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UCP Reports Third Quarter 2016 Results

- Delivered Net Income of $0.16 Per Share, Including $0.09 of Net One-time Expenses -

- Revenue from Homebuilding Operations Increased 27.8% to $89.8 million -

- Net New Home Orders Grew 14.4% to 247 -

- Homes in Backlog Grew 34.4% to 387 homes with a value of $157.2 million -

- Repurchased $1.0 million of Class A Common Stock since June 2016 -

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 31, 2016-- UCP, Inc. (NYSE:UCP) today announced its results of operations for the three months ended September 30, 2016.

Third Quarter 2016 Highlights Compared to Third Quarter 2015

  • Net income was $3.1 million, including $2.0 million of net one-time expenses
  • Total consolidated revenue grew 27.2% to $93.7 million
  • Revenue from homebuilding operations increased 27.8% to $89.8 million
  • Selling, general and administrative expense as a percentage of total revenue improved to 10.1%, including 260bp benefit from a reduction in contingent consideration, compared to 13.9%
  • Net new home orders grew 14.4% to 247
  • Backlog on a dollar basis increased 30.1% to $157.2 million

Dustin Bogue, President and Chief Executive Officer of UCP, stated, “We delivered another consecutive quarter of profitability representing strong revenue momentum, continued discipline which equates to improved core operating margins and the ongoing transformation of our business to improve returns on equity. We were especially pleased to produce $0.16 of earnings per share while recording a $0.09 net charge related to our Citizens Homes acquisition (“Citizens Acquisition”). In the West, we are capitalizing on sustained demand for our high-quality communities. In the Southeast, we are recovering from weather-related construction delays, with our Southeast backlog up 65% on a dollar basis compared to the prior year period. As we look to the fourth quarter 2016, we are on track to accomplish our full year goals and confident in the positive steps we are taking to further improve our profitability and returns into 2017."

Third Quarter 2016 Operating Results

Net income was $3.1 million, compared to $3.8 million in the prior year period. Net income attributable to shareholders of UCP was $1.3 million, or $0.16 per share, compared to net income attributable to shareholders of UCP of $1.6 million, or $0.21 per share, in the prior year period. Net income in the third quarter 2016 included an impairment charge to goodwill related to the Citizens Acquisition of approximately $4.2 million. Net income in the third quarter 2016 also included a benefit from the reduction in carrying value of the contingent consideration relating to the Citizens Acquisition by $2.4 million to approximately $0.3 million. The net result of these adjustments was approximately $1.8 million of increased expense, representing $0.09 per share of net income attributable to shareholders of UCP, for the three months ended September 30, 2016.

Revenue from homebuilding operations grew 27.8% to $89.8 million, compared to $70.3 million for the prior year period. The improvement was driven by a 29.6% increase in the average selling price for home sales to approximately $451,000, compared to approximately $348,000 during the prior year period. The increase in average selling price was a result of a greater mix of homes delivered from the West along with core price gains. The number of homes delivered decreased slightly to 199, compared to 202 during the prior year period, mainly attributable to weather-related construction delays in the Southeast.

Homebuilding gross margin percentage was 18.5%, compared to 18.9% in the prior year period. Adjusted homebuilding gross margin percentage was 21.0%, compared to 21.1% in the prior year period, due primarily to an unfavorable mix impact in connection with the closing out of the Company’s two remaining communities in Bakersfield, California. Consolidated gross margin percentage was 17.8%, compared to 19.0% in the prior year period, in part due to the sale of previously impaired land in Bakersfield, California.

Sales and marketing expense was $4.9 million, compared to $4.7 million in the prior year period. As a percentage of total revenue, sales and marketing expense decreased to 5.2%, compared to 6.4% in the prior year period, due to significant cost controls as well as higher overall revenues.

General and administrative expense was $4.6 million, compared to $5.5 million in the prior year period. General and administrative expense in the third quarter 2016 included the $2.4 million benefit from the reduction in carrying value of the contingent consideration obligation relating to the Citizens Acquisition. As a percentage of total revenue, general and administrative expense was 4.9%, down from 7.5% for the prior year period. Excluding the benefits from the reduction in contingent consideration recorded in both the third quarter of 2016 and 2015, general and administrative expense as a percentage of revenue for the third quarter 2016 would have been 7.5% as compared to 8.6% in the prior year period.

Net new home orders increased 14.4% to 247, compared to 216 the prior year period. Net new home orders in the West grew 19.3% to 161, compared to the prior year period helped by stronger market demand. Net new home orders in the Southeast grew 6.2% to 86, compared to the prior year period, primarily reflecting a community opening in Nashville, Tennessee. Unit backlog at the end of the quarter was up 34.4% to 387, compared to 288 at the end of the prior year period. The backlog on a dollar basis increased 30.1% to $157.2 million, compared to $120.8 million at the end of prior year period.

