TRI Pointe Group, Inc. Reports 2019 Second Quarter Results

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IRVINE, Calif., July 25, 2019 (GLOBE NEWSWIRE) -- TRI Pointe Group, Inc. (the "Company") TPH today announced results for the second quarter ended June 30, 2019.

"TRI Pointe Group posted solid results for the second quarter of 2019, generating net income of $26.3 million or $0.18 per diluted share," said TRI Pointe Group Chief Executive Officer Doug Bauer.  "Our team members did an excellent job executing this quarter, as we met or exceeded our stated guidance for deliveries and margins for the quarter and grew our average community count by 12% year-over-year.  Our orders for the quarter were up 11% year-over-year with a strong sales pace of 3.4 homes per community per month.  While the recent decline in interest rates likely aided our sales efforts, we believe the quality of our home offerings and our execution of our 12 point sales and marketing program provided the tools for success during the quarter."

Mr. Bauer continued, "We continue to focus on growing our operations through the build-out of our long-term California assets and the expansion of our presence in a number of markets around the country.  We believe the investments we are making today will result in a more diverse and profitable business in the coming years."

Mr. Bauer concluded, "Thanks to our strong results in the first half of 2019, a healthy backlog at quarter-end and a double digit increase to our active community count, TRI Pointe Group is well positioned to deliver on the full year guidance we issued at the beginning of the year.  These positives, coupled with our strong balance sheet, have me very optimistic about the future of our company."

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

  • Net income was $26.3 million, or $0.18 per diluted share, compared to $63.7 million, or $0.42 per diluted share
  • Home sales revenue of $692.1 million compared to $768.8 million, a decrease of 10%
    • New home deliveries of 1,125 homes compared to 1,215 homes, a decrease of 7%
    • Average sales price of homes delivered of $615,000 compared to $633,000, a decrease of 3%
  • Homebuilding gross margin percentage of 17.0% compared to 21.4%, a decrease of 440 basis points
    • Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 19.6%*
  • SG&A expense as a percentage of homes sales revenue of 12.1% compared to 10.7%, an increase of 140 basis points
  • New home orders of 1,491 compared to 1,343, an increase of 11%
  • Active selling communities averaged 146.0 compared to 130.8, an increase of 12%
    • New home orders per average selling community were 10.2 orders (3.4 monthly) compared to 10.3 orders (3.4 monthly)
    • Cancellation rate remained flat at 16%
  • Backlog units at quarter end of 2,208 homes compared to 2,271, a decrease of 3%
    • Dollar value of backlog at quarter end of $1.4 billion compared to $1.5 billion, a decrease of 5%
    • Average sales price of homes in backlog at quarter end of $652,000 compared to $668,000, a decrease of 2%
  • Ratios of debt-to-capital and net debt-to-net capital of 40.7% and 37.7%*, respectively, as of June 30, 2019
  • Repaid 4.375% Senior Notes due in June of 2019 using proceeds from both the Company's unsecured revolving credit facility and term loan facility
  • Ended the second quarter of 2019 with total liquidity of $590.4 million, including cash and cash equivalents of $171.5 million and $418.9 million of availability under the Company's unsecured revolving credit facility

* See "Reconciliation of Non-GAAP Financial Measures"

Second Quarter 2019 Operating Results

Net income was $26.3 million, or $0.18 per diluted share, for the second quarter of 2019, compared to net income of $63.7 million, or $0.42 per diluted share, for the second quarter of 2018.

Home sales revenue decreased $76.7 million, or 10%, to $692.1 million for the second quarter of 2019, as compared to $768.8 million for the second quarter of 2018.  The decrease was primarily attributable to a 7% decrease in new home deliveries to 1,125, compared to 1,215 in the second quarter of 2018, and a 3% decrease in the average sales price of homes delivered to $615,000, compared to $633,000 in the second quarter of 2018.

