HORSHAM, Pa., Dec. 05, 2017 (GLOBE NEWSWIRE) -- Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today announced financial results for its fourth quarter and fiscal year ended October 31, 2017.
Fourth Quarter Financial Highlights (compared to FY 2016’s fourth quarter):
In addition, in the fourth quarter the Company:
Full FY 2017 Financial Highlights (compared to Full FY 2016):
In addition, in Full FY 2017, the Company:
FY 2018 Financial Guidance:
Douglas C. Yearley, Jr., Toll Brothers’ chief executive officer, stated: “Demand has remained healthy across all our demographic segments. We completed FY 2017 with our highest annual contracts and revenues in over a decade. Contracts and revenues for the full fiscal year were up 21% and 12%, respectively. Fourth quarter contracts rose 20% in dollars, our fifth quarter in a row of 20%-or-greater growth. We ended FY 2017 with a $5 billion backlog, up 27% in dollars and 25% in units from one year ago. This should result in strong revenue and earnings per share growth in FY 2018.
“In FY 2017, we reaped the rewards of our geographic diversification strategy, particularly in the west. Acquisitions of builders in Seattle in FY 2011, California in FY 2014 and Boise in FY 2017, as well as quality land purchases across all our western markets, have led to significant growth. California and the West region combined for 47% of our revenues this fourth quarter. In California, our largest region, contracts were up 56% in dollars and 54% in units in our fourth quarter.
“We also benefited from our ongoing product diversification strategy. In addition to continued success in our core, luxury move-up market, we are expanding our active adult product line nationally, have introduced a new millennial-focused product line and continue to develop our Toll Brothers City Living and Apartment Living divisions.
“Our Apartment Living rental business continues to expand across the nation. In addition to our well-established divisions focused on urban and suburban markets in the corridor from metro Washington, D.C. to Boston, we now have teams focused on growth in Los Angeles, San Francisco, San Diego, Phoenix, Dallas and Atlanta and a pipeline totaling over 14,000 units of completed projects, those in construction, under development or in approvals. We have begun to harvest some of the value created under Apartment Living. In FY 2017, we monetized a small portion of the value in two recently developed, now-stabilized properties through a recapitalization, resulting in income of $26.7 million. In FY 2018 and beyond, we expect to continue to grow the income from this business.
“Our City Living high-rise division remains active with its primary focus still on the New York City area, including Manhattan, Brooklyn, Hoboken and Jersey City. In FY 2017, we formed separate joint ventures to develop two new Manhattan high-rise towers with projected costs totaling over $600 million. By forming these joint ventures, we will lower our investment, increase our return on equity, reduce our risk and benefit from attractive construction financing. As of today, we already have 64 contracts and an additional 12 deposits at these two projects.”
Martin P. Connor, Toll Brothers’ chief financial officer, stated: “We have continued to focus on enhancing shareholder value and have implemented a number of initiatives to improve our return on equity. With our strong cash flow generation, we began paying a dividend for the first time in our history in April of FY 2017. Throughout the year, we bought back $291 million of our stock (7.7 million shares) at an average price of $37.81.
“In addition to stock repurchases and the new dividend, we formed capital-efficient City Living, Apartment Living and land joint ventures and reduced the percentage of our owned (versus optioned) land to 65%, down from over 80% two years ago. We have also replaced high-cost debt with both fixed and variable rate lower cost financing which will benefit us for years to come.
“By FYE 2017 we had exceeded our FY 2017 targeted return on beginning stockholders’ equity of 12%, reaching 12.7%. We expect further improvement in FY 2018.
“Subject to our normal caveats regarding forward-looking statements, we offer the following guidance: For full FY 2018, we project revenues of between $6.24 billion and $7.48 billion, compared to $5.81 billion in FY 2017, based on deliveries of between 7,700 and 8,700 units at an average price of between $810,000 and $860,000.
