News

M.D.C. Holdings Announces 2018 Third Quarter Results
Strong performance highlighted by a 31% year-over-year increase in home sale revenues, a 140 basis point expansion of home sales gross margins and a 90 basis point improvement in SG&A rate during the third quarter of 2018.

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

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "MDC turned in another strong performance in the third quarter of 2018, highlighted by a 31% year-over-year increase in home sale revenues, a 210 basis point expansion in home sales gross margins excluding impairments and a 90 basis point improvement in our SG&A rate.  We continued to see solid demand for our homes, as evidenced by our order pace of 2.7 homes per community per month, which was similar to the same quarter a year ago. After steady home price appreciation during the past few years and recent interest rate increases, national new home sales have slowed during the third quarter, relative to the robust increases seen during the past few years. This is an expected part of a housing cycle. However, we believe that our industry still has the potential for continued expansion, given the strength of the underlying fundamentals."

Mr. Mizel continued, "We continue to position our company for targeted growth, with an emphasis on growing our presence in the affordable market segment.  Our affordable product communities have delivered above average order paces and gross margins over the last several quarters, and we believe that this trend will continue.  With our mix shift to more affordable product and our expectation for 10% growth in active community count at the end of 2018, we feel that we are in a great position to take market share and grow our operations."

2018 Third Quarter Highlights and Comparisons to 2017 Third Quarter

  • Home sale revenues up 31% to $766.0 million from $584.9 million
    • Average selling price of homes delivered up 9% to $483,600
  • Pretax income of $67.4 million vs. $89.7 million in 2017 third quarter
    • $52.2 million gain on investments in 2017 third quarter vs $3.0 million gain in 2018 third quarter
    • Excluding gain on investments, pretax income increased 72% to $64.4 million from $37.5 million
  • Net income of $53.4 million, or $0.93 per diluted share, down 13% from $61.2 million or $1.07 per diluted share*
    • Effective tax rate of 20.8% vs. 31.8%
  • Gross margin from home sales up 140 basis points to 17.7% from 16.3%
    • $11.1 million impairment charge in 2018 third quarter vs. $4.5 million in 2017 third quarter
    • Excluding impairments, gross margins increased 210 basis points to 19.2% from 17.1%
  • Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") improved by 90 basis points to 10.9% from 11.8%
  • Dollar value of net new orders of $581.2 million vs. $596.7 million in 2017 third quarter
    • Unit net orders increased 2% to 1,290
    • Monthly sales absorption pace of 2.67
  • Lot purchase approvals increased by 16% to 2,878 lots in 34 communities

* Per share amount for the 2017 third 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 September 30, 2018 up 6% year-over-year to $1.80 billion
    • Gross margin from home sales in backlog at 9/30/2018 roughly even with 2018 third quarter closing gross margin (excluding impairments) of 19.2%
    • Backlog conversion ratio (home deliveries divided by beginning backlog) for the fourth quarter estimated to be in the 45% to 47% range
  • Active subdivision count at 9/30/2018 of 158, up 3% year-over-year and 5% 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 25,011 at 9/30/2018, up 32% year-over-year
  • Quarterly dividend of $0.30 ($1.20 annualized) declared in October 2018, up 30% year-over-year (after adjusting for 8% stock dividend in December 2017)
  • Estimated effective tax rate for the fourth quarter of 2018 between 17% and 19%
    • Includes expected benefits related to changes in tax methods

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 200,000 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 September 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

  

Nine Months Ended
 

September 30,

 

September 30,

 

2018

  

2017

  

2018

  

2017
 

(Dollars in thousands, except per share amounts)
 

(Unaudited)

Homebuilding:

                      

Home sale revenues

$

766,027

  

$

584,947

  

$

2,123,323

  

$

1,796,046

Land sale revenues

  

-

    

1,340

    

-

    

2,938

Total home and land sale revenues

  

766,027

    

586,287

    

2,123,323

    

1,798,984

Home cost of sales

  

(619,248)

    

(485,147)

    

(1,722,283)

    

(1,493,166)

Land cost of sales

  

-

    

(1,259)

    

-

    

(2,672)

Inventory impairments

  

(11,098)

    

(4,540)

    

(11,848)

    

(9,390)

Total cost of sales

  

(630,346)

    

(490,946)

    

(1,734,131)

    

(1,505,228)

Gross profit

  

135,681

    

95,341

    

389,192

    

293,756

Selling, general and administrative expenses

  

(83,523)

    

(69,102)

    

(236,435)

    

(206,109)

Interest and other income

  

