Tri Pointe Homes Q1 2025 Earnings Report

Tri Pointe Homes EPS Results

• Actual EPS: $0.70
• Consensus EPS: $0.45
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $1.03

Tri Pointe Homes Revenue Results

• Actual Revenue: $720.79 million
• Expected Revenue: $713.65 million
• Beat/Miss: Beat by +$7.14 million
• YoY Revenue Growth: -21.50%

Tri Pointe Homes Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 10:00AM ET

Tri Pointe Homes (NYSE:TPH) engages in the design, construction, and sale of single-family attached and detached homes in the United States. The company operates through a portfolio of six regional home building brands comprising Maracay in Arizona; Pardee Homes in California and Nevada; Quadrant Homes in Washington; Trendmaker Homes in Texas; TRI Pointe Homes in California, Colorado, and the Carolinas; and Winchester Homes in Maryland and Northern Virginia. It operates active selling communities, and owned or controlled lots. The company sells its homes through own sales representatives and independent real estate brokers. It provides financial services, such as mortgage financing, title and escrow, and property and casualty insurance agency services. The company was formerly known as TRI Pointe Group, Inc. and changed its name to Tri Pointe Homes, Inc. in January 2021. Tri Pointe Homes, Inc. was founded in 2009 and is based in Incline Village, Nevada.

Tri Pointe Homes Q1 2025 Earnings Call Transcript

Presentation

[Operator]

and welcome to the TRI Pointe Homes First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lee, General Counsel.

[Operator]

Thank you, sir. You may begin.

[David Lee, General Counsel & Secretary at Tri Pointe Homes]

Good morning, and welcome to TRI Pointe Homes earnings conference call. Earlier this morning, the company released its financial results for the first quarter of twenty twenty five. Documents detailing these results, including a slide deck, are available at ww.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. Discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings.

[David Lee, General Counsel & Secretary at Tri Pointe Homes]

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

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Good morning, and thank you for joining us today as we report our results for the first quarter of twenty twenty five. Our teams executed at a high level, achieving strong results, demonstrating our ability to navigate the current political and economic volatility and its impact on the housing market. During the first quarter, we either met or exceeded all of our guidance. We delivered ten forty new homes at an average sales price of $693,000 resulting in home sales revenue of $721,000,000 Homebuilding gross margin remained strong in the first quarter at 23.9%, a 90 basis point increase compared to the same period last year. This margin underscores the resilience of our product offering, market positioning and the successful execution of our premium lifestyle brand.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Finally, net income was $64,000,000 for the first quarter, resulting in diluted earnings per share of $0.70 The spring selling season is off to a slower start than we normally experience with net new home orders of twelve thirty eight for the quarter on a monthly absorption rate of 2.8 per average selling community. While the longer term outlook for housing remains favorable with a continuing shortage of homes and strong demographics, it's clear that elevated uncertainty about the economy is weighing on consumer sentiment. International trade tensions and the new tariffs have emerged as unpredictable variables in the current environment. The headline news of tariffs and their potential inflationary effects has dampened buyer confidence. However, we do not believe tariffs will have a material impact on our cost structure in 2025.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Our differentiated business strategy is to offer innovative designs and a premium brand experience with communities located in core locations in top markets. Although incentives can drive urgency for our homebuyers, our margin and pace are typically driven by the location, product, and amenities we offer. Our teams are equipped with the right tools to meet our customer needs. We are utilizing a combination of targeted incentives and proactive mortgage financing solutions to help buyers achieve their monthly payment and home personalization goals. Our well located communities close to job centers and great schools continue to attract a well qualified homebuyer.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Homebuyers in backlog financing through our mortgage company, TriPoint Connect, have an average annual household income of $219,000 average FICO score of seven fifty three, 70 nine percent loan to value, and average debt to income ratio of 40%.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

In light of current market conditions, we are proactively balancing risk mitigation with opportunity, leveraging the deep experience of our

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

teams in navigating the local market environments. We are taking a disciplined and forward looking approach to how we invest our capital, including land underwriting and structuring deals to better reflect current market dynamics. These actions position us to be selective and opportunistic while preserving flexibility and maximizing returns. Our balance sheet remains a key strength. We ended the quarter with total liquidity of $1,500,000,000 including over $800,000,000 of cash.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

