GlobeNewswire Inc | Jul 24, 2020 06:00AM EDT

July 24, 2020

-June Net New Home Orders up 28% Year-Over-Year--Backlog Dollar Value up 17% Year-Over-Year--Homebuilding Gross Margin Percentage of 21.6%--Diluted Earnings Per Share of $0.43-

IRVINE, Calif., July 24, 2020 (GLOBE NEWSWIRE) -- TRI Pointe Group, Inc. (the Company) (NYSE:TPH) today announced results for the second quarter ended June30, 2020.

TRI Pointe Group experienced a significant rebound from the initial weeks of the COVID-19 pandemic, with double-digit revenue growth and significant margin expansion as compared to the prior-year period, as well as improving order trends as the second quarter of 2020 progressed, said TRI Pointe Group Chief Executive Officer Doug Bauer. Net income for the quarter was $56.5 million, or $0.43 per diluted share, representing a 115% improvement over the prior-year period. Excluding the impact of costs related to the early extinguishment of debt and a workforce reduction plan, net income was $65.9 million, or $0.51 per diluted share. These results are a testament to the resiliency of our Company and underscore the heightened demand for single-family homes that currently exists in our country.

Mr. Bauer continued, Following the initial shock to the economy brought about by the COVID-19 pandemic, order activity steadily improved as the second quarter progressed, culminating in a 28% year-over-year improvement in net new home orders for the month of June, including a 36% year-over-year increase in California. This momentum has carried into July, with net new home orders up over 40% for the first three weeks of the month as compared to the prior-year period. The order activity has been broad-based, both from a geographic and product segment standpoint, and we have been actively raising prices in most markets in response to the strong demand.

Mr. Bauer concluded, While the long-term impact of the virus on the economy and our industry remains unclear, TRI Pointe Group is well positioned to navigate these uncertain times thanks to our seasoned management team, our well capitalized balance sheet and our strong market positioning. In addition, our team members have done an excellent job adapting to this new environment, giving me confidence that our Company will emerge from this health crisis a better and more efficient homebuilder.

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

-- Net income was $56.5 million, or $0.43 per diluted share, compared to $26.3 million, or $0.18 per diluted share. In the second quarter of 2020, the Company recorded costs related to the early extinguishment and refinancing of a portion of its Senior Notes due 2021 in connection with the issuance of its Senior Notes due 2028 during the quarter. The charge incurred was $6.9 million and is included in other expense (income), net on the Company's consolidated statements of operations. In addition, the Company incurred $5.5 million of restructuring charges related to a workforce reduction plan that was implemented in the second quarter of 2020. Excluding these items, adjusted net income was $65.9 million, or $0.51 per diluted share, for the second quarter of 2020.* -- Home sales revenue of $766.9 million compared to $692.1 million, an increase of 11% New home deliveries of 1,229 homes compared to 1,125 homes, an increase of 9%Average sales price of homes delivered of $624,000 compared to $615,000, an increase of 1% -- Homebuilding gross margin percentage of 21.6% compared to 17.0%, an increase of 460 basis points Excluding interest and impairments and lot option abandonments, adjusted homebuilding gross margin percentage was 24.6%* -- SG&A expense as a percentage of homes sales revenue of 10.8% compared to 12.1%, a decrease of 130 basis points -- Net new home orders of 1,332 compared to 1,491, a decrease of 11% -- Active selling communities averaged 144.3 compared to 146.0, a decrease of 1% Net new home orders per average selling community were 9.2 orders (3.1 monthly) compared to 10.2 orders (3.4 monthly)Cancellation rate of 21% compared to 16% -- Backlog units at quarter end of 2,558 homes compared to 2,208, an increase of 16% Dollar value of backlog at quarter end of $1.7 billion compared to $1.4 billion, an increase of 17%Average sales price of homes in backlog at quarter end of $656,000 compared to $652,000, an increase of 1% -- Ratios of debt-to-capital and net debt-to-net capital of 39.4% and 30.2%*, respectively, as of June30, 2020 -- Issued $350 million aggregate principal amount of 5.70% Senior Notes due 2028 Proceeds from the issuance during the quarter were used to pay off $216 million of the $300 million of Senior Notes due 2021 that were tendered in a cash tender offer, with the remainder of the notes redeemed in early July. -- Ended the second quarter of 2020 with total liquidity of $1.0 billion, including cash and cash equivalents of $474.5 million and $559.4 million of availability under the Companys unsecured revolving credit facility

* See Reconciliation of Non-GAAP Financial Measures

The health and safety of our employees, trade partners and customers continues to be our top priority as we conduct our business in the era of COVID-19, said TRI Pointe Group President and Chief Operating Officer Tom Mitchell. We have implemented a number of safety protocols across our organization that encourage social distancing and allow for employees to work from home in an effort to limit the spread of the virus. Fortunately, we have been successful in our sales efforts despite the reduced in-person interaction, thanks to our virtual sales capabilities and the investments we have made in our online presence. We believe this new way of shopping for a home will be a lasting shift in consumer behavior and will lead to a more efficient sales model over time.

