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.