Exhibit 99.1
Shea Homes Reports Third Quarter 2014 Results
Walnut, California, November 5, 2014
Shea Homes, one of America’s largest private homebuilders, today reported results for the third quarter ended September 30, 2014.
Three Months Ended September 30, 2014 Highlights and Comparisons to Three Months Ended September 30, 2013
| | • | | Net income attributable to Shea Homes was $33.7 million compared to $25.8 million, a 31% increase |
| | • | | Home sales orders were 460 compared to 434, a 6% increase |
| | • | | Active selling communities averaged 66 compared to 61 |
| | • | | Home sales per community were 7.0, or 2.3 per month, compared to 7.1, or 2.4 per month, a 1% decrease |
| | • | | Cancellation rate was 17.6% compared to 16.7% |
| | • | | Backlog units were 1,198 compared to 1,124, a 7% increase |
| | • | | Backlog sales value was $703.0 million compared to $563.5 million, a 25% increase |
| | • | | Average selling price in backlog was $587,000 compared to $501,000, a 17% increase |
| | • | | Total revenues were $284.5 million compared to $238.3 million, a 19% increase |
| | • | | House revenues were $279.0 million* compared to $234.9 million*, a 19% increase |
| | • | | Homes closed were 482 compared to 493, a 2% decrease |
| | • | | Average selling price of homes closed was $579,000 compared to $477,000, a 21% increase |
| | • | | Gross margin was 23.9% compared to 23.4% |
| | • | | House gross margin was 24.3%* compared to 23.8%* |
| | • | | SG&A expenses were $31.9 million (11.2% of revenues) compared to $28.4 million (11.9% of revenues) |
| | • | | Income tax expense was $6.1 million compared to $1.3 million |
| | • | | Adjusted EBITDA was $54.2 million* compared to $43.6 million* |
| | • | | Cash and restricted cash at September 30, 2014 were $139.8 million compared to $145.4 million at September 30, 2013 |
Nine Months Ended September 30, 2014 Highlights and Comparisons to Nine Months Ended September 30, 2013
| | • | | Net income attributable to Shea Homes was $73.8 million compared to $52.2 million, a 41% increase |
| | • | | Home sales orders were 1,618 compared to 1,467, a 10% increase |
| | • | | Active selling communities averaged 63 compared to 57 |
| | • | | Home sales per community were 25.7, or 2.9 per month, for both periods |
| | • | | Cancellation rate was 14.9% compared to 13.9% |
| | • | | Total revenues were $720.7 million compared to $590.6 million, a 22% increase |
| | • | | House revenues were $707.9 million* compared to $578.8 million*, a 22% increase |
| | • | | Homes closed were 1,270 compared to 1,255, a 1% increase |
| | • | | Average selling price of homes closed was $557,000 compared to $461,000, a 21% increase |
| | • | | Gross margin was 24.0% compared to 23.0% |
| | • | | House gross margin was 24.3%* compared to 23.2%* |
| | • | | SG&A expenses were $89.8 million (12.5% of revenues) compared to $77.4 million (13.1% of revenues) |
| | • | | Income tax expense was $16.6 million compared to $1.7 million |
| | • | | Adjusted EBITDA was $135.7 million* compared to $100.3 million* |
| * | See “Reconciliation of Non-GAAP Financial Measures” beginning on page 9 |
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For the 2014 third quarter, new home sales orders were 460 compared to 434 in the 2013 third quarter, a 6% increase, primarily due to an increase in active selling communities in our Southern California and San Diego segments, which were partially offset by a decrease in active selling communities in our Northern California and Mountain West segments. For the 2014 third quarter, home sales per community were 2.3 per month compared to 2.4 per month in the 2013 third quarter, a 1% decrease, which was primarily attributable to a slower sales pace in our South West segment, and in particular, Arizona. At September 30, 2014, our backlog was 1,198 homes compared to 1,124 at September 30, 2013, a 7% increase driven in large part by the higher level of sales during the third quarter. For the 2014 third quarter, the Company’s cancellation rate was 17.6% compared to 16.7% in the 2013 third quarter.
For the 2014 third quarter, net income attributable to Shea Homes was $33.7 million compared to $25.8 million in the 2013 third quarter, primarily due to a $12.0 million increase in gross margin (from higher revenues and an improved gross margin percentage), a $2.2 million improvement in our reinsurance transaction results, and a $0.9 million increase in income from unconsolidated joint ventures. These improvements were partially offset by a $3.5 million increase in selling, general and administrative expense and a $4.8 million increase in income tax expense.
