Tri Pointe Homes, Inc.

Greetings and welcome to the TriPoint Homes Third Quarter 2025 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Lee, General Counsel at TriPoint Homes. You may proceed.

Good morning and welcome to TriPoint Homes earnings conference call. Earlier this morning, the company released its financial results for the third quarter of 2025. 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, 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.

Good morning, and thank you for joining us today as we review TriPoint's results for the third quarter of 2025. I want to begin by recognizing our entire TriPoint team. Their dedication and focus allowed us to deliver strong results in a period that continues to present challenges to the housing industry. In the third quarter, we exceeded the high end of our delivery guidance, closing 1,217 homes at an average sales price of $672,000, generating $817 million in home sales revenue. Our adjusted home building gross margin, excluding $8 million of inventory-related charges, was 21.6%, while adjusted Net income was 62 million or 71 cents per diluted share. We remain focused on creating long-term shareholder value. During the quarter, we spent $51 million repurchasing 1.5 million shares, bringing our year-to-date total spend to $226 million, representing a total of 7 million shares. This activity has reduced our share count by 7% year-to-date and by 47% since we initiated the program in 2016, underscoring our disciplined approach to enhancing shareholder returns. Additionally, we also strengthened our liquidity by increasing our term loan by $200 million, with optionality to extend the maturity into 2029. We believe this incremental leverage is prudent, supporting capital efficiency, funding for our community account growth, and continued flexibility to return capital to our shareholders. We ended the quarter with $1.6 billion in total liquidity, including $792 million in cash, and a debt to capital ratio of 25.1%. and a net debt to net capital ratio of 8.7%. Market conditions remain soft throughout the third quarter. Homebuyer interest remains somewhat muted, with lower confidence driven by slow job growth and broader economic uncertainty. However, we continue to see underlying demand home ownership among needs-based buyers. We anticipate that home shoppers are preparing to reengage when conditions stabilize, leading to more normalized absorptions. Our management team has successfully navigated multiple housing cycles, and we remain focused on near-term execution while staying aligned with our long-term growth strategy. In the short term, we are prioritizing inventory management discipline cost control, and the sale of move-in ready homes while steadily increasing the mix of to-be-built homes over time. For long-term success, we continue to invest in both our core and expansion markets with a goal of scaling our operations, consistently growing community account, and increasing book value per share to drive sustained shareholder returns. We are encouraged by the progress of our new market expansions in Utah, Florida, and Coastal Carolinas. Development activity is well underway, and strong local leadership teams are in place. While initial contributions will be modest, we expect these divisions to generate meaningful growth beginning in 2027 and beyond as they gain scale. During the quarter, we are pleased to open our first two communities in Utah a key milestone for that region. A cornerstone of our strategy is to invest in well-located, core land positions, close to employment centers, high-performing schools, and key amenities. We currently own or control over 32,000 lots, positioning us well for community-count growth in the years ahead. We expect to end 2025 with approximately 155 communities And we anticipate growing our ending community count by 10 to 15% by the end of 2026. The majority of this growth will be driven by expansion in our central and east regions. This disciplined growth strategy enhances our operating scale, increases geographic diversification, and positions TriPoint for sustainable, profitable growth as demand improves and our expansion divisions mature. At TriPoint, our product is primarily targeted to premium move-up buyers with financial strength, seeking better locations, larger homes, curated finishes, and elevated lifestyles. This segment has demonstrated resilience even amid shifting market conditions, supported by strong income profiles, down credit, and larger down payments. And our backlog reflects this strength. Homebuyers financing through TriPoint Connect, our affiliated mortgage company, have an average household income of $220,000, FICO score of 752, 78% loan-to-value ratio, an average debt-to-income level of 41%, consistent with recent quarters. These strong characteristics have reinforced the financial stability and quality of our customer base and the durability of our future deliveries. As consumer confidence improves, we expect pent-up demand to grow the pool of move-up buyers attracted to our premium communities and design-driven offerings that align with their lifestyle aspirations. Our premium brand, community locations, and innovative product design continue to differentiate TriPoint in the marketplace. We have the financial strength and operational discipline to invest through the cycle while returning capital to shareholders. Together, these strengths, along with an experienced management team, positions TriPoint to drive long-term performance and value creation. With that, I'll turn the call over to Glenn to provide additional detail on our financial results. Glenn?

