The New Home Company LLC (NWHM)

FORM 8-K | Current report
Oct. 26, 2017 8:15 PM
|
About: The New Home Company LLC (NWHM)View as PDF
New Home Co Inc. (Form: 8-K, Received: 10/27/2017 06:07:09)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 8-K
 
 
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 27, 2017
 
 
 
 
IMAGE1A01A01A09.JPGClick to enlarge  
The New Home Company Inc.
(Exact name of registrant as specified in its charter)
  
 
 
 
Delaware
 
001-36283
 
27-0560089
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
85 Enterprise, Suite 450, Aliso Viejo, California
 
92656
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
(949) 382-7800
 
 
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report.)
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

 





Item 2.02
Results of Operations and Financial Condition.
On October 27, 2017 , The New Home Company Inc., a Delaware corporation (the “ Company ”), announced in a press release its financial results for the three and nine month periods ended September 30, 2017. A copy of the Company’s press release announcing these financial results is attached as Exhibit 99.1 to this Current Report on Form 8-K.
The information furnished pursuant to this Item 2.02, including the exhibits attached hereto, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“ Exchange Act ”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Exchange Act. In addition, the press release furnished as an exhibit to this report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Item 7.01
Regulation FD Disclosure.
In the Company's press release attached hereto as Exhibit 99.1, the Company announced that it will discuss its results for the three and nine month periods ended September 30, 2017, recent events and the Company's full year and certain quarterly guidance for 2017 during a conference call on Friday, October 27, 2017, at 12:00 p.m. Eastern Time. As detailed in the press release attached hereto as Exhibit 99.1, a replay of this call will be available to all those who cannot listen to the live broadcast. Item 2.02 of this Current Report on Form 8-K is incorporated herein by reference.
The information in this Report (including Exhibit 99.1) is furnished pursuant to Item 7.01 and shall not be deemed "filed" for purposes of the Exchange Act or otherwise subject to the liabilities of the Exchange Act. The information in this Report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

Item 9.01
Financial Statements and Exhibits.
 
(d)
Exhibits

99.1
 
 
 
 
 
 
 








SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
Date: October 27, 2017
 
 
 
 
 
 
 
 
 
 
 
The New Home Company Inc.
 
 
 
 
 
 
 
 
By
 
/s/ John M. Stephens
 
 
 
 
 
 
  John M. Stephens,
  Chief Financial Officer






INDEX OF EXHIBITS
 

 
 
 
Exhibit No.
 
Description of Document
 
 
 
99.1
 
Press Release dated October 27, 2017
 
 
 
 
 
 





IMAGE5A01A01A12.JPGClick to enlarge

THE NEW HOME COMPANY REPORTS 2017 THIRD QUARTER RESULTS

- Diluted EPS of $0.21 per Share -
- Homebuilding Gross Margin up 80 bps to 16.3% -
- Net New Orders up 27% -
- Backlog Dollar Value of $331 million , up 14% -


Aliso Viejo, California, October 27, 2017. The New Home Company Inc. (NYSE: NWHM) today announced results for the 2017 third quarter.

Third Quarter 2017 Highlights Compared to Third Quarter 2016
Net income of $4.3 million , or $0.21 per diluted share vs. $5.5 million , or $0.27 per diluted share
Total revenues of $157.9 million vs. $177.9 million
Wholly owned deliveries up 40%
Homebuilding gross margin 16.3% vs. 15.5% , up 80 basis points; excluding interest in cost of sales, up 190 basis points to 18.4% *
Net new home orders up 27%
Backlog dollar value up 14% to $330.6 million

“I am very pleased with our third quarter operating results and the progress we made during the quarter towards meeting our full-year financial and operational goals," said The New Home Company’s Chief Executive Officer Larry Webb. "Continued buyer demand in California drove a solid monthly sales absorption rate of 2.5 sales per community, which produced a 27% increase in net new home orders as compared to the prior year and a 14% year-over-year increase in the dollar value of our backlog. In addition, our homebuilding gross margin improved 80 basis points over the prior year, and was up 190 basis points before interest costs."

