Market Overview

William Lyon Homes Reports Third Quarter 2016 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 2016 third quarter ended September 30, 2016.

2016 Third Quarter Highlights (Comparison to 2015 Third Quarter)

  • Home sales revenue of $342.6 million, up 40%
  • Pre-tax Income of $24.8 million, up 44%
  • Net income available to common stockholders of $13.1 million, or $0.34 per diluted share, up 8% and 10%, respectively
  • New home deliveries of 673 homes, up 19%
  • Dollar value of orders of $348.7 million, up 17%
  • Net new home orders of 651, up 4%
  • Dollar value of homes in backlog of $591.0 million, up 10%
  • Units in backlog of 1,071, up 4%
  • Average sales locations of 78, up 7%
  • Average sales price (ASP) of new homes delivered of $509,100, up 18%
  • Homebuilding gross margin of $56.7 million, up 29%
  • Homebuilding gross margin percentage of 16.6%
  • Adjusted homebuilding gross margin percentage of 22.2%
  • SG&A percentage of 10.4%, compared to 12.0%
  • Adjusted EBITDA of $42.9 million, up 23%

"The third quarter of 2016 represented another quarter of year-over-year growth for William Lyon Homes across a number of important financial and operational metrics, with homebuilding revenues of $342.6 million, up 40%, average sales price of $509,100, up 18%, gross margin of $56.7 million, up 29%, and SG&A percentage improvement of 160 basis points," said Matthew R. Zaist, President and Chief Executive Officer. "We achieved pre-tax income of $24.8 million for the third quarter, up 44%, resulting in net income available to common stockholders of $13.1 million, or $0.34 per diluted share. Our homebuilding joint venture activity was stronger than anticipated in the quarter, resulting in a higher minority interest allocation."

Mr. Zaist continued, "We continued to increase our community count during the quarter, averaging 78 sales locations for the period, and experienced a relatively stable monthly absorption rate throughout the quarter, which averaged 2.8 sales per community. We are encouraged by our October sales pace which resulted in a total of 207 net new home orders, up 18% year-over-year. Backlog as of the end of the quarter stood at 1,071 units with an associated value of $591.0 million, the highest dollar value in over 10 years."

Operating Results

Home sales revenue for the third quarter of 2016 was $342.6 million, as compared to $244.3 million in the year-ago period, an increase of 40%. Our performance was driven by a 19% increase in the number of deliveries to 673 homes, compared to 564 homes delivered in the third quarter of 2015. Average sales price of homes delivered was $509,100 in the quarter, compared to $433,200 in the year-ago period. The 18% increase in ASP primarily reflects changes in geographic and product mix contributing to closings during the quarter.

The dollar value of orders for the third quarter of 2016 was $348.7 million, an increase of 17%, from $298.4 million in the year-ago period. Net new home orders for the quarter were 651, up 4% from 628 in the third quarter of 2015. The overall increase in net new home orders was primarily driven by an increase in community count to 78 average sales locations, from 73 in the year-ago period.

The dollar value of homes in backlog was $591.0 million as of September 30, 2016, an increase of 10% compared to $537.1 million as of September 30, 2015. The increase was driven by both a 4% increase in units in backlog to 1,071 from 1,032 and a 6% increase in ASP in backlog to $551,900 from $520,500 in the year-ago period.

Homebuilding gross margin percentage was 16.6% during the third quarter of 2016, which included previously disclosed infrastructure charges included in cost of sales, and impacting margins during the quarter. Adjusted homebuilding gross margin percentage for the quarter was 22.2%.

Sales and marketing expense during the third quarter of 2016 was 5.3% of homebuilding revenue, compared to 6.3% in the year-ago quarter, driven primarily by higher homebuilding revenue and leverage on our advertising and marketing costs, compared to the prior year period. General and administrative expenses decreased to 5.1% of homebuilding revenue, compared to 5.7% in the year-ago quarter, as we continue to benefit from a lower relative cost structure due to positive operating leverage.

Balance Sheet Update

At quarter end, cash and cash equivalents totaled $40.7 million, real estate inventories totaled $1.9 billion, total assets were $2.1 billion and total equity was $739.3 million. Total debt to book capitalization was 61.6%, and net debt to net book capitalization was 60.8% at September 30, 2016, compared to 62.2% and 61.1%, respectively, as of December 31, 2015.

