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CST: 14/12/2019 03:55:37   

TRI Pointe Group, Inc. Reports 2019 Third Quarter Results

43 Days ago

-New Home Orders up 25% Year-Over-Year-
-Homebuilding Gross Margin Percentage Increased 130 Basis Points to 22.6%-
-Diluted Earnings Per Share of $0.44-

IRVINE, Calif., Oct. 31, 2019 (GLOBE NEWSWIRE) -- TRI Pointe Group, Inc. (the “Company”) (NYSE:TPH) today announced results for the third quarter ended September 30, 2019.

“I am extremely pleased with our performance in the third quarter of 2019 as we exceeded our stated guidance for every key metric in the quarter,” said TRI Pointe Group Chief Executive Officer Doug Bauer.  “We continue to see healthy demand trends across our product portfolio, as evidenced by our 25% increase in orders as compared to the third quarter of 2018.  In addition, homebuilding gross margin improved 130 basis points year-over-year to 22.6%.”

Mr. Bauer continued, “Our operations in California continue to perform extremely well for us, thanks to our sizable market presence, our differentiated product focus and our emphasis on value for each market segment, with orders in California increasing 26% year-over-year.”

Mr. Bauer concluded, “We’ve made great strides in our efforts to further diversify our Company from both a geographic and product standpoint, and we expect to see the benefit of these efforts for years to come.  In the meantime, we are staying balanced in our approach to the business by maintaining a healthy balance sheet while continuing to grow our operations.  Given the success we achieved in the first three quarters of the year and our sizable unit backlog at the end of the period, we are in a great position to deliver on the full year guidance we issued at the beginning of 2019.”

Results and Operational Data for Third Quarter 2019 and Comparisons to Third Quarter 2018

  • Net income was $62.9 million, or $0.44 per diluted share, compared to $64.0 million, or $0.43 per diluted share
  • Home sales revenue of $746.3 million compared to $771.8 million, a decrease of 3%
    • New home deliveries of 1,187 homes compared to 1,205 homes, a decrease of 1%
    • Average sales price of homes delivered of $629,000 compared to $640,000, a decrease of 2%
  • Homebuilding gross margin percentage of 22.6% compared to 21.3%, an increase of 130 basis points
    • Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 25.3%*
  • SG&A expense as a percentage of homes sales revenue of 11.6% compared to 10.7%, an increase of 90 basis points
  • Net new home orders of 1,291 compared to 1,035, an increase of 25%
  • Active selling communities averaged 147.5 compared to 127.3, an increase of 16%
    • New home orders per average selling community were 8.8 orders (2.9 monthly) compared to 8.1 orders (2.7 monthly)
    • Cancellation rate of 17% compared to 19%
  • Backlog units at quarter end of 2,312 homes compared to 2,101, an increase of 10%
    • Dollar value of backlog at quarter end of $1.5 billion compared to $1.4 billion, an increase of 4%
    • Average sales price of homes in backlog at quarter end of $645,000 compared to $681,000, a decrease of 5%
  • Ratios of debt-to-capital and net debt-to-net capital of 40.4% and 38.2%*, respectively, as of September 30, 2019
  • Repurchased 3,035,420 shares of common stock at a weighted average price per share of $13.75 for an aggregate dollar amount of $41.7 million in the three months ended September 30, 2019
  • Ended the third quarter of 2019 with total liquidity of $548.9 million, including cash and cash equivalents of $130.3 million and $418.6 million of availability under the Company’s unsecured revolving credit facility

* See “Reconciliation of Non-GAAP Financial Measures”

Third Quarter 2019 Operating Results

Net income was $62.9 million, or $0.44 per diluted share, for the third quarter of 2019, compared to net income of $64.0 million, or $0.43 per diluted share, for the third quarter of 2018.

Home sales revenue decreased $25.5 million, or 3%, to $746.3 million for the third quarter of 2019, as compared to $771.8 million for the third quarter of 2018.  The decrease was attributable to a 2% decrease in average sales price of homes delivered to $629,000, compared to $640,000 in the third quarter of 2018, and a 1% decrease in new home deliveries to 1,187, compared to 1,205 in the third quarter of 2018.

Homebuilding gross margin percentage for the third quarter of 2019 increased to 22.6%, compared to 21.3% for the third quarter of 2018.  The increase in homebuilding gross margin was due to a greater mix of deliveries from certain long-dated California communities, which produce gross margins above the Company average.  Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 25.3%* for the third quarter of 2019, compared to 24.0%* for the third quarter of 2018.

