Market Overview

William Lyon Homes Reports First Quarter 2019 Results

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First Quarter Homebuilding Revenue of $453.8 Million, up 22%;
Pre-Tax Income of $20.0 Million, up 30%; New Home Deliveries of 949
Homes, up 28%; SG&A Percentage of 12.0%

William Lyon Homes (NYSE:WLH), a leading homebuilder in the Western
U.S., announced results for its first quarter ended March 31, 2019.

2019 First Quarter Highlights (Comparison to 2018 First Quarter)

  • Net income available to common stockholders of $8.1 million, or $0.21
    per diluted share, compared to $8.3 million, or $0.21 per diluted
    share in the prior year
  • Pre-tax income of $20.0 million, up from $15.4 million in the prior
    year
  • New home deliveries of 949 homes, up 28%
  • Home sales revenue of $453.8 million, up 22%
  • Average sales price (ASP) of new homes delivered of $478,200 versus
    $503,200
  • Homebuilding gross margin percentage of 16.0%
  • Net new home orders of 1,103
  • Units in backlog of 1,195
  • Dollar value of homes in backlog of $527.2 million
  • SG&A percentage of 12.0%, compared to 12.7%
  • Adjusted EBITDA of $36.6 million
  • Average sales locations of 118

"The first quarter of 2019 played out generally as we expected, and
reflected a nice rebound from the volatility experienced late last year,
as interest rates have receded and consumer demand has rebounded against
a backdrop of ongoing strength in the broader economy," said Matthew R.
Zaist, President and Chief Executive Officer. "One of our objectives
coming into the year was to deliver on our spec inventory, and our
operating teams performed well in converting these homes to sell and
close during the quarter. This represented 41% of our deliveries for the
quarter, highlighting the attractiveness to the entry-level consumer of
inventory available to the needs-based buyer."

"Overall our backlog conversion rate was 91% for the quarter, the
highest in several years, and yielding 949 new home deliveries, an
increase of 28%, and homebuilding revenues of $453.8 million, up 22%
over the prior year. In addition, we had significant improvement in
pre-tax income of 30% year-over-year, and SG&A leverage was better than
our expectations by 100 basis points."

Mr. Zaist continued, "Net new home orders for the first quarter were
flat compared to last year's very strong first quarter, and the order
cadence accelerated each month as the quarter progressed. Our monthly
order pace was 2.4 sales per community in January, improving to 2.9 in
February, and picking up meaningfully in March to 4.1, bringing us back
in line with historical norms. We continue to benefit from our strategy
of focusing on the entry-level and first-time move-up buyer segments,
which represent 83% of our deliveries and our ending backlog, and the
highest absorbing segments for the Company during the quarter."

Operating Results

Home sales revenue for the first quarter of 2019 was $453.8 million, as
compared to $372.4 million in the year-ago period, an increase of 22%.
The increase was driven by a 28% increase in deliveries to 949 homes,
compared to 740 in the first quarter of 2018, partially offset by a 5%
year-over-year decline in the average sales price of homes closed. Our
decrease in ASP is based on our change in product mix with a higher
concentration of deliveries from Texas.

Homebuilding gross margin percentage for homes closed during the first
quarter of 2019 was 16.0%, compared to 17.5% in the prior year period.
The year-over-year decrease was primarily attributable to higher sales
incentives on homes closed during the first quarter. Incentives as a
percentage of revenue was 3.3% during the first quarter of 2019 as
compared to 2.1% during the first quarter of 2018.

Net new home orders for the quarter were 1,103, in line with 1,106 in
the first quarter of 2018. Net new home orders reflect a decrease in
sales pace, as community count increased to 118 average sales locations,
from 84 in the year-ago period, an increase of 40%. Our cancellation
rate for the first quarter of 2019 was 16%, which is higher than the 10%
experienced in the first quarter of last year, but down significantly
from the 24% cancellation rate we experienced during the fourth quarter
of 2018.

Sales and marketing expense during the first quarter of 2019 decreased
to 5.6% of homebuilding revenue, compared to 6.1% in the year-ago
quarter, primarily due to a decrease in advertising and model operations
expense during the quarter. General and administrative expenses
decreased to 6.4% of homebuilding revenue, compared to 6.6% in the
year-ago quarter, primarily due to improved operating leverage.

