The New Home Company, Inc., Aliso Viejo, Ca., (NYAE:NWHM) on Thursday morning reported net income for the second quarter ended June 30 of $1.5 million, or $0.07 per diluted share, compared to $2.5 million, or $0.12 per diluted share, in the prior year period. Analysts were expecting a gain of $0.06 per share.
The year-over-year decrease in net income was primarily attributable to a $3.7 million reduction in joint venture income, a $1.3 million decrease in joint venture management fees and a $1.3 million inventory impairment charge. These decreases were largely offset by a 32% increase in total revenues, a 160 basis point improvement in home-building gross margin after impairments, and a 140 basis point improvement in selling, general and administrative expenses as a percentage of home sales revenue.
Home sales revenue for the 2017 second quarter increased 23% to $96.9 million, compared to $78.8 million in the prior year period. The increase in home sales revenue was driven primarily by a 49% increase in deliveries to 64 homes and was partially offset by a 17% decrease in the average selling price of homes delivered to $1.5 million. The decrease in average selling price was primarily due to a mix shift as half of the second quarter deliveries were from communities with average selling prices under $1 million.
Gross margin from homes sales for the 2017 second quarter was 13.6% versus 12.0% in the prior year period. The improvement in home sales gross margin before impairments was primarily due to a change in mix, including more deliveries from our higher margin Crystal Cove communities located in Newport Coast, CA.
SG&A was 12.4% versus 13.8% in the prior year period. The 140 basis point improvement in the SG&A rate was largely attributable to a 23% increase in home sales revenue, which was driven by a significant increase in new home deliveries due to growth in wholly owned operations, and lower G&A expenses.
Net new home orders for the 2017 second quarter were up 53% to 98 homes, compared to 64 homes in the prior year period. The company’s monthly sales absorption pace was up significantly during the 2017 second quarter to 3.3 sales per average selling community compared to 1.9 in the prior year period. The improvement in the absorption rate was driven by order activity in both Southern and Northern California, with Northern California more than doubling its net orders over the prior year period. As a result of increased sales activity and the timing of opening new communities, quarter end selling communities were down 25% from the prior year, ending the 2017 second quarter with nine active communities compared to 12 as of the end of the prior year period. The company anticipates opening nine new communities in the second half of 2017.
The dollar value of the Company’s wholly owned backlog at the end of the 2017 second quarter was up 22% year-over-year to $339.4 million and totaled 185 homes, compared to $278.0 million and 125 homes in the prior year period. The increase in backlog dollar value primarily related to the increase in net new home orders, which was partially offset by a 17% decline in average selling price in backlog. The decrease in backlog average selling price is consistent with the strategy to expand its product portfolio to include more affordable price points.
Fee building revenue for the 2017 second quarter increased 57% to $47.2 million primarily due to an increase in fee building construction activity.
The Company’s share of joint venture income for the 2017 second quarter was $0.2 million, compared to $3.9 million in the prior year period. The decrease in income for the company was due to a reduction in joint venture revenue from a decrease in JV home deliveries and lot sales, and lower gross margins from JV home sales due to a delivery mix shift. Total revenue of the JVs for the 2017 second quarter was $35.2 million and a net loss of $0.7 million, compared to total revenue of $70.1 million and $10.2 million in income in the prior year period, respectively. Home sales revenue of the JVs was $34.2 million, compared to $47.7 million in the prior year period, while land sales revenue of the JVs was $0.9 million for the 2017 second quarter as compared to $22.4 million in the prior year period.
At the end of the 2017 second quarter, the JVs had eight active selling communities, up from three at the end of the prior year period. As a result of increased selling communities, net new home orders from JVs for the 2017 second quarter increased 80% to 54 homes as compared to 30 homes in the prior year period. The dollar value of homes in backlog from unconsolidated JVs at the end of the 2017 second quarter was $70.9 million from 90 homes, compared to $72.0 million from 76 homes in the prior year period.
As of June 30, 2017, the Company had real estate inventories totaling $365.4 million, of which $211.9 million represented work-in-process and completed homes (including models), $108.0 million in land and land under development, and $45.5 million in land deposits and pre-acquisition costs. The company owned or controlled 1,821 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 1,134 lots, or 62%, were controlled or under option.
New Home ended the 2017 second quarter with $154.0 million in cash and cash equivalents and had no borrowings outstanding under its $260.0 million revolving credit facility. The company ended the 2017 first quarter with $318.1 million in debt outstanding (net of unamortized discount, premium and debt issuance costs), a debt-to-capital ratio of 56.2% and a net debt-to-capital ratio of 39.8%.
“We continued to see strong buyer demand in California where net new orders for our wholly owned business were up significantly with our monthly sales absorption rate up 74% year-over-year.” said The New Home Company’s Chief Executive Officer Larry Webb. “We are well-positioned to deliver strong results in the second half of the year and are on track to broaden our product portfolio to include more affordable price points. We anticipate opening nine new communities in the second half of the year, six of which are expected to be priced at $750,000 or lower.”
