Tri Pointe Homes, Inc. Price & Performance (TPH)

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 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 Mamey, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug.

Good morning, everyone. And thank you for joining us today. I am very pleased to report that TriPoint delivered a strong fourth quarter capping off an exceptional year for our company. In the fourth quarter, we delivered seventeen forty eight new homes, generating $1,200,000,000 in home sales revenue. Our homebuilding gross margin improved 40 basis points year over year to 23.3%. SG and A as a percentage of home sales revenue was 10.3% contributing to a pre tax margin of 14%.

This generated $129,000,000 of net income or $1.37 per diluted share during the quarter.

These strong fourth quarter results contributed to an outstanding 2024 for Tri Point.

We delivered a record high 6,460 new homes our full year homebuilding gross margin was 23.3% and net income was $458,000,000 dollars or $4.83 per diluted share. Representing a 40% increase year over year.

We also achieved record operating cash flows redeemed $450,000,000 of senior notes, and finished the year with the strongest balance sheet liquidity in our history. We continued down our path to geographic diversification in our growth markets. With significant gains in Texas where we achieved a 60% in deliveries in 2024. While accomplishing an 11% increase in the Carolinas. We expect to continue that momentum with our new startup divisions in Salt Lake City, Orlando and the Coastal Carolinas. For 2024, we achieved a return a two seventy basis point improvement over the previous year. Through these strong results, and our disciplined capital allocation, including the repurchase of 4,000,000 shares outstanding via our repurchase program, we increased year over year book value per share by 14.5 We remain committed to our share repurchase for 2025. In December, we announced a new $250,000,000 share repurchase authorization And in the first six weeks of 2025, we have already repurchased approximately 691,000 shares for a total spend of $25,000,000 Since the program's inception in 2016, we have reduced shares outstanding by 43%. A key driver of our book value per share growth. Coming off a record year of operating cash flow, and all time high liquidity, we are well positioned to continue this strategy.

Leveraging market opportunities to create shareholder value. Now turning to current market dynamics. We experienced softer seasonal sales trends in the third and fourth quarter. Leading to a lower backlog for the company to start 2025. Elevated mortgage rates, sticky inflation, the uncertainty around the election is slowing job growth caused some consumers to stay on the sidelines. While we did increase incentives to move completed inventory in the second half of twenty twenty four, we took a measured approach and didn't chase the market. As we plan for 2025, there are additional political uncertainties that could cause consumer hesitancy operating headwinds. Despite these macro headwinds, our communities are well located in core markets and as a result, our strategy is to appropriately balance price and pace to enhance margin in the current market environment. So far in 2025, we have seen a pickup in demand from the fourth quarter and we also see an incentives trending lower as order of momentum increases. On the macro level, strong demographics, particularly the growing millennial and Gen Z buyer cohorts and a persistent supply shortage continue to support long term demand. The resilience of home prices through this softer demand environment further reinforces the strengths the market's fundamentals.

Housing has been undersupplied since the global financial crisis And we believe there are continuing growth opportunities especially for public homebuilders who are well positioned to tackle higher interest rates through buy downs and other flexible financing options. We remain confident in our ability to navigate short term demand fluctuations. While staying well positioned to capitalize on the long term growth opportunities, within our markets. TriPoint is poised for growth over the next several years. We currently own or control over 36,000 lots, which is a 14% increase compared to the previous year. Our ability to self develop communities, which represents approximately 70% of our business, creates values that should lead to strong margin, and earnings from these communities. As a company, we continue to invest in our core market strategy, focusing on A locations that are close to employment, good schools and lifestyle amenities. Our Core Land Holdings along with our and customer focused strategy allows us to attract a well qualified and resilient buyer profile. We aspire to our product reinforcing our long term value proposition.

The maturing millennial generation ranging in age from 29 to 44 years old now represents 64% of our backlog Tri Point Connect, Our customers in backlog with Tri Point Connect have an average FICO scores of seven fifty three debt to income ratio of 41%, and average household income of $220,000 Last year, nearly $500,000,000 at our design studios, which shows our consumers' desire for personalization, and represents a strong profit center for our company. In 2025, we will continue to invest in our three new organic expansion markets.

