Market Overview

The New Home Company Reports 2016 Third Quarter Results

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

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

Third Quarter 2016 Highlights Compared to Third Quarter 2015

  • Net income up 25% to $5.5 million, or $0.27 per diluted share vs. $4.4 million, or $0.27 per diluted share
  • Total revenues of $177.9 million vs. $87.0 million, up 105%
  • Home sales revenue of $125.1 million, an increase of 116%
  • Net new home orders up 5%
  • Backlog dollar value up 37% to $290.2 million
  • Community count up 30% to 13 vs. 10

"The New Home Company delivered solid top and bottom line growth in the third quarter of 2016, while laying the foundation for future success by focusing more of our resources on wholly owned operations," said New Home Company Chief Executive Officer Larry Webb. "We have seen encouraging trends in some of our newer communities, most notably along the Newport Coast, where order activity and pricing at our Crystal Cove communities have exceeded our expectations." Mr. Webb continued, "As we had previously stated, our earnings for 2016 would be heavily weighted to the back half of the year. Given our performance this quarter and the size of our backlog at the end of the period, we believe that this will indeed be the case. The New Home Company has earned a reputation with both consumers and land sellers for delivering a superior home buying experience, and I'm confident that this reputation will carry us to greater success in the future."

Third Quarter 2016 Operating Results

Total revenues for the 2016 third quarter were $177.9 million, compared to $87.0 million in the prior year period. Net income attributable to the Company was $5.5 million, or $0.27 per diluted share, compared to net income of $4.4 million, or $0.27 per diluted share, in the prior year period. The year-over-year increase in net income was primarily attributable to a 105% increase in total revenues, a 480 basis point reduction in selling, general and administrative ("SG&A") expenses as a percentage of home sales revenue, which was partially offset by a $3.6 million reduction in joint venture income. The increase in revenues and improvement in our SG&A leverage is consistent with the shift in focus to our wholly owned operations.

Wholly Owned Projects

Home sales revenue for the 2016 third quarter was $125.1 million, compared to $57.9 million in the prior year period. The increase in home sales revenue was driven primarily by a 100% increase in deliveries and an 8% increase in average selling price to $2.1 million.

Homebuilding gross margin percentage was 15.5%, compared to 15.8% in the prior year period, and was up 350 basis points as compared to the 2016 second quarter. The change in gross margin as compared to the prior year was due to a change in mix and was partially offset by a 90 basis point benefit from a warranty accrual adjustment made during the 2016 third quarter. The sequential increase in gross margin was also impacted by mix, including higher gross margins from our Fiano community in Newport Coast, CA and the third quarter warranty adjustment. Adjusted homebuilding gross margin percentage, which excludes interest in cost of home sales, was flat with the prior year period at 16.5%*.

Our SG&A expense ratio as a percentage of home sales revenue was 10.0% versus 14.8% in the prior year period. The 480 basis point improvement in the SG&A ratio was largely attributable to a 116% 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 5% to 64 homes, compared to 61 homes in the prior year period. The Company's monthly sales absorption pace was 1.7 sales per average selling community as compared to 2.3 in the prior year period. The Company increased its selling communities by 30%, ending the quarter with 13 communities, compared to 10 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 third quarter was up 37% year-over-year to $290.2 million and totaled 129 homes, compared to $211.6 million and 96 homes in the prior year period. The average selling price of homes in backlog was $2.2 million, which was relatively consistent with prior year.

Fee Building Projects

Fee building revenue for the 2016 third quarter increased 81% to $52.8 million due primarily to an increase in fee building construction activity. Fee building gross margin was $1.9 million, or 3.7%, compared to $2.1 million, or 7.1%, in the prior year period. The reduction in fee building gross margin percentage was largely due to a decrease in management fees received from joint ventures from $1.5 million during the 2016 third quarter compared to $3.3 million in the prior year period. The decrease in management fees from JVs was primarily the result of fewer deliveries from JV communities.

Unconsolidated Joint Ventures (JVs)

The Company's share of joint venture income for the 2016 third quarter was $0.5 million, compared to $4.1 million in the prior year period. The decrease in joint venture income was largely driven by a 70% reduction in total JV revenues, which was primarily the result of a 68% decrease in JV deliveries and a 43% reduction in the average selling price of homes delivered.

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 $34.5 million and net income was $2.4 million, compared to $115.4 million and $20.9 million in the prior year period, respectively. Home sales revenue of the JVs was $19.7 million, compared to $106.5 million in the prior year period. Homebuilding gross margin percentage generated by the JVs during the quarter increased to 26.3%, compared to 24.8% in the prior year period.