Outlook

There remains significant uncertainty regarding COVID-19 and future developments, including the duration and severity of the outbreak, as well as the related short-term and long-term impacts on the economy. The following outlook is based on the Companys backlog as of June 30, 2020, current market dynamics and managements estimates. Actual results could differ due to, among other things, the effects of the COVID-19 pandemic, including the severity and duration of the outbreak and disruptions to the economy that may result from the pandemic.

For the third quarter of 2020, the Company anticipates delivering between 1,100 and 1,200 homes at an average sales price between $620,000 and $630,000. The Company expects its homebuilding gross margin percentage will be in the range of 20.0% to 21.0% for the third quarter of 2020 and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 10.2% to 10.7% during such period. Lastly, the Company expects its effective tax rate for the third quarter of 2020 will be in the range of 25% to 26%.

For the full year, the Company anticipates delivering between 4,400 and 4,700 homes at an average sales price between $620,000 and $630,000. In addition, the Company expects homebuilding gross margin percentage will be in the range of 20.0% to 21.0% for the full year and anticipates its SG&A expense as a percentage of homes sales revenue will be in the range of 11.0% to 11.5%. Finally, the Company expects its effective tax rate for the full year will be in the range of 24% to 25%.

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 Friday, July24, 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 13706410. 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 June 30, Six Months Ended June 30, 2020 2019 Change % Change 2020 2019 Change % ChangeOperating Data: (unaudited)Home sales $ 766,942 $ 692,138 $ 74,804 11 % $ 1,361,780 $ 1,184,841 $ 176,939 15 %revenueHomebuilding $ 165,508 $ 117,454 $ 48,054 41 % $ 287,464 $ 188,621 $ 98,843 52 %gross marginHomebuilding 21.6 % 17.0 % 4.6 % 21.1 % 15.9 % 5.2 % gross margin %Adjustedhomebuilding 24.6 % 19.6 % 5.0 % 24.1 % 19.1 % 5.0 % gross margin %*SG&A expense $ 82,748 $ 83,919 $ (1,171 ) (1 )% $ 165,222 $ 161,505 $ 3,717 2 %SG&A expense asa % of home 10.8 % 12.1 % (1.3 )% 12.1 % 13.6 % (1.5 )% sales revenueNet income $ 56,528 $ 26,262 $ 30,266 115 % $ 88,411 $ 26,333 $ 62,078 236 %Adjusted net $ 65,921 $ 26,262 $ 39,659 151 % $ 97,841 $ 26,333 $ 71,508 272 %income*Adjusted $ 120,771 $ 63,617 $ 57,154 90 % $ 188,727 $ 91,766 $ 96,961 106 %EBITDA*Interest $ 21,828 $ 21,962 $ (134 ) (1 )% $ 42,607 $ 45,335 $ (2,728 ) (6 )%incurredInterest incost of home $ 21,801 $ 18,071 $ 3,730 21 % $ 38,623 $ 32,262 $ 6,361 20 %sales Other Data: Net new home 1,332 1,491 (159 ) (11 )% 2,993 2,812 181 6 %ordersNew homes 1,229 1,125 104 9 % 2,187 1,939 248 13 %deliveredAverage salesprice of homes $ 624 $ 615 $ 9 1 % $ 623 $ 611 $ 12 2 %deliveredCancellation 21 % 16 % 5 % 17 % 15 % 2 % rateAverage selling 144.3 146.0 (1.7 ) (1 )% 142.4 147.0 (4.6 ) (3 )%communitiesSellingcommunities at 145 146 (1 ) (1 )% end of periodBacklog(estimated $ 1,679,068 $ 1,438,548 $ 240,520 17 % dollar value)Backlog (homes) 2,558 2,208 350 16 % Average salesprice in $ 656 $ 652 $ 4 1 % backlog June 30, December 31, 2020 2019 Change % Change Balance Sheet (unaudited) Data:Cash and cash $ 474,545 $ 329,011 $ 145,534 44 % equivalentsReal estate $ 3,012,622 $ 3,065,436 $ (52,814 ) (2 )% inventoriesLots owned or 29,800 30,029 (229 ) (1 )% controlledHomes underconstruction ^ 2,326 2,269 57 3 % (1)Homescompleted, 198 343 (145 ) (42 )% unsoldDebt $ 1,416,189 $ 1,283,985 $ 132,204 10 % Stockholders? $ 2,175,799 $ 2,186,530 $ (10,731 ) (0.5 )% equityBook $ 3,591,988 $ 3,470,515 $ 121,473 4 % capitalizationRatio of 39.4 % 37.0 % 2.4 % debt-to-capitalRatio of netdebt-to-net 30.2 % 30.4 % (0.2 )% capital*