With a homebuilding debt to capital ratio of 21.6% and a net debt to net capital ratio of 3%, we are well positioned to support our long term growth objectives and take advantage of opportunities we see in the market. During the quarter, we repurchased $75,000,000 of our common stock, reducing our shares outstanding by an additional 1.9%. As of quarter end, we have $175,000,000

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

of

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

authorization remaining and continue to view our stock as an attractive use of capital, particularly at current market levels. On a year over year basis, our book value per share has increased 14%, reflecting both earnings growth and disciplined capital deployment. Now I'd like to provide an update on our new market expansions. In Utah, two new communities are underway with openings in the third quarter of twenty twenty five. Additionally, land pipeline is strong and we currently control approximately 500 lots.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

In Orlando, we have attracted a strong management team, and land acquisition is progressing with two fifty lots owned or controlled. We recently started grading our first community in New Smyrna Beach, Florida. In the Coastal Carolinas, we remain on track for initial deliveries in 2026, supported by growing operations and strong alignment with our Charlotte team. Each of these markets represent a compelling long term opportunity. We are executing with discipline, drawn on our internal expertise to ensure scalable growth.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

As a company, we are well positioned to build on our foundation of growth, innovation, and operational excellence. Our strategy remains centered on driving revenue and returns through our premium lifestyle brand positioning, enhanced operational efficiency, prudent capital deployment, and an unwavering focus on customer satisfaction. We execute on these core areas of the business with discipline and consistency, and we are confident this strategy will continue to deliver strong results. We remain encouraged on the long term fundamentals of the housing market. The US continues to face a significant housing shortage, a structural imbalance that reinforces the sustained need for new home development.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Demographic tailwinds and the ongoing demand for housing supports a positive long term outlook for the industry, despite the near term volatility the market is experiencing. These underlying demand drivers provide a strong foundation for our business and validate the strategic investments we are making. As we continue to allocate capital towards the highest return opportunities, both in new markets and across our existing operations, we are confident in our ability to drive sustainable performance and create long term value for our shareholders. With that, I will turn the call over to Glenn. Glenn?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Thanks, Doug, and good morning. I would like 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 of 2025. First quarter produced strong financial results for the company. We delivered ten forty homes, which was near the high end of our guidance. Home sales revenue was $721,000,000 for the quarter, with an average sales price of 693,000 Gross margins were 23.9% for the quarter, which exceeded the high end of our guidance range due to the mix of deliveries in the quarter.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

SG and A expense as a percentage of home sales revenue was 14% and better than our guidance due to some savings in G and A and leverage from being at the higher end of the range on both deliveries and ASP. Finally, net income for the year was $64,000,000 or $0.70 per diluted share. Net new home orders in the first quarter were twelve thirty eight, absorption pace of 2.8 homes per community per month. For some market color, our absorption pace in the West was 3.2 for the quarter, with the Inland Empire, Las Vegas, and Seattle markets showing stronger demand. In the Central region, the overall absorption pace was 2.3 for the quarter.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

With increased supply of both new and resale homes, Dallas showed softer demand during the quarter, but we have seen some positive momentum recently in response to increased incentives. Austin and Houston experienced steady demand during the quarter, while the Colorado market continues to be challenging. Finally, the East, absorption pace was 3.2 for the quarter, with our DC Metro and Raleigh divisions showing strong demand while market conditions have cooled in Charlotte. As Doug mentioned, we continued our approach of balancing pace and price and using targeted incentives to drive orders during the quarter. Current incentive levels for March orders averaged 7.3%.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

By comparison, incentives on deliveries in the first quarter were 6.1%. Our cancellation rate on gross orders during the first quarter remained low at 10%. During the first quarter, we invested $246,000,000 in land and land development. We ended the quarter with over 35,000 total lots, 52% of which are controlled via option. During the first quarter, we opened 18 new communities and closed out of 16, ending the quarter with 147 active selling communities.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

We continue to anticipate opening 65 communities for the full year of 2025 and end the year with 150 to 160 active communities. Looking at the balance sheet and capital spend, we ended the quarter with approximately 1,500,000,000.0 liquidity consisting of eight thirteen million dollars of cash and $678,000,000 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 3% to end the quarter. During the first quarter, we repurchased 2,300,000.0 shares for an aggregate dollar spend of $75,000,000 We currently have $175,000,000 available on our share repurchase authorization and anticipate continuing to be active buyers of our stock in the second quarter. Now I'd like to summarize our outlook for the second quarter and full year of 2025.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

