M.D.C. Holdings Announces 2019 Fourth Quarter And Full Year Results

Fourth quarter pretax income increased by 62% year-over-year, driving full year pretax income to exceed $300 million for the first time since 2006.

News provided by

M.D.C. Holdings, Inc.

Jan 30, 2020, 06:00 ET

DENVER, Jan. 30, 2020 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC), one of the nation's leading homebuilders, announced results for the quarter and full year ended December 31, 2019.

Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "MDC finished the year on a strong note, generating fully diluted earnings per share of $1.42 in the fourth quarter, a 61% increase as compared to last year. We also achieved year-over-year improvements in our homebuilding gross margin and SG&A leverage, resulting in homebuilding operating margin expansion of 150 basis points. The sales environment continues to be favorable, as evidenced by the 49% growth in unit orders for the quarter. These demand trends have carried into the new year, giving our business strong momentum as we head into the spring selling season."

Mr. Mizel continued, "For the full year 2019, we posted year-over-year improvements to both revenue and profitability, which resulted in fully diluted earnings per share of $3.72. This marks our fifth consecutive year of net income growth, and we are well positioned to continue that trend in 2020 thanks to a 29% increase in homes in backlog to start the year. We also ended the year in a strong financial position with a year-over-year decrease in our debt to capital ratio and a maturity schedule that was further enhanced earlier this month by the issuance of $300 million of 3.850% senior notes due 2030."

Mr. Mizel concluded, "As we enter 2020, we will continue to focus on the more affordable segments of the market due to the ongoing lack of supply and broad-based demand we have witnessed. We believe this favorable supply-demand environment will remain in place for some time given the demographic shifts occurring in this country. These factors, coupled with our solid market positioning and growing backlog, provided us with the confidence to increase our cash dividend by 10% just a few days ago."

2019 Fourth Quarter Highlights and Comparisons to 2018 Fourth Quarter

Home sale revenues up 25% to $1,074.9 million from $858.5 million

Unit deliveries up 31% to 2,389

Average selling price of deliveries down 4% to $450,000

Net income of $92.6 million, or $1.42 per diluted share, up 69% from $54.7 million or $0.88 per diluted share¹

Effective tax rate of 17.5% vs. 21.0%

Gross margin from home sales up 40 basis points to 18.5% from 18.1%

Inventory impairments of $0.3 million vs. $10.0 million

Selling, general and administrative expenses as a percentage of home sale revenues ("SG&A rate") improved by 110 basis points to 9.8% from 10.9%

Dollar value of net new orders up 51% to $684.9 million from $453.3 million

Unit net orders increased 49% to 1,574

Monthly sales absorption pace increased 28% to 2.8

Average selling price of net orders up 2% to $435,000

2019 Full Year Highlights and Comparisons to 2018 Full Year

Home sale revenues up 7% to $3.21 billion from $2.98 billion

Unit deliveries up 13% to 6,974

Net income of $238.3 million, or $3.72 per diluted share, up 13% from $210.8 million or $3.39 per diluted share¹

Third highest net income in Company history

Gross margin from home sales of 18.8% vs. 18.3%

Inventory impairments of $0.9 million vs. $21.9 million

SG&A rate of 11.3% vs. 11.1%

Dollar value of net new orders up 26% to $3.50 billion from $2.77 billion

Unit net orders increased 31% to 7,839

Monthly sales absorption pace increased 13% to 3.6

¹ Per share amount for the 2018 fourth quarter and full year have been adjusted for the 8% stock dividend declared and paid in the 2019 first quarter.

2020 Outlook – Selected Information²

Backlog dollar value at December 31, 2019 up 22% year-over-year to $1.75 billion

Home deliveries for the 2020 first quarter between 1,550 and 1,650

Average selling price for 2020 first quarter unit deliveries between $450,000 and $460,000

Gross margin from home sales for the 2020 first quarter between 18.8% and 19.2% (excluding impairments and warranty adjustments)

Active subdivision count at December 31, 2019 of 185, up 11% year-over-year

Lots controlled of 27,386 at December 31, 2019, up 18% year-over-year

Declared 10% increase in quarterly dividend to $0.33 ($1.32 annualized) in January 2020

²See "Forward-Looking Statements" below.

