Market Overview

William Lyon Homes Reports Second Quarter 2015 Results

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NEWPORT BEACH, Calif.--(BUSINESS WIRE)--

William Lyon Homes (NYSE: WLH), a leading homebuilder in the Western U.S., announced results for its 2015 second quarter ended June 30, 2015.

2015 Second Quarter Highlights (Comparison to 2014 Second Quarter)

  • Net income available to common stockholders of $12.3 million, or $0.32 per diluted share
  • Net new home orders of 843, up 117%
  • Dollar value of orders of $374.1 million, up 91%
  • Home sales revenue of $247.7 million, up 47%
  • Consolidated revenue of $254.7 million, up 42%
  • New home deliveries of 553 homes, up 65%
  • Average sales locations of 67, up 76%
  • Dollar value of homes in backlog of $471.5 million, up 55%
  • Average sales price (ASP) of new homes delivered of $448,000
  • Homebuilding gross margin of $47.5 million, up 19%
  • Homebuilding gross margin percentage of 19.2%
  • Adjusted homebuilding gross margin percentage of 26.0%
  • SG&A percentage of 11.4%, compared to 11.9%
  • Adjusted EBITDA of $38.8 million, up 46%

"Our second quarter results have demonstrated strong business momentum and execution as we benefitted from a healthy spring selling season and our expanded geographic footprint," said William H. Lyon, Co-Chief Executive Officer. "We recorded significant year-over-year increases across a number of key operational metrics, including home sales revenue, the unit and dollar value of orders and backlog, and the number of active selling communities. For the quarter ended June 30, 2015, we generated net income of $12.3 million, or $0.32 per diluted share. Positive demographics and employment growth in our markets in excess of the national average are both leading to solid demand against a backdrop of limited supply."

Matthew R. Zaist, Co-Chief Executive Officer and President, stated, "We are very proud of the execution of our operating teams during the second quarter. Net new home orders more than doubled to 843, the highest total since the second quarter of 2005, averaging a monthly absorption rate of 4.2 orders per project, up 23% from a rate of 3.4 in the second quarter of 2014, and up 17%, sequentially, from a rate of 3.6 in the first quarter of 2015. Our July sales continued our year-over-year improvement trends, with net orders up 130% and monthly absorption rates up 30% year-over-year."

Operating Results

Home sales revenue for the second quarter of 2015 was $247.7 million, as compared to $168.2 million in the year-ago period, an increase of 47%. Our performance was driven by a 65% increase in the number of deliveries to 553 homes, compared to 336 homes delivered in the second quarter of 2014. Average sales price of homes delivered was $448,000 in the quarter, compared to $500,500 in the year-ago period. The decline in ASP reflects changes in geographic and product mix.

The dollar value of orders for the second quarter of 2015 was $374.1 million, an increase of 91%, from $195.4 million in the year-ago period. Net new home orders for the quarter more than doubled to 843, from 388 in the second quarter of 2014. The overall increase in net new home orders was primarily driven by an increase in community count to 67 average sales locations, from 38 in the year-ago period, and an increase in the monthly absorption rate from 3.4 sales per month per project in the second quarter of 2014 to 4.2 sales per month in the current period.

The dollar value of homes in backlog was $471.5 million as of June 30, 2015, an increase of 55% compared to $303.3 million as of June 30, 2014. The increase was driven by a 78% increase in units in backlog to 968 from 544 in the year-ago period.

Adjusted homebuilding gross margin percentage was 26.0% during the second quarter of 2015. Homebuilding gross margins for the quarter were 19.2%. In conjunction with the adoption of purchase accounting related to the Polygon acquisition, GAAP margins were impacted by approximately 330 basis points during the quarter.

SG&A expense during the second quarter of 2015 was 11.4% of homebuilding revenue, compared with 11.9% in the year-ago quarter. Breaking down the components of SG&A, sales and marketing expense was 6.0% of homebuilding revenue during the quarter, compared to 5.3% in the year-ago quarter, driven primarily by higher outside broker expenses, compared to the prior year period. General administrative expenses decreased to 5.4% of homebuilding revenue, compared to 6.6% in the year-ago quarter, as we continued to leverage off of a larger operating platform with a lower relative cost structure.

Balance Sheet Update

At quarter end, cash, cash equivalents and restricted cash totaled $61.1 million, escrow proceeds receivable totaled $8.3 million, real estate inventories totaled $1.6 billion, total assets were $1.8 billion and total equity was $618.8 million. Net debt to net book capitalization was 61.9%, and total debt to total book capitalization was 63.3% at June 30, 2015.