Thanks, Doug, and good morning. I'd like to highlight key results for the third quarter and then finish my remarks with our expectations and outlook for the fourth quarter and full year. The third quarter produced strong financial results for the company. We delivered 1,217 homes, exceeding the high end of our guidance. Home sales revenue was $817 million for the quarter with an average sales price of $672,000. Gross margin adjusted to exclude an $8 million increase revenue was 12.9%, which was at the lower end of our guidance, benefiting from savings in G&A and better top-line revenue leverage as a result of exceeding our delivery guidance. Finally, net income for the year was $62 million, or $0.71 per diluted share, also adjusted for the same inventory-related charge. Net-to-home orders in the third quarter were $995, with an pace in the west was 2.3, with the Southern California markets outperforming and the Bay Area experiencing softer market conditions. The central region averaged 1.8 absorption pace for the quarter, with increased supply of both new and resale homes in Austin, Dallas, Denver, and Denver impacted pace during the quarter, while Houston continued to outperform in the region. In the east, absorption pace was 2.8, led by strong results in our DC Metro and Raleigh divisions, while Charlotte was We invested approximately $260 million in land and land development during the quarter and ended with over 32,000 total lots, 51% of which are controlled via auction. Looking at the balance sheet, we ended the quarter with $1.6 billion in liquidity, consisting of $792 million of cash and $791 million available under our unsecured remodeling credit facility. As of the end of the quarter, our home building debt-to-capital ratio was 25.1%, and our home building net debt-to-net capital ratio was 8.7%. As Doug mentioned, we increased our term loan by $200 million to a total outstanding amount of $450 million, and added extension rights that, if exercised, could extend the due date to 2029. The term loan is an effective source of additional liquidity to help fuel our future community account growth and other capital needs. Now I'd like to summarize our outlook for the fourth quarter and full year of 2025. For the fourth quarter, we expect to deliver between 1,200 and 1,400 homes at an average sales price of between $690,000 ratio to be in the range of 10.5% to 11.5%, and we estimate our effective tax rate for the fourth quarter to be approximately 27%. For the full year, we expect to deliver deliveries between 4,800 and 5,000 homes with an average sales price of approximately $680,000. We anticipate our full-year home building gross margin to be approximately 21.8%, which excludes the inventory-related charges recorded year-to-date. Finally, we anticipate our SG&E expense ratio to be approximately 12.5%

Thanks, Glenn. In closing, I want to thank our team members, customers, trade partners, and shareholders for their ongoing trust and support. We're proud to have been recognized once again as one of Fortune 100 best companies to work for in 2025, a reflection of the culture and values that drive our performance. While the near-term environment remains uncertain, Our long-term outlook is very positive, and we are confident that our strategy, our people, and our financial and operating discipline position TriPoint Homes to deliver sustainable growth and long-term shareholder value.

With that, I'll turn the call over to the operator for any questions. Thank you. We'll now be conducting a question and answer session.

If you'd 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. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. In the interest of time, we ask the participants limit themselves to one question and one follow-up.

One moment please while we poll for questions. Thank you. Our first question is from Paul Przybylski with Wolf Research.

Thank you. Good morning. I guess first off, could you provide some color on the monthly cadence of your orders and incentives through the quarter?

Sure, Paul. Hey, this is Glenn. The monthly cadence was pretty consistent, actually, through the quarter. If you look at absorption, it was roughly the same. each month with September being a little bit better than August. And then on incentives, incentives were also consistent throughout the quarter. Incentives on deliveries were 8.2% for the quarter.

Okay. Thank you very much. And then I guess your absorptions are getting down close to the two level. Is there an absolute floor that you want to maintain? on your sales pace, i.e. increase incentives to keep a level?

Hey, Paul, it's Doug. You know, that's a good question. I mean, the industry's kind of working through a big, it's like trudging through mud right now. And so, you know, somewhere between two and two and a half is kind of where, you know, everybody seems to be landing. And, you know, if you're looking at, we're really looking at, very strong community count growth in 26. So as we look forward to that, and even under similar market conditions, we've got some pretty nice growth in orders going forward.

Thank you. Appreciate it. Thanks, Paul. Our next question is from Stephen Kim with Evercore.

Hey, thanks, guys. I appreciate the color so far. If I could just follow up on Paul's question here on the incentives. You said 8.2%, I think, of revenues or home sales. How much of those were financial incentives if you sort of include closing costs and, you know, rate buy-downs for purchase commitments and that sort of thing?

Hey, Stephen, this is Glenn. You're correct. It was 8.2% of revenue in the quarter. and about a third of those were financing-related, including closing costs. Okay.

And how about forward purchase commitments specifically? Do you use them very much?

