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spk08: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to TriPoint's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the call over to your host, David Lee, General Counsel. Thank you. You may begin.
spk09: Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the first quarter of 2024. 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 President and Chief Operating Officer, and Linda Mamet, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.
spk06: Thank you, David, and good morning to everyone on today's call. During the call, we will review operating results for the first quarter, discuss some of our growth initiatives, and provide a market update. In addition, we will provide second quarter and full year outlook for 2024. We're pleased to report that TriPoint Homes had an outstanding first quarter that met or exceeded the high end of our guidance across all key operating metrics. We delivered 1,393 homes at an average sales price of $659,000, resulting in home sales revenue of $918 million, a 20% increase compared to the previous year. Home sales gross margins were 23% for the quarter, which was at the high end of our guidance range, resulting from lower incentives. Our increased delivery volume allowed us to benefit from improved operating leverage, resulting in a decrease in SG&A as a percentage of home sales revenue to 11.1%, a 40 basis point improvement compared to the prior year. In addition, our strategic shift towards a higher percentage of spec starts to meet the prevailing supply-demand gap in the housing market has enabled us to address consumer needs and further increase deliveries. This, along with our ongoing success with reducing cycle times to pre-pandemic levels, creates an efficient engine to generate profits. These outstanding results led to net income of $99 million and diluted earnings per share of $1.03. marking a 41% improvement over the prior year. Relative to demand, market conditions remain favorable for new home builders. Today's environment is fueled by a strong economy, low unemployment, and an ongoing shortage of housing supply. TriPoint Homes' results reflect our focus on core market locations and innovative product that appeal to well-qualified customers. During the quarter, we recorded 1,814 net new orders, which was an improvement of 12% compared to the prior year. Our absorption pace remained healthy throughout the quarter, averaging 3.9 homes per community per month. With our strong demand, we focused on finding a balance between pace and price to maximize our profitability. During the first quarter, we were able to raise net pricing in most of our communities with incentives on orders improving to 3.8% compared to 4.8% sequentially from the fourth quarter. With a substantial backlog of 2,741 homes and a spring selling season that continues to reflect strong demand, we are raising our full year guidance for deliveries, ASP, and gross margin percentage. Glenn will give further details on our guidance in a moment. We generated $145 million of positive cash flow from operations and ended the quarter with $944 million of cash on hand. We have $450 million of senior notes that are maturing in the second quarter, and we plan to pay these notes off in full. This will decrease our annual interest carry by $26 million and reduce our debt-to-capital ratio to the low 20% level. Our strong balance sheet and liquidity along with our ability to generate positive cash flow from operations, enables us to grow our business while also returning capital to our shareholders through our stock repurchase program. During the quarter, we repurchased approximately 1.4 million shares of our common stock, an average price of $34.66 for an aggregate dollar amount of $50 million. We remain committed to our share repurchase program as a key component of our capital allocation strategy, as we continue to drive down our shares outstanding and drive up our earnings and book value per share. The cumulative benefit of share repurchases continues to show in our results. Since the end of 2016, the first year in which we began repurchasing shares, we have increased our book value per share by 279%, or 15% compounded annually. During this same period, our shares outstanding have been reduced by 40%. In addition to strong operating results to kick off 2024, we've also executed on key growth initiatives that we discussed on our fourth quarter earnings call. During the first quarter, our mortgage company, TriPoint Connect, became wholly owned by TriPoint Homes. following the acquisition of the minority stake from Loan Depot. This integration allows for an enhanced customer experience and pricing flexibility while increasing earnings from financial services. Our capture rate with TriPoint Connect in the first quarter remains strong at 86%. Our buyers and backlog financing with TriPoint Connect demonstrate financial strength with an average FICO score of 753, debt-to-income ratio of 41%, loan-to-value ratio of 80%, and an average gross household income of $195,000. Another exciting development for our business is the expansion of the TriPoint brand into new markets. Late last year, we announced our entry into the greater Salt Lake City market. And earlier this month, we announced the opening of the Coastal Carolinas and Orlando divisions. We are thrilled to expand into these southeastern markets, leveraging the strong foundation and successes we have established in both Charlotte and Raleigh. The southeast has emerged as an economic engine, with South Carolina and Florida being the two fastest growing states in the nation in 2023, growing their populations by 