Market Overview

The New Home Company Reports 2017 Fourth Quarter and Full Year Results

Share:

2017 Fourth Quarter
— Diluted EPS of $0.50, Including a
($0.15) Noncash Deferred Tax Asset Charge —

— Deliveries up
17% —

— Homebuilding Gross Margin up 140 bps to 15.8% —

Orders up 55% —

The New Home Company Inc. (NYSE:NWHM) today announced results for the
2017 fourth quarter and full year.

Fourth Quarter 2017 Highlights Compared to Fourth Quarter 2016

  • Net income of $10.5 million, or $0.50 per diluted share vs. $13.8
    million, or $0.66 per diluted share
    • Net income included a $3.2 million, or ($0.15) per diluted share,
      noncash deferred tax asset charge resulting from the passage of
      the Tax Cuts and Jobs Act of 2017
  • Total revenues of $324.1 million vs. $322.4 million
  • Home sales revenue of $279.9 million, up 7%; deliveries up 17%
  • Homebuilding gross margin of 15.8% vs. 14.4%, up 140 basis points;
    excluding interest in cost of sales and inventory impairments, up 180
    basis points to 18.0%*
  • Net new home orders up 55%
  • Backlog units up 94%

Full Year 2017 Highlights Compared to Full Year 2016

  • Total revenues of $751.2 million vs. $694.5 million, an 8% increase
  • Home sales revenue of $560.8 million, a 10% increase; deliveries up 36%
  • Homebuilding gross margin up 100 basis points to 15.2% vs. 14.2%;
    excluding interest in cost of sales and impairments, up 190 basis
    points to 17.6%*
  • Net new home orders up 63%

"The New Home Company finished the year on a very strong note with our
fourth quarter home sales revenue representing half of our full year
total. Additionally, our deliveries were up 17% for the quarter and our
homebuilding gross margin improved 140 basis points to 15.8%. We plan to
build on this momentum in 2018 as we execute on our strategy to increase
our community count and expand our product offerings to deliver more
homes at lower, more diverse price points," said The New Home Company's
Chief Executive Officer Larry Webb. "During 2017, we opened seven
communities with initial base pricing below $750,000 and plan to open
six more communities below this price point in 2018."

Mr. Webb continued, "The healthy buyer demand we experienced in
California during the year, along with the shift to more
affordably-priced product, drove increases in our monthly sales
absorption rates for both the fourth quarter and full year 2017. Net new
home orders were up 55% for the 2017 fourth quarter and 63% for the full
year, and we ended the year with a 94% increase in backlog units."

Mr. Webb concluded, "We believe the favorable housing market conditions
we experienced in 2017 will continue into 2018, which should position us
to take advantage of healthy buyer demand, capitalize on growth
opportunities, and improve shareholder returns."

Fourth Quarter 2017 Operating Results

Total revenues for the 2017 fourth quarter were $324.1 million, compared
to $322.4 million in the prior year period. Net income attributable to
the Company was $10.5 million, or $0.50 per diluted share, and included
a noncash income tax charge of $3.2 million, or ($0.15) per diluted
share, attributable to the revaluation of the Company's deferred tax
asset related to the reduction in the federal corporate tax rate in
connection with the Tax Cuts and Jobs Act enacted in December 2017.
Excluding the deferred tax asset charge, net income for the 2017 fourth
quarter was $13.7 million*, or $0.65* per diluted share, compared to
$13.8 million, or $0.66 per diluted share, in the prior year period. The
2017 fourth quarter also included a $0.9 million pretax inventory
impairment related to housing as compared to $3.5 million of inventory
impairments related to housing and land in the prior year period.
Excluding the deferred tax asset charge, our 2017 fourth quarter net
income was relatively flat with the prior year as a 7% increase in home
sales revenue, a 140 basis point improvement in home sales gross margin
and a $2.6 million reduction in inventory impairments were primarily
offset by a $3 million decrease in joint venture income, a 50 basis
point increase in selling and marketing expenses as a percentage of home
sales revenues and a $1.7 million decline in fee building gross margin.

