Market Overview

The New Home Company Reports 2018 Second Quarter Results

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– Net new orders up 98% –
– Backlog units up 66% –

Homes sales revenue up 21% to $117.5 million –

– Deliveries
up 52% –

The New Home Company Inc. (NYSE:NWHM) today announced results for the
2018 second quarter.

Second Quarter 2018 Highlights Compared to Second Quarter 2017

  • Total revenues of $155.6 million vs. $144.1 million
  • Home sales revenue of $117.5 million, up 21%; deliveries up 52%
  • Net new home orders up 98%
  • Backlog units up 66%
  • Ending community count up 122%

"During the 2018 second quarter, we enjoyed a solid spring selling
season with net new orders nearly doubling over the prior period," said
Larry Webb, Chief Executive Officer of The New Home Company. "Our order
growth benefited from a 100% increase in average active selling
communities, resulting in a 66% increase in backlog units, and has
positioned us well for the second half of the year."

Mr. Webb continued, "Homes sales revenue rose 21% during the quarter
thanks to a 52% increase in home deliveries reflecting our continued
growth and diversification into more affordable price points. The 2018
second quarter also included home orders and deliveries from our first
Inland Empire community in Southern California, a new market that we
expect to become a meaningful part of our business. We continue to
expand our investments in California and Arizona where strong housing
fundamentals continue and our wholly owned lot count grew by 77% over
the prior year."

Mr. Webb concluded, "We remain confident in our Company's strategy and
long-term outlook as evidenced by the commencement of our stock
repurchase plan during the quarter. As we enter the second half of the
year, I am excited about the opportunities for our business and look
forward to delivering on our growth and strategic objectives for 2018
and beyond."

Second Quarter 2018 Operating Results

Total revenues for the 2018 second quarter were $155.6 million, compared
to $144.1 million in the prior year period. The net income attributable
to the Company was $115,000, or $0.01 per diluted share, compared to net
income of $1.5 million, or $0.07 per diluted share in the prior year
period. The year-over-year decrease in net income was primarily
attributable to a 140 basis point increase in selling and marketing
expenses as a percentage of home sales revenue, a 100 basis point
decline in home sales gross margin, and a decrease in fee building
revenues and joint venture income. These items were partially offset by
a 21% increase in home sales revenue and a 70 basis point decrease in
general and administrative expenses as a percentage of homes sales
revenue.

Wholly Owned Projects

Home sales revenue for the 2018 second quarter increased 21% to $117.5
million, compared to $96.9 million in the prior year period. The
increase in home sales revenue was driven by a 52% increase in
deliveries, which was partially offset by a 20% lower average selling
price of homes delivered to $1.2 million due to the strategic initiative
to expand our portfolio to include more affordably-priced product and
grow community count.

Gross margin from home sales for the 2018 second quarter was 12.6% as
compared to 13.6% in the prior year period. The 100 basis point decline
in home sales gross margin was primarily due to a product mix shift and
higher interest costs. In addition, the 2017 second quarter included a
$1.3 million impairment charge compared to no impairments in the 2018
period. The mix shift included three lower margin close-out communities
in Southern California in the 2018 second quarter, while the 2017 second
quarter was positively impacted by deliveries from two higher-margin
communities in Newport Coast, CA and one community in the Bay Area.
Adjusted gross margin from home sales for the 2018 second quarter,
excluding impairments and interest in cost of home sales, was 15.8%*
compared to 16.7%* in the prior year period.

Our SG&A expense ratio as a percentage of home sales revenue for the
2018 second quarter was 13.1% versus 12.4% in the prior year period. The
70 basis point increase in the SG&A rate was primarily due to higher
selling and marketing costs related to the ramp up of new communities
and higher co-broker commissions. These items were partially offset by a
lower G&A rate primarily due to higher revenues.

Net new home orders for the 2018 second quarter increased 98% to 194
homes, compared to 98 homes in the prior year period. The increase was
primarily driven by a 100% increase in average selling communities
during the quarter. The Company's monthly sales absorption rate for the
2018 second quarter was 3.2 sales per average selling community versus
3.3 in the 2017 period. The Company's ending active selling community
count was up 122% as of the 2018 second quarter at 20 as compared to
nine at the year ago period end. The Company's cancellation rate for the
2018 second quarter remained at the lower end of the industry at 6% as
compared to 10% in the prior year period.