1.7 and 1.6% respectively. Both markets boast diverse economies that fuel jobs and drive housing demand. We feel these markets provide an excellent opportunity for our brand that caters to the need for premium entry level and move up housing in both markets. We anticipate first deliveries in both the coastal Carolinas and Orlando divisions in 2026. Looking beyond our first quarter results, order activity in April has remained strong despite recent increases in mortgage rates. We continue to see the shortage of resale supply as a key factor in the ongoing strength of the new housing market, driving high-quality traffic to our communities. In the current housing cycle, new home builders are continuing to capture share of the total home sales at an historic percentage. Despite near-term inflation-driven rate increases, we remain encouraged about the long-term fundamentals of our business, which are supported by a solid economic environment and ongoing household formations, particularly among the millennials and Gen Z buyers who continue to act as a demand catalyst. To wrap up, the outlook for TriPoint is very positive for 2024 and beyond, as we leverage our strengths to seize opportunities in both existing and new markets. We are also very optimistic about the outlook for our industry, as the undersupply of housing continues to fuel demand. As the supply-demand gap continues to diverge with no end in sight, we believe our unwavering dedication to long-term growth, coupled with prudent financial management, positions us well for continued success as we create and deliver value for our shareholders and customers alike. With that, I will now turn the call over to Glenn. Glenn?
spk02: Thanks, Doug, and good morning. I'm going to highlight some of our results for the first quarter and then finish my remarks with our expectations and outlook for the second quarter and full year for 2024. As Doug mentioned, demand remained strong in the first quarter with net new home orders at 12% year over year at an absorption pace of 3.9 homes per community per month. Our cancellation rate remained low at only 7%, and we ended the quarter with 2,741 homes in backlog, which was a 35% increase year over year. Despite the recent increase in rates, the current demand environment continues to feel positive, and our April absorption pace has remained consistent with the first quarter. With the strong demand experienced in the quarter, we were able to realize some pricing power by increasing base home pricing and reducing incentives. Overall, we were able to increase net pricing in approximately 80% of our communities for an average amount of 2.5%. Incentives on orders for the first quarter were 3.8%, which was within the range of our historical company average of 3% to 4%. The use of incentives for some type of financing or rate buy-down continues to be a popular consumer choice. With that said, we have started to see the level of rate buy-downs and frequency of long-term rate locks decline as homebuyers are climatized to a higher rate environment. Turning to communities, we opened 20 new communities in the quarter and closed 19, ending with 156 active selling communities, which was a 15% increase over the prior year. Consistent with our previous guidance, we plan to open approximately 65 new communities for the full year. I expect to close a similar number. With our strong land pipeline, we anticipate growing our 2025 ending community count by approximately 10%. We ended the quarter with approximately 34,000 total lots, 46% of which were controlled. Our population of controlled lots increased 19% sequentially from last quarter, and we are well on our way to achieving our stated goal of increasing our controlled lot percentage to 50%. Looking at the balance sheet and capital spend, we ended the quarter with approximately $1.6 billion of liquidity consisting of $944 million of cash and $703 million available under our unsecured revolving credit facility. Our debt to capital ratio was 31.2% and our net debt to net capital ratio was 12.6%. As Doug mentioned, we plan to use the cash on hand to pay off our $450 million of senior notes that are due in the second quarter. We do not have another debt maturity until 2027, which puts us in a strong position to use our capital to invest in our business and continue to be active in our share repurchase program. During the first quarter, we repurchased 1.4 million shares for a total aggregate dollar spend of 50 million, leaving us with 200 million available under our current authorization. For the first quarter, we invested approximately 238 million in land and land development. To support our growth targets, we expect to spend approximately 1.2 billion to 1.5 billion annually on land and land development. Now I'd like to summarize our outlook for the second quarter and full year for 2024. For the second quarter, we anticipate delivering between 1,500 and 1,600 homes at an average sales price between $670,000 and $680,000. We expect home building gross margin percentage to be in the range of 22.5% to 23.5% and anticipate our SG&A expense ratio to be in the range of 11% to 11.5%. Lastly, we estimate our effective tax rate for the second quarter to be approximately 26%. For the full year, we anticipate delivering between 6,200 and 6,400 homes at an average sales price between $660,000 and $670,000. We expect home building gross margin percentage to be in the range of 22.5% to 23.5% and anticipate our SG&A expense ratio to be in the range of 10.5% to 11%. Lastly, we estimate our effective tax rate for the year to be approximately 26%. With that, I will now turn the call back over to Doug for some closing remarks.
