TRI Pointe Group, Inc. Reports 2018 Third Quarter Results

October 24, 2018

-Home Sales Revenue up 19% on an 8% Increase in Deliveries and a 10% Increase in Average Sales Price-
-Homebuilding Gross Margin Percentage Increased 180 Basis Points to 21.3%-
-Diluted Earnings Per Share of $0.43-
-Repurchased $139.3 million of Common Stock-

IRVINE, Calif., Oct. 24, 2018 (GLOBE NEWSWIRE) --  TRI Pointe Group, Inc. (the "Company") (NYSE: TPH) today announced results for the third quarter ended September 30, 2018.

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

  • Net income available to common stockholders was $64.0 million, or $0.43 per diluted share, compared to $72.3 million, or $0.48 per diluted share
  • Home sales revenue of $771.8 million compared to $648.6 million, an increase of 19%

    --New home deliveries of 1,205 homes compared to 1,111 homes, an increase of 8%

    --Average sales price of homes delivered of $640,000 compared to $584,000, an increase of 10%
  • Homebuilding gross margin percentage of 21.3% compared to 19.5%, an increase of 180 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 10.2%, an increase of 50 basis points
  • New home orders of 1,035 compared to 1,268, a decrease of 18%
  • Active selling communities averaged 127.3 compared to 129.8, a decrease of 2%

    --New home orders per average selling community were 8.1 orders (2.7 monthly) compared to 9.8 orders (3.3 monthly)

    --Cancellation rate increased to 19% compared to 15%
  • Backlog units at quarter end of 2,101 homes compared to 2,265, a decrease of 7%

    --Dollar value of backlog at quarter end of $1.4 billion compared to $1.5 billion, a decrease of 3%

    --Average sales price of homes in backlog at quarter end of $681,000 compared to $654,000, an increase of 4%
  • Ratios of debt-to-capital and net debt-to-net capital of 43.7% and 42.3%*, respectively, as of September 30, 2018

  • Repurchased 9,852,009 shares of common stock at a weighted average price per share of $14.14 for an aggregate dollar amount of $139.3 million in the three months ended September 30, 2018

  • Ended third quarter of 2018 with total liquidity of $569.9 million, including cash of $83.1 million and $486.8 million of availability under the Company's unsecured revolving credit facility

*      See "Reconciliation of Non-GAAP Financial Measures"

“TRI Pointe Group turned in another strong operational performance in the third quarter, highlighted by year-over-year home sales revenue growth of 19% and gross margin expansion of 180 basis points,” said TRI Pointe Group Chief Executive Officer Doug Bauer.  “Our absorption rates did slow in the quarter as compared to the same period last year, which we feel is a natural reaction by buyers confronted by higher mortgage interest rates and higher home prices.  It is important to note that, while not as strong as the same period last year, our overall absorption rate of 2.7 homes per community per month for the quarter was similar to the company's historical third quarter absorption rate in other years.”

Mr. Bauer continued, “We remain focused on the long-term outlook for our company and industry, which we believe is positive given the current strong economic fundamentals and favorable demographic trends.  Our company’s leadership is comprised of industry veterans who know how to compete effectively in challenging demand environments.  We believe this experience, coupled with our strong balance sheet, product differentiation and market positioning makes TRI Pointe Group well positioned for long-term success.”

Third Quarter 2018 Operating Results

Net income available to common stockholders was $64.0 million, or $0.43 per diluted share, for the third quarter of 2018, compared to net income available to common stockholders of $72.3 million, or $0.48 per diluted share, for the third quarter of 2017.  Included in net income available to common stockholders for the third quarter of 2017 was gross margin of $55.4 million related to the sale of a land parcel consisting of 69 homebuilding lots located in the Pacific Highlands Ranch community in San Diego, California.

Home sales revenue increased $123.1 million, or 19%, to $771.8 million for the third quarter of 2018, as compared to $648.6 million for the third quarter of 2017.  The increase was primarily attributable to a 10% increase in the average sales price of homes delivered to $640,000, compared to $584,000 in the third quarter of 2017, and an 8% increase in new home deliveries to 1,205, compared to 1,111 in the third quarter of 2017.

Homebuilding gross margin percentage for the third quarter of 2018 increased to 21.3%, compared to 19.5% for the third 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 third quarter of 2018, compared to 22.0%* for the third quarter of 2017.