“Adjusted Gross Margin for full FY 2018 is expected to be between 23.75% and 24.25% of revenues, while SG&A is projected to be approximately 10.0% of revenues. Other income and Income from unconsolidated entities is projected to be between $130 million and $170 million. We expect our FY 2018 effective tax rate to be approximately 37.0%, absent any tax reform.
“For FY 2018’s first quarter, we project deliveries of between 1,300 and 1,500 units at an average delivered sales price of between $820,000 and $840,000. Adjusted Gross Margin is expected to be approximately 23.3%, while SG&A is projected to be about 13.3% of revenues. Other income and Income from unconsolidated entities is projected to be approximately $40 million. FY 2018’s first quarter effective tax rate will be approximately 33.5%, lower than the full year, due to our estimated benefit from the newly adopted excess stock compensation accounting rules.”
Robert I. Toll, executive chairman, stated: “We are very pleased as we begin FY 2018. There are a number of tailwinds in our favor. Last Monday, the Census Bureau reported the highest new homes sales total in a decade. Recently released data from The National Association of Realtors indicates that, with continuing solid demand, the number of months’ supply of new and existing homes on the market remains constrained at levels still well below historic norms. This shortage plays to our advantage given our multi-year supply of well-located, geographically diverse and already entitled home sites.
“Meanwhile our customers in the upscale market are benefiting from low unemployment, income growth, a strong stock market and attractive mortgage rates. As millennials become a bigger part of the rental apartment and new home markets, as growing families seek out larger homes in better locations and as baby boomers buy second homes or move to active living communities, we believe we are well-positioned for many years to come.
“This summer we celebrated the 50th Anniversary of the founding of Toll Brothers. From our start as a local builder in the suburbs of Philadelphia, we are now a Fortune 500 company that has been named World’s Most Admired Home Builder for the past three years in a row by Fortune magazine. Our accomplishments are directly attributable to the diligence and dedication of our Toll Brothers associates, to whom we are very grateful.”
The financial highlights for the fourth quarter and fiscal year ended October 31, 2017 (unaudited):
* As disclosed in the Company’s Current Report on Form 8-K dated December 5, 2017, the press release released to the public on December 5, 2017 contained a typographical error which has been corrected above to state that the Company expects its full FY 2018 Adjusted Gross Margin to be between 23.75% and 24.25% of revenues.
Toll Brothers will be broadcasting live via the Investor Relations section of its website, www.tollbrothers.com, a conference call hosted by CEO Douglas C. Yearley, Jr. at 11:00 a.m. (EST) today, December 5, 2017, to discuss these results and its outlook for FY 2018. To access the call, enter the Toll Brothers website, click on the Investor Relations page, and select "Conference Calls.” Participants are encouraged to log on at least fifteen minutes prior to the start of the presentation to register and download any necessary software.
The call can be heard live with an online replay which will follow. MP3 format replays will be available after the conference call via the "Conference Calls" section of the Investor Relations portion of the Toll Brothers website.
Toll Brothers, Inc., A FORTUNE 500 Company, is the nation's leading builder of luxury homes. The Company began business fifty years ago in 1967 and became a public company in 1986. Its common stock is listed on the New York Stock Exchange under the symbol “TOL.” The Company serves move-up, empty-nester, active-adult, and second-home buyers and operates in 20 states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Texas, Virginia, and Washington, as well as in the District of Columbia.
Toll Brothers builds an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management, home security, and landscape subsidiaries. The Company also operates its own lumber distribution, house component assembly, and manufacturing operations. Through its Gibraltar Capital and Asset Management joint venture, the Company provides builders and developers with land banking and joint venture capital. The Company acquires and develops rental apartment and commercial properties through Toll Brothers Apartment Living, Toll Brothers Campus Living, and the affiliated Toll Brothers Realty Trust, and develops urban low-, mid-, and high-rise for-sale condominiums through Toll Brothers City Living.
