Market Overview

The New Home Company Reports 2016 Fourth Quarter and Full Year Results

Share:





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

Fourth Quarter 2016 Highlights Compared to Fourth Quarter 2015

  • Net income increased 13% to $13.8 million, or $0.66 per diluted share
    vs. $12.2 million, or $0.69 per diluted share; Q4 net income includes
    $3.5 million of pretax inventory impairments, or $0.10 per diluted
    share after tax
  • Total revenues of $322.4 million vs. $194.6 million, up 66%
  • Home sales revenue of $261.7 million, a 78% increase
  • Net new home orders up 44%
  • Backlog dollar value up 12% to $187.3 million
  • Wholly owned community count up 50% to 15 vs. 10
  • Cash flow from operations of $104.3 million vs. $50.7 million, a 106%
    increase

Full Year 2016 Highlights Compared to Full Year 2015

  • Total revenues of $694.5 million, an increase of 61%
  • Home sales revenue of $507.9 million, an 81% increase
  • Net new home orders of 253, up 45%

"I am extremely pleased with how we ended 2016," said The New Home
Company's Chief Executive Officer Larry Webb. "Fourth quarter wholly
owned home sales revenue grew by 78% as compared to last year and we
generated record fourth quarter pretax income. For the full year, homes
sales revenue increased 81% thanks to a 69% increase in deliveries. This
growth is a testament to The New Home Company's success in building and
selling distinctive homes in highly desirable locations in the Western
United States. At the same time, we generated $104 million of cash flows
from operating activities, which was driven by strong inventory turns
from our heavy land option portfolio."

Mr. Webb continued, "While we expect 2017 to be a transition year for
our company as we diversify our product portfolio with new communities
at lower price points, our commitment to being the category leader in
each of our product niches remains the same. We continue to identify
attractive opportunities in California and other markets, and we are
poised to take advantage of these opportunities and create long-term
value for our shareholders."

Fourth Quarter 2016 Operating Results

Total revenues for the 2016 fourth quarter were $322.4 million, compared
to $194.6 million in the prior year period. Net income attributable to
the Company was up 13% to $13.8 million, or $0.66 per diluted share,
compared to net income of $12.2 million, or $0.69 per diluted share, in
the prior year period. The 2016 fourth quarter included $3.5 million of
pretax inventory impairment charges, or $0.10 per diluted share on an
after tax basis, related to two homebuilding communities and one land
asset. The year-over-year increase in net income was primarily
attributable to a 66% increase in total revenues and a 120 basis point
reduction in selling, general and administrative ("SG&A") expenses as a
percentage of home sales revenue, due to stronger operating leverage
from growth in our wholly owned operations. These improvements were
partially offset by a $1.3 million reduction in joint venture income, a
$2.1 million decrease in joint venture management fees and the inventory
impairments noted above.

Wholly Owned Projects

Home sales revenue for the 2016 fourth quarter increased 78% to $261.7
million, compared to $146.9 million in the prior year period. The
increase in home sales revenue was driven primarily by a 55% increase in
deliveries and a 15% increase in the average selling price of homes to
$2.2 million. The increase in our average selling price was due to a
150% increase in deliveries from our Southern California operations,
which had a significantly higher average selling price than our Northern
California operations due to the high concentration of luxury product.

Gross margin from homes sales was 14.4% and included $2.4 million in
inventory impairments related to two active homebuilding communities.
Excluding inventory impairments, our gross margin from home sales for
the 2016 fourth quarter was 15.3%* versus 16.6%* in the prior year
period. The decline in home sales gross margin before impairments as
compared to the prior year was due primarily to a change in mix,
including lower margins in masterplan communities located in Irvine, and
to a lesser extent, lower margins in the Bay Area. These decreases were
partially offset by higher margins from the initial deliveries in our
Crystal Cove communities in Newport Coast, CA. Adjusted gross margin
from home sales for the 2016 fourth quarter, which excludes interest in
cost of home sales and inventory impairments, was 16.2%* compared to
17.7%*.

Our SG&A expense ratio as a percentage of home sales revenue was 7.9%
versus 9.1% in the prior year period. The 120 basis point improvement in
the SG&A rate was largely attributable to a 78% increase in home sales
revenue, which was driven by a significant increase in new home
deliveries and higher average selling prices due to a heavier Southern
California mix.

