC. Consolidated Balance Sheets

	March 31,		December 31,
	2016		2015
ASSETS	(Dollars in thousands, except
	per share amounts)
Homebuilding:	(Unaudited)
Cash and cash equivalents	$	99,031	$	144,342
Marketable securities		77,154		92,387
Restricted cash		3,349		3,750
Trade and other receivables		38,096		23,314
Inventories:
Housing completed or under construction		862,515		747,036
Land and land under development		948,767		1,016,926
Total inventories		1,811,282		1,763,962
Property and equipment, net		29,374		28,226
Deferred tax asset, net		95,880		99,107
Metropolitan district bond securities (related party)		27,277		25,911
Prepaid and other assets		62,932		65,394
Total homebuilding assets		2,244,375		2,246,393
Financial Services:
Cash and cash equivalents		39,504		36,646
Marketable securities		12,268		11,307
Mortgage loans held-for-sale, net		82,193		115,670
Other assets		7,466		5,883
Total financial services assets		141,431		169,506
Total Assets	$	2,385,806	$	2,415,899

LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	46,669	$	40,472
Accrued liabilities		110,791		122,886
Revolving credit facility		15,000		15,000
Senior notes, net		840,798		840,524
Total homebuilding liabilities		1,013,258		1,018,882
Financial Services:
Accounts payable and accrued liabilities		54,033		52,114
Mortgage repurchase facility		60,221		88,611
Total financial services liabilities		114,254		140,725
Total Liabilities		1,127,512		1,159,607
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; 49,006,835 and 48,888,424
issued and outstanding at March 31, 2016 and December 31, 2015, respectively		490		489
Additional paid-in-capital		918,488		915,746
Retained earnings		321,653		324,342
Accumulated other comprehensive income		17,663		15,715
Total Stockholders' Equity		1,258,294		1,256,292
Total Liabilities and Stockholders' Equity	$	2,385,806	$	2,415,899


M.D.C. HOLDINGS, INC. Consolidated Statement of Cash Flows

	Three Months Ended
	March 31,
	2016		2015
		(Dollars in thousands)
		(Unaudited)
Operating Activities:
Net income	$	9,563	$	8,420
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		2,987		875
Depreciation and amortization		1,073		1,083
Inventory impairments		-		350
Other-than-temporary impairment of marketable securities		431		-
Loss on sale of marketable securities		915		11
Amortization of discount / premiums on marketable debt securities, net		-		59
Deferred income tax expense		1,788		4,713
Net changes in assets and liabilities:
Restricted cash		401		(1,444)
Trade and other receivables		(15,251)		(6,141)
Mortgage loans held-for-sale		33,477		23,684
Housing completed or under construction		(115,357)		4,282
Land and land under development		68,311		(1,274)
Prepaid expenses and other assets		911		489
Accounts payable and accrued liabilities		(4,234)		(19,681)
Net cash provided by (used in) operating activities		(14,985)		15,426

Investing Activities:
Purchases of marketable securities		(5,482)		(20,484)
Maturities of marketable securities		-		1,510
Sales of marketable securities		20,600		12,976
Purchases of property and equipment		(1,944)		(340)
Net cash provided by (used in) investing activities		13,174		(6,338)

Financing Activities:
Payments on mortgage repurchase facility, net		(28,390)		(20,785)
Dividend payments		(12,252)		(12,213)
Net cash used in financing activities		(40,642)		(32,998)

Net decrease in cash and cash equivalents		(42,453)		(23,910)
Cash and cash equivalents:
Beginning of period		180,988		153,825
End of period	$	138,535	$	129,915