In 2017, Toll Brothers was named World’s Most Admired Home Building Company in Fortune magazine’s survey of the World’s Most Admired Companies, the third year in a row it has been so honored. Toll Brothers was named 2014 Builder of the Year by Builder magazine, and is honored to have been awarded Builder of the Year in 2012 by Professional Builder magazine, making it the first two-time recipient. Toll Brothers proudly supports the communities in which it builds; among other philanthropic pursuits, the Company sponsors the Toll Brothers Metropolitan Opera International Radio Network, bringing opera to neighborhoods throughout the world. For more information, visit www.tollbrothers.com.
Toll Brothers discloses information about its business and financial performance and other matters, and provides links to its securities filings, notices of investor events, and earnings and other news releases, on the Investor Relations section of its website (tollbrothers.com/investor-relations).
Forward Looking Statement
Information presented herein for the third quarter ended October 31, 2017 is subject to finalization of the Company's regulatory filings, related financial and accounting reporting procedures and external auditor procedures.
Certain information included in this release is forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, information related to: anticipated operating results; anticipated financial performance, resources and condition; selling communities; home deliveries; average home prices; consumer demand and confidence; contract pricing; business and investment opportunities; market and industry trends; and the anticipated benefits to be realized from the acquisition of Coleman Homes.
Such forward-looking information involves important risks and uncertainties that could significantly affect actual results and cause them to differ materially from expectations expressed herein and in other Company reports, SEC filings, statements and presentations. These risks and uncertainties include, among others: local, regional, national and international economic conditions; fluctuating consumer demand and confidence; interest and unemployment rates; changes in sales conditions, including home prices, in the markets where we build homes; conditions in our newly entered markets and newly acquired operations; the competitive environment in which we operate; the availability and cost of land for future growth; conditions that could result in inventory write-downs or write-downs associated with investments in unconsolidated entities; the ability to recover our deferred tax assets; the availability of capital; uncertainties in the capital and securities markets; liquidity in the credit markets; changes in tax laws and their interpretation; effects of governmental legislation and regulation; the outcome of various legal proceedings; the availability of adequate insurance at reasonable cost; the impact of construction defect, product liability and home warranty claims, including the adequacy of self-insurance accruals, and the applicability and sufficiency of our insurance coverage; the ability of customers to obtain financing for the purchase of homes; the ability of home buyers to sell their existing homes; the ability of the participants in various joint ventures to honor their commitments; the availability and cost of labor and building and construction materials; the cost of raw materials; construction delays; domestic and international political events; weather conditions; and the anticipated benefits to be realized from the acquisition of Coleman Homes. For a more detailed discussion of these factors, see the information under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.