About MDC

M.D.C. Holdings, Inc. was founded in 1972. MDC's homebuilding subsidiaries, which operate under the name Richmond American Homes, have built and financed the American Dream for more than 205,000 homebuyers since 1977. MDC's commitment to customer satisfaction, quality and value is reflected in each home its subsidiaries build. MDC is one of the largest homebuilders in the United States. Its subsidiaries have homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Diego, Orange County, San Francisco Bay Area, Sacramento, Washington D.C., Baltimore, Orlando, Jacksonville, Seattle and Portland. The Company's subsidiaries also provide mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency, Inc. and American Home Title and Escrow Company, respectively. M.D.C. Holdings, Inc. is traded on the New York Stock Exchange under the symbol "MDC." For more information, visit www.mdcholdings.com.

Forward-Looking Statements

Certain statements in this release, including any 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 1995. 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, 2019, 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.

M.D.C. HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

	Three Months Ended				Year Ended
	December 31,				December 31,
	2019		2018		2019		2018
	(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues	$	1,074,852	$	858,488	$	3,205,248	$	2,981,811
Home cost of sales		(876,156)		(692,856)		(2,600,196)		(2,415,139)
Inventory impairments		(325)		(10,002)		(935)		(21,850)
Total cost of sales		(876,481)		(702,858)		(2,601,131)		(2,436,989)
Gross margin		198,371		155,630		604,117		544,822
Selling, general and administrative expenses		(105,101)		(93,366)		(362,790)		(329,801)
Interest and other income		1,579		2,132		9,070		7,718
Other expense		(1,447)		(2,683)		(5,635)		(5,245)
Homebuilding pretax income		93,402		61,713		244,762		217,494

Financial Services:
Revenues		29,616		23,387		88,005		83,405
Expenses		(16,118)		(10,350)		(45,001)		(38,200)
Other income (expense), net		5,346		(5,464)		17,223		1,155
Financial services pretax income		18,844		7,573		60,227		46,360

Income before income taxes		112,246		69,285		304,989		263,854
Provision for income taxes		(19,657)		(14,562)		(66,677)		(53,074)
Net income	$	92,589	$	54,723	$	238,312	$	210,780

Comprehensive income	$	92,589	$	54,723	$	238,312	$	210,780

Earnings per share
Basic	$	1.48	$	0.90	$	3.84	$	3.46
Diluted	$	1.42	$	0.88	$	3.72	$	3.39

Weighted average common shares outstanding
Basic		62,192,849		60,764,617		61,616,988		60,571,123
Diluted		64,609,357		61,712,544		63,702,666		61,830,761

Dividends declared per share	$	0.30	$	0.28	$	1.18	$	1.11

M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)

	December 31,		December 31,
	2019		2018
ASSETS	(Dollars in thousands, except
	per share amounts)
Homebuilding:
Cash and cash equivalents	$	424,186	$	414,724
Restricted cash		14,279		6,363
Trade and other receivables		65,829		52,982
Inventories:
Housing completed or under construction		1,036,191		952,436
Land and land under development		1,330,384		1,180,558
Total inventories		2,366,575		2,132,994
Property and equipment, net		60,414		58,167
Deferred tax assets, net		21,768		37,178
Prepaid and other assets		78,358		45,794
Total homebuilding assets		3,031,409		2,748,202
Financial Services:
Cash and cash equivalents		35,747		49,052
Marketable securities		56,747		40,879
Mortgage loans held-for-sale, net		197,021		149,211
Other assets		17,432		13,733
Total financial services assets		306,947		252,875
Total Assets	$	3,338,356	$	3,001,077
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	87,364	$	50,505
Accrued and other liabilities		245,940		196,247
Revolving credit facility		15,000		15,000
Senior notes, net		989,422		987,967
Total homebuilding liabilities		1,337,726		1,249,719
Financial Services:
Accounts payable and accrued liabilities		68,529		58,543
Mortgage repurchase facility		149,616		116,815
Total financial services liabilities		218,145		175,358
Total Liabilities		1,555,871		1,425,077
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		-		-
Common stock, $0.01 par value; 250,000,000 shares authorized; 62,574,961 and 56,615,352 issued and outstanding at December 31, 2019 and December 31, 2018, respectively
		626		566
Additional paid-in-capital		1,348,733		1,168,442
Retained earnings		433,126		406,992
Total Stockholders' Equity		1,782,485		1,576,000
Total Liabilities and Stockholders' Equity	$	3,338,356	$	3,001,077

M.D.C. HOLDINGS, INC.
Consolidated Statement of Cash Flows
(Unaudited)

