Comstock Holding Companies, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company develops and builds residential and mixed-use real estate and provides real estate services, primarily in the Washington, D.C. metropolitan area. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $12.6 | $11.8 | $22.9 | $19.8 |
| Operating loss | $(0.8) | $(0.6) | $(1.7) | $(1.4) |
| Net loss | $(0.3) | $(0.7) | $(0.9) | $(1.5) |
| Net loss attributable to Comstock | $(0.8) | $(1.7) | $(1.8) | $(3.2) |
| Basic and diluted loss per share | $(0.04) | $(0.08) | $(0.08) | $(0.15) |
- Homebuilding generated $12.1 million of Q2 revenue and $22.1 million for the first half. Q2 settlements were 25 homes, versus 28 a year earlier; first-half settlements were 46, versus 47.
- Homebuilding gross margin fell to 13% in both Q2 and the first half, from 19% and 20%, respectively. Management attributed the decline mainly to the mix of homes settled and two new projects beginning settlements.
- Q2 net loss improved partly because other income included a $0.696 million derivative gain associated with issuing shares under the CGF financing arrangement. The filing does not identify this gain as recurring.
- For the first half, operating cash use was $5.6 million, versus $3.3 million a year earlier; investing cash use was $0.4 million. Financing provided $4.6 million, and cash and cash equivalents declined $1.3 million to $6.2 million. Inventory investment was a principal operating cash use.
Financial position and liquidity
- At June 30, 2015, total assets were $62.0 million, including $47.1 million of real estate inventories, and total liabilities were $58.5 million. Total equity was $3.5 million; Comstock’s own equity remained in deficit by $2.6 million, with $6.1 million of non-controlling interests.
- Total notes payable were $49.0 million: $29.3 million secured by real estate inventories, $17.9 million unsecured affiliate notes net of discount, and $1.8 million other unsecured notes. Debt was $45.9 million at December 31, 2014.
- Cash was $6.2 million and restricted cash was $2.2 million. The filing does not provide a clear current-assets/current-liabilities presentation from which to assess a conventional current ratio.
- Borrowings and project-loan maturities totaled $23.3 million scheduled in 2015 as of quarter-end. After quarter-end, the company extended $8.1 million of facilities to January 2016, a $2.0 million mezzanine loan to December 2015, and a $2.2 million revolving line of credit to January 2016. Other maturities remained under discussion.
Changes, outlook, and risks
- Revenue rose year over year, while the company continued to report operating and net losses. Homebuilding revenue increased mainly due to higher average settlement prices and unit mix. First-half net new orders were 65, compared with 67; backlog was 43 units worth $22.3 million, versus 48 units worth $24.8 million a year earlier.
- Management said that successful lender discussions, private-placement proceeds, available cash, and settlement proceeds should provide sufficient resources for the next 12 months, but cautioned that there is no assurance. The company said it would also focus on conserving cash and managing expenses. No specific earnings or revenue guidance was provided.
- Nasdaq had notified the company of deficiencies involving the minimum bid price and continued-listing standards. Stockholders approved a possible 1-for-5 to 1-for-7 reverse split. A $2.5 million Comstock IX private placement raised reported total equity above the $2.5 million equity threshold at quarter-end; Nasdaq granted an extension through October 26, 2015 to evidence compliance. Failure to regain compliance could result in delisting.
- The company disclosed dependence on extensions or modifications of debt, potential inability to pay obligations at maturity, and the risk that lenders could foreclose on substantially all assets after default. Certain facilities are guaranteed by the CEO. It also reported $3.7 million of letters of credit and $6.0 million of performance and payment bonds; none had been drawn.
- Other notable items: the company reported approximately $123 million of federal and state net operating losses, subject to possible limitations under Section 382; no material litigation; and no off-balance-sheet arrangements. Management reported disclosure controls were effective at June 30, 2015.
Important facts for investors to verify
- Whether remaining 2015 debt maturities were extended or refinanced, and the resulting interest rates, collateral, guarantees, and covenants.
- Whether Comstock met Nasdaq’s bid-price and continued-listing requirements by the applicable deadlines, including the effect and timing of any reverse split.
- Whether homebuilding margins, orders, settlements, and backlog improved, and whether backlog converted to cash as expected.
- How much liquidity remains available after operating cash burn, project investment, debt service, and non-controlling-interest obligations; confirm that restricted cash is not treated as freely available.
- Whether reported earnings benefited from nonrecurring derivative gains or tax adjustments, and whether related-party financing and transactions changed.