Selling, general and administrative ("SG&A") expense for the third quarter of 2018 increased to 10.7% of home sales revenue as compared to 10.2% for the third quarter of 2017, primarily due to higher selling costs related to the timing of new community openings and the adoption of Accounting Standards Update 606, resulting in various sales office, model and other marketing related costs that were previously capitalized to inventory and amortized through cost of home sales being expensed when incurred to selling expense or capitalized to other assets and amortized to selling expense.

New home orders decreased 18% to 1,035 homes for the third quarter of 2018, as compared to 1,268 homes for the same period in 2017.  Average selling communities decreased 2% to 127.3 for the third quarter of 2018 compared to 129.8 for the third quarter of 2017.  The Company’s overall absorption rate per average selling community decreased 17% for the third quarter of 2018 to 8.1 orders (2.7 monthly) compared to 9.8 orders (3.3 monthly) during the third quarter of 2017.

The Company ended the quarter with 2,101 homes in backlog, representing approximately $1.4 billion. The average sales price of homes in backlog as of September 30, 2018 increased $27,000, or 4%, to $681,000, compared to $654,000 as of September 30, 2017.

“We continue to focus on growing our premium lifestyle brand, improving the sales process, and implementing product offerings that are consistent with market demand profiles,” said TRI Pointe Group Chief Operating Officer Tom Mitchell.  “We feel that this focus differentiates us from the competition and leaves us well positioned to compete effectively for home buyers in all markets and product segments.”

* See “Reconciliation of Non-GAAP Financial Measures”

Outlook

For the fourth quarter of 2018, the Company expects to open 19 new communities, and close out of 14, resulting in 130 active selling communities as of December 31, 2018.  In addition, the Company anticipates delivering 80% to 85% of its 2,101 units in backlog as of September 30, 2018 at an average sales price of $640,000.  For the full year, the Company expects to deliver between 5,025 and 5,130 homes at an average sales price of $635,000.  The Company anticipates its homebuilding gross margin percentage will be in a range of 20.0% to 20.5% for the fourth quarter, resulting in a full year range of 21.0% to 21.5%.  Finally, the Company expects its SG&A expense as a percentage of home sales revenue to be in the range of 8.8% to 9.2% for the fourth quarter, resulting in a full year range of 10.1% to 10.5%.

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 Wednesday, October 24, 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 Third 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 #13683227.  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 September 30,   Nine Months Ended September 30,
  2018   2017   Change   2018   2017   Change
Operating Data:                      
Home sales revenue $ 771,768     $ 648,638     $ 123,130     $ 2,123,135     $ 1,609,458     $ 513,677  
Homebuilding gross margin $ 164,715     $ 126,720     $ 37,995     $ 461,484     $ 314,895     $ 146,589  
Homebuilding gross margin % 21.3 %   19.5 %   1.8 %   21.7 %   19.6 %   2.1 %
Adjusted homebuilding gross margin %* 24.0 %   22.0 %   2.0 %   24.3 %   22.0 %   2.3 %
SG&A expense $ 82,963     $ 66,135     $ 16,828     $ 240,287     $ 193,502     $ 46,785  
SG&A expense as a % of home sales
  revenue
10.7 %   10.2 %   0.5 %   11.3 %   12.0 %   (0.7 )%
Net income available to common
  stockholders
$ 63,969     $ 72,264     $ (8,295 )   $ 170,529     $ 113,171     $ 57,358  
Adjusted EBITDA* $ 115,333     $ 139,550     $ (24,217 )   $ 312,221     $ 237,755     $ 74,466  
Interest incurred $ 23,942     $ 22,865     $ 1,077     $ 67,089     $ 61,669     $ 5,420  
Interest in cost of home sales $ 20,128     $ 15,623     $ 4,505     $ 53,926     $ 38,448     $ 15,478  
                       
Other Data:                      
Net new home orders 1,035     1,268     (233 )   3,874     4,012     (138 )
New homes delivered 1,205     1,111     94     3,344     2,940     404  
Average sales price of homes delivered $ 640     $ 584     $ 56     $ 635     $ 547     $ 88  
Cancellation rate 19 %   15 %   4 %   16 %   15 %   1 %
Average selling communities 127.3     129.8     (2.5 )   129.0     127.4     1.6  
Selling communities at end of period 125     127     (2 )            
Backlog (estimated dollar value) $ 1,431,225     $ 1,482,265     $ (51,040 )            
Backlog (homes) 2,101     2,265     (164 )            
Average sales price in backlog $ 681     $ 654     $ 27              
                       