Wholly Owned Projects

Home sales revenue for the 2017 fourth quarter increased 7% to $279.9
million, compared to $261.7 million in the prior year period. The
increase in home sales revenue was driven largely by a 17% increase in
deliveries, which was partially offset by an 8% decline in the average
selling price of homes delivered to $2.0 million due to a product mix
shift.

Gross margin from home sales for the 2017 fourth quarter improved 140
basis points to 15.8%, compared to 14.4% in the prior year period. The
2017 fourth quarter included a $0.9 million inventory impairment charge
related to one community while the 2016 fourth quarter included $2.4
million in housing impairment charges related to two communities.
Excluding the impact of inventory impairments, the gross margin from
home sales for the 2017 fourth quarter was 16.2%* vs. 15.3%* for the
2016 period. The 140 basis point improvement in home sales gross margin
(90 basis points before impairment charges) was primarily due to a
product mix shift, including increased deliveries in the 2017 fourth
quarter from two higher-margin, coastal communities located in Newport
Coast, CA. Additionally, the 2017 fourth quarter also benefited from a
$0.8 million warranty reserve adjustment. Adjusted gross margin from
home sales for the 2017 fourth quarter, excluding interest in cost of
home sales and inventory impairments, was 18.0%* compared to 16.2%* in
the prior year period.

Our SG&A expense ratio as a percentage of home sales revenue for the
2017 fourth quarter was 8.4% versus 7.9% in the prior year period. The
50 basis point increase in the SG&A rate was primarily attributable to
higher selling and marketing costs driven by greater amortization of
capitalized selling and marketing costs from our two luxury communities
located in Newport Coast, CA, coupled with an increase in marketing and
model operating costs related to new community openings.

Net new home orders for the 2017 fourth quarter were up 55% to 107
homes, compared to 69 homes in the prior year period. The increase was
primarily driven by a 44% increase in the monthly sales absorption rate
and to a lesser extent, a 13% increase in active selling communities,
which totaled 17 as of the end of the year. The Company's monthly sales
absorption pace for the 2017 fourth quarter was 2.3 sales per average
selling community, compared to 1.6 in the prior year period. The
improvement in the absorption rate was driven by stronger order activity
in both Southern and Northern California resulting from more
affordably-priced product offerings, which generally sell at a faster
pace than move-up and luxury product. The Company's cancellation rate
for the 2017 fourth quarter was 8% as compared to 12% in the prior year
period.

The dollar value of the Company's wholly owned backlog at the end of the
2017 fourth quarter was $162.3 million and totaled 153 homes, compared
to $187.3 million and 79 homes in the prior year period. The decrease in
backlog dollar value resulted from a 55% lower average selling price of
homes in backlog to $1.1 million as compared to $2.4 million a year ago.
The decline in the Company's average home price in backlog was due to
the delivery of the final homes from its two higher-priced luxury
communities located in Newport Coast, CA, combined with the Company's
strategy to expand its product portfolio to include more affordable
price points.

Fee Building Projects

Fee building revenue for the 2017 fourth quarter decreased 27% to $44.2
million, compared to $60.8 million in the prior year period. The
decrease was primarily due to a decrease in fee building construction
activity. Our fee building gross margin was $1.0 million, compared to
$2.7 million in the prior year period. Management fees from joint
ventures were $1.2 million during the 2017 fourth quarter, compared to
$2.0 million in the prior year period.

Unconsolidated Joint Ventures (JVs)

The Company's share of joint venture income for the 2017 fourth quarter
was $0.3 million, compared to $3.3 million in the prior year period. The
reduction in joint venture income was due to a 47% decrease in joint
venture home sales revenue resulting from a 54% decline in deliveries,
lower joint venture home sales gross margin and a reduction in joint
venture land sales revenue. The decrease in joint venture home sales
gross margin was largely the result of a mix shift to more Sacramento
deliveries in 2017 as compared to a heavier mix of Bay Area deliveries
from our higher-margin Orchard Park community in 2016.

The following sets forth supplemental information about the Company's
joint ventures. Such information is not included in the Company's
financial data for GAAP purposes but is provided for informational
purposes.

