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William Lyon Homes (NYSE:WLH)

Q2 2013 Earnings Conference Call

August 8, 2013; 12:00 p.m. ET

Executives

Bill Lyon - Chief Executive Officer

Matt Zaist - President & Chief Operating Officer

Colin Severn - Vice President & Chief Financial Officer

Larry Clark - Investor Relations

Analysts

Ivy Zelman - Zelman & Associates

Michael Rehaut - JPMorgan

Dan Oppenheim - Credit Suisse

Will Randall - Citi

Alex Barron - Housing Research Center

Operator

Good day ladies and gentlemen and welcome to the second quarter 2013, William Lyon Homes earnings conference call. My name is Chantalay and I will be your operator today.

At this time all participants are in listen-only mode. This call is being recorded and will be available for replay through September 5, 2013, starting this afternoon approximately one hour after the completion of this call. (Operator Instructions)

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

Thank you operator. Good morning and thank you for joining us today to discuss William Lyon Homes, financial results for the three months ended June 30, 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. 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 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; terrorism or hostilities involving the United States; 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 Lyon.

Bill Lyon

Thank you Larry and welcome ladies and gentlemen. We have a number of important accomplishments to report on today’s call. I’ll lead off with an overview of recent developments and second quarter results. 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.

First, we are extremely pleased with the outcome of our IPO, and special thanks and welcome to all of our new investors and analysts who made this possible. We issued more than 10 million shares of common stock at $25 per share, including the full exercise of the over-allotment option, which consists of 7.1 million shares by the company and 2.8 million shares by a selling stockholder, for net proceeds to the company of approximately $164 million.

With the proceeds of our IPO, we have the resources to more fully capitalize on our strong position as a leading homebuilder in the highly attractive markets of California, Arizona, Nevada and Colorado.

In the second quarter of 2013, we reported net income of $6.9 million or $0.29 per diluted share generating positive net income in our initial quarter as a public company, compared to a net loss in the year ago quarter.

Home sales revenue was up 122% year-over-year, and we delivered our sixth consecutive quarter of year-over-year growth in deliveries, orders and unit backlog. Our results reflect strong overall housing demand, the solid foundation we have in place, as well as our focused strategy and execution.

For those of you who are new to our company, I’d like to spend a few minutes on what differentiates William Lyon Homes from the other homebuilders. First; we have a long and distinguished history dating back to 1956, and have successfully weathered many economic and real-estate cycles. Over the past 57 years, we have sold more than 75,000 homes in our core markets of Northern and Southern California, Arizona, Nevada and Colorado.

These Western states are characterized by attractive, long term fundamentals, with a favorable employment outlook and projected growth rates in single family permits above the U.S. average, and most have experienced double digit, year-over-year home price appreciation in the last 12 months.

Second; a critical hallmark of William Lyon Homes is our attractive land supply, with nearly 14,000 lots under control as we ended the second quarter. This supply gives us a distinct competitive advantage. It enables us to take a highly selective approach to future land acquisitions, as we don’t feel the pressure to compete in a frenzied environment for finished lots.

We focus our efforts on acquisition opportunities where we add value through the entitlement and development stages of the project, and these transactions tend to be less aggressively pursued by the competitors that are more focused on their near-term needs.

We also have a balanced sales strategy that targets entry level, first time move-up and second time move-up homebuyers. Our ability to build and sell across a diverse range of product types gives us considerable flexibility in addressing market demand, utilizing our land assets and pursuing new land acquisitions.

If you are following our slide presentation, slide four addresses our key investment highlights and it starts with our deep and experienced team. Our executives and regional and divisional Presidents have an average of more than 28 years of experience in the industry and over 10 years of average tenure with our company.

Our senior development team has significant land acquisition and development capabilities, so its fair to say that our deep expertise and longstanding local relationships with land sellers, master plan community developers, and municipalities gives us a significant competitive advantage to drive revenue growth and profitability.

Our company has received numerous industry awards throughout our history, and most recently at the 2013 Eliant Homebuyers’ Choice Awards, we were honored with 20 awards, more than any other builder at the event. We continuously strive to create a great home buying experience that results in high customer satisfaction and strengthens our brand loyalty.