Sales and marketing and general and administrative (“SG&A”) expense for the third quarter of 2019 increased to 11.6% of home sales revenue as compared to 10.7% for the third quarter of 2018, primarily the result of lower operating leverage on the fixed components of SG&A as a result of the 3% decrease in home sales revenue and higher overhead costs as a result of our expansion efforts into the Charlotte, Raleigh, Sacramento and Dallas–Fort Worth markets.

New home orders increased 25% to 1,291 homes for the third quarter of 2019, as compared to 1,035 homes for the same period in 2018.  Average selling communities increased 16% to 147.5 for the third quarter of 2019 compared to 127.3 for the third quarter of 2018.  The Company’s overall absorption rate per average selling community increased 8% for the third quarter of 2019 to 8.8 orders (2.9 monthly) compared to 8.1 orders (2.7 monthly) during the third quarter of 2018.

The Company ended the quarter with 2,312 homes in backlog, representing approximately $1.5 billion. The average sales price of homes in backlog as of September 30, 2019 decreased $36,000, or 5%, to $645,000, compared to $681,000 as of September 30, 2018.

“At TRI Pointe Group, we pride ourselves on being at the forefront of homebuilding design and innovation, but we also recognize the importance of providing value for the consumer,” said TRI Pointe Group President and Chief Operating Officer Tom Mitchell.  “That is why we’ve made a concerted effort to bring our average selling prices down in several of our markets through higher density projects and smaller floor plans.  These projects have all the hallmarks of a typical TRI Pointe community, but at a more affordable price point.  We believe the combination of product differentiation and value has been a big factor in our success this year and it will continue to be so in the future.”

* See “Reconciliation of Non-GAAP Financial Measures”

Outlook

For the fourth quarter of 2019, the Company anticipates delivering 73% to 77% of its 2,312 homes in backlog as of September 30, 2019, resulting in full year deliveries between 4,800 and 4,900 homes.  The Company expects its average sales price to be $620,000 for both the fourth quarter and full year 2019.  The Company expects its homebuilding gross margin percentage to be in a range of 20.5% to 21.5% for the fourth quarter, resulting in a full year homebuilding gross margin percentage to be in the range of 19% to 20%.  The Company anticipates its SG&A expense as a percentage of homes sales revenue will be in a range of 9.2% to 9.6% for the fourth quarter, resulting in a full year SG&A expense as a percentage of homes sales revenue in a range of 11% to 12%.  Lastly, the Company expects its effective tax rate for both the fourth quarter and the full year to be in the range of 25% to 26%.

Earnings Conference Call

The Company will host a conference call via live webcast for investors and other interested parties beginning at 12:00 p.m. Eastern Time on Thursday, October 31, 2019.  The call will be hosted by Doug Bauer, Chief Executive Officer, Tom Mitchell, President and Chief Operating Officer, and Mike Grubbs, Chief Financial Officer.

Interested parties can listen to the call live and view the related presentation slides on the internet through the Investors section of the Company’s website at www.TRIPointeGroup.com. Listeners should go to the website at least fifteen minutes prior to the call to download and install any necessary audio software.  The call can also be accessed by dialing 1-877-407-3982 for domestic participants or 1-201-493-6780 for international participants.  Participants should ask for the TRI Pointe Group Third Quarter 2019 Earnings Conference Call.  Those dialing in should do so at least ten minutes prior to the start.  The replay of the call will be available for two weeks following the call.  To access the replay, the domestic dial-in number is 1-844-512-2921, the international dial-in number is 1-412-317-6671, and the reference code is #13695062.  An archive of the webcast will be available on the Company’s website for a limited time.

About TRI Pointe Group®

Headquartered in Irvine, California, TRI Pointe Group, Inc. (NYSE: TPH) is a family of premium regional homebuilders that designs, builds, and sells homes in major U.S. markets. As one of the top 10 largest public homebuilding companies based on revenue in the United States, TRI Pointe Group combines the resources, operational sophistication, and leadership of a national organization with the regional insights, community ties, and agility of local homebuilders. The TRI Pointe Group family includes Maracay® in Arizona, Pardee Homes® in California and Nevada, Quadrant Homes® in Washington, Trendmaker® Homes in Texas, TRI Pointe Homes® in California, Colorado, North Carolina and South Carolina, and Winchester® Homes* in Maryland and Virginia. TRI Pointe Group was recognized in Fortune magazine’s 2017 100 Fastest-Growing Companies list, named 2015 Builder of the Year by Builder magazine, and 2014 Developer of the Year by Builder and Developer magazine. The company was also named one of the Best Places to Work in Orange County by the Orange County Business Journal in 2016, 2017, 2018 and 2019. For more information, please visit www.TRIPointeGroup.com.