Any or all of the forward-looking statements included in this release are not guarantees of future performance and may turn out to be inaccurate. Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
TOLL BROTHERS, INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Amounts in thousands) | |||||||
October 31, 2017 | October 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 712,829 | $ | 633,715 | |||
Restricted cash and investments | 2,482 | 31,291 | |||||
Inventory | 7,281,453 | 7,353,967 | |||||
Property, construction and office equipment, net | 189,547 | 169,576 | |||||
Receivables, prepaid expenses and other assets | 542,217 | 582,758 | |||||
Mortgage loans held for sale | 132,922 | 248,601 | |||||
Customer deposits held in escrow | 102,017 | 53,057 | |||||
Investments in unconsolidated entities | 481,758 | 496,411 | |||||
Deferred tax assets, net of valuation allowances | 167,413 | ||||||
$ | 9,445,225 | $ | 9,736,789 | ||||
LIABILITIES AND EQUITY | |||||||
Liabilities: | |||||||
Loans payable | $ | 637,416 | $ | 871,079 | |||
Senior notes | 2,462,463 | 2,694,372 | |||||
Mortgage company loan facility | 120,145 | 210,000 | |||||
Customer deposits | 396,026 | 309,099 | |||||
Accounts payable | 275,223 | 281,955 | |||||
Accrued expenses | 959,353 | 1,072,300 | |||||
Income taxes payable | 57,509 | 62,782 | |||||
Total liabilities | 4,908,135 | 5,501,587 | |||||
Equity: | |||||||
Stockholders’ Equity | |||||||
Common stock | 1,779 | 1,779 | |||||
Additional paid-in capital | 720,115 | 728,464 | |||||
Retained earnings | 4,474,064 | 3,977,297 | |||||
Treasury stock, at cost | (662,854 | ) | (474,912 | ) | |||
Accumulated other comprehensive loss | (1,910 | ) | (3,336 | ) | |||
Total stockholders' equity | 4,531,194 | 4,229,292 | |||||
Noncontrolling interest | 5,896 | 5,910 | |||||
Total equity | 4,537,090 | 4,235,202 | |||||
$ | 9,445,225 | $ | 9,736,789 | ||||
TOLL BROTHERS, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||||||
(Amounts in thousands, except per share data and percentages) | |||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
Twelve Months Ended October 31, | Three Months Ended October 31, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||
Revenues | $ | 5,815,058 | $ | 5,169,508 | $ | 2,027,907 | $ | 1,855,451 | |||||||||||||||||||
Cost of revenues | 4,562,303 | 78.5 | % | 4,144,065 | 80.2 | % | 1,575,832 | 77.7 | % | 1,569,767 | 84.6 | % | |||||||||||||||
Gross margin | 1,252,755 | 21.5 | % | 1,025,443 | 19.8 | % | 452,075 | 22.3 | % | 285,684 | 15.4 | % | |||||||||||||||
Selling, general and administrative expenses | 607,819 | 10.5 | % | 535,382 | 10.4 | % | 167,636 | 8.3 | % | 150,262 | 8.1 | % | |||||||||||||||
Income from operations | 644,936 | 11.1 | % | 490,061 | 9.5 | % | 284,439 | 14.0 | % | 135,422 | 7.3 | % | |||||||||||||||
Other: | |||||||||||||||||||||||||||
Income from unconsolidated entities | 116,066 | 40,748 | 3,792 | 17,994 | |||||||||||||||||||||||
Other income - net | 53,309 | 58,218 | 13,516 | 14,744 | |||||||||||||||||||||||
Income before income taxes | 814,311 | 589,027 | 301,747 | 168,160 | |||||||||||||||||||||||
Income tax provision | 278,816 | 206,932 | 109,869 | 53,782 | |||||||||||||||||||||||
Net income | $ | 535,495 | $ | 382,095 | $ | 191,878 | $ | 114,378 | |||||||||||||||||||
