The New Home Company Reports 2019 First Quarter Results

The following excerpt is from the company's SEC filing.

Aliso Viejo, California, May 3, 2019.

The New Home Company Inc. (NYSE: NWHM) today announced results for the 2019

quarter.

First Quarter 2019 Financial Results

Net loss of

$2.0 million

$(0.10)

per diluted share, including

$1.8 million

of pretax severance charges, compared to net loss of

$0.6 million

$(0.03)

per diluted share, for the 2018 first quarter

Adjusted net loss of

$0.8 million

*, or

$(0.04)

* per diluted share, excluding severance charges

Home sales revenue up

$ 99.2 million

; deliveries up

Total revenues of

$118.8 million

$123.2 million

Backlog dollar value of

$212.6 million

$228.1 million

Ending community count up

Repurchased $5.0 million of the Company's 7.25% Senior Notes due 2022

resulting in a pretax gain of $0.4 million

153,916

shares of common stock for $1.0 million

"Lower interest rates, moderating home prices, and improvement in the equity markets helped spur buyer demand and order activity during the first quarter, with March being the strongest month," said Larry Webb, Chairman and Chief Executive Officer of The New Home Company. "While sales demand and first quarter absorption rates were lower than the prior year first quarter, absorption rates were up 42% over the fourth quarter which led to a 62% sequential increase in net new orders. In addition, we made progress on our diversification strategy and increased home sales revenue by

, deliveries by

and home sales gross margins by 40 basis points over the prior year first quarter."

Mr. Webb continued, "We remain focused on repositioning our portfolio to include more affordable product where we believe sales demand is deeper and sales pace is more robust. We opened three new communities during the quarter with base pricing below $600,000 and anticipate opening three more during the second quarter at similar price points. In addition, we took steps to right-size our operations and cost structure by reducing headcount to better align our business with recent demand levels."

Mr. Webb concluded, "We continue to take steps to lower our cost structure, strengthen our balance sheet, pursue opportunities to reduce our leverage and thoughtfully allocate resources to best position the Company for long-term success. We acknowledge the challenges that currently face our business and believe our Company has the right team in place to generate long-term value for our shareholders."

First Quarter 2019 Operating Results

Total revenues for the 2019

quarter were

in the prior year period. Net loss attributable to the Company for the 2019 first quarter was

per diluted share, compared to a net loss of

per diluted share, in the prior year period. Adjusted net loss for the 2019 first quarter after excluding severance charges was

* per diluted share. The year-over-year decrease in income was primarily attributable to

in pretax severance charges in the 2019 first quarter related to right-sizing our operations by reducing headcount, a 40 basis point increase in selling and marketing costs as a percentage of homes sales revenue, and a $0.7 million decrease in fee building margin due to lower fee construction activity. Partially offsetting these decreases was a 25% increase in home sales revenue, a 40 basis point increase in home sales

gross margin, a 10 basis point improvement in general and administrative costs as a percentage of home sales revenue (190 basis point improvement excluding severance costs*), and a $0.4 million gain on the early extinguishment of debt.

Wholly Owned Projects

Home sales revenue for the 2019

quarter increased

$79.4 million

in the prior year period. The increase in home sales revenues was driven by an

increase in deliveries and to a lesser extent, a

increase in average selling price to $1.0 million. The higher year-over-year average selling price was impacted by mix, including pulling forward our first deliveries from our higher-priced Icon community in Scottsdale, Arizona where the average price topped $2.2 million.

Gross margin from home sales for the 2019

as compared to

in the prior year period. The 40 basis point increase was primarily due to a mix shift, which was partially offset by higher interest costs and incentives. Adjusted homebuilding gross margin for the 2019 first quarter, which excludes interest in cost of home sales, was

* compared to

* in the prior year period.

