The New Home Company Reports 2020 Third Quarter Results

ALISO VIEJO, Calif.–(BUSINESS WIRE)–The New Home Company Inc. (NYSE: NWHM) today announced results for the 2020 third quarter.

Third Quarter 2020 Financial Results

  • Net income of $1.2 million, or $0.06 per diluted share, compared to a net loss of $4.6 million, or $(0.23) per diluted share, for the 2019 third quarter
  • Homes sales revenue of $117.4 million as compared to $118.8 million for the 2019 third quarter

    • New home deliveries of 157 as compared to 124 in the 2019 third quarter, a 27% increase
  • Home sales gross margin of 14.2% as compared to 9.5% for the 2019 third quarter

    • A 320 basis point improvement over the 2019 third quarter gross margin of 11.0%* excluding $1.7 million of impairments
  • Net new orders of 251 as compared to 124 in the 2019 third quarter, a 102% increase
  • Monthly sales absorption of 3.5 per community as compared to 2.0 per community in the 2019 third quarter, a 75% increase
  • Homes in backlog of 329 homes as compared to 207 homes at the end of the 2019 third quarter, a 59% increase
  • Cash flow from operations of $40.0 million and cash and cash equivalents of $126.4 million as of September 30, 2020
  • Debt-to-capital ratio of 59.4% and a net debt-to-capital ratio of 45.1%*, a 980 basis point improvement from the 2019 third quarter

“The New Home Company made significant progress during the third quarter through strong sales, improved gross margins and solid operating cash flows,” remarked Larry Webb, Executive Chairman of The New Home Company. “We experienced strong monthly sequential order growth during the quarter with September generating the highest monthly order total in our Company’s history. Our monthly sales absorption rate for the quarter was up 75% to 3.5 homes per community, with our Arizona operation leading the way at a sales absorption rate of 4.1 homes per community driven by seven recently opened communities. We expect these new communities to begin contributing to our profitability in the fourth quarter and have a meaningful impact on gross margin thereafter. The 102% increase in third quarter net orders also led to a 59% increase in our ending backlog and has set us up for a solid finish to the year.”

“Our expansion into more affordably priced communities has been a key driver for gross margin improvement in the third quarter, and we see similar margins for homes in our backlog,” added Leonard Miller, President and Chief Executive Officer. “Faster inventory turns and price increases at nearly all of our communities contributed to higher gross margins, especially at our more affordably priced communities. This margin growth coupled with $40 million in operating cash flow and a 45.1% net debt-to-capital ratio at the end the quarter provides us with a strong foundation moving forward.”

Mr. Miller concluded, “We made further progress in strengthening our balance sheet in October through the issuance of $250 million of new 7.25% senior unsecured notes due 2025 to fund, together with cash on hand, the redemption of all of the Company’s existing senior notes due 2022. We also entered into a new $60 million unsecured credit facility due April 2023. The refinance of our senior notes and our new credit facility extend our debt maturity profile and give us the flexibility to replenish our land positions, continue our product offering expansion and improve our operating results. With stronger operations and longer-term capital to reinvest in our land pipeline, we are optimistic about the future of The New Home Company and our ability to generate positive shareholder value.”

Third Quarter 2020 Operating Results

Total revenues for the 2020 third quarter were $130.8 million compared to $165.6 million in the prior year period, including $24.6 million of land sales revenue in the 2019 third quarter. During the 2020 third quarter, the Company generated pretax income of $1.5 million compared to a $4.8 million pretax loss in the prior year period. The 2019 third quarter included aggregate charges of $5.1 million, which consisted of $1.7 million of inventory impairment charges related to homes sales and $3.4 million of charges related to land sales during the 2019 third quarter. Net income attributable to the Company for the 2020 third quarter was $1.2 million, or $0.06 per diluted share, compared to a net loss of $4.6 million, or ($0.23) per diluted share, in the prior year period.

Wholly Owned Projects

Net new home orders for the 2020 third quarter were 251 as compared to 124 in the prior year which represented a 102% increase. The significant increase was driven by a 75% improvement in our monthly sales absorption rate to 3.5 per community as compared to 2.0 per community in the prior year period. Cancellation rate for the 2020 third quarter was 6% as compared to 11% in the prior year. We ended the 2020 third quarter with 25 active selling communities, a 14% increase compared to the prior year.

