Greetings, and welcome to The New Home Company's First Quarter 2021 Results Conference Call. [Operator Instructions] It's now my pleasure to introduce your host, Drew Mackintosh, with Mackintosh Investor Relations. Thank you. You may begin.

Good morning. Welcome to The New Home Company's earnings conference call. Earlier today, the company released its financial results for the first quarter of 2021. Documents detailing these results are available in the Investor Relations section of the company's website at nwhm.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the company's filings made with the SEC, including in its most recent annual report on Form 10-K and in its quarterly reports on Form 10-Q. The company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures may be discussed on this conference call. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through The New Home Company's website and in its filings with the SEC. Hosting the call today is Larry Webb, Executive Chairman; Leonard Miller, President and Chief Executive Officer; and John Stephens, Chief Financial Officer. With that, I will now turn the call over to Larry.

Thanks, Drew and good morning to everyone joining us on the call today. 2021 is off to a great start for The New Home Company, as we made significant progress on a number of fronts in the first quarter. Net new orders for the quarter increased 114% year-over-year, thanks to 120% improvement in absorption pace. The 4.4 monthly sales per community we have reached during the quarter was a record for our company and was driven by the ongoing supply demand imbalance we continue to stay in our markets, as well as by excellent market positioning of our communities. Our sales pace could have been even higher for the quarter, where it not for our own strategic decision to meter sales in an effort to better manage our backlog, capture potential cost increases and raise prices. We ended the quarter with a backlog dollar value of 423 million, also a record for our company. Taken together with our closings from the first quarter, we now have approximately 95% of our anticipated deliveries for 2021 either already closed or in backlog, which gives us great visibility into our revenue expectations for the year and allows us to operate from a position of strength with our future sales efforts. According to a recent analysis from Freddie Mac, the US housing market is 3.8 million single family homes short of what is needed to meet the country's demand. This means that, based on the current run rate of 1.3 [ph] million single family housing starts, it would take over three years of new home construction just to reach equilibrium. The supply deficit this country faces is due to years of undergoing following the financial crisis combined with the emergence of millennials and other buyer demographics as real driving forces in the housing market. Given these factors, we believe the fundamental backdrop for new home construction will be positive for some time. We continue to make progress on our efforts to diversify our company during the quarter, both from a geographic and price point perspective. Earlier in the year, we announced our entry into the Denver market with the acquisition of Epic Homes, a unique an innovative home builder with a strong well-established presence in the market. Denver exhibits many of the qualities we look for in a new market, including excellent quality of life, a young and vibrant population, steady job growth and rising income levels. We are excited about bringing Epic Homes' Founder Chris Presley and her team into The New Home Company group, as they share many of the same operating philosophies we have, including an emphasis on quality construction, innovative design, and customer satisfaction. In terms of our market position, we continue to reap the rewards from our strategic decision to move down the price points spectrum at our communities. After years of repositioning our company, we believe we have found the right balance between our passion for unique award-winning new home design and our customers' desire for an attainable new home price. And new, more affordably priced communities we've opened over the last several quarters have been extremely well received in their respective markets. And this has translated into significant improvements to our absorption pace and gross margin profile, as we achieved a 570 basis points year-over-year improvement to our home sales gross margin in the quarter to 17.1%. These are exciting times to be a home builder and The New Home Company is well positioned to take advantage of the positive fundamental drivers that exists today. With that, I'd like to turn it over to Leonard, who will provide more detail on our operational performance this quarter.

