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TRI Pointe Group, Inc. (TPH)

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TRI Pointe Group, Inc. (TPH)

Q3 2017 Earnings Conference Call

October 25, 2017 10:00 AM ET

Executives

Chris Martin – Investor Relations

Doug Bauer – Chief Executive Officer

Mike Grubbs – Chief Financial Officer

Tom Mitchell – Chief Operating Officer and President

Analysts

Alan Ratner – Zelman & Associates

Paul Przybylski – Wells Fargo

Jack Micenko – SIG

Stephen Kim – Evercore

Jay McCanless – Wedbush

Mike Dahl – Barclays

Tim Daley – Deutsche Bank

Alex Rygiel – FBR

Alex Barron – Housing Research Center

Presentation

Operator

Greetings and welcome to the TRI Pointe Group Third Quarter 2017 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. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Chris Martin, Investor Relations. Thank you, sir. You may begin.

Chris Martin

Good morning and welcome to TRI Pointe Group’s earnings conference call. Earlier today, the company released its financial results for the third quarter of 2017. Documents detailing these results, including a slide deck under the Presentations tab are available on the company’s Investor Relations website at www.tripointegroup.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call, which are not historical facts, are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the company’s filings made with the SEC, including in its most recent annual report on Form 10-K and its quarterly reports on Form 10-Q.

The company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the TRI Pointe website and in its filings with the SEC.

Hosting the call today is Doug Bauer, the company’s Chief Executive Officer; Mike Grubbs, the company’s Chief Financial Officer; and Tom Mitchell, the company’s Chief Operating Officer and President.

And with that, I will now turn the call over to Doug.

Doug Bauer

Thank you, Chris. And good morning to everyone joining us on today’s call. I’m pleased to announce that TRI Pointe Group posted another quarter of strong results highlighted by year-over-year net new order growth of 36%, backlog dollar value growth of 56%, and earnings per share growth of 118%. We once again met or exceeded our previously disclosed guidance for deliveries, average sales price and homebuilding gross margins in the quarter.

As we guided, we also closed a significant land sale in the quarter selling 69 lots in our Pacific Highlands Ranch community in San Diego for a net profit of $56 million. While we will continue to be opportunistic our plan going forward is to reduce land sales in order to maximize our homebuilding operations by capitalizing our strong land inventory to grow our top and bottom line.

In general, our business showed solid improvement during the quarter, of course, simply to builders. We continue to experience challenges related to labor and material cost pressures. Fortunately, because we predominantly operate in high demand supply constrain markets, we have benefited from a rising home price environment. This has enabled us to partially or sometimes fully offset the cost increase.

California continues to be our most consistent market with favorable market dynamics from the entry level, move up, lottery and active adult product segments. Strong job growth and persistent supply constraints in both Northern and Southern parts of the state have been excellent drivers for our business as evidenced by the 66% growth in net new order – home orders in California for the quarter. We continue to see robust demand in outsized margins in a number of our communities along the Coast and further Inland. These trends position our company well given our long land position of over 16,000 lots in the state.

Our operations in the Washington state continue to benefit from a healthy market, as we focus on core locations in King and Snohomish counties, which have resulted in new home order growth of 71% year-over-year and a 29% increase in our average selling price for the quarter. Our Quadrant team continues to grow its premium brand, while delivering higher profit. The strength of this market is fueled by strong job growth and significant supply constraints for new housing that we continue to see into the future.

I am also encouraged by our performance in the southwestern markets. As an opportunistic builder in Las Vegas with diversified geographic and product offerings, we appeal to a number of buyer segments and generate an above average order pace. In Arizona, we are making great progress in achieving both our key initiatives and targets that we present at our 2016 Investor Day. Gross margins for our Maracay brand improved 150 basis points year-over-year during the quarter, while our order pace was a healthy 3.9 homes per community per month.

In Texas, our thoughts, prayers and resources continue to support all those people that have been tragically impacted from the devastation brought on by Hurricane Harvey. It is a testament to our entire team that bonded together to help restore the communities in which they live and work. Like most other builders our active communities did not suffer significant damage from the storms and were back open for business shortly after the storm subsided. It is still too early to understand the ultimate impact of the hurricane on the Houston economy. But we think the near-term impact for us is approximately 30 deliveries being pushed from 2017 to 2018. We remain committed to helping our team members, the people of Houston and the surrounding communities as they continue to recover from this event.

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