For the 2014 third quarter, total revenues were $284.5 million compared to $238.3 million in the 2013 third quarter, a 19% increase, and house revenues were $279.0 million* for the 2014 third quarter compared to $234.9 million* in the 2013 third quarter, a 19% increase. The increase in house revenues was primarily due to a 21% increase in average selling price to $579,000, a result of general home price increases in most of our segments, and a greater percentage of deliveries from our Southern California segment, which delivers more expensive homes, which were partially offset by a 2% decrease in homes closed from 493 homes in the 2013 third quarter compared to 482 homes in the 2014 third quarter.
For the 2014 third quarter, total gross margin was 23.9% compared to 23.4% in the 2013 third quarter, a 50 basis point (bp) increase, and house gross margin was 24.3%* for the 2014 third quarter compared to 23.8%* in the 2013 third quarter, a 50 bp increase. For both of the 2014 and 2013 third quarters, house gross margin excluding interest was 30.1%*.
For the 2014 third quarter, SG&A expenses were $31.9 million (11.2% of revenues) compared to $28.4 million (11.9% of revenues) in the 2013 third quarter. The $3.5 million increase was primarily due to higher volume related costs, such as advertising and model costs, and higher compensation expense. However, our SG&A rate was lower as we continue to leverage our fixed overhead costs over a larger revenue base.
For the 2014 third quarter, interest incurred was $17.1 million compared to $16.8 million in the 2013 third quarter, while interest expense for the 2014 third quarter was $0.2 million versus $0.1 million in the 2013 third quarter.
For the 2014 third quarter, net operating cash flows were $53.0 million compared to $(16.3) million in the 2013 third quarter. This improvement in operating cash flow was primarily due to lower land acquisition and land development spending, and increased cash receipts from home closings, partially offset by increased house construction costs. For the 2014 third quarter, land acquisition and land development costs were $57.8 million compared to $85.5 million in the 2013 third quarter; and cash receipts from home closings were $279.6 million for the 2014 third quarter compared to $234.9 million in the 2013 third quarter.
For the nine months ended September 30, 2014, net income attributable to Shea Homes was $73.8 million compared to $52.2 million in the nine months ended September 30, 2013, primarily due to a $37.2 million increase in gross margin (from higher revenues and an improved gross margin percentage), a $4.5 million decrease in interest expense, a $4.6 million improvement in our reinsurance transaction results, and a $2.9 million increase in income from unconsolidated joint ventures. These improvements were partially offset by a $12.4 million increase in SG&A expense and a $14.9 million increase in income tax expense.
For the nine months ended September 30, 2014, net operating cash flows were $(68.1) million compared to $(124.4) million in the nine months ended September 30, 2013. This decrease in cash used in operating activities was primarily due to increased cash receipts from home closings, partially offset by increased land acquisitions, land development and house construction costs. For the nine months ended September 30, 2014, land acquisition and land development spending was $274.3 million compared to $241.6 million in the nine months ended September 30, 2013; and cash receipts from home closings were $708.8 million for the nine months ended September 30, 2014 compared to $578.8 million in the nine months ended September 30, 2013.
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In January 2014, we acquired property from a related party under common control for $4.4 million cash, assumption of a $1.3 million net liability and estimated future revenue participation payments of $19.6 million. The $25.3 million of consideration was recorded as an equity distribution to our owners and, accordingly, resulted in a reduction in our total equity.
Earnings Conference Call
A conference call to discuss the Company’s 2014 third quarter results will be held at 1:00 p.m., Eastern time, November 6, 2014. The call will be broadcast live over the internet and can be accessed through the Company’s website athttp://www.sheahomes.com/investor. The call will also be accessible by dialing (877) 474-9506 (domestic) or (857) 244-7559 (international); Passcode 15665368. The audio transmission with the slide presentation will be available on our website for replay 2 to 3 hours following the live broadcast. A replay of the presentation will be available by the end of the day and for 31 days thereafter.
About Shea Homes Limited Partnership
Shea Homes is one of the largest private homebuilders in the nation. Since its founding in 1968, Shea Homes has closed over 93,000 homes. Shea Homes builds homes with quality craftsmanship and designs that fit varied lifestyles and budgets. Over the past several years, Shea Homes has been recognized as a leader in customer satisfaction with a reputation for design, quality and service. For more about Shea Homes and its communities, visitwww.sheahomes.com.
The preceding summary of the financial results of Shea Homes Limited Partnership and its subsidiaries does not purport to be complete and is qualified in its entirety by reference to the consolidated financial statements of Shea Homes Limited Partnership and its subsidiaries, available on our website at:http://www.sheahomes.com/investor.