The dollar value of the Company's wholly owned backlog at the end of the
2018 second quarter was $290.9 million and totaled 307 homes, compared
to $339.4 million and 185 homes in the prior year period. The decrease
in backlog dollar value resulted from a 48% lower average selling price
of homes in backlog at $948,000 as compared to $1.8 million a year ago.
The year-over-year decline in the Company's average selling price of
homes in backlog was driven primarily by the mix of homes in backlog in
Southern California as we expand our product offerings to include more
affordably-priced communities. The 2017 second quarter backlog included
homes from two higher-priced luxury communities located in Newport
Coast, CA that closed out in 2017.

Fee Building Projects

Fee building revenue for the 2018 second quarter was $38.1 million,
compared to $47.2 million in the prior year period. The decline was
primarily due to a decrease in fee building construction activity. Our
fee building gross margin was $1.1 million compared to $1.3 million in
the prior year period largely as a result of lower fee building revenue.
Management fees from joint ventures were $0.7 million during the 2018
second quarter, compared to $1.2 million in the prior year period.

Unconsolidated Joint Ventures (JVs)

The Company's share of joint venture loss was $0.1 million for the 2018
second quarter, down from $0.2 million of income in the prior year
period. The following sets forth supplemental information about the
Company's joint ventures. Such information is not included in the
Company's financial data for GAAP purposes but is provided for
informational purposes.

Joint venture net loss totaled $0.3 million, compared to a net loss of
$0.7 million in the prior year period. Joint venture home sales revenue
totaled $29.9 million, compared to $34.2 million in the prior year
period, while joint venture land sales revenue totaled $3.9 million for
the 2018 second quarter, compared to $0.9 million in the prior year
period.

At the end of the 2018 second quarter, our joint ventures had seven
actively selling communities, compared to eight at the end of the 2017
second quarter. Net new home orders from joint ventures for the 2018
second quarter decreased 22% to 42 homes as compared to 54 homes in the
prior year period. The dollar value of homes in backlog from joint
ventures at the end of each the 2018 and 2017 second quarters was $70.9
million from 90 homes.

Income Taxes

The Company recorded a $0.1 million income tax provision for the 2018
second quarter, compared to a provision of $1.0 million in the prior
year period. The Company's effective tax rate was 36.8%, 24.7%* before
discrete items, as compared to 39.4%, 38.0%* before discrete items, in
the 2017 second quarter. The year-over-year decrease in rate before
discrete items was the result of the Tax Cuts and Jobs Act enacted in
December 2017 that reduced the corporate federal tax rate from a maximum
of 35% to a flat 21%, effective for 2018.

Balance Sheet and Liquidity

As of June 30, 2018, the Company had real estate inventories totaling
$469.7 million, of which $386.4 million represented work-in-process and
completed homes (including models), $43.4 million in land and land under
development, and $40.0 million in land deposits and pre-acquisition
costs. The Company owned or controlled 3,227 lots through its wholly
owned operations (excluding fee building and joint venture lots), of
which 2,109 lots, or 65%, were controlled through option contracts. The
Company ended the 2018 second quarter with $90.8 million in cash and
cash equivalents and $354.4 million in debt, of which $35.0 million was
outstanding under its $200 million revolving credit facility. As of June
30, 2018, the Company had a debt-to-capital ratio of 57.8% and a net
debt-to-capital ratio of 50.4%*.

Stock Repurchase

During the 2018 second quarter, the Company repurchased 205,240 shares
of common stock for approximately $2.1 million, or an average price of
$10.08 per share, under its previously announced stock repurchase plan.
Under the repurchase program, the Company may repurchase its common
stock with an aggregate value of up to $15 million.

Guidance

The Company's current estimate for full year guidance for 2018 is as
follows:

  • Home sales revenue of $580 - $620 million
  • Fee building revenue of $140 - $160 million
  • Home sales gross margin of 14.2% - 14.7%
  • Income from unconsolidated joint ventures of $0.5 million - $1.0
    million
  • Wholly owned active year-end community count of 18
  • Joint venture active year-end community count of 6

The Company's current estimate for the 2018 third quarter is as follows:

  • Home sales revenue of $110 - $130 million
  • Fee building revenue of $20 - $30 million
  • Income from unconsolidated joint ventures of $0.1 million
  • Wholly owned active quarter-end community count of 19
  • Joint venture active quarter-end community count of 7

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 Friday,
August 3, 2018, to review second quarter results, discuss recent events
and results, and discuss the Company's updated full year and certain
quarterly guidance for 2018. 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 September 3, 2018, and
can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671
(international) and entering the pass code 13681376.