  September 30,   December 31,                
  2018   2017   Change            
Balance Sheet Data:                      
Cash and cash equivalents $ 83,086     $ 282,914     $ (199,828 )            
Real estate inventories $ 3,377,735     $ 3,105,553     $ 272,182              
Lots owned or controlled 28,401     27,312     1,089              
Homes under construction (1) 2,887     1,941     946              
Homes completed, unsold 213     269     (56 )            
Debt $ 1,519,198     $ 1,471,302     $ 47,896              
Stockholders' equity $ 1,960,397     $ 1,929,722     $ 30,675              
Book capitalization $ 3,479,595     $ 3,401,024     $ 78,571              
Ratio of debt-to-capital 43.7 %   43.3 %   0.4 %            
Ratio of net debt-to-net capital* 42.3 %   38.1 %   4.2 %            

__________
(1)                  Homes under construction included 91 and 60 models at September 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)

  September 30,   December 31,
  2018   2017
Assets (unaudited)    
Cash and cash equivalents $ 83,086     $ 282,914  
Receivables 85,026     125,600  
Real estate inventories 3,377,735     3,105,553  
Investments in unconsolidated entities 4,275     5,870  
Goodwill and other intangible assets, net 160,560     160,961  
Deferred tax assets, net 59,113     76,413  
Other assets 107,309     48,070  
Total assets $ 3,877,104     $ 3,805,381  
       
Liabilities      
Accounts payable $ 83,711     $ 72,870  
Accrued expenses and other liabilities 313,194     330,882  
Unsecured revolving credit facility 100,000      
Senior notes 1,419,198     1,471,302  
Total liabilities 1,916,103     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 September 30, 2018 and 
  December 31, 2017, respectively
     
Common stock, $0.01 par value, 500,000,000 shares authorized;
  142,202,313 and 151,162,999 shares issued and outstanding at
  September 30, 2018 and December 31, 2017, respectively
1,422     1,512  
Additional paid-in capital 661,570     793,980  
Retained earnings 1,297,405     1,134,230  
Total stockholders' equity 1,960,397     1,929,722  
Noncontrolling interests 604     605  
Total equity 1,961,001     1,930,327  
Total liabilities and equity $ 3,877,104     $ 3,805,381  


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

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
Homebuilding:              
Home sales revenue $ 771,768     $ 648,638     $ 2,123,135     $ 1,609,458  
Land and lot sales revenue 2,225     68,218     3,966     69,661  
Other operations revenue 598     584     1,795     1,752  
Total revenues 774,591     717,440     2,128,896     1,680,871  
Cost of home sales 607,053     521,918     1,661,651     1,294,563  
Cost of land and lot sales 2,234     12,001     4,163     13,299  
Other operations expense 590     575     1,781     1,726  
Sales and marketing 44,854     33,179     128,881     92,209  
General and administrative 38,109     32,956     111,406     101,293  
Homebuilding income from operations 81,751     116,811     221,014     177,781  
Equity in income (loss) of unconsolidated entities 15         (384 )   1,646  
Other (expense) income, net (477 )   26     (379 )   147  
Homebuilding income before income taxes 81,289     116,837     220,251     179,574  
Financial Services:              
Revenues 480     295     1,154     881  
Expenses 125     82     391     233  
Equity in income of unconsolidated entities 1,986     1,351     4,972     2,911  
Financial services income before income taxes 2,341     1,564     5,735     3,559  
Income before income taxes 83,630     118,401     225,986     183,133  
Provision for income taxes (19,661 )   (46,112 )   (55,457 )   (69,824 )
Net income 63,969     72,289     170,529     113,309  
Net income attributable to noncontrolling interests     (25 )       (138 )
Net income available to common stockholders $ 63,969     $ 72,264     $ 170,529     $ 113,171  
Earnings per share              
Basic $ 0.43     $ 0.48     $ 1.13     $ 0.73  
Diluted $ 0.43     $ 0.48     $ 1.13     $ 0.73  
Weighted average shares outstanding              
Basic 147,725,074     151,214,744     150,377,472     155,238,206  
Diluted 148,318,032     152,129,825     151,482,456     155,936,076  