Per share: | |||||||||||||||||||||||||||
Basic earnings | $ | 3.30 | $ | 2.27 | $ | 1.20 | $ | 0.70 | |||||||||||||||||||
Diluted earnings | $ | 3.17 | $ | 2.18 | $ | 1.17 | $ | 0.67 | |||||||||||||||||||
Cash dividend declared | $ | 0.24 | $ | 0.08 | |||||||||||||||||||||||
Weighted-average number of shares: | |||||||||||||||||||||||||||
Basic | 162,222 | 168,261 | 159,332 | 163,970 | |||||||||||||||||||||||
Diluted | 169,487 | 175,973 | 164,565 | 171,683 | |||||||||||||||||||||||
Effective tax rate | 34.2 | % | 35.1 | % | 36.4 | % | 32.0 | % | |||||||||||||||||||
TOLL BROTHERS, INC. AND SUBSIDIARIES | |||||||||||||||
SUPPLEMENTAL DATA | |||||||||||||||
(Amounts in thousands) | |||||||||||||||
(unaudited) | |||||||||||||||
Twelve Months Ended October 31, | Three Months Ended October 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Impairment charges recognized: | |||||||||||||||
Cost of sales - land owned/controlled for future communities | $ | 4,999 | $ | 5,442 | $ | 1,980 | $ | 2,039 | |||||||
Cost of sales - operating communities | 9,795 | 8,365 | 1,500 | 415 | |||||||||||
$ | 14,794 | $ | 13,807 | $ | 3,480 | $ | 2,454 | ||||||||
Depreciation and amortization | $ | 25,361 | $ | 23,121 | $ | 6,924 | $ | 6,283 | |||||||
Interest incurred | $ | 175,944 | $ | 164,001 | $ | 45,057 | $ | 41,922 | |||||||
Interest expense: | |||||||||||||||
Charged to cost of sales | $ | 172,832 | $ | 160,337 | $ | 58,467 | $ | 53,161 | |||||||
Charged to other income - net | 4,823 | 1,143 | 2,726 | 537 | |||||||||||
$ | 177,655 | $ | 161,480 | $ | 61,193 | $ | 53,698 | ||||||||
Home sites controlled: | |||||||||||||||
Owned | 31,341 | 34,137 | |||||||||||||
Optioned | 16,970 | 14,700 | |||||||||||||
48,311 | 48,837 | ||||||||||||||
Inventory at October 31, 2017 and October 31, 2016 consisted of the following (amounts in thousands):
October 31, 2017 | October 31, 2016 | ||||||
Land and land development costs | $ | 1,861,820 | $ | 2,497,603 | |||
Construction in progress | 4,720,926 | 4,225,456 | |||||
Sample homes | 506,557 | 460,948 | |||||
Land deposits and costs of future development | 167,445 | 144,417 | |||||
Other | 24,705 | 25,543 | |||||
$ | 7,281,453 | $ | 7,353,967 | ||||
Toll Brothers operates in two segments: Traditional Home Building and Urban Infill ("City Living"). Within Traditional Home Building, Toll operates in five geographic segments:
North: | Connecticut, Illinois, Massachusetts, Michigan, Minnesota, New Jersey and New York |
Mid-Atlantic: | Delaware, Maryland, Pennsylvania and Virginia |
South: | Florida, North Carolina and Texas |
West: | Arizona, Colorado, Idaho, Nevada, and Washington |
California: | California |
Three Months Ended October 31, | |||||||||||||||||||||
Units | $ (Millions) | Average Price Per Unit $ | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
HOME BUILDING REVENUES | |||||||||||||||||||||
North | 327 | 444 | $ | 214.7 | $ | 322.8 | $ | 656,700 | $ | 727,100 | |||||||||||
Mid-Atlantic | 548 | 503 | 337.8 | 318.8 | 616,400 | 633,700 | |||||||||||||||
South | 439 | 362 | 332.7 | 278.2 | 758,000 | 768,500 | |||||||||||||||
West | 543 | 505 | 330.5 | 355.0 | 608,600 | 703,000 | |||||||||||||||
California | 420 | 404 | 622.2 | 566.8 | 1,481,400 | 1,402,900 | |||||||||||||||
Traditional Home Building | 2,277 | 2,218 | 1,837.9 | 1,841.6 | 807,200 | 830,300 | |||||||||||||||
City Living | 147 | 6 | 190.0 | 13.9 | 1,292,400 | 2,322,900 | |||||||||||||||
Total consolidated | 2,424 | 2,224 | $ | 2,027.9 | $ | 1,855.5 | $ | 836,600 | $ | 834,300 | |||||||||||
