William Lyon Homes Reports Second Quarter 2016 Results

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August 5, 2016 6:55 AM EDT

31% Increase in Homebuilding Revenue; 22% Increase in Dollar Value of Homes in Backlog; and 19% Increase in Net Income Available to Common Stockholders

NEWPORT BEACH, Calif.--(BUSINESS WIRE)-- William Lyon Homes (NYSE: WLH), a leading homebuilder in the Western U.S., announced results for its 2016 second quarter ended June 30, 2016.

2016 Second Quarter Highlights (Comparison to 2015 Second Quarter)

  • Net income available to common stockholders of $14.6 million, up 19%, or $0.38 per diluted share, up 19%
  • Home sales revenue of $325.1 million, up 31%
  • New home deliveries of 663 homes, up 20%
  • Dollar value of orders of $423.6 million, up 13%
  • Net new home orders of 871, up 3%
  • Dollar value of homes in backlog of $575.5 million, up 22%
  • Units in backlog of 1,093, up 13%
  • Average sales locations of 72, up 7%
  • Average sales price (ASP) of new homes delivered of $490,300, up 9%
  • Homebuilding gross margin of $56.4 million, up 19%
  • Homebuilding gross margin percentage of 17.4%
  • Adjusted homebuilding gross margin percentage of 24.0%
  • SG&A percentage of 10.7%, compared to 11.4%
  • Pre-tax Income of $22.6 million, up 10%
  • Adjusted EBITDA of $48.5 million, up 25%

“We are pleased with our financial results for the second quarter as we continue to improve year-over-year, with homebuilding revenues of $325.1 million, up 31%, gross margin of $56.4 million, up 19%, SG&A percentage improvement of 70 basis points, and net income available to common stockholders of $14.6 million, or $0.38 per diluted share, up 19%,” said Matthew R. Zaist, President and Chief Executive Officer. “We also executed on an active spring selling season with net new home orders of 871, which was a monthly absorption rate of 4.0 sales per community during the quarter, ending the quarter with a rate of 4.2 sales per community in June.”

Mr. Zaist continued, “For the remainder of 2016, we will continue to focus on executing on our strategic initiatives, including conversion of our substantial backlog, which stands at 1,093 units with an associated value of $575.5 million, the highest levels since 2006.”

Operating Results

Home sales revenue for the second quarter of 2016 was $325.1 million, as compared to $247.7 million in the year-ago period, an increase of 31%. Our performance was driven by a 20% increase in the number of deliveries to 663 homes, compared to 553 homes delivered in the second quarter of 2015. Average sales price of homes delivered was $490,300 in the quarter, compared to $448,000 in the year-ago period. The 9% increase in ASP primarily reflects changes in geographic and product mix contributing to closings during the quarter.

The dollar value of orders for the second quarter of 2016 was $423.6 million, an increase of 13%, from $374.1 million in the year-ago period. Net new home orders for the quarter were 871, up 3% from 843 in the second quarter of 2015. The overall increase in net new home orders was primarily driven by an increase in community count to 72 average sales locations, from 67 in the year-ago period.

The dollar value of homes in backlog was $575.5 million as of June 30, 2016, an increase of 22% compared to $471.5 million as of June 30, 2015. The increase was driven by both a 13% increase in units in backlog to 1,093 from 968 and an 8% increase in ASP in backlog to $526,500 from $487,100 in the year-ago period.

Homebuilding gross margin percentage was 17.4% during the second quarter of 2016 and adjusted homebuilding gross margin percentage for the quarter was 24.0%.

