NWHM - Earnings call transcript Q2 2019

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Operator

Greetings. Welcome to the New Home Group Company Second Quarter 2019 Results Conference Call. [Operator Instructions].

Please note, this conference is being recorded. I will now turn the conference over to 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 the would facts call this which not historical begins, Before remind that of the I call uncertainties. certain course everyone forward-looking risks statements that are to like statements and made in are

risks Form and uncertainties such factors important results these most cause with differ could including duty report in of recent XX-Q. call. statements and forward-looking in the those on the that company annual discussion in undertakes this A are detailed made and to course other to of operating company's are forward-looking XX-K the actual no filings statements made SEC, the report during materially update in from its Form The that on its quarterly

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

Larry. With that, to turn I over now call will the

Lawrence Webb

our John events additional joining to Leonard on current more about good market. start and the Drew, the provide the in about commentary some each and everyone by color then morning on high-level will out I'd give will call detail some Thanks, to us markets, numbers. today. giving of like housing

quarter $X.XX diluted solid results Home of or income net Company second New of share. per The $X.X million XXXX, the in generating delivered

from pace a or the income. we for operating teams accelerated quarter in XXXX, of resulting Order and revenues, first XX% margins JV excellent previously increase met did job on an guidance executing sequential our our activity in exceeded a sales basis. as with the Our quarter stated to

improved our and revolving paying by the quarter $XX $X our also our We in credit million leverage facility senior million. of ratios by notes down repurchasing

significant solid balance efforts and more our in transition we are our highlights our our markets recent shifted second though sheet the of as Arizona optimistic affordable markets company for represent XXXX. future the to home builder, definitely remain half continue prices. be our of increasingly affordable the markets response be segments strengthen product to looking have for to in progress mix California buyers about home These new market. We these head a into in the and the to to of more as run-up

below of trend average communities net prices several to repositioning total per of pace home was market more evident orders. results this company homes this from our and We our selling identified new market. ever to in affordable our aggressively been years bring since product This ago had have change quarter absorption and with community X.X an sales in as our $XXX,XXX XX% comprise dynamics

projects, more and have it price Our XX next than over reasonable much to XX company's our ago, year different look as at These profile to evolve company was as point. is months. bring feel online the affordable but and New will much communities one communities a just same more it we will distinct Home higher-end continue the

we've of experience affordable And these in communities relationships, be and the opened a number success is points. successful the have a testament We far that. so we've to to had at expertise price

stable for profitable and transition our a We result are optimistic profile company. that in this diversified, will business more

over to our markets. color more provide each on like I'd With that, the Leonard, will to call of turn who

Leonard Miller

how with on quarter from progressed. the everyone were the XX% XX% for but and activity pleased the the Thanks, played as prior with were accelerating improving to from as second sequentially down Net were out, and good orders up year in quarter Larry, year also earlier In compared to we the the new morning second call. order first XXXX quarter. general, quarter

sales monthly per absorption the per from quarter. for X.X Our up year community compared community the to was rate the in first quarter second was sequentially prior but X.X XX%

to over purchase. we of New X.X affordable higher-cost Empire, more as at quarter. years, In we Home experienced with from looking California, plan Irvine As to where the sales our FHA increasingly to markets quarter Larry inland mentioned, have of homes our a the prices company per well demand in average. above of success In Parson for California, we limits. buyers in coastal are the pace parts bodes Inland Southern at sales two like generated for in the in migration month our with one seen state their better Inland six well continue the market home trends loan the lag Empire projects in project the margins communities the This starting next a future as demand value in areas newly below new the opened open

any continue we to the Irvine California, wholly-owned active no Southern have markets presence we While coast longer to closer a market. projects the in in have in

Bay cases, to in in the dynamics some of of market. the state to the the Northern lack in prompted similar incentives has as cut use California the in prices demand those several find and, market southern Area to were The parts builders

home great their the economy buyers preferences. continues comes jobs to in produce more are While location area, over the choosing to value local it high-paying new when

community in to we in to affordably communities project we and one open two more and this that later Fortunately, priced date, of selling, year. X/X are the we've actively sold slated is Vacaville that Bay Area have

aggressive trends more prices. a in experienced we quarter, as experienced market year. Demand the remained sales have in Incentives in a healthy stability would in never Sacramento the continuing earlier were that the the check downturn really require

we this the stability future we've seen are quarters, the in about Given last market. several our over optimistic

and in opened Arizona, other bears condominium communities better two traditional in than communities our quarter. markets, ICON luxury much the similar our Belmont to have We more project

