AV Homes Reports Results for Fourth Quarter and Full Year 2016

Fourth Quarter 2016 Highlights - as compared to the prior year fourth quarter (unless otherwise noted)

  • Earnings per share increased 5% to $0.68, on net income of $17.1 million
  • Total revenue increased 16% to $261.7 million
  • Homebuilding revenue increased 17% to $256.4 million
  • Homes delivered increased by 11% to 808 units
  • Average selling price for homes delivered increased 6% to $317,000 per home
  • Communities with deliveries increased to 61 from 57 and selling communities decreased to 58 from 62

SCOTTSDALE, Ariz., Feb. 23, 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 fourth quarter and year ended December 31, 2016. Total revenue for the fourth quarter of 2016 increased 16% to $261.7 million from $225.7 million in the fourth quarter of 2015. Net income and diluted earnings per share increased to $17.1 million and $0.68 per share, respectively, compared to net income of $15.9 million and $0.65 per share in the fourth quarter of 2015.

“We are very pleased with our strong fourth quarter of 2016 results and the completion of a solid year of operating performance,” said Roger A. Cregg, President and Chief Executive Officer. “With increases in homes delivered, and homebuilding revenue, and improved operating leverage, we generated over $17 million of net income for the fourth quarter and exceeded our goals within our financial outlook for the full year.” Cregg continued, “The full year of 2016 was highlighted with increases in homebuilding revenue of 53% and net income of 203%. We head into 2017 with a solid balance sheet, positioning the company to take advantage of new community investments and potential acquisition opportunities to continue our long-term profitable growth strategy.”

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 2016, the Company delivered 808 homes, an 11% increase from the 731 homes delivered during the fourth quarter of 2015, and the average unit price per closing improved 6% to approximately $317,000 from approximately $299,000 in the fourth quarter of 2015.

Homebuilding gross margin was 17.6% in the fourth quarter of 2016 compared to 19.2% in the fourth quarter of 2015 with declines in Arizona and the Carolinas more than offsetting gross margin improvements in Florida. Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.6% and 2.3% in the 2016 and 2015 periods, respectively.

Total SG&A expense as a percent of homebuilding revenue improved to 11.1% in the fourth quarter of 2016 from 12.4% in the fourth quarter of 2015. Homebuilding SG&A expense as a percentage of homebuilding revenue was 9.5% in the fourth quarter of 2016 compared to 10.0% in the fourth 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 our cost base. Corporate general and administrative expenses as a percentage of homebuilding revenue improved to 1.7% in the fourth quarter of 2016 from 2.4% 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 December 31, 2016 decreased 14.7% to 430, compared to 504 units during the same period in 2015. The decrease in housing contracts was primarily attributable to the decrease in selling communities to 58 from 62 and the wind down of additional communities expected to sell out in early 2017. The average sales price on contracts signed in the fourth quarter of 2016 increased 10.1% to approximately $338,000 from approximately $307,000 in the fourth quarter of 2015. The aggregate dollar value of the contracts signed during the fourth quarter decreased 6.1% to $145.3 million, compared to $154.7 million during the same period one year ago. The backlog value of homes under contract but not yet closed as of December 31, 2016 decreased 3.2% to $236.2 million on 703 units, compared to $243.9 million on 799 units as of December 31, 2015.

Results for the Year Ended December 31, 2016

Total revenue for the year ended December 31, 2016 increased 51% to $779.3 million from $517.8 million for the year ended December 31, 2015 and pre-tax income increased over 200% to $37.6 million from $12.4 million over the prior year period. Net income and diluted earnings per share increased to $147.1 million and $5.66 per share, respectively, compared to net income of $12.0 million and $0.54 per share for the year ended December 31, 2015. The net income and per share earnings for 2016 includes the favorable impact of the reversal of the valuation allowance on our deferred tax assets in the amount of $124.5 million, or $4.70 per share.

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, 2016, the Company delivered 2,465 homes, a 40.9% increase from the 1,750 homes delivered during the year ended December 31, 2015, and the average unit price per closing improved 9% to approximately $310,000 from approximately $285,000 for the year ended December 31, 2015.

Homebuilding gross margin was 18.1% in 2016 compared to 18.7% in 2015. Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.7% and 2.2% in the 2016 and 2015 periods, respectively.

Total SG&A expense as a percent of homebuilding revenue improved to 13.1% for the year ended December 31, 2016 from 16.0% in 2015. Homebuilding SG&A expense as a percentage of homebuilding revenue was 11.0% for the year ended December 31, 2016 compared to 12.6% in 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 2.1% for the year ended December 31, 2016 from 3.4% 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 year ended December 31, 2016 increased 16.4% to 2,369, compared to 2,035 units during the same period in 2015. The increase in housing contracts was primarily attributable to increases in the Carolinas segment. The average sales price on contracts signed during the year ended December 31, 2016 increased 10.0% to approximately $318,000 from approximately $289,000 in 2015. The aggregate dollar value of the contracts signed during 2016 increased 28.0% to $753.9 million, compared to $589.0 million during the same period one year ago.

