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

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

News provided by

M.D.C. Holdings, Inc.

Aug 01, 2018, 06:00 ET

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

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

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

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

2018 Second Quarter Highlights and Comparisons to 2017 Second Quarter

Net income up 89% to $63.9 million, or $1.12 per diluted share, from $33.9 million or $0.60 per diluted share*

Effective tax rate of 16.6% vs. 34.7%

Pretax income up 48% to $76.6 million from $51.9 million
Home sale revenues up 16% to $749.6 million from $647.6 million

Average selling price of homes delivered up 8% to $496,000

Gross margin from home sales up 230 basis points to 19.1% from 16.8%
Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") even with prior year-over-year at 10.9%
Dollar value of net new orders up 9% to $776.2 million from $710.6 million

Monthly sales absorption pace of 3.68, up 8%

Lot purchase approvals increased by 10% to 3,678 lots in 49 communities

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

2018 Outlook – Selected Information

Backlog dollar value at June 30, 2018 up 16% year-over-year to $1.95 billion

Gross margin from home sales in backlog at 6/30/2018 roughly even with 2018 second quarter closing gross margin of 19.1%
Average selling price of homes in backlog at 6/30/2018 of $487,400 is lower than 2018 second quarter closing average sales price of $496,000
Backlog conversion ratio (home deliveries divided by beginning backlog) for the third quarter estimated to be in the 40% to 41% range

Active subdivision count at 6/30/2018 of 164, up 7% year-over-year and 9% from 12/31/2017

Targeting a 10% year-over-year increase in active subdivision count by year end (from 151 at 12/31/2017 to at least 166 at 12/31/2018)

Lots controlled of 23,626 at 6/30/2018, up 38% year-over-year
Quarterly dividend of $0.30 ($1.20 annualized) declared in July 2018, up 30% year-over-year (after adjusting for 8% stock dividend in December 2017)
Estimated effective tax rate for the final six months of 2018 between 25% and 27%, excluding impact of any further discrete items

About MDC

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

Forward-Looking Statements

Certain statements in this release, including any statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of MDC to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic conditions, including changes in consumer confidence, inflation or deflation and employment levels; (2) changes in business conditions experienced by MDC, including cancellation rates, net home orders, home gross margins, land and home values and subdivision counts; (3) changes in interest rates, mortgage lending programs and the availability of credit; (4) changes in the market value of MDC's investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican Mortgage Corporation's sale of mortgage loans (6) the relative stability of debt and equity markets; (7) competition; (8) the availability and cost of land and other raw materials used by MDC in its homebuilding operations; (9) the availability and cost of performance bonds and insurance covering risks associated with our business; (10) shortages and the cost of labor; (11) weather related slowdowns and natural disasters; (12) slow growth initiatives; (13) building moratoria; (14) governmental regulation, including the interpretation of tax, labor and environmental laws; (15) terrorist acts and other acts of war; (16) changes in energy prices; and (17) other factors over which MDC has little or no control. Additional information about the risks and uncertainties applicable to MDC's business is contained in MDC's Form 10-Q for the quarter ended June 30, 2018, which is scheduled to be filed with the Securities and Exchange Commission today. All forward-looking statements made in this press release are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this press release will increase with the passage of time. MDC undertakes no duty to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent filings, releases or webcasts should be consulted.

M.D.C. HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(Dollars in thousands, except per share amounts)
	(Unaudited)
Homebuilding:
Home sale revenues	$	749,608	$	647,620	$	1,357,296	$	1,211,099
Land sale revenues		-		1,351		-		1,598
Total home and land sale revenues		749,608		648,971		1,357,296		1,212,697
Home cost of sales		(606,403)		(539,077)		(1,103,035)		(1,008,019)
Land cost of sales		-		(1,202)		-		(1,413)
Inventory impairments		(200)		-		(750)		(4,850)
Total cost of sales		(606,603)		(540,279)		(1,103,785)		(1,014,282)
Gross profit		143,005		108,692		253,511		198,415
Selling, general and administrative expenses		(81,571)		(70,709)		(152,912)		(137,007)
Interest and other income		1,774		2,847		3,633		5,174
Other expense		(871)		(666)		(1,434)		(1,017)
Other-than-temporary impairment of marketable securities		-		(1)		-		(51)
Homebuilding pretax income		62,337		40,163		102,798		65,514

