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TRI Pointe Group, Inc. (TPH)
Q1 2019 Earnings Conference Call
April 25, 2019 10:00 AM ET
Chris Martin - VP of IR
Doug Bauer - CEO
Mike Grubbs - CFO
Tom Mitchell - COO and President
Conference Call Participants
Paul Przybylski - Wells Fargo
Alan Ratner - Zelman & Associates
Stephen Kim - Evercore
Jay McCanless - Wedbush
Mike Dahl - RBC Capital Markets
Soham Bhonsle - SIG
Carl Reichardt - BTIG
Nishu Sood - Deutsche Bank
Scott Schrier - Citi
Alex Rygiel - B. Riley
Alvaro Lacayo - G Research
Alex Barron - Housing Research Center
Previous Statements by TPH
» TRI Pointe Group, Inc. (TPH) CEO Doug Bauer on Q4 2018 Results - Earnings Call Transcript
» TRI Pointe Group, Inc. (TPH) CEO Doug Bauer on Q3 2018 Results - Earnings Call Transcript
» TRI Pointe's (TPH) CEO Doug Bauer on Q2 2018 Results - Earnings Call Transcript
It is now my pleasure to turn the conference over to your host, Mr. Chris Martin, Vice President of Finance and IR. Thank you. You may begin.
Good morning, and welcome to TRI Pointe Group's earnings conference call. Earlier today, the Company released its financial results for the first quarter of 2019. 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, including statements concerning future financial and operating performance are forward-looking statements that involve risks and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual financial and operating results to differ materially from those described 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 report on Form 10-Q. Except as required by law, 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 those non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through TRI Pointe's 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.
With that, I will now turn the call over to Doug.
Thanks, Chris, and good morning to everyone joining us on the call today as we go over TRI Pointe Group's results for the first quarter, discuss current market trends and update you on our long-term strategy. Overall, the housing market demonstrated great resilience in the first quarter of 2019, as demand picked up from the depressed level for the fourth quarter last year.
Order activity improved as the quarter progressed, as our company recorded an order pace of 2.1 homes per community in January, 3.0 in February, and 3.7 in March. Our operations in California produced a similar sequential improvement during the quarter, with an order gain of 2.0 in January, 3.5 in February, and 3.9 in March.
We saw comparable trends across most of our markets, and as a result, orders for the quarter came in ahead of our internal projections, thanks in large part to our 6 premium lifestyle brands, lower mortgage rates and a favorable economic backdrop. Deliveries also came in ahead of our previously stated guidance despite experiencing some adverse weather conditions during the quarter.
Homebuilding gross margins came in short of our expectations, largely due to $5.2 million of expenses related to lot option abandonments. We expect our gross margins to improve significantly as the year progresses and have left our full-year gross margin guidance unchanged at 19% to 20% on 4,600 to 5,000 deliveries. The continued confidence we have in achieving our margin and delivery guidance for the year is due in part to the progress we've made with several of our initiatives we discussed in our last call, including our sales and marketing directives, lowering costs and increasing asset efficiency.
Our sales and operational teams did an excellent job in the quarter, implementing the strategies from our 12-point sales and marketing plan, while focusing intently on lead conversion. Or procurement teams and department heads stepped up to the challenge of lower indirect costs by negotiating price concessions from a number of our vendors reducing our overhead and value engineering new and existing floor plans. These steps have planted the seeds of success to meet, and in some cases, exceed our margin expectations in a very competitive environment.
Our land acquisition teams were also successful in their efforts to rework the terms on several land deals in ways that should benefit our returns on future projects delivering homes in 2020 and beyond. At TRI Pointe Group, we are always striving for operational excellence, and focusing in on these initiatives will help us attain that goal. California continues to be a strong driver of our order success. In San Diego, we experienced strong demand at all price points as evidenced with a monthly absorption pace of 4.5 homes per community per month.
The Inland Empire warmed up during the quarter with an absorption pace of three homes per community per month at our entry level and first time move-up projects. The move-up segment in Orange County above $1 million continues to be spotty with less international buyers currently in the market. Last November, we introduced four new affordable programs at our Skyline Ranch community in Los Angeles. These entry level and first time move-up programs have been absorbing at a pace of four per month.