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AV Homes Reports Results for Second Quarter 2017

  • Total revenue increased 7% to $201.2 million
  • Homebuilding revenue increased 6.7% to $196.9 million
  • Homes delivered increased to 595 units
  • Average selling price for homes delivered increased 6.4% to $331,000 per home
  • Net new order value increased to $223.7 million on 691 units
  • Selling communities increased to 71 from 62 and communities with deliveries increased to 66 from 59

SCOTTSDALE, Ariz., July 27, 2017 (GLOBE NEWSWIRE) -- AV Homes, Inc. (Nasdaq:AVHI), a developer and builder of residential communities in Florida, the Carolinas and Arizona, today announced results for its second quarter ended June 30, 2017.  Total revenue for the second quarter of 2017 increased 7.0% to $201.2 million from $188.1 million in the second quarter of 2016.  Net income and diluted earnings per share was $0.6 million and $0.03 per share, respectively, compared to net income of $117.4 million and $4.45 per share in the second quarter of 2016, which included the favorable reversal of $110 million of the Company’s valuation allowance on its deferred tax assets.  The second quarter 2017 results include after-tax charges of $0.08 per share, for debt extinguishment costs for the partial tender of the Company’s 8.50% Senior Notes, $0.05 per share, for the negative carry due to the incremental interest incurred related to the redemption of the 8.50% Senior Notes occurring subsequent to the May 18, 2017 issuance of $400 million of 6.625% Senior Notes, and $0.02 per share, related to acquisition costs in connection with the purchase of Savvy Homes. 

“We continued our efforts to position the company for future growth during the second quarter with the closing of the previously announced Savvy Homes acquisition in Raleigh, North Carolina, the issuance of $400 million of 6.625% Senior Notes, the tender offer for the purchase of our $200 million of 8.5% Senior Notes, along with entering into an unsecured revolving credit facility in an aggregate principal amount of $155 million,” said Roger A. Cregg, President and Chief Executive Officer.  Cregg continued, “We enter the second half of the year with a solid balance sheet and ample liquidity to take advantage of new land investments and to be opportunistic on potential acquisitions to continue our long-term profitable growth strategy.”

The increase in total revenue for the second quarter of 2017 compared to the prior year period included a 6.7% increase in homebuilding revenue to $196.9 million.  The increase in homebuilding revenue was primarily driven by increases in average selling prices.  During the second quarter of 2017, the Company delivered 595 homes, comparable to the 594 homes delivered during the second quarter of 2016, and the average unit price per closing improved 6.4% to approximately $331,000 from approximately $311,000 in the second quarter of 2016 due to price increases and improvements in the mix of homes sold.

Homebuilding gross margin was 17.4% in the second quarter of 2017 compared to 18.0% in the second quarter of 2016 decreasing primarily as a result of greater revenue contribution from our Carolinas division, which has lower margins, and a decrease in revenue from our higher margin Florida division.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.8% and 2.9% in the 2017 and 2016 periods, respectively.
           
Total SG&A expense as a percent of homebuilding revenue improved to 13.7% in the second quarter of 2017 from 14.0% in the second quarter of 2016.  Homebuilding SG&A expense as a percentage of homebuilding revenue improved to 11.2% in the second quarter of 2017 from 11.7% in the second quarter of 2016.  The improvement was primarily due to lower commission costs and improvements in the Florida cost structure.  Corporate general and administrative expenses as a percentage of homebuilding revenue were 2.5% in the second quarter of 2017 compared to 2.3% in the same period a year ago.  The current quarter includes $0.6 million related to acquisition costs in connection with the acquisition of Savvy Homes in April of this year.

The number of new housing contracts signed, net of cancellations, during the three months ended June 30, 2017 increased 0.9% to 691 units, compared to 685 units during the same period in 2016.  The average sales price on contracts signed in the second quarter of 2017 increased 4.2% to approximately $324,000 from approximately $311,000 in the second quarter of 2016.  The aggregate dollar value of the contracts signed during the second quarter increased 4.9% to $223.7 million, compared to $213.3 million during the same period one year ago.  The backlog value of homes under contract but not yet closed as of June 30, 2017 decreased 6.5% to $353.4 million on 1,070 units, compared to $363.3 million on 1,144 units as of June 30, 2016.

Acquisition of Savvy Homes

On April 3, 2017, the Company completed the acquisition of substantially all of the assets and certain liabilities of Savvy Homes, LLC, a well-recognized regional homebuilding leader in the Greater Raleigh market for approximately $43 million.  Primarily targeting the first-time buyer and move-up buyer, Savvy Homes has earned a reputation for outstanding quality and customer focus. The transaction establishes AV Homes as one of the largest homebuilders in the Greater Raleigh, North Carolina market and complements our growing presence in a key growth market.  The Company is substantially complete with its preliminary analysis of its business combination accounting and the current period results reflect the associated impact. 