Thanks, Larry and good morning, everyone. I am extremely pleased with the way our teams executed in the first quarter, leading to significant improvements to our profitability and a substantial increase in our backlog. As Larry mentioned, we are seeing elevated demand trends across all of our price points and geographies. Buyers continue to have a sense of urgency when looking for a home due to the lack of available supply in both existing and new home markets. This urgency is creating an even wider gap between supply and demand, putting us and other builders in a great position to raise prices at our communities and continue to grow our margins. While we are in an enviable position when it comes to selling homes, a red hot market like this can present its own challenges from an operational standpoint. The supply chain for building materials is being stretched in many markets, creating a lag between sales and starts. Suppliers are implementing price increases of their own in an effort to stay ahead of raw material costs. Trade labor is also getting more expensive and stretch them. These are all good problems to have and are indicative of an upwardly trending market that taken together they can lead to real challenges with customers and suppliers. Fortunately The New Home Company has seasoned operators in each of our markets who have great relationships with their trade partners and have the experience to work through these issues. Currently, our biggest challenge is matching starts with sales. In the first quarter we sold 283 homes while starting 238. The imbalance occurred despite implementing multiple price increases, while limiting sales releases in an effort to meet our sales. We have continued to work hard to close the gap between sales and starts and I'm happy to report that we are back to an equilibrium on a year-to-date basis as of today. In terms of market color, it's hard to overstate how good the sales environment is, and all of the areas in which we build. Our California locations continue to perform well for us, despite media reports of an exodus from the state. We are seeing continued strength from higher priced coastal areas as well as migration into more inland locations in both northern and southern parts of the state, a trend of benefits [indiscernible] our presence in the areas like the Inland Empire, Sacramento and the Central Valley. In Arizona, buyers have really responded positively to all of our active communities in the market, and we are enjoying significant pricing power, though the operational challenges I mentioned earlier are probably the most pronounced in this market. And while the Emperor has only been a part of our company's geographic footprint for a few months now, we are encouraged by how the communities in that market have been performing. In light of the overall improvements we have seen across all of our markets, including the strong order momentum and a substantial backlog at the end of the quarter, we have raised our full year guidance for both revenue and home sales gross margin for 2021. And we believe we are in a great position to turn a profit this year. Looking ahead, we believe we have the pieces in place to achieve our internal goal of double-digit return on equity for 2022, based on our current projections. While there are a number of factors that may have an impact on our ability to achieve this goal, including the trajectory of mortgage rates, cost inflation, potential supply chain disruptions, and the general economic environment, we own or control all of the lots we expect to deliver next year and we are encouraged by how the market is trending and where our active communities are currently performing from both a sales and margin perspective. Now I'd like to turn it over to John who will provide more detail on our financial performance this quarter and give an update on our outlook for the remainder of the year.

