Market Overview

The New Home Company Reports 2017 Second Quarter Results

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- Total Revenues Increased 32% to $144 million -
- Net
New Orders up 53% -

- Record Backlog Dollar Value of $339
million, up 22% -

The New Home Company Inc. (NYSE:NWHM) today announced results for the
2017 second quarter.

Second Quarter 2017 Highlights Compared to Second Quarter 2016

  • Net income of $1.5 million, or $0.07 per diluted share vs. $2.5
    million, or $0.12 per diluted share; Q2 2017 net income included $1.3
    million of pretax inventory impairments, or $0.04 per diluted share
    after tax
  • Total revenues of $144.1 million vs. $108.9 million, a 32% increase
  • Home sales revenue of $96.9 million, a 23% increase
  • Net new home orders up 53%
  • Backlog dollar value up 22% to $339.4 million, a record quarter-end
    value

"Building off a strong start to the year, The New Home Company continued
to make solid progress in the second quarter," said The New Home
Company's Chief Executive Officer Larry Webb. "The company outperformed
projected revenues and profits for the quarter generating $0.07 in
earnings per diluted share. We continued to see strong buyer demand in
California where net new orders for our wholly owned business were up
significantly with our monthly sales absorption rate up 74%
year-over-year."

Mr. Webb continued, "For a second consecutive quarter, our backlog
dollar value was the highest in our company's history at $339.4 million,
a 22% increase over the prior year. In addition, the company completed a
tack-on offering of $75 million in aggregate principal of our Senior
Unsecured Notes due 2022. The increase in liquidity allows us to
capitalize on growth opportunities that will allow us to meet homebuyer
demand and deliver favorable returns. We are well-positioned to deliver
strong results in the second half of the year and are on track to
broaden our product portfolio to include more affordable price points.
We anticipate opening nine new communities in the second half of the
year, six of which are expected to be priced at $750,000 or lower."

Second Quarter 2017 Operating Results

Total revenues for the 2017 second quarter were up 32% to $144.1
million, compared to $108.9 million in the prior year period. Net income
attributable to the Company was $1.5 million, or $0.07 per diluted
share, compared to $2.5 million, or $0.12 per diluted share, in the
prior year period. The 2017 second quarter included a $1.3 million
pretax inventory impairment charge, or $0.04 per diluted share on an
after-tax basis, related to one homebuilding community. The
year-over-year decrease in net income was primarily attributable to a
$3.7 million reduction in joint venture income, a $1.3 million decrease
in joint venture management fees and the inventory impairment noted
above. These decreases were largely offset by a 32% increase in total
revenues, a 160 basis point improvement in our homebuilding gross margin
after impairments (a 290 basis point improvement before impairments*),
and a 140 basis point improvement in our selling, general and
administrative ("SG&A") expenses as a percentage of home sales revenue.

Wholly Owned Projects

Home sales revenue for the 2017 second quarter increased 23% to $96.9
million, compared to $78.8 million in the prior year period. The
increase in home sales revenue was driven primarily by a 49% increase in
deliveries, and was partially offset by a 17% decrease in the average
selling price of homes delivered to $1.5 million. The decrease in our
average selling price was primarily due to a mix shift as half of the
second quarter deliveries were from communities with average selling
prices under $1 million.

Gross margin from homes sales for the 2017 second quarter was 13.6%
versus 12.0% in the prior year period. The 2017 second quarter included
a $1.3 million inventory impairment related to one homebuilding
community in Southern California. Excluding inventory impairments, our
gross margin from home sales for the 2017 second quarter was 14.9%*
versus 12.0%* in the prior year period. The 290 basis point improvement
in home sales gross margin before impairments was primarily due to a
change in mix, including more deliveries from our higher margin Crystal
Cove communities located in Newport Coast, CA. Adjusted gross margin
from home sales for the 2017 second quarter, which excludes interest in
cost of home sales and inventory impairments, was 16.7%* compared to
13.3%*.