1,953

    

54,548

    

5,586

    

59,722

Other expense

  

(1,128)

    

(618)

    

(2,562)

    

(1,635)

Other-than-temporary impairment of marketable securities

  

-

    

-

    

-

    

(51)

Homebuilding pretax income

  

52,983

    

80,169

    

155,781

    

145,683
                       

Financial Services:

                      

Revenues

  

19,611

    

17,464

    

60,018

    

54,516

Expenses

  

(9,408)

    

(8,849)

    

(27,850)

    

(25,247)

Interest and other income

  

4,234

    

925

    

6,619

    

3,142

Other-than-temporary impairment of marketable securities

  

-

    

(29)

    

-

    

(160)

Financial services pretax income

  

14,437

    

9,511

    

38,787

    

32,251
                       

Income before income taxes

  

67,420

    

89,680

    

194,568

    

177,934

Provision for income taxes

  

(14,028)

    

(28,517)

    

(38,513)

    

(60,651)

Net income

$

53,392

  

$

61,163

  

$

156,055

  

$

117,283
                       

Other comprehensive loss related to

                      

available for sale securities, net of tax

  

-

    

(23,175)

    

-

    

(19,245)

Comprehensive income

$

53,392

  

$

37,988

  

$

156,055

  

$

98,038
                       

Earnings per share:

                      

Basic

$

0.94

  

$

1.09

  

$

2.77

  

$

2.10

Diluted

$

0.93

  

$

1.07

  

$

2.72

  

$

2.07
                       

Weighted average common shares outstanding:

                      

Basic

  

56,171,619

    

55,782,389

    

56,023,996

    

55,623,225

Diluted

  

57,226,659

    

56,809,208

    

57,029,715

    

56,428,247
                       

Dividends declared per share

$

0.30

  

$

0.23

  

$

0.90

  

$

0.69

 

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets
 
 

September 30,

 

December 31,

 

2018

  

2017

ASSETS

(Dollars in thousands, except
 

per share amounts)

Homebuilding:

  

(Unaudited)

      

Cash and cash equivalents

$

360,947

  

$

472,957

Marketable securities

  

-

    

49,634

Restricted cash

  

7,866

    

8,812

Trade and other receivables

  

56,469

    

53,362

Inventories:

          

Housing completed or under construction

  

1,073,909

    

936,685

Land and land under development

  

1,034,025

    

893,051

Total inventories

  

2,107,934

    

1,829,736

Property and equipment, net

  

56,693

    

26,439

Deferred tax asset, net

  

36,815

    

41,480

Prepaid and other assets

  

52,988

    

75,666

Total homebuilding assets

  

2,679,712

    

2,558,086

Financial Services:

          

Cash and cash equivalents

  

49,979

    

32,471

Marketable securities

  

49,006

    

42,004

Mortgage loans held-for-sale, net

  

114,836

    

138,114

Other assets

  

14,637

    

9,617

Total financial services assets

  

228,458

    

222,206

      Total Assets

$

2,908,170

  

$

2,780,292

LIABILITIES AND EQUITY

          

Homebuilding:

          

Accounts payable

$

52,070

  

$

39,655

Accrued liabilities

  

175,110

    

166,312

Revolving credit facility

  

15,000

    

15,000

Senior notes, net

  

987,617

    

986,597

Total homebuilding liabilities

  

1,229,797

    

1,207,564

Financial Services:

          

Accounts payable and accrued liabilities

  

54,847

    

53,101

Mortgage repurchase facility

  

90,784

    

112,340

Total financial services liabilities

  

145,631

    

165,441

      Total Liabilities

  

1,375,428

    

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; 56,614,726 and 56,123,228 issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

 

  

566

    

561

Additional paid-in-capital

  

1,162,924

    

1,144,570

Retained earnings

  

369,252

    

258,164

Accumulated other comprehensive income

  

-

    

3,992

Total Stockholders' Equity

  

1,532,742

    

1,407,287

Total Liabilities and Stockholders' Equity

$

2,908,170

  

$

2,780,292

 

M.D.C. HOLDINGS, INC.