Thank you, Leonard and good morning to everyone on the call. For the 2021 first quarter, we generated pre-tax income of $1 million, which included approximately $1 million of transaction costs incurred in connection with the acquisition of Epic Homes. In the prior year first quarter, we generated an $18.4 million pre-tax loss, which included 16.3 million in abandonment and joint venture impairment charges. Excluding the acquisition transaction costs for 2021 and the charges for 2020, we generated an adjusted pre-tax income of $2 million in the 2021 first quarter compared to an adjusted pre-tax loss of 2.1 million in the prior year. Net income for the 2021 quarter was 0.6 million or $0.03 per diluted share compared to a net loss of 8.5 million or $0.42 per diluted share in the prior year period. Adjusted net income for the 2021 first quarter before acquisition costs and a deferred tax asset re-measurement expense related to the acquisition of Epic Homes was $1.5 million or $0.08 per diluted share, as compared to an adjusted net loss of $1.1 million of $0.05 per diluted share in the prior year period, before abandonment and joint venture impairment charges and a deferred tax asset re-measurement benefit. Our home sales revenue for the first quarter was 94 million as compared to 96 million in the prior year period. The slight year-over-year decrease was attributable to a 28% decrease in average selling price, as we continue to diversify and move down in price point, which was substantially offset by 36% increase in deliveries during the quarter. We updated our guidance to reflect the impact of Epic Homes and estimate the 2021 second quarter home sales revenue to be between $125 million and $135 million and our average selling price to be approximately $675,000 for the second quarter. For the full year 2021, we estimate home sales revenue of approximately $475 million to $495 million and an average selling price of approximately $625,000. As Larry mentioned, we made substantial progress with our gross margins during the quarter, as demonstrated by the 570 basis point increase to 17.1% as compared to 11.4% a year ago and margins were up 230 basis points sequentially from the 2020 fourth quarter. The year-over-year improvement was driven by our ability to meaningfully raise home prices, a 230 basis point reduction in capitalized interest costs included in cost of sales, and a mix shift of the homes we delivered in the 2021 first quarter, including more deliveries at one higher margin move up community in Sacramento. The 2021 first quarter also included $295,000 of purchase accounting adjustments related to the acquisition of Epic Homes, which represented a 30 basis point reduction of our Q1 gross margins. Excluding interest and cost the sales, our adjusted gross margin from home sales for the 2021 first quarter was 21.3% as compared to 17.9% in the prior year. Including the impact of purchase accounting adjustments for Epic Homes, we estimate both our second quarter and full year 2021 gross margins to be between 16.0% and 16.2%, which is up between 20 to 50 basis points from our previous guidance for the full year. Our SG&A rate, as a percentage of home sale revenues for the first quarter was 15.9% versus 14.1% in the year ago period. The higher SG&A rate in 2021 was largely the result of approximately $1 million in transaction costs related to the acquisition of Epic Homes, which consisted primarily of a tail insurance premium related to previously closed homes that we expensed directly to G&A during the quarter. In addition, G&A expenses allocated to fee building costs of sales decreased $767,000. For the 2021 second quarter, we estimate our SG&A rate to be between 12.8% and 13.3%. And for the full year 2021, we estimate our SG&A rate to be between 13.2% and 13.5%, including the Epic Homes' transaction costs. Excluding the actual acquisition transaction costs, we estimate our adjusted SG&A rate for the full year to be between 13.0% and 13.3%, which represents a 30 to 50 basis point improvement from our previous full year guidance. We ended the quarter with 23 active communities, which was a 5% increase compared to the prior first quarter and included three Colorado communities. During the second quarter, we anticipate opening three new communities and closing out of seven communities, which we expect will result in 19 active communities at the end of Q2. We estimate that we will end the year with approximately 21 active communities. For the 2021 second quarter, we estimate our fee building revenue to be between $4 million and $6 million, and estimate between 15 million and 20 million of fee revenue for the full year 2021. We anticipate increasing our revenues and profits in this segment in 2022. During the quarter, we delivered the final homes from our last active home million joint venture and no longer own or control any lots or homes through any joint venture. Our income from joint ventures during the 2021 first quarter was $174,000 compared to a loss of 1.9 million in the prior year. The 2021 first quarter JV income resulted primarily from the release of a completion reserve related to satisfying a hold back condition related to land sale that occurred in 2020. Our effective tax rate for the 2021 first quarter was unusually high at approximately 45% as a result of the relatively nominal pre-tax income amount that was impacted by certain discrete items, including the remeasurement of our state deferred tax assets, stemming from a lower expected future state income tax rate from the addition of Colorado to our operations. For the full year 2021, we are estimating a blended effective tax rate of approximately 26% to 27% based on the current federal statutory rate and the current estimated revenue contributions by state. Turn into our liquidity and balance sheet, we generated 2.5 million in operating cash flow during the 2021 first quarter. We spent $40 million on land and land development, including 27 million of land acquired in connection with the acquisition of Epic Homes and issued an additional 35 million of senior notes at an effective yield of 6.43%. We ended the quarter with $115 million in cash and cash equivalents, $280 million in debt and had no borrowings outstanding under our $60 million revolving credit facility. We anticipate spending between 130 million and 160 million on land and land development for the full year 2021. I'll now turn the call back to Larry for his concluding remarks.

Thanks, John. The New Home Company continues to benefit from the lack of housing supply and the emergence of new entrants into the housing market. These two factors are driving demand to new heights. And while interest rate movement and other factors may impact our business in the short term, we believe they will not change the upward trajectory that our industry is on over the long term. We have spent the last few years repositioning our company to benefit from such a market, making our new home offerings more affordable and more appealing to the millennial age buyer. This strategic shift has played a significant role in the financial and operational improvements we've made in the last few quarters. We believe we can continue to make further improvements to our performance, which should put us on a path to profitability this year and next, with the goal of double digit returns on equity in 2022. Given our current lot positioning, our favorable market positioning and the significant industry tailwind received today, we feel these goals are well within reach. I have often stated on these calls that the future is bright. Well, I really believe the future is now. Finally, I'd like to thank all of our team members for getting us where we are today. Thanks to you, our company has evolved into a much more diversified builder with wholly-owned operations in a number of markets and price points. We are in a much better position than any other time in our company's history and I am really appreciative of your efforts. That concludes our prepared remarks. And now we'd like to open it up for questions.

[Operator Instructions] Our first question comes from line of Alan Ratner with Zelman & Associates. Please proceed with your question.