Financial Services:
Revenues		21,372		19,073		40,407		37,052
Expenses		(9,611)		(8,500)		(18,442)		(16,398)
Interest and other income		2,518		1,238		2,385		2,217
Other-than-temporary impairment of marketable securities		-		(80)		-		(131)
Financial services pretax income		14,279		11,731		24,350		22,740

Income before income taxes		76,616		51,894		127,148		88,254
Provision for income taxes		(12,717)		(18,023)		(24,485)		(32,134)
Net income	$	63,899	$	33,871	$	102,663	$	56,120

Other comprehensive income related to available for sale securities, net of tax		-		1,944		-		3,930
Comprehensive income	$	63,899	$	35,815	$	102,663	$	60,050

Earnings per share:
Basic	$	1.13	$	0.61	$	1.82	$	1.01
Diluted	$	1.12	$	0.60	$	1.79	$	0.99

Weighted average common shares outstanding:
Basic		56,102,684		55,635,454		55,987,525		55,542,325
Diluted		57,041,006		56,639,653		56,968,002		56,231,245

Dividends declared per share	$	0.30	$	0.23	$	0.60	$	0.46

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

	June 30,		December 31,
	2018		2017
ASSETS	(Dollars in thousands, except
	per share amounts)
Homebuilding:	(Unaudited)
Cash and cash equivalents	$	378,219	$	472,957
Marketable securities		-		49,634
Restricted cash		7,443		8,812
Trade and other receivables		54,719		53,362
Inventories:
Housing completed or under construction		1,077,406		936,685
Land and land under development		977,694		893,051
Total inventories		2,055,100		1,829,736
Property and equipment, net		55,112		26,439
Deferred tax asset, net		37,350		41,480
Prepaid and other assets		45,450		75,666
Total homebuilding assets		2,633,393		2,558,086
Financial Services:
Cash and cash equivalents		47,661		32,471
Marketable securities		44,328		42,004
Mortgage loans held-for-sale, net		107,185		138,114
Other assets		15,062		9,617
Total financial services assets		214,236		222,206
Total Assets	$	2,847,629	$	2,780,292
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	52,513	$	39,655
Accrued liabilities		168,899		166,312
Revolving credit facility		15,000		15,000
Senior notes, net		987,272		986,597
Total homebuilding liabilities		1,223,684		1,207,564
Financial Services:
Accounts payable and accrued liabilities		53,285		53,101
Mortgage repurchase facility		80,819		112,340
Total financial services liabilities		134,104		165,441
Total Liabilities		1,357,788		1,373,005
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		-		-
Common stock, $0.01 par value; 250,000,000 shares authorized; 56,435,989 and 56,123,228 issued and outstanding at June 30, 2018 and December 31, 2017, respectively		564		561
Additional paid-in-capital		1,156,477		1,144,570
Retained earnings		332,800		258,164
Accumulated other comprehensive income		-		3,992
Total Stockholders' Equity		1,489,841		1,407,287
Total Liabilities and Stockholders' Equity	$	2,847,629	$	2,780,292

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(Dollars in thousands)
	(Unaudited)
Operating Activities:
Net income	$	63,899	$	33,871	$	102,663	$	56,120
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		4,824		1,443		6,075		2,038
Depreciation and amortization		5,316		1,376		9,952		2,704
Inventory impairments		200		-		750		4,850
Other-than-temporary impairment of marketable securities		-		81		-		182
Net gain on sale of available-for-sale marketable securities		-		(1,197)		-		(1,758)
Net gain on marketable equity securities		(1,278)		-		(125)		-
Amortization of discount / premiums on marketable debt securities, net		(184)		-		(366)		-
Deferred income tax expense		3,134		6,813		3,557		10,033
Net changes in assets and liabilities:
Trade and other receivables		944		(1,907)		(2,317)		5,419
Mortgage loans held-for-sale		5,973		2,090		30,929		43,491
Housing completed or under construction		(68,198)		(18,841)		(133,576)		(39,707)
Land and land under development		(12,905)		8,491		(84,457)		37,521
Prepaid expenses and other assets		(5,497)		(5,195)		(5,108)		(7,602)
Accounts payable and accrued liabilities		9,070		774		15,835		8,845
Net cash provided by (used in) operating activities		5,298		27,799		(56,188)		122,136

