AVHI Achari Ventures Holdings Corporation I

Second Quarter 2018 Highlights - as compared to the prior year second quarter (unless otherwise noted)

AV Homes, Inc. (Nasdaq:AVHI), a developer and builder of residential communities in Florida, the Carolinas, Arizona and Texas, today announced results for its second quarter ended June 30, 2018.  Total revenue for the second quarter of 2018 increased 1.2% to $203.6 million from $201.2 million in the second quarter of 2017.  Net income and diluted earnings per share increased to $3.0 million and $0.13 per share, respectively, compared to net income of $0.6 million and $0.03 per share in the second quarter of 2017.  The second quarter of 2017 results included a $2.9 million pre-tax charge for debt extinguishment costs for the partial tender of the Company’s 8.50% Senior Notes.

The increase in total revenue for the second quarter of 2018 compared to the prior year period included a 0.9% increase in homebuilding revenue to $198.7 million.  The increase in homebuilding revenue was primarily driven by increases in average selling prices.  During the second quarter of 2018, the Company delivered 592 homes, comparable to the 595 homes delivered during the second quarter of 2017, and the average unit price per closing improved 1.5% to approximately $336,000 from approximately $331,000 in the second quarter of 2017 due to price increases and improvements in the mix of homes sold.

Homebuilding gross margin was 17.4% in the second quarter of 2018, comparable to the 17.4% in the second quarter of 2017 with margin improvement in Florida and Arizona being offset by lower margins in the Carolinas and the 10 basis point negative impact from the purchase accounting for Oakdale-Hampton Homes in Dallas.  Homebuilding gross margin is inclusive of the impact associated with the expensing of previously capitalized interest of 2.5% and 2.8% in the 2018 and 2017 periods, respectively.

Total SG&A expense as a percent of homebuilding revenue increased to 14.5% in the second quarter of 2018 from 13.7% in the second quarter of 2017.  Homebuilding SG&A expense as a percentage of homebuilding revenue increased to 11.9% in the second quarter of 2018 from 11.2% in the second quarter of 2017.  The increase was primarily due to the initial SG&A investment in Dallas as we increase the communities with deliveries from six at the beginning of the year to an estimated 16 communities by the end of the year.  Corporate general and administrative expenses as a percentage of homebuilding revenue remained flat at 2.5% in the second quarter of 2018 compared to the same period a year ago.

The number of new housing contracts signed, net of cancellations, during the three months ended June 30, 2018 decreased 10.3% to 620 units, compared to 691 units during the same period in 2017.  The average sales price on contracts signed in the second quarter of 2018 increased 5.6% to approximately $342,000 from approximately $324,000 in the second quarter of 2017.  The aggregate dollar value of the contracts signed during the second quarter decreased 5.3% to $211.8 million, compared to $223.7 million during the same period one year ago.  The backlog value of homes under contract but not yet closed as of June 30, 2018 increased 3.4% to $365.3 million on 1,092 units, compared to $353.4 million on 1,070 units as of June 30, 2017.

Definitive Merger Agreement with Taylor Morrison Home Corporation

On June 7, 2018, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Taylor Morrison Home Corporation, (“Taylor Morrison”).  Subject to the terms and conditions set forth in the Merger Agreement, each issued and outstanding share of common stock of AV Homes will be converted into the right to receive (A) 0.9793 shares of Taylor Morrison Class A common stock (“Taylor Morrison Shares”); (B) $21.50 in cash; or (C) $12.64 in cash, and 0.4034 Taylor Morrison Shares.   The cash election and stock election are subject to adjustment pursuant to the terms of the Merger Agreement such that the aggregate consideration will consist of approximately 58.8% cash and approximately 41.2% Taylor Morrison Shares.  The completion of the transaction is subject to customary closing conditions.

As a result of the Company’s entry into the Merger Agreement with Taylor Morrison, the Company will not be hosting a conference call or webcast to discuss its financial results for the second quarter ended June 30, 2018.

About AV Homes, Inc.

