AV Homes Reports Results For Third Quarter 2016

Third Quarter 2016 Highlights - as compared to the prior year third quarter (unless otherwise noted)
  • Earnings per share increased 96% to $0.49, on net income of $11.9 million
  • Total revenue increased 34% to $205.4 million
  • Homebuilding revenue increased 34% to $201.8 million
  • Homes delivered increased by 23% to 635 units
  • Average selling price for homes delivered increased 8.5% to $318,000 per home
  • Net new order value increased 13% to $185.4 million on a 3% increase in units
  • Backlog value increased 13% to $347.1 million on 1,081 units
  • Selling communities increased to 63 from 60 and communities with deliveries increased to 60 from 51
  • Full year 2016 pre-tax income outlook increased to a range of $30 million to $32 million

SCOTTSDALE, Ariz., Oct. 27, 2016 (GLOBE NEWSWIRE) -- AV Homes, Inc. (Nasdaq:AVHI), a developer and builder of residential communities in Florida, Arizona and the Carolinas, today announced results for its third quarter ended September 30, 2016.  Total revenue for the third quarter of 2016 increased 34% to $205.4 million from $153.8 million in the third quarter of 2015.  Net income and diluted earnings per share increased to $11.9 million and $0.49 per share, respectively, compared to net income of $5.5 million and $0.25 per share in the third quarter of 2015.

"We had another very good quarter highlighted by strong increases in revenue and a 116% increase in net income," said Roger A. Cregg, President and Chief Executive Officer.  "Homes delivered in the third quarter increased 23% over the prior year period and revenue improved by 34%.  Our gross margins improved 80 basis points sequentially compared to the second quarter, and we improved our overhead leverage by 270 basis points compared to the third quarter of last year.  With our year to date results and a backlog sales value for the quarter of $347 million, we are confident in achieving our improved 2016 financial outlook."

The increase in total revenue was driven by volume increases due to a greater number of communities with deliveries in each of our existing markets, and higher average selling prices due to price increases and improvements in the mix of homes sold.  During the third quarter of 2016, the Company delivered 635 homes, a 23% increase from the 515 homes delivered during the third quarter of 2015, and the average unit price per closing improved 8.5% to approximately $318,000 from approximately $293,000 in the third quarter of 2015. 

Homebuilding gross margin was 18.8% in the third quarter of 2016 compared to 19.9% in the third quarter of 2015.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.7% and 1.9% in the 2016 and 2015 periods, respectively.  On a sequential basis, homebuilding gross margins improved 80 basis points compared to the second quarter of 2016.

Total SG&A expense as a percent of homebuilding revenue improved to 12.6% in the third quarter of 2016 from 15.3% in the third quarter of 2015.  Homebuilding SG&A expense as a percentage of homebuilding revenue was 10.8% in the third quarter of 2016 compared to 12.8% in the third quarter of 2015.  The improvement was primarily due to the increased scale of the business in each of our divisions, which allows us to leverage the cost base.  Corporate general and administrative expenses as a percentage of homebuilding revenue improved to 1.8% in the third quarter of 2016 from 2.5% in the same period a year ago primarily driven by the continued achievement of favorable cost leverage by effectively managing costs while growing the revenue of the business.

The number of new housing contracts signed, net of cancellations, during the three months ended September 30, 2016 increased 3% to 572, compared to 555 units during the same period in 2015.  The increase in housing contracts was primarily attributable to the increase in selling communities to 63 from 60.  The average sales price on contracts signed in the third quarter of 2016 increased 9.8% to approximately $324,000 from approximately $295,000 in the third quarter of 2015.  The aggregate dollar value of the contracts signed during the third quarter increased 13% to $185.4 million, compared to $164.0 million during the same period one year ago.  The backlog value of homes under contract but not yet closed as of September 30, 2016 increased 13% to $347.1 million on 1,081 units, compared to $307.5 million on 1,026 units as of September 30, 2015.

Improved 2016 Outlook

The Company affirmed its previously issued outlook for the full year 2016 and upwardly revised the following items:
  • Closings are expected to increase to approximately 2,400, an improvement from the previous range of 2,300 to 2,400 units;
  • Interest expense is expected to be approximately $4 million after capitalization, an improvement from the previous $5 million; and
  • Pre-tax income is expected to increase to approximately $30 million to $32 million, an improvement from the previous range of $28 million to $30 million.