Homes in backlog totaled 329 at the end of the 2020 third quarter, a 59% increase compared to the 2019 third quarter. The dollar value of homes in backlog increased 11% to $207.1 million compared to $185.8 million. The average selling price of homes in backlog decreased to $630,000 from $897,000 a year ago as we continue to expand our product portfolio to include more affordably priced communities.

Home sales revenue for the 2020 third quarter was approximately $117.4 million, as compared to $118.8 million for the 2019 third quarter. The slight year-over-year decrease in home sales revenue was largely the result of a 22% decrease in average selling price driven by our strategic shift to more-affordable product, which was partially offset by a 27% increase in new home deliveries. The increase in new home deliveries resulted from a higher number of homes in backlog at the beginning of the 2020 third quarter coupled with a higher backlog conversion rate of 67% for the 2020 third quarter, as compared to 60% for the 2019 third quarter. The average sales price of our home deliveries for the 2020 third quarter was approximately $748,000, as compared to $958,000 for the 2019 third quarter.

Gross margin from home sales for the 2020 third quarter was 14.2% compared to 9.5% for the prior year period, which included $1.7 million of home sales inventory impairments for the 2019 third quarter. Excluding inventory impairment charges in the 2019 third quarter, the Company’s gross margin was 11.0%* in the prior year period. The 320-basis point improvement before impairments was primarily due to a product mix shift to more affordable product, which generally have higher gross margins, and to a lesser extent, fewer deliveries from lower margin, move-up condominium communities compared to the 2019 third quarter. These items were partially offset by a 60 basis point increase in interest costs included in cost of home sales as a percentage of home sales revenue. Adjusted homebuilding gross margin, which excludes interest in cost of home sales and impairment charges, was 20.0%* for the 2020 third quarter as compared to 16.2%* in the prior year period.

The Company’s SG&A expense ratio as a percentage of home sales revenue for the 2020 third quarter was 12.3% compared to 11.1% in the prior year period. The increase in the SG&A rate was primarily due to higher commissions, incentive compensation and professional fees, and to a lesser extent, a $0.3 million decrease in G&A expenses that were allocated to our fee building segment as compared to the 2019 third quarter. These items were partially offset by lower amortization of capitalized model costs.

Fee Building Projects

Fee building revenue for the 2020 third quarter was $13.4 million, compared to $22.3 million in the prior year period. Fee building gross margin for the 2020 third quarter was 2.0%, or $0.3 million, compared to 2.9%, or $0.6 million, in the prior year period. The reduction in fee building gross margin was primarily due to lower fee building activity in Irvine, California.

Unconsolidated Joint Ventures (JVs)

The Company incurred a joint venture loss of $98,000 during the 2020 third quarter compared to a loss of $63,000 in the prior year period. The Company’s joint venture activities continue to wind down. During the quarter, the Company finalized the sale of its interest in its Bedford land development joint venture and continued to actively pursue an exit from its Russell Ranch land development joint venture in Folsom, California.

Interest Expense

The Company expensed $1.1 million of interest costs directly to interest expense during the 2020 third quarter in accordance with Accounting Standards Codification 835, as its qualified assets were less than its qualified debt.

Balance Sheet and Liquidity

The Company generated $40.0 million in operating cash flows during the 2020 third quarter and ended the quarter with $126.4 million in cash and cash equivalents. During the quarter, the Company repurchased $5.2 million in principal of its senior notes at a discount. As of the end of the third quarter, the Company had no borrowings outstanding under its revolving credit facility and had $290.3 million in debt outstanding related to its senior notes due 2022. The Company had a debt-to-capital ratio of 59.4% and a net debt-to-capital ratio of 45.1%*, a 980 basis point year-over-year improvement.

