MDC - Earnings call transcript Q1 2018

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Operator

Good morning or afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MDC Holdings First Quarter Earnings Call. [Operator Instructions] I'd now like to turn the call over to Mr. Kevin McCarty, Vice President and Corporate Controller, please go ahead.

Kevin McCarty

Michelle. you, Thank and XXXX ladies welcome the to Good quarter gentlemen, earnings Holdings first conference MDC morning, and call.

Financial is and On the Chairman Martin, all Officer; Mizel, prepared in finishing a we have I this listen-only Chief participants and request Bob being mode. are that call with [ph] themselves limit and will question-and-answer me conduct participants note Chief today, be will session a and Officer. time, Please one recorded At our After Larry at one question available that this question. which conference remarks, time we Executive replay. follow-up to for

For information replay, visit on our the please website at to how mdcholdings.com. access

is forth noted slides. by now forward-looking opening the Mizel that which to is first be with XXXX. conference call in information Securities may to call the involve cause Before prospects to be set meaning the accompany that Company's measures. from posted I required G will the Company's Larry, or related and contain Regulation remarks. be Private Mr. that actual Regulation use XX-Q, results unknown call, statements. And MDC's G over performance the turn the factors other or webcast known achievements These business, should actual of factors Any information within XXXX filed of Act website financial this to Company's operation, responses Litigation it forward-looking his implied and performance materially expressed results, It requires SEC including achievements on to are strategies turning statements cash These uncertainties our our other flows, condition, the the different SEC those should certain for the may financial noted that questions, of be scheduled and and or today. by the certain over non-GAAP performance that statements during could statements with impact quarter risks, also and to of results, Reform the Form made

Larry Mizel

you. quarter XX% pleased share. $XX.X sales by per strong XXX announce income home to revenues Thank income along up our $X.XX million sales with diluted improvement home or X% basis start driven expansion was in first growth to to a The of with gross I'm XXXX point a margins. robust net our

tax also our rate of following Act passage Cuts late We & Tax significant reduction XXXX. saw the in Jobs in

strong market segment decreasingly land demand Our have very during housing housing a our for and industry past of focused the two the continues this on efforts to we years. see affordable acquisition

our well with housing this this more duplex for for approved quarter match first of order offer our The quarter a segment. pursue important note to as the we the and During other of advantage where can Furthermore, believe competitive billed the additional for were landmark of Seasons focused buyers quarterly product lots to XXXX to XX% reflects approved approach brand. products continue that marks seasons for the number unique our home a including were It to the lots was our we affordability is city our this own highest during decade, total collection approved lots through of continued our benefits homes, our over an our This with important XX% model We than in us customers since their a confidence to that approved our we in it X,XXX of products, growth almost continue provides we affordable we purchase lots homes introduced. this for affordable state their total market. the personalize references. highest even collection.

ending our count least at land to end we of that increase believe we a activity, robust achieve this in can by XXXX. community continue active XX% the approval Given year-over-year

We are kept spring has strongly. markets. our selling seeing our XXXX of supply dynamics season all off In in demand favorable

increased monthly the had quarter Our we've nearly year-over-year the pace that had ranks absorption the since XXXX. as first sales XX% -- since level by in to highest we've a

grows, our balance remains company priority. top our As sheet a

continue We liquidity a of of carefully low with operate billion. $X.X to homebuilding managed to asset unique exposure leverage, and combination access

share. solid quarter confidence which the results shareholders operating by financial $X.XX strong Our the XX% in reward a dividend position year-over-year us first increased and gives strong effectively to to with per

revenues an remains dividends see ending both With terms year-over-year expanded payment. more us yields year our significantly gross complement the in enhanced from ago, the gives operating unsurpassed to percentage. consistency drive Our the opportunity industry, balance of for year. to of of the already nearly value margin our XX% for and homebuilding growth in significant in opportunity backlog This we also the of leverage

our we such, growth margin the through XXXX. day do business to board [ph] as our over what other operating XXXX. MDC further many pretax core on first call about Bob for Martin highlights and to in taken we always as company. start As specific they for to turn the company's make XXXX are a our to of We appreciate financial prospects optimistic every the more to employees Bob? and our continued successful of steps And grow have our of quarter. grateful stakeholders equity I'll support now return