We are also pleased to report that William Lyon Homes was included in the Russell 3000 and Russell Global Indices, which we believe add to our height and visibility in the public markets.

With that, I will now turn the call over to our President and Chief Operating Officer, Matt Zaist, to discuss our second quarter operating results. Matt.

Matt Zaist

Thanks Bill. I’ll now provide an overview of our operational highlights for the quarter.

As Bill mentioned, we continue to experience improving operating metrics, as we reported another quarter of growth in deliveries, orders and backlog. Our new home deliveries for the second quarter of 2013 were 345 units, up 49% from the previous year quarter. This increase was driven by a 50% increase in the number of new homes in backlog at the beginning of the quarter compared to the prior year, and a backlog conversion rate of 69%.

Our average sales price on homes closed increased 49% to $350,000 during the second quarter of 2013 compared to $235,000 during the second quarter of 2012. This reflects the continued healthy demand for new homes and a shift in our revenue mix to higher price point markets and homes.

We also are experiencing strong pricing power across our markets. On a same-store basis, which represents projects that were open during both periods, average sales prices increased 21% from $279,000 in the second quarter of 2012 to $337,000 in the second quarter of 2013. Our net new home orders for the second quarter of 2013 were 360, up 19% from 302 in the second quarter of 2012.

Our backlog has continued its upward-trend, ending the quarter at 511 homes sold, but not yet closed, with an approximate value of $207 million. This represents a 96% year-over-year increase, and a 21% increase from March 31, 2013.

Our average sales price of homes in backlog at June 30, 2013, was approximately $405,000, which is 16% higher than the average sales price of homes that we closed during the recent second quarter.

We know that the recent increase in interest rates and its impact on our business is a topic of discussion in the investment community. I’d like to take some time to discuss the impact rate increases that have had on our backlog and order trends.

First, with respect to our backlog we’ve seen minimal impact to date. Our cancellation rate for the second quarter was 17%, but broken out by month, it was 19% in April, 14% in May, and 17% in June. As you can see, our highest cancellation rate actually occurred in April, which was the month with the lowest mortgage rates.

Drilling down even more in detail, our preferred lending partner who captures over 75% of our homebuyer mortgage volume, has indicated to us that less than 1% of the borrowers of our homes have had qualification issues because of the recent rise in interest rates.

Now with respect to orders, we continue to see very healthy demand. Our sales pace in the second quarter was 1.2 homes per community per week, and so far it is slightly above that 1.0 sales per community per week for the third quarter.

Generally speaking, our desired sales pace per community is approximately one home per week as a company. We exceeded that pace during the second quarter. This is a signal to us that there is enough demand to continue to raise rate prices across our different operating platforms. In the past year demand has been so strong that even as we continue to raise prices, our sales pace consistently remained above our target.

Another strong indicator we look at to gauge demand is trends in our marketing spend. During the quarter we saw total sales and marketing expense of approximately 5% of revenue, a significant improvement over prior quarters and a sign that we didn’t need to spend as much on sales and marketing as we normally do, because of the strong traffic levels and order trends that we have above our targets.

Lastly, I’d like to touch upon the performance of our new communities. We’ve opened 11 new communities year-to-date in 2013 and are currently selling at 28 new home communities. We anticipate opening another 15 communities throughout the balance of the year and expect to have opened approximately 35 communities by year-end.

Most recently, in the last two weeks of June we opened five new communities and are pleased to report that in every one of them we saw traffic levels that greatly exceeded our expectation. For each of these communities the average grand opening weekend traffic was over 1,000 people.

Our first phase releases were at prices significantly higher than our underwriting and since opening we’ve been able to achieve a sales pace of more than two sales per week, per community at those openings. We think that new communities are a great parameter of current homebuyer demand, because they are not as impacted by the seasonality that affects projects that have been open throughout the year.

We continue to pursue our growth strategy of identifying and acquiring attractive land opportunities to add to our long-term supply of lots. Consolidated land acquisition was approximately $67 million in the quarter ending June 30, and we ended the quarter with 13,861 owned and controlled lots, a 5% increase over the March 31, 2013 level.

