Market Overview

TRI Pointe Group, Inc. Reports 2018 Second Quarter Results

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-Home Sales Revenue up 35% on a 13% Increase in Deliveries and a 19% Increase in Average Sales Price-
-Backlog Dollar Value up 13% on an 8% Increase in Backlog Units-
-Homebuilding Gross Margin Percentage Increased 130 Basis Points to 21.4%-
-Diluted Earnings Per Share of $0.42, up from $0.21 in the Prior Year-

IRVINE, Calif., July 27, 2018 (GLOBE NEWSWIRE) -- TRI Pointe Group, Inc. (the "Company") (NYSE:TPH) today announced results for the second quarter ended June 30, 2018.

Results and Operational Data for Second Quarter 2018 and Comparisons to Second Quarter 2017

  • Net income available to common stockholders was $63.7 million, or $0.42 per diluted share, compared to $32.7 million, or $0.21 per diluted share
  • New home orders of 1,343 compared to 1,445, a decrease of 7%
  • Active selling communities averaged 130.8 compared to 126.8, an increase of 3%
    • New home orders per average selling community were 10.3 orders (3.4 monthly) compared to 11.4 orders (3.8 monthly)
    • Cancellation rate increased to 16% compared to 15%
  • Backlog units at quarter end of 2,271 homes compared to 2,108, an increase of 8%
    • Dollar value of backlog at quarter end of $1.5 billion compared to $1.3 billion, an increase of 13%
    • Average sales price of homes in backlog at quarter end of $668,000 compared to $635,000, an increase of 5%
  • Home sales revenue of $768.8 million compared to $568.8 million, an increase of 35%
    • New home deliveries of 1,215 homes compared to 1,071 homes, an increase of 13%
    • Average sales price of homes delivered of $633,000 compared to $531,000, an increase of 19%
  • Homebuilding gross margin percentage of 21.4% compared to 20.1%, an increase of 130 basis points
    • Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 24.0%*
  • SG&A expense as a percentage of homes sales revenue of 10.7% compared to 11.6%, a decrease of 90 basis points
  • Ratios of debt-to-capital and net debt-to-net capital of 41.7% and 37.4%*, respectively, as of June 30, 2018
  • Ended second quarter of 2018 with total liquidity of $826.7 million, including cash of $239.9 million and $586.8 million of availability under the Company's unsecured revolving credit facility

*      See "Reconciliation of Non-GAAP Financial Measures"

"We are very pleased with our results this quarter as we met or exceeded our guidance for deliveries, ASPs, homebuilding gross margin and SG&A leverage," said TRI Pointe Group CEO Doug Bauer.  "We generated pretax income of nearly $85 million in the quarter, representing a 63% increase over the second quarter of last year.  This year-over-year increase in profits was a function of both higher revenues and better gross margins, a strong indication that our business remains on solid footing.  We continue to see positive fundamentals in the overall housing market, characterized by low inventory levels, improving wage gains, employment growth and consumer demand from millennials to baby boomers.  These macro fundamentals, coupled with our strong balance sheet, consistent execution and strategic focus on design and innovation have TRI Pointe Group well positioned as we head into the second half of the year."

Second Quarter 2018 Operating Results

Net income available to common stockholders was $63.7 million, or $0.42 per diluted share, for the second quarter of 2018, compared to net income available to common stockholders of $32.7 million, or $0.21 per diluted share, for the second quarter of 2017.

Home sales revenue increased $200.0 million, or 35%, to $768.8 million for the second quarter of 2018, as compared to $568.8 million for the second quarter of 2017.  The increase was primarily attributable to a 19% increase in the average sales price of homes delivered to $633,000, compared to $531,000 in the second quarter of 2017, and a 13% increase in new home deliveries to 1,215, compared to 1,071 in the second quarter of 2017.

New home orders decreased 7% to 1,343 homes for the second quarter of 2018, as compared to 1,445 homes for the same period in 2017.  Average selling communities increased 3% to 130.8 for the second quarter of 2018 compared to 126.8 for the second quarter of 2017.  The Company's overall absorption rate per average selling community decreased 10% for the second quarter of 2018 to 10.3 orders (3.4 monthly) compared to 11.4 orders (3.8 monthly) during the second quarter of 2017.

The Company ended the quarter with 2,271 homes in backlog, representing approximately $1.5 billion. The average sales price of homes in backlog as of June 30, 2018 increased $33,000, or 5%, to $668,000, compared to $635,000 as of June 30, 2017.

