Tri Pointe Homes, Inc.

Greetings and welcome to the TriPoint Group third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, TriPoint General Counsel. Please go ahead.

Good morning and welcome to TriPoint Group's earnings conference call. Earlier this morning, the company released its financial results for the third quarter of 2020. Documents detailing these results, including a slide deck under the presentations tab, are available on the company's investor relations website at www.tripointgroup.com. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through TriPoint's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's chief executive officer, Glenn Keeler, the company's chief financial officer, Tom Mitchell, the company's chief operating officer and president, and Linda Mamet, the company's chief marketing officer. With that, I will now turn the call over to Doug.

Thanks, David, and thank you for joining us today to go over our results for the third quarter of 2020, discuss strategic initiatives, and provide some color on our company's outlook. Before we discuss our third quarter results, I'd like to express our ongoing appreciation and admiration for the frontline workers who are working around the clock. and we hope you and your families are staying well. I don't think any of us thought this pandemic would last as long as it has, and despite that, we have a lot to be thankful for. Our industry is thriving as the desire for new homes continues to grow. And as a result, TriPoint Group delivered strong results for the third quarter of 2020, driven by a combination of excellent housing fundamentals a highly desirable product profile, and great execution by our team members. We generated earnings per share of 61 cents for the quarter, representing a 39% improvement over last year, thanks to an 11% increase in home building revenues and a 110 basis point expansion in our pre-tax margin. Home sales gross margin came in at 22.1%, eclipsing the high end of our stated guidance range, while SG&A as a percent of home sales revenue improved 180 basis points to 9.8%. These results demonstrate the success we've had implementing price increases to offset cost inflation and the effectiveness of the cost-cutting initiatives we implemented earlier this year. Net orders for the quarter increased 50% year over year on a 65% improvement in our order pace to 4.8 per community per month. The order improvement was broad-based across a number of demographic segments and geographies, with 38% of our buyers representing the millennial cohort. While the historically low interest rate environment is clearly fueling a portion of the demand we are seeing, We believe there are demographic shifts and lifestyle changes that are occurring in this country that will have a positive long-term impact on our industry. Millennials are increasingly embracing the notion of home ownership, while Americans of all ages have placed a greater emphasis on the home due to the current pandemic. As we continue to take advantage of the growth that's occurring in our industry, we are laser focused on five ways to improve our returns. This is an area of emphasis for our company as we have scaled our operations in one that should continue to improve thanks to the progress we're making on a number of fronts. The first area of opportunity we see for better returns comes from several of our projects associated with our long-term California assets. During our 2016 Investor Day, we highlighted the earnings potential of our assets located in Santa Clarita and the Inland Empire, but also emphasized that our returns would be depressed in the near term due to the upfront investment needed to bring them to market. Over the next several years, we set about putting the necessary infrastructure and amenities into these communities to maximize their appeal. Fast forward to today, and we are realizing positive returns on these investments with several communities generating sales bases above the company average and healthy profits. The second avenue we see for better returns is through the maturation of our early stage divisions like Dallas, Austin, the Carolinas, and Sacramento. We have established a foothold in these markets, but as is the case with any new venture, it takes time to scale the operations to a level on which profitability is achieved on a more consistent basis. We have made the necessary investments in these markets to move past the startup phase for these divisions, and we expect their contributions to our profitability and return profile to improve over the next few years. Our third lever to increase inventory turns. We made a conscious effort to increase the number of lots controlled via option over the last few years, and that number now stands at 30% as of the end of the third quarter of 2020, compared to 16% two years ago. We are continuing to grow our option lot percentage by appropriately structuring land deals with sellers, as well as utilizing financing transactions to control more lots in a capital-efficient manner. Based on our current projections, we believe we can get our option lot count up to 40% and improve our inventory turns to one time annually by 2022. A fourth way in which we can specifically improve our return on equity is through our share repurchase program. So far this year, we have repurchased $164 million in stock from our $200 million authorization. We intend to utilize the remaining amount of our current authorization in the fourth quarter. And going forward, we continue to be committed to our programmatic annual stock repurchase program. Based on our strong cash generation and low debt levels, we believe we can continue to utilize a portion of our capital to repurchase stock without sacrificing growth in our home building operations. The final initiative we are focusing on to drive better returns is our ongoing commitment to operational and process improvements across our organization. As we seek to increase efficiencies company-wide and anticipate trends in home buyer behavior, we have evolved into a technology-driven company. Over the past 18 months, we have upgraded our accounting system, our CRM solutions, and implemented a new construction management platform that has made us more streamlined in our field operations. This has given us the ability to centralize certain back office functions that will improve efficiencies and lead to G&A savings. We have also implemented a new option selection software program for an overall improved customer experience. and made enhancements to our virtual sales content as we stay in stride with the consumer's desire to shop from home. Along with technological efficiencies, we will focus on product simplification going forward, which will reduce cycle times and generate cost efficiencies while providing the same personalization that our company is known for. Calving these initiatives I am excited to announce that we have made the strategic decision to start operating nationally as one unified brand, TriPoint Homes. This change will drive more operational efficiency and performance by allowing us to concentrate all our functional efforts around one brand instead of six. It will also create stronger national awareness for the company with the goal of further improving our financial results and driving shareholder value. The merger with Ricoh that we completed in 2014 was transformative for the company, and the multiple brand approach we inherited has served us well over the past six years. During that time, we successfully established an overarching vision and culture across TriPoint Group's six brands, while fostering the long-standing trusted relationships our local leadership teams have forged over the years with land sellers and trade partners. That pillar of operating as the best of big and small with local expertise and relationships backed by our own financial resources and powerful technology platforms will continue to define who we are as we look to the future and continue to broaden our geographic footprint. While evolving in ways that will make us more efficient in key operational strategies and ahead of consumer trends, the pillars that have been central to our success will continue to differentiate us. Along with being the best of big and small, we are a customer-driven company and consider ourselves in the life-changing business. As a premium lifestyle brand, we place a high priority on innovative design and craftsmanship across all price points. All this is possible because of the passionate culture that permeates all aspects of our business, empowers our people to love what they do, and motivates them to perform at the highest levels. We are excited to move forward as TriPoint Homes and take the company to the next level. Through the end of this year, we will continue to operate under our existing brands and will begin transitioning to our new TriPoint Homes brand across the country early in the first quarter of 2021. Finally, I wanted to say I am very proud of how we have grown as a company and of the team for undertaking all these strategic initiatives to put TriPoint in a position for success for many years to come. With that, I will turn the call over to Glenn to provide more details for the quarter.