ALISO VIEJO, Calif.--(BUSINESS WIRE)-- The New Home Company Inc. (NYSE: NWHM) today announced results for the 2020 second quarter.
Second Quarter 2020 Financial Results
- Net orders increased 6% compared to the 2019 second quarter
- June net orders increased 68% compared to June 2019, representing the highest monthly net order total in Company history
- Homes in backlog increased 14% compared to the 2019 second quarter
- Total revenues of $99.0 million vs. $162.7 million for the 2019 second quarter
- Net loss of $24.3 million, or ($1.32) per diluted share, including $39.0 million in inventory and joint venture impairments and $1.1 million in severance charges, compared to net income of $1.6 million, or $0.08 per diluted share, for the 2019 second quarter
- Adjusted net loss of $0.7 million*, or ($0.04) per diluted share, excluding impairments, severance charges and a net deferred tax asset remeasurement benefit
- Cash flow from operations of $4.7 million and cash and cash equivalents of $85.6 million
- Debt-to-capital ratio of 60.0% and a net debt-to-capital ratio of 51.5%*, a 620-basis point improvement from the 2019 second quarter
- Repurchased 817,300 shares of common stock during the quarter for $1.5 million, or an average of $1.80 per share
"The New Home Company made solid progress on a number of fronts in the second quarter of 2020. We generated positive order momentum as the quarter progressed, made additional improvements to our cost structure, and improved our balance sheet leverage as compared to the prior year period," remarked Larry Webb, Executive Chairman of The New Home Company. "We also took decisive action to address underperforming assets, which resulted in significant impairments and a loss for the quarter, but will provide us a better path forward both from a financial and strategic standpoint. As the COVID-19 pandemic is still impacting lives around the world, we continue to prioritize the health and safety of our employees, trade partners and home buyers. Despite the uncertainty related to this pandemic, I remain confident in our ability to navigate the road ahead."
Leonard Miller, President and Chief Executive Officer, stated, "After experiencing unprecedented uncertainty during the month of April, our monthly absorption pace improved sequentially each month with June ending at 3.6 net orders per community for the month, a 33% increase compared to June 2019. These results were driven by record-low interest rates and pent-up demand for new housing. Year-over-year orders for April and May decreased 56% and 5%, respectively, before increasing 68% in June, marking the highest monthly net order total in our Company’s history. The stronger demand later in the quarter contributed to a 14% increase in homes in backlog compared to the 2019 second quarter and positioned us for a better second half of 2020.”
Mr. Miller continued, “We generated $4.7 million of operating cash flow, and we ended the quarter with $85.6 million in cash and no borrowings outstanding on our bank credit facility. We strengthened our balance sheet by extending the maturity date of our bank credit facility to September 30, 2021 and repurchased $5.8 million in principal of our senior notes. We also repurchased 817,300 shares of our common stock during the quarter for $1.5 million, or $1.80 per share. Our net debt-to-total capital ratio was 51.5%, which represented a 620-basis point improvement compared to the 2019 second quarter.”
Mr. Webb concluded, "Although we incurred substantial impairments and a loss during the quarter, we were pleased with the progress we made, including our continued shift to more affordable price points, right-sizing our cost structure and strengthening our balance sheet. These positive developments have put our Company on more solid footing as we address the challenges ahead. While we have more work to do, the sales success we experienced to end the quarter, the resetting of certain asset positions, and the operational improvements we made give us confidence that The New Home Company is on the right track."
Second Quarter 2020 Operating Results
Total revenues for the 2020 second quarter were $99.0 million compared to $162.7 million in the prior year period. During the quarter, the Company realized a $41.2 million pretax loss as compared to pretax income of $2.6 million in the prior year period. The 2020 second quarter included $19.0 million in inventory impairment charges, a $20.0 million joint venture impairment charge related to a land development joint venture and $1.1 million in severance charges. Net loss attributable to the Company for the 2020 second quarter was $24.3 million, or ($1.32) per diluted share, compared to net income of $1.6 million, or $0.08 per diluted share, in the prior year period. Adjusted net loss for the 2020 second quarter, after excluding impairments, severance charges and a net deferred tax asset remeasurement benefit was $0.7 million or ($0.04) per diluted share.
Wholly Owned Projects
Home sales revenue for the 2020 second quarter was $77.8 million compared to $140.5 million in the prior year period. The decrease in home sales revenue was driven by a 32% decrease in deliveries and a 19% decrease in average selling price to $755,000 from $930,000 a year ago. The decrease in deliveries was driven by lower beginning backlog coupled with a lower backlog conversion rate due to a slowdown in sales at the beginning of the quarter which led to fewer homes sold and delivered during the quarter. Our backlog conversion rate was 59% for the 2020 second quarter as compared to 74% in the year ago period. The decrease in average selling price was impacted by mix, with a higher concentration of revenue generated in the Inland Empire and Sacramento regions where average selling prices are lower than company average.
Gross margin from home sales for the 2020 second quarter was (9.6%) compared to 12.1% for the prior year period. The decrease was primarily due to $19.0 million of impairment charges related to five communities, two of which are close-out communities. Excluding inventory impairment charges, the Company's gross margin from home sales was 14.8%* compared to 12.1% in the year ago period. The 270-basis point improvement before impairments was primarily due to a $2.2 million benefit related to a profit participation true-up on two closed-out communities in Southern California, and to a lesser extent, a product mix shift. These items were partially offset by higher interest costs included in cost of home sales. Adjusted homebuilding gross margin, which excludes interest in cost of home sales and impairment charges, was 20.8%* for the 2020 second quarter as compared to 16.5%* in the prior year period.