Consolidated Statement of Cash Flows
 
 

Three Months Ended

  

Nine Months Ended
 

September 30,

 

September 30,

 

2018

  

2017

  

2018

  

2017
 

(Dollars in thousands)
 

(Unaudited)

Operating Activities:

                      

Net income

$

53,392

  

$

61,163

  

$

156,055

  

$

117,283

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

                      

Stock-based compensation expense

  

2,425

    

1,062

    

8,500

    

3,100

Depreciation and amortization

 

5,454

    

1,501

    

15,406

    

4,205

Inventory impairments

  

11,098

    

4,540

    

11,848

    

9,390

Other-than-temporary impairment of marketable securities

  

-

    

29

    

-

    

211

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

  

-

    

(16,364)

    

-

    

(18,122)

Net gain on marketable equity securities

  

(3,004)

    

-

    

(3,129)

    

-

Gain on sale of metropolitan district bond securities (related party)

  

-

    

(35,847)

          

(35,847)

Amortization of discount / premiums on marketable debt securities, net

  

-

    

-

    

(366)

    

-

Deferred income tax expense

  

535

    

12,762

    

4,092

    

22,795

Net changes in assets and liabilities:

                      

      Trade and other receivables

  

(4,732)

    

(5,300)

    

(7,049)

    

119

      Mortgage loans held-for-sale

  

(7,651)

    

5,479

    

23,278

    

48,970

      Housing completed or under construction

  

1,919

    

(62,290)

    

(131,657)

    

(101,997)

      Land and land under development

  

(65,506)

    

(17,635)

    

(149,963)

    

19,886

      Prepaid expenses and other assets

  

(7,220)

    

(3,627)

    

(12,328)

    

(11,229)

      Accounts payable and accrued liabilities

  

10,232

    

6,500

    

26,067

    

15,345

Net cash provided by (used in) operating activities

  

(3,058)

    

(48,027)

    

(59,246)

    

74,109
                       

Investing Activities:

                      

Purchases of marketable securities

  

(2,524)

    

(5,561)

    

(17,183)

    

(17,604)

Maturities of marketable securities

  

-

    

-

    

50,000

    

-

Sales of marketable securities

  

850

    

71,865

    

13,310

    

83,315

Proceeds from sale of metropolitan district bond securities (related party)

  

-

    

44,253

    

-

    

44,253

Purchases of property and equipment

  

(6,848)

    

(553)

    

(19,899)

    

(1,917)

Net cash provided by (used in) investing activities

  

(8,522)

    

110,004

    

26,228

    

108,047
                       

Financing Activities:

                      

Payments on mortgage repurchase facility, net

  

9,965

    

(4,024)

    

(21,556)

    

(49,382)

Advances on revolving credit facility

  

-

    

-

    

-

    

-

Dividend payments

  

(16,940)

    

(12,984)

    

(50,733)

    

(38,793)

Payments of deferred financing costs

  

-

    

(2,630)

    

-

    

(2,630)

Proceeds from exercise of stock options

  

4,024

    

1,199

    

9,859

    

8,503

Net cash used in financing activities

  

(2,951)

    

(18,439)

    

(62,430)

    

(82,302)
                       

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

  

(14,531)

    

43,538

    

(95,448)

    

99,854

Cash, cash equivalents and restricted cash:

                      

      Beginning of period

  

433,323

    

343,003

    

514,240

    

286,687

      End of period

$

418,792

  

$

386,541

  

$

418,792

  

$

386,541
                       

Reconciliation of cash, cash equivalents and restricted cash:

                      

Homebuilding:

                      

Cash and cash equivalents

$

360,947

  

$

351,399

  

$

360,947

  

$

351,399

Restricted cash

  

7,866

    

8,723

    

7,866

    

8,723

Financial Services:

                      

Cash and cash equivalents

  

49,979

    

26,419

    

49,979

    

26,419

Total cash, cash equivalents and restricted cash

$

418,792

  

$

386,541

  

$

418,792

  

$

386,541

 

New Home Deliveries
 
   

 Three Months Ended September 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

836

  

$

409,001

  

$

489.2

  

747

  

$

326,804

  

$

437.5

  

12%

  

25%

  

12%
 

Mountain

535

    

272,989

    

510.3

  

359

  

165,726

  

461.6

  

49%

  

65%

  

11%
 

East

213

    

84,037

    

394.5

  

211

    

92,417

    

438.0

  

1%

  

(9)%

  

(10)%
 

Total

1,584

  

$

766,027

  

$

483.6

  

1,317

  

$

584,947

  

$

444.2

  

20%

  

31%

  

9%
                                             
   

 Nine Months Ended September 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

2,286

  

$

1,120,316

  

$

490.1

  

2,180

  

$

959,641

  

$

440.2

  

5%

  

17%

  

11%
 

Mountain

1,473

    

750,162

    

509.3

  

1,190

  

561,620

  

471.9

  

24%

  

34%

  

8%
 

East

611

    