*Winchester is a registered trademark and is used with permission.

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements.  These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects, and capital spending.  Forward-looking statements that are included in this press release are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “goal,” “guidance,” “intend,” “likely,” “may,” “might,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or other words that convey future events or outcomes.  The forward-looking statements in this press release speak only as of the date of this press release, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly.  These forward-looking statements are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control.  The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements: the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar; market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions; levels of competition; the successful execution of our internal performance plans, including any restructuring and cost reduction initiatives; global economic conditions; raw material prices; oil and other energy prices; the effect of weather, including the re-occurrence of drought conditions in California; the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters; transportation costs; federal and state tax policies; the effect of land use, environment and other governmental regulations; legal proceedings or disputes and the adequacy of reserves; risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects; changes in accounting principles; risks related to unauthorized access to our computer systems, theft of our customers’ confidential information or other forms of cyber-attack; and additional factors discussed under the sections captioned “Risk Factors” included in our annual and quarterly reports filed with the Securities and Exchange Commission.  The foregoing list is not exhaustive.  New risk factors may emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business.

Investor Relations Contact:

Chris Martin, TRI Pointe Group
Drew Mackintosh, Mackintosh Investor Relations
InvestorRelations@TRIPointeGroup.com, 949-478-8696

Media Contact:
Carol Ruiz, cruiz@newgroundco.com, 310-437-0045

KEY OPERATIONS AND FINANCIAL DATA
(dollars in thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   Change   2019   2018   Change
Operating Data:                      
Home sales revenue $ 746,269     $ 771,768     $ (25,499 )   $ 1,931,110     $ 2,123,135     $ (192,025 )
Homebuilding gross margin $ 168,642     $ 164,715     $ 3,927     $ 357,263     $ 461,484     $ (104,221 )
Homebuilding gross margin % 22.6 %   21.3 %   1.3 %   18.5 %   21.7 %   (3.2 )%
Adjusted homebuilding gross margin %* 25.3 %   24.0 %   1.3 %   21.5 %   24.3 %   (2.8 )%
SG&A expense $ 86,585     $ 82,963     $ 3,622     $ 248,090     $ 240,287     $ 7,803  
SG&A expense as a % of home sales revenue 11.6 %   10.7 %   0.9 %   12.8 %   11.3 %   1.5 %
Net income $ 62,861     $ 63,969     $ (1,108 )   $ 89,194     $ 170,529     $ (81,335 )
Adjusted EBITDA* $ 115,605     $ 115,333     $ 272     $ 207,371     $ 312,221     $ (104,850 )
Interest incurred $ 22,405     $ 23,942     $ (1,537 )   $ 67,740     $ 67,089     $ 651  
Interest in cost of home sales $ 19,240     $ 20,128     $ (888 )   $ 51,502     $ 53,926     $ (2,424 )
                       
Other Data:                      
Net new home orders 1,291     1,035     256     4,103     3,874     229  
New homes delivered 1,187     1,205     (18 )   3,126     3,344     (218 )
Average sales price of homes delivered $ 629     $ 640     $ (11 )   $ 618     $ 635     $ (17 )
Cancellation rate 17 %   19 %   (2 )%   16 %   16 %   0 %
Average selling communities 147.5     127.3     20.2     147.3     129.0     18.3  
Selling communities at end of period 150     125     25              
Backlog (estimated dollar value) $ 1,491,452     $ 1,431,225     $ 60,227              
Backlog (homes) 2,312     2,101     211              
Average sales price in backlog $ 645     $ 681     $ (36 )            
                       
  September 30,   December 31,                
  2019   2018   Change            
Balance Sheet Data: (unaudited)                    
Cash and cash equivalents $ 130,262     $ 277,696     $ (147,434 )            
Real estate inventories $ 3,345,390     $ 3,216,059     $ 129,331              
Lots owned or controlled 28,756     27,740     1,016              
Homes under construction (1) 2,802     2,166     636              
Homes completed, unsold 295     417     (122 )            
Debt $ 1,433,058     $ 1,410,804     $ 22,254              
Stockholders’ equity $ 2,111,685     $ 2,056,924     $ 54,761              
Book capitalization $ 3,544,743     $ 3,467,728     $ 77,015              
Ratio of debt-to-capital 40.4 %   40.7 %   (0.3 )%            
Ratio of net debt-to-net capital* 38.2 %   35.5 %   2.7 %            
                             