Robert Martin

morning. and good Larry, you, Thank

net by by mostly enactment quarter; recent a our Tax On to to due year-over-year $XX.X Act. Jobs income Cuts for XX% to million. mentioned, XX% Larry the of the $XX.X income the As basis, million & pre-tax increased improved

rate for big was was this the points that range to the XX% rate in basis closed tax XXXX income resulted $XX quarter. of XX.X% estimated XX.X% a of on home in benefit million cycle, earnings net or due discrete estimates, first due retroactively current in from XXXX to our this primarily energy credit which Our qualifying The increased. efficient the include our homes XXXX. XX% year earlier last to $X.X tax XXX the during provided Based to factor extended below item XX.X% the we for our section dropped first quarter [ph] to

XX%. For estimating estimated This the lower a are additional full assumes items XX% we no effective XXXX. between range for year, our during and tax now range discrete rate

Our primarily home X% million, due quarter first our increase price. X% in sale XXXX for selling to a were up the to revenues average $XXX.X

which the was backlog rate of top previous Our was the end call. for discussed XX%, our on we on conversion expected that range QX

conversion to Looking The forward our XX% achieved quarter be estimate in we second these potential first we the a lower second in will lower rate the most sales and primarily strong are of quarter. the of that conversion experienced end quarter to at our conversion than quarter the XX%, XXXX. but quarter, homes backlog not in backlog likely a in second the for rate the but rate to we the are backlog, is of result XX% XXXX close

cycle Our order defined build-to days closings. for average overall from as start time year-over-year finish, unchanged to almost was

note, Most Colorado the both quarter had of in Our segments. of mostly XX our homes Weyerhaeuser time close during the our closings longer related times cycle previously end the close the issue in had west in increased the offset improved, of in the In the cycle of XX the to we Weyerhaeuser to remaining case first the we segment mountain issue. by quarter. Colorado second quarter. impacted On the homes was disclosed result each of at mountain these segment, in which should that

built XX% versus X% for lines affordability closings of collection XX% mix, in Nevada closings with product only Seasons our Seasons and year had recently Colorado, ago. the quarter for from of two we in Arizona, have additional both landmark Mid-Atlantic collections that markets. product an a closings. are our [indiscernible] Furthermore, As mind contributed Florida, QX We additional

gross were gross for in that realized largest of in XXXX. represents for basis a XXXX. was margin highest our of the year-over-year in for year $X.X XXX improvement well since same The from included basis Our It the was home million sales also cost XX.X%. sales levels to XX the quarter our home our XXXX down higher quarter fourth year-over-year quarter, since margin we as as up ago. the points $XXX,XXX sales than points This impairments

the the dollars favorable that from our profit start to pricing in a by With gross to quarter. overall gross gross the our communities higher sales were XXXX. we rose margin generated supply $XX,XXX of about closing the our realized in All the average dynamics Because of with of in and in per improvement. were increase home the quarter, XXXX able margin highest the our active we improvement largest since increase versus that the amount price, to demand level first $XX,XXX segment selling XX% West nearly were segments an showing markets, in

XX.X%. further sales to from positive continue with We a margin gross for closing improvement level XXXX regard of indicating the with our for the QX our bias home quarter from end backlog have potential

backlog it that could other gross actually from However, realized in factors. should periods and cancellations, noted level adjustments increases, be by be cost impacted margin future impairments, the we reserve our

Our expense was quarter total the for quarter. mostly XXXX we the first driven from hiring This first the SG&A dollar to we plan up now the was last $X by growth XXXX for year did are experiencing. million

that of general by XX%. our and result the headcount start to hiring, a As quarter up administrative was

