4th Quarter 2018 Webcast

Transcription

1 Moonstone, FL (Seasons TM ) 4th Quarter 2018 Webcast M.D.C. Holdings, Inc. January 31, 2019

2 Forward Looking Statements 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 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, 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. Moonstone, FL (Seasons TM ) The Coral, FL (Seasons TM ) 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, 2

3 Overview Q vs. Q Home sale revenues increased 22% to $858.5 million Pretax income up 34% to $69.3 million from $51.8 million Net income of $54.7 million, or $0.95 per diluted share, up 123% from $24.6 million, or $0.43 per diluted share Gross margin from home sales up 80 basis points to 18.1% $10.0 million impairment charge in 2018 fourth quarter vs $0.6 million in 2017 fourth quarter Excluding impairments, gross margin up 190 basis points to 19.3%* Dollar value of net new orders of $453.3 million, down 21% from $574.3 million FY 2018 vs. FY 2017 Home sale revenues increased 19% to $2.98 billion from $2.50 billion Pretax income up 15% to $263.9 million from $229.7 million $3.7 million loss on investments in 2018 vs. $53.7 gain in 2017 Excluding gains and losses on investments, pretax income increased 52% to $267.6 million from $176.0 million* Net income of $210.8 million, or $3.66 per diluted share vs. $141.8 million or $2.48 per diluted share Dollar value of net new orders of $2.77 billion, up 3% from $2.70 billion Other Highlights Seasons TM product accounted for 20% of net new orders up from 11% in the prior year Increased homebuilding line of credit by $300 million to $1.0 billion in November (maturity extended to 2023) Ending backlog of $1.43 billion vs. $1.60 billion in the prior year Controlled 23,187 lots at 12/31/2018, up 20% year-over-year Active community count up 10% to 166 active communities at December 31, 2018 $1.20 of total dividends paid per share in 2018, up nearly 30% year-over-year Dividend payments continued in 2019, with both cash ($0.30 per share) and stock (8%) dividends declared in January * See Reconciliation of Non-GAAP Financial Measures slide at end of presentation. 3

4 Pretax and Net Income $90.0 Pretax Income ($ in millions) $80.0 Net Income ($ in millions) $60.0 $ % $69.3 $ % $54.7 $40.0 $30.0 $20.0 $24.6 $0.0 $0.0 Diluted Earnings Per Share $0.43 $0.95 Effective Tax Rate 52.6% 21.0% 4

5 Homes Closed and Average Selling Price 2,000 Homes Closed $525 Average Selling Price ($ in thousands) 1,800 1,600 1, % 1,827 $475 $ % $ ,400 $425 1,200 1,000 $375 3,463 45% 3,704 49% Beginning Backlog Backlog Conversion Rate (Closings as a % of Beginning Backlog) 75% 77% % of Beginning Backlog Under Construction 5

6 Gross Margin 22.0% Gross Margin from Home Sales 22.0% Gross Margin from Home Sales (excluding impairment)* 19.5% 17.0% 17.3% +80 bps 18.1% 19.5% 17.0% 17.4% +190 bps 19.3% 14.5% 14.5% 12.0% 12.0% *See Reconciliation of Non-GAAP Financial Measures slide at end of presentation. 6

7 $ in Millions Homebuilding SG&A Expenses (incl. Corporate) 1,556 1,827 Home Closings $702.6 $858.5 Home Sale Revenues (in millions) 11.6% 10.9% SG&A % of Home Sale Revenues $100 $93.4 $75 $ $ $ Amethyst, CO (Seasons TM ) $0 General and Administrative Marketing Commissions 7

8 Return Ratios Pretax Return on Equity (Last Twelve Months) Homebuilding Operating Margin** 20% 8% +160 bps 7.3% 18% 80 bps 17.7% 16.9% 6% 5.7% 16% 14% +510 bps excluding investment sale gains* 4% +260 bps excluding impairment charges 12% 2% *$53.7 million of net investment sale gains were recorded in the year ended December 31, 2017, significantly higher than a typical year. See Reconciliation of Non-GAAP Financial Measures slide at end of presentation. **Gross margin from home sales less homebuilding SG&A as a percentage of home sale revenues. 8

9 Net New Home Orders Average Selling Price Units Dollar Value 500 (in thousands) 1,500 $700 (in millions) 450 $ % 1,300 1,252-15% $550 $ % $ ,100 1,059 $ $ $250 Monthly Net Orders Per Active Subdivision Average Subdivisions Q Q Q Q Cancellations -- % of Beginning Backlog Q % Q % Ending Subdivisions Q Q

10 Active Subdivisions (Ending) Active Subdivisions Soon to Be Active / Inactive /31/17 3/31/18 6/30/18 9/30/18 12/31/ /31/17 3/31/18 6/30/18 9/30/18 12/31/18 Soon to Be Active Soon to Be Inactive 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. 10