Pre-tax income was up 30.0% to $20.0 million, from $15.4 million in the
prior year. Provision for income tax was up to $4.9 million, for an
effective tax rate of 24.4%, compared to a provision of $2.8 million, or
18.3%, in the prior year. The increase is attributable to certain
one-time discreet items regarding stock compensation expense during the
current year.

Net income attributable to non-controlling interest was $7.0 million
during the first quarter, which was higher than our prior expectations
due primarily to the timing of an additional phase of deliveries in a
joint venture project in Southern California.

Balance Sheet Update

At quarter end, cash and cash equivalents totaled $45.7 million, owned
real estate inventories totaled $2.3 billion, total assets were $2.9
billion and total equity was $1.0 billion. Total debt to book
capitalization was 57.4%, and net debt to net book capitalization was
56.6% at March 31, 2019, compared to 56.6% and 55.9% at December 31,
2018, respectively.

Recent Developments

On May 1, 2019, the Board of Directors of the Company approved a limited
waiver at the request of William H. Lyon solely for purposes of Section
203 of the Delaware General Corporation Law to allow Mr. Lyon and
certain of his affiliates (the "Lyon Stockholders") to enter into
certain arrangements with potential unaffiliated co-investors in
connection with potentially making a proposal for a possible business
combination with the Company, as described in more detail in the
Schedule 13D amendment filed by the Lyon Stockholders on the SEC's
website on May 2, 2019. Mr. Lyon has indicated that he is not engaged in
active discussions, the Company is not aware of any imminent proposal,
and there is no assurance that granting this waiver will lead to any
potential transaction.

Conference Call

The Company will host a conference call to discuss these results today,
Thursday, May 2nd, 2019 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 #2977366, 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 May 9th, 2019 by dialing
(855) 859-2056 or (404) 537-3406, conference ID #2977366. 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, Oregon and Texas. Its core markets include
Orange County, Los Angeles, San Diego, Riverside, San Bernardino, the
South and East Bay Areas of San Francisco, Phoenix, Las Vegas, Denver,
Fort Collins, Portland, Seattle, Houston, Austin and San Antonio. The
Company has a distinguished legacy of more than 60 years of homebuilding
operations, over which time it has sold in excess of 108,000 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 deliveries, revenue
and pre-tax income, gross margin performance, backlog conversion rates,
operating and financial results for the second quarter of 2019 and
beyond, community count growth and project performance, market and
industry trends, 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, any actions that may be
taken by the Lyon Stockholders or other third parties, leverage ratios
and reduction strategies, land acquisitions, financial services and
ancillary business performance and strategies. 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:
changes in mortgage and other interest rates; affordability pressures;
adverse weather conditions; the availability of labor and homebuilding
materials and increased construction cycle times; 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 housing supply
in our markets; 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; restraints on foreign investment;
terrorism or other hostilities involving the United States and other
geopolitical risk as well as restrictive policies such as tariffs or
capital investment restrictions; building moratorium or "slow-growth" or
"no-growth" initiatives that could be implemented in states in which we
operate; conditions in the capital, credit and financial markets,
including mortgage lending standards and the availability and timing 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.

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
(unaudited)
       
 
Three Three
Months Months
Ended Ended
March 31, March 31,
2019 2018
Operating revenue
Home sales $ 453,775 $ 372,385
Construction services   2,089     983  
  455,864     373,368  
Operating costs
Cost of sales — homes (381,044 ) (307,308 )
Construction services (1,969 ) (983 )
Sales and marketing (25,277 ) (22,693 )
General and administrative (29,126 ) (24,521 )
Transaction expenses - (3,130 )
Other   (344 )   (298 )
  (437,760 )   (358,933 )
Operating income 18,104 14,435
Equity in income of unconsolidated joint ventures 912 932
Other income, net   631     35  
Income before extinguishment of debt 19,647 15,402
Gain on extinguishment of debt   383     -  
Income before provision for income taxes 20,030 15,402
Provision for income taxes   (4,896 )   (2,814 )
Net income 15,134 12,588
Less: Net income attributable to noncontrolling interests   (7,015 )   (4,260 )
Net income available to common stockholders $ 8,119   $ 8,328  
 
Income per common share:
Basic $ 0.22 $ 0.22
Diluted $ 0.21 $ 0.21
Weighted average common shares outstanding:
Basic 37,610,766 37,931,256
Diluted 38,755,113 39,855,683
 
WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value per share)
       