At the end of the 2016 third quarter, the JVs had eight selling communities, down from 11 at the end of the prior year period. As a result of the 27% decline in JV selling communities, new home orders from JVs for the 2016 third quarter decreased 39% to 35 homes as compared to 57 homes in the prior year period. In addition, the dollar value of homes in backlog from unconsolidated JVs at the end of the 2016 third quarter was down 59% to $85.3 million from 88 homes, compared to $205.6 million from 173 homes in the prior year period.

Balance Sheet and Liquidity

As of September 30, 2016, the Company had real estate inventories totaling $383.4 million, of which $260.9 million represented work-in-process and completed homes (including models), $76.2 million in land and land under development, and $46.2 million in land deposits and pre-acquisition costs. The Company owned or controlled 1,584 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 958 lots were controlled or under option. As of September 30, 2016, the Company had $74.3 million in liquidity, which consisted of $44.3 million in cash and cash equivalents and $30.1 million in availability under its revolving credit facility. The Company ended the 2016 third quarter with $233.9 million in total outstanding debt, a debt-to-capital ratio of 50.4% and a net debt-to-capital ratio of 45.1%*.

Guidance

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

  • Home sales revenue of $470 - $500 million
  • Fee building revenue of $160 - $180 million
  • Income from unconsolidated joint ventures of $7 - $8 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, November 4, 2016 to review third 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 December 4, 2016 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13646621.

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.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

2016   2015 2016   2015
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 125,142 $ 57,878 $ 246,281 $ 133,315
Fee building, including management fees from unconsolidated joint ventures of $1,539, $3,255, $6,251 and $8,356, respectively 52,761   29,099   125,726   102,158  
177,903   86,977   372,007   235,473  
Expenses:
Cost of homes sales 105,799 48,741 211,859 112,747
Cost of fee building 50,832 27,028 120,063 96,014
Selling and marketing 6,055 3,442 14,577 7,531
General and administrative 6,468   5,105   17,476   13,078  
169,154   84,316   363,975   229,370  
Equity in net income of unconsolidated joint ventures 488 4,056 4,428 9,180
Other expense, net (195 ) (123 ) (590 ) (843 )
Income before income taxes 9,042 6,594 11,870 14,440
Provision for income taxes (3,465 ) (2,249 ) (4,718 ) (5,275 )
Net income 5,577 4,345 7,152 9,165
Net (income) loss attributable to noncontrolling interest (30 ) 99   90   297  
Net income attributable to The New Home Company Inc. $ 5,547   $ 4,444   $ 7,242   $ 9,462  
 
Earnings per share attributable to The New Home Company Inc.
Basic $ 0.27 $ 0.27 $ 0.35 $ 0.57
Diluted $ 0.27 $ 0.27 $ 0.35 $ 0.57
Weighted average shares outstanding:
Basic 20,711,952 16,516,546 20,675,233 16,507,736
Diluted 20,797,731 16,733,805 20,764,480 16,660,673
 
 

CONSOLIDATED BALANCE SHEETS

 
    September 30,   December 31,
2016 2015

(Dollars in thousands, except per share
amounts)

(Unaudited)
Assets
Cash and cash equivalents $ 44,254 $ 45,874
Restricted cash 970 380
Contracts and accounts receivable 21,379 23,960
Due from affiliates 842 979
Real estate inventories 383,392 200,636
Investment in unconsolidated joint ventures 42,489 60,572
Other assets 23,497   18,869
Total assets $ 516,823   $ 351,270
 
Liabilities and equity
Accounts payable $ 38,850 $ 26,371
Accrued expenses and other liabilities 14,067 19,827
Due to affiliates 293
Unsecured revolving credit facility 229,924 74,924
Other notes payable 4,000   8,158
Total liabilities 286,841   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 September 30, 2016 and December 31, 2015, respectively 207 205
Additional paid-in capital 196,293 194,437
Retained earnings 33,375   26,133
Total The New Home Company Inc. stockholders' equity 229,875 220,775
Noncontrolling interest in subsidiary 107   922
Total equity 229,982   221,697
Total liabilities and equity $ 516,823   $ 351,270
 