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

  Three Months Ended September 30,   Nine Months Ended September 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 137     $ 487     164     $ 477     383     $ 476     447     $ 459  
Pardee Homes 354     634     328     502     1,005     645     896     478  
Quadrant Homes 73     898     79     686     241     795     206     649  
Trendmaker Homes 150     516     104     504     389     501     343     493  
TRI Pointe Homes 367     721     332     720     983     723     783     669  
Winchester Homes 124     590     104     579     343     571     265     561  
Total 1,205     $ 640     1,111     $ 584     3,344     $ 635     2,940     $ 547  
                               
                               
  Three Months Ended September 30,   Nine Months Ended September 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 513     $ 718     535     $ 640     1,429     $ 733     1,272     $ 603  
Colorado 63     598     30     591     182     594     97     593  
Maryland 87     533     77     562     253     539     192     534  
Virginia 37     724     27     625     90     661     73     633  
Arizona 137     487     164     477     383     476     447     459  
Nevada 145     571     95     458     377     538     310     414  
Texas 150     516     104     504     389     501     343     493  
Washington 73     898     79     686     241     795     206     649  
Total 1,205     $ 640     1,111     $ 584     3,344     $ 635     2,940     $ 547  

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

  Three Months Ended September 30,   Nine Months Ended September 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 97     11.0     158     13.5     382     12.6     504     15.3  
Pardee Homes 357     36.8     421     30.8     1,294     34.3     1,282     29.3  
Quadrant Homes 64     7.0     84     8.3     226     6.8     311     7.6  
Trendmaker Homes 139     27.5     113     29.3     455     28.7     393     30.9  
TRI Pointe Homes 266     30.3     378     34.7     1,133     32.5     1,144     31.9  
Winchester Homes 112     14.7     114     13.2     384     14.1     378     12.4  
Total 1,035     127.3     1,268     129.8     3,874     129.0     4,012     127.4  
                               
                               
  Three Months Ended September 30,   Nine Months Ended September 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 416     45.3     632     45.2     1,651     45.0     1,885     43.1  
Colorado 72     6.8     40     8.0     251     6.9     144     6.5  
Maryland 69     9.0     81     10.0     254     9.2     265     9.0  
Virginia 43     5.7     33     3.2     130     4.9     113     3.4  
Arizona 97     11.0     158     13.5     382     12.6     504     15.3  
Nevada 135     15.0     127     12.3     525     14.9     397     11.6  
Texas 139     27.5     113     29.3     455     28.7     393     30.9  
Washington 64     7.0     84     8.3     226     6.8     311     7.6  
Total 1,035     127.3     1,268     129.8     3,874     129.0     4,012     127.4  


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

  As of September 30, 2018   As of September 30, 2017
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
Maracay 216     $ 122,617     $ 568     305     $ 154,324     $ 506  
Pardee Homes 698     451,398     647     646     436,376     676  
Quadrant Homes 129     127,136     986     206     160,202     778  
Trendmaker Homes 239     143,000     598     213     107,968     507  
TRI Pointe Homes 627     460,700     735     659     481,537     731  
Winchester Homes 192     126,374     658     236     141,858     601  
Total 2,101     $ 1,431,225     $ 681     2,265     $ 1,482,265     $ 654  
                       
                       
  As of September 30, 2018   As of September 30, 2017
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
  Backlog
Units
  Backlog
Dollar
Value
  Average
Sales
Price
Backlog:                      
California 888     $ 654,929     $ 738     1,015     $ 750,947     $ 740  
Colorado 169     92,037     545     106     65,563     619  
Maryland 114     64,672     567     175     98,920     565  
Virginia 78     61,701     791     61     42,937     704  
Arizona 216     122,617     568     305     154,324     506  
Nevada 268     165,133     616     184     101,404     551  
Texas 239     143,000     598     213     107,968     507  
Washington 129     127,136     986     206     160,202     778  
Total 2,101     $ 1,431,225     $ 681     2,265     $ 1,482,265     $ 654  