This news release contains forward-looking statements and information relating to Shea Homes Limited Partnership and its subsidiaries, such as the strength or weakness of the housing market, which are based on the beliefs of, as well as assumptions made by, and information currently available to, our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “anticipate,” “appear” and “project” and similar expressions, as they relate to Shea Homes Limited Partnership and its subsidiaries are intended to identify forward-looking statements. These statements reflect our management’s current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate. Such statements involve known and unknown risks, uncertainties, assumptions and other factors many of which are out of Shea Homes Limited Partnership’s and its subsidiaries’ control and are difficult to forecast and that may cause actual results to differ materially from those that may be described or implied. Such factors include but are not limited to: changes in employment levels; changes in the availability of financing for homebuyers; changes in interest rates; changes in consumer confidence; changes in levels of new and existing homes for sale; changes in demographic trends; changes in housing demand; changes in home prices; elimination or reduction of the tax benefits associated with owning a home; litigation risks associated with home warranty and construction defect and other claims; and various other factors, both referenced and not referenced above, and included in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described as anticipated, believed, estimated, expected, intended, planned or projected. Except as required by law, Shea Homes Limited Partnership and its subsidiaries neither intend nor assume any obligation to revise or update these forward-looking statements, which speak only as of their dates. Shea Homes Limited Partnership and its subsidiaries nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.
Contact: Andrew Parnes, CFO @ 909-594-0954 orandy.parnes@sheahomes.com
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KEY OPERATIONAL AND FINANCIAL DATA
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | At or For the Three Months Ended September 30, | | | At or For the Nine Months Ended September 30, | |
| | | 2014 | | | 2013 | | | Change | | | 2014 | | | 2013 | | | Change | |
| | | (unaudited) | | | (unaudited) | | | | | | (unaudited) | | | (unaudited) | | | | |
Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | $ | 284,489 | | | $ | 238,309 | | | | 19% | | | $ | 720,687 | | | $ | 590,579 | | | | 22% | |
Gross margin % | | | 23.9 | % | | | 23.4 | % | | | 50 bp’s | | | | 24.0 | % | | | 23.0 | % | | | 100 bp’s | |
Homebuilding revenues (a) * | | $ | 284,370 | | | $ | 238,079 | | | | 19% | | | $ | 720,225 | | | $ | 589,892 | | | | 22% | |
Homebuilding gross margin % (a) * | | | 23.8 | % | | | 23.4 | % | | | 40 bp’s | | | | 24.0 | % | | | 22.9 | % | | | 110 bp’s | |
House revenues * | | $ | 279,044 | | | $ | 234,938 | | | | 19% | | | $ | 707,898 | | | $ | 578,817 | | | | 22% | |
House gross margin* | | $ | 67,757 | | | $ | 55,905 | | | | 21% | | | $ | 171,891 | | | $ | 134,063 | | | | 28% | |
House gross margin % * | | | 24.3 | % | | | 23.8 | % | | | 50 bp’s | | | | 24.3 | % | | | 23.2 | % | | | 110 bp’s | |
Adjusted house gross margin % excluding interest in cost of sales * | | | 30.1 | % | | | 30.1 | % | | | — | | | | 30.5 | % | | | 30.0 | % | | | 50 bp’s | |
SG&A expenses | | $ | 31,915 | | | $ | 28,388 | | | | 12% | | | $ | 89,793 | | | $ | 77,425 | | | | 16% | |
SG&A % of total revenues | | | 11.2 | % | | | 11.9 | % | | | (70) bp’s | | | | 12.5 | % | | | 13.1 | % | | | (60) bp’s | |
Net income attributable to Shea Homes | | $ | 33,749 | | | $ | 25,824 | | | | 31% | | | $ | 73,754 | | | $ | 52,196 | | | | 41% | |
Adjusted EBITDA(b) * | | $ | 54,153 | | | $ | 43,632 | | | | 24% | | | $ | 135,677 | | | $ | 100,341 | | | | 35% | |
Interest incurred | | $ | 17,112 | | | $ | 16,780 | | | | 2% | | | $ | 51,092 | | | $ | 50,322 | | | | 2% | |
Interest capitalized to inventory | | $ | 16,068 | | | $ | 15,925 | | | | 1% | | | $ | 48,091 | | | $ | 43,874 | | | | 10% | |