XX.X%. SG&A with as virtually added hiring However, unchanged X% and slowed rate XXXX, our in quarter X% key rate positions year-over-year, headcount. general revenue during was With we our our increasing filled the at already only first sales to home of administrative many

market overall. not some upward given reasonable we The wages expense for significant million and of pressure as However, -- labor we the administrative during benefits believe estimate be $XX.X quarter charges recognize quarter. there any during infrequent tight on or recognized the could is a the general did

ago. our subject be to price our XX-Ks to I and X% to saw any our increased about you extent year-over-year for successful a However, our in in rate The and in quarter by a additional our in based our dollar net The was variation average encourage XX% products for a looking orders absorption to future periods. the up million $XXX.X across $XXX,XXX accruals driven of the somewhat orders solid markets be by active The homes. certain on we've general the our to cause monthly could average sub-division account. this quarter-to-quarter We're affordable expense find the or may from absorption the that nonetheless from is was of year detail continuing and value quarter, additional items variability rate XX-Qs country. net administrative future amount most decrease we our to of of recognized in increase offset in review Seasons reserves of that in required timing demand periods. buyers X% known marketing same XX% as acceleration

slightly orders cancellations a for year-over-year unit but to designed also increase at year our for continued are contributed of to fourth were compared as strength Certain at the net XXXX net quarter, the of beginning exceeded from lesser X% an For to percentage Active on add quarter, seen ways X% backlog. have in quarter. XX% was a XXXX quarter We orders end XX% increase backlog XX% quarter the units first with orders, Overall, value affordability new of collections our up a slightly for billion estimated the to year-over-year address and increase Seasons of up I was different first a net a XXX orders the we which price. in an down we which the an XXX up year first new extent, ago. homes end the net quarter at of ago. year our year-over-year of XXXX ago. accounted from sales X% for $X.XX only XX% the additional in our selling other subdivision from up saw in a the unit that that XX% all will in average with and ended count based of April XXX XX% from

a to we largest We did to our the the due investment our expectations. in in not where disclosed Mid-Atlantic lower level e-segment continue meet market returns of that see decreases previously

the in the had mountain years. a Our of past our into market Colorado increase segment investments over community account result active two XX% significant as a

call continue second the we on that inactive the soon-to-be we is soon-to-be This at have graph active more not to end perfect the compared with year-over-year likely the community tells count is XXXX. to category of from end account as end subdivisions in increase XXX Looking during subdivision target first a quarter. XXXX the than though analysis active XX% to in Nevertheless, quarter, active the to subdivision the from of least category quarter XXXX at we the in our this active at change the a far right; us indicator. much the end of

the intended during which years. twice lots. lots the in communities, communities. and We Seasons of mix our quarterly acquired including of acquired other approved our operate level the segment Acquisition quarter are first total. our concentration XXXX. a of of was spend during we Approximately each $XX in for for million, $XXX and with X,XXX a of a collection, This year the acquired in After X,XXX the XX% additional from we XX we lots. of lots lots acquisition finished quarter first affordable double for in nearly state that XXXX the XX% level From intended acquired the an ago. represented are in for almost in quarter, were million. the additional been ago. the The new quarter was than over spend XXXX XX the for developed year quarter standpoint, covered we approved state in lots of West recent with quarter lots lots, which has XX% the first seen product from acquired first land acquired For acquired lots for lots the in accounted was up development XX% the acquisition with the We decade heaviest we accounting more for quarter the first the million lots have $XXX costs, a products spend XX% land the in for highest every

the first our a XXXX. community these about which quarter products XX% XX% the approving Looking at the of And approvals new lot for first most Seasons since of of from the product mix, represented our a same trailing the affordable Seasons ago. collection approved. lots year of approved in our of controlled other Seasons in accounted quarter was about basis up quarter XX% or of at month end up which This X.X X.X total XX the the lots a At lots, we is owned quarter represents delivery XX,XXX years end year-over-year.

seen forward-looking significant Given in as that shorter a year the this on that absorption company, growth supply is rates a believe lot a have we X.X a With we already than basis approvals a quarter point lot the at during year controlled same the of option our XXXX XX% quarter, to the from amount at ago. increased end XX% lots the the of percentage of first supply.

excluding gain XXXX of pre-tax the core third XX.X% points one-time a the months XXXX in up $XX is the to XX XX last investments. Our return-on-equity first of the at million basis end year-over-year sales recorded quarter to of quarter after related

grew our the continued our backlog operating With homebuilding defined margin year-over-year. of XXX strength, questions. time, margin expansion sales our basis minus With this up homebuilding gross gross margin, prepared backlog our home equity as the and our and up core both for referring That we XX% for by our SG&A our value call optimistic showing concludes year-over-year about improvement points to XXXX. in margin rate gross we're open for further would At margin remarks. like operating

