m.d.c. holdings, inc.€¦ · company overview 3 founded in 1972, m.d.c. holdings, inc. is one of...
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The Yorktown, CO
M.D.C. Holdings, Inc. 11th Annual J.P. Morgan Homebuilding & Building Products Conference
May 2018
Forward Looking Statements
Certain statements in this presentation, 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 the Company’s Annual Report on form 10-Q for the
quarter ended March 31, 2018. All forward-looking statements made in this presentation 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. The Company
undertakes no duty to update 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 presentations should be consulted.
It should also be noted that SEC Regulation G requires that certain information accompany
the use of non-GAAP financial measures. Any information required by Regulation G will be
posted on our web site, www.mdcholdings.com.
The Arlington, CO
The Sage, NV
Company Overview
3
Founded in 1972, M.D.C. Holdings, Inc. is one of the leading homebuilders in
the United States. Through our Richmond American Homes subsidiaries, we’ve
helped over 195,000 buyers move into new, quality homes across the country.
Homebuilding Operations:
Financial Services Business Units:
Seattle
Portland
(Coming Soon)
Salt Lake
City Las Vegas
Northern
California
Southern
California
Phoenix
Tucson
Metro
Denver
Colorado
Springs
Maryland
Northern Virginia
Jacksonville
Orlando
South Florida
AZ CA NV WA CO UT FL Mid-Atl Total
LTM Deliveries 798 880 897 391 1,510 228 430 425 5,559
% of Total 14.4% 15.8% 16.1% 7.0% 27.2% 4.1% 7.7% 7.6%
LTM ASP ('000s) $ 325 $ 620 $ 353 $525 $ 489 $435 $ 381 $ 507 $ 458
Data as of quarter ended March 31, 2018
The MDC Difference
4
Led By Two of the Industry’s Most Senior Veterans
CEO/COO with 87 years of combined experience at MDC
(ranked #1) vs. 42-year average for peer group
Industry-Leading Management Ownership
CEO/COO beneficial ownership of 26% (ranked #1) of
MDC shares vs. 5% average for peer group
Conservative Inventory Strategies Limit Risk
3.9 year supply of land for MDC (ranked #1) vs. 5.3 year
average for peer group
“Build-to-order” policy limits risk vs. speculative building
of unsold homes by peer group
Credit Profile Among the Best in the Industry
Moody’s: Ba2 / S&P: BB+ / Fitch: BBB-
Industry-Leading Dividend (ranked #1)
Current yield of 4.0% vs. 0.4% average for peer group*
Uninterrupted cash dividend since 1994 – unequalled by
any member of the peer group
In the past ten years, Company paid approximately $500
million in dividends to shareholders
Decades of experience has created long-term
shareholder value by successfully navigating through
multiple economic cycles
Aligns management’s interests with our shareholders
Inline with Company operating philosophy, emphasizing
risk management and financial stability while striving to
achieve long-term shareholder value
Commitment to maintaining a strong financial profile (1)
safeguards against inevitable market downturns and (2)
provides capital resources for opportunistic investments
Shows long-term commitment and ability to provide a
reliable source of return for our shareholders
How MDC is Different Why it Matters
* Dividend yield from Yahoo Finance, May 7, 2018
Peer group includes: Beazer Homes (BZH), D.R. Horton (DHI), Hovnanian Enterprises, Inc. (HOV), KB Home (KBH), Lennar (LEN), M/I Homes Inc. (MHO), Meritage Homes Corporation
(MTH), NVR, Inc. (NVR), PulteGroup (PHM), and Toll Brothers (TOL).