For the second quarter, we anticipate delivering between 1,112 loans at an average sales price between $680,000 and $690,000 We expect homebuilding gross margin percentage to be in the range of 21.5% to 22.5%. The decrease in gross margin sequentially from the first quarter is the result of increased incentives and the community mix as we close out of higher margin communities. We expect our SG and A expense ratio to be in the range of 12.5% to 13.5%, we estimate our effective tax rate for the second quarter to be approximately 27%. For the full year, we are updating our guidance to a lower range of deliveries based on the slower market conditions we have experienced so far this year. We now anticipate delivering between 5,000 to 5,500 homes for the full year, with an average sales price between $665,000 and $675,000 We continue to expect our full year homebuilding gross margin to be in the range of 20.5% to 22%.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Finally, we anticipate our SG and A expense ratio to be in the range of 11.5% to 12.5, and we estimate our effective tax rate for the full year to be approximately 27%. With that, I will now turn the call back over to Doug for some closing remarks.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Thanks, Glenn. In closing, I want to express my sincere gratitude to the entire TriPoint team. Your dedication, talent, and hard work are the driving force behind our results. Thanks to your collective efforts, TRI Pointe has once again been named to the Fortune 100 Best Companies to Work For in 2025. This recognition speaks volumes about the culture of excellence that we've built together and is something we should all be proud of.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

As a premium lifestyle brand, our ability to innovate and differentiate in the market is powered by this exceptional team. Thank you for your continued commitment and belief in our mission. With that, I'll turn the call back over to the operator for any questions. Thank you.

[Operator]

You may press 2 if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow-up so that others may have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before Our first question comes from Stephen Kim with Evercore ISI. Please proceed with your question.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Yeah, thanks very much guys. Appreciate all the color. As usual, I thought you performed strongly in a tough environment. But I

[Stephen Kim, Senior Managing Director at Evercore ISI]

wanted to talk a little

[Stephen Kim, Senior Managing Director at Evercore ISI]

bit about your absorptions. Your absorptions were below three sales per community in 1Q. And absorptions are almost never higher for the year than they are in your 1Q. So I'm curious, you've said before that you're sort of targeting three absorptions this year, three to four on a longer term basis. And I'm wondering, is that still the case for you?

[Stephen Kim, Senior Managing Director at Evercore ISI]

And are you willing and able to recalibrate that targeted pace both in the near term as well as in the long term?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Yeah,

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

is Doug. A couple of things there. I mean, as we noted, generally speaking, the spring selling season has been off to a slower start than what we've normally experienced. As far as trends, absorption was 2.5 in January, '2 point '9 in February, '3 point '1 in March. It's got a little choppier.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

I think a few other companies have noted the same choppiness in the market. So, originally we were targeting around three for the year. I think two, five to three seems more appropriate. This business is we just happen to sell the most expensive retail good The US and it requires a lot of confidence and the consumer has definitely been impacted by what's going on across the country. So, without we see good job numbers and we see strong job growth.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

And frankly, we see a lot of strong buyers. Would, if I gave the market a letter grade, I don't know Tom, what you would say, but I'd say it's about a C to C plus. But I'm very happy with the results and in light of the market conditions, we're doing a great job and we're teed up as we go into 02/2006 with some strong community count growth. So, it's a choppy time, Steven.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Okay, yeah, fair. I guess my question was really though, how long would you be willing to operate below what you had previously said was your targeted absorption range? Is this sort of like a thing that you can do kind of like holding your breath underwater, you can do it for a period of time or is it able to be more permanent?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Yeah, no, we continue to balance price and pace on a community by community basis to drive the best results. Our land is well located, hard to replace. So we feel our current approach will create the best value and we don't feel that the best return will be necessary. You won't get the best return by increasing incentives. Doesn't drive incremental volume in our mind.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

So, we're gonna stay at that steady basis of pace and prices as we go forward.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Okay. That's helpful.

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

What we're saying is in that 2.5 to three pace, works for us and we've proven that we're gonna be able to get the returns and the profitability we desire.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Yeah, that's perfect. I think that's really good to hear. The second question is a little bit more of a technical one, guess, for Glenn. You had indicated that your gross margin guide for 2Q is only 50 basis points lower than what you had initially guided for 1Q. You blew your 1Q gross margin guide out of the water, right?