Joint venture net income totaled $0.6 million, compared to $9.8 million
in the prior year period. Joint venture home sales revenue totaled $38.1
million, compared to $72.0 million in the prior year period, while joint
venture land sales revenue totaled $1.7 million for the 2017 fourth
quarter, compared to $14.7 million in the prior year period.

At the end of the 2017 fourth quarter, our joint ventures had seven
actively selling communities compared to nine at the end of the 2016
fourth quarter. Net new home orders from joint ventures for the 2017
fourth quarter decreased 29% to 34 homes as compared to 48 homes in the
prior year period. The dollar value of homes in backlog from joint
ventures at the end of the 2017 fourth quarter was $66.6 million from 80
homes, compared to $55.4 million from 62 homes in the prior year period.

Income Taxes

The Company's provision for income taxes for the 2017 fourth quarter was
$11.2 million and included a $3.2 million noncash charge related to the
revaluation of its deferred tax asset resulting from the passage of the
Tax Cuts and Jobs Act that was enacted in December 2017 and reduced the
corporate federal tax rate from 35% to 21%. The effective tax rate for
the 2017 fourth quarter was 51.7% as compared to 37.6% for the 2016
fourth quarter, while the full year 2017 effective tax rate was 47.3%
vs. 38.4% for the full year 2016. Excluding the deferred tax asset
charge, the Company's effective tax rate would have been 37.0%* and
37.5%* for the 2017 fourth quarter and full year 2017, respectively.
Based on our current operations and geographic footprint coupled with
current state income tax laws, our preliminary estimate of the full year
2018 effective income tax rate is approximately 28% to 29%, excluding
the impact of any potential discrete items.

Full Year 2017 Operating Results

Total revenues for the year ended December 31, 2017 were up 8% to $751.2
million, compared to $694.5 million in the prior year. The increase in
total revenues was primarily due to a 36% increase in new home
deliveries, which was partially offset by a 19% decrease in the average
selling price of homes delivered due to a product mix shift. Net income
attributable to the Company for the full year 2017 was $17.2 million,
or $0.82 per diluted share, and included a noncash deferred tax asset
charge of $3.2 million, or $0.15 per diluted share, related to the
reduction in the federal corporate tax rate in connection with the Tax
Cuts and Jobs Act enacted in December 2017. Excluding the deferred tax
asset charge, net income for the full year 2017 was $20.3 million*, or
$0.97* per diluted share, compared to $21.0 million, or $1.01 per
diluted share, for the full year 2016. The slight decrease in net income
before the adjustment to our deferred tax asset was due to a $6.8
million reduction in joint venture income and a $3.3 million decrease in
joint venture management fees, which was offset by a 10% increase in the
Company's wholly owned home sales revenue and a 100 basis point
improvement in home sales gross margin.

Balance Sheet and Liquidity

As of December 31, 2017, the Company had real estate inventories
totaling $416.1 million, of which $332.5 million represented
work-in-process and completed homes (including models), $47.8 million in
land and land under development, and $35.8 million in land deposits and
pre-acquisition costs. The Company owned or controlled 2,752 lots
through its wholly owned operations (excluding fee building and joint
venture lots), of which 1,806 lots, or 66%, were controlled through
option contracts. The Company ended the 2017 fourth quarter with $123.5
million in cash and cash equivalents and had no borrowings outstanding
under its $200.0 million revolving credit facility. The Company ended
the 2017 fourth quarter with $318.7 million in debt outstanding (net of
unamortized discount, premium and debt issuance costs), a
debt-to-capital ratio of 54.7% and a net debt-to-capital ratio of 42.4%*.

