NWHM - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to The New Home Company's Second Quarter 2018 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Mackintosh, Investor Relations. you. Thank

begin. may You

Drew Mackintosh

are to the Home results Company of website these second Welcome section Investor call. the of for earnings Earlier quarter company's results detailing Documents today, released nwhm.com. XXXX. in The morning. the Company's Relations New at conference the available Good its financial

involve on from the on the A to made would facts, those SEC, are most call, this update which to of not historical Company including XX-Q. begins, are Before remind and detailed other that the of Report the I in uncertainties call made uncertainty. that during certain statements materially its The differ could this duty with important XX-K Quarterly course its everyone of forward-looking risks in statements such Form the risks Form undertakes factors and that Reports are the to these forward-looking results discussion Company's no cause in like statements call. filings statements Annual course forward-looking in and made in recent and operating actual are that

Officer. Miller, Additionally, Operating through Stephens, and the these financial GAAP website Larry. Officer. to with Chief Webb, the Larry be that, this Also most is SEC. call discussed non-GAAP filings accordance Hosting the now the Chief in measures turn Financial John Leonard to the is Executive Officer; and The accessed non-GAAP I New call comparable Chief over today on its prepared will call With Home can measures in Reconciliations call. be financial with measures conference may of on Company's

Larry Webb

the morning good to on call today. and Drew, everyone joining Thanks, us

location, drive as communities lot Many these helped suggesting for encouraging Company, be is XXXX in new proved a marketplace, product our well that year-over-year wholly-owned Home in footprint, throughout net our new quarter. The been step of spread offering increased lower-priced communities a terms received of diversify both orders count our moderately successful our second XX% in community are the and by significantly to demand our which our and broad-based. more New fact continue count positive The priced grew product of we have for Equally in the that to geographic the quarter Company increase XX%. is

manage the XX% While to in we ago. a positioned we the our we the which deliver well in homes a only backlog to finish profit to season, materially the to results increase better generate of in to compared half slight in spring are second year, selling a to in quarter, end thanks strong culminated one-year the believe quarter

regarding based solid general, This comments with and in healthy our consumer the operations. economies another high-level and evolution With thus driving inventory our chapter excited levels that home we're strong feels holds. the here quarter confidence, demand. low new on some for overall new what of Company's communities and future the local marked performance In traffic market far, our good,

June. costs last off July the X.X, bit down in year seem to of in of relatively two solid but seasonal in stabilized time comparison. at monthly May started year, versus with higher continued coming year-over-year, tapered lumber April, easier order resulting its Labor quarter the highs. recent particularly material XXX% strong order months, second off albeit, to growth were last three activity of a and pace this and the versus a have in Our a in over a in for absorption quarter pace rebounded with off the

far strongest local price market As color, definitely within demand at lower Southern as California is points.

desirable particular the inventory standouts Empire a sales-pace of priced in $X Viejo and were Mission Rancho Inland codes. in in limited below community homes perspective. million Azure priced affordably a more from Our Seville With zip

affordable relatively and The has these a right location. have communities. for up. affordably competition Young, an you softer as heated California these above to market points, are price provided at right Southern in becomes the million, products bit with There issue, the $X feels generally opportunities success affluent for these buyers crises buyers gravitated still

a $X.X Seabluff per Our in example during this, over perfect with of a quarter price the sold community of average at of we six Playa just Vista is pace homes as month an under million.

of sold is Covenant without benefit before auctions our at Ranch, homes we an homes. Sky Ladera average Ranch where July seven Another finished-model the Hills of price in community $X at in example million

our trend, lack likely migration buyers In Tidewater same market at benefiting best five Our phase. of see healthy healthy new the inventory pace our California level Bay was pace prices demand we over benefited drove Valley, region. from and is strong Sacramento across each and we an of community at influx month for options, inward Central quarter, looking affordable a the of creating in the when housing In demand, prices the by $XXX,XXX. to from for Area, The quarter. particularly fueled of homes fundamentals the absorption in sales a raised market every Northern second even more which a in the per continue below homes

to community, higher-end Finally, our experienced the hit our compared better at our Beaumont, Silverleaf. trends for other up ICON, communities as wholly-owned move to operations their open in sale. with Arizona stride to demand markets, continue two Similar we

six however, year, us affordably market. plan this communities the giving in area, on opening we scale needed new Next in priced much Phoenix

more on turn John the will I over it for to financial details quarter. for results our Now