Mr. Webb continued, “The Company continues to execute on its strategy to broaden its product portfolio and expects to open five new communities during the fourth quarter with anticipated base pricing below $750,000, which should provide the Company with a solid community count to start fiscal 2018. Given the positive economic conditions surrounding the housing submarkets in which we operate, coupled with the solid foundation that our team has built, we believe that we are set-up for a strong finish to the year and are well positioned for 2018."

Third Quarter 2017 Operating Results

Total revenues for the 2017 third quarter were $157.9 million , compared to $177.9 million in the prior year period. Net income attributable to the Company was $4.3 million , or $0.21 per diluted share, compared to $5.5 million , or $0.27 per diluted share, in the prior year period. The year-over-year decrease in net income was primarily attributable to an 8% decline in home sales revenue, a 120 basis point increase in selling and marketing expenses as a percentage of home sales revenues, and decreases in fee building revenues and joint venture income. These items were partially offset by an 80 basis point improvement in homebuilding gross margin to 16.3% .


1



Wholly Owned Projects

Home sales revenue for the 2017 third quarter decreased 8% to $114.6 million , compared to $125.1 million in the prior year period. The decrease in home sales revenue was driven primarily by a 35% decrease in the average selling price of homes delivered to $1.4 million , which was partially offset by a 40% increase in deliveries. The decrease in average selling price was primarily due to a product mix shift, including a higher proportion of deliveries from our Northern California operations, where the average selling price was $781,000. Additionally, Southern California's 2017 third quarter average selling price decreased 31% to $2.0 million due to contributions from communities with lower price points, consistent with the Company's strategic broadening of its product portfolio.

Gross margin from home sales for the 2017 third quarter was 16.3% versus 15.5% in the prior year period. The 80 basis point improvement in home sales gross margin was primarily due to a change in mix, including more volume from higher-margin communities located in Santa Clara in the Bay Area and in Crystal Cove in Newport Coast, CA. Adjusted gross margin from home sales for the 2017 third quarter, which excludes interest in cost of home sales and inventory impairments, was 18.4% * compared to 16.5% * in the prior year period.

Our SG&A expense ratio as a percentage of home sales revenue for the 2017 third quarter was 11.6% versus 10.0% in the prior year period. The increase in the SG&A rate was primarily attributable to higher selling and marketing costs, driven by an increase in spend related to the ramp up of new communities, higher co-broker commissions and model operating costs, and to a lesser extent, lower home sales revenue.

Net new home orders for the 2017 third quarter were up 27% to 81 homes, compared to 64 homes in the prior year period. The Company's monthly sales absorption pace was up 47% during the 2017 third quarter to 2.5 sales per average selling community, compared to 1.7 in the prior year period. The improvement in the absorption rate was driven by solid order activity in both Southern and Northern California. As a result of increased sales activity and the timing of opening new communities, our quarter end selling communities were down 8% from the prior year, ending the 2017 third quarter with 12 active communities compared to 13 at the end of the prior year period. This slight decline was consistent with our expectations, and the Company anticipates opening five new communities in the 2017 fourth quarter.

The dollar value of the Company's wholly owned backlog at the end of the 2017 third quarter was up 14% year-over-year to $330.6 million and totaled 182 homes, compared to $290.2 million and 129 homes in the prior year period. The increase in backlog dollar value primarily related to the increase in net new home orders, which was partially offset by a 19% decline in average selling price in backlog. The decrease in backlog average selling price is consistent with the Company's strategy to expand its product portfolio to include more affordable price points.

Fee Building Projects

Fee building revenue for the 2017 third quarter decreased 18% to $43.3 million , compared to $52.8 million in the prior year period. The decrease was primarily due to a decrease in fee building construction activity. Our fee building gross margin was $1.5 million , or 3.5% , compared to $1.9 million , or 3.7% , in the prior year period. Management fees from joint ventures were $1.3 million during the 2017 third quarter compared to $1.5 million in the prior year period.