Homebuilding gross margin percentage for the second quarter of 2018 increased to 21.4%, compared to 20.1% for the second quarter of 2017.  Excluding interest and impairments and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.0%* for the second quarter of 2018, compared to 22.5%* for the second quarter of 2017.  Gross margin percentage increased at each of our homebuilding segments for the quarter as compared to the prior-year period.  In addition, the percentage of deliveries from California, which generally produce gross margins above the company average, increased compared to the same period in the prior year.

Selling, general and administrative ("SG&A") expense for the second quarter of 2018 decreased to 10.7% of home sales revenue as compared to 11.6% for the second quarter of 2017, primarily due to increased leverage as a result of a 35% increase in home sales revenue.

"While we pride ourselves on consistent execution every quarter, our attention remains squarely focused on positioning our company for longer-term success," said TRI Pointe Group Chief Operating Officer Tom Mitchell.  "For TRI Pointe, that meant continuing to build out the longer-dated assets we acquired in the WRECO transaction rather than booking short term land-sale profits.  Now over four years removed from this transaction, these assets continue to contribute significantly to our bottom line and provide us with a healthy runway of lots.  Today, we are taking the same long-term approach with each of our brands with an eye toward increasing our local market scale and creating a more diversified company."

* See "Reconciliation of Non-GAAP Financial Measures"

Outlook

For the third quarter of 2018, the Company expects to open 15 new communities, and close out of 17, resulting in 128 active selling communities as of September 30, 2018.  In addition, the Company anticipates delivering 50% to 55% of its 2,271 units in backlog as of June 30, 2018 at an average sales price of $630,000.  The Company anticipates its homebuilding gross margin percentage will be in a range of 21.0% to 21.5% for the third quarter.  Finally, the Company expects its SG&A expense as a percentage of home sales revenue to be in the range of 10.8% to 11.2% for the third quarter.

For the full year 2018, the Company is reiterating its guidance of growing average selling communities by 5% compared to 2017 and delivering between 5,100 and 5,400 homes.  The Company is increasing its expected average sales price for the full year to $625,000 from $610,000.  The Company continues to expect its homebuilding gross margin percentage for the full year 2018 to be in the range of 21.0% to 21.5%, SG&A expense as a percentage of home sales revenue to be in the range of 9.9% to 10.3% and its effective tax rate to be in the range of 25% to 26%.

Earnings Conference Call

The Company will host a conference call via live webcast for investors and other interested parties beginning at 10:00 a.m. Eastern Time on Friday, July 27, 2018.  The call will be hosted by Doug Bauer, Chief Executive Officer, Tom Mitchell, President and Chief Operating Officer and Mike Grubbs, Chief Financial Officer.

Interested parties can listen to the call live and view the related presentation slides on the internet through the Investor Relations section of the Company's website at www.TRIPointeGroup.com. Listeners should go to the website at least fifteen minutes prior to the call to download and install any necessary audio software.  The call can also be accessed by dialing 1-877-407-3982 for domestic participants or 1-201-493-6780 for international participants.  Participants should ask for the TRI Pointe Group Second Quarter 2018 Earnings Conference Call.  Those dialing in should do so at least ten minutes prior to the start.  The replay of the call will be available for two weeks following the call.  To access the replay, the domestic dial-in number is 1-844-512-2921, the international dial-in number is 1-412-317-6671, and the reference code is #13681373.  An archive of the webcast will be available on the Company's website for a limited time.

About TRI Pointe Group, Inc.

Headquartered in Irvine, California, TRI Pointe Group, Inc. (NYSE:TPH) is among the largest public homebuilders in the United States. The company designs, constructs and sells premium single-family homes through its portfolio of six quality brands across eight states, including MaracayTM in Arizona; Pardee Homes® in California and Nevada; Quadrant Homes® in Washington; Trendmaker® Homes in Texas; TRI Pointe Homes® in California and Colorado; and Winchester® Homes in Maryland and Virginia.  Additional information is available at www.TRIPointeGroup.com. Winchester is a registered trademark and is used with permission.