CONTRACTS | |||||||||||||||||||||
North | 327 | 346 | $ | 223.1 | $ | 242.5 | $ | 682,300 | $ | 700,800 | |||||||||||
Mid-Atlantic | 422 | 409 | 277.6 | 248.6 | 657,700 | 607,900 | |||||||||||||||
South | 340 | 317 | 253.5 | 238.4 | 745,500 | 752,000 | |||||||||||||||
West | 440 | 374 | 298.6 | 279.1 | 678,700 | 746,400 | |||||||||||||||
California | 373 | 242 | 605.9 | 389.3 | 1,624,400 | 1,608,700 | |||||||||||||||
Traditional Home Building | 1,902 | 1,688 | 1,658.7 | 1,397.9 | 872,000 | 828,200 | |||||||||||||||
City Living | 77 | 40 | 96.3 | 67.1 | 1,251,100 | 1,676,600 | |||||||||||||||
Total consolidated | 1,979 | 1,728 | $ | 1,755.0 | $ | 1,465.0 | $ | 886,800 | $ | 847,800 | |||||||||||
BACKLOG | |||||||||||||||||||||
North | 1,217 | 977 | $ | 816.1 | $ | 692.8 | $ | 670,600 | $ | 709,100 | |||||||||||
Mid-Atlantic | 1,143 | 986 | 741.6 | 610.0 | 648,800 | 618,700 | |||||||||||||||
South | 1,055 | 960 | 815.9 | 736.4 | 773,400 | 767,100 | |||||||||||||||
West | 1,397 | 1,020 | 972.0 | 766.5 | 695,700 | 751,500 | |||||||||||||||
California | 887 | 533 | 1,495.1 | 867.7 | 1,685,600 | 1,627,900 | |||||||||||||||
Traditional Home Building | 5,699 | 4,476 | 4,840.7 | 3,673.4 | 849,400 | 820,700 | |||||||||||||||
City Living | 152 | 209 | 220.8 | 310.7 | 1,452,700 | 1,486,500 | |||||||||||||||
Total consolidated | 5,851 | 4,685 | $ | 5,061.5 | $ | 3,984.1 | $ | 865,100 | $ | 850,400 | |||||||||||
Twelve Months Ended October 31, | |||||||||||||||||||||
Units | $ (Millions) | Average Price Per Unit $ | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
HOME BUILDING REVENUES | |||||||||||||||||||||
North | 1,139 | 1,172 | $ | 775.5 | $ | 814.5 | $ | 680,900 | $ | 695,000 | |||||||||||
Mid-Atlantic | 1,681 | 1,432 | 1,030.3 | 895.7 | 612,900 | 625,500 | |||||||||||||||
South | 1,247 | 1,093 | 924.0 | 849.6 | 741,000 | 777,300 | |||||||||||||||
West | 1,783 | 1,304 | 1,151.7 | 903.7 | 645,900 | 693,000 | |||||||||||||||
California | 1,041 | 1,006 | 1,550.5 | 1,448.5 | 1,489,400 | 1,439,900 | |||||||||||||||
Traditional Home Building | 6,891 | 6,007 | 5,432.0 | 4,912.0 | 788,300 | 817,700 | |||||||||||||||
City Living | 260 | 91 | 383.1 | 257.5 | 1,473,500 | 2,829,700 | |||||||||||||||
Total consolidated | 7,151 | 6,098 | $ | 5,815.1 | $ | 5,169.5 | $ | 813,200 | $ | 847,700 | |||||||||||
CONTRACTS | |||||||||||||||||||||
North | 1,379 | 1,259 | $ | 898.9 | $ | 888.0 | $ | 651,800 | $ | 705,300 | |||||||||||
Mid-Atlantic | 1,838 | 1,607 | 1,161.9 | 986.8 | 632,200 | 614,100 | |||||||||||||||
South | 1,342 | 1,229 | 1,003.5 | 916.8 | 747,800 | 746,000 | |||||||||||||||
West | 2,032 | 1,508 | 1,318.3 | 1,096.7 | 648,800 | 727,300 | |||||||||||||||
California | 1,395 | 930 | 2,177.9 | 1,418.5 | 1,561,200 | 1,525,300 | |||||||||||||||
Traditional Home Building | 7,986 | 6,533 | 6,560.5 | 5,306.8 | 821,500 | 812,300 | |||||||||||||||
City Living | 189 | 186 | 267.8 | 342.8 | 1,416,900 | 1,843,000 | |||||||||||||||
Total consolidated | 8,175 | 6,719 | $ | 6,828.3 | $ | 5,649.6 | $ | 835,300 | $ | 840,800 | |||||||||||
Unconsolidated entities:
Information related to revenues and contracts of entities in which we have an interest for the three-month and twelve-month periods ended October 31, 2017 and 2016, and for backlog at October 31, 2017 and 2016 is as follows:
Units | $ (Millions) | Average Price Per Unit $ | |||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Three months ended October 31, | |||||||||||||||||||||
Revenues | 21 | 54 | $ | 23.6 | $ | 109.5 | $ | 1,125,000 | $ | 2,028,300 | |||||||||||