__________
(1) Homes under construction included 67 and 40 models at September 30, 2019 and December 31, 2018, respectively.
* See “Reconciliation of Non-GAAP Financial Measures”

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

  September 30,   December 31,
  2019   2018
Assets (unaudited)    
Cash and cash equivalents $ 130,262     $ 277,696  
Receivables 70,507     51,592  
Real estate inventories 3,345,390     3,216,059  
Investments in unconsolidated entities 4,207     5,410  
Goodwill and other intangible assets, net 160,026     160,427  
Deferred tax assets, net 57,275     67,768  
Other assets 173,804     105,251  
Total assets $ 3,941,471     $ 3,884,203  
       
Liabilities      
Accounts payable $ 81,279     $ 81,313  
Accrued expenses and other liabilities 315,436     335,149  
Loans payable 400,000      
Senior notes 1,033,058     1,410,804  
Total liabilities 1,829,773     1,827,266  
       
Commitments and contingencies      
       
Equity      
Stockholders’ equity:      
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively      
Common stock, $0.01 par value, 500,000,000 shares authorized; 139,237,697 and 141,661,713 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 1,392     1,417  
Additional paid-in capital 624,312     658,720  
Retained earnings 1,485,981     1,396,787  
Total stockholders’ equity 2,111,685     2,056,924  
Noncontrolling interests 13     13  
Total equity 2,111,698     2,056,937  
Total liabilities and equity $ 3,941,471     $ 3,884,203  
               

CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
Homebuilding:              
Home sales revenue $ 746,269     $ 771,768     $ 1,931,110     $ 2,123,135  
Land and lot sales revenue 607     2,225     6,819     3,966  
Other operations revenue 618     598     1,853     1,795  
Total revenues 747,494     774,591     1,939,782     2,128,896  
Cost of home sales 577,627     607,053     1,573,847     1,661,651  
Cost of land and lot sales 495     2,234     7,552     4,163  
Other operations expense 609     590     1,826     1,781  
Sales and marketing 47,834     44,854     133,888     128,881  
General and administrative 38,751     38,109     114,202     111,406  
Homebuilding income from operations 82,178     81,751     108,467     221,014  
Equity in income (loss) of unconsolidated entities 18     15     (33 )   (384 )
Other income (expense), net 325     (477 )   6,719     (379 )
Homebuilding income before income taxes 82,521     81,289     115,153     220,251  
Financial Services:              
Revenues 901     480     1,959     1,154  
Expenses 817     125     1,765     391  
Equity in income of unconsolidated entities 2,114     1,986     4,861     4,972  
Financial services income before income taxes 2,198     2,341     5,055     5,735  
Income before income taxes 84,719     83,630     120,208     225,986  
Provision for income taxes (21,858 )   (19,661 )   (31,014 )   (55,457 )
Net income $ 62,861     $ 63,969     $ 89,194     $ 170,529  
Earnings per share              
Basic $ 0.45     $ 0.43     $ 0.63     $ 1.13  
Diluted $ 0.44     $ 0.43     $ 0.63     $ 1.13  
Weighted average shares outstanding              
Basic 141,088,381     147,725,074     141,729,759     150,377,472  
Diluted 141,533,546     148,318,032     142,128,786     151,482,456  
                       

MARKET DATA BY REPORTING SEGMENT & STATE
(dollars in thousands)
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
New Homes Delivered:                              
Maracay 138     $ 513     137     $ 487     318     $ 522     383     $ 476  
Pardee Homes 461     698     354     634     1,028     634     1,005     645  
Quadrant Homes 56     880     73     898     167     976     241     795  
Trendmaker Homes 224     459     150     516     628     462     389     501  
TRI Pointe Homes 226     685     367     721     749     693     983     723  
Winchester Homes 82     569     124     590     236     599     343     571  
Total 1,187     $ 629     1,205     $ 640     3,126     $ 618     3,344     $ 635  
                               