spk06: Thanks, Glenn. In closing, I want to express my deepest gratitude to the entire TriPoint team. Their dedication, innovation, and hard work are truly the driving force behind our success. As a premium lifestyle brand, our ability to consistently innovate, and differentiate ourselves rests on the shoulders of this extraordinary team. Looking ahead, we have confidence in the future of the housing industry and TriPoint's growth. Our commitment to disciplined execution underscores our pursuit of market share expansion within our existing divisions and strategic growth in our three new markets. We're energized to continue delivering value to our shareholders and customers alike. Thank you for your time today. And let's proceed to a Q&A session. Operator?
spk08: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Stephen Kim with Evercore. Please proceed.
spk10: Yeah, thanks very much, guys. Appreciate all the color. But as usual, we're always looking for a little more. So I guess my first question relates to your average selling price. And particularly, I'm interested in your order ASP, which looks like it has averaged about $688,000 over the last six months. but the high end of your full-year guide assumes closing price of only mid-670s or so, the high end. And so I'm assuming that that means that you're thinking you're going to start a lot more lower-priced SPACs and you're going to deliver them in the same quarter. But if that's the case, I think your backlog turnover ratio would be higher, but you're not really seemingly guiding to that. So it seems like it's pretty conservative somewhere, and I'm just trying to figure out where you're being more conservative. So could you maybe address... you know, why your ASP isn't going to be closer to what your order price has been. And if it's because of specs, why you're not taking up your backlog turnover ratio.
spk02: Steven, hey, it's Glenn. I'll take a shot at that. And it is just mixed. When you look at that full year price guide and even the Q2 price guide compared to our ASP and backlog, which is higher, it's just the mix of the additional deliveries we're going to get for the full year based on our communities. is coming from places like Charlotte, Houston, Dallas, as just a bigger mix than what's currently in backlog based on communities that are opening. And so that is what's going to overall drive the rest of the year, because we still have plenty of houses to sell this year to close this year. And there is just a little bit of mix in Q2 as well from timing of delivery of higher ASP homes versus lower ASP homes. So it's just a mix.
spk10: Gotcha. Okay. I think you're still being conservative, but that's okay. Next question about the gross margin. So it was really encouraging to see that you raised your full year gross margin guide by about 100 basis points. But interestingly, your 1Q gross margin really just met the high end of your guide. So this seems to imply that selling conditions improved pretty meaningfully over the past three months. And I think you basically said that in your opening remarks, so that confirms it. But that's really encouraging considering that rates Mortgage rates have risen pretty steadily over that time. So I was wondering if maybe you could describe how the strength has unfolded over the course of the quarter in the face of higher rates and obviously continuing into April, where I think you said you think that customers are acclimatizing to the higher rates. Just love to hear a little bit more commentary about that as you progress through the quarter.
spk02: Yes, Stephen, it's Glenn again. Good question. And like we said, we were able to have some pricing power in the first quarter. We saw really strong demand. And it started right out of the gate. January was a higher than seasonal absorption pace for us. And then that just got better throughout the quarter. But overall, the quarter was just really strong demand. We were able to take that price. And then into April, we're seeing, like we said, consistent absorption that we saw in the first quarter. We're not seeing an increase in incentives. Incentives are actually slightly down compared to where we were in the first quarter. And so again, it just shows that strong demand that we're seeing out there in the market.
spk10: Yeah, that's super encouraging. Just housekeeping-wise, could you just give us the production home information? Thanks very much, guys.
spk04: Yep. We had... Where's that?
