m.d.c. holdings, inc. february 1, 2018 › mr5ir...the raven, az 4th quarter 2017 webcast m.d.c....
TRANSCRIPT
The Raven, AZ
4th Quarter 2017 Webcast M.D.C. Holdings, Inc.
February 1, 2018
Forward Looking Statements
2
Certain statements in this release, 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 MDC's Form 10-K for the year ended December 31, 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.
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 Lawson, NV
The Sage, NV
Overview
3
Q4 2017 vs. Q4 2016
• Net income of $24.6 million, or $0.43 per diluted share
vs. $40.4 million, or $0.72 per diluted share*
- Net charge of $9.3 million related to various tax items,
including the remeasurement of deferred tax assets
(following the enactment of the Tax Cuts and Jobs Act in
December 2017)
• Pretax income of $51.8 million vs. $59.0 million
- Q4 2017 includes $5.4 million of infrequent charges to G&A
related to accrual adjustments or tax planning strategies
• Home sale revenues of $702.6 million vs. $716.6 million
• Gross margin from home sales percentage up 120 basis
points to 17.3%
• Dollar value of net new orders up 23% to $574.3 million
- Monthly sales absorption pace up 31% to 2.7
• Ending backlog of $1.60 billion, up 16%
• 2,566 lots approved for purchase, up 64%
• 8% stock dividend in December 2017
• Quarterly cash dividend of $0.30 ($1.20 annualized)
declared in January 2018, up 20% from dividend
declared in October 2017
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.
FY 2017 vs. FY 2016
• Net income of $141.8 million, or $2.48 per diluted share
vs. $103.2 million, or $1.85 per diluted share*
• Home sale revenues of $2.50 billion vs. $2.26 billion
• Dollar value of net new orders up 6% year-over-year to
$2.70 billion
• 10,382 lots approved for purchase, up 100%
• Backlog of $1.60 billion, up 16% year-over-year
• Pretax return on equity up 510 bps to 16.9%
• Liquidity increased 40% to $1.25 billion
- $150 million add-on issuance of senior notes due 2043 ($500
million total now issued)
- Homebuilding line of credit increased from $550 million to
$700 million in September (maturity extended to December
2022)
Homes Closed and Average Selling Price
4
46%
Beginning Backlog
Backlog Conversion Rate
(Closings as a % of Beginning Backlog)
76% % of Beginning Backlog Under Construction
3,448
45%
75%
3,463
$451.6 $452.5
$375
$400
$425
$450
$475
Q4 '16 Q4 '17
Homes Closed Average Selling Price
1,582 1,556
1,000
1,200
1,400
1,600
1,800
Q4 '16 Q4 '17
-2% 0%
($ in thousands)
Gross Margin
5
$72.7
$77.9
$60
$70
$80
Q4 '16 Q4 '17
Gross Margin $ from Home
Sales Per Home Closed Gross Margin % from
Home Sales
16.1%
17.3%
10.0%
12.5%
15.0%
17.5%
20.0%
Q4 '16 Q4 '17
+$5.2
+120 bps
(in thousands)
Homebuilding SG&A Expenses (incl. Corporate)
6
27.4 32.4 32.3 33.2
39.8
17.0 15.1 17.0 16.4
17.8
23.4 18.8 21.4 19.5
23.7
$0
$25
$50
$75
$100
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
$ i
n M
illi
ons
General and Administrative Marketing Commissions
$67.9
$81.4
$66.3 $70.7 $69.1
1,582 Home Closings
9.5% SG&A % of Home Sale Revenues
1,556
11.6%
$715.8 Home Sale Revenues (in millions) $702.6
The Citrine, CO
1,317
11.8%
$585.0
1,412
10.9%
$647.6
1,256
11.8%
$563.5
Net New Home Orders
7
$465.9
$574.3
0
100
200
300
400
500
600
700
Q4 '16 Q4 '17
Dollar Value of Net New
Home Orders
2.09
2.73
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Q4 '16 Q4 '17
Monthly Absorption Rate
Average Active Communities
Monthly Orders Per Active Community
163 152
Average Subdivisions
164 151
Ending Subdivisions
27% 22%
Cancellations -- % of Gross Sales
11% 10%
Cancellations -- % of Beginning Backlog
+23% +31%
(in millions)
Active Subdivisions
8
Average Active Communities
Monthly Orders Per Active Community
164 160
153 154 151
100
120
140
160
180
12/31/16 3/31/17 6/30/17 9/30/17 12/31/17
Active Subdivisions
21 20
24
13
24
33 34 31
21 22
0
10
20
30
40
12/31/16 3/31/17 6/30/17 9/30/17 12/31/17
Soon to Be Active / Inactive
Soon to Be Active Soon to Be Inactive
-7
“Soon to be active” = construction activities have commenced, but 5 homes not yet sold.