Total lots owned and controlled were 5,484, compared to 5,878 at December 31, 2015 as the Company continues to prudently manage its inventory and strive to expand its return on equity and assets.

Stock Repurchase Program

In June 2016, the Company’s board of directors authorized a stock repurchase program, under which the Company may repurchase up to $5.0 million of its Class A common stock through June 1, 2018. As of September 30, 2016, the Company repurchased 123,636 shares of Class A common stock for approximately $1.0 million under this stock repurchase program.

Webcast and Conference Call

The Company will host a conference call for investors and other interested parties on Monday, October 31, 2016 at 12:00 p.m. Eastern Time, 9:00 a.m. Pacific Time. Interested parties can listen to the call live on the Internet and locate accompanying presentation slides through the Investor Relations section of the Company’s website at www.unioncommunityllc.com.

Listeners are advised to log on to the website at least 15 minutes prior to the call to download and / or install any necessary audio software. The conference call can also be accessed by dialing 1-877-407-3982 for domestic participants or 1-201-493-6780 for international participants. Participants should ask for the UCP Second Quarter 2016 Earnings Conference Call. Those dialing in should do so at least ten minutes prior to the start of the conference call. A replay of the conference call will be available through November 30, 2016, by dialing 1-877-870-5176 for domestic participants or 1-858-384-5517 for international participants and entering the pass code 13646894. An archive of the webcast will be available on the Company’s website for a limited time.

About UCP, Inc.

UCP is a leading homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales. UCP operates in the States of California, Washington, North Carolina, South Carolina and Tennessee. UCP designs and builds high-quality, sustainable single-family homes for a variety of lifestyles and budgets through its wholly-owned subsidiary, Benchmark Communities, LLC. The Benchmark Communities brand is recognized by homebuyers for its high-quality construction and craftsmanship, cutting-edge home design and customer-centric service and warranty programs.

Forward-Looking Statements

This press release contains forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control. Forward-looking statements include information concerning the Company's possible or assumed future results of operations, including descriptions of the Company's business strategy. These statements often include words such as "may," “might,” "will," "should," “expects,” “plans,” "anticipates," “believes,” “estimates,” “predicts,” “potential,” “project,” “goal” "intend," or “continue,” or similar expressions. These statements are based on assumptions that the Company has made in light of its experience in the industry as well as its perceptions of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Although the Company believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance they will prove to be correct. Therefore, you should be aware that many factors could affect the Company's actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Any forward-looking statement made by the Company herein, or elsewhere, speaks only as of the date on which it was made. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws.

Homebuilding adjusted gross margin, land development adjusted gross margin and net debt to capital are non-GAAP financial measures. A reconciliation to the most comparable U.S. GAAP financial measures is presented in Appendix A hereto.

 
UCP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except shares and per share data)

 

   
September 30, December 31,
2016 2015
Assets
Cash and cash equivalents $ 27,586 $ 39,829
Restricted cash 900 900
Real estate inventories 381,703 360,989
Fixed assets, net 966 1,314
Intangible assets, net 122 236
Goodwill

-

4,223
Receivables 4,512 1,317
Other assets 6,403   5,889  
Total assets $ 422,192   $ 414,697  
 
Liabilities and equity
Accounts payable $ 21,714 $ 14,882
Accrued liabilities 22,719 24,616
Customer deposits 2,502 1,825
Notes payable, net 83,663 82,486
Senior notes, net 74,122   73,480  
Total liabilities 204,720   197,289  
 
Commitments and contingencies (Note 11)
 
Equity
Preferred stock, par value $0.01 per share, 50,000,000 authorized, no shares issued and outstanding as of September 30, 2016; no shares issued and outstanding as of December 31, 2015

-

-

Class A common stock, $0.01 par value; 500,000,000 authorized, 8,034,831 issued and 7,911,195 outstanding as of September 30, 2016; 8,014,434 issued and outstanding as of December 31, 2015 80 80
Class B common stock, $0.01 par value; 1,000,000 authorized, 100 issued and outstanding as of September 30, 2016; 100 issued and outstanding as of December 31, 2015

-

-

Additional paid-in capital 96,892 94,683
Treasury stock at cost; 123,636 shares as of September 30, 2016; none as of December 31, 2015 (1,000 )

-

Accumulated deficit (2,476 ) (4,563 )
Total UCP, Inc. stockholders’ equity 93,496   90,200  
Noncontrolling interest 123,976   127,208  
Total equity 217,472   217,408  
Total liabilities and equity $ 422,192   $ 414,697  
 