Sales and marketing expense during the second quarter of 2016 was 5.6% of homebuilding revenue, compared to 6.0% 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 5.4% 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 $39.8 million, real estate inventories totaled $1.8 billion, total assets were $2.1 billion and total equity was $726.8 million. Total debt to book capitalization was 61.6%, and net debt to net book capitalization was 60.8% at June 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, August 5, 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 #52484853, 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 12, 2016 by dialing (855) 859-2056 or (404) 537-3406, conference id #52484853. 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 96,000 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 and revenue, gross margin performance, backlog conversion rates, operating and financial results for the third 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; 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
June 30, June 30,
2016 2015
Operating revenue
Home sales $ 325,059 $ 247,740
Construction services   594     6,955  
  325,653     254,695  
Operating costs
Cost of sales — homes (268,638 ) (200,248 )
Construction services (548 ) (5,898 )
Sales and marketing (18,112 ) (14,904 )
General and administrative (16,685 ) (13,415 )
Amortization of intangible assets - (462 )
Other   (487 )   (421 )
  (304,470 )   (235,348 )
Operating income 21,183 19,347
Equity in income of unconsolidated joint ventures 1,194 515
Other income, net   228     642  
Income before provision for income taxes 22,605 20,504
Provision for income taxes   (7,519 )   (7,254 )
Net income 15,086 13,250
Less: Net income attributable to noncontrolling interests   (525 )   (973 )
Net income available to common stockholders $ 14,561   $ 12,277  
 
Income per common share:
Basic $ 0.40 $ 0.34
Diluted $ 0.38 $ 0.32
Weighted average common shares outstanding:
Basic 36,786,268 36,565,369
Diluted 38,356,722 38,026,866
 
 
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,
2016 2015
Operating revenue
Home sales $ 586,354 $ 437,455
Construction services   3,724     14,408  
  590,078     451,863  
Operating costs
Cost of sales — homes (483,809 ) (354,329 )
Construction services (3,372 ) (11,927 )
Sales and marketing (33,105 ) (27,128 )
General and administrative (34,519 ) (27,363 )
Amortization of intangible assets - (665 )
Other   (810 )   (957 )
  (555,615 )   (422,369 )
Operating income 34,463 29,494
Equity in income of unconsolidated joint ventures 2,375 763
Other income, net   753     1,423  
Income before provision for income taxes 37,591 31,680
Provision for income taxes   (12,564 )   (10,824 )
Net income 25,027 20,856
Less: Net income attributable to noncontrolling interests   (1,452 )   (1,897 )
Net income available to common stockholders $ 23,575   $ 18,959  
 
Income per common share:
Basic $ 0.64 $ 0.52
Diluted $ 0.62 $ 0.50
Weighted average common shares outstanding:
Basic 36,719,057 36,514,962
Diluted 38,302,047 37,876,696
 
 
WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value per share)
       
June 30, December 31,
2016 2015
(unaudited)
ASSETS
Cash and cash equivalents $ 39,764 $ 50,203
Restricted cash - 504
Receivables 6,730 14,838
Escrow proceeds receivable 2,301 3,041
Real estate inventories 1,828,847 1,675,106
Investment in unconsolidated joint ventures 7,274 5,413
Goodwill 66,902 66,902
Intangibles, net of accumulated amortization of $4,640 as of June 30, 2016 and December 31, 2015 6,700 6,700
Deferred income taxes, net 79,846 79,726
Other assets, net   18,526   21,017
Total assets $ 2,056,890 $ 1,923,450
LIABILITIES AND EQUITY
Accounts payable $ 89,093 $ 75,881
Accrued expenses 73,855 70,324
Revolving credit facility 59,000 65,000
Construction notes payable 10,041 15,915
Joint venture notes payable 140,910 94,266
Land notes payable 29,439 -
Subordinated amortizing note 10,692 14,066
53/4% Senior Notes due April 15, 2019 148,555 148,295
8 1/2% Senior Notes due November 15, 2020 422,872 422,896
7% Senior Notes due August 15, 2022   345,661   345,338
  1,330,118   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 June 30, 2016 and December 31, 2015, respectively

- -

Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,894,438 and 28,363,879 shares issued, 27,866,275 and 27,657,435 outstanding at June 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 June 30, 2016 and December 31, 2015, respectively