Conference Call

The Company will host a conference call to discuss these results today, Friday, November 4, 2016 at 10:00 a.m. Pacific Time. The call will be available via both the telephone at (855) 851-4524 or (720) 634-2900, conference ID #4118865, 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 November 11, 2016 by dialing (855) 859-2056 or (404) 537-3406, conference ID #4118865. 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, the Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Seattle and Portland. The Company has a distinguished legacy of more than 60 years of homebuilding operations, over which time it has sold in excess of 97,000 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.

Certain statements contained in this release and the accompanying comments during our conference call that are not historical information may constitute "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, including, but not limited to, forward-looking statements related to: anticipated new home deliveries, revenue and income, gross margin performance, backlog conversion rates, operating and financial results for the fourth quarter of 2016 and full year 2016, community count growth, market and industry trends, the continued housing market recovery, average sale price of homes to be closed in various periods, SG&A percentage, future cash needs and liquidity, leverage ratios and reduction strategies and land acquisition spending. 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: the availability of labor and homebuilding materials and increased construction cycle times; the availability and timing of mortgage financing, adverse weather conditions, including but not limited to the continued drought in California and the Southwest; our financial leverage and level of indebtedness and any inability to comply with financial and other covenants under our debt instruments; continued volatility and worsening in general economic conditions either internationally, nationally or in regions in which we operate; changes in governmental laws and regulations and increased costs, fees and delays associated therewith; uncertainties regarding the 2016 U.S. presidential election; worsening in markets for residential housing; 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; 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; 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; 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; whether we are able to pay off or refinance the outstanding balances of our debt obligations at their maturity; limitations on our ability to utilize our tax attributes; 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; the timing of receipt of regulatory approvals and the opening of projects; 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
September 30, September 30,
2016 2015
Operating revenue
Home sales $ 342,628 $ 244,311
Construction services   86     4,896  
  342,714     249,207  
Operating costs
Cost of sales — homes (285,896 ) (200,328 )
Construction services (86 ) (4,146 )
Sales and marketing (18,246 ) (15,352 )
General and administrative (17,360 ) (13,981 )
Amortization of intangible assets - (45 )
Other   198     (592 )
  (321,390 )   (234,444 )
Operating income 21,324 14,763
Equity in income of unconsolidated joint ventures 1,435 1,018
Other income, net   2,050     1,452  
Income before provision for income taxes 24,809 17,233
Provision for income taxes   (8,295 )   (4,956 )
Net income 16,514 12,277
Less: Net income attributable to noncontrolling interests   (3,445 )   (195 )
Net income available to common stockholders $ 13,069   $ 12,082  
 
Income per common share:
Basic $ 0.36 $ 0.33
Diluted $ 0.34 $ 0.31
Weighted average common shares outstanding:
Basic 36,801,464 36,573,099
Diluted 38,333,027 38,507,267
 
       
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
(unaudited)
 
Nine Nine
Months Months
Ended Ended
September 30, September 30,
2016 2015
Operating revenue
Home sales $ 928,982 $ 681,766
Construction services   3,810     19,304  
  932,792     701,070  
Operating costs
Cost of sales — homes (769,705 ) (554,657 )
Construction services (3,458 ) (16,073 )
Sales and marketing (51,351 ) (42,480 )
General and administrative (51,879 ) (41,344 )
Amortization of intangible assets - (710 )
Other   (612 )   (1,549 )
  (877,005 )   (656,813 )
Operating income 55,787 44,257
Equity in income of unconsolidated joint ventures 3,810 1,781
Other income, net   2,803     2,875  
Income before provision for income taxes 62,400 48,913
Provision for income taxes   (20,859 )   (15,780 )
Net income 41,541 33,133
Less: Net income attributable to noncontrolling interests   (4,897 )   (2,092 )
Net income available to common stockholders $ 36,644   $ 31,041  
 
Income per common share:
Basic $ 1.00 $ 0.85
Diluted $ 0.96 $ 0.81
Weighted average common shares outstanding:
Basic 36,746,727 36,534,554
Diluted 38,314,021 38,400,236
 
       
WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value per share)
 