Guidance

The Company's current estimate for full year guidance for 2018 is as
follows:

  • Home sales revenue of $600 - $660 million
  • Fee building revenue of $110 - $140 million
  • Home sales gross margin of 14.5% - 15.0%
  • Income from unconsolidated joint ventures of $2 million
  • Wholly owned active year-end community count of 20
  • Joint venture active year-end community count of 5

The Company's current estimate for the 2018 first quarter is as follows:

  • Home sales revenue of $70 - $80 million
  • Fee building revenue of $30 - $40 million
  • Income from unconsolidated joint ventures of $0.5 million
  • Wholly owned active quarter-end community count of 21
  • Joint venture active quarter-end community count of 7

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
Wednesday, February 14, 2018 to review fourth quarter and full year
results, discuss recent events and results, and discuss the Company's
initial full year and certain quarterly guidance for 2018. 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, 2018 and can
be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the pass code 13675611.

* Homebuilding gross margin percentage before impairments, adjusted
homebuilding gross margin percentage, net debt-to-capital ratio, net
income before noncash deferred tax asset charge, earnings per diluted
share before noncash deferred tax asset charge, and effective tax rate
before noncash deferred tax asset charge 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
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.

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 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; 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; shortages of or increased
prices for labor, land or raw materials used in housing construction;
adverse weather conditions and natural disasters (including wild fires);
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.

           

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

Three Months Ended

December 31,

Year Ended

December 31,

2017       2016 2017       2016
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 279,885 $ 261,668 $ 560,842 $ 507,949
Fee building, including management fees from unconsolidated joint
ventures of $1,190, $1,951, $4,945 and $8,202, respectively
44,217   60,781   190,324   186,507  
324,102   322,449   751,166   694,456  
Cost of Sales:
Home sales 234,668 221,700 473,213 433,559
Home sales impairments 900 2,350 2,200 2,350
Land sales impairment 1,150 1,150
Fee building 43,194   58,040   184,827   178,103  
278,762 283,240 660,240 615,162
Gross Margin:
Home sales 44,317 37,618 85,429 72,040
Land sales (1,150 ) (1,150 )
Fee building 1,023   2,741   5,497   8,404  
45,340 39,209 90,926 79,294
 
Selling and marketing expenses (14,465 ) (12,167 ) (32,702 ) (26,744 )
General and administrative expenses (9,180 ) (8,406 ) (26,330 ) (25,882 )
Equity in net income of unconsolidated joint ventures 260 3,263 866 7,691
Other income (expense), net (263 ) 181   (229 ) (409 )
Pretax income 21,692 22,080 32,531 33,950
Provision for income taxes (11,222 ) (8,306 ) (15,390 ) (13,024 )
Net income 10,470 13,774 17,141 20,926
Net loss attributable to noncontrolling interest 1   6   11   96  
Net income attributable to The New Home Company Inc. $ 10,471   $ 13,780   $ 17,152   $ 21,022  
 
Earnings per share attributable to The New Home Company Inc.:
Basic $ 0.50 $ 0.67 $ 0.82 $ 1.02
Diluted $ 0.50 $ 0.66 $ 0.82 $ 1.01
Weighted average shares outstanding:
Basic 20,876,766 20,712,095 20,849,736 20,685,386
Diluted 21,145,065 20,960,173 20,995,498 20,791,445
 
 
             

CONSOLIDATED BALANCE SHEETS

 
December 31,
2017           2016
(Dollars in thousands, except per share amounts)
(Unaudited)
Assets
Cash and cash equivalents $ 123,546 $ 30,496
Restricted cash 424 585
Contracts and accounts receivable 23,224 27,833
Due from affiliates 1,060 1,138
Real estate inventories 416,143 286,928
Investment in and advances to unconsolidated joint ventures 55,824 50,857
Other assets 24,291   21,299
Total assets $ 644,512   $ 419,136
 
Liabilities and equity
Accounts payable $ 23,722 $ 33,094
Accrued expenses and other liabilities 38,054 23,418
Unsecured revolving credit facility 118,000
Senior notes, net 318,656  
Total liabilities 380,432   174,512
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,
20,876,837 and 20,712,166, shares issued and outstanding as of
December 31, 2017 and December 31, 2016, respectively
209 207
Additional paid-in capital 199,474 197,161
Retained earnings 64,307   47,155
Total stockholders' equity 263,990 244,523
Noncontrolling interest in subsidiary 90   101
Total equity 264,080   244,624
Total liabilities and equity $ 644,512   $ 419,136
 
 
             

