Tri Pointe Homes, Inc.

Good morning and welcome to the TriPoint Homes first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over 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 first quarter of 2023. 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-YAP financial measures discussed on this call So the most comparable gap 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 hello to everyone on today's call. During the call, we will review operating results for the first quarter, provide a market update, and reiterate our key strategic operating drivers for 2023. In addition, we will provide our second quarter and full year outlook. We are extremely pleased with the start of the year as overall market conditions have vastly improved relative to those in the final quarter of 2022. We reported outstanding results for the first quarter, where we met or exceeded all of our stated guidance. For the first quarter, we delivered 1,065 homes while generating $768 million in home sales revenue. Home sales gross margin for the quarter was 23.5%, and SG&A as a percentage of home sales revenue was 11.5%. These metrics culminated in a pre-tax income of $103 million or 73 cents of diluted earnings per share. We generated positive cash flow from operations of $136 million for the first quarter, and we returned $38 million to our shareholders in the form of share repurchases. Our balance sheet remained strong as we ended the quarter with a record low net debt to net capital ratio of 12.6% and total liquidity of $1.7 billion. While we are pleased with these first quarter financial results, more notably, we are encouraged by our ability to generate new home orders, reduce cancellations, and make significant strides in replenishing our backlog pipeline. Our key initiative going into the year was to increase our sales space with a returns-oriented focus. We achieved this through product repositioning, targeted pricing, and incentive strategies that allowed us to adjust price on a community-by-community basis to meet the needs of today's buyers. Order pace for the first quarter was 4.0 orders per community per month, which was firmly above our pre-pandemic normal levels for a first quarter and significantly higher sequentially from what we experienced in the back half of 2022. Overall, we generated 1,619 orders for the first quarter a 265% increase sequentially from the fourth quarter of 2022, along with a cancellation rate of 10%. We also grew our community count by 17% compared to the first quarter of 2022, ending the quarter with 136 active communities, of which 64% were outside of California. Despite the well-publicized stress surrounding the banking system the uncertainty of higher interest rates, and the dialogue on a future recession, the job market appears to remain strong, and there are no apparent reductions in credit quality or stress related to our prospective buyers. We believe there are several factors contributing to a tailwind for the homebuilding industry. First, on the supply side, the combination of significant reduction in resale inventory compared to historical levels and the continuing slowdown in new home construction starts over the past several quarters has only increased the housing deficit. The limited resale market, which is compounded by the large number of existing homeowners not listing their homes due to low mortgage rates they have obtained, appears to be providing strong support for the new home market. According to the National Association of Home Builders, Currently, one-third of housing inventory is new construction compared to historical norms of a little more than 10%. This reduction in resale competition is likely increasing our prospective buyer pool, and we believe this factor will continue while rates remain elevated. As such, we are focused on increasing our new home starts to meet these favorable market conditions. Second, on the demand side, While the rise in mortgage rates over the past year has had significant impact on traditional monthly mortgage payments, our rate buy-down incentive strategy has been a key component in mitigating that and providing affordability for our customers. Due to the strong demand in the market, we were able to reduce incentives on new orders as the quarter progressed, and we have raised base pricing in certain communities where demand has significantly outpaced supply. The third fundamental point relates to the demand for homes from millennials and Gen Z buyers who are in or approaching their prime home buying years. According to a recent study, with 52% of millennials now owning a home, the majority of our nation's largest generation has transitioned from being renters to homeowners, with a notable 64% increase in the number of millennials buying a home in the past five years. Consistent with these macro demographics, this cohort currently makes up 59% of TriPoint's buyers financing with our affiliated mortgage company. Furthermore, the next generation entering the home buying life stage is Gen Z, a cohort of 68 million people and only 5% smaller than the millennial population. Gen Z represents 9% of our current backlog. While these dynamics bode well for continuing demand, our focus on cost savings remains a priority. And our operating teams have made solid strides in obtaining lower costs throughout the supply chain. Our goal of a 10% to 20% reduction by year end continues to drive our efforts. We have seen positive results through the first quarter with costs down 8% to 10% on average. We acknowledge there are still sticky labor constraints but we remain committed to pursuing reductions where possible. Cycle time reductions are another key initiative of our 2023 business plan, as we continue to prioritize returns through higher asset turns and increased delivery volume. At the beginning of the year, we set forth a goal to reduce cycle times by four weeks on average by year end, and we are making strides towards meeting this goal. Our team is focused on expanding trade resources, improving the material procurement process, and introducing line or phase building in additional markets. Spec homes currently represent 60% to 65% of our total starts thus far in 2023. Through the first quarter, our cycle times have been reduced on average by more than two weeks. We are pleased with the improvements we are seeing thus far in 2023 and believe further improvements are within reach as the year progresses. As for market commentary, we are pleased to report that we are witnessing well-diversified demand across all buyer segments in geographic markets. We continue to focus on affordability with 80% of our average community count coming from the premium entry-level or first move-up buyer segments. For the quarter, 50% of our orders came from the entry-level segment, 33% were from the first move-up, 7% were the second move-up, with the remaining 10% coming from luxury or active adult. The first quarter of 2023 has been defined as a market in transition. The back half of 2022 was depressed by rapidly increasing interest rate scenario that necessitated a market correction. And builders have reacted quickly with price reductions, product repositioning, and financing incentives to stimulate demand. Beginning in early January, the consumer re-engaged, and generally, new housing demand in early 2023 has been very strong. Supply and demand dynamics remain a tailwind for our industry. Now I'd like to turn the call over to Glenn to further discuss the results for the quarter and provide some insight on our outlook for 2023. Glenn?