Our SG&A expense ratio as a percentage of home sales revenue for the 2019

versus

in the prior year period. The 30 basis point increase in the SG&A rate was primarily due to severance charges and higher amortization of capitalized selling and marketing costs related to a higher community count in the 2019 first quarter, and to a lesser extent, an amortization expense benefit in the 2018 first quarter in connection with adopting Accounting Standards Codification 606. These decreases were partially offset by improved leverage from higher home sales revenue and lower compensation expenses. Excluding severance charges, the SG&A rate was

*, a 150 basis point improvement as compared to the 2018 first quarter.

Net new home orders for the 2019

quarter decreased

homes due to a slower monthly sales absorption rate, partially offset by an increase in average selling communities. The monthly sales absorption rate for the Company was 1.7 for the 2019 first quarter compared to

for the prior year period. The 39% decrease in the monthly absorption rate was due to weaker buyer demand as compared to the prior year, however, we did see a 42% sequential increase in the monthly absorption rate during the 2019 first quarter as compared to the 2018 fourth quarter. We ended the 2019 first quarter with

active communities as compared to

at the end of the 2018 first quarter, a 22% increase.

The dollar value of the Company's wholly owned backlog at the end of the 2019

and totaled

homes compared to

homes in the prior year period. The decrease in backlog dollar value resulted primarily from lower net new orders and a

lower average selling price of the homes in backlog at the end of the 2019 first quarter.

Fee Building Projects

Fee building revenue for the 2019

$19.7 million

$43.8 million

in the prior year period. The decrease in fee revenues was largely due to lower construction activity in Irvine, California due to lower demand levels in that submarket. Management fees from joint ventures and construction management fees from third parties, which are included in fee building revenue, increased to $1.3 million for the 2019

quarter as compared to $1.0 million for the 2018 first quarter. Our fee building gross margin for the 2019 first quarter was $0.4 million versus

$1.1 million

in the prior year period. The reduction in fee building margin was largely the result of lower fee building revenue and a $0.4 million decrease in management fees from joint ventures, which was partially offset by $0.7 million in construction management fees from third parties earned in the 2019 first quarter.

Unconsolidated Joint Ventures (JVs)

The Company’s share of joint venture income for the 2019 first quarter was

$0.2 million

as compared to $0.3 million in the prior year period, with the majority of the income generated from the Company's Mountain Shadows luxury community in Paradise Valley, Arizona. At the end of 2019 and 2018 first quarters, our joint ventures had six and seven actively selling communities, respectively.

Income Taxes

The Company's effective tax rate related to the income tax benefit for the 2019 first quarter was 25.0% as compared to 56.9% in the 2018 first quarter. The decrease is attributable to discrete items which resulted in a $0.4 million benefit in the 2018 first quarter primarily related to energy credits and a $0.3 million provision in the 2019 first quarter related to stock compensation and state tax rate changes.

Balance Sheet and Liquidity

As of

March 31, 2019

, the Company had real estate inventories totaling

$563.1 million

and owned or controlled

lots through its wholly owned operations (excluding fee building and joint venture lots), of which

lots, or 40%, were controlled through option contracts. The Company ended the 2019

$41.9 million

in cash and cash equivalents and $399.6 million in debt, of which

$84.0 million

was outstanding under its

$200 million

revolving credit facility. As of March 31, 2019, the Company had a debt-to-capital ratio of

and a net debt-to-capital ratio of

Repurchase of Senior Notes and Stock

During March 2019, the Company repurchased and retired

of its 7.25% Senior Notes due 2022 for a cash payment of approximately

$4.5 million

, which resulted in a

pretax gain on the early extinguishment of debt.

The Company repurchased

shares of its common stock for approximately $1.0 million during the 2019 first quarter. The purchases were made under a previously announced stock repurchase plan with a remaining purchase authorization of $5.4 million as of March 31, 2019.