 
March 31, December 31,
2019 2018
(unaudited)
ASSETS
Cash and cash equivalents $ 45,709 $ 33,779
Receivables 15,417 13,502
Escrow proceeds receivable 2,659 -
Real estate inventories
Owned 2,303,536 2,333,207
Not owned 294,085 315,576
Investment in unconsolidated joint ventures 5,662 5,542
Goodwill 123,695 123,695
Intangibles, net of accumulated amortization of $4,640 as of March
31, 2019 and December 31, 2018
6,700 6,700
Deferred income taxes 46,900 47,241
Lease right-of-use assets 13,135 13,561
Other assets, net   37,515   36,971
Total assets $ 2,895,013 $ 2,929,774
LIABILITIES AND EQUITY
Accounts payable $ 108,506 $ 128,371
Accrued expenses 96,715 150,155
Liabilities from inventories not owned 294,085 315,576
Revolving credit facility 110,000 45,000
Construction notes payable 1,204 1,231
Joint venture notes payable 144,027 151,788
7% Senior Notes due August 15, 2022 347,639 347,456
6% Senior Notes due September 1, 2023 344,206 343,878
57/8% Senior Notes due January 31, 2025   428,430   431,992
  1,874,812   1,915,447
Commitments and contingencies
Equity:
William Lyon Homes stockholders' equity
Preferred stock, par value $0.01 per share; 10,000,000 shares
authorized and no shares issued and outstanding at March 31, 2019
and December 31, 2018
- -
Common stock, Class A, par value $0.01 per share; 150,000,000 shares
authorized; 34,020,166 and 33,904,972 shares issued, 32,995,571 and
32,690,378 shares outstanding at March 31, 2019 and December 31,
2018, respectively
340 339
Common stock, Class B, par value $0.01 per share; 30,000,000 shares
authorized; 4,817,394 shares issued and outstanding at March 31,
2019 and December 31, 2018
48 48
Additional paid-in capital 445,953 445,545
Retained earnings   425,509   417,390
Total William Lyon Homes stockholders' equity 871,850 863,322
Noncontrolling interests   148,351   151,005
Total equity   1,020,201   1,014,327
Total liabilities and equity $ 2,895,013 $ 2,929,774
 
WILLIAM LYON HOMES
SELECTED FINANCIAL AND OPERATING INFORMATION
(unaudited)
         
Three Months Ended March 31,
2019     2018
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information
(dollars in thousands)
Homes closed   949     740   28 %
Home sales revenue $ 453,775 $ 372,385 22 %
Cost of sales (excluding interest)   (360,628 )   (287,769 ) 25 %
Adjusted homebuilding gross margin (1) $ 93,147   $ 84,616   10 %
Adjusted homebuilding gross margin percentage (1)   20.5 %   22.7 % (10 %)
Interest in cost of sales (20,415 ) (18,804 ) 9 %
Purchase accounting adjustments   -     (735 ) (100 %)
Gross margin $ 72,732   $ 65,077   12 %
Gross margin percentage   16.0 %   17.5 % (8 %)
 
Number of homes closed
California 281 210 34 %
Arizona 89 105 (15 %)
Nevada 71 74 (4 %)
Colorado 126 93 35 %
Washington 72 94 (23 %)
Oregon 120 104 15 %
Texas   190     60   217 %
Total   949     740   28 %
 
Average sales price of homes closed
California $ 662,300 $ 642,000 3 %
Arizona 332,500 305,100 9 %
Nevada 531,100 664,500 (20 %)
Colorado 444,700 430,800 3 %
Washington 581,300 581,600 (0 %)
Oregon 425,700 450,500 (6 %)
Texas   270,400     246,200   10 %
Company Average $ 478,200 $ 503,200 (5 %)
 
Number of net new home orders
California 290 283 2 %
Arizona 112 108 4 %
Nevada 59 109 (46 %)
Colorado 172 144 19 %
Washington 94 179 (47 %)
Oregon 112 209 (46 %)
Texas   264     74   257 %
Total   1,103     1,106   (0 %)
 
Average number of sales locations during period
California 35 22 59 %
Arizona 9 6 50 %
Nevada 13 12 8 %
Colorado 11 15 (27 %)
Washington 10 9 11 %
Oregon 16 15 7 %
Texas   24     5   380 %
Total   118     84   40 %
 
(1)     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 March 31,
2019 2018
Consolidated Consolidated Percentage %
Total Total Change
Backlog of homes sold but not closed at end of period
California 261 388 (33 %)
Arizona 181 164 10 %
Nevada 82 121 (32 %)
Colorado 180 223 (19 %)
Washington 63 176 (64 %)
Oregon 120 177 (32 %)
Texas   308   211 46 %
Total   1,195   1,460 (18 %)
 