Homebuilding gross margin percentage for the second quarter of 2019 decreased to 17.0%, compared to 21.4% for the second quarter of 2018.  The decrease in homebuilding gross margin was due to a lower mix of deliveries from certain long-dated California communities, which produce gross margins above the Company average, as well as the impact of increased incentives in the second half of 2018 on inventory homes that delivered in the first half of 2019.  Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 19.6%* for the second quarter of 2019, compared to 24.0%* for the second quarter of 2018.

Sales and marketing and general and administrative ("SG&A") expense for the second quarter of 2019 increased to 12.1% of home sales revenue as compared to 10.7% for the second quarter of 2018, primarily the result of lower operating leverage on the fixed components of SG&A as a result of the 10% 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 11% to 1,491 homes for the second quarter of 2019, as compared to 1,343 homes for the same period in 2018.  Average selling communities increased 12% to 146.0 for the second quarter of 2019 compared to 130.8 for the second quarter of 2018.  The Company's overall absorption rate per average selling community remained flat for the second quarter of 2019 at 10.2 orders (3.4 monthly) compared to 10.3 orders (3.4 monthly) during the second quarter of 2018.

The Company ended the quarter with 2,208 homes in backlog, representing approximately $1.4 billion. The average sales price of homes in backlog as of June 30, 2019 decreased $16,000, or 2%, to $652,000, compared to $668,000 as of June 30, 2018.

"We continue to excel at selling homes with our emphasis on our premium lifestyle brand," said President and Chief Operating Officer Tom Mitchell.  "Our local teams have done an excellent job positioning our brands for success at a number of price points by creating unique and differentiated places to live.  We feel that this attention to detail resonates with buyers, enhances our reputation in the market and sets us apart from the competition."

* See "Reconciliation of Non-GAAP Financial Measures"

Outlook

For the third quarter of 2019, the Company expects to open 14 new communities and close out of 12 communities, which would result in 148 active selling communities as of September 30, 2019.  In addition, the Company anticipates delivering 45% to 50% of its 2,208 homes in backlog as of June 30, 2019 at an average sales price of $620,000.  The Company expects its homebuilding gross margin percentage to be in a range of 21.0% to 22.0% for the third quarter.  The Company anticipates its SG&A expense as a percentage of homes sales revenue will be in a range of 12.0% to 12.5%.  Lastly, the Company expects its effective tax rate to be in the range of 25% to 26%.

For the full year, the Company reiterates its previous guidance of delivering between 4,600 and 5,000 homes at an average sales price of $610,000 to $620,000.  In addition, the Company expects homebuilding gross margin percentage to be in the range of 19% to 20% for the full year.  The Company expects full year SG&A expense as a percentage of homes sales revenue will be in a range of 11% to 12%.  Finally, the Company expects its effective tax rate for the full year to be in the range of 25% to 26%.

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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, July 25, 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 Investor Relations 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 Second 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 #13692313.  An archive of the webcast will be available on the Company's website for a limited time.

About TRI Pointe Group, Inc.

Headquartered in Irvine, California, TRI Pointe Group, Inc. 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 and North 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 June 30, Six Months Ended June 30,
 2019 2018 Change 2019 2018 Change
Operating Data:           
Home sales revenue$692,138  $768,795  $(76,657) $1,184,841  $1,351,367  $(166,526)
Homebuilding gross margin$117,454  $164,699  $(47,245) $188,621  $296,769  $(108,148)
Homebuilding gross margin %17.0% 21.4% (4.4)% 15.9% 22.0% (6.1)%
Adjusted homebuilding gross margin %*19.6% 24.0% (4.4)% 19.1% 24.5% (5.4)%
SG&A expense$83,919  $82,227  $1,692  $161,505  $157,324  $4,181 
SG&A expense as a % of home sales revenue12.1% 10.7% 1.4% 13.6% 11.6% 2.0%
Net income$26,262  $63,680  $(37,418) $26,333  $106,560  $(80,227)
Adjusted EBITDA*$63,617  $115,901  $(52,284) $91,766  $196,888  $(105,122)
Interest incurred$21,962  $21,627  $335  $45,335  $43,147  $2,188 
Interest in cost of home sales$18,071  $19,569  $(1,498) $32,262  $33,798  $(1,536)
            