Unconsolidated Joint Ventures (JVs)

The Company’s share of joint venture income for the 2017 third quarter was $0.1 million , compared to $0.5 million in the prior year period. This decrease was due to lower joint venture net income due to a decrease in joint venture lot sales and lower gross margins from joint venture home sales. The decrease in joint venture gross margins was due to increased deliveries in the 2017 third quarter from four lower-margin Sacramento communities. In the 2016 third quarter, joint venture gross margins were higher due to higher-margin deliveries from our Orchard Park project in the Bay Area, which delivered its last home in the 2017 first quarter. 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.

2




Joint venture net income totaled $0.4 million , compared to $2.4 million in the prior year period. Joint venture home sales revenues totaled $45.2 million , compared to $19.7 million in the prior year period, while joint venture land sales revenues totaled $0.6 million for the 2017 third quarter, compared to $14.8 million in the prior year period.

At the end of both the 2017 and 2016 third quarter, our joint ventures had eight active selling communities. Net new home orders from joint ventures for the 2017 third quarter increased 23% to 43 homes as compared to 35 homes in the prior year period. The dollar value of homes in backlog from unconsolidated joint ventures at the end of the 2017 third quarter was $69.8 million from 83 homes, compared to $85.3 million from 88 homes in the prior year period.

Balance Sheet and Liquidity

As of September 30, 2017 , the Company had real estate inventories totaling $478.5 million , of which $362.1 million represented work-in-process and completed homes (including models), $75.2 million in land and land under development, and $41.3 million in land deposits and pre-acquisition costs. The Company owned or controlled 2,203 lots through its wholly owned operations (excluding fee building and joint venture lots), of which 1,356 lots, or 62%, were controlled or under option. The Company ended the 2017 third quarter with $62.4 million in cash and cash equivalents and had no borrowings outstanding under its $200.0 million revolving credit facility. The Company ended the 2017 third quarter with $318.5 million in debt outstanding (net of unamortized discount, premium and debt issuance costs), a debt-to-capital ratio of 55.7% and a net debt-to-capital ratio of 50.3% *.

Guidance

For the 2017 fourth quarter, the Company estimates the following:

Home sales revenue of $260 - $280 million
Fee building revenue of $20 - $30 million
Income from unconsolidated joint ventures of $1 - $1.5 million

For the full year 2017, the Company anticipates the following:

Home sales revenue of $540 - $560 million
Fee building revenue of $165 - $175 million
Income from unconsolidated joint ventures of $2 million
Wholly owned active year-end community count of 17
Joint venture active year-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 12:00 p.m. Eastern Time on Friday, October 27, 2017 to review third quarter results, discuss recent events and results, and discuss the Company's full year and certain quarterly guidance for 2017. We will also conduct a question-and-answer period. The conference call will be available in the Investors section of the Company’s website at www.NWHM.com. To listen to the broadcast live, go to the site approximately 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. To participate in the telephone conference call, dial 1-877-407-0789 (domestic) or 1-201-689-8562 (international) at least five minutes prior to the start time. Replays of the conference call will be available through November 27, 2017 and can be accessed by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the pass code 13671776.


3



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 .

* Adjusted homebuilding gross margin percentage and net debt-to-capital ratio are non-GAAP measures. A reconciliation of the appropriate GAAP measure to each of these measures is included in the accompanying financial data. See "Reconciliation of Non-GAAP Financial Measures."