* Adjusted homebuilding gross margin percentage (or homebuilding gross
margin excluding impairments and interest in cost of sales), effective
tax rate before discrete items 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."

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.

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 our revenues, community counts and openings, the
timing and success of specific projects, our ability to execute our
strategic growth objectives, gross margins, other projected results,
income, earnings per share and capital spending. Our forward-looking
statements are generally accompanied by words such as "estimate,"
"should," "project," "predict," "believe," "expect," "intend,"
"anticipate," "potential," "plan," "goal," "will," "guidance," "target,"
"forecast," 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; our
significant amount of debt and the impact of restrictive covenants in
our debt agreements; our ability to repay our debt as it comes due;
changes in our credit rating or outlook; 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;
adverse weather conditions and natural disasters (including wild fires);
issues concerning our joint venture partnerships; the cost and
availability of insurance and surety bonds; governmental regulation,
including the impact of "slow growth" or similar initiatives; 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; delays in the land entitlement process,
development, construction, or the opening of new home communities;
litigation and warranty claims; the degree and nature of competition;
the impact of recent accounting standards; 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,
2018       2017 2018       2017
(Dollars in thousands, except per share amounts)
Revenues:
Home sales $ 117,460 $ 96,929 $ 196,897 $ 166,335
Fee building, including management fees from unconsolidated joint
ventures of $672, $1,217, $1,652 and $2,431, respectively
38,095   47,181   81,889   102,798  
155,555   144,110   278,786   269,133  
Cost of Sales:
Home sales 102,678 82,488 172,372 142,553
Home sales impairments 1,300 1,300
Fee building 37,038   45,899   79,737   99,825  
139,716 129,687 252,109 243,678
Gross Margin:
Home sales 14,782 13,141 24,525 22,482
Fee building 1,057   1,282   2,152   2,973  
15,839 14,423 26,677 25,455
 
Selling and marketing expenses (9,466 ) (6,376 ) (16,105 ) (11,377 )
General and administrative expenses (5,979 ) (5,595 ) (11,998 ) (10,685 )
Equity in net income (loss) of unconsolidated joint ventures (120 ) 201 215 507
Other income (expense), net (92 ) (148 ) (118 ) (35 )
Pretax income (loss) 182 2,505 (1,329 ) 3,865
(Provision) benefit for income taxes (67 ) (988 ) 793   (1,512 )
Net income (loss) 115 1,517 (536 ) 2,353
Net loss attributable to non-controlling interest     11   10  
Net income (loss) attributable to The New Home Company Inc. $ 115   $ 1,517   $ (525 ) $ 2,363  
 
Earnings (loss) per share attributable to The New Home Company Inc.:
Basic $ 0.01 $ 0.07 $ (0.03 ) $ 0.11
Diluted $ 0.01 $ 0.07 $ (0.03 ) $ 0.11
Weighted average shares outstanding:
Basic 20,958,991 20,869,429 20,942,601 20,819,288
Diluted 21,024,769 20,956,723 20,942,601 20,921,150
 
 
                       

CONSOLIDATED BALANCE SHEETS

 
June 30, December 31,
2018 2017
(Dollars in thousands, except per share amounts)
(Unaudited)
Assets
Cash and cash equivalents $ 90,758 $ 123,546
Restricted cash 567 424
Contracts and accounts receivable 20,370 23,224
Due from affiliates 212 1,060
Real estate inventories 469,738 416,143
Investment in and advances to unconsolidated joint ventures 58,501 55,824
Other assets 25,864   24,291
Total assets $ 666,010   $ 644,512
 
Liabilities and equity
Accounts payable $ 28,978 $ 23,722
Accrued expenses and other liabilities 23,796 38,054
Unsecured revolving credit facility 35,000
Senior notes, net 319,402   318,656
Total liabilities 407,176   380,432
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,
20,855,778 and 20,876,837, shares issued and outstanding as of June
30, 2018 and December 31, 2017, respectively
209 209
Additional paid-in capital 198,234 199,474
Retained earnings 60,312   64,307
Total stockholders' equity 258,755 263,990
Non-controlling interest in subsidiary 79   90
Total equity 258,834   264,080
Total liabilities and equity $ 666,010   $ 644,512
 
 
             