Salt Lake City, Orlando and Coastal Carolinas. In Solway, we currently own or control over 1,000 lots. We have broken ground at our first project and plan to open two new communities in 2025, with first deliveries expected in the back half of this year. In Orlando, we continue to build the team make meaningful progress in the land front. Ending the year with two fifty two lots owned or controlled, with additional land negotiations well underway. We expect first communities and deliveries coming out of Orlando in 2026. Meanwhile, our Coastal Carolina division is ramping up operations and remains on track for deliveries beginning in 2026. Each of these markets remains highly attractive for our premium lifestyle brand and we are leveraging expertise from our established divisions to ensure success. As I conclude, I want to reaffirm that at the core of our success is our unwavering focus on creating exceptional living experiences through high quality, innovative and desirable homes and communities Customer satisfaction is not just a priority, It is the foundation of everything we do as evidenced by our high referral rate with 26% of our homebuyers in 2024 referred to Tri Point Homes by a friend or family member.

Furthermore, we are one of the top two homebuilders in the 2024 America's Most Trusted Homebuilders study. As the industry evolves with advances in technology, including AI, any more dynamic digital home shopping experience we remain committed to meeting the changing needs of our customers, and delivering products and experiences that exceed their expectations. We believe our industry is well positioned supported by the solid fundamentals of the housing market including persistent under supply, and favorable debt demographics. By prioritizing the customer, we will continue driving profitable growth and maximizing long term value for our shareholders. With that, I will now turn the call over to Gwen. Glenn? Thanks Doug and good morning. I'd like to highlight some of our results for the fourth quarter and then finish my remarks with our expectations outlook for the first quarter and full year for 2025.

The fourth quarter produced strong financial results for the company.

We delivered seventeen forty eight homes, which was near the high end of our guidance.

Home sales revenue was $1,200,000,000 for the quarter, with an average sales price of $699,000 gross margins were 23.3% for the quarter, right at the midpoint of our guidance. While SG and A expense as a percentage of home sales revenue was better than our guide, at 10.3%. Finally, diluted EPS for the quarter was $1.37 Net new home orders in the fourth quarter were $9.40 with absorption pace of 2.1 homes per community per month. Our cancellation rate on gross orders during the fourth quarter was 14%. Incentives on orders for the fourth quarter increased to 7% largely focused on moving completed inventory in the quarter. As Doug mentioned, we have seen some pickup in demand so far in 2025. Absorption pace for the month of January was 2.5. And so far for the first few weeks of February, absorption pace has increased to 2.8. Average incentives on orders in 2025 have decreased to 6%. During the fourth quarter, we invested 172,000,000 land and land development, we ended the year with about 36,000 total lots 54% of which are controlled via auction. We own or control all the land needed to meet our QD account and delivery goals twenty twenty five twenty twenty six, and the majority of 2027 We ended 2024 with 145 active selling communities, For 2025, we expect to open approximately 65 and end with 150 to 160 active communities.

Based on our strong law position, we expect meaningful community count growth over the next several years as we grow our TD count in our growth and start up markets of Utah, Texas, the Carolinas and Florida. Looking at the balance sheet and capital spend, we ended the quarter with approximately $1,700,000,000 of liquidity consisting of $970,000,000 of cash dollars $694,000,000 available under our unsecured revolving credit facility, Our homebuilding debt to capital ratio was 21.6% and our homebuilding net debt to net capital ratio was negative 1.6% to end the quarter.

Both all time low ratios for Tri Point.

