Market Overview

The New Home Company Reports 2016 Second Quarter Results

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ALISO VIEJO, Calif.--(BUSINESS WIRE)--

The New Home Company Inc. (NYSE: NWHM) today announced results for the 2016 second quarter.

Second Quarter 2016 Highlights Compared to Second Quarter 2015

  • Earnings of $0.12 per diluted share vs. $0.03 per diluted share
  • Total revenues of $108.9 million vs. $45.6 million, up 139%
  • Home sales revenue of $78.8 million, an increase of 311%
  • Backlog dollar value up 104% to $278.0 million
  • Community count up 50% to 12 vs. 8

"The New Home Company continued to make progress in the second quarter of 2016," said New Home Company Chief Executive Officer Larry Webb. "We quadrupled our earnings per share as compared to the second quarter of 2015, continued to grow our community count with the opening of our much anticipated Crystal Cove communities, and ended the period with an estimated backlog value of $278 million, the highest in our Company's history. We also continue to leverage our stellar reputation, relationships and expertise in each of our markets to capitalize on opportunities that will further our growth objectives and generate solid returns for our shareholders. In short, we believe the pieces are in place to deliver strong results in the back half of the year. I am very optimistic about the future of The New Home Company."

Second Quarter 2016 Operating Results

Total revenues for the 2016 second quarter were $108.9 million, compared to $45.6 million in the prior year period. Net income attributable to the Company was $2.5 million, or $0.12 per diluted share, compared to net income of $0.4 million, or $0.03 per diluted share, in the prior year period. The year-over-year improvement in net income was primarily attributable to a 139% increase in total revenues, a 1,880 basis point reduction in selling, general and administrative ("SG&A") expenses as a percentage of home sales revenue, and a $0.7 million increase in joint venture income.

Wholly Owned Projects

Home sales revenue for the 2016 second quarter was $78.8 million, compared to $19.2 million in the prior year period. The increase in home sales revenue was driven primarily by a 258% increase in deliveries that was due to a shift to more wholly owned communities and a 15% increase in average selling price to $1.8 million.

Homebuilding gross margin percentage was 12.0%, compared to 13.6% in the prior year period. Adjusted homebuilding gross margin percentage, which excludes interest in cost of home sales, was 13.3%*, compared to 14.2%* in the prior year period. The year-over-year decrease in gross margin percentage was due to a mix shift in deliveries. Based on the homes currently in backlog, we anticipate that our gross margin percentage will improve in the back-half of the year as compared to the 2016 second quarter.

Our SG&A expense ratio as a percentage of home sales revenue was 13.8% versus 32.6% in the prior year period. The improvement in this expense ratio was largely attributable to a 311% increase in home sales revenue, which was driven by the significant increase in new home deliveries resulting from the growth in our wholly owned operations.

New home orders were up 60% to 64 homes, compared to 40 homes in the prior year period. The Company's monthly sales absorption pace was consistent with the prior year period at 1.9 sales per average selling community. The Company increased its selling communities by 50%, ending the quarter with 12 communities, compared to eight as of the end of the prior year quarter. The dollar value of the Company's wholly owned backlog at the end of the 2016 second quarter was up 104% year-over-year to $278.0 million and totaled 125 homes, compared to $136.6 million and 65 homes in the prior year period. The average selling price of homes in backlog was $2.2 million, up 6% over the prior year.

Fee Building Projects

Fee building revenue for the 2016 second quarter increased 14% to $30.0 million due primarily to an increase in fee building construction activity. Fee building gross margin was $1.7 million, or 5.7%, compared to $1.2 million, or 4.6%, in the prior year period.

Unconsolidated Joint Ventures (JVs)

The Company's share of joint venture income for the 2016 second quarter was $3.9 million, compared to $3.3 million in the prior year period. The increase in joint venture income was driven by a 20% increase in JV total revenues, a 480 basis point improvement in homebuilding gross margins, and a benefit related to the close-out of a Southern California joint venture.

The following sets forth supplemental information about the Company's JVs. Such information is not included in the Company's financial data for GAAP purposes but is provided for informational purposes.

Total revenue of the JVs was $70.1 million and net income was $10.2 million, compared to $58.2 million and $7.6 million in the prior year period, respectively. Home sales revenue of the JVs was $47.7 million, compared to $42.6 million in the prior year period. Homebuilding gross margin percentage generated by the JVs during the quarter increased to 25.6%, compared to 20.8% in the prior year period.