John Stephens

Larry good morning. Thank you, and

we Through communities backlog. is positioning our new half As indicated, year, seven steadily our made have the progress date make in to Larry of the well second opened we have progress been we price the points. the believe rebuilding first and towards diversifying We and of year. us half to continue geographic the footprint

California $XXX income to offset the period. year, to or as the seven dip in offset year a point lower in lower-margin $XXX,XXX. attributable Based rate, degree, second joint lesser of prior or XX% $X.X as marketing backlog, million the ratio. with closeout generated year. in driven ASP items ago. point we largely at decline compared income one a our margin, due XX% by price decrease with of mix deliveries, largely XXXX approximately million prior XX% in year-over-year in compared $X.XX quarter on diluted up of share we in shift, XX% $X.X per was stemming to During of These to first communities and second income our a meaningful in to of a to point net building in selling for the selling million to were gross below home average XXXX Southern homes XX% was million year income. net due second compared general partially in the $XXX,XXX quarter, quarter by communities share was a in in homes decrease for The basis net second sale the selling venture ramp decrease revenues a $X.X $XX in where half which year-over-year diluted to basis was by and the was in $XXX,XXX the of in $X.XX increase quarter. in communities partially decrease to up and a a and see increase some the new XXX our expense basis expense expect was million revenue fee to most XXXX to The XXX XX a to the California delivered. ASPs sales and revenue third was quarter in our selling The administrative average primarily change a the deliveries Southern down Home average pronounced The just our priced per price five compared price in increase increase

full-year the to price and anticipating selling are $XXX,XXX XXXX, we For between be $X average million. our

previously sales $XXX range lowering communities quarter. absorption home lower are volume XX% revenue attributable and approximately higher revenue million to guidance sales in at million is full-year $XX pace. and California Arizona our million, XX% Southern We primarily of due three sales by with to expected to between fourth $XXX our the deliver in home change anticipated slower-than-anticipated to The than guidance in priced to

home prior margin XX.X% primarily an basis shift sales product to was mix increase gross The gross was in by mix for in interest driven Southern and XXXX cost costs. second of sales three the homes compared was product the due in higher as lower from California the to second shift at period. decline closeout a point to XXX delivering XX.X% borrowing Our communities due The quarter. in year during higher-priced margin margin and quarter

a compared impairment XXXX million XXXX impairments addition, no $X.X quarter In in the to second the included period. charge

the in XXXX cost in and prior sales was sales our as XX.X% home period. Excluding the to from of gross compared XX.X% interest margin second quarter year for impairments,

with expect from and some our points margins see to higher to second basis in improvement margin quarter see to than sequential range, basis low points the quarters, XXX mid-XX% third our the the begin communities. gross our quarter benefits as to to the anticipated third We of XXX in in and newer be approximately we fourth

attributable of For anticipate in certain are is California and delivering lowering as our The fewer between Southern mix to communities XXXX, margin XX by the reduction guidance from Arizona. XX.X%. primarily basis to we full year guidance and higher-priced we XX.X% in gross points a homes shift,

period. largely revenue up openings items lower offset compared higher was for to G&A, co-broker in to related to selling rate higher the revenues. primarily as resulting quarter home prior SG&A year by commissions. point new marketing and Our XX.X% as The XX community were of basis from of sales partially higher the a was and increase costs These a due ramp percentage the XX.X%, second

in of SG&A expect range. For And be we our XX% range. rate the the rate to expect for to quarter, SG&A full in we high the the XX% high year low be XX% our to XXXX, third

was of was the Our period. the of in $XXX,XXX, and to reduction in income lower joint of share joint the deliveries. of year result a venture prior income for income $XXX,XXX gross second loss quarter primarily of The the mix margins JV XXXX compared venture