The Company will hold a conference call and webcast on Friday, October 28, 2016 to discuss its third 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 October 28, 2016 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 99271067. The telephonic replay will be available until November 4, 2016. 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, Arizona and the Carolinas. 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, 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; ability to develop communities within expected timeframes; increases in interest rates and availability of mortgage financing; our ability to access sufficient capital; our ability to generate sufficient cash to service our indebtedness and potential need for additional financing; terms of our financing documents that may restrict our operations and corporate actions; fluctuations in interest rates; 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; competition for home buyers, properties, financing, raw materials and skilled labor; declines in home prices in our primary regions; inflation affecting homebuilding costs or deflation affecting declines in spending and borrowing levels; the prices and supply of building materials and skilled labor; the availability and skill of subcontractors; 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; raising healthcare costs; development liabilities that may impose payment obligations on us; our ability to utilize our deferred income tax asset; costs of environmental compliance; impact of environmental changes; dependence on digital technologies and potential interruptions; 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
Consolidated Balance Sheets
(in thousands)
               
    September 30,   December 31,  
    2016   2015  
Assets   (unaudited)        
Cash and cash equivalents   $    16,289     $    46,898    
Restricted cash        1,139          26,948    
Land and other inventories        630,909          582,531    
Receivables        8,248          7,178    
Property and equipment, net        34,223          34,973    
Investments in unconsolidated entities        1,177          1,172    
Prepaid expenses and other assets        13,033          17,144    
Deferred tax assets, net        110,501          —    
Goodwill        19,285          19,295    
Total assets   $    834,804     $    736,139    
               
Liabilities and Stockholders' Equity              
               
Liabilities              
Accounts payable   $    37,060     $    33,606    
Accrued and other liabilities        29,389          38,826    
Customer deposits        12,223          8,629    
Estimated development liability        32,257          32,551    
Senior notes, net        290,258          320,846    
Total liabilities        401,187          434,458    
               
Stockholders' equity              
Common stock, par value $1 per share        22,692          22,444    
Additional paid-in capital        401,358          399,719    
Accumulated earnings (deficit)        12,586          (117,463 )  
         436,636          304,700    
Treasury stock        (3,019 )        (3,019 )  
Total stockholders' equity        433,617          301,681    
Total liabilities and stockholders' equity   $    834,804     $    736,139    

AV HOMES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)
 
                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2016   2015   2016   2015
Revenues                        
Homebuilding   $  201,821   $ 151,130     $  507,659     $  280,381  
Amenity and other      3,315      2,691        8,834        8,195  
Land sales      291      6        1,120        3,470  
Total revenues      205,427     153,827        517,613        292,046  
                         
Expenses                        
Homebuilding cost of revenues      163,911     121,089        414,290        228,911  
Amenity and other      3,101      2,221        8,057        7,034  
Land sales      295      2        685        385  
Total real estate expenses      167,307      123,312        423,032        236,330  
                         
Selling, general and administrative expenses      25,484      23,191        71,639        52,492  
Interest income and other      —      (36 )      (1 )      (325 )
Interest expense      701      1,840        2,853        7,503  
                         
Income (loss) before income taxes      11,935      5,520        20,090        (3,954 )
Income tax expense (benefit)      38      —        (109,959 )      —  
Net income (loss) and comprehensive income (loss)   $  11,897   $  5,520     $  130,049     $  (3,954 )
                         
Basic income (loss) per share   $  0.53   $  0.25     $  5.81     $  (0.18 )
Diluted income (loss) per share   $  0.49   $  0.25     $  5.02     $  (0.18 )

Note: Selling, general and administrative expenses related to homebuilding previously included in Homebuilding expenses have been combined with corporate general and administrative expenses and reclassified into a separate new line item called "Selling, general and administrative expenses" to enhance the visibility to our core homebuilding operations and conform with standard industry presentation. For the three and nine months ended September 30, 2015, selling, general and administrative costs of $19.4 million and $40.7 million, respectively, were previously presented in Homebuilding expenses are now included in Selling, general and administrative expenses.

The following table provides a comparison of certain financial data related to our operations for the three and nine months ended September 30, 2016 and 2015 (in thousands):
                         
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2016   2015   2016   2015
Operating income:                        
Florida                        
Revenues:                        
Homebuilding   $    96,943     $    86,892     $    251,587     $    185,484  
Amenity and other        3,315          2,691          8,834          8,195  
Land sales        26          6          670          3,470  
Total revenues        100,284          89,589          261,091          197,149  
Expenses:                        
Homebuilding cost of revenues        74,872          68,409          196,045          149,033  
Homebuilding selling, general and administrative        12,189          11,419          33,374          26,172  
Amenity and other        3,075          2,199          7,978          6,938  
Land sales        6          2          225          385  
Segment operating income   $    10,142     $    7,560     $    23,469     $    14,621  
                         