At the end of the 2016 second quarter, the JVs had three selling communities, down from 10 at the end of the prior year period. As a result of the 70% decline in JV selling communities, new home orders from JVs for the 2016 second quarter decreased 71% to 30 homes as compared to 103 homes in the prior year period. In addition, the dollar value of homes in backlog from unconsolidated JVs at the end of the 2016 second quarter was down 70% to $72.0 million from 76 homes, compared to $238.3 million from 187 homes in the prior year period. We expect to open seven new homebuilding JV communities by the end of 2016, five of which will be in the McKinley Village master plan in Central Sacramento.

Balance Sheet and Liquidity

As of June 30, 2016, the Company had real estate inventories totaling $403.4 million, of which $306.2 million represented work-in-process and completed homes (including models), $60.8 million in land and land under development, and $36.4 million in land deposits and pre-acquisition costs. The Company owned or controlled 1,485 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 1,010 lots were controlled or under option. As of June 30, 2016, the Company had $50.9 million in liquidity, which consisted of $29.8 million in cash and cash equivalents and $21.1 million in availability under its revolving credit facility. The Company ended the 2016 second quarter with $242.9 million in total outstanding debt, with a debt-to-capital ratio of 52.1% and a net debt-to-capital ratio of 48.7%*.

Guidance

The Company updated its full year guidance for 2016 as follows:

  • Home sales revenue of $450 - $500 million
  • Fee building revenue of $130 - $150 million
  • Income from unconsolidated joint ventures of $10 - $11 million
  • Wholly owned active year-end community count of 13
  • Joint venture active year-end community count of 9

Conference Call Details

The Company will host a conference call and webcast for investors and other interested parties beginning at 12:00 p.m. Eastern Time on Friday, July 29, 2016 to review second quarter results, discuss recent events and conduct a question-and-answer period. The conference call will be available in the Investors section of the Company's website at www.NWHM.com. To listen to the broadcast live, go to the site approximately 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. To participate in the telephone conference call, dial 1-877-407-0789 (domestic) or 1-201-689-8562 (international) at least five minutes prior to the start time. Replays of the conference call will be available through August 29, 2016 and can be accessed by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the pass code 13640872.

About The New Home Company

NWHM is a new generation homebuilder focused on the design, construction and sale of innovative and consumer-driven homes in major metropolitan areas within select growth markets in California and Arizona, including coastal Southern California, the San Francisco Bay area, metro Sacramento and the greater Phoenix area. The Company is headquartered in Aliso Viejo, California. For more information about the Company and its new home developments, please visit the Company's website at www.NWHM.com.

* Adjusted homebuilding gross margin percentage and net debt-to-capital ratio are non-GAAP measures. A reconciliation of the appropriate GAAP measure to each of these measures is included in the accompanying financial data. See "Reconciliation of Non-GAAP Financial Measures."

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, anticipation, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects, community counts and openings and our future production, our ability to execute our strategic growth objectives, gross margins, revenues, projected results, income, earnings per share and capital spending. Our forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "intend," "anticipate," "potential," "plan," "goal," "will," "guidance," or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this press release speak only as of the date of this release, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they 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: economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation; a downturn in the homebuilding industry; changes in sales conditions, including home prices, in the markets where we build homes, volatility and uncertainty in the credit markets and broader financial markets; our business and investment strategy; availability of land to acquire and our ability to acquire such land on favorable terms or at all; our liquidity and availability, terms and deployment of capital; shortages of or increased prices for labor, land or raw materials used in housing construction; delays in land development or home construction resulting from adverse weather conditions or other events outside our control; issues concerning our joint venture partnerships; the cost and availability of insurance and surety bonds; changes in, or the failure or inability to comply with, governmental laws and regulations; the timing of receipt of regulatory approvals and the opening of projects; the degree and nature of competition; our leverage and debt service obligations; the impact of recent accounting standards; restrictive covenants relating to our operations in our current of future financing arrangements; availability of qualified personnel and our ability to retain our key personnel; and additional factors discussed under the sections captioned "Risk Factors" included in our annual report and other reports filed with the Securities and Exchange Commission. The Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

       
KEY OPERATIONS AND FINANCIAL DATA

(Dollars in thousands)

