NWHM - Earnings call transcript Q3 2019

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Operator

Greetings, and welcome to The New Home Company Third Quarter 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Drew Mackintosh, Investor Relations. Thank you, sir.

begin. may You

Drew Mackintosh

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

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

financial financial non-GAAP most in to may Additionally, accessed be measures conference in New GAAP filings Company's through its comparable the with in can measures prepared accordance the with these of The be call. Reconciliations and this Home measures non-GAAP discussed website SEC.

President Hosting Larry Officer. Executive Executive Chief and Miller, and the Officer; is Stephens, Leonard today Financial call Chairman; John Chief Webb,

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

Lawrence Webb

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

executing core large $XX the We quarter, SG&A reducing scheduled cash million in land Company and its for New proceeds. this in solid two net in quarter third the of generating three year our completed net a our roughly expense on objectives ratio. flow, the by in job of leverage The Home did lowering sales bringing

debt at sale land an booked our debt-to-capital $XX quarter. repayment million quarter. net basis strategy in us in reduction week, XXX part we the giving these point sales and in that was additional of Furthermore, which from third the basis fourth The a by this resulted The XXXX of our of $XX closed execution will lowered land ratio our million, to important end first sequential earlier of leverage points XX.X% in high of be the XX.X%. ratio net an the XXX

we with is As leverage have net end year that to range moving XX% stated in and previously, goal the range our low the in stay our forward.

were we a last points revenue cost-cutting of year. able thanks costs, the on to we've to initiatives XXX SG&A base, ratio year to expense by versus basis reduce since respect With our undertaken similar beginning the

company our forward resources discipline more to has evolved, and generate As This to we into ways more leverage. will discovered our existing with do carry future. operational stretch the less have

trend playing to continue consistent in are affordable be current more to in we out gravitating move a market, the the the continue luxury more of of to markets. dynamics, terms our challenging. In segments while see up market Buyers segments

a this company price. an buyers with ongoing new we at are live affordable well place repositioning have We who been the address great communities our resonate to for will trend, think to and looking

to Consumer have confidence think signs to continues of a a low. In be to improvement. we the capitalize market summary, costs I unemployment rate on remain while mortgage high, continues that and opportunity housing financing show great

of me The more a improved housing. with need macroeconomic balance and have product is for Home short inventory creating about new in In our our New sheet the backdrop, Company. repositioning, addition, new and positive existing future This home supply, coupled excited

that, turn quarter. color on call With Leonard, our will more to over provide operations this like I'd to the who

Leonard Miller

call. on good and everyone Larry, to morning Thanks, the

quarter Larry fronts. SG&A this succeeded our As and mentioned, our on leverage generate and expenses, ratios was focus we've to cash all improve lower our flow,

We margins, particularly point higher communities. in flow, price, compressed at cash emphasized attainably to more lower and price leading over some pace to our leverage in have reinvest generate order communities of legacy priced

our experienced more This well which Our came more communities to communities in perform was in affordable margin sales perspective. per the pace the X.X evident per X.X for affordable from we both month luxury versus continue average. in projects company community and at to relative our move-up sales a the quarter, at orders and activity

acquisition trend this several focusing and been projects affordable more have expect efforts to over We quarters. land continue on last on our the

encouraging community of next XX floor are we within development be In our XX given in company move densities. that This the an core in the to our feature prices investments significant have to have limits. last of fact, Similar market, these down expected loan price higher spectrum over will months to communities, FHA openings but made the the next well-located XX new is our years. will existing plans projects areas smaller few base and

rate for Our XXXX prior the absorption was the third for quarter year period. monthly X.X to X.X as sales compared

rate trends while as our absorption Northern order Our inventory by our paces regions a characterized Demand coastal to Inland the while for prior down to in community both better was normalized were Arizona at in due California the move-up markets, compared and areas and in absorption quarter sold-out rate was flat Gilbert. Southern the a incentive of largely housing nearly healthy performed softer higher-priced bit both activity. lack the California year, of

one more project at of Area California Coastal product, have remaining to the Bay time. and Southern have our limited exposure shift in strategic we in this affordable As part

in one in of and California of be most to builders deals, are On housing country, the has on with price over in open, building which strong prices. in cap Phoenix all wholly fundamentals put and rates best of builders two periodic years, underwriting scale dramatically taking the as presence our $XXX,XXX. market, price Arizona are $XXX,XXX projects and will eight of We priced the between to order communities markets to new improving the next have new front, scheduled cost the stabilized, have only increases. but and currently staying appear in have lot we a continues disciplined advantage materials X.X the land the the owned

our which In standpoint. summary, Home and better from solid The execution to Larry's for our company our our efforts position this a New I future financial share improved product enthusiasm furthered Company's position given quarter,

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

John Stephens

Leonard, good you, and Thank morning.

