The New Home Company Inc. (NYSE: NWHM), Aliso Viejo, Calif. on Monday reported net income of $10.5 million, or $0.50 per diluted share, for the fourth quarter of 2017 ended Dec. 31. The gain compares with a profit of $13.8 million, or $0.66 per diluted share, for the comparable 2016 quarter. Net income included a $3.2 million, or ($0.15) per diluted share, non-cash deferred tax asset charge resulting from the passage of the Tax Cuts and Jobs Act of 2017.
Home sales revenue for the 2017 fourth quarter increased 7% to $279.9 million, compared to $261.7 million in the prior year period. The increase in home sales revenue was driven largely by a 17% increase in deliveries, which was partially offset by an 8% decline in the average selling price of homes delivered to $2.0 million due to a product mix shift.
Gross margin from home sales for the 2017 fourth quarter improved 140 basis points to 15.8%, compared to 14.4% in the prior year period. The 2017 fourth quarter included a $0.9 million inventory impairment charge related to one community while the 2016 fourth quarter included $2.4 million in housing impairment charges related to two communities. Excluding the impact of inventory impairments, the gross margin from home sales for the 2017 fourth quarter was 16.2%* vs. 15.3%* for the 2016 period. The 140 basis point improvement in home sales gross margin (90 basis points before impairment charges) was primarily due to a product mix shift, including increased deliveries in the 2017 fourth quarter from two higher-margin, coastal communities located in Newport Coast, CA. Additionally, the 2017 fourth quarter also benefited from a $0.8 million warranty reserve adjustment. Adjusted gross margin from home sales for the 2017 fourth quarter, excluding interest in cost of home sales and inventory impairments, was 18.0%* compared to 16.2%* in the prior year period.
SG&A expense ratio as a percentage of home sales revenue for the 2017 fourth quarter was 8.4% versus 7.9% in the prior year period. The 50 basis point increase in the SG&A rate was primarily attributable to higher selling and marketing costs driven by greater amortization of capitalized selling and marketing costs from our two luxury communities located in Newport Coast, CA, coupled with an increase in marketing and model operating costs related to new community openings.
Net new home orders for the 2017 fourth quarter were up 55% to 107 homes, compared to 69 homes in the prior year period. The increase was primarily driven by a 44% increase in the monthly sales absorption rate and to a lesser extent, a 13% increase in active selling communities, which totaled 17 as of the end of the year. The company’s monthly sales absorption pace for the 2017 fourth quarter was 2.3 sales per average selling community, compared to 1.6 in the prior year period. The improvement in the absorption rate was driven by stronger order activity in both Southern and Northern California resulting from more affordably priced product offerings, which generally sell at a faster pace than move-up and luxury product. The company’s cancellation rate for the 2017 fourth quarter was 8% as compared to 12% in the prior year period.
The dollar value of the Company’s wholly owned backlog at the end of the 2017 fourth quarter was $162.3 million and totaled 153 homes, compared to $187.3 million and 79 homes in the prior year period. The decrease in backlog dollar value resulted from a 55% lower average selling price of homes in backlog to $1.1 million as compared to $2.4 million a year ago. The decline in the Company’s average home price in backlog was due to the delivery of the final homes from its two higher-priced luxury communities located in Newport Coast, CA, combined with the Company’s strategy to expand its product portfolio to include more affordable price points.
Fee building revenue for the 2017 fourth quarter decreased 27% to $44.2 million, compared to $60.8 million in the prior year period. The decrease was primarily due to a decrease in fee building construction activity. Our fee building gross margin was $1.0 million, compared to $2.7 million in the prior year period. Management fees from joint ventures were $1.2 million during the 2017 fourth quarter, compared to $2.0 million in the prior year period.
The company’s share of joint venture income for the 2017 fourth quarter was $0.3 million, compared to $3.3 million in the prior year period. The reduction in joint venture income was due to a 47% decrease in joint venture home sales revenue resulting from a 54% decline in deliveries, lower joint venture home sales gross margin and a reduction in joint venture land sales revenue. The decrease in joint venture home sales gross margin was largely the result of a mix shift to more Sacramento deliveries in 2017 as compared to a heavier mix of Bay Area deliveries from our higher-margin Orchard Park community in 2016.
For the full year, the company reported:
- Total revenues of $751.2 million vs. $694.5 million, an 8% increase
- Home sales revenue of $560.8 million, a 10% increase; deliveries up 36%
- Home building gross margin up 100 basis points to 15.2% vs. 14.2%; excluding interest in cost of sales and impairments, up 190 basis points to 17.6%*
- Net new home orders up 63%
