Tri Pointe Homes, Inc.

Greetings and welcome to the TriPoint Homes fourth quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A 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. I would now like to turn the conference over to your host, David Lee, General Counsel for TriPoint Homes. Thank you. You may begin.

Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the fourth quarter and full year of 2020. Documents detailing these results, including a slide deck, are available at www.tripointhomes.com through the investors link and under the events and presentations tab. 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. The 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-GAP FINANCIAL MEASURES DISCUSSED ON THIS CALL TO THE MOST COMPARABLE GAP MEASURES CAN BE ACCESSED THROUGH TRI-POINT HOME'S WEBSITE AND IN ITS SEC FILINGS. POSTING 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.

Thank you, David, and thank you for joining us today as we go over our results for the fourth quarter and full year 2020, provide an update on our strategic initiatives, and discuss current market trends. FredPoint Homes delivered another quarter of strong profitability to end the year, generating net income of $115 million, or $0.92 per diluted share. Highlights from the quarter included year-over-year home building gross margin expansion of 130 basis points to 23.2%, net new order growth of 14% on a 38% improvement in absorption pace, and unit backlog growth of 69%. These results are reflective of a housing market that is hitting on all cylinders and a strategy that has emphasized margin expansion without sacrificing order growth. Before going further, I would like to thank the TriPoint Homes team across the country for their dedication throughout 2020. Our teams adapted and embraced new ways of working and selling homes to Americans yearning for a safe place to call home. Our tenacious and loyal team members helped us set records for the full-year orders, deliveries, and pre-tax income in 2020. We are proud of the team's accomplishments, particularly in light of the obstacles we faced in dealing with the pandemic, and believe we can build on our success into 2021. 2020 was a challenging year for our nation. but a prosperous one for our industry and company. Our success was driven by accelerated housing demand, especially from first-time buyers and millennials. In 2020, 60% of our customers were first-time home buyers, and the millennial cohort made up 50% of our deliveries that were processed through our mortgage venture, TriPoint Connect. We feel the combination of limited housing supply low mortgage rates, favorable demographics, and pandemic-related factors will continue to drive the desire for home ownership across our markets. As a result, we enter 2021 anticipating another successful year. In mid-January, we formalized our move to operate nationally as one unified brand, TriPoint Homes. This change is allowing us to operate more efficiently by concentrating sales and marketing efforts around one brand instead of six and creating a stronger national awareness for the company with the goal of further improving our financial results. With that in mind, our focus continues to be on improving our return on equity through the strategic initiatives we discussed at our last earnings call, namely, harvesting investments in our long-dated California assets, increasing the scale and margin contribution from our early-stage divisions, improving inventory turns to a more asset-light model, enhancing operational efficiencies, and reducing the share count through our share repurchase program. We made progress in each of these areas in 2020 and believe we are well-positioned to make further strides this year given our operational focus, our strong balance sheet, and our expectation for a continuation of the favorable industry dynamics for the foreseeable future. With respect to our long-dated California assets, we continue to see the extensive development and investment we have made in these land holdings pay off in the form of new community openings, robust order activity, and strong profitability. Throughout Southern California in 2020, we had over 30 active projects in seven master plan communities, which yielded over 1,200 orders for our company. All these communities in Los Angeles County, San Diego County, and the Inland Empire outperformed with elevated absorption paces as a unique combination of innovative home designs with an affordable price point resonated with home buyers. Sales momentum at our Sundance master plan community in Beaumont was so strong in 2020 that we quickly closed out of our traditional homes with only the active adult project, Altus, remaining open for sale. We have also seen strong order momentum at our newer master plan community, Atwell, in nearby Banning, which has averaged over eight orders per month over the last six months within the five product segments we offer. Land development is progressing nicely at our 844 lot master plan community in North San Diego County, Citro, formerly known as Meadowood, where we expect to open five new communities in the third quarter of this year. As the transition from investment to return continues in Southern California, we're also starting to see a real transformation as some of our early stage markets mature. As we discussed on our October earnings call, it takes time to scale operations of a new division to a level in which profitability is achieved on a consistent basis. We have made the necessary investments to move these divisions past the startup phase and expect their contributions to our profitability to continue to grow this year and beyond. For example, in Sacramento, we delivered 10 homes in 2019 and 106 in 2020. with an average absorption pace of 4.5 homes per community per month and strong gross margins above 20%. We plan on adding four new projects in 2021 and are on track to deliver 400 homes by 2022. We have similar growth expectations for our newer divisions in Dallas, Fort Worth, Austin, Charlotte, and Raleigh, where we have been aggressive in the land market to achieve our delivery goals. We currently have approximately 6,500 lots owned or controlled in these markets and expect to open 37 new communities over the next two years. Another way in which we are focused on enhancing our returns is through the acquisition and management of our land holdings. Increasingly, we are finding ways to defer the investment in land through option agreements and other financial arrangements. On our last call, we discussed the near-term goal of having 40% of our lots controlled by our option, and we have made significant strides towards that goal by increasing our option percentage to 37% at the end of 2020, compared to just 24% 12 months ago. Some of this is a function of our diversification in the markets in which land option arrangements are more readily available, but it's also a testament to our increased size and the long-standing relationships we have with key players in the land and financing market. We will continue to leverage these relationships to enable us to control more lots to grow our business in a more capital-efficient manner. Our focus on efficiencies extends to our day-to-day operations as well and has led to our evolution as a technology-driven company. Through the use of our technology platforms, we are finding ways to reduce costs, and shortened cycle times. Some of the current innovations we are working on, such as the automation of home buyer and customer care portals, smart contracting, and the redesign of closing services are all expected to contribute to a more seamless, cost-effective operating model. On the sales and marketing front, we are seeing real cost savings from the implementation of digital assets at all of our new communities. These technological tools have streamlined the home buying process, taking costs out of our business, and allowed us to work smarter and more efficiently. The final avenue that we have to improve our return on equity is our share buyback program. In 2020, we repurchased over 15 million shares at an average price of $16.53, lowering our year-end share count by roughly 10%. In November, our board authorized a new $250 million share repurchase authorization, giving us the ability to lower our share count even further. With our ability to generate positive cash flow from operations and our low leverage ratios, we believe we can continue to reduce our share count without sacrificing growth, providing us the flexibility to invest our capital where we see the best return. Again, while 2020 was a challenging year for our country, it was an excellent year for our company, and we are now poised to continue to make progress on our return profile given the health of the market and the initiatives I discussed above. With that, I will now turn the call over to Glenn, who will provide more detail on our results and outlook going forward.