Including and sales related pretax pretax $X.X share loss generated Southern the program in $X.XX housing $X.X compared $X.X per million income The impairments loss loss California. included a $X.X to generated pretax sale ago these $X.X million million of loss per million land loss in one on $X.XX and For compared a million related sales, as income to the $X.X inventory impairments, of we XXXX net period. third year diluted on in million the or in which prior to land quarter, we year share of period. to California in Northern and million million quarter $X.X a a net $X.X land of diluted or current

per excluding quarter or inventory the diluted for impairments on XXXX sales was loss and the share. land after third Adjusted income $X.XX net $XXX,XXX

the the will delivery, fourth flat for quarterly home and of which sales in million third estimating We home quarter the in million, revenue million. our the XXXX. quarter million $XXX,XXX high essentially that towards per year $XXX quarter. revenue for was sales between average the approximately be on at prior million down $XXX,XXX. the at end fourth of our available sales delivery home the guidance Deliveries up and X% was spec average Our selling and equates fourth coming we price for and the of with homes were homes for price our was estimate quarter while $XXX for year are X%, selling between $XXX $XXX backlog $XXX to full revenue quarter Based

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

lower conversion were in from $XXX start the backlog dollar for the third value homes prior number our XX% new the quarter, a year year-over-year. and the of of backlog million. of backlog As and quarter orders a down the to was quarter result backlog third higher rate Net XXXX down beginning represented the X%

seasonality XX% the sequential the as compared more line quarter from prior in decline XX% period. expected the with the experienced to sequential was However, year in second decline

Southern in margin related incentives that inventory the was year Our quarter, a than quarter to versus included period. X.X% The third anticipated. million XXXX impairments, in prior charge including required has impairment XX.X% higher-priced originally for one third community $X.X gross the more XXXX California

third incentives in shift. interest was XX.X% margin primarily reduction of sales gross was ago cost and from mix a to interest period. our the home Excluding point year before compared impairments and sales, cost sales in XXXX basis gross quarter and the to in XXX of impairments and margins XX.X% The as for product related higher

of Moving the XX% XX.X%. margins, fourth and gross forward, we for quarter are projecting between including sales interest home

XXXX year including impairments gross full XX.X%, be our to projecting are XX.X% taken to and We date. margins between

in year. to third as and our point XX.X% marketing a The rate lower co-broker commissions, efficient rate XX.X% advertising SG&A the primarily prior was due revenue for the of basis quarter sales expenses. home versus Our personnel improvement and was percentage SG&A in lower XXX spend more

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

joint $XX,XXX loss XXXX venture year of pretax period. the as quarter third $XX,XXX a compared in income resulted of share to Our for prior in of the activity

For joint XXXX even fourth we from quarter, break our to venture expect the participation.

was building lower Irvine $XX revenue to building compared for our was for margin construction quarter ago million period. communities. third less to million quarter Our as fee year activity The revenue the due fee and primarily fee at the in the $XX

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

realized rate the the tax for actually The XX.X% tax stock-based fourth of items effective between expense third quarter effective income effective as certain and was compared upon severance impact rate tax of including Our for investing. quarter. quarter benefit the a primarily limitations to third deduction X.X% lower and discrete to for X% rate, lower due an in was ago payments X% year a estimate the We compensation the period. for provision

Our our the October. in due that count opening communities Northern was of to were of ending California to end prior at guidance two open in quarter September the new slightly scheduled community above previously

million $XXX community for year-end the cash, ended debt. and the on to be in in our quarter flow $XX approximately estate September We months in XX. flat inventories expect real with million generated and basis. approximately cash the We nine We count ended $XX million during $XX million $XXX million sequential operating a quarter in

We to $XX are estimating are cash operating flow targeting the $XX flow strong approximately figure million for fourth full of operating year quarter cash and a million.

our right-sized to with March our we quarter, XXXX. addition, the which also aligns and lower of leverage extended better facility In our during facility revolving maturity commitment date expected credit the the

third third the of during million quarter the on of borrowings year-to-date. We the spent million million quarter, we in As $XXX our $XX had $XX outstanding $XX million facility. under and end land