Our SG&A expense ratio as a percentage of home sales revenue for the
2017 second quarter was 12.4% versus 13.8% in the prior year period. The
140 basis point improvement in the SG&A rate was largely attributable to
a 23% increase in home sales revenue, which was driven by a significant
increase in new home deliveries due to growth in our wholly owned
operations, and lower G&A expenses.

Net new home orders for the 2017 second quarter were up 53% to 98 homes,
compared to 64 homes in the prior year period. The Company's monthly
sales absorption pace was up significantly during the 2017 second
quarter to 3.3 sales per average selling community compared to 1.9 in
the prior year period. The improvement in the absorption rate was driven
by solid order activity in both Southern and Northern California, with
Northern California more than doubling its net orders over the prior
year period. As a result of increased sales activity and the timing of
opening new communities, our quarter end selling communities were down
25% from the prior year, ending the 2017 second quarter with nine active
communities compared to 12 as of the end of the prior year period. This
dip in ending selling communities was consistent with our expectations
and the Company anticipates opening nine new communities in the second
half of 2017.

The dollar value of the Company's wholly owned backlog at the end of the
2017 second quarter was up 22% year-over-year to $339.4 million and
totaled 185 homes, compared to $278.0 million and 125 homes in the prior
year period. The increase in backlog dollar value primarily related to
the increase in net new home orders, which was partially offset by a 17%
decline in average selling price in backlog. The decrease in backlog
average selling price is consistent with the Company's strategy to
expand its product portfolio to include more affordable price points.

Fee Building Projects

Fee building revenue for the 2017 second quarter increased 57% to $47.2
million primarily due to an increase in fee building construction
activity. Fee building gross margin was $1.3 million, or 2.7%, compared
to $1.7 million, or 5.7%, in the prior year period. The reduction in fee
building gross margin percentage was primarily due to a decrease in
management fees received from joint ventures, which were $1.2 million
during the 2017 second quarter compared to $2.5 million in the prior
year period. The decrease in management fees from JVs was the result of
lower deliveries and revenues from JV communities as compared to the
prior year period, 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 2017 second quarter
was $0.2 million, compared to $3.9 million in the prior year period. The
decrease in income for the Company was due to a reduction in joint
venture revenue from a decrease in JV home deliveries and lot sales, and
lower gross margins from JV home sales due to a delivery mix shift. In
addition, the 2016 second quarter included a $0.5 million income
allocation from a joint venture for a reserve reduction and a $1.1
million gain from the buyout of a JV partner's interest for less than
its carrying value. 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 for the 2017 second quarter was $35.2 million
and a net loss of $0.7 million, compared to total revenue of $70.1
million and $10.2 million in income in the prior year period,
respectively. Home sales revenue of the JVs was $34.2 million, compared
to $47.7 million in the prior year period, while land sales revenue of
the JVs was $0.9 million for the 2017 second quarter as compared to
$22.4 million in the prior year period.

At the end of the 2017 second quarter, the JVs had eight active selling
communities, up from three at the end of the prior year period. As a
result of increased selling communities, net new home orders from JVs
for the 2017 second quarter increased 80% to 54 homes as compared to 30
homes in the prior year period. The dollar value of homes in backlog
from unconsolidated JVs at the end of the 2017 second quarter was $70.9
million from 90 homes, compared to $72.0 million from 76 homes in the
prior year period.

Balance Sheet and Liquidity

On May 4, 2017, the Company completed a tack-on private placement
offering selling an additional $75 million in aggregate principal amount
of its 7.25% Senior Notes due 2022. The Notes were issued at a premium
to yield 6.44%. Together with the notes issued in the 2017 first
quarter, the Company has $325 million in aggregate principal of Senior
Notes due 2022. As of June 30, 2017, the Company had real estate
inventories totaling $365.4 million, of which $211.9 million represented
work-in-process and completed homes (including models), $108.0 million
in land and land under development, and $45.5 million in land deposits
and pre-acquisition costs. The Company owned or controlled 1,821 lots
through its wholly owned operations (excluding fee building and joint
venture lots), of which 1,134 lots, or 62%, were controlled or under
option. The Company ended the 2017 second quarter with $154.0 million in
cash and cash equivalents and had no borrowings outstanding under its
$260.0 million revolving credit facility. The Company ended the 2017
first quarter with $318.1 million in debt outstanding (net of
unamortized discount, premium and debt issuance costs), a
debt-to-capital ratio of 56.2% and a net debt-to-capital ratio of 39.8%*.

