CalAtlantic Group, Inc. Reports 2015 Third Quarter Results

 

Revenues increase to $626.0 million, up 4%

Q3 2015 backlog value of $1.7 billion, up 47% from Q3 2014

 

As previously announced, on October 1, 2015, Standard Pacific Corp. and The Ryland Group, Inc. completed their merger of equals, with Ryland merging into Standard Pacific and Standard Pacific continuing as the surviving corporation.  At the same time: (i) Standard Pacific changed its name to "CalAtlantic Group, Inc." and effected a reverse stock split such that each five shares of common stock of Standard Pacific issued and outstanding immediately prior to the closing of the merger were combined and converted into one issued and outstanding share of CalAtlantic common stock, (ii) MP CA Homes, LLC, the sole owner of Standard Pacific's outstanding Series B Preferred Stock, converted all of its preferred stock to CalAtlantic common stock, and (iii) each outstanding share of Ryland common stock, stock options and restricted stock units were converted into the right to receive, or the option to acquire, as applicable, 1.0191 shares of CalAtlantic common stock.  Cash was paid in lieu of all fractional shares.

Because the closing of the merger occurred after the third quarter was completed, the highlights and comparisons below and the other financial information included in this earnings release relate solely to Standard Pacific on a stand-alone basis and do not include Ryland's results of operations.   For informational purposes, limited Ryland operating data is presented in the tables beginning on page 12.

Additionally, even though the reverse stock split also occurred following completion of the third quarter, applicable accounting rules provide that the Company is required to restate per share information for all periods presented as if the reverse stock split had been implemented for such periods.  Those same accounting rules, however, do not allow the Company to include the MP CA Homes, LLC conversion of its Series B Preferred Stock, which occurred at the same time as the reverse stock split, into the restated share information. Please take this into account when evaluating the per share information presented below.

IRVINE, CALIFORNIA, November 4, 2015.  CalAtlantic Group, Inc. (NYSE: CAA) today announced results for the third quarter ended September 30, 2015.

 

 

·	Net new orders of 1,326, up 15%; Dollar value of net new orders up 35%

·	Backlog of 2,733 homes, up 24%; Dollar value of backlog up 47%

·	215 average active selling communities, up 16%

·	1,165 new home deliveries, down 7%

·	Average selling price of $537 thousand, up 11%

·	Home sale revenues of $626.0 million, up 4%

·	Gross margin from home sales of 25.3%, compared to 26.3%

·	Operating margin from home sales of $85.4 million, or 13.6%, compared to $88.7 million, or 14.7%

·	Net income of $47.2 million, or $0.59 per diluted share, vs. net income of $56.6 million, or $0.70 per diluted share

o	Results include $11.2 million of transaction related costs

·	$262.2 million of land purchases and development costs, compared to $251.2 million

Orders.  Net new orders for the 2015 third quarter were up 15% from the 2014 third quarter, to 1,326 homes, with the dollar value of these orders up 35%, and the Company's monthly sales absorption rate was 2.1 per community for the 2015 third quarter, flat from the 2014 third quarter and down 20% from the 2015 second quarter, consistent with normal seasonal patterns.  The Company's cancellation rate for the 2015 third quarter was 19%, slightly below the 2014 third quarter and up from 15% for the 2015 second quarter.  Our 2015 third

 

quarter cancellation rate remains below our average historical cancellation rate of approximately 22% over the last 10 years.

 

Backlog.  The dollar value of homes in backlog increased 47% to $1.7 billion, or 2,733 homes, compared to $1.1 billion, or 2,208 homes, for the 2014 third quarter, and increased 12% compared to $1.5 billion, or 2,572 homes, for the 2015 second quarter.  The increase in year-over-year backlog value was driven primarily by our continued growth in community count and the corresponding increase in orders and a 19% increase in the average selling price of the homes in backlog, reflecting the product mix shift to more move-up and luxury  homes and continued pricing power in many of our markets.

 

Revenue.  Revenues from home sales for the 2015 third quarter increased 4%, to $626.0 million, as compared to the prior year period, resulting from an 11% increase in the Company's average home price to $537 thousand, the highest quarterly average home price in Company history, partially offset by a 7% decrease in new home deliveries.  The increase in average home price was primarily attributable to a shift to more move-up product and general price increases within a majority of the Company's markets.

 

Gross Margin.  Gross margin percentage from home sales for the 2015 third quarter was 25.3%, up 70 basis points from last quarter, consistent with the Company's expectations.

 

Land.  During the 2015 third quarter, the Company spent $262.2 million on land purchases and development costs, compared to $251.2 million for the 2014 third quarter. The Company purchased $126.0 million of land, consisting of 1,831 homesites, of which 58% (based on homesites) is located in the California, 19% in the Carolinas, 12% in Texas, 10% in Florida and approximately 1% in Colorado.  As of September 30, 2015, the Company owned or controlled 35,515 homesites, of which 24,439 were owned and actively selling or under development, 7,172 were controlled or under option, and the remaining 3,904 homesites were held for future development or for sale. 