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2016   2015   Change 2016   2015 Change
Operating Data:
Total revenues $ 108,864 $ 45,631 $ 63,233 $ 194,104 $ 148,496 $ 45,608
Home sales revenue $ 78,836 $ 19,202 $ 59,634 $ 121,139 $ 75,437 $ 45,702
Homebuilding gross margin $ 9,446 $ 2,604 $ 6,842 $ 15,079 $ 11,431 $ 3,648
Homebuilding gross margin % 12.0 % 13.6 % (1.6 )% 12.4 % 15.2 % (2.8 )%
Adjusted homebuilding gross margin %** 13.3 % 14.2 % (0.9 )% 13.9 % 15.8 % (1.9 )%
Fee building revenue (1) $ 30,028 $ 26,429 $ 3,599 $ 72,965 $ 73,059 $ (94 )
Fee building gross margin $ 1,711 $ 1,220 $ 491 $ 3,734 $ 4,073 $ (339 )
Fee building gross margin % 5.7 % 4.6 % 1.1 % 5.1 % 5.6 % (0.5 )%
Equity in net income of unconsolidated joint ventures $ 3,947 $ 3,256 $ 691 $ 3,940 $ 5,124 $ (1,184 )
Net income attributable to The New Home Company Inc. $ 2,509 $ 449 $ 2,060 $ 1,695 $ 5,018 $ (3,323 )
Interest incurred and capitalized to inventory $ 1,689 $ 1,048 $ 641 $ 2,970 $ 1,926 $ 1,044
Interest in cost of home sales $ 1,063 $ 121 $ 942 $ 1,711 $ 480 $ 1,231
Other Data:
New home orders 64 40 24 120 65 55
New homes delivered 43 12 31 71 41 30
Average selling price of homes delivered $ 1,833 $ 1,600 $ 233 $ 1,706 $ 1,840 $ (134 )
Selling communities at end of period 12 8 4
Backlog (est. dollar value) $ 278,000 $ 136,600 $ 141,400
Backlog (homes) 125 65 60
Average selling price of homes in backlog $ 2,224 $ 2,102 $ 122
Lots owned and controlled:
Wholly owned 1,485 1,046 439
Fee building 1,001 1,511 (510 )
Joint ventures   3,122       3,502     (380 )
  5,608     6,059     (451 )
 
June 30, December 31,
Balance Sheet Data: 2016 2015 Change
Cash, cash equivalents and restricted cash $ 30,688 $ 46,254 $ (15,566 )
Real estate inventories $ 403,378 $ 209,918 $ 193,460
Notes payable, including unsecured revolving credit facility $ 242,924 $ 83,082 $ 159,842
Equity, exclusive of noncontrolling interest $ 223,468 $ 220,775 $ 2,693
Book capitalization $ 466,392 $ 303,857 $ 162,535
Ratio of debt-to-capital 52.1 % 27.3 % 24.8 %
Ratio of net debt-to-capital** 48.7 % 14.3 % 34.4 %
 

(1)

 

Fee building revenue includes management fees from unconsolidated joint ventures.

**

See "Reconciliation of Non-GAAP Financial Measures" beginning on page 10.

 
       
KEY OPERATIONS AND FINANCIAL DATA - UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2016   2015   Change 2016   2015 Change
Operating Data:
Home sales revenue $ 47,698 $ 42,601 $ 5,097 $ 85,899 $ 93,840 $ (7,941 )
Homebuilding gross margin $ 12,191 $ 8,856 $ 3,335 $ 19,113 $ 18,388 $ 725
Homebuilding gross margin % 25.6 % 20.8 % 4.8 % 22.3 % 19.6 % 2.7 %
Adj homebuilding gross margin %** 27.0 % 22.5 % 4.5 % 23.7 % 21.3 % 2.4 %
Land sales revenue $ 22,406 $ 15,585 $ 6,821 $ 26,162 $ 45,570 $ (19,408 )
Net income $ 10,195 $ 7,637 $ 2,558 $ 12,336 $ 18,403 $ (6,067 )
Interest in cost of home sales $ 677 $ 744 $ (67 ) $ 1,212 $ 1,563 $ (351 )
Other Data:
New home orders 30 103 (73 ) 76 211 (135 )
New homes delivered 55 45 10 100 99 1
Average selling price of homes delivered $ 867 $ 947 $ (80 ) $ 859 $ 948 $ (89 )
Selling communities at end of period 3 10 (7 )
Backlog homes (est. dollar value) $ 71,970 $ 238,309 $ (166,339 )
Backlog (homes) 76 187 (111 )
Average selling price of homes in backlog $ 947 $ 1,274 $ (327 )
Backlog lots (est. dollar value)*** $ 18,988 $ 45,662 $ (26,674 )
 