$XXX,XXX XXXX of increase for new average XXX% third XX% were by count. with quarter. the $XXX,XXX venture up Net the full-year joint prior a projecting XXXX income in income second are was anticipated for community driven $X quarter between orders the million We and approximately which year, XXXX of over

per was community to year. sales the sales compared Our for in prior XXXX X.X community quarter absorption X.X monthly per second rate the

XXXX absorption over per and per XX rate Our We increase ended Arizona the the sales per represented X.X at XXX% California second quarter. a active was X.X month, XXXX month. in with at Northern which Southern strongest followed monthly by quarter X.X communities, second month at

end over XX% backlog the quarter up in active prior at end the totaled number was period $XXX million. XXXX value to The our the expect backlog communities. with year of ending our homes XX We and of

at the compared year-ago. second quarter the backlog in to shift to ASP million XX% price $X.X down end of $XXX,XXX product Our expand as Southern due was to lower the in home backlog average in our California XXXX to was a mix largely portfolio. The

fee of primarily the to the as was a decline prior a Our second quarter $XX of year. XXXX compared compared was revenue million building decrease under for in year-ago. construction to The as units million revenue $XX fee number the result a in in

million Our $X.X the X.X% was fee building X.X% gross in or $X.X year margin versus prior million for quarter period. the or

building to two our the percentage are our approximately the for revenue $XXX for be last to XXXX million fee expect margin fee raising quarters million year. guidance building and $XXX of to the for We our X% between full-year gross

quarter was rate in tax second to as Our XX.X% XXXX in quarter. the compared the XXXX second effective XX.X%

federal items, effective XX.X% the result year-over-year in in The was tax rate to the XXXX of year tax rate primarily second quarter XX% for discrete decrease corporate our the compared quarter. XXXX. lower second Excluding was the effective prior

including rate percentage We XX.X% one full-year the effective to are higher, and projecting excluding currently items. our discrete point discrete XX%, items; tax of approximately

X,XXX $XX controlled we with respect approximately million million through option sheet, our in and X,XXX fee business, contracts. XXXX, $XXX As over cash, in our million $XXX which through revolving XX% $XX included million building ended XX, the of lots wholly-owned we including controlled lots. for ventures over our With the approximately $XXX balance controlled lots, and were X,XXX our outstanding in wholly-owned under June inventories owned real million estate quarter business, through lots credit X,XXX to debt, facility. XX% joint Of or

million a gross $XX.XX with net spent during $XX debt-to-capital XX.X% land the a on the $XXX the and during the million. program. Also to at We an quarter, under approximately shares debt-to-cap authorized stock million repurchase price for XXX,XXX approximately the the quarter, Board quarter XXXX. quarter of XX.X%. aggregate we the $XX plan We full-year average ended for of of a repurchase spend ratio expect During million ratio and purchased $X.X an of

a for the as this quarter. to significant anticipate point we We flow expect then year leverage from the generate quarter the decline and fourth leverage high cash be in third to our perspective operating

Now you provide color I'd like XXXX additional the with third regarding to some quarter.

We revenue of million for are $XXX of quarter-ending $XXX I'll and his million for between and his to seven back call $XX wholly-owned $XX of fee the our and and business million for XX revenue between turn home sales now estimating business. building for count million, concluding remarks. joint community our venture Larry our

Larry Webb

wholly-owned strong lot pleased replenishing the year-over-year quarter. with for XX% our of lots and backlog this made half with order We continued of for I'm by healthy the we us conclusion, nearly a In second XXX%, We progress growth. year. pipeline year-over-year John. of providing count generated the table setting our a Thanks grew growth

by we XXXX of and This of both will a to is and becoming our beyond. complete operations, product our the terms builder. benefits more read our second in half Finally, into geography, continue goal diversify strategy continue more that company affordable during furthering expanding housing a of transition to and balanced

to been ago our to will buyers. into and our our and places core our be to mission company's It's home true since selling As differentiated will remain best-in-class continues focus and future. of service creating evolve, to years our company founding delivering we to continue nine the customer unique live

members to thank heights. The that the for our I'd new engine drives Company Finally, like Home team New to hardworking being

and spirit of dedication your extremely be we'll That to And company our answer our Thank and am entrepreneurial mission what is appreciative proud questions. concludes remarks. of unique, make your take Your and efforts. I you. prepared happy any now to