Other Data:           
Net new home orders1,491  1,343  148  2,812  2,839  (27)
New homes delivered1,125  1,215  (90) 1,939  2,139  (200)
Average sales price of homes delivered$615  $633  $(18) $611  $632  $(21)
Cancellation rate16% 16% 0% 15% 15% 0%
Average selling communities146.0  130.8  15.2  147.0  130.1  16.9 
Selling communities at end of period146  130  16       
Backlog (estimated dollar value)$1,438,548  $1,518,096  $(79,548)      
Backlog (homes)2,208  2,271  (63)      
Average sales price in backlog$652  $668  $(16)      
            
 June 30, December 31,        
 2019 2018 Change      
Balance Sheet Data:(unaudited)          
Cash and cash equivalents$171,516  $277,696  $(106,180)      
Real estate inventories$3,253,601  $3,216,059  $37,542       
Lots owned or controlled28,117  27,740  377       
Homes under construction (1)2,777  2,166  611       
Homes completed, unsold303  417  (114)      
Debt$1,432,145  $1,410,804  $21,341       
Stockholders' equity$2,086,630  $2,056,924  $29,706       
Book capitalization$3,518,775  $3,467,728  $51,047       
Ratio of debt-to-capital40.7% 40.7% 0.0%      
Ratio of net debt-to-net capital*37.7% 35.5% 2.2%      

__________
(1)       Homes under construction included 64 and 40 models at June 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)

  June 30, December 31,
  2019 2018
Assets (unaudited)  
Cash and cash equivalents $171,516  $277,696 
Receivables 58,370  51,592 
Real estate inventories 3,253,601  3,216,059 
Investments in unconsolidated entities 4,241  5,410 
Goodwill and other intangible assets, net 160,160  160,427 
Deferred tax assets, net 64,671  67,768 
Other assets 164,991  105,251 
Total assets $3,877,550  $3,884,203 
     
Liabilities    
Accounts payable $63,091  $81,313 
Accrued expenses and other liabilities 295,671  335,149 
Loans payable 400,000   
Senior notes 1,032,145  1,410,804 
Total liabilities 1,790,907  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; 142,258,663 and 141,661,713 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively 1,423  1,417 
Additional paid-in capital 662,087  658,720 
Retained earnings 1,423,120  1,396,787 
Total stockholders' equity 2,086,630  2,056,924 
Noncontrolling interests 13  13 
Total equity 2,086,643  2,056,937 
Total liabilities and equity $3,877,550  $3,884,203 



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

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Homebuilding:       
Home sales revenue$692,138  $768,795  $1,184,841  $1,351,367 
Land and lot sales revenue5,183  1,518  6,212  1,741 
Other operations revenue637  599  1,235  1,197 
Total revenues697,958  770,912  1,192,288  1,354,305 
Cost of home sales574,684  604,096  996,220  1,054,598 
Cost of land and lot sales5,562  1,426  7,057  1,929 
Other operations expense627  589  1,217  1,191 
Sales and marketing47,065  45,744  86,054  84,027 
General and administrative36,854  36,483  75,451  73,297 
Homebuilding income from operations33,166  82,574  26,289  139,263 
Equity in (loss) income of unconsolidated entities(26) 69  (51) (399)
Other income (expense), net153  (73) 6,394  98 
Homebuilding income before income taxes33,293  82,570  32,632  138,962 
Financial Services:       
Revenues756  391  1,058  674 
Expenses627  129  948  266 
Equity in income of unconsolidated entities1,972  1,984  2,747  2,986 
Financial services income before income taxes2,101  2,246  2,857  3,394 
Income before income taxes35,394  84,816  35,489  142,356 
Provision for income taxes(9,132) (21,136) (9,156) (35,796)
Net income$26,262  $63,680  $26,333  $106,560 
Earnings per share       
Basic$0.18  $0.42  $0.19  $0.70 
Diluted$0.18  $0.42  $0.18  $0.70 
Weighted average shares outstanding       
Basic142,244,166  151,983,886  142,055,766  151,725,651 
Diluted142,471,191  153,355,965  142,431,725  153,067,342 