Second Quarter Financing Activities

On May 18, 2017, the Company successfully completed the issuance of $400 million of 6.625% Senior Notes due 2022, increasing its liquidity, lowering its cost of debt and extending its maturities.  The proceeds were used to redeem its $200 million 8.50% Senior Notes, repay the $30 million outstanding on its revolving credit facility and for general corporate purposes.  On May 30, 2017, the Company redeemed $45.5 million of the 8.50% Senior Notes and incurred a charge of approximately $2.9 million reflected in the second quarter results.  On July 1, 2017, the remaining $154.5 million of 8.50% Senior Notes were redeemed, and a charge of approximately $7 million is expected to be recorded in the third quarter 2017 results.  Accordingly, the Company’s Balance Sheet at June 30, 2017 reflects the $400 million of new Senior Notes as well as the remaining $154.5 million of 8.50% Senior Notes. The negative carry due to the incremental interest incurred as a result of the redemption of the 8.50% Senior Notes occurring subsequent to the issuance of the 6.625% Senior Notes was approximately $1.8 million in the second quarter.

Additionally, the Company successfully completed a new senior unsecured revolving credit facility in an aggregate principal amount of $155 million, which refinanced and replaced the existing senior secured revolving credit facility.  This facility was undrawn and fully available at June 30, 2017.

2017 Full Year Updated Outlook

The Company issued the following updated outlook for its financial performance for the full year 2017 based on the year to date results, including recent financing and acquisition activity:

  • Communities with closings are expected to be approximately 70;
  • Closings are expected to be approximately 2,550 units;
  • Average Selling Price (ASP) on homes closed is expected to be approximately $330,000;
  • Homebuilding Gross Margins are expected to be approximately 17%, inclusive of approximately 3.0% of previously capitalized interest cost;
  • Homebuilding SG&A is expected to improve to approximately 10.6% of homebuilding revenue;
  • Corporate G&A is expected to be approximately 2.3% of homebuilding revenue;
  • Interest expense is expected to be approximately $11 million;
  • Debt extinguishment costs are expected to be approximately $10 million;
  • Amenity and land sale profits for the second half are expected to be similar to the first half  2017 amounts;
  • Pre-tax income is expected to be approximately $18 million, inclusive of $10 million of debt extinguishment cost and $8 million of incremental interest expense from the 6.625% Senior Notes;
  • Effective tax rate is expected to be approximately 38.5%, with minimal cash taxes paid due to the NOL position; and
  • Adjusted EBITDA is expected to be approximately $70 million.

The Company will hold a conference call and webcast on Friday, July 28, 2017 to discuss its second quarter financial results.  The conference call will begin at 8:30 a.m. EDT.  The conference call can be accessed live over the telephone by dialing (877) 643-7158 or for international callers by dialing (914) 495-8565; please dial-in 10 minutes before the start of the call. A replay will be available on July 28, 2017 beginning at 11:30 a.m. EDT and can be accessed by dialing (855) 859-2056 or for international callers by dialing (404) 537-3406; the conference ID is 52515376. The telephonic replay will be available until August 4, 2017. The webcast, which can be accessed by going to the Investor Relations section of AV Homes’ website at www.avhomesinc.com, is accompanied by an Investor Presentation.  A replay of the original webcast will be available shortly after the call.

AV Homes, Inc. is engaged in homebuilding and community development in Florida, the Carolinas and Arizona. Its principal operations are conducted in the greater Orlando, Jacksonville, Phoenix, Charlotte and Raleigh markets. The Company builds communities that serve both active adults (55 years and older) as well as people of all ages. AV Homes common shares trade on NASDAQ under the symbol AVHI. For more information, visit www.avhomesinc.com.