Operator

The from Instructions] from [Operator Morgan. quarter first JP Michael comes [ph]

open. is line Your

Neal BasuMullick

Mike. Neal is for in This BasuMullick

looking see the the margins the do and quarter this then and as margins, you -- result backlog your quarter? sustainable strong this are drivers what that on starting think last improvement your at of pieces above which and guess gross are do I you quarters big So recognizing gross few

Robert Martin

I think and a increasing on of think pricing, focus prices. I we're a balancing it's rate absorption good doing job

about you that of first that really the increased the XXXX. is backlog in positive one markets about -- As can closed supply look every across, think quarter of us just a dynamic an that's and XX% out XXXX. environment have if in that our maintain is what we I of than prices indicated, our in there And I as communities there demand kinds we we you level continue during on of out our there margins. we referenced higher to QX really see indication these of we as that just Also giving

Neal BasuMullick

you bit And less then gross see associated the And then, with towards Do at guess you bit? the changing of do next accelerated that? this little see margin mix a looking year quarter. community a I Seasons investment

Robert Martin

the quarter margins increasing XXXX, see the product on as of overall Seasons than profit overall. our an percentage gross in the do of XXXX into I closings first and margin becoming remained move our higher we Seasons

mix enhancements of could that's further So out first in we that -- product, profit the probably mentioned to so my play of response. I margin part certainly should have our see and the because gross of

Operator

And your Bank next Lovallo question comes from from John of America.

John Lovallo

stall First are an across considering question at is growth here rates fair to of amount is obviously interest is, industry. very going levels a investors although low the historically, there here order

So in the moving any an [ph] sensing the IRs of rates? or you overblown concern on your stock kind is given market hesitation are opinion, part this of

Robert Martin

caught Well, bigger in than we I looked April, at our QX. but orders you don't into as the if increase year-over-year my remarks for know was

that's really resistance data this at So latest that we we point. don't that see have; the point

from As time history think and much much have also rates I and of I high think been our volumes it level, where a about been about periods have country's higher. in higher, interest history our

necessarily correlate there And don't so would directly out other supply is lot there interest there. I helpful I our of I So thing in much put as there is that rates efforts. the is; with how out think demand guess not out well, is certainly then, whole

John Lovallo

And any about the of of the spring middle season, -- then, here through we're think the better of remainder we of year? go selling how that [indiscernible] kind kind in the the sense we account of now should as

Robert Martin

quarter-by-quarter holding that of XX% two next be whole end us be to it's getting out tell the I the can is of almost firm we're with that's it likelihood and that shakes quarter to that soon-to-be inactive; on pop to be issue going sometimes a tough notion active the which that the it day there tells that sell those extent still going that recently how that second to the issue not out year it's quickly; in graphic but communities. by even literally really It's up of metrics opened on-time quarter. versus an communities quarter on lot Well, provided and selling that also least. out you seen happens the soon-to-be exactly We're an because communities the our at the last year-over-year some we've of can over too

is but color timing share can difficult point. a of little the I the bit that's at this So, kind

Operator

Associates. And Zelman your Alan next from comes question & from Ratner

Alan Ratner

making know, dividends it's obviously it some you level question; a paying looks push here. entry are guys first and So you at like big

payment up strategy anything bill-to-order share that go before scores; closing. on for which your more entry backlog to some might were locked terms is was won't is that if or FICO your close analysis means debt-to-income that down Given if the buyer ratios? several of they business related you they assuming to approach, as can down to buyers, putting the of if we do mortgage burst there how absorb the -- months in see much you spike. Can as level much your anything curious in sitting rates have have you are cancellation I you side maybe they on they higher? statistics before are a rates, see some comfort not gives that far How sudden in

Robert Martin

out in a rates truly seems And I that down regularly. this of period increase any gradual fact, first example mean, I shock. think programs do interest to is can and will big there if a like in head than rate interest I have be interest are rates given concern a which rise that in out more that's right we we're that although in what for I thing of months that's the talking that have it's really sensitive more new over an first a -- hit it you to would rate it you know on sure experiencing rate I -- is there to come last starting who are rate or up. about so X be to now rates interest if of programs people point. the tell make close we have try don't there broke at

we but comforted we're down at the try to are fact risk. be some in don't our of the those So to control seem have to this that rates pockets by manage point of that that things out