38 38
Additional paid-in capital 415,344 413,810
Retained earnings   241,538   217,963
Total William Lyon Homes stockholders' equity 657,209 632,095
Noncontrolling interests   69,563   39,374
Total equity   726,772   671,469
Total liabilities and equity $ 2,056,890 $ 1,923,450
 
 
WILLIAM LYON HOMES
SELECTED FINANCIAL AND OPERATING INFORMATION
(unaudited)
       
Three Months Ended June 30,
2016     2015
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed   663     553   20 %
Home sales revenue $ 325,059 $ 247,740 31 %
Cost of sales (excluding interest and purchase accounting adjustments)   (246,960 )   (183,450 ) 35 %
Adjusted homebuilding gross margin (2) $ 78,099   $ 64,290   21 %
Adjusted homebuilding gross margin percentage (2)   24.0 %   26.0 % (7 %)
Interest in cost of sales (14,020 ) (8,676 ) 62 %
Purchase accounting adjustments   (7,658 )   (8,122 ) (6 %)
Gross margin $ 56,421   $ 47,492   19 %
Gross margin percentage   17.4 %   19.2 % (9 %)
 
Number of homes closed
California 147 151 (3 %)
Arizona 134 38 253 %
Nevada 73 60 22 %
Colorado 47 59 (20 %)
Washington 83 108 (23 %)
Oregon   179     137   31 %
Total   663     553   20 %
 
Average sales price of homes closed
California $ 688,400 $ 534,500 29 %
Arizona 265,600 276,500 (4 %)
Nevada 666,500 512,900 30 %
Colorado 514,400 464,500 11 %
Washington 450,200 427,600 5 %
Oregon   436,100     380,800   15 %
Total $ 490,300   $ 448,000   9 %
 
Number of net new home orders
California 238 205 16 %
Arizona 142 160 (11 %)
Nevada 97 70 39 %
Colorado 72 77 (6 %)
Washington 88 117 (25 %)
Oregon   234     214   9 %
Total   871     843   3 %
 
Average number of sales locations during period
California 18 16 13 %
Arizona 8 8 0 %
Nevada 12 11 9 %
Colorado 11 13 (15 %)
Washington 6 5 20 %
Oregon   17     14   21 %
Total   72     67   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)
       
Six Months Ended June 30,
2016     2015
Consolidated Consolidated Percentage %
Total Total Change
Selected Financial Information (1)
(dollars in thousands)
Homes closed   1,206     941   28 %
Home sales revenue $ 586,354 $ 437,455 34 %
Cost of sales (excluding interest and purchase accounting adjustments)   (443,791 )   (326,497 ) 36 %
Adjusted homebuilding gross margin (2) $ 142,563   $ 110,958   28 %
Adjusted homebuilding gross margin percentage (2)   24.3 %   25.4 % (4 %)
Interest in cost of sales (25,767 ) (15,377 ) 68 %
Purchase accounting adjustments   (14,251 )   (12,455 ) 14 %
Gross margin $ 102,545   $ 83,126   23 %
Gross margin percentage   17.5 %   19.0 % (8 %)
 
Number of homes closed
California 289 286 1 %
Arizona 216 63 243 %
Nevada 135 94 44 %
Colorado 100 100 0 %
Washington 151 184 (18 %)
Oregon   315     214   47 %
Total   1,206     941   28 %
 
Average sales price of homes closed
California $ 671,100 $ 559,600 20 %
Arizona 262,200 280,900 (7 %)
Nevada 588,100 617,200 (5 %)
Colorado 505,700 455,900 11 %
Washington 465,300 421,000 11 %
Oregon   430,200     367,500   17 %
Total $ 486,200   $ 464,900   5 %
 
Number of net new home orders
California 400 389 3 %
Arizona 250 204 23 %
Nevada 163 116 41 %
Colorado 150 162 (7 %)
Washington 172 231 (26 %)
Oregon   425     329   29 %
Total   1,560     1,431   9 %
 