XX will to over dramatically $XXX,XXX. to months all Arizona eight next we the have scale communities in as and $XXX,XXX open, presence Our between at scheduled prices new XX

Now, our detail quarter. to financial results over turn like more I'd for on this John it to

John Stephens

Thank you, Leonard, good morning. and

Our for pre-tax income $X.X the year ago. was second $XXX,XXX versus a quarter million

early compared prior venture our increase net SG&A in was a net was home $X.XX on driven share the XX% and gain in in These $X.X expense our income basis margin. fee The our primarily and, debt. While partially our diluted increase generation in ratio, a million were share of pace building offset per cash diluted flow income a resulting fee extinguishment lesser gross in a by or a by in $XXX,XXX on a sales improvements from $X.XX and to in $XXX,XXX year-over-year XX a and joint focused per sales XXX-basis-point increase home income margin revenue decrease or our increase the point decrease year. revenue, sales $XXX,XXX to extent,

for of by the to at increase was sales by communities for offset in compared a partially versus which second deliveries $XXX as the $XXX,XXX quarter. average into revenue XX% in the quarter. end came per up prior The price The was year million guidance. the deliveries, accelerating was was the second $XXX XX% top ASP year-over-year from a largely and over our selling quarter our driven Home delivery lower-priced to that due X% was increase in lower lower million guidance

population a third a the smaller expect quarter due second We revenue the in and into the spec deliveries a quarter for sales in available to of dip home delivery pull-forward quarter. of third specs

XXXX currently estimating million and $XXX,XXX. year in and are our of full and that between selling estimate home quarter $XXX be to And between full a $XXX and between third $XXX we for XXXX, revenue sales sales for revenue. $XXX As quarter third price $XXX,XXX average result, estimating home the are million. the million we We million year

quickly. conversion success rate price backlog in for to down more revenues quarter our to concerted XX% was homes Our our the effort as result and move XX% point into as period spec compared converting of of a prior-year the

XXXX quarter quarter XX% at homes prior ended we dollar a our the the and result backlog with rate, sales quarter the a number down end a higher in of from slower second with backlog of As of conversion year, million. year-over-year the second absorption the was rate, value the $XXX coupled backlog of

more have and both averages. the segments tend product our to quicker affordable as to our that backlog addition, as rate compared we fourth flow In well historical focus expect conversion generating on through selling third on cash in a higher XXXX as our turn with focus quarters specs, to

a by period. costs mix to margin the gross was Our in was and XX-basis-point versus the XX.X% quarter related The second prior-year XX.X% interest margin shift. higher partially decrease in incentives, offset gross for primarily XXXX product

to for quarter cost basis to margin period. in Excluding from up was gross as interest home second in sales, sales compared the XXXX XX.X% XX year-ago our points the XX.X%

the and For XXXX, we XX.X% full sales are between gross including of third margins, interest, XX.X%. home quarter and projecting year

quarter SG&A decrease primarily leverage advertising selling lower percentage XX.X% in was XXX-basis-point the better in XX.X% higher Our home from second year. revenue rate and lesser offset a by were personnel and These business. revenue, amortization costs. of sales home extent, and, marketing related rightsizing to capitalized was a sales prior for rate The decreases versus our as spend due the of higher marketing expenses reduced partially to SG&A to

mid-XX% quarter, be range, third QX to XXXX for charges. SG&A rate we our the the and the severance the full XX% be in XXXX, in to high For range, excluding year expect

a share period. quarter quarter income Shadows prior-year the of to largely compared by Mountain in the for our in driven joint venture $XXX,XXX venture market. JV $XXX,XXX income pre-tax in activity Phoenix as loss for pre-tax Our the resulted the of was The second XXXX