This news release, the conference call, webcast and other related items contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward looking statements, which include references to our outlook for 2017, involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the cyclical nature of the homebuilding industry and its dependence on broader economic conditions; availability and suitability of undeveloped land and improved lots; our ability to develop communities within expected timeframes; increases in interest rates and availability of mortgage financing; the prices and supply of building materials; the availability and skill of subcontractors; competition for home buyers, properties, financing, raw materials and skilled labor; our ability to access sufficient capital; our ability to generate sufficient cash to service our indebtedness; terms of our financing documents that may restrict our operations and corporate actions; fluctuations in interest rates; our current level of indebtedness and potential need for additional financing; our ability to purchase outstanding notes upon certain fundamental changes; our ability to obtain letters of credit and surety bonds; cancellations of home sale orders; the geographic concentration of our operations; inflation affecting homebuilding costs or deflation affecting declines in spending and borrowing levels; our ability to successfully integrate acquired businesses and recognize anticipated benefits; elimination or reduction of tax benefits associated with home ownership; warranty and construction defect claims; health and safety incidents in homebuilding activities; the seasonal nature of our business; impacts of weather conditions and natural disasters; resource shortages and rate fluctuations; value and costs related to our land and lot inventory; overall market supply and demand for new homes; our ability to recover our costs in the event of reduced home sales; conflicts of interest involving our largest stockholder; contractual restrictions under a stockholders agreement with our largest stockholder; dependence on our senior management; effect of our expansion efforts on our cash flows and profitability; effects of government regulation of development and homebuilding projects; development liabilities that may impose payment obligations on us; our ability to utilize our deferred income tax asset; impact of environmental changes and governmental actions in response to environmental changes; dependence on digital technologies and related cyber risks; future sales or dilution of our equity; impairment of intangible assets; and other factors described in our most recent Annual Report on Form 10-K for and our other filings with the Securities and Exchange Commission, which filings are available on www.sec.gov.  Forward-looking statements are based on the expectations, estimates, or projections of management as of the date of this news release, the conference call, the Investor Presentation and the webcast. AV Homes disclaims any intention or obligation to update or revise any forward-looking statements to reflect subsequent events and circumstances, except to the extent required by applicable law.

   
AV HOMES, INC. AND SUBSIDIARIES   
Unaudited Consolidated Statements of Operations and Comprehensive Income  
(in thousands, except per share data)  
   
    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2017     2016     2017     2016    
Revenues                          
Homebuilding   $ 196,884     $ 184,605     $ 345,544     $ 305,838    
Amenity and other     4,125       2,737       8,762       5,519    
Land sales     185       754       2,436       829    
Total revenues     201,194       188,096       356,742       312,186    
                           
Expenses                          
Homebuilding cost of revenues     162,600       151,382       285,465       250,379    
Amenity and other     3,566       2,370       7,896       4,956    
Land sales     180       374       1,162       390    
Total real estate expenses     166,346       154,126       294,523       255,725    
Selling, general and administrative expenses     27,014       25,771       49,385       46,155    
Interest income and other     (253 )     23       (258 )     (1 )  
Interest expense     3,685       880       4,522       2,152    
Loss on extinguishment of debt     2,933             2,933          
Total expenses     199,725       180,800       351,105       304,031    
                           
Income before income taxes     1,469       7,296       5,637       8,155    
Income tax expense (benefit)     822       (110,065 )     2,551       (109,997 )  
Net income and comprehensive income   $ 647     $ 117,361     $ 3,086     $ 118,152    
                           
Basic earnings per share   $ 0.03     $ 5.24     $ 0.14     $ 5.28    
Basic weighted average shares outstanding     22,487       22,403       22,479       22,396    
                           
Diluted earnings per share   $ 0.03     $ 4.45     $ 0.14     $ 4.53    
Diluted weighted average shares outstanding     22,800       26,648       22,785       26,615    
                                   

 

AV HOMES, INC. AND SUBSIDIARIES   
Unaudited Consolidated Balance Sheets  
(in thousands)  
   
    June 30,   December 31,  
    2017     2016    
Assets   (unaudited)        
Cash and cash equivalents   $ 331,227     $ 67,792    
Restricted cash     1,404       1,231    
Receivables     9,659       10,827    
Land and other inventories     670,045       584,408    
Property and equipment, net     33,733       33,680    
Investments in unconsolidated entities     1,181       1,172    
Prepaid expenses and other assets     14,546       11,581    
Deferred tax assets, net     107,863       110,257    
Goodwill     29,817       19,285    
Total assets   $ 1,199,475     $ 840,233    
               
Liabilities and Stockholders’ Equity              
               
Liabilities              
Accounts payable   $ 41,040     $ 37,387    
Accrued and other liabilities     31,770       34,298    
Customer deposits     15,668       9,979    
Estimated development liability     31,847       32,102    
Senior debt, net     623,743       275,660    
Total liabilities     744,068       389,426    
               
Stockholders’ equity              
Common stock, par value $1 per share     22,567       22,624    
Additional paid-in capital     403,182       401,558    
Retained earnings     32,677       29,644    
      458,426       453,826    
Treasury stock     (3,019 )     (3,019 )  
Total stockholders’ equity     455,407       450,807    
Total liabilities and stockholders’ equity   $ 1,199,475     $ 840,233    
                   

