Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the third quarter 2019, William Lyon homes earnings Conference call.
My name is anyone I will be your operator today.
I'm all participants are no listen only mode.
This call is being recorded and will be available for replay through November 29, 2019, starting this afternoon approximately one hour after the completion on the call.
If you require any further assistance. Please press star zero now I'd like to turn the call over to Mr., Larry Clark Investor Relations for the company. Please go ahead Mr. <unk>.
Thank you operator.
Afternoon, and thank you for joining us today to discuss William Lyon homes financial results for the three months ended Septemberthirty 2019.
Companies press release regarding such results was filed on November 16, 2019 and is available in the company's website.
The press release also includes a reconciliation of non-GAAP financial measures used therein.
Before we continue please take a moment to read the company's notices regarding forward looking statements.
Important additional information and we're finding and participants in the merger solicitation, which is included in the press release related to that element of this call.
As explained in the notice this conference call may contain forward looking statements, including statements concerning future financial and operational performance actual results may differ materially from those projected in the forward looking statements and the company does not undertake any obligation to update them.
For additional information regarding factors that could cause actual results to differ materially from those contained in the forward looking statements. Please see the company's FCC filings.
With us today for management, or Mads, aged President and Chief Executive Officer, and Colin Severn Senior Vice President and Chief Financial Officer.
Now, we'd like to turn the call over to Matt staged.
Thank you Larry.
Welcome Ladies and gentlemen, thank you for taking the time to join us today.
As you know the company's previously scheduled third quarter 2019 financial results conference call was postponed in light of the concurrent announcement on November six well the companys entry into a definitive merger agreement under which William Lyon homes will become part of the Taylor Morrison Home Corporation subject to the terms of that agreement.
Transaction that completion, we create the nations largest homebuilder and the combined company would be positioned as a top five builder in 16 of the combined companies 23 markets across the U.S.
As you can imagine there was a tremendous amount of work required leading up to such an announcement outside of day to day business operations, especially with respect to senior executive in regional management.
All things considered we were pleased with our financial performance for the third quarter strong bottom line results driven by are improving homebuilding gross margins.
The ability from our ancillary business operations, including financial services in our new mixed use redevelopment business.
From a monthly sales rate perspective in Q3 2019, we saw similar rates of absorption in July and September as we did the prior year at 2.8 sales per community in each of those respective months.
We saw a dip in August two a slower than anticipated 2.5 sales per community, which led to the differential in our overall results compared to expectations.
Total new home orders were 940 for the quarter down 6% from the third quarter 2018.
We continue to see the strongest performance from the entry level. One first time move up buyer segments selling at a monthly pace of 3.3 sales per community in 2.6 sales per community, respectively, which combined represented 82% car third quarter closings and 85% of our backlog at the end of the costs.
Sure.
These consumers seem to be responding well to our communities that offer attainable housing at or below market median prices.
We delivered 995 homes during the quarter generating homebuilding revenue of approximately $465 million, both down moderately when compared to the year ago quarter.
The slower sales space in the first part of August led to lower than expected number of spec deliveries for the quarter.
Contributing to our financial results for the core was a strong contribution from our financial services platform.
As discussed previously the company has launched closing Mark financial group, a wholly owned subsidiary offering a full suite, a financial services, including title agency and mortgage services for our home buyers and other retail customers.
During the third quarter, we completed the integration of our existing mortgage joint venture operations and loan pipeline into this platform under the closing mark whole loans brand.
In total our financial services segment recorded income of $3.7 million the third quarter.
From 500000 in the third quarter of last year.
Additionally, we've been working on a mixed use redevelopment platform as a complement to our homebuilding operations. During the third quarter. We recorded our first multifamily apartment sale, which generated a profit a $4.3 million.
Our gross margins for the quarter, excluding a one time inventory charge, we call. It will discuss later was 16.5% up 50 basis points sequentially from the second quarter of this year.
Excluding previously capitalized interest our adjusted homebuilding gross margin percentage was 20.6%.
30 basis points sequentially.
Adjusted pretax income for the quarter was $30.8 million, an adjusted net income available to common stockholders was $16.1 million were 41 cents per diluted share all showing meaningful improvement for the second quarter.
Moving onto our markets highlights for the quarter included our Arizona, Texas, and Colorado operations, which continued to perform well and experienced an absorption rate in excess of the company average.
Our California operations achieved an overall absorption pace that was consistent with a third quarter of last year.
The Pacific Northwest in Nevada lagged the overall company average from a sales pace perspective.
But we're pleased with the improvements that we've seen with product repositioning as well as the senior management changes, we've implemented in Nevada in Oregon, and the new community openings, which we feel will improve operating results as we move into 2020.