Net new home orders were up 44% to 69 homes, compared to 48 homes in the
prior year period. The Company's monthly sales absorption pace was
consistent with the prior period at 1.6 sales per average selling
community. Average selling communities were up 50% over the prior year,
ending the year with 15 communities compared to 10 as of the end of the
prior year.

The dollar value of the Company's wholly owned backlog at the end of the
2016 fourth quarter was up 12% year-over-year to $187.3 million and
totaled 79 homes, compared to $166.6 million and 67 homes in the prior
year period. The increase in backlog dollar value primarily related to
the increase in net new home orders.

Fee Building Projects

Fee building revenue for the 2016 fourth quarter increased 27% to $60.8
million primarily due to an increase in fee building construction
activity. Fee building gross margin was $2.7 million, or 4.5%, compared
to $4.1 million, or 8.5%, 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, which were $2.0 million
during the 2016 fourth quarter compared to $4.1 million in the prior
year period. The decrease in management fees from JVs was primarily the
result of fewer deliveries and lower home sales revenue from JV
communities, which is consistent with the Company's strategic shift to
emphasize wholly owned operations.

Unconsolidated Joint Ventures (JVs)

The Company's share of joint venture income for the 2016 fourth quarter
was $3.3 million, compared to $4.6 million in the prior year period. The
decrease in joint venture income was largely driven by a 47% reduction
in JV home sales revenues, resulting from a 32% decrease in our JV
average selling price and a 22% decrease in JV home deliveries.

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 $86.7 million and net income was $9.8
million, compared to $155.1 million and $25.9 million in the prior year
period, respectively. Home sales revenue of the JVs was $72.0 million,
compared to $135.2 million in the prior year period.

At the end of the 2016 fourth quarter, the JVs had nine active selling
communities, up from eight at the end of the prior year period. Net new
home orders from JVs for the 2016 fourth quarter increased 55% to 48
homes as compared to 31 homes in the prior year period which was driven
by a doubling of the JV sales absorption rate from 1.0 sales per month
per community in the 2015 fourth quarter to 2.0 per month in the 2016
fourth quarter. The dollar value of homes in backlog from unconsolidated
JVs at the end of the 2016 fourth quarter was $55.4 million from 62
homes, compared to $117.9 million from 109 homes in the prior year
period.

Full Year 2016 Operating Results

Total revenues for the year ended December 31, 2016 were up 61% to
$694.5 million, compared to $430.1 million in the prior year. The
increase in total revenues was due to a 69% increase in new home
deliveries, a 7% increase in the average selling price of homes
delivered, and a 24% increase in fee building revenue related to
increased construction activity. Net income attributable to the Company
for the full year 2016 was $21.0 million, or $1.01 per diluted share,
compared to $21.7 million, or $1.28 per diluted share in the year
earlier period. The slight decrease in net income was due to $3.5
million in pretax inventory impairment charges, a $6.1 million reduction
in joint venture income and a $4.2 million decrease in joint venture
management fees, substantially all of which was offset by a 61% increase
in total consolidated revenues and a 170 basis point improvement in the
Company's SG&A rate. The increase in the 2016 diluted share count as
compared to the prior year resulted from our follow-on equity offering
completed in December 2015.

Balance Sheet and Liquidity

As of December 31, 2016, the Company had real estate inventories
totaling $286.9 million, of which $149.6 million represented
work-in-process and completed homes (including models), $98.6 million in
land and land under development, and $38.7 million in land deposits and
pre-acquisition costs. The Company owned or controlled 1,576 lots
through its wholly owned operations (excluding fee building and joint
venture lots), of which 986 lots were controlled or under option. The
Company generated $104.3 million in cash flows from operations during
the 2016 fourth quarter and ended the year with $172.5 million in
liquidity, which consisted of $30.5 million in cash and cash equivalents
and $142.0 million in availability under its revolving credit facility.
The Company ended the 2016 fourth quarter with $118.0 million in total
outstanding debt, a debt-to-capital ratio of 32.5% and a net
debt-to-capital ratio of 26.2%*.

Guidance

The Company provided its initial full year guidance for 2017 as follows:

  • Home sales revenue of $530 - $570 million
  • Fee building revenue of $130 - $150 million
  • Income from unconsolidated joint ventures of $4 - $6 million
  • Wholly owned active year-end community count of 18
  • Joint venture active year-end community count of 8

Conference Call Details

The Company will host a conference call and webcast for investors and
other interested parties beginning at 1:00 p.m. Eastern Time on
Wednesday, February 22, 2017 to review fourth quarter and full year
results, discuss recent events and results, and discuss the Company's
initial full year and certain quarterly guidance for 2017. We will also
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 March 22, 2017 and can
be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the pass code 13653367.