Conference Call

The Company will host a conference call to discuss these results today, Friday, August 7, 2015 at 9:00 a.m. Pacific Time. The call will be available via both the telephone at (855) 851-4524 or (720) 634-2900, passcode #88709997, or through the Company's website at www.lyonhomes.com in the Investor Relations section of the site. A replay of the call will be available through August 14, 2015 by dialing (855) 859-2056 or (404) 537-3406, passcode #88709997. A webcast replay of the call will also be available on the Company's website approximately two hours after the broadcast.

About William Lyon Homes

William Lyon Homes is one of the largest Western U.S. regional homebuilders. Headquartered in Newport Beach, California, the Company is primarily engaged in the design, construction, marketing and sale of single-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington and Oregon. Its core markets include Orange County, Los Angeles, San Diego, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Seattle and Portland. The Company has a distinguished legacy of more than 59 years of homebuilding operations, over which time it has sold in excess of 94,000 homes. The Company markets and sells its homes under the William Lyon Homes brand in all of its markets except for Colorado, where the Company operates under the Village Homes brand, and Washington and Oregon, where the Company operates under the Polygon Northwest brand.

Financial data included herein includes the Washington and Oregon operations from January 1, 2015 through June 30, 2015. There were no operations in the Company's Washington and Oregon divisions for the three and six months ended June 30, 2014; therefore, period-over-period comparisons for Washington and Oregon are not meaningful ("NM") as indicated in the comparative tables in the schedules attached to this release.

Certain statements contained in this release and the accompanying comments during our conference call that are not historical information contain forward-looking statements, including, but not limited to, statements related to: market and industry trends, the anticipated financial and operating results from execution of the Company's growth strategy and focus on markets in the Western United States, the continued housing market recovery, expected community count growth, anticipated operating results for the third quarter of 2015, anticipated ASP, expected SG&A percentage, gross margins, future cash needs and liquidity, leverage ratios and backlog conversion rates. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. Factors that may impact such forward-looking statements include, among others: our ability to realize the anticipated benefits from the acquisition of Polygon Northwest; our ability to integrate successfully the Polygon Northwest operation with our existing operations; worsening in general economic conditions either internationally, nationally or in regions in which we operate; conditions in our newly entered markets and newly acquired operations; worsening in markets for residential housing; decline in real estate values resulting in impairment of our real estate assets; volatility in the banking industry and credit markets; uncertainties in the capital and securities markets; terrorism or other hostilities involving the United States; building moratorium or "slow-growth" or "no-growth" initiatives that could be implemented in states in which we operate; whether an ownership change occurred that could, under certain circumstances, have resulted in the limitation of our ability to offset prior years' taxable income with net operating losses; changes in mortgage and other interest rates; conditions in the capital, credit and financial markets, including mortgage lending standards and the availability of mortgage financing; changes in generally accepted accounting principles or interpretations of those principles; changes in prices of homebuilding materials; the availability of labor and homebuilding materials; adverse weather conditions, including the continued drought in California; competition for home sales from other sellers of new and resale homes; cancellations and our ability to realize our backlog; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements; changes in governmental laws and regulations; our financial leverage and level of indebtedness and any inability to comply with financial and other covenants under our debt instruments; whether we are able to refinance the outstanding balances of our debt obligations at their maturity; anticipated tax refunds; limitations on our ability to utilize our tax attributes; limitations on our ability to reverse any remaining portion of our valuation allowance with respect to our deferred tax assets; the timing of receipt of regulatory approvals and the opening of projects; the impact of construction defect, product liability and home warranty claims, including the adequacy of self-insurance accruals, and the applicability and sufficiency of our insurance coverage; the availability and cost of land for future development; 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.

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data)

(unaudited)

   
Three Three
Months Months
Ended Ended
June 30, June 30,
  2015     2014  
Operating revenue
Home sales $ 247,740 $ 168,157
Lots, land and other sales - 1,711
Construction services   6,955     9,941  
  254,695     179,809  
Operating costs
Cost of sales — homes (200,248 ) (128,306 )
Cost of sales — lots, land and other - (1,320 )
Construction services (5,898 ) (8,405 )
Sales and marketing (14,904 ) (8,924 )
General and administrative (13,415 ) (11,019 )
Amortization of intangible assets (462 ) (502 )
Other   94     (729 )
  (234,833 )   (159,205 )
Operating income 19,862 20,604
Other income, net   642     354  
Income before provision for income taxes 20,504 20,958
Provision for income taxes   (7,254 )   (6,206 )
Net income 13,250 14,752
Less: Net income attributable to noncontrolling interests   (973 )   (2,467 )
Net income available to common stockholders $ 12,277   $ 12,285  
 