On October 28, 2020, the Company completed its sale of $250 million of 7.25% senior notes due October 2025 (the “offering”) to refinance its existing senior notes due April 2022. Net proceeds from the offering plus $54.4 million of cash on hand were remitted to the trustee of the senior notes due 2022 and the obligations under the senior notes due 2022 were satisfied and discharged. In addition, on October 30, 2020, the Company entered into a new $60 million senior unsecured revolving credit facility. The new facility replaced the Company’s previous unsecured credit facility and has substantially similar terms and covenants as the previous credit facility and has a maturity date of April 30, 2023.

The Company owned or controlled 2,154 lots through its wholly owned operations, of which 877 lots, or 41%, were controlled through option contracts.

Guidance

The Company’s current estimate for the 2020 fourth quarter is as follows:

  • Home sales revenue of $115 – $125 million
  • Fee building revenue of $5 – $8 million
  • Home sales gross margin of 13.8% to 14.2%

Conference Call Details

The Company will host a conference call and webcast for investors and other interested parties beginning at 11:00 a.m. Eastern Time on Monday, November 2, 2020 to review third quarter results and discuss recent events, forward-looking statements, and factors that may affect the Company’s future results. We will also conduct a question-and-answer period. The conference call will be available in the Investors section of the Company’s website at www.NWHM.com. To listen to the broadcast live, go to the site approximately 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. To participate in the telephone conference call, dial 1-877-407-0789 (domestic) or 1-201-689-8562 (international) at least five minutes prior to the start time. Replays of the conference call will be available through December 2, 2020 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13711226.

* Net debt-to-capital ratio, homebuilding gross margin before impairments and adjusted homebuilding gross margin (or homebuilding gross margin excluding impairments and interest in cost of home sales) are non-GAAP measures. A reconciliation of the appropriate GAAP measure to each of these measures is included in the accompanying financial data. See “Reconciliation of Non-GAAP Financial Measures.”

About The New Home Company

NWHM is a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California and Arizona, including Southern California, the San Francisco Bay area, metro Sacramento and the greater Phoenix area. The Company is headquartered in Aliso Viejo, California. For more information about the Company and its new home developments, please visit the Company’s website at www.NWHM.com.

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, anticipation, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. Such statements include the statements regarding current business conditions and potential adverse impacts of the COVID-19 pandemic. These forward-looking statements may include projections and estimates concerning our revenues, community counts and openings, the timing and success of specific projects, our ability to execute our strategic growth objectives, gross margins, other projected results, income, earnings per share, joint ventures and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “should,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal,” “will,” “guidance,” “target,” “forecast,” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this press release speak only as of the date of this release, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements: a pandemic, epidemic, or outbreak of infectious disease or similar threat, and the response to such event by government agencies and authorities, adverse impacts due to the COVID-19 pandemic, including a recession in the U.S., which could include, among other things, a significant decrease in demand for our homes or consumer confidence generally with respect to purchasing a home, the impact of legislation designed to provide economic relief from a recession, the inability of employees to work and of customers to visit our communities due to government movement restrictions or illness, disruptions in our supply chain, our inability to access capital markets due to lack of liquidity in the economy resulting from the responses to the COVID-19 pandemic, inconsistencies in the classification of homebuilding as an essential business, recognition of charges which may be material for inventory impairments or land option contract abandonments; economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation; a downturn in the homebuilding industry; changes in sales conditions, including home prices, in the markets where we build homes; our significant amount of debt and the impact of restrictive covenants in our debt agreements; our ability to repay our debt as it comes due; changes in our credit rating or outlook; volatility and uncertainty in the credit markets and broader financial markets; our business and investment strategy including our plans to sell more affordably priced homes; availability of land to acquire and our ability to acquire such land on favorable terms or at all; our liquidity and availability, terms and deployment of capital; changes in margin; write-downs; shortages of or increased prices for labor, land or raw materials used in housing construction; adverse weather conditions and natural disasters (including wild fires and mudslides); our concentration in California; issues concerning our joint venture partnerships; the cost and availability of insurance and surety bonds; governmental regulation, including the impact of “slow growth” or similar initiatives; changes in, or the failure or inability to comply with, governmental laws and regulations; the timing of receipt of regulatory approvals and the opening of projects; delays in the land entitlement process, development, construction, or the opening of new home communities; litigation and warranty claims; the degree and nature of competition; the impact of recent accounting standards; availability of qualified personnel and our ability to retain our key personnel; and information technology failures and data security breaches, including issues involving increased reliance on technology due to critical business functions being done remotely because of COVID-19; and additional factors discussed under the sections captioned “Risk Factors” included in our annual report and other reports filed with the Securities and Exchange Commission. The Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