AV Homes, Inc. is engaged in homebuilding and community development in Florida, the Carolinas, Arizona and Texas. Its principal operations are conducted in the greater Orlando, Jacksonville, Charlotte and Raleigh, Phoenix and Dallas-Fort-Worth markets. The Company builds communities that serve both active adults (55 years and older) as well as people of all ages. AV Homes common shares trade on NASDAQ under the symbol AVHI. For more information, visit www.avhomesinc.com.

This news release and the Investor Presentation posted to our website contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the cyclical nature of the homebuilding industry and its dependence on broader economic conditions; availability and suitability of undeveloped land and improved lots; ability to develop communities within expected timeframes; increases in interest rates and availability of mortgage financing; the impact of the Tax Cuts and Jobs Act on homebuyer demand; elimination or reduction of tax benefits associated with home ownership; the prices and supply of building materials; the availability and skill of subcontractors; our ability to successfully integrate acquired businesses; effect of our expansion efforts on our cash flows and profitability; competition for home buyers, properties, financing, raw materials and skilled labor; our ability to access sufficient capital; our ability to generate sufficient cash to service our indebtedness; terms of our financing documents that may restrict our operations and corporate actions; fluctuations in interest rates; our current level of indebtedness and potential need for additional financing; our ability to purchase outstanding notes upon certain fundamental changes; our ability to obtain letters of credit and surety bonds; cancellations of home sale orders; the geographic concentration of our operations; inflation affecting homebuilding costs or deflation affecting declines in spending and borrowing levels; warranty and construction defect claims; health and safety incidents in homebuilding activities; the seasonal nature of our business; impacts of weather conditions and natural disasters; resource shortages and rate fluctuations; value and costs related to our land and lot inventory; overall market supply and demand for new homes; our ability to recover our costs in the event of reduced home sales; conflicts of interest involving our largest stockholder; contractual restrictions under a stockholders agreement with our largest stockholder; dependence on our senior management; effects of government regulation of development and homebuilding projects; development liabilities that may impose payment obligations on us; our ability to utilize our deferred income tax asset; impact of environmental changes and governmental actions in response to environmental changes; dependence on digital technologies and related cyber risks; future sales or dilution of our equity; impairment of intangible assets; and other factors described in our most recent Annual Report on Form 10-K for and our other filings with the Securities and Exchange Commission, which filings are available on www.sec.gov. In addition, material risks that could cause actual results to differ from forward-looking statements include: the integration of Taylor Morrison and AV Homes and the ability to recognize the anticipated benefits from the combination of Taylor Morrison and AV Homes; the risk associated with AV Homes’ ability to obtain the shareholder approval required to consummate the merger and the timing of the closing of the merger, including the risk that the conditions to the transaction are not satisfied on a timely basis or at all and the failure of the transaction to close for any other reason; the outcome of any legal proceedings that may be instituted against the parties and others related to the merger agreement; unanticipated difficulties or expenditures relating to the transaction, the response of business partners and retention as a result of the announcement and pendency of the transaction; risks relating to the value of the Taylor Morrison common stock to be issued in connection with the transaction; the anticipated size of the markets and continued demand for Taylor Morrison’s and AV Homes’ homes and the impact of competitive responses to the announcement of the transaction; access to available financing on a timely basis and on reasonable terms.  Forward-looking statements are based on the expectations, estimates, or projections of management as of the date of this news release and the Investor Presentation. AV Homes disclaims any intention or obligation to update or revise any forward-looking statements to reflect subsequent events and circumstances, except to the extent required by applicable law.