   
 
UCP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME OR LOSS
(Unaudited)
(In thousands, except shares and per share data)
 
Three Months Ended September 30, Nine months ended September 30,
2016   2015 2016   2015
REVENUE:
Homebuilding $ 89,840 $ 70,284 $ 239,480 $ 163,705
Land development 3,900 1,116 5,322 3,156
Other revenue

-

  2,272  

-

  5,060  
Total revenue: 93,740   73,672   244,802   171,921  
 
COSTS AND EXPENSES:
Cost of sales - homebuilding 72,984 57,006 195,561 134,744
Cost of sales - land development 3,834 716 4,519 2,264
Cost of sales - other revenue

-

1,958

-

4,363
Impairment on real estate 192  

-

  2,589  

-

 
Total cost of sales 77,010   59,680   202,669   141,371  
Gross margin - homebuilding 16,856 13,278 43,919 28,961
Gross margin - land development 66 400 803 892
Gross margin - other revenue

-

314 0 697
Gross margin - impairment on real estate (192 )

-

  (2,589 )

-

 
Sales and marketing 4,853 4,692 13,595 13,246
General and administrative 4,592   5,539   19,101   19,311  
Goodwill impairment 4,223  

-

  4,223  

-

 
Total costs and expenses 90,678   69,911   239,588   173,928  
Income (loss) from operations 3,062 3,761 5,214 (2,007 )
Other income, net 204   45   253   177  
Net income (loss) before income taxes $ 3,266 $ 3,806 $ 5,467 $ (1,830 )
Provision for income taxes (124 )

-

  (271 )

-

 
Net income (loss) $ 3,142   $ 3,806   $ 5,196   $ (1,830 )
Net income (loss) attributable to noncontrolling interest $ 1,857 $ 2,167 $ 3,109 $ (961 )
Net income (loss) attributable to UCP, Inc. 1,285 1,639 2,087 (869 )
Other comprehensive income (loss), net of tax

-

 

-

 

-

 

-

 
Comprehensive income (loss) $ 3,142   $ 3,806   $ 5,196   $ (1,830 )
Comprehensive income (loss) attributable to noncontrolling interest $ 1,857   $ 2,167   $ 3,109   $ (961 )
Comprehensive income (loss) attributable to UCP, Inc. $ 1,285   $ 1,639   $ 2,087   $ (869 )
 
Earnings (loss) per share of Class A common stock:
Basic $ 0.16   $ 0.21   $ 0.26   $ (0.11 )
Diluted $ 0.16   $ 0.20   $ 0.26   $ (0.11 )
 
Weighted average shares of Class A common stock:
Basic 7,948,268   7,995,934   7,993,371   7,950,700  
Diluted 7,986,416   8,017,768   8,043,830   7,950,700  
 
 
UCP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine months ended September 30,
2016   2015
Operating activities
Net income (loss) $ 5,196 $ (1,830 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation 743 1,572
Abandonment charges 505 146
Impairment on real estate inventories 2,589

-

Depreciation and amortization 492 463
Goodwill impairment 4,223

-

Fair value adjustment of contingent consideration (2,400 ) (818 )
Changes in operating assets and liabilities:
Real estate inventories (23,067 ) (60,715 )
Receivables (3,195 ) 307
Other assets (411 ) (2,389 )
Accounts payable 6,832 14,732
Accrued liabilities 302 (4,360 )
Customer deposits 677 1,125
Income taxes payable 202  

-

 
Net cash used in operating activities (7,312 ) (51,767 )
Investing activities
Purchases of fixed assets (117 ) (311 )
Net cash used in investing activities (117 ) (311 )
Financing activities
Distribution to noncontrolling interest (4,830 ) (981 )
Proceeds from notes payable 106,663 112,595
Repayment of notes payable (105,488 ) (77,895 )
Debt issuance costs (114 ) (698 )
Repurchase of common stock (1,000 )

-

Withholding taxes paid for vested RSUs (45 ) (370 )
Net cash (used by) provided by financing activities (4,814 ) 32,651  
Net decrease in cash and cash equivalents (12,243 ) (19,427 )
Cash and cash equivalents – beginning of period 39,829   42,033  
Cash and cash equivalents – end of period $ 27,586   $ 22,606  
 
Non-cash investing and financing activity
Exercise of land purchase options acquired with acquisition of business $ 74 $ 160
Issuance of Class A common stock for vested restricted stock units $ 189 $ 680
 
Supplemental cash flow information
Income taxes paid $ 69 $

-

 
 