September 30, December 31,
2016 2015
(unaudited)
ASSETS
Cash and cash equivalents $ 40,710 $ 50,203
Restricted cash - 504
Receivables 8,121 14,838
Escrow proceeds receivable - 3,041
Real estate inventories 1,856,034 1,675,106
Investment in unconsolidated joint ventures 8,414 5,413
Goodwill 66,902 66,902
Intangibles, net of accumulated amortization of $4,640 as of September 30, 2016 and December 31, 2015 6,700 6,700
Deferred income taxes, net 79,728 79,726
Other assets, net   17,321   21,017
Total assets $ 2,083,930 $ 1,923,450
LIABILITIES AND EQUITY
Accounts payable $ 76,921 $ 75,881
Accrued expenses 82,012 70,324
Revolving credit facility 96,000 65,000
Construction notes payable 7,685 15,915
Joint venture notes payable 123,238 94,266
Land notes payable 32,419 -
Subordinated amortizing note 8,970 14,066
53/4% Senior Notes due April 15, 2019 148,691 148,295

81/2% Senior Notes due November 15, 2020

422,852 422,896
7% Senior Notes due August 15, 2022   345,829   345,338
  1,344,617   1,251,981
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 September 30, 2016 and December 31, 2015, respectively - -
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,902,681 and 28,363,879 shares issued, 27,855,880 and 27,657,435 outstanding at September 30, 2016 and December 31, 2015, respectively 289 284
Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,884 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively 38 38
Additional paid-in capital 416,736 413,810
Retained earnings   254,607   217,963
Total William Lyon Homes stockholders' equity 671,670 632,095
Noncontrolling interests   67,643   39,374
Total equity   739,313   671,469
Total liabilities and equity $ 2,083,930 $ 1,923,450
 
   
WILLIAM LYON HOMES
SELECTED FINANCIAL AND OPERATING INFORMATION
(unaudited)
 
Three Months Ended September 30,
2016     2015    
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed 673 564 19%
Home sales revenue $ 342,628 $ 244,311 40%
Cost of sales (excluding interest and purchase accounting adjustments) (266,666) (183,969) 45%
Adjusted homebuilding gross margin (2) $ 75,962 $ 60,342 26%
Adjusted homebuilding gross margin percentage (2) 22.2% 24.7% (10%)
Interest in cost of sales (13,543) (8,373) 62%
Purchase accounting adjustments (5,687) (7,986) (29%)
Gross margin $ 56,732 $ 43,983 29%
Gross margin percentage 16.6% 18.0% (8%)
 
Number of homes closed
California 169 122 39%
Arizona 108 69 57%
Nevada 85 63 35%
Colorado 70 50 40%
Washington 74 117 (37%)
Oregon 167 143 17%
Total 673 564 19%
 
Average sales price of homes closed
California $ 659,400 $ 518,600 27%
Arizona 266,300 269,400 (1%)
Nevada 583,500 506,700 15%
Colorado 504,500 477,300 6%
Washington 570,900 400,900 42%
Oregon 450,700 417,900 8%
Total $ 509,100 $ 433,200 18%
 
Number of net new home orders
California 191 158 21%
Arizona 117 119 (2%)
Nevada 66 77 (14%)
Colorado 54 38 42%
Washington 66 98 (33%)
Oregon 157 138 14%
Total 651 628 4%
 
Average number of sales locations during period
California 23 18 28%
Arizona 9 8 13%
Nevada 12 11 9%
Colorado 10 14 (29%)
Washington 6 6 0%
Oregon 18 16 13%
Total 78 73 7%
 
(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)
 
Nine Months Ended September 30,
2016     2015
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed   1,879     1,505   25 %
Home sales revenue $ 928,982 $ 681,766 36 %
Cost of sales (excluding interest and purchase accounting adjustments)   (710,457 )   (510,466 ) 39 %
Adjusted homebuilding gross margin (2) $ 218,525   $ 171,300   28 %
Adjusted homebuilding gross margin percentage (2)   23.5 %   25.1 % (6 %)
Interest in cost of sales (39,310 ) (23,750 ) 66 %
Purchase accounting adjustments   (19,938 )   (20,441 ) (2 %)
Gross margin $ 159,277   $ 127,109   25 %
Gross margin percentage   17.1 %   18.6 % (8 %)
 
Number of homes closed
California 458 408 12 %
Arizona 324 132 145 %
Nevada 220 157 40 %
Colorado 170 150 13 %
Washington 225 301 (25 %)
Oregon   482     357   35 %
Total   1,879     1,505   25 %
 
Average sales price of homes closed
California $ 666,800 $ 547,300 22 %
Arizona 263,600 274,900 (4 %)
Nevada 586,300 572,800 2 %
Colorado 505,200 463,000 9 %
Washington 500,100 413,200 21 %
Oregon   437,300     387,700   13 %
Total $ 494,400   $ 453,000   9 %
 