During the fourth quarter, we repurchased 1,200,000.0 shares for an aggregate dollar spend of 50,000,000 For the full year, we lowered our outstanding share count by 3.2% repurchasing a total of 4,000,000 shares for a total spend of $147,000,000 For 2025, we are targeting spending $50,000,000 a quarter on share repurchases with the ability to be opportunistic up to our $250,000,000 annual authorization, as we balance our capital needs with market opportunities, Now I'd like to summarize our outlook for the first quarter and full year of 2025. For the first quarter, we anticipate delivering between 911 homes at an average sales price of between $685,000 hundred and 95,000. We expect homebuilding gross margin percentage to be in the range of 22% and and anticipate our SG and A expense ratio to be in the range of 15% to 16%. Lastly, we estimate our effective tax rate for the first quarter to be approximately 26 For the full year, we anticipate delivering between 5,500 homes to 6,100 homes with an average sales price between 1,330,000 The projected volume of deliveries takes into consideration the lower backlog we and the strategy to balance price with pace with a focus on margin.

Based on the current level of incentives on our mix of block for new communities in 2025, We expect our full year homebuilding gross margin to be in the range of 20.5% Finally, we anticipate our SG and A expense ratio to be in the range of 11% And we estimate our effective tax rate for the full year to be approximately 26%.

With that, I will now turn the call back over to Doug for some closing remarks. Thanks, Glenn.

As we wrap up, I want to take a moment to express my gratitude to the exceptional team at Tri Point. Who are pivotal to ongoing success Their hard work, talent, and dedication to our core values and mission fueled the numerous recognitions that Tri Point has recently enjoyed including being named as a 2024 Developer of the Year. Our view of the future for the new home market is very positive. We continue to see strong demand from the millennial and Gen Z cohort a significantly undersupplied market with a persistent shortage of housing and less competition from the resale market, due to the lingering locked in effect. As a result, we remain confident in the long term outlook for industry and that Tri Point is strongly positioned for ongoing future growth and success. We have a clear vision, Tri right strategy and a strong team to capitalize on the opportunities we see in market. For that, I'll open the call for questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Stephen Kim from Evercore ISI.

Thanks very much guys. Appreciate all the color as usual and good job in the quarter. I wanted to ask you about your guidance. And in particular, you gave some encouraging commentary about the pickup in demand over the last few weeks, several weeks. And yet the lower end of your gross margin guidance range of 20.5%, I was wondering if you could talk about what sort of things are embedded in that that would cause you to hit that number? Are there mix effects, for example, that we should be thinking of What kind of trajectory and incentives does that envision? Obviously, I know you have a you always embed a pretty considerable amount of conservatism in your numbers, but it would be helpful I think for us to understand what's in that what would lead to a 20.5% gross margin And then continuing along that if I take the high end of your SG and A guide, would imply an operating margin of about 8.5%, And I'm curious if you could just sort of comment about how you feel about as that as sort of is that representative of what you would expect you could sustain over the longer term?

Hey, Stephen, it's Glenn. Good question. Looking at the gross margin, at that lower end, that would imply continued kind of elevated incentive like we saw in the first quarter And in our prepared remarks, we said incentives have come down a little bit so far in 25%, but only from 7% to 6%. So 6% is still elevated levels of incentives for us.

And if to get to that higher end of the range of the market, it would have to be market improvement from there. And lower incentives really to drive that. On the SG and A side, I would say 8.5 is low long term. As we grow our startup divisions and get more scale on larger revenue and top line growth, I would see that operating margin be better than the 8.5% long term.

Got you. I appreciate that. And when you talk about the the SG and A, you gave a very guide in the 1Q. I know that actually you've you've the first quarter has consistently surprised you relative to your guide.

By on average more than 200 basis points over the last three years each.

I was curious if you could talk a little bit about what sort of factors are present in the first quarters that have caused you to be so surprised when your ultimate results come in far better than your guide. Is there something about the first quarter that we should understand? No, nothing about it specifically. Generally, if we end up beating on revenue, we'll get a little bit more leverage. But really the savings the last couple of years have been on the S the S side of things. So if we end up having a better quarter from better co broke or better sales and advertising savings, that's how we have beaten that number in the first quarters in the past. But the reason obviously the number is elevated in the first quarter is just due to the lower revenue. We were projecting in the first quarter.