Lots owned and controlled:
Homebuilding 610 847 (237 )
Land development   2,512     2,655     (143 )
  3,122     3,502     (380 )
 
June 30, December 31,
Balance Sheet Data: 2016 2015 Change
Cash, cash equivalents and restricted cash $ 60,703 $ 66,215 $ (5,512 )
Real estate inventories $ 399,945 $ 415,730 $ (15,785 )
Notes payable $ 111,541 $ 94,890 $ 16,651
The New Home Company's equity $ 47,353 $ 60,572 $ (13,219 )
Other partners' equity $ 264,151 $ 272,642 $ (8,491 )
Book capitalization $ 423,045 $ 428,104 $ (5,059 )
Ratio of debt-to-capital 26.4 % 22.2 % 4.2 %
 
**   See "Reconciliation of Non-GAAP Financial Measures" beginning on page 10.
*** Amounts include $4.3 million and $18.1 million of backlog dollar value related to purchase contracts between an unconsolidated joint venture and the Company as of June 30, 2016 and 2015, respectively.
 
     

CONSOLIDATED BALANCE SHEETS

 
June 30, December 31,
2016 2015
(Dollars in thousands, except per share amounts)
(Unaudited)
Assets
Cash and cash equivalents $ 29,811 $ 45,874
Restricted cash 877 380
Contracts and accounts receivable 14,932 23,960
Due from affiliates 845 979
Real estate inventories 403,378 209,918
Investment in unconsolidated joint ventures 47,353 60,572
Other assets   10,773   9,587
Total assets $ 507,969 $ 351,270
 
Liabilities and equity
Accounts payable $ 30,660 $ 26,371
Accrued expenses and other liabilities 10,786 19,827
Due to affiliates 54 293
Unsecured revolving credit facility 238,924 74,924
Other notes payable   4,000   8,158
Total liabilities   284,424   129,573
Equity:
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding
Common stock, $0.01 par value, 500,000,000 shares authorized, 20,711,952 and 20,543,130, shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively 207 205
Additional paid-in capital 195,433 194,437
Retained earnings   27,828   26,133
Total The New Home Company Inc. stockholders' equity 223,468 220,775
Noncontrolling interest in subsidiary   77   922
Total equity   223,545   221,697
Total liabilities and equity $ 507,969 $ 351,270
 
       
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
Three months ended June 30, Six months ended June 30,
2016   2015 2016   2015
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 78,836 $ 19,202 $ 121,139 $ 75,437
Fee building, including management fees from unconsolidated joint ventures of $2,537, $2,133, $4,712 and $5,101, respectively   30,028     26,429     72,965     73,059  
  108,864     45,631     194,104     148,496  
Expenses:
Cost of homes sales 69,390 16,598 106,060 64,006
Cost of fee building 28,317 25,209 69,231 68,986
Selling and marketing 5,046 1,939 8,522 4,089
General and administrative   5,833     4,313     11,008     7,973  
  108,586     48,059     194,821     145,054  
Equity in net income of unconsolidated joint ventures 3,947 3,256 3,940 5,124
Other expense, net   (286 )   (413 )   (395 )   (721 )
Income before income taxes 3,939 415 2,828 7,845
Provision for income taxes   (1,495 )   (140 )   (1,253 )   (3,025 )
Net income 2,444 275 1,575 4,820
Net loss attributable to noncontrolling interest   65     174     120     198  
Net income attributable to The New Home Company Inc. $ 2,509   $ 449   $ 1,695   $ 5,018  
 
Earnings per share attributable to The New Home Company Inc.
Basic $ 0.12 $ 0.03 $ 0.08 $ 0.30
Diluted $ 0.12 $ 0.03 $ 0.08 $ 0.30
Weighted average shares outstanding:
Basic 20,709,139 16,516,546 20,654,998 16,502,578
Diluted 20,760,186 16,672,649 20,745,802 16,623,663
 