The Company's SG&A expense ratio as a percentage of home sales revenue for the 2020 second quarter was 17.1% compared to 11.1% in the prior year period. The increase in the SG&A rate was primarily due to lower home sales revenue, and to a lesser extent, $0.9 million of severance charges included in the 2020 second quarter, and a $0.7 million reduction in G&A expenses allocated to fee building cost of sales. These items were partially offset by lower amortization of capitalized model costs and advertising expenses. Excluding severance charges, the 2020 second quarter SG&A rate was 15.9%*.
Net new home orders for the 2020 second quarter increased 6% primarily due to a 14% increase in average selling communities, which was partially offset by an 8% reduction in the monthly sales absorption rate of 2.2 for the quarter. The lower absorption rate was driven by fewer net orders during the months of April and May due to a temporary drop in demand stemming from stay at home orders and market volatility resulting from the COVID-19 pandemic, which was partially offset by a 68% increase in net orders for the month of June compared to the prior year. Cancellation rate for the 2020 second quarter was 11%, flat with the prior year. We ended the 2020 second quarter with 25 active selling communities, a 25% increase compared to the prior year.
Homes in backlog at the end of the 2020 second quarter increased 14% to 235 compared to the 2019 second quarter. The dollar value of homes in backlog was $168.8 million compared to $201.6 million for the prior year period. The increase in homes in backlog was driven by higher net orders during the quarter and a lower backlog conversion rate. The decrease in dollar value of homes in backlog was driven by the Company’s move to more affordable product which led to a 26% decrease in the average selling price of homes in backlog to $718,000 compared to $974,000 at the end of the 2019 second quarter.
Fee Building Projects
Fee building revenue for the 2020 second quarter was $21.2 million, compared to $22.3 million in the prior year period. Fee building gross margin for the 2020 second quarter was 1.0%, or $0.2 million, compared to 2.3%, or $0.5 million, in the prior year period. The reduction in fee building gross margin was primarily due to severance charges of $0.2 million included in fee building cost of sales related to fee building projects in Irvine, CA.
Unconsolidated Joint Ventures (JVs)
The Company incurred a $20.0 million joint venture loss for the 2020 second quarter as compared to $0.2 million in income for the prior year period. The 2020 second quarter loss resulted from a $20.0 million impairment charge in connection with the Company's intent to exit a land development joint venture in Sacramento, CA. The Company determined that the expected financial returns relative to the future required capital contributions did not outweigh the market and cost risks for the development. In addition, an exit from the joint venture would allow the Company to pursue federal tax loss carryback refund opportunities from the passage of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") as well as preserve capital.
Interest Expense
The Company expensed $1.3 million of interest costs directly to interest expense during the 2020 second quarter in accordance with Accounting Standards Codification 835, as its qualified assets were less than its qualified debt.
Income Taxes
The Company recorded an income tax benefit of $16.9 million for the 2020 second quarter as compared to a $1.0 million provision in the prior year period. The Company's effective tax rate for the 2020 second quarter included the benefit associated with net operating loss carrybacks to years when the Company was subject to a 35% federal tax rate. The 2020 second quarter also included discrete items totaling a $1.8 million benefit which primarily related to the CARES Act that allows companies to carry back net operating losses generated in 2018 through 2020 for five years. The remeasurement of deferred tax assets originally valued at a 21% federal statutory tax rate are now available to be carried back to tax years with a 35% federal statutory rate.
Balance Sheet and Liquidity
The Company generated $4.7 million in operating cash flows during the 2020 second quarter and ended the quarter with $85.6 million in cash and cash equivalents. During the quarter, the Company extended the maturity date of its revolving credit facility to September 30, 2021 and reduced the facility size to $60 million. In addition, the Company repurchased $5.8 million in principal of its senior notes at a discount. As of the end of the second quarter, the Company had no borrowings outstanding under its revolving credit facility and had $295.1 million in net debt outstanding related to its senior notes which mature on April 1, 2022. In addition, the Company had a debt-to-capital ratio of 60.0% and a net debt-to-capital ratio of 51.5%*. The Company owned or controlled 2,239 lots through its wholly owned operations, of which 887 lots, or 40%, were controlled through option contracts.
Stock Repurchase
During the 2020 second quarter, the Company repurchased and retired 817,300 shares of common stock through open market purchases and a 10b5-1 plan for $1.5 million, or $1.80 per share. The repurchases were made under a previously announced stock repurchase program that had a remaining purchase authorization of $1.7 million as of the end of the 2020 second quarter.
Guidance
The Company’s current estimate for the 2020 third quarter is as follows:
- Home sales revenue of $100 - $115 million
- Fee building revenue of $10 - $15 million
- Home sales gross margin of 12.0% to 12.5%
Conference Call Details
The Company will host a conference call and webcast for investors and other interested parties beginning at 10:00 a.m. Eastern Time on Thursday, July 30, 2020 to review second 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 August 30, 2020 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13706411.
* Adjusted net loss, adjusted EPS, selling, general and administrative costs excluding severance charges as a percentage of home sales revenue, 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.
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Investor Relations
Drew Mackintosh
949-382-7838
[email protected]
Source: The New Home Company Inc.
