Tri Pointe Homes, Inc.

Ladies and gentlemen, greetings and welcome to the TriPoint Homes fourth quarter 2022 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 you to David Lee, General Counsel. Please go ahead.

Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the fourth quarter of 2022. 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-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.

Thank you, David, and good morning. During the call today, we will review operating results for the fourth quarter and full year and outline strategic operating drivers for 2023. Let me begin by discussing our performance in the fourth quarter. where we focus on delivering our high-margin homes and backlog, as well as planning strategies to reposition our pricing and product going into 2023. Those efforts paid off as we reported all-time highs for quarterly revenue of $1.5 billion, pre-tax income of $274 million, and diluted earnings per share of $1.98. The strong finish to the year resulted in record-breaking full-year performance on both the top and bottom lines for the second consecutive year. For the full year, home sales revenue increased 9% to $4.3 billion, pre-tax income increased 24% to $773 million, and diluted earnings per share increased 35% to $5.54. These strong financial results led to positive cash flow generation of $444 million for the full year and allowed us to return $203 million to our shareholders through share repurchases. We ended the year with $890 million in cash and a 14.7% net debt to net capital ratio, both of which are record numbers for TriPoint. I'd like to thank all of our team members for these outstanding results and their tireless efforts navigating the supply chain hurdles throughout the year, all while continuing to deliver a premium product and experience to our home buyers. In addition to logistical challenges, our industry was also confronted with a challenging market in the back half of 2022, which found consumers facing a difficult home buying environment. significant and persistent inflation, and the resulting seven Fed rate hikes that took place in 2022 had a major impact on housing affordability, particularly following the post-pandemic pricing boom where high demand and low supply led to steep price increases. Accelerated pricing, along with mortgage rate increases from below 4% to above 7%, in a short period of time caused consumers to pause their purchase decisions. While many of these macro factors are out of our control, we have employed strategies to counter these external challenges. We will continue to focus on the following strategic initiatives that will drive shareholder value in 2023 and beyond. Our aim is to optimize our business to current market conditions. while taking advantage of our strong land pipeline to grow volume over time. We have initiatives in place to improve absorptions, realign our cost structure, and maximize profitability and return on equity. Net new home orders in the fourth quarter were down 69% year-over-year, as we prioritized delivering our high-margin homes and backlogs. At the same time, we were also analyzing our pricing and product offerings at both existing and future communities to drive orders going into 2023. We have adjusted price on a community-by-community basis to meet the needs of today's buyers through a combination of base price decreases, lot premium adjustments, and mortgage-related incentives. As a result of these efforts, we have adjusted net pricing down 10 to 15% on average, from the peak pricing of early 2022. On the product front, we have taken a fresh look at our community designs and product offerings, including lowering square footages and simplifying our products to provide a more attainable price point. These strategies have already shown signs of success in the early part of this year. For the month of January, net orders were 421 on an absorption pace of 3.1 per community per month, which was a significant increase sequentially from December with its net orders of 141 or 1.0 per community per month. To date, in February, we have seen similar encouraging results with absorption rates of approximately 4.0 per community per month. Another area of focus and key to our success is driving cost savings. Our operating teams have been hard at work obtaining lower costs at all of our projects with a goal of 10 to 20% reduction by year end. While we have already started to see positive results, we acknowledge there are still sticky labor constraints and supply challenges, so we will not realize the full effect of anticipated savings until late 2023 and early 2024. We continue to focus on value enhancement for consumers while we create more efficient designs that drive lower costs. An additional area of cost restructuring is in our overhead. We have revised our staffing levels in construction, selling, and G&A to ensure they support anticipated volumes, resulting in approximately $15 million in annualized savings. Cycle time reductions are an important component to the success of our business in 2023 and will lead to improved inventory turns and the ability to increase our delivery volume. While our cycle times have increased compared to pre-pandemic levels, our goal is to reduce cycle times four to six weeks on average by year end. We will achieve our goal by continuing to work with trade partners and creating efficiencies in the construction process through more line and phase building in select markets, which enables us to produce a consistent level of spec starts. In addition, we have simplified our schedule templates, expanded our trade partner base, and as a result, we are experiencing some early success. Specs represented 60 to 65% of our total starts in 2022. We ended the year with approximately 11 in process or completed specs, per community, which we feel is a good level to meet the demand for quick move-in, ready homes we are seeing in today's market. Finally, we continue to emphasize the importance of return metrics throughout our organization. We ended the year in a strong cash position and intend to use that capital to fund community account growth, which will lead to more scale in each of our markets and drive better leverage and returns. By year end 2023, we anticipate having 175 active communities, which is a 29% increase over 2022. In addition, we anticipate being active in our share repurchase program. Since the inception of our first share repurchase program in 2016, we have repurchased 66.7 million shares, representing a total spend of $1.1 billion. Slide 24 of the earnings deck shows that since the end of 2015, our book value per share has grown at a compounded annual growth rate of 15% through a combination of earnings growth and share repurchases. To that end, today we announce that our Board has approved a new $250 million share repurchase authorization. Before I turn the call over to Glenn for a more detailed review of the numbers, I would like to note that we are encouraged by the early sales success this year, but recognize that short-term results could be impacted by further interest rate increases, continued reductions in the labor market, and the possibility of a recession. With our intentional focus on driving increased orders, cost reductions, and improved returns, we are confident we have the strategies in place to overcome these potential short-term challenges. Long-term, we remain extremely positive on the outlook for housing due to the lack of supply and favorable buyer demographics. TriPoint is well-positioned to grow and capitalize on this long-term outlook. With that, I'll turn the call over to Glenn.