AV Homes Reports Results for Fourth Quarter and Full Year 2017

Fourth Quarter 2017 Highlights - as compared to the prior year fourth quarter (unless otherwise noted)

• Net new order value increased 22% to $177.8 million on a 25% increase in units
• Homes delivered increased by 2% to 826 units
• Average selling price for homes delivered increased 5% to $332,000 per home
• Total revenue increased 7% to $280.8 million
• Homebuilding revenue increased 7% to $274.3 million
• Net loss of $23.5 million, or $1.05 per share, includes $32.5 million, or $1.44 per share, one-time charge related to the re-measurement of net deferred tax assets due to the enactment of the Tax Cuts and Jobs Act
• Adjusted earnings per share, excluding the net deferred tax asset re-measurement charge was $0.40  
• Adjusted EBITDA increased 3% to $27.1 million
• Communities with deliveries increased to 69 from 61 and selling communities increased to 61 from 58

SCOTTSDALE, Ariz., Feb. 22, 2018 (GLOBE NEWSWIRE) -- AV Homes, Inc. (Nasdaq:AVHI), a developer and builder of residential communities in Florida, the Carolinas, Arizona and Texas, today announced results for its fourth quarter and year ended December 31, 2017.  Total revenue for the fourth quarter of 2017 increased 7% to $280.8 million from $261.7 million in the fourth quarter of 2016.  The net loss of $23.5 million, or $1.05 per share, in the fourth quarter of 2017 includes a one-time charge of $32.5 million, or $1.44 per share related to the re-measurement of the net deferred tax assets due to the enactment of the Tax Cuts and Jobs Act. Excluding this one-time charge, adjusted net income for the fourth quarter was $8.9 million, or $0.40 per share.  Net income and diluted income per share for the fourth quarter of 2016 was $17.1 million and $0.68 per share, respectively, and included only a nominal income tax provision due to the reversal of the valuation allowance of the deferred tax assets in 2016.  Adjusted EBITDA in the fourth quarter of 2017 increased to $27.1 million from $26.4 million in the fourth quarter of 2016.

“We are pleased with our strong fourth quarter results and the completion of another solid year of operating performance,” said Roger A. Cregg, President and Chief Executive Officer.   “With net new orders up 25%, homes delivered up 2%, homebuilding revenue up 7%, and improved operating leverage, we generated over $15 million of pre-tax income for the fourth quarter.”  Cregg continued, “The full year of 2017 was highlighted with increased market exposure to Raleigh, North Carolina, positioning AV Homes as one of the largest homebuilders in the Raleigh market, and entering the Dallas-Fort Worth, Texas market, further expanding our geographic footprint.”

The increase in total revenue was driven by volume increases due to a greater number of communities with deliveries and higher average selling prices due to price increases and improvements in the mix of homes sold.  During the fourth quarter of 2017, the Company delivered 826 homes, a 2% increase from the 808 homes delivered during the fourth quarter of 2016, and the average unit price per closing improved 5% to approximately $332,000 from approximately $317,000 in the fourth quarter of 2016. 

Homebuilding gross margin was 16.7% in the fourth quarter of 2017 compared to 17.6% in the fourth quarter of 2016 with margin improvements in Arizona being more than offset by margin reductions in Florida and the Carolinas.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.6% in both 2017 and 2016. 

Total SG&A expense as a percent of homebuilding revenue improved to 10.9% in the fourth quarter of 2017 from 11.1% in the fourth quarter of 2016.  Homebuilding SG&A expense as a percentage of homebuilding revenue was 9.5% in the fourth quarter of 2017, comparable to the fourth quarter of 2016.  Corporate general and administrative expenses as a percentage of homebuilding revenue improved to 1.4% in the fourth quarter of 2017 from 1.7% in the same period a year ago and includes a favorable $1.2 million reversal of an earn out accrual related to performance targets of a prior acquisition not being achieved.