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.

* Homebuilding gross margin before impairments percentage, 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
December 31,

Year Ended
December 31,

2016   2015 2016   2015
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 261,668 $ 146,894 $ 507,949 $ 280,209
Fee building, including management fees from unconsolidated joint
ventures of $1,951, $4,071, $8,202 and $12,426, respectively
  60,781     47,732     186,507     149,890  
  322,449     194,626     694,456     430,099  
Cost of Sales:
Home sales 221,700 122,485 433,559 235,232
Home sales impairments 2,350 2,350
Land sales impairment 1,150 1,150
Fee building   58,040     43,663     178,103     139,677  
283,240 166,148 615,162 374,909
Gross Margin:
Home sales 37,618 24,409 72,040 44,977
Land sales (1,150 ) (1,150 )
Fee building   2,741     4,069     8,404     10,213  
39,209 28,478 79,294 55,190
 
Selling and marketing expenses (12,167 ) (6,210 ) (26,744 ) (13,741 )
General and administrative expenses (8,406 ) (7,200 ) (25,882 ) (20,278 )
Equity in net income of unconsolidated joint ventures 3,263 4,586 7,691 13,767
Other income (expense), net   181     (183 )   (409 )   (1,027 )
Income before income taxes 22,080 19,471 33,950 33,911
Provision for income taxes   (8,306 )   (7,258 )   (13,024 )   (12,533 )
Net income 13,774 12,213 20,926 21,378
Net loss attributable to noncontrolling interest   6     13     96     310  
Net income attributable to The New Home Company Inc. $ 13,780   $ 12,226   $ 21,022   $ 21,688  
 
Earnings per share attributable to The New Home Company Inc.:
Basic $ 0.67 $ 0.70 $ 1.02 $ 1.29
Diluted $ 0.66 $ 0.69 $ 1.01 $ 1.28
Weighted average shares outstanding:
Basic 20,712,095 17,545,333 20,685,386 16,767,513
Diluted 20,960,173 17,790,082 20,791,445 16,941,088
 
   

CONSOLIDATED BALANCE SHEETS

 
December 31,
2016   2015
(Dollars in thousands, except per share amounts)
(Unaudited)
Assets
Cash and cash equivalents $ 30,496 $ 45,874
Restricted cash 585 380
Contracts and accounts receivable 27,833 23,960
Due from affiliates 1,138 979
Real estate inventories 286,928 200,636
Investment in and advances to unconsolidated joint ventures 50,857 60,572
Other assets   21,299   18,869
Total assets $ 419,136 $ 351,270
 
Liabilities and equity
Accounts payable $ 33,094 $ 26,371
Accrued expenses and other liabilities 23,418 19,827
Due to affiliates 293
Unsecured revolving credit facility 118,000 74,924
Other notes payable     8,158
Total liabilities   174,512   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,
20,712,166 and 20,543,130, shares issued and outstanding as of
December 31, 2016 and 2015, respectively
207 205
Additional paid-in capital 197,161 194,437
Retained earnings   47,155   26,133
Total The New Home Company Inc. stockholders' equity 244,523 220,775
Noncontrolling interest in subsidiary   101   922
Total equity   244,624   221,697
Total liabilities and equity $ 419,136 $ 351,270
 
       
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Three Months Ended Year Ended
December 31, December 31,
2016   2015 2016   2015
(Dollars in thousands)
Operating activities:
Net income $ 13,774 $ 12,213 $ 20,926 $ 21,378
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Deferred taxes (2,099 ) 2,764 (918 ) (1,675 )
Amortization of equity based compensation 869 1,159 3,471 3,884