Investing Activities:
Purchases of marketable securities		(5,898)		(6,682)		(14,659)		(12,043)
Maturities of marketable securities		50,000		-		50,000		-
Sales of marketable securities		3,760		6,467		12,460		11,450
Purchases of property and equipment		(6,735)		(242)		(13,051)		(1,364)
Net cash provided by (used in) investing activities		41,127		(457)		34,750		(1,957)

Financing Activities:
Payments on mortgage repurchase facility, net		(9,307)		(1,415)		(31,521)		(45,358)
Dividend payments		(16,928)		(12,912)		(33,793)		(25,809)
Proceeds from exercise of stock options		5,553		5,697.00		5,835		7,304.00
Net cash used in financing activities		(20,682)		(8,630)		(59,479)		(63,863)

Net increase (decrease) in cash, cash equivalents and restricted cash		25,743		18,712		(80,917)		56,316
Cash, cash equivalents and restricted cash:
Beginning of period		407,580		324,291		514,240		286,687
End of period	$	433,323	$	343,003	$	433,323	$	343,003

Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents	$	378,219	$	314,814	$	378,219	$	314,814
Restricted cash		7,443		5,027		7,443		5,027
Financial Services:
Cash and cash equivalents		47,661		23,162		47,661		23,162
Total cash, cash equivalents and restricted cash	$	433,323	$	343,003	$	433,323	$	343,003

New Home Deliveries

		Three Months Ended June 30,
		2018					2017					% Change
		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues	Average Price
		(Dollars in thousands)
	West	769	$	391,806	$	509.5	728	$	323,758	$	444.7	6%	21%	15%
	Mountain	522		268,541		514.4	462		223,005		482.7	13%	20%	7%
	East	221		89,261		403.9	222		100,857		454.3	(0)%	(11)%	(11)%
	Total	1,512	$	749,608	$	495.8	1,412	$	647,620	$	458.7	7%	16%	8%

		Six Months Ended June 30,
		2018					2017					% Change
		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues	Average Price
		(Dollars in thousands)
	West	1,450	$	711,315	$	490.6	1,433	$	632,838	$	441.6	1%	12%	11%
	Mountain	938		477,173		508.7	831		395,896		476.4	13%	21%	7%
	East	398		168,808		424.1	404		182,365		451.4	(1)%	(7)%	(6)%
	Total	2,786	$	1,357,296	$	487.2	2,668	$	1,211,099	$	453.9	4%	12%	7%

Net New Orders

	Three Months Ended June 30,
	2018						2017						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value	Average Price	Monthly Absorption Rate
	(Dollars in thousands)
West	1,020	$	458,082	$	449.1	4.55	858	$	379,540	$	442.4	3.90	19%	21%	2%	17%
Mountain	508		250,454		493.0	2.97	525		244,518		465.7	3.54	(3)%	2%	6%	(16)%
East	193		67,627		350.4	2.65	215		86,549		402.6	2.14	(10)%	(22)%	(13)%	24%
Total	1,721	$	776,163	$	451.0	3.68	1,598	$	710,607	$	444.7	3.41	8%	9%	1%	8%

	Six Months Ended June 30,
	2018						2017						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value	Average Price	Monthly Absorption Rate
	(Dollars in thousands)
West	2,053	$	937,759	$	456.8	4.66	1,751	$	779,006	$	444.9	3.88	17%	20%	3%	20%
Mountain	1,175		590,045		502.2	3.45	1,082		508,778		470.2	3.69	9%	16%	7%	(7)%
East	397		147,943		372.7	2.82	461		195,535		424.2	2.25	(14)%	(24)%	(12)%	25%
Total	3,625	$	1,675,747	$	462.3	3.93	3,294	$	1,483,319	$	450.3	3.47	10%	13%	3%	13%