Forward-Looking Statements

Various statements contained in this press release, including those that express a belief, anticipation, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements may include projections and estimates concerning the timing and success of specific projects, community counts and openings and our future production, our ability to execute our strategic growth objectives, gross margins, revenues, projected results, income, earnings per share and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “anticipate,” “potential,” “plan,” “goal,” “will,” “guidance,” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this press release speak only as of the date of this release, and we disclaim any obligation to update these statements unless required by law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements: economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation; a downturn in the homebuilding industry; changes in sales conditions, including home prices, in the markets where we build homes, volatility and uncertainty in the credit markets and broader financial markets; our business and investment strategy; availability of land to acquire and our ability to acquire such land on favorable terms or at all; our liquidity and availability, terms and deployment of capital; shortages of or increased prices for labor, land or raw materials used in housing construction; delays in land development or home construction resulting from adverse weather conditions or other events outside our control; issues concerning our joint venture partnerships; the cost and availability of insurance and surety bonds; changes in, or the failure or inability to comply with, governmental laws and regulations; the timing of receipt of regulatory approvals and the opening of projects; the degree and nature of competition; our leverage and debt service obligations; the impact of recent accounting standards; restrictive covenants relating to our operations in our current of future financing arrangements; availability of qualified personnel and our ability to retain our key personnel; and additional factors discussed under the sections captioned “Risk Factors” included in our annual report and other reports filed with the Securities and Exchange Commission. The Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

Contact:
Investor Relations | Drew Mackintosh | 949-382-7838 | investorrelations@nwhm.com


4



IMAGE11A01A12.JPGClick to enlarge
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
(Dollars in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Home sales
$
114,622

 
$
125,142

 
$
280,957

 
$
246,281

Fee building, including management fees from unconsolidated joint ventures of $1,324, $1,539, $3,755 and $6,251, respectively
43,309

 
52,761

 
146,107

 
125,726

 
157,931

 
177,903

 
427,064

 
372,007

Cost of Sales:
 
 
 
 
 
 
 
Home sales
95,992

 
105,799

 
238,545

 
211,859

Home sales impairments

 

 
1,300

 

Fee building
41,808

 
50,832

 
141,633

 
120,063

 
137,800

 
156,631

 
381,478

 
331,922

Gross Margin:
 
 
 
 
 
 
 
Home sales
18,630

 
19,343

 
41,112

 
34,422

Fee building
1,501

 
1,929

 
4,474

 
5,663

 
20,131

 
21,272

 
45,586

 
40,085

 
 
 
 
 
 
 
 
Selling and marketing expenses
(6,860
)
 
(6,055
)
 
(18,237
)
 
(14,577
)
General and administrative expenses
(6,465
)
 
(6,468
)
 
(17,150
)
 
(17,476
)
Equity in net income of unconsolidated joint ventures
99

 
488

 
606

 
4,428

Other income (expense), net
69

 
(195
)
 
34

 
(590
)
Income before income taxes
6,974

 
9,042

 
10,839

 
11,870

Provision for income taxes
(2,656
)
 
(3,465
)
 
(4,168
)
 
(4,718
)
Net income
4,318

 
5,577

 
6,671

 
7,152

Net (income) loss attributable to noncontrolling interest

 
(30
)
 
10

 
90

Net income attributable to The New Home Company Inc.
$
4,318

 
$
5,547

 
$
6,681

 
$
7,242

 
 
 
 
 
 
 
 
Earnings per share attributable to The New Home Company Inc.:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.27

 
$
0.32

 
$
0.35

Diluted
$
0.21

 
$
0.27

 
$
0.32

 
$
0.35

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
20,876,315

 
20,711,952

 
20,839,507

 
20,675,233

Diluted
20,999,673

 
20,797,731

 
20,949,499

 
20,764,480



5



IMAGE5A01A01A12.JPGClick to enlarge
CONSOLIDATED BALANCE SHEETS

 
September 30,
 
December 31,
 
2017
 
2016
 
(Dollars in thousands, except per share amounts)
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
62,443

 
$
30,496

Restricted cash
213

 
585

Contracts and accounts receivable
14,446

 
27,833

Due from affiliates
554

 
1,138

Real estate inventories
478,541

 
286,928

Investment in and advances to unconsolidated joint ventures
56,814

 
50,857

Other assets
25,096

 
21,299

Total assets
$
638,107

 
$
419,136

 
 
 
 
Liabilities and equity
 
 
 
Accounts payable
$
36,078

 
$
33,094

Accrued expenses and other liabilities
30,684

 
23,418

Unsecured revolving credit facility

 
118,000

Senior notes, net
318,452

 