252,845

    

413.8

  

615

    

274,785

    

446.8

  

(1)%

  

(8)%

  

(7)%
 

Total

4,370

  

$

2,123,323

  

$

485.9

  

3,985

  

$

1,796,046

  

$

450.7

  

10%

  

18%

  

8%

 

Net New Orders
 
 

 Three Months Ended September 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

690

  

$

316,556

  

$

458.8

  

3.06

  

692

  

$

336,730

  

$

486.6

  

3.20

  

(0)%

  

(6)%

  

(6)%

  

(4)%

Mountain

418

  

206,945

  

495.1

  

2.22

  

381

  

185,766

  

487.6

  

2.43

  

10%

  

11%

  

2%

  

(9)%

East

182

    

57,649

    

316.8

  

2.64

  

197

    

74,219

    

376.7

  

2.35

  

(8)%

  

(22)%

  

(16)%

  

12%

Total

1,290

  

$

581,150

  

$

450.5

  

2.67

  

1,270

  

$

596,715

  

$

469.9

  

2.78

  

2%

  

(3)%

  

(4)%

  

(4)%
 

 Nine Months Ended September 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

2,743

  

$

1,274,115

  

$

464.5

  

4.14

  

2,443

  

$

1,124,514

  

$

460.3

  

3.64

  

12%

  

13%

  

1%

  

14%

Mountain

1,593

  

814,939

  

511.6

  

3.02

  

1,463

  

704,959

  

481.9

  

3.24

  

9%

  

16%

  

6%

  

(7)%

East

579

    

207,394

    

358.2

  

2.78

  

658

    

271,159

    

412.1

  

2.30

  

(12)%

  

(24)%

  

(13)%

  

21%

Total

4,915

  

$

2,296,448

  

$

467.2

  

3.51

  

4,564

  

$

2,100,632

  

$

460.3

  

3.24

  

8%

  

9%

  

1%

  

8%

 

Active Subdivisions
                     
               

Average Active Subdivisions

  

Average Active Subdivisions
   

Active Subdivisions

  

Three Months Ended

  

Nine Months Ended
   

September 30,

 

%

  

September 30,

 

%

  

September 30,

 

%
   

2018

  

2017

  

Change

  

2018

  

2017

  

Change

  

2018

  

2017

  

Change
 

West

73

  

76

  

(4)%

  

75

  

72

  

4%

  

74

  

75

  

(1)%
 

Mountain

64

  

55

  

16%

  

63

  

52

  

21%

  

59

  

50

  

18%
 

East

21

  

23

  

(9)%

  

23

  

28

  

(18)%

  

23

  

31

  

(26)%
 

Total

158

  

154

  

3%

  

161

  

152

  

6%

  

156

  

156

  

0%

 

Backlog
 
   

September 30,

   

2018

  

2017

  

% Change
   

Homes

  

Dollar

Value

  

Average
Price

  

Homes

  

Dollar

Value

  

Average
Price

  

Homes

  

Dollar

Value

  

Average Price
   

(Dollars in thousands)
 

West

1,908

  

$

939,247

  

$

492.3

  

1,610

  

$

820,222

  

$

509.5

  

19%

  

15%

  

(3)%
 

Mountain

1,373

    

717,988

    

522.9

  

1,341

    

663,505

    

494.8

  

2%

  

8%

  

6%
 

East

423

    

145,829

    

344.7

  

512

    

224,565

    

438.6

  

(17)%

  

(35)%

  

(21)%
 

Total

3,704

  

$

1,803,064

  

$

486.8

  

3,463

  

$

1,708,292

  

$

493.3

  

7%

  

6%

  

(1)%

 

Homes Completed or Under Construction (WIP lots)
 
   

September 30,

 

%
   

2018

  

2017

  

Change
 

Unsold:

          
 

Completed

129

  

78

  

65%
 

Under construction

311

  

218

  

43%
 

Total unsold started homes

440

  

296

  

49%
 

Sold homes under construction or completed

2,835

  

2,591

  

9%
 

Model homes under construction or completed

403

  

319

  

26%
 

Total homes completed or under construction

3,678

  

3,206

  

15%

 

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

    
     
   

September 30, 2018

  

September 30, 2017

    
   

Lots
Owned

  

Lots
Optioned

  

Total

  

Lots
Owned

  

Lots
Optioned

  

Total

  

Total %
Change
 

West

7,736

  

4,215

  

11,951

  

6,230

  

1,905

  

8,135

  

47%
 

Mountain

6,020

  

3,648

  