Contracts | 36 | 18 | $ | 58.6 | $ | 28.0 | $ | 1,629,100 | $ | 1,553,100 | |||||||||||
Twelve months ended October 31, | |||||||||||||||||||||
Revenues | 197 | 115 | $ | 475.3 | $ | 164.9 | $ | 2,412,500 | $ | 1,434,000 | |||||||||||
Contracts | 143 | 113 | $ | 196.7 | $ | 169.8 | $ | 1,375,400 | $ | 1,502,900 | |||||||||||
Backlog at October 31, | 116 | 184 | $ | 167.4 | $ | 471.5 | $ | 1,443,500 | $ | 2,562,400 | |||||||||||
RECONCILIATION OF NON-GAAP MEASURES
This press release contains, and Company management’s discussion of the results presented in this press release may include, information about the Company’s Adjusted Gross Margin and the Company’s net debt-to-capital ratio.
These two measures are non-GAAP financial measures which are not calculated in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures should not be considered a substitute for, or superior to, the comparable GAAP financial measures, and may be different from non-GAAP measures used by other companies in the homebuilding business.
The Company’s management considers these non-GAAP financial measures as we make operating and strategic decisions and evaluate our performance, including against other homebuilders that may use similar non-GAAP financial measures. The Company’s management believes these non-GAAP financial measures are useful to investors in understanding our operations and leverage and may be helpful in comparing the Company to other homebuilders to the extent they provide similar information.
Adjusted Gross Margin
The following table reconciles the Company’s gross margin as a percentage of revenues (calculated in accordance with GAAP) to:
Adjusted Gross Margin Reconciliation | ||||||||||||||||
(Amounts in thousands, except percentages) | ||||||||||||||||
Three Months Ended October 31, | Twelve Months Ended October 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | 2,027,907 | $ | 1,855,451 | $ | 5,815,058 | $ | 5,169,508 | ||||||||
Cost of revenues | 1,575,832 | 1,569,767 | 4,562,303 | 4,144,065 | ||||||||||||
Gross margin | 452,075 | 285,684 | 1,252,755 | 1,025,443 | ||||||||||||
Add: | Interest recognized in cost of sales | 58,467 | 53,161 | 172,832 | 160,337 | |||||||||||
Inventory write-downs | 3,480 | 2,454 | 14,794 | 13,807 | ||||||||||||
Adjusted gross margin | $ | 514,022 | $ | 341,299 | $ | 1,440,381 | $ | 1,199,587 | ||||||||
Add: | Warranty charges related to older stucco homes and other water intrusion claims | 121,231 | 125,576 | |||||||||||||
Adjusted gross margin, further adjusted for warranty charges related to older stucco homes and other water intrusion claims | N/A | $ | 462,530 | N/A | $ | 1,325,163 | ||||||||||
Gross margin as a percentage of revenues | 22.3 | % | 15.4 | % | 21.5 | % | 19.8 | % | ||||||||
Adjusted Gross Margin | 25.3 | % | 18.4 | % | 24.8 | % | 23.2 | % | ||||||||
Adjusted gross margin, further adjusted for warranty charges related to older stucco homes and other water intrusion claims | N/A | 24.9 | % | N/A | 25.6 | % | ||||||||||
N/A - not applicable
The Company’s management believes Adjusted Gross Margin is a useful financial measure to investors because it allows them to evaluate the performance of our homebuilding operations without the often varying effects of capitalized interest costs and inventory impairments. The use of Adjusted Gross Margin also assists the Company’s management in assessing the profitability of our homebuilding operations and making strategic decisions regarding community location and product mix.
