ALISO VIEJO, Calif.--(BUSINESS WIRE)-- The New Home Company Inc. (NYSE: NWHM) today announced results for the 2019 fourth quarter and full year.
Fourth Quarter 2019 Financial Results
- $62.7 million of cash flow from operations resulting in $22.6 million of net debt reduction and a $38.4 increase in cash during the quarter
- Debt-to-capital ratio of 56.7% and a net debt-to-capital ratio of 49.2%*, a 570 basis point sequential improvement from the third quarter
- Net orders up 106%, monthly absorption rate increased 83% to 2.2 compared to 1.2 for the 2018 fourth quarter
- Total revenues of $222.1 million, including $17.1 million of land sales revenue
- Home sales revenue of $173.9 million vs. $187.3 million for the 2018 fourth quarter
- Net loss of $3.0 million, or ($0.15) per diluted share, including $10.1 million of pretax inventory and joint venture impairment charges
- Adjusted net income of $3.1 million*, or $0.15 per diluted share*, excluding impairment charges
Full Year 2019 Financial Results
- $121.3 million of cash flow from operations and $82.8 million of net debt reduction during the year
- Net debt-to-capital ratio down 980 basis points from the end of 2018 to 49.2%*
- Total revenues of $669.3 million, including $41.7 million of land sales revenue
- Home sales revenue of $532.4 million, up 6% from $504.0 million for 2018
- Home deliveries increased 15%
- SG&A ratio of 11.7%, down 60 basis points from 2018
- Net loss of $8.0 million, or $(0.40) per diluted share, including $15.2 million of pretax inventory and joint venture impairment charges and loss on land sales
- Adjusted net income of $3.3 million*, or $0.16 per diluted share*, excluding impairment charges and loss on land sales
"2019 was a pivotal year for our Company as we committed early in the year to generating cash flow, deleveraging our balance sheet, and improving SG&A efficiency to address a weaker housing market to start the year," remarked Larry Webb, Executive Chairman of The New Home Company. "By the end of 2019, we had generated $121 million in operating cash flow, reduced our net debt by approximately $83 million, and established a more streamlined cost structure which included right-sizing our operations by reducing headcount, along with improved selling, marketing and administrative expense leverage. At the end of 2019, our net debt-to-capital ratio was 49.2%*, a 980 basis point year-over-year improvement."
Leonard Miller, President and Chief Executive Officer stated, "Buyer demand steadily improved throughout the year with our monthly net new orders up for the final five months of 2019. The 2019 fourth quarter was particularly strong with our monthly sales pace up 83% resulting in a 106% increase in net new orders over the prior year period. Demand was strongest at our more affordable, entry level communities where monthly absorption increased to 3.3 for the 2019 fourth quarter, further underscoring the benefit of our ongoing strategy to diversify our product portfolio and expand our customer base. Additionally, our backlog conversion rate improved to 97% for the 2019 fourth quarter from 61% for the 2018 fourth quarter as we continued to capitalize on the shorter build cycles and quicker conversion of spec homes that our more affordable product provided resulting in higher inventory turns and a 7% increase in new home deliveries for the 2019 fourth quarter."
Mr. Miller concluded, "The improvements we made during 2019 to our financial leverage ratios, our product diversification and our cost structure, coupled with a favorable fundamental backdrop for our industry, give us optimism for our Company's prospects as we enter the new year."
Fourth Quarter 2019 Operating Results
Total revenues for the 2019 fourth quarter were $222.1 million, compared to $229.7 million in the prior year period. Net loss attributable to the Company was $3.0 million, or $(0.15) per diluted share, compared to a net loss of $16.2 million, or $(0.80) per diluted share, in the prior year period. The 2019 fourth quarter results included a net tax benefit of $1.2 million related to federal energy tax credits that were extended during the quarter for homes delivered during 2018 and 2019. Adjusted net income for the 2019 fourth quarter was $3.1 million*, or $0.15* per diluted share, after excluding a $6.6 million pretax inventory impairment charge and a $3.5 million pretax joint venture impairment charge. Adjusted net income for the 2018 fourth quarter was $5.6 million*, or $0.28* per diluted share, and excluded $10.0 million in pretax inventory impairment charges and a $20.0 million pretax joint venture impairment charge.
Wholly Owned Projects
Home sales revenue for the 2019 fourth quarter was down 7% from the 2018 fourth quarter at $173.9 million compared to $187.3 million in the year ago period. The decrease in home sales revenue was driven by a 13% decline in average selling price to $870,000 from $1.0 million for the 2018 fourth quarter, which was partially offset by a 7% increase in home deliveries. The lower year-over-year average selling price was impacted by mix, particularly in Northern California where 2019 fourth quarter average home price was down 20% due to a shift from higher-priced Bay Area communities to more affordable communities within the Sacramento region, which was partially offset by the addition of Arizona deliveries where the average selling price exceeded $1.0 million.
Gross margin from home sales for the 2019 fourth quarter was 7.8% and included $6.6 million in inventory impairment charges related to one luxury condominium community in Scottsdale, AZ. Home sales gross margin for the 2018 fourth quarter was 8.1% and included $10.0 million in inventory impairment charges related to two higher-priced communities in Southern California. Excluding home sales impairments, our home sales gross margin was 11.6%* for the 2019 fourth quarter as compared to 13.5%* for the prior year period. The 190 basis point decline was primarily due to increased incentives and higher interest costs. Adjusted homebuilding gross margin, which excludes home sales impairment charges and interest in cost of home sales, was 16.8%* for the 2019 fourth quarter versus 17.7%* in the prior year period.