Excess income tax provision/(benefit) from stock-based compensation

(97 ) 97 (97 )
Inventory impairments 3,500 3,500
Gain from notes payable principal reduction (250 ) (250 )
Distributions of earnings from unconsolidated joint ventures 1,811 7,963 3,742 18,477
Equity in net income of unconsolidated joint ventures (3,263 ) (4,587 ) (7,691 ) (13,767 )
Deferred profit from unconsolidated joint ventures 105 (155 ) 646 (1,603 )
Depreciation 130 124 511 473
Abandoned project costs 82 84 580 635
Net changes in operating assets and liabilities:
Restricted cash 385 (243 ) 396 (97 )
Contracts and accounts receivable (6,454 ) (12,876 ) (3,737 ) (10,796 )
Due from affiliates (435 ) (190 ) (344 ) 1,683
Real estate inventories 88,390 34,867 (71,388 ) (65,942 )
Other assets 4,138 (4,701 ) (756 ) (3,651 )
Accounts payable (5,756 ) 2,125 6,171 9,790
Accrued expenses and other liabilities 9,351 11,918 2,921 8,712
Due to affiliates       293     (293 )   293  
Net cash provided by (used in) operating activities   104,278     50,661     (42,416 )   (32,303 )
Investing activities:
Purchases of property and equipment (60 ) (129 ) (439 ) (418 )
Cash assumed from joint venture at consolidation 2,009
Contributions and advances to unconsolidated joint ventures (7,381 ) (7,061 ) (15,088 ) (15,028 )
Distributions of capital from unconsolidated joint ventures   1,330     6,344     15,307     32,026  
Net cash (used in) provided by investing activities   (6,111 )   (846 )   1,789     16,580  
Financing activities:
Net proceeds from issuance of common stock 47,253 47,253
Borrowings from credit facility 30,050 11,946 223,050 99,450
Repayments of credit facility (141,974 ) (95,419 ) (179,974 ) (125,000 )
Borrowings from other notes payable 3,552 343 3,552
Repayments of other notes payable (5,171 ) (15,636 ) (5,171 )
Payment of debt issuance costs (1,064 )
Cash distributions to noncontrolling interest in subsidiary (1,589 ) (725 ) (2,411 )
Minimum tax withholding paid on behalf of employees for stock awards (1 ) (648 ) (248 )
Excess income tax (provision)/benefit from stock-based compensation 97 (97 ) 97
Proceeds from exercise of stock options       17         17  
Net cash (used in) provided by financing activities   (111,925 )   (39,314 )   25,249     17,539  
Net (decrease) increase in cash and cash equivalents (13,758 ) 10,501 (15,378 ) 1,816
Cash and cash equivalents – beginning of period   44,254     35,373     45,874     44,058  
Cash and cash equivalents – end of period $ 30,496   $ 45,874   $ 30,496   $ 45,874  
 
               
KEY OPERATIONS AND FINANCIAL DATA

(Unaudited)

 
New Home Deliveries:
    Three Months Ended December 31,
2016 2015 % Change
Homes  

Dollar
Value

 

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 80 $ 232,045 $ 2,901 32 $ 99,766 $ 3,118 150 % 133 % (7 )%
Northern California 39   29,623 760 45     47,127 1,047 (13 )% (37 )% (27 )%
Total 119 $ 261,668 $ 2,199 77   $ 146,893 $ 1,908 55 % 78 % 15 %
 
Year Ended December 31,
2016 2015 % Change
Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 147 $ 422,041 $ 2,871 74 $ 205,815 $ 2,781 99 % 105 % 3 %
Northern California 103   85,908 834 74     74,394 1,005 39 % 15 % (17 )%
Total 250 $ 507,949 $ 2,032 148   $ 280,209 $ 1,893 69 % 81 % 7 %
 
Net New Home Orders:
    Three Months Ended December 31,     Year Ended December 31,
2016   2015   % Change 2016   2015   % Change
Southern California 36 18 100 % 141 86 64 %
Northern California 33 30 10 % 112 88 27 %
69 48 44 % 253 174 45 %
 
 
Active Communities:
December 31,
2016 2015 % Change
Southern California 8 4 100 %
Northern California 7 6 17 %
15 10 50 %
 
                       
KEY OPERATIONS AND FINANCIAL DATA (continued)

(Unaudited)

 
Backlog:
December 31,
2016 2015 % Change
Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 48 $ 162,599 $ 3,387 45 $ 149,405 $ 3,320 7 % 9 % 2 %
Northern California 31   24,697 797 22   17,162 780 41 % 44 % 2 %
Total 79 $ 187,296 $ 2,371 67 $ 166,567 $ 2,486 18 % 12 % (5 )%
 
Lots Owned and Controlled:        
December 31,
2016 2015 % Change
Lots Owned
Southern California 290 123 136 %
Northern California 300 289 4 %
Total 590 412 43 %
Lots Controlled (1)
Southern California 721 754 (4 )%
Northern California 265 152 74 %
Total 986 906 9 %
Lots Owned and Controlled - Wholly Owned 1,576 1,318 20 %
Fee Building (2) 935 1,422 (34 )%
Total Lots Owned and Controlled 2,511 2,740 (8 )%
 
(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) Lots owned by third party property owners for which we perform
construction services.
 