Dollar amount of homes sold but not closed at end of period (in
thousands)
California $ 165,965 $ 282,484 (41 %)
Arizona 63,640 51,055 25 %
Nevada 42,467 80,379 (47 %)
Colorado 79,875 90,312 (12 %)
Washington 45,968 115,375 (60 %)
Oregon 48,524 76,433 (37 %)
Texas   80,752   56,093 44 %
Total $ 527,191 $ 752,131 (30 %)
 
Lots owned and controlled at end of period
Lots owned
California 3,269 3,634 (10 %)
Arizona 3,564 4,116 (13 %)
Nevada 2,555 2,910 (12 %)
Colorado 750 1,266 (41 %)
Washington 1,423 1,377 3 %
Oregon 2,592 2,226 16 %
Texas   3,665   3,345 10 %
Total   17,818   18,874 (6 %)
 
Lots controlled
California 1,292 1,985 (35 %)
Arizona 660 651 1 %
Nevada 101 12 NM
Colorado 2,333 822 184 %
Washington 758 793 (4 %)
Oregon 1,652 1,910 (14 %)
Texas   4,228   3,763 12 %
Total   11,024   9,936 11 %
 
Total lots owned and controlled
California 4,561 5,619 (19 %)
Arizona 4,224 4,767 (11 %)
Nevada 2,656 2,922 (9 %)
Colorado 3,083 2,088 48 %
Washington 2,181 2,170 1 %
Oregon 4,244 4,136 3 %
Texas   7,893   7,108 11 %
Total   28,842   28,810 0 %
 
(1)     Certain lots in California, Texas, Arizona and Washington are
consolidated on the Company's accompanying balance sheet in
accordance with FASB ASC Topic 470, Debt ("ASC 470"). Included in
lots owned are 645 lots in California,1,354 lots in Texas, 1,931
lots in Arizona, and 72 lots in Washington that are associated with
land banking transactions that are consolidated on the Company's
accompanying balance sheet in accordance with ASC 470.
 
WILLIAM LYON HOMES
SUPPLEMENTAL FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)
                     
Three Three
Months Months
Ended Ended
March 31, March 31,
2019 2018
 
Net income available to common stockholders $ 8,119 $ 8,328
Interest incurred $ 24,081 $ 19,258
Adjusted EBITDA (1) $ 36,596 $ 41,712
Adjusted EBITDA Margin (2) 8.0 % 11.2 %
Ratio of adjusted EBITDA to interest incurred 1.5 2.2
 
 
Balance Sheet Data
 
March 31, December 31,
2019 2018
 
Cash and cash equivalents $ 45,709 $ 33,779
 
Total William Lyon Homes stockholders' equity 871,850 863,322
Noncontrolling interests 148,351 151,005
Total debt   1,375,506     1,321,345  
Total capital $ 2,395,707   $ 2,335,672  
 
Ratio of debt to total capital 57.4 % 56.6 %
Ratio of net debt to total capital (net of cash) 56.6 % 55.9 %
 

WILLIAM LYON HOMES

SUPPLEMENTAL FINANCIAL INFORMATION

(dollars in thousands)

(unaudited)

 
(1)     Adjusted EBITDA means net income available to common stockholders
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, (viii) equity in
income of unconsolidated joint ventures, (ix) transaction expenses,
and (x) (gain) loss on extinguishment of debt. 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
available to common stockholders to adjusted EBITDA is provided in
the following table:
 
      Three     Three
Months Months
Ended Ended
March 31, March 31,
2019 2018
 
 
Net income available to common stockholders $ 8,119 $ 8,328
Provision for income taxes 4,896 2,814
Interest expense
Interest incurred 24,081 19,258
Interest capitalized (24,081 ) (19,258 )
Amortization of capitalized interest
included in cost of sales 20,415 18,825
Stock based compensation 2,765 3,181
Depreciation and amortization 745 2,056
Non-cash purchase accounting adjustments - 735
Cash distributions of income from unconsolidated joint ventures 951 3,575
Equity in income of unconsolidated joint ventures (912 ) (932 )
Transaction expenses - 3,130
(Gain) Loss on extinguishment of debt   (383 )   -  
Adjusted EBITDA $ 36,596   $ 41,712  
 
(2)     Calculated as Adjusted EBITDA as a percentage of operating revenue.

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