The Company disclosed Adjusted Gross Margin, further adjusted for warranty charges related to claims from older stucco homes and other water intrusion claims for the FY 2016 periods, since the Company recognized warranty charges related to claims from older stucco homes and other water intrusion claims in the amount of $121.2 million in the fourth quarter of fiscal 2016. The Company’s management believes Adjusted Gross Margin, further adjusted for warranty charges related to claims from older stucco homes and other water intrusion claims, is a useful financial measure to investors for the fiscal 2016 periods because it allows them to evaluate the performance of our Company for the fourth quarter and fiscal year 2016 and its prospects for the future without the impact of these warranty charges.
Forward-looking Adjusted Gross Margin
The Company has not provided projected full year fiscal 2018 gross margin or a GAAP reconciliation for forward-looking Adjusted Gross Margin because such measure cannot be provided without unreasonable efforts on a forward-looking basis, since inventory write-downs are based on future activity and observation and therefore cannot be projected for the fourth quarter or the full fiscal year. The variability of these charges may have a potentially unpredictable, and potentially significant, impact on our fiscal 2018 gross margin.
Net Debt-to-Capital Ratio
The following table reconciles the Company’s ratio of debt to capital (calculated in accordance with GAAP) to the Company’s net debt-to-capital ratio (a non-GAAP financial measure). The net debt-to-capital ratio is calculated as (i) total debt minus mortgage warehouse loans minus cash and cash equivalents divided by (ii) total debt minus mortgage warehouse loans minus cash and cash equivalents plus stockholders’ equity.
Net Debt-to-Capital Ratio Reconciliation | ||||||||||||
(Amounts in thousands, except percentages) | ||||||||||||
October 31, 2017 | July 31, 2017 | October 31, 2016 | ||||||||||
Loans payable | $ | 637,416 | $ | 619,574 | $ | 871,079 | ||||||
Senior notes | 2,462,463 | 3,148,905 | 2,694,372 | |||||||||
Mortgage company loan facility | 120,145 | 57,921 | 210,000 | |||||||||
Total debt | 3,220,024 | 3,826,400 | 3,775,451 | |||||||||
Total stockholders' equity | 4,531,194 | 4,532,714 | 4,229,292 | |||||||||
Total capital | $ | 7,751,218 | $ | 8,359,114 | $ | 8,004,743 | ||||||
Ratio of debt-to-capital | 41.5 | % | 45.8 | % | 47.2 | % | ||||||
Total debt | $ | 3,220,024 | $ | 3,826,400 | $ | 3,775,451 | ||||||
Less: | Mortgage company loan facility | (120,145 | ) | (57,921 | ) | (210,000 | ) | |||||
Cash and cash equivalents | (712,829 | ) | (946,195 | ) | (633,715 | ) | ||||||
Total net debt | 2,387,050 | 2,822,284 | 2,931,736 | |||||||||
Total stockholders' equity | 4,531,194 | 4,532,714 | 4,229,292 | |||||||||
Total net capital | $ | 6,918,244 | $ | 7,354,998 | $ | 7,161,028 | ||||||
Net debt-to-capital ratio | 34.5 | % | 38.4 | % | 40.9 | % | ||||||
The Company’s management uses the net debt-to-capital ratio as an indicator of its overall leverage and believes it is a useful financial measure to investors in understanding the leverage employed in the Company’s operations.
CONTACT: Frederick N. Cooper (215) 938-8312
fcooper@tollbrothers.com