__________(1) Homes under construction included 49 and 78 models at June30, 2020 and December31, 2019, respectively.* See Reconciliation of Non-GAAP Financial Measures

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

June 30, December 31, 2020 2019Assets (unaudited) Cash and cash equivalents $ 474,545 $ 329,011Receivables 87,580 69,276Real estate inventories 3,012,622 3,065,436Investments in unconsolidated entities 36,040 11,745Goodwill and other intangible assets, net 159,626 159,893Deferred tax assets, net 39,744 49,904Other assets 167,747 173,425Total assets $ 3,977,904 $ 3,858,690 Liabilities Accounts payable $ 71,086 $ 66,120Accrued expenses and other liabilities 314,818 322,043Loans payable 250,000 250,000Senior notes 1,166,189 1,033,985Total liabilities 1,802,093 1,672,148 Commitments and contingencies Equity Stockholders? equity: Preferred stock, $0.01 par value, 50,000,000 sharesauthorized; no shares issued and outstanding as of June 30, 2020 ? ?and December 31, 2019, respectivelyCommon stock, $0.01 par value, 500,000,000 sharesauthorized; 130,325,865 and 136,149,633 shares issued and 1,303 1,361outstanding at June 30, 2020 and December 31, 2019, respectivelyAdditional paid-in capital 482,111 581,195Retained earnings 1,692,385 1,603,974Total stockholders? equity 2,175,799 2,186,530Noncontrolling interests 12 12Total equity 2,175,811 2,186,542Total liabilities and equity $ 3,977,904 $ 3,858,690



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

Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019Homebuilding: Home sales $ 766,942 $ 692,138 $ 1,361,780 $ 1,184,841 revenueLand and lot 220 5,183 220 6,212 sales revenueOtheroperations 648 637 1,266 1,235 revenueTotal revenues 767,810 697,958 1,363,266 1,192,288 Cost of home 601,434 574,684 1,074,316 996,220 salesCost of land 374 5,562 576 7,057 and lot salesOtheroperations 624 627 1,248 1,217 expenseSales and 45,194 47,065 87,831 86,054 marketingGeneral and 37,554 36,854 77,391 75,451 administrativeRestructuring 5,549 ? 5,549 ? chargesHomebuildingincome from 77,081 33,166 116,355 26,289 operationsEquity in lossof (25 ) (26 ) (39 ) (51 ) unconsolidatedentitiesOther(expense) (6,328 ) 153 (5,955 ) 6,394 income, netHomebuildingincome before 70,728 33,293 110,361 32,632 income taxesFinancial Services:Revenues 2,296 756 3,890 1,058 Expenses 1,285 627 2,364 948 Equity inincome of 2,932 1,972 4,488 2,747 unconsolidatedentitiesFinancialservices 3,943 2,101 6,014 2,857 income beforeincome taxesIncome before 74,671 35,394 116,375 35,489 income taxesProvision for (18,143 ) (9,132 ) (27,964 ) (9,156 ) income taxesNet income $ 56,528 $ 26,262 $ 88,411 $ 26,333 Earnings per shareBasic $ 0.43 $ 0.18 $ 0.67 $ 0.19 Diluted $ 0.43 $ 0.18 $ 0.67 $ 0.18 Weightedaverage shares outstandingBasic 130,292,563 142,244,166 132,326,856 142,055,766 Diluted 130,506,567 142,471,191 132,763,775 142,431,725