As we discussed in our recent road show, one of our goals is to spread our land purchases across our geographic markets, as well as leverage our ability to execute across all market segments within those markets. We continue to execute on that goal and are pleased with the land that we are acquiring to-date, which is laying the foundation for sustained growth and profitability in 2015 and beyond. Based on our current outlook, we expect to spend an additional $125 million to $175 million on land acquisitions in the second half of this year.

For a discussion on our financial results, I’ll turn the call over Colin.

Colin Severn

Thank you Matt. Home sales revenue increased 122% to $120.6 million for the second quarter 2013, as compared to $54.3 million in the year-ago period. The increase in home sales revenue was due to a 49% increase in deliveries, coupled with a 49% increase in the average sales price of homes delivered, as compared to the year-ago period.

Our homebuilding gross profit margin almost tripled to $24 million during the second quarter of 2013, compared to $8.2 million during the year ago period. Our homebuilding gross margins improved 480 basis points to 19.9% in the second quarter of 2013, as compared to 15.1% in the second quarter of 2012.

We reported improved adjusted homebuilding gross margins of 27% during the second quarter of 2013, up 450 basis points as compared to 22.5% in the year-ago period. In addition, adjusted gross margins improved by 300 basis points over the first quarter of 2013.

We experienced increased margins across all of our markets, as compared to the second quarter of 2012. In Southern California gross margins were up 1060 basis points year-over-year, Northern California was up 170 basis points, Arizona up 500 basis points and Nevada up 880 basis points.

The increase in margins is due to improving marketing conditions, including higher sales prices and our attractive land bases, due to the impact of fresh start accounting that occurred in February of last year. We remain optimistic about our gross margins in the near term, based on sales prices in our current backlog. We are focused on optimizing our profitability through a combination of strategic pricing, while at the same time managing our sales volume.

Looking at the expense side of our operations, we continue to experience meaningful improvement in our operating leverage. Our combined sales, marketing and general and administrative expenses for the quarter were $15.4 million or approximately 12.8% of home sales. This compares favorably with last years second quarter percentage of 18.2% and this year’s first quarter percentage of 17.3%.

Operating income for the second quarter of 2013 was $10.3 million, as compared to $1.6 million in the year ago period and an $800,000 operating loss in the first quarter of this year.

As Bill mentioned earlier, we are pleased to report positive net income in our initial quarter as a public company. Net income was $6.9 million or $0.29 per diluted share as compared to a net loss of $2.6 million or $0.23 per diluted share in the second quarter of 2012.

Our adjusted EBITDA increased 62% to $18.9 million for the second quarter of 2013, compared to $11.7 million in the year ago period.

Now turning to our balance sheet; as of June 30, 2013 we had cash of $207 million, total debt of $377 million and total equity of $333 million. Our net debt to net book capitalization was approximately 33.7% at the end of the quarter, down from 65% at December 31, 2012.

I’m also pleased to announce that just this week we entered into a new $100 million three-year revolving credit facility with a banking syndicate, and which also has an accordion feature under which we may increase the total commitment to a maximum aggregate amount of $125 million.

Not only does this new facility improve our liquidity and access to working capital, but we are enthusiastic about welcoming our four new banking partners, who will team up with us as we strategically grow our business going forward.

Now, for a brief discussion of our strategy, I’ll turn it back over to Bill.

Bill Lyon

Thanks Colin. Before we take your questions, I’d like to make a few closing comments about our roadmap for the future. We have a well-established foundation in place in terms of our land supply, market share, solid reputation and strong and experienced management team.

Our focus on the following key areas will keep us on target with our commitment to sustainable growth and profitability. First, we will drive revenue growth through new communities on our existing lands supply, which provides us strong visibility into our delivery growth well into 2015.

Second, we will remain disciplined in our land acquisition strategy, leveraging our well-established relationships. Our approach to acquiring land emphasizes value added development opportunities, as well as strategic shorter life cycle projects, both of which are targeted to drive higher margins and attractive returns.

Next, with our strong reputation for high quality homes and excellent a customer service, we expect to realize continued market share gains in the key western markets in which we operate.