                               
  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
New Homes Delivered:                              
California 494     $ 758     513     $ 718     1,230     $ 705     1,429     $ 733  
Colorado 62     576     63     598     215     564     182     594  
Maryland 66     467     87     533     172     493     253     539  
Virginia 16     992     37     724     64     885     90     661  
Arizona 138     513     137     487     318     522     383     476  
Nevada 131     509     145     571     332     551     377     538  
Texas 224     459     150     516     628     462     389     501  
Washington 56     880     73     898     167     976     241     795  
Total 1,187     $ 629     1,205     $ 640     3,126     $ 618     3,344     $ 635  
                                                       

MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
Net New Home Orders:                              
Maracay 157     15.5     97     11.0     571     14.0     382     12.6  
Pardee Homes 424     43.0     357     36.8     1,379     43.9     1,294     34.3  
Quadrant Homes 68     6.8     64     7.0     210     6.9     226     6.8  
Trendmaker Homes 192     37.0     139     27.5     682     38.1     455     28.7  
TRI Pointe Homes 293     29.7     266     30.3     882     29.7     1,133     32.5  
Winchester Homes 157     15.5     112     14.7     379     14.7     384     14.1  
Total 1,291     147.5     1,035     127.3     4,103     147.3     3,874     129.0  
                               
                               
  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
Net New Home Orders:                              
California 526     53.0     416     45.3     1,659     53.8     1,651     45.0  
Colorado 50     6.0     72     6.8     187     6.4     251     6.9  
Maryland 87     10.8     69     9.0     255     10.2     254     9.2  
Virginia 70     4.7     43     5.7     124     4.5     130     4.9  
Arizona 157     15.5     97     11.0     571     14.0     382     12.6  
Nevada 141     13.7     135     15.0     415     13.4     525     14.9  
Texas 192     37.0     139     27.5     682     38.1     455     28.7  
Washington 68     6.8     64     7.0     210     6.9     226     6.8  
Total 1,291     147.5     1,035     127.3     4,103     147.3     3,874     129.0  
                                               

MARKET DATA BY REPORTING SEGMENT & STATE, continued
(dollars in thousands)
(unaudited)

  As of September 30, 2019   As of September 30, 2018
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
Maracay 404     $ 218,424     $ 541     216     $ 122,617     $ 568  
Pardee Homes 753     542,370     720     698     451,398     647  
Quadrant Homes 89     77,426     870     129     127,136     986  
Trendmaker Homes 367     184,563     503     239     143,000     598  
TRI Pointe Homes 451     306,337     679     627     460,700     735  
Winchester Homes 248     162,332     655     192     126,374     658  
Total 2,312     $ 1,491,452     $ 645     2,101     $ 1,431,225     $ 681  
                       
                       
  As of September 30, 2019   As of September 30, 2018
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
California 885     $ 669,724     $ 757     888     $ 654,929     $ 738  
Colorado 116     65,469     564     169     92,037     545  
Maryland 144     75,251     523     114     64,672     567  
Virginia 104     87,081     837     78     61,701     791  
Arizona 404     218,424     541     216     122,617     568  
Nevada 203     113,514     559     268     165,133     616  
Texas 367     184,563     503     239     143,000     598  
Washington 89     77,426     870     129     127,136     986  
Total 2,312     $ 1,491,452     $ 645     2,101     $ 1,431,225     $ 681  
                                           

MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)

  September 30,   December 31,
  2019   2018
Lots Owned or Controlled(1):      
Maracay 3,490   3,308
Pardee Homes 13,927   14,376
Quadrant Homes 1,427   1,744
Trendmaker Homes 3,143   2,492
TRI Pointe Homes 5,189   4,095
Winchester Homes 1,580   1,725
Total 28,756   27,740
       
       
  September 30,   December 31,
  2019   2018
Lots Owned or Controlled(1):      
California 14,908   15,218
Colorado 1,096   866
Maryland 1,062   1,142
Virginia 518   583
Arizona 3,490   3,308
Nevada 2,453   2,387
North Carolina 659  
Texas 3,143   2,492
Washington 1,427   1,744
Total 28,756   27,740
       
       
  September 30,   December 31,
  2019   2018
Lots by Ownership Type:      
Lots owned 23,028   23,057
Lots controlled(1) 5,728   4,683
Total 28,756   27,740
       

__________
(1) As of September 30, 2019 and December 31, 2018, lots controlled included lots that were under land option contracts or purchase contracts.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited)

In this press release, we utilize certain financial measures that are non-GAAP financial measures as defined by the Securities and Exchange Commission. We present these measures because we believe they and similar measures are useful to management and investors in evaluating the Company’s operating performance and financing structure. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following tables reconcile homebuilding gross margin percentage, as reported and prepared in accordance with GAAP, to the non-GAAP measure adjusted homebuilding gross margin percentage. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion.

