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