9,668

  

5,078

  

3,092

  

8,170

  

18%
 

East

1,895

  

1,497

  

3,392

  

1,345

  

1,309

  

2,654

  

28%
 

Total

15,651

  

9,360

  

25,011

  

12,653

  

6,306

  

18,959

  

32%

 

Selling, General and Administrative Expenses
 
   

Three Months Ended September 30,

 

Nine Months Ended September 30,

   

2018

  

2017

  

Change

  

2018

  

2017

  

Change
   

(Dollars in thousands)
 

General and administrative expenses

$

40,237

  

$

33,170

  

$

7,067

  

$

116,362

  

$

97,831

  

$

18,531
 

 

 

General and administrative expenses as a percentage of home sale revenues

 

 

 

  

5.3%

    

5.7%

    

(40) bps

    

5.5%

    

5.4%

    

10 bps
                                     
 

Marketing expenses

$

18,102

  

$

16,445

  

$

1,657

  

$

50,888

  

$

48,545

  

$

2,343
 

Marketing expenses as a percentage of home sale revenues

 

 

 

  

2.4%

    

2.8%

    

(40) bps

    

2.4%

    

2.7%

    

(30) bps
                                     
 

Commissions expenses

$

25,184

  

$

19,487

  

$

5,697

  

$

69,185

  

$

59,733

  

$

9,452
 

Commissions expenses as a percentage of home sale revenues

 

 

 

  

3.3%

    

3.3%

    

0 bps

    

3.3%

    

3.3%

    

0 bps
                                     
 

Total selling, general and administrative expenses

$

83,523

  

$

69,102

  

$

14,421

  

$

236,435

  

$

206,109

  

$

30,326
 

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

  

10.9%

    

11.8%

    

(90) bps

    

11.1%

    

11.5%

    

(40) bps

 

Capitalized Interest
 
   

Three Months Ended

  

Nine Months Ended
   

September 30,

 

September 30,

   

2018

  

2017

  

2018

  

2017
   

(Dollars in thousands)
 

Homebuilding interest incurred

$

15,641

  

$

13,212

  

$

46,905

  

$

39,594
 

Less:  Interest capitalized

  

(15,641)

    

(13,212)

    

(46,905)

    

(39,594)
 

Homebuilding interest expensed

$

-

  

$

-

  

$

-

  

$

-
                         
 

Interest capitalized, beginning of period

$

58,227

  

$

62,091

  

$

57,541

  

$

68,085
 

Plus: Interest capitalized during period

  

15,641

    

13,212

    

46,905

    

39,594
 

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

  

(16,636)

    

(15,087)

    

(47,214)

    

(47,463)
 

Interest capitalized, end of period

$

57,232

  

$

60,216

  

$

57,232

  

$

60,216

 

Reconciliation of Non-GAAP Financial Measures
 

Below is a reconciliation of gross margin from home sales to gross margin from home sales excluding inventory impairments, warranty adjustments and interest in cost of sales. The table below reconciles each of these non-GAAP financial measures to gross margin as calculated based on GAAP. We believe this information is relevant and meaningful as it provides our investors and analysts with the impact that interest, warranty 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
   

 September 30,
2018

  

Gross
Margin %

  

September 30,
2017

  

Gross
Margin %
   

(Dollars in thousands)
 

Gross Margin

$

135,681

  

17.7%

  

$

95,341

  

16.4%
 

Less: Land Sale Revenues

  

-

        

(1,340)

    
 

Add: Land Cost of Sales

  

-

        

1,259

    
 

Gross Margin from Home Sales

  

135,681

  

17.7%

    

95,260

  

16.3%
 

Add: Inventory Impairments

  

11,098

        

4,540

    
 

Gross Margin from Home Sales Excluding  Inventory Impairments

  

146,779

  

19.2%

    

99,800

  

17.1%
 

Add: Warranty Adjustments

  

-

        

(425)

    
 

Gross Margin from Home Sales Excluding  Inventory Impairments and Warranty Adjustments

                  
   

146,779

  

19.2%

    

99,375

  

17.0%
 

Add: Interest in Cost of Sales

  

16,636

        

15,087

    
 

Gross Margin from Home Sales Excluding Inventory  Impairments,

                  
 

Warranty Adjustments, and Interest in Cost of Sales

$

163,415

  

21.3%

  

$

114,462

  

19.6%

 

SOURCE M.D.C. Holdings, Inc.

For further information: Robert N. Martin, Senior Vice President and Chief Financial Officer, 1-866-424-3395, IR@mdch.com