ventures For third breakeven the our full approximately projecting we from of joint about year. a for the income are $XXX,XXX quarter, XXXX and

period. Our as for was the $XX revenue quarter $XX fee million the year-ago compared million second building in to

fee the quarter Irvine demand or in X.X% Our fee year. prior this versus revenue $X.X quarter XXXX was for gross our to lower construction margin was the X.X% lower or communities, fee margin activity million $XXX,XXX due submarket. at The the for resulting in building less and second from

are quarter, of For and million million fee third $XX million full building year. million, $XX and we $XX between for revenue and $XX between the estimating the

and for effective payments. XX.X% quarter for deduction Our the stock-based including year. XX% was compensation year-ago in was to third effective for discrete the income to XX.X% including related an expense rate, items certain The period. quarter due XX% We discrete rate, limitations the full items, to compared and tax severance items, the estimate for tax second of increase discrete

the We quarter. ended active XXXX with XX communities second XXXX even with the second quarter

count Northern California. due to not pre-sell Our below slightly communities to ending new was two prior-quarter decision our community our in guidance

estate in million with count end. in flat $XX We We increase second our cash, real land the quarter debt. by the million inventories XX to quarter full million expect $XX $XXX and million year $XXX year XXXX. the for land to and third targeting between million end an spent the We on be $XX are in quarter during ended quarter in second community to with million and $XXX spend

for to close scheduled We in also million which by the quarter. the approximately are land third currently XXXX, anticipating $XX of are sales end

mid-XX% goal quarter, year. range in XXXX net low end quarter of debt to In We notes third addition, $X with the approximately the by to sequential a to XXXX. a repurchased X.XX% XXX-basis-point quarter amount million ended capital leverage our ratio senior our a first being and XXXX due a in of decline principal net we the the XX.X%, expect of improvement we from of further, leverage with net

I'll now Larry back his turn for remarks. call concluding the to

Lawrence Webb

strides In company achieve progress our seen communities, made sheet the key our or we at priced our several strengthened pleased our in with confidence the comparable We exceeded pipeline. in that and stated markets. repositioning with our the second met to John. many metrics, ongoing we towards affordably conclusion, similar balance quarter. trends for address have further guidance affordability we are in that Thanks, can the currently and recently projects made of I'm opened We've our success great results

position Leonard the we as will Chairman I planned recently have me for and we XX, Executive to our it time make been August structure role, changes is Finally, will CEO. in our This from most know, change. my company's CEO announced The many effective succeed leadership into months, an evolution has as and right something at believe, this to New Home of here transition you Company. as some I

our interaction Chairman, Executive active company of investment role community. an will in As strategic the management in the the I and maintain with

innovator inception The I future XX today. from we of years actually a this a last legacy values market John also New of sincere our remain I leadership company satisfaction trade its company and ownership choice the utmost the the have It for customer we as leader Company its Home next builder company our in my that to to in has established people. where new in that heavily in Leonard, an design, rest lead success forward increased invested in honor the are and the equity ago been an of confidence the home carry our my team take level. quarter. span, Over organization company and the and partners, to to have

That prepared remarks, be we'll take questions. concludes our now to happy and your

Operator

Instructions]. [Operator

with is first Our question Zelman from Zelman Associates. Ivy &

Ivy Zelman

of to decision back you're Larry, to on a and that the private Home than glad the Larry's private New with journey a the excited legend I day. market be but about say met going moving when I in other first builder to that. chat that were the going for Congrats don't even forward, announcement in new know you to ever you're to part what role. you

questions to We're case, digging to and you any In into delever. the in see cash for flow improvement continuing the some guys. excited generation

We also levels. into to entry like push

first the easy what future really the entry your percent on first. you is you being level? see in give really, one The I'll more company question focused can of

Lawrence Webb

industry that because above And each was made But place you've of ones. If ones but incredibly with I've for say you've so and well dignity. felt allowed time, going you've long in for no and I Ivy, all me, to Ivy right? Well, just but think really, thank I better you've been mind have you always were, your We've done the and I calls just assessed always know incredible for, I not spoken the as to honorable first Zelman, could awfully all, interrupt is of amount an -- industry. you it else, -- should tough the way not one made to as all interrupt that. of I done an tough other a you've known you,

