The New Home Company (NYSE:NWHM), ALISO VIEJO, Calif., on Friday morning reported net income of $5.5 million, or $0.27 per share, for the third quarter ended Sept. 30, up 25% from the same period a year earlier. The gain matched analyst expectations.
Total revenue was $177.9 million, up 105% from $87.0 million in last year's quarter, as home sales revenue jumped 116% to $125.1 million. Net new home orders were up 5%, backlog dollar value was up 37% to $290.2 million, and community count rose 30%.
“The New Home Company delivered solid top and bottom line growth in the third quarter of 2016, while laying the foundation for future success by focusing more of our resources on wholly owned operations,” said New Home Company CEO Larry Webb. “We have seen encouraging trends in some of our newer communities, most notably along the Newport Coast, where order activity and pricing at our Crystal Cove communities have exceeded our expectations."
Webb continued, "As we had previously stated, our earnings for 2016 would be heavily weighted to the back half of the year. Given our performance this quarter and the size of our backlog at the end of the period, we believe that this will indeed be the case.”
The year-over-year increase in net income was primarily attributable to a 105% increase in total revenues, a 480 basis point reduction in selling, general and administrative (“SG&A”) expenses as a percentage of home sales revenue, which was partially offset by a $3.6 million reduction in joint venture income. The increase in revenues and improvement in SG&A is consistent with the shift in focus to wholly owned operations.
Home sales revenue for the 2016 third quarter was $125.1 million, compared to $57.9 million in the prior year period. The increase in home sales revenue was driven primarily by a 100% increase in deliveries and an 8% increase in average selling price to $2.1 million.
Home building gross margin percentage was 15.5%, compared to 15.8% in the prior year period, and was up 350 basis points as compared to the 2016 second quarter, driven by a change in mix. The sequential increase in gross margin was also impacted by mix, including higher gross margins from the Fiano community in Newport Coast, CA and the third quarter warranty adjustment. Adjusted home-building gross margin percentage, which excludes interest in cost of home sales, was flat with the prior year period at 16.5%*.
The 480 basis point improvement in the SG&A ratio was largely attributable to a 116% increase in home sales revenue, which was driven by the significant increase in new home deliveries resulting from the growth in wholly owned operations.
New home orders were up 5% to 64 homes, compared to 61 homes in the prior year period. The company's monthly sales absorption pace was 1.7 sales per average selling community as compared to 2.3 in the prior year period.
The dollar value of the Company's wholly owned backlog at the end of the 2016 third quarter was up 37% year-over-year to $290.2 million and totaled 129 homes, compared to $211.6 million and 96 homes in the prior year period. The average selling price of homes in backlog was $2.2 million, which was relatively consistent with prior year.
Fee building revenue for the 2016 third quarter increased 81% to $52.8 million due primarily to an increase in fee building construction activity. Fee building gross margin was $1.9 million, or 3.7%, compared to $2.1 million, or 7.1%, in the prior year period. The reduction in fee building gross margin percentage was largely due to a decrease in management fees received from joint ventures from $1.5 million during the 2016 third quarter compared to $3.3 million in the prior year period. The decrease in management fees from JVs was primarily the result of fewer deliveries from JV communities.
The company’s share of joint venture income for the 2016 third quarter was $0.5 million, compared to $4.1 million in the prior year period. The decrease in joint venture income was largely driven by a 70% reduction in total JV revenues, which was primarily the result of a 68% decrease in JV deliveries and a 43% reduction in the average selling price of homes delivered.
Total revenue of the JVs was $34.5 million and net income was $2.4 million, compared to $115.4 million and $20.9 million in the prior year period, respectively. Home sales revenue of the JVs was $19.7 million, compared to $106.5 million in the prior year period. Home building gross margin percentage generated by the JVs during the quarter increased to 26.3%, compared to 24.8% in the prior year period.
At the end of the 2016 third quarter, the JVs had eight selling communities, down from 11 at the end of the prior year period. As a result of the 27% decline in JV selling communities, new home orders from JVs for the 2016 third quarter decreased 39% to 35 homes as compared to 57 homes in the prior year period. The dollar value of homes in backlog from unconsolidated JVs at the end of the 2016 third quarter was down 59% to $85.3 million from 88 homes, compared to $205.6 million from 173 homes in the prior year period.
As of September 30, 2016, the company had real estate inventories totaling $383.4 million, of which $260.9 million represented work-in-process and completed homes (including models), $76.2 million in land and land under development, and $46.2 million in land deposits and pre-acquisition costs. The company owned or controlled 1,584 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 958 lots were controlled or under option. As of September 30, 2016, the company had $74.3 million in liquidity, which consisted of $44.3 million in cash and cash equivalents and $30.1 million in availability under its revolving credit facility. The company ended the 2016 third quarter with $233.9 million in total outstanding debt, a debt-to-capital ratio of 50.4% and a net debt-to-capital ratio of 45.1%*.
New Home updated its full year guidance for 2016:
- Home sales revenue of $470 - $500 million
- Fee building revenue of $160 - $180 million
- Income from unconsolidated joint ventures of $7 - $8 million
- Wholly owned active year-end community count of 13
- Joint venture active year-end community count of 9