[Stephen Kim, Senior Managing Director at Evercore ISI]

But your 2Q guide's only 50 basis points lower than the range that you had given for 1Q initially. She would also said that incentives on your orders were 120 basis points higher than the incentives on deliveries. And so my question basically is, how do we reconcile the 120 basis points more incentives with the only 50 basis points lower gross margin guide? And two potential answers come to mind. One is that the margin impact of 100 basis points or 120 basis points in this case of incentives isn't 120 basis point hit to the margin because maybe you're giving different kinds of incentives.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Or you included a lot of conservatism in your initial 1Q guide and you're using less conservatism in the 2Q guide, and I'm wondering, you know, what is the reason, basically, the gap between the 50 and the 120?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yeah, good question, Steven. And it really is,

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

and this isn't a very

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

fun answer, but it really is mix. So when you look at kind of the mix of communities where we're losing some deliveries that we had in our original guidance, and then you look at the divisions that are doing well, those tend to be the higher margin divisions. And so some of that is just mix of how that worked out in the quarter. Those incentives over the long term, they do impact margin by that same amount. If you're taking a 1% incentive off the top price, it's going to impact your margin by that.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

So it is one point, you know, all our incentives hit revenue. Steven, I know you've asked that before and that's where our incentives go. So it is a margin hit, but it really is just mix for us and the mix in the quarter that's driving that.

[Stephen Kim, Senior Managing Director at Evercore ISI]

I would have thought that maybe there are some incentives that maybe like upgrading materials or whatever that carry a lower gross margin hit than 100%.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Well, that's true.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

That's true.

[Linda Mamet, Executive VP & Chief Marketing Officer at Tri Pointe Homes]

Steven, this is Linda. Absolutely. Of that 6.5% incentives in the first quarter orders, We use 2.3% of the incentives in our design studio where our gross margins are over 40%. So certainly that is a better use of incentives from a gross margin perspective and it also is highly desirable to our customers who want to personalize their home.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yeah, I thought you were asking is some incentives kind of in SG and A, which I know some builders put things down there. But yes, to Linda's point, if that's what you're asking, that is correct.

[Stephen Kim, Senior Managing Director at Evercore ISI]

Okay. All right, guys. Appreciate it. Thank you.

[Operator]

Our next question comes from Trevor Allison with Wolfe Research. Please proceed with your question.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Good morning. Thank you for taking my questions. I wanted to follow-up on Steve's question on the pace and price balance there. I appreciate it's been a slower start to spring selling season across the industry, so 2.5 to three makes more sense here. If you were to see demand slow further, what would be the reaction in that case?

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Would you potentially let your absorption drift even further below 2.5, or do you view that more as a floor in which you want to operate in the current environment and therefore if demand would be softer here, you would at that point lean more back into incentives to not drift further below the 2.5 level?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Hey, Gerard, this is Doug. I would say that two and a half is somewhat of a floor. Again, our locations are in what I call core A locations. So it's a little bit of patience and perseverance during these choppy times, but I would call that two and a half a floor and we might have to turn up the dial a little bit more on incentives. 100% of nothing is nothing.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

So it's like, I always joke with people. So we still gotta turn and move homes, but as I mentioned earlier, it's not great, it's not bad. It's just a choppy market. And before you know it, we'll all get through this. We're really looking out the next two, three, four, five years into a very healthy situation for the home builders because of the unmet needs there.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

So hopefully that answers your question.

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

Hey, Trevor.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Yeah, it does.

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

One thing

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

I'd add. Trevor, this

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

is Tom. One thing I'd

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

add to that is, we really feel that the underlying demand is still in the marketplace. We're seeing that consistently throughout all of our communities and our markets. And the buyer has just hit the pause button. There's a lack of clarity, certainly a lack of consumer confidence, they're confused. But fundamentally, I think the demand is there, and so as some of that confusion clears up, we do see a return to better absorptions.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Yeah, and that's actually a great segue into the next question I was going to ask was just on April trends, perhaps how they compare to March trends. Have you seen an improvement here in the back half of the month as we start to get further away from April 2? And then also, have you seen any differences in demand trends by price point thinking those with more wealth in the stock market? Have you seen any difference in their demand for them versus more the first time buyer? Thanks.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Well, as I mentioned, Trevor, absorption pace was 2.5 in January, '2 point '9 in February, '3 point '1 in March. It's gotten a little choppy in April with all the uncertainties that are in the economy right now. Linda, you might be able to talk about some of the different price points on absorption.