The Company's SG&A expense ratio as a percentage of home sales revenue for the 2019 fourth quarter was flat with the 2018 fourth quarter at 9.9% despite a 7% decrease in home sales revenue. SG&A expenses were down year-over-year due to reduced personnel expenses, more efficient marketing and advertising spend, and lower co-broker commissions as compared to the prior year period. These decreases were partially offset by a $0.7 million reduction in the amount of G&A expenses allocated to fee building cost of sales in the 2019 fourth quarter due to lower fee building activity and joint venture management fees.
Net new home orders for the 2019 fourth quarter increased 106% primarily due to improved monthly sales absorption rates, and to a lesser extent, a slight increase in average selling communities. The monthly sales absorption rate for the Company was up 83% to 2.2 for the 2019 fourth quarter compared to 1.2 for the prior year period. We ended the 2019 fourth quarter with 21 active communities, up from 20 at the end of the 2018 fourth quarter.
The dollar value of the Company's wholly owned backlog at the end of the 2019 fourth quarter was $125.8 million and totaled 149 homes compared to $207.1 million and 191 homes for the prior year period. The decrease in backlog units was driven primarily by a lower beginning backlog coupled with a higher backlog conversion rate for the 2019 fourth quarter, partially offset by a 106% increase in net new orders. Our backlog conversion rate was 97% for the 2019 fourth quarter as compared to 61% in the year ago period. The increase in the 2019 conversion rate resulted from the Company's move to more affordably priced product, which generally has quicker build cycles, as well as the Company's success in selling and delivering a higher number of spec homes. The decline in backlog dollar value was due to fewer units in ending backlog as well as a 22% decrease in average selling price as the Company continues its transition to more affordable product.
Land Sales
During the 2019 fourth quarter, the Company sold a land parcel in Northern California and recorded land sales revenue of $17.1 million compared to no land sales revenue for the 2018 fourth quarter.
Fee Building Projects
Fee building revenue for the 2019 fourth quarter was $31.1 million, compared to $42.4 million in the prior year period. The decrease in fee building revenue was largely due to less construction activity in Irvine, California. Additionally, management fees from joint ventures and construction management fees from third parties, which are included in fee building revenue, decreased to $0.5 million for the 2019 fourth quarter as compared to $1.6 million for the 2018 fourth quarter. The lower fee building revenue and decrease in management fees, offset partially by a reduction in allocated G&A expenses, resulted in a fee building gross margin of $0.5 million for the 2019 fourth quarter versus $1.1 million in the prior year period.
Unconsolidated Joint Ventures (JVs)
The Company’s share of joint venture loss for the 2019 fourth quarter was $3.8 million as compared to a $19.9 million loss for the prior year period. Included in the Company's allocated losses were $3.5 million and $20.0 million in impairment charges for the 2019 fourth quarter and 2018 fourth quarter, respectively. The 2019 impairment related to our investment in a land development joint venture in Southern California, and the 2018 impairment related to our investment in a land development joint venture in Northern California.
Full Year 2019 Operating Results
Total revenues for the year ended December 31, 2019 were $669.3 million compared to $667.6 million for the prior year. Homebuilding revenue increased to $532.4 million primarily from a 15% increase in deliveries, partially offset by an 8% decrease in the average selling price of homes as the strategic shift to more affordably priced homes continued throughout 2019.
For the full year 2019, the Company reported a net loss of $8.0 million, or $(0.40) per diluted share. Adjusted net income for the year was $3.3 million*, or $0.16* per diluted share, after excluding $10.2 million in pretax inventory impairment charges, a $3.5 million pretax joint venture impairment charge, and $1.5 million in land sales losses. The Company's net loss for 2018 was $14.2 million, or $(0.69) per diluted share. Adjusted net income for 2018 was $7.6 million*, or $0.37* per diluted share, and excluded $10.0 million in pretax inventory impairment charges and a $20.0 million pretax joint venture impairment charge. The year-over-year decrease in net loss was primarily attributable to a $16.5 million decrease in joint venture impairment charges, a 6% increase in home sales revenue, and a 60 basis point improvement in SG&A expenses as percentage of home sales revenue. These increases were partially offset by a 120 basis point decline in home sales gross margin (160 basis point decline before impairments*), a 42% decrease in fee building revenue, and a reduction in income tax benefit.
Balance Sheet and Liquidity
The Company generated $62.7 million in operating cash flows during the 2019 fourth quarter and ended the quarter with $79.3 million in cash and cash equivalents, and $304.8 million in debt. At December 31, 2019, the Company had a debt-to-capital ratio of 56.7% and a net debt-to-capital ratio of 49.2%*. As of December 31, 2019, the Company owned or controlled 2,701 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 1,123 lots, or 42%, were controlled through option contracts.
Guidance
The Company's current estimate for the 2020 first quarter is as follows:
- Home sales revenue of $75 - $90 million
- Fee building revenue of $20 - $30 million
- Home sales gross margin of 11.8% - 12.1%
Conference Call Details
The Company will host a conference call and webcast for investors and other interested parties beginning at 5:00 p.m. Eastern Time on Thursday, February 13, 2020 to review fourth quarter and full year results, discuss recent events and results, and discuss the Company's quarterly guidance for 2020. 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 March 14, 2020 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13698213.
* Net debt-to-capital ratio, adjusted net income, adjusted EPS, home sales gross margin excluding impairment charges (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, metro Sacramento, the San Francisco Bay area 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. 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,” “indicate,” 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: 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 and impairments; 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; a cybersecurity or business interruption event; availability of qualified personnel and our ability to retain our key personnel; 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.
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Investor Relations | Drew Mackintosh | 949-382-7838 | [email protected]
Source: The New Home Company Inc.