Alan Ratner

little increased And in to us big you What will willingness about give then landmark seeing Can are activity on the land finished? you. type finished second presume a making those hearing in land you last terms competition the you're the at primarily as be more question; any today? just inflation deals is level side seeing land you quarters. are market lots bit I on you're the the We're push in for of your on commentary buying builders there. the pickup entry land takedowns dynamics segment in talk there which And etcetera; can rolling terms, the operate few Thank of then, great. a seller's

Robert Martin

those of we first of do we were finished. of XX% -- but bought quarter but was the And the approved finish think that buy only what quarter in finished. XX% try we lots I those all, only about to during

markets. absolutely even there think just very market in right, where if of and are present have There to finished I So supply you finished competitive no of certain is markets it's lots develop. the our lot is certain it's

goes kind it's houses somewhat how simply of you there, So what lot of competitive in price the out is; home this inflation exactly think as know. with I prices say line is of year-over-year tough to in mix because and increases

we've a markets, capitalize. the typically most is that So we've bulk news I that are good -- getting not of is new able and necessarily in rolling I to purchases; wouldn't report option got in that's good front. set to happy phase whole so team very lot deals, been think out or land on our we're say a been maybe dealers each

Operator

Evercore. Kim Stephen from And from next your comes question

Unidentified Analyst

on is Steve. actually This for Chris

be this to now count was be past for community guess, in five counts question target? city expect about driving they in so difficulties the your what backing confidence count in community of given and achieving year next I and quarters earlier; the to flat off be Just quarter. your increasing

Robert Martin

things. of couple a is there Well,

great communities the First and mean ground year to we've employee on count I saying; last those that opened. have and by the helps a we boots on get like our we XX% increased to more all, us have about of team ground been

you've where so [indiscernible] few this last in few been this process a activity the for activity not has it's it's just Second, land seen quarters the that has before whole. quarter, so been this happening, the over quarters; last been too

So as double of soon of at the have kind we've a we category that where in about said even than number year here first the end quarter, that they of haven't communities the we to ago are be phase. did the got into active

working at we in of got So by confident about the those, think we're on those least we of end we've open. getting market XX% for we're year. kind this by can a great increase hard process And this that

Stephen Kim

Bob, it's also. actually Steve Thanks, Kim

And So pie-time pick like XXXX. know situation communities, of [ph] communities I kind understood ahead that? my second -- the in so a I into I quarter; is guidance just you margin was that costs How a of should not see the lest at that. it's of based want we in -- carry in improvement open would probably were raised was comment over that of bit we're also to quarter XX% into saw a the sounds the quarter. make get giving of XXXX. margin although our kind you improvement sure able gather. raise some you're I broad in price which the what to then take -- little saw you inflation of related that that the dynamics that saw cut-off to I you if or gross breached cost obviously your stab you you Two, percent could at curious But prices

Robert Martin

by on price a cost community, like it that I track increases offset -- much increases. don't guess We how community Steve;

or in think our XXX on I of it, whether account you evidenced about was no sub-contractors, DA margin to happens when backlog, is risks still working. labor all happens saw this with or you those what to as communities, expansion first talk ability future, of even community And what strongly pricing point. speaks focus higher what open our clear, overcome that and be to But operating doubt quarter about those unit -- about municipalities, for itself that margins, risks talk whether be community and you the we margins. account about to evidence the talk basis points at in it are really very an

Operator

Oppenheim Next from question comes Dan from UBS.