/EIN News/ -- The following table provides a comparison of certain financial data related to our operations for the three and six months ended June 30, 2017 and 2016 (in thousands):

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2017     2016     2017     2016    
Operating income:                          
Florida                          
Revenues:                          
Homebuilding   $ 79,112     $ 88,597     $ 149,599     $ 154,644    
Amenity and other     4,125       2,737       8,762       5,519    
Land sales           569       1,469       644    
Total revenues     83,237       91,903       159,830       160,807    
Expenses:                          
Homebuilding cost of revenues     62,640       69,256       118,634       121,173    
Homebuilding selling, general and administrative     9,106       11,977       18,404       21,185    
Amenity and other     3,548       2,349       7,855       4,903    
Land sales           203       196       219    
Segment operating income   $ 7,943     $ 8,118     $ 14,741     $ 13,327    
                           
Carolinas                          
Revenues:                          
Homebuilding   $ 82,517     $ 55,441     $ 129,362     $ 88,953    
Land sales                 782          
Total revenues     82,517       55,441       130,144       88,953    
Expenses:                          
Homebuilding cost of revenues     70,048       48,236       110,181       76,770    
Homebuilding selling, general and administrative     9,140       5,734       14,163       9,781    
Land sales                 786          
Segment operating income   $ 3,329     $ 1,471     $ 5,014     $ 2,402    
                           
Arizona                          
Revenues:                          
Homebuilding   $ 35,255     $ 40,567     $ 66,583     $ 62,241    
Land sales     185       185       185       185    
Total revenues     35,440       40,752       66,768       62,426    
Expenses:                          
Homebuilding cost of revenues     29,912       33,890       56,650       52,436    
Homebuilding selling, general and administrative     3,782       3,877       7,153       6,919    
Amenity and other     18       21       41       53    
Land sales     180       171       180       171    
Segment operating income   $ 1,548     $ 2,793     $ 2,744     $ 2,847    
                           
Operating income   $ 12,820     $ 12,382     $ 22,499     $ 18,576    
                           
Unallocated income (expenses):                          
Interest income and other     253       (23 )     258       1    
Corporate general and administrative expenses     (4,986 )     (4,183 )     (9,665 )     (8,270 )  
Loss on extinguishment of debt     (2,933 )           (2,933 )        
Interest expense     (3,685 )     (880 )     (4,522 )     (2,152 )  
Income before income taxes     1,469       7,296       5,637       8,155    
Income tax expense (benefit)     822       (110,065 )     2,551       (109,997 )  
Net income   $ 647     $ 117,361     $ 3,086     $ 118,152    
                                   

Data from closings for the Florida, Carolinas and Arizona segments for the three and six months ended June 30, 2017 and 2016 is summarized as follows (dollars in thousands): 

              Average  
    Number         Price  
For the three months ended June 30,   of Units   Revenues   Per Unit  
2017                  
Florida   268   $ 79,112   $ 295  
Carolinas   220     82,517     375  
Arizona   107     35,255     329  
Total   595   $ 196,884     331  
                   
2016                  
Florida   313   $ 88,597   $ 283  
Carolinas   151     55,441     367  
Arizona   130     40,567     312  
Total   594   $ 184,605     311  
                   

 

              Average  
    Number         Price  
For the six months ended June 30,       of Units   Revenues   Per Unit  
2017                  
Florida   515   $ 149,599   $ 290  
Carolinas   342     129,362     378  
Arizona   200     66,583     333  
Total   1,057   $ 345,544     327  
                   
2016                  
Florida   564   $ 154,644   $ 274  
Carolinas   247     88,953     360  
Arizona   211     62,241     295  
Total   1,022   $ 305,838     299  
                   

Data from contracts signed for the Florida, Carolinas and Arizona segments for the three and six months ended June 30, 2017 and 2016 is summarized as follows (dollars in thousands): 

    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of    Dollar   Price Per  
For the three months ended June 30,   Signed   Cancellations   Cancellations   Value   Unit  
2017                          
Florida   405   (36 )   369   $ 108,789   $ 295  
Carolinas   236   (29 )   207     76,768     371  
Arizona   141   (26 )   115     38,141     332  
Total   782   (91 )   691   $ 223,698     324  
                           
2016                          
Florida   428   (69 )   359   $ 99,642   $ 278  
Carolinas   213   (20 )   193     71,443     370  
Arizona   171   (38 )   133     42,216     317  
Total   812   (127 )   685   $ 213,301     311  
                             