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements.  These forward-looking statements may include, but are not limited to, statements regarding our strategy, projections and estimates concerning the timing and success of specific projects and our future production, land and lot sales, operational and financial results, including our estimates for growth, financial condition, sales prices, prospects, and capital spending.  Forward-looking statements that are included in this press release are generally accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "future," "goal," "guidance," "intend," "likely," "may," "might," "outlook," "plan," "potential," "predict," "project," "should," "strategy," "target," "will," "would," or other words that convey future events or outcomes.  The forward-looking statements in this press release speak only as of the date of this press release, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly.  These forward-looking statements are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control.  The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements: the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar; market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions; levels of competition; the successful execution of our internal performance plans, including any restructuring and cost reduction initiatives; global economic conditions; raw material prices; oil and other energy prices; the effect of weather, including the re-occurrence of drought conditions in California; the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters, and the risk of delays, reduced consumer demand, and shortages and price increases in labor or materials associated with such natural disasters; transportation costs; federal and state tax policies; the effect of land use, environment and other governmental regulations; legal proceedings or disputes and the adequacy of reserves; risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects; changes in accounting principles; risks related to unauthorized access to our computer systems, theft of our customers' confidential information or other forms of cyber-attack; and additional factors discussed under the sections captioned "Risk Factors" included in our annual and quarterly reports filed with the Securities and Exchange Commission.  The foregoing list is not exhaustive.  New risk factors may emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business.

Investor Relations Contact:

Chris Martin, TRI Pointe Group
Drew Mackintosh, Mackintosh Investor Relations
InvestorRelations@TRIPointeGroup.com, 949-478-8696

Media Contact:
Carol Ruiz, cruiz@newgroundco.com, 310-437-0045

 
KEY OPERATIONS AND FINANCIAL DATA
(dollars in thousands)
(unaudited)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   Change   2018   2017   Change
Operating Data:                      
Home sales revenue $ 768,795     $ 568,816     $ 199,979     $ 1,351,367     $ 960,820     $ 390,547  
Homebuilding gross margin $ 164,699     $ 114,575     $ 50,124     $ 296,769     $ 188,175     $ 108,594  
Homebuilding gross margin % 21.4 %   20.1 %   1.3 %   22.0 %   19.6 %   2.4 %
Adjusted homebuilding gross margin %* 24.0 %   22.5 %   1.5 %   24.5 %   22.0 %   2.5 %
SG&A expense $ 82,227     $ 66,018     $ 16,209     $ 157,324     $ 127,367     $ 29,957  
SG&A expense as a % of home sales
  revenue
10.7 %   11.6 %   (0.9 )%   11.6 %   13.3 %   (1.7 )%
Net income available to common
  stockholders
$ 63,680     $ 32,714     $ 30,966     $ 106,560     $ 40,907     $ 65,653  
Adjusted EBITDA* $ 115,901     $ 70,522     $ 45,379     $ 196,888     $ 98,202     $ 98,686  
Interest incurred $ 21,627     $ 19,931     $ 1,696     $ 43,147     $ 38,804     $ 4,343  
Interest in cost of home sales $ 19,569     $ 13,145     $ 6,424     $ 33,798     $ 22,825     $ 10,973  
                       
Other Data:                      
Net new home orders 1,343     1,445     (102 )   2,839     2,744     95  
New homes delivered 1,215     1,071     144     2,139     1,829     310  
Average sales price of homes delivered $ 633     $ 531     $ 102     $ 632     $ 525     $ 107  
Cancellation rate 16 %   15 %   1 %   15 %   15 %   0 %
Average selling communities 130.8     126.8     4.0     130.1     126.6     3.5  
Selling communities at end of period 130     131     (1 )            
Backlog (estimated dollar value) $ 1,518,096     $ 1,339,217     $ 178,879              
Backlog (homes) 2,271     2,108     163              
Average sales price in backlog $ 668     $ 635     $ 33              
                       
  June 30,   December 31,                
  2018   2017   Change            
Balance Sheet Data:                      
Cash and cash equivalents $ 239,906     $ 282,914     $ (43,008 )            
Real estate inventories $ 3,247,786     $ 3,105,553     $ 142,233              
Lots owned or controlled 28,829     27,312     1,517              
Homes under construction (1) 2,925     1,941     984              
Homes completed, unsold 172     269     (97 )            
Debt $ 1,453,366     $ 1,471,302     $ (17,936 )            
Stockholders' equity $ 2,031,702     $ 1,929,722     $ 101,980              
Book capitalization $ 3,485,068     $ 3,401,024     $ 84,044              
Ratio of debt-to-capital 41.7 %   43.3 %   (1.6 )%            
Ratio of net debt-to-net capital* 37.4 %   38.1 %   (0.7 )%            