Interest capitalized to investments in joint ventures | | $ | 884 | | | $ | 710 | | | | 25% | | | $ | 2,565 | | | $ | 1,473 | | | | 74% | |
Interest expense | | $ | 160 | | | $ | 145 | | | | 10% | | | $ | 436 | | | $ | 4,975 | | | | -91% | |
Interest in cost of sales (c) | | $ | 17,228 | | | $ | 15,110 | | | | 14% | | | $ | 45,136 | | | $ | 40,014 | | | | 13% | |
Other Data(d): | | | | | | | | | | | | | | | | | | | | | | | | |
Home sales orders (units) | | | 460 | | | | 434 | | | | 6% | | | | 1,618 | | | | 1,467 | | | | 10% | |
Homes closed (units) | | | 482 | | | | 493 | | | | -2% | | | | 1,270 | | | | 1,255 | | | | 1% | |
Average selling price | | $ | 579 | | | $ | 477 | | | | 21% | | | $ | 557 | | | $ | 461 | | | | 21% | |
Average active selling communities | | | 66 | | | | 61 | | | | 8% | | | | 63 | | | | 57 | | | | 11% | |
Home sales orders per community | | | 7.0 | | | | 7.1 | | | | -1% | | | | 25.7 | | | | 25.7 | | | | 0% | |
Cancellation rate | | | 17.6 | % | | | 16.7 | % | | | | | | | 14.9 | % | | | 13.9 | % | | | | |
Backlog at end of period (units) | | | 1,198 | | | | 1,124 | | | | 7% | | | | | | | | | | | | | |
Backlog at end of period (est. sales value) | | $ | 703,046 | | | $ | 563,513 | | | | 25% | | | | | | | | | | | | | |
Backlog at end of period (est. average selling price) | | $ | 587 | | | $ | 501 | | | | 17% | | | | | | | | | | | | | |
Lots owned or controlled (units) | | | 19,216 | | | | 18,992 | | | | 1% | | | | | | | | | | | | | |
Homes under construction (units) (e) | | | 1,253 | | | | 1,122 | | | | 12% | | | | | | | | | | | | | |
| (a) | Homebuilding revenue and gross margin include house, land and other homebuilding activities. |
| (b) | See page 10 for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income. |
| (c) | As previously capitalized to house and land. |
| (d) | Represents consolidated activity only; excludes unconsolidated joint ventures. |
| (e) | Homes under construction includes completed homes. |
| * | See “Reconciliation of Non-GAAP Financial Measures” beginning on page 9. |
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CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
| | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2014 | | | 2013 | |
| | | (unaudited) | | | (audited) | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 139,282 | | | $ | 206,205 | |
Restricted cash | | | 494 | | | | 1,189 | |
Accounts and other receivables, net | | | 145,957 | | | | 147,499 | |
Receivables from related parties, net | | | 23,152 | | | | 32,350 | |
Inventory | | | 1,178,108 | | | | 1,013,272 | |
Investments in unconsolidated joint ventures | | | 58,436 | | | | 47,748 | |
Other assets, net | | | 58,216 | | | | 57,070 | |
| | | | | | | | |
Total assets | | $ | 1,603,645 | | | $ | 1,505,333 | |
| | | | | | | | |
Liabilities and equity | | | | | | | | |
Liabilities: | | | | | | | | |
Notes payable | | $ | 761,740 | | | $ | 751,708 | |
Other liabilities | | | 346,701 | | | | 308,168 | |
| | | | | | | | |
Total liabilities | | | 1,108,441 | | | | 1,059,876 | |
Total equity | | | 495,204 | | | | 445,457 | |
| | | | | | | | |
Total liabilities and equity | | $ | 1,603,645 | | | $ | 1,505,333 | |
| | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | |
Revenues | | $ | 284,489 | | | $ | 238,309 | | | $ | 720,687 | | | $ | 590,579 | |
Cost of sales | | | (216,595 | ) | | | (182,461 | ) | | | (547,663 | ) | | | (454,769 | ) |
| | | | | | | | | | | | | | | | |
Gross margin | | | 67,894 | | | | 55,848 | | | | 173,024 | | | | 135,810 | |
Selling, general and administrative expenses | | | (31,915 | ) | | | (28,388 | ) | | | (89,793 | ) | | | (77,425 | ) |
Interest expense | | | (160 | ) | | | (145 | ) | | | (436 | ) | | | (4,975 | ) |
Other income, net | | | 3,965 | | | | (208 | ) | | | 7,489 | | | | 486 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 39,784 | | | | 27,107 | | | | 90,284 | | | | 53,896 | |
Income tax expense | | | (6,053 | ) | | | (1,281 | ) | | | (16,555 | ) | | | (1,701 | ) |
| | | | | | | | | | | | | | | | |
Net income | | | 33,731 | | | | 25,826 | | | | 73,729 | | | | 52,195 | |