 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
    Nine Months Ended
September 30,
2016   2015
(Dollars in thousands)
Operating activities:
Net income $ 7,152 $ 9,165
Adjustments to reconcile net income to net cash used in operating activities:
Deferred taxes 1,181 (4,439 )
Amortization of equity based compensation 2,602 2,725
Tax valuation adjustment from stock-based compensation 97
Distributions of earnings from unconsolidated joint ventures 1,931 10,514
Equity in net income of unconsolidated joint ventures (4,428 ) (9,180 )
Deferred profit from unconsolidated joint ventures 541 (1,448 )
Depreciation 381 349
Abandoned project costs 498 551
Net changes in operating assets and liabilities:
Restricted cash 11 146
Contracts and accounts receivable 2,717 2,080
Due from affiliates 91 1,873
Real estate inventories (159,778 ) (100,809 )
Other assets (4,894 ) 1,050
Accounts payable 11,927 7,665
Accrued expenses and other liabilities (6,430 ) (3,206 )
Due to affiliates (293 )  
Net cash used in operating activities (146,694 ) (82,964 )
Investing activities:
Purchases of property and equipment (379 ) (289 )
Cash assumed from joint venture at consolidation 2,009
Contributions to unconsolidated joint ventures (7,707 ) (7,967 )
Distributions of capital from unconsolidated joint ventures 13,977   25,682  
Net cash provided by investing activities 7,900   17,426  
Financing activities:
Borrowings from credit facility 193,000 87,504
Repayments of credit facility (38,000 ) (29,581 )
Borrowings from other notes payable 343
Repayments of other notes payable (15,636 )
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 ) (248 )
Tax valuation adjustment from stock-based compensation (97 )  
Net cash provided by financing activities 137,174   56,853  
Net decrease in cash and cash equivalents (1,620 ) (8,685 )
Cash and cash equivalents – beginning of period 45,874   44,058  
Cash and cash equivalents – end of period $ 44,254   $ 35,373  
 
 

KEY OPERATIONS AND FINANCIAL DATA

(Unaudited)

 
New Home Deliveries:
  Three Months Ended September 30,
2016   2015   % Change
Homes  

Dollar
Value

 

Average
Price

Homes

 

Dollar
Value

 

Average
Price

Homes

 

Dollar
Value

 

Average
Price

(Dollars in thousands)
Southern California 36 $ 105,789 $ 2,939 15 $ 40,354 $ 2,690 140 % 162 % 9 %
Northern California 24   19,353   806   15   17,524   1,168   60 % 10 % (31 )%
Total 60   $ 125,142   $ 2,086   30   $ 57,878   $ 1,929   100 % 116 % 8 %
 
Nine Months Ended September 30,
2016 2015 % Change
Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 67 $ 189,996 $ 2,836 42 $ 106,049 $ 2,525 60 % 79 % 12 %
Northern California 64   56,285   879   29   27,266   940   121 % 106 % (6 )%
Total 131   $ 246,281   $ 1,880   71   $ 133,315   $ 1,878   85 % 85 % %
 
 
Net New Home Orders:
  Three Months Ended September 30,   Nine Months Ended September 30,
2016   2015   % Change 2016   2015   % Change
Southern California 39 32 22 % 105 68 54 %
Northern California 25 29   (14 )% 79   58   36 %
64 61   5 % 184   126   46 %
 
 
Active Communities:
September 30,
2016 2015 % Change
Southern California 8 4 100 %
Northern California 5   6   (17 )%
13   10   30 %
 
 

KEY OPERATIONS AND FINANCIAL DATA (continued)

(Unaudited)

 
Backlog:                  
September 30,
2016 2015 % Change
Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 92 $ 262,224 $ 2,850 59 $ 172,380 $ 2,922 56 % 52 % (2 )%
Northern California 37   27,971   756   37   39,260   1,061   % (29 )% (29 )%
Total 129   $ 290,195   $ 2,250   96   $ 211,640   $ 2,205   34 % 37 % 2 %
 
 
          September 30,
2016   2015   % Change
Lots Owned
Southern California 287 135 113 %
Northern California 339   292   16 %
Total 626   427   47 %
Lots Controlled (1)
Southern California 693 569 22 %
Northern California 265   80   231 %
Total 958   649   48 %
Lots Owned and Controlled - Wholly Owned 1,584 1,076 47 %
Fee Building (2) 981   1,498   (35 )%
Total Lots Owned and Controlled 2,565   2,574   %
 

 

 
(1)  

Includes lots that we control under purchase and sale agreements or option agreements subject to customary conditions and have not yet closed.  There can be no assurance that such acquisitions will occur.

(2)

Subject to agreements with property owners.