“Soon to be inactive” = between 5 and 10 homes left to sell.
-8 -14 -12 +2
*Based on last twelve months closings.
Lots Acquired and Land Spend
9
$94 $77
$126
$150 $143
$65
$53
$69
$67 $76
$0
$50
$100
$150
$200
$250
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
Land Acquisition Land Development
Land Spend
$217
1,133
1,313
1,582
2,004 1,898
0
500
1,000
1,500
2,000
2,500
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
Lots Acquired
$159
$130
$195
$219
$ in millions
*Based on last twelve months closings.
Lots Approved and Lot Supply
10
3.5 2.9
Years Supply of Lots Controlled* (including WIP)
1,560
1,985
3,342
2,489 2,566
0
900
1,800
2,700
3,600
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
Lots Approved for Acquisition
11,805 11,843 12,004 12,653 12,998
2,865 3,032
5,090
6,306 6,314
5,000
10,000
15,000
20,000
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
Owned Optioned
Total Number of Lots Controlled
3.4 3.1 2.8
14,670 14,875
17,094
18,959 19,312
Pretax Return on Equity
11
11.8%
13.4% 14.1%
17.7%
16.9%
5%
10%
15%
20%
Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17Average Active Communities
Monthly Orders Per Active Community
+510 bps
Pretax Return on Equity (Last Twelve Months)
Auburn Streetscape, CA
Questions?
Reconciliation of Non-GAAP Financial Measures
13
“Net debt” and “net capital” are non-GAAP financial measures, and should not be considered in isolation or as an alternative to
performance measures prescribed by GAAP. The table below reconciles “net debt” and “net capital” to debt and capital as calculated
based on GAAP. We believe the ratio of net debt to net capital, also knows as “net debt-to-capital” is meaningful to investors as
management uses the ratio in understanding the leverage employed in our operations and as an indicator of our ability to obtain
external financing. Furthermore, we utilize this information for comparative purposes within our industry.
Homebuilding senior notes, net $ 986,597 $ 841,646
Revolving credit facility 15,000 15,000
Less:
Homebuilding cash and cash equivalents (472,957) (259,087)
Homebuilding marketable securities (49,634) (59,770)
Financial services cash and cash equivalents (32,471) (23,822)
Financial services marketable securities (42,004) (36,436)
Net debt 404,531 477,531
Stockholders' equity 1,407,287 1,320,070
Total capital $ 1,811,818 1,797,601
Ratio of net debt to capital 22.3% 26.6%
December 31, December 31,
2017 2016
(Dollars in thousands)
Reconciliation of Non-GAAP Financial Measures
14
“Gross Margin from Home Sales Excluding Inventory Impairments and Warranty Adjustments” and “Gross Margin from Home Sales
Excluding Inventory Impairments, Warranty Adjustments, and Interest in Cost of Sales” are non-GAAP financial measures, and should
not be considered in isolation or as an alternative to performance measures prescribed by GAAP. 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 adjustment gross
margins in a similar fashion.
Gross Gross Gross Gross Gross
Margin % Margin % Margin % Margin % Margin %
Gross Margin $ 121,203 17.2% $ 95,341 16.3% $ 108,692 16.7% $ 89,723 15.9% $ 115,026 16.1%
Less: Land Sales Revenue (1,609) (1,340) (1,351) (247) (770)
Add: Land Cost of Sales 1,768 1,259 1,202 211 669
Gross Margin from Home Sales 121,362 17.3% 95,260 16.3% 108,543 16.8% 89,687 15.9% 114,925 16.1%
Add: Inventory Impairments 620 4,540 - 4,850 3,873
Add: Warranty Adjustments 1,716 (425) - 50 2,400
Gross Margin from Home Sales
Excluding Inventory Impairments
and Warranty Adjustments 123,698 17.6% 99,375 17.0% 108,543 16.8% 94,587 16.8% 121,198 16.9%
Add: Interest in Home Cost of Sales 17,938 15,001 17,123 15,174 19,455
Gross Margin from Home Sales
Excluding Inventory Impairments,
Warranty Adjustments, and
Interest in Cost of Sales $ 141,636 20.2% $ 114,462 19.6% $ 125,722 19.4% $ 109,784 19.5% $ 140,698 19.7%
2017
(Dollars in thousands)
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
2017 2017 2017 2016