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

Three Months Ended June 30, Six Months Ended June 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 PriceNew Homes Delivered:Maracay 165 $ 525 106 $ 525 305 $ 519 180 $ 529Pardee Homes 362 669 325 599 619 680 567 581QuadrantHomes 40 916 67 1,051 92 871 111 1,024TrendmakerHomes 254 477 250 468 463 469 404 463TRIPointeHomes 292 707 281 686 518 705 523 697WinchesterHomes 116 635 96 642 190 632 154 615Total 1,229 $ 624 1,125 $ 615 2,187 $ 623 1,939 $ 611 Three Months Ended June 30, Six Months Ended June 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 PriceNew Homes Delivered:California 490 $ 737 408 $ 661 829 $ 747 736 $ 669Colorado 55 595 81 569 119 580 153 559Maryland 75 556 68 533 130 558 106 509Virginia 41 777 28 906 60 791 48 849Arizona 165 525 106 525 305 519 180 529Nevada 109 505 117 613 189 515 201 578Texas 254 477 250 468 463 469 404 463Washington 40 916 67 1,051 92 871 111 1,024Total 1,229 $ 624 1,125 $ 615 2,187 $ 623 1,939 $ 611

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

Three Months Ended June 30, Six Months Ended June 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 CommunitiesNet New Home Orders:Maracay 162 19.0 253 15.0 402 16.9 414 13.4Pardee Homes 423 44.0 522 44.5 898 43.0 955 44.4QuadrantHomes 105 9.5 67 6.5 231 8.3 142 6.9TrendmakerHomes 205 29.8 247 37.5 439 30.1 490 38.6TRIPointeHomes 327 30.3 294 28.5 741 31.4 589 29.6WinchesterHomes 110 11.7 108 14.0 282 12.7 222 14.1Total 1,332 144.3 1,491 146.0 2,993 142.4 2,812 147.0 Three Months Ended June 30, Six Months Ended June 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 CommunitiesNet New Home Orders:California 598 54.0 616 54.0 1,262 54.9 1,133 54.3Colorado 50 3.8 56 6.3 109 4.1 137 6.6Maryland 80 8.5 84 10.0 203 9.1 168 9.9Virginia 30 3.3 24 4.0 79 3.6 54 4.2Arizona 162 19.0 253 15.0 402 16.9 414 13.4Nevada 102 16.5 144 12.7 268 15.4 274 13.1Texas 205 29.7 247 37.5 439 30.1 490 38.6Washington 105 9.5 67 6.5 231 8.3 142 6.9Total 1,332 144.3 1,491 146.0 2,993 142.4 2,812 147.0

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

As of June 30, 2020 As of June 30, 2019 Backlog Backlog Average Backlog Backlog Average Units Dollar Sales Units Dollar Sales Value Price Value PriceBacklog: Maracay 427 $ 255,916 $ 599 385 $ 211,935 $ 550Pardee 739 494,785 670 790 602,054 762HomesQuadrant 228 213,093 935 77 65,968 857HomesTrendmaker 321 146,650 457 399 195,871 491HomesTRI Pointe 552 383,826 695 384 252,708 658HomesWinchester 291 184,798 635 173 110,012 636HomesTotal 2,558 $ 1,679,068 $ 656 2,208 $ 1,438,548 $ 652 As of June 30, 2020 As of June 30, 2019 Backlog Backlog Average Backlog Backlog Average Units Dollar Sales Units Dollar Sales Value Price Value PriceBacklog: California 985 $ 689,789 $ 700 853 $ 671,695 $ 787Colorado 90 54,170 602 128 73,429 574Maryland 190 108,856 573 123 63,321 515Virginia 101 75,942 752 50 46,691 934Arizona 427 255,916 599 385 211,935 550Nevada 216 134,652 623 193 109,638 568Texas 321 146,650 457 399 195,871 491Washington 228 213,093 935 77 65,968 857Total 2,558 $ 1,679,068 $ 656 2,208 $ 1,438,548 $ 652

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

June 30, December 31, 2020 2019Lots Owned or Controlled^(1): Maracay 3,490 3,730Pardee Homes 12,950 13,267Quadrant Homes 1,010 1,103Trendmaker Homes 4,213 4,034TRI Pointe Homes 6,369 6,170Winchester Homes 1,768 1,725Total 29,800 30,029 June 30, December 31, 2020 2019Lots Owned or Controlled^(1): California 14,148 14,677Colorado 1,126 1,033Maryland 1,050 1,140Virginia 718 585Arizona 3,490 3,730Nevada 2,024 2,026North Carolina 1,909 1,590South Carolina 112 111Texas 4,213 4,034Washington 1,010 1,103Total 29,800 30,029 June 30, December 31, 2020 2019Lots by Ownership Type: Lots owned 21,749 22,845Lots controlled^(1) 8,051 7,184Total 29,800 30,029

