DENVER, May 5, 2016 /PRNewswire/ -- M.D.C. Holdings, Inc. (NYSE: MDC) announced results for the quarter ended March 31, 2016.
2016 First Quarter Highlights and Comparisons to 2015 First Quarter:
- Net income of $9.6 million, or $0.20 per share vs. $8.4 million or $0.17 per share.
- Pretax income of $14.3 million vs. $13.3 million.
- Home sale revenues of $394.4 million, up 5% from $377.0 million.
- Gross margin from home sales up 90 basis points to 16.3% vs. 15.4%.
- 2016 first quarter gross margin was negatively impacted by 80 basis points due to a $3.0 million warranty accrual adjustment.
- Dollar value of net new orders of $731.3 million, up 10%.
- Net new orders of 1,646, up 3%; eighth consecutive quarter of year-over-year growth.
- Ending backlog dollar value of $1.43 billion, up 50%.
- Ending backlog units of 3,071, up 39%.
Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "We are pleased with the start to our 2016 spring selling season, as we recorded an eighth consecutive quarter of year-over-year growth in our net new orders. The homebuilding industry continues to slowly gain momentum, as a result of healthy demand drivers, such as low unemployment, positive consumer confidence, wage growth and low interest rates, combined with a limited supply of new and existing home inventories."
Mr. Mizel continued, "After renewing our focus on build-to-order homes in 2015, we improved both our top and bottom line results in the 2016 first quarter, based on growth in our average selling price and gross margin percentage. We achieved these improvements while not significantly increasing our homebuilding assets, resulting in a better return on investment for our Company."
Mr. Mizel concluded, "Driving continued improvement to our returns remains a key focus for the Company in 2016. To that end, we are working on improving the cycle time for our existing home plans, in part by addressing issues caused by limited subcontractor availability in certain of our larger markets. In addition, we are expanding the geographical footprint of our new, more affordable product line, which is already available in our Colorado and Arizona markets. We believe this new product will increase our sales velocity by appealing to an expanding consumer segment that was previously priced out of the market. The new home designs are aimed at putting homeownership within reach for an under-served segment of buyers. The designs will help us reduce cycle times through a more streamlined and efficient design, but also allow homebuyers to personalize their homes with fixtures and finishes like our other Richmond American homes."
Home sale revenues for the 2016 first quarter increased 5% to $394.4 million, compared to $377.0 million for the prior year period. This improvement was driven by a 5% increase in average selling price, primarily due to a mix shift to higher-priced submarkets and, to a lesser extent, price increases implemented in the prior year.
Gross margin from home sales for the 2016 first quarter was up 90 basis points from the same period in 2015. The increase was primarily due to (1) a higher percentage of our deliveries coming from build-to-order sales, which typically have higher gross margins when compared to deliveries of homes that were started without a sales contract, and (2) a 50 basis point improvement in our interest in cost of sales as a percentage of home sale revenues. These items were partially offset by an 80 basis point negative adjustment to our warranty accrual in the 2016 first quarter, which resulted from higher than expected recent warranty related expenditures.
Selling, general and administrative ("SG&A") expenses for the 2016 first quarter were $56.3 million, up $5.8 million from $50.5 million for the same period in 2015. Our SG&A expenses as a percentage of home sale revenues ("SG&A rate") increased by 90 basis points to 14.3% for the 2016 first quarter from 13.4% in the 2015 first quarter. The 90 basis point increase in our SG&A rate was driven primarily by an increase in compensation-related expenses, due to an increase in headcount and an additional $2.5 million of expense related to a stock option grant approved in the 2015 second quarter.
The dollar value of net new orders for the 2016 first quarter increased 10% to $731.3 million from $666.5 million for the same period in 2015. The improvement was the result of a 6% increase in our average selling price and a 3% increase in the net number of homes sold, which was driven by a 3% increase in our average active community count. The increase in average selling price is the result of price increases implemented in many of our active communities over the past year, coupled with a shift in mix to higher priced communities. Our cancellation rate for the 2016 first quarter increased slightly to 18% from 17% for the same period in the prior year.
Our backlog value at the end of the 2016 first quarter was up 50% year-over-year to $1.43 billion. The increase was due mostly to a 39% increase in units in backlog, driven primarily by year-over-year increases in net new orders for each of the past eight quarters, a higher percentage of build-to-order sales, which are generally in backlog for a longer period of time, and longer than average construction times as a result of limited subcontractor availability in certain of our larger markets.
Income before taxes for our financial services operations for the 2016 first quarter was $5.6 million, a $0.3 million increase from $5.3 million in the 2015 first quarter. The increase in pretax income was primarily the result of year-over-year increases in gains on loans locked and sold by our mortgage operations segment.