The New Home Company Inc. (NWHM) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to The New Home Company Second Quarter 2021 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Drew Mackintosh, Investor Relations for The New Home Company. Thank you. You may begin.
Drew Mackintosh: Good morning. Welcome to The New Home Company’s earnings conference call. Earlier today, the company released its financial results for the second quarter 2021. Documents detailing these results are available in the Investor Relations section of the company’s website at nwhm.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the company’s filings made with the SEC, including its most recent Annual Report on Form 10-K and in its quarterly reports on Form 10-Q.
Larry Webb: Thanks, Drew and good morning to everyone joining us on the call today. Last week, we announced that The New Home Company has entered into a definitive agreement with certain funds managed by affiliates of Apollo Global Management to acquire the company in an all-cash transaction for $9 per share. Our Board of Directors unanimously approved this decision following a thorough review of alternatives to maximize value for its stockholders, ultimately concluding that the proposed transaction with Apollo represented the best way forward for our company and our stockholders. We believe that the proposed transaction will provide our stockholders with immediate liquidity in the form of an all-cash offer at an attractive premium and aligns our company with a highly respected global alternative asset manager with a proven track record of success. We are excited for this next phase of The New Home Company’s evolution and believe our potential partnership with Apollo can take our company to new heights. In terms of our results this quarter, The New Home Company continued to make progress on a variety of fronts in the second quarter of 2021 and generated earnings of $0.26 per share. Home sale revenue grew 75% year-over-year, thanks to a 98% increase in new home deliveries. Our home sales gross margin continued to move higher on a year-over-year and sequential basis, coming in at 17.3% for the quarter, as we were successful in implementing price increases ahead of cost inflation. We are very pleased with these financial results and look forward to carrying this operational momentum forward. In addition, order activity remained healthy in the second quarter, as we averaged 3.3 sales per community per month, a 50% improvement over last year. Demand continues to outstrip supply in all our markets, putting us in a favorable position with respect to our sales efforts. Similar to last quarter, we intentionally metered sales releases at a number of communities in an effort to raise prices and manage our backlog and construction schedules. This strategic decision has been instrumental in our ability to improving our operating margin and better align construction starts with sales.
Leonard Miller: Thanks and good morning to everyone on the call today. I want to echo Larry’s excitement for the announcement of the proposed Apollo transaction, which we believe represent a great opportunity for our stockholders to maximize the value of their investment in us. Their vision for the industry and the company aligns with ours, and I am excited to work with their team to build on the significant progress we’ve made. Turning to our results, I am extremely pleased with how our teams performed this quarter as we were able to surpass the high end of our stated guidance for both revenues and gross margin. This was no easy task considering the well-documented operational challenges that persist in the market today, and I’m appreciative for how our teams executed during the second quarter. As Larry mentioned, homebuilding fundamentals remained strong in all of our markets, characterized by limited supply and a motivated pool of buyers. We took advantage of this demand by raising prices in all of our communities during the quarter, which led to margin improvement in the quarter and in our homes in backlog. We generally expect more normalized seasonality trends in the back half of the year, while pricing should remain firm, given the ongoing lack of supply we see in our markets. New home community counts are down significantly year-over-year in our markets and are expected to remain lower, given the robust sales environment and difficulty all builders are having bringing new product to the market.
John Stephens: Thank you, Leonard and good morning to everyone on the call. For the 2021 second quarter, we generated pre-tax income of $6.1 million as compared to a pre-tax loss of $41.2 million in the prior year second quarter, which included $39 million of inventory and joint venture impairment charges and a $1.1 million in severance charges. Net income for the 2021 second quarter was $4.8 million or $0.26 per diluted share compared to a net loss of $24.3 million or $1.32 per diluted share in the prior year period. Adjusted net loss for the 2020 second quarter after excluding impairment charges, severance and a net deferred tax asset re-measurement benefit was $706,000 or $0.04 per diluted share. Our home sales revenue for the 2021 second quarter was $136 million as compared to $78 million in the prior year period. The 75% year-over-year increase was primarily attributable to a 98% increase in deliveries, driven by a significant increase in deliveries from Arizona and Northern California, and to a lesser extent, an increase in Southern California and the addition of our Colorado operation in 2021. The increase in deliveries was partially offset by a 12% decrease in average selling price, driven by a mix shift to more affordable communities as a larger concentration of our deliveries incurred in Arizona, where the average selling price was $399,000 and fewer deliveries in Southern California as a percentage of the total mix. Our homebuilding gross margin for the second quarter was 17.3% as compared to a negative 9.6% for the prior year second quarter. The prior year included $19 million in inventory impairment charges and excluding these charges, the homebuilding gross margin was 14.8% in the 2020 second quarter. The 250 basis point increase in gross margin was primarily driven by a 190 basis point reduction in interest in cost of sales as a percentage of home sales revenue and, to a lesser extent, price increases and a mix shift. The 2021 second quarter also included $730,000 of purchase accounting adjustments related to the acquisition of Epic Homes. Excluding these adjustments, the homebuilding gross margin for the second quarter was 17.8%. Excluding inventory impairments in the prior year and interest in cost of sales, our adjusted gross margin was 21.4% for the 2021 second quarter compared to 20.8% in the prior year. Our SG&A rate as a percentage of home sales revenue for the second quarter was 12.7% versus 17.1% in the year ago period. The improvement in the 2021 SG&A rate was largely the result of higher home sales revenue during the quarter and, to a lesser extent, lower amortization of capitalized model costs in Southern California due to a lower community count and a $0.9 million in severance charges in the 2020 second quarter. These items were partially offset by higher personnel cost attributable to incentive compensation and our new Colorado operation and a $706,000 decrease in G&A expenses allocated to the fee building cost of sales compared to the prior year.
Larry Webb: Thanks, John. The last several years have been quite a journey for The New Home Company, as we transformed the company from a high-end homebuilder operating exclusively in California into a much more diversified builder with operations in three states. Along the way, we strengthened our balance sheet, streamlined our cost structure and repositioned our product offerings to cater to a deeper pool of buyers. However, our ability to scale the business has always been constrained by our relatively small size and limited capital base. As a Founder of The New Home Company, I have consistently communicated that building homes and communities was a noble occupation and with that came a responsibility to continually strive for improvement. I would like to thank all the members of The New Home team for accepting this belief. It is through your hard work and dedication that we have been able to build the company into what it is today, and I’m very appreciative of your efforts. Finally, I’d like to thank our stockholders for their support for the last 7 years. That concludes our prepared remarks.
Operator: Thank you. Ladies and gentlemen, this concludes our conference today. We thank you for your interest and your participation. You may now disconnect your lines.