Companywide or dollar value of orders for the third quarter of 2019 was approximately $432 million down 5% year over year.
Over year decline was driven primarily by a lower ASP of quarters due to mix, including a higher percentage of orders from our operations in Texas in Arizona, and fewer orders from northern California, as well as the product repositioning to lower priced products in markets like Nevada in the Pacific Northwest.
Backlog conversion rate for the quarter was 70%, which reflects a 600 basis points improvement over last year's third quarter, driven by our continued commitment to our spec start strategy.
Average community count for the third quarter was 114 down slightly from 116 average communities during the prior year quarter.
The company continues to be focused on development of its new communities and driving towards achievement of as community count growth goals for mid 2020 as articulated on last quarters conference call.
For a discussion on our financial results I'll turn the call over the call.
Thank you Matt.
Total homebuilding revenue for the third quarter of 2019 was 465 million as compared to 534 million in the year ago period.
The decrease in home sales revenue was due to a 6% decrease the number of homes delivered and an 8% decline in ASP.
As we mentioned in previous quarters, our mix to higher concentration of deliveries in Texas, and Arizona was primarily driven the decrease in ASP.
SPM homes in backlog at the end of the third quarter was approximately 449000.
And slightly lower than the ASP of homes closed during the most recent quarter again, primarily driven by geographic and product mix.
Gross margins for the third quarter included a onetime inventory charge of 6.6 million included in cost of sales related to closed out projects.
Homebuilding gross profit excluding this charge was 77 million during the quarter compared to 97 million in the third quarter of 2018, resulting in a gross margin percentage of 16.5%.
Our adjusted homebuilding gross profit excluding interest as well as the charge above was 96 million.
Our adjusted homebuilding gross margin percentage was 20.6% during the third quarter.
Our sales incentives as a percentage of revenue for homes closed during the third quarter or 2.7% down from the second quarter level of 2.9%.
Our sales and marketing expense for the third quarter was 5.4% of homebuilding revenue flat when compared to the year ago quarter. Despite lower homebuilding revenue, primarily due to operational efficiencies and savings across all divisions.
General and administrative expenses were flat year over year on an absolute dollar basis. However, as a percentage of homebuilding revenue gene expenses increased to 6.5% compared to 5.6% in a year ago quarter.
This combined for a total as DNA expense of 11.9% of revenue for the third quarter compared to 11% in the prior year period.
As Matt mentioned during the third quarter, we completed the integration of our existing mortgage joint venture operations and loan pipeline into our wholly own closing Mark platform.
Most of our generated 3.4 million of income and our unconsolidated mortgage joint ventures recorded income of zero point Threemillion for a total combined financial services income of 3.7 million for the quarter.
From 500000 in third quarter of last year.
Included in other income for the quarter was profit a 4.3 million related to our first multifamily apartment sale from our ancillary business that Matt mentioned previously.
On July nine 2019, we closed on a 300 million dollar senior notes offering at a coupon rate of 6.6% to 5%.
Proceeds from the offering were used to redeem a majority of the 350 million dollar 7% senior notes due 2022 on August 15th 2019.
In conjunction with the transaction the company reported a loss on extinguishment of debt net of tax a 1.4 million.
Provision for income tax was 4.8 million for an effective tax rate of 21.5%. This compares to 9 million or 22% in the year ago period.
Adjusted pretax income for the quarter was 30.8 million after adjusting for the inventory charge and the loss on extinguishment of debt compared to 40.8 million in a year ago period.
Net income attributable to non controlling interest was 8 million during the third quarter as compared to 5.3 million in the prior year.
Net income available to common stockholders during the third quarter was 9.5 million or 24 cents per diluted share based on 39.2 million fully diluted shares.
Adjusted net income was 16.1 million or 41 cents per diluted share.
Our land acquisition spend for the third quarter was 85.5 million, including land acquisition and horizontal development costs at the ended the quarter. Our total lots owned and controlled were 29242 option lots accounted for 40% of our total lot inventory.
Now turning to our balance sheet.
We ended the quarter was 2.3 billion in owned real estate inventories 3 billion in total assets and total equity of 1 billion.
After the end at the end of the quarter. Our total liquidity was approximately 248 million, including our cash balance and the availability under our revolving credit facility.
Our total debt to book capitalization was 57.7% at the end of the quarter and our net debt to net book capitalization was 56.9% now I'll turn it back to Matt for closing remarks. Thanks Collyn. This concludes our call today I'd like to thank you all for joining I'd also like to thank all of you go up.
Followed William Lyon homes over the past six years, we look forward to updating you on the proposed transaction have a great day good-bye adios.