The number of new housing contracts signed, net of cancellations, during the three months ended December 31, 2017 increased 24.9% to 537, compared to 430 units during the same period in 2016.  The increase in housing contracts was primarily attributable to the increase in selling communities to 61 from 58 and better absorption rates in Florida and Arizona.  The average sales price on contracts signed in the fourth quarter of 2017 decreased 2.1% to approximately $331,000 from approximately $338,000 in the fourth quarter of 2016 driven by the 2017 acquisition of Savvy Homes in the Carolinas, which targets the first time buyer segment in Raleigh.  The aggregate dollar value of the contracts signed during the fourth quarter increased 22.4% to $177.8 million, compared to $145.3 million during the same period one year ago.  The backlog value of homes under contract but not yet closed as of December 31, 2017 increased to $236.8 million on 724 units, compared to $236.2 million on 703 units as of December 31, 2016.

Results for the Year Ended December 31, 2017

Total revenue for the year ended December 31, 2017 increased 8.2% to $843.3 million from $779.3 million for the year ended December 31, 2016.  The net loss of $21.9 million, or $0.98 per share, in 2017 includes (i) a one-time charge of $32.5 million, or $1.44 per share related to the re-measurement of the net deferred tax assets due to the enactment of the Tax Cuts and Jobs Act and (ii) a $9.8 million, or $0.27 per share, charge from the extinguishment of debt related to the 2017 refinancing transaction. Excluding the one-time charges, adjusted net income was $16.6 million, or $0.74 per share. Net income and diluted earnings per share for the year ended December 31, 2016 was $147.1 million and $5.66 per share, respectively, and includes the favorable impact of the reversal of the valuation allowance on our deferred tax asset in the amount of $124.5 million, or $4.70 per share.  Excluding that one-time charge, adjusted net income was $25.6 million, or $0.96 per share. Adjusted EBITDA for the full year 2017 increased to $68.2 million from $67.9 million in 2016.

The increase in total revenue was driven by volume increases due to a greater number of communities with deliveries due to organic and acquisition-related growth, and higher average selling prices due to price increases and improvements in the mix of homes sold.  During the year ended December 31, 2017, the Company delivered 2,491 homes, a 1.1% increase from the 2,465 homes delivered during the year ended December 31, 2016, and the average unit price per closing improved 6.5% to approximately $330,000 from approximately $310,000 for the year ended December 31, 2016. 

Homebuilding gross margin was 16.9% in 2017 compared to 18.1% in 2016.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.7% in both 2017 and 2016. 

Total SG&A expense as a percent of homebuilding revenue improved to 12.9% for the year ended December 31, 2017 from 13.1% in 2016.  Homebuilding SG&A expense as a percentage of homebuilding revenue improved to 10.7% for the year ended December 31, 2017 compared to 11.0% in 2016.  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 was 2.2% for the year ended December 31, 2017, comparable to 2.1% in the same period a year ago.

The number of new housing contracts signed, net of cancellations, during the year ended December 31, 2017 increased 3.1% to 2,443, compared to 2,369 units during the same period in 2016.  The increase in housing contracts was across all geographic segments, but the largest increase was attributable to the Carolinas.  The average sales price on contracts signed during the year ended December 31, 2017 increased 2.8% to approximately $327,000 from approximately $318,000 in 2016.  The aggregate dollar value of the contracts signed during 2017 increased 5.9% to $798.3 million, compared to $753.9 million during the same period one year ago.

2018 Outlook

The Company issued the following expectations for its financial performance in 2018:

• Communities with closings are expected to be approximately 75;
• Closings are expected to increase 20% to approximately 3,000 units;
• Average Selling Price (ASP) on homes closed is expected to increase 3% to approximately $340,000;
• Homebuilding gross margin is expected to increase 100 bps to approximately 18%, inclusive of approximately 2.8% of previously capitalized interest cost;
• SG&A is expected to improve 10 bps to approximately 12.8% of homebuilding revenue;
• Interest expense is expected to be approximately $8 million;
• Income from mortgage company joint venture is expected to be approximately $1 million;
• Pre-tax income of approximately $48 million;
• Effective tax rate is expected to be approximately 25%, with minimal cash taxes paid due to the NOL position;
• Net income is expected to improve to approximately $36 million;
• Adjusted EBITDA is expected to increase 30% to approximately $90 million.

“We begin 2018 with significant liquidity, positioning the company to take advantage of new community investments and potential acquisition opportunities to continue our long-term profitable growth strategy,” said Cregg.