Active Subdivisions

					Average Active Subdivisions			Average Active Subdivisions
		Active Subdivisions			Three Months Ended			Six Months Ended
		June 30,		%	June 30,		%	June 30,		%
		2018	2017	Change	2018	2017	Change	2018	2017	Change
	West	78	70	11%	75	74	1%	73	75	(3)%
	Mountain	61	50	22%	57	50	14%	57	49	16%
	East	25	33	(24)%	24	34	(29)%	24	34	(29)%
	Total	164	153	7%	156	158	(1)%	154	158	(3)%

Backlog

		June 30,
		2018					2017					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
		(Dollars in thousands)
	West	2,054	$	1,011,780	$	492.6	1,665	$	802,313	$	481.9	23%	26%	2%
	Mountain	1,490		766,539		514.5	1,319		634,181		480.8	13%	21%	7%
	East	454		170,364		375.3	526		241,341		458.8	(14)%	(29)%	(18)%
	Total	3,998	$	1,948,683	$	487.4	3,510	$	1,677,835	$	478.0	14%	16%	2%

Homes Completed or Under Construction (WIP lots)

		June 30,		%
		2018	2017	Change
	Unsold:
	Completed	86	77	12%
	Under construction	268	153	75%
	Total unsold started homes	354	230	54%
	Sold homes under construction or completed	2,980	2,547	17%
	Model homes under construction or completed	373	316	18%
	Total homes completed or under construction	3,707	3,093	20%

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

		June 30, 2018			June 30, 2017
		Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
	West	7,906	2,916	10,822	5,665	2,011	7,676	41%
	Mountain	5,329	4,041	9,370	4,986	2,057	7,043	33%
	East	1,509	1,925	3,434	1,353	1,022	2,375	45%
	Total	14,744	8,882	23,626	12,004	5,090	17,094	38%

Selling, General and Administrative Expenses

		Three Months Ended June 30,						Six Months Ended June 30,
		2018		2017		Change		2018		2017		Change
		(Dollars in thousands)
	General and administrative expenses	$	40,372	$	32,292	$	8,080	$	76,125	$	64,661	$	11,464
	General and administrative expenses as a percentage of home sale revenues		5.4%		5.0%		40 bps		5.6%		5.3%		30 bps

	Marketing expenses	$	17,215	$	16,976	$	239	$	32,786	$	32,100	$	686
	Marketing expenses as a percentage of home sale revenues		2.3%		2.6%		(30) bps		2.4%		2.7%		(30) bps

	Commissions expenses	$	23,984	$	21,441	$	2,543	$	44,001	$	40,246	$	3,755
	Commissions expenses as a percentage of home sale revenues		3.2%		3.3%		(10) bps		3.2%		3.3%		(10) bps

	Total selling, general and administrative expenses	$	81,571	$	70,709	$	10,862	$	152,912	$	137,007	$	15,905
	Total selling, general and administrative expenses as a percentage of home sale revenues		10.9%		10.9%		0 bps		11.3%		11.3%		0 bps

Capitalized Interest

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
		(Dollars in thousands)
	Homebuilding interest incurred	$	15,639	$	13,194	$	31,264	$	26,382
	Less: Interest capitalized		(15,639)		(13,194)		(31,264)		(26,382)
	Homebuilding interest expensed	$	-	$	-	$	-	$	-

	Interest capitalized, beginning of period	$	58,738	$	66,076	$	57,541	$	68,085
	Plus: Interest capitalized during period		15,639		13,194		31,264		26,382
	Less: Previously capitalized interest included in home and land cost of sales		(16,150)		(17,179)		(30,578)		(32,376)
	Interest capitalized, end of period	$	58,227	$	62,091	$	58,227	$	62,091