Guidance

The Company's current estimate for the 2019 second quarter is as follows:

Home sales revenue of $110 - $130 million

Fee building revenue of $15 - $20 million

Home sales gross margin of 12.0% - 12.5%

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 Friday, May 3, 2019 to review

quarter results, discuss recent events and results, and discuss the Company's quarterly guidance for 2019. 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 June 3, 2019 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13689425.

* Adjusted net loss, adjusted EPS, general and administrative costs excluding severance charges as a percentage of home sales revenue, selling, general and administrative costs excluding severance charges as a percentage of home sales revenue, adjusted homebuilding gross margin (or homebuilding gross margin excluding interest in cost of home sales) and net debt-to-capital ratio 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

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,” 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; 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 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.

Contact:

Investor Relations | Drew Mackintosh | 949-382-7838 |

investorrelations@nwhm.com

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended March 31,

(Dollars in thousands, except per share amounts)

Revenues:

99,186

79,437

Fee building, including management fees

19,662

43,794

118,848

123,231

Cost of Sales:

86,569

69,694

19,268

42,699

105,837

112,393

Gross Margin:

12,617

13,011

10,838

Selling and marketing expenses

(8,679

(6,639

General and administrative expenses

(7,391

(6,019

Equity in net income of unconsolidated joint ventures

Gain on early extinguishment of debt

Other income (expense), net

Pretax loss

(2,651

(1,511

Benefit for income taxes

(1,987

Net loss attributable to non-controlling interest

Net loss attributable to The New Home Company Inc.

Loss per share attributable to The New Home Company Inc.:

Diluted

Weighted average shares outstanding:

19,986,394

20,924,753

CONSOLIDATED BALANCE SHEETS

December 31,

Assets

Cash and cash equivalents

41,874

42,273

Restricted cash

Contracts and accounts receivable

16,459

18,265

Due from affiliates

Real estate inventories

563,112

566,290

Investment in and advances to unconsolidated joint ventures

33,032

34,330

Other assets

35,366

33,452

Total assets

690,640

696,097

Liabilities and equity

Accounts payable

20,638

39,391

Accrued expenses and other liabilities

33,332

29,028

Unsecured revolving credit facility

84,000

67,500

Senior notes, net

315,591

320,148

Total liabilities

453,561

456,067

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, 20,049,113 and 20,058,904, shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

Additional paid-in capital

192,169

193,132

Retained earnings

44,634

46,621

Total stockholders' equity

237,003

239,954

Non-controlling interest in subsidiary

Total equity

237,079

240,030

Total liabilities and equity

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Deferred taxes

(1,481

Amortization of stock-based compensation

Distributions of earnings from unconsolidated joint ventures

Abandoned project costs

Deferred profit from unconsolidated joint ventures

Depreciation and amortization

Net changes in operating assets and liabilities:

(37,529

(2,343

(18,753

(4,041

(8,459

Net cash used in operating activities

(12,232

(29,442

Investing activities:

Purchases of property and equipment

Contributions and advances to unconsolidated joint ventures

(1,335

(4,273

Distributions of capital and repayment of advances from unconsolidated

Interest collected on advances to unconsolidated joint ventures

Net cash provided by (used in) investing activities

(1,952

Financing activities:

Borrowings from credit facility

30,000

Repayments of credit facility

(13,500

Repurchases of common stock

(1,042

Repurchase of senior notes

(4,512

Tax withholding paid on behalf of employees for stock awards

Net cash provided by (used in) financing activities

10,458

Net decrease in cash, cash equivalents and restricted cash

(32,348

Cash, cash equivalents and restricted cash – beginning of period

42,542

123,970

Cash, cash equivalents and restricted cash – end of period

41,990

91,622

KEY FINANCIAL AND OPERATING DATA

New Home Deliveries:

% Change

Dollar Value

Average Price

64,593

44,580

Northern California

18,739

34,857

15,854

Net New Home Orders:

Selling Communities at End of Period:

Average Selling Communities:

Monthly Sales Absorption Rate per Community

Backlog:

109,284

125,747

72,290

98,124

30,991

212,565

228,119

(1) Monthly sales absorption represents the number of net new home orders divided by the number of average selling communities for the period.