Yes, got it. Okay, great. Appreciate that guys. Thanks, Steven.

Thank you. The next question comes from the line of Paul Chiebulski from Wolfe Research. [indiscernible] quarter ASP was up about 3% sequentially and 5% in the East.

Is that Is that really due to mix? Or do you have any component of pricing power? And along those lines, I also know that the builders typically try to pass along cost increases. What ability do you think in the current market environment do you have to pass along any potential tariffs? Yes. Paul, this is Doug.

I think as you look at tariffs going into this year, really affect the bottom back third of the year. So there's a lot of unknown. As far as pricing power, I think it can range in different submarkets from either broadly speaking 1% to 5% And to answer the first part of your question, Paul, that ASP change was just mix.

In the fourth quarter Tri you saw.

Okay.

And I know it's pretty early in this process, but has Doge had any negative impacts on your Mid Atlantic business over the past several weeks? And similarly, did you see any kind of falloff in demand and California's? I know you don't build in the Pacific Palisades, but given the wildfires kind of brought the insurance controversy back to forefront. Did that have any kind of negative impacts on you? As far as the East Coast, actually D. C. Metro is one of our stronger markets. So none of the Doge Effects Have Have Been Felt As Far As The Insurance, Yes, There Are Some Insurance Issues, Most Notably In The Inland Empire at the entry level. That but we're working through that with our [indiscernible] solutions for the consumers. In some cases, we're utilizing some incentives to help especially with the entry level home buyer, that's where it's most affected as far as the insurance side.

Okay. Tri right. I appreciate it. Thank you. Thanks, Paul.

Thank you. The next question comes from the line of Mike Dahl from RBC Capital Markets.

Please go ahead. Good morning. Thanks for taking my questions. I guess just to circle back on the pace comments. I'm actually it's not clear that what you articulated is is that encouraging in terms of January and February if I look back history?

Either sequential increase or absolute level pace. So if I think about kind of 2.5% and January, 2.8 in February, last year you did a 3.9 a month in 1Q of 24% and I think usually March is only up modestly versus Feb.

That kind of implies down 25% to 30% year on year.

I know different market dynamics, different mix but can you just talk about that a little bit more and if that's really the ballpark that you're you're kind of thinking about and how that plays through the balance of the year when you're speaking about this balanced approach to case Tri price.

Yes. Mike, good question. This is Glenn.

Our comments were relative to Q4 and so we have seen a little bit improvement like we said in January, which was 02/2005, February so far 02/2008 and that's coming off of a a Q4 order around 02/2001. But you're right year over year is a tough comp. Last year was unseasonably strong. This time of year. And so we are down year over year and that's partly reflected in the delivery guidance for the full year assuming this kind of Mike, add some color to the consumer. Obviously, year over year absorption basis will be down when you compare it to '24 It's interesting to note that the consumer and the consumer mindset, if you look at mortgage rates today, and where they were a year ago, they're basically the same plus or minus at tenth of a point here or there. And so what this business is really all about is, and I've coined this phrase before, there's a little bit of financial therapy going on in the sales office And the great thing about being a homebuilder like Tri Point Tri many of our peers is we have the levers to be able to make that decision and payment affordable.

But it is definitely changed the psychology of the home buyer A year ago, there was all this anticipation of rates going down. Discount rates went down. Mortgage rates go up. So it's really confused the homebuyers now they're getting a little bit of the uncertainty with with the current administration. My personal opinion is this is a short term demand issue, short term kind of news headline long term, not only is the company but also the economy and the industry going to be well positioned for growth So I'm very bullish going forward.

Hey, Mike. This is Tom. One other thing to take into consideration relative to your is really our focus on enhancing margin. We discussed. And historically, at least over the last couple of years, our business has been planned and projected around about 3.5 absorption per month. This year, we're making a conscious effort and we're planning our absorption about three Per month. So that's right in line with your thought process as you look at 25 going forward.