2017 Outlook

The Company issued the following expectations for its financial performance in 2017:

  • Communities with closings at year end are expected to be approximately 50 to 55;
  • Closings are expected to be approximately 2,225 units;
  • Average Selling Price (ASP) on homes closed is expected to increase to approximately $333,000;
  • Homebuilding Gross Margin is expected to be approximately 18%, inclusive of approximately 2.8% of previously capitalized interest;
  • Homebuilding SG&A is expected to improve to approximately 10.7% of homebuilding revenue;
  • Corporate G&A is expected to be approximately 2.5% of homebuilding revenue;
  • Interest expense and land sale profit are expected to be similar to 2016 amounts;
  • Pre-tax income is expected to be approximately $36 million; and
  • Effective tax rate is expected to be approximately 38.5%, with minimal cash taxes paid due to the Company’s NOL position.

The Company will hold a conference call and webcast on Friday, February 24, 2017 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 24, 2017 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 70283814. The telephonic replay will be available until March 1, 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; 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; our ability to successfully integrate acquired businesses; 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
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
Three Months Ending Twelve Months Ending
December 31, December 31,
2016 2015 2016 2015
Revenues
Homebuilding $256,382 $218,534 $764,041 $498,915
Amenity and other 2,864 4,190 11,698 12,385
Land sales 2,446 2,996 3,566 6,466
Total revenues 261,692 225,720 779,305 517,766
Expenses
Homebuilding cost of revenues 211,181 176,627 625,471 405,538
Amenity and other 3,091 3,668 11,148 10,702
Land sales 545 438 1,230 823
Total real estate expenses 214,817 180,733 637,849 417,063
Selling, general and administrative expenses 28,580 27,094 100,219 79,586
Interest income and other (15) 17 (16) (308)
Interest expense 814 1,536 3,667 9,039
Total expenses 244,196 209,380 741,719 505,380
Income before income taxes 17,496 16,340 37,586 12,386
Income tax expense (benefit) 438 436 (109,521) 436
Net income and comprehensive income $17,058 $15,904 $147,107 $11,950
Basic earnings per share $0.77 $0.72 $6.58 $0.54
Basic weighted average shares outstanding 22,175 22,021 22,346 22,010
Diluted earnings per share $0.68 $0.65 $5.66 $0.54
Diluted weighted average shares outstanding 26,356 27,717 26,509 22,130

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 twelve months ended December 31, 2015, selling, general and administrative costs of $22.0 million and $62.7 million, respectively, were previously presented in homebuilding expenses are now included in selling, general and administrative expenses.

AV HOMES, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2016 2015
Assets
Cash and cash equivalents $67,792 $46,898
Restricted cash 1,231 26,948
Land and other inventories 584,408 582,531
Receivables 10,827 7,178
Property and equipment, net 33,680 34,973
Investments in unconsolidated entities 1,172 1,172
Prepaid expenses and other assets 11,581 17,144
Deferred tax assets, net 110,257
Goodwill 19,285 19,295
Total assets $840,233 $736,139
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable $37,387 $33,606
Accrued and other liabilities 34,298 38,826
Customer deposits 9,979 8,629
Estimated development liability 32,102 32,551
Senior debt, net 275,660 320,846
Total liabilities 389,426 434,458
Stockholders’ equity
Common stock, par value $1 per share 22,624 22,444
Authorized: 50,000,000 shares
Issued: 22,623,506 shares as of December 31, 2016
22,444,028 shares as of December 31, 2015
Additional paid-in capital 401,558 399,719
Retained earnings (deficit) 29,644 (117,463)
453,826 304,700
Treasury stock, at cost, 110,874 shares as of December 31, 2016, and 2015, respectively (3,019) (3,019)
Total stockholders’ equity 450,807 301,681
Total liabilities and stockholders’ equity $840,233 $736,139


AV HOMES, INC. AND SUBSIDIARIES
Unaudited Supplemental Information
(in thousands)
The following table represents interest incurred, interest capitalized, and interest expense for the three and twelve months ended December 31, 2016 and 2015:
Three Months Ending Twelve Months Ending
December 31, December 31,
2016 2015 2016 2015
Interest incurred $6,272 $7,205 $26,145 $28,207
Interest capitalized (5,458) (5,669) (22,478) (19,168)
Interest expense $814 $1,536 $3,667 $9,039


The following table represents depreciation and amortization expense and the amortization of previously capitalized interest for the three and twelve months ended December 31, 2016 and 2015:
Three Months Ending Twelve Months Ending
December 31, December 31,
2016 2015 2016 2015
Depreciation and amortization (1) $907 $908 $3,499 $3,693
Amortization of previously capitalized interest 6,753 5,113 20,766 11,041
(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 twelve months ended December 31, 2016 and 2015:
Three Months Ending Twelve Months Ending
December 31, December 31,
2016 2015 2016 2015
Numerator:
Basic net income $17,058 $15,904 $147,107 $11,950
Effect of dilutive securities 742 2,077 2,969
Diluted net income $17,800 $17,981 $150,076 $11,950
Denominator:
Basic weighted average shares outstanding 22,175 22,021 22,346 22,010
Effect of dilutive securities 4,181 5,696 4,163 120
Diluted weighted average shares outstanding 26,356 27,717 26,509 22,130
Basic earnings per share $0.77 $0.72 $6.58 $0.54
Diluted earnings per share $0.68 $0.65 $5.66 $0.54


