Tri Pointe Homes, Inc.

Greetings and welcome to TriPoint's third 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. 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'd like to turn the conference over to your host, David Lee. Thank you. You may begin.

Morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the third 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. 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 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.

Thank you, David, and good morning to everyone on today's call. As we review our third quarter results, discuss our growth initiatives, and update you on the current market conditions. We'll also share our outlook for the fourth quarter and the full year, 2024. I'm pleased to report that TriPoint has once again delivered excellent financial results for the quarter. We achieved a 32% increase in deliveries to 1,619 homes, a 2% increase in the average sales price to $688,000, and 35% growth in home sales revenue to $1.1 billion. The improvements in both volume and pricing were well-balanced across our markets. with each reporting segment achieving gains in deliveries and revenues. Our home sales gross margin for the quarter was 23.3%, a 100 basis point improvement compared to the same period last year, reflecting the strong demand and pricing power we experienced during the spring selling season. Selling general and administrative expenses was 10.8% of home sales revenue for the quarter, A 150 basis point improvement year over year, largely resulting from additional operating leverage gained through increased revenues. Collectively, the revenue growth, margin expansion, and SG&A leverage drove pre-tax earnings of $152 million for the quarter, a 52% increase over the previous year. Diluted earnings per share was $1.18, reflecting substantial year-over-year growth of 55%. In addition to these strong earnings, we generated $168 million of operating cash flow during the quarter and $336 million for the nine-month year-to-day period. Book value per share ended the quarter at $34.73, a 16% increase compared to the prior year. And our return on average equity was 15% for the 12-month period. Turning to orders, we achieved a monthly absorption rate of 2.8 for the quarter. Demand trends were in line with normalized seasonal patterns consistent with historical results. Our diversified geographic footprint provides stability, allowing us to capitalize on stronger markets and offset weakness in others. Housing supply has increased in Austin and Dallas, and absorption has slowed, although we are performing well relative to the market. Colorado continues to be a challenging market, with an increase in supply and a slowdown in regional job growth, serving as headwinds. Conversely, markets have demonstrated seasonally strong demand for TriPoint this quarter, were Orange County and the Inland Empire in California, Arizona, Washington, Houston, and the DC metro area. So far in October, macro events such as the continued volatility in the mortgage rates, the upcoming election, severe weather events, and renewed geopolitical uncertainties has introduced some hesitation among buyers. We continue to balance pace and price on a community-by-community basis with targeted incentives such as interest rate buy-downs and design studio credits that encourage home shoppers. We feel this buyer hesitation is temporary and will only create pent-up demand as we move into 2025. As we head into 2025, cooling inflation and stronger than anticipated job market data are positive indicators, and we are optimistic about stronger conditions in the upcoming spring selling season. We anticipate mortgage rates will decrease modestly next year, with many experts forecasting average rates from the high fives to the low 6% range, improving housing affordability. We believe there is pent-up demand from homebuyers who have been waiting on the sidelines, and moderately lower rates will be a motivating factor. Our buyer profile at TriPoint continues to be strong. In our backlog with our mortgage company, TriPoint Connect, our buyers have average FICO scores of 752, debt-to-income ratios of 41%, loan-to-value ratios of 80%, an average household income of $209,000. Over 70% are millennials and Gen Z buyers, and 48% are first-time homebuyers. Our TriPoint Connect capture rate for the third quarter remained robust at 82%, demonstrating the strength of our integrated mortgage platform. Our long-term outlook remains positive with solid housing market fundamentals supported by favorable demographics, a growing cohort of millennial and Gen Z buyers, and a structural mismatch between housing supply and demand. Housing remains undersupplied, and some estimates state that new home needs are between 14 and 21 million new homes over the next decade. While as an industry, we're only producing 1.3 million homes annually. Regarding our capital allocation strategy, for the nine months ended September 30th, 2024, we've repurchased and retired 2.8 million shares for $97 million. Since the inception of our share repurchase program, we've repurchased 76 million shares at an average price of $18.35. representing a 47 percent discount to our current book value per share of $34.73. Furthermore, we've reduced our share count by 42 percent from its peak in 2016. In addition to executing this repurchase program, we've expanded our market scale, entered new markets, and driven our debt to capital ratio to an all-time low. Our balance sheet is in excellent shape, providing us with the flexibility to continue delivering strong shareholder returns while positioning the company for future growth. As we mentioned in our last earnings call, we remain focused on expanding our presence in both established and growth markets, positioning ourselves for long-term strength. Our strategic initiatives are creating a more geographically diversified and resilient company enabling us to navigate market fluctuations and capitalize on new opportunities. Before I turn the call over to Glenn, let me provide an update on our progress in three expansion markets, Utah, Orlando, and the Coastal Carolinas. Our market entry in Utah is progressing well. We've targeted core sub-markets close to employment, amenities, and strong schools. So far, we control three communities totaling 346 lots, with the first community expecting to launch sales in mid-2025. We are also negotiating contracts for another 800-plus lots with diversified product from premium entry level through second move-up. With a strong land pipeline and an experienced team, we are well-positioned to capitalize on the market's potential. Our Orlando and Coastal Carolina divisions are making significant progress as we expand our team and operational presence. In the third quarter, we welcome key leadership members, and developers have responded positively to our premium product and design strategy, which we believe will answer an unmet need in these regions. We are underwriting new land opportunities and expect to sell our first homes in early 2026. These markets remain highly promising, and we're leveraging resources and expertise from our established nearby divisions in Charlotte and the DC metro area. We're very optimistic that this shared playbook will drive results in both the Orlando and Coastal Carolina divisions. In conclusion, TriPoint Homes is poised for a solid close to 2024. and well positioned to hit the ground running in 2025. We continue to leverage our strengths and seize opportunities in both established and expansion markets. Housing market fundamentals remain strong, supported by a persistent undersupply of homes driving demand. Our strategic focus on profitability, growth, and shareholder returns, coupled with a favorable industry outlook, reinforces our confidence. We remain dedicated to increasing book value per share by 10% to 15% annually, while delivering strong returns and creating sustained value for our shareholders. With that, I will now turn the call over to Glenn. Glenn?