spk02: Are you talking about... At the end of the quarter, we had 232 completed unsold homes, and then we had another 1,321 under-construction unsold homes. Is that what you're looking for?
spk10: Yeah, so that would mean that you had a total of 1,553 of specs, unsold specs, correct.
spk04: Okay, these are unsold specs. Okay, gotcha. Appreciate it. Thanks.
spk08: Our next question is from Alan Ratner with Zellman & Associates.
spk11: Hey guys, good morning. Congrats on the strong quarter and the entry into Florida. I know that's been a long time coming. So great to see that. My first question, you know, we've been hearing a little bit of mixed messaging around kind of the quality of the buyer today. And I know you gave some helpful stats there, but you know, some builders have kind of signaled that they're starting to see maybe a little bit more stress among the consumers and their financial condition. A few other builders have kind of cited a pretty meaningful pickup in FHA share, which depending on your interpretation of that might suggest maybe the down payments are becoming a little bit more challenging. So I'm just curious if you would be willing to kind of opine on what you're seeing in your consumer today in terms of their credit quality and if you're seeing any signs that affordability constraints are beginning to have an impact on buyers' ability to qualify.
spk06: Hey, Alan, it's Doug. How are you?
spk11: Great.
spk06: Good. We have not seen any change in our buyer profile. Actually, our buyer consumer profile for our product, our entry-level premium all the way up to the first and second move-up, does resonate with a more qualified buyer. I think we pointed out our buyers have some pretty strong mortgage statistics. And when you look at average household income of $195,000, that's very healthy. when you have an ASP in the mid-to-high 700s. So the buyer profile is very strong right now. Linda, do you want to add anything to that?
spk01: Yes, thanks. Ellen, FHA is still a relatively low percentage of our backlog. It's currently at 11%. So by far, conforming is the most typical loan type for our homebuyers.
spk11: Great. I appreciate that feedback there. Second question, I guess, on the SG&A, really, really nice improvement on the leverage this quarter. It came in much stronger than you were expecting. And I know some of that was top line driven. You delivered more homes than expected. But, A, I'm curious if there's anything kind of one time in nature there that kind of drove that number a bit lower. And, B, as we think about some of the new market expansions that you've announced here, Are there going to be any kind of upfront expenses or any kind of headwinds from that that we should be aware of either later this year or into 25 before you start to deliver a product in those markets?
spk02: Yeah, Alan, this is Glenn. Good question. No one-time events in Q1 that led to that. Probably a little bit more savings on advertising than we had budgeted just because of the strong demand that we saw. So maybe a little bit of savings there. And then for the startup markets, it's going to be minimal costs this year, and that's baked into our full-year SG&A guide. And then next year, you're probably looking around $5-ish million of maybe operating costs, some G&A related to the three new startup divisions. So overall, not a huge burden to our overall SG&A number. And then you'll start to see some deliveries and revenue in 26 that will help offset those costs.
spk04: Thanks, Jacqueline. Thanks a lot. Good luck, guys. Thanks, Alan. Thanks, Alan.
spk08: As a reminder, to ask a question, please press star 1. Our next question is from Mike Dowell with RBC.
spk12: Good morning. Thanks for taking my questions. A couple follow-ups here just on the selling environment. Maybe if you could give us a little more color, kind of the cadence of absorption through the quarter. how that looked on a monthly basis. And then when you look at April, appreciate the comments on the absorption. We heard from one of your peers that absorption's kind of held, but there's maybe some early signs of traffic moderation. I think that was more an entry-level comment, but maybe can you just address kind of traffic trends that you've seen and if there's any sort of kind of flashing yellow that you're starting to see over the past week or so in terms of buyers through the door in response to this recent one.
spk06: Hey Mike, this is Doug. As we reported, the housing market was very strong in the first quarter. We averaged absorption pace of 3.9 homes per community per month and And we're going into the quarter with very similar results. So the consumer is still very engaged. I think Wall Street, the analysts, everybody else, we all are guilty of watching the 10-year treasury go up and down, mostly going up lately. And the buyers are very acclimatized to what's going on in the market. So right now we're seeing consistent demand with where we saw it in the first quarter.