Finally, to drive shareholder value, we will maintain our disciplined growth strategy, always with an eye on growing earnings and cash flow and using our balance sheet to improve overall returns.

Thank you again for joining us today. I would now like to open up the call to your questions. Operator, we are ready for the first question.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Ivy Zelman of Zelman & Associates. Please proceed.

Ivy Zelman - Zelman & Associates

Well, congratulations guys. A hell of a way to come out of the box on your first earnings report and I think you might have actually disproved the negative with the housing market is crashing as the stock seems to indicate, so great job.

Your comments Bill and Matt were very bullish, and I think realizing that pricing is up as much as it is. Maybe you can be more specific on traffic levels going into 3Q, and what you’re seeing with respect to difference in price point. Realizing you cross all price points, are you seeing any more, maybe impact because of rates on entry level versus the move-ups and also recognizing what your lenders are saying, that there’s really not any fall out with backlog with respect to the higher rates impacting their ability to qualify.

What in sort of looking forward in your communities is driving your out performance? Is it the locations of the communities, because there’s a lot of various data points out there, guys that are making it rather complex to try to understand why one company like you could do such a tremendous job and have a continued performance into July, where others are seeing really softening. So any thoughts broadly would be very helpful I think to everyone.

Bill Lyon

Hi Ivy, it’s Bill. I’ll let Matt answer most of that. I think just the high level answer is, we’ve tried to focus on great locations, which we feel even in more challenging market conditions have performed well throughout the downturn, and we feel we are well beyond that now.

But any little hiccups, I think these are areas that are very supply constrained and people want to live there. So it gives you a bit of an insulation when things happen, but I’ll let Matt get into the detail of traffic and pricing.

Matt Zaist

Ivy, I’ll be able to give you a little bit of anecdotal evidence. I think when people talk about different segments of the marketplace, I think for us is you really do have to drill down into location. So let’s take entry-level buyer as an example.

Here in Orange County, for example, we’ve got a project, Agave, which is on the Irvine Ranch. It’s attached product, where most of our buyers are first time buyers, but it is priced at over $500,000 a unit; that’s entry level on the Irvine Ranch. It’s in a great school district.

We haven’t seen any slowdown in demand. We’ve continued to raise prices through our first three phases of releases and when you look at the buyer profile, they are coming to us, even though they are a first-time buyer. They’ve got a strong credit, lots of savings for a down payment, and while I’m sure those buyers would love to have lower interest rates, they are already paying a premium to live in Irvine, because they want that school district. They want that sense of community and the location. So for that, they are willing to continue to pay for a great product in a great location.

In contrast, if you look at a project like our Lathrop asset in Northern California, maybe that’s a little bit different. That’s a East Bay commuter market and typically they are buying there because it is about what they can afford, because they are working somewhere closer into the job centers.

Now interestingly enough, that’s a project where we raised prices over 35% in the last 12 months. So we’ve already stretched the payment, regardless of interest rates to some extent. That’s seen a little bit more of a slowdown in traffic and sales rate, but again, that’s a project that is a little bit more of a unique situation for us. We’re actually – we’ve got less than 10 units left to sell at that particular project, and that’s where a bulk of our qualification issues have come from.

Like I said, when I say a bulk, 1% of our backlog was approximately five buyers who had qualification issues related to interest rate increases since mid-June. That’s really something that does not concern us. Obviously, at the end of the day, it’s about location. It’s about what buyers are willing to pay for product.

Our other openings have been in Southern California and San Diego County, Orange County. Las Vegas has continued to perform very well for us in the first and second time move-up buyer markets, and we’ve seen actually Phoenix be particularly strong over the last four weeks or so. And again for Phoenix for us, it’s all of our active projects are located in core Southeast Valley markets of Maricopa County.

So hopefully that answers your question a little bit. Traffic trends, again, as I mentioned before, I think when you get new home community openings and you see a big spike in traffic, I think that shows pent-up demand in our markets. Those openings stretched across both California and Las Vegas markets. So we think we’ve got a pretty good cross section of information.

Probably the only other anecdotal evidence I would give that was particularly interesting is in the last few weeks, we had a preview for a new home community, so the model is not yet open. It was a information session only and had over 1000 people show up over a weekend for a project that’s not open, not open for sale.