Total liabilities
385,214

 
174,512

Equity:
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding

 

Common stock, $0.01 par value, 500,000,000 shares authorized, 20,876,623 and 20,712,166, shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively
209

 
207

Additional paid-in capital
198,757

 
197,161

Retained earnings
53,836

 
47,155

Total stockholders' equity
252,802

 
244,523

Noncontrolling interest in subsidiary
91

 
101

Total equity
252,893

 
244,624

Total liabilities and equity
$
638,107

 
$
419,136




6



IMAGE11A01A12.JPGClick to enlarge
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
September 30,
 
2017

2016
 
(Dollars in thousands)
Operating activities:
 
 
 
Net income
$
6,671

 
$
7,152

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Deferred taxes
(54
)
 
1,181

Amortization of equity based compensation
2,086

 
2,602

Excess income tax provision from stock-based compensation

 
97

Inventory impairments
1,300

 

Distributions of earnings from unconsolidated joint ventures
1,588

 
1,931

Equity in net income of unconsolidated joint ventures
(606
)
 
(4,428
)
Deferred profit from unconsolidated joint ventures
560

 
541

Depreciation
344

 
381

Abandoned project costs
238

 
498

Net changes in operating assets and liabilities:
 
 
 
Restricted cash
372

 
11

Contracts and accounts receivable
13,448

 
2,717

Due from affiliates
504

 
91

Real estate inventories
(179,607
)
 
(159,778
)
Other assets
(3,766
)
 
(4,894
)
Accounts payable
2,859

 
11,927

Accrued expenses and other liabilities
(6,257
)
 
(6,430
)
Due to affiliates

 
(293
)
Net cash used in operating activities
(160,320
)
 
(146,694
)
Investing activities:
 
 
 
Purchases of property and equipment
(145
)
 
(379
)
Cash assumed from joint venture at consolidation
995

 
2,009

Contributions and advances to unconsolidated joint ventures
(21,296
)
 
(7,707
)
Distributions of capital and repayment of advances to unconsolidated joint ventures
13,650

 
13,977

Interest collected on advances to unconsolidated joint ventures
468

 

Net cash provided by (used in) investing activities
(6,328
)
 
7,900

Financing activities:
 
 
 
Borrowings from credit facility
72,000

 
193,000

Repayments of credit facility
(190,000
)
 
(38,000
)
Proceeds from senior notes
324,465

 

Borrowings from other notes payable

 
343

Repayments of other notes payable

 
(15,636
)
Payment of debt issuance costs
(7,382
)
 
(1,064
)
Cash distributions to noncontrolling interest in subsidiary

 
(725
)
Minimum tax withholding paid on behalf of employees for stock awards
(590
)
 
(647
)
Excess income tax provision from stock-based compensation

 
(97
)
Proceeds from exercise of stock options
102

 

Net cash provided by financing activities
198,595

 
137,174

Net increase (decrease) in cash and cash equivalents
31,947

 
(1,620
)
Cash and cash equivalents – beginning of period
30,496

 
45,874

Cash and cash equivalents – end of period
$
62,443

 
$
44,254


7



IMAGE11A01A12.JPGClick to enlarge
KEY FINANCIAL AND OPERATING DATA
(Dollars in thousands)
(Unaudited)
New Home Deliveries:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
2017
 
2016
 
% Change
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
Southern California
39

 
$
79,494

 
$
2,038

 
36

 
$
105,789

 
$
2,939

 
8
%
 
(25
)%
 
(31
)%
Northern California
45

 
35,128

 
781

 
24

 
19,353

 
806

 
88
%
 
82
 %
 
(3
)%
Total
84

 
$
114,622

 
$
1,365

 
60

 
$
125,142

 
$
2,086

 
40
%
 
(8
)%
 
(35
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2017
 
2016
 
% Change
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
 
(Dollars in thousands)
Southern California
88

 
$
190,696

 
$
2,167

 
67

 
$
189,996

 
$
2,836

 
31
%
 
 %
 
(24
)%
Northern California
114

 
90,261

 
792

 
64

 
56,285

 
879

 
78
%
 
60
 %
 
(10
)%
Total
202

 
$
280,957

 
$
1,391

 
131

 
$
246,281

 
$
1,880

 
54
%
 
14
 %
 
(26
)%

Net New Home Orders:
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
Southern California
43

