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Standard Pacific (SPF)

Q2 2012 Earnings Call

July 27, 2012 12:00 pm ET


Scott D. Stowell - Chief Executive Officer, President, Director and Chairman of Executive Committee

Jeffrey J. McCall - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Dennis McGill - Zelman & Associates, Research Division

David Goldberg - UBS Investment Bank, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division

Michael S. Kim - CRT Capital Group LLC, Research Division

Kristen McDuffy - Goldman Sachs Group Inc., Research Division

Alex Barrón - Housing Research Center, LLC

Joel Locker - FBN Securities, Inc., Research Division



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Good morning, and welcome to the Standard Pacific Homes 2012 Second Quarter Conference Call. Today's conference is being recorded. Before we begin, I would like to direct your attention to the company's Safe Harbor statement to remind you that this conference call contains forward-looking statements, including statements concerning future financial and operational performance. Actual results may differ materially from those projected in the forward-looking statements. For additional information regarding factors that could cause actual results to differ materially from those contained in the forward-looking statements, please see the company's SEC filings, including reports on Form 10-K and Form 10-Q under the heading, Risk Factors. A question-and-answer period will follow today's prepared remarks. A recording of today's presentation will be available for replay a few hours after this call ends and will continue to be available on the company's website for 30 days. At this time, I would like to turn the call over to Mr. Scott Stowell, CEO and President. Please go ahead, sir.

Scott D. Stowell

Thank you, David, and good morning, everyone. With me this morning are Jeff McCall, our Chief Financial Officer; and Mr. John Babel, our General Counsel. I want to thank all of you for taking the time to join us today for the Standard Pacific Homes second quarter update.

I'm pleased to report that the positive momentum we experienced during the first quarter of 2012 continued into the second. Our solid second quarter results reflect the execution of our strategy and continued improvement in housing market conditions during the quarter. There are still highly mixed signs regarding the relative strength of the economy. We were able to realize significant year-over-year improvement in our own financial performance during the quarter.

New housing starts and permits are up significantly from last year, albeit at levels that are still well below normal. Consumers remained cautious despite price increases in many markets. And while unemployment has improved since last year, month-over-month improvement has stalled recently. We have always maintained that the housing recovery would likely be an uneven one. And against this backdrop, we have been working diligently to proactively improve our businesses, with the goal of outpacing what we thought would be a slow and unsteady recovery. Based in large parts on strategic land purchases we made early on and with new home design introductions company-wide, we are pleased to make progress in improving our business ahead of the uptick in market conditions. This has us positioned even better for the months and years ahead. Even though the recovery may be choppy, we do believe that we'll continue to move in the right direction going forward.

Our positive results demonstrate the progress we're making against our strategy. I'm pleased to report that we were able to achieve profitability for the third consecutive quarter. We earned $14.3 million or $0.04 per share, with orders up 45%, deliveries up 34%, revenues up 35% and backlog up 62% over the prior year. It's important to note that our 45% year-over-year increase in orders was achieved with only a 3% increase in community count, demonstrating the strength of our execution in our local markets. In addition to these significant improvements, I'm also pleased with our normalized gross margin for home sales, which rose from -- which rose to 20.5% as compared to the 20% gross margin that we achieved during the second quarter of 2011. In the constant balancing act between margin and sales pace, we continue to emphasize margin, with the community-by-community focus on tactically raising sales prices and reducing incentives as demand warrants.

During the second quarter, we were able to raise base prices at over 70 communities, and we're able to reduce incentives to the lowest levels in over 3 years. As we have done every quarter for quite some time now, I'd like to discuss our progress on our land strategy. We remain focused on obtaining land in A locations, and total land spend for the total second quarter was $131 million. As we discussed during our last call, the market for finished homesites in A locations remains overheated, so we have had greater recent success acquiring larger partially developed and undeveloped land parcels.

Leveraging our long-held expertise in master-planned development, we acquired over 1,100 move-up homesites through the purchase of the Palisades, a bank-owned master-planned community in Charlotte, North Carolina. And 286 move-up homesites to the bankruptcy court purchase of the Cordoba Ranch in Tampa, Florida. The acquisition of these 2 highly desirable parcels is a great example of the powerful combination created when we match the deep local market knowledge of our division operators with the expertise of our national land group in navigating the complexities of large, distressed transactions.

We also continue to have success here closer to home in Southern California. Just last week, following a very competitive RFP process, we were awarded the exclusive rights to negotiate with the City of Tustin to develop a 51-acre parcel at Tustin Legacy, located on the former -- on the side of the former Marine -- Tustin Marine base in one of the most high-profile master-planned communities in Southern California. The City of Tustin cited the strength of our community designs and development plan, as well as our legacy of building move-up communities in the local market as major reasons for selecting Standard Pacific Homes over our competition.

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