So again, I think well-located projects and buyers or builders who concentrate in those high demand markets we think should still continue to see positive growth.

Ivy Zelman - Zelman & Associates

Now Matt, that’s extremely helpful. If I could follow up with just one more question on really the margin performance and detailed breakout. We really appreciate that Colin, giving us the year-over-year improvement by market.

I think one of the things people will also want to understand is what the margin looks like in backlog and given the same-store price appreciation that you’ve seen, I would assume that margins would even be higher. How you’re able to – how much of that will come through to the bottom line?

So that comparing it to your increase in direct costs and thinking about labor inflation, do you think you can sustain the margin improvement? And your backlog conversion was also impressive, given the labor constraints and some of the delays that others are talking about. So another big question, but I promise I won’t ask another one and I’ll go back in queue. Thank you.

Bill Lyon

Do you want to take that, Colin?

Colin Severn

Yes, sure. Well a couple of things. Ivy, thank you. Definitely what we’re seeing in the same store appreciation that’s in our backlog. I mean we don’t give specific guidance, but we would also expect similar improvement in the short term.

Long term, we know our pricing has outpaced our costs, at least to-date, so that’s a positive trend for us as well. And on the backlog conversion, we’ve done a good job, really since coming through the 2010-2011 time of pacing our starts to our sales rates and being able to convert that.

We were at 66% conversion in Q1, have continued at 69% in Q2, and really expect it to stay in that range moving into Q3. So you’re seeing the same things that we are; very positive and very excited about the future periods.

Operator

Your next question comes from the line of Michael Rehaut of JPMorgan. Please proceed.

Michael Rehaut – JPMorgan

Thanks. Good morning, and great quarter guys. Congrats.

Bill Lyon

Thanks Mike.

Matt Zaist

Thanks Mike.

Michael Rehaut – JPMorgan

Just kind of picking up where we just left off there, in terms of thinking about margins and conversion rates and also for that matter, kind of SG&A ratios. It really kind of hit – exceeded our estimates and I think most people’s estimates, across the board on all three of those metrics. And thinking in terms of the back half, I believe you just said that you would expect backlog conversions to maybe stay where they are, if I heard right, in terms of what you did in 2Q and typically though, I think you do have a little bit of a higher conversion in 4Q, so I just wanted thoughts around that.

And also in terms of the gross margins and SG&A levels, I would presume, given the positive pricing trends, that we should expect continued solid improvement there, and I was hoping maybe you could maybe couch those terms or give some type of view on that, as well as SG&A leverage.

Colin Severn

Sure, this is Colin again. You’re right, in the fourth quarter it’s generally our highest delivery quarter of the year. So we would expect the conversion rate to pick up there, but then speaking in Q3, we’d expect it to stay in the mid 60% range, like we’ve seen in the first two quarters of this year.

And then yes, on the sales and marketing, we’re very excited about our 5% range. We opened a lot of communities this quarter, so sometimes you see a trailing period expense that may pop. We don’t expect to see it pop significantly, but on a percentage basis, it may in Q3, but still trending in that low 5% for the year and moving forward.

And then the G&A is the same thing. As our revenues increase based on the dollars that we’re spending, we would expect that leverage to come down. Some of the things that we incurred as we mentioned on our road show, Mike and with you guys, is as we were doing corporate governance and reorganization types of things, our G&A spend got a little bit higher than we would’ve liked.

But now that those types of things are behind us and we are operating the business and we’re a public company, we would expect the dollar spend will increase with headcount as we grow. A lot of that will go through the cost of sales line with our projects in our sales line and that will increase slightly on our G&A side, but again, the leverage we would expect to come down.

Michael Rehaut – JPMorgan

Okay, and in terms of gross margins, obviously great sequential improvement year over year. You mentioned that you had 7% sequential same store ASP increase in 2Q. Could we expect a similar type of – I mean, you had a 300-bip sequential improvement in 2Q. I wouldn’t necessarily expect that again to occur in 3Q, but could we see another 100 or 200 bips there?