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Six Months Ended
June 30,
2018           2017
(Dollars in thousands)
Operating activities:
Net income (loss) $ (536 ) $ 2,353
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Deferred taxes (1,481 ) (54 )
Amortization of equity based compensation 1,704 1,306
Distributions of earnings from unconsolidated joint ventures 715 1,588
Inventory impairments 1,300
Abandoned project costs 43 206
Equity in net income of unconsolidated joint ventures (215 ) (507 )
Deferred profit from unconsolidated joint ventures 136 497
Depreciation and amortization 2,646 236
Net changes in operating assets and liabilities:
Contracts and accounts receivable 2,854 9,573
Due from affiliates 788 (671 )
Real estate inventories (53,108 ) (74,407 )
Other assets (6,095 ) (2,900 )
Accounts payable 5,256 1,160
Accrued expenses and other liabilities (14,217 ) (11,588 )
Net cash used in operating activities (61,510 ) (71,908 )
Investing activities:
Purchases of property and equipment (184 ) (95 )
Cash assumed from joint venture at consolidation 995
Contributions and advances to unconsolidated joint ventures (8,954 ) (8,517 )
Distributions of capital and repayment of advances from
unconsolidated joint ventures
5,874 2,948
Interest collected on advances to unconsolidated joint ventures 178    
Net cash used in investing activities (3,086 ) (4,669 )
Financing activities:
Borrowings from credit facility 35,000 72,000
Repayments of credit facility (190,000 )
Proceeds from senior notes 324,465
Payment of debt issuance costs (6,440 )
Repurchases of common stock (2,072 )
Tax withholding paid on behalf of employees for stock awards (977 ) (584 )
Proceeds from exercise of stock options   102  
Net cash provided by financing activities 31,951   199,543  
Net (decrease) increase in cash, cash equivalents and restricted cash (32,645 ) 122,966
Cash, cash equivalents and restricted cash – beginning of period 123,970   31,081  
Cash, cash equivalents and restricted cash – end of period $ 91,325   $ 154,047  
 
 
                                   

KEY FINANCIAL AND OPERATING DATA

(Dollars in thousands)

(Unaudited)

 
New Home Deliveries:
      Three Months Ended June 30,
2018 2017 % Change
Homes      

Dollar

Value

     

Average

Price

Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

Southern California 61 $ 87,278 $ 1,431 27 $ 67,279 $ 2,492 126 % 30 % (43 )%
Northern California 36   30,182   838 37   29,650   801 (3 )% 2 % 5 %
Total 97   $ 117,460   $ 1,211 64   $ 96,929   $ 1,515 52 % 21 % (20 )%
 
Six Months Ended June 30,
2018 2017 % Change
Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

Homes

Dollar

Value

Average

Price

Southern California 105 $ 131,858 $ 1,256 49 $ 111,202 $ 2,269 114 % 19 % (45 )%
Northern California 76   65,039   856 69   55,133   799 10 % 18 % 7 %
Total 181   $ 196,897   $ 1,088 118   $ 166,335   $ 1,410 53 % 18 % (23 )%
 
                Three Months Ended June 30,       Six Months Ended June 30,
2018       2017       % Change 2018       2017       % Change
Net New Home Orders:
Southern California 104 44 136 % 173 100 73 %
Northern California 77 54 43 % 147 124 19 %
Arizona 13     NA 15     NA
194   98   98 % 335   224   50 %
 
Selling Communities at End of Period:
Southern California 11 6 83 %
Northern California 7 3 133 %
Arizona 2     NA
20   9   122 %
 
Average Selling Communities 20 10 100 % 19 13 46 %
 
Backlog:       As of June 30,
2018       2017       % Change
Homes      

Dollar

Value

     

Average

Price

Homes      

Dollar

Value

     

Average

Price

Homes      

Dollar

Value

     

Average

Price

Southern California 139 $ 141,718 $ 1,020 99 $ 278,513 $ 2,813 40 % (49 )% (64 )%
Northern California 153 131,859 862 86 60,899 708 78 % 117 % 22 %
Arizona 15   17,354   1,157     NA NA NA
Total 307   $ 290,931   $ 948 185   $ 339,412   $ 1,835 66 % (14 )% (48 )%
 
Lots Owned and Controlled:                 As of June 30,
2018       2017       % Change
Lots Owned
Southern California 505 402 26 %
Northern California 314 285 10 %
Arizona 299     NA
Total 1,118   687   63 %

Lots Controlled(1)

Southern California 807 564 43 %
Northern California 959 303 217 %
Arizona 343   267   28 %
Total 2,109   1,134   86 %
Lots Owned and Controlled - Wholly Owned 3,227 1,821 77 %