spk04: Got it. Okay. That's good to hear.
spk12: And then another follow-up on Steve's question on ASPs. When you look at the guide for the year now and the increase, obviously, MIPS plays a big role, but is the increase in the full-year guide, is that really reflective of primarily the net pricing actions that you took over the past few months, or are there also mixed impacts, good or bad, that are either netting that up or down?
spk02: Yeah, I would say that the increase to the guide was mainly pricing power. There may be a little bit of mix of that, but overall the increase of the ASP versus our original plan was just some of that pricing power we saw.
spk00: That makes sense. Thanks.
spk08: Our next question is from Carl Reichardt with BTIG.
spk07: Morning. How are you all? Thanks for taking my question. Could you talk a little bit about just mix of deliveries and orders this particular quarter between the premium entry level and the remainder of your product types?
spk02: Sure. So it was actually fairly consistent. So at entry level, absorption was around 4 for the quarter, and move up was around 3.8, 3.7, 3.8. And so that's how you got to about the 3.9. We have a pretty minimal mix of luxury and active adult, so it doesn't really factor into the overall metrics, but pretty consistent between entry level and move up.
spk07: Thanks, Glenn. And then when you're looking at the pricing dynamic that you're seeing in the market now, can you differentiate between those two segments? Are you seeing more potency in one or the other, or is it pretty consistent across the board?
spk01: Oh, thanks. This is Linda. It's really consistent across the board, so that's great to see.
spk04: Okay. Thank you, Linda. Thanks all. Thanks, Carl. Thanks, Carl.
spk08: Our next question is from Jay McCandless with Wedbush Securities.
spk03: Hey, good morning, everyone. Thanks for taking my questions. So, Linda, could you talk about what percentage of customers took some type of mortgage rate buy-down in the quarter and how that compared to last year?
spk01: Yes, Jay. We are still seeing interest in rate buy-downs, but the degree of reduction that customers are seeking is not as great as it was same time last year. They are more accustomed to the current interest rate environment. So typically, they're using less of their incentive dollars for the rate buy-down of our incentive in the first quarter, that 3.8% incentive. they were using half of it towards financing and closing costs and half towards discounts, where a year ago they would have been spending a higher proportion of that towards the financing incentives.
spk03: Okay, that's helpful. Thank you. And then my next question, your competitors have been talking about how land costs and land development costs are moving up. I guess,
spk05: what's your take on that that issue and and if there is going to be a step higher in land cost when should we expect that to start affecting the gross margin yeah jay good question this is tom um we've definitely seen approximately about a five to ten percent increase in land cross year over year depending on on markets um Thankfully, we've had enough pricing power to really be able to offset that, so we don't anticipate any headwinds going forward in margin relative to additional land costs.
spk06: I would, Jay, this is Doug, I would add, I mean, the land costs that you're buying or the land you're buying today is generally being delivered, and what we're looking for is really late, really early 27, you know, some 26 for some of the early stage divisions, so So those land deals are being underwritten at current market conditions, at current underwriting metrics that we require. So I don't see a big difference between margin today and three or four years from now.
spk03: Okay. Thanks, Doug. And then last question I had, could you talk about the 20% of markets where you didn't raise price this quarter? Was that more entry-level focused? Was that more geographically focused? Anything you can give us on that would be appreciated.
spk01: Jay, this is Linda. It really is on a community-by-community basis versus any one particular geography. So we did find the opportunity to either reduce incentives or increasing price broadly across our geographies.
spk04: Yeah. So just to add to that, Jay, like she said, it's more community-based.
spk02: You know, you're There's some communities, even in good markets, that might not have that pricing power. Or there's a lot of units to move through, so you're being a little bit more paced over price. And so those decisions are done on a community-by-community basis.
spk04: Got it. Okay, great. Thanks for taking my questions. Thanks, Jay. Thanks, Jay.
spk08: Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Doug Bauer for closing remarks.
spk06: I'd like to thank everybody for joining us today. We look forward to chatting with all of you next quarter. Have a great weekend and a great day. Thank you.
spk08: Ladies and gentlemen, this concludes today's conference. You may disconnect your line at this time, and thank you for your participation.
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