11 Lot Supply Lots Owned / Optioned 28,000 21,000 14,000 19,312 6,314 21,384 7,295 23,445 8,882 25,011 9,360 23,187 6,890 7,000 12,998 14,160 14,744 15,651 16, /31/17 3/31/18 6/30/18 9/30/18 12/31/18 Owned Lots Optioned Lots 11

12 Questions? Coral, AZ (Seasons TM )

13 Reconciliation of Non-GAAP Financial Measures 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. Year Ended December 31, (Dollars in thousands) Homebuilding senior notes, net $ 987,967 $ 986,597 Revolving credit facility 15,000 15,000 Total homebuilding debt 1,002,967 1,001,597 Stockholders' equity 1,576,000 1,407,287 Total capital $ 2,578,967 2,408,884 Ratio of homebuilding debt to capital 38.9% 41.6% Total homebuilding debt less: Homebuilding cash and cash equivalents (414,724) (472,957) Homebuilding marketable securities - (49,634) Financial services cash and cash equivalents (49,052) (32,471) Financial services marketable securities (40,879) (42,004) Net homebuilding debt 498, ,531 Stockholders' equity 1,576,000 1,407,287 Net capital $ 2,074,312 1,811,818 Ratio of net homebuilding debt to capital 24.0% 22.3% 13

14 Reconciliation of Non-GAAP Financial Measures Gross Margin from Home Sales Excluding Inventory Impairments, 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 adjust gross margins in a similar fashion. Three Months Ended December 31, Gross September 30, Gross June 30, Gross March 31, Gross December 31, Gross 2018 Margin % 2018 Margin % 2018 Margin % 2018 Margin % 2017 Margin % (Dollars in thousands) Gross Margin $ 155, % $ 135, % $ 143, % $ 110, % $ 121, % Less: Land Sales Revenue (1,609) Add: Land Cost of Sales ,768 Gross Margin from Home Sales 155, % 135, % 143, % 110, % 121, % Add: Inventory Impairments 10,002 11, Gross Margin from Home Sales Excluding Inventory Impairments 165, % 146, % 143, % 111, % 121, % Add: Warranty Adjustments ,106 1,716 Gross Margin from Home Sales Excluding Inventory Impairments and Warranty Adjustments 165, % 146, % 143, % 114, % 123, % Add: Interest in Home Cost of Sales 18,113 16,636 16,150 14,428 18,251 Gross Margin from Home Sales Excluding Inventory Impairments, Warranty Adjustments, and Interest in Cost of Sales $ 184, % $ 163, % $ 159, % $ 128, % $ 141, % 14

15 Reconciliation of Non-GAAP Financial Measures Core pretax return on equity 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 core pretax return on equity to pretax return on equity as calculated based on GAAP. We believe this information is relevant and meaningful as it provides our investors and analysts with pretax returns that exclude the impact of significant one-time or infrequent items and permits investors to make better comparisons across periods as well as with our competitors. Year Ended December 31, (Dollars in thousands) Last 12 months income before income taxes $ 263,854 $ 229,732 Last 12 months average stockholders equity 1,487,673 1,363,108 Last 12 months GAAP pretax return on equity 17.7% 16.9% Last 12 months income before income taxes adjusted for: Realized gain from the sale of metropolitan district bond securities - (35,847) Net realized gain from sales of marketable securities - (18,122) Other-than-temporary impairment of marketable securities Net loss on marketable equity securities 3,745 - Last 12 months core pretax income 267, ,049 Last 12 months average stockholders' equity 1,487,673 1,363,108 Last 12 months core pretax return on equity 18.0% 12.9% 15

16 Reconciliation of Non-GAAP Financial Measures Income before income taxes excluding gain (loss) on investments and Income before income taxes excluding gain (loss) on investments and inventory impairments 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 Income before income taxes excluding gain (loss) on investments and Income before income taxes excluding gain (loss) on investments and inventory impairments to income before income taxes as calculated based on GAAP. We believe this information is relevant and meaningful as it provides our investors and analysts with the impact that gains and losses on investments and inventory impairments have on our income before income taxes and permits investors to make better comparisons with our competitors, who also adjust income before income taxes in a similar fashion. Three Months Ended Year Ended December 31, Change December 31, Change Amount % Amount % (Dollars in thousands) Income before income taxes $ 69,286 $ 51,798 $ 17,487 34% $ 263,854 $ 229,732 $ 34,122 15% Less: Gain (loss) on investments: Realized gain from the sale of metropolitan district bond securities (35,847) Net realized gain from sales of marketable securities (18,122) Other-than-temporary impairment of marketable securities Net loss on marketable equity securities 6,873-3,745 - Income before income taxes excluding gain (loss) on investments $ 76,159 $ 51,873 $ 24,286 47% $ 267,599 $ 176,049 $ 91,550 52% Less: Inventory Impairments 10, ,850 10,010 Income before income taxes excluding gain (loss) on investments and inventory impairments $ 86,161 $ 52,493 $ 33,668 64% $ 289,449 $ 186,059 $ 103,390 56% 16