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Year Ended
December 31,
2017           2016
(Dollars in thousands)
Operating activities:
Net income $ 17,141 $ 20,926
Adjustments to reconcile net income to net cash used in operating
activities:
Deferred taxes (1,073 ) (918 )
Noncash deferred tax asset charge 3,190

Amortization of equity based compensation 2,803 3,471
Excess income tax provision from stock-based compensation 97
Inventory impairments 2,200 3,500
Abandoned project costs 383 580
Gain from notes payable principal reduction (250 )
Distributions of earnings from unconsolidated joint ventures 1,588 3,742
Equity in net income of unconsolidated joint ventures (866 ) (7,691 )
Deferred profit from unconsolidated joint ventures 821 646
Depreciation and amortization 449 511
Net changes in operating assets and liabilities:
Restricted cash 161 396
Contracts and accounts receivable 4,670 (3,737 )
Due from affiliates 18 (344 )
Real estate inventories (114,930 ) (71,388 )
Other assets (5,255 ) (756 )
Accounts payable (9,546 ) 6,171
Accrued expenses and other liabilities 7,544 2,921
Due to affiliates   (293 )
Net cash used in operating activities (90,702 ) (42,416 )
Investing activities:
Purchases of property and equipment (195 ) (439 )
Cash assumed from joint venture at consolidation 995 2,009
Contributions and advances to unconsolidated joint ventures (27,479 ) (15,088 )
Distributions of capital and repayment of advances to unconsolidated
joint ventures
15,577 15,307
Interest collected on advances to unconsolidated joint ventures 552    
Net cash provided by (used in) investing activities (10,550 ) 1,789  
Financing activities:
Borrowings from credit facility 88,000 223,050
Repayments of credit facility (206,000 ) (179,974 )
Proceeds from senior notes 324,465
Borrowings from other notes payable 343
Repayments of other notes payable (4,110 ) (15,636 )
Payment of debt issuance costs (7,565 ) (1,064 )
Cash distributions to noncontrolling interest in subsidiary (725 )
Minimum tax withholding paid on behalf of employees for stock awards (590 ) (648 )
Excess income tax provision from stock-based compensation (97 )
Proceeds from exercise of stock options 102    
Net cash provided by financing activities 194,302   25,249  
Net increase (decrease) in cash and cash equivalents 93,050 (15,378 )
Cash and cash equivalents – beginning of year 30,496   45,874  
Cash and cash equivalents – end of year $ 123,546   $ 30,496  
 
 
                                   

KEY FINANCIAL AND OPERATING DATA

(Dollars in thousands)

(Unaudited)

 
New Home Deliveries:
      Three Months Ended December 31,
2017 2016 % Change
Homes      

Dollar

Value

     

Average

Price

Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

Southern California 86 $ 242,955 $ 2,825 80 $ 232,045 $ 2,901 8 % 5 % (3 )%
Northern California 53   36,930   697 39   29,623   760 36 % 25 % (8 )%
Total 139   $ 279,885   $ 2,014 119   $ 261,668   $ 2,199 17 % 7 % (8 )%
 
 
Year Ended December 31,
2017 2016 % Change
Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

(Dollars in thousands)
Southern California 174 $ 433,651 $ 2,492 147 $ 422,041 $ 2,871 18 % 3 % (13 )%
Northern California 167   127,191   762 103   85,908   834 62 % 48 % (9 )%
Total 341   $ 560,842   $ 1,645 250   $ 507,949   $ 2,032 36 % 10 % (19 )%
 
                             
Net New Home Orders:
     

Three Months Ended December 31,

Year Ended December 31,
2017 2016 % Change 2017 2016 % Change
Southern California 54 36 50 % 197 141 40 %
Northern California 53   33   61 % 215   112   92 %
107   69   55 % 412   253   63 %
 
 
Active Communities:
As of December 31,
2017 2016 % Change
Southern California 10 8 25 %
Northern California 7   7   %
17   15   13 %
 
 
     

KEY FINANCIAL AND OPERATING DATA (continued)

(Dollars in thousands)

(Unaudited)

