NWHM - The New Home Company Reports 2021 first Quarter Results

The New Home Company Inc. (NYSE: NWHM) today announced results for the 2021 first quarter.

First Quarter 2021 Financial Results

• Net income of $0.6 million, or $0.03 per diluted share, compared to a net loss of $8.5 million, or $(0.42) per diluted share, for the 2020 first quarter, which included $16.3 million of pretax charges
• Adjusted net income for the 2021 first quarter of $1.5 million*, or $0.08 per diluted share*, after excluding transaction costs and the remeasurement impact of our deferred tax asset related to the acquisition of Epic Homes
• Home sales revenue of $93.9 million as compared to $95.7 million for the 2020 first quarter
  • Deliveries increased 36% and average selling price decreased 28% to $643,000
• Home sales gross margin of 17.1% as compared to 11.4% for the 2020 first quarter, a 570-basis point improvement
  • Adjusted gross margin excluding interest in cost of sales of 21.3%* as compared to 17.9%* in the 2020 first quarter
• Net new orders of 283 as compared to 132 in the 2020 first quarter, a 114% increase
• Monthly sales absorption of 4.4 per community compared to 2.0 per community in the 2020 first quarter, a 120% increase
• Homes in backlog up 273% to 649 homes as compared to 174 homes at the end of the 2020 first quarter
  • Backlog dollar value up 225% to $423.1 million
• Ending cash balance of $114.8 million, a $26.9 million increase compared to March 31, 2020
• Debt-to-capital ratio of 58.7% and a net debt-to-capital ratio of 45.5%*, a 330-basis point improvement from the 2020 first quarter

"The New Home Company started the year on a strong note as robust housing demand continued through the first quarter across all of our markets,” stated Larry Webb, Executive Chairman of The New Home Company. “Our net new orders and homes in backlog increased 114% and 273% year-over-year, respectively, while our gross margins from home sales increased 570 basis points resulting from strong pricing power, lower interest costs and the benefits associated with faster absorption. In addition, we expanded our geographic footprint by entering the Colorado market during the quarter through the acquisition of Epic Homes, which positions us in another strong housing market and further diversifies our operations."

Leonard Miller, President and Chief Executive Officer, stated, "The ongoing strength in our markets is broad-based and across all our product types, which resulted in a monthly sales absorption rate of 4.4 homes per community for the quarter, a company record and up 120% over the prior year. We are also focused on balancing our sales releases with construction starts and production capacity, especially in light of the demand on our trade partners and material cost pressures. As a result of the strong sales absorption rates and the meaningful price increases we have instituted over the last several quarters, we are starting to see real improvements to our profitability."

Mr. Miller concluded, "We ended the quarter with $115 million in cash on hand, nothing drawn on our unsecured revolving credit facility and a net debt-to-capital ratio of 45.5%* after giving effect to the acquisition of Epic Homes and the issuance of a $35 million tack-on to our existing senior notes. Going forward, we will strive to execute a balanced approach of growing our land pipeline, improving our operating metrics and returns, all while appropriately managing our financial position. We believe the improvement in our gross margins and our record backlog value of $423 million at the end of the quarter positions us well to improve our profitability and returns as we move through the balance of this year and beyond."

First Quarter 2021 Operating Results

Total revenues for the 2021 first quarter were $99.2 million compared to $132.0 million in the prior year period, including $5.3 million and $36.2 million of fee building revenue, for the first quarters of 2021 and 2020, respectively. For the 2021 first quarter, the Company generated pretax income of $1.0 million compared to an $18.4 million pretax loss in the prior year period, which included a $14.0 million noncash abandonment charge and a $2.3 million joint venture impairment charge. Net income attributable to the Company for the 2021 first quarter was $0.6 million, or $0.03 per diluted share, compared to a net loss of $8.5 million, or ($0.42) per diluted share, in the prior year period. Adjusted net income for the 2021 first quarter, after excluding transaction costs and the remeasurement impact to the deferred tax asset related to the acquisition of Epic Homes, was $1.5 million*, or $0.08 per diluted share*, compared to an adjusted net loss of $1.1 million*, or ($0.05) per diluted share*, for the 2020 first quarter after excluding $16.3 million in pretax charges and a $2.1 million net deferred tax asset revaluation benefit.

Wholly Owned Projects

Net new home orders for the 2021 first quarter were 283 as compared to 132 in the prior year which represented a 114% increase. The significant increase was driven by a 120% improvement in our monthly sales absorption rate to 4.4 per community as compared to 2.0 per community in the prior year period. We ended the 2021 first quarter with 23 active selling communities compared to 22 in the prior year first quarter.

Homes in backlog totaled 649 at the end of the 2021 first quarter, a 273% increase compared to the 2020 first quarter. The dollar value of homes in backlog increased 225% to $423.1 million, which included approximately $100 million of acquired backlog from Epic Homes, as compared to $130.2 million in the 2020 first quarter. The average selling price of homes in backlog at the end of the 2021 first quarter decreased to $652,000 as compared to $748,000 a year ago as the Company continues to expand its product portfolio to include more affordably priced communities.