 

    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of   Dollar   Price Per  
For the six months ended June 30,       Signed   Cancellations   Cancellations   Value   Unit  
2017                          
Florida   807   (75 )   732   $ 213,835   $ 292  
Carolinas   441   (49 )   392     147,083     375  
Arizona   282   (51 )   231     77,566     336  
Total   1,530   (175 )   1,355   $ 438,484     324  
                           
2016                          
Florida   872   (133 )   739   $ 205,337   $ 278  
Carolinas   400   (33 )   367     136,370     372  
Arizona   340   (79 )   261     81,531     312  
Total   1,612   (245 )   1,367   $ 423,238     310  
                             

Backlog for the Florida, Carolinas and Arizona segments as of June 30, 2017 and 2016 is summarized as follows (dollars in thousands):

              Average  
    Number   Dollar    Price  
As of June 30,   of Units   Volume   Per Unit  
2017                  
Florida    559   $  165,721   $  296  
Carolinas    311      119,262      383  
Arizona    200      68,381      342  
Total    1,070   $  353,364      330  
                   
2016                  
Florida    591   $  167,754   $  284  
Carolinas    270      103,622      384  
Arizona    283      91,952      325  
Total    1,144   $  363,328      318  
                   

AV HOMES, INC. AND SUBSIDIARIES 
Unaudited Supplemental Information 
(in thousands) 

The following table represents interest incurred, interest capitalized, and interest expense for the three and six months ended June 30, 2017 and 2016:

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2017     2016     2017     2016    
Interest incurred   $  9,318     $  6,537     $  15,523     $  13,390    
Interest capitalized      (5,633 )      (5,657 )      (11,001 )      (11,238 )  
Interest expense   $  3,685     $  880     $  4,522     $  2,152    
                                   

The following table represents depreciation and amortization expense and the amortization of previously capitalized interest for the three and six months ended June 30, 2017 and 2016:

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2017   2016   2017   2016  
Depreciation and amortization (1)   $ 1,035   $ 831   $ 1,916   $ 1,682  
Amortization of previously capitalized interest     5,445     5,395     9,930     8,521  

(1) Depreciation and amortization does not include the amortization of debt issuance costs, which is recorded in interest expense.

The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2017 and 2016:

    Three Months Ended   Six Months Ended  
    June 30,   June 30,  
    2017   2016   2017   2016  
Numerator:                          
Basic net income   $ 647   $ 117,361   $ 3,086   $ 118,152  
Effect of dilutive securities         1,200         2,400  
Diluted net income   $ 647   $ 118,561   $ 3,086   $ 120,552  
                           
Denominator:                          
Basic weighted average shares outstanding     22,487     22,403     22,479     22,396  
Effect of dilutive securities     313     4,245     306     4,219  
Diluted weighted average shares outstanding     22,800     26,648     22,785     26,615  
                           
Basic earnings per share   $ 0.03   $ 5.24   $ 0.14   $ 5.28  
Diluted earnings per share   $ 0.03   $ 4.45   $ 0.14   $ 4.53  

Reconciliation of Non-GAAP Measure 

The following table represents a reconciliation of the outlook for adjusted EBITDA for the full year ending December 31, 2017, which is not a measure determined in accordance with U.S. generally accepted accounting principles (“GAAP”), and is presented in millions:

    Full Year
    Outlook
    2017
Net income   $  11
Interest expense      11
Amortization of capitalized interest      25
Loss on extinguishment of debt      10
Income tax expense      7
Depreciation and amortization      3
Amortization of share-based compensation      3
Adjusted EBITDA   $  70
       

Adjusted EBITDA is a non-GAAP financial measure defined as earnings before interest, taxes, depreciation and amortization and certain other adjustments including non-cash share-based compensation and loss on extinguishment of debt. This financial measure has been presented because the Company finds it important and useful in evaluating its performance and believes that it helps readers of the Company’s financial statements compare its operations with those of its competitors. Although management finds adjusted EBITDA to be an important measure in conducting and evaluating the Company’s operations, this measure has limitations as an analytical tool as it is not reflective of the actual profitability generated by the Company during the period. Management compensates for the limitations of using adjusted EBITDA by using this non-GAAP measure only to supplement the Company’s GAAP results. Due to the limitations discussed, adjusted EBITDA should not be viewed in isolation, as it is not a substitute for GAAP measures.

Investor Contact:       

Mike Burnett
EVP, Chief Financial Officer
480-214-7408
m.burnett@avhomesinc.com

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