$XXX approximately land about to million. increase land spend the full spend to expect We and expect XXXX year of in XXXX our for million to $XXX

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

Lawrence Webb

margins the with In progress the the company debt company business, legacy quickly. decision our to cost more quarter John. that address can at We've fastest-growing reduced levels, gross pleased through market. our and our to turn are of to direction unsustainably repositioning levels but taken emphasize over of out I'm attributed and price our We further heading. recognize in our is some of pace our current made Thanks, that low segment be conclusion, this the communities

effort had cost to shift expect most more I our year defense structure. margins community balance to this improve will for product. affordable our reflects shore better and right-size We've up in Moving to sheet our forward, of play profile our an as our

and progress made we've profitability. that years fronts, few to forward our I'm made benefits improving the of the Now investments reaping on both looking we've the over last

execute team We have I'm for a the clear New excited as of ever plan. place management future and as result, that hand for experienced plan as in And to Company. success The Home future a seasoned, on a

members to full CEO to from gone team. for very transition confidence have team has smoothly, of efforts. their the my them Leonard Finally, Executive I in the and thank senior our Chairman rest I'd and and management like

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

Operator

the with [Operator first & question of Maguire Associates. Our line comes Instructions] from Thomas Zelman

Thomas Maguire

the leverage quarter. cash flow job in progress and Nice on

in Just staying door through talk getting higher-priced better communities can the some performing, the side, pace was cash in working differential focusing how end? the about on appreciate longer-term that, profile? the now normalized lower-priced margin what more get drove once of the new more standpoint, quantifying product part do you to And margin higher-priced on you the broadly, lower but with through the product, and communities you're of towards a about working back and the think you product you

Leonard Miller

move represent our we were reported point, Sure, that of the year. again points is third our that revenues It higher. those And was quarter older, XXX the XXX of XX% absorption down price sold per margins had closed. sales to We our third closeout one. average. the about I'll margins of Leonard. and this were about plus month, take and were than that what thing as will that The the quarter. in approximately in which we Again, we basis margins specs three higher-priced was half company only XX% in our communities -- were really sold for encouraging higher

bodes So priced communities well or the be next FHA. I really for XX we will XX below of open at the next months future XX as that think over the that

Thomas Maguire

debt here. the to low Got back as you the sustainable view Is I the of just it, helpful. the just capital grow do XX% and a to that broadly few and about we about understand necessary into it's that term? that's size talk more coming the understanding And years the range really leverage senior then the to How can due, we we longer could level out? and think goal strategy? have side, the get something revolver just notes then

Lawrence Webb

John's XXs where moving the say after everyone I this our forward been feels getting to -- I'll heart think the and but year let and how really primary leverage down of around take it him let roughly importance And kind aware, the is we you about John about Well, this, focus we've talking would tell Thomas, that. understand that of quarter every low doing this it's it. he XX I going I'll that. is of

John Stephens

by despite liquidate the that we some some some positions impairments of you mean, results made I to -- made to Yes. we've thought and continue that was of make out land we as progress to to and those having saw bring move leverage. sense the continue down the

as then long extension sort that March bonds of our But 'XX, company for following term, near think we we XX% a a an us. to the and in into move not think XX% it good for revolver, Longer saw But next And March opportunity a to 'XX would goal I out basis. overly to do the did future. an we go an see is We'll the you to us us year. of I'd there term is manage for our on around puts but like lower? see. are term, I of on year, the net like

be those be future. will a opening bring continue So more better focus down well focused sort cash had those that Leonard, to extending year, of absorption our a flow continue be will would to and leverage, continue and say that as have lot of things us increase look the as as for products affordable outlined. new these in on -- paces, be both at our next will I of margins that to we

Operator

question line with comes Suisse. the from McGovern Sam Credit next Our of

Sam McGovern

bit with or bond discuss revolver? the that covenants drove of to Was the down by I in decision was lower discount revolver hoping to driven little continuing what decision down about the the dollar bonds? buybacks. versus pay the could the a you Or pay sort

John Stephens

It was a limiting below to bonds. connection factor XX% leverage limitations that current quarter is was but we in during on basis, due primarily quarter, authorized can purchase the we a we purchase There's limitation much last the our that we're during to how per with debt-to-cap a to quarter. had If did. as the net extension

think opportunities and up. moving looking they has But make we down to paying the whether continue back available debt will focus to for and leverage, revolver it's to at opened that down cash I senior continue bonds our again, if generate sense. And on goal forward, they're line flow pay and is the notes. or