Number of net new home orders
California 591 547 8 %
Arizona 367 323 14 %
Nevada 229 193 19 %
Colorado 204 200 2 %
Washington 238 329 (28 %)
Oregon   582     467   25 %
Total   2,211     2,059   7 %
 
Average number of sales locations during period
California 20 17 18 %
Arizona 8 7 14 %
Nevada 12 10 20 %
Colorado 10 13 (23 %)
Washington 6 6 0 %
Oregon   17     12   42 %
Total   73     65   12 %
 
(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 September 30,
2016 2015
Consolidated Consolidated Percentage %
Total Total Change
Backlog of homes sold but not closed at end of period
California 327 297 10 %
Arizona 252 238 6 %
Nevada 124 109 14 %
Colorado 112 134 (16 %)
Washington 57 90 (37 %)
Oregon   199   164 21 %
Total   1,071   1,032 4 %
 
Dollar amount of homes sold but not closed at end of period (in thousands)
California $ 260,082 $ 236,202 10 %
Arizona 71,609 59,737 20 %
Nevada 78,285 70,601 11 %
Colorado 59,451 64,300 (8 %)
Washington 36,518 36,902 (1 %)
Oregon   85,093   69,383 23 %
Total $ 591,038 $ 537,125 10 %
 
Lots owned and controlled at end of period
Lots owned
California 1,625 2,315 (30 %)
Arizona 4,877 5,289 (8 %)
Nevada 3,131 2,864 9 %
Colorado 1,544 864 79 %
Washington 1,387 1,180 18 %
Oregon   1,303   1,399 (7 %)
Total   13,867   13,911 (0 %)
 
Lots controlled
California 1,069 419 155 %
Arizona - - 0 %
Nevada 51 657 (92 %)
Colorado 232 148 57 %
Washington 1,081 937 15 %
Oregon   1,849   1,601 15 %
Total   4,282   3,762 14 %
 
Total lots owned and controlled
California 2,694 2,734 (1 %)
Arizona 4,877 5,289 (8 %)
Nevada 3,182 3,521 (10 %)
Colorado 1,776 1,012 75 %
Washington 2,468 2,117 17 %
Oregon   3,152   3,000 5 %
Total   18,149   17,673 3 %
 
               
WILLIAM LYON HOMES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
 
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
 
Net income available to common stockholders $ 13,069 $ 12,082 $ 36,644 $ 31,041
Net cash used in operating activities $ (8,073 ) $ (115,414 ) $ (82,978 ) $ (220,354 )
Interest incurred $ 21,293 $ 19,271 $ 62,112 $ 55,915
Adjusted EBITDA (1) $ 42,905 $ 34,914 $ 124,895 $ 96,692
Adjusted EBITDA Margin (2) 12.5 % 14.0 % 13.4 % 13.8 %
Ratio of adjusted EBITDA to interest incurred 2.0 1.8 2.0 1.7
 
 
Balance Sheet Data  
September 30, December 31,
2016 2015
 
Cash, cash equivalents and restricted cash $ 40,710 $ 50,707
 
Total William Lyon Homes stockholders' equity 671,670 632,095
Noncontrolling interest 67,643 39,374
Total debt   1,185,684     1,105,776  
Total book capitalization $ 1,924,997   $ 1,777,245  
 
Ratio of debt to total book capitalization 61.6 % 62.2 %
Ratio of debt to total book capitalization (net of cash) 60.8 % 61.1 %
 
(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 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
(unaudited)
 
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2016 2015 2016 2015
 
Net income available to
common stockholders $ 13,069 $ 12,082 $ 36,644 $ 31,041
Provision for income taxes 8,295 4,956 20,859 15,780
Interest expense
Interest incurred 21,293 19,271 62,112 55,915
Interest capitalized (21,293 ) (19,271 ) (62,112 ) (55,915 )
Amortization of capitalized interest
included in cost of sales 14,981 8,373 41,742 23,750
Stock based compensation 1,526 1,671 4,087 4,828
Depreciation and amortization 503 529 1,508 1,936
Non-cash purchase accounting adjustments 5,687 7,986 22,969 20,441
Cash distributions of income from unconsolidated joint ventures 279 335 896 697
Equity in income of unconsolidated joint ventures   (1,435 )   (1,018 )   (3,810 )   (1,781 )
Adjusted EBITDA $ 42,905   $ 34,914   $ 124,895   $ 96,692  
 

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

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