Income per common share:
Basic $ 0.34 $ 0.39
Diluted $ 0.32 $ 0.38
Weighted average common shares outstanding:
Basic 36,565,369 31,224,252
Diluted 38,026,866 32,750,108
 

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data)

(unaudited)

   
Six Six
Months Months
Ended Ended
June 30, June 30,
  2015     2014  
Operating revenue
Home sales $ 437,455 $ 308,456
Lots, land and other sales - 1,711
Construction services   14,408     19,593  
  451,863     329,760  
Operating costs
Cost of sales — homes (354,329 ) (234,518 )
Cost of sales — lots, land and other - (1,320 )
Construction services (11,927 ) (16,473 )
Sales and marketing (27,128 ) (15,482 )
General and administrative (27,363 ) (23,155 )
Amortization of intangible assets (665 ) (1,120 )
Other   (194 )   (1,291 )
  (421,606 )   (293,359 )
Operating income 30,257 36,401
Other income, net   1,423     473  
Income before provision for income taxes 31,680 36,874
Provision for income taxes   (10,824 )   (10,780 )
Net income 20,856 26,094
Less: Net income attributable to noncontrolling interests   (1,897 )   (5,112 )
Net income available to common stockholders $ 18,959   $ 20,982  
 
Income per common share:
Basic $ 0.52 $ 0.67
Diluted $ 0.50 $ 0.64
Weighted average common shares outstanding:
Basic 36,514,962 31,159,422
Diluted 37,876,696 32,669,560
 

WILLIAM LYON HOMES

CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares and par value per share)

 
June 30, December 31,
  2015   2014
(unaudited)
ASSETS
Cash and cash equivalents $ 60,645 $ 52,771
Restricted cash 504 504
Escrow proceeds receivable 8,253 2,915
Receivables 20,665 21,250
Real estate inventories 1,552,251 1,404,639
Deferred loan costs, net 15,088 15,988
Goodwill 60,887 60,887

Intangibles, net of accumulated amortization of $10,085 and $9,420 as of June 30, 2015 and December 31, 2014, respectively

6,993 7,657

Deferred income taxes, net, including valuation allowance of $1,584 and $1,626 at June 30, 2015 and December 31, 2014, respectively

89,825 88,039
Other assets, net   24,688   19,777
Total assets $ 1,839,799 $ 1,674,427
LIABILITIES AND EQUITY
Accounts payable $ 69,516 $ 51,814
Accrued expenses 85,267 85,366
Notes payable 169,281 39,235
Subordinated Amortizing Notes 17,349 20,717
53/4% Senior Notes due April 15, 2019 150,000 150,000
8 1/2% Senior Notes due November 15, 2020 429,545 430,149
7% Senior Notes due August 15, 2022   300,000   300,000
  1,220,958   1,077,281
Commitments and contingencies
Equity:
William Lyon Homes stockholders' equity

Preferred stock, par value $0.01 per share; 10,000,000 and no shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

- -

Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,370,514 and 28,073,438 shares issued, 27,641,834 and 27,487,257 outstanding at June 30, 2015 and December 31, 2014, respectively

284 281

Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,844 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

38 38
Additional paid-in capital 410,597 408,969
Retained earnings   179,586   160,627
Total William Lyon Homes stockholders' equity 590,505 569,915
Noncontrolling interests   28,336   27,231
Total equity   618,841   597,146
Total liabilities and equity $ 1,839,799 $ 1,674,427
 

WILLIAM LYON HOMES

SELECTED FINANCIAL AND OPERATING INFORMATION

(unaudited)

 
Three Months Ended June 30,
  2015     2014  
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed   553     336   65 %
Home sales revenue $ 247,740 $ 168,157 47 %
Cost of sales (excluding interest and purchase accounting adjustments)   (183,450 )   (122,373 ) 50 %
Adjusted homebuilding gross margin (2) $ 64,290   $ 45,784   40 %
Adjusted homebuilding gross margin percentage (2)   26.0 %   27.2 % (5 %)
Interest in cost of sales (8,676 ) (5,873 ) 48 %
Purchase accounting adjustments   (8,122 )   (60 ) 13437 %
Gross margin $ 47,492   $ 39,851   19 %
Gross margin percentage   19.2 %   23.7 % (19 %)
 
Number of homes closed
California 151 208 (27 %)
Arizona 38 55 (31 %)
Nevada 60 53 13 %
Colorado 59 20 195 %
Washington 108 - NM
Oregon   137     -   NM  
Total   553     336   65 %
 