3.9 3.9 4.2 4.5 4.8 5.3 5.5 5.6 6.0 6.7 6.7
MDC BZH KBH MTH HOV DHI NVR LEN* MHO PHM TOL
Creating A Sustainable Builder Operation
Across Cycles
5
Conservative operating philosophy that minimizes land speculation, which improves returns
over the entire housing cycle and reduces our risk and exposure to land price volatility
No land banking, no joint ventures, and minimal goodwill
Generally target 2-3 year land supply
Significant portion of owned lots are finished (61% at March 31, 2018) -- minimal additional investment
required before start of home construction
No “mothballed” communities
Focus on presales, with 90% of work-in-process units already sold as of March 31, 2018
Approach is becoming more unique for MDC as more homebuilders move to a spec strategy
Strong merchandising and “Home Gallery” operations focus on customization niche within production
builder environment
Strict underwriting criteria and management discipline
Allows us to grow over the long run and retain prudent cash positions in order to weather the
cyclicality of the housing industry
Land Supply Held, in Years
Source: Company filings.
Note: Figures as of most recent quarter or annual public filing.
* Due to Lennar’s recent acquisition of Cal-Atlantic, year’s supply is based on current lots controlled divided by the estimated FY 2018 deliveries as stated in their 2018 Q1 Form 10-Q
Median:
5.3 years
Overview - Q1 2018 vs. Q1 2017
6
The Yorktown, CO
*All per share amounts have been adjusted as necessary for the 8% stock dividend declared and paid in the 2017 fourth quarter.
The Grove, CA
• Net income of $38.8 million, or $0.68 per diluted
share vs. $22.2 million, or $0.40 per diluted
share*
• Pretax income of $50.5 million vs. $36.4 million
• Home sale revenues increased 8% to $607.7
million
• Gross margin from home sales up 230 basis
points to 18.2% (up 90 basis points sequentially
from 2017 fourth quarter)
• Dollar value of net new orders up 15% year-
over-year to $863.7 million
– Monthly sales absorption pace up 19% to 4.19
• 4,072 lots approved for purchase, up 105%
• Liquidity increased 23% to $1.17 billion
Forward-Looking Guidance*
7
The Yorktown, CO
The Grove, CA
• Backlog dollar value at March 31, 2018 up 18%
year-over-year to $1.88 billion
– Gross margin from home sales in backlog at
3/31/2018 modestly exceeds 2018 first quarter
closing gross margin of 18.2%
– Backlog conversion ratio (home deliveries
divided by beginning backlog) for Q2 2018
estimated to be in the 39% to 40% range
• Active subdivision count at 3/31/2018 of 155, down
3% year-over-year but up 3% 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 21,453 at 3/31/2018, up 44%
year-over-year
• Revised estimate for full year 2018 effective tax rate
of 24% to 26%, excluding impact of any further
discrete items
*All guidance effective as of May 3, 2018
Auburn at Stonegate, CA
YoY Change in Gross Margin %
8
230 bps
180 bps
150 bps
100 bps 100 bps 90 bps 90 bps
40 bps
10 bps
-60 bps
N/A*
MDC HOV KBH BZH DHI MTH NVR PHM TOL MHO LEN
Source: Company filings.
Note: Figures as of most recent quarter or annual public filing.
* LEN change omitted due to YoY impact on comparability as a result of the merger with CAA
Adjusted Gross Margin from Home Sales*
9 *Before impairments and warranty adjustments. See end of presentation for reconciliation of non-GAAP financial measures.