Less: Net loss (income) attributable to non-controlling interests | | | 18 | | | | (2 | ) | | | 25 | | | | 1 | |
| | | | | | | | | | | | | | | | |
Net income attributable to Shea Homes | | $ | 33,749 | | | $ | 25,824 | | | $ | 73,754 | | | $ | 52,196 | |
| | | | | | | | | | | | | | | | |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | (unaudited) | | | (unaudited) | | | (unaudited) | | | (unaudited) | |
Operating activities | | | | | | | | | | | | | | | | |
Net income | | $ | 33,731 | | | $ | 25,826 | | | $ | 73,729 | | | $ | 52,195 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | |
Gain on reinsurance transaction | | | (4,001 | ) | | | (1,758 | ) | | | (6,175 | ) | | | (1,599 | ) |
Depreciation and amortization expense | | | 3,253 | | | | 2,748 | | | | 8,088 | | | | 7,312 | |
Distribution of earnings from unconsolidated joint ventures | | | 4,125 | | | | — | | | | 9,425 | | | | 6,000 | |
Other operating activities, net | | | (1,172 | ) | | | (99 | ) | | | (4,671 | ) | | | (718 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | |
Inventory | | | (14,192 | ) | | | (54,022 | ) | | | (169,983 | ) | | | (212,623 | ) |
Payables and other liabilities | | | 25,055 | | | | 7,937 | | | | 20,433 | | | | 17,726 | |
Other operating assets | | | 6,228 | | | | 3,085 | | | | 1,032 | | | | 7,258 | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 53,027 | | | | (16,283 | ) | | | (68,122 | ) | | | (124,449 | ) |
Investing activities | | | | | | | | | | | | | | | | |
Proceeds from sale of investments | | | 70 | | | | 85 | | | | 174 | | | | 3,163 | |
Net collections on promissory notes from related parties | | | 1,126 | | | | 2,606 | | | | 9,215 | | | | 3,037 | |
Distributions from (investments in) unconsolidated joint ventures, net | | | 2,552 | | | | (466 | ) | | | (2,426 | ) | | | (16,316 | ) |
Other investing activities, net | | | — | | | | 500 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 3,748 | | | | 2,725 | | | | 6,963 | | | | (10,116 | ) |
Financing activities | | | | | | | | | | | | | | | | |
Net decrease in notes payable | | | (916 | ) | | | (1,241 | ) | | | (2,339 | ) | | | (1,993 | ) |
Contributions from owners | | | — | | | | — | | | | 945 | | | | — | |
Distributions to owners | | | — | | | | — | | | | (4,385 | ) | | | — | |
Other financing activities, net | | | 15 | | | | — | | | | 15 | | | | — | |
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (901 | ) | | | (1,241 | ) | | | (5,764 | ) | | | (1,993 | ) |
| | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 55,874 | | | | (14,799 | ) | | | (66,923 | ) | | | (136,558 | ) |
Cash and cash equivalents at beginning of period | | | 83,408 | | | | 157,997 | | | | 206,205 | | | | 279,756 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 139,282 | | | $ | 143,198 | | | $ | 139,282 | | | $ | 143,198 | |
| | | | | | | | | | | | | | | | |
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SEGMENT OPERATING DATA
(dollars in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | Homes
Closed | | | Avg. Selling
Price | | | Homes
Closed | | | Avg. Selling
Price | | | Homes
Closed | | | Avg. Selling
Price | | | Homes
Closed | | | Avg. Selling
Price | |
Homes closed: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 146 | | | $ | 818 | | | | 48 | | | $ | 830 | | | | 311 | | | $ | 841 | | | | 179 | | | $ | 748 | |
San Diego | | | 49 | | | | 537 | | | | 85 | | | | 477 | | | | 137 | | | | 523 | | | | 176 | | | | 463 | |
Northern California | | | 86 | | | | 676 | | | | 138 | | | | 513 | | | | 252 | | | | 640 | | | | 315 | | | | 481 | |
Mountain West | | | 83 | | | | 440 | | | | 98 | | | | 450 | | | | 200 | | | | 459 | | | | 229 | | | | 442 | |
South West | | | 118 | | | | 327 | | | | 116 | | | | 322 | | | | 370 | | | | 329 | | | | 333 | | | | 315 | |
East | | | — | | | | — | | | | 8 | | | | 285 | | | | — | | | | — | | | | 23 | | | | 252 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total consolidated | | | 482 | | | $ | 579 | | | | 493 | | | $ | 477 | | | | 1,270 | | | $ | 557 | | | | 1,255 | | | $ | 461 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 15 | | | $ | 380 | | | | — | | | $ | — | | | | 65 | | | $ | 378 | | | | 36 | | | $ | 280 | |