(Dollars in thousands, except per share amounts)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

117,426

 

 

$

118,781

 

 

$

290,842

 

 

$

358,431

 

Land sales

 

 

 

 

 

24,573

 

 

 

157

 

 

 

24,573

 

Fee building, including management fees

 

 

13,418

 

 

 

22,262

 

 

 

70,838

 

 

 

64,209

 

 

 

 

130,844

 

 

 

165,616

 

 

 

361,837

 

 

 

447,213

 

Cost of Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

 

100,775

 

 

 

105,763

 

 

 

251,713

 

 

 

315,857

 

Home sales impairments

 

 

 

 

 

1,700

 

 

 

19,000

 

 

 

1,700

 

Land sales

 

 

 

 

 

26,078

 

 

 

157

 

 

 

26,078

 

Land sales impairment

 

 

 

 

 

1,900

 

 

 

 

 

 

1,900

 

Fee building

 

 

13,150

 

 

 

21,615

 

 

 

69,632

 

 

 

62,653

 

 

 

 

113,925

 

 

 

157,056

 

 

 

340,502

 

 

 

408,188

 

Gross Margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

 

16,651

 

 

 

11,318

 

 

 

20,129

 

 

 

40,874

 

Land sales

 

 

 

 

 

(3,405

)

 

 

 

 

 

(3,405

)

Fee building

 

 

268

 

 

 

647

 

 

 

1,206

 

 

 

1,556

 

 

 

 

16,919

 

 

 

8,560

 

 

 

21,335

 

 

 

39,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

 

(8,056

)

 

 

(7,828

)

 

 

(21,908

)

 

 

(26,190

)

General and administrative expenses

 

 

(6,386

)

 

 

(5,361

)

 

 

(19,301

)

 

 

(18,593

)

Equity in net income (loss) of unconsolidated joint ventures

 

 

(98

)

 

 

(63

)

 

 

(21,997

)

 

 

306

 

Interest expense

 

 

(1,099

)

 

 

 

 

 

(3,088

)

 

 

 

Project abandonment (costs) recoveries, net

 

 

33

 

 

 

(10

)

 

 

(14,097

)

 

 

(29

)

Gain on early extinguishment of debt

 

 

191

 

 

 

 

 

 

770

 

 

 

969

 

Other income (expense), net

 

 

24

 

 

 

(76

)

 

 

179

 

 

 

(352

)

Pretax income (loss)

 

 

1,528

 

 

 

(4,778

)

 

 

(58,107

)

 

 

(4,864

)

(Provision) benefit for income taxes

 

 

(390

)

 

 

172

 

 

 

26,476

 

 

 

(138

)

Net income (loss)

 

 

1,138

 

 

 

(4,606

)

 

 

(31,631

)

 

 

(5,002

)

Net (income) loss attributable to non-controlling interest

 

 

50

 

 

 

(18

)

 

 

50

 

 

 

(37

)

Net income (loss) attributable to The New Home Company Inc.

 

$

1,188

 

 

$

(4,624

)

 

$

(31,581

)

 

$

(5,039

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to The New Home Company Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

(0.23

)

 

$

(1.68

)

 

$

(0.25

)

Diluted

 

$

0.06

 

 

$

(0.23

)

 

$

(1.68

)

 

$

(0.25

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,231,954

 

 

 

20,096,969

 

 

 

18,839,551

 

 

 

20,051,751

 

Diluted

 

 

18,332,601

 

 

 

20,096,969

 

 

 

18,839,551

 

 

 

20,051,751

 

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

December 31,

 

 

2020

 

2019

 

 

(Dollars in thousands, except per share amounts)

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

126,375

 

 

$

79,314

 

Restricted cash

 

 

408

 

 

 

117

 

Contracts and accounts receivable

 

 

9,288

 

 

 