   
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Six Months Ended
June 30,
2016   2015
(Dollars in thousands)
Operating activities:
Net income $ 1,575 $ 4,820
Adjustments to reconcile net income to net cash used in operating activities:
Deferred taxes (27 ) (5,841 )
Amortization of equity based compensation 1,742 1,235
Tax valuation adjustment from stock-based compensation 97
Distributions of earnings from unconsolidated joint ventures 1,095 7,452
Equity in net (income) loss of unconsolidated joint ventures (3,940 ) (5,124 )
Deferred profit from unconsolidated joint ventures 332 (1,435 )
Depreciation and amortization 251 232
Abandoned project costs 329 443
Net changes in operating assets and liabilities:
Restricted cash 104 148
Contracts and accounts receivable 9,164 6,016
Due from affiliates 88 2,172
Real estate inventories (170,246 ) (103,750 )
Other assets (50 ) 4,076
Accounts payable 3,737 4,094
Accrued expenses and other liabilities (9,711 ) (4,704 )
Due to affiliates   (239 )    
Net cash used in operating activities   (165,699 )   (90,166 )
Investing activities:
Purchases of property and equipment (296 ) (238 )
Cash assumed from joint venture at consolidation 2,009
Contributions to unconsolidated joint ventures (5,656 ) (4,712 )
Distributions of capital from unconsolidated joint ventures   7,405     24,806  
Net cash provided by investing activities   3,462     19,856  
Financing activities:
Borrowings from credit facility 175,000 74,450
Repayments of credit facility (11,000 ) (10,000 )
Borrowings from other notes payable 343 1,799
Repayments of other notes payable (15,636 ) (2,517 )
Payment of debt issuance costs (1,064 )
Cash distributions to noncontrolling interest in subsidiary (725 ) (822 )
Minimum tax withholding paid on behalf of employees for stock awards (647 )
Tax valuation adjustment from stock-based compensation   (97 )    
Net cash provided by financing activities   146,174     62,910  
Net increase (decrease) in cash and cash equivalents (16,063 ) (7,400 )
Cash and cash equivalents – beginning of period   45,874     44,058  
Cash and cash equivalents – end of period $ 29,811   $ 36,658  
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

In this earnings release, we utilize certain 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 leverage has on homebuilding gross margin and provides investors better comparisons with our competitors, who adjust gross margins in a similar fashion.

       
Three months ended June 30, Six months ended June 30,
2016   %   2015   % 2016   %   2015   %
(Dollars in thousands)
Homebuilding
Home sales revenue $ 78,836 100.0 % $ 19,202 100.0 % $ 121,139 100.0 % $ 75,437 100.0 %
Cost of home sales   69,390 88.0 %   16,598 86.4 %   106,060 87.6 %   64,006 84.8 %
Homebuilding gross margin 9,446 12.0 % 2,604 13.6 % 15,079 12.4 % 11,431 15.2 %
Add: Interest in cost of home sales   1,063 1.3 %   121 0.6 %   1,711 1.5 %   480 0.6 %
Adjusted homebuilding gross margin $ 10,509 13.3 % $ 2,725 14.2 % $ 16,790 13.9 % $ 11,911 15.8 %
 
Unconsolidated Joint Ventures - Homebuilding
Home sales revenue $ 47,698 100.0 % $ 42,601 100.0 % $ 85,899 100.0 % $ 93,840 100.0 %
Cost of home sales   35,507 74.4 %   33,745 79.2 %   66,786 77.7 %   75,452 80.4 %
Homebuilding gross margin 12,191 25.6 % 8,856 20.8 % 19,113 22.3 % 18,388 19.6 %
Add: Interest in cost of home sales   677 1.4 %   744 1.7 %   1,212 1.4 %   1,563 1.7 %
Adjusted homebuilding gross margin $ 12,868 27.0 % $ 9,600 22.5 % $ 20,325 23.7 % $ 19,951 21.3 %
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(Unaudited)

The following table reconciles the Company's ratio of debt-to-capital to the non-GAAP ratio of net debt-to-capital. We believe that the ratio of net debt-to-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.