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

  September 30,   December 31,
  2018   2017
Lots Owned or Controlled(1):      
Maracay 3,211     2,519  
Pardee Homes 15,404     15,144  
Quadrant Homes 1,855     1,726  
Trendmaker Homes 1,821     1,855  
TRI Pointe Homes 4,214     3,964  
Winchester Homes 1,896     2,104  
Total 28,401     27,312  
       
       
  September 30,   December 31,
  2018   2017
Lots Owned or Controlled(1):      
California 16,148     16,292  
Colorado 870     742  
Maryland 1,258     1,507  
Virginia 638     597  
Arizona 3,211     2,519  
Nevada 2,600     2,074  
Texas 1,821     1,855  
Washington 1,855     1,726  
Total 28,401     27,312  
       
       
  September 30,   December 31,
  2018   2017
Lots by Ownership Type:      
Lots owned 23,890     23,940  
Lots controlled(1) 4,511     3,372  
Total 28,401     27,312  

__________
(1)                   As of September 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 September 30,
  2018   %   2017   %
  (dollars in thousands)
Home sales revenue $ 771,768     100.0 %   $ 648,638     100.0 %
Cost of home sales 607,053     78.7 %   521,918     80.5 %
Homebuilding gross margin 164,715     21.3 %   126,720     19.5 %
Add: interest in cost of home sales 20,128     2.6 %   15,623     2.4 %
Add: impairments and lot option abandonments 568     0.1 %   374     0.1 %
Adjusted homebuilding gross margin $ 185,411     24.0 %   $ 142,717     22.0 %
Homebuilding gross margin percentage 21.3 %       19.5 %    
Adjusted homebuilding gross margin percentage 24.0 %       22.0 %    


  Nine Months Ended September 30,
  2018   %   2017   %
  (dollars in thousands)
Home sales revenue $ 2,123,135     100.0 %   $ 1,609,458     100.0 %
Cost of home sales 1,661,651     78.3 %   1,294,563     80.4 %
Homebuilding gross margin 461,484     21.7 %   314,895     19.6 %
Add: interest in cost of home sales 53,926     2.5 %   38,448     2.4 %
Add: impairments and lot option abandonments 1,425     0.1 %   1,169     0.1 %
Adjusted homebuilding gross margin $ 516,835     24.3 %   $ 354,512     22.0 %
Homebuilding gross margin percentage 21.7 %       19.6 %    
Adjusted homebuilding gross margin percentage 24.3 %       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.

  September 30, 2018   December 31, 2017
Unsecured revolving credit facility $ 100,000     $  
Senior notes 1,419,198     1,471,302  
Total debt 1,519,198     1,471,302  
Stockholders’ equity 1,960,397     1,929,722  
Total capital $ 3,479,595     $ 3,401,024  
Ratio of debt-to-capital(1) 43.7 %   43.3 %
       
Total debt $ 1,519,198     $ 1,471,302  
Less: Cash and cash equivalents (83,086 )   (282,914 )
Net debt 1,436,112     1,188,388  
Stockholders’ equity 1,960,397     1,929,722  
Net capital $ 3,396,509     $ 3,118,110  
Ratio of net debt-to-net capital(2) 42.3 %   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 (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,
  2018   2017   2018   2017
  (in thousands)
Net income available to common stockholders $ 63,969     $ 72,264     $ 170,529     $ 113,171  
Interest expense:              
Interest incurred 23,942     22,865     67,089     61,669  
Interest capitalized (23,942 )   (22,865 )   (67,089 )   (61,669 )
Amortization of interest in cost of sales 20,293     15,899     54,199     38,771  
Provision for income taxes 19,661     46,112     55,457     69,824  
Depreciation and amortization 7,002     867     19,581     2,567  
EBITDA 110,925     135,142     299,766     224,333  
Amortization of stock-based compensation 3,765     3,887     10,955     11,631  
Impairments and lot option abandonments 643     374     1,500     1,203  
Restructuring charges     147         588  
Adjusted EBITDA $ 115,333     $ 139,550     $ 312,221     $ 237,755  

 

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Source: TRI Pointe Group Inc.

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19540 Jamboree Road, Suite 300, Irvine, CA 92612 | 949-438-1400 |info@TriPointeGroup.com

2015 Builder of the year and 2014 Developer of the year.