TRI Pointe Group, Inc. Reports 2020 Third Quarter Results

TRI Pointe Group Inc.
27 min read
0
In this article:

-Net New Home Orders up 50% Year-Over-Year-
-Backlog Dollar Value up 39% Year-Over-Year-
-Homebuilding Gross Margin Percentage of 22.1%-
-Diluted Earnings Per Share of $0.61-

IRVINE, Calif., Oct. 22, 2020 (GLOBE NEWSWIRE) -- TRI Pointe Group, Inc. (the “Company”) (NYSE:TPH) today announced results for the third quarter ended September 30, 2020.

“TRI Pointe Group delivered another quarter of outstanding results in the third quarter of 2020, generating year-over-year net order growth of 50% and net income of $78.7 million, or earnings per share of $0.61,” said TRI Pointe Group Chief Executive Officer Doug Bauer. “Our homebuilding operations continue to benefit from extremely strong housing fundamentals, marked by low interest rates, scarcity of new and existing home inventory and highly motivated buyers. We believe these positive drivers will remain in place for the foreseeable future and will serve as tailwinds for our company as we grow our presence across the country.”

Mr. Bauer continued, “The robust demand we experienced in the quarter resulted in pricing power at our communities and allowed us to stay ahead of input cost inflation. As a result, home sales gross margin for the quarter came in at 22.1%, which was higher than we had forecast. The strong closing volumes also led to better operating leverage in the quarter, as evidenced by our SG&A ratio improving by 180 basis points year-over-year. We will continue to balance our growth objectives against our efforts to improve profitability in each of our markets.”

Mr. Bauer concluded, “Equally important are our ongoing efforts to improve returns. We remain focused on ways in which we can be more efficient with our capital and believe we can improve our return profile over time through a combination of better operating leverage, quicker inventory turns and additional share repurchases. We believe these initiatives will drive returns higher and create more value for our shareholders over time.”

Results and Operational Data for Third Quarter 2020 and Comparisons to Third Quarter 2019

  • Net income was $78.7 million, or $0.61 per diluted share, compared to $62.9 million, or $0.44 per diluted share. In the third quarter of 2020, the Company recorded costs related to the early extinguishment and refinancing of the remaining portion of its Senior Notes due 2021 in connection with the issuance of its Senior Notes due 2028 during the second quarter. The current quarter charge incurred was $3.4 million and is included in other (expense) income, net on the Company's consolidated statements of operations. In addition, the Company incurred $54,000 of additional restructuring charges related to a workforce reduction plan that was implemented in the second quarter of 2020. Excluding these items, adjusted net income was $81.3 million, or $0.63 per diluted share, for the third quarter of 2020.*

  • Home sales revenue of $826.0 million compared to $746.3 million, an increase of 11%

    • New home deliveries of 1,303 homes compared to 1,187 homes, an increase of 10%

    • Average sales price of homes delivered of $634,000 compared to $629,000, an increase of 1%

  • Homebuilding gross margin percentage of 22.1% compared to 22.6%, a decrease of 50 basis points

    • Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 25.0%*

  • SG&A expense as a percentage of homes sales revenue of 9.8% compared to 11.6%, a decrease of 180 basis points

  • Net new home orders of 1,933 compared to 1,291, an increase of 50%

  • Active selling communities averaged 134.0 compared to 147.5, a decrease of 9%

    • Net new home orders per average selling community were 14.4 orders (4.8 monthly) compared to 8.8 orders (2.9 monthly)

    • Cancellation rate of 9% compared to 17%

  • Backlog units at quarter end of 3,188 homes compared to 2,312, an increase of 38%

    • Dollar value of backlog at quarter end of $2.1 billion compared to $1.5 billion, an increase of 39%

    • Average sales price of homes in backlog at quarter end of $648,000 compared to $645,000, an increase of 1%

  • Ratios of debt-to-capital and net debt-to-net capital of 37.8% and 27.6%*, respectively, as of September 30, 2020

  • Repurchased 3,662,738 shares of common stock at a weighted average price per share of $16.94 for an aggregate dollar amount of $62.1 million in the three months ended September 30, 2020

  • Ended the third quarter of 2020 with total liquidity of $1.0 billion, including cash and cash equivalents of $493.6 million and $533.2 million of availability under the Company’s unsecured revolving credit facility

* See “Reconciliation of Non-GAAP Financial Measures”

“In keeping with our focus on operational efficiency, we have made the strategic decision to consolidate our homebuilding brands into one unified name – TRI Pointe Homes,” said TRI Pointe Group President and Chief Operating Officer Tom Mitchell. “This change will allow us to concentrate our sales and marketing efforts around one brand instead of six, while also creating a stronger national awareness for our company. Our operational mantra of leveraging the best of big and small, with local expertise and relationships powered by large scale financial resources and technology platforms, will continue to define who we are as a company as we look to the future.”