Colin Severn

Well, I don’t think we want to give specific ratios or guidance at this point Michael, but we are definitely seeing a trend where the same-store ASP and backlog is a bit higher than what we closed in Q2. So that’s about the best that I can give you at this you at this point.

Michael Rehaut – JPMorgan

Okay, just moving on to mix of buyers, if you could just give us a sense this quarter, how that kind of broke out between first time and moved-up and perhaps second move-up? How you see that maybe changing over the next few quarters?

Matt Zaist

Yes Mike, this is Matt. I think that we’re seeing, and I’ll qualify this by how we classified entry-level is market-by-market. So for Southern California that range is from $300,000 to $400,000 in San Diego and Orange County as a first time to $500,000 in LA and northern Orange County. In Phoenix, that’s more of a $200,000 price point.

So the way we classify our purchasers of homes, about a third of the homes sold were entry level buyers as we would classify them, and about two thirds split between first and second time move up buyers. I think that we see that that’s a mix that is one that we’ve kind of targeted for the balance of this year, and we would anticipate that being the mix for Q3 and Q4 as well.

Michael Rehaut – JPMorgan

Great, thanks, and just a clarification before I go. You said five communities that you’d opened and just if I heard this right. Since June that you highlighted, where traffic levels were above expectations and more than two sales per week, is that right that the five communities were since June, and then if you could give us a sense of where those communities were?

Matt Zaist

Yes, we actually, we opened five in the last two weeks of June. Those were spread between Southern California and Orange and San Diego County, as well as in Las Vegas.

Michael Rehaut – JPMorgan

Thank you.

Matt Zaist

Your welcome.

Operator

(Operator Instructions). Your next question comes from the line of Dan Oppenheim of Credit Suisse. Please proceed.

Dan Oppenheim - Credit Suisse

I was wondering if you can talk a little bit more in terms of those community openings, talking about the very strong traffic at the opening and the two sales per week. How are you thinking about that in terms of the initial pricing, given previously the very strong market you can sort of push pricing? Are you any more cautious as you’re setting those opening prices or do you still see the traffic just being strong enough in terms of what they’re willing to pay, that you haven’t pulled back at all on that?

Matt Zaist

Hey Dan, it’s Matt. Our pricing strategy has not changed from what we previously conveyed to the community, which is we look at pricing on a weekly basis with all of our operators. We take a look at our traffic rates, our sales rates, the qualifications of buyers who are pre-qualifying with us, leading into openings and phase releases.

We typically try to release a select number of houses that give us product diversity to offer to consumers, but try to limit the number of homes on a weekly basis that we have out into the marketplace.

So certainly when you have that kind of demand, we want to take advantage of that, and again, I think being in markets that are still very under supplied and have a strong demand for homes, still give us the ability to increase prices.

And really our goal as we’ve said before, is to put ourselves in a place where we can get to that targeted one net sale per week per community. That’s pretty optimal with our build cycles and our projects to afford us the opportunity to capture price where we can and ultimately drive margin, which we think we’ve been very successful year-to-date at doing.

Dan Oppenheim - Credit Suisse

Great, thank you.

Operator

Your next question comes from the line of Will Randall of Citi. Please proceed.

Will Randall – Citi

Hey, thank you for taking my question. Hey, nice quarter.

Bill Lyon

Thank you.

Will Randall – Citi

In terms of growing community count, I know in North Cal you weren’t looking to bring on more communities, I think until ‘15 recently at the owned count. Are you thinking of an opportunity there in terms of looking at some new communities with your new land act dollars? And then also in Colorado, how are you tracking there in terms of absorptions, and how do you think that will pick up?

Bill Lyon

Sure Will. I’d say, when you look at where our land acquisition dollars are likely to be allocated, I would say that Northern California would be a top priority on our list, as well as Colorado and Southern California. We have a very good pipeline of opportunities in all of those markets.

On Colorado for a minute, we’ve been extremely pleased with that acquisition and that operating team. We are working our way through the assets that were part of that entity when we purchased them and really been working at helping them grow that platform. We’ll see that particular region grow as we get a little bit deeper into the year and open up some of the new communities that we’ve been able to help them acquire.