Guidance

The Company updated its full year guidance for 2017 as follows:

  • Home sales revenue of $540 - $570 million
  • Fee building revenue of $145 - $165 million
  • Income from unconsolidated joint ventures of $2 - $3 million
  • Wholly owned active year-end community count of 17
  • 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 11:00 a.m. Eastern Time on
Thursday, July 27, 2017 to review second quarter results, discuss recent
events and results, and discuss the Company's 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 August 28, 2017 and can
be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the pass code 13665502.

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, 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 June 30,   Six Months Ended June 30,
2017   2016 2017   2016
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 96,929 $ 78,836 $ 166,335 $ 121,139
Fee building, including management fees from unconsolidated joint
ventures of $1,217, $2,537, $2,431 and $4,712, respectively
47,181   30,028   102,798   72,965  
144,110   108,864   269,133   194,104  
Cost of Sales:
Home sales 82,488 69,390 142,553 106,060
Home sales impairments 1,300 1,300
Fee building 45,899   28,317   99,825   69,231  
129,687 97,707 243,678 175,291
Gross Margin:
Home sales 13,141 9,446 22,482 15,079
Fee building 1,282   1,711   2,973   3,734  
14,423 11,157 25,455 18,813
 
Selling and marketing expenses (6,376 ) (5,046 ) (11,377 ) (8,522 )
General and administrative expenses (5,595 ) (5,833 ) (10,685 ) (11,008 )
Equity in net income of unconsolidated joint ventures 201 3,947 507 3,940
Other income (expense), net (148 ) (286 ) (35 ) (395 )
Income before income taxes 2,505 3,939 3,865 2,828
Provision for income taxes (988 ) (1,495 ) (1,512 ) (1,253 )
Net income 1,517 2,444 2,353 1,575
Net loss attributable to noncontrolling interest   65   10   120  
Net income attributable to The New Home Company Inc. $ 1,517   $ 2,509   $ 2,363   $ 1,695  
 
Earnings per share attributable to The New Home Company Inc.:
Basic $ 0.07 $ 0.12 $ 0.11 $ 0.08
Diluted $ 0.07 $ 0.12 $ 0.11 $ 0.08
Weighted average shares outstanding:
Basic 20,869,429 20,709,139 20,819,288 20,654,998
Diluted 20,956,723 20,760,186 20,921,150 20,745,802
 
 

CONSOLIDATED BALANCE SHEETS

 
    June 30,   December 31,
2017 2016

(Dollars in thousands, except per share
amounts)

(Unaudited)
Assets
Cash and cash equivalents $ 153,959 $ 30,496
Restricted cash 88 585
Contracts and accounts receivable 18,321 27,833
Due from affiliates 2,062 1,138
Real estate inventories 365,400 286,928
Investment in and advances to unconsolidated joint ventures 55,864 50,857
Other assets 23,916   21,299
Total assets $ 619,610   $ 419,136
 
Liabilities and equity
Accounts payable $ 34,215 $ 33,094
Accrued expenses and other liabilities 19,473 23,418
Unsecured revolving credit facility 118,000
Senior notes, net 318,121  
Total liabilities 371,809   174,512
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,
20,875,666 and 20,712,166, shares issued and outstanding as of June
30, 2017 and December 31, 2016, respectively
209 207
Additional paid-in capital 197,983 197,161
Retained earnings 49,518   47,155
Total stockholders' equity 247,710 244,523
Noncontrolling interest in subsidiary 91   101
Total equity 247,801   244,624
Total liabilities and equity $ 619,610   $ 419,136
 