Hey, guys, good morning. Congrats on the strong quarter and glad to hear you're all doing well. So first question, I'd love to dig in a little bit more on the Epic acquisition in the quarter. Just curious why - first off, why Epic? I imagine you probably looked at a number of potential deals and chose Epic and why Colorado, specifically versus the other alternative of obviously, acquiring more land in your existing markets and perhaps trying to grow the local market share more Southern California and Arizona, so we'd love to hear the thought process and why Epic was right fit. A - Lawrence Webb Alan, this is Larry. We've been considering expansion into other markets for the last couple of years. And we've taken our time, wanted to make sure that company was in a much more financially strong position and so first, first we wanted to reach lower leverage, we wanted to be having better sales, stronger backlog, all the things that we are at now. We looked at every market on the western from Denver West. And we chose Denver first because we felt that the market was strong, the demographics were good, all three of us, John, Leonard and I have a lot of experience with the Denver market. We have a lot of connections in the Denver marketplace, having all worked there. Epic, we chose after looking at a large number of builders primarily because of Chris Presley and her team, and the kind of homes they were building, her reputation within the industry and the results that they were getting even though they were a small private builder. And we felt that they had a terrific upside. Before I turn it over to Leonard, your second point was would we be precluding our own markets and we felt financially we can be in the markets we're in and focus on land there, as well as Denver. And so we think we have the best of all worlds. Financially, we're stronger. Denver's a great place to be. We got an A player and we still have the ability to buy and expand in our existing markets.

Yeah, I think, Larry, you covered most, most everything I say, right. It starts with the market fundamentals. But it's always all about betting on the operator and Chris has a wonderful reputation in Denver. Her brand really aligns well with The New Home Company and focuses on the customer quality and design, so that aligns very well. She focuses on her people. I think the other part of it is the size of the transaction fits very well for the company. She has three neighborhoods that are currently open that are performing well in well-known masterplans. She has the fourth scheduled to open here in the next 90 days. So that was attractive. And then the thought of that we weren't really going into a position where we would be taking development or entitlement risk. You know, we bought a company that had over $100 million of backlog community that was performing well, so and it was a creative transaction to the company. So it just aligned on all fronts for us.

Great. I appreciate both of your thoughts and insight on that. So it seems like a great deal at the right time, so congrats. Second question, I'd love to also ask a little bit about your comments on kind of the start pace and the fact that it was lagging the sales pace during the first quarter, but you've kind of caught up here so far through April. Was that a function of you guys being more aggressive and intentionally limiting the sales to kind of let the production catch up or have you actually seen your start pace accelerating thus far into April?

Yeah, it is good question. I would say that really, over the last six months, we've generally tried to do anything we could just to slow down sales for a lot of different reasons. But probably perfect equilibrium for us is to start four homes, sell four homes, and close four homes a month, something somewhere in that neighborhood. And we don't want to set our trade partners up to fail. At the end of the day it is how labor is stretched. We have long term relationships with our trade partners and so really, that was - we were really targeting that type of absorption. And the market is just been so strong and I've never seen a market where really demand is so far out in front of supply. So, at the end of the day, we just basically grew in the first quarter, did everything that we could do and through that the positive trend is really our starts in April or 2x of what our sales are trending. So we're in a good position today where we feel we're in equilibrium so.

Leonard, just clarify that the 2x comment. Does that mean the start actually doubled or have your sales cut in half? I'm just trying to figure out what the numbers are in because obviously it's a little bit of a different implication.

Yeah, sales have backed off and that's intentional.

Got it.

So, I think it would be a mistake to focus on absorption rate, because when you look at the numbers of homes, just to give you some example, we have over 20 active neighborhoods, we've been running for the last six, eight weeks of having less than 10 homes released and unsold across the company. So it's very intentional, we want to make sure that we capture all cost increases, continue to grow our gross margins at the same time starts have ramped up. So it's a combination of both.

Yeah, and Alan, I would just like to add really quick to that point that, obviously, our sales absorption pace for Q1 was 4.4 is how we calculate it and wouldn't expect to see that rate through the balance of year. Just like Leonard said, we have a pretty deep backlog now and it's really making sure we stay in equilibrium going forward and just sort of what's available for sale.

So with something in the, like, three range be more realistic, assuming demands stays strong as it is.

Yeah, I think that's a good kind of assumption, sort of based on where we're at and where the backlog is today.

Okay, perfect. All right, guys. Thanks a lot. Good luck.

You are welcome.

Our next question comes from Alex Barron with Housing Research Center. Please go ahead with a question.

Hey, guys, good morning. Great job and good to see things are turning positive.

Thank you.