15,982

 

Due from affiliates

 

 

114

 

 

 

238

 

Real estate inventories

 

 

341,207

 

 

 

433,938

 

Investment in and advances to unconsolidated joint ventures

 

 

5,957

 

 

 

30,217

 

Deferred tax asset, net

 

 

16,222

 

 

 

17,503

 

Other assets

 

 

46,769

 

 

 

25,880

 

Total assets

 

$

546,340

 

 

$

603,189

 

 

 

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,596

 

 

$

25,044

 

Accrued expenses and other liabilities

 

 

39,777

 

 

 

40,554

 

Senior notes, net

 

 

290,272

 

 

 

304,832

 

Total liabilities

 

 

347,645

 

 

 

370,430

 

Equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized, 18,231,954 and 20,096,969, shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

182

 

 

 

201

 

Additional paid-in capital

 

 

191,510

 

 

 

193,862

 

Retained earnings

 

 

7,003

 

 

 

38,584

 

Total stockholders’ equity

 

 

198,695

 

 

 

232,647

 

Non-controlling interest in subsidiary

 

 

 

 

 

112

 

Total equity

 

 

198,695

 

 

 

232,759

 

Total liabilities and equity

 

$

546,340

 

 

$

603,189

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2020

 

2019

 

 

(Dollars in thousands)

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(31,631

)

 

$

(5,002

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Deferred taxes

 

 

1,281

 

 

 

 

Amortization of stock-based compensation

 

 

1,651

 

 

 

1,661

 

Distributions of earnings from unconsolidated joint ventures

 

 

110

 

 

 

319

 

Inventory impairments

 

 

19,000

 

 

 

3,600

 

Project abandonment costs

 

 

14,097

 

 

 

29

 

Equity in net (income) loss of unconsolidated joint ventures

 

 

21,997

 

 

 

(306

)

Depreciation and amortization

 

 

5,225

 

 

 

7,008

 

Gain on early extinguishment of debt

 

 

(770

)

 

 

(969

)

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Contracts and accounts receivable

 

 

6,694

 

 

 

5,714

 

Due from affiliates

 

 

124

 

 

 

790

 

Real estate inventories

 

 

65,816

 

 

 

62,953

 

Other assets

 

 

(31,087

)

 

 

(2,390

)

Accounts payable

 

 

(7,448

)

 

 

(15,832

)

Accrued expenses and other liabilities

 

 

(3,043

)

 

 

1,016

 

Net cash provided by operating activities

 

 

62,016

 

 

 

58,591

 

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(259

)

 

 

(26

)

Contributions and advances to unconsolidated joint ventures

 

 

(4,362

)

 

 

(5,083

)

Distributions of capital and repayment of advances from unconsolidated joint ventures

 

 

9,135

 

 

 

6,873

 

Net cash provided by investing activities

 

 

4,514

 

 

 

1,764

 

Financing activities:

 

 

 

 

 

 

 

 

Borrowings from credit facility

 

 

 

 

 

40,000

 

Repayments of credit facility

 

 

 

 

 

(89,500

)

Repurchases of senior notes

 

 

(14,825

)

 

 

(10,856

)

Proceeds from note payable

 

 

7,036

 

 

 

 

Repayment of note payable

 

 

(7,036

)

 

 

 

Payment of debt issuance costs

 

 

(269

)

 

 

 

Non-controlling interest distribution

 

 

(62

)

 

 

 

Repurchases of common stock

 

 

(3,718

)

 

 

(1,042

)

Tax withholding paid on behalf of employees for stock awards

 

 

(304

)

 

 

(488

)

Net cash used in financing activities

 

 

(19,178

)

 

 

(61,886

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

47,352

 

 

 

(1,531

)

Cash, cash equivalents and restricted cash – beginning of period

 

 

79,431

 

 

 

42,542

 

Cash, cash equivalents and restricted cash – end of period

 

$

126,783

 

 

$

41,011

 

KEY FINANCIAL AND OPERATING DATA

(Dollars in thousands)

(Unaudited)

New Home Deliveries:

Contacts

Investor Relations

Drew Mackintosh

949-382-7838

[email protected]

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