The New Home Company Inc. (NYSE:NWHM) today announced results for the 2016 third quarter.
Third Quarter 2016 Highlights Compared to Third Quarter 2015
| • | Net income up 25% to $5.5 million, or $0.27 per diluted share vs. $4.4 million, or $0.27 per diluted share |
| • | Total revenues of $177.9 million vs. $87.0 million, up 105% |
| • | Home sales revenue of $125.1 million, an increase of 116% |
| • | Net new home orders up 5% |
| • | Backlog dollar value up 37% to $290.2 million |
| • | Community count up 30% to 13 vs. 10 |
“The New Home Company delivered solid top and bottom line growth in the third quarter of 2016, while laying the foundation for future success by focusing more of our resources on wholly owned operations,” said New Home Company Chief Executive Officer Larry Webb. “We have seen encouraging trends in some of our newer communities, most notably along the Newport Coast, where order activity and pricing at our Crystal Cove communities have exceeded our expectations.” Mr. Webb continued, “As we had previously stated, our earnings for 2016 would be heavily weighted to the back half of the year. Given our performance this quarter and the size of our backlog at the end of the period, we believe that this will indeed be the case. The New Home Company has earned a reputation with both consumers and land sellers for delivering a superior home buying experience, and I’m confident that this reputation will carry us to greater success in the future.”
Third Quarter 2016 Operating Results
Total revenues for the 2016 third quarter were $177.9 million, compared to $87.0 million in the prior year period. Net income attributable to the Company was $5.5 million, or $0.27 per diluted share, compared to net income of $4.4 million, or $0.27 per diluted share, in the prior year period. The year-over-year increase in net income was primarily attributable to a 105% increase in total revenues, a 480 basis point reduction in selling, general and administrative (“SG&A”) expenses as a percentage of home sales revenue, which was partially offset by a $3.6 million reduction in joint venture income. The increase in revenues and improvement in our SG&A leverage is consistent with the shift in focus to our wholly owned operations.
Wholly Owned Projects
Home sales revenue for the 2016 third quarter was $125.1 million, compared to $57.9 million in the prior year period. The increase in home sales revenue was driven primarily by a 100% increase in deliveries and an 8% increase in average selling price to $2.1 million.
Homebuilding gross margin percentage was 15.5%, compared to 15.8% in the prior year period, and was up 350 basis points as compared to the 2016 second quarter. The change in gross margin as compared to the prior year was due to a change in mix and was partially offset by a 90 basis point benefit from a warranty accrual adjustment made during the 2016 third quarter. The sequential increase in gross margin was also impacted by mix, including higher gross margins from our Fiano community in Newport Coast, CA and the third quarter warranty adjustment. Adjusted homebuilding gross margin percentage, which excludes interest in cost of home sales, was flat with the prior year period at 16.5%*.
Our SG&A expense ratio as a percentage of home sales revenue was 10.0% versus 14.8% in the prior year period. The 480 basis point improvement in the SG&A ratio was largely attributable to a 116% increase in home sales revenue, which was driven by the significant increase in new home deliveries resulting from the growth in our wholly owned operations.
New home orders were up 5% to 64 homes, compared to 61 homes in the prior year period. The Company’s monthly sales absorption pace was 1.7 sales per average selling community as compared to 2.3 in the prior year period. The Company increased its selling communities by 30%, ending the quarter with 13 communities, compared to 10 as of the end of the prior year quarter.
The dollar value of the Company’s wholly owned backlog at the end of the 2016 third quarter was up 37% year-over-year to $290.2 million and totaled 129 homes, compared to $211.6 million and 96 homes in the prior year period. The average selling price of homes in backlog was $2.2 million, which was relatively consistent with prior year.
Fee Building Projects
Fee building revenue for the 2016 third quarter increased 81% to $52.8 million due primarily to an increase in fee building construction activity. Fee building gross margin was $1.9 million, or 3.7%, compared to $2.1 million, or 7.1%, in the prior year period. The reduction in fee building gross margin percentage was largely due to a decrease in management fees received from joint ventures from $1.5 million during the 2016 third quarter compared to $3.3 million in the prior year period. The decrease in management fees from JVs was primarily the result of fewer deliveries from JV communities.
Unconsolidated Joint Ventures (JVs)
The Company’s share of joint venture income for the 2016 third quarter was $0.5 million, compared to $4.1 million in the prior year period. The decrease in joint venture income was largely driven by a 70% reduction in total JV revenues, which was primarily the result of a 68% decrease in JV deliveries and a 43% reduction in the average selling price of homes delivered.
The following sets forth supplemental information about the Company’s JVs. Such information is not included in the Company’s financial data for GAAP purposes but is provided for informational purposes.
Total revenue of the JVs was $34.5 million and net income was $2.4 million, compared to $115.4 million and $20.9 million in the prior year period, respectively. Home sales revenue of the JVs was $19.7 million, compared to $106.5 million in the prior year period. Homebuilding gross margin percentage generated by the JVs during the quarter increased to 26.3%, compared to 24.8% in the prior year period.
At the end of the 2016 third quarter, the JVs had eight selling communities, down from 11 at the end of the prior year period. As a result of the 27% decline in JV selling communities, new home orders from JVs for the 2016 third quarter decreased 39% to 35 homes as compared to 57 homes in the prior year period. In addition, the dollar value of homes in backlog from unconsolidated JVs at the end of the 2016 third quarter was down 59% to $85.3 million from 88 homes, compared to $205.6 million from 173 homes in the prior year period.
Balance Sheet and Liquidity
As of September 30, 2016, the Company had real estate inventories totaling $383.4 million, of which $260.9 million represented work-in-process and completed homes (including models), $76.2 million in land and land under development, and $46.2 million in land deposits and pre-acquisition costs. The Company owned or controlled 1,584 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 958 lots were controlled or under option. As of September 30, 2016, the Company had $74.3 million in liquidity, which consisted of $44.3 million in cash and cash equivalents and $30.1 million in availability under its revolving credit facility. The Company ended the 2016 third quarter with $233.9 million in total outstanding debt, a debt-to-capital ratio of 50.4% and a net debt-to-capital ratio of 45.1%*.
Guidance
The Company updated its full year guidance for 2016 as follows:
| • | Home sales revenue of $470 – $500 million |
| • | Fee building revenue of $160 – $180 million |
| • | Income from unconsolidated joint ventures of $7 – $8 million |
| • | Wholly owned active year-end community count of 13 |
| • | Joint venture active year-end community count of 9 |
Conference Call Details
The Company will host a conference call and webcast for investors and other interested parties beginning at 12:00 p.m. Eastern Time on Friday, November 4, 2016 to review third quarter results, discuss recent events and 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 4, 2016 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13646621.
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 coastal 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.