The Company will hold a conference call and webcast on Friday, February 23, 2018 to discuss its fourth quarter and full year financial results.  The conference call will begin at 8:30 a.m. EST.  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 February 23, 2018 beginning at 11:30 a.m. EST and can be accessed by dialing (855) 859-2056 or for international callers by dialing (404) 537-3406; the conference ID is 7778388. The telephonic replay will be available until March 2, 2018. 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, Arizona and Texas. Its principal operations are conducted in the greater Orlando, Jacksonville, Charlotte, Raleigh, Phoenix and Dallas-Fort Worth 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, partially developed land and improved lots; ability to develop communities within expected timeframes; fluctuations in interest rates; the availability of mortgage financing for homebuyers; changes in federal lending programs and other regulations; the potential impact of the Tax Cuts and Jobs Act on homebuyer demand; elimination or reduction of tax benefits associated with home ownership; the prices and supply of building materials and skilled labor; the availability and skill of subcontractors; effect of our expansion efforts on our cash flows and profitability; our ability to successfully integrate acquired businesses; competition for homebuyers, properties, financing, raw materials and skilled labor; 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; incurrence of additional debt; our ability to purchase outstanding notes upon certain fundamental changes; our ability to obtain additional letters of credit and surety bonds; cancellations of home sale orders; declines in home prices in our primary regions; inflation or deflation affecting homebuilding costs; 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; effects of government regulation of development and homebuilding projects; costs of environmental compliance; increased regulation of the mortgage industry; the lack of sole decision-making authority and reliance on our co-venturer; development liabilities that may impose payment obligations on us; contingent liabilities that may affect our liquidity; our ability to utilize our deferred income tax asset; impact of environmental changes; dependence on digital technologies and potential interruptions; potential dilution related to future financing activities; and potential 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.

Investor Contact:       

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

The following table represents a reconciliation of the net income (loss) and weighted average shares outstanding for the calculation of basic and diluted earnings (loss) per share for the three and twelve months ended December 31, 2017 and 2016:

The following table provides a comparison of certain financial data related to our operations for the three and twelve months ended December 31, 2017 and 2016 (in thousands):

Data from closings for the Florida, Carolinas and Arizona segments for the three and twelve months ended December 31, 2017 and 2016 is summarized as follows (dollars in thousands): 

Data from contracts signed for the Florida, Carolinas and Arizona segments for the three and twelve months ended December 31, 2017 and 2016 is summarized as follows (dollars in thousands):

Backlog for the Florida, Carolinas and Arizona segments as of December 31, 2017 and 2016 is summarized as follows (dollars in thousands):

Reconciliation of Non-GAAP Measures

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization

The following table represents a reconciliation of adjusted EBITDA for the three and twelve months ended December 31, 2017 and 2016, which is not a measure determined in accordance with U.S. generally accepted accounting principles (“GAAP”) (in thousands):

The following table represents a reconciliation of the outlook for adjusted EBITDA for the full year ending December 31, 2018, which is not a measure determined in accordance with U.S. GAAP (in millions):

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 and outlook. Due to the limitations discussed, adjusted EBITDA should not be viewed in isolation, as it is not a substitute for GAAP measures.

Adjusted Earnings

Reported diluted earnings (loss) per share were $(1.05) and $0.68 for the three months ended December 31, 2017 and 2016, respectively, and were $(0.98) and $5.66 for the twelve months ended December 31, 2017 and 2016, respectively. During each period presented, we recorded certain adjustments that impacted our net income (loss) and diluted earnings (loss) per share. These items primarily consist of the following (in thousands, except per share amounts):

Note: Amounts in tables above may not foot due to rounding.

We believe that presenting adjusted net income and adjusted diluted earnings per share, which are not measures determined in accordance with U.S. GAAP, provides an understanding of operational activities before the financial impact of certain items. We use these measures, and believe investors will find them helpful, in understanding the ongoing performance of our operations separate from items that have a disproportionate impact on our results for a particular period. Our definition of adjusted net income and adjusted diluted earnings per share may not be comparable to similarly titled measures presented by other companies.