Average sales price of homes closed
California $ 534,500 $ 605,200 (12 %)
Arizona 276,500 267,600 3 %
Nevada 512,900 347,000 48 %
Colorado 464,500 458,500 1 %
Washington 427,600 - NM
Oregon   380,800     -   NM  
Total $ 448,000   $ 500,500   (10 %)
 
Number of net new home orders
California 205 222 (8 %)
Arizona 160 52 208 %
Nevada 70 69 1 %
Colorado 77 45 71 %
Washington 117 - NM
Oregon   214     -   NM  
Total   843     388   117 %
 
Average number of sales locations during period
California 16 16 0 %
Arizona 8 6 33 %
Nevada 11 9 22 %
Colorado 13 7 86 %
Washington 5 - NM
Oregon   14     -   NM  
Total   67     38   76 %
 

(1) For the periods presented, the Company is reporting in six segments: California, Arizona, Nevada, Colorado, Washington and Oregon.

(2) Adjusted homebuilding gross margin is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. It is used by management in evaluating operating performance and in making strategic decisions regarding sales pricing, construction and development pace, product mix and other operating decisions. We believe this information is meaningful as it isolates the impact that interest and purchase accounting adjustments have on homebuilding gross margin and allows investors to make better comparisons with our competitors.

WILLIAM LYON HOMES

SELECTED FINANCIAL AND OPERATING INFORMATION

(unaudited)

   

 

Six Months Ended June 30,
  2015       2014  
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed   941     612   54 %
Home sales revenue $ 437,455 $ 308,456 42 %
Cost of sales (excluding interest and purchase accounting adjustments)   (326,497 )   (223,706 ) 46 %
Adjusted homebuilding gross margin (2) $ 110,958   $ 84,750   31 %
Adjusted homebuilding gross margin percentage (2)   25.4 %   27.5 % (8 %)
Interest in cost of sales (15,377 ) (10,526 ) 46 %
Purchase accounting adjustments   (12,455 )   (286 ) 4255 %
Gross margin $ 83,126   $ 73,938   12 %
Gross margin percentage   19.0 %   24.0 % (21 %)
 
Number of homes closed
California 286 376 (24 %)
Arizona 63 105 (40 %)
Nevada 94 100 (6 %)
Colorado 100 31 223 %
Washington 184 - NM
Oregon   214     -   NM  
Total   941     612   54 %
 
Average sales price of homes closed
California $ 559,600 $ 613,000 (9 %)
Arizona 280,900 266,600 5 %
Nevada 617,200 355,400 74 %
Colorado 455,900 465,700 (2 %)
Washington 421,000 - NM
Oregon   367,500     -   NM  
Total $ 464,900   $ 504,000   (8 %)
 
Number of net new home orders
California 389 455 (15 %)
Arizona 204 115 77 %
Nevada 116 151 (23 %)
Colorado 162 67 142 %
Washington 231 - NM
Oregon   329     -   NM  
Total   1,431     788   82 %
 
Average number of sales locations during period
California 16 15 7 %
Arizona 6 6 0 %
Nevada 10 9 11 %
Colorado 13 6 117 %
Washington 5 - NM
Oregon   9     -   NM  
Total   59     36   64 %
 

(1) For the periods presented, the Company is reporting in six segments: California, Arizona, Nevada, Colorado, Washington and Oregon.

(2) Adjusted homebuilding gross margin is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. It is used by management in evaluating operating performance and in making strategic decisions regarding sales pricing, construction and development pace, product mix and other operating decisions. We believe this information is meaningful as it isolates the impact that interest and purchase accounting adjustments have on homebuilding gross margin and allows investors to make better comparisons with our competitors.

WILLIAM LYON HOMES

SELECTED FINANCIAL AND OPERATING INFORMATION

(unaudited)

   
As of June 30,
  2015   2014
Consolidated Consolidated Percentage %
Total Total Change
Backlog of homes sold but not closed at end of period
California 261

285

(8 %)
Arizona 188 73 158 %
Nevada 95 123 (23 %)
Colorado 146 63 132 %
Washington 109 - NM
Oregon   169   - NM  
Total   968   544 78 %
 
Dollar amount of homes sold but not closed at end of period (in thousands)
California $ 178,602 $ 163,158 9 %
Arizona 47,268 19,772 139 %
Nevada 60,506 90,249 (33 %)
Colorado 68,556 30,149 127 %
Washington 46,880 - NM
Oregon   69,734   - NM  
Total $ 471,546 $ 303,328 55 %
 