 

Liquidity.  The Company ended the quarter with $279 million of available liquidity, including $98 million of unrestricted homebuilding cash and $181 million available to borrow under its revolving credit facility. The revolving credit facility was replaced on October 5, 2015 with a new $750 million revolving credit facility.  The new facility has an accordion feature under which the aggregate commitment may be increased from $750 million to a maximum amount of $1.2 billion, subject to the Company's future needs and the availability of additional bank capacity.  The new facility matures on October 5, 2019.  The Company's homebuilding debt to book capitalization as of September 30, 2015 and 2014 was 56.8% and 52.9%, respectively, and adjusted net homebuilding debt to adjusted book capitalization was 55.4%* and 52.2%*, respectively.  In addition, the Company's homebuilding debt to adjusted homebuilding EBITDA for the LTM period ending September 30, 2015 and 2014 was 4.9x* and 3.7x*, respectively.

 

Earnings Conference Call

 

A conference call to discuss the Company's 2015 third quarter results will be held at 12:00 p.m. Eastern time November 5, 2015.  The call will be broadcast live over the Internet and can be accessed through the Company's website at http://investors.calatlantichomes.com.  The call will also be accessible via telephone by dialing (888) 500-6974 (domestic) or (719) 325-2199 (international); Passcode: 371721. The audio transmission with the slide presentation will be available on our website for replay within 2 to 3 hours following the live broadcast, and can be accessed by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international); Passcode: 371721.

 

About CalAtlantic Group, Inc.

 

CalAtlantic Group, Inc. (NYSE: CAA), a combination of Standard Pacific Corp. and Ryland Group, Inc., two of the nation's largest and most respected homebuilders, offers well-crafted homes in thoughtfully designed communities that meet the desires of customers across the homebuilding spectrum, from entry level to luxury, in 41 Metropolitan Statistical Areas spanning 17 states.  With a trusted reputation for quality craftsmanship, an outstanding customer experience and exceptional architectural design earned over its 50 year history,

 

This news release contains forward-looking statements.  These statements include but are not limited to statements regarding new home orders; deliveries; backlog; absorption rates; cancellation rates; average home price; revenue; profitability; cash flow; liquidity; gross margin; operating margin; product mix; land supply; our future cash needs and the availability of additional bank commitments.  Forward-looking statements are based on our current expectations or beliefs regarding future events or circumstances, and you should not place undue reliance on these statements.  Such statements involve known and unknown risks, uncertainties, assumptions and other factors many of which are out of the Company's control and difficult to forecast that may cause actual results to differ materially from those that may be described or implied.  Such factors include but are not limited to:  local and general economic and market conditions, including consumer confidence, employment rates, interest rates, the cost and availability of mortgage financing, and stock market, home and land valuations; the impact on economic conditions, terrorist attacks or the outbreak or escalation of armed conflict involving the United States; the cost and availability of suitable undeveloped land, building materials and labor; the cost and availability of construction financing and corporate debt and equity capital; our significant amount of debt and the impact of restrictive covenants in our debt agreements; our ability to repay our debt as it comes due; changes in our credit rating or outlook; the demand for and affordability of single-family homes; the supply of housing for sale; cancellations of purchase contracts by homebuyers; the cyclical and competitive nature of the Company's business; governmental regulation, including the impact of "slow growth" or similar initiatives; delays in the land entitlement process, development, construction, or the opening of new home communities; adverse weather conditions and natural disasters; environmental matters; risks relating to the Company's mortgage banking operations; future business decisions and the Company's ability to successfully implement the Company's operational and other strategies; litigation and warranty claims; and other risks discussed in the Company's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2014 and subsequent Quarterly Reports on Form 10-Q.  The Company assumes no, and hereby disclaims any, obligation to update any of the foregoing or any other forward-looking statements.  The Company nonetheless reserves 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:

Jeff McCall, EVP & CFO (949) 789-1655, jeff.mccall@calatl.com

*Please see "Reconciliation of Non-GAAP Financial Measures" beginning on page 10.

###

(Note: Tables Follow)

KEY STATISTICS AND FINANCIAL DATA¹

 

 

 

¹All statistical numbers exclude unconsolidated joint ventures unless noted otherwise.

*Please see "Reconciliation of Non-GAAP Financial Measures" beginning on page 10.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

INVENTORIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

REGIONAL OPERATING DATA

 

During the 2015 third quarter, in connection with the transition planning related to the Merger, the Company began evaluating the business and allocating resources based on the post-merger homebuilding operating segments of CalAtlantic. The Company's homebuilding operating segments are grouped into three reportable segments: Southeast (Florida and the Carolinas); Southwest (Texas, Colorado and Nevada) and West (California and Arizona).  The Company's Arizona operations were previously reported within the Company's Southwest reportable segment, and as such, the prior period operating data has been restated to conform to CalAtlantic's new presentation.