__________(1)As of June30, 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 June 30, 2020 % 2019 % (dollars in thousands)Home sales revenue $ 766,942 100.0 % $ 692,138 100.0 %Cost of home sales 601,434 78.4 % 574,684 83.0 %Homebuilding gross 165,508 21.6 % 117,454 17.0 %marginAdd:interest in cost 21,801 2.8 % 18,071 2.6 %of home salesAdd:impairments andlot option 1,380 0.2 % 288 0.0 %abandonmentsAdjusted homebuilding $ 188,689 24.6 % $ 135,813 19.6 %gross marginHomebuilding gross 21.6 % 17.0 % margin percentageAdjusted homebuildinggross margin 24.6 % 19.6 % percentage

Six Months Ended June 30, 2020 % 2019 %Home sales $ 1,361,780 100.0 % $ 1,184,841 100.0 %revenueCost of home 1,074,316 78.9 % 996,220 84.1 %salesHomebuilding 287,464 21.1 % 188,621 15.9 %gross marginAdd:interest incost of home 38,623 2.8 % 32,262 2.7 %salesAdd:impairmentsand lot option 1,729 0.1 % 5,490 0.5 %abandonmentsAdjustedhomebuilding $ 327,816 24.1 % $ 226,373 19.1 %gross margin^(1)Homebuildinggross margin 21.1 % 15.9 % percentageAdjustedhomebuilding 24.1 % 19.1 % gross marginpercentage^(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.

June 30, 2020 December 31, 2019Loans payable $ 250,000 $ 250,000 Senior notes 1,166,189 1,033,985 Total debt 1,416,189 1,283,985 Stockholders? equity 2,175,799 2,186,530 Total capital $ 3,591,988 $ 3,470,515 Ratio of debt-to-capital^(1) 39.4 % 37.0 % Total debt $ 1,416,189 $ 1,283,985 Less: Cash and cash equivalents (474,545 ) (329,011 )Net debt 941,644 954,974 Stockholders? equity 2,175,799 2,186,530 Net capital $ 3,117,443 $ 3,141,504 Ratio of net debt-to-net capital^(2) 30.2 % 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 June Six Months Ended June 30, 30, 2020 2019 2020 2019 (in thousands)Net income $ 56,528 $ 26,262 $ 88,411 $ 26,333 Interest expense: Interest incurred 21,828 21,962 42,607 45,335 Interest capitalized (21,828 ) (21,962 ) (42,607 ) (45,335 )Amortization of interest in 21,806 18,107 38,628 32,440 cost of salesProvision for income taxes 18,143 9,132 27,964 9,156 Depreciation and 6,720 6,477 12,176 11,561 amortizationEBITDA 103,197 59,978 167,179 79,490 Amortization of stock-based 3,786 3,351 7,411 6,786 compensationImpairments and lot option 1,380 288 1,729 5,490 abandonmentsEarly loan termination 6,859 ? 6,859 ? costsRestructuring charges 5,549 ? 5,549 ? Adjusted EBITDA $ 120,771 $ 63,617 $ 188,727 $ 91,766



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) benefit 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 June 30, 2020 Six Months Ended June 30, 2020 As Reported Adjustments Adjusted As Reported Adjustments Adjusted (in thousands, except per share amounts)Incomebefore $ 74,671 $ 12,408 (1 ) $ 87,079 $ 116,375 $ 12,408 (1 ) $ 128,783 incometaxesProvisionfor income (18,143 ) (3,015 ) (2 ) (21,158 ) (27,964 ) (2,978 ) (2 ) (30,942 )taxesNet income $ 56,528 $ 9,393 $ 65,921 $ 88,411 $ 9,430 $ 97,841 Earnings per shareDiluted $ 0.43 $ 0.51 $ 0.67 $ 0.74 Weightedaverage sharesoutstandingDiluted 130,507 130,507 132,764 132,764 Effective 24.3 % 24.3 % 24.0 % 24.0 %tax rate

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-- Includes (i) a $6.9 million charge 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) $5.5 million of restructuring charges related to a workforce reduction plan. -- Includes a tax adjustment to reflect the higher pretax earnings associated with the aforementioned adjustments.