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Jul 27, 2017

AV Homes Reports Results for Second Quarter 2017

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  • 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.

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  
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  
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  


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       
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  

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:              
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  
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  
Homebuilding $82,517  $55,441  $129,362  $88,953  
Land sales        782     
Total revenues  82,517    55,441   130,144   88,953  
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  
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  
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): 

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


  Number    Price 
For the six months ended June 30,     of Units Revenues Per Unit 
Florida 515 $149,599  $290 
Carolinas 342  129,362  378 
Arizona 200  66,583  333 
Total 1,057 $345,544  327 
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): 

  Number   Contracts    Average 
  of Contracts   Signed, Net of  Dollar Price Per 
For the three months ended June 30,  Signed Cancellations Cancellations Value Unit 
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 
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 


  Number   Contracts     Average 
  of Contracts   Signed, Net of Dollar Price Per 
For the six months ended June 30,     Signed Cancellations Cancellations Value Unit 
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 
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):

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

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 
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 
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
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



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Source: AV Homes, Inc.

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