Average number of sales locations during period
California 18 16 13 %
Arizona 8 6 33 %
Nevada 12 10 20 %
Colorado 10 13 (23 %)
Washington 6 5 20 %
Oregon   16     9   78 %
Total   70     59   19 %
(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,
2016 2015
Consolidated Consolidated Percentage %
Total Total Change
Backlog of homes sold but not closed at end of period
California 305 261 17 %
Arizona 243 188 29 %
Nevada 143 95 51 %
Colorado 128 146 (12 %)
Washington 65 109 (40 %)
Oregon   209   169 24 %
Total   1,093   968 13 %
 
Dollar amount of homes sold but not closed at end of period (in thousands)
California $ 223,080 $ 178,602 25 %
Arizona 66,816 47,268 41 %
Nevada 82,993 60,506 37 %
Colorado 66,122 68,556 (4 %)
Washington 42,851 46,880 (9 %)
Oregon   93,617   69,734 34 %
Total $ 575,479 $ 471,546 22 %
 
Lots owned and controlled at end of period
Lots owned
California 1,652 2,256 (27 %)
Arizona 4,985 5,358 (7 %)
Nevada 3,251 2,922 11 %
Colorado 698 914 (24 %)
Washington 1,449 1,241 17 %
Oregon   1,133   1,050 8 %
Total   13,168   13,741 (4 %)
 
Lots controlled
California 1,288 1,179 9 %
Arizona - - 0 %
Nevada 55 171 (68 %)
Colorado 1,148 148 676 %
Washington 1,093 726 51 %
Oregon   2,083   1,421 47 %
Total   5,667   3,645 55 %
 
Total lots owned and controlled
California 2,940 3,435 (14 %)
Arizona 4,985 5,358 (7 %)
Nevada 3,306 3,093 7 %
Colorado 1,846 1,062 74 %
Washington 2,542 1,967 29 %
Oregon   3,216   2,471 30 %
Total   18,835   17,386 8 %
 
 
WILLIAM LYON HOMES
SUPPLEMENTAL FINANCIAL INFORMATION
(unaudited)
               
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
 
Net income available to common stockholders $ 14,561 $ 12,277 $ 23,575 $ 18,959
Net cash used in operating activities $ (15,369 ) $ (43,844 ) $ (74,905 ) $ (104,940 )
Interest incurred $ 20,558 $ 18,611 $ 40,819 $ 36,644
Adjusted EBITDA (1) $ 48,458 $ 38,756 $ 81,990 $ 61,778
Adjusted EBITDA Margin (2) 14.9 % 15.2 % 13.9 % 13.7 %
Ratio of adjusted EBITDA to interest incurred 2.4 2.1 2.0 1.7
 
 
Balance Sheet Data        
June 30, December 31,
2016 2015
 
Cash, cash equivalents and restricted cash $ 39,764 $ 50,707
 
Total William Lyon Homes stockholders’ equity 657,209 632,095
Noncontrolling interest 69,563 39,374
Total debt   1,167,170     1,105,776  
Total book capitalization $ 1,893,942   $ 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 Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
 

Net income available to common stockholders

$ 14,561 $ 12,277 $ 23,575 $ 18,959
Provision for income taxes 7,519 7,254 12,564 10,824
Interest expense
Interest incurred 20,558 18,611 40,819 36,644
Interest capitalized (20,558 ) (18,611 ) (40,819 ) (36,644 )

Amortization of capitalized interest included in cost of sales

15,014 8,676 26,761 15,377
Stock based compensation 1,069 1,806 2,561 3,157
Depreciation and amortization 507 850 1,005 1,407
Non-cash purchase accounting adjustments 10,689 8,122 17,282 12,455
Cash distributions of income from unconsolidated joint ventures 293 286 617 362
Equity in income of unconsolidated joint ventures   (1,194 )   (515 )   (2,375 )   (763 )
Adjusted EBITDA $ 48,458   $ 38,756   $ 81,990   $ 61,778  

Investors/Media:
Financial Profiles, Inc.
Larry Clark, 310-622-8223
[email protected]

Source: William Lyon Homes


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