[Linda Mamet, Executive VP & Chief Marketing Officer at Tri Pointe Homes]

Yes, absolutely. We are still seeing more strength relatively Trevor in the second move up. In the first quarter, we saw a good pace there in the second move up at 3.2, active adult was at 3.4. So certainly those segments are outperforming premium entry level and we would expect that to continue where we see buyers who have more equity in their existing homes. They do not need as much help in financing and more of them will come off the sidelines as they gain more confidence in the direction of the economy, as Tom mentioned.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Yeah. Makes a lot of sense. Thank you all for all

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

the color, and good luck moving forward.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Thanks.

[Linda Mamet, Executive VP & Chief Marketing Officer at Tri Pointe Homes]

Thank you.

[Operator]

Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question.

[Michael Dahl, Managing Director at RBC Capital Markets]

Hi, thanks

[Michael Dahl, Managing Director at RBC Capital Markets]

for taking my questions and thanks for the candor. I want to follow-up on the incentives and make sure we heard correctly. The 7.3%, was that on March orders? Or was that the average for the March? And maybe just give us a sense of where that stands as we get closer to the April?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yeah, so it was 7.3 on March, the month of March orders. And that's fairly consistent with where April has been trending as well.

[Michael Dahl, Managing Director at RBC Capital Markets]

Got it. Okay. When I look at the margin guidance, understanding there are mix impacts, pros and cons in 2Q. Let's say you hit the midpoint of your 2Q guide, you'll deliver to 23 gross margin and you're guiding 20.5% to 22%. I mean, the simple math is that you'd have to be 20% or below in the back half just to get down to the midpoint of that full year.

[Michael Dahl, Managing Director at RBC Capital Markets]

And so I guess the question is, are the moving pieces? Because that's still a pretty material drop off in the back half. Are you assuming incremental incentives? Is it lot costs? Walk us through that or whether or not there's just still some conservatism there?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yeah, Mike. So good question. And your math is correct. The midpoint of the full year guidance implies a 20% gross margin in the back half of the year. And it's similar to what we said in first call.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Some of it is lot costs, right? You have a lot of communities rolling off. We closed out of 16 communities in the first quarter, there's going to be more closeouts as we move through the year. And those are older communities that benefited from price appreciation and higher margins. And then incentives do play a role, right?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

I mean, incentives were higher in the first quarter than we originally projected by, I would say a point we were probably more in the 6% range and we exited at the 7% range. So incentives are playing a role in that as well.

[Michael Dahl, Managing Director at RBC Capital Markets]

But are you assuming there's incremental incentive pressure versus the 7.3 or full impact of that 7.3

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

No, the midpoint of our guide assumes that that 7% carries through the rest of the year.

[Michael Dahl, Managing Director at RBC Capital Markets]

Okay, got it. Thank you.

[Operator]

Our next question comes from Alan Ratner with Zelman and Associates. Please proceed with your question.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Hey guys, good morning. Thanks for all the details so far. Nice performance in a tough market. So I know it's challenging out there. First question on SG and A.

[Alan Ratner, Managing Director at Zelman Partners LLC]

So if I look at the guide for the year, roughly 12%, that's going to be running about 101 hundred and 50 basis points above kind of where you were pre COVID, up about 300 bps from the near term low in 2022. I'm curious, what impact, if any, is coming from costs in your new market expansion, maybe and not yet seeing the revenue associated with those markets versus how much of that increase is being driven just by broader inflation in employment costs and other ancillary things?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yeah, it's a good question, Alan. This is Glenn. It definitely is, you know, there's some impact to the new expansion divisions, right? We have three new divisions that we are incurring costs in and that don't have any associated revenue to it. So that does have an impact.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

But there has been general inflation if you're comparing it to COVID levels. Obviously, there's been wage inflation and other inflation pressures on the G and A line. So it is a combination of both of those. And then obviously, if you're comparing this year to last year, it's the lower revenue and less leverage on those fixed costs that is tracking that out.