 
Backlog: As of December 31,
2017       2016       % Change
Homes      

Dollar

Value

     

Average

Price

Homes      

Dollar

Value

     

Average

Price

Homes      

Dollar

Value

     

Average

Price

Southern California 71 $ 93,955 $ 1,323 48 $ 162,599 $ 3,387 48 % (42 )% (61 )%
Northern California 82   68,295   833 31   24,697   797 165 % 177 % 5 %
Total 153   $ 162,250   $ 1,060 79   $ 187,296   $ 2,371 94 % (13 )% (55 )%
 
 
Lots Owned and Controlled:                         December 31,
2017           2016           % Change
Lots Owned
Southern California 563 290 94 %
Northern California 318 300 6 %
Arizona 65     NA
Total 946   590   60 %

Lots Controlled(1)

Southern California 278 721 (61 )%
Northern California 1,031 265 289 %
Arizona 497     NA
Total 1,806   986   83 %
Lots Owned and Controlled - Wholly Owned 2,752 1,576 75 %

Fee Building(2)

920   935   (2 )%
Total Lots Owned and Controlled 3,672   2,511   46 %
 
(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
December 31,
      Year Ended
December 31,
2017       2016 2017       2016
Interest incurred $ 6,761 $ 2,241 $ 21,978 $ 7,484
Adjusted EBITDA(1) $ 28,632 $ 27,273 $ 50,145 $ 43,144
Adjusted EBITDA margin percentage (1) 8.8 % 8.5 % 6.7 % 6.2 %
Ratio of LTM(2) Adjusted EBITDA to total interest incurred
(1)
2.3x 5.8x 2.3x 5.8x
Ratio of debt-to-capital 54.7 % 32.5 % 54.7 % 32.5 %
Ratio of net debt-to-capital(1) 42.4 % 26.2 % 42.4 % 26.2 %
Ratio of debt to LTM(2) Adjusted EBITDA(1) 6.4x 2.7x 6.4x 2.7x
Ratio of net debt to LTM(2) Adjusted EBITDA(1) 3.9x 2.0x 3.9x 2.0x
Ratio of cash, inventory, and joint venture investments to debt 1.9x 3.1x 1.9x 3.1x
 
(1)     Adjusted EBITDA, Adjusted EBITDA margin percentage, ratio of LTM
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.
(2) "LTM" indicates amounts for the trailing 12 months.
 
 
           

KEY FINANCIAL AND OPERATING DATA — UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

 
Three Months Ended December 31, Year Ended December 31,
2017       2016       % Change 2017       2016       % Change

Financial Data — Unconsolidated Joint Ventures:

Home sales revenue $ 38,069 $ 71,986 (47 )% $ 142,697 $ 177,544 (20 )%
Land sales revenue 1,698   14,708   (88 )% 4,750   55,675   (91 )%
Total revenue $ 39,767   $ 86,694   (54 )% $ 147,447   $ 233,219   (37 )%
Net income (loss) $ 563   $ 9,813   (94 )% $ (529 ) $ 26,191   (102 )%
 

Operating Data — Unconsolidated Joint Ventures:

New home orders 34 48 (29 )% 170 159 7 %
New homes delivered 34 74 (54 )% 149 197 (24 )%
Average selling price of homes delivered $ 1,120 $ 973 15 % $ 958 $ 901 6 %
 
Selling communities at end of period 7 9 (22 )%
Backlog homes (dollar value) $ 66,636 $ 55,414 20 %
Backlog (homes) 80 62 29 %
Average sales price of backlog $ 833 $ 894 (7 )%
 
Homebuilding lots owned and controlled 341 585 (42 )%
Land development lots owned and controlled 2,323   2,415   (4 )%
Total lots owned and controlled 2,664   3,000   (11 )%
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

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 attributable to the Company to
the non-GAAP measure of net income attributable to the Company before
noncash deferred tax asset charge and earnings per share and earnings
per diluted share attributable to the Company to the non-GAAP measures
of earnings per share and diluted earnings per share attributable to the
Company before noncash deferred tax asset charge. The table also
reconciles the Company's effective tax rate to the non-GAAP measure of
effective tax rate before noncash deferred tax asset charge. The
revaluation of the Company's deferred tax asset was required as a result
of the Tax Cuts and Jobs Act that was enacted in December 2017. We
believe removing the impact of the noncash deferred tax asset charge is
relevant to provide investors with an understanding of the impact the
charge had to earnings and to allow a more direct comparison of earnings
to the prior year period.