Stephen, this is Linda. Yes, we do. We primarily use forward commitments for advertising purposes, and they do have good value in driving additional interest in traffic. But ultimately, as Glenn said, most of our customers really don't need to have a significantly lower interest rate to qualify for the home, so they prefer to use more of their incentive dollars in design studio personalization.

Yeah, so like if you think of the third, let's say the 35% or whatever that are financial incentives, you know, how much of that third would you say is forward purchase commitments?

Oh, it's very small, under 1%. Yeah, very small number.

Okay, awesome. Yeah, that's great. And then your average order ASP, not your closings ASP, but your order ASP, you know, has come down to, you know, call it, what, 654, I think, this quarter. Last quarter was like about 665. So is it reasonable to think that, you know, eventually your closings ASP is going to be at roughly that kind of level, you know, 650, 664?

It is, Stephen. I mean, the mix within the quarter does play a part, but when you look at our growth next year of a lot of central and east regions, and those do carry a little bit lower of an ASP versus the west, and so it's really just mixed for us more than anything else.

Gotcha. Okay. Well, appreciate the color, guys. Thanks. Our next question is from Jay McCandless with Wedbush Securities.

Hey, thanks for taking my questions. First one, the STNA guide for the fourth quarter, it looks like you guys are getting much better leverage than what the top line would suggest. Are there some one times in there? Can you talk about how you're able to potentially get this very good STNA to sales number?

No, we're all specific one time there, Jay. It is just a little bit more revenue in the quarter with a higher delivery number, and that's what's really driving it.

Okay. And then that was actually going to be my next question. The gross margin guide is better than we were expecting. Is there some mix in there, more move up? Anything you can give us on that?

A little bit of mix. I think some of the divisions that continue to outperform Our strong margin division, like when you look at Houston, Inland Empire in Southern California, things like that have driven the mix of margin to our benefit. So that plays a little part into it, Jay.

Okay. And then one more, if I could. Just kind of thinking about the newer markets y'all have discussed and just wondering what y'all think ASP might look like next year, just given some of the smaller markets median price markets that you're going to be expanding into.

We'll give that guidance next time, Jay, as we kind of roll up the plan and see what that looks like. But I don't think you're going to be too different than where we're at this year.

No, we're not getting significant contributions out of our new expansion divisions yet next year. So this should have a minimal impact.

Okay, great. Appreciate it. Thanks. Our next question is from Alan Ratner with Zellman and Associates.

Hey, guys. Good morning. Thanks for all the details so far. Can you just update us on your spec position and strategy and how you're thinking about spec just in terms of the contribution to the business? And I guess just thinking forward to 26, you're going to enter the year with a backlog that's down quite a bit. Are you going to lean heavily on spec next year to kind of bridge that gap, or is that kind of a TBD based on what happens in the spring?

It's done, Alan. We've got about three-quarters of our orders are running as specs as we go into the end of the year. All the builders have a little bit more inventory than what they anticipated, so we'll burn through that inventory going into the first quarter or so of next year and then get to a more balanced approach. Again, demand is very inelastic and we're going to continue to focus on price over pace as we go into the new year. We're just assuming similar market conditions. What we're really focused on is that strong community count growth. Even at similar market conditions, as I mentioned earlier, we'll have a really good order growth going into 26 and then 27. So we're really looking to the future while we've been dealing with some of the, obviously, the challenges the market has posed to the entire industry. So that's kind of how we're looking at our approach.

And just to add to that, Alan, we did reduce our total spec inventory by 17% quarter over quarter.

Got it. Linda, is that total specs under construction or completed homes specifically?

Both together, 17.

Got it. That's the total number. Perfect. Doug, you mentioned community account growth next year several times. I'm just curious when you think about the pricing strategy there. Obviously, you guys have been very steadfast in your approach. When you open up communities, how do you think about pricing on those? Is the intention to kind of maybe come out of the gate with more attractive pricing and build up a backlog as you, and then raise prices through the life cycle of the project? Or are you kind of maintaining a similar strategy to your active communities? Like you have an idea of what the value is and you're going to come to market with that price and, you know, whatever the absorption is, that's what it's going to be for the time being.

Yeah, no, TrackPoint, you know, as you know, Alan, is more of a premium brand proposition. So, you know, we look at our value proposition as it enters the market. Sure, you'd love to start with some momentum, but there's not any sort of material pricing thought process there because we're building, you know, along Maine and Maine, great locations, close to employment and great amenities. So the value proposition is what we're looking at. And frankly, as you said, I'm really, My lens is to the future. We've been dealing with choppy marketing conditions in my mind for about 18 months. So if it's more of the same next year, so be it. But we're going to have a strong community count and we'll price the product appropriately to the marketplace to have the right value proposition that we propose.