 
39

 
10
 %
 
143

 
105

 
36
%
 
Northern California
38

 
25

 
52
 %
 
162

 
79

 
105
%
 
 
81

 
64

 
27
 %
 
305

 
184

 
66
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Active Communities:
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30,
 
 
 
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
Southern California
7

 
8

 
(13
)%
 
 
 
 
 
 
 
Northern California
5

 
5

 
 %
 
 
 
 
 
 
 
 
12

 
13

 
(8
)%
 
 
 
 
 
 
 





8



IMAGE11A01A12.JPGClick to enlarge
KEY FINANCIAL AND OPERATING DATA (continued)
(Dollars in thousands)
(Unaudited)
Backlog:
As of September 30,
 
2017
 
2016
 
% Change
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
 
Homes
 
Dollar Value
 
Average Price
Southern California
103

 
$
274,037

 
$
2,661

 
92

 
$
262,224

 
$
2,850

 
12
%
 
5
%
 
(7
)%
Northern California
79

 
56,602

 
716

 
37

 
27,971

 
756

 
114
%
 
102
%
 
(5
)%
Total
182

 
$
330,639

 
$
1,817

 
129

 
$
290,195

 
$
2,250

 
41
%
 
14
%
 
(19
)%
Lots Owned and Controlled:
 
 
 
 
 
 
September 30,
 
 
 
 
 
 
 
2017
 
2016
 
% Change
Lots Owned
 
 
 
 
 
 
 
 
 
 
 
Southern California
 
 
 
 
 
 
579

 
287

 
102
 %
Northern California
 
 
 
 
 
 
268

 
339

 
(21
)%
Total
 
 
 
 
 
 
847

 
626

 
35
 %
Lots Controlled (1)
 
 
 
 
 
 
 
 
 
 
 
Southern California
 
 
 
 
 
 
348

 
693

 
(50
)%
Northern California
 
 
 
 
 
 
669

 
265

 
152
 %
Arizona
 
 
 
 
 
 
339

 

 
NA

Total
 
 
 
 
 
 
1,356

 
958

 
42
 %
Lots Owned and Controlled - Wholly Owned
 
 
 
 
 
 
2,203

 
1,584

 
39
 %
Fee Building (2)
 
 
 
 
 
 
815

 
981

 
(17
)%
Total Lots Owned and Controlled
 
 
 
 
 
 
3,018

 
2,565

 
18
 %
 
(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:
Nine Months Ended 
 September 30,
 
2017
 
2016
Interest incurred
$
15,217

 
$
5,243

Adjusted EBITDA (1)
$
21,508

 
$
15,871

Adjusted EBITDA margin percentage  (1)
5.0
%
 
4.3
%
 
 
 
 
 
LTM (2)  Ended September 30,
 
2017
 
2016
Interest incurred
$
17,458

 
$
6,670

Adjusted EBITDA (1)
$
48,781

 
$
41,766

Adjusted EBITDA margin percentage (1)
6.5
%
 
7.4
%
Ratio of Adjusted EBITDA to total interest incurred  (1)
2.8x

 
6.3x

 
 
 
 
 
September 30,
 
December 31,
 
2017
 
2016
Ratio of debt-to-capital
55.7
%
 
32.5
%
Ratio of net debt-to-capital (1)
50.3
%
 
26.2
%
Ratio of debt to LTM (2) Adjusted EBITDA (1)
6.5x

 
2.7x

 
(1)
Adjusted EBITDA, Adjusted EBITDA margin percentage, ratio of Adjusted EBITDA to total interest incurred, ratio of net debt-to-capital, and ratio of 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.

