Tri Pointe Homes, Inc. Q4 FY2023 earnings call

• 2023 was a strong year with reaching or exceeding key operating metrics, delivering 5,274 homes for the year with revenue of $3.7 billion.
• Macro headwinds like inflation and interest rate swings were faced but the company was positioned well. Net new home orders in 2023 rose 40%, opening backlog units by 58%.
• Opened 70 communities in 2023, ending with 155 active selling communities, a 14% increase year-over-year.
• Announced organic entry into Utah with first deliveries expected in 2025 and active expansion in Southeast markets like coastal Carolinas and Florida.
• Tri Pointe Connect became a wholly-owned subsidiary effective February 1, 2024, aligning mortgage operations with homebuilding business for better customer experience and increased earnings from financial services.

In the fourth quarter of 2023, Tri Pointe Homes delivered 1,813 homes at an average sales price of $685,000, resulting in home sales revenue of $1.2 billion. The gross margin for the quarter was 22.9%. For the full year 2023, the company delivered 5,274 homes at an average sales price of $693,000, generating home sales revenue of $3.7 billion. The West region is close to targeted scale and generating strong margins and cash flow. The Central and East regions, particularly Texas and Carolina divisions, are seeing growth with delivery volumes expected to grow over 60% and 30% respectively in the next 2 years compared to 2023, with these divisions having homebuilding gross margins at or above the company average.

• First quarter 2024: Anticipates delivering between 1,200 and 1,400 homes at an average sales price between $645,000 and $655,000. Homebuilding gross margin percentage expected to be in the range of 22% to 23% and SG&A expense ratio in the range of 12% to 13%.
• Full year 2024: Anticipates delivering between 6,000 and 6,300 homes (17% increase year-over-year). Average sales price expected between $645,000 to $655,000. Homebuilding gross margin percentage expected in the range of 21.5% to 22.5% and SG&A expense ratio in the range of 10.5% to 11.5%.

• Macro headwinds such as inflation and volatile interest rate swings. - Supply chain issues and potential labor challenges that could impact operations.

Q: Comments on land spend, geographically and buyer level?

A: Glenn Keeler said land spend is fairly spread across communities, about half land and half development, more concentrated in Central and East with some resupply needed in West.

Q: Does land spend include potential M&A of smaller builders?

A: Glenn Keeler said no.

Q: Decision to retire debt, why?

A: Glenn Keeler said it's not difficult to refinance but rates not attractive currently and they have plenty of cash with $900 million on hand.

Q: Gross margin guidance, down from 2023?

A: Douglas Bauer said forecast is for margins to be slightly down compared to 2023 but early and good market conditions could impact margins.

Q: Targeted absorption pace and pricing lever?

A: Douglas Bauer said no upper bound limit for labor supply chain, pace target is 3.5.

Q: Pullback on incentives in recent weeks?

A: Linda Mamet said they are pulling back on incentives, down from 4.4% in January to under 4% month to date in February.

Q: Strategic around market expansion, organic vs M&A?

A: Douglas Bauer said they will continue down both paths, difference is paying multiple on M&A vs book value on organic.

Q: Bridge Q4 to Q1 gross margin?

A: Glenn Keeler said largely flat, early in spring selling season and land vintage plays a part.

Q: ASP trend lower, reception of attached/smaller product?

A: Glenn Keeler said still part of plan, worked well, ASP trend down due to mix with more central and east deliveries.

Q: Segment strength/weakness?

A: Glenn Keeler said pretty consistent across all segments from entry level to first move up.

Q: Cycle times?

A: Tom Mitchell said back to pre-pandemic cycle times, aiming for 115-day production schedule and close to that.

Q: TPC contribution?

A: Glenn Keeler said under old model got 65% of economics, now 100% going forward and looking to expand financial services ancillaries.

Q: Timing of first orders/deliveries in Utah, Florida?

A: Douglas Bauer said deliveries in Utah by end of 2025, Florida and coastal markets in 2026.

Q: Margin guidance trend lower?

A: Glenn Keeler said mainly due to land vintage closing out of higher-margin older communities and opening new communities with newer land vintage, depends on demand.