Fee Building(2)

1,078   1,043   3 %
Total Lots Owned and Controlled 4,305   2,864   50 %
 
(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,
2018           2017
Interest incurred $ 13,328 $ 8,437
Adjusted EBITDA(1) $ 10,127 $ 11,265

Adjusted EBITDA margin percentage(1)

3.6 % 4.2 %
 
LTM(2) Ended June 30
2018 2017
 
Interest incurred $ 26,869 $ 12,951
Adjusted EBITDA(1) $ 49,007 $ 50,393

Adjusted EBITDA margin percentage(1)

6.4 % 6.5 %
Ratio of Adjusted EBITDA to total interest incurred(1) 1.8 x

3.9

x

 
June 30, December 31,
2018 2017
Ratio of debt-to-capital 57.8 % 54.7 %
Ratio of net debt-to-capital(1) 50.4 % 42.4 %
Ratio of debt to LTM(2) Adjusted EBITDA(1)

7.2

x

6.4 x
Ratio of net debt to LTM(2) Adjusted EBITDA(1)

5.4

x

3.9

x

Ratio of cash and inventory to debt

1.6

x

1.7

x

 
(1)     Adjusted EBITDA, Adjusted EBITDA margin percentage, ratio of
Adjusted EBITDA to total interest incurred, ratio of net
debt-to-capital, ratio of debt to LTM Adjusted EBITDA and ratio of
net debt to LTM Adjusted EBITDA 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,
2018       2017       % Change 2018       2017       % Change

Financial Data – Unconsolidated Joint Ventures:

Home sales revenue $ 29,938 $ 34,240 (13 )% $ 61,178 $ 59,386 3 %
Land sales revenue 3,941   931   323 % 4,714   2,405   96 %
Total revenue $ 33,879   $ 35,171   (4 )% $ 65,892   $ 61,791   7 %
Net income (loss) $ (286 ) $ (654 ) 56 % $ 518   $ (1,518 ) 134 %
 

Operating Data – Unconsolidated Joint Ventures:

New home orders 42 54 (22 )% 78 93 (16 )%
New homes delivered 36 33 9 % 68 65 5 %
Average selling price of homes delivered $ 832 $ 1,038 (20 )% $ 900 $ 914 (2 )%
 
Selling communities at end of period 7 8 (13 )%
Backlog homes (dollar value) $ 70,851 $ 70,941 %
Backlog (homes) 90 90 %
Average sales price of backlog $ 787 $ 788 %
 
Homebuilding lots owned and controlled 273 520 (48 )%
Land development lots owned and controlled 2,305   2,415   (5 )%
Total lots owned and controlled 2,578   2,935   (12 )%
 
 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

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. 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,
2018       %       2017       % 2018       %       2017       %
(Dollars in thousands)
 
Home sales revenue $ 117,460 100.0 % $ 96,929 100.0 % $ 196,897 100.0 % $ 166,335 100.0 %
Cost of home sales 102,678   87.4 % 83,788   86.4 % 172,372   87.5 % 143,853   86.5 %
Homebuilding gross margin 14,782 12.6 % 13,141 13.6 % 24,525 12.5 % 22,482 13.5 %
Add: Home sales impairments   % 1,300   1.3 %   % 1,300   0.8 %
Homebuilding gross margin before impairments 14,782 12.6 % 14,441 14.9 % 24,525 12.5 % 23,782 14.3 %
Add: Interest in cost of home sales 3,750   3.2 % 1,720   1.8 % 6,514   3.3 % 3,271   2.0 %
Adjusted homebuilding gross margin $ 18,532   15.8 % $ 16,161   16.7 % $ 31,039   15.8 % $ 27,053   16.3 %
 

The following table reconciles the Company's effective tax rate
calculated in accordance with GAAP to the non-GAAP measure, effective
tax rate before discrete items. The Tax Cuts and Jobs Act enacted in
December 2017 cut Federal corporate income tax rates effective for 2018,
and we believe removing the impact of the discrete items is relevant to
provide investors with an understanding of the impact the tax cuts had
on earnings.