Northern California | | | 12 | | | | 532 | | | | 3 | | | | 572 | | | | 34 | | | | 518 | | | | 12 | | | | 552 | |
Mountain West | | | 28 | | | | 354 | | | | 21 | | | | 346 | | | | 51 | | | | 385 | | | | 34 | | | | 371 | |
East | | | 15 | | | | 281 | | | | 18 | | | | 261 | | | | 46 | | | | 275 | | | | 38 | | | | 256 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total unconsolidated joint ventures | | | 70 | | | $ | 375 | | | | 42 | | | $ | 326 | | | | 196 | | | $ | 380 | | | | 120 | | | $ | 325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 552 | | | $ | 553 | | | | 535 | | | $ | 465 | | | | 1,466 | | | $ | 534 | | | | 1,375 | | | $ | 449 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
| | | Home
Sales
Orders | | | Avg. Active
Selling
Communities | | | Home
Sales
Orders | | | Avg. Active
Selling
Communities | | | Home
Sales
Orders | | | Avg. Active
Selling
Communities | | | Home
Sales
Orders | | | Avg. Active
Selling
Communities | |
Home sales orders: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 101 | | | | 11 | | | | 107 | | | | 7 | | | | 407 | | | | 10 | | | | 211 | | | | 5 | |
San Diego | | | 60 | | | | 10 | | | | 33 | | | | 7 | | | | 211 | | | | 9 | | | | 198 | | | | 7 | |
Northern California | | | 82 | | | | 13 | | | | 84 | | | | 14 | | | | 301 | | | | 14 | | | | 305 | | | | 13 | |
Mountain West | | | 102 | | | | 13 | | | | 72 | | | | 15 | | | | 340 | | | | 12 | | | | 306 | | | | 15 | |
South West | | | 111 | | | | 17 | | | | 135 | | | | 17 | | | | 342 | | | | 17 | | | | 438 | | | | 16 | |
East | | | 4 | | | | 2 | | | | 3 | | | | 1 | | | | 17 | | | | 1 | | | | 9 | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total consolidated | | | 460 | | | | 66 | | | | 434 | | | | 61 | | | | 1,618 | | | | 63 | | | | 1,467 | | | | 57 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 21 | | | | 4 | | | | 22 | | | | 2 | | | | 96 | | | | 4 | | | | 35 | | | | 2 | |
Northern California | | | 11 | | | | 4 | | | | 11 | | | | 4 | | | | 40 | | | | 4 | | | | 33 | | | | 3 | |
Mountain West | | | 38 | | | | 5 | | | | 25 | | | | 5 | | | | 78 | | | | 5 | | | | 59 | | | | 5 | |
East | | | 33 | | | | 3 | | | | 19 | | | | 2 | | | | 99 | | | | 3 | | | | 61 | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total unconsolidated joint ventures | | | 103 | | | | 16 | | | | 77 | | | | 13 | | | | 313 | | | | 16 | | | | 188 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 563 | | | | 82 | | | | 511 | | | | 74 | | | | 1,931 | | | | 79 | | | | 1,655 | | | | 69 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Page7
SEGMENT OPERATING DATA (continued)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, | |
| | | 2014 | | | 2013 | |
| | | Backlog
Units | | | Estimated
Backlog Sales
Value | | | Estimated
Avg. Selling
Price | | | Backlog
Units | | | Estimated
Backlog Sales
Value | | | Estimated
Avg. Selling
Price | |
Backlog: | | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 256 | | | $ | 199,871 | | | $ | 781 | | | | 155 | | | $ | 120,173 | | | $ | 775 | |
San Diego | | | 174 | | | | 114,712 | | | | 659 | | | | 129 | | | | 67,494 | | | | 523 | |
Northern California | | | 193 | | | | 140,058 | | | | 726 | | | | 231 | | | | 139,286 | | | | 603 | |
Mountain West | | | 347 | | | | 173,741 | | | | 501 | | | | 289 | | | | 133,650 | | | | 462 | |
South West | | | 211 | | | | 67,918 | | | | 322 | | | | 318 | | | | 102,163 | | | | 321 | |
East | | | 17 | | | | 6,746 | | | | 397 | | | | 2 | | | | 747 | | | | 374 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total consolidated | | | 1,198 | | | $ | 703,046 | | | $ | 587 | | | | 1,124 | | | $ | 563,513 | | | $ | 501 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Southern California | | | 57 | | | $ | 27,197 | | | $ | 477 | | | | 26 | | | $ | 9,077 | | | $ | 349 | |
Northern California | | | 29 | | | | 16,340 | | | | 563 | | | | 31 | | | | 16,430 | | | | 530 | |
Mountain West | | | 50 | | | | 21,221 | | | | 424 | | | | 36 | | | | 14,258 | | | | 396 | |