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

 Three Months Ended June 30, Six Months Ended June 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:               
Maracay106  $525  121  $471  180  $529  246  $469 
Pardee Homes325  599  377  645  567  581  651  651 
Quadrant Homes67  1,051  85  762  111  1,024  168  751 
Trendmaker Homes250  468  155  492  404  463  239  491 
TRI Pointe Homes281  686  347  737  523  697  616  724 
Winchester Homes96  642  130  553  154  615  219  560 
Total1,125  $615  1,215  $633  1,939  $611  2,139  $632 
                
                
 Three Months Ended June 30, Six Months Ended June 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:               
California408  $661  516  $746  736  $669  916  $741 
Colorado81  569  59  605  153  559  119  593 
Maryland68  533  100  540  106  509  166  542 
Virginia28  906  30  596  48  849  53  617 
Arizona106  525  121  471  180  529  246  469 
Nevada117  613  149  526  201  578  232  518 
Texas250  468  155  492  404  463  239  491 
Washington67  1,051  85  762  111  1,024  168  751 
Total1,125  $615  1,215  $633  1,939  $611  2,139  $632 


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

 Three Months Ended June 30, Six Months Ended June 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:               
Maracay253  15.0  132  14.2  414  13.4  285  13.6 
Pardee Homes522  44.5  464  33.5  955  44.4  937  33.1 
Quadrant Homes67  6.5  54  6.3  142  6.9  162  6.6 
Trendmaker Homes247  37.5  161  29.0  490  38.6  316  29.3 
TRI Pointe Homes294  28.5  408  33.8  589  29.6  867  33.6 
Winchester Homes108  14.0  124  14.0  222  14.1  272  13.9 
Total1,491  146.0  1,343  130.8  2,812  147.0  2,839  130.1 
                
                
 Three Months Ended June 30, Six Months Ended June 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:               
California616  54.0  607  45.3  1,133  54.3  1,235  44.8 
Colorado56  6.3  77  6.8  137  6.6  179  6.9 
Maryland84  10.0  85  9.0  168  9.9  185  9.3 
Virginia24  4.0  39  5.0  54  4.2  87  4.5 
Arizona253  15.0  132  14.2  414  13.4  285  13.7 
Nevada144  12.7  188  15.2  274  13.1  390  15.0 
Texas247  37.5  161  29.0  490  38.6  316  29.3 
Washington67  6.5  54  6.3  142  6.9  162  6.6 
Total1,491  146.0  1,343  130.8  2,812  147.0  2,839  130.1 


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

 As of June 30, 2019 As of June 30, 2018
 Backlog
Units
 Backlog
Dollar
Value
 Average
Sales
Price
 Backlog
Units
 Backlog
Dollar
Value
 Average
Sales
Price
Backlog:           
Maracay385  $211,935  $550  256  $134,138  $524 
Pardee Homes790  602,054  762  695  451,860  650 
Quadrant Homes77  65,968  857  138  130,270  944 
Trendmaker Homes399  195,871  491  250  145,046  580 
TRI Pointe Homes384  252,708  658  728  523,907  720 
Winchester Homes173  110,012  636  204  132,875  651 
Total2,208  $1,438,548  $652  2,271  $1,518,096  $668 
            
            
 As of June 30, 2019 As of June 30, 2018
 Backlog
Units
 Backlog
Dollar
Value
 Average
Sales
Price
 Backlog
Units
 Backlog
Dollar
Value
 Average
Sales
Price
Backlog:           
California853  $671,695  $787  985  $719,113  $730 
Colorado128  73,429  574  160  88,902  556 
Maryland123  63,321  515  132  75,129  569 
Virginia50  46,691  934  72  57,746  802 
Arizona385  211,935  550  256  134,138  524 
Nevada193  109,638  568  278  167,752  603 
Texas399  195,871  491  250  145,046  580 
Washington77  65,968  857  138  130,270  944 
Total2,208  $1,438,548  $652  2,271  $1,518,096  $668 