Appendix A

 

Select Operating Data by Region

   
Three months ended September 30, Nine months ended September 30,
    %     %
2016 2015 Change 2016 2015 Change
Revenue from Homebuilding Operations (in thousands)
West $ 79,500 $ 51,464 54.5 % $ 204,273 $ 120,438 69.6 %
Southeast $ 10,340   $ 18,820   (45.1 )% $ 35,207   $ 43,267   (18.6 )%
Total $ 89,840 $ 70,284 27.8 % $ 239,480 $ 163,705 46.3 %
 
Homes Delivered
West 155 120 29.2 % 413 283 45.9 %
Southeast 44   82   (46.3 )% 150   195   (23.1 )%
Total 199 202 (1.5 )% 563 478 17.8 %
 
Average Selling Price for Home Sales (in thousands)
West $ 513 $ 429 19.6 % $ 495 $ 426 16.2 %
Southeast $ 235   $ 230   2.2 % $ 235   $ 222   5.9 %
Total $ 451 $ 348 29.6 % $ 425 $ 342 24.3 %
 
Net New Home Orders
West 161 135 19.3 % 502 430 16.7 %
Southeast 86   81   6.2 % 199   246   (19.1 )%
Total 247 216 14.4 % 701 676 3.7 %
 
Average Selling Communities
West 18 19 (5.3 )% 18 17 5.9 %
Southeast 11   9   22.2 % 10   10  

-

%
Total 29 28 3.6 % 28 27 3.7 %
 
Backlog Units
West 274 208 31.7 %
Southeast 113   80   41.3 %
Total 387 288 34.4 %
 
Backlog Dollar Basis (in thousands)
West $ 126,755 $ 102,395 23.8 %
Southeast $ 30,421   $ 18,439   65.0 %
Total $ 157,176 $ 120,834 30.1 %
 
Owned Lots
West 3,495 4,153 (15.8 )%
Southeast 866   941   (8.0 )%
Total 4,361 5,094 (14.4 )%
 
Controlled Lots
West 303 415 (27.0 )%
Southeast 820   728   12.6 %
Total 1,123 1,143 (1.7 )%
 
 

Appendix B

 

Reconciliation of GAAP and Non-GAAP Measures

 
Gross Margin and Adjusted Gross Margin
 
Three Months Ended September 30,
2016   %   2015   %
($ in thousands)
Consolidated Gross Margin & Adjusted Gross Margin
Revenue $ 93,740 100.0 % $ 73,672 100.0 %
Cost of Sales 77,010   82.2 % 59,680   81.0 %
Gross Margin 16,730 17.8 % 13,992 19.0 %
Add: interest in cost of sales 2,214 2.4 % 1,443 2.0 %
Add: impairment and abandonment charges 223   0.2 % 144   0.2 %
Adjusted Gross Margin(1) $ 19,167   20.4 % $ 15,579   21.1 %
Consolidated Gross margin percentage 17.8 % 19.0 %
Consolidated Adjusted gross margin percentage(1) 20.4 % 21.1 %
 
Homebuilding Gross Margin & Adjusted Gross Margin
Homebuilding revenue $ 89,840 100.0 % $ 70,284 100.0 %
Cost of home sales 73,176   81.5 % 57,006   81.1 %
Homebuilding gross margin 16,664 18.5 % 13,278 18.9 %
Add: interest in cost of home sales 1,990 2.2 % 1,443 2.1 %
Add: impairment and abandonment charges 192   0.2 % 119   0.2 %
Adjusted homebuilding gross margin(1) $ 18,846   21.0 % $ 14,840   21.1 %
Homebuilding gross margin percentage 18.5 % 18.9 %
Adjusted homebuilding gross margin percentage(1) 21.0 % 21.1 %
 
Land Development Gross Margin & Adjusted Gross Margin
Land development revenue $ 3,900 100.0 % $ 1,116 100.0 %
Cost of land development 3,834   98.3 % 716   64.2 %
Land development gross margin 66 1.7 % 400 35.8 %
Add: interest in cost of land development 224 5.7 %

-

-

%
Add: Impairment and abandonment charges 31   0.8 % 25   2.2 %
Adjusted land development gross margin(1) $ 321   8.2 % $ 425   38.1 %
Land development gross margin percentage 1.7 % 35.8 %
Adjusted land development gross margin percentage(1) 8.2 % 38.1 %
 
Other Revenue Gross and Adjusted Margin
Revenue $

-

-

% $ 2,272 100.0 %
Cost of revenue

-

 

-

% 1,958   86.2 %
Other revenue gross and adjusted margin $

-

 