Arizona                        
Revenues:                        
Homebuilding   $    42,014     $    20,012     $    104,255     $    45,196  
Land sales                        185          
Total revenues        42,014          20,012          104,440          45,196  
Expenses:                        
Homebuilding cost of revenues        35,236          16,497          87,672          38,704  
Homebuilding selling, general and administrative        3,854          3,009          10,773          7,846  
Amenity and other        26          22          79          96  
Land sales                        171          
Segment operating income (loss)   $    2,898     $    484     $    5,745     $    (1,450 )
                         
Carolinas                        
Revenues:                        
Homebuilding   $    62,864     $    44,226     $    151,817     $    49,701  
Land sales        265          —          265          —  
Total revenues        63,129          44,226          152,082          49,701  
Expenses:                        
Homebuilding cost of revenues        53,803          36,182          130,573          41,174  
Homebuilding selling, general and administrative        5,744          4,944          15,525          6,718  
Land sales        289          —          289          —  
Segment operating income   $    3,293     $    3,100     $    5,695     $    1,809  
                         
Operating income   $    16,333     $    11,144     $    34,909     $    14,980  
                         
Unallocated income (expenses):                        
Interest income and other        —          36          1          325  
Corporate general and administrative expenses        (3,697 )        (3,820 )        (11,967 )        (11,756 )
Interest expense        (701 )        (1,840 )        (2,853 )        (7,503 )
Income (loss) before income taxes        11,935          5,520          20,090          (3,954 )
Income tax expense (benefit)        38          —          (109,959 )        —  
Net income (loss)   $    11,897     $    5,520     $    130,049     $    (3,954 )
 

Data from closings for the Florida, Arizona and the Carolinas segments for the three and nine months ended September 30, 2016 and 2015 is summarized as follows (dollars in thousands):
              Average  
    Number         Price  
For the three months ended September 30,   of Units   Revenues   Per Unit  
2016                  
Florida    340   $  96,943   $  285  
Arizona    129      42,014      326  
Carolinas    166      62,864      379  
Total    635   $  201,821      318  
                   
2015                  
Florida    317   $  86,892   $  274  
Arizona    71      20,012      282  
Carolinas    127      44,226      348  
Total    515   $  151,130      293  

              Average  
    Number         Price  
For the nine months ended September 30,    of Units    Revenues   Per Unit  
2016                  
Florida    904   $  251,587   $  278  
Arizona    340      104,255      307  
Carolinas    413      151,817      368  
Total    1,657   $  507,659      306  
                   
2015                  
Florida    704   $  185,483   $  263  
Arizona    170      45,196      266  
Carolinas    145      49,702      343  
Total    1,019   $  280,381      275  
 

Data from contracts signed for the Florida, Arizona and the Carolinas segments for the three and nine months ended September 30, 2016 and 2015 is summarized as follows (dollars in thousands):
    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of    Dollar   Price Per  
For the three months ended September 30,   Signed   Cancellations   Cancellations   Value   Unit  
2016                          
Florida    373      (68 )    305   $  89,076   $  292  
Arizona    125      (29 )    96      31,896      332  
Carolinas    191      (20 )    171      64,457      377  
Total    689      (117 )    572   $  185,429      324  
                           
2015                          
Florida    335      (57 )    278   $  75,308   $  271  
Arizona    173      (31 )    142      40,425      285  
Carolinas    152      (17 )    135      48,229      357  
Total    660      (105 )    555   $  163,962      295  

    Gross                    
    Number       Contracts         Average  
    of Contracts       Signed, Net of    Dollar   Price Per  
For the nine months ended September 30,   Signed   Cancellations   Cancellations   Value   Unit  
2016                          
Florida    1,245      (201 )    1,044   $  294,413   $  282  
Arizona    465      (108 )    357      113,427      318  
Carolinas    591      (53 )    538      200,827      373  
Total    2,301      (362 )    1,939   $  608,667      314  
                           
2015                          
Florida    1,143      (176 )    967   $  260,492   $  269  
Arizona    460      (79 )    381      110,189      289  
Carolinas    209      (26 )    183      63,635      348  
Total    1,812      (281 )    1,531   $  434,316      284  
   

Backlog for the Florida, Arizona and the Carolinas segments as of September 30, 2016 and 2015 is summarized as follows (dollars in thousands):
              Average  
    Number   Dollar    Price  
As of September 30,   of Units   Volume   Per Unit  
2016                  
Florida    556   $  160,007   $  288  
Arizona    250      81,834      327  
Carolinas    275      105,302      383  
Total    1,081   $  347,143      321  
                   
2015                  
Florida    536   $  147,085   $  274  
Arizona    263      78,799      300  
Carolinas    227      81,635      360  
Total    1,026   $  307,519      300  
Investor Contact:Mike BurnettEVP, Chief Financial Officer480-214-7408m.burnett@avhomesinc.com

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