Lots owned and controlled at end of period
Lots owned
California 2,256 2,317 (3 %)
Arizona 5,358 5,305 1 %
Nevada 2,922 2,971 (2 %)
Colorado 914 1,021 (10 %)
Washington 1,241 - NM
Oregon   1,050   - NM  
Total   13,741   11,614 18 %
 
Lots controlled
California 1,179 1,613 (27 %)
Arizona - 228 (100 %)
Nevada 171 92 86 %
Colorado 148 208 (29 %)
Washington 726 - NM
Oregon   1,421   - NM  
Total   3,645   2,141 70 %
 
Total lots owned and controlled
California 3,435 3,930 (13 %)
Arizona 5,358 5,533 (3 %)
Nevada 3,093 3,063 1 %
Colorado 1,062 1,229 (14 %)
Washington 1,967 - NM
Oregon   2,471   - NM  
Total   17,386   13,755 26 %
 

WILLIAM LYON HOMES

SUPPLEMENTAL FINANCIAL INFORMATION

(dollars in thousands)

(unaudited)

             
 
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
  2015     2014     2015     2014  
 
Net income attributable to William Lyon Homes $ 12,277 $ 12,285 $ 18,959 $ 20,982
Net cash provided by (used in) operating activities $ (44,130 ) $ (32,805 ) $ (105,302 ) $ (202,541 )
Interest incurred $ 18,611 $ 11,919 $ 36,644 $ 21,314
Adjusted EBITDA (1) $ 38,756 $ 26,605 $ 61,778 $ 47,111
Adjusted EBITDA Margin (2) 15.2 % 14.8 % 13.7 % 14.3 %
Ratio of adjusted EBITDA to interest incurred 2.1 2.2 1.7 2.2
 
 
Balance Sheet Data      
June 30, December 31,
  2015     2014  
 
Cash, cash equivalents and restricted cash $ 61,149 $ 53,275
 
Total William Lyon Homes stockholders' equity 590,505 569,915
Noncontrolling interest 28,336 27,231
Total debt   1,066,175     940,101  
Total book capitalization $ 1,685,016   $ 1,537,247  
 
Ratio of debt to total book capitalization 63.3 % 61.2 %
Ratio of debt to total book capitalization (net of cash) 61.9 % 59.8 %
 

(1) Adjusted EBITDA means net income (loss) attributable to William Lyon Homes plus (i) provision for income taxes, (ii) interest expense, (iii) amortization of capitalized interest included in cost of sales, (iv) stock based compensation, (v) depreciation and amortization, (vi) non-cash purchase accounting adjustments, (vii) cash distributions of income from unconsolidated joint ventures, and (viii) equity in income of unconsolidated joint ventures. Other companies may calculate adjusted EBITDA differently. Adjusted EBITDA is not a financial measure prepared in accordance with U.S. GAAP. Adjusted EBITDA is presented herein because management believes the presentation of adjusted EBITDA provides useful information to the Company's investors regarding the Company's financial condition and results of operations because adjusted EBITDA is a widely utilized indicator of a company's operating performance. Adjusted EBITDA should not be considered as an alternative for net (loss) income, cash flows from operating activities and other consolidated income or cash flow statement data prepared in accordance with accounting principles generally accepted in the United States or as a measure of profitability or liquidity. A reconciliation of net income attributable to William Lyon Homes to adjusted EBITDA is provided in the following table:

(2) Calculated as Adjusted EBITDA as a percentage of operating revenue.

WILLIAM LYON HOMES

SUPPLEMENTAL FINANCIAL INFORMATION

(dollars in thousands)

(unaudited)

       
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
  2015     2014     2015     2014  
 
Net income attributable to
William Lyon Homes $ 12,277 $ 12,285 $ 18,959 $ 20,982
Provision for income taxes 7,254 6,206 10,824 10,780
Interest expense
Interest incurred 18,611 11,919 36,644 21,314
Interest capitalized (18,611 ) (11,919 ) (36,644 ) (21,314 )
Amortization of capitalized interest
included in cost of sales 8,676 5,873 15,377 10,526
Stock based compensation 1,806 843 3,157 1,854
Depreciation and amortization 850 1,338 1,407 2,683
Non-cash purchase accounting adjustments 8,122 60 12,455 286
Cash distributions of income from unconsolidated joint ventures 286 - 362 -
Equity in income of unconsolidated joint ventures   (515 )   -     (763 )   -  
Adjusted EBITDA $ 38,756   $ 26,605   $ 61,778   $ 47,111  

Investor/Media Contacts:
Financial Profiles, Inc.
Larry Clark, (310) 622-8223
WLH@finprofiles.com


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