14.5%
16.9%
19.3%
22.3%
23.2% 23.0%
24.1%
27.7% 28.4%
22.2%
13.9%
11.7%
14.6%
16.8%
14.0%
15.5%
17.8%
16.9% 16.7% 16.8% 17.1%
18.8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q12018
+870 bps
Proven ability to grow
gross margin quickly
Q1 ‘18 up 200 bps YoY from Q1’ 17 and 130 bps sequentially
from Q4 ‘17
Product Spotlight - Seasons
10
The Peridot, AZ
The Citrine, CO
The Coral, CO
The Moonstone, FL
Q1 2018 Activity
47% of total lots approved for acquisition / 24% of total lots acquired
15% of total homes sold / 11% of total homes delivered
Product Spotlight - Landmark
11
The Coronado, CO The Yorktown, CO
The Bedford, UT
The Hopewell, AZ
Q1 2018 Activity
19% of total lots approved for acquisition / 22% of total lots acquired
10% of total homes sold / 7% of total homes delivered
Product Spotlight – Cityscapes / Infill / Duplexes
12
The Norris, CO (Duplexes)
The Norah, CO (Duplexes)
Product Spotlight - RV Garages & Luxury
13
The Damon, AZ (RV Series)
The Deacon, AZ (RV Series)
The Reilly, CA
The Robert, AZ
Land Acquisition & Approval Activity
14
344 678
374 544 420 695
926 1,215 1,170
121
448 682
589 893
887
1,078 683
1,334
465
1,126 1,056 1,133 1,313
1,582
2,004 1,898
2,504
Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18
Lots Acquired by Quarter
Lots - Finished Lots - Development Required
Continued focus on land acquisition following strong top-side growth
321
1,792 1,357 1,560
1,985
3,342
2,489 2,566
4,072
Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18
Lots Approved by Quarter
Willow at Emerson, CA
16
“Gross Margin from Home Sales, before imp. and war. adj.” is a non-GAAP financial measure, and should not be considered in isolation
or as an alternative to performance measures prescribed by GAAP. The table below reconciles “Gross Margin from Home Sales, before
imp. and war. adj.” to gross margin as calculated based on GAAP. We believe the measure is meaningful to investors as management uses
it to isolate the impact that warranty adjustments and impairments have on our gross margins.
Q1
2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Gross Margin 110,506$ 414,959$ 363,423$ 298,226$ 280,691$ 289,317$ 177,094$ 106,601$ 155,079$ 124,907$ (118,668)$
Less: Land Sales Revenue - (4,547) (5,700) (12,337) (3,233) (2,468) (5,144) (11,859) (5,883) (30,730) (60,050)
Add: Land Cost of Sales - 4,440 4,866 12,611 2,559 1,961 4,823 10,796 5,366 25,038 53,847
Gross Margin from Home Sales 110,506$ 414,852$ 362,589$ 298,500$ 280,017$ 288,810$ 176,773$ 105,539$ 154,562$ 119,215$ (124,871)$
Add: Inventory Impairments 550 10,010 10,173 9,993 1,760 919 1,105 12,965 21,195 30,986 298,155
Less: Warranty Adjustments 3,106 1,341 7,462 189 (2,600) - - (5,478) (20,845) (27,783) (14,011)
Gross Margin from Home Sales, 114,162$ 426,203$ 380,224$ 308,682$ 279,177$ 289,729$ 177,878$ 113,026$ 154,912$ 122,417$ 159,273$
before imp. and war. adj. 18.8% 17.1% 16.8% 16.7% 16.9% 17.8% 15.5% 14.0% 16.8% 14.6% 11.7%
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
Gross Margin (350,466)$ 919,992$ 1,363,151$ 1,088,585$ 688,088$ 520,664$ 477,158$ 377,071$ 294,702$ 205,483$ 132,443$
Less: Land Sales Revenue (50,130) (34,611) (2,995) (8,898) (1,298) (6,022) (2,909) (6,641) (8,114) (13,964) (9,978)
Add: Land Cost of Sales 59,529 33,491 1,861 8,783 842 4,600 1,105 4,293 5,767 9,700 7,740
Gross Margin from Home Sales (341,067)$ 918,872$ 1,362,017$ 1,088,470$ 687,632$ 519,242$ 475,354$ 374,723$ 292,355$ 201,219$ 130,205$
Add: Inventory Impairments 726,621 112,027 - - - - 7,041 4,200 2,242 5,300 5,850
Less: Warranty Adjustments - - - - - - - - - - -
Gross Margin from Home Sales, 385,554$ 1,030,899$ 1,362,017$ 1,088,470$ 687,632$ 519,242$ 482,395$ 378,923$ 294,597$ 206,519$ 136,055$
before imp. and war. adj. 13.9% 22.2% 28.4% 27.7% 24.1% 23.0% 23.2% 22.3% 19.3% 16.9% 14.5%
Year Ended December 31,
Year Ended December 31,
(Dollars in thousands)
(Dollars in thousands)
Reconciliation of Non-GAAP Financial Measures