Operator

Please question-and-answer Our from At you. time, coming Thank [Operator with first Instructions] question Michael be of conducting JPMorgan. your is Rehaut line this question. proceed we session. will the the with

Elad Hillman

This Hi. on Hillman is Mike. for Elad

would and the then Just May in I in but given – the attribute revenue to May gross slowdown attribute you to? you which start What in all the off off on was revised there sales would tapered the And mentioned gave, pace. you appreciate April, guidance margin What strong in rebounded you also, color June. July called And with some heard the expect the we X.X? of of you it sounds should And the how you that into mixed to was August effects XXX% Did right. about be rest continue XQ you that for say pace full-year? out, the you thinking for I and and like if September. that year-on-year?

Larry Webb

And we And that We've April little into result transition XXX% primarily And with housing. middle I mentions thanks results sales. that. and of to granular question. season. were slower, missed good that had the This some beginning think summer get best pace. picture history but what of was is Company for in show of basically because We a that less our Larry. May are very projected a Maybe than say, the was John when in on and was we to it to sales up ranges we're the I we're else. this of paces quarter and the just in nothing here. being clearly price feel July June, hoped that are and when the affordable releases the do. of of into more or starting July is big entered sales matched about And our ahead, we traction but sales so the terms second everyone the we had

tracking indicator, getting up fall, any right need in usually as forward, the for pick you And slower well August building sales again. as year it backlog the time. is, this And for if Moving a the a we now, quarter. is then I and historically we're think history first is for

And August, I wants absorption moving to strategy, slower I John add I what forward. something help have a in place, that slightly hit we've figures to this compete So that. new solid think put expect absorption into believe us will pace to and

John Stephens

Yes.

add I'll that. think to I

But of the Larry July, very then was, the and XXX%, we that why from And But of of actually point X.X time In at sales pull slower May, had the the a that. think as of fact per the with did And per month I strong an script. that of noted It terms in part that X.X the up very as in was July, to comp, June. in had a releases again, year, we're we April terms of dip community. that. said, we timing was, April. we some April, were easy strong into pleased

the we of with second very just the continued like a a quarter, our these timing I in into that but growth sort think sales within many said, we're solid Larry consistent it in the the And negative. very of So think with of communities. releases July Again, pleased of was expectations. we've consider I order sort would pace, quarter nothing it at

Elad Hillman

how really That’s the pretty was inflation? gross makes related any cost have much? you then on to pricing? pricing were saw any cost inflation your incentive? across lastly, full-year able communities terms footprint offsetting what And And with provision comment of of you to and by helpful then Great. prices in percent raise the to could been on secondly, effective sense. and you of you Or margin What

Larry Webb

sales. it we let John to question, answer don't Well, over and margin to then why the Leonard on I'll turn

John Stephens

Yes.

X.X% and did XX% able of than still, In But terms about our of average the our we XX% lower and about It's those we're increase. communities, vast communities. what incentives, on across majority QX. communities probably we to slightly in increase of pricing prices did in our of

of X% directs absorb that to see again, But our XX% able did with ASP, we we with directs were on per our an price only increase to side, cost anywhere the our foot. X% increases. our of from terms square being In in

in And – accordingly. I'd really would margin at really you mentioned by, of revenue volume that so to at not in a those by we're that if the sort that? California, was in remarks driven were the Arizona say, margin say declines don't two cost to that reduction It add want was Leonard, and seeing three I one affected in little I communities I guidance driven know, the increases. lower Southern the communities, was prepared higher-priced

Leonard Miller

And really was asked really may raised Yes, the I think been point, that communities we've pretty that seen haven't question only We have other incentives incentives. in think, consistent. I the think have to related incentives you absorption. drive I to

all our I the think, would at builders price of offer in points we end luxury market. markets, In are at more seeing higher I say million. of other $X.X above incentives urban,

the that's incentives seeing market So lower we're that, where healthy, of more than one at Other seeing part not feels are the and market incentives. the price really we points. the

John Stephens

as have I think Irvine just comment is as we we And good news don't exposure in did much the the that past. on

One two little X.X higher the – the now the other last coming over point Company for I pretty Irvine slower. And has one's We exposure the think been at our month, the have down two a for well selling communities higher a But Irvine at Irvine at I month quarter. with quarters. is over the several price think point. at again, price

have a that's some think our positive as to I more affordable So product. shifted to real strategy we

Elad Hillman

Thank you.