      Three Months Ended June 30,       Six Months Ended June 30,
2018       2017 2018       2017
(Dollars in thousands)
Effective tax rate for The New Home Company Inc.:
Pretax income (loss) $ 182 $ 2,505 $ (1,329 ) $ 3,865
(Provision) benefit for income taxes $ (67 ) $ (988 ) $ 793 $ (1,512 )

Effective tax rate(1)

36.8 % 39.4 % 59.7 % 39.1 %
 
Effective tax rate for The New Home Company Inc. before discrete
items:
(Provision) benefit for income taxes $ (67 ) $ (988 ) $ 793 $ (1,512 )
Adjustment for discrete items 22   36   (394 ) 40  
(Provision) benefit for income taxes before discrete items $ (45 ) $ (952 ) $ 399   $ (1,472 )
Effective tax rate for The New Home Company Inc. before discrete
items(1)
24.7 % 38.0 % 30.0 % 38.1 %
 

(1)

   

Effective tax rate is computed by dividing the (provision) benefit
for income taxes by pretax income (loss).

 

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

Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of
Adjusted EBITDA to total interest incurred, the ratio of debt to
Adjusted EBITDA, and the ratio of net debt to Adjusted EBITDA 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)
noncash 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. The ratio of debt to Adjusted EBITDA is calculated by
dividing debt at the period end by Adjusted EBITDA for a given period.
The ratio of net debt to Adjusted EBITDA is calculated by dividing debt
at the period end less cash, cash equivalents and restricted cash by
Adjusted EBITDA 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 to Adjusted EBITDA, Adjusted EBITDA margin percentage, the
ratio of Adjusted EBITDA to total interest incurred, the ratio of debt
to Adjusted EBITDA, and the ratio of net debt to Adjusted EBITDA is
provided in the following table.

      Six Months Ended       LTM(1) Ended       Year Ended
June 30, June 30, December 31,
2018       2017 2018       2017 2017
(Dollars in thousands)
 
Net income (loss) $ (536 ) $ 2,353 $ 14,252 $ 21,704 $ 17,141
Add:
Interest amortized to cost of sales and equity in net income (loss)
of unconsolidated joint ventures
6,563 3,271 14,349 6,891 11,057
Provision (benefit) for income taxes (793 ) 1,512 13,085 13,283 15,390
Depreciation and amortization 2,646 236 2,859 496 449
Amortization of equity-based compensation 1,704 1,306 3,201 3,035 2,803
Cash distributions of income from unconsolidated joint ventures 715 1,588 715 4,235 1,588
Noncash impairments and abandonments 43 1,506 1,120 5,257 2,583
Less:
Gain from notes payable principal reduction (250 )
Equity in net income (loss) of unconsolidated joint ventures (215 ) (507 ) (574 ) (4,258 ) (866 )
Adjusted EBITDA $ 10,127   $ 11,265   $ 49,007   $ 50,393   $ 50,145  
Total Revenue $ 278,786 $ 269,133 $ 760,819 $ 769,485 $ 751,166
Adjusted EBITDA margin percentage 3.6 % 4.2 % 6.4 % 6.5 % 6.7 %
Interest incurred $ 13,328 $ 8,437 $ 26,869 $ 12,951 $ 21,978
Ratio of Adjusted EBITDA to total interest incurred 1.8 x 3.9 x

2.3

x

Total debt at period end $ 354,402 $ 318,121 $ 318,656
Ratio of debt to Adjusted EBITDA 7.2 x 6.3 x 6.4 x
Total net debt at period end $ 263,077 $ 164,074 $ 194,686

Ratio of net debt to Adjusted EBITDA

5.4 x 3.3 x 3.9 x
Total cash and inventory $ 560,496 $ 519,359 $ 539,689
Ratio of cash and inventory to debt

1.6

x

1.6 x

1.7

x

 
(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,
2018 2017
(Dollars in thousands)
 
Total debt, net $ 354,402 $ 318,656
Equity, exclusive of non-controlling interest 258,755   263,990  
Total capital $ 613,157   $ 582,646  
Ratio of debt-to-capital(1) 57.8 % 54.7 %
 
Total debt, net $ 354,402 $ 318,656
Less: cash, cash equivalents and restricted cash 91,325   123,970  
Net debt 263,077 194,686
Equity, exclusive of non-controlling interest 258,755   263,990  
Total capital $ 521,832   $ 458,676  
Ratio of net debt-to-capital(2) 50.4 % 42.4 %
 
(1)     The ratio of debt-to-capital is computed as the quotient obtained by
dividing total debt, net by total capital (the sum of total debt,
net plus equity), exclusive of non-controlling 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,
cash equivalents and restricted cash to the extent necessary to
reduce the debt balance to zero) by total capital, exclusive of
non-controlling 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 debt, 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.
 

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