  Three Months Ended September 30,
  2019   %   2018   %
  (dollars in thousands)
Home sales revenue $ 746,269     100.0 %   $ 771,768     100.0 %
Cost of home sales 577,627     77.4 %   607,053     78.7 %
Homebuilding gross margin 168,642     22.6 %   164,715     21.3 %
Add: interest in cost of home sales 19,240     2.6 %   20,128     2.6 %
Add: impairments and lot option abandonments 1,029     0.1 %   568     0.1 %
Adjusted homebuilding gross margin $ 188,911     25.3 %   $ 185,411     24.0 %
Homebuilding gross margin percentage 22.6 %       21.3 %    
Adjusted homebuilding gross margin percentage 25.3 %       24.0 %    


  Nine Months Ended September 30,
  2019   %   2018   %
Home sales revenue $ 1,931,110     100.0 %   $ 2,123,135     100.0 %
Cost of home sales 1,573,847     81.5 %   1,661,651     78.3 %
Homebuilding gross margin 357,263     18.5 %   461,484     21.7 %
Add: interest in cost of home sales 51,502     2.7 %   53,926     2.5 %
Add: impairments and lot option abandonments 6,519     0.3 %   1,425     0.1 %
Adjusted homebuilding gross margin(1) $ 415,284     21.5 %   $ 516,835     24.3 %
Homebuilding gross margin percentage 18.5 %       21.7 %    
Adjusted homebuilding gross margin percentage(1) 21.5 %       24.3 %    
                   

The following table reconciles the Company’s ratio of debt-to-capital to the non-GAAP ratio of net debt-to-net capital. We believe that the ratio of net debt-to-net capital is a relevant financial measure for management and investors to understand the leverage employed in our operations and as an indicator of the Company’s ability to obtain financing.

  September 30, 2019   December 31, 2018
Loans payable $ 400,000     $  
Senior notes 1,033,058     1,410,804  
Total debt 1,433,058     1,410,804  
Stockholders’ equity 2,111,685     2,056,924  
Total capital $ 3,544,743     $ 3,467,728  
Ratio of debt-to-capital(1) 40.4 %   40.7 %
       
Total debt $ 1,433,058     $ 1,410,804  
Less: Cash and cash equivalents (130,262 )   (277,696 )
Net debt 1,302,796     1,133,108  
Stockholders’ equity 2,111,685     2,056,924  
Net capital $ 3,414,481     $ 3,190,032  
Ratio of net debt-to-net capital(2) 38.2 %   35.5 %
           

__________
(1) The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
(2) The ratio of net debt-to-net capital is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ equity.

The following table calculates the non-GAAP financial measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income, as reported and prepared in accordance with GAAP.  EBITDA means net income before (a) interest expense, (b) expensing of previously capitalized interest included in costs of home sales, (c) income taxes and (d) depreciation and amortization. Adjusted EBITDA means EBITDA before (e) amortization of stock-based compensation and (f) impairments and lot option abandonments.  Other companies may calculate EBITDA and Adjusted EBITDA (or similarly titled measures) differently. We believe EBITDA and Adjusted EBITDA are useful measures of the Company’s ability to service debt and obtain financing.

  Three Months Ended September 30,   Nine Months Ended September 30,
  2019   2018   2019   2018
  (in thousands)
Net income $ 62,861     $ 63,969     $ 89,194     $ 170,529  
Interest expense:              
Interest incurred 22,405     23,942     67,740     67,089  
Interest capitalized (22,405 )   (23,942 )   (67,740 )   (67,089 )
Amortization of interest in cost of sales 19,234     20,293     51,674     54,199  
Provision for income taxes 21,858     19,661     31,014     55,457  
Depreciation and amortization 6,795     7,002     18,356     19,581  
EBITDA 110,748     110,925     190,238     299,766  
Amortization of stock-based compensation 3,828     3,765     10,614     10,955  
Impairments and lot option abandonments 1,029     643     6,519     1,500  
Adjusted EBITDA $ 115,605     $ 115,333     $ 207,371     $ 312,221  
                               

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