Lyon William Homes (WLH)

WLH 
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William Lyon Homes (WLH)

Q4 2013 Earnings Conference Call

February14, 2014 12:00 PM ET

Executives

Larry Clark - IR

Bill Lyon - CEO

Matt Zaist - President and COO

Colin Severn - VP and CFO

Analysts

Michael Blewitt - JPMorgan

Will Randow - Citigroup Global Markets Inc.

Ivy Feldman - Feldman Associates

Dan Oppenheim - Credit Suisse

Joel Locker - FBN Securities

Alex Barron - Housing Research

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter and Full Year 2013 William Lyon Homes earnings conference call. My name is Whitney (Ph) and I will be your operator for today. At this time, all participants are in listen-only mode. This call is being recorded and will be available for replay through March 14, 2014, starting this afternoon, approximately one hour after the completion of this call. Now I'd like to turn the call over to Mr. Larry Clark, Investor Relations for the Company. Please go ahead, Mr. Clark.

Larry Clark

Good morning and thank you for joining us today to discuss William Lyon Homes, financial results for the three months and year ended December 31, 2013.

By now you should have received a copy of today’s press release. If not, it is available on the company’s website at www.lyonhomes.com. The press release also includes a reconciliation of any non-GAAP financial measures used in. In addition, we are including an accompanying slide presentation that you can refer to during the call. You can access these slides in the Investor Relations section of the website.

With us today from management are Bill H. Lyon, Chief Executive Officer; Matt Zaist, President and Chief Operating Officer; and Colin Severn, Vice President and Chief Financial Officer. Following their comments we will open the call for your questions.

Before I continue, I’d like to take a moment to read the company’s Safe Harbor statement. Certain statements contained in this conference call that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties, and actual results may differ materially from those projected or implied. 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 general economic conditions in the markets in which the company competes; limitations on the company’s ability to neutralize its tax attributes, limitations on the company’s ability to reverse the remaining portion of its valuation allowance with respect to its deferred tax assets, change in mortgage or other interest rates; changes in prices of homebuilding materials; weather conditions; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable; not economically insurable or subject to effective indemnification agreements; the availability of labor and homebuilding materials; changes in governmental laws or regulations; the timing of receipt of regulatory approvals and the opening of projects; and the availability and cost of land for future development, as well as the other factors discussed in the company’s reports filed with the SEC.

Now I’d like to turn the call over to William Lyon Homes’ CEO, Bill H. Lyon.

Bill Lyon

Thank you Larry and welcome ladies and gentlemen. I’ll begin today’s call with an overview of 2013. Matt Zaist our President and Chief Operating Officer will then discuss our operational highlights followed by Colin Severn, our Chief Financial Officer who will review our financial results. After our prepared remarks we will open the call for your questions.

As we look back on 2013, we’re proud of our accomplishments. Our $250 million IPO in May made us one of the largest home builder IPOs completed in 2013. With net proceeds the company of $164 million and we strengthened our balance sheet and enhanced our financial flexibility. We further improved our liquidity in October rising over $100 million in the bond market as an add-on to our existing $325 million senior note offering which was completed in November of 2012. Both of these capital market events have enabled us to lay the foundation for our growth plans, in 2014, 2015 and beyond.

Today we have a well established operating platform in place with an experienced management team and excellent reputation for delivering high quality homes and a strong land supply and attractive real estate markets in the western region of the country. These western states are characterized by attractive long-term fundamentals with a favorable outlook and projected population growth rates above the U.S. average. With these markets we have carefully selected the location of our communities being close proximity to job centers that offer highly sought after lifestyle characteristics and strong school systems.

In 2013 all of our markets were strong, experiencing increased new home sales and healthy home price appreciation. This strength was driven by large pent up demand historically low mortgage rates and attractive affordability, improving job markets and low new home inventory. We firmly believe that the fundamentals remain strong for the industry and there continues to be sustainable underlying demand for our homes.

Our strong financial operating results for 2013 are further validation that our strategy is working. We doubled our home sales revenue to over $520 million, delivered $1,360 homes, increased our active new home community account by 39%, improved operating income more than 28 times to $56 million and generated $128 million of net income or $4.95 per diluted share, which includes reversal of the deferred tax asset valuation allowance of $95.6 million.

Now I am turning to some of the fourth quarter highlights. In the fourth quarter of 2013 we delivered our eight consecutive quarter of year-over-year growth in deliveries and orders. Home sales revenue was up 85% year-over-year, deliveries improved 21%, new home orders were up 28% and gross margin percentage grew 700 basis points to 24.8%. These strong metrics translated in a significantly improved profitability and strong returns to the shareholders as our operating income for the quarter increased more than 11 times to $29.4 million and our net income was $116.7 million or $3.64 per diluted share. Net income for the fourth quarter excluding the reversal of valuation allowance was $21.1 million or $0.66 per diluted share. On the expense side of our operation, we experienced meaningful improvement in our operating leverage. Our combined SG&A expense for the fourth quarter was 11.7% of home sales. This compares favorably with 17.5% in the year ago quarter and 11.9% in the third quarter of 2013 and is its lowest level since 2007.

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