M.D.C. HOLDINGS, INC. Homebuilding Operational Data

New Home Deliveries

		Three Months Ended March 31,
		2016					2015					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
		(Dollars in thousands)
	Arizona	160	$	45,062	$	281.6	150	$	46,886	$	312.6	7%	(4)%	(10)%
	California	125		75,530		604.2	140		68,986		492.8	(11)%	9%	23%
	Nevada	107		38,426		359.1	111		40,914		368.6	(4)%	(6)%	(3)%
	Washington	74		32,357		437.3	56		20,031		357.7	32%	62%	22%
	West	466		191,375		410.7	457		176,817		386.9	2%	8%	6%
	Colorado	249		121,575		488.3	245		111,938		456.9	2%	9%	7%
	Utah	39		14,575		373.7	31		11,172		360.4	26%	30%	4%
	Mountain	288		136,150		472.7	276		123,110		446.1	4%	11%	6%
	Maryland	34		15,806		464.9	56		27,156		484.9	(39)%	(42)%	(4)%
	Virginia	40		20,154		503.9	59		29,120		493.6	(32)%	(31)%	2%
	Florida	79		30,935		391.6	61		20,806		341.1	30%	49%	15%
	East	153		66,895		437.2	176		77,082		438.0	(13)%	(13)%	(0)%
	Total	907	$	394,420	$	434.9	909	$	377,009	$	414.8	(0)%	5%	5%


Net New Orders

	Three Months Ended March 31,
	2016						2015						% 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	223	$	65,541	$	293.9	2.38	225	$	59,721	$	265.4	2.08	(1)%	10%	11%	14%
California	229		141,684		618.7	3.72	229		120,963		528.2	3.76	0%	17%	17%	(1)%
Nevada	229		79,316		346.4	3.59	227		86,186		379.7	5.29	1%	(8)%	(9)%	(32)%
Washington	124		58,511		471.9	3.01	112		45,109		402.8	2.99	11%	30%	17%	1%
West	805		345,052		428.6	3.09	793		311,979		393.4	3.18	2%	11%	9%	(3)%
Colorado	493		228,841		464.2	4.11	490		223,955		457.1	3.82	1%	2%	2%	8%
Utah	66		23,993		363.5	2.84	66		23,531		356.5	3.49	0%	2%	2%	(19)%
Mountain	559		252,834		452.3	3.90	556		247,486		445.1	3.78	1%	2%	2%	3%
Maryland	89		42,147		473.6	2.58	67		33,370		498.1	2.54	33%	26%	(5)%	2%
Virginia	85		43,500		511.8	3.33	72		34,818		483.6	2.33	18%	25%	6%	43%
Florida	108		47,718		441.8	2.57	105		38,838		369.9	2.54	3%	23%	19%	1%
East	282		133,365		472.9	2.76	244		107,026		438.6	2.48	16%	25%	8%	11%
Total	1,646	$	731,251	$	444.3	3.26	1,593	$	666,491	$	418.4	3.22	3%	10%	6%	1%


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


M.D.C. HOLDINGS, INC. Homebuilding Operational Data

Active Subdivisions

					Average Active Subdivisions
		Active Subdivisions			Three Months Ended
		March 31,		%	March 31,		%
		2016	2015	Change	2016	2015	Change
	Arizona	30	36	(17)%	31	36	(14)%
	California	21	22	(5)%	21	20	5%
	Nevada	23	10	130%	21	14	50%
	Washington	12	13	(8)%	14	13	8%
	West	86	81	6%	87	83	5%
	Colorado	40	45	(11)%	40	43	(7)%
	Utah	8	6	33%	8	6	33%
	Mountain	48	51	(6)%	48	49	(2)%
	Maryland	13	9	44%	12	9	33%
	Virginia	7	10	(30)%	9	10	(10)%
	Florida	15	15	0%	14	14	0%
	East	35	34	3%	35	33	6%
	Total	169	166	2%	170	165	3%


Backlog

		March 31,
		2016					2015					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
		(Dollars in thousands)
	Arizona	384	$	116,646	$	303.8	306	$	88,599	$	289.5	25%	32%	5%
	California	446		297,790		667.7	281		149,351		531.5	59%	99%	26%
	Nevada	317		107,850		340.2	271		104,686		386.3	17%	3%	(12)%
	Washington	229		109,733		479.2	111		45,216		407.4	106%	143%	18%
	West	1,376		632,019		459.3	969		387,852		400.3	42%	63%	15%
	Colorado	1,066		516,264		484.3	824		382,025		463.6	29%	35%	4%
	Utah	135		48,215		357.1	75		25,783		343.8	80%	87%	4%
	Mountain	1,201		564,479		470.0	899		407,808		453.6	34%	38%	4%
	Maryland	145		70,575		486.7	79		39,856		504.5	84%	77%	(4)%
	Virginia	146		76,790		526.0	103		50,864		493.8	42%	51%	7%
	Florida	203		89,046		438.7	153		66,569		435.1	33%	34%	1%
	East	494		236,411		478.6	335		157,289		469.5	47%	50%	2%
	Total	3,071	$	1,432,909	$	466.6	2,203	$	952,949	$	432.6	39%	50%	8%