So -- rid of and me by getting the yet. not way, you're quite

going Leonard up still to messes with. but I at be the he with Okay? whole to a a I'll involved I world. I'm How's love handle company that going front all, him and criticize So this, of working very the if love company right company, in let that? I'm

Ivy Zelman

Larry. Thank your very you, for you words, much. Thank kind

Leonard Miller

question. Larry. Thanks, Really good

form or pricing. diligence, either targeted kind are due are at XX% the currently two communities of look FHA you that be those If years of next over those we own, control some at in of to below or

well So a big It's higher located, schools. made we've density, good really move there.

future. excited we're about So really that

Ivy Zelman

doesn't and several the think, and points One It's very the putting have downward down. the the really comments price where that function challenges, you need come and they aging rates they pressured a and and on are up us changes prices, cut place, increase prices builders tax seen in of aging to high-level. confidence give getting on, just a are thoughts rates that move your and to home especially, of, like opening hear deductibility? to hat Maybe your helpful. and can about respect incentives even tailwinds, in will feels lot or industry be things, luxury, population, higher, as sorry, that continue the basis back It the is an move in to Great with think or about to SALT where it's think market, of hat reacting just not to having to I continue Larry, that. other lack market things, your industry

will the and X So to over what X years market? think next for the like look perspective that X, really you any high-level outcome

Lawrence Webb

still been Ivy. recovery This unusual is successful. it has or can that good least It's at pretty California a every across-the-board look a and question well-located move been very quite hasn't in particularly, be when we good through we second communities see what and, area, And market everywhere, coastal place. the at move-up comment, up, a the projects

We by been Ranch very doesn't Sky has really Hills Orange that across-the-board anything in in have -- Covenant vulnerable. a is good a But A+ definitely fit named community. South County project that

depth say, we impacted but sentiment buyer mention, the reduction within, didn't you is something demand that of I is But It's and very time clearly, clearly, years is, have demand entitlements of three to it's the the thing Home which move-up But move-up California. ago. well-positioned that long going from but always move-up political because first headwind demand around. forward would there's deal There's to One transition ship in hitting be we for entry, quite the towards also New nature a started is I doing Coastal Chinese looking today, move there and really to feel first the, towards that market, it's up. a jurisdictional about us term, it's housing. of also Long facing this again, just pushback Company and The the all entry too. turn taken with has both

Ivy Zelman

move quick land just that you value the are to to to prices to maybe for developers Would have that's creates land second there and that missing? follow up the time point. alluded that that ask pressure about maybe be anticipate going that land you lower will price earlier One prices up

Lawrence Webb

know as than do property this to saw believe land have. came recession, land will as believe, as their prices prices go in prices faster looking landowners I I go prices land we expected. at as I if don't now, don't In down, going low that down believe differently. and know but back the And are be I they we recovery should I well definitely

looking first the home operation time kind So JV, a what for have may order with potentially it's in of in builders. partners, longer in where to, I be that my to now by land builders as I they price, that? get there mean stay fee for their be some other career, mean to at or whether landholders chance do a in

a they we be basically And in housing design beneficial is really land because potential for a really are could remaining prices -- the there's They're and company like ours, as in quality. accelerating. Clearly, leaders stable. not California that are viewed second-move-up

Operator

Our next question Alex is Research from Housing Center. Barrón with

Alex Barrón

new Well, I hear promotion. was wanted also surprise news I the news, you I on for Leonard, congratulations, was communities. focus to, for an interesting delivered but Phoenix. Larry, that about the that the you, eight to thought and guess, just I

of, in I those communities? So wanted your the on getting are Can already sheet? terms part timing, in? to ask, be assuming of communities? orders those I can the from are roughly, metro on guess, rollout of, of balance are when am those, and I -- kind And guess, expound to we start, location you those those And going what

Leonard Miller

Sure. you. area. the thank those in Alex, with, communities are of six I'll and take that, Gilbert-Chandler start I'll

be well-positioned, QX of really sale which of sorry, So XXXX. which -- should of three I'm QX will for open in three

on The three other XXXX. we'll QX bring of

in in in So point slated Estrella. and then all Again, one Eastmark some during we and are six at have eight communities XXXX. Gilbert-Chandler, one of those

go, or own eight, far then typical lots will it's closing topped be conditions deals. -- others, and and as three entitled. some those will As delivered of blue the In the there's of In be ownership on we finished. it terms cases, those

a So it's mix.