Additional Information about the Merger and Where to Find It:

This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. In connection with the proposed transaction between Taylor Morrison and AV Homes, Taylor Morrison has filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 that includes a preliminary Proxy Statement of AV Homes that also constitutes a preliminary Prospectus of Taylor Morrison (the “Proxy Statement/Prospectus”). AV Homes plans to mail to its shareholders the definitive Proxy Statement/Prospectus in connection with the transaction. INVESTORS AND SECURITY HOLDERS OF AV HOMES ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT TAYLOR MORRISON, AV HOMES, THE TRANSACTION AND RELATED MATTERS. Investors and security holders will be able to obtain free copies of the Proxy Statement/Prospectus and other documents (when available) filed with the SEC by Taylor Morrison and AV Homes through the website maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the documents filed with the SEC by Taylor Morrison in the Investor Relations section of Taylor Morrison’s website at http://investors.taylormorrison.com or by contacting Taylor Morrison’s Investor Relations at investor@taylormorrison.com or by calling (480) 734-2060, and will be able to obtain free copies of the documents filed with the SEC by AV Homes in the Investor Relations section of AV Homes’ website at http://investors.avhomesinc.com or by contacting AV Homes’ Investor Relations at m.burnett@avhomesinc.com or by calling (480) 214-7408.

Participants in the Merger Solicitation

Taylor Morrison, AV Homes and certain of their respective directors, executive officers and employees may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the shareholders of AV Homes in connection with the transaction, including a description of their respective direct or indirect interests, by security holdings or otherwise, is included in the Proxy Statement/Prospectus described above filed with the SEC. Additional information regarding Taylor Morrison’s directors and executive officers is also included in Taylor Morrison’s proxy statement for its 2018 Annual Meeting of Shareholders, which was filed with the SEC on April 17, 2018, or its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 21, 2018, and information regarding AV Homes’ directors and executive officers is also included in AV Homes’ proxy statement for its 2018 Annual Meeting of Stockholders, which was filed with the SEC on April 18, 2018, or its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 23, 2018. These documents are available free of charge as described above.

Investor Contact:        

Mike BurnettEVP, Chief Financial Officer480-214-7408m.burnett@avhomesinc.com 

AV HOMES, INC. AND SUBSIDIARIESUnaudited Consolidated Statements of Operations and Comprehensive Income(in thousands, except per share data)
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Revenues
Homebuilding		$	198,656			$	196,884			$	343,801			$	345,544
Amenity and other			4,289				4,125				9,107				8,762
Land sales			615				185				2,660				2,436
Total revenues			203,560				201,194				355,568				356,742
Expenses
Homebuilding cost of revenue			164,055				162,600				285,032				285,465
Amenity and other			4,106				3,566				9,350				7,896
Land sales			207				180				438				1,162
Total real estate expenses			168,368				166,346				294,820				294,523
Selling, general and administrative expenses			28,718				27,014				54,233				49,385
Interest income and other			(581	)			(253	)			(850	)			(258	)
Interest expense			3,012				3,685				6,403				4,522
Loss on extinguishment of debt			—				2,933				—				2,933
Total expenses			199,517				199,725				354,606				351,105
Income before income taxes			4,043				1,469				962				5,637
Income tax expense			1,044				822				306				2,551
Net income		$	2,999			$	647			$	656			$	3,086
Basic earnings per share		$	0.13			$	0.03			$	0.03			$	0.14
Basic weighted average shares outstanding			22,584				22,487				22,577				22,479
Diluted earnings per share		$	0.13			$	0.03			$	0.03			$	0.14
Diluted weighted average shares outstanding			22,925				22,800				22,908				22,785

 

AV HOMES, INC. AND SUBSIDIARIESUnaudited Consolidated Balance Sheets(in thousands)
		June 30,				December 31,
		2018				2017
Assets		(unaudited)
Cash and cash equivalents		$	115,978			$	240,990
Restricted cash			1,794				1,165
Receivables			4,366				13,702
Land and other inventories			731,552				603,851
Property and equipment, net			39,948				32,664
Prepaid expenses and other assets			21,693				17,117
Deferred tax assets, net			70,079				70,365
Goodwill			39,023				30,290
Total assets		$	1,024,433			$	1,010,144
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable		$	40,542			$	35,810
Accrued and other liabilities			33,418				29,193
Customer deposits			13,730				9,507
Estimated development liability			31,363				31,556
Senior debt, net			473,086				472,108
Total liabilities			592,139				578,174
Stockholders’ Equity
Common stock, par value $1 per share			22,472				22,475
Additional paid-in capital			406,292				404,859
Retained earnings			6,549				7,655
			435,313				434,989
Treasury stock			(3,019	)			(3,019	)
Total stockholders’ equity			432,294				431,970
Total liabilities and stockholders’ equity		$	1,024,433			$	1,010,144