Daniel Oppenheim

can a talked guess, spread-out talk bit little lower conversion? if that how terms wondering was in the order bit backlog two during taking based about the quarter. are is orders about [ph] the You homebuild you any where late also I wondering little and time on the helping? bit less to little Seasons relative a XXXX of I from benefit those in are quarter coming

Robert Martin

year, notably it that as quarter, notably to percentage terms in a up conversion closings think overtime of think that of I bigger of therefore, ends it benefit see a backlog and more I fourth being Seasons, we the a do the our becomes having but maybe little bit accretive rate. towards end the

is XX% So our a only of about it's that product positive from still but benefit now. that remember right closings

March monthly the the was quarter look our the during I our at increase month biggest quarter, and during relative year-over-year up year-over-year of -- as far going As that month believe the was really January. increase quick; of biggest March the that to just to February

Daniel Oppenheim

And community? the terms in just count of sequentially per looks starting it -- both thereabout be or just open function was community absorption a though up the it that up and or will to XQ absorption some was in since of the the that is

Robert Martin

as was absorption strongest the per March the in think I community well.

Operator

next Steven Your Fargo. comes [ph] from question Wells

Unidentified Analyst

next backlog, forma months Paul it gross to at over margin market XX is land similar This level. assume for better is margins pro [ph] a the the fair the Steven. has gross Subsequent XX% through to that coming to to moving XX or and

Robert Martin

forma these we disciplines as we're new our On keeping pro deals. same accrue

upon we on risks the the developed depends involved lots lots versus in deal know, Of any of course, margins that as get you be finished the things individual nature. to and

Unidentified Analyst

not differs I'm tell you Seasons? city-scaping product; landmark from us how really familiar the And with that can

Robert Martin

Yes.

is we those landmark took -- historical cost to took reengineering, by to say series of $XX,XXX redesign we little landmark and kind allowed what and did First with product of well, as us out some of bit or did all, prices of on our essentially a decrease $XX,XXX we communities.

So X% you're XX% talking in the range. to

collection it a stretch you price our more that on move product, first you as closer almost city-scapes you that, So type product opportunity for glance. market. who much gives but But still it trying and look be it's about the price that us drop more time and acre Seasons first is our if may is modern consumers between town-home not way. see some per therefore up the a The [indiscernible] but to contemporary can higher build the drives at reach extreme are denser you mistake to additional attritional to at of in might your it than down really product, thing to

well. be successful So want to been their in single-family little may able bit we've cash a something I little areas area, been as do the highly for deep more areas mean affordable old bit case of bit same the cows, in-built, the for newer, will that considered more that little city-scapes, in want us that that's just not

and infancy The which of first this product implement third sales this had Q starting quarter. here leg more [ph] that us we're during but is is just last with Colorado to duplexes much in that [ph] dual for foremost; a

Operator

Sood comes question Nishu Instructions] [Operator Your from Bank. from Deutsche next

Unidentified Analyst

Nishu, [ph] thanks Tim actually for time. is This the on for

gross the to that's of on expecting so you're next quarter. over what quickly and carry strong I guess margin; I to quarter kind another So guess

the that just anything guidance moving that maybe time gross the Just that there I'm curious, in some margin, curious, away quarter from some you provided quarter, obviously the pricing of with specs you've power discussions obviously business? that had backlog of throughout aspect in but is was -- the bit improved the I'm a happened last of additional but maybe tailwind, that that of

Robert Martin

quarter. that's we'd during couple the what margin I not I additional that model been reported the that since in realized build talking was reported last higher pricing a than what gross mean, a we on we're quarter. mean ago would power, fourth we experienced the I backlog quarters have buildup, quarter, have was think -- what of you backlog to the we about we

we that our was margin first indicator which room to the gave gross point in move the had at really, So that opinion.

Unidentified Analyst

you March what color thinking so April And I've saw April; it, our substantially very was you you year? relatively quarter? guess I or last first gone quarter see the guess, relatively could provide first the I to I'm up curious; just in on strong, obviously what through [indiscernible] about so in some And to

Robert Martin

commented and may on that maybe have it missed. Yes, you I earlier

first quarter. in for than So for that the in the year-over-year had was increase increase year-over-year the orders April we net-overs bigger

we'll a So just indicator as worth month although how the we quarter that of of it data see is viewed and the progresses. one positive rest

Operator

over the I in turn further for back presenters questions closing have the call the queue. to I no remarks.

Robert Martin

look Great. appreciate quarter. you to our forward on our we second the Well, call I results today being talking I with when call and everyone for again on for report

Operator

Thank This conference today's everyone. will concludes you, call.

You may disconnect. now

M.D.C. (MDC) 3 May 182018 Q1 Earnings call transcript