     

Three Months Ended

December 31,

     

Year Ended

December 31,

2017       2016 2017       2016
(Dollars in thousands, except per share amounts)
Net income attributable to The New Home Company Inc. $ 10,471 $ 13,780 $ 17,152 $ 21,022
Noncash deferred tax asset charge 3,190     3,190    
Net income attributable to The New Home Company Inc. before noncash
deferred tax asset charge
$ 13,661   $ 13,780   $ 20,342   $ 21,022  
 
Earnings per share attributable to The New Home Company Inc.:
Basic $ 0.50 $ 0.67 $ 0.82 $ 1.02
Diluted $ 0.50 $ 0.66 $ 0.82 $ 1.01
 
Earnings per share attributable to The New Home Company Inc. before
noncash deferred tax asset charge:
Basic $ 0.65 $ 0.67 $ 0.98 $ 1.02
Diluted $ 0.65 $ 0.66 $ 0.97 $ 1.01
 
Weighted average shares outstanding:
Basic 20,876,766 20,712,095 20,849,736 20,685,386
Diluted 21,145,065 20,960,173 20,995,498 20,791,445
 
Effective tax rate for The New Home Company Inc.:
Pretax income $ 21,692 $ 22,080 $ 32,531 $ 33,950
Provision for income taxes $ 11,222 $ 8,306 $ 15,390 $ 13,024

Effective tax rate(1)

51.7 % 37.6 % 47.3 % 38.4 %
 
Effective tax rate for The New Home Company Inc. before noncash
deferred tax asset charge:
Provision for income taxes $ 11,222 $ 8,306 $ 15,390 $ 13,024
Noncash deferred tax asset charge (3,190 )   (3,190 )  
Provision for income taxes before noncash deferred tax asset charge $ 8,032   $ 8,306   $ 12,200   $ 13,024  

Effective tax rate for The New Home Company Inc. before noncash
deferred tax asset charge(1)

37.0 % 37.6 % 37.5 % 38.4 %
 
(1)     Effective tax rate is computed by dividing provision for income
taxes by pretax income.
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(Unaudited)

The following table reconciles homebuilding gross margin percentage as
reported and prepared in accordance with GAAP, to the non-GAAP measures
homebuilding gross margin before impairments and adjusted homebuilding
gross margin percentages. We believe this information is meaningful, as
it isolates the impact home sales impairments and leverage have on
homebuilding gross margin and provides investors better comparisons with
our competitors, who adjust gross margins in a similar fashion.

      Three Months Ended December 31,       Year Ended December 31,
2017       %       2016       % 2017       %       2016       %
(Dollars in thousands)
Home sales revenue $ 279,885 100.0 % $ 261,668 100.0 % $ 560,842 100.0 % $ 507,949 100.0 %
Cost of home sales 235,568   84.2 % 224,050   85.6 % 475,413   84.8 % 435,909   85.8 %
Homebuilding gross margin 44,317 15.8 % 37,618 14.4 % 85,429 15.2 % 72,040 14.2 %
Add: Home sales impairments 900   0.3 % 2,350   0.9 % 2,200   0.4 % 2,350   0.4 %
Homebuilding gross margin before impairments 45,217 16.2 % 39,968 15.3 % 87,629 15.6 % 74,390 14.6 %
Add: Interest in cost of home sales 5,302   1.8 % 2,314   0.9 % 11,021   2.0 % 5,331   1.1 %
Adjusted homebuilding gross margin $ 50,519   18.0 % $ 42,282   16.2 % $ 98,650   17.6 % $ 79,721   15.7 %
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(Unaudited)

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 or other expense, (d)
noncash impairment charges and abandoned project costs, (e) gain (loss)
on extinguishment of debt, (f) depreciation and amortization, (g)
amortization of equity-based compensation and (h) 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 and level of impairments. Due to the significance of the GAAP
components excluded, Adjusted EBITDA should not be considered in
isolation or as an alternative to net income, cash flows from operations
or any other performance measure prescribed by GAAP. A reconciliation of
net income to Adjusted EBITDA, Adjusted EBITDA margin percentage, the
ratio of Adjusted EBITDA to total interest incurred, and the ratio of
debt to Adjusted EBITDA is provided in the following table.

