AV Homes, Inc. (Nasdaq:AVHI) announced its second quarter earnings on Thursday evening in which it posted a net income of $117.4 million ($4.45 per diluted share), compared to the second quarter last year that saw a net loss of $4.5 million and $0.20 per share. Wall Street analysts estimated a profit of $0.17 per share.

The Scottsdale, Ariz-.based builder reported an increase in total revenue of 137% to $188.1 million from $79.4 million in the second quarter of 2015. Results from the second quarter of 2016 include the contribution from AV’s acquisition of Bonterra Builders, which closed on July 1, 2015, in addition to the reversal of $110 million of the company's valuation allowance on its deferred tax assets.

"The results for the second quarter 2016 reflect another positive step in the continued transformation of AV Homes," said Roger A. Cregg, president and CEO. "Our operational execution of our strategic growth plan produced another quarter in which we more than doubled our revenue and home deliveries, while improving gross margins and further leveraging our overhead costs. The net result was over $7 million of pretax income in the quarter."

Cregg continued, "As a direct result of building a track record of profit and a strong backlog of sold homes, we were able to reverse the valuation allowance of $110 million on our deferred tax assets, unlocking further value in the company.This not only improves our credit metrics, but also supports the turnaround of our business over the past three years and reflects the strength of our operating footprint and the execution of our business model through profitable growth."

Here’s more from AV’s release:

The increase in total revenue for the second quarter of 2016 compared to the prior year period included a 143% increase in home building revenue to $184.6 million. The increase in homebuilding revenue was driven by the acquisition of Bonterra Builders, volume increases due to a greater number of communities with deliveries in each of our existing markets, and higher average selling prices due to price increases and improvements in the mix of homes sold. During the second quarter of 2016, the company delivered 594 homes, a 104% increase from the 291 homes delivered during the second quarter of 2015, and the average unit price per closing improved 19% to approximately $311,000 from approximately $261,000 in the second quarter of 2015.

Home building gross margin improved to 18.0% in the second quarter of 2016 from 16.7% in the second quarter of 2015. Home building gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.9% and 2.4% in the 2016 and 2015 periods, respectively. Gross margins increased in each of our geographic segments, primarily due to selective price increases, certain cost reduction measures, and changes in the mix of communities due to both organic and acquisition growth.

Total SG&A expense as a percent of home building revenue improved to 14.0% in the second quarter of 2016 from 21.0% in the second quarter of 2015. Home building SG&A expense as a percentage of home building revenue was 11.7% in the second quarter of 2016 compared to 15.3% in the second quarter of 2015. The improvement was primarily due to the increased scale of the business which allows us to leverage the cost base, particularly in the Carolinas with the acquisition of Bonterra Builders. Corporate general and administrative expenses as a percentage of home building revenue improved to 2.3% in the second quarter of 2016 from 5.6% in the same period a year ago 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 June 30, 2016 increased 40% to 685, compared to 491 units during the same period in 2015. The increase in housing contracts was primarily attributable to the increase in selling communities to 62 from 38 as a result of both acquisition and organic growth. The average sales price on contracts signed in the second quarter of 2016 increased 11% to approximately $311,000 from approximately $280,000 in the second quarter of 2015. The aggregate dollar value of the contracts signed during the second quarter increased 55% to $213.3 million, compared to $137.5 million during the same period one year ago. The backlog value of homes under contract but not yet closed as of June 30, 2016increased 60% to $363.3 million on 1,144 units, compared to $226.5 million on 803 units as of June 30, 2015.

AV also revised the following outlook for its financial performance for the full year 2016:

  • Communities with closings are expected to be approximately 60 compared to the prior expectation of 65;
  • Closings are expected to increase to a range of 2,300 to 2,400, an improvement from the previous range of 2,150 to 2,275 units;
  • Average Selling Price (ASP) on homes closed is expected to increase to approximately $310,000, as previously expected;
  • Home building Gross Margins are expected to be approximately 17.5% to 18.0%, compared to the prior expectation of 17.5%;
  • Home building SG&A is expected to be approximately 10.5% to 11.0% of home building revenue compared to the prior expectation of 10.5%;
  • Corporate G&A is expected to improve to approximately 2.5% of home building revenue, as previously expected;
  • Interest expense is expected to be approximately $5 million after capitalization, an improvement from the previous range of $6 million to $7 million; and
  • Pre-tax income is expected to increase to approximately $28 million to $30 million, an improvement from the previous range of $25 million to $27 million.