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

 June 30, December 31,
 2019 2018
Lots Owned or Controlled(1):   
Maracay3,611  3,308 
Pardee Homes14,404  14,376 
Quadrant Homes1,442  1,744 
Trendmaker Homes2,702  2,492 
TRI Pointe Homes4,405  4,095 
Winchester Homes1,553  1,725 
Total28,117  27,740 
    
    
 June 30, December 31,
 2019 2018
Lots Owned or Controlled(1):   
California14,933  15,218 
Colorado969  866 
Maryland1,019  1,142 
Virginia534  583 
Arizona3,611  3,308 
Nevada2,603  2,387 
North Carolina304   
Texas2,702  2,492 
Washington1,442  1,744 
Total28,117  27,740 
    
    
 June 30, December 31,
 2019 2018
Lots by Ownership Type:   
Lots owned22,630  23,057 
Lots controlled(1)5,487  4,683 
Total28,117  27,740 

__________
(1)       As of June 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 June 30,
 2019 % 2018 %
  
 (dollars in thousands)
Home sales revenue$692,138  100.0% $768,795  100.0%
Cost of home sales574,684  83.0% 604,096  78.6%
Homebuilding gross margin117,454  17.0% 164,699  21.4%
Add: interest in cost of home sales18,071  2.6% 19,569  2.5%
Add: impairments and lot option abandonments288  0.0% 609  0.1%
Adjusted homebuilding gross margin$135,813  19.6% $184,877  24.0%
Homebuilding gross margin percentage17.0%   21.4%  
Adjusted homebuilding gross margin percentage19.6%   24.0%  


 Six Months Ended June 30,
 2019 % 2018 %
Home sales revenue$1,184,841  100.0% $1,351,367  100.0%
Cost of home sales996,220  84.1% 1,054,598  78.0%
Homebuilding gross margin188,621  15.9% 296,769  22.0%
Add: interest in cost of home sales32,262  2.7% 33,798  2.5%
Add: impairments and lot option abandonments5,490  0.5% 857  0.1%
Adjusted homebuilding gross margin(1)$226,373  19.1% $331,424  24.5%
Homebuilding gross margin percentage15.9%   22.0%  
Adjusted homebuilding gross margin percentage(1)19.1%   24.5%  


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-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.

 June 30, 2019 December 31, 2018
Loans payable$400,000  $ 
Senior notes1,032,145  1,410,804 
Total debt1,432,145  1,410,804 
Stockholders' equity2,086,630  2,056,924 
Total capital$3,518,775  $3,467,728 
Ratio of debt-to-capital(1)40.7% 40.7%
    
Total debt$1,432,145  $1,410,804 
Less: Cash and cash equivalents(171,516) (277,696)
Net debt1,260,629  1,133,108 
Stockholders' equity2,086,630  2,056,924 
Net capital$3,347,259  $3,190,032 
Ratio of net debt-to-net capital(2)37.7% 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.


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

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 June 30, Six Months Ended June 30,
 2019 2018 2019 2018
  
 (in thousands)
Net income$26,262  $63,680  $26,333  $106,560 
Interest expense:       
Interest incurred21,962  21,627  45,335  43,147 
Interest capitalized(21,962) (21,627) (45,335) (43,147)
Amortization of interest in cost of sales18,107  19,664  32,440  33,906 
Provision for income taxes9,132  21,136  9,156  35,796 
Depreciation and amortization6,477  7,092  11,561  12,579 
EBITDA59,978  111,572  79,490  188,841 
Amortization of stock-based compensation3,351  3,720  6,786  7,190 
Impairments and lot option abandonments288  609  5,490  857 
Adjusted EBITDA$63,617  $115,901  $91,766  $196,888 

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