Okay.

Yes. Thanks for that, Tom.

And And because my follow-up was going to be back on that.

The decision or kind of targeting So is that kind of you look at the market and you're saying if I've got 6% incentives today, that's about the pace that I can run. And for your business and your land position, do you think the trade off is too great in terms of what you'd have to give up on incentive or [indiscernible] to push the pace back towards how you typically run it?

Yes, exactly. And you really look at the macro, our number one competitor has always been the resale market. And yes, there's some submarkets that have a little bit more supply. But nationally, our major competitor is not turning about $1,000,000 to $1,500,000 homes. So if you look at the laws of supply and demand, there's not enough supply in the resale market to make it down. And the builders are have some supply in certain markets, but but it's nothing to be worried about. So So our focus is just the way you talked about it, 6% ish would be the right incentives. Focus a little bit more on margin over pace still got to sell homes, still got to generate cash flow, but we're not going to the incremental effect of of doubling down or increasing your incentives is not worth it in the final analysis in our modeling.

Okay.

Appreciate that. Thank you. [indiscernible] Thank you.

The next question comes from the line of Ken Zena from Seaport Research. Please go ahead.

Good morning, everybody.

I know you made gross margin comments for the high low range in 1Q. Can you kind of talk about what's leading to the progression to the 20.5% to 22% for the full year.

It sounds like assuming instead of stay the same. So is it mostly just the regional mix as you expand in new regions?

It's not really regional mix, Ken, because our across the regions, the margins are pretty similar.

It's really about new communities coming on throughout the year, at a higher lot costs and closing out of some high margin communities in the first quarter. That's why you see a little bit of a difference in that higher first quarter margin. Versus the rest of the year. We're opening 65 new communities this year. So we started the year at 145 communities.

We gave you the range of 150 to 160 to 160 to 160 to 160 to 160 to 160 to 160. So that means we're turning over about half the communities as well. And that just that mix is kind of what the is leading to that progression of margin throughout the year.

Appreciate it. And then if the communities are newer, realizing you're doing quite a bit of your land development. How should the interest expense kind of be looking Like, what would you say that number is going to be as we kind of get exit this year?

Our interest expense would definitely be lower this year than it was last year and part of that is paying off the $450,000,000 of senior notes last year.

And then just having a higher inventory base to kind of amortize that will see our interest trend down Thank you.

Thank you. Revenue in $24,000,000 $500,000,000 or so was design studio I think it's about 11% or so of revenue. So you're thinking about margin focus for 2025 and maybe beyond that, A, are you expecting that number to grow faster than overall sales? B, what kind of margin are you earning on that $500,000,000 of incremental? And does that also mean that you'll move more to build to order and away from spec as you look at expanding the community count, maybe that's also true of the price points in 2025 and beyond. Hey, Carlos, it's Tom. Good questions all the way around. And as you know, really try to differentiate ourselves with our build to order business and design studio business Even on specs, we maximize our opportunities through the design studio I would say that our growth relative to that is really dependent on just basically volume growth and revenue growth within our homebuilding operations So I would expect to target a very similar revenue kind of number as we achieved this year. As you look on it relative to gross margins, The business is highly profitable and our gross margin targets is at 40% for our design studio business and we are achieving that [indiscernible] And then as you look to what was the last part of your question?

I was just wondering if that if you'll switch your mix I mean knowing that you'll do some spec up to drywall and allow people to customize, but will your mix of true build to order versus true spec past the ability in which you can it can add options if that will change in 2025. It kind of looks like it's it may. [indiscernible] Marginally, it will change a little bit. Historically, the last couple of years, we've been probably a sixty five thirty five mix And as we go forward, you'll probably see it shift down slightly closer towards fifty-fifty. Great. Thank you, Tom. And then just Tri guess for Glenn, on the land side, if I've got it right, about 20,000 lots option and I think 6,000 or so of those are in JVs. So of the 14,000 left Glenn, what percentage of those are you doing via land bank off balance sheet structures versus say finished lot option contracts or self developed farmer options where you'll put up very little upfront and then have those on balance sheet to self develop. And do you think the pricing of land bank capital is likely to change meaningfully over the course of the next year or so?