__________
(1) Homes under construction included 88 and 60 models at June 30, 2018 and December 31, 2017, respectively.
* See "Reconciliation of Non-GAAP Financial Measures"


 
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
  June 30,   December 31,
  2018   2017
Assets (unaudited)    
Cash and cash equivalents $ 239,906     $ 282,914  
Receivables 59,611     125,600  
Real estate inventories 3,247,786     3,105,553  
Investments in unconsolidated entities 4,169     5,870  
Goodwill and other intangible assets, net 160,694     160,961  
Deferred tax assets, net 66,414     76,413  
Other assets 94,105     48,070  
Total assets $ 3,872,685     $ 3,805,381  
       
Liabilities      
Accounts payable $ 88,936     $ 72,870  
Accrued expenses and other liabilities 298,077     330,882  
Senior notes 1,453,366     1,471,302  
Total liabilities 1,840,379     1,875,054  
       
Commitments and contingencies      
       
Equity      
Stockholders' Equity:      
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no
  shares issued and outstanding as of June 30, 2018 and 
  December 31, 2017, respectively
     
Common stock, $0.01 par value, 500,000,000 shares authorized;
  152,027,014 and 151,162,999 shares issued and outstanding at
  June 30, 2018 and December 31, 2017, respectively
1,520     1,512  
Additional paid-in capital 796,746     793,980  
Retained earnings 1,233,436     1,134,230  
Total stockholders' equity 2,031,702     1,929,722  
Noncontrolling interests 604     605  
Total equity 2,032,306     1,930,327  
Total liabilities and equity $ 3,872,685     $ 3,805,381  



 
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
Homebuilding:              
Home sales revenue $ 768,795     $ 568,816     $ 1,351,367     $ 960,820  
Land and lot sales revenue 1,518     865     1,741     1,443  
Other operations revenue 599     600     1,197     1,168  
Total revenues 770,912     570,281     1,354,305     963,431  
Cost of home sales 604,096     454,241     1,054,598     772,645  
Cost of land and lot sales 1,426     644     1,929     1,298  
Other operations expense 589     591     1,191     1,151  
Sales and marketing 45,744     32,330     84,027     59,030  
General and administrative 36,483     33,688     73,297     68,337  
Homebuilding income from operations 82,574     48,787     139,263     60,970  
Equity in income (loss) of unconsolidated entities 69     1,508     (399 )   1,646  
Other (expense) income, net (73 )   44     98     121  
Homebuilding income before income taxes 82,570     50,339     138,962     62,737  
Financial Services:              
Revenues 391     345     674     586  
Expenses 129     77     266     151  
Equity in income of unconsolidated entities 1,984     1,294     2,986     1,560  
Financial services income before income taxes 2,246     1,562     3,394     1,995  
Income before income taxes 84,816     51,901     142,356     64,732  
Provision for income taxes (21,136 )   (19,098 )   (35,796 )   (23,712 )
Net income 63,680     32,803     106,560     41,020  
Net income attributable to noncontrolling interests     (89 )       (113 )
Net income available to common stockholders $ 63,680     $ 32,714     $ 106,560     $ 40,907  
Earnings per share              
Basic $ 0.42     $ 0.21     $ 0.70     $ 0.26  
Diluted $ 0.42     $ 0.21     $ 0.70     $ 0.26  
Weighted average shares outstanding              
Basic 151,983,886     155,603,699     151,725,651     157,335,296  
Diluted 153,355,965     156,140,543     153,067,342     157,924,561  



 
MARKET DATA BY REPORTING SEGMENT & STATE
(dollars in thousands)
(unaudited)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
New Homes Delivered:                              
Maracay 121     $ 471     164     $ 462     246     $ 469     283     $ 448  
Pardee Homes 377     645     372     485     651     651     568     465  
Quadrant Homes 85     762     64     620     168     751     127     626  
Trendmaker Homes 155     492     133     487     239     491     239     488  
TRI Pointe Homes 347     737     243     635     616     724     451     632  
Winchester Homes 130     553     95     569     219     560     161     550  
Total 1,215     $ 633     1,071     $ 531     2,139     $ 632     1,829     $ 525  
                               