 

 

 

 

 

REGIONAL OPERATING DATA (Continued)

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

 

Each of the below measures are non-GAAP financial measures and other companies may calculate such non-GAAP measures differently.  Due to the significance of the GAAP components excluded, such measures should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP.

The table set forth below reconciles the Company's gross margin percentage from home sales to adjusted gross margin percentage from home sales, excluding interest amortized to cost of home sales.  We believe these measures are useful to management and investors as they provide perspective on the underlying operating performance of the business excluding these charges and provide comparability with the Company's peer group.

 

 

The table set forth below reconciles the Company's total consolidated debt to adjusted net homebuilding debt and provides the Company's total consolidated debt to book capitalization and adjusted net homebuilding debt to total adjusted book capitalization ratios.  In addition, the table set forth below calculates homebuilding debt to adjusted homebuilding EBITDA.  We believe these ratios are useful to management and investors as a measure of the Company's ability to obtain financing.  For purposes of the ratio of adjusted net homebuilding debt to total adjusted book capitalization, total adjusted book capitalization is adjusted net homebuilding debt plus stockholders' equity.  Adjusted net homebuilding debt excludes indebtedness of the Company's financial services subsidiary and additionally reflects the offset of cash and equivalents.

 

 

The table set forth below calculates adjusted stockholders' equity per common share, after giving effect to the 1-for-5 reverse stock split.  The Company believes that the adjusted stockholders' equity per common share information is useful to management and investors as a measure to determine the book value per common share after giving the pro forma effect to the conversion of our outstanding preferred shares assuming full conversion to common stock.

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Continued)

 

The table set forth below calculates EBITDA and Adjusted Homebuilding EBITDA.  Adjusted Homebuilding EBITDA means net income (plus cash distributions of income from unconsolidated joint ventures) before (a) income taxes, (b) homebuilding interest expense (c) expensing of previously capitalized interest included in cost of sales, (d) impairment charges and deposit write-offs, (e) (gain) loss on early extinguishment of debt (f) homebuilding depreciation and amortization, including amortization of capitalized model costs, (g) amortization of stock-based compensation, (h) income (loss) from unconsolidated joint ventures and (i) income (loss) from financial services subsidiaries.  Other companies may calculate Adjusted Homebuilding EBITDA (or similarly titled measures) differently.  We believe Adjusted Homebuilding EBITDA information is useful to management and investors as one measure of the Company's ability to service debt and obtain financing.  Adjusted Homebuilding EBITDA is a non-GAAP financial measure and due to the significance of the GAAP components excluded, should not be considered in isolation or as an alternative to net income, cash flow from operations or any other operating or liquidity performance measure prescribed by GAAP.

 

			Three Months Ended									LTM Ended September 30,
			September 30, 2015			September 30, 2014			June 30, 2015			2015			2014
			(Dollars in thousands)
Net income			$	47,177		$	56,599		$	57,198		$	200,624		$	216,041
	Provision for income taxes			31,117			35,522			32,324			120,070			130,566
	Homebuilding interest amortized to cost of sales and interest expense			33,323			28,959			36,563			131,878			116,667
	Homebuilding depreciation and amortization			7,368			6,849			8,964			30,691			25,656
	Amortization of stock-based compensation			3,536			2,505			2,389			9,353			10,095
EBITDA				122,521			130,434			137,438			492,616			499,025
Add:
	Cash distributions of income from unconsolidated joint ventures			―			―			592			592			1,875
Less:
	Income (loss) from unconsolidated joint ventures			121			557			(51)			(707)			(642)
	Income from financial services subsidiaries			2,847			2,506			2,818			9,345			8,620
Adjusted Homebuilding EBITDA			$	119,553		$	127,371		$	135,263		$	484,570		$	492,922
Homebuilding revenues			$	652,190		$	604,849		$	699,632		$	2,575,744		$	2,263,985
Adjusted Homebuilding EBITDA Margin %				18.3%			21.1%			19.3%			18.8%			21.8%

The table set forth below reconciles net cash provided by (used in) operating activities, calculated and presented in accordance with GAAP, to Adjusted Homebuilding EBITDA:

 

RYLAND REGIONAL OPERATING DATA

 

On October 1, 2015, Ryland merged with and into the Company, with the Company continuing as the surviving corporation.  The following operating data for Ryland has been provided as we believe this data is useful to investors for purposes of assessing the Company's operating performance on a combined basis.  As noted above, during the 2015 third quarter, in connection with the transition planning related to the Merger, the Company began evaluating the business and allocating resources based on the post-merger homebuilding operating segments of CalAtlantic. Ryland's regional operating data presented below is grouped into CalAtlantic's four reportable segments: North (Baltimore, Chicago, Delaware, Indianapolis, Metro Washington, D.C., Minneapolis/St. Paul, New Jersey, Northern Virginia, Philadelphia and Atlanta); Southeast (Florida and the Carolinas); Southwest (Texas, Colorado and Nevada) and West (California and Arizona).  All prior periods have been restated to conform to CalAtlantic's new presentation.