John Stephens

welcome. You’re

Operator

your and line Associates. Please with Our with Thomas next from Maguire proceed question. question Zelman is of coming the

Thomas Maguire

and Nice quarter job the morning. Good guys. Hey, buyback. see to great on the

hyper are you Obviously, guys wanted draw growth in mode now. quickly Just right in there.

to just points, the kind fallen Inland we but Sounds by How is? like, I allocating in variation some positive capital on do price that evolve, the amount the forward, here discussion maybe versus a investing, business despite first does about valuation the And of, business. at growth little understand in dollar kind month-to-month think and and difference how board buyback of management that going or level? the quarter was still current

Larry Webb

and The of X,XXX Area, more John. second solid continues and And strong think land the in at turn seems project, positive looking we in half let very still community bullish can that our in to showing excited markets opportunities, which be growth and This particular, in get and results. real over to is time we're can get briefly, for our like perspective, opportunities are affordable the offers Phoenix, of we a in. Larry. margins and about reopened master-planned third we we're there was And called half? And Well, to are first Thomas. we us Inland you From the housing are division what the to Corona think particular, me are there. be take us Bay significant sales and in at And we phase. that, acquisitions Empire for it there opportunities to when quarter opening extremely end over for in lots, significantly. first Seville us constrained. strong discussed we – pretty the our are And the into expand we continue land take John, accomplish then

John Stephens

of Yes, option. what lots Larry just kind XX% there. would indicated of adding are right now I say, our under

already allocated of buying we're we're those as that communities. a is selling capital So our to those through chunk lots

be land, we'll So heavier spend and will and extend in QX. we land to continuing QX

the we’ve so full-year, $XXX I think six for we’re months $XX of and spent the far for maybe year. roughly million the first anticipating

balance are the capital have limitations returns volume these about of as from we attractive We've But on our as pretty And we a an used $X of perspective. in up on market. well have levels, levels, again, on buyback the So activity. that we million lots be need stock buy, million And sort so ROE authorization. can we will at sure that $XX of the far. on weaker weak how based to daily these buy basis, those to buyback, make sort a we much we stock at

managing market. of, we on can't a can our But front. what the purchases, sort will in and do we So leverage it's lot and that of balance, limitations continue

Thomas Maguire

get understand having then maybe higher your But California, at or softer on at finger the some seen price headlines high-end, of think to the sales And on? hoping ahead Thanks. points shifts the you pricing to tax sense. makes points. called that's you're rate I a dividends. buyers, out a definitely to and to transit there. price of It put quick little just environment, going any at gears changes We've some just drivers color on the and question, lower effect you Can what getting foreign talk about specifically regarding you ground, demand. slowdown its SKUs seeing can flipping

Larry Webb

Sure.

Let me question buyers. its foreign But the deal been that with the influence. over-exaggerated the buyer national has reduction believe in been I in foreign national quite of first. foreign a there I think that has terms

particular, have California For foreign the XX%] in of in XX% have Irvine have been And been nationals, buyers historically particular, those, centered Asian, foreign in our been nationals. for only [XX% in Irvine. predominantly national approximately, if Chinese of to

So cost price on nationals, given has as affordable our in difficult with the into more only to mentioned, impact a Irvine very we minimal land are And reduction lowering it get ranges, even our intentionally in emphasis there. business. the because John foreign it's market

whole, So it probably success has million reduction a above, much while on at look location-by-location minor Southern say, $X market a there of nationals, only business. California, foreign million or is a let's is houses as To really our weakness the the very or a $X.X in priced on in impact basis.

two without we have which away. with community models in recently Irvine, We've open the extremely X I in about a very, slower had great County Ladera, mentioned, one in and very opened. just million positive. month seven and very the have We crammed which X homes much well at about had $X sales, only second we presale significant miles sold or success selling July, of communities, Orange South and grand one and In

is school district specific. or location and very, success end failure much of So that market the upper very