                               
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
  New
Homes
Delivered
  Average
Sales
Price
New Homes Delivered:                              
California 516     $ 746     438     $ 580     916     $ 741     737     $ 576  
Colorado 59     605     37     617     119     593     67     593  
Maryland 100     540     69     526     166     542     115     515  
Virginia 30     596     26     681     53     617     46     638  
Arizona 121     471     164     462     246     469     283     448  
Nevada 149     526     140     412     232     518     215     395  
Texas 155     492     133     487     239     491     239     488  
Washington 85     762     64     620     168     751     127     626  
Total 1,215     $ 633     1,071     $ 531     2,139     $ 632     1,829     $ 525  


 
MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
Net New Home Orders:                              
Maracay 132     14.2     162     16.0     285     13.6     346     16.1  
Pardee Homes 464     33.5     483     28.8     937     33.1     861     28.6  
Quadrant Homes 54     6.3     107     6.8     162     6.6     227     7.3  
Trendmaker Homes 161     29.0     129     31.7     316     29.3     280     31.9  
TRI Pointe Homes 408     33.8     413     31.5     867     33.6     766     30.7  
Winchester Homes 124     14.0     151     12.0     272     13.9     264     12.0  
Total 1,343     130.8     1,445     126.8     2,839     130.1     2,744     126.6  
                               
                               
  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
  Net New
Home
Orders
  Average
Selling
Communities
Net New Home Orders:                              
California 607     45.3     689     42.5     1,235     44.8     1,253     42.3  
Colorado 77     6.8     51     6.5     179     6.9     104     5.9  
Maryland 85     9.0     117     9.0     185     9.3     184     8.6  
Virginia 39     5.0     34     3.0     87     4.5     80     3.4  
Arizona 132     14.2     162     16.0     285     13.7     346     16.1  
Nevada 188     15.2     156     11.3     390     15.0     270     11.1  
Texas 161     29.0     129     31.7     316     29.3     280     31.9  
Washington 54     6.3     107     6.8     162     6.6     227     7.3  
Total 1,343     130.8     1,445     126.8     2,839     130.1     2,744     126.6  


 
MARKET DATA BY REPORTING SEGMENT & STATE, continued
(dollars in thousands)
(unaudited)
 
  As of June 30, 2018   As of June 30, 2017
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
Maracay 256     $ 134,138     $ 524     311     $ 156,611     $ 504  
Pardee Homes 695     451,860     650     553     369,021     667  
Quadrant Homes 138     130,270     944     201     144,204     717  
Trendmaker Homes 250     145,046     580     204     105,663     518  
TRI Pointe Homes 728     523,907     720     613     428,281     699  
Winchester Homes 204     132,875     651     226     135,437     599  
Total 2,271     $ 1,518,096     $ 668     2,108     $ 1,339,217     $ 635  
                       
                       
  As of June 30, 2018   As of June 30, 2017
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
California 985     $ 719,113     $ 730     918     $ 660,548     $ 720  
Colorado 160     88,902     556     96     60,686     632  
Maryland 132     75,129     569     171     96,443     564  
Virginia 72     57,746     802     55     38,994     709  
Arizona 256     134,138     524     311     156,611     504  
Nevada 278     167,752     603     152     76,068     500  
Texas 250     145,046     580     204     105,663     518  
Washington 138     130,270     944     201     144,204     717  
Total 2,271     $ 1,518,096     $ 668     2,108     $ 1,339,217     $ 635  


 
MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)
 
  June 30,   December 31,
  2018   2017
Lots Owned or Controlled(1):      
Maracay 3,056     2,519  
Pardee Homes 15,824     15,144  
Quadrant Homes 1,832     1,726  
Trendmaker Homes 1,924     1,855  
TRI Pointe Homes 4,168     3,964  
Winchester Homes 2,025     2,104  
Total 28,829     27,312  
       
       
  June 30,   December 31,
  2018   2017
Lots Owned or Controlled(1):      
California 16,608     16,292  
Colorado 723     742  
Maryland 1,345     1,507  
Virginia 680     597  
Arizona 3,056     2,519  
Nevada 2,661     2,074  
Texas 1,924     1,855  
Washington 1,832     1,726  
Total 28,829     27,312  
       
       
  June 30,   December 31,
  2018   2017
Lots by Ownership Type:      
Lots owned 23,561     23,940  
Lots controlled(1) 5,268     3,372  
Total 28,829     27,312  

__________
(1) As of June 30, 2018 and December 31, 2017, lots controlled included lots that were under land option contracts or purchase contracts.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(unaudited)

In this press release, we utilize certain financial measures that are non-GAAP financial measures as defined by the Securities and Exchange Commission. We present these measures because we believe they and similar measures are useful to management and investors in evaluating the Company's operating performance and financing structure. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with Generally Accepted Accounting Principles ("GAAP"), they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following tables reconcile homebuilding gross margin percentage, as reported and prepared in accordance with GAAP, to the non-GAAP measure adjusted homebuilding gross margin percentage. We believe this information is meaningful as it isolates the impact that leverage has on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion.