     
June 30, December 31,
2016 2015
(Dollars in thousands)
Notes payable, including unsecured revolving credit facility $ 242,924 $ 83,082
Equity, exclusive of noncontrolling interest   223,468     220,775  
Total capital $ 466,392   $ 303,857  
Ratio of debt-to-capital (1)   52.1 %   27.3 %
 
Notes payable, including unsecured revolving credit facility $ 242,924 $ 83,082
Less: cash, cash equivalents and restricted cash   30,688     46,254  
Net debt 212,236 36,828
Equity, exclusive of noncontrolling interest   223,468     220,775  
Total capital $ 435,704   $ 257,603  
Ratio of net debt-to-capital (2)   48.7 %   14.3 %
 
(1)   The ratio of debt-to-capital is computed as the quotient obtained by dividing notes payable by the sum of total notes payable (including unsecured revolving credit facility) plus equity, exclusive of noncontrolling interest.
 
(2) The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is notes payable (including unsecured revolving credit facility) less cash to the extent necessary to reduce the debt balance to zero) by total capital, exclusive of noncontrolling interest. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our notes payable, we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt-to-capital does not take into account our liquidity and we believe that the ratio net of cash provides supplemental information by which our financial position may be considered. Investors may also find this to be helpful when comparing our leverage to the leverage of our competitors that present similar information. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.
 

SCHEDULE OF QUARTERLY AMORTIZATION OF CAPITALIZABLE MODEL SET-UP SELLING AND MARKETING EXPENSES, GROSS MARGINS AND SG&A EXPENSES
(Unaudited)

Effective January 1, 2016, the Company started amortizing certain capitalizable selling and marketing ("S&M") costs to selling and marketing expenses versus cost of home sales. We believe that the revised presentation and classification of these capitalizable model set-up S&M costs as a selling and marketing expense is more comparable with how other homebuilders reflect such costs in their gross margin and SG&A percentage metrics. We also believe this presentation is more useful to management and investors in evaluating our performance. The table below provides a quarterly summary of 2015 S&M costs reclassified to conform with the current year presentation and the resulting change in gross margin, as well as the impact on the Company's SG&A expense ratio as a percentage of home sales revenue.

                 
Period  

Gross Margin as
Previously Reported

 

Capitalized
S&M
Reclassification

  Gross Margin as Revised  

Basis Points
Change in
GM% (1)

(Dollars in thousands)  

$

 

%

 

$

 

$

 

%

 

%

Q1 2015 7,956 14.1 % 871 8,827 15.7 % 160 bps
Q2 2015 2,006 10.4 % 598 2,604 13.6 % 320 bps
Q3 2015 7,989 13.8 % 1,148 9,137 15.8 % 200 bps
Q4 2015   22,228   15.1 %   2,181   24,409   16.6 %   150 bps
2015 Total 40,179 14.3 % 4,798 44,977 16.1 % 180 bps
                             
Period  

S&M Expenses as
Previously Reported
($ and % of Homes Sales
Revenue)


 

Capitalized
S&M
Reclassification

 

S&M Expenses ($ and %
of Homes Sales Revenue)
as Revised

 

Basis Points
Change in S&M
expenses as %
of Home Sales
Revenue (1)



(Dollars in thousands)

$

%

$

$

%

%

Q1 2015 1,279 2.3 % 871 2,150 3.8 % 150 bps
Q2 2015 1,341 7.0 % 598 1,939 10.1 % 310 bps
Q3 2015 2,294 4.0 % 1,148 3,442 5.9 % 190 bps
Q4 2015   4,029   2.7 %   2,181   6,210   4.2 %   150 bps
2015 Total 8,943 3.2 % 4,798 13,741 4.9 % 170 bps
                             
Period  

SG&A Expenses as
Previously Reported
($ and % of Homes Sales
Revenue)


 

Capitalized
S&M
Reclassification

 

SG&A Expenses ($ and %
of Homes Sales Revenue)
as Revised

 

Basis Points
Change in
SG&A expenses
as % of Home
Sales Revenue (1)



(Dollars in thousands)

$

%

$

$

%

%

Q1 2015 4,939 8.8 % 871 5,810 10.3 % 150 bps
Q2 2015 5,654 29.5 % 598 6,252 32.6 % 310 bps
Q3 2015 7,399 12.8 % 1,148 8,547 14.8 % 200 bps
Q4 2015   11,229   7.6 %   2,181   13,410   9.1 %   150 bps
2015 Total 29,221 10.4 % 4,798 34,019 12.1 % 170 bps
 
(1)   Some quarterly amounts do not tie across the categories presented due to rounding differences.
 

The New Home Company Inc.
Investor Relations
Drew Mackintosh, 949-382-7838
investorrelations@nwhm.com


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