The following table provides a comparison of certain financial data related to our operations for the three and twelve months ended December 31, 2016 and 2015 (in thousands):
Three Months Ending Twelve Months Ending
December 31, December 31,
2016 2015 2016 2015
Operating income:
Florida
Revenues:
Homebuilding $121,796 $114,776 $373,383 $300,260
Amenity and other 2,864 4,190 11,698 12,385
Land sales 2,446 2,996 3,116 6,466
Total revenues 127,106 121,962 388,197 319,111
Expenses:
Homebuilding cost of revenues 95,327 89,968 291,372 239,001
Homebuilding selling, general and administrative 12,739 12,328 46,113 38,500
Amenity and other 3,084 3,649 11,062 10,587
Land sales 545 438 770 823
Segment operating income $15,411 $15,579 $38,880 $30,200
Carolinas
Revenues:
Homebuilding $86,732 $64,576 $238,549 $114,277
Land sales 265
Total revenues 86,732 64,576 238,814 114,277
Expenses:
Homebuilding cost of revenues 74,775 54,058 205,348 95,232
Homebuilding selling, general and administrative 7,282 5,487 22,807 12,205
Land sales 289
Segment operating income $4,675 $5,031 $10,370 $6,840
Arizona
Revenues:
Homebuilding $47,854 $39,182 $152,109 $84,378
Land sales 185
Total revenues 47,854 39,182 152,294 84,378
Expenses:
Homebuilding cost of revenues 41,079 32,601 128,751 71,305
Homebuilding selling, general and administrative 4,221 4,135 14,994 11,981
Amenity and other 7 19 86 115
Land sales 171
Segment operating income $2,547 $2,427 $8,292 $977
Operating income $22,633 $23,037 $57,542 $38,017
Unallocated income (expenses):
Interest income and other 15 (17) 16 308
Corporate general and administrative expenses (4,338) (5,144) (16,305) (16,900)
Interest expense (814) (1,536) (3,667) (9,039)
Income before income taxes 17,496 16,340 37,586 12,386
Income tax expense (benefit) 438 436 (109,521) 436
Net income $17,058 $15,904 $147,107 $11,950


Data from closings for the Florida, Carolinas and Arizona segments for the three and twelve months ended December 31, 2016 and 2015 is summarized as follows (dollars in thousands):
Average
Number Price
Three Months Ended December 31, of Units Revenues Per Unit
2016
Florida 428 $121,796 $285
Carolinas 233 86,732 372
Arizona 147 47,854 326
Total 808 $256,382 317
2015
Florida 420 $114,777 $273
Carolinas 183 64,575 353
Arizona 128 39,182 306
Total 731 $218,534 299

Average
Number Price
Twelve Months Ended December 31, of Units Revenues Per Unit
2016
Florida 1,332 $373,383 $280
Carolinas 646 238,549 369
Arizona 487 152,109 312
Total 2,465 $764,041 310
2015
Florida 1,124 $300,260 $267
Carolinas 328 114,277 348
Arizona 298 84,378 283
Total 1,750 $498,915 285


Data from contracts signed for the Florida, Carolinas and Arizona segments for the three and twelve months ended December 31, 2016 and 2015 is summarized as follows (dollars in thousands):
Gross
Number Contracts Average
of Contracts Signed, Net of Dollar Price Per
Three Months Ended December 31, Signed Cancellations Cancellations Value Unit
2016
Florida 266 (52) 214 $61,834 $289
Carolinas 171 (21) 150 60,712 405
Arizona 94 (28) 66 22,730 344
Total 531 (101) 430 $145,276 338
2015
Florida 366 (66) 300 $83,679 $279
Carolinas 122 (16) 106 39,216 370
Arizona 130 (32) 98 31,815 325
Total 618 (114) 504 $154,710 307


Gross
Number Contracts Average
of Contracts Signed, Net of Dollar Price Per
Twelve Months Ended December 31, Signed Cancellations Cancellations Value Unit
2016
Florida 1,511 (253) 1,258 $356,247 $283
Carolinas 762 (74) 688 261,539 380
Arizona 559 (136) 423 136,157 322
Total 2,832 (463) 2,369 $753,943 318
2015
Florida 1,509 (242) 1,267 $344,171 $272
Carolinas 331 (42) 289 102,851 356
Arizona 590 (111) 479 142,004 296
Total 2,430 (395) 2,035 $589,026 289


Backlog for the Florida, Carolinas and Arizona segments as of December 31, 2016 and 2015 is summarized as follows (dollars in thousands):
Average
Number Dollar Price
As of December 31, of Units Volume Per Unit
2016
Florida 342 $100,184 $293
Carolinas 192 79,325 413
Arizona 169 56,731 336
Total 703 $236,240 336
2015
Florida 416 $116,061 $279
Carolinas 150 56,427 376
Arizona 233 71,459 307
Total 799 $243,947 305


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

Source:AV Homes, Inc.