[Alan Ratner, Managing Director at Zelman Partners LLC]

So with the goal longer term to be, it's kind of get back to where you were pre pandemic in that kind of 10%, ten point five % range once these new markets begin generating revenue?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

That's exactly right, Alan. That is the goal once we get those markets to scale in the next three to five years, that's a good goal for us.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Yes, I would add, Alan, this is Doug. We've got a pretty good playbook at the expansion divisions. Yeah, it costs you a little bit of money in G and A, but the way I look at it is I'd rather spend that money building the right team with the right people. We believe those three markets have excellent potential for our premium lifestyle brand than going out and paying X for some builder that you find you put a bunch of goodwill on your balance sheet and you're writing that off. We look at this business in five year increments in the next three to five years for those three expansion divisions.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

It costs you a little bit of money, but it's gonna pan out very well.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Yeah, my second question, Doug, was kind of on that topic in the new markets, because I would imagine while it's probably not fun to be operating in a market like we're in today, on the other hand, if you are in the position to be entering new markets, I would imagine there are some opportunities that could come about, whether it's good people that maybe are let go from other competitors, land deals that are kind of walked away from. So I'm just curious, are you seeing any of those opportunities yet in your newer markets? Or do you anticipate those to unfold in the next few months? And if so, is there an opportunity maybe to accelerate those growth plans in those new markets?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

You're spot on. And I would agree with everything you said. I was talking to some of our expansion divisions yesterday and there's definitely, it's a good time to using a funny basketball analogy, hang around the hoop, because there's gonna be some rebounds and retrades that are gonna happen. And we're still focused on main and main A locations. And even in some of our existing markets, we've seen some of that activity as well.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

But we're being very disciplined, being very smart in our underwriting. We're gonna tend to be on the higher end of the side of underwriting right now, because there's a lot of uncertainty on how all this tariff activity and economic uncertainty lasts as you know, and we all know. But everything you said is exactly playing in our favor for these expansion divisions. And frankly, we don't have a gun to our head to do stupid deals. We can be very smart with those divisions and grow very smartly.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

So that's the other benefit we have in Orlando, the Coastal Carolinas and Utah.

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

The other thing, Alan, it's important to remember what you led off with. A big benefit that we've seen in all those expansion markets is the talent of people. We've been able to really attract the right people to build our teams probably faster than we normally would have been able to do so. So we're really encouraged about that.

[Alan Ratner, Managing Director at Zelman Partners LLC]

Great. I appreciate the thoughts, and good luck.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Thanks.

[Operator]

Our next question comes from Ken Zener with Seaport Research Partners. Please proceed with your question.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Good morning, everybody.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Good morning.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Hey, Dan.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Just checking on my phone service.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

It's working.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

It's Verizon. Alright. So the narrative was we were undersupplied, not the long term stuff, but 2022, right? 2023. And now according to census data for new homes for sale, we're still very high outside of the 05/2011 period.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Yet your inventory units are down 23% year over year. Can you kind of comment on like this national narrative we're seeing in contrast your data and some of the other public builder data where we're down substantially year over year? When you hear that narrative, how do you guys resolve that in the boardroom? Why do you think that's happening? Is it all private?

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Is it all in Michigan where people don't build that much?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Well, think for us, if you're

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

saying year over year inventory down, think it just shows how quick builders can pivot and be smart with starts and manage their inventory levels compared to some of that national data. We don't look at it that closely from our own portfolio. We kind of look at our specific markets and what we think is right for each one of our communities and markets. That's how we manage it.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

And think I'd add Ken, I mean, it's a lot of apples and oranges. I don't think there's a national narrative. I mean, you've got the larger public home building companies, that's a different business model than little tri point sitting here. I mean, it's a production machine that needs to produce homes every quarter on even flow basis basically. So, we're building on a locations main in Maine, and we're gonna continue that focus in that premium lifestyle brand, focusing in on providing a great customer experience that will increase our brand, not only in our existing markets, but in others.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

So how I don't get too lathered up about the national narrative and stay focused. This is still a very local business.

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

And Ken,

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

know we run it on a very balanced approach. As you look at our move in ready homes and completed inventory, it's really at the historically acceptable levels for us overall with our spec homes about 12 per community right now. We've got a little bit under three completed inventory per community. And then as we look at starts, we're balancing that to our absorption pace. Year over year, we're down a little bit about 20% in our Q1 starts, but that's appropriate given the other inventory levels that we're targeting and driving our business towards.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Right. And then appreciate your guys' thoughtful responses. So do you think like your inventory units are basically going to be down a similar amount to what we're facing right now when we exit the year, given your start and closing assumptions?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

I would think so. I mean, obviously, it'll depend on how absorption flows in the back half of the year and where we're seeing the overall market. I think in our company, and we actually were just talking about this yesterday with our management team. We have the ability to flex upstarts if we see any upside in demand, and we have the ability to moderate start. So I think we have a nimble engineer to be able to react to the market.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Right. And then, you know, what I find really interesting about your guys, the debt that you're still incurring. So your gross margins, and I usually like to look at interest expense, although fully loaded. But I mean, you're about 27%, which would be quite appealing to many people, but for the fact you have three twenty bps of interest drag. Can you comment on the given that you paid off that $900,000,000 ish debt, how long is it going to take for us to see that?