Outlook

For the fourth quarter of 2020, the Company anticipates delivering between 1,400 and 1,500 homes at an average sales price between $625,000 and $635,000. The Company expects its homebuilding gross margin percentage will be in the range of 20.5% to 21.5% for the fourth quarter of 2020 and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 9.8% to 10.3% during such period. Lastly, the Company expects its effective tax rate for the fourth quarter of 2020 will be in the range of 25.0% to 25.5%.

For the full year, the Company anticipates delivering between 4,900 and 5,000 homes at an average sales price between $625,000 and $630,000. In addition, the Company expects homebuilding gross margin percentage will be in the range of 21.0% to 21.5% for the full year and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 10.8% to 11.2%. Finally, the Company expects its effective tax rate for the full year will be in the range of 24.0% to 24.5%.

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 Thursday, October 22, 2020. The call will be hosted by Doug Bauer, Chief Executive Officer, Tom Mitchell, President and Chief Operating Officer, and Glenn Keeler, Chief Financial Officer. Interested parties can listen to the call live and view the related slides on the Internet under the Events & Presentations heading in the Investors section of the Company’s website at presentation slides on the internet through the Investors 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 toll free at (877) 407-3982, or (201) 493-6780 for international participants. Participants should ask for the TRI Pointe Group Second Quarter 2020 Earnings Conference Call. Those dialing in should do so at least ten minutes prior to the start of the call. A replay of the call will be available for two weeks following the call toll free at (844) 512-2921, or (412) 317-6671 for international participants, using the reference number 13711225. An archive of the webcast will also be available on the Company’s website for a limited time.

About TRI Pointe Group®

Headquartered in Irvine, California, TRI Pointe Group, Inc. (NYSE: TPH) is a family of premium, regional homebuilders that designs, builds, and sells homes in major U.S. markets. As one of the top 10 largest public homebuilding companies based on revenue in the United States, TRI Pointe Group combines the resources, operational sophistication, and leadership of a national organization with the regional insights, community ties, and agility of local homebuilders. The TRI Pointe Group family includes Maracay® in Arizona, Pardee Homes® in California and Nevada, Quadrant Homes® in Washington, Trendmaker® Homes in Texas, TRI Pointe Homes® in California, Colorado and the Carolinas, and Winchester® Homes* in Maryland and Virginia. TRI Pointe Group was named 2019 Builder of the Year by Builder and Developer magazine, recognized in Fortune magazine’s 2017 100 Fastest-Growing Companies list, and garnered the 2015 Builder of the Year Award by Builder magazine. The company was also named one of the Best Places to Work in Orange County by the Orange County Business Journal in 2016, 2017, 2018 and 2019. For more information, please visit 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 effects of the ongoing COVID-19 pandemic, which are highly uncertain and subject to rapid change, cannot be predicted and will depend upon future developments, including the severity and the duration of the outbreak, the duration of existing and future social distancing and shelter-in-place orders, further mitigation strategies taken by applicable government authorities, the availability and efficacy of a vaccine, adequate testing and treatments and the prevalence of widespread immunity to COVID-19; the impacts on our supply chain, the health of our employees, service providers and trade partners, and the reactions of U.S. and global markets and their effects on consumer confidence and spending; the effects 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; the availability of desirable and reasonably priced land and our ability to control, purchase, hold and develop such parcels; access to adequate capital on acceptable terms; geographic concentration of our operations, particularly within California; levels of competition; the successful execution of our internal performance plans, including restructuring and cost reduction initiatives; raw material and labor prices and availability; oil and other energy prices; the effects of U.S. trade policies, including the imposition of tariffs and duties on homebuilding products and retaliatory measures taken by other countries; the effects 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; the risk of loss from acts of war, terrorism, civil unrest or outbreaks of contagious diseases, such as COVID-19; transportation costs; federal and state tax policies; the effects of land use, environment and other governmental laws and 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 homebuyers’ 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:

