William Lyon Homes Reports Fourth Quarter and Full Year 2017 Results

Full Year Homebuilding Revenue of $1.8 Billion, Highest in the History of the Company; 100 Basis Point Improvement in Operating Margin

Fourth Quarter Homebuilding Revenue of $623.3 Million; Gross Margin of 18.9%;

Pre-Tax Income of $62.2 Million

William Lyon Homes WLH, a leading homebuilder in the Western U.S., announced results for its fourth quarter and year ended December 31, 2017.

2017 Fourth Quarter Highlights (Comparison to 2016 Fourth Quarter)

• Pre-tax income of $62.2 million, up 54%
• Net income available to common stockholders of $11.8 million, or $0.30 per diluted share
  • Excluding the impact of tax reform, adjusted net income available to common stockholders was $34.9 million, or $0.89 per diluted share
• Home sales revenue of $623.3 million, up 32%
• Homebuilding gross margin percentage of 18.9%
• Homebuilding gross margin of $117.9 million, up 46%
• Adjusted homebuilding gross margin percentage of 24.4%, up 280 basis points
• New home deliveries of 1,058 homes, up 17%
• Net new home orders of 672, up 19%
• Dollar value of orders of $351.3 million, up 24%
• Average sales price (ASP) of new homes delivered of $589,100, up 12%
• Dollar value of homes in backlog of $433.0 million, up 5%
• Units in backlog of 822, up 12%
• Average sales locations of 80, up 1%
• SG&A percentage of 9.2%, compared to 9.0%
• Adjusted EBITDA of $95.8 million, up 52%

2017 Full Year Highlights (Comparison to 2016 Full Year)

• Pre-tax income before extinguishment of debt of $142.5 million, up 39%
• Net income available to common stockholders of $48.1 million, or $1.24 per diluted share
  • Adjusted net income available to common stockholders of $85.3 million, or $2.21 per diluted share, which:
    • excludes $14.1 million of loss from extinguishment of debt, net of income tax and
    • excludes the impact of tax reform of $23.1 million

• Home sales revenue of $1,795.1 million, up 28%
• Homebuilding gross margin percentage of 17.6%
• Homebuilding gross margin of $316.5 million, up 32%
• Adjusted homebuilding gross margin percentage of 23.2%, up 30 basis points
• New home deliveries of 3,239 homes, up 16%
• Net new home orders of 3,328, up 20%
• Dollar value of orders of $1,783.4 million, up 28%
• Average sales price (ASP) of new homes delivered of $554,200, up 10%
• Average sales locations of 84, up 14%
• SG&A percentage of 9.8%, compared to 10.4%
• Adjusted EBITDA of $243.7 million, up 30%

"We are extremely proud of our 2017 results, which was a year of continued growth, as we delivered 3,239 homes and achieved homebuilding revenues of $1.8 billion, up 16% and 28%, respectively, and a Company record for homebuilding revenues. Our fourth quarter of 2017 represented another strong quarter, with homebuilding revenues of $623.3 million, up 32%, new home deliveries of 1,058 homes, up 17%, average sales price of $589,100, up 12%, and the dollar value of orders of $351.3 million, up 24%," said Matthew R. Zaist, President and Chief Executive Officer.

Mr. Zaist continued, "As we expected, the fourth quarter proved to be a continuation of our improvements in our GAAP homebuilding gross margins, which were 18.9%, an increase of 80 basis points above the third quarter of 2017, 240 basis points above the second quarter of 2017 and 190 basis points year-over-year. Our fourth quarter results included operating margin improvement of 150 basis points year-over-year, which is a testament to improving our operating discipline around land acquisition and cost control, as well as the strength of our Western markets.

"In addition, we are extremely pleased with our balance sheet, ending the year with total liquidity of approximately $344.9 million, which includes cash of $182.7 million and availability under our revolving credit facility of $162.2 million, and net debt to capital of 49.6%."

This morning, the Company also announced in a separate press release that it has entered into definitive agreements to acquire RSI Communities, a Southern California and Texas based homebuilder, along with three related real estate assets, with approximately 11,000 lots owned and controlled as of December 31, 2017. Assuming the RSI acquisition closes in March, on a combined basis, the Company currently expects its results for the full year 2018 to include deliveries of approximately 4,400 to 4,750 units, home sales revenue of approximately $2.2 billion to $2.3 billion, and expects community count by year-end 2018 of approximately 125 active selling communities.