East | | | 103 | | | | 31,398 | | | | 305 | | | | 59 | | | | 16,271 | | | | 276 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total unconsolidated joint ventures | | | 239 | | | $ | 96,156 | | | $ | 402 | | | | 152 | | | $ | 56,036 | | | $ | 369 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,437 | | | $ | 799,202 | | | $ | 556 | | | | 1,276 | | | $ | 619,549 | | | $ | 486 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | September 30, | |
| | | 2014 | | | 2013 | |
Lots owned or controlled: | | | | | | | | |
Southern California | | | 1,799 | | | | 1,982 | |
San Diego | | | 572 | | | | 687 | |
Northern California | | | 4,046 | | | | 3,239 | |
Mountain West | | | 9,731 | | | | 10,075 | |
South West | | | 2,303 | | | | 2,242 | |
East | | | 765 | | | | 767 | |
| | | | | | | | |
Total consolidated | | | 19,216 | | | | 18,992 | |
Unconsolidated joint ventures | | | 4,963 | | | | 4,733 | |
| | | | | | | | |
Total | | | 24,179 | | | | 23,725 | |
| | | | | | | | |
Lots by ownership type: | | | | | | | | |
Owned for homebuilding | | | 6,481 | | | | 6,581 | |
Owned and held for sale | | | 3,442 | | | | 3,435 | |
Optioned or subject to contract for homebuilding | | | 6,259 | | | | 5,942 | |
Optioned or subject to contract held for sale | | | 3,034 | | | | 3,034 | |
Joint venture | | | 4,963 | | | | 4,733 | |
| | | | | | | | |
Total | | | 24,179 | | | | 23,725 | |
| | | | | | | | |
Page8
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands)
(unaudited)
In this earnings release, we utilize certain financial measures that, in each case, are not recognized under GAAP. We present these measures because we believe they and similar measures are useful to investors in evaluating a company’s operating performance and financing structure and, in certain cases, because they could be used to determine compliance with contractual covenants or as one measure of the Company’s ability to service debt and obtain financing. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with GAAP, they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
The following table reconciles revenues, cost of sales and gross margins, as reported and prepared in accordance with GAAP, to the non-GAAP measures house revenues, house cost of sales, house gross margin and house gross margin percentage, which exclude land sales and other transactions, and to adjusted house revenues, adjusted house cost of sales, adjusted house gross margin and adjusted house gross margin percentage, which add back interest in cost of sales.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2014 | | | Three Months Ended September 30, 2013 | |
| | | Revenue | | | Cost of
Sales | | | Gross
Margin $ | | | Gross
Margin % | | | Revenue | | | Cost of
Sales | | | Gross
Margin $ | | | Gross
Margin % | |
Total | | $ | 284,489 | | | $ | (216,595 | ) | | $ | 67,894 | | | | 23.9 | % | | $ | 238,309 | | | $ | (182,461 | ) | | $ | 55,848 | | | | 23.4 | % |
Less: Other | | | (119 | ) | | | — | | | | (119 | ) | | | — | | | | (230 | ) | | | — | | | | (230 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Homebuilding | | | 284,370 | | | | (216,595 | ) | | | 67,775 | | | | 23.8 | % | | | 238,079 | | | | (182,461 | ) | | | 55,618 | | | | 23.4 | % |
Less: Land | | | (3,892 | ) | | | 2,929 | | | | (963 | ) | | | 24.7 | % | | | (2,750 | ) | | | 2,271 | | | | (479 | ) | | | 17.4 | % |
Less: Other homebuilding | | | (1,434 | ) | | | 2,379 | | | | 945 | | | | — | | | | (391 | ) | | | 1,157 | | | | 766 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
House | | $ | 279,044 | | | $ | (211,287 | ) | | $ | 67,757 | | | | 24.3 | % | | $ | 234,938 | | | $ | (179,033 | ) | | $ | 55,905 | | | | 23.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Add: Interest in house cost of sales (a) | | | — | | | | 16,256 | | | | 16,256 | | | | — | | | | — | | | | 14,733 | | | | 14,733 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted house excluding interest in cost of sales | | $ | 279,044 | | | $ | (195,031 | ) | | $ | 84,013 | | | | 30.1 | % | | $ | 234,938 | | | $ | (164,300 | ) | | $ | 70,638 | | | | 30.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Nine Months Ended September 30, 2014 | | | Nine Months Ended September 30, 2013 | |
| | | Revenue | | | Cost of
Sales | | | Gross
Margin $ | | | Gross