	Three Months Ended				Year Ended
	December 31,				December 31,
	2019		2018		2019		2018
	(Dollars in thousands)
Operating Activities:
Net income	$	92,589	$	54,725	$	238,312	$	210,780
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Stock-based compensation expense		7,838		5,517		26,016		14,017
Depreciation and amortization		7,576		5,920		23,054		21,326
Inventory impairments		325		10,002		935		21,850
Net loss on marketable equity securities		(3,863)		6,873		(11,797)		3,745
Amortization of discount / premiums on marketable debt securities		-		-		-		(366)
Deferred income tax expense (benefit)		4,182		(363)		13,670		3,729
Net changes in assets and liabilities:
Trade and other receivables		(8,315)		2,411		(12,997)		(4,638)
Mortgage loans held-for-sale		(80,001)		(34,375)		(47,810)		(11,097)
Housing completed or under construction		168,265		119,575		(83,484)		(12,082)
Land and land under development		(139,116)		(154,287)		(149,577)		(304,250)
Prepaid expenses and other assets		(805)		12,083		(4,694)		(245)
Accounts payable and accrued liabilities		42,276		23,259		66,205		49,325
Net cash provided by (used in) operating activities		90,951		51,340		57,833		(7,906)

Investing Activities:
Purchases of marketable securities		(1,368)		(1,667)		(11,708)		(18,850)
Maturities of marketable securities		-		-		-		50,000
Sales of marketable securities		1,360		2,920		7,637		16,230
Purchases of property and equipment		(4,586)		(7,267)		(24,714)		(27,166)
Net cash provided by (used in) investing activities		(4,594)		(6,014)		(28,785)		20,214

Financing Activities:
Advances on mortgage repurchase facility, net		59,145		26,031		32,801		4,475
Dividend payments		(18,780)		(16,985)		(73,117)		(67,718)
Payments of deferred financing costs		-		(3,026)		-		(3,026)
Issuance of shares under stock-based compensation programs, net		(963)		1		15,341		9,860
Net cash provided by (used in) financing activities		39,402		6,021		(24,975)		(56,409)

Net increase (decrease) in cash, cash equivalents and restricted cash		125,759		51,347		4,073		(44,101)
Cash, cash equivalents and restricted cash:
Beginning of period		348,453		418,792		470,139		514,240
End of period	$	424,212	$	470,139	$	474,212	$	470,139

Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents	$	424,186	$	414,724	$	424,186	$	414,724
Restricted cash		14,279		6,363		14,279		6,363
Financial Services:
Cash and cash equivalents		35,747		49,052		35,747		49,052
Total cash, cash equivalents and restricted cash	$	474,212	$	470,139	$	474,212	$	470,139

New Home Deliveries

		Three Months Ended December 31,
		2019					2018					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
		(Dollars in thousands)
	West	1,299	$	606,558	$	466.9	958	$	446,826	$	466.4	36%	36%	0%
	Mountain	762		371,098		487.0	645		330,315		512.1	18%	12%	(5)%
	East	328		97,196		296.3	224		81,348		363.2	46%	19%	(18)%
	Total	2,389	$	1,074,852	$	449.9	1,827	$	858,489	$	469.9	31%	25%	(4)%


	Year Ended December 31,
	2019					2018					% Change
	Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
	(Dollars in thousands)
West	3,763	$	1,771,061	$	470.7	3,244	$	1,567,141	$	483.1	16%	13%	(3)%
Mountain	2,242		1,131,568		504.7	2,118		1,080,475		510.1	6%	5%	(1)%
East	969		302,619		312.3	835		334,195		400.2	16%	(9)%	(22)%
Total	6,974	$	3,205,248	$	459.6	6,197	$	2,981,811	$	481.2	13%	7%	(4)%

Net New Orders

	Three Months Ended December 31,
	2019						2018						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value	Average Price	Monthly Absorption Rate *
	(Dollars in thousands)
West	884	$	400,147	$	452.7	3.19	573	$	250,647	$	437.4	2.51	54%	60%	3%	27%
Mountain	436		212,772		488.0	2.21	315		149,583		474.9	1.60	38%	42%	3%	38%
East	254		71,950		283.3	2.80	171		53,028		310.1	2.78	49%	36%	(9)%	1%
Total	1,574	$	684,869	$	435.1	2.79	1,059	$	453,258	$	428.0	2.18	49%	51%	2%	28%