John Stephens

And November. I I'd It's end. They're stories we a a higher Models that were, going there, those have open side ones aren't of $X yet. Scottsdale. to open in be price on million there, referring Arizona. point one It's in to positive I in say the about flip the think was

we a million a, sales a of bit So $X we're and about office. little been selling a slower. in then really, And And slower one price have location that's It's Viejo. out to then little $X million Orange, point. Mission in-sale also, a $X.X million about Rancho in it's

the all communities So to. those are this – those opening was new And new were I referring three really year.

that's the a bit well impact into guidance terms on the next margin. an So as little what's in impact of of the of sort year revenue slippage as

Larry Webb

also would about And say – still what's the read in happening people I have would I don't necessarily writing marketplace. negative I articles California. that articles our is constrained. understand those Land

in you, analyst every good are a tap lower-priced our successful in. long-term we're right would very, or any jobs that communities homebuilder. And that's being very investor but California an show we'll of still very, And strategy part come have like we'll now New created. We place for is affordability do be market to I issue, been any feel to who to out here, into still three very last and homes the XX months. around, a

Thomas Maguire

Got guys. it. Thanks

Operator

your Citigroup. Schrier question. The Thank of question with coming you. the line Please Scott with next from is proceed

Scott Schrier

of viewing if as X] you could Southern over at Hi, there's XX implement versus affordable a strategy pace good morning. I'm changing there. California, how I'm [X for into and region. curious about just instances you're months products, last bit for this little the at the getting you're talk thinking, price if anything you looking more

communities as X. size? And think in what also, pace doing about think them? Vista the as trying develop of at the community do of You you you terms you're you you're market. sizing do versus price see there And view it, part this talked in anything just the evolving Is how Playa to how about – of

Leonard Miller

pace, it's point. This versus this shot Yes. I’ll Leonard. Price is neighborhood-by-neighborhood. take at a clearly

that, absorption out, We the that many have trades we homes how flow. typical and build the phase a that can established basically looking each us, for neighborhood targeted by

the to depending market, point, those two to four things. sell we homes find on five all expect to from per and neighborhood, anywhere going we're So to price location and

pressure where for we're There's pricing a Now going we're that other to pace, could do then on we pace can't look If we below that. what through do construction homes that that little go it's cost some know and those an there's to pace, for we're based but find activities. start of is, bit higher few and to months, do basically those things to we will and places. going other going within things. a say But I neighborhood-by-neighborhood not places other environment

John Stephens

size, in is getting is community of count as for point. it communities point, price And price larger. community very we down community move – in the terms specific But each the of I think, each lot in the

we Inland So down we’ve done County, are to Empire, maybe higher like counts Empire, those XX-lot might in XX- let's points, or We or in County. what some price a a have to say, than, in Sacramento XX-lot things Orange XX- Orange move XX- community of it's maybe Inland again, that. lot as the our communities,

Larry Webb

would and based we varies between XX-month what be world, perfect a In it probably think, X-year land supply to our sales on like and location, reasonable pace. of and a is at lot one count we affordability

on we sellers are been really cash to properties it. we strengths the reiterate, a middle opposed of need set have the that with lever margins to able markets. to like price for that's to on get I our also are would as pay aware improve. relationships we've pace, of auctions to in to of And versus helped had all us. well constraint the One we've our land land is, But personal

up months our face-by-face And Leonard basis. this sales over to with over going months. are President. division next very as or and next margins very heard, prices our good the the taking on lead raising aggressively and XX that with our are go team more go a up a than six We you

Leonard Miller

I to want managing community go that and we and that of make with opportunity. the To at by every price, we're week-by-week. it we each point, We look divisions, that we meet Larry, community, clear take Yes.

do I the we we're between continue costs X% across up think, those if to And margins. you improve recapture basically this, to and X% look board, that at sure that make and we'll year-to-date.