       
KEY OPERATIONS AND FINANCIAL DATA - UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

 
Three Months Ended December 31, Year Ended December 31,
2016   2015   % Change 2016   2015   % Change
Operating Data:
Home sales revenue $ 71,986 $ 135,191 (47 )% $ 177,544 $ 335,515 (47 )%
Land sales revenue $ 14,708 $ 19,911 (26 )% $ 55,675 $ 74,366 (25 )%
Net income $ 9,813 $ 25,885 (62 )% $ 26,191 $ 65,194 (60 )%
 
Other Data:
New home orders 48 31 55 % 159 299 (47 )%
New homes delivered 74 95 (22 )% 197 265 (26 )%
Average selling price of homes delivered $ 973 $ 1,423 (32 )% $ 901 $ 1,266 (29 )%
 
Selling communities at end of period 9 8 13 %
Backlog homes (dollar value) $ 55,414 $ 117,936 (53 )%
Backlog (homes) 62 109 (43 )%
Average sales price of backlog $ 894 $ 1,082 (17 )%
Backlog lots (dollar value) $ $ 33,534 (100 )%
 
December 31,
2016 2015 % Change
Lots Owned and Controlled:
Homebuilding
Lots owned 513 681 (25 )%
Lots controlled (1)   72   68 6 %
Homebuilding Total 585 749 (22 )%
Land Development
Lots owned 2,180 2,340 (7 )%
Lots controlled (1)   235   235 %
Land Development Total   2,415   2,575 (6 )%
Total   3,000   3,324 (10 )%
 
(1)   Includes lots controlled 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.
 

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 measures
homebuilding gross margin before impairments and adjusted homebuilding
gross margin percentage. We believe this information is meaningful, as
it isolates the impact home sales impairments and leverage have on
homebuilding gross margin and provides investors better comparisons with
our competitors, who adjust gross margins in a similar fashion.

    Three Months Ended December 31,     Year Ended December 31,
2016   %   2015   % 2016   %   2015   %
(Dollars in thousands)
Homebuilding
Home sales revenue $ 261,668 100.0 % $ 146,894 100.0 % $ 507,949 100.0 % $ 280,209 100.0 %
Cost of home sales   224,050 85.6 %   122,485 83.4 %   435,909 85.8 %   235,232 83.9 %
Homebuilding gross margin 37,618 14.4 % 24,409 16.6 % 72,040 14.2 % 44,977 16.1 %
Add: Home sales impairments   2,350 0.9 %   %   2,350 0.4 %   %
Homebuilding gross margin before impairments 39,968 15.3 % 24,409 16.6 % 74,390 14.6 % 44,977 16.1 %
Add: Interest in cost of home sales   2,314 0.9 %   1,635 1.1 %   5,331 1.1 %   2,511 0.8 %
Adjusted homebuilding gross margin $ 42,282 16.2 % $ 26,044 17.7 % $ 79,721 15.7 % $ 47,488 16.9 %
 

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.

    December 31,
2016   2015
(Dollars in thousands)
Unsecured revolving credit facility and other notes payable $ 118,000 $ 83,082
Equity, exclusive of noncontrolling interest   244,523     220,775  
Total capital $ 362,523   $ 303,857  
Ratio of debt-to-capital (1)   32.5 %   27.3 %
 
Unsecured revolving credit facility and other notes payable $ 118,000 $ 83,082
Less: cash, cash equivalents and restricted cash   31,081     46,254  
Net debt 86,919 36,828
Equity, exclusive of noncontrolling interest   244,523     220,775  
Total capital $ 331,442   $ 257,603  
Ratio of net debt-to-capital (2)   26.2 %   14.3 %
 
(1)   The ratio of debt-to-capital is computed as the quotient obtained by
dividing the unsecured revolving credit facility and other notes
payable by the sum of the unsecured revolving credit facility and
other notes payable 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 the unsecured revolving
credit facility and other notes payable 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.
 

View Comments and Join the Discussion!