 

KEY OPERATIONS AND FINANCIAL DATA - UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

 
  Three Months Ended September 30,   Nine Months Ended September 30,
2016   2015   % Change 2016   2015   % Change
Operating Data:
Home sales revenue $ 19,659 $ 106,485 (82 )% $ 105,558 $ 200,325 (47 )%
Homebuilding gross margin $ 5,161 $ 26,408 (80 )% $ 25,899 $ 44,797 (42 )%
Homebuilding gross margin % 26.3 % 24.8 % NA 24.5 % 22.4 % NA
Adjusted homebuilding gross margin %** 27.7 % 25.8 % NA 26.0 % 23.7 % NA
Land sales revenue $ 14,805 $ 8,885 67 % $ 40,967 $ 54,455 (25 )%
Net income $ 2,417 $ 20,906 (88 )% $ 16,378 $ 39,310 (58 )%
Interest in cost of home sales $ 287 $ 1,091 (74 )% $ 1,499 $ 2,654 (44 )%
 
Other Data:
New home orders 35 57 (39 )% 111 268 (59 )%
New homes delivered 23 71 (68 )% 123 170 (28 )%
Average selling price of homes delivered $ 855 $ 1,500 (43 )% $ 858 $ 1,178 (27 )%
 
Selling communities at end of period 8 11 (27 )%
Backlog homes (dollar value) $ 85,317 $ 205,604 (59 )%
Backlog (homes) 88 173 (49 )%
Average sales price of backlog $ 970 $ 1,188 (18 )%
Backlog lots (dollar value) (1) $ 5,416 $ 51,662 (90 )%
 
                     
September 30,
2016   2015   % Change
Lots Owned and Controlled:
Homebuilding
Lots owned 589 776 (24 )%
Lots controlled (2) 72   68   6 %
Homebuilding Total 661 844 (22 )%
Land Development
Lots owned 2,180 2,420 (10 )%
Lots controlled (2) 235   235   %
Land Development Total 2,415   2,655   (9 )%
Total 3,076   3,499   (12 )%
 
(1)   Amounts include $0 and $18.1 million of backlog dollar value related to purchase contracts between an unconsolidated joint venture and the Company as of September 30, 2016 and 2015, respectively.
(2) Consists of lots that are under purchase and sale agreements.
 
** See "Reconciliation of Non-GAAP Financial Measures" beginning on page 11.
 

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 September 30,   Nine months ended September 30,
2016   %   2015   % 2016   %   2015   %
(Dollars in thousands)
Homebuilding
Home sales revenue $ 125,142 100.0 % $ 57,878 100.0 % $ 246,281 100.0 % $ 133,315 100.0 %
Cost of home sales 105,799   84.5 % 48,741   84.2 % 211,859   86.0 % 112,747   84.6 %
Homebuilding gross margin 19,343 15.5 % 9,137 15.8 % 34,422 14.0 % 20,568 15.4 %
Add: Interest in cost of home sales 1,306   1.0 % 396   0.7 % 3,017   1.2 % 876   0.7 %
Adjusted homebuilding gross margin $ 20,649   16.5 % $ 9,533   16.5 % $ 37,439   15.2 % $ 21,444   16.1 %
 
Unconsolidated Joint Ventures - Homebuilding
Home sales revenue $ 19,659 100.0 % $ 106,485 100.0 % $ 105,558 100.0 % $ 200,325 100.0 %
Cost of home sales 14,498   73.7 % 80,077   75.2 % 79,659   75.5 % 155,528   77.6 %
Homebuilding gross margin 5,161 26.3 % 26,408 24.8 % 25,899 24.5 % 44,797 22.4 %
Add: Interest in cost of home sales 287   1.4 % 1,091   1.0 % 1,499   1.5 % 2,654   1.3 %
Adjusted homebuilding gross margin $ 5,448   27.7 % $ 27,499   25.8 % $ 27,398   26.0 % $ 47,451   23.7 %
 

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.

   
September 30, December 31,
2016   2015
(Dollars in thousands)
Notes payable, including unsecured revolving credit facility $ 233,924 $ 83,082
Equity, exclusive of noncontrolling interest 229,875   220,775  
Total capital $ 463,799   $ 303,857  
Ratio of debt-to-capital (1) 50.4 % 27.3 %
 
Notes payable, including unsecured revolving credit facility $ 233,924 $ 83,082
Less: cash, cash equivalents and restricted cash 45,224   46,254  
Net debt 188,700 36,828
Equity, exclusive of noncontrolling interest 229,875   220,775  
Total capital $ 418,575   $ 257,603  
Ratio of net debt-to-capital (2) 45.1 % 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.

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

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