 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
    Six Months Ended
June 30,
2017   2016
(Dollars in thousands)
Operating activities:
Net income $ 2,353 $ 1,575
Adjustments to reconcile net income to net cash used in operating
activities:
Deferred taxes (54 ) (27 )
Amortization of equity based compensation 1,306 1,742
Excess income tax provision from stock-based compensation 97
Inventory impairments 1,300
Distributions of earnings from unconsolidated joint ventures 1,588 1,095
Equity in net income of unconsolidated joint ventures (507 ) (3,940 )
Deferred profit from unconsolidated joint ventures 497 332
Depreciation 236 251
Abandoned project costs 206 329
Net changes in operating assets and liabilities:
Restricted cash 497 104
Contracts and accounts receivable 9,573 9,164
Due from affiliates (671 ) 88
Real estate inventories (74,407 ) (164,464 )
Other assets (2,900 ) (5,832 )
Accounts payable 1,160 3,737
Accrued expenses and other liabilities (11,588 ) (9,711 )
Due to affiliates   (239 )
Net cash used in operating activities (71,411 ) (165,699 )
Investing activities:
Purchases of property and equipment (95 ) (296 )
Cash assumed from joint venture at consolidation 995 2,009
Contributions and advances to unconsolidated joint ventures (8,517 ) (5,656 )
Distributions of capital from unconsolidated joint ventures 2,948   7,405  
Net cash provided by (used in) investing activities (4,669 ) 3,462  
Financing activities:
Borrowings from credit facility 72,000 175,000
Repayments of credit facility (190,000 ) (11,000 )
Proceeds from senior notes 324,465
Borrowings from other notes payable 343
Repayments of other notes payable (15,636 )
Payment of debt issuance costs (6,440 ) (1,064 )
Cash distributions to noncontrolling interest in subsidiary (725 )
Minimum tax withholding paid on behalf of employees for stock awards (584 ) (647 )
Excess income tax provision from stock-based compensation (97 )
Proceeds from exercise of stock options 102    
Net cash provided by financing activities 199,543   146,174  
Net increase (decrease) in cash and cash equivalents 123,463 (16,063 )
Cash and cash equivalents – beginning of period 30,496   45,874  
Cash and cash equivalents – end of period $ 153,959   $ 29,811  
 
 

KEY FINANCIAL AND OPERATING DATA

(Dollars in thousands)

(Unaudited)

 
New Home Deliveries:  
    Three Months Ended June 30,
2017 2016   % Change
Homes  

Dollar
Value

 

Average
Price

Homes  

Dollar
Value

 

Average
Price

Homes  

Dollar
Value

 

Average
Price

Southern California 27 $ 67,279 $ 2,492 20 $ 54,900 $ 2,745 35 % 23 %

(9)

%

Northern California 37   29,650   801 23   23,936   1,041 61 % 24 %

(23)

%

Total 64   $ 96,929   $ 1,515 43   $ 78,836   $ 1,833 49 % 23 %

(17)

%

 
Six Months Ended June 30,
2017 2016 % Change
Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

Homes

Dollar
Value

Average
Price

(Dollars in thousands)
Southern California 49 $ 111,202 $ 2,269 31 $ 84,208 $ 2,716 58 % 32 %

(16)

%

Northern California 69   55,133   799 40   36,931   923 73 % 49 %

(13)

%

Total 118   $ 166,335   $ 1,410 71   $ 121,139   $ 1,706 66 % 37 %

(17)

%

 
 
Net New Home Orders:  
    Three Months Ended June 30,   Six Months Ended June 30,
2017 2016  

%
Change

2017   2016  

%
Change

Southern California 44 39 13 % 100 66 52 %
Northern California 54 25   116 % 124   54   130 %
98 64   53 % 224   120   87 %
 
 
Active Communities:
As of June 30,
2017 2016

%
Change

Southern California 6 7

(14)

%

Northern California 3   5  

(40)

%

9   12  

(25)

%

 
 

KEY FINANCIAL AND OPERATING DATA (continued)

(Dollars in thousands)

(Unaudited)

Backlog:    
As of June 30,
2017   2016   % Change
Homes  

Dollar
Value

 

Average
Price

Homes  

Dollar
Value

 

Average
Price

Homes  

Dollar
Value

 