Scott Schrier

Thanks on things. all comment your wanted cost then to it. of on just for Got And the color. touch side that

of through what you're times? option labor, anything availability Can eased some what of other bit. a pricing seeing also, construction course, for in various in You cycle had you and lumber you're of walk materials, in seeing seeing and you're terms inflation contracts of the earlier commented has and buckets pricing little land the terms from just that

Larry Webb

first me let that. at the Well, crack take

scheduling and as those are Phoenix on on Bay impacted now construction that issues the have question, with We and feel we Area we're And in meet. most schedules and if by basis. case-by-case we labor can clearly that the dealing limitations On both labor a and schedules.

XX year, projections, original days Over probably in the the the Area, roughly schedules our I and say, would about from increased have same. Arizona, Bay in last

of Orange On owned one largest the cost in between we're County fee – California, business we’re – and JVs, and business the our wholly side and Southern we're our there.

as We a labor both we've there's if players. with schedules quite a our the have trades, feel Sacramento, and shortage. leverage gotten quite again it in dialed are I bit We one of cost and stronger while well. of

pretty lumber whole that highest has a on gone costs prices control the our career. to And my over first schedules been so of and This was in months we've But rise down. this seen in I've basis. year the six solid able

other know have Regarding you costs Leonard, I don’t to if add. increases, anything

Leonard Miller

Yes, would said, are Larry we're direct X% scale from markets great expect Southern fee X%, are probably cost I depends X% XX% in things To we’ve have kind increases. California, be we on see, see we the increases. I of, on continued touched But I think our as quarter-over-quarter moderate Labor of give that one between year-over-year, steel continues seen business. lumber – back labor, to chance some each you that it like In you’ve it at. the think, that be range. off, to to mean I looking which of

the see other our increase the a – area. don't our the see percentage that and we the way markets way the and growing trade in taken pay go partners, some we about some projects that those may So trade markets, we in we success in we've other larger seeing base we're bidding in

a as I finished supply how of think basis land land seeing very in with the a in top on cost and a environment. you're the lots, lots of or significant it's market competitive year-over-year competitive so land is. very from And markets, short consistent hear land, increases of blue of especially what few land it'd goes, all you As be probably far that there's builders

Scott Schrier

It you bit all thanks called it on Obviously, out. could that Great, expect one more for color. QX. a ask you If is SG&A. for elevated I

of should more trajectory we some we to larger with going and land, of the lot having account them, associated can a Thanks. of be maybe into You some it, into think a SG&A, up and start-up have taking maybe so acquired how point with to earlier costs. your XXXX? that on costs respect heading about you've which lot more about through communities, these maybe, curious how communities overhead XXXX, more Arizona we And these start-up communities. opening the I'm these of have other can fact that, think

John Stephens

Yes setup of communities. these we and lot I everything did obviously a think I money open a running. spend lot to grand mean Get to upfront of

expensing revenue were, think, the lot minor a a recognition impact is other capitalized the amortized. costs of I upfront of sort thing past in for these that in and change of

move and we we that year, expect our come selling of as of just a down revenues, As the the percentage costs increasing. as to our well through fact marketing revenue because obviously, would of as balance

on million, on another SG&A focused to getting a we XX basis But to we’re XXXX, basis get take think down. moving So as we revenues be be very or as for said you would were fast two this at be down year, in our we that price $X if bit, year, we're and like if community, down. per back to $X a and ago, we come $XXX,XXX come you the years go Having forward lots million whether bit or it delivery remains rate points has to terms the average we and XX skill, maybe But for in where range. seen more year. I little that, think going the off, we're going said, I of quite points think sort see of XX we're basis points you to can more next selling

percentage sales more. a we're the So of again, our as growing little marketing cost price, the bit topline. is a But

So is it we keep some flat see that the moving idea forward. there improvement to

Scott Schrier

taking good luck. question, the and for thanks Great,

John Stephens

lot. Thanks a

Operator

Barron next Research of [Operator Instructions] Center. Alex question question. with is Housing your the Please proceed line from Our with coming

Alex Barron

morning. Good How guys. Hey you? are

Larry Webb

Good.

John Stephens

Good morning, Alex.