Margin % | | | Revenue | | | Cost of
Sales | | | Gross
Margin $ | | | Gross
Margin % | |
Total | | $ | 720,687 | | | $ | (547,663 | ) | | $ | 173,024 | | | | 24.0 | % | | $ | 590,579 | | | $ | (454,769 | ) | | $ | 135,810 | | | | 23.0 | % |
Less: Other | | | (462 | ) | | | — | | | | (462 | ) | | | — | | | | (687 | ) | | | — | | | | (687 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Homebuilding | | | 720,225 | | | | (547,663 | ) | | | 172,562 | | | | 24.0 | % | | | 589,892 | | | | (454,769 | ) | | | 135,123 | | | | 22.9 | % |
Less: Land | | | (8,831 | ) | | | 6,272 | | | | (2,559 | ) | | | 29.0 | % | | | (9,891 | ) | | | 5,525 | | | | (4,366 | ) | | | 44.1 | % |
Less: Other homebuilding | | | (3,496 | ) | | | 5,384 | | | | 1,888 | | | | — | | | | (1,184 | ) | | | 4,490 | | | | 3,306 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
House | | $ | 707,898 | | | $ | (536,007 | ) | | $ | 171,891 | | | | 24.3 | % | | $ | 578,817 | | | $ | (444,754 | ) | | $ | 134,063 | | | | 23.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Add: Interest in house cost of sales (a) | | | — | | | | 43,678 | | | | 43,678 | | | | — | | | | — | | | | 39,447 | | | | 39,447 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted house excluding interest in cost of sales | | $ | 707,898 | | | $ | (492,329 | ) | | $ | 215,569 | | | | 30.5 | % | | $ | 578,817 | | | $ | (405,307 | ) | | $ | 173,510 | | | | 30.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Interest incurred is generally capitalized to inventory, then expensed in cost of sales as related units close. |
Page9
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(in thousands)
(unaudited)
The following table calculates the non-GAAP measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income as reported and prepared in accordance with GAAP. Adjusted EBITDA means net income, plus distributions of earnings from joint ventures and non-guarantor subsidiaries, before (a) income taxes, (b) depreciation and amortization, (c) expensing of previously capitalized interest included in costs of sales and in equity in income (loss) from joint ventures, (d) interest expense, (e) impairment charges and project write-offs and abandonments, (f) realized gain on sale of investments, (g) deferred gain recognition from the amortization of deferred gain resulting from a series of novation and reinsurance transactions entered into by Partners Insurance Company, a wholly-owned subsidiary (“PIC Transaction”), and (h) income (loss) from joint ventures and non-guarantor subsidiaries. Other companies may calculate Adjusted EBITDA (or similarly titled measures) differently.
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Net income | | $ | 33,731 | | | $ | 25,826 | | | $ | 73,729 | | | $ | 52,195 | |
Adjustments: | | | | | | | | | | | | | | | | |
Income tax expense (benefit) | | | 6,053 | | | | 1,281 | | | | 16,555 | | | | 1,701 | |
Depreciation and amortization expense | | | 3,253 | | | | 2,748 | | | | 8,088 | | | | 7,312 | |
Interest in cost of sales | | | 17,228 | | | | 15,110 | | | | 45,136 | | | | 40,014 | |
Interest in equity in income (loss) from joint ventures | | | 106 | | | | 244 | | | | 497 | | | | 829 | |
Interest expense | | | 160 | | | | 145 | | | | 436 | | | | 4,975 | |
| | | | | | | | | | | | | | | | |
EBITDA | | | 60,531 | | | | 45,354 | | | | 144,441 | | | | 107,026 | |
Adjustments: | | | | | | | | | | | | | | | | |
Project write-offs and abandonments | | | 192 | | | | 389 | | | | 662 | | | | 582 | |
Realized gain on sale of investments | | | — | | | | (5 | ) | | | — | | | | (15 | ) |
Deferred gain recognition from PIC Transaction | | | (4,001 | ) | | | (1,757 | ) | | | (6,175 | ) | | | (1,598 | ) |
Income from joint ventures and non-guarantor subsidiaries | | | (3,384 | ) | | | (349 | ) | | | (8,561 | ) | | | (6,022 | ) |
Distributions of earnings from joint ventures and non-guarantor subsidiaries | | | 811 | | | | — | | | | 5,293 | | | | 367 | |
Other | | | 4 | | | | — | | | | 17 | | | | 1 | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 54,153 | | | $ | 43,632 | | | $ | 135,677 | | | $ | 100,341 | |
| | | | | | | | | | | | | | | | |
Page10