Average
Price

Southern California 99 $ 278,513 $ 2,813 89 $ 249,433 $ 2,803 11 % 12 % %
Northern California 86   60,899   708 36   28,567   794 139 % 113 %

(11)

%

Total 185   $ 339,412   $ 1,835 125   $ 278,000   $ 2,224 48 % 22 %

(17)

%

 
 
Lots Owned and Controlled:    
            June 30,
2017   2016  

%
Change

Lots Owned
Southern California 402 226 78 %
Northern California 285   249   14 %
Total 687   475   45 %
Lots Controlled (1)
Southern California 564 631 (11 )%
Northern California 303 379 (20 )%
Arizona 267     NA
Total 1,134   1,010   12 %
Lots Owned and Controlled - Wholly Owned 1,821 1,485 23 %
Fee Building (2) 1,043   1,001   4 %
Total Lots Owned and Controlled 2,864   2,486   15 %
 

___________________________

   

(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.

 
Other Financial Data:    
Six Months Ended
June 30,
2017   2016
Interest incurred $ 8,437 $ 2,970
Adjusted EBITDA(1) $ 11,265 $ 4,016
Adjusted EBITDA margin percentage (1) 4.2 % 2.1 %
 
LTM(2) Ended June 30,
2017 2016
Interest incurred $ 12,951 $ 5,766
Adjusted EBITDA(1) $ 50,393 $ 37,662
Adjusted EBITDA margin percentage (1) 6.5 % 7.9 %
Ratio of Adjusted EBITDA to total interest incurred (1) 3.9x 6.5x
 
(1)     Adjusted EBITDA, Adjusted EBITDA margin percentage, and ratio of
Adjusted EBITDA to total interest incurred are non-GAAP measures.
Please see "Reconciliation of Non-GAAP Financial Measures" for a
reconciliation of each of these measures to the appropriate GAAP
measure.
(2) "LTM" indicates amounts for the trailing 12 months.
 

KEY FINANCIAL AND OPERATING DATA - UNCONSOLIDATED JOINT VENTURES

(Dollars in thousands)

(Unaudited)

 
    Three Months Ended June 30,   Six Months Ended June 30,
2017   2016   % Change 2017   2016   % Change
Financial Data - Unconsolidated Joint Ventures:
Home sales revenue $ 34,240 $ 47,698

(28)

%

$ 59,386 $ 85,899

(31)

%

Land sales revenue $ 931   $ 22,406  

(96)

%

2,405   26,162  

(91)

%

Total revenue $ 35,171   $ 70,104  

(50)

%

$ 61,791   $ 112,061  

(45)

%

Net income (loss) $ (654 ) $ 10,195  

(106)

%

$ (1,518 ) $ 12,336  

(112)

%

 
Operating Data - Unconsolidated Joint Ventures:
New home orders 54 30 80 % 93 76 22 %
New homes delivered 33 55

(40)

%

65 100

(35)

%

Average selling price of homes delivered $ 1,038 $ 867 20 % $ 914 $ 859 6 %
 
Selling communities at end of period 8 3 167 %
Backlog homes (dollar value) $ 70,941 $ 71,970

(1)

%

Backlog (homes) 90 76 18 %
Average sales price of backlog $ 788 $ 947

(17)

%

 
Homebuilding lots owned and controlled 520 610

(15)

%

Land development lots owned and controlled 2,415   2,512  

(4)

%

Total lots owned and controlled 2,935   3,122  

(6)

%

 

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 table reconciles 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 percentages. 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 June 30,   Six Months Ended June 30,
2017   %   2016   % 2017   %   2016   %
(Dollars in thousands)
Home sales revenue $ 96,929 100.0 % $ 78,836 100.0 % $ 166,335 100.0 % $ 121,139 100.0 %
Cost of home sales 83,788   86.4 % 69,390   88.0 % 143,853   86.5 % 106,060   87.6 %
Homebuilding gross margin 13,141 13.6 % 9,446 12.0 % 22,482 13.5 % 15,079 12.4 %
Add: Home sales impairments 1,300   1.3 %   % 1,300   0.8 %   %
Homebuilding gross margin before impairments 14,441 14.9 % 9,446 12.0 % 23,782 14.3 % 15,079 12.4 %
Add: Interest in cost of home sales 1,720   1.8 % 1,063   1.3 % 3,271   2.0 % 1,711   1.4 %
Adjusted homebuilding gross margin $ 16,161   16.7 % $ 10,509   13.3 % $ 27,053   16.3 % $ 16,790  

