M.D.C. Holdings Announces 2017 Third Quarter Results

DENVER, Nov. 2, 2017 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended September 30, 2017.

2017 Third Quarter Highlights and Comparisons to 2016 Third Quarter

• Net income up 132% to $61.2 million, or $1.16 per diluted share, from $26.4 million or $0.51 per diluted share*
• Pretax gain of $52.2 million on investment sales
• Home sale revenues up 2% to $584.9 million from $575.7 million
• Gross margin from home sales percentage up 80 basis points from 15.5% to 16.3%
• Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") of 11.8% versus 10.8%
• Dollar value of net new orders of $596.7 million, up 6% from $563.9 million
• Ending backlog dollar value up 6% to $1.71 billion from $1.61 billion
• Lot purchase approvals up 83% to 2,489 lots in 37 communities
• Last twelve months return on equity improved 500 basis points to 11.8%
• Increased homebuilding line of credit from $550 million to $700 million
• Announced entry into Portland market
• Added $150 million to our senior notes due January 2043 subsequent to quarter end

*Per share amount for 2016 third quarter has been adjusted for the 5% stock dividend declared and paid in the 2016 fourth quarter.

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "Despite the challenges presented to our Florida operations by Hurricane Irma and our Colorado operations by the Weyerhaeuser joist issue, we increased revenues, net order value and ending backlog value year-over-year for the 2017 third quarter. In addition, we recognized significant gains from the opportunistic sale of several investments during the quarter, which drove a 132% increase in our net income."

Mr. Mizel continued, "Solid economic fundamentals continue to support the homebuilding industry, driving robust demand for new homes, especially in the first-time homebuyer segment. To meet this growing demand, we have taken a number of steps to grow community count. First, we substantially increased our approvals of future lots for purchase. Through the first nine months of 2017, we approved the purchase of over 7,800 lots, more than double the approvals from the same period a year ago. An increasing percentage of our lot approvals are focused on the first-time homebuyer segment, which has responded favorably to one of our newest product lines, the Seasons™ collection."

Mr. Mizel continued, "Also, we announced in September that we will commence operations in the greater Portland area, giving us additional exposure to the Pacific Northwest, where we have experienced solid results."

Mr. Mizel concluded, "Lastly, we expanded the capacity under our line of credit at the end of the third quarter from $550 million to $700 million and extended its maturity by two years to December 2022. In addition, at the start of the fourth quarter, we added $150 million to our senior notes due January 2043. We ended our 2017 third quarter with liquidity of almost $1.1 billion, an increase of 40% over the prior year. The higher liquidity provides us with additional resources to fund our increased lot approval activity, providing us the foundation for community count growth in 2018."

Homebuilding

Home sale revenues for the 2017 third quarter increased 2% to $584.9 million, primarily driven by a 2% improvement in deliveries, which was mostly the result of a 2% year-over-year increase in our homes in beginning backlog. However, deliveries were negatively impacted by the Weyerhaeuser joist issue in Colorado and Hurricane Irma in Florida. The deliveries of approximately 115 homes that were previously scheduled to close during the 2017 third quarter were delayed to later quarters as a result of these issues.

For the 2017 third quarter, our gross margin from home sales percentage was 16.3%, an 80 basis point improvement from 15.5% in the prior year period. During the 2017 and 2016 third quarters, we recorded inventory impairments of $4.5 million and $4.7 million, respectively. The impairments recorded for each period negatively impacted gross margin by 80 basis points. Additionally, during the 2016 third quarter, we recorded adjustments of $1.8 million (a 30 basis point negative impact to gross margins) to increase our warranty accrual while for our 2017 third quarter, we recorded an adjustment to decrease our warranty accrual by $0.4 million (a 10 basis point positive impact to gross margins).

Our interest and other income for the three months ended September 30, 2017 and 2016 was $54.5 million and $1.9 million, respectively. The year-over-year increase was driven by a $52.2 million gain from investment sales in the 2017 third quarter. The majority of the gain relates to the sale of the Company's metropolitan district bond securities, which we held for the past ten years and relate to a master-planned community being developed by one of our homebuilding subsidiaries.

Selling, general and administrative expenses for the 2017 third quarter were $69.1 million, up $7.2 million from $61.9 million for the same period in 2016. As we continued to plan for future growth of our business, we increased headcount, resulting in higher compensation-related expenses. Our SG&A rate was up 100 basis points year-over-year to 11.8%. However, absent the Weyerhaeuser joist issue and Hurricane Irma issues discussed above, we estimate that our SG&A rate might have increased by only 40 basis points year-over-year.  

The dollar value of net new orders for the 2017 third quarter increased 6% year-over-year to $596.7 million, as an 8% increase in the average selling price of net new orders was slightly offset by a 2% decline in the number of net new orders. The year-over-year change in our average selling price of net new orders was driven by price increases in existing communities due to robust demand and the mix of sales between markets, partially offset by an increase in the percentage of sales coming from our more affordable product lines. The slight decline in the number of net new orders was caused by a 4% decrease in our average active community count, partially offset by a 2% increase in our monthly sales absorption rate.

Our backlog value at the end of the 2017 third quarter was up 6% year-over-year to $1.71 billion, due mostly to a 6% increase in the average selling price of homes in backlog. The change in average selling price is consistent with that explained for our net new orders.

Financial Services

Income before taxes for our financial services operations for the 2017 third quarter was $9.5 million, a $0.9 million decline from $10.4 million in the 2016 third quarter. The change in average selling price is consistent with the explanation provided above for our net new orders.

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 190,000 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, 2017, 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.