	Year Ended December 31,
	2019						2018						% Change
	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value	Average Price	Monthly Absorption Rate *
	(Dollars in thousands)
West	4,263	$	1,963,489	$	460.6	3.91	3,316	$	1,535,438	$	463.0	3.71	29%	28%	(1)%	5%
Mountain	2,410		1,189,193		493.4	3.04	1,908		972,826		509.9	2.63	26%	22%	(3)%	15%
East	1,166		342,469		293.7	3.68	750		262,518		350.0	2.78	55%	30%	(16)%	32%
Total	7,839	$	3,495,151	$	445.9	3.56	5,974	$	2,770,782	$	463.8	3.16	31%	26%	(4)%	13%

*Calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period

Active Subdivisions

					Average Active Subdivisions
		Active Subdivisions			Three Months Ended			Year Ended
		December 31,		%	December 31,		%	December 31,		%
		2019	2018	Change	2019	2018	Change	2019	2018	Change
	West	89	79	13%	92	76	21%	90	75	20%
	Mountain	65	67	(3)%	66	65	2%	66	60	10%
	East	31	20	55%	30	21	43%	27	22	23%
	Total	185	166	11%	188	162	16%	183	157	17%

Backlog

		At December 31,
		2019					2018					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes	Dollar Value	Average Price
		(Dollars in thousands)
	West	2,023	$	960,057	$	474.6	1,523	$	756,335	$	496.6	33%	27%	(4)%
	Mountain	1,211		624,672		515.8	1,043		550,329		527.6	16%	14%	(2)%
	East	567		160,618		283.3	370		119,303		322.4	53%	35%	(12)%
	Total	3,801	$	1,745,347	$	459.2	2,936	$	1,425,967	$	485.7	29%	22%	(5)%

Homes Completed or Under Construction (WIP lots)

		December 31,
		2019	2018	% Change
	Unsold:
	Completed	122	179	(32)%
	Under construction	255	263	(3)%
	Total unsold started homes	377	442	(15)%
	Sold homes under construction or completed	2,779	2,219	25%
	Model homes under construction or completed	473	407	16%
	Total homes completed or under construction	3,629	3,068	18%

Lots Owned and Optioned (including homes completed or under construction)

		December 31, 2019			December 31, 2018
		Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
	West	9,538	2,805	12,343	8,093	3,004	11,097	11%
	Mountain	6,654	3,879	10,533	6,305	2,477	8,782	20%
	East	2,313	2,197	4,510	1,899	1,409	3,308	36%
	Total	18,505	8,881	27,386	16,297	6,890	23,187	18%

Selling, General and Administrative Expenses

		Three Months Ended December 31,						Year Ended December 31,
		2019		2018		Change		2019		2018		Change
		(Dollars in thousands)
	General and administrative expenses	$	46,178	$	45,317	$	861	$	175,027	$	161,679	$	13,348
	General and administrative expenses
	as a percentage of home sale revenues		4.3%		5.3%		(100) bps		5.5%		5.4%		10 bps

	Marketing expenses	$	23,349	$	19,234	$	4,115	$	81,615	$	70,122	$	11,493
	Marketing expenses as a percentage of
	home sale revenues		2.2%		2.2%		0 bps		2.5%		2.4%		10 bps

	Commissions expenses	$	35,574	$	28,815	$	6,759	$	106,148	$	98,000	$	8,148
	Commissions expenses as a percentage of
	home sale revenues		3.3%		3.4%		(10) bps		3.3%		3.3%		0 bps

	Total selling, general and administrative
	expenses	$	105,101	$	93,366	$	11,735	$	362,790	$	329,801	$	32,989
	Total selling, general and administrative
	expenses as a percentage of home
	sale revenues (SG&A Rate)		9.8%		10.9%		(110) bps		11.3%		11.1%		20 bps

Capitalized Interest

		Year Ended December 31,
		2019		2018		2017
		(Dollars in thousands)
	Homebuilding interest incurred	$	63,635	$	62,631	$	55,170
	Less: Interest capitalized		(63,635)		(62,631)		(55,170)
	Homebuilding interest expensed	$	-	$	-	$	-

	Interest capitalized, beginning of period	$	54,845	$	57,541	$	68,085
	Plus: Interest capitalized during period		63,635		62,631		55,170
	Less: Previously capitalized interest included in home and land cost of sales		(63,170)		(65,327)		(65,714)
	Interest capitalized, end of period	$	55,310	$	54,845	$	57,541