Understood. Appreciate it. Thanks a lot. Our next question is from Mike Dahl with RBC Capital Markets.

Hi, this is Chris Hahn from Mike. Can you just talk through your initial thoughts around the administration's affordable housing push? What conversations have you had to date, and how are you thinking about the opportunities and risks to your operating and capital allocation strategy?

Yeah, now, obviously, several builders have already made comments on that um and we're kind of the tail wagging the dog here so to speak but we share the administration's goal of providing more housing in the u.s as duly noted i mean that the industry has has been under built and been doing this for 35 years it kind of started after the great financial crisis so it makes me very old uh but we welcome uh working with the relevant stakeholders at the federal, state, and local levels. It's a very complicated, interrelated discussion. Most of it happens at the local and state level, but we look forward to working with the administration wherever TriPoint can help. We will build, I mean, we've got 32,000 lots that we own and control. We're opening a very strong community account, a growth of up to 15% next year. we'll be doing our share of bringing in more communities that will be attainable for our buyer profile.

Makes sense. Yeah, and the community council is definitely encouraging.

Just shifting to the 4Q gross margin guide, could you just help bracket some of the big moving pieces around the sequential step down in gross margin, how much of that is Is incremental incentives, mix, stick and brick, just help frame that for us? Thank you.

Yeah, this is Glenn. Good question. And it's not really stick and bricks or anything like that. I think it's a little bit of mix, but also just, you know, we've increased incentives as we've gotten through the year. We have, you know, spec homes to sell and close within the quarter, and those generally carry a little bit higher of an incentive.

So all that kind of goes into that margin guide. Got it. I appreciate the call. Thanks. Now our next question is from Ken Zanier with Seaport Research Partners. Good morning, everybody. Good morning.

I am hoping you can walk us through kind of a logic, not giving guidance or anything, but just kind of understanding the cadence. So looking at starts and orders, it looks like you guys did about 500 starts this quarter and the third quarter versus orders that were higher than that. So as we exit the year, how are you thinking about starts versus orders? Because your inventory units are down about 30% year-over-year. So I'm just trying to understand since you're talking about opening communities. And, Doug, I think you just said upwards of 15%. Is that what you had said as well? Community growth next year? Potentially.

We indicated that community account growth will be 10% to 15%.

So I'm just trying to see how we actually get these, right, the units in the ground, which could portend future closings. So that's why I'm focusing on the starts versus the order and how you're thinking about that. Thank you.

Yeah, Ken, this is Tom. It's a great place to focus on, as we've been focused on it as well. As Doug mentioned earlier in the Q&A, you know, we're focused on getting our business back to a more balanced approach of stack to be built. And you're right on with our starts for Q3 was about 577. And that's down significantly from where we were in Q1 and Q2. But again, it's relative to that balanced approach. I think you'll see Q4 starts more comparable with what Q3 was just because of the amount of in process under construction homes that we have available. And that's our number one goal is to move through that inventory. And then after that, we'll move to a more normalized strategy, which takes into account absorption on a community by community basis.

Appreciate it, Tom.

When I heard you say 4Q starts is going to be similar to 3Q, is that right? I mean, that means you're ending inventory. I'm just trying to imagine the growth you're having community account with the actual contraction in your inventory units. I guess I'm trying to think if there's some greater inflection that I don't understand.

No, I don't think you're missing anything there. I mean, as you look at it on a community-by-community basis, obviously when we're moving into new communities, we're making the necessary starts relative to our anticipated demand. um right but where we have where we have existing communities obviously we have excess inventory that we're going to be working through before we move to a more normalized balanced uh start strategy appreciate it and then on the community account growth is most of that gna the fixed gna already kind of loaded in there is there any big lift we should expect there thank you uh

Not too much of a lift on the G&A side. Maybe some incremental. That's more field and sales that will be needed to open those communities, but yeah.

Thank you, guys. Bye-bye. Thank you. There are no further questions at this time.

I'd like to turn the floor back over to Doug Bauer for closing remarks.

Well, thank you everybody for joining us today. We're looking forward to sharing our growth plan and strategy for 2026 and beyond with you at our next quarter's call. And as we go into 2026, we're very excited and bullish about the future for housing.

So thank you and talk to you next quarter. Thank you. This concludes today's conference. You may disconnect your lines at this