      Three Months Ended       LTM(1) Ended       Year Ended
December 31, December 31, December 31,
2017       2016 2017       2016 2017       2016
(Dollars in thousands) (Dollars in thousands) (Dollars in thousands)
Net income $ 10,470 $ 13,774 $ 17,141 $ 20,926 $ 17,141 $ 20,926
Add:
Interest amortized to cost of sales and other expense 5,333 2,314 11,057 5,331 11,057 5,331
Provision for income taxes 11,222 8,306 15,390 13,024 15,390 13,024
Depreciation and amortization 105 130 449 511 449 511
Amortization of equity-based compensation 717 869 2,803 3,471 2,803 3,471
Cash distributions of income from unconsolidated joint ventures 1,811 1,588 3,742 1,588 3,742
Noncash impairments and abandonments 1,045 3,582 2,583 4,080 2,583 4,080
Less:
Gain from notes payable principal reduction (250 ) (250 ) (250 )
Equity in net income of unconsolidated joint ventures (260 ) (3,263 ) (866 ) (7,691 ) (866 ) (7,691 )
Adjusted EBITDA $ 28,632   $ 27,273   $ 50,145   $ 43,144   $ 50,145   $ 43,144  
Total Revenue $ 324,102 $ 322,449 $ 751,166 $ 694,456 $ 751,166 $ 694,456
Adjusted EBITDA margin percentage 8.8 % 8.5 % 6.7 % 6.2 % 6.7 % 6.2 %
Interest incurred $ 6,761 $ 2,241 $ 21,978 $ 7,484 $ 21,978 $ 7,484
Ratio of Adjusted EBITDA to total interest incurred 2.3x 5.8x 2.3x 5.8x
Total debt at period end $ 318,656 $ 118,000 $ 318,656 $ 118,000
Ratio of debt to Adjusted EBITDA 6.4x 2.7x 6.4x 2.7x
Total net debt at period end $ 194,686 $ 86,919 $ 194,686 $ 86,919
Ratio of net debt to Adjusted EBITDA 3.9x 2.0x 3.9x 2.0x
Total cash, inventory, and joint venture investments $ 595,513 $ 368,281 $ 595,513 $ 368,281
Ratio of cash, inventory, and joint venture investments to debt 1.9x 3.1x 1.9x 3.1x
 
(1)     "LTM" indicates amounts for the trailing 12 months.
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(Unaudited)

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.

              December 31,
2017           2016
(Dollars in thousands)
Total debt, net $ 318,656 $ 118,000
Equity, exclusive of noncontrolling interest 263,990   244,523  
Total capital $ 582,646   $ 362,523  
Ratio of debt-to-capital(1) 54.7 % 32.5 %
 
Total debt, net $ 318,656 $ 118,000
Less: cash, cash equivalents and restricted cash 123,970   31,081  
Net debt 194,686 86,919
Equity, exclusive of noncontrolling interest 263,990   244,523  
Total capital $ 458,676   $ 331,442  
Ratio of net debt-to-capital(2) 42.4 % 26.2 %
 
(1)     The ratio of debt-to-capital is computed as the quotient obtained by
dividing total debt, net by the sum of total debt, net plus equity,
exclusive of noncontrolling interest.
(2) The ratio of net debt-to-capital is computed as the quotient
obtained by dividing net debt (which is total debt, net less cash to
the extent necessary to reduce the debt balance to zero) by total
capital, exclusive of noncontrolling 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. See
the table above reconciling this non-GAAP financial measure to the
ratio of debt-to-capital.
 

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