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 September 30,

Nine Months Ended September 30,

2020

2019

Change

% Change

2020

2019

Change

% Change

Operating Data:

(unaudited)

Home sales revenue

$

826,036

$

746,269

$

79,767

11

%

$

2,187,816

$

1,931,110

$

256,706

13

%

Homebuilding gross margin

$

182,580

$

168,642

$

13,938

8

%

$

470,044

$

357,263

$

112,781

32

%

Homebuilding gross margin %

22.1

%

22.6

%

(0.5

)%

21.5

%

18.5

%

3.0

%

Adjusted homebuilding gross margin %*

25.0

%

25.3

%

(0.3

)%

24.4

%

21.5

%

2.9

%

SG&A expense

$

81,037

$

86,585

$

(5,548

)

(6

)%

$

246,259

$

248,090

$

(1,831

)

(1

)%

SG&A expense as a % of home sales
revenue

9.8

%

11.6

%

(1.8

)%

11.3

%

12.8

%

(1.5

)%

Net income

$

78,682

$

62,861

$

15,821

25

%

$

167,093

$

89,194

$

77,899

87

%

Adjusted net income*

$

81,309

$

62,861

$

18,448

29

%

$

179,168

$

89,194

$

89,974

101

%

Adjusted EBITDA*

$

140,792

$

115,605

$

25,187

22

%

$

329,519

$

207,371

$

122,148

59

%

Interest incurred

$

20,063

$

22,405

$

(2,342

)

(10

)%

$

62,670

$

67,740

$

(5,070

)

(7

)%

Interest in cost of home sales

$

23,495

$

19,240

$

4,255

22

%

$

62,118

$

51,502

$

10,616

21

%

Other Data:

Net new home orders

1,933

1,291

642

50

%

4,926

4,103

823

20

%

New homes delivered

1,303

1,187

116

10

%

3,490

3,126

364

12

%

Average sales price of homes delivered

$

634

$

629

$

5

1

%

$

627

$

618

$

9

1

%

Cancellation rate

9

%

17

%

(8

)%

14

%

16

%

(2

)%

Average selling communities

134.0

147.5

(13.5

)

(9

)%

138.8

147.3

(8.5

)

(6

)%

Selling communities at end of period

126

150

(24

)

(16

)%

Backlog (estimated dollar value)

$

2,067,366

$

1,491,452

$

575,914

39

%

Backlog (homes)

3,188

2,312

876

38

%

Average sales price in backlog

$

648

$

645

$

3

0

%

September 30,

December 31,

2020

2019

Change

% Change

Balance Sheet Data:

(unaudited)

Cash and cash equivalents

$

493,585

$

329,011

$

164,574

50

%

Real estate inventories

$

2,989,377

$

3,065,436

$

(76,059

)

(2

)%

Lots owned or controlled

31,860

30,029

1,831

6

%

Homes under construction (1)

2,777

2,269

508

22

%

Homes completed, unsold

109

343

(234

)

(68

)%

Debt

$

1,333,254

$

1,283,985

$

49,269

4

%

Stockholders’ equity

$

2,198,088

$

2,186,530

$

11,558

0.5

%

Book capitalization

$

3,531,342

$

3,470,515

$

60,827

2

%

Ratio of debt-to-capital

37.8

%

37.0

%

0.8

%

Ratio of net debt-to-net capital*

27.6

%

30.4

%

(2.8

)%

__________
(1) Homes under construction included 73 and 78 models at September 30, 2020 and December 31, 2019, respectively.
* See “Reconciliation of Non-GAAP Financial Measures”



CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

September 30,

December 31,

2020

2019

Assets

(unaudited)