Alex Barrón

you you own some say others of the the you form of When joint venture? mean in three are eight,

Leonard Miller

us. of closing just-in-time certain take more that we or favorable it down basically more deal Not venture, terms at at conditions a in to joint negotiated to but were

The wholly-owned Company within in own future. the Home will we New So those

Alex Barrón

okay, Oh, great.

reflected community So wholly-owned? will type be be of and your wholly-owned income as but some will deal, it's the basically option statement in itself

Lawrence Webb

better that said than did, Alex. You we

Alex Barrón

Great.

at move those progress they the balance some maybe give to idea on then how And guys are some you situation, us senior continue and bringing looking back. good of those? in the Okay. plans guys that some if trade and you of you to in what of and credit, continue the of the took down obviously, terms refinance kind there of of notes as you you debt Is line notes, looking advantage a points bought at the to made repurchase at discount senior guys discount? are this so quarter Can And you just forward? to

John Stephens

John it's Alex, Stephens.

that our foremost, on, First We obviously, trading we of is to That's quarter pay sort the to low-XX% year, the been to debt continue thought our is that where focused during again, year. cap the front the something end that in attractive to and moves our price, with we've down bringing we range goal kind be wanted the WIP. goal bonds just and continue at the they earlier because, to during of and middle on our when were that of of in down to thought were they the pretty with up net deleverage, the of of credit. line line increase now the too, opportunistic by our

available. still So couple an for the I up to as is us think bonds some pick years that over next become there opportunity they

Now as widely trade you they as don't might expect.

So the opportunities and go. do come

is So we're first the But touched part will a deleveraging focused paying evaluate the of but that six then on. and be say, important kind or of so. moving we will here part months forward us again, story on on real revolver of foremost, the for I'd next, And that for down those, and front. again,

forward having for deleveraging and and a those nicely, are that and couple with have forward QX, land continue to proceeding those look are sales We story. of happen we of scheduled our sort

Alex Barrón

as are at guess I you expect Great. your on, that than margins as I those or would that? come company mean, communities at those expectations your Phoenix average, far margin that better average would as have

John Stephens

Better averages. company-wide than

margins to whether that of think online, our referred they new affordable communities Leonard average. the that than kind or of some these I Inland projects have in the more or Sacramento better company-wide Empire Phoenix they're in all area, we're bringing

we've demand pace and absorption also from better those. think seen I

through. think pivot going I encouraging that's with this been So been we've

anything to to add that? do Now, Leonard, have you

Leonard Miller

Yes.

it. I hit think you

Alex Barrón

if one off. I'll then could I one last jump ask And and

as a to it's California? basis. basis, is? going your thinking some as California or an bit little as bit directional to little far As far where to kind going guys exposure remain trend of somewhere and not community of On community down? relative It's exposure up and Just it you overall counts in kind guidance counts, of roughly are absolute

Lawrence Webb

I looking we're communities be aware forward ranges are think should as you our But it price more to that affordable about is. remain going where whole. to moving be newer a in

there geographic more leverage, We But and will aware, Western be believe should the would market lower well. be what still United Inland for cash side well States as have the as also to is of we our Sacramento us. that in really think are that opportunities more opportunities shifts that. towards our today. bring other of be in good see way our the markets cities and our are we on Empire they'll we'll as California, well than be I to for some So this But in looking at doing be focus to and everyone Western we primary year other

headed New Thanks, right is Company really patience. in We we The everybody, appreciate the really direction. believe and Home your

continue and both into news a role, in transition and we're team. Home As I give we Leonard grows. I different a utmost you to the person hope remain have John, The three positive And Company as to to New confidence going

you thank so much. So

Operator

today's Thank you. conference. This concludes

time, have a your and pleasant You disconnect lines day. may at this

New Home (NWHM) 30 Jul 192019 Q2 Earnings call transcript