Operating Results

Home sales revenue for the fourth quarter of 2017 was $623.3 million, as compared to $473.2 million in the year-ago period, an increase of 32%. The increase was driven by a 17% increase in deliveries to 1,058 homes, compared to 902 in the fourth quarter of 2016, combined with an increase in the average sales price of homes delivered to $589,100, up 12% from the prior year.

The dollar value of orders for the fourth quarter of 2017 was $351.3 million, an increase of 24%, from $284.1 million in the year-ago period. Net new home orders for the quarter were 672, up 19% from 564 in the fourth quarter of 2016. The overall increase in net new home orders was driven by a 17% increase in the monthly absorption rate from 2.4 sales per community in the year-ago period to 2.8 sales per community in the current period.

The dollar value of homes in backlog was $433.0 million as of December 31, 2017, an increase of 5% compared to $410.7 million as of December 31, 2016. The increase was driven by a 12% increase in units in backlog to 822 from 733 in the year-ago period.

Homebuilding gross margin percentage for homes closed during the fourth quarter of 2017 was 18.9%, up from 17.0% gross margin percentage in the year-ago period and 18.1% in the third quarter of 2017. Adjusted homebuilding gross margin percentage for the quarter was 24.4%, up from 21.6% adjusted gross margin percentage in the prior year period and 23.6% in the third quarter of 2017.

Sales and marketing expense was 4.5% of homebuilding revenue during the fourth quarter of 2017 and 2016, and general and administrative expenses slightly increased to 4.7% of homebuilding revenue, compared to 4.5% in the year-ago quarter.

The recently enacted tax reform laws led to a one-time charge in the fourth quarter of $23.1 million, related to the revaluation of our net deferred tax asset at the lower corporate tax rate, which is included in provision for income taxes in the accompanying income statement. The Company's effective tax rate was 52.1% for the full year 2017, excluding such impact, the Company's effective tax rate was 33.0%.

Balance Sheet Update

At quarter end, cash and cash equivalents totaled $182.7 million, real estate inventories totaled $1.7 billion, total assets were $2.1 billion and total equity was $860.6 million. Total debt to book capitalization was 54.5%, and net debt to total capital (net of cash) was 49.6% at December 31, 2017, compared to 58.6% and 57.6% at December 31, 2016, respectively.

Conference Call

The Company will host a conference call to discuss these results, as well as the pending RSI Communities acquisition, today, Tuesday, February 20, 2018 at 9:00 a.m. Pacific Time. The call will be available via both the telephone at (855) 851-4524 or (720) 634-2900, conference ID #7289339, 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 February 28, 2018 by dialing (855) 859-2056 or (404) 537-3406, conference ID #7289339. 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, Portland and Seattle. The Company has a distinguished legacy of more than 60 years of homebuilding operations, over which time it has sold in excess of 102,000 homes. The Company markets and sells its homes under the William Lyon Homes brand in all of its markets except for Washington and Oregon, where the Company operates under the Polygon Northwest brand.

Forward-Looking Statements

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 pre-tax income, gross margin performance, backlog conversion rates, operating and financial results for the first quarter of 2018 and full year 2018, community count growth and project performance, 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, minority interest from our homebuilding joint ventures, leverage ratios and reduction strategies, land acquisition spending, the consummation of the proposed transaction with RSI Communities and the anticipated benefits to be realized therefrom, the anticipated financing for the proposed RSI Communities transaction and the anticipated financial or operational performance resulting from the proposed RSI Communities transaction, and estimated new home deliveries, home sales revenue and community count on a combined Company basis. 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 Company's ability to successfully integrate RSI Communities' homebuilding operations with its existing operations; any adverse effect on the Company's, or RSI Communities', business operations before or after the completion of the proposed acquisition, adverse weather conditions; the availability of labor and homebuilding materials and increased construction cycle times; the availability and timing of mortgage financing; 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; increased outside broker costs; increased costs of homebuilding materials; changes in governmental laws and regulations and compliance, increased costs, fees and delays associated therewith; government actions, policies, programs and regulations directed at or affecting the housing market (including the Tax Cuts and Jobs Act ("TCJA"), the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; changes in existing tax laws or enacted corporate income tax rates, including pursuant to the TCJA; 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; defects in manufactured products or other homebuilding materials; decline in real estate values resulting in impairment of our real estate assets; volatility in the banking industry, credit and capital markets; terrorism or other hostilities involving the United States and other geopolitical risks; 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; 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; 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.

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