Cash and cash equivalents

$

493,585

$

329,011

Receivables

73,419

69,276

Real estate inventories

2,989,377

3,065,436

Investments in unconsolidated entities

36,880

11,745

Goodwill and other intangible assets, net

159,492

159,893

Deferred tax assets, net

30,752

49,904

Other assets

174,060

173,425

Total assets

$

3,957,565

$

3,858,690

Liabilities

Accounts payable

$

94,064

$

66,120

Accrued expenses and other liabilities

332,147

322,043

Loans payable

250,000

250,000

Senior notes

1,083,254

1,033,985

Total liabilities

1,759,465

1,672,148

Commitments and contingencies

Equity

Stockholders’ equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

—

—

Common stock, $0.01 par value, 500,000,000 shares authorized; 126,825,194 and 136,149,633 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

1,268

1,361

Additional paid-in capital

425,753

581,195

Retained earnings

1,771,067

1,603,974

Total stockholders’ equity

2,198,088

2,186,530

Noncontrolling interests

12

12

Total equity

2,198,100

2,186,542

Total liabilities and equity

$

3,957,565

$

3,858,690




CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Homebuilding:

Home sales revenue

$

826,036

$

746,269

$

2,187,816

$

1,931,110

Land and lot sales revenue

3,242

607

3,462

6,819

Other operations revenue

634

618

1,900

1,853

Total revenues

829,912

747,494

2,193,178

1,939,782

Cost of home sales

643,456

577,627

1,717,772

1,573,847

Cost of land and lot sales

3,214

495

3,790

7,552

Other operations expense

624

609

1,872

1,826

Sales and marketing

44,714

47,834

132,545

133,888

General and administrative

36,323

38,751

113,714

114,202

Restructuring charges

54

—

5,603

—

Homebuilding income from operations

101,527

82,178

217,882

108,467

Equity in loss of unconsolidated entities

106

18

67

(33

)

Other (expense) income, net

(3,120

)

325

(9,075

)

6,719

Homebuilding income before income taxes

98,513

82,521

208,874

115,153

Financial Services:

Revenues

2,552

901

6,442

1,959

Expenses

1,334

817

3,698

1,765

Equity in income of unconsolidated entities

3,273

2,114

7,761

4,861

Financial services income before income taxes

4,491

2,198

10,505

5,055

Income before income taxes

103,004

84,719

219,379

120,208

Provision for income taxes

(24,322

)

(21,858

)

(52,286

)

(31,014

)

Net income

$

78,682

$

62,861

$

167,093

$

89,194

Earnings per share

Basic

$

0.61

$

0.45

$

1.27

$

0.63

Diluted

$

0.61

$

0.44

$

1.27

$

0.63

Weighted average shares outstanding

Basic

128,941,901

141,088,381

131,190,301

141,729,759

Diluted

129,515,114

141,533,546

131,672,652

142,128,786




MARKET DATA BY REPORTING SEGMENT & STATE
(dollars in thousands)
(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

Reporting Segment:

Maracay

170

$

559

138

$

513

475

$

534

318

$

522

Pardee Homes

368

680

461

698

987

680

1,028

634

Quadrant Homes

78

927

56

880

170

897

167

976

Trendmaker Homes

235

454

224

459

698

464

628

462

TRI Pointe Homes

292

694

226

685

810

701

749

693

Winchester Homes

160

619

82

569

350

626

236

599

Total

1,303

$

634

1,187

$

629

3,490

$

627

3,126

$

618

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

New
Homes
Delivered

Average
Sales
Price

State:

Arizona

170

$

559

138

$

513

475

$

534

318

$

522

California

481

726

494

758

1,310

740

1,230

705

Colorado

47

625

62

576

166

593

215

564

Maryland

98

578

66

467

228

567

172

493

Nevada

132

563

131

509

321

534

332

551

Texas

235

454

224

459

698

628

628

462

Virginia

62

684

16

992

122

736

64

885

Washington

78

927

56

880

170

167

167

976

Total

1,303

$

634

1,187

$

629

3,490

$

627

3,126

$

618


MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

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

Reporting Segment:

Maracay

244

18.7

157

15.5

646

17.4

571

14.0

Pardee Homes

696

40.0

424

43.0

1,594

41.5

1,379

43.9

Quadrant Homes

78

8.5

68

6.8

309

8.2

210

6.9

Trendmaker Homes

318

30.5

192

37.0

757

30.3

682

38.1

TRI Pointe Homes

422

25.3

293

29.7

1,163

29.2

882

29.7

Winchester Homes

175

11.0

157

15.5

457

12.2

379

14.7

Total

1,933

134.0

1,291

147.5

4,926

138.8

4,103

147.3

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

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

State:

Arizona

244

18.7

157

15.5

646

17.4

571

14.0

California

895

45.2

526

53.0

2,157

51.1

1,659

53.8

Colorado

72

4.3

50

6.0

181

4.2

187

6.4

Maryland

131

8.0

87

10.8

334

8.8

255

10.2

Nevada

145

15.5

141

13.7

413

15.3

415

13.4

South Carolina

6

0.3

—

—

6

0.1

—

—

Texas

318

30.5

192

37.0

757

30.3

682

38.1

Virginia

44

3.0

70

4.7

123

3.4

124

4.5

Washington

78

8.5

68

6.8

309

8.2

210

6.9

Total

1,933

134.0

1,291

147.5

4,926

138.8

4,103

147.3


MARKET DATA BY REPORTING SEGMENT & STATE, continued
(dollars in thousands)
(unaudited)

As of September 30, 2020

As of September 30, 2019

Backlog
Units

Backlog
Dollar
Value

Average
Sales
Price

Backlog
Units

Backlog
Dollar
Value

Average
Sales
Price

Reporting Segment:

Maracay

501

$

317,887

$

635

404

$

218,424

$

541

Pardee Homes

1,067

696,520

653

753

542,370

720

Quadrant Homes

228

222,394

975

89

77,426

870

Trendmaker Homes

404

184,507

457

367

184,563

503

TRI Pointe Homes

682

461,574

677

451

306,337

679

Winchester Homes

306

184,484

603

248

162,332

655

Total

3,188

$

2,067,366

$

648

2,312

$

1,491,452

$

645

As of September 30, 2020

As of September 30, 2019

Backlog
Units

Backlog
Dollar
Value

Average
Sales
Price

Backlog
Units

Backlog
Dollar
Value

Average
Sales
Price

State:

Arizona

501

$

317,887

$

635

404

$

218,424

$

541

California

1,399

941,768

673

885

669,724

757

Colorado

115

65,576

570

116

65,469

564

Maryland

223

122,133

548

144

75,251

523

Nevada

229

148,899

650

203

113,514

559

South Carolina

6

1,851

309

—

—

—

Texas

404

184,507

457

367

184,563

503

Virginia

83

62,351

751

104

87,081

837

Washington

228

222,394

975

89

77,426

870

Total

3,188

$

2,067,366

$

648

2,312

$

1,491,452

$

645


MARKET DATA BY REPORTING SEGMENT & STATE, continued
(unaudited)

September 30,

December 31,

2020

2019

Lots Owned or Controlled(1):

Maracay

3,817

3,730

Pardee Homes

13,706

13,267

Quadrant Homes

932

1,103

Trendmaker Homes

4,445

4,034

TRI Pointe Homes

7,300

6,170

Winchester Homes

1,660

1,725

Total

31,860

30,029

September 30,

December 31,

2020

2019

Lots Owned or Controlled(1):

Arizona

3,817

3,730

California

14,544

14,677

Colorado

1,198

1,033

Maryland

1,000

1,140

Nevada

2,445

2,026

North Carolina

2,708

1,590

South Carolina

111

111

Texas

4,445

4,034

Virginia

660

585

Washington

932

1,103

Total

31,860

30,029

September 30,

December 31,

2020

2019

Lots by Ownership Type:

Lots owned

22,197

22,845

Lots controlled(1)

9,663

7,184

Total

31,860

30,029

__________
(1) As of September 30, 2020 and December 31, 2019, 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 September 30,

2020

%

2019

%

(dollars in thousands)

Home sales revenue

$

826,036

100.0

%

$

746,269

100.0

%

Cost of home sales

643,456

77.9

%

577,627

77.4

%

Homebuilding gross margin

182,580

22.1

%

168,642

22.6

%

Add: interest in cost of home sales

23,495

2.8

%

19,240

2.6

%

Add: impairments and lot option abandonments

315

0.0

%

1,029

0.1

%

Adjusted homebuilding gross margin

$

206,390

25.0

%

$

188,911

25.3

%

Homebuilding gross margin percentage

22.1

%

22.6

%

Adjusted homebuilding gross margin percentage

25.0

%

25.3

%


Nine Months Ended September 30,

2020

%

2019

%

Home sales revenue

$

2,187,816

100.0

%

$

1,931,110

100.0

%

Cost of home sales

1,717,772

78.5

%

1,573,847

81.5

%

Homebuilding gross margin

470,044

21.5

%

357,263

18.5

%

Add: interest in cost of home sales

62,118

2.8

%

51,502

2.7

%

Add: impairments and lot option abandonments

2,044

0.1

%

6,519

0.3

%

Adjusted homebuilding gross margin(1)