Good question. I would say of that option land banks. And the rest are more like you said auctions with individual sellers. And then some of them are just take that Tri more like 50% because some of those are options with true like where we have to deposit that but we haven't taken down the land yet. As far as pricing, I think there will be some downward in a positive way. Pressure on pricing. There's a lot of capital out there. There's a lot of people interested in land banking and good competition for the market.

Thanks Glenn. Appreciate it guys. [indiscernible] The next question comes from the line of Jay McCanless from Wedbush Securities.

Please go ahead. Thanks for taking my questions. So the first one I had, it looks like completed specs are more than double where they were this time last year. I guess, is that part of what's driving the pretty steep decline in gross margin through the year? Getting through those homes? And also, could you talk about what the spread is between your DIRTT gross margins versus spec at this point? A. J, good question. They are up compared to last year, but from a historical it's kind of right in line with where we normally have been. If you look at kind of pre pandemic when things changed quite a bit, we were three to four per community on a completed basis. And right now, we're I think we're at 3.1 on a completed basis.

So that is not out of the normal for us. And that's not what's driving the margin compared to 1Q guidance for the full year guidance that was again more mix of new communities, with a different lot basis than the ones we're closing out. So it's really just Tri driving that.

And then Jay, relative to the question about the spread from Tubi builds to spec, historically that's been about 2% but obviously with more completed right now and the higher interest rate environment that's a little bit higher and say it's closer to about 4%. And that is incorporated in the numbers that we presented So you're right on in that assumption.

Okay. And then in terms of your customer mix, what do you [indiscernible] versus maybe this time last year?

Jay, this is Linda. There's a really interesting backlog and that is certainly a result of seeing more opportunity in first and second move up in particular. And also the aging of millennials as Doug talked about in the script. Okay.

And then I guess the last question I had, I think on the third quarter call, you guys had talked about 170 to 180 communities by fiscal twenty twenty six.

Is that still viable or where you're thinking that goes now? [indiscernible] depend on the market and how we close communities and timing of opening communities, but it's in that ZIP code.

Okay.

Great. Thanks for taking my questions.

Thank you. The next question comes from the line of Jesse Lieberman from Zelman and Associates. Hi.

Thanks for taking my questions. Linda, quick one on the price point information you just addressed. So it sounds like the move up price point and demand from those buyers is stronger than at the entry level. Is that right?

Yes. There is some shift there. Our order segment mix for the fourth quarter was 40% premium entry level 39% first mover 14% second mover, and then 6% in luxury, 1% in active adult. So that had shifted over time at one time with lower interest rates, our premium entry levels segment was close at 50%.

Yes. And Jesse, as far as demand goes, absorption pace historically Tri level is a little bit higher than move up, but it's about consistent with move up right now, which is I think part of your question is expected considering high rates and and where our mix is Okay.

That's really helpful. Thank you. My second question is something we get from clients a lot is, the impact from ICE raids or deportation. Have you seen any impact from either the supply side of the equation or the business?

Hi, Jesse. It's Doug. No.

No impacts at all. And typically, our trades have Maintain the necessary requirements as far as making sure that they're legal citizens.

But our trades have employees and teammates at a been with them for quite a while. So I would we're not expecting any labor issues this year to be honest with you. I mean the tariffs are going to going to have some impact, but it's still too early to to tell exactly where that's going to land out.

That's what I thought. Thanks so much. [indiscernible] Thank you.

As there are no further questions, I now hand the conference over to Doug Bauer for his closing comments.

Well, thank you everybody for joining us on today's call. We look forward to chatting with all of you in April. Have a great week. Thank you.

Thank you.

Ladies and gentlemen, the conference of Tri Point Homes has now concluded. Thank you for your participation. You may now disconnect your lines.