GlobeNewswire Inc | Oct 22, 2020 06:00AM EDT

October 22, 2020

-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 September30, 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 pointsExcluding 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 September30, 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 Companys 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, October22, 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 Companys website at presentation slides on the internet through the Investors section of the Companys 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 Companys 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 byBuilder and Developermagazine, recognized inFortunemagazines 2017 100 Fastest-Growing Companies list, and garnered the 2015 Builder of the Year Award byBuildermagazine. The company was also named one of the Best Places to Work in Orange County by theOrange County Business Journalin 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 RelationsInvestorRelations@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 % 2020 2019 Change % Change Change Operating Data: (unaudited)Home sales $ 826,036 $ 746,269 $ 79,767 11 % $ 2,187,816 $ 1,931,110 $ 256,706 13 %revenueHomebuilding $ 182,580 $ 168,642 $ 13,938 8 % $ 470,044 $ 357,263 $ 112,781 32 %gross marginHomebuilding 22.1 % 22.6 % (0.5 ) 21.5 % 18.5 % 3.0 % gross margin % %Adjusted )homebuilding 25.0 % 25.3 % (0.3 % 24.4 % 21.5 % 2.9 % gross margin %*SG&A expense $ 81,037 $ 86,585 $ (5,548 ) (6 )% $ 246,259 $ 248,090 $ (1,831 ) (1 )%SG&A expense asa % of home 9.8 % 11.6 % (1.8 ) 11.3 % 12.8 % (1.5 ) sales % % revenueNet income $ 78,682 $ 62,861 $ 15,821 25 % $ 167,093 $ 89,194 $ 77,899 87 %Adjusted net $ 81,309 $ 62,861 $ 18,448 29 % $ 179,168 $ 89,194 $ 89,974 101 %income*Adjusted $ 140,792 $ 115,605 $ 25,187 22 % $ 329,519 $ 207,371 $ 122,148 59 %EBITDA*Interest $ 20,063 $ 22,405 $ (2,342 ) (10 )% $ 62,670 $ 67,740 $ (5,070 ) (7 )%incurredInterest incost of home $ 23,495 $ 19,240 $ 4,255 22 % $ 62,118 $ 51,502 $ 10,616 21 %sales Other Data: Net new home 1,933 1,291 642 50 % 4,926 4,103 823 20 %ordersNew homes 1,303 1,187 116 10 % 3,490 3,126 364 12 %deliveredAverage salesprice of homes $ 634 $ 629 $ 5 1 % $ 627 $ 618 $ 9 1 %deliveredCancellation 9 % 17 % (8 ) 14 % 16 % (2 ) rate % %Average selling 134.0 147.5 (13.5 ) (9 )% 138.8 147.3 (8.5 ) (6 )%communitiesSellingcommunities at 126 150 (24 ) (16 )% end of periodBacklog(estimated $ 2,067,366 $ 1,491,452 $ 575,914 39 % dollar value)Backlog (homes) 3,188 2,312 876 38 % Average salesprice in $ 648 $ 645 $ 3 0 % backlog September 30, December 31, 2020 2019 Change % ChangeBalance Sheet (unaudited) Data:Cash and cash $ 493,585 $ 329,011 $ 164,574 50 % equivalentsReal estate $ 2,989,377 $ 3,065,436 $ (76,059 ) (2 )% inventoriesLots owned or 31,860 30,029 1,831 6 % controlledHomes underconstruction ^ 2,777 2,269 508 22 % (1)Homescompleted, 109 343 (234 ) (68 )% unsoldDebt $ 1,333,254 $ 1,283,985 $ 49,269 4 % Stockholders? $ 2,198,088 $ 2,186,530 $ 11,558 0.5 % equityBook $ 3,531,342 $ 3,470,515 $ 60,827 2 % capitalizationRatio of 37.8 % 37.0 % 0.8 % debt-to-capitalRatio of net )debt-to-net 27.6 % 30.4 % (2.8 % capital*