9



IMAGE11A01A12.JPGClick to enlarge
KEY FINANCIAL AND OPERATING DATA - UNCONSOLIDATED JOINT VENTURES
(Dollars in thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Financial Data - Unconsolidated Joint Ventures:
 
 
 
 
 
 
 
 
 
 
 
Home sales revenue
$
45,242

 
$
19,659

 
130
 %
 
$
104,628

 
$
105,558

 
(1
)%
Land sales revenue
$
647

 
$
14,805

 
(96
)%
 
3,052

 
40,967

 
(93
)%
Total revenue
$
45,889

 
$
34,464

 
33
 %
 
$
107,680

 
$
146,525

 
(27
)%
Net income (loss)
$
426

 
$
2,417

 
(82
)%
 
$
(1,092
)
 
$
16,378

 
(107
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating Data - Unconsolidated Joint Ventures:
 
 
 
 
 
 
 
 
 
 
 
New home orders
43

 
35

 
23
 %
 
136

 
111

 
23
 %
New homes delivered
50

 
23

 
117
 %
 
115

 
123

 
(7
)%
Average selling price of homes delivered
$
905

 
$
855

 
6
 %
 
$
910

 
$
858

 
6
 %
 
 
 
 
 
 
 
 
 
 
 
 
Selling communities at end of period
 
8

 
8

 
 %
Backlog homes (dollar value)
 
$
69,834

 
$
85,317

 
(18
)%
Backlog (homes)
 
83

 
88

 
(6
)%
Average sales price of backlog
 
$
841

 
$
970

 
(13
)%
 
 
 
 
 
 
 
 
 
 
 
 
Homebuilding lots owned and controlled
 
398

 
661

 
(40
)%
Land development lots owned and controlled
 
2,415

 
2,415

 
 %
Total lots owned and controlled
 
 
 
 
 
 
2,813

 
3,076

 
(9
)%




10



IMAGE11A01A12.JPGClick to enlarge
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

In this earnings release, we utilize certain non-GAAP financial measures as defined by the Securities and Exchange Commission. We present these measures because we believe they, and similar measures, are useful to management and investors in evaluating the Company’s operating performance and financing structure. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.
The following table reconciles homebuilding gross margin percentage as reported and prepared in accordance with GAAP, to the non-GAAP measures homebuilding gross margin before impairments and adjusted homebuilding gross margin percentages. We believe this information is meaningful, as it isolates the impact home sales impairments and leverage have on homebuilding gross margin and provides investors better comparisons with our competitors, who adjust gross margins in a similar fashion.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
%
 
2016
 
%
 
2017
 
%
 
2016
 
%
 
(Dollars in thousands)
Home sales revenue
$
114,622

 
100.0
%
 
$
125,142

 
100.0
%
 
$
280,957

 
100.0
%
 
$
246,281

 
100.0
%
Cost of home sales
95,992

 
83.7
%
 
105,799

 
84.5
%
 
239,845

 
85.4
%
 
211,859

 
86.0
%
Homebuilding gross margin
18,630

 
16.3
%
 
19,343

 
15.5
%
 
41,112

 
14.6
%
 
34,422

 
14.0
%
Add: Home sales impairments

 
%
 

 
%
 
1,300

 
0.5
%
 

 
%
Homebuilding gross margin before impairments
18,630

 
16.3
%
 
19,343

 
15.5
%
 
42,412

 
15.1
%
 
34,422

 
14.0
%
Add: Interest in cost of home sales
2,448

 
2.1
%
 
1,306

 
1.0
%
 
5,719

 
2.0
%
 
3,017

 
1.2
%
Adjusted homebuilding gross margin
$
21,078

 
18.4
%
 
$
20,649

 
16.5
%
 
$
48,131

 
17.1
%
 
$
37,439

 
15.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

11



IMAGE11A01A12.JPGClick to enlarge
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)
(Unaudited)

Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of Adjusted EBITDA to total interest incurred, and the ratio of 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) non-cash impairment charges and abandoned project costs, (e) gain (loss) on extinguishment of debt, (f) depreciation and amortization, (g) amortization of equity-based compensation and (h) income (loss) from unconsolidated joint ventures. Adjusted EBITDA margin percentage is calculated by dividing Adjusted EBITDA by total revenue for a given period. The ratio of Adjusted EBITDA to total interest incurred is calculated by dividing Adjusted EBITDA by total interest incurred for a given period. The ratio of debt to Adjusted EBITDA is calculated by dividing debt at the period end 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, and the ratio of debt to Adjusted EBITDA is provided in the following table.
 