Lots Owned and Controlled:

Lots Controlled

Lots Owned and Controlled - Wholly Owned

Total Lots Owned and Controlled

(1) Includes lots that we control under purchase and sale agreements or option agreements subject to customary conditions and have not yet closed. There can be no assurance that such acquisitions will occur.

(2) Lots owned by third party property owners for which we perform construction services.

Other Financial Data:

Three Months Ended 

 March 31,

Interest incurred

Adjusted EBITDA

Adjusted EBITDA margin percentage

 Ended March 31,

29,422

26,658

43,241

48,747

Adjusted EBITDA margin percentage

Ratio of Adjusted EBITDA to total interest incurred

Ratio of debt-to-capital

Ratio of net debt-to-capital

Ratio of debt to LTM

Ratio of net debt to LTM

Ratio of cash and inventory to debt

Adjusted EBITDA, Adjusted EBITDA margin percentage, ratio of Adjusted EBITDA to total interest incurred, ratio of net debt-to-capital, ratio of debt to LTM Adjusted EBITDA and ratio of net debt to LTM Adjusted EBITDA are non-GAAP measures. Please see "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of each of these measures to the appropriate GAAP measure.

"LTM" indicates amounts for the trailing 12 months.

KEY FINANCIAL AND OPERATING DATA - UNCONSOLIDATED JOINT VENTURES

Financial Data - Unconsolidated Joint Ventures:

38,127

31,240

Land sales revenue

42,287

32,013

Net income

Operating Data - Unconsolidated Joint Ventures:

New home orders

New homes delivered

Average selling price of homes delivered

Selling communities at end of period

Backlog homes (dollar value)

70,949

67,244

Backlog (homes)

Average sales price of backlog

Homebuilding lots owned and controlled

Land development lots owned and controlled

Total lots owned and controlled

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

In this earnings release, we utilize certain non-GAAP financial measures as defined by the Securities and Exchange Commission. We present these measures because we believe they, and similar measures, are useful to management and investors in evaluating the Company’s operating performance and financing structure. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following table reconciles net income (loss) attributable to the Company to the non-GAAP measure of adjusted net income (loss) attributable to the Company (net income (loss) before severance charges) and earnings (loss) per share and earnings (loss) per diluted share attributable to the Company to the non-GAAP measures of adjusted earnings (loss) per share and adjusted diluted earnings (loss) per share attributable to the Company (earnings (loss) per share before severance charges). We believe removing the impact of severance costs provides investors with an understanding of the impact these items had on earnings and provides a better understanding of operational performance in the current quarter.

Severance charges, net of tax

Adjusted net loss attributable to The New Home Company Inc.

Adjusted loss per share attributable to The New Home Company Inc.:

(1,788

Less: Related tax benefit

(1,157

Loss per share attributable to The New Home Company Inc. related to severance charges

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)

The following table reconciles the Company’s SG&A rate as a percentage of home sales revenue calculated in accordance with GAAP to the non-GAAP measure, SG&A rate excluding severance charges. During the 2019 first quarter, the company incurred severance charges related to right-sizing our operations by reducing headcount. We believe removing the impact of these charges from our SG&A rate is relevant to provide investors with a better comparison to prior year rates that do not include these charges.

As a Percentage of Home Sales Revenue

General and administrative expenses ("G&A")

Total selling, marketing and G&A expenses ("SG&A")

16,070

12,658

Less: Severance charges

G&A, excluding severance charges

SG&A, excluding severance charges

14,282

Includes $1.1 million related to departure of executive officer.

The following table reconciles homebuilding gross margin percentage as reported and prepared in accordance with GAAP to the non-GAAP measure, adjusted homebuilding gross margin (or homebuilding gross margin excluding interest in cost of home sales). We believe this information is meaningful, as it isolates the impact leverage has on homebuilding gross margin and provides investors better comparisons with our competitors, who adjust gross margins in a similar fashion.