__________(1) Homes under construction included 73 and 78 models at September30, 2020 and December31, 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 2019Assets (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, 50,000,000shares authorized; no shares issued and ? ? outstanding as of September 30, 2020 and December31, 2019, respectivelyCommon stock, $0.01 par value, 500,000,000 sharesauthorized; 126,825,194 and 136,149,633 shares 1,268 1,361 issued and outstanding at September 30, 2020 andDecember 31, 2019, respectivelyAdditional 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 2019Homebuilding: Home sales $ 826,036 $ 746,269 $ 2,187,816 $ 1,931,110 revenueLand and lot 3,242 607 3,462 6,819 sales revenueOtheroperations 634 618 1,900 1,853 revenueTotal revenues 829,912 747,494 2,193,178 1,939,782 Cost of home 643,456 577,627 1,717,772 1,573,847 salesCost of land 3,214 495 3,790 7,552 and lot salesOtheroperations 624 609 1,872 1,826 expenseSales and 44,714 47,834 132,545 133,888 marketingGeneral and 36,323 38,751 113,714 114,202 administrativeRestructuring 54 ? 5,603 ? chargesHomebuildingincome from 101,527 82,178 217,882 108,467 operationsEquity in lossof 106 18 67 (33 ) unconsolidatedentitiesOther(expense) (3,120 ) 325 (9,075 ) 6,719 income, netHomebuildingincome before 98,513 82,521 208,874 115,153 income taxesFinancial Services:Revenues 2,552 901 6,442 1,959 Expenses 1,334 817 3,698 1,765 Equity inincome of 3,273 2,114 7,761 4,861 unconsolidatedentitiesFinancialservices 4,491 2,198 10,505 5,055 income beforeincome taxesIncome before 103,004 84,719 219,379 120,208 income taxesProvision for (24,322 ) (21,858 ) (52,286 ) (31,014 ) income taxesNet income $ 78,682 $ 62,861 $ 167,093 $ 89,194 Earnings per shareBasic $ 0.61 $ 0.45 $ 1.27 $ 0.63 Diluted $ 0.61 $ 0.44 $ 1.27 $ 0.63 Weightedaverage shares outstandingBasic 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 Average New Average New Average New Average Homes Sales Homes Sales Homes Sales Homes Sales Delivered Price Delivered Price Delivered Price Delivered PriceReporting Segment: Maracay 170 $ 559 138 $ 513 475 $ 534 318 $ 522 Pardee Homes 368 680 461 698 987 680 1,028 634 QuadrantHomes 78 927 56 880 170 897 167 976 TrendmakerHomes 235 454 224 459 698 464 628 462 TRIPointeHomes 292 694 226 685 810 701 749 693 WinchesterHomes 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 Average New Average New Average New Average Homes Sales Homes Sales Homes Sales Homes Sales Delivered Price Delivered Price Delivered Price Delivered PriceState: 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 NetNew Average NetNew Average NetNew Average NetNew Average Home Selling Home Selling Home Selling Home Selling Orders Communities Orders Communities Orders Communities Orders CommunitiesReporting 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 QuadrantHomes 78 8.5 68 6.8 309 8.2 210 6.9 TrendmakerHomes 318 30.5 192 37.0 757 30.3 682 38.1 TRIPointeHomes 422 25.3 293 29.7 1,163 29.2 882 29.7 WinchesterHomes 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 NetNew Average NetNew Average NetNew Average NetNew Average Home Selling Home Selling Home Selling Home Selling Orders Communities Orders Communities Orders Communities Orders CommunitiesState: 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 Backlog Average Backlog Backlog Average Units Dollar Sales Units Dollar Sales Value Price Value PriceReporting Segment:Maracay 501 $ 317,887 $ 635 404 $ 218,424 $ 541 Pardee 1,067 696,520 653 753 542,370 720 HomesQuadrant 228 222,394 975 89 77,426 870 HomesTrendmaker 404 184,507 457 367 184,563 503 HomesTRI Pointe 682 461,574 677 451 306,337 679 HomesWinchester 306 184,484 603 248 162,332 655 HomesTotal 3,188 $ 2,067,366 $ 648 2,312 $ 1,491,452 $ 645 As of September 30, 2020 As of September 30, 2019 Backlog Backlog Average Backlog Backlog Average Units Dollar Sales Units Dollar Sales Value Price Value PriceState: 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 6 1,851 309 ? ? ? CarolinaTexas 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 2019Lots 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 2019Lots 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 2019Lots by Ownership Type: Lots owned 22,197 22,845 Lots controlled^(1) 9,663 7,184 Total 31,860 30,029

__________(1) As of September30, 2020 and December31, 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 Companys 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 23,495 2.8 % 19,240 2.6 %home salesAdd:impairments and lot 315 0.0 % 1,029 0.1 %option abandonmentsAdjusted homebuilding gross $ 206,390 25.0 % $ 188,911 25.3 %marginHomebuilding gross margin 22.1 % 22.6 % percentageAdjusted homebuilding gross 25.0 % 25.3 % margin percentage

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 470,044 21.5 % 357,263 18.5 %marginAdd:interest in cost 62,118 2.8 % 51,502 2.7 %of home salesAdd:impairments and 2,044 0.1 % 6,519 0.3 %lot option abandonmentsAdjusted homebuilding $ 534,206 24.4 % $ 415,284 21.5 %gross margin(1)Homebuilding gross 21.5 % 18.5 % margin percentageAdjusted homebuildinggross margin percentage 24.4 % 21.5 % (1)

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

The following table reconciles the Companys 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 Companys ability to obtain financing.

September 30, December 31, 2019 2020Loans 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 Companys ability to service debt and obtain financing.

Three Months Ended September Nine Months Ended September 30, 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 (20,063 ) (22,405 ) (62,670 ) (67,740 ) capitalizedAmortization ofinterest in cost 23,538 19,234 62,166 51,674 of salesProvision for 24,322 21,858 52,286 31,014 income taxesDepreciation and 7,020 6,795 19,196 18,356 amortizationEBITDA 133,562 110,748 300,741 190,238 Amortization ofstock-based 3,477 3,828 10,888 10,614 compensationImpairments andlot option 315 1,029 2,044 6,519 abandonmentsEarly loan 3,384 ? 10,243 ? termination costsRestructuring 54 ? 5,603 ? chargesAdjusted 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 $ 103,004 $ 3,438 (1 ) $ 106,442 $ 219,379 $ 15,846 (1 ) $ 235,225 income taxesProvision for (24,322 ) (811 ) (2 ) (25,133 ) (52,286 ) (3,771 ) (2 ) (56,057 ) income taxesNet income $ 78,682 $ 2,627 $ 81,309 $ 167,093 $ 12,075 $ 179,168 Earnings per shareDiluted $ 0.61 $ 0.63 $ 1.27 $ 1.36 Weightedaverage shares outstandingDiluted 129,515 129,515 131,673 131,673 Effective tax 23.6 % 23.6 % 23.8 % 23.8 %rate

_________(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.