Home sales revenue for the 2021 first quarter was $93.9 million, as compared to $95.7 million for the 2020 first quarter. The slight year-over-year decrease in home sales revenue was largely the result of a 28% decrease in average selling price driven by the Company's strategic shift to more-affordable product, which was partially offset by a 36% increase in new home deliveries. The average sales price of home deliveries for the 2021 first quarter was approximately $643,000, as compared to $894,000 for the 2020 first quarter.

Gross margin from home sales for the 2021 first quarter was 17.1% compared to 11.4% for the prior year period. The 570-basis point improvement was primarily due to a mix shift to higher margin communities, pricing increases and a 230-basis point reduction in interest in cost of sales as a percentage of home sales revenue. The 2021 first quarter cost of home sales included $295,000 of purchase accounting adjustments related to the acquisition of Epic Homes. Excluding these purchase accounting adjustments, gross margin from home sales for the 2021 first quarter was 17.4%*. Adjusted homebuilding gross margin, excluding interest in cost of home sales was 21.3%* for the 2021 first quarter as compared to 17.9%* in the prior year period.

The Company's SG&A expense ratio as a percentage of home sales revenue for the 2021 first quarter was 15.9% compared to 14.1% in the prior year period. The increase in the SG&A rate was primarily attributable to $1.0 million in transaction related costs associated with the acquisition of Epic Homes during the quarter, including tail insurance expenses and professional fees, and a $0.8 million decrease in G&A expenses that were allocated to the fee building segment as compared to the 2020 first quarter. Excluding the acquisition transaction costs, the SG&A expense ratio as a percentage of home sales revenue was 14.9%* for the quarter.

Fee Building Projects

Fee building revenue for the 2021 first quarter was $5.3 million compared to $36.2 million in the prior year period. The reduction in fee building gross margin was primarily due to the wind down of our fee building arrangement with Irvine Pacific.

Unconsolidated Joint Ventures (JVs)

Income from unconsolidated joint ventures was $174,000 during the 2021 first quarter compared to a loss of $1.9 million in the prior year period. The 2021 income related primarily to the release of reserves from a land development joint venture for which stated completion obligations were completed and released. As of the end of the 2021 first quarter, the Company has no remaining lots or homes in any joint ventures.

Interest Expense

The Company expensed approximately $354,000 of interest costs directly to interest expense during the 2021 first quarter compared to approximately $718,000 in interest costs in the prior year first quarter.

Balance Sheet and Liquidity

The Company generated $2.5 million in operating cash flows during the 2021 first quarter and ended the quarter with $114.8 million in cash and cash equivalents. During the quarter, the Company issued an additional $35 million of its 7.25% senior notes due 2025 at a premium, which had an effective yield of 6.427%. As of the end of the 2021 first quarter, the Company had no borrowings outstanding under its revolving credit facility and had $280.3 million in debt outstanding related to its senior notes due 2025. The Company had a debt-to-capital ratio of 58.7% and a net debt-to-capital ratio of 45.5%*, which represented a 330 basis point year-over-year improvement. The Company owned or controlled 2,502 lots through its wholly owned operations, of which 1,084 lots, or 43%, were controlled through option contracts.

Share Repurchases

During the 2021 first quarter, the Company repurchased 141,823 shares of common stock at an average price of $5.32 per share for an aggregate value of approximately $0.8 million. As of the end of the 2021 first quarter, the Company had a remaining purchase authorization of $8.7 million of its $10 million authorized stock repurchase program.

Guidance

The Company’s current estimate for the 2021 second quarter is as follows:

• Home sales revenue of $125 - $135 million
• Fee building revenue of $4 - $6 million
• Home sales gross margin of 16.0% to 16.2%

The Company’s current estimate for the full year 2021 is as follows:

• Home sales revenue of $475 - $495 million
• Fee building revenue of $15 - $20 million
• Home sales gross margin of 16.0% to 16.2%

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, April 30, 2021 to review first 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 May 30, 2021 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13718366.

* Adjusted net income, adjusted EPS, adjusted homebuilding gross margin (or homebuilding gross margin excluding interest in cost of home sales), homebuilding gross margin before purchase accounting adjustments, net debt-to-capital ratio, and selling, general and administrative costs excluding acquisition transaction costs as a percentage of home sales revenue 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

NEW HOME is a publicly traded company listed on the New York Stock Exchange under the symbol “NWHM.” It 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, Arizona and Colorado. 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. 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.

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 (loss) to the non-GAAP measure of adjusted net income (loss) (net income (loss) before acquisition transaction costs, abandoned project costs, joint venture impairment, and noncash deferred tax asset adjustments) and earnings (loss) per share and earnings (loss) per diluted share to the non-GAAP measures of adjusted earnings (loss) per share and adjusted diluted earnings (loss) per share (earnings (loss) per share before acquisition transaction costs, abandoned project costs, joint venture impairment and noncash deferred tax asset adjustments). We believe removing the impact of these items is relevant to provide investors with an understanding of the impact these items had on earnings.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)

(Unaudited)

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 acquisition transaction costs. During the 2021 first quarter, the company incurred $983,000 in transaction related costs associated with the acquisition of Epic Homes. We believe removing the impact of these charges from our SG&A rate is relevant to provide investors with a better comparison to rates that do not include these charges.

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