Alex Barron

just had on elaborate you good there, guys started I and pretty sales. was your hoping could you said you Empire. I Inland you guess,

going Just and starting plan, said trying that And to terms where Do the understand more specifically, you you sales product, kind thing? just of that's have know start the price what elaborate good it's give pace sense at going? can price in master attach to is. of launch. is if about guys, you don’t you're to us Where I to point point? kind the like possible any, are of that how of, you If of a

Leonard Miller

in home. Leonard. market called affordable This between We've up found in low a I'll Alex. was the we between Park in Place. point is – that really over a We're been is $XXX,XXX, community month the Yes, opened master there. first with X or absorption an X results. really pleased start an the U.S. which we plan price with It's a

that’s our there. So first offering

have upper Larry be will $XXX,XXX opening very address we question points in XX in that lower we're FHA at communities three the price that We're first-time we're that the on the referred Bedford months will will low starting point plan next to. and end there many second at with and plan the excited September of And works part range. is really The really your several to of there the master homebuyer. open master up – that price over then the XX programs in the of that

Larry Webb

and and be love And week to I come three last going builders know planning I there I we're master seen. well who opening detached best that grand of houses There Alex, ever see to ever the us. it other more have anybody will community Empire out you both because as is to the will think be to attached housing two We're on I'd And then Inland our programs. that will, plan has you lived. believe, September.

Alex Barron

mentioned you homes, in curious nice know the mean, the that – volume, curious higher-end a taking why guess, price you homes more, you have built I you specialty and you higher points. but that… on you potentially do higher choose I I'm lower-priced guys really in didn't didn't like, I'm why are take homes to

Larry Webb

sit homes, we job, could value we best at here that felt us community three sense the we – homes. we by a because build we we today, programs, could higher entire design As the we homes, how raise of of on end any Phase created lot housing of we do first to knew, builder the could build and the at felt how start, I, for it made our how there's we that the we

also We also to the lower end. be have plans, near however,

we can our for a took we'll end in From at the perspective, the if So the end end to like world, X, in goal. program one the end be perfect upper that's both That’s the housing X,XXX upper everything upper have But each programs we be would there's we four our lowest plan. phase, lift going if at lots. really, at of housing to Phase together. help and end. lower the And and timing each one the and phase

Alex Barron

it. Got

more So as of see, you more presumably material to than plan projects, these trajectory, difference should more there? what of being seen the wholly-owned guess, like margin we've more build start part your and than County Orange start I the to master

Larry Webb

for would Seville be the that would margin say project? is our which that gross we with Yes, idea. what just John, project, opened our are And that you example, we on

John Stephens

We're in XX% high yes, and right, teens the there, XX%, Alex. you're

our we the into percentage next meaningful profit have currently have and in Our becoming as here that goal margin percentages. mix. an And we’ll gross our margins our as smallest does see gross sit participation, move a appreciation Irvine impact they projections high of year. And our we very on is which Company's

Alex Barron

about, XX%, that that's talking confirm interest? inclusive to XX%, you're just John, And of

John Stephens

opened the we first September. opening today in Empire grand again, of community Yes, have and yes, the part Inland we another one in that’s one and have

Alex Barron

great. Thank Well look to you. you. forward That’s Okay. folks and seeing

Larry Webb

Q&A of Thanks a lot. End

Operator

Thank no you. time. have questions we It appears at additional this

So I comments. for back Mr. the any or pass would Webb like concluding floor to additional

Larry Webb

all call. for part want I you in thank taking this to

forward come our as believe I've we and And price into will that enthusiastic a the next as the I'm as reap a shift it's to the prove we encourage show move. really significant what be of primarily feel saying the of do. to seeing programs. right in out, terms to company you of that you in you, transition a the smart I've been you're again, profitable prove would like sales where seeing land of months. a middle been as like move but you in our in love over that thing being I smart very thing lot will and affordable And to couple in is mentioned XX I the we we're new we going. of times, ever you're benefits We acquisition very a major any results ranges you more do, have Thank And to not we're much. the to just like housing to we'd

Operator

may you Ladies your and this We thank lines teleconference. your you today’s gentlemen, disconnect conclude participation. And time. this does for at

New Home (NWHM) 3 Aug 182018 Q2 Earnings call transcript