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

It's 3.2% this quarter, 3.3% last year. When are we going to start to see that benefit? How does that fully load to gross margin kind of compare to what you see as your choices around the interest you're amortizing. So again, a 27% gross margin, you do ex interest, maybe you'd be more flexible. So how quick is that interest going down and how does that affect your thinking around flushing inventory to get to your lower leverage levels today?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

I don't know if it influences our inventory levels, but you will see that interest level go down as we go through this year and then you'll see the bigger benefit into next year because it will depend on how quickly we, you know, it'll depend on absorption and how quickly we move inventory that already has capitalized inventory into it. That's why it's hard to give a specific answer because it'll depend on how that old inventory rolls out. But you will see with our lower debt levels flush through over the next eighteen months.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

I mean, thing is, this is why I asked Glenn and Tom obviously chime in because like you're 27. If you're saying 20 in the back half, fully loaded with interest, that's still 23%. And if you just flush out those homes that have the interest expense and reset to your current level, that's actually kind of appealing. Because as long as you're holding on to that stuff, it's hard to flush it out. Anyways,

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

just interesting.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Yep, understood.

[Kenneth Zener, Senior Analyst at Seaport Research Partners]

Thanks. Thank you, guys.

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

Thanks, Ken.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Thanks, Ken.

[Operator]

Our next question comes from Jay McCanless with Wedbush Securities. Please proceed with your question.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Hey, good morning, everyone. Kind of

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

following on that question, was going

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

to ask where you're seeing and especially the markets you called out is not performing well. Is that a buyer issue or is that more of a competition issue from resales or too many new home sales kind of I think kind of in line with what Ken was asking?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Well, I mean, we're just Doug, we're seeing strength in first quarter Raleigh, Seattle on the West Coast, East Coast DC, actually Raleigh East Coast to Vegas Bay Area, Orange County Inland Empire. The more challenging markets in the first quarter were Colorado, DFW and Charlotte. And to me, it's more of a buyer profile and a very anxious buyer profile than a competitive factor. Again, in our locations, typically don't run into as many of the big production mentalities that are going to be pushing incentives to drive volume. So it's more of a buyer mentality.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

And where do you think your split was between first time versus the other active adult and move up in the quarter?

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Are you talking

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

absorption, Jay?

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

When they just get on closings and then maybe how how that's trending for orders at least thus far in in 2Q?

[Tom Mitchell, Chief Operating Officer and President at Tri Pointe Homes]

Yeah. On on deliveries for q one, Jay, our entry level was about 41% and combined move up was about 53%. And on orders, it was pretty much about the exact same.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Great. And then last question. It looks like you did nudge up the full year average price a little bit. Is that just from 1Q, or do you guys think you're gonna have a little little richer mix as you go through the rest of the year?

[Glenn Keeler, CFO & CAO at Tri Pointe Homes]

It's just a richer mix, so a little bit more heavy weighted towards the West in the mix.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Okay. Great. Thanks for taking my questions.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Thanks, Jay.

[Operator]

There are no further questions at this time. I would now like to turn the floor back over to Doug Fowers for closing comments.

[Doug Bauer, Chief Executive Officer at Tri Pointe Homes]

Well, you for joining us today, and we look forward to chatting with all of you in July. Have a great week and weekend. Thank you.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. You your participation.

Participants

Executives

• David Lee, General Counsel & Secretary
• Doug Bauer, Chief Executive Officer
• Glenn Keeler, CFO & CAO
• Tom Mitchell, Chief Operating Officer and President
• Linda Mamet, Executive VP & Chief Marketing Officer

Analysts

• Stephen Kim, Senior Managing Director at Evercore ISI
• Trevor Allinson, Director - Equity Research at Wolfe Research LLC
• Michael Dahl, Managing Director at RBC Capital Markets
• Alan Ratner, Managing Director at Zelman Partners LLC
• Kenneth Zener, Senior Analyst at Seaport Research Partners
• Jay McCanless, SVP - Equity Research at Wedbush Securities