Sam McGovern

Got it.

be expect the should deployed to debt to cash with So fourth in down regard for pay it or generated any one we another? way quarter,

John Stephens

sort cash circumstances could just or build the It just what we to well could be -- are. on of as could reserves depending continue

Operator

Our of Research with Center. next question Housing Barrón the line comes from Alex

Alex Barrón

ask that it color I kind high-priced you other the share Is a just you to just was mentioned maybe, around else Was community a there a location? little a bit wanted close-out? that, it anything impaired. about about you can of that? Any

Leonard Miller

I'll this. Inland that very $XXX,XXX I the and was -- well. was below the move-up of I'm absorbing Sure. say, breakpoint, anything was this in this is And aware Alex, Empire that the absorb it breaking are you purely time Leonard. one. Inland a priced well guys of community in that, kind -- the above significantly But second Anything Corona of is kind that above Empire. really sure price segment. the And in would that's take

get bit above little thinner. that, the You a and air gets

deals or and projects of that the there. it. we was in we perspective lower the a But we is impair point go We one margins community, absorbed got where have master company. same needed highest that, plan than So some in four the market. we at to month FHA-eligible it basically price to give negotiating to better on have margin to lots these of find a and the own had XX thought some were to you We we --

So or entry I points. just difference a the reflection think it of some higher those it's first is time a reflection price of versus move-up of

Alex Barrón

then model a it. the rollout orders of these you timing a new in to communities next elaborate on how sense to get far can And the as Phoenix year? Got as little bit of

Leonard Miller

Sure.

We have the eight over that next new come communities XX in board to on months. are supposed Arizona

which The the year at open end first it is quarter. and scheduled will really be first year, next quarter the tail the next to in early first of of of or

want between to grab to have it's XX that, let some I communities all those of correctly, -- months that give I you beyond about Going sure me make this but just reflected perspective.

really QX, so apologize, see seeing again, it projecting and that. on communities rolling So -- we we that after we're I come start Arizona. an communities, additional in have we In QX, to couple three have a three in in we

You're not significant see -- any closings. really significant to going

some XXXX new on any see rolling XXXX really You'll you sales it's any through. activity in communities seeing eight closings Arizona, but those really of before in start substance

Alex Barrón

the pickup year, to mean, next I going is more understood. for sure. Yes, noticeable But order in segment that be

Lawrence Webb

Yes. We -- where Alex, going but it That's sales. is start groundwork the okay? and to do seeing won't well you're really Phoenix the this it, hit we of of to is the see second half Larry. year, laid and market, the the feel heart for like the be until you'll

Alex Barrón

give on of as points those you And that? as color can and far price communities, locations us any eight

Leonard Miller

projects. for communities are to in higher-density eight the They're The part. Gilbert well from places priced and Chandler, $XXX,XXX. like They're anywhere Sure. $XXX,XXX most located

to is, So is strong to proximity our really what close stay jobs. in strategy schools,

type townhome higher attached product, but some its have cluster density you priced. very that, competitively and with So

Alex Barrón

Any that last of this I around sense tax great. has guess, one I next Your Okay, year? we And rate, moved model how year. for can every ask quarter could one?

John Stephens

well that of some little of these year. versus sorry these that. a quarters the sort projecting little bumpy year, with as But for a is like guess Yes, XX% we -- range it lower it's front. in discrete Couple next just be little XX% of we're more will but just -- about that, on dicey the sort with It's year difficult as probably probably projected this move items, that to bit apologize quarter, this the a overall in and pretax a as loss little for next fluctuating profitability obviously I year. I bit I'd XXXX, in in say, it's into

Operator

remarks. like the Mr. this are There further questions floor for at Instructions] turn [Operator I'd back Webb closing any time. to over to no

Lawrence Webb

you. Thank

specific As who've it very very for achieve you we're some transition goals feel my about making optimistic and company's meet, we're positively our path to company are and most purposes, reducing and flow, and net returning of about the a where seamless, that. we our calls, listening cash going been to on know been and for has future, for positioning and our our about we role our intents that leverage, the from The set how pretty all SG&A future. to -- stronger we're going about better lowering

to with all you. And that, like I'd thank of

Operator

This concludes teleconference. Thank you. today's

may wonderful disconnect time. your Thank this for lines at participation, day. a and you your You have

New Home (NWHM) 3 Nov 192019 Q3 Earnings call transcript