Cost of home sales

Homebuilding gross margin

Add: Interest in cost of home sales

17,469

12,507

The following table reconciles the Company’s ratio of debt-to-capital to the non-GAAP ratio of net debt-to-capital. We believe that the ratio of net debt-to-capital is a relevant financial measure for management and investors to understand the leverage employed in our operations and as an indicator of the Company’s ability to obtain financing.

Total debt, net of unamortized discount, premium and debt issuance costs

399,591

387,648

Equity, exclusive of non-controlling interest

Total capital

636,594

627,602

Less: Cash, cash equivalents and restricted cash

Net debt

357,601

345,106

594,604

585,060

The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt, net of unamortized discount, premium and debt issuance costs by total capital (the sum of total debt, net of unamortized discount, premium and debt issuance costs plus equity), exclusive of non-controlling interest.

The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is total debt, net of unamortized discount, premium and debt issuance costs less cash, cash equivalents and restricted cash to the extent necessary to reduce the debt balance to zero) by total capital, exclusive of non-controlling interest. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our debt, we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt-to-capital does not take into account our liquidity and we believe that the ratio net of cash provides supplemental information by which our financial position may be considered. Investors may also find this to be helpful when comparing our leverage to the leverage of our competitors that present similar information.

Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of Adjusted EBITDA to total interest incurred, the ratio of debt to Adjusted EBITDA, and the ratio of net debt to Adjusted EBITDA are non-GAAP measures. Adjusted EBITDA means net income (loss) (plus cash distributions of income from unconsolidated joint ventures) before (a) income taxes, (b) interest expense, (c) amortization of previously capitalized interest included in cost of sales and equity in net income (loss) of unconsolidated joint ventures, (d) severance charges (e) noncash impairment charges and abandoned project costs, (f) gain from early extinguishment of debt (g) depreciation and amortization, (h) amortization of stock-based compensation and (i) income (loss) from unconsolidated joint ventures. Adjusted EBITDA margin percentage is calculated by dividing Adjusted EBITDA by total revenue for a given period. The ratio of Adjusted EBITDA to total interest incurred is calculated by dividing Adjusted EBITDA by total interest incurred for a given period. The ratio of debt to Adjusted EBITDA is calculated by dividing debt at the period end by Adjusted EBITDA for a given period. The ratio of net debt to Adjusted EBITDA is calculated by dividing debt at the period end less cash, cash equivalents and restricted cash by Adjusted EBITDA for a given period. Other companies may calculate Adjusted EBITDA differently. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, interest costs, tax position, level of impairments and other non-recurring items. Due to the significance of the GAAP components excluded, Adjusted EBITDA should not be considered in isolation or as an alternative to net income (loss), cash flows from operations or any other performance measure prescribed by GAAP. A reconciliation of net income (loss) to Adjusted EBITDA, and the calculations of Adjusted EBITDA margin percentage, the ratio of Adjusted EBITDA to total interest incurred, the ratio of debt to Adjusted EBITDA, and the ratio of net debt to Adjusted EBITDA are provided in the following table.

Net income (loss)

(15,566

15,654

Interest amortized to cost of sales and equity in net income of unconsolidated joint ventures

21,996

12,301

(Benefit) provision for income taxes

(5,879

14,006

Cash distributions of income from unconsolidated joint ventures

Noncash inventory impairments and abandonments

10,176

Gain from early extinguishment of debt

Equity in net (income) loss of unconsolidated joint ventures

19,804

Total Revenue

663,183

749,374

Total debt at period end

319,029

Ratio of debt to Adjusted EBITDA

Total net debt at period end

227,407

Total cash and inventory

604,986

550,449

(1) "LTM" indicates amounts for the trailing 12 months

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

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