M.D.C. HOLDINGS, INC. Homebuilding Operational Data

Homes Completed or Under Construction (WIP lots)

		March 31,		%
		2016	2015	Change
	Unsold:
	Completed	133	326	(59)%
	Under construction	266	419	(37)%
	Total unsold started homes	399	745	(46)%
	Sold homes under construction or completed	2,169	1,519	43%
	Model homes under construction or completed	296	279	6%
	Total homes completed or under construction	2,864	2,543	13%


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

		March 31, 2016			March 31, 2015
		Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
	Arizona	1,575	247	1,822	2,138	40	2,178	(16)%
	California	1,754	232	1,986	1,468	150	1,618	23%
	Nevada	2,234	-	2,234	1,765	52	1,817	23%
	Washington	892	19	911	830	-	830	10%
	West	6,455	498	6,953	6,201	242	6,443	8%
	Colorado	3,892	819	4,711	4,089	699	4,788	(2)%
	Utah	403	72	475	561	-	561	(15)%
	Mountain	4,295	891	5,186	4,650	699	5,349	(3)%
	Maryland	354	199	553	399	376	775	(29)%
	Virginia	528	152	680	613	322	935	(27)%
	Florida	1,035	194	1,229	936	121	1,057	16%
	East	1,917	545	2,462	1,948	819	2,767	(11)%
	Total	12,667	1,934	14,601	12,799	1,760	14,559	0%


M.D.C. HOLDINGS, INC. Other Financial Data

Selling, General and Administrative Expense

		Three Months Ended
		March 31,
		2016		2015
		(Dollars in thousands)
		(Unaudited)
	General and administrative expenses	$	31,465	$	25,914
	Marketing expenses		12,034		12,126
	Commissions expenses		12,777		12,492
	Selling, general and administrative expense	$	56,277	$	50,532


Capitalized Interest

		Three Months Ended
		March 31,		March 31,
		2016		2015
		(Dollars in thousands)
		(Unaudited)
	Homebuilding interest incurred	$	13,218	$	13,251
	Less: Interest capitalized		(13,218)		(13,251)
	Homebuilding interest expensed	$	-	$	-

	Interest capitalized, beginning of period	$	77,541	$	79,231
	Plus: Interest capitalized during period		13,218		13,251
	Less: Previously capitalized interest included in home and land cost of sales		(10,976)		(12,491)
	Interest capitalized, end of period	$	79,783	$	79,991


M.D.C. HOLDINGS, INC. Reconciliations of Non-GAAP Financial Measures

Gross Margin from Home Sales Excluding Impairments, Interest in Cost of Sales and Warranty Adjustments (Unaudited)

Gross Margin from Home Sales Excluding Inventory Impairments and Warranty Adjustments, and Gross Margin from Home Sales Excluding Inventory Impairments, Warranty Adjustments and Interest in Cost of Sales are non-GAAP financial measures. We believe this information is meaningful as it isolates the impact that interest and impairments have on our Gross Margin from Home Sales and permits investors to make better comparisons with our competitors, who also break out and adjust gross margins in a similar fashion.

	Three Months Ended
	March 31, 2016		Gross Margin %	December 31, 2015		Gross Margin %	March 31, 2015		Gross Margin %
	(Dollars in thousands)
Gross Margin	$	65,055	16.4%	$	89,207	15.8%	$	57,802	15.3%
Less: Land Sale Revenues		(2,324)			(10,521)			(910)
Add: Land Cost of Sales		1,663			10,667			1,125
Gross Margin from Home Sales		64,394	16.3%		89,353	16.1%		58,017	15.4%
Add: Inventory Impairments		-			5,292			350
Add: Warranty Adjustments		2,987			402			-
Gross Margin from Home Sales Excluding Inventory Impairments and Warranty Adjustments		67,381	17.1%		95,047	17.1%		58,367	15.5%
Add: Interest in Cost of Sales		10,976			14,943			12,491
Gross Margin from Home Sales Excluding Inventory Impairments, Interest in Cost of Sales, and Warranty Adjustments	$	78,357	19.9%	$	109,990	19.8%	$	70,858	18.8%

SOURCE M.D.C. Holdings, Inc.