I wanted to ask about the acquisition in Denver and Colorado. First of all, is it in Denver or is it somewhere else? And second of all, on the ASP, it seems like I'm getting an ASP of over 900,000 in the backlog but the deliveries were in the low 700, so can you guide us towards what kind of ASP to use for orders and deliveries here for this year?

Are you talking about for just Denver or are you talking about the whole company?

The whole company you just acquired Epic Homes.

Just Denver.

Yeah, well, the reason - good question, Alex. The reason why our delivery ASP was lower than what you see in the backlog is really we delivered, I think, four homes during the quarter and I believe three of them were from the more affordable products that we have out in Aurora called [indiscernible] and I think the other one was at Anthem in Broomfield. So of the three communities open, two of them were sort of in the 800,000 to a $1 million price point. And when you add options, it may go up from there and then [indiscernible], I would say anywhere from, mid fours to 550 or so range. Then you add options, it can go up from there a little bit. And then we have one new community that we're planning to open in Q2, Alex, that's also on the higher end, sort of in the, I would say, the million-dollar price point. It's a really exclusive sort of neighborhood. That's 30 lots. That's a very nice infield location in Columbine, next to a reservoir. It's called Wild Plum. We're really excited about that opportunity.

Okay, great. So I guess I'll take an average of those two. Now, in terms of purchase accounting impact, is that something that will affect margins for what a quarter or two or longer than that?

Yeah, I think it will have a more of an impact in the next couple quarters because what we did is we obviously wrote up the backlog for homes that were further along in the production process that we're going to be delivering in the next six months or so. Obviously, there's an adjustment for all the lots that we purchased based on the purchase price, but a little more of an impact the first couple quarters and then it kind of normalizes after that.

Okay. And excluding that impact, it seems like your margins were in the high point or mid-21% range this quarter but the guidance would seem to imply that margins are going to be lower the rest of the year. I'm just trying to understand what's driving that?

Yeah, it's really a mix issue. A light revenue quarter for Q1 for us, 93 million, I think. As you move through the balance of the year, I think we're talking about 125 to 135 for Q2 and as you move through the year, sort of in that range. So we delivered more some higher priced homes out of our Sacramento division, that will be closing - that's nearly closed out. So it's really a mix issue on a lower revenue number. And then obviously, we are pulling in the Denver acquisition, where their margins are a little bit lower than the other divisions because of the purchase accounting, and the fact that she had higher cost of capital and interest costs and the like that are capitalized to the inventory. We believe that moving forward, our margins will improve there, as we continue to look at pricing there, and have a little better cost of capital for that division than what they had previously. And I'd say one other thing that, if you've kind of exclude our Denver operations, our margins and backlog were 17% plus on a GAAP basis, and that would be north of 20 - mid 20% to 21% before insurance. So, again, the $100 million of backlog for Colorado did have a little bit of an impact on our margins moving forward, but it's going to add top line volume, as well as bottom line earnings, and we're really excited about that.

Okay. And if I could ask my last one, have you guys experienced, I guess what I would call, longer delivery times due to some type of supply chain disruptions and anything you can comment along those lines?

Sure, Alex. This is Leonard. Good morning. It is really market by market. What I would tell you is in our Southern California and Northern California divisions, while there's pressures there, again, we've worked with our trade partners, in some cases up to 15 to 20 years. So we've been able to maintain our cycle times to date and really haven't lost anything. Arizona has a completely different story. And that market when you - as you know, well, when you look at the permit growth, and all of the activity that's going on there, we are seeing both development timelines and cycle times in house, in construction, both growing probably to the magnitude of four to six weeks, we've seen an increase in cycle times. So that's our most challenging market. And then again, we're kind of at the Colorado acquisition so recent, but I say it's somewhere in between. They definitely are under pressure to deliver homes. So again, it's market by market.

Okay, great. Thanks a lot, and best of luck for the year.

Thank you.

Thank you.

And with that, ladies and gentlemen, this concludes our question-and-answer session. Now, I'd like to turn the call back over to management for closing remarks.

Thank you. It seems to me that if when we look back 12 months and see where The New Home Company was and then look forward 12 months to where we are today, we have made amazing progress on really every front. We're more diversified. Our margins are better. We're in a stronger financial position. The company is aligned. We're in a new market, in a new marketplace. And we are in a situation where we are in a clear undersupplied housing market and the tailwind for us is very strong. I feel very positively about our management team and the work that they've done. And I really believe that we are in a wonderful position and it's only going to get better. And with that, I thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.