  Three Months Ended June 30,
  2018   %   2017   %
                           
  (dollars in thousands)
Home sales revenue $ 768,795     100.0 %   $ 568,816     100.0 %
Cost of home sales 604,096     78.6 %   454,241     79.9 %
Homebuilding gross margin 164,699     21.4 %   114,575     20.1 %
Add: interest in cost of home sales 19,569     2.5 %   13,145     2.3 %
Add: impairments and lot option abandonments 609     0.1 %   507     0.1 %
Adjusted homebuilding gross margin $ 184,877     24.0 %   $ 128,227     22.5 %
Homebuilding gross margin percentage 21.4 %       20.1 %    
Adjusted homebuilding gross margin percentage 24.0 %       22.5 %    


   
  Six Months Ended June 30,
  2018   %   2017   %
                           
  (dollars in thousands)
Home sales revenue $ 1,351,367     100.0 %   $ 960,820     100.0 %
Cost of home sales 1,054,598     78.0 %   772,645     80.4 %
Homebuilding gross margin 296,769     22.0 %   188,175     19.6 %
Add: interest in cost of home sales 33,798     2.5 %   22,825     2.4 %
Add: impairments and lot option abandonments 857     0.1 %   795     0.1 %
Adjusted homebuilding gross margin $ 331,424     24.5 %   $ 211,795     22.0 %
Homebuilding gross margin percentage 22.0 %       19.6 %    
Adjusted homebuilding gross margin percentage 24.5 %       22.0 %    
 

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

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

  June 30, 2018   December 31, 2017
Senior notes $ 1,453,366     $ 1,471,302  
Total debt 1,453,366     1,471,302  
Stockholders' equity 2,031,702     1,929,722  
Total capital $ 3,485,068     $ 3,401,024  
Ratio of debt-to-capital(1) 41.7 %   43.3 %
       
Total debt $ 1,453,366     $ 1,471,302  
Less: Cash and cash equivalents (239,906 )   (282,914 )
Net debt 1,213,460     1,188,388  
Stockholders' equity 2,031,702     1,929,722  
Net capital $ 3,245,162     $ 3,118,110  
Ratio of net debt-to-net capital(2) 37.4 %   38.1 %

__________
(1) The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of debt plus equity.
(2) The ratio of net debt-to-net capital is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents) by the sum of net debt plus equity.

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

The following table calculates the non-GAAP financial measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income, as reported and prepared in accordance with GAAP.  EBITDA means net income before (a) interest expense, (b) expensing of previously capitalized interest included in costs of home sales, (c) income taxes and (d) depreciation and amortization. Adjusted EBITDA means EBITDA before (e) amortization of stock-based compensation, (f) impairments and lot option abandonments and (g) restructuring charges. Other companies may calculate EBITDA and Adjusted EBITDA (or similarly titled measures) differently. We believe EBITDA and Adjusted EBITDA are useful measures of the Company's ability to service debt and obtain financing.

  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
                               
  (in thousands)
Net income available to common stockholders $ 63,680     $ 32,714     $ 106,560     $ 40,907  
Interest expense:              
Interest incurred 21,627     19,931     43,147     38,804  
Interest capitalized (21,627 )   (19,931 )   (43,147 )   (38,804 )
Amortization of interest in cost of sales 19,664     13,185     33,906     22,872  
Provision for income taxes 21,136     19,098     35,796     23,712  
Depreciation and amortization 7,092     877     12,579     1,698  
EBITDA 111,572     65,874     188,841     89,189  
Amortization of stock-based compensation 3,720     3,903     7,190     7,744  
Impairments and lot option abandonments 609     507     857     828  
Restructuring charges     238         441  
Adjusted EBITDA $ 115,901     $ 70,522     $ 196,888     $ 98,202  

 

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