$

534,206

24.4

%

$

415,284

21.5

%

Homebuilding gross margin percentage

21.5

%

18.5

%

Adjusted homebuilding gross margin percentage(1)

24.4

%

21.5

%


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.

September 30, 2020

December 31, 2019

Loans payable

$

250,000

$

250,000

Senior notes

1,083,254

1,033,985

Total debt

1,333,254

1,283,985

Stockholders’ equity

2,198,088

2,186,530

Total capital

$

3,531,342

$

3,470,515

Ratio of debt-to-capital(1)

37.8

%

37.0

%

Total debt

$

1,333,254

$

1,283,985

Less: Cash and cash equivalents

(493,585

)

(329,011

)

Net debt

839,669

954,974

Stockholders’ equity

2,198,088

2,186,530

Net capital

$

3,037,757

$

3,141,504

Ratio of net debt-to-net capital(2)

27.6

%

30.4

%

__________
(1) The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt by the sum of total debt plus stockholders’ equity.
(2) The ratio of net debt-to-net capital is computed as the quotient obtained by dividing net debt (which is total debt less cash and cash equivalents) by the sum of net debt plus stockholders’ 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, (g) early loan termination costs and (h) 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 September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(in thousands)

Net income

$

78,682

$

62,861

$

167,093

$

89,194

Interest expense:

Interest incurred

20,063

22,405

62,670

67,740

Interest capitalized

(20,063

)

(22,405

)

(62,670

)

(67,740

)

Amortization of interest in cost of sales

23,538

19,234

62,166

51,674

Provision for income taxes

24,322

21,858

52,286

31,014

Depreciation and amortization

7,020

6,795

19,196

18,356

EBITDA

133,562

110,748

300,741

190,238

Amortization of stock-based compensation

3,477

3,828

10,888

10,614

Impairments and lot option abandonments

315

1,029

2,044

6,519

Early loan termination costs

3,384

—

10,243

—

Restructuring charges

54

—

5,603

—

Adjusted EBITDA

$

140,792

$

115,605

$

329,519

$

207,371


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

The following table contains information about our operating results reflecting certain adjustments to income before income taxes, provision for income taxes, net income, net income available to common stockholders and earnings per share (diluted). We believe reflecting these adjustments is useful to investors in understanding our recurring operations by eliminating the varying effects of certain non-routine events, and may be helpful in comparing the Company to other homebuilders to the extent they provide similar information.

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

As Reported

Adjustments

Adjusted

As Reported

Adjustments

Adjusted

(in thousands, except per share amounts)

Income before income taxes

$

103,004

$

3,438

(1

)

$

106,442

$

219,379

$

15,846

(1

)

$

235,225

Provision for income taxes

(24,322

)

(811

)

(2

)

(25,133

)

(52,286

)

(3,771

)

(2

)

(56,057

)

Net income

$

78,682

$

2,627

$

81,309

$

167,093

$

12,075

$

179,168

Earnings per share

Diluted

$

0.61

$

0.63

$

1.27

$

1.36

Weighted average shares outstanding

Diluted

129,515

129,515

131,673

131,673

Effective tax rate

23.6

%

23.6

%

23.8

%

23.8

%

_________
(1) Includes (i) a $3.4 million and $10.2 million charge for the three and nine months ended September 30, 2020, respectively, related to the early extinguishment of a portion of our Senior Notes due 2021, which is included in other (expense) income, net on our consolidated statements of operations, and (ii) a $56,000 and $5.6 million charge for the three and nine months ended September 30, 2020, related to restructuring charges stemming from a workforce reduction plan.
(2) Includes a tax adjustment to reflect the higher pretax earnings associated with the aforementioned adjustments.


Advertisement

Recommended Stories