13.9

%
 

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

Adjusted EBITDA, Adjusted EBITDA margin percentage and the ratio of
Adjusted EBITDA to total interest incurred are non-GAAP measures.
Adjusted EBITDA means net income (loss) (plus cash distributions of
income from unconsolidated joint ventures) before (a) income taxes, (b)
interest expense, (c) amortization of previously capitalized interest
included in cost of sales or other expense, (d) non-cash impairment
charges and abandoned project costs, (e) gain (loss) on extinguishment
of debt, (f) depreciation and amortization, (g) amortization of
equity-based compensation and (h) income (loss) from unconsolidated
joint ventures. Adjusted EBITDA margin percentage is calculated by
dividing Adjusted EBITDA by total revenue for a given period. The ratio
of Adjusted EBITDA to total interest incurred is calculated by dividing
Adjusted EBITDA by total interest incurred for a given period. Other
companies may calculate Adjusted EBITDA differently. Management believes
that Adjusted EBITDA assists investors in understanding and comparing
the operating characteristics of homebuilding activities by eliminating
many of the differences in companies' respective capitalization,
interest costs, tax position and level of impairments. Due to the
significance of the GAAP components excluded, Adjusted EBITDA should not
be considered in isolation or as an alternative to net income, cash
flows from operations or any other performance measure prescribed by
GAAP. A reconciliation of net income (loss) attributable to us to
Adjusted EBITDA, Adjusted EBITDA margin percentage and the ratio of
Adjusted EBITDA to total interest incurred is provided in the following
table.

     
Six Months Ended LTM(1) Ended
June 30, June 30,
2017   2016 2017   2016
(Dollars in thousands)
Net income (loss) $ 2,353 $ 1,575 $ 21,704 $ 18,133
Add:
Interest amortized to cost of sales and other expense 3,271 1,711 6,891 3,827
Provision (benefit) for income taxes 1,512 1,253 13,283 10,761
Depreciation and amortization 236 251 496 492
Amortization of equity-based compensation 1,306 1,742 3,035 4,391
Cash distributions of income from unconsolidated joint ventures 1,588 1,095 4,235 12,120
Non-cash impairments and abandonments 1,506 329 5,257 521
Less:
Gain from notes payable principal reduction (250 )
Equity in income of unconsolidated joint ventures (507 ) (3,940 ) (4,258 ) (12,583 )
Adjusted EBITDA $ 11,265   $ 4,016   $ 50,393   $ 37,662  
Total Revenue $ 269,133   $ 194,104   $ 769,485   $ 475,707  
Adjusted EBITDA margin percentage 4.2 % 2.1 % 6.5 % 7.9 %
Interest incurred $ 8,437   $ 2,970   $ 12,951   $ 5,766  
Ratio of Adjusted EBITDA to total interest incurred 3.9x 6.5x
 
(1)     "LTM" indicates amounts for the trailing 12 months.

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

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

 
    June 30,   December 31,
2017 2016
(Dollars in thousands)
Total debt, net $ 318,121 $ 118,000
Equity, exclusive of noncontrolling interest 247,710   244,523  
Total capital $ 565,831   $ 362,523  
Ratio of debt-to-capital(1) 56.2 % 32.5 %
 
Total debt, net $ 318,121 $ 118,000
Less: cash, cash equivalents and restricted cash 154,047   31,081  
Net debt 164,074 86,919
Equity, exclusive of noncontrolling interest 247,710   244,523  
Total capital $ 411,784   $ 331,442  
Ratio of net debt-to-capital(2) 39.8 % 26.2 %
 
(1)   The ratio of debt-to-capital is computed as the quotient obtained by
dividing total debt, net by the sum of total debt 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 total debt, net 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.

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