Nine Months Ended
 
LTM (1)  Ended
 
Twelve Months Ended
 
September 30,
 
September 30,
 
December 31,
 
2017
 
2016
 
2017
 
2016
 
2016
 
(Dollars in thousands)
 
 
Net income
$
6,671

 
$
7,152

 
$
20,445

 
$
19,365

 
$
20,926

Add:
 
 
 
 
 
 
 
 
 
Interest amortized to cost of sales and other expense
5,719

 
3,017

 
8,033

 
4,698

 
5,331

Provision for income taxes
4,168

 
4,718

 
12,474

 
11,976

 
13,024

Depreciation and amortization
344

 
381

 
474

 
505

 
511

Amortization of equity-based compensation
2,086

 
2,602

 
2,955

 
3,761

 
3,471

Cash distributions of income from unconsolidated joint ventures
1,588

 
1,931

 
3,399

 
9,894

 
3,742

Non-cash impairments and abandonments
1,538

 
498

 
5,120

 
582

 
4,080

Less:
 
 
 
 
 
 
 
 
 
Gain from notes payable principal reduction

 

 
(250
)
 

 
(250
)
Equity in income of unconsolidated joint ventures
(606
)
 
(4,428
)
 
(3,869
)
 
(9,015
)
 
(7,691
)
Adjusted EBITDA
$
21,508

 
$
15,871

 
$
48,781

 
$
41,766

 
$
43,144

Total Revenue
$
427,064

 
$
372,007

 
$
749,513

 
$
566,633

 
$
694,456

Adjusted EBITDA margin percentage
5.0
%
 
4.3
%
 
6.5
%
 
7.4
%
 
6.2
%
Interest incurred
$
15,217

 
$
5,243

 
$
17,458

 
$
6,670

 
$
7,484

Ratio of Adjusted EBITDA to total interest incurred
 
 
 
 
2.8x

 
6.3x

 
5.8x

Total debt at period end
 
 
 
 
318,452

 
233,924

 
118,000

Ratio of debt to LTM (1) Adjusted EBITDA
 
 
 
 
6.5x

 
5.6x

 
2.7x

(1)
"LTM" indicates amounts for the trailing 12 months.

12



IMAGE11A01A12.JPGClick to enlarge
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.
 
September 30,
 
December 31,
 
2017
 
2016
 
(Dollars in thousands)
Total debt, net
$
318,452

 
$
118,000

Equity, exclusive of noncontrolling interest
252,802

 
244,523

Total capital
$
571,254

 
$
362,523

Ratio of debt-to-capital (1)
55.7
%

32.5
%
 
 
 
 
Total debt, net
$
318,452

 
$
118,000

Less: cash, cash equivalents and restricted cash
62,656

 
31,081

Net debt
255,796

 
86,919

Equity, exclusive of noncontrolling interest
252,802

 
244,523

Total capital
$
508,598

 
$
331,442

Ratio of net debt-to-capital (2)
50.3
%
 
26.2
%
 
(1)
The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt, net by the sum of total debt plus equity, exclusive of noncontrolling interest.  

(2)
The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is total debt, net less cash to the extent necessary to reduce the debt balance to zero) by total capital, exclusive of noncontrolling interest. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our notes payable, we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt-to-capital does not take into account our liquidity and we believe that the ratio net of cash provides supplemental information by which our financial position may be considered. Investors may also find this to be helpful when comparing our leverage to the leverage of our competitors that present similar information. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  



13