 

AV HOMES, INC. AND SUBSIDIARIESUnaudited Supplemental Information(in thousands)
The following table represents a reconciliation of the net income and weighted average shares outstanding for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2018 and 2017:
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2018			2017			2018			2017
Numerator:
Basic net income		$	2,999		$	647		$	656		$	3,086
Effect of dilutive securities			—			—			—			—
Diluted net income		$	2,999		$	647		$	656		$	3,086
Denominator:
Basic weighted average shares outstanding			22,584			22,487			22,577			22,479
Effect of dilutive securities			341			313			331			306
Diluted weighted average shares outstanding			22,925			22,800			22,908			22,785
Basic earnings per share		$	0.13		$	0.03		$	0.03		$	0.14
Diluted earnings per share		$	0.13		$	0.03		$	0.03		$	0.14

The following table represents interest incurred, interest capitalized, and interest expense for the three and six months ended June 30, 2018 and 2017:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Interest incurred		$	8,518			$	9,318			$	17,036			$	15,523
Interest capitalized			(5,506	)			(5,633	)			(10,633	)			(11,001	)
Interest expense		$	3,012			$	3,685			$	6,403			$	4,522

The following table represents depreciation and amortization expense and the amortization of previously capitalized interest for the three and six months ended June 30, 2018 and 2017: 

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2018			2017			2018			2017
Depreciation and amortization (1)		$	1,509		$	1,035		$	2,884		$	1,916
Amortization of previously capitalized interest			5,019			5,445			8,820			9,930
(1) Depreciation and amortization does not include the amortization of debt issuance costs, which is recorded in interest expense.

The following table provides a comparison of certain financial data related to our operations for the three and six months ended June 30, 2018 and 2017 (in thousands): 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2018				2017				2018				2017
Operating income:
Florida
Revenues:
Homebuilding		$	74,140			$	79,112			$	132,243			$	149,599
Amenity and other			4,289				4,125				9,107				8,762
Land sales			615				—				2,660				1,469
Total revenues			79,044				83,237				144,010				159,830
Expenses:
Homebuilding cost of revenue			58,540				62,640				103,617				118,634
Homebuilding selling, general and administrative			9,313				9,106				18,415				18,404
Amenity and other			4,088				3,548				9,310				7,855
Land sales			207				—				438				196
Segment operating income		$	6,896			$	7,943			$	12,230			$	14,741
Carolinas
Revenues:
Homebuilding		$	76,119			$	82,517			$	130,023			$	129,362
Land sales			—				—				—				782
Total revenues			76,119				82,517				130,023				130,144
Expenses:
Homebuilding cost of revenue			65,470				70,048				113,633				110,181
Homebuilding selling, general and administrative			8,173				9,140				15,130				14,163
Land sales			—				—				—				786
Segment operating income		$	2,476			$	3,329			$	1,260			$	5,014
Arizona
Revenues:
Homebuilding		$	39,736			$	35,255			$	64,982			$	66,583
Land sales			—				185				—				185
Total revenue			39,736				35,440				64,982				66,768
Expenses:
Homebuilding cost of revenue			32,698				29,912				53,832				56,650
Homebuilding selling, general and administrative			4,269				3,782				7,394				7,153
Amenity and other			18				18				40				41
Land sales			—				180				—				180
Segment operating income		$	2,751			$	1,548			$	3,716			$	2,744
Texas
Revenues:
Homebuilding		$	8,661			$	—			$	16,553			$	—
Total revenue			8,661				—				16,553				—
Expenses:
Homebuilding cost of revenue			7,347				—				13,950				—
Homebuilding selling, general and administrative			1,954				—				3,541				—
Segment operating loss		$	(640	)		$	—			$	(938	)		$	—
Operating income		$	11,483			$	12,820			$	16,268			$	22,499
Unallocated income (expenses):
Interest income and other			581				253				850				258
Corporate general and administrative expenses			(5,009	)			(4,986	)			(9,753	)			(9,665	)
Loss on extinguishment of debt			—				(2,933	)			—				(2,933	)
Interest expense			(3,012	)			(3,685	)			(6,403	)			(4,522	)
Income before income taxes			4,043				1,469				962				5,637
Income tax expense			1,044				822				306				2,551
Net income		$	2,999			$	647			$	656			$	3,086