But absolutely, those are two markets that we like. We like the long-term fundamentals in those markets and I think if you take a look at where we have controlled lots, California, both North and South and Colorado are an area that we would expect to see conversion of those controlled lots into owned in the coming quarters, as well as looking strategically for additional opportunities in both Northern California and Colorado.

Will Randall - Citi

And then just as a follow-up and to earlier questions, in terms of buyer mix, I think what might be interesting, if you could talk about your cash buyer mix, as well as your foreign buyer mix, because I know in places like Irvine, you could be almost, call it half the buying group?

Bill Lyon

Yes, I think cash buyers for us represent – I believe in the last quarter represented somewhere in the neighborhood of 12% to 15% of our buyers were cash buyers. Of those cash buyers, we were seeing them really focused in a couple of areas, some in Las Vegas and some obviously in Southern California, and not limited exclusively to Irvine. Las Vegas has historically been a larger percentage of cash buyers dating back to the late ‘90s.

Relative to the breakdown of our buyers, certainly Irvine and other parts of Southern California, as well as the South and East Bay markets of Northern California have seen a very strong influx of Asian buyers, and that’s either buyers who are coming directly from Asia or families that have first-generation families in North America and looking to help their kids effectively buy a house and get established.

In terms of exact percentages, we don’t give out specifics to that, but your comment of some communities in Irvine being roughly half of the buyers is not too different from what we’re seeing.

Will Randall - Citi

And if I could just sneak it in, are you seeing any change in trend in terms of cash and foreign buyers?

Bill Lyon

Not really, Will. I think the buyers in Irvine are pretty consistent. In Northern California, it’s been pretty consistent. In addition to communities that we own and operate, we do some construction management and fee building for a partner up in Petus (ph) in the South Bay and still seeing strong demands from that buyer demographic in those particular markets. So it’s been pretty consistent throughout this year, which I’d say on a ratio basis is about the same as it was last year as well.

Will Randall - Citi

Thanks for that. Great quarter out of the gates.

Bill Lyon

Thanks Will.

Operator

Your next question comes from the line of Alex Barron of Housing Research Center. Please proceed.

Alex Barron - Housing Research Center

Hey guys. How are you doing?

Bill Lyon

Good. How are you doing Alex?

Alex Barron - Housing Research Center

Good, thanks. I guess maybe I didn’t hear you correctly, but I thought I heard you comment on cancellation rates through the quarter. But did you also comment on post the quarter, like in July and what you’ve seen then?

Bill Lyon

We indicated what it was in the second quarter, and so far year-to-date in the third quarter we’re seeing trends that are pretty consistent with what we saw in the second quarter.

Alex Barron - Housing Research Center

Okay, got it. And as far as your orders in a couple of markets that were down sequentially. Like what you think accounted for that? Was it mainly community count issue or was it more just buyers responding to your price increases?

Bill Lyon

Well, we certainly saw a little bit of a community count drop-off in Northern California as we’re rebuilding and growing that division with new communities through the land acquisition.

Phoenix, on a same-store basis absorption rates were down a little bit, in large part because we’ve been trying quite frankly to control the pace of sales in Phoenix. The rate of sales for Phoenix per community was still the highest in the company, which is what we would expect, but certainly we’ve been trying to slow that down, as we saw just rates of sales and Q1 and Q2 last year in Phoenix that were quite frankly too fast to leave money on the table.

So we have been very disciplined quarter-over-quarter and what I had mentioned earlier, which is looking at pricing on each and every project that we have open on a weekly basis and making price adjustments to get that rate of sales down to about one per week per community across the company.

Alex Barron - Housing Research Center

Got it. Okay great, thanks.

Bill Lyon

You bet.

Matt Zaist

Thank you.

Operator

(Operator Instructions). At this time there are no additional questions in queue, and I would like to turn the call back over to management for closing. Please proceed.

Bill Lyon

All right, this is Bill. I’d like to thank all of you for joining us on our call today. With the capital infusion from our IPO, we really believe the opportunities ahead are more compelling than ever and we look forward to providing you with regular updates on our progress.

If you have any additional questions, please feel free to call us or e-mail us, reach out to management. Again, thank you for your participation and have a great day.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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