-

% $ 314   13.8 %
Other revenue gross and adjusted margin percentage

-

% 13.8 %
 
 
Nine months ended September 30,
2016   %   2015   %
($ in thousands)
Consolidated Gross Margin & Adjusted Gross Margin
Revenue $ 244,802 100.0 % $ 171,921 100.0 %
Cost of Sales 202,669   82.8 % 141,371   82.2 %
Gross Margin 42,133 17.2 % 30,550 17.8 %
Add: interest in cost of sales 5,689 2.3 % 3,416 2.0 %
Add: impairment and abandonment charges 3,094   1.3 % 146   0.1 %
Adjusted Gross Margin(1) $ 50,916   20.8 % $ 34,112   19.8 %
Consolidated Gross margin percentage 17.2 % 17.8 %
Consolidated Adjusted gross margin percentage(1) 20.8 % 19.8 %
 
Homebuilding Gross Margin & Adjusted Gross Margin
Homebuilding revenue $ 239,480 100.0 % $ 163,705 100.0 %
Cost of home sales 196,019   81.9 % 134,744   82.3 %
Homebuilding gross margin 43,461 18.1 % 28,961 17.7 %
Add: interest in cost of home sales 5,319 2.2 % 3,367 2.1 %
Add: impairment and abandonment charges 458   0.2 %

-

 

-

%
Adjusted homebuilding gross margin(1) $ 49,238   20.6 % $ 32,328   19.7 %
Homebuilding gross margin percentage 18.1 % 17.7 %
Adjusted homebuilding gross margin percentage(1) 20.6 % 19.7 %
 
Land Development Gross Margin & Adjusted Gross Margin
Land development revenue $ 5,322 100.0 % $ 3,156 100.0 %
Cost of land development 6,650   125.0 % 2,264   71.7 %
Land development gross margin (1,328 ) (25.0 )% 892 28.3 %
Add: interest in cost of land development 370 7.0 % 49 1.6 %
Add: Impairment and abandonment charges 2,636   49.5 % 146   4.6 %
Adjusted land development gross margin(1) $ 1,678   31.5 % $ 1,087   34.4 %
Land development gross margin percentage (25.0 )% 28.3 %
Adjusted land development gross margin percentage(1) 31.5 % 34.4 %
 
Other Revenue Gross and Adjusted Margin
Revenue $

-

-

% $ 5,060 100.0 %
Cost of revenue

-

 

-

% 4,363   86.2 %
Other revenue gross and adjusted margin $

-

 

-

% $ 697   13.8 %
Other revenue gross and adjusted margin percentage

-

% 13.8 %

* Percentages may not add due to rounding.

(1)   Adjusted gross margin, adjusted homebuilding gross margin and adjusted land development gross margin are non-GAAP financial measures. These metrics have been adjusted to add back capitalized interest, and impairment and abandonment charges. We use adjusted gross margin information as a supplemental measure when evaluating our operating performance. We believe this information is meaningful, because it isolates the impact that leverage and non-cash impairment and abandonment charges have on gross margin. However, because adjusted gross margin information excludes interest expense and impairment and abandonment charges, all of which have real economic effects and could materially impact our results, the utility of adjusted gross margin information as a measure of our operating performance is limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. The table above provides a reconciliation of adjusted gross margin numbers to the most comparable GAAP financial measure.
   

Debt-to-Capital Ratio and Net Debt-to-Capital Ratio

 
As of September 30, 2016 As of December 31, 2015
Debt $ 157,785 $ 155,966
Equity 217,472   217,408  
Total capital $ 375,257 $ 373,374
Ratio of debt-to-capital 42.0 % 41.8 %
Debt $ 157,785 $ 155,966
 
Net cash and cash equivalents $ 28,486 $ 40,729
Less: restricted cash and minimum liquidity requirement 15,900   15,900  
Unrestricted cash and cash equivalents $ 12,586   $ 24,829  
   
Net debt $ 145,199 $ 131,137
Equity 217,472   217,408  
Total adjusted capital $ 362,671 $ 348,545
Ratio of net debt-to-capital (1) 40.0 % 37.6 %
 
(1)   The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents, including restricted cash balance requirements) by the sum of net debt plus stockholders’ and member's equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We reconcile this non-GAAP financial measure to the ratio of debt-to-capital in the table above. The Company’s calculation of net debt-to-capital ratio might not be comparable with other issuers or issuers in other industries.

Source: UCP, Inc.

Investor Relations:
408-207-9499 Ext. 476
Investorrelations@unioncommunityllc.com
or
Media:
Phil Denning/Jason Chudoba
Phil.denning@icrinc.com / Jason.chudoba@icrinc.com