Data from closings for the Florida, Carolinas, Arizona and Texas segments for the three and six months ended June 30, 2018 and 2017 is summarized as follows (dollars in thousands): 

							Average
		Number					Price
For the three months ended June 30,		of Units		Revenues			Per Unit
2018
Florida		248		$	74,140		$	299
Carolinas		200			76,119			381
Arizona		117			39,736			340
Texas		27			8,661			321
Total		592		$	198,656			336
2017
Florida		268		$	79,112		$	295
Carolinas		220			82,517			375
Arizona		107			35,255			329
Texas		—			—			—
Total		595		$	196,884			331

 

							Average
		Number					Price
For the six months ended June 30,		of Units		Revenues			Per Unit
2018
Florida		445		$	132,243		$	297
Carolinas		345			130,023			377
Arizona		187			64,982			347
Texas		53			16,553			312
Total		1,030		$	343,801			334
2017
Florida		515		$	149,599		$	290
Carolinas		342			129,362			378
Arizona		200			66,583			333
Texas		—			—			—
Total		1,057		$	345,544			327

Data from contracts signed for the Florida, Carolinas, Arizona and Texas segments for the three and six months ended June 30, 2018 and 2017 is summarized as follows (dollars in thousands):

		Gross
		Number				Contracts					Average
		of Contracts				Signed, Net of		Dollar			Price Per
For the three months ended June 30,		Signed		Cancellations		Cancellations		Value			Unit
2018
Florida		259		(28)		231		$	70,843		$	307
Carolinas		215		(15)		200			76,082			380
Arizona		177		(28)		149			50,306			338
Texas		65		(25)		40			14,573			364
Total		716		(96)		620		$	211,804			342
2017
Florida		405		(36)		369		$	108,789		$	295
Carolinas		236		(29)		207			76,768			371
Arizona		141		(26)		115			38,141			332
Texas		—		—		—			—			—
Total		782		(91)		691		$	223,698			324

 

		Gross
		Number				Contracts					Average
		of Contracts				Signed, Net of		Dollar			Price Per
For the six months ended June 30,		Signed		Cancellations		Cancellations		Value			Unit
2018
Florida		614		(59)		555		$	163,561		$	295
Carolinas		481		(49)		432			165,933			384
Arizona		346		(50)		296			98,018			331
Texas		124		(56)		68			26,320			387
Total		1,565		(214)		1,351		$	453,832			336
2017
Florida		807		(75)		732		$	213,835		$	292
Carolinas		441		(49)		392			147,083			375
Arizona		282		(51)		231			77,566			336
Texas		—		—		—			—			—
Total		1,530		(175)		1,355		$	438,484			324

Backlog for the Florida, Carolinas, Arizona and Texas segments as of June 30, 2018 and 2017 is summarized as follows (dollars in thousands):

							Average
		Number		Dollar			Price
As of June 30,		of Units		Volume			Per Unit
2018
Florida		482		$	143,788		$	298
Carolinas		289			110,769			383
Arizona		259			85,308			329
Texas		62			25,406			410
Total		1,092		$	365,271			334
2017
Florida		559		$	165,721